ACCOUNTING  External Users

- Taxing Authorities
Accounting is an art of recording, classifying
- Labor Unions
summarizing in a significant manner and in terms of
- Creditors
money, and business transactions and interpreting
- Investors
the results thereof.
Business Organization
Nature of Accounting
Number of business who organize the business.
 Accounting is a service activity
 Accounting is process 1. Sole / Single Proprietorship – 1 person

 Accounting is an art 2. Partnership- 2-5 person

 Accounting is an information system 3. Corporation- not less than 5 person

(shareholders and stockholders)
Four Phases of Accounting

1. Recording Nature of Business

- This is technically called bookkeeping.
- Business transactions are recorded
systematically and chronologically in the proper
accounting books.
2. Classifying.
- In this phase items are sorted and group.
Similar items are classified under the same
name.
3. Summarizing.
- After each accounting period, data recorded are
summarized through financial statements.
4. Interpreting.
- The accountant's interpretation on the financial
statement is needed. In this case, analysis
reports are submitted together with the financial
statements.
1. Service Business - business engaged in
rendering of services
2. Merchandising Business - business engaged
in buying and selling of the same good for profit
(Trading Business)
3. Manufacturing Business - business engaged
in buying raw materials and converted into
finish product to be sold at a profit
Income Titles
 Sales – Income for merchandise sold
(manufacturing and merchandising)
 Rent Income – amounts of rental income for
the period
 Service Income – amount of income earned for
the services rendered

WHO USES ACCOUNTING DATA Expense Titles

 Internal Users  Supplies Expense – amount of supplies use /

- Human Resources open supplies
- Finance  Water Expense
- Management  Telephone Expense
- Marketing  Light Expense / Electric
 A = L + E 1. Land
2. Building
Accounting Elements
3. Equipment
1. Assets - are items with money value that are
4. Furniture
owned by a business.
5. Delivery Equipment
2. Liabilities - are debts owed by the business.
Paying cash is often not possible or convenient,
2. LIABILITIES
so businesses purchase goods and services on
a) Current Liabilities or Short Term Liabilities. -
credit.
Obligations of the business which are due for
3. Owner's Equity - The difference between
payment within as short period of time or one
Assets and Liabilities is Owner's Equity. They
accounting period.
can also be called capital, proprietorship, or net
worth. 1. Accounts Payable. amounts due to creditors for
the goods purchased or services rendered on
1. ASSETS credit. (Oral Promise)
a) Current Assets - also called a current account,
2. Notes Payable. amounts due to creditors which
is either cash or a resource that are expected to
are supported by a promissory note.
be converted into cash within one year.
3. Interest Payable. interest incurred but not yet
1. Cast on hand. Coins, currency and other cash
paid.
equivalent owned by the business and not yet
deposited in the bank. 4. Salaries Payable. amounts due to the
employees for services they have rendered.
2. Cash in bank. Cash in bank is the unwithdrawn
deposits in the bank. 5. Accrued expenses. These are expenses not yet
payable to a third party, but already incurred, such
3. Accounts Receivable. Claims from customers
as wages payable.
arising from goods sold or services rendered on
credit. (Oral Promise)
b) Long Term Liabilities- Due for payment beyond
4. Notes Receivable. Amounts collectible from one year.
customers for goods sold or services rendered on
1. Long Term Notes Payable - refers to an
credit. (Written)
agreement between two parties which include a
5. Interest Receivable. Interest earned on notes formal written promise to pay pre-determined
on hand which has not been received in cash. amounts on specific dates.

b) Fixed Assets / Properties and Equipment / 2. Mortgage Payable - obligation of the business
Furniture and Fixture payable in more than a year with collateral.
- Assets which are permanent in nature. These
assets are used in the operation of the business
and not intended for sale.