1. OBJECTIVES:
The learners should be able to:
a.Define internal and external users
and give examples
b.Differentiate the forms of
business organization
c.Compare and contrast the types
of business according to activities
4. Accounting information is
communicated to different
stakeholders who use such
accounting information in making
decisions.
Users of accounting
information are classified into
internal and external users.
6. Internal users are those
who make decisions on behalf of
the organization.
They are the following:
7. 1. Managers/Management - They are people
employed by the company to perform
management functions such as planning,
organizing and running the business affairs.
2. Employees/Labor Unions - They are
ordinary company employees who assess the
company’s profitability and stability, and their
consequence on future salary and job security.
8. 3. Owners/Stockholders - They provide
capital to the business. They need accounting
information to check if the business is well.
Accounting information also helps them in
deciding whether to withdraw or increase
their investments. Overall, they are interested
to know if the business is profiting and how
much.
10. External users are those who are not
part of the company but need to use
accounting information to be able to make
decisions.
They are the following:
11. 1. Potential Investors - They are
individuals or other business planning to
invest in the company. To be able to make
sure that the company is worth putting
their money in, they check its financial
statements and make decisions based on
the accounting information gathered.
12. 2. Creditors and Potential Creditors - They
are individuals, institutions or banks who have
lent or are planning to lend money to the
company. They need to check the company’s
financial statements in order to assess its
credit worthiness and the capability of the
business to pay its obligations including
related interests on maturity date.
13. 3. Customers - They refer to people who buy
goods or acquire services from the company at a
price. They check the financial statements of their
suppliers in order to determine if they are a stable
source of supply over a long period.
4. Suppliers - They are businesses that provide
supplies to other businesses. They check the
financial statements of their customers in order to
determine if debts owed to them will be paid
when due.
14. 5. Government - The government is concerned
about regulating businesses and their effects to
the economy. They also want to check if
businesses are paying their taxes honestly. Thus,
they check the financial statements of
businesses.
Examples are the Bureau of Internal Revenue,
which is a tax authority, and the Securities and
Exchange Commission which is a regulatory
body.
15. 6. Academe - Educational institutions use
accounting information from the financial
statement of a company for academic purposes.
7. Public - The general public is composed to
individuals who are not related to the company.
However, they use the financial statements of a
company to determine how it affects the
economy, and pinpoint possible prospects for
employment.
17. A business is an organization that
utilizes resources and information, supplying
the wants and needs of the customers
through goods and services, in exchange for
money or giving back a different kind of
goods or services.
18. Entrepreneurs need to
understand the advantages and
disadvantages of various types of
businesses so that they can choose the
one that best suits their needs.
19. SOLE PROPRIETORSHIP
•The easiest and most popular form of business
ownership is the sole proprietorship.
sole proprietorship
a business that is owned and
operated by one person
20.
21.
22. DISADVANTAGES
The owner has unlimited liability.
Raising capital is more difficult.
The business is totally reliant on the skills and abilities of the
owner.
The death of owner dissolves the business unless there is a will to
the contrary.
23. PARTNERSHIP
A partnership draws on the skills,
knowledge, and financial resources of more than
one person.
partnership
an unincorporated business with two or
more owners who share the decisions,
assets, liabilities, and profits
24. PARTNERSHIP
General vs Limited
The law requires that all partnerships
have at least one general partner.
A partnership may be set up so that all
of the partners are general partners.
25. GENERAL PARTNER
a participant in a partnership who
has unlimited personal liability
and takes full responsibility for
managing the business
26. PARTNERSHIP
Some partnerships include a limited partner.
limited partner
a partner in a business whose liability is limited
to his or her investment; a limited partner cannot
be actively involved in managing the business
28. Partnership
It is difficult to dissolve one partner’s interest without dissolving
the partnership.
There may be personality conflicts.
Partners can be held liable for each others’ actions.
29. CORPORATIONS
In a corporation, the owners of the business are
protected from liability for the actions of the
company.
There are three types of
corporations:
•C-Corporation
•Subchapter S Corporation
•Nonprofit Corporation
corporation
a business that is registered
by a state and operates apart
from its owners; it issues
shares of stock and lives on
after the owners have sold
their interest or passed away
30. C- CORPORATIONS
• A C-corporation is the most common corporate form.
• C-Corporations: In smaller corporations, the founders generally
are the major shareholders.
C-corporation
an entity that pays taxes on earnings; its
shareholders pay taxes as well
shareholders
the owners of a corporation
33. NON-PROFIT CORPORATIONS
A nonprofit corporation must fall within
one of four categories:
•religion
•charity
•public benefit
•mutual benefit
nonprofit corporation
a legal entity that makes
money for reasons other than
the owner’s profit; it can
make a profit, but the profit
must remain within the
company
34. The purpose of a cooperative is to save
money on the purchase of certain goods and
services
COOPERATIVE
36. Service Business
A service type of business
provides intangible
products (products with no
physical form). Service type
firms offer professional skills,
expertise, advice, and other
similar products.
39. Merchandising Business
This type of business buys
products at wholesale price and
sells the same at retail price. They
are known as "buy and sell"
businesses. They make profit by
selling the products at prices
higher than their purchase costs.
40.
41. A merchandising business sells
a product without changing its
form. Examples are: grocery stores,
convenience stores, distributors,
and other resellers.
42. Manufacturing Business
Unlike a merchandising
business, a manufacturing
business buys products with the
intention of using them as
materials in making a new
product. Thus, there is a
transformation of the products
purchased.
43.
44. A manufacturing business
combines raw materials, labor,
and factory overhead in its
production process. The
manufactured goods will then
be sold to customers.
45.
46. 1. Which of the following is the
primary source of revenue for a
service business?
a. the production of products from raw
materials
b. the purchase and resale of finished
products
c. providing intangible goods and
services
d. the sale of raw materials to
manufacturing firms
47. 2. Which of the following is the
primary source of revenue for a
merchandising business?
a. the production of products from raw
materials
b. the purchase and resale of finished
products
c. the provision of intangible goods and
services
d. the sale of raw materials to
manufacturing firms
48. 3. Which of the following is the
primary source of revenue for a
manufacturing business?
a. the production of products from raw
materials
b. the purchase and resale of finished
products
c. the provision of intangible goods and
services
d. both the provision of services and
the sale of finished good
50. Accounting concepts, principles and
assumptions are important because they guide
accountants in the proper and accurate
preparation of financial statements.
Hence, internal and external users of financial
statements are able to compare the performance
of a company in different periods, the
performance of various companies, and the
performance of a company in relation to the
industry.
51. GAAP (Generally Accepted Accounting
Principles)
Being a set of accounting concepts,
principles, rules and guidelines, GAAP governs
the application of accounting procedures. It is
very useful because it aims to standardize as
well as regulate accounting definitions,
assumptions, and methods.
52. PAS (Philippine Accounting
Standards) and PFRS (Philippine Financial
Reporting Standards) are other accounting
standards adopted in the Philippines.
The IFRS (International Financial
Reporting Standards) is an international
accounting standard used as guide in the
formulation of PFRS and other standards.
53.
54. 1. BUSINESS ENTITY PRINCIPLE
This concept states that the
business is considered distinct and
separate from the owners of the business.
Personal transactions of the owners are
not included in the records of the
business. The business is considered a
separate accounting entity.
55. An accounting entity is an
organization (or a section or division of
an organization) that is accounted for
as a separate economic unit. Clear-cut
distinctions are made between entities
so as not to confuse its affairs with
those of the owner or those of other
entities.
56. 2. Dual-effect of BUSINESS transactions
Whenever a business, transaction
take place, accounting assumes that
the value received is equal to the
value given up.
57. 3. matching PRINCIPLE
Under the matching principle,
net income or net loss can only be
measured if there is a proper
matching of the income earned and
the expenses incurred within one
accounting period.
58. 4. ACCRUAL BASIS
There are two common bases in
accounting for business transactions.
These are the cash basis and
accrual basis. Under the cash
basis, income is recognized when
cash is received and expenses are
recognized when cash is paid.
59. Under the accrual basis,
income is recognized when it is
earned, regardless of when cash
is received. Expenses are
recognized when incurred,
regardless of when cash is paid.
60. 5. Stable Monetary Unit
Accounting provides
information which is primarily
financial in nature – it is concerned
with information which can be
quantified and expressed in terms of
money.
61. For a business transactions to
be included in the accounting
records and financial statements of
the enterprise, it must be expressed
in terms of a uniform means of
measurement.
62. 6. PERIODICITY
(TIME PERIOD CONCEPT)
It economic decisions are to be
effective, timely financial information
must be available to decision-makers.
The periodicity concept assumes that the
operating life of an enterprise may be
divided into time periods of equal length,
called accounting periods.
63. 7. Going Concern
(continuity assumption)
The financial statements are normally
prepared on the assumption that an
enterprise is a going concern and will
continue in operation for the foreseeable
future. It is assumed that the enterprise
has neither the intention nor the need to
liquidate or curtail materially the scale of
its operations.
