Accounting identifies, records, and communicates the economic events of a business to internal and external users. It recognizes business transactions by assigning monetary values and prepares financial statements such as the income statement, balance sheet, and statement of cash flows. Accounting provides important information to managers in areas like marketing, finance, and real estate for decision making.

1. 29 May 2013

2.  Income Statement
 Statement of Changes in Owner‟s Equity
 Statement of Financial Position (Balance
Sheet)
 Statement of Cash Flows
 Notes to Financial Statements

3.  Accounting is an information system that
identifies, records and communicates the
economic events of an entity to interested
users.
 Accounting is often referred to as the
„language of business‟.

4.  Identifying – recognition or nonrecognition of
business activities as “accountable events”
◦ Business transactions
◦ Personal transactions
◦ Neither business nor personal transactions
 Measuring (Recording) – assigning of peso
amounts to the accountable economic
transactions
 Communicating – preparing financial
statements and interpreting the results

5.  Internal Users - users whose decisions affect
the internal affairs of the entity
◦ Marketing Managers
◦ Production Supervisors
◦ Chief Financial Officers
◦ Other employees
 External Users – users whose decisions
concern their financial relationship with the
entity
◦ Investors
◦ Creditors (suppliers and bankers)

6.  Luca Pacioli – “father of double-entry
bookkeeping”
 Summa de
arithmetica, geometria, proportione et
proportionalite (Everything about
arithmetic, geometry, proportions and
proportionality)
 Described a system to ensure that financial
information was recorded efficiently and
accurately

7.  General management – All general managers
need to understand accounting data in order
to make wise business decisions
 Marketing – Marketing people must be
sensitive to costs and benefits, which
accounting helps them quantify and
understand.
 Finance – Finance functions regularly examine
and analyse financial statements.
 Real Estate – Agents must understand the
financial implications of making a sale.

8.  As to ownership
◦ Sole Proprietorship – owned by one person
◦ Partnership – owned by two or more persons
associated as partners
◦ Corporation – a business whose capital is divided
into shares of stock
Advantages:
 Limited liability of stockholders
 Greater source of capital
 Longer period of existence

9.  As to nature of operations
◦ Service business – renders services to clients or
customers for a fee
Example:
 Medical clinics
 Accounting and auditing firms
 Schools
 Security and janitorial agencies
 Beauty Salons

10.  As to nature of operations
◦ Merchandising business – one which buys goods
from suppliers with the aim of selling these goods
at a higher price
Example:
 Convenience store
 Bookstore
 Office and school supplies

11.  As to nature of operations
◦ Manufacturing business – the manufacturer actually
produces the goods that it sells to customers
Example:
 Manufacturer of consumer goods
 Manufacturer of computer hardware products
 Manufacturer of food and beverages

12.  The operating cycle of a business is the
average time that is required to go from cash
to cash in producing revenue.

13.  Service business
CASH
SERVICE
RENDERED ON
ACCOUNT
ACCOUNT
COLLECTED

14.  Merchandising business
CASH
MERCHANDISE
PURCHASED
MERCHANDISE
SOLD ON
ACCOUNT
ACCOUNT
COLLECTED

15.  Manufacturing business
CASH
RAW MATERIALS
PURCHASED
RAW MATERIALS
PROCESSED
INTO FINISHED
PRODUCTS
FINISHED
GOODS SOLD
ON ACCOUNT
ACCOUNT
COLLECTED