ACCOUNTING is a service activity.

Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.

Fra Luca Pacioli is a Franciscan monk regarded as the father of double entry bookkeeping. FORMS OF BUSINESS ORGANIZATION 1. Sole Proprietorship The business has a single owner who, in most cases, is the general manager. 2. Partnership a business owned by two or more persons who bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. 3. Corporation A business owned by stockholders. it is an artificial being created by operation of law, having the rights of succession and the powers, attributes, and properties expressly authorized by law or incident to existence. PURPOSE OF BUSINESS ORGANIZATIONS 1. Service entities perform services for a fee. 2. Merchandising entities buy goods that are ready for sale and then resell them to customers for profit. 3. Manufacturing entities buy raw materials, convert them into products, and then sell them to other entities or to final customers. PHASES OF THE ACCCOUNTING PROCESS 1. Measuring 2. Recording 3. Classifying 4. Summarizing 5. Communicating USERS OF ACCOUNTING INFORMATION 1. Investors need information to help them determine whether they should buy, hold or sell their investments. 2. Employees are interested in information about the stability and profitability of their employers. They are also interested in information which enables them to assess the ability of the enterprise to provide remuneration, retirement benefits, and employment opportunities. 3. Suppliers and creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. 4. Lenders are interested in information which enables them to determine whether loans and the related interest will be paid when due. 5. Customers have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise. 6. Government and their agencies are interested in the allocation of resources and, therefore, the activities of the enterprises. They also require information in order to regulate the activities of an enterprise, determine the taxation policies and as the basis for national income and similar statistics.

7. Public. Enterprises affect the members of society in a variety of ways. Enterprises may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers. IMPORTANT BASIC PRINCIPLES Accrual accounting recognizes transactions as they happen and not as cash is received or paid. Revenue recognition principle Revenue is recognized in the accounting period when goods are delivered or services are rendered or performed. Expense recognition principle Expenses should be recognized in the accounting period in which goods and services are used up to produce revenue and not when the entity pays for those goods and services. ELEMENTS OF FINANCIAL STATEMENTS 1. Financial Position 1.1. Asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. 1.1.1.Cash 1.1.2.Accounts Receivable claims against customers arising from sale of services or goofs on credit. 1.1.3.Notes Receivable a written pledge that the customer will pay the business a fixed amount of money on a certain date. 1.1.4.1Inventories assets held for sale in the ordinary course of business 1.1.5.Prepaid Expenses expenses paid for by the business in advance 1.1.6.Land 1.1.7.Building 1.1.8.Equipment 1.1.9.Furniture and Fixtures 1.2. Liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow of assets. 1.2.1.Accounts Payable the entitys obligation to other parties arising from accepting goods or services on credit. It is the reverse of accounts receivable. 1.2.2.Notes Payable a written promise of the entity to pay the other party a specified amount of money on a specified future date. It is the reverse of notes receivable. 1.2.3.Accrued liabilities amounts owed to others for unpaid expenses. This arises when expenses are already incurred but still unpaid. 1.2.4.Unearned Revenues represents amounts received by the entity in advance of rendering of services or delivery of goods. 1.2.5.Mortgage Payable an obligation where the entity pledged real properties as security. 1.3. Owners Equity the residual interest in the assets of the enterprise after deducting all liabilities. 1.3.1.Capital an account used to record the original and additional investment of the owner. 1.3.2.Withdrawals this represents the amount of the entitys assets used by the owner for personal use. 2. Financial Performance 2.1. Revenue inflow of money or other assets that results from sales of goods or services or from the use of money or property. 2.1.1.Service Income Revenues earned by performing services for a customer or client

2.1.2.Sales Revenues earned as a result of sale of merchandise 2.2. Expenses involves the outflow of money, the use of other assets, or the incurring of a liability caused by the usage of materials, labor, supplies, and services used in effort to produce revenue. 2.2.1.Cost of sales the cost incurred to purchase or to produce the products sold to customers. 2.2.2.Salaries or wages expense 2.2.3.Utilities Expense 2.2.4.Supplies Expense 2.2.5.Rent Expense 2.2.6.Insurance Expense 2.2.7.Depreciation Expense the portion of the cost of tangible assets allocated or charged as expense during the period. 2.2.8.Uncollectible accounts expense also known as bad debts expense or doubtful accounts expense, the amount of receivables estimated to be doubtful of collection and charged as expense during the period. 2.2.9.Interest Expense