Accounting

Fundamentals of Accounting, Business and
Management I
INTRODUCTION
After graduation from high school, Jose Mercado decided to put up a photocopying business be
cause there was none near the vicinity of the school. Students had to walk far just to go to the
nearest photocopying center. Jose knew that the demand for photocopying service among high
school students was high because teachers often assigned readings and lecture notes that
should be photocopied.
Jose opened his photocopying business on July 1, 2015, He rented a commercial space locate
d in front of the high school gate for P5,000.00 per month. He also borrowed P50,000.00 (with
out interest) from his father to buy a brand new photocopying machine costing P30,000.00 and
to pay for other start-up expenses. He planned to pay this P50,000.00 in four years. From his
personal savings, Jose spent P10,000.00 fro supplies like bond papers, staplers, paper clips,
and other supplies that he would need in his business. He also paid P2,000.00 for business
permits and licenses. And because Jose had to attend to his classes in a nearby university, he
hired a staff with a weekly salary of P1,000.00 to operate the business. Jose planned to visit
his photocopying shop after his class every day to check on it.
During the first month of operations, Jose's photocopying business generated a revenue of P10,000.00. He
paid P4,000.00 for the salary of the staff, P10,000.00 (good for two months) for the rent, and P2,500.00 for
the electricity consumed (which was payable on the fifth day of the following month)
In order to determine if he gained profit or n He, then, deducted this amount from the tota
ot, Jose subtracted all his cash disbursements l cash he received during that month which a
from his cash receipts. He computed a net pr mounts to:
ofit of P14,000.00 To arrive at this figure, he
added all the cash that he paid during the firs P50,000.00 borrowed from his father
t month. 10,000.00 personal savings
10,000.00 photocopying revenue
P30,000.00 photocopying machine P70,000.00 TOTAL
10,000.00 supplies =========
10,000.00 rent
4,000.00 salary
2,000.00 business permit and licenses
P56,000.00 TOTAL
=========
He was very happy to know that for the first month, he was able to make P14,000.00 profit. He thought tha
t he could repay his father earlier, if business would be like this every month.
The ability to transform a need into
an opportunity by putting up a
business to satisfy this need is true
to the concept of environmental
scanning.
Arriving at the profit:
Cash-in:
Borrowings P50,000.00
Personal Savings 10,000.00
Photocopying Revenues 10,000.00 P70,000.00
Cash-out:
Photocopying Machine P30,000.00
Supplies 10,000.00
Rent 10,000.00
Salary 4,000.00
Business Permit/Licenses 2,000.00 (56,000.00)
Net Profit P14,000.00
==========
Jose used the cash-in versus cash-out technique. This should suffice for now but it should be noted that com
puting net profit takes more than just getting the difference between the total cash-in and cash-out.
Basic Financial Statements
Financial Statements are one of the most
important documents in starting your
own business.
Financial statements or reports reflect the
financial standing and economic activities of
the business. These economic activities may
relate to transactions that can affect the
financial position, financial performance, and
cash flows of the business.
A complete set of financial statements being prepared
periodically by a business is composed of the following:
1. Statement of Financial Position
2. Income Statement
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes, comprising of a summary of significant accounting
policies and other explanatory information.
It is important to note that the financial

statements are the outputs of the
accounting process.
Objectives of
Financial
Statements
Provide information about the
financial position, financial
performance, and cash flows of
a business that is useful to key
personalities who are making
economic decisions.
Provide information about the
business’ assets, liabilities,
income and expenses,
contributions by and
contributions to owners in their
capacity as owners, and cash
flows.
Business Transaction
Business transaction takes place once a business venture start
s operation.
Business transactions are the interactions between businesses
and other stakeholders.
Stakeholders include, but are not limited to, customers,
suppliers, investors, and government offices.
Business transactions have to be identified, measured, and

documented through an accounting process.
ACCOUNTING
Definition
American Accounting Association
(AAA) defines Accounting as the
process of identifying, measuring and
communicating economic information
to permit informed judgement and
decisions by users of information
Definition
American Institute of Certified Public
Accountants (AICPA) refers to Accounting
as the art of recording, classifying, and
summarizing in a significant manner and
in terms of money, transactions and events
which are in part at least of financial
character and interpreting the results
thereof.
Definition
Accounting Standards Council
(ASC) sees accounting as a service
activity. Its function is to provide
quantitative information primarily
financial in nature.
Nature
Accounting is an ART
Art refers to the design of how
something can be performed. It is a
behavioral knowledge involving
creativity and skill. By the very nature
that accounting activity is systematic, it
has definite techniques and its proper
application requires a particular skill and
expertise.
Nature
Accounting deals with transactions
that are financial in nature.
The definition of ASC requires that business
transactions have to be measured in terms of
money. All other transactions that are
non-monetary are not within the scope of
accounting.
Nature
Accounting is a process.
A ‘process’ is a systematic series of activities
directed towards a particular outcome. It has
to follow logical steps in the accounting cycle
like recording, classifying, and summarizing
financial transactions and communicating the
results after.
Nature
Accounting is an information system
An information system is a set of interrelated
components that work together to achieve a
common purpose. It also serves as a
repository of collected financial data,
proposed financial information, and
communicated financial statements.
Nature
Accounting is a means and not an e
nd.
Although accounting has a tangible output in the
form of financial statements, it still underscores that
users have the liberty to make economic decisions
based on the management assertions in the financial
statements. Using this logic accounting indeed
paves the way to an end and it is not the end itself.
Nature
Accounting is a service activity
It is concerned with providing businessmen,
entrepreneurs, managers and stakeholders
the service of ensuring that financial
statements are made available on a timely
basis.
FUNCTIONS OF ACCOUNTING IN
BUSINESS
The functions of accounting in business can be attributed to the three
fundamental objectives of an information system. An information system
in itself, accounting performs the following tasks:
1. To fulfill the stewardship functions of the management (or owners);
2. To help interested users come up with informed decisions; and
3. To support daily operations for the business
These functions validate why accounting is considered the language of

business. It serves as the means of communication between the
business and interested users, whether internal or external.

Accounting

Uploaded by

Copyright:

Available Formats

Accounting

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting

Uploaded by

Copyright:

Available Formats

Fundamentals of Accounting, Business and

It is important to note that the financial

Business transactions have to be identified, measured, and

These functions validate why accounting is considered the language of

You might also like