Fundamentals of Accounting Reviewer

What is Accounting?
Accounting is the systematic process of measuring and reporting relevant financial information about
the activities of an economic organization or unit. Its underlying purpose is to provide financial
information. It is capable of being expressed in monetary terms.
American Institute of Certified Public Accountants (AICPA) defines accounting as the art of
recording, classifying, and summarizing in a significant manner under terms of money, transaction and
events, which are in part at least of a financial character, and interpreting the result thereof.
The Philippine Institute of Certified Public Accountants (PICPA) defines accounting as 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.
FOUR ASPECT OF ACCOUNTING
1. Recording – writing down of business transactions chronologically in the books of account as

they transpire
2. Classifying – sorting similar and related business transactions into three categories of assets,
liabilities, and owner’s equity
3. Summarizing – preparing financial statements from the transactions recorded in the books of
account designed to meet the information needs of its users
4. Interpreting
PARTIES INTERESTED IN THE FINANCIAL INFORMATION
1. Investors/Owners/Stockholders
2. Government
3. Financial Institutions/Creditors
4. Management
5. Employees
THREE TYPES OF BUSINESS ORGANIZATION
1. Sole/ Single Proprietorship

2. Partnership
3. Corporation
THREE TYPES OF BUSINESS OPERATIONS
1. Service is a type of business operation engaged in the rendering of services

2. Trading/Merchandising is a type of business engaged in buying and selling of goods.
3. Manufacturing is engaged of the production of item to be sold.
Accounting System comprises the methods used by the business to keep the records of its financial
activities and to summarize these accounts in periodic accounting reports.
Transactions is a completed action which can be expressed in monetary terms,

Generally Accepted Accounting Principles (GAAP), These are broad, general statements or “rules” and
“procedures” that serves as guide in the practice of accounting
FUNDAMENTAL CONCEPTS
1. Entity Concept
2. Periodicity
a. Calendar Year
b. Fiscal Year
3. Going Concern
BASIC PRINCIPLES
1. Objectivity Principle
2. Historical Cost
3. Accrual Principle
4. Adequate Disclosure
5. Materiality
6. Consistency
TYPES OF FINACIAL STATEMENTS
1. Statement of Financial Position or Balance Sheet – shows the financial condition/position of a

business as of a given period. It consists of Assets, Liabilities, and Capital.
2. Statement of Comprehensive Income or Income Statement
The Income Statement shows the result of operations for a given period. It consists of
the Revenue, Cost and Expenses.
The Statement of Comprehensive Income consists of the Revenue, Cost, Expenses and
contains components of other comprehensive income (including reclassification
adjustments) as follows: changes in revaluation surplus, gains and losses on benefit
plans, gains and losses form investment in equity instruments, finance costs, share of
associates and joint ventures under the equity method, tax expense, gain or loss from
discontinued operations, gain or loss on realization of assets from discontinued
operations, gains and losses from foreign operations, and all other operating and
financial events affecting the owner’s equity in the business.
TOTAL COMPREHENSIVE INCOME “change in equity during a period resulting from

transactions and other events, other than those changes resulting from transaction with owners in their
capacity as owners.”
3. Statement of Changes in Owner’s Equity or Statement of Owner’s Equity – shows the changes
in the Capital or Owner’s Equity as a result of additional investment or withdrawals by the
owner, plus or minus the net income or net loss for the year.
4. Statement of Cash Flows – summarizes the cash receipts and cash disbursements for the
accounting period

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What is Accounting?

FOUR ASPECT OF ACCOUNTING

1. Recording – writing down of business transactions chronologically in the books of account as

PARTIES INTERESTED IN THE FINANCIAL INFORMATION

THREE TYPES OF BUSINESS ORGANIZATION

1. Sole/ Single Proprietorship

THREE TYPES OF BUSINESS OPERATIONS

1. Service is a type of business operation engaged in the rendering of services

Transactions is a completed action which can be expressed in monetary terms,

TYPES OF FINACIAL STATEMENTS

1. Statement of Financial Position or Balance Sheet – shows the financial condition/position of a

TOTAL COMPREHENSIVE INCOME “change in equity during a period resulting from

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