Acc Module 1 Accounting Vs Bookkeeping
Acc Module 1 Accounting Vs Bookkeeping
Acc Module 1 Accounting Vs Bookkeeping
1. Service company – the product offering of this type of business is more on the services
and less on goods. These companies generate profits by charging a fee. Examples
include professional fees for accountants, doctors, and lawyers. Transportation
companies such as bus companies, delivery companies, and airline companies charge
fees for the transportation of individuals or goods from one location to another.
Educational institutions such as schools, colleges, universities and review centers, charge
tuitions fee for the lecture and other educational services rendered.
1. Sole proprietorship – this from of business has only one owner called the proprietor. This is
the most legal form of business.
Advantages
a. Sole control over operations
b. Easy to establish as there are less requirements mandated by law as compared to
other forms of businesses.
c. No sharing of profits
d. Income from business is tax as personal income
e. Able to discontinue operations at will
Disadvantages
a. Assumption of unlimited personal liability
b. Does not have the benefit of a second opinion in decision making
c. No sharing in the losses
d. Difficulty raising investment capital
e. Life of business is dependent on the owners.
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Unlimited personal liability means proprietor may be compelled to use his/her
personal assets to pay the company’s debts, despite the owner and the company
being separate entity.
Advantages:
a. Has the benefit of an opinion in decision making
b. Relatively easy to establish as there are less requirements mandated by law
c. More investment capital is available
d. Partners pay only personal income tax
e. Partners share in the loss
Disadvantages:
a. Prone to disagreement in the decision making
b. Partners assume unlimited personal liability
c. Partners share in the profit
d. Change in ownership requires dissolution of partnership.
Advantages:
1. Stockholders has limited liability
2. Can raise the most investment capital
3. Life of the business is unlimited
4. Ownership is easily transferrable without the need to dissolve the business and without
the consent of other stakeholders.
Disadvantages:
a. Earnings from investment in corporations are taxed twice – corporate income tax
and final tax on dividend income.
b. Difficult to establish as it is more expensive to start up
c. Difficult to establish as it is closely regulated by the government agencies
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What is Accounting?
Accounting can commonly be described as the language of business – through the information
it delivers, it seeks to communicate a variety of ideas to different users of financial information.
According to the AICPA (American Institute of Certified Public Accountants), accounting can
also be defined as the art of recording, classifying, and summarizing significant manners in terms
of money, transactions, and events which are, in part at least, of financial character, interpreting
the results thereof.
Process of accounting
a. Identifying – the company must identify economic events relevant to its business. The
economic events may include sale of goods to customers, provision of services to clients,
purchase of supplies from a vendor, manufacturing of products and many others.
b. Measuring – once the economic events are identified, it must measure those events in
order to provide a history of its financial activities. It is the quantifying of an economic
events into the financial terms by using monetary unit.
Accounting vs Bookkeeping
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Importance of Accounting
3. Communicates results
Accounting helps to communicate company results to various users. Investors, lenders, and other
creditors are the primary external users of accounting information. Investors may be deciding to
buy shares in the company, while lenders need to analyze their risk in deciding to lend. It is
important for companies to establish credibility with these external users through relevant and
reliable accounting information.
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