bus 1 oa

Accounting

A systematic process of identifying, measuring, and communicating financial information about an economic entity to allow for informed judgments and decisions by its users. It operates as an ongoing framework that tracks all quantitative events affecting a business.

The Information System Concept of Accounting

Accounting functions exactly like a computer system, operating as a structured storehouse of data that collects, processes, and cleanly outputs items, making it quick and easy to locate historical records.

Identifying (Step 1 of Accounting Process)

Reviewing transactional data and activities to determine if they directly impact the business finances ("Does this affect my business?"). This involves any transfer of items with economic value, such as purchasing equipment or exchanging cash, and strictly requires valid source documents as proof of transactions.

Recording (Step 2 of Accounting Process)

Documenting financial items systematically to keep a continuous and chronological history of all operations ("Dapat nakaayos by time"). This chronological order guarantees that data can be easily retrieved and audited.

Classifying (Step 3 of Accounting Process)

Sorting, organizing, and grouping similar transactions into clear buckets to avoid confusion, such as separating revenue from liabilities ("Separate ung sales at utang") or grouping similar elements together like capital investments, expenses, and sales.

Summarizing (Step 4 of Accounting Process)

Compiling and aggregating the classified data into standard ledger elements to create financial statements.

Balance Sheet Equation

Assets = Liabilities + Equity

Assets (Balance Sheet Element)

Pagmamay-ari / Resources owned by the business.

Liabilities (Balance Sheet Element)

Utang / Obligations of the business.

Equity (Balance Sheet Element)

Natira / Pera mo or the owner's residual claim.

Income Statement Equation

Revenue - Expenses = Profit

Revenue / Sales (Income Statement Element)

The earnings from business operations.

Expenses (Income Statement Element)

Ginhastos / The costs incurred to run the business.

Profit (Income Statement Element)

The net income left over after subtracting expenses from revenue.

Reporting / Communicating (Step 5 of Accounting Process)

Formally presenting finalized financial data to stakeholders via organized financial statements to enable relevant parties to analyze systemic problems, interpret historical results, and practice sound financial decision-making.

Accounting as a Service Activity

Its primary purpose is to fulfill a critical support function for businesses by preparing internal and external financial reports, professionally carried out by qualified Accountants or Bookkeepers.

Accounting as a Process

It relies on a linear sequence of steps working interdependently toward a primary objective: supplying clear, actionable financial indicators to interested parties.

Accounting as an Art

It represents a refined, structured "way of performing something." Preparing clean ledger documentation demands creative organizing techniques, specific expertise, and practiced technical skills.

Accounting Deals with Financial Information

It isolates and records strictly quantifiable financial transactions that possess measurable monetary value ("nabibilang / has a value"). Non-financial facts are omitted from direct journal entry lines, though they remain vital for context.

Accounting as a Means and Not an End

It is not a standalone goal. Rather, accounting serves as a management tool utilized to achieve broader objectives, such as troubleshooting systematic business errors or organizing a company-wide expansion strategy.

PFRS & PAS

Philippine Financial Reporting Standards and Philippine Accounting Standards function as the mandatory guidelines used to build accurate, uniform financial statements.

Philippine Accountancy Act of 2004 (R.A. No. 9298)

The statutory law establishing, governing, and regulating professional accountancy practices across the Philippines.

External Users (Secondary Users)

Parties outside the direct operational bubble who evaluate financial health from a distance to protect their distinct peripheral interests.

Customers (External User)

The main source of income for any enterprise. They inspect financial stability to determine if a vendor will continuously supply products, provide ongoing technical services, or reliably honor product warranties.

Creditors / Banks & Lending Institutions (External User)

Entities that extend essential financing capital or lend operational resources in exchange for a fixed service fee (interest). They review statements to evaluate creditworthiness ("Can they pay it back?" and "Do they have assets to secure the debt?") and are assured a predictable return via contractually fixed interest rates.

Potential Investors (External User)

Private parties who provide external funding capital to propel business growth. They willingly accept substantial financial risk (the potential to win or lose) in exchange for the chance to claim much higher dividends if the business expands successfully.

Government Agencies (External User)

Legal institutions that regulate local market industries and ensure strict tax adherence.

BIR / Bureau of Internal Revenue (Government Agency)

Scans, audits, and collects corporate tax duties.

SEC / Securities and Exchange Commission (Government Agency)

Formally registers and regulates partnerships and corporations.

DOLE / Department of Labor and Employment (Government Agency)

Monitors business practices to defend labor rights.

GSIS & SSS (Government Agency)

Administrates state security benefits for public and private sector employees.

Academe (External User)

Educators, textbook researchers, and corporate students who treat public financial statements as structural blueprints to advance theory and improve global industry frameworks.

Public (External User)

Everyday citizens who study aggregate metrics to track general economic indicators, plan local career decisions ("To stay on your current job or look for higher paying jobs"), or evaluate resource usage.

Internal Users (Primary Users)

Parties embedded inside the business entity who are directly responsible for executing daily strategic planning.

Management / Board of Directors, Executive Management, Middle Managers, Supervisors (Internal User)

Internal strategic planners who rely heavily on detailed operational data (revenue margins, cash reserves, production costs) to make real-time corrections, fix structural bottlenecks, and implement tactical adjustments.

Owners / Stockholders (Internal User)

Existing investors who have already committed substantial resources. They track net profit, overall assets, and current liabilities ("Kailangan nila malaman: profit/income, resources & liabilities") to back high-level capital decisions, such as securing expansion funds or authorizing loans.

Sole Proprietorship

A business form with 1 owner ("Isa lang ang nakapangalan"). The single owner acts as the executive manager. Its lifespan terminates at the discretion or death of the owner. It is assigned to the DTI, capital transfer is fluid (requires selling the entire business asset line), and the owner has Unlimited Liability.

Partnership

A business form with 2 or more partners. It is managed collectively by the partners, and is dissolved by partner changes, exits, or deaths. It is registered under the DTI. Capital transfer is strict (requires explicit consent of other partners), and liability is limited or unlimited depending on the partner type.

Corporation

A business form with at least 5 distinct owners to initiate. It is governed by an elected Board of Directors, and its operational spans cannot exceed 50 years per term. It is assigned to the SEC. Capital transfer is highly fluid (owners can sell stocks freely to anyone), and owners enjoy Limited Liability.

Cooperative

A business form with 15 or more individual members. It is governed by an elected Board & Operating Team, and operational spans cannot exceed 50 years per term. It is assigned to the CDA. Capital transfer is restricted (members cannot transfer nor sell membership), and liability is limited to capital contributions.

Unlimited Liability

A structural risk where if a firm defaults, the owner's personal wealth is legally exposed. Private assets (properties, savings) can be seized by courts to clear outstanding debts.

Limited Liability

A protective framework where personal wealth is protected. A shareholder's or member's maximum risk exposure is strictly capped at the exact amount they contributed to the firm ("ito lang ang kaya ko").

Partnership Distribution Rule

A legal partnership must balance risk classes; while it can feature Limited Partners, it must always retain at least one Unlimited Partner (General Partner) who handles total ultimate liability.

Incorporators

The founding team who originally built the infrastructure of a corporation ("Original na nagpatayo ng corporation").

Stockholders

Investors who purchased shares and joined after the initial setup ("Who joined after the OG"). Voting influence is directly proportional to stock ownership; the majority shareholder wields ultimate power during executive elections.

Cooperative Purpose

Unlike standard companies designed around maximizing corporate profits, cooperatives are established primarily to assist members and uplift the local community.

Service Business

An operational activity that offers value through intangible skills, specialized advice, and professional consultancies rather than physical goods. Examples: Accounting firms, legal practices, and local barbershops.

Merchandising Business (Buy & Sell)

An operational activity that purchases complete, pre-fabricated commercial items at wholesale costs and sells them directly to users at a retail markup to secure operational profits. Examples: Regional department stores and neighborhood Sari-sari stores.

Manufacturing Business

An operational activity that purchases raw materials and processes them through manual labor, factory operations, and production overhead to create entirely new, physical finished items for commercial sale. Examples: Vehicle assembly lines, textile mills, and canned food packaging operations.

Business Blending

Modern companies can completely combine all three operational structures (Service, Merchandising, and Manufacturing) into a single enterprise under one unified corporate entity.