ACCOUNTING FOR NON-ACCOUNTANTS

1st semester, SY 2020-2021

Module 1: Introduction to
Accounting
WEEKS 1 & 2
 Definition, Nature, and Functions of
Accounting

 Users of Accounting Information

 Forms of Business Organizations

 Types of Business According to Activities

 Basic Accounting Concepts and Principles

Prepared by the Accounting for Non-accountants Faculty:

Chua, Peterwille T.
Gabayan, Anny Cloveries M.
Gabayan, Narciso A.
Lumogdang, Wenifreda C.
Sespeñe, Jeziel Paolo M.
Valledor, Hope Glory M.
Villegas, Corazon T.
OVERVIEW
Have you ever wondered why a lot of businesses became successful? Let’s take for example
Microsoft, San Miguel Corporation, Coca Cola, SM Department Store, LBC Forwarded, Petron,
and Globe. These businesses offer different products or services, but there is one factor that
contributes to their success – accounting.

Accounting plays a very important role in every business. It is a system that keeps tract of the
operations of the business. It includes collecting, analyzing, and communicating financial
information to interested parties. You can be a future entrepreneur, too! So, let’s start learning
about accounting!

In this module you will learn what accounting is, its nature and functions, who are the users of
accounting, the forms of business organizations, the types of business according to their activities,
and the basic accounting concepts and principles. After two weeks (six hours), you are expected
to demonstrate your understanding of the lessons by answering the activities required after each
lesson.

Enjoy learning!

LEARNING OBJECTIVES

At the end of this module, you should be able to:

1. define accounting;
2. describe the nature of accounting;
3. explain the functions of accounting;
4. explain why accounting is called the language of business;
5. Identify the users of accounting information;
6. differentiate the forms of business organization;
7. name some business entities operating in your community, identify the form of
business organization they belong and the type of activities they have; and
8. explain the varied accounting concepts and principles

LESSON 1: DEFINITION, NATURE, AND FUNCTIONS OF ACCOUNTING.

What is Accounting?
Accounting has been defined by several accounting bodies in different forms. The
definitions given highlight the nature and functions of accounting:
1. The Accounting Standards Council (ASC) in its old Statement of Financial Accounting
Standards (SFAS) defines accounting as follows:

“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.”

2. The Committee of Accounting Terminology of the American Institute of Certified Public

Accounting (AICPA) defines accounting as follows:

“Accounting is 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 financial in character, and interpreting the result thereof.”

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 These two definitions of accounting are in agreement that accounting is a tool used to
communicate results of business operation.
Accounting is also called the language of business. Actually, this is the shortest definition
of accounting.
The business can effectively communicate to all interested users, information about the
business operation through accounting.
The following information about the business is usually communicated:
1. The result of its financial operation; that is, whether the business is profitable or not.
2. The status of its financial condition; that is, whether the business is stable and has the
capacity to settle financial obligations.
3. The cash inflows and outflows during the period; that is, where the business obtains
its cash and where it spends said cash.
4. Other information that are probable to happen in the future.

Accounting as the Language of Business (with illustration of the Business Entity Concept)
In accounting, the owner and the business are treated as two different persons with
separate personalities distinct from each other. The owner is classified as a human person, while
the business is treated as a juridical person. (Juridical means that the business has a legal
personality by itself. The permit to operate given by the government makes the business the right
to legally exist). This concept is known as the business entity concept.
To Illustrate:

JOHN CRUZ JC MERCHANDISING

(Owner) (owned by John Cruz)

Human Person Juridical Person

Figure 1. Business Entity Concept (The owner and the business are two separate entities)

The personality of the owner is different from the personality of the business. Any private
and personal incomes and expenses of the owner/s should not be treated as the incomes and
expenses of the business. Accounting is concerned only with the transactions of the
business and not those of the owner/s.
Since the business is treated as a “person”, there should be a medium of communication
for the business and the owner or other interested parties to understand each other. This medium
of communication between the business entity and the owner or other users is known as
accounting.
The final product of accounting process is called the financial statements. The business is “talking”
through the financial statements; hence, accounting is considered as “the language of
business”.

NATURE OF ACCOUNTING
The basic features of accounting are as follows:
1. Accounting is a process. A process is composed of multiple steps that lead to a common
end goal. Accounting is a process because it performs the functions of identifying,
recording, and communicating economic events with the end goal of providing information
to internal and external parties.

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 2. Accounting is an art. Art refers to a way of performing something. Accounting is an art
of recording, classifying, summarizing, and finalizing financial data. Accounting is a
combination of techniques and its application requires applied skill and expertise.
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3. Accounting deals with financial information and transactions. Accounting deals only
with quantifiable financial transactions (transactions with money values). These are the
only events identified by the accountant, recorded in the books, and communicated to
different parties.

4. Accounting is a means and not an end. Accounting is a tool to achieve specific

objectives. It is not the objective itself. Imagine that you dream to go to Canada someday.
Accounting can be thought of as the plane that will bring you to your destination.

5. Accounting is an information system. Accounting is recognized and characterized as

a storehouse of information. As a service function, it collects processes and communicates
financial information to any entity. This discipline of knowledge has been evolved out to
meet the need of financial information required by different interested groups.
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FUNCTIONS OF ACCOUNTING
The definition of accounting enumerates the following basic functions:
1. Recording
2. Classifying
3. Summarizing
4. Interpreting
The four basic functions of accounting are broadly classified into: 1) mechanical phase and 2)
analytical phase. The mechanical phase of accounting includes recording, classifying, and
summarizing, while interpreting is considered as the analytical phase of accounting.
The functions of accounting are listed in the order of procedural process. This means that the
first step in accounting is recording, followed by classifying, then summarizing, and finally,
interpreting as illustrated in figure 2.

Recording Classifying Summarizing Interpreting

Mechanical Phase of Accounting Analytical Phase

Figure 2. Procedural Steps in Accounting

Recording
Recording refers to the routine and mechanical process of writing down business
transactions. Only business transactions and events that are quantifiable or measurable (in terms
of money) are recorded in the books of accounts in chronological manner. Recording is otherwise
known as journalizing or bookkeeping.
Usually, business transactions are recorded daily and chronologically. Chronological
recording of business transactions and events means that the order of writing is based on when
the events happened. In simple terms, the transaction that happens first shall be recorded first.

MODULE 1: Introduction to Accounting 3

 For example, the transactions that transpired on March 1 shall be recorded in the books
of the business ahead of those transactions that happened on March 2.
Business transactions are recorded in the books of accounts. There are two sets of books
used to record business transactions – the journal and the ledger.
The journal is considered as the book of original entry; hence, all business transactions
are recorded in the journal for the first time. The ledger, on the other hand, is called the book of
final entry. It is in the ledger where the transactions recorded in the journal are classified.

Classifying
Classifying refers to the process of sorting or grouping similar business transactions and
events into their respective kinds or classes. In other words, similar transactions and events
should be grouped together.
The grouping of similar transactions is recorded in the ledger. Hence, the information
recorded in the journal is transferred to the ledger. The process of transferring the same
information from the journal to the ledger is technically known as posting.
Posting of information is usually made at the end of the month. This process is shown in
figure 3.

Posting

Journal Ledger

Figure 3. Relationship of Journal and Ledger

Summarizing
Summarizing is the phase in the accounting process which involves preparation of the
financial statements. The financial statements are the final product of accounting. It is through the
financial statements that accounting information is communicated to various interested users. The
financial statements reflect the operating performance and financial condition of the business.
The decisions of various users are highly dependent on the information provided by the financial
statements.
Ordinarily, the summarizing process starts from the preparation of the trial balance,
determination of adjusting entries, and the preparation of the worksheet. These steps will be
discussed lengthily in the succeeding modules.
The complete set of financial statements includes the following:
1. Statement of financial position 4. Statement of cash flows
2. Statement of comprehensive income 5. Notes to the financial statements
3. Statement of changes in equity
The accounting process ends when the financial statements have been prepared and
issued to interested users.

MODULE 1: Introduction to Accounting 4

Interpreting
The last function of accounting is interpreting. It is not a mechanical function, but rather
an analytical function. Interpreting refers to the process of analyzing and evaluating the
information presented in the face of financial statements and the accompanying notes.
The data found on the face of the financial statements and other related accounting
information are analyzed to determine the profitability of the business, its ability to pay its current
maturing obligations, and its ability to remain stable after paying long-term maturing financial
obligations.
The financial statements present the following information:
1. Profitability of the business
2. Liquidity of the business
3. Stability of the business
4. Management efficiency

Profitability refers to the ability of the business to realize more revenues than expenses.
This information is reflected in the income statement. Several ways may be adopted by the
management to improve profitability of the business.
Liquidity refers to the ability of the business to pay its current maturing obligations or
those obligations that are payable within one year. The business is considered liquid when it has
more resources to settle its financial obligations that are maturing within one year from the date
of the financial statements.
Stability refers to the ability of the business to pay its long-term financial obligations and
remain stable. Long-term obligations are those payables of the business that mature beyond
one year from the date of the financial statements.
Both the liquidity and stability status of the business are shown in the balance sheet. This
implies that users who give preference or importance to liquidity and stability should focus their
analysis and evaluation on the balance sheet.
Management efficiency reflects how effective and efficient the management is in utilizing
its resources. Resources like cash, products intended for sale, building, land, and other similar
resources are entrusted to the management. The resources are expected to grow through
effective and efficient management.

Accounting versus Bookkeeping

The term bookkeeping has a limited scope than accounting. Bookkeeping refers to the
recording aspect of the accounting process or cycle. Accounting, on the other hand, has a wider
scope and involves not only the recording aspect but also the preparation and interpretation of
financial statements.
Technically, bookkeeping is the chronological recording of the business transactions and
events in the book of accounts. It includes the preparation of trial balance. Accounting however,
connotes applications of proper accounting procedures and principles from the recording stage
up to the preparation of financial statements.
Bookkeeping is usually performed by a bookkeeper. He is responsible for keeping the
financial records of the business. The nature of his work is highly clerical and mechanical. On the
other hand, accounting is undertaken by an accountant. He reviews the work of the bookkeeper
although, in some instances, his works involves some level of bookkeeping. An accountant should
have a higher degree of knowledge and analytical skills. In big businesses, accountants are
usually Certified Public Accountants.

MODULE 1: Introduction to Accounting 5

 Activity 1 - Definition, nature, and functions of accounting
Let’s test your understanding of the lesson.
A. Analyze the following questions carefully. Encircle the letter that corresponds to the
correct answer.

1. Which of the following is NOT a relevant economic event?

a. An agent who attended to the concern of a complaining customer.
b. Mariza, the manager of Company A, sold an abandoned building of the
company.
c. Company B borrowed P3M from a bank due to tight financial condition.
d. Company C paid its employees their salaries for the month of August.

2. Which of the following does NOT show one of the main functions of accounting?
a. Ronald prepared a report to be submitted to the BIR office.
b. John recorded the purchase of an equipment in the accounting books
immediately after the purchase.
c. Peter prepares financial reports monthly for the company’s stakeholders.
d. Alvin canvassed the price of a sewing machine to be used in the company’s
operations.

3. Which of the following statements describes the accounting process?

a. Accounting involves identifying relevant economic events.
b. Recording economic events is an essential part of the accounting process.
c. The accounting process is not complete if the financial information is not
communicated to interested users.
d. All of the above

4. Liza, the chief accountant of Company M, is preparing for a meeting with the top
management. This meeting is done monthly to evaluate the performance of the
company. Which step of the accounting process is most likely being done?
a. Recording c. Identifying
b. Communicating d. Classifying

5. Which of the following is mostly used by accountants in communicating the results of

operations to outside parties?
a. Financial statements
b. Performance memos
c. Bulletin board postings
d. Public announcements of the results of operations

6. Who is the person responsible for the process of identifying, recording, and
communicating economic events of an organization?
a. Manager c. Treasurer
b. Accountant d. Information officer

7. Statement I – Keeping a chronological diary of events is part of the recording aspect

of accounting.
Statement II – Preparing accounting reports is part of the communication aspect of
accounting.
a. Both statements are true
b. Only statement I is true.
c. Only statement II is true.
d. Both statements are false.

MODULE 1: Introduction to Accounting 6

 8. Statement I – Accounting helps managers and owners of businesses in decision-
making.
Statement II – All successful companies use the accounting process in some form.
a. Both statements are true
b. Only statement I is true.
c. Only statement II is true.
d. Both statements are false.

B. What are the four steps in accounting based on the definition?

1. ____________________ 3. ___________________
2. ____________________ 4. ___________________

LESSON 2: USERS OF ACCOUNTING INFORMATION

Financial accounting information is used by a variety of groups and for diverse purposes.
The needs and expectations of users determine the type of information required. The following
are the users of financial information and their information:
1. Management. The financial accounting information guides the management in
making policies, planning for the future, and evaluating the financial status of the
business.
2. Investors. Financial statements provide potential investors the necessary information
to decide if they will invest in the business or not.
3. Creditors/Lenders. Before creditors grant loans to a business, they first examine its
financial statements because they want to know whether the business applying for a
loan has the ability to pay including the interest when due date comes. Common
examples of creditors are banks, lending institutions and wealthy individuals.
4. Government/BIR. The government particularly looks at the income, revenues, and
expenses of a business to determine taxation policies, regulate the activities of the
enterprise, and as a basis for national income and statistics.
5. Employees. Employees are interested in information about the stability and
profitability of the enterprise. They are interested in information which enable them to
assess the ability of the enterprise to provide renumeration, retirement benefits, and
employment opportunities.
6. Customers. By analyzing the accounting information of a business, customers can
determine if it will be profitable for them to transact with the business. Also, 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.
7. Academe. Member of the academe (e.g., professors, researchers, students) benefit
from the accounting information in the financial statements of a company. Although
they do not usually transact with businesses, members of the academe utilize financial
statements for academic purposes.
8. Public. Enterprises affect the members of the public in a variety of ways. For example,
enterprises make substantial contributions to the local economy in many ways
including the number of people they employ and their patronage of local suppliers.
Financial statements may assist the public by providing information about the trends
and recent developments in the prosperity of the enterprise and the range of its
activities.

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 Activity 2 - Users of Accounting Information

Let’s test your understanding of the lesson. Among the users of accounting, who is in
utmost need of the financial accounting information? In two sentences, support your
answer. ___________________________________________________________

______________________________________________________________________

LESSON 3: FORMS OF BUSINESS ORGANIZATION

Businesses are organizations commonly made to earn profit. Throughout its life, a
business deals with multiple groups of individuals to achieve its end goal of profit generation.
There are four forms of business organizations available to aspiring businessmen:
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Cooperative

Each form of business organization has its own advantages and disadvantages. Aspiring
businessmen take these into consideration before deciding what form of business they will take.
Sole Proprietorship
Sole proprietorships, as the name suggests, are businesses formed by a single individual.
Sole proprietorship is considered the simplest form under which a business can operate. Unlike
partnerships and corporations, businesses operating as sole proprietorships do not have separate
legal existence from the owner. The law does not recognize a sole proprietorship as a separate
juridical entity distinct from the owner. As such, the owner usually transacts with other parties
under his or her own name.
Even though sole proprietorships do not have separate legal existence, owners can
choose to operate the business under their own names or use fictitious name such as Aling Nene
Sari-Sari Store. Fictitious names are merely trade names that aim to instill brand recall to
customers. Thus, fictitious names do not, in any way, result in separate juridical personality for
the business.
Advantages of a Sole Proprietorship
1. Ease of formation

Sole proprietorships are much easier to establish than other forms of business
organizations. A sole proprietorship does not have to go through a rigid registration process before
it can operate. Here in the Philippines, sole proprietorships can register in the local municipal hall.
Business permits and other licenses can also be acquired from such places. The whole process
is easy and inexpensive, and it normally spans for only a short amount of time. In addition, sole
proprietorships can be formulated even with small amounts of capital. Carinderias and sari-sari
stores are prevalent businesses operating as sole proprietorships which do not require huge
amounts of investments.
2. The owner has full control of the business

Being a sole proprietorship, the owner can single-handedly decide on matters pertaining
to the business. Unlike partnerships and corporations that regularly hold meetings to make
company decisions, sole proprietor can easily make decisions to solve problems faced by the
business. The importance of fast decision-making is emphasized when problems warrant
immediate action. Furthermore, having only a single owner, a sole proprietorship does not
experience internal conflict regarding business decisions. Internal conflict can be harmful in
business. In the worst scenario, it can even be the cause of the downfall of the business.

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 3. Owners can mix personal and business assets

Owners may freely mix their personal assets with business assets since sole
proprietorships are not separate juridical entities distinct from the owners. Partnerships and
corporations do not have this advantage. If a business is experiencing financial difficulties, a sole
proprietor may use personal assets to help the business recover. This is not the case for
partnerships and corporations since additional investments of owners in such corporations alter
their profit-sharing structures.
4. Owners have all the profit for themselves

All the profits generated by a business operating as a sole proprietorship belong to the
owner. The determination of profit-sharing schemes is often a problem encountered by other
forms of business organization. Obviously, sole proprietorships do not need to worry about such
things.
5. Simple taxation

The profits of a sole proprietorship are considered the income of the owner. Thus, the
owner needs only to declare the income of the business in his or her tax return and it will be taxed
accordingly.

Disadvantages of a Sole Proprietorship

1. Unlimited liability

An owner of a sole proprietorship is personally liable for all the debts incurred by the
business since a sole proprietorship has no separate legal existence distinct from the owner. The
owner and the sole proprietorship are treated as one. Unlimited liability means that creditors,
customers, the government, and other outside parties can go after the personal assets of the
owner even after extinguishing all the assets of the business in the satisfaction of their claims.
This is a huge risk that sole proprietors face. The law does not provide protection to the personal
assets of the owner unlike in corporations.

2. Difficulty of raising additional capital

As mentioned, sole proprietorships are characterized by having only one owner. The initial
investment of the owner is the capital of the business. When all of the initial investments are used
up, the owner is the only person that can provide additional capital. A sole proprietorship cannot
sell interest (i.e., ownership rights) in the business. Doing so would defeat the purpose of being a
sole proprietorship.
In case a sole proprietor does not have enough resources to use as capital, the only
remedy available to the business is to look for creditors willing to lend additional funds.
3. Owner’s bias

Only the sole proprietor has the authority to make decisions for the business. When
deciding how the company will move forward, the owner always has the final word. This can
possibly be detrimental to the business especially when the owner’s bias prevails and he or she
does not make rational decisions. Other forms of business organizations that have multiple
owners do not usually have this problem. Biases do not usually prevail in the other forms of
business organizations since there are many owners who decide.
Moreover, having more decision makers is equivalent to having more minds to think of
ideas on how to improve the business or how to solve problems encountered by the business.
The workload of a sole proprietor is also much heavier than the owners of other forms of business
organizations.

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Partnership
According to the partnership code of the Philippines, Title IX of the Civil Code of the
Philippines, a partnership is a contract whereby two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves. Two or more persons may also form a partnership for the exercise of a
profession.
From this definition of partnership given by the law, we can take note of the following
things:
1. Two or more persons are needed to form a partnership.
2. Money is not the only resource that a person can contribute in a partnership. Property
refers to other assets owned by a person. Examples are land, building, vehicles, etc.
Industry refers to the skills and expertise of a person.
3. A partnership must be established for the purpose of obtaining profit. If an organization is
created for purposes other than the generation of profit (e.g., charitable institutions, public
hospitals), it cannot take the form of a partnership.
4. Partnerships are the common form of business organizations used by companies who
generate profits by the practice of a profession (e.g., law firms, auditing firms).

General Features of a Partnership

1. Separate legal existence

A partnership can also be defined as an artificial being created by operation of law. This
results in partnerships having juridical personalities separate and distinct from their owners (called
partners). Being an artificial person, a partnership can perform the acts that the partners can do
except those acts that purely personal in nature. Some examples of these acts are voting in
elections and holding positions in public office.
Unlike a sole proprietorship that transacts with other parties under the name of the owner,
a partnership can enter into contracts under its own name. A partnership can also acquire property
under its own name. Property acquired by the partnership belongs to the partnership not to the
individual partners. However, even if a partnership has separate legal existence, its income is not
taxed as a separate entity. After the income has been distributed to the partners, it will be included
in their respective tax returns and it will be taxed accordingly.

2. Mutual agency

Partners, being co-owners of the business, can perform acts for the partnership even
without asking permission from the partners. Mutual agency means that the acts of a partner are
binding on a partnership even though he or she has no authority to do so as long as the act
concerns the normal business operations of the partnership. The following example will further
illustrate this point.
Andre, Bart and Charles formed a partnership called ABC Partnership. ABC Partnership
is engaged in the business of manufacturing clothes. The three partners divided the tasks in
operating the partnership among them. Andre, being a graduate with a degree in human resource
management, was designated to handle anything employee-related.
Last week, Andre bought 10 sewing machines from DEF Company. Andre clearly
exceeded the authority given to him since he was not assigned to purchase equipment for the
company. Is the act of Andre binding on the partnership? The answer is yes. Sewing machines
are normally used by businesses engaged in the manufacturing of clothes. Even though Andre
has no authority to perform the act, the act itself is related to the normal business operations.
Suppose Andre purchased instead a brand-new speedboat using the partnership’s asset. In this
case, the partnership is not liable since the act clearly has no relation to the partnership

MODULE 1: Introduction to Accounting 10

operations. Andre is the only one liable and he should give back the partnership assets he used
to purchase the speedboat.
3. Unlimited liability

Even though a partnership has separate legal existence, partners are still liable for debts and
obligations that cannot be paid by partnership assets. Like in a sole proprietorship, creditors and
other parties can go after the personal assets of the partners when partnership assets are not
enough to satisfy their claims. Creditors can claim the deficiency from any of the partners or from
all the partners. In the ABC Partnership if it has debt that is not paid by the partnership assets,
creditors can go after the personal assets of Andre, Bart, and Charles. Creditors can require a
particular partner to pay the whole amount of debt. If, for example, Andre paid the whole amount
of the partnership’s debt not paid by the partnership assets, Bart, and Charles are required to
reimburse him for their proportionate share in the debt.
4. Limited life

The life of a partnership can be easily ended through partnership dissolution or liquidation.
Partnership dissolution occurs when one of the partners withdraws from the partnership or if a
new partner is admitted. Dissolution occurs when there is a change in the relationship among the
partners. Dissolution of a partnership does not necessarily mean that the partnership will cease
to exist. Withdrawal and admission of partners are normal occurrences in a partnership, and they
only lead to the formation of a new partnership.
Partnership liquidation, on the other hand, ends the operations of the partnership. During
liquidation, partnership assets are sold, liabilities are paid, and the remaining assets are
distributed to the partners. Liquidation ends the life of the partnership.
5. Co-ownership of partnership property
In the formation of partnership, partners contribute money, property, and industry into a
common fund. Once a partner has contributed his or her money and/ or property, it does not
belong to him or her anymore. The contributed money and property belong to the partnership and
the partners only have a proportionate share of partnership assets.
In the ABC Partnership, assume that Bart contributed a delivery van valued at ₱500,000.
Bart cannot subsequently claim that he is the owner of the van. From the moment he contributed
the delivery van to the partnership, he only has a proportionate share of the asset. Andre, Bart
and Charles became co-owners of the van.
Profits (or losses) of the partnership do not also belong to a specific partner. All partners
have a claim on a definite portion of the profits. The distribution of the profits should follow a profit-
sharing scheme agreed upon during the formation of the partnership. If there is no profit-sharing
scheme, profits (or loss) are distributed according to the original capital contributions of the
partners.
6. Partnership agreement

The definition provided by the law states that partnership is a contract. Contracts are
perfected through oral or written agreement. Thus, a partnership can be formed orally or written
form. However, to protect the interests of all partners, it is ideal to form a partnership in a written
contract. This written contract is called articles of partnership, and it contains the following
information:
a. Name of the partnership
b. Location of the principal office of the partnership
c. The names, citizenship, and residence of the partners
d. Term for which the partnership is to exist
e. The purposes for which the partnership is formed
f. Original capital contributions of the partners
g. Profit and loss sharing agreement among the partners

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 The articles of partnership may also contain stipulations pertaining to admission and
withdrawal of partners, death of a partner, and partnership liquidation. The articles of partnership
should try to anticipate all situations that a partnership may encounter.

Advantages and Disadvantages of a General Partnership

Advantages Disadvantages
 Easier to create than a corporation
 Better ability to acquire additional capital  Unlimited liability
than sole proprietorships  Mutual agency
 Large pool of human capital than sole  Limited life
proprietorships

Other forms of Partnership

The partnership we have just discussed is called a general or regular partnership. Because of
the unlimited liability characteristic of a general partnership, individuals planning to work together
sometimes use the other forms of partnership. These are the Limited Partnership and Limited
Liability Partnership.
Limited Partnership
In a limited partnership, at least one partner has unlimited liability and at least one partner
has limited liability. Partners having unlimited liability are called general partners while partners
having limited liability are called limited partners. Limited partners are exposed to a lower level of
risk. The maximum loss that a limited partner can shoulder amounts to his or her initial investment.
Creditors cannot go after his or her personal assets.
To compensate general partners for the higher level of risk they take, they are the only
ones allowed to participate in the management of the partnership. If a limited partner participates
in the management of the partnership, he or she loses the limited liability protection. He or she
becomes a general partner.
Limited Liability Partnership
The limited liability partnership is a type of partnership that aims to protect innocent
partners from the malpractice and wrongdoings of the partners. This kind of partnership
possesses multiple insurance claims to protect the partners from such wrongful acts of other
partners. The limited liability partnership is mostly used by individuals forming a partnership for
the practice of a profession (e.g., lawyers, accountants, medical professionals, auditors).

Advantages and Disadvantages of Different Forms of Partnership

Form of Partnership Advantages Disadvantages

 Owners (partners)
 Simple and inexpensive to
General Partnership personally liable for
create and operate
business debts.
 Limited partners have limited
 General partners
personal liability for business
personally liable for
debts as long as they do not
business debts.
participate in management.
Limited Liability  More expensive to create
Partnership  General partners can raise
than regular partnership.
cash without involving outside
 Suitable mainly for
investors in management of
companies that invest in
business.
real state.
 Mostly of interest to partners  Unlike a limited liability
in old-line professions such company, owners
Limited Partnership
as law, medicine, and (partners) remain
accounting. personally liable for many

MODULE 1: Introduction to Accounting 12

  Owners (partners) are not types of obligations owed
personally liable for the to business creditors,
malpractice of other partners. lenders, and landlords.
 Often limited to a short list
of professions.

Corporation
Our law defines a corporation as “an artificial being created by operation of law, having
the right of succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.”
This definition emphasizes four things about a corporation.
1. A corporation is an artificial being. It means that it is an entity separate and distinct from
its owners.
2. A corporation is created by operation of law. Individuals cannot form a corporation by
themselves. The law must play a role in the formation of a corporation.
3. A corporation has the right of succession. Ownership rights can be passed to other
persons through sale, donation, or any other mode of transfer.
4. The law is the source of the powers and attributes of a corporation. Being the source, the
law can likewise restrict the authority of corporations in performing acts.

Unlike in the definition of a partnership, the law did not mention the purpose of a
corporation. Corporations can be organized to generate profit or it may be not-for-profit. This is
one classification of corporations. Corporations can also be classified as being publicly held or
privately held. A publicly held corporation has thousands of stockholders (owners) while a
privately held corporation has only a few.

General Features of a Corporation

1. Separate legal existence

Just like a partnership, a corporation is treated by law as an artificial being separate and
distinct from its owners. A corporation can enter into contracts and transactions under its name.
It can also perform acts that can be done by natural persons except those that are purely personal
in nature such as voting and holding positions in public office.
2. Limited liability

The limited liability characteristic is an advantage a corporation has over a partnership.

The personal assets of the stockholders of a corporation are protected from the claims of creditors
and other outside partners. Thus, the maximum loss that a stockholder can bear equals his or
her investment. This characteristic is a major consideration of aspiring businessmen who do not
want to be exposed too much risk. Even if the corporation is bankrupt or has unpaid claims due
to accidents and lawsuits, the stockholders cannot be obligated to pay any deficiency.
3. Transferable ownership rights

Ownership rights in a corporation are represented by stocks. A stock is an intangible (i.e.,

no physical form) asset evidencing a proportionate share in the properties of a corporation. A
stock is represented by a stock certificate. If an individual has stocks of a corporation, he or she
is an owner of the company. Stocks can be transferred to other persons through sale, donation
or other modes of transfer. This is not the case in a partnership. In a partnership, an individual
cannot be admitted as a partner without the consent of all existing partners. Stocks of a
corporation can be transferred even without the consent of other stockholders unless the
corporation is privately held.

MODULE 1: Introduction to Accounting 13

 Transfers of stocks do not result in the dissolution or liquidation of a corporation. Stock
transfers are normal for corporations especially for those that are publicly held. This does not, in
any way, affect the operations of the corporations.
Moreover, a corporation may sell additional stocks to existing stockholders or to other
persons outside the company. This enables a corporation to acquire additional capital with relative
ease.
4. Virtually unlimited life

A corporation shall exist for a period not exceeding 50 years from the date of its formation.
The term of a corporation may, however, be extended for periods not exceeding 50 years. This
gives corporations virtually unlimited life. As long as the stockholders want to continue business
operations, they are allowed to extend the life of the corporation. There is no limit to the number
of extensions a corporation can avail of.
A corporation is also not affected by the withdrawal, death, and admission of stockholders.
The withdrawal, death, and admission of stockholders only change the composition of the owners
of a corporation, but these events do not require the stockholders to formulate a new agreement.
A corporation does not need to deal with legal formalities associated with these events unlike a
partnership.
5. Corporation management

The management structure of a corporation is more complex than that of other forms of
business organizations. Stockholders are the owners of a corporation. However, unlike in sole
proprietorships and partnerships where the owners or partners manage the business,
stockholders may elect a board of directors to manage the corporation. The board of directors
represents the interest of the stockholders and they are responsible for creating operating policies
for the company. Stockholders can also be a member of the board of directors.
The board delegates individuals to certain positions. The board selects the president or
chief executive officer and other vice-presidents. The following exhibit shows the management
structure of a corporation.

Stockholders

Chairman and Board of Directors

President and Chief Executive Officer

General Counsel VP for Finance/ VP for VP for Human

VP for Marketing Chief Financial
and Secretary Operations Resources
Officer

Treasurer Controller

Management Structure of a Corporation

MODULE 1: Introduction to Accounting 14

 6. Government Regulations

Corporations are subject to stricter government regulation than sole proprietorships and
partnerships. Being major contributors to the income of the whole economy, the operations of
corporations are closely monitored by the government. Large corporations provide employment
opportunities to the public and stimulate the growth of the company. The bankruptcy of a large
corporation can cause the whole economy to spiral downwards. Government regulations are
designed not only for the protection of public interest, but also for stockholders’ as well.
7. Double Taxation

The income of a corporation is taxed on the corporate level and the individual level. The
income of a sole proprietorship or a partnership is part of the individual income of the owners. It
is taxed once the owners file their respective tax returns. In a corporation, the income is already
taxed before being distributed to the stockholders. Once a stockholder receives his or her share
of the income, it is included in his or her tax return and will be taxed for the second time.
8. Dividends
When a sole proprietorship or partnership generates income, it is immediately distributed
to the owners or partners. This is not the case for a corporation. The corporation is not required
to distribute to stockholders the income it generated from operations. The stockholders of a
corporation will only be entitled to receive a share of the income once the board of directors
approved the distribution. The income distributed to stockholders is called dividends.
Dividends may be in the form of cash, stock, or property. Cash dividends are
distribution of income in the form of cash. It is normally stated as a nominal amount of per share
of stock. For example, if the board of directors declared cash dividends of ₱2 per share of stock,
an individual holding 1000 shares of stock will receive ₱2,000. Stock dividends are distribution of
income in the form of additional stocks. It is normally stated in percentage terms. For example, if
the board of directors declared a 10% stock dividend, an individual holding 1000 shares of stock
will receive an additional 100 stocks free of charge. A property dividend enables the stockholders
to receive a certain value of the property of the company for every share of stock held. For
example, if the board of directors declared a property dividend of one unit of inventory for every
share of stock, an individual holding 1000 shares of stock will receive 1000 units of inventory.
Even though the approval of the board of directors is necessary before income can be
distributed, dividends are given to the stockholders on a regular basis to keep them happy. If
stockholders do not regularly receive dividends, they tend to become dissatisfied and sell their
stocks.

Advantages and Disadvantages of a Corporation

Advantages Disadvantages
 Ability to acquire additional capital  Heavily regulated by the government
 Transferable ownership rights  Double taxation
 Limited liability of stockholders  Not easy to form
 Virtually unlimited life  More expensive to form than sole
 Large pool of human capital proprietorships and partnerships

Cooperatives
According to the Cooperative Code of the Philippines, “a cooperative is a duly registered
association of persons, with a common bond of interest, who have voluntarily joined together to
achieve a lawful common social or economic end, making equitable contributions to the capital
required and accepting a fair share of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles.”

MODULE 1: Introduction to Accounting 15

 From this, we can see that a cooperative is an association of individuals who share a
common goal. Membership in a cooperative shall be voluntary and available to all individuals
regardless of their social, political, racial, or religious backgrounds and beliefs.
According to the same Code, the primary objective of a cooperative is to provide goods
and services to its members and enable them to attain increased income and savings. A
cooperative may be formed by at least 15 persons for any of the following purposes:
1. To encourage thrift and savings mobilization among the members.
2. To generate funds and extend credit to the members for productive and provident
purposes.
3. To encourage among members systematic production and marketing.
4. To provide goods and services and other requirements to the members.
5. To develop expertise and skills among its members.
6. To acquire lands and provide housing benefits for the members.
7. To insure against losses of the members.
8. To promote and advance the economic, social and educational status of the members.

Other characteristics of a cooperative include the following:

1. It can be sued and be sued under its own name.
2. It has the right of succession.
3. Members of a cooperative are subject to limited liability.
4. It shall exist for a period not exceeding 50 years from the date of formation. The
cooperative term may be extended for periods not exceeding 50 years.
5. A cooperative has its set of board of directors.
6. Income of a cooperative (called net surplus) belongs to its members.

Comparing the Forms of Business Organization

Item Sole Proprietorship Partnership Corporations Cooperatives

1. Number of
2 or more 5 or more
Possible 1 15 or more
(usually 2-5) (usually 5-15)
Owners
2. Management
Board of Directors Board of Directors and
(who Owner (but he may Partners (or they may
and operating operating management
manages the hire somebody) hire managers)
management
business)
As stated in the
As stated in the
3. Termination Articles of
Death of any partner or Articles of
of the Death of the owner Cooperation, not to
withdrawal of a partner Incorporation, not
Business exceed 50 years.
to exceed 50 years.
4. Government
SEC CDA
agency In limited capacity, DTI
(Securities & (Cooperative
assigned (DTI - Department of In limited capacity, DTI
Exchange Development
primarily to Trade & Industry)
Commission) Authority)
regulate
Sell the business or
Sell the business (it’s a
5. Transfer of interest of a partner Cannot transfer nor
new entity under a new Sell stocks
Ownership (consent of other sell his membership
owner)
partners is necessary)
Generally unlimited;
the other properties of
the partners may be
Unlimited; other held liable for the
properties not used in obligations of the
Limited to the stock Limited to the capital
6. Liability of the business may be partnership.
investment of the contribution of the
Owners held liable for the
shareholder member
obligations of the There are types of
business partnerships that limit
the liability of the
partners.

MODULE 1: Introduction to Accounting 16

 Activity 3 - Forms of Business Organization
Let’s check your understanding of the lesson.
A. Read and analyze each item below. Encircle the letter of the best answer.

1. A corporation can extend its life for a period not exceeding __

a. 40 years c. 50 years
b. 45 years d. 60 years

2. Which of the following does NOT enjoy limited liability for its owners?
a. General partnership c. Cooperatives
b. Corporations d. Limited partnership

3. All of the following are general feature of a corporation, EXCEPT

I. Limited Life
II. More complex management structure
III. Unlimited liability
IV. Double taxation

a. I only c. II and III only

b. I and IV only d. I and III only

4. The profits of a sole proprietorship are taxed on

a. The company level.
b. The individual level.
c. Both the company and individual level.
d. Profits of a sole proprietorship are exempted from taxation.

5. Tina is a stockholder of Sky Is The Limit Corporation. The board of directors recently
declared a cash dividend of P1.50 per share of stock. Tina owns 2,500 shares in the
company. How much would Tina receive?
a. P3,750 c. P1,666.67
b. P2,500 d. P3,000

6. Alfred and Ariel formed a partnership for the practice of their profession. Alfred
contributed P100,000 cash and a vehicle to be used for company purposes. On the
other hand, Ariel contribute a piece of land where the office of the partnership will be
located. Which of the following is true?
a. Ariel is the owner of the land.
b. During liquidation, Alfred can claim the vehicle since he is also the one that
contributed it.
c. The partnership is the owner of the vehicle only.
d. The partnership is the owner of both the land and the vehicle.

7. This form of business organization is under heavy government regulation.

a. Partnership c. Sole proprietorship
b. Corporation d. Limited liability company

B. What are the three types of dividends in a corporation?

1. __________________ 2. ____________________ 3. ___________________

MODULE 1: Introduction to Accounting 17

LESSON 4: TYPES OF BUSINESS ACCORDING TO ACTIVITIES
A business is an organization that converts inputs or resources such as material, labor,
and overhead into outputs which are usually either goods or services. There are three major types
of business as follows:
1. Service Business
2. Merchandising Business
3. Manufacturing Business

Service Business
This type of business offers professional skills, advice and consultations. The primary
source of revenues of service business is the performance of services, often referred to as service
revenues. A law firm is an example of a service business as it provides legal advice to its clients.
Other examples are barber shops, beauty parlors, laundry shops, repair shops, accounting firms
and tutorial centers.
Merchandising Business
Unlike service business, this type of business sells tangible products. This type of
business buys finished or almost finished goods from their suppliers and resells the same to their
customers at prices higher than their purchase costs. Merchandising business is also known as
“buy and sell”. Merchandising companies primarily earn revenues from the sale of the goods or
merchandise, also known as sales revenue or sales. There are two types of merchandising
businesses – retailers and wholesalers. A merchandising business that sells goods directly to
customers is called a retailer, while a wholesaler is a merchandising business that sells goods to
retailers.
The operating cycle of a merchandising business is typically longer than that of a service
business. It starts with the purchase of goods to be held for resale, also known as inventory. The
company eventually sells the inventory to customers. The cycle ends with the receipt of cash
payments. As you can see, the purchase of inventory and its subsequent sale lengthen the cycle.
As an example, National Book Store buys school supplies from various suppliers such as
Pilot, Cattleya, Crayola, and 3M. These school suppliers which are inventory of the company are
put on the store racks and are sold to customers afterwards. The cycle ends when the cash
payments are received by the store.

Cash on
hand

Receives
payment Buys
from goods
customers

Stores
Sells
goods as
inventory
inventory

Operating Cycle of Merchandising Business

MODULE 1: Introduction to Accounting 18

Manufacturing Business
This type of business buys raw materials and uses them in making a new product.
Manufacturing Companies, or simply manufacturers, are relatively complicated organizations
than service and merchandising companies. As the name suggests, manufacturers create their
own products. They use raw materials, components, or parts which are processed using
machines, computers, and labor to produce finished goods. Manufacturers typically employ large-
scale production which is done in manufacturing plants. Similar to merchandising companies, they
earn revenues primarily from the sale of manufactured products. The products of manufacturing
companies can be sold directly to consumers, retailers, and other manufacturers. For example,
Toyota builds cars and sells them to customers through their dealers nationwide. Meanwhile,
Unilever manufactures its products like Dove and Cream Silk and sells them to retailers such as
SM and other supermarkets.
Since a manufacturing company produces its own products, its operating cycle generally
has the longest period compared to service and merchandising. The cycle has an additional phase
which is the production of goods. These goods are also held as inventory and later sold to its
customers. Likewise, the operating cycle of a manufacturing company ends with the collection of
cash payments.
As an illustration, imagine Nike Inc. which is a leading shoe manufacturer. It owns more
than 600 factories across the globe where Nike shoes are made. It acquires its raw materials from
various suppliers, hires more than a million of factory workers, and invests heavily on technology.
Using all these inputs, Nike shoes are manufactured and ensured that they reach quality
standards. After passing the standards, the shoes are shipped to distributors and retailers who
will sell the products to consumers. In the early 2015, Nike Inc. has a 135-day operating cycle
which is comprised of 95-day average inventory processing period and 40-day average receivable
collection period.

Cash on
hand

Pays for
Receives
inputs
payment
(materials,
from
labor,
customers
overhead)

Converts
Sells inputs into
inventory finished
goods

Stores
finished
goods as
inventory

Operating Cycle of Manufacturing Business

MODULE 1: Introduction to Accounting 19

 Comparing the Types of Business
Type of
Business
Definition Input Output Advantages Disadvantages Examples
According to
Activities
Businesses
 Absence  Inability to
that generally Accounting
of standardize
use their and law firms,
Intangible; inventory services
Service employees to Labor hospitals,
Service  No  Maintaining
provide schools,
production human
services to salons, shops
facilities capital
customers

Businesses
that buy  Visible Supermarkets,
finished or Goods or products convenience
almost finished merchandise Tangible;  Less  Managing stores, book
Merchandising
goods from bought from Merchandise conversion inventory stores,
their suppliers suppliers , time, and department
and resell the effort stores
same to
customers
 Generally,
needs Car
production companies,
facilities consumer
Businesses Raw  Quality
Tangible;  High products
that create materials, control
Manufacturing Manufactured conversion companies,
their own labor,  Visible
products costs electronics
products overhead products
 Cost of companies,
quality control energy
 Managing manufacturers
inventory

Activity 4 - Types of Business According to Activities

Let’s test your understanding of the lesson. Given are different kinds of business. Identify
each by writing on the blank its type of activity.
1. Lodging house ________________________
2. Shopping malls _______________________
3. Bag factory __________________________
4. Gasoline station ______________________
5. Bus company ________________________
6. Repair shop _________________________
7. Shipping lines ________________________
8. Schools _____________________________
9. Cigarette factory ______________________
10. Bookstore ___________________________

LESSON 5: BASIC ACCOUNTING CONCEPTS AND PRINCIPLES

Accounting concepts, principles, and assumptions are essential in the practice of

accountancy. Financial statements become more comparable and more useful to users if these
concepts, principles, and assumptions are followed by businesses. They serve as the foundation
of accounting in order to avoid misunderstanding and enhance the understanding and usefulness
of the financial statements.

MODULE 1: Introduction to Accounting 20

1. Business entity principle – means the business is considered as an entity that is
separate and distinct from the owner of the business.

Example: If Mr. Cruz has a barbershop business, the cash of the barbershop should be
reported separately from the personal cash of Mr. Cruz.

2. Going concern principle – means the business is expected to remain in operation

indefinitely.

Example: When preparing financial statements, you should assume that the business will
continue its operation indefinitely.

3. Objectivity principle – This objectivity principle requires a transaction to have a basis

that can be verified. Some form of objective evidence or documentation must exist to
support a transaction before it can be entered into the accounting records. Examples of
evidences are invoices, receipts or contracts.

Example: When a customer paid Jollibee for his order, Jollibee should have a copy of the
receipt to present as evidence of the sale that took place.

4. Monetary unit principle – means all transactions of the business are recorded using the
national monetary unit. In the Philippines the national monetary unit is pesos. Therefore,
the amounts in every transaction must be stated in pesos.

Example: Jollibee should report financial statements in pesos even if they have stores in
the United States.

5. Cost principle – means assets should be shown on the balance sheet at the cost of the
purchase not of the current value.

Example: When the business purchased a laptop, it should be recorded at the price it was
purchased.

6. Materiality principle – means that in case of assets that are immaterial to make a
difference in the financial statement, the business should instead record it as an expense.

Example: The business purchased an eraser for its office use and it has an estimated
useful life of two years. Since the eraser is immaterial relative to assets, it
should be recorded as an expense.

7. Conservatism principle – also known as prudence, means that in case of doubt, assets
and income should not be overstated while liabilities and expenses should not be
understated.

Example: In case of doubt, expenses should be recorded at a higher amount and revenue
should be recorded at a lower amount.

8. Accrual accounting principle – means the effects of business transactions should be

recognized in the period in which they occurred. Income should be recognized in the
period when it is earned regardless of when the payment is received. Expenses should be
recognized in the period when it is incurred regardless of when the expenses are paid.
The essence of accrual accounting is, it does not have to wait for the cash to be received
or for cash to be paid before the business transaction will be recorded.

MODULE 1: Introduction to Accounting 21

 Example: Mr. Jose, a barber, performed his service to a customer. Mr. Jose should record
the amount for the service he rendered even if his services has not been paid
yet.

9. Matching principle – The matching principle reinforces the accrual basis of accounting.
Under this principle, assets are consumed to generate sales revenue inflows while
outflows of assets are identified as operating expenses. The matching principle requires
that for each accounting period all sales revenues earned must be recognized, whether
payment is received or not. It also requires the recognition of all operating expenses
incurred, whether paid or not during the period. The revenues of the business always
comes with expenses; they always go together. In other words, if the revenues are
recorded in period 1, the related expenses should also be recorded on period 1.

Example: When the business bought equipment and there is a transportation cost
incurred related to the purchase, the transportation cost should be recorded as
an expense for that period.

Activity 5 - Basic Accounting Concepts and Principles

Let’s test your understanding of the lesson. Below are five questions. From the choices
given, encircle the letter of the correct answer.
1. Which of the following accounting principles requires that financial statement
information should be supported by independent, unbiased evidence other than
someone’s belief or opinion?
a. Business entity principle c. Cost principle
b. Going concern principle d. Objectivity principle

2. Which of the following principles states that every business should be accounted for
separately from its owner or owners?
a. Objectivity principle c. Cost principle
b. Business entity principle d. Going concern principle

3. What principle states that financial statements should reflect the assumption that the
business will continue operating in the future?
a. Going concern principle c. Business entity principle
b. Conservatism principle d. Monetary unit principle

4. Which of the following accounting principles would require that all goods and services
purchased should be recorded at cost?
a. Conservatism principle c. Cost principle
b. Monetary unit principle d. Matching principle

5. Marian Rivas is the owner of Marivas Accounting Services. Which accounting

principle requires Marian to keep her personal financial information separate from the
financial information of her business?
a. Matching principle c. Business entity principle
b. Objectivity principle d. Monetary unit principle

MODULE 1: Introduction to Accounting 22

ASSESSMENT

(Important note: Your performance in this assessment will be recorded.)

A. Read each item carefully. Encircle the letter of the correct answer.

1. This accounting principle is also known as conservatism. It is expressed in a

statement “to anticipate” no profit and provide for all probable and estimated losses.
a. Completeness c. Neutrality
b. Comparability d. Prudence

2. The form of business organization where capital is owned by two or more persons
who have agreed among themselves to divide profit and loss.
a. Sole Proprietorship c. Corporation
b. Partnership d. cooperatives

3. It is the biggest and most complicated form of business organization. It is organized

by at least five but not more than fifteen persons.
a. Partnership c. Proprietorship
b. Corporation d. Cooperative

4. This accounting principle assumes that the company has an indefinite life.
a. Matching principle c. Accrual accounting principle
b. Going concern principle d. Objectivity principle

5. Anna is a cashier in a grocery business. Every time she makes a cash deposit for the
business, she always fill-up a duplicate copy of the deposit slip. What accounting
principle is Anna observing?
a. Objectivity principle c. Monetary unit principle
b. Cost principle d. Matching principle

6. Linda is the owner of Laba Laundry shop. She always sees to it that every peso that
her business earned is recorded and owned by the business, not by her. What
accounting principle guides Linda’s actions?
a. Matching principle c. Business entity principle
b. Objectivity principle d. Monetary unit principle

B. Name at least three business entities operating within your community or within the City.
Identify the form of business organization they belong and the type of activities they have.

Name of business entity Form of business Type of activity

organization

C. Explain in two or three sentences. (5 points)

Why is accounting considered the language of business? _______________________

______________________________________________________________________
______________________________________________________________________

MODULE 1: Introduction to Accounting 23

 ANSWERS KEY (Note: Your performance in all Activities are not subject for recording.)
Activity 1 – Definition, nature, and function of accounting
A. 1. a B. Recording
2. d Classifying
3. d Summarizing
4. b Interpreting
5. d
6. b
7. a
8. a

Activity 2 - Users of accounting

Answer – Management
Possible support answer – Since the success of the business lies in the hands of the
management, it is very important that the management kept informed and updated of
the financial status of the business through the financial reports. The financial
accounting information of the business guides the management in making decisions,
policies, planning for the future, and controlling the operations of the business.

Activity 3 – Forms of business organizations

A. 1. c B. Cash dividend
2. a Stock dividend
3. a Property dividend
4. b
5. a
6. d
7. b

Activity 4 - Types of business according to activities

1. Service 6. Service
2. Merchandising 7. Service
3. Manufacturing 8. Service
4. Merchandising 9. Manufacturing
5. Service 10. Merchandising

Activity 5 – Basic accounting concept and principles

1. d. 2. b 3. a 4. c 5. c

REFERENCES

Aduana, Nick L. (2016). Fundamentals of Accountancy, Business, and Management 1. EDSA,

Quezon City. C & E Publishing, Inc.
Florendo, Joselito G. (First Edition). Fundamentals of Accountancy, Business, and Management
1. Manila, Philippines. REX Book Store
Lopez, Rafael Jr. M. (2016 Edition). Fundamentals of Accounting (Simplified Procedural
Approach). Davao City, Philippines: MS LOPEZ Printing & Publishing

MODULE 1: Introduction to Accounting 24