Class notes
financial statements
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notes for midterm examination of fabm
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Lesson 1.2: Users of Financial ❖ Employees are persons in theInformation company aside from managers
and owners or stockholders and
USERS OF ACCOUNTING: do not have authority to
● Extrenal Users implement decisions.
● Internal Users
❖ Owners or Stockholders are
EXTERNAL USERS: existing investors of the company
and concerned mostly with the
➢ Customers are the main source profits of the company.
of income of businesses.
BRANCHES OF ACCOUNTING
➢ Creditors are providers of
additional funds when the initial 1. Financial Accounting - a type of
investment of owners is accounting intended to record
exhausted. and prepare financial information
to provide economic and financial
➢ Potential Investors are information for external users
providers of additional funds such as investors, creditors, and
when the initial investment of tax authorities.
owners is exhausted. 2. Management Accounting -
designed to cater the needs of
➢ Government regulates the management. In short, it is
businesses and studies financial geared towards the internal users
statements to determine the to make decisions for the
amount of taxes payable. betterment of the company’s
performance.
➢ Academe uses accounting 3. Government Accounting - •the
information primarily for accounting process used by the
academic purposes. government offices to record and
report financial transactions.
➢ Public are the citizens and 4. Auditing - an unbiased
residents of the country even examination and evaluation of the
though they do not plan to financial statements of an
transact with the business. organization.
5. Tax Accounting - focuses on
INTERNAL USERS: transactions that affect the
company’s tax burden, and how it
❖ Management are employees that
affects the computation of the
can make decisions for the
company’s taxes and tax
company and are considered the
document requirements.
brain of the company.
, 6. Cost Accounting - helps Partnership
measure the cost of a product
- a contract whereby two or more
and this information supports persons bind themselves to
management in deciding how contribute money, property or
many products to produce, the industry to a common fund, with
selling price of the product, or the intention of dividing the
profits among themselves.
valuing the inventory of products - It may also be formed for the
in the company’s financial exercise of a profession.
statements
7. Accounting Education - Advantages Disadvantages
normally a 5-year program under
the Bachelor of Science in - Easier to - Unlimited
Accountancy in the Philippines. create than liability
a - Mutual
- controls the accountancy
corporation agency
profession in the country - Better - Limited life
8. Accounting Research - as the ability to
name suggests, is the branch of apply
accounting that deals with the additional
creation of new knowledge. capital
- Large pool
of human
FORMS OF BUSINESS
capital
ORGANIZATION
Sole Proprietorship Corporation
- a form of business organization - an artificial being created by
with only one owner and has no operation of law, having the
separate legal existence. right of succession and the
- It is the common form of business powers, attributes, and properties
organization and the easiest to expressly authorized by law or
establish. incident to its existence.
Advantages Disadvantages
Advantages Disadvantages - Transferable - Double
ownership taxation
- Ease of - Unlimited rights - Not easy to
formation liability - Limited form
- Simple - Difficulty of liability of - Heavily
taxation raising stockholder regulated by
- Owner has additional s government
all profits capital - Ability to
for - Owner’s acquire
himself/her Bias additional
capital
self
, Cooperatives Lesson 3: Accounting Equation
- a duly registered association of
persons, with a common bond ASSET = LIABILITY+EQUITY
of interest, who have voluntarily
joined together to achieve a ● Asset
lawful common social or - Economic resources owned
economic end, making equitable
contributions to the capital and/or controlled by the company
required and accepting a fair - Future economic benefits are
share of the risks and benefits of expected to flow to the entity.
the undertaking in accordance
with universally accepted
cooperative principles. ● Liabilities
- Present obligations of the entity
THREE MAJOR TYPES OF arising from past events.
BUSINESS: - The settlement of which is
expected to result in an outflow
➔ Service Company from the entity.
- gives customers services instead
of tangible products. ● Equity
- generally use their employees to - Residual interest in the assets
provide intangible products or after deducting all of its liabilities.
services to customers.
ASSET - LIABILITIES = EQUITY
➔ Merchandising Companies
- Buy and Sell" or "Trading Asset = Liability + [Proprietorship +
concern". (Income – Expenses)] ↓ Capital
- engaged in buying goods or
commodities or any form of ● Income
finished products and sells them - increase in economic benefits
at a profit. during the accounting period in
the form of inflows.
➔ Manufacturing Companies - amount recorded by the company
- They are engaged in buying raw when the performs the services
materials, components, or parts or delivers the product to its
which are converted into finished customers.
products for sale at a profit.
● Expense
- decreases in economic benefits
during the accounting period in
the form of outflows.
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