Chapter 1: Introduction to Accounting

 Introduction to Accounting

As we are thriving to learn more about accounting, having some knowledge about basic accounting is very well important as it will serves as your guide to your accounting journey. Here are some topics and ideas you might use to start and deepen your knowledge about accounting. In this topic we are expecting to know what accounting is, the nature and purpose of accounting, differentiate the users of accounting, state the forms of business organization, and lastly, the different types of business according to activities.

Video presentation link: Introduction to Accounting presentation

What is accounting? It is a process of identifying, recording, and communicating economic information that is useful in making economic decisions. It is very important to know first because identifying helps the accountant to analyze business transaction whether the transaction is “accountable events” or “non-accountable events” because only accountable events are recorded in the book of accounts. While Recording recognized the identified accountable accounts. And last, Communicating is where the accountant summarizes the information process in accounting system. 

 

The nature of accounting is to provide information about economic activities that might help them in making economic decisions. The third content is about users of accounting, in this one we are able to know the two different types of users: Internal users is the one who is directly involved in managing the business. There are three (3) examples of internal users include: 

1. (a) Business owners that are directly involved in managing the business 

2. (b) Board of directors  

3. (c) Managerial personnel 

 

While the external users are those who are not directly involved in managing the business. There are six (6) examples of external users include: 

1. (a) Existing and potential investors 

2. (b) Lenders 

3. (c) Government agencies 

4. (d) Non-managerial employees 

5. (e) Customers 

6. (f) Public 

 

There are four (4) forms of business organization: 

1. 1. Sole Proprietorship – is a business owned by only one individual. 

2. 2. Partnership – from the word itself “partner” it is a business that is owned by two or more individuals who entered a contract, and they call each other a partner. 

3. 3. Corporation – it is also owned by two or more individuals. It is more likely a partnership, but corporations are created by operation of law. 

4. 4. Cooperative – is also owned by more than one individual. 

 

And of course, the last content of our chapter is the types of business according to activities. There are three (3) major types of business according to the activities they undertake: 

1. 1. Service business – is a business that offers services than physical goods. 

2. 2. Merchandising business – is a business that buys and sells goods without changing their physical form. 

3. 3. Manufacturing business – is a business that buys raw materials then turns them into a product for them to sell it. 

 

This is the end of our topic under Financial Accounting and Reporting Chapter 1: Introduction to Accounting. This is just all about knowing the basic concepts and information about accounting. This chapter is the first thing we should know before entering the world of accounting because having a basic knowledge is a great defense and foundation in learning about accounting because you will use it in every topic you’re going to encounter.