Users, Organizations & Activities

• Internal users include top-level management like CEOs and middle-level management like managers
• Financial information users are internal (primary, inside the company) or external (secondary, outside the company)
• Internal users include owners, CEOs, managers, and employees
• External users include creditors, stockholders, and customers

Types of Business Organization

• Sole Proprietorship: A business owned by one person.
• Partnership: Two or more persons who own a single business.
• Corporation: Has no more than 15 directors, stockholders, and an elected board of directors.
• Cooperatives: A group of users for their own benefit (e.g., ficco, oro).

Types of Business Activities

• Service business: Renders services for a fee (e.g., laundry, banks).
• Trading and Merchandising business: Supplies and sells merchandise to sellers.
• Manufacturing business: Buys raw materials and converts them into finished products.

Fundamental Concepts

• Entity concept: Requires keeping business cash and records separate from personal finances.
• Periodicity: Refers to a specific time period.
• Calendar year: An example of periodicity, from January 1 to December 31.
• Fiscal year: Another example from May 1 to April 30, totaling 1 year.
• Going Concern: Assumes the business will continue indefinitely, without an assumed end.

Basic Principles of Accounting

• Objectivity Principle: Requires verifiable evidence for financial transactions.
• Historical Cost: Records assets at their original acquisition cost.
• Accrual Principle: Recognizes revenue when goods are served or services are rendered, regardless of when payment is received.
• Adequate Disclosure: All material facts that could affect the financial statements must be recorded.
• Materiality: Financial reporting is significant if it impacts decision-making.
• Consistency: Accounting methods must be uniformly applied from period to period.