02_Identifying Business Transactions.pptx

Accounting

1. Fundamentals of Accounting Identifying Business Transactions

2. Chapter 2 Identifying Business Transactions Fundamentals of Accounting 2.01 Business Transactions or Events 2.02 Chart of Accounts 2.03 Basic Accounting Equation 2.04 The T-Account and Normal Balance of Accounts

3. 2.01 Business Transactions or Events Fundamentals of Accounting A business is a financial occurrence or situation that affects the assets, liabilities or equity of an enterprise directly (called as accounting elements ). Examples of business transactions: Investment of the owner Purchase of goods Sale of goods Payment of expenses

4. 2.01 Business Transactions or Events Fundamentals of Accounting Take note that only those transactions or events related to the business should be accounted and recorded . Business events are the occasional occurrence in the life of the business like loss due to fire, decline in market value, etc. Business transactions are exchanges of equal monetary values . This definition implies the following concept of understanding. For every value received, another value is given away in exchange (this is the dual effect of transaction that give rise to the DOUBLE ENTRY BOOKKEEPING or the VENETIAN MODEL ). These values are measured in terms of pesos which are presumed to be equal.

5. 2.01 Business Transactions or Events Fundamentals of Accounting The Accounts and Accounts Titles To make the information understandable to make the stakeholders, all business transactions must be recorded by using an “account or account titles” The Account is device used to record the changes in (increase or decrease) in the accounting elements. e.g. Assets accounts, liability accounts, equity accounts, revenue/income account and expenses account. Account titles are special or particular name of an account. For example, asset account , its account titles are cash, accounts receivable, inventory, etc. Account and account titles are summarized in the Chart of Account

6. 2.02 Chart of Accounts Fundamentals of Accounting Chart of Account is the collection of account names recognized by a firm and made available for registering transactions. Account Classification Asset account – these are resources controlled and owned by the business. Example: Cash – title of the account describing money, whether in paper or coins, or in replacements for money, such as check, postal money orders and bank drafts and trustees. Account receivable – title of account for the sums collected by services provided to clients though credit or selling to customers products on accounts.

7. 2.02 Chart of Accounts Fundamentals of Accounting c) Inventory – assets held for sale in the regular course business and the manufacturing process for such sales; or materials or supplies to be utilized in the manufacturing or service proceedings. d) Prepared Expenses – expenses not already incurred or have not expired but paid in advance, examples are prepaid rental, and prepaid interest etc. e) Unused Supplies – the account title for stationary and other supply costs acquired for use but left in hand and remain unused. f) Land – account title for the site occupied by an organization for its daily business operations g) Building – construction that are completed and owned by the company where the transaction and the activities took place.

8. 2.02 Chart of Accounts Fundamentals of Accounting h) Furniture and Fixtures – includes chairs, table, counters, display cases and the like. Machinery and equipment – physical assets owned by the company for use in the manufacture or provision of goods and services. j) Investment – include financial assets that reflect the right of a corporation to collect revenue through its bonds, shares and real estates, etc.