accounting ppt..pdf

Accounting

3. 1.IdentificationOfEconomic
EventsRelevantToABusiness
Examplesofthisarethesaleof
Toyotacars,provisionofservices
byahospital,paymentto
suppliersandpurchaseof
equipmentforthemanufacturing
ofBenchshirts.

4. 2.RecordingofRelevant
Economicevents
Afteracompanyidentifies
therelevanteconomic
events,itrecordsthose
eventswhichwillserveas
thehistoryofitsfinancial
activities.

5. 3. Companies Summarize all
the Recorded Economic
Events into Accounting
Reports.

6. 1.Accounting is a process
2.Accounting is an art
3.Accounting deals with
financial information
and transactions

7. 4. Accounting is a
means and not an
end.
5. Accounting is an
information system

8. 1.Keeping systematic
recordofbusiness
transactions
Recording transactions
doesnotonlyinvolve
enteringthetransactions
intheaccountingbooks.

9. 1.ProtectingPropertiesof
theBusiness
Theaccountingrecords
serveastheevidencethat
propertiesofabusiness
doexistorhowmuchofa
particularresourcedoesa
companyhave.

10. 3.CommunicatingResultsto
VariousPartiesinor
ConnectedwiththeBusiness
Communication ofthe
resultsofoperationsofa
company’sessentialforall
concernedpartiestoenable
themtotakewell-informed
decisions.

11. 4. Meeting Legal
Requirements
Thisprocedureaimsto
protectthepublicby
providingthem the
necessaryinformationto
makeasounddecisions.

16. Itisbelievedthatthehistoryof
accountingisthousandsofyearsold
andcanevenbetracedtoancient
civilizations.
Earlydevelopment toAncient
Mesopotamia.
ThereignofEmperorAugustus(63BC-
14AD),providedmoreevidenceabout
thedevelopmentofaccounting

17. TheRomangovernmentkept
detailedfinancialinformation
ofthedeedsofEmperor
Augustusregardingthe
stewardship of Roman
resources,thisisevidenceby
theResGestaeDiviAugusti
(DeedsOftheDivine
Augustus).

18. TheRomanSuetoniusand
CassiusDiorecordedthatin
23BC,Augustusprepareda
rationariumwhichlisted
publicrevenues,theamounts
ofcashintheaerarium,in
theprovincialfisciandinthe
handsofpublicani.

19. Double-entry
bookkeeping ofLuca
Pacioliinthe14
th
Century
Italyisthemostimportant
eventinaccountinghistory
whyheisacknowledgedas
theFatherofModern
Accountingbecauseofthis.

20. Double-entry
bookkeepingsystemis
definedasanybookkeeping
systemthathasadebitand
creditforeachtransaction.

21. ReviewonArithmetic,
Geometry, Ratio,and
Proportion
Firstbookprintedwitha
treatiseonbookkeeping

22. At present times,
accountingstandardsare
alreadyavailabletoguide
accountantsintheir
practiceoftheprofession.
Someofthisincludethe
following:

23. 1.PhilippineFinancial
Reporting Standard
(PFRS)
2.PhilippineAccounting
Standards(PAS)

24. ACTIVITY:
Inaonepagepaper,give
atleastthreeexamplesof
howpeoplefromearlier
periodsmadeuseofthe
accountingtheprocess.How
didtheaccountingprocess
helpsuchpersonsintheir
lives?

25. 1.FINANCIALACCOUNTING
Isabranchofaccountingprimarily
handlingtherecordingoffinancial
transactionsofabusiness.Itislater
summarized intoastandardized
accountingreports,morepopularly
knownas,Financialstatements.
Purposeofinformation:Toguideexternal
andinternalusersintheireconomic
decisions.

26. Frequency of Reports:
Periodic
Intended Users: External
and Internal users
Standards/Basis of
presentation: PFRS and PAS

27. Investors
Creditors
Shareholders/Stockholders
Government Agencies
Auditors
Other interested outside
parties

28. Top management
Department managers
Other internal parties

29. 2. Management Accounting
Focuses on the preparation of
reports for use of managers in
their decision-making.
Type of report generated:
Management reports

30. Purpose of information: Helps
management in decision making
Frequency of reports:
Whenever management asks for
a report.
Intended users: Internal users
only
Standards/Basis:None

31. AccordingtoCharteredInstituteof
ManagementAccountants(CIMA),
charteredmanagementaccountants
performtheff.roles:
1.Advisemanagersaboutthe
financialimplicationsofprojects.
2.Explainthefinancialconsequences
ofbusinessdecisions.

32. 1.Analysis
2.Strategy
3.Risk
4.Planning
5.Communication

33. 3.GovernmentAccounting
accordingtoSection109of
PresidentialDecree1445,
government accounting
encompassestheprocessof
analyzing, recording,
classifying,summarizingall

34. Transactionsinvolvingthe
receiptanddispositionof
governmentfundandproperty
andinterpretingtheresult
thereof.
Typeofreportgenerated:
Periodicfinancialreports;
financialstatementsofthe
government.

35. Purposeofinformation:Helps
management indecision-
making
Frequencyofreports:Periodic
Intendedusers:Externaland
internalusers
Standards/Basis:NGAS

36. New Government Accounting
System (NGAS)
Itenhancesresponsibility
accounting.
Simplystated,responsibility
accountingrelatesfinancial
resultstoaparticular
responsibilitycenter.s

37. 1.Declaration of General
AppropriationAct(GAA)
2.CommissiononAudit(COA)-
responsibleforkeepingofthe
government’sgeneralaccountsand
accountingbooks,anddisseminate
accountingrulesandregulationsto
beusedbyallagencies.

38. 3.DepartmentofBudgetand
Management(DBM)-inaccordance
withSection2,Chapter1,TitleXVII,
BookIVoftheAdministrativeCode
ofthePhils.,DBM,shallbe
responsiblefortheformulationand
implementationoftheNational
Budgetwiththegoalofattainingour
nationalsocio-economicplansand
objectives.

39. 4.BureauofTreasury(BTr)-is
responsibleforthesafekeeping
ofthenationalfunds,
responsible for the
managementandcontrolofthe
disbursementsofsuchfunds.

40. Examinesandevaluatesfinancial
statements of a company
independently.
Typesofreportgenerated:Auditor’s
report
Purposeofinformation:Gives
credibilitytothe financial
statementsofacompany.

41. Frequencyofreports:After
everyauditofasetof
financialstatements.
Intendedusers:External
andinternalusers.
Standards:Phil.Standard
onAudit(PSA)

42. Laysdownthedifferenttreatmentsof
thetaxingauthoritiesregarding
financialtransactions.
Typeofreportgenerated:Taxreturnsto
beusedbytaxingauthoritiesto
determinetheamountoftaxespayable.
Purposeofinformation:Helpsin
determiningtheamountoftaxes
payable

43. Frequency report:
Periodic
Intendedusers:Taxing
authorities
Standards: National
InternalRevenueCode
(NIRC)

44. Findsoutthecostofspecificcost
objectstohelpinthefunctionsof
bothfinancialandmanagement
accounting.
Typeofreportgenerated:Costof
productionreport
Purposeofinfo.:Findsthecostof
aparticularobject.

45. Frequencyreport:Whenever
management asksfora
report.
Intendedusers:Internal
usersonly
Standards:None

46. 1.Cost-theresourcesacrificedto
achieveanobjective.
2.Costobject-anythingthatyouwishto
findthecost
3.Costdriver-anactivitythatiscaused
oftheincurrenceofcosts.
4.Directcost- coststhatcan
economicallybetracedtoacost
object.

47. 5.Indirectcost-coststhat
cannotbetracedtoacost
object
6.Fixedcost-coststhatdonot
changewithinarelevantrange
ofactivity
7.Variablecost-coststhat
changeasthelevelofactivity
orproductionincreases.

48. Deals with the promulgation of
accounting knowledge to various
interested parties that will aid them
in achieving their individual goals.
Type of generated report: None
Purpose of information: Educates
students in the field of accountancy.

49. Frequency of reports:
None
Intended users: Students
and members of the
academe.
Standards: None

50. 1.Must be a high school graduate
2.Must have a college entrance
examination of above average or
depending on the specific rating set
by the school.
3.Aside from the college entrance
examination, must pass the separate
aptitude test specific for BS in
Accountancy

51. 4. Must pass the interview conducted by
the college admission officer.
5. Some schools require a high school QPA
of 85% and above with no grade less than
80% in all subjects.
6. There are schools who require students
to have an 85% or higher average rating in
the National Secondary Assessment Test
(NSAT)
7. As set by CHED, all schools must
conduct an English Proficiency
examination to all BS in Accountancy

52. Applicants.
8. Admission for the Philippine
Educational Placement Test (PEPT) passers
mainly depends on the selection on the
school’s discretion since some colleges
and universities offer only selected
courses.

53. It is a comprehensive test composed
of seven subjects, each subject will
be taken within 3 hours so the exam
will be for 21 hours all in all.
A candidate should achieve a general
average of at least 75% with no
rating below 60% in any of the seven
subjects in order to pass the exam.

54. Continuousimprovement ofthe
accountancyfieldthroughresearchesand
studies.
Typeofgeneratedreport:Research
results
Purposeofinformation:Addstothe
knowledgeofaccountancy
Frequencyofreports:Varies
Intendedusers:Primarilymembersofthe
academe

55. 1.Decidingandimplementingnew
accountingandauditingstandards
2.Presenting unusual economic
transactionsinthefinancialstatements
3.Learninghownewtaxlawsimpact
clientsandemployers.
4.Discerninghow theaccounting
professionaffectsthecapitalmarkets
throughacademicaccountingresearch.

56. 1.EXTERNALUSERS
A.Customers-mainsourceof
incomeofbusiness;acquire
goodsorservicesforafree.
Exampleofusers:patrons,clients,
peopleacquiringgoodsorservices
ofacompanyforafee.

57. Decisionsmadeusing
accountinginformation/
benefitsfromaccounting
information:Whetheror
nottobuildrelationship
withthebusiness.

58. 2.Creditors:providersof
additionalfundswhenthe
initialinvestmentof
ownersisexhausted;lend
resourcestobusiness
usuallyintheformof
money.

59. Exampleofusers:Banks,
lending institutions,
wealthy individuals;
sometimes the
governmentcanalsolend
resourcestoacompany.

60. Decisionsmade using
accounting information/
benefitsfromaccounting
information:Whetherornot
tolendresourcestothe
business,trytoseeifthe
businessisnotveryrisky
beforelendingfunds

61. 3.Potentialinvestors-
providersofadditionalfunds
whentheinitialinvestment
ofownerisexhausted;
investresourcesinthe
businesshopingtoearn
decentreturns.

62. Example of users:
Wealthy individuals,
otherbusinessplanningto
invest.

63. Decisionsmade using
accounting information/
benefitsfromaccounting
information:whetherornot
toinvestinthebusiness,
primaryconcernsisthe
abilityofthebusinessto
provideacceptablereturns.

64. 4.Government:an
externaluserwhose
primaryroleisto
regulatebusiness;studies
financialstatementsto
determineamountof
taxespayable.

65. Example of users:
differentgovernment
agencies, taxing
authorities,government
officials.

66. Decisionsmadeusingaccounting
information/benefitsfrom
accounting information:
overseesbusinessoperations
withtheendgoalofimproving
theeconomy;checksthe
accuracyofthefinancial
statementstocomputeforthe
correctamountoftaxes
payable.

67. 5.Academe:usesaccounting
informationprimarilyfor
academicpurposes.
Exampleofusers:Professors,
lecturers,students and
researchers.

68. Decisions made using
accounting information/
benefitsfromaccounting
information:usesaccounting
info.intheteachingof
accountancy; researches
loopholes and possible
improvementsinthefieldof
accountancy.

69. 6.Generalpublic:citizensand
residentsofthecountryeven
thoughtheydonotplanto
transactwiththebusiness;use
financialstatementstogauge
theconditionoftheeconomy.
Exampleofusers:Common
peoplenotconnectedwiththe
company.

70. Decisionsmadeusingaccounting
information/benefitsfrom
accounting information:
Concernedwiththeoverall
performanceoftheeconomy,
usefinancialinformationto
estimate economic
performance.

71. 1.Management:employeesthat
canmakedecisionsforthe
company,consideredthebrain
ofthecompany.
Exampleofusers:Boardof
directors,topmanagement,
middle-level managers,
supervisors.

72. Decisions made using accounting
information/ benefits from
accounting information:Uses
financial information in making
decisions, allows management
to identify problems
immediately and to respond
accordingly.

73. 2. Employees: persons in the
company aside from managers and
owners or stockholders; do not
have authority to implement
decisions.
Example of users: Laborers, field
workers, non-managerial
employees.

74. Decisions made using accounting
information/ benefits from
accounting information:check
if the business is profitable
enough to provide compensation
and other benefits.

75. 3. Owners or stockholders: Existing
investors of the company;
concerned mostly with the profits
of the company.
Example of users: Founders of the
company, owners, stockholders,
partners, proprietors.

76. Decisions made using accounting
information/ benefits from
accounting information: mainly
concerned with the returns earned
from their investment; owners
taking active roles in the
operations of the business; also
make decisions.

77. 1.SOLEPROPRIETORSHIP
Aformofbusinessorganization
withonlyoneowner.
Hasnoseparatelegal
existence
Cantakefictitiousnames.

78. Mostcommonformofbusiness
organization; easiestto
establish.
ADVANTAGES:
1.Easeofformation-much
easiertoestablishthanother
formsofbusinessorganization.

79. 2.Theownerhasfullcontrol
ofthebusiness-theownercan
single-handedlydecideon
matterspertainingtothe
business.
3.Ownerscanmixpersonal
andbusinessassets-owners
mayfreelymixtheirpersonal
assetswithbusinessassetssince

80. Soleproprietorshipsarenot
separatejuridicalentities
distinctfromtheowners.
4.Ownershavealltheprofits
forthemselves-alltheprofits
generatedbyabusiness
operating as a sole
proprietorshipbelongtothe
owner.

81. 5.Simpletaxation-Theowner
needsonlytodeclarethen
incomeofthebusinessinhisor
hertaxreturnsanditwillbe
taxedaccordingly.
DISADVANTAGES:
1.Unlimitedliability-anowner
ispersonallyliableforallthe
debtsincurredbythebusiness

82. Sinceasoleproprietorshiphas
noseparatelegalexistence
distinctfromtheowner.
2.Difficultyofraising
additionalcapital-theinitial
investmentoftheowneristhe
capitalofthebusinesswhenall
oftheinitialinvestmentsare
usedup,theowneristheonly
personthat

83. Canprovideadditionalcapital.
3.Owner’sbias-Onlythesole
proprietorshiphastheauthority
tomakedecisionsforthe
business.

84. 2.PARTNERSHIP
Acontractwherebytwoor
morepersonsbindthemselves
tocontributemoney,property,
orindustrytoacommonfund,
withtheintentionofdividing
theprofitsamongthemselves.
Mayalsobeformedforthe
exerciseofaprofession.

85. 1.Twoormorepersonsare
needed.
2.Moneyisnottheonly
resourcethatapersoncan
contributeinapartnership
butalsopropertyand
industry.
3.Establishedforthepurpose
ofobtainingprofit,ifan

86. Organizationiscreatedfor
purpose.
4.Partnershiparethecommon
formofbusinessorg.usedby
thecompanieswhogenerate
profitsbythepracticeofa
profession.

87. FEATURESOFAPARTNERSHIP
1.Separatelegalexistence-
partnershipisalsodefinedas
anartificialbeingcreatedby
operationoflaw.
2.Mutualagency-meansthat
theactsofapartnerare
bindingonapartnership
eventhoughheorshehasno

88. Authoritytodosoaslongasthe
actconcernsthenormal
businessoperationsofthe
partnership.
3.Unlimitedliability-even
thoughapartnershiphas
separatelegalexistence,
partnersarestillliablefordebts
andobligationsthatcannotbe

89. Paidbypartnershipassets.
4.Limitedlife-thelifeofa
partnershipcanbeeasilyended
throughpartnershipdissolution
orliquidation.Partnership
dissolutionoccurswhenoneof
thepartnerswithdrawsfromthe
partnershiporifanewpartner
isadmitted.

90. Dissolutionoccurswhenthereis
achangeintherelationship
amongpartners.
5.Co-ownershipofpartnership
property-partnerscontribute
money,property,andindustry
intoacommonfund.
6.Partnershipagreement-the
definitionprovidedbythelaw

91. Statesthatapartnershipisa
contractsareperfectedthrough
oralorwrittenagreement.
Articlesofpartnership-isalso
knownaswrittencontract
containstheff.info.:
1.Nameofthepartnership
2.Locationoftheprincipal
officeofthepartnership.

92. 3.Thenames,citizenship,and
residenceofthepartners.
4.Termforwhichthepartnership
exist.
5.Thepurposesforwhichthe
partnershipisformed.
6.Originalcapitalcontributionsof
thepartners.
7.Profitandlosssharing
agreement.

93. ADVANTAGESOFPARTNERSHIP
1.Easiertocreatethana
corporation
2.Betterabilitytoacquire
additionalcapitalthansole
proprietorships
3.Largerpoolofhumancapital
thansoleproprietorships.

94. DISADVANTAGES OF
PARTNERSHIP
1.Unlimited liability
2.Mutual agency
3.Limited life

95. OTHER FORMS OF A
PARTNERSHIP
1.Limited Partnership-at
least one partner has
unlimited liability and at
least one partner has
limited liability.

96. General partners-partners
having unlimited liability.
Limited partners-partners
having limited liability.
2. Limited Liability
Partnership-is a type of
partnership that aims to
protect innocent partners

97. Fromthemalpracticeand
wrongdoingsofother
partners.
3. Limited Liability
Company-isanotherof
organization having
partnershipcharacteristics.
Limitedliabilitycompanies

98. Havefeaturesofbotha
corporationandapartnerships.
Theownersarecalledmembers
andthenenjoylimitedliability.

99. 3.CORPORATION-anartificial
beingcreatedbyoperationof
law,havingtherightof
successionandthepowers,
attributesand properties
expresslyauthorizedbylawor
incidenttoitsexistence.

100. FEATURES OF A CORPORATION
1.Separate legal existence-it
is treated by law as an
artificial being separate and
distinct from its owners.
2.Limited liability-the
personal assets of the
stockholders of a corporation
are protected from the

101. Claims of creditors and other
outside parties.
3. Transferable ownership
rights-it is represented by
stocks.
Stocks-is an intangible asset
evidencing a proportionate
share in the properties of a
corporation.

102. 4.Virtually unlimited life-a
corporation shall exist for a
period not existing 50 years
from the date of its
formation.
5.Corporation management-
the management structure of
a corporation is more
complex than that of the

103. other forms of business
organizations.Stockholdersare
theownersofacorporation.
Boarddirectors-representsthe
interestofthestockholdersand
theyareresponsibleforcreating
operatingpoliciesforthecompany.
Stockholderscanalsobeamember
oftheboardofdirectors.

104. 6. Government regulations-
corporations are subject to
stricter government regulation
than sole proprietorship and
partnerships.
7. Double Taxation-the income
of a corporation is taxed on the
corporate level and the
individual level.

105. 8. Dividends-this are the
income distributed to
stockholders. Maybe in form of
cash, stock, or property.
ADVANTAGES OF CORPORATION
1.Ability to acquire additional
capital
2.Transferable ownership
rights.

106. 3. Limited liability of
stockholders
4. Virtually unlimited life
5. Large pool of human capital.
DISADVANTAGES OF
CORPORATION
1. Heavily regulated by the
government

107. 2. Double taxation
3. Not easy to form
4. More expensive to form than
sole proprietorships and
partnerships.

108. 4.COOPERATIVES-aduly
registeredassociationof
persons,withacommonbondof
interest,whohavevoluntarily
joinedtoachievealawful
commonsocialoreconomic
end, making equitable
contributionstothecapital
requiredandacceptingafair

109. Shareoftherisksandbenefitsof
theundertakinginaccordancewith
universallyacceptedcooperative
principles.
Itiscomposedofatleast15
persons
Itsincomeiscalled,“Net
surplus”.
Acooperativehasitssetofboard
ofdirectors.

110. Isanorganizationthat
coversinputsorresources
suchasmaterial,labor
andoverheadintooutputs
whichareusuallyeither
goodsorservices.

111. 1.SERVICE
Firmsthatgenerallyuse
theiremployees to
provideservicesto
customers.

112. Input:Labor
Output: Intangible;
service
Advantages:
1.Absenceofinventory
2.No production
facilities

113. Disadvantages:
1.Inability to
standardizeservice
2.Maintaininghuman
capital.
Examples:Accounting
andlawfirms,hospitals,

114. Schools,salons,etc.
Servicerevenues-itis
theperformanceof
service.
Operating cycle-
includepayingout
moneyforemployees

115. Andotheroperating
expenses,performing
the services,and
collecting cash
payments from
customers.

116. 2.Merchandising
firmsthatbuyfinished
oralmostfinished
goodsfrom their
suppliersandresellthe
sametocustomers.

117. Input: Goods or
merchandise bought
fromsuppliers.
Output: Tangible;
merchandise

118. Advantages:
1.Visibleproducts
2.Less conversion,
time,andeffort
Disadvantage:
1.Managinginventory.

119. Examples:
Supermarkets,
convenience stores,
bookstores,department
stores.
Salesrevenueorsales-
referstoprimarilyearn

120. Revenuesfromthesale
of goods or
merchandise.
TWO TYPES OF
MERCHANDISING
1.Retailer
2.Wholesaler

121. 3.Manufacturing
firmsthatcreatetheir
ownproducts.
Input:Rawmaterials,
labor,overhead.
Output: Tangible;
manufacturedproducts.

122. Advantages:
1.Qualitycontrol
2.Visibleproducts
Disadvantages:
1.Generally need
productionfacilities
2.Highconversioncosts

123. 3.Costofqualitycontrol
4.Managinginventory
Examples: Car
companies,consumer
products companies,
electronicscompanies,
energymanufacturers.

124. 1.Accrual Accounting
Anaccountingbasiswhereinincome
isrecognizedwhenearnedand
expensesarerecognizedwhen
incurredirrespectiveofthetimingof
cashreceiptorpayment.Accrual
accountingresultsinmoreaccurate
financialstatements.

125. Cashbasisofaccounting
Oppositeoftheaccrual
basisof accounting;
recognizesincomewhen
cashisreceivedand
recognizesexpenseswhen
cashispaid.

126. 2.MatchingPrinciple
aconceptcloselyrelated
toaccrualaccountingwhich
statesthatexpensesshould
berecordedinthesame
periodastherelated
revenues.

127. 3.Accountingjudgmentand
estimates
notallitemsinacompany’s
accountingrecordcanbe
determinedprecisely.Thisis
thereasonwhyestimatesare
used. Estimates are
determinedusingprofessional
judgment,studyofhistorical
data,andthroughresearch.

128. 4.Prudence
alsocalled“Conservatism”
Meansexercisingcarein
decisions regarding
recognitionofitemsinthe
accountingrecords.Incase
of doubt, recognize
liabilitiesandexpensesand

129. Donotrecognizeassetsand
income.
5.Substanceoverform
Thesubstanceofsomebusiness
transactionsdifferfromtheir
legalform.
Acommonexampleofthisisa
contractoflease,ifsubstance
differsfromlegalform,you
shouldfollowthetreatmentof
thetransactionbasedonthe
substance.

130. 6. Going concern
assumption
theassumptionthatentity
willcontinueoperations
indefinitelyintothefuture.
Itcanbeabandonedif
thereevidencessupporting
thecontrary.

131. 7. Accounting entity
assumption
Theassumptionthatthe
businessisanentityseparate
anddistinctfromtheowners,
managers,andemployees.
Personaltransactionsof
owners, managers and
employeesshouldnotdistort
theresultsofcompany
operations.

132. 8.Timeperiodassumption
Theassumptionthatthe
indefinitelifeofacompany
canbedividedinto
multipletimeperiodswith
equallengths.
Theresultofthisisthe
periodicpresentationofa

133. company’s financial
statements.Acalendaryear
isa12-monthperiodthat
endsonDecember31.A
fiscalyearisa12-month
periodthatendsonany
month.

134. 9. Generally Accepted
AccountingPrinciples(GAAP)
Setofaccountingprinciples,
concepts,rulesandguidelines
thatcompaniesfollowto
enhancetheconsistencyand
comparabilityof their
financialstatements.

135. 10.InternationalFinancial
ReportingStandards(IFRS)
pronouncementsmadeby
theIASBthatintendto
enhancetheconsistency
andcomparabilityofthe
financialstatementsofthe
companiesallaroundthe
world.

136. 11. Philippine Financial
ReportingStandards(PFRS)
thePhilippineversionofthe
IFRS.
Itincludesthepronouncements
oftheIFRS,thePASwhich
correspondswiththeIAS,and
the interpretations of
accountingstandardsbythe
Philippine Interpretations
Committee.

137. ASSETS=
LIABILITIES+EQUITY

138. ELEMENTS OF THE ACCOUNTING
EQUATION
ASSETS
Are resources that an entity in
order to derive some future
benefits.
What the entity owns.

139. EXAMPLES OF ASSETS
1.Cash-itisthemoneyweuse
comprisingofthebillsandcoins
weuseinoureverydaylives.
2.Accounts Receivable-
representsamountsthatare
collectiblefromcustomers.
Theyarearisewhenabusiness
sellsitsgoodsandserviceson
accountorcredit

140. EXAMPLES OF ASSETS
3. Inventories-these products
are inventory which normally
held for sale by the store in its
normal operation.
4. Equipment
5. Land and building
6. Intangible assets-ex.
Software.

141. LIABILITIES
are one of the claims of
external parties from the entity.
Basically, they are the debts of
the entity to external creditors.
What the entity owes to its
creditors.

142. FORMSOFLIABILITIES
1.AccountsPayable-itwouldonly
incuranobligationtopayits
supplierafteracertainnumber
ofdays.
2.Unearned Revenue-
Telecommunicationcompanies
suchasGlobeandSmart
normallyofferprepaidloadto
customers.Theseloadcreditscan
belateronusedbycustomersfor
textmessagesorcall.

143. EQUITY
-reflectstheresidualclaimsornet
assetsoftheownersofanentity.
Thisissimilartothenetworthpart
oftheSALNofourpublicservants.
Generally,equitycomesfromtwo
sources:a.Comesfromtheowners
intheformofinvestmentcapital,
b.incomeofthebusinessfromits
normaloperations.

144. EQUATIONofNETLOSS
REVENUES –EXPENSES=
NET INCOME/ NET LOSS

145. REVENUES
-Abusinessearnsrevenue
whenitsellsproductsor
itsservices.
EXPENSES
-Matchingprinciplestates
thatnorevenuecanbe
earnedwithoutincurring
corresponding
expenditures.

146. CAPITAL
-Representsthenet
investments of the
business.Thismeansthat
anycontributionofthe
ownerwhichincreasesthe
assetsofthebusinessor
decreasesitsliabilitieswill
increasecapitalaccount.

147. Inusingtheaccounting
equation,thereshould
alwaysbeadualeffect
intheequationto
preservetheaccounting
identity.

148. Initialinvestment.Manang
Rosiehasbeenwellknown
forherdeliciousvarietyof
barbecues.Assuch,she
decidedtoopenupa
baebecue storeinher
neigborhood.The store
would be a sole
proprietorshipbusiness.In
ordertodoso,sheinvested
P25,00asinitialcapital.

149. Purchase of
equipments.To actually
create her famous
barbecueshewouldneed
theproperequipmentto
cookit.Thus,shewentto
thelocalhardwarestore
andboughtthenecessary
equipmentsuchasgrills
andutensilsforP20,000.

150. Purchaseofinventoriesthrough
credit.ManangRosiesbarbecues
requireonlythefreshestmeat
whichcanbeboughtfromAte
ShayneStoreinthemarket.Since
theycostP10,000,ManangRosie
doesnothaveenoughmoneyto
purchasethis.Despitethat,Manang
Rosieisalreadyatrustedsukiof
thisstore.Assuch,AteShayne
decidedtogivethemeattoManang
Rosieontheconditionthatshewill
havetopayherin30days.

151. Paymentofexpenses.To
actuallysetupabusiness,
oneofherfriendstoldher
thatshehastoobtain
businessandotherpermits
fromthelocalgovernment.
Assuch,shepaidP1,000
toobtainsuchpermits.

152. ASSETS =LIAB
ILITI
ES
+EQUITY
CASH
P5,000
(4)-
P1,000
EQUIPMENT
P20,000
INVENTORIES
P10,000
ACCOUNTS
PAYABLE
P10,000
OWNER’S
CAPITAL
P25,000
EXPENSES
(4)-P1,000
P4,000 P20,000 P10,000 P10,000 P25,000 -P1,000
P34,000 P34,000

153. Salesofbarbecues.With
everythinginplace,ManangRosie
cannowsellherfamous
barbecues.Duringthefirstofher
newbusinessventure,shewas
abletosellP1,000barbecueswith
asellingpriceofP20,000.Halfof
whichwaspaidcash.Theother
halfwastobepaidin5days.

154. ASSETS =LIABILTI
ES
+ EQUITY
CASH
P4,000
+P10,0
00
ACCOU
NTS
RECEIV
ABLE
+P10,0
00
EQUIP
MENTS
P20,00
0
INVEN
TORIES
P10,00
0
ACCOUNTS
PAYABLE
P10,000
OWNER’S
CAPITAL
P25,000
REVEN
UES
+P20,0
00
EXPEN
SES
P1,000
P14,00
0
P10,00
0
P20,00
0
P10,00
0
P10,000 P25,000 P20,00
0
-
P1,000
P54,000 P54,000

155. 1.Assets
a.CurrentAssets-areallassetswhichare
expectedtoberealizedwithinthe
ordinarycourseofbusiness,orspanof12
months,whicheverislonger.Realization
hereonlymeansthattheseassetsare
expectedtobeconvertedintocash,sold,
ordisposedafteracertaintime,or
throughthepassageoftime.

156. a.1.Cash
a.2.AccountsReceivable
a.3.Short-termInvestments-
containscompany’sinvestments
inlow-risk,highlyliquidassets
suchasbondsandstocks,which
areexpectedtobeliquidated
inlessthanayear.

157. a.4. Notes Receivable-
representspromisestothe
entitytoreceivecashatalater
date,withthemaindistinction
thatnotesreceivableareall
written,andhence,more
formalthanaccountsreceived.

158. a.5.Inventories-Itincludesalso
rawmaterials,work-inprocess
items,andsupplies.
Work-inprocess-oncetheyare
enteredintoproduction,but
awaitingcompletion.
Rawmaterials-basicallyinputs
forproducingothermaterials

159. Supplies-itemswhichdonot
actuallyserveasaninputfora
productbutareneverthelessused
duringtheproduction.
Finishedgoods-knownastheend
products.
a.6.Prepayments-isanamount
simplypaidinadvanceforgoods
orservicesanticipatedtobe
receivedbytheentityinthe
future.

160. b.NoncurrentAssets-allother
assetswhicharenotcurrent
basicallyfallintothedefinition
ofnoncurrentassets.Takenote
thattheydonotneedtohave
atleast12monthsremaining
before their expected
realization.

161. a.Investments- investment
accountincludesallthe
company’sinvestmentswhich
itdoesnotexpecttorealize
within1year.
b.FixedAssets-calledasthe
mosttangible,longest-serving
assetsacompanycanhave.
Theyareexpectedtonotbe
converted into cash
immediatelyandareregularly
placedasmeansofproduction.

162. c.Intangibleassets-lack
physicalsubstance,andyetare
similarlyrealizableoverlong
periodsoftime.Theirvalueand
assetsarehardertomeasure
and evaluate.Examples:
trademarks, franchises,
copyrightsandlicenses.

163. d.Otherassets
LIABILITIES
1.CurrentLiabilities-liabilities
whichareexpectedtobe
settledorpaidoutbytheentity
within12months.

164. a.1.AccountsPayable-isoppositeof
accountsreceivable,whilein
accountsreceivable,theentityison
thereceivingside,theentityisnow
onthepayingside,hencethe
borrower.
a.2.NotesPayable-arewritten
promisesoftheentitytopayasum
certaininafuturedeterminable
time.Itcanbepaidinlumpsumor
installment,onapersonallevel,
monthlypaymentsofhomeloans

165. a.3.AccruedLiabilities-areall
otheraccountswhichthe
companyshouldpay,arising
fromthenormalbusiness.Ex.
Electricbills,wages,rent,etc.
a.4.CurrentPortionofLong-
termDebts-thesearelong-
termdebtspayablewithinthe
comingyear.

166. a.5.otherpayables
2.NONCURRENT LIABILITIES-
liabilitieswhichtheentity
expectstosettleaftermore
thanayear,orhavethelegalor
contractualcapacitytodefer
paymentsaccordingly.

167. a.1.BondPayable-areaform
oflong-termdebt,oftenhuge
sums,containedinan
agreementcalledasbond
indenture.Havestatedinterest
rates,theyareusuallyissuedby
thegovernment,banks,and
hugecorporationsseekinghuge
financingsources.

168. Termbonds-bondswhichhave
principalthatmatureinasingle
dates.
Serialbonds-thosethatmature
inmultipledates.

169. 3.Equity/Owner’s
Capital/Stockholder’sEquity-
Toillustratetheconceptof
equity,considerasole
proprietorobtainsaloanfroma
bankinadditiontoinvestinghis
orherownmoney.Inthiscase,
thebusinesstechnicallyhastwo
owners:thecreditorbankand
thesoleproprietor.

170. Owner’scapital-calledastheequity
ofsoleproprietorshipsand
partnerships.
Shareholder’sequityorstockholders’
equity-calledastheequityina
corporations.
a.1.Commonstock-itisasecurity
whichrepresentsownershipina
corporation.
Commonstockholder-thosewho
ownacommon stockofa
corporation.

171. Acommonstockholderhasmany
rightsamongwhicharethe
following:
a.Righttovoteinthe
stockholders’meeting
b.Righttoreceivedividends
c.Pre-emptiverightwhichisthe
righttobeofferedfirsttobuy
additionalsharesintheevent
ofafutureissuance.

172. -allcommonstockcomeswitha
parvalue.Thisisthelegal
nominalvalueassignedtoit,andit
isillegalforittobeissuedforless
thanthisprice.
a.2.Preferredstock-represents
thenumberofpreferredshares
issuedandoutstandingmultiplied
bythestock’sparvalue.

173. Preferredstockholder-isalso
asecurityrepresentsownership
inacorporationandownerof
preferredstock.
a.3.AdditionalPaid-inCapital-
alsocalledsharepremium,itis
theexcessoverpar-value
contributedbythecompany’s
shareholdersinastockissue.

174. a.4.Retained earnings-
representtheaccumulatednet
incomefromoperationsover
severalperiods.Itisameasure
ofhowmuchthecompany
earnedsincethedayoneofits
operations.

175. INCREASESINEQUITY-equity
increasesasaresultofrevenues,
gains,orcapitalcontributions.
Revenuesaretheamounts
receivedbyabusinessearnedasa
resultofsellingsomethingor
renderingaservice.
-Itistheincreasesinequityasa
resultofday-to-dayoperations.

176. Revenuescanbeclassifiedas
follows:
1.OperatingRevenue-revenues
thatoriginatefrommain
businessoperations.
2.Non-operating revenue-
revenuesdonotoriginatefrom
mainbusinessoperationsand
areresultofsomeside
activities.

177. Examplesofrevenueaccounts:
1.Salesrevenue-mainsourceof
revenueforbusinessesthatsell
products.
2.Servicerevenue-mainsource
ofrevenuethatrender
services.
3.Interestrevenue-revenue
earnedasaresultof
investmentindebtsecurities

178. 4.Dividendrevenue-revenue
earnedasaresultofdividend
declarationofacompanywherein
abusinesshasinvestedstocks.
5. Contributions revenue-
revenueearnedbynot-for-profit
organizationsusuallyintheform
ofdonationsbyoutsideparties.

179. DECREASESINEQUITY-equity
decreasesasaresultof
expenses, losses, and
distributionto owners.
Expensesaretheamounts
consumedbythebusinessto
operate.

180. Examplesofexpenses:
1.Costofgoodssold
2.Utilityexpense
3.Depreciationexpense
4.Officesuppliesexpense
5.Insuranceexpense
6.Salariesexpense
7.Baddebtexpense

181. 8.Interestexpense
Lossesisthedirectoppositeof
gains.

182. 1.JOURNAL-isachronological
recordofallcompany’s
transactionslistedbydate.Itis
oftenreferredtoasthe“book
oforiginalentry”
Journalizing-itistherecordingof
financialinformationintothe
journal.

183. Bookofaccounts-arethefinance
records,ledgersandjournalsthat
composeofthecompany’s
accounts.
-Serveascompany’sfinancial
memoryandcompriseofevery
singlebusinesstransactionsand
financialinformationofa
company.

184. General Journal- typically
displaysthetransaction’sdate,
accounttitlesandexplanations,
references and respective
amounts of corresponding
accounts.

185. 1.Date.Thedateatwhichthe
transactionoccurred.
2.Account Titles and
Explanation.Theaccountto
bedebitedandtheaccountto
becreditedarerecorded.
3.ReferenceNumber.Reference
numberofeachaccount
journalized.

186. TheRefcolumnisleftblank
duringthejournalizingprocess
andisfilledoutduringtheposting
process.
4.Debit.Correspondingamount
oftheaccountdebitedisentered.
5.Credit.Correspondingamount
oftheaccountcreditedis
entered.

187. LEDGERS-isthegroupingofall
accountsofacompanyshowingits
respectiveoutstandingbalances.
Itisalsocalledasthe“bookof
finalentry”ofaccounting
transactions.
Posting-involvesthetransferring
ofjournalentriestotheledger
accountstobringtogetherthe
effectofthetransactionstothe

188. Individualaccountsofthe
company.
GENERALLEDGER-containsall
theassets,liabilityandowner’s
equityaccountsofthecompany.
-Areusuallygroupedaccordingto
theirchartofaccountsand
arrangedaccordingtotheorder
onhowtheyappearonthe
financialstatements,starting

189. Theassetsaccounts,followedby
theliabilityaccounts,andfinally,
theequityaccountsincludingthe
revenuesandexpensesaccounts
asshowninthefigure.
1.AccountTitle.Thegeneral
ledgercontainsallofthe
company’saccountsandits
balances.

190. 2.LedgerAccountReference
Number.Withreferencetothe
company’sChartofAccounts,
eachoftheaccounttitles
correspondstoareference
number.
3.Date.Thedateofthe
transactionisalsoenteredin
referencetothejournal.

191. 4.Explanation.A brief
descriptionofthebusiness
transactionisdefined.Thisis
sometimesomittedsincethe
entriesonthejournalalready
provideanexplanationofthe
transactions.
5.Reference.Thiscolumn
displaysthejournalpagenumber
fromwhichthetransactionwas
posted.

192. 6.Debit.Amountsdebitedtothe
accountareinputted.
7.Credit.Amountscreditedto
theaccountareentered.
8.Balance.Whatdistinguisheda
ledgerfromthejournalisthe
runningoutstandingbalances
providedbytheledger.After
everytransaction,thebalancesof
eachoftheaccountsareknown

193. Withouttheneedforfurther
computations.

194. SPECIALJOURNAL
-Areusedtorecordtypicaland
similartypesoftransactions.
-Thenumberofspecialjournals
managedbyacompanyis
dependentonthetypesof
transactions that occur
frequently.

195. SALES JOURNAL
-Used in journalizing all sales of
merchandise on account
CASH RECEIPTS JOURNAL
-Used in journalizing all cash
received
PURCHASES JOURNAL
-Used in journalizing all purchases of
merchandise on account

196. CASH PAYMENTS JOURNAL
-Used in journalizing all cash paid.
A. SALES JOURNAL
1.Special journal title-the name of
the special journal-Sales journal
2.Special Journal Reference
number-reference no. of the
special journal that is used during
posting to the ledgers.
3.Date-the date at which
transaction occurred.

197. 4.AccountDebited
5.InvoiceNumber-pre-numbered
invoicesensurethatallinvoices
transactionsarejournalized.
6.Reference-Acheckmarkisinputted
underthiscolumnwhenpostingsare
madeintheledger.
7.Dr.AccountsReceivable,Cr.Sales-
sincealltransactionsineachspecial
journalareofthesametype,
explanationoftransactionsineach
journalentryareeliminated.

198. 8.Total-attheendofeachmonththe
totaliscomputed.
B.CASHRECEIPTSJOURNAL
1.SpecialJournalTitle
2.SpecialJournalReferenceNumber
3.Date
4.AccountCredited
5.Reference-itisleftblankupon
journalizingandisfilledoutduring
thepostingprocess.Acheckmarkis
inputtedunderthiscolumnwhen
postingsaremadeintheledger.

199. 6.Dr.Cash-thecorresponding
amountofcashdebitedisentered.
7.Cr.AccountsReceivable,Sales,
OtherAccounts-therespective
amountcreditedisentered.
8.Totals-thesewillbepostedtothe
generalratherthantheindividual
entries.

200. SUBSIDIARYLEDGER
-Isagroupofaccountswitha
similarcharacteristics.
-Itisanadditionalrecordto
thegeneralledgerutilizedby
thecompanytotracktheper-
individualaccountsofthe
company’s customers,
creditorsandthelike.

201. Two types of Subsidiary Ledger
1.AccountsReceivableLedger-
usedintrackingindividual
accountsreceivablebalances
ofcompany’scustomers.
2.AccountsPayableLedger-
usedintrackingindividual
accountspayablebalancesin
company’screditors.

202. Thisdocumentsisinneedin
ordertoproceedwiththe
analyzing,identifying,and
measuringphase,arefoundin
thisdocument.

203. Examples of Source
Documents:
1.RECEIPT
Purpose:toevidencethe
receiptofcashforasale
Wheregeneratedby/whom:
outside,thesellerfirm

204. Examples of Source
Documents:
2. SALES INVOICE BILL
Purpose: to evidence a
purchase, and thus the
recording of a liability to the
seller.
Where generated by/whom:
outside, the seller firm

205. Examples of Source
Documents:
3. BANK STATEMENT
Purpose: to evidence the bank
charges for the period which
the firm would otherwise not
know about.
Where generated by/ whom:
outside, the depository bank.

206. Examples of Source
Documents:
4. TIME CARD
Purpose: to evidence the
number of hours worked by
employees, to be used as basis
for determining wages.
Where generated by/whom:
within, workers

207. T-ACCOUNT
Itisvisualrepresentationofan
account.
Itresemblesthecapitalletter
T:leftsidecontainsallthe
debitstotheaccountwhilethe
rightsidecontainsallcredits.

208. Thetermsleftandrightareused
torefertothedebitsideandthe
creditsideoftheaccount,
respectively.
Thefollowinglistofrulesof
debitsandcredits:
a.Increasesinassetsarerecorded
asdebits;decreasesarerecorded
ascredits.

209. b.Increasesinliabilitiesare
recordedascredits;decreasesare
recordedasdebits.
c.Increasesinequityare
recordedascredits;decreasesare
recordedasdebits.

210. Transaction1.Investmentof
capital.Mr.TelagakuinvestedP
9,000,000intothebusinesson
January1,2014.Thisisrecorded
asfollows:
2014
1JanDr.Cash 9,000,000
Cr.Telagaku,Capital9,000,000

211. Transaction2. Paymentof
businesspermitfees.Hepaysa
totalofP1,200evidencedbyan
officialreceiptfromthecityhall.
Transaction3.Purchaseof
building.OnJune2,2014,Mr.
Telagakupurchasesabuilding
costingP12.35M.HepaysP5Min
cashandsignsanotewithabank
forthebalance.

212. Transaction4.Receiptofcashfor
Januaryrent.MatalinoDormitory
receivedP30,000fromdormersin
paymentoftheirJanuaryrent.

213. AdjustingEntries
arepreparedattheendofan
accountingperiodtounrecorded
revenuethathasbeenearned
andunrecordedexpensesthat
haveincurredduringthe
accountingperiod.

214. CHARACTERISTICSOFADJUSTING
ENTRY
1.Eachentryisrecordedattheend
ofaccountingperiod
2.Eachentryhasatleastone
balancesheetaccountandat
leastoneincomestatement
account.
3.Eachentryhasnocashaccountin
eitherthedebitorcreditside

215. SixClassificationofAdjusting
Entries:
1.Depreciation
2.Baddebts
3.Prepaidexpense
4.AccruedExpense
5.Deferredrevenues
6.Accruedrevenues

216. DEPRECIATION
-Isappliedtocomponentsof
property,plant,andequipmentor
PPE.Theseareassetsheldbyan
entityandexpectedtobenefit
morethanoneaccountingperiod.

217. Depreciationexpense-isan
incomestatement
AccumulatedDepreciation-isa
balancesheetaccount.
Bookvalue-itisthedifference
betweenPPEaccountandits
AccumulatedAccount.

218. Formula in Computing
Depreciation:
Depreciationexpense=Costof
PPE–EstimatedResidualValue
EstimatedUsefulLife

219. BADDEBTS-isanapplicationof
theconservatismprincipleof
accountingwhichwhenappliedto
assetswillimply that
overstatementofassetsis
undesirable.

220. PREPAIDEXPENSES-areusually
periodicexpenseswhicharepaid
atthebeginningofacertain
periodoftimeforconvenienceof
boththepayorandthepayee.
ACCRUEDEXPENSE-