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Elements of Accounting Lecture

The document discusses the key elements of accounting including the accounting equation, debit and credit rules, chart of accounts, accounts, and how transactions affect the accounting equation. It provides examples to illustrate accounting concepts such as increasing and decreasing asset, liability, and equity accounts.

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Raissa Mae
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668 views43 pages

Elements of Accounting Lecture

The document discusses the key elements of accounting including the accounting equation, debit and credit rules, chart of accounts, accounts, and how transactions affect the accounting equation. It provides examples to illustrate accounting concepts such as increasing and decreasing asset, liability, and equity accounts.

Uploaded by

Raissa Mae
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ELEMENTS OF

ACCOUNTING
P R E PA R E D B Y :
R A I S S A A . D E L VA L L E / S H S T E A C H E R
What are the elements of
Accounting?
Assets = Liabilities and Owner’s Equity
Assets = Owner’s Equity
Assets - Liabilities = Owner’s
Equity
Assets - Owner’s Equity =
Liabilities
An equation has two sides, the left side and the
right side, we call the left side as the debit side
and the right side as the credit side. Debit is
abbreviated Dr. and the credit, Cr. The
abbreviations were derived from the Latin words
“debitur” for debit and “creditor” for credit.
Equation
Debit side or left side Credit side or right side
What is chart of Accounts?
Chart of Acccounts is a list of account titles used by
the bookkeeper as a guide in recording business
transactions. Asset, liability, owner’s equity, income and
expense are listed down to help the bookkeeper in
recording a particular transaction. If a chart of
accounts is given no other account titles can be used
other than those found in the chart.
WHAT IS AN ACCOUNT?
An account is a record kept for each asset,
liability, owner’s equity, income, and expense
items. It shows the changes in each item. An
account shows the total additions, subtractions,
and the balance of an asset, liability or owner’s
equity account. An account may be expressed in
the form of a capital “T.” It is called a T-account.
WHAT DO YOU MEAN
BY ASSETS ARE
NORMALLY ON THE
DEBIT SIDE?
WHAT DO YOU MEAN BY
“LIABILITIES AND
OWNER’S EQUITY ARE
NORMALLY ON THE
CREDIT SIDE?
THEORY OF DEBIT
AND CREDIT
Transactions are exchanges of values. For
every value received, there is an equal value parted
with. It is obvious that a transaction has a double
effect, receiving of value and parting of value. This
is called the “double-entry bookkeeping”
method. Double-entry does not mean recording
twice; instead, it means that every entry or
recording of a transaction has two effects: the value
received and value parted with. As applied to a
transaction, the value received is the debit and
the value parted with is the credit.
APPLYING THE THEORY OF DEBIT AND
CREDIT, THE FOLLOWING DIAGRAM MAY
BE SHOWN:
OWNER’S
ASSETS LIABILITIES EQUITY
Debit to Credit to Debit to Credit to Debit to Credit to
increase decrease decrease increase decrease increase
THE FOLLOWING RULES MAY BE
FORMULATED: (MEMORIZE)
We debit: We credit:
a. Asset received a. Asset given away
b. Liabilities paid b. liabilities incurred
c. Withdrawals or drawings c. investment or capital
d. Cost or losses d. income or gain
e. expenses
ITEMS THAT INCREASE ASSETS

1. Investment or capital
2. Additional investment
3. Acquisition of things of value by the business
4. Claims or receivables
5. Donation of assets
ITEMS THAT DECREASE ASSETS

1. Payment of cash
2. Withdrawal of assets
3. Sale of assets
4. Assets given away as donations
ITEMS THAT INCREASE LIABILITIES

1. Acquisition of things on account


2. Incurrence of other liabilities
3. Assumption of a liability
ITEMS THAT DECREASE LIABILITIES

1. Payment of accounts
2. Returns of things bought
3. Incurrence of another form of liability to
extinguish a former liability
Example: a note payable is given for an
account payable
ITEMS THAT INCREASE OWNER’S
EQUITY
1. Original capital
2. Additional capital
3. Income
4. Gains on sale of other assets
ITEMS THAT DECREASE OWNER’S
EQUITY
1. Expenses
2. Withdrawals
3. Losses
COMPONENTS OF OWNER’S EQUITY
OR CAPITAL
1. Original capital
2. Additional capital
3. Income
4. Drawing or withdrawal
5. Expenses
L. Reyes, Capital
Expenses Original capital
Drawings Additional capital
Losses income
HOW DO TRANSACTIONS AFFECT THE
ACCOUNTING EQUATION
The equality of the accounting equation is maintained
in spite of the many business transactions met by the
business enterprise. All business transactions can be
analysed or stated in terms of the changes in the
accounting equation. Business transactions affect the
assets, liabilities and owner’s equity of a business
enterprise. They may take any of the following (most
common) effects:
HOW DO TRANSACTIONS AFFECT THE
ACCOUNTING EQUATION
1. Increase in asset and increase in capital or owner’s equity
2. Increase in asset and an increase in liability
3. increase in one form of asset and decrease in another form of
asset
4. Decrease in asset and a decrease in liability
5. Decrease in one form of liability and an increase in another
form of liability.
6. Decrease in asset and a decrease in capital or owner’s equity.
ILLUSTRATION:

1. If you invest money in a beauty


parlor business for P20,000.
ILLUSTRATION:

2. Bought parlor equipment for


P10,000 from Dory’s Beauty
Parlor.
ILLUSTRATION:

3. Bought tables and chairs for


P3,000 cash
ILLUSTRATION:

4. Paid One-half of our account in


NO. 2
ILLUSTRATION:

5. Gave a promisory note to apply


to our account in No. 2
ILLUSTRATION:

6. The owner withdrew P500 cash


for personal use.
ILLUSTRATION:

7. Rendered service for cash,


P1,000.
ACTIVITY – INDICATE WHETHER IT IS AN
INCREASE (+), DECREASE (-), OR NO EFFECT
ON THE ASSET, LIABILITIES AND EQUITY
ACCOUNTS.
Assets Liabilities Equity
1. Investment of cash.
2. Purchase of computer equipment for cash
3. Billed a customer for services rendered.
4. Paid salaries.
5. Purchased office supplies on credit.
6. Paid advertising expense.
ACTIVITY – INDICATE WHETHER IT IS AN
INCREASE (+), DECREASE (-), OR NO EFFECT
ON THE ASSET, LIABILITIES AND EQUITY
ACCOUNTS.
Assets Liabilities Equity
7. Paid rent in advance for 3 months.
8. Received cash from customers on account.
9.Withdrew cash for personal use.
10. Invested land into the company.
ACTIVITY – IDENTIFY IF THE ACCOUNT IS AN
ASSET, LIABILITY, EQUITY, INCOME OR EXPENSE
AND INDICATE ITS NORMAL BALANCE
Account Asset Liabilities Owner’s Income Expense Balance
Equity
1. Accounts receivable

2. Accumulated
Depreciation
3. Advertising Expense

4. Bonds Payable

5. Building

6. Cash
7. De Jesus, Capital
ACTIVITY – IDENTIFY IF THE ACCOUNT IS AN
ASSET, LIABILITY, EQUITY, INCOME OR EXPENSE
AND INDICATE ITS NORMAL BALANCE
Account Asset Liabilities Owner’s Income Expense Balance
Equity
8. De Jesus, Drawing

9. Delivery Truck
10. Interest Payable

11. Inventories
12. Land

13. Mortgage Loans


14. Notes Payable

15. Notes receivable


ACTIVITY – IDENTIFY IF THE ACCOUNT IS AN
ASSET, LIABILITY, EQUITY, INCOME OR EXPENSE
AND INDICATE ITS NORMAL BALANCE
Account Asset Liabilities Owner’s Income Expense Balance
Equity
16. Office supplies

17. Prepaid Expense


18. Rent expense

19. Salaries expense


20. Salaries payable

21. Service Fees


income
22. Supplies Expense

23. Trading Securities


ACTIVITY – IDENTIFY IF THE ACCOUNT IS AN
ASSET, LIABILITY, EQUITY, INCOME OR EXPENSE
AND INDICATE ITS NORMAL BALANCE
Account Asset Liabilities Owner’s Income Expense Balance
Equity
24. Unearned Income

25. Utilities Expense


ASSIGNMENT
Using the following account titles, record the following
transactions to T-accounts for Reynaldo Casas for the month of
July 2007. Prepare journal entries and T-account.
Cash on hand Casas, Drawing
Accounts receivable Medical fees
Office furniture Taxes and licenses
Office equipment Salary expense
Accounts payable Supplies expense
Casas, Capital Advertising expense
ASSIGNMENT
July 1 – Dr. Reynaldo Casas invested cash of P10,000
2 – Paid taxes and licenses, P450.
3 – Bought medical supplies for cash, P500
5 – Bought office tables and chairs for cash, P1,500.
6 – Received P3,000 for medical services rendered.
8 – Bought 2 electric fans for P1,500 cash.
10 – Billed Mr. Castro, P1,000 for services
rendered.
ASSIGNMENT
July 15 – paid salaries of attendants, P1,500.
20 – Receipts for the week amounted to P4,000.
22 – Sent a bill to various patients, P2,000.
24 – Casas withdrew, P500.
25 – Paid advertising expense, P350.
27 – Collected the account of Mr. Castro.
29 – Collected one-half of the account of July 22.
30 – Paid the salaries of the attendants, P1,500.

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