Accountancy, Business and Management I Capacity for Adaptation- financial flexibility to

use its available cash for unexpected

“Reviewer” requirements and investment opportunities.
The Business and Accounting
 Balance sheet shows the assets,
Profit-the primary goal of the business liabilities and owner’s equity. The
period covered in this financial
Accounting- it provides essential information to
statements is worded “As of..” .
the business owners and management for its
Two forms of Balance Sheet:
efficient conduct and evaluation of its activities.
 Account Form- the horizontal form of
Financial Statements balance sheet where it patterned the
accounting equation A=L+OE.
- The report form of accounting data that  Report Form – the vertical form of
where gathered and stored in the books balance sheet. The accounting equation
of accounts. is still present but in a vertical order.
- These are the end products of the -According to Philippine According
accounting process. Standards (PAS) No. 1 it does not prescribe
5 Basic Financial Statements: the format of the balance sheet as long as
 Balance Sheet it shows the assets report of the business.
 Income Statement - Current must come first before the non-
 Statement of Changes in Equity current.
 Statement of Cash Flows and
Accounting Policies
 Notes to Financial Statements The Income Statement
Other Financial Statements
 Statement of Retained Earnings -Shows the performance of the
enterprise for a given period of time. It
The Balance Sheet shows revenues, expenses, and
- A financial statement which shows operating results which can either be
financial position of the business. It profit or loss.
measures and evaluates in terms of the - It is worded “ For the year ended…”
enterprise’ liquidity, solvency, financial “For the quarter ended…” “ For the
structure and capacity for adaptation. month ended…”
Liquidity- ability to meet currently maturing
obligations. Two presentation of income
Solvency- the availability of cash over the statement:
longer term to meet maturing obligations.  Natural
Financial Structure- the source of financing for  Functional
the assets of the enterprise where it also
indicates how much is borrowed capital and the
equity capital.
The Statement of Changes in Equity make the financial statements more
useful.
-It shows the owner’s, partners or
stockholders equity or capital. It can be Generally Accepted Accounting
increased by additional invest and net Principles ( GAAP)
income/profit. On the other hand, it can
be decreased by withdrawal and net -are uniform set of accounting rules,
loss. procedures, practices and standards
that are followed in preparing financial
It depends upon the forms of business: statements.
 Statement of Owner’s Equity (Sole
Proprietorship) 1. Cost Principle- assets should be
 Statement of Partner’s Equity recorded at original and acquisition
(Partnership) cost.
 Statement of Stockholders’ Equity 2. Objectivity Principle- requires that
(Corporation) accounting records should be based
on reliable and verifiable data as
evidence of transactions.
The Statement of Cash Flows 3. Materiality Principle- dictates
practicability to rule over theory in
-provides information in regards with determining the evaluation of an
the details of changes in cash position item. To determine whether it is
of the business during a given period. part of the raw materials or not.
This shows the sources and uses of 4. Consistency Principle- requires
cash. accounting procedures that should
be applied in an uniform basis from
The activities that includes in cash flows: period to period to achieve
 Operating comparability in the financial
 Investing statements.
 Financing 5. Matching Principle- recognition of
revenue and expense. Revenue
Ways in reporting the cash flows:
should be recognized when earned
 Direct Method and expenses should be recognized
 Indirect Method when incurred same period as
revenue earned.
6. Adequate Disclosure Principle-
requires that financial statements
Accounting Policies and Notes to Financial
should be free from any material
Statements
misstatement, if there is any,
-Presents significant accounting policies proper disclosure should be made.
that affected the financial statements
and other disclosures necessary to Accounting Assumptions
 paid. Accruals and Deferrals of income
1. Accounting/ Business Entity Concept- and expense.
an entity should be separate from the Elements of Financial Statements:
personal transaction of the owner or 1. Assets
management. 2. Liabilities
2. Going Concern/ Continuity Concept- 3. Equity/ Owner’s Capital
assumed that the business have a 4. Income
continuous life of existence. 5. Expense
3. Time Period/ Periodicity Assumption-
Whereas, Assets, Liabilities and Capital found on
because of the assumption that the
business must have a continuous life of Balance Sheet while Income and Expense found
on Income Statement.
existence, the life of the business
should be divided into periods which What is Accounting?
are being referred as accounting
periods. It can be monthly, quarter, Accounting- is an art of recording, classifying,
semi-annually and annually basis. summarizing in a significant manner and in
terms of money, transactions and events which
Fiscal Period- doesn’t start from are, in part at least of a financial character and
January. Its financial statement is interpreting the results thereof.
called Interim Financial Statement
Phases of Accounting
which is normally shown on a quarterly
basis. 1. Identifying- identify whether the
transaction is part of the business.
3 annual accounting Periods: 2. Recording- involves routine and
mechanical process of writing down the
 Calendar Year- starts from January 1 business transactions and events on the
and ends with December 31 of the books of accounts in a chronological
same year. It is the most common manner called Journalizing.
accounting period. 3. Classifying- sorting or grouping of
 Fiscal Year- begin on the first day of any similar transactions or events. The
month except for the month of January. process of this is called Posting.
 Natural Business Year- is a 12th month 4. Summarizing- this involves completion
period that ends on any month when of the financial statements and the
the business is at the lowest or accounting requirements as well.
experiencing slack season. 5. Interpreting/ Analysing- involves
4. Unit of Measure/Monetary analytical and interpretative works
Assumption- the stable value of a which could help the management as a
country. For example, the Philippines basis for making a sound decision.
uses peso as unit of measure. What is the Basic Accounting Equation?
5. Accrual Basis Assumption- recognition
of revenue that is earned and expenses Assets= Liabilities+ Owner’s Equity.
that is incurred regardless when it is
 Or $20,000. During the month of January 2011 the
Assets= Liabilities+ OE+ Income-Expense following transactions took place:

Jan 1 Bought goods for cash 70,000

What is a Chart of Accounts?
2 Sold goods to Steve Co. (Credit) 38,000
- It is a list of account titles that is
prepared by the accountant beforehand 15 Sold goods for cash 9,000
to guide bookkeeper describing the
21 Steve Co. paid by cheque 35,000
exchanges of values.
22 Stationery bill paid by cheque 2,000
What is an Accounting Cycle?
22 Telephone bill by cash 500
- These are the steps that needs to be
31 Paid rent by cash 2,000
follow by the accountants or
bookkeeper to make a financial Paid salaries by cash 3,000
instrument before handing it to the
management to make a decision. Withdrew cash personal use 5,000

Required:
1ST STEP: Identifying
Record journal entries for the transactions and
-whether the transaction is still for post them to ledgers.
business purposes.
Jan 1- Cash on hand $80,000
2nd STEP: Journalizing
Cash on bank $20,000

It can be General or Special Journals. Robert’s Capital $100,000

Under the special journals can be;
1. Sales Journal #
2. Purchase Journal -Purchases $70,000
3. Cash Receipts Journal
4. Cash Disbursement Journal Cash on hand $70,000

-Don’t forget the debit and credit. #

Debit- if magpasulod sa business 2- Accounts Receivable $38,000

Credit-if magpagawas. Sales $38,000

Illustration: Mr Robert commenced #

business on 1st January, 2011 with a capital of
$100,000 in cash. On the same date he opened 15- Cash $9,000
the bank account in ADCB and deposited Sales $9,000
#
21- Cash on bank $35,000 Posting to Illustration:
Accounts Receivable $35,000
#
22- Stationary Expense $2,000
Cash on bank $2,000
22- Utility Expense $500
Cash on hand $500
#
31- Rent Expense $2,000
Cash on hand$2,000
#
- Salaries Expense $3,000
Cash on hand $3,000
#
- Robert’s, withdrawal $5,000
Cash on hand $5,000
#
rd
3 step: Posting or Ledger

Two types:
 General Ledger
 Subsidiary Ledger 4th step: Trial Balance

-In this step, just summarize the account titles.

For example: Cash on hand

Debit Credit

Jan 1- $500 Jan 2- $300

Total amount of debit: Total amount of

$500 credit: $300

$200  The difference

between debit and
credit. Take note: You
should put the
difference to the part
where bigger amount
takes place.