I.

Introduction to Accounting

Accounting – process of identifying, recording and communicating economic information that

is useful in making economic decisions

 Financial statement – end product of accounting

 The accounting process starts with the recording of transaction, whereafter account

ESSENTIAL ELEMENTS

1. Identifying – analyzes business transactions

- Accountable event = affects assets, liabilities, equity, income, and expense….
Recorded in the book of account
- Non accountable = not recorded in the book of accounts
2. Recording – recognizing accountable events sa book of accounts
- Journalizing; recording transactions sa
- Posting; classifies the effects of the event on the accounts… if increase or decrease
ang account
3. Communicating – summarizes the information processes in the accounting system
- Accounting information is communicated to interested users through accounting
reports
- Financial Statements – most common form of accounting reports
 Kapag summarized na yung input mas mabilis na ang decision making

NATURE OF ACCOUNTING

- Accounting is a process with the basic purpose of providing information about

economic activities intended to be useful in making economic decisions.
 Accounting is art and science… it is social science because nag ga-gather tayo ng
information. it is art kasi may creative art siya and creative skill

INFORMATION PROVIDED BY ACCOUNTING

1. Quantitative information – numbers, such as, revenues, expenses, profit margins and
taxes
2. Qualitative information – information provided in financial statements useful to others
3. Financial Information – about the monetary transaction... expressed in monetary unit
so basically papasok siya sa quantitative information
FUNCTIONS OF ACCOUNTING

1. To provide external users with information that is useful in making investment and
credit decisions
2. To provide internal users with information that is useful in managing the business

 Book keeping – recording and organizing of datas

 Accounting – complete ang procedure, record, analyze and interpret

Fra. Luca Pacioli – introduced double entry recording system, kasi isang account sa debit at
credit

- Father of modern accounting

- Summa di arithmetrica Geometria Proportioni and Proportionista, book published

COMMON BRANCHES OF ACCOUNTING

1. Financial accounting
- General purpose general statement, made for the common needs of information
of the users
- Special purpose financial statement, for specific need lang ng users… (e.g gusto
malaman kung tumaas ba ang kita or not)
- Annually ang paggawa ng financial statements.
- Monthly, just to monitor
- Quarterly or interim
2. Management accounting
- Special purpose financial statement
- decision of the management kung ano gusto nilang makita
3. Government Accounting
- Used by the government agencies
- Preparation of budgets and accountability reports
- Users: senate, president departments, etc
4. Auditing
- Service to express an opinion sa financial statement
- Unqualified opinion/qualified/adverse/etc
- Companies with 150k gross are required to have their financial statements audited
by an independent
- With reports, nakabase doon yung
 5. Tax accounting
- Tas returns and tax advice
- All businesses are required to file tax returns

6. Cost accounting
- Cost of products or services
- Businesses to analyze the cost of their product to earn profit
7. Accounting Education (Academe)
- Teaching of accounting and related subjects
- Required by business students, business owners, accounting practitioners in their
Continuing Professional Development (CPD)
8. Accounting Research
- Research papers, articles and similar publications
- Not required to all CPA

USERS OF ACCOUNTING INFORMATION

1. Internal Users – directly involve in managing the business (business owners, bod,
management personnel)
2. External users – not directly involved in managing the business (lenders, creditors,
non-employees, public)

Go - GOVERNMENT
S - SUPPLIERS
P - PUBLIC
L - LENDERS
I - INVESTORS
C - CUSTOMERS
E – EMPLOYEES

FORMS OF BUSINESS ORGANIZATIONS

1. Sole Proprietorship
- One (sole proprietor)
- DTI (Department of Trade and Industry)
2. Partnership
- Two or more
- Contractual agreement
- SEC
- * Dissolved when one partner is deceased, death
3. Corporation
- More than five (stockholders)
 - Operation of law, operation code of the Philippines
- SEC (Securities and Exchange Commission)
4. Cooperative
- More than one (members)
- Accordance with the cooperative code
- CDA (cooperative development authority)

TYPES OF BUSINESS ACCORDING TO ACTIVITIES

1. Service business – expertise or professional

2. Merchandising – trading, buy and sell
3. Manufacturing – from raw materials to products

Chapter 2: Basic Accounting Concepts

- Ginagawang basis or principles para maging uniform ang bawat accountants sa

paggawa ng reports and accounts
- Ideals/policies/rules in preparing financial statements

BASIC ACCOUNTING CONCEPTS

 Kapag hindi mo na follow yung concepts, hindi na masyadong mapagkakatiwalaan

yung accountants mo

1. Separate entity concept – only the business transactions are recorded in the books of
accounts
2. Historical cost concept (cost principle) – assets are initially recorded at their
acquisition cost, acquisition costmagkano mo binili yung item
3. Going Concern Assumption – business continue to exist for an indefinite period of
time… forever mag sstay business mo
4. Matching – minamatch yung expense to the revenue, hindi tayo mag rerecognize ng
expense kapag wala pa yung revenue…. No revenue= no expense
5. Accrual basis of accounting – income is recorded when it is earned…. While expense is
recorded in the period when it is incurred
o Cash basis – income recorded when it is collected, while expense is recorded
when it is paid
6. Prudence (conservatism) – observance of some degree of caution when exercising
judgements under conditions of uncertainty. choose unfavorable outcome sa credit
para yung assets ay hind imaging overstated and liabilities ay hindi understated.
7. Reporting period (periodicity) – life of the business ay divided into series of reporting
periods (monthly, quarterly, semi-annual, annually)
 2 accounting periods
o Fiscal – any month mag start then count to 12 months ulit (eg. June 1 – may
31)
o Calendar – January 1 to December 31
8. Stable monetary Units (common unit measure) – currency ng isang country ang
gagamitin sa financial statement kung saan nakalocate yung business
o Purchasing power, gaano karami mabibili mo
9. Materiality concept – para masabing material yung isang item, affected yung decision
o Immaterial, kapag hindi affected
- Professional judgement
- Based on the size and nature of an item being judged
- Eg. San mig corp nawalan 10 k, yung 10 k nay un is immaterial kasi hindi naman
maaapektuhan yung decision ng company
10. Cost benefit – need icompare yung cost and benefit (benefit dapat lagging mataas)
- Eg. Bumili ka ng damit sa sm, pero matagal naman magagamit
- Benefit should always exceed the cost
11. Full disclosure principle – ididisclose lahat ng information
12. Consistency Concept – we applied them this year, aapply ulit natin next years
o Retro – previous year

PFRSs – sila nag eevaluate

Philippine Accounting Standards (PASs)

QUALITATIVE CHARACTERISTICS

1. Fundamental qualitative – make information useful to others

i. Relevance; it can affect the definition of users/business
a. Predictive value; used in making predictions
b. Confirmatory value; confirming past predictions
c. Materiality; entity-specific aspect of relevance… material to other
company pero hindi material sa iba
ii. Faithful Representation – provides true correct and complete depiction of
what it purports to represent
a. Completeness; all information is provided
b. Neutrality; without bias
c. Free from error; no errors
2. Enhancing Qualitative – enhance the usefulness to others
i. Verifiability; verify
ii. Comparability; identify similarities and differences
iii. Understandability; understandable format… clear yung format
 iv. Timeliness; on time ginagawa yung reports

Chapter 3: Accounting equation = balance sheet

A=L+E

 Assets – resources you control from past events and can provide economic benefits
- Eg. Building, binili mo yan kasi magagamit ng company
 Liabilities – present obligations from past events and requires you to give up economic
decisions
- Eg. Cash, payable, property, trading
 Equity - assets minus liabilities (capital)
- Net assets,, sobra ng assets at liabilities

EXPANDED ACCOUNTING EQUATION = income statement (profit or loss statements)

Assets = Liabilities + Equity + Income – Expenses

 Income – increases in economic benefits

- Kita/profit
- Increase assets & equity, decrease liabilities
 Expense – decreases in economic benefits
- Loss
- Decrease assets & equity, increase liabilities
Chapter 4:

Account – basic storage of information.

- Record of the increases and decreases in a specific item of asse, liability, equity,
income or expense

T ACCOUNT

 Credit – right side of the account

- Value parted with
- can be a payment, settlement or nadagdagan yung account
 Debit – left side of the account
- Value received,,,
- Receivables
 Ilalagay ang ending balance kung saan mataas yung side either debit or credit
 Sa trial balance, kukunin mo muna yung balance per account

FIVE MAJOR ACCOUNTS

 statement of the financial position (balance sheet) & statement of financial

performance (income statement); income loss or income profit

1. Assets – resources you control; long run benefits

2. Liabilities – present obligations; give up economic resources (assets/capital)
3. Equity – assets minus liabilities
4. Income – increase economic benefits, assets & equity, decrease liabilities
 5. Expenses – decrease economic benefits, assets & equity, increase liabilities
 Income loss – expenses greater, income lower
 Income profit – expenses lower, income greater

CLASSIFICATION OF THE FIVE MAJOR ACCOUNTS

Chart of Accounts – list of all the accounts used by a business

ACCOUNT TITLES

Balance Sheet

 Assets (tangible assets)

- Current assets, use for one year
- Noncurrent, use over year

a. Cash
b. Accounts Receivable
c. Allowance for bad debts (or allowance for doubtful accounts)
d. Notes receivable
e. Prepaid supplies (prepaid, advance payment pero di pa ginagamit… postpaid, ginamit
na pero di pa bayad)
f. Prepaid rent
g. Prepaid insurance
h. Inventories (stocks or cost of unused goods that are for sale)
i. Land
j. Building
k. Accumulated depreciation – building (accumulated depreciation, every year ginagamit
so pagdating ng panahon, mag dedepreciate siya)
o Carrying amount or net book value – ito yung natitira kapag binawas yung
acquisition cost at depreciation cost)
l. Equipment
m. Accumulated depreciation - equipment
  Liabilities

a. Accounts payable (more on word of mouth)

b. Notes payable (promises to pay with written)
c. Interest payable (interest incurred na hindi pa bayad)
d. Salaries payable (hindi pa nababayaran na salaries)
e. Utilities payable (internet, wifi, water, landlines… depende sa chart of accounts ng
organization)
f. Unearned (income collected in advance before they earned… eg. Full payment
tuition pero di pa nadidiscuss yung class… every month mag rerecognize ng
income)

 Equity

a. Owner’s Capital
*Investments
*income
b. Owner’s Drawings (temporary withdrawals… withdrawing capital pero binabalik pa din
naman)
*net loss
Withdrawal

Income Statement

 Income

a. Service fees (revenue ng service business, magrarise in the course of ordinary

business)
b. Sales (revenue ng merchandising and manufacturing… mag rarise in the course of
ordinary business)
c. Interest income (income na nakuha mo sa mga interest na kinita mo)
d. Gains (hindi kasama sa ordinary course of business… eg, nagttitinda ka ng ballpen,
pero nagtinda ka din ng pencil.. so yung kita ng pencil is part ng gains kasi di mo
naman talaga business yun)

 Expenses

a. Cost of Sales or cost of goods sold (magkano mo binili yung isang item na ibebenta
mo…unit cost, total cost of sale mo) (eg. Binili mo yung ballpen ng 5 pesos)
 b. Freight-out (transportation cost nung nag dedeliver ka… buyer nagbabayad
c. Salaries expense
d. Rent expense
e. Utilities expense
f. Supplies expense
g. Bad debts expense (or doubtful account expense)
h. Depreciation expense
i. Advertising expense
j. Insurance expense (counterpart ng prepaid insurance)
k. Taxes and licenses
l. Transportation and travel expense
m. Interest expense
n. Miscellaneous expense (uniforms, photocopy, other supplies na hindi masusulat sa
account)
o. Losses (eg. May sasakyan ka tas binili mo ng 1.2m, binenta mo ng 700k.. and hindi mo
naman siya course of business)

Chapter 5: Book of accounts and double entry system

BOOKS OF ACCOUNTS

1. Journal – “book of original entries”

- Business transactions are first recorded
a. Special journal – record transactions with similar nature
o Sales journal, sales on account
o Purchases journal, purchases of inventory on account
o Cash receipts journal, all transactions involving the receipts of cash
o Cash disbursements, all transactions involving payment of cash
b. General Journal – all transactions that are cannot be recorded in the special
journal (investments, depreciation, etc..)
2. Ledger – “book of final entries”
- classify the effects of the business transactions
- journal to the ledger = posting
- formal accounting
- dito makikita balance in the end
a. General Ledger – all accounts (na nasa chart of accounts) appearing in the trial
balance
b. Subsidiary Ledger – breakdown of the balance of controlling account
o Accounts receivable subsidiary ledger, para ma tract yung utang ng
customers
 o Accounts payable subsidiary ledger, para matract yung utang mo sa
suppliers

 Will be recorded
chronologically
 Indented – credit siya
agad
 “to record” lagi
magsstart yung
explanation
 Sa chart of accounts
yung account number
DOUBLE ENTRY SYSTEM – two accounts are being affected

 Concept of duality – two parts – debit and credit

 Concept of equilibrium – equal debit and credit

NORMAL BALANCE OF ACCOUNT

Normal balance- kung saan siya nag iincrease

BALANCE SHEET ACCOUNT:

INCOME STATEMENT ACCOUNTS:

2 TYPES OF ACCOUNTS

1. Contra accounts – presented as deduction (eg. Accumulated depreciation, bad debts

account, prepaid)
- Binabawas sa isang account
2. Adjunct accounts – presented as addition
- Dinadagdag sa isang account