This document provides an overview of basic accounting concepts including assumptions, financial statements, accounting equations, and elements of financial statements. It discusses the key assumptions of accounting entity, going concern, and time period. It describes the main financial statements - balance sheet, income statement, statement of cash flows, and notes. It explains the basic and expanded accounting equations. Finally, it outlines the common elements that make up financial statements including assets, liabilities, owner's equity, revenue, and expenses.
This document provides an overview of basic accounting concepts including assumptions, financial statements, accounting equations, and elements of financial statements. It discusses the key assumptions of accounting entity, going concern, and time period. It describes the main financial statements - balance sheet, income statement, statement of cash flows, and notes. It explains the basic and expanded accounting equations. Finally, it outlines the common elements that make up financial statements including assets, liabilities, owner's equity, revenue, and expenses.
This document provides an overview of basic accounting concepts including assumptions, financial statements, accounting equations, and elements of financial statements. It discusses the key assumptions of accounting entity, going concern, and time period. It describes the main financial statements - balance sheet, income statement, statement of cash flows, and notes. It explains the basic and expanded accounting equations. Finally, it outlines the common elements that make up financial statements including assets, liabilities, owner's equity, revenue, and expenses.
This document provides an overview of basic accounting concepts including assumptions, financial statements, accounting equations, and elements of financial statements. It discusses the key assumptions of accounting entity, going concern, and time period. It describes the main financial statements - balance sheet, income statement, statement of cash flows, and notes. It explains the basic and expanded accounting equations. Finally, it outlines the common elements that make up financial statements including assets, liabilities, owner's equity, revenue, and expenses.
Accounting Entity/ Going Concern Time Period Assumption
Entity Concept This is a principle that applies A company uses financial when a company is financially reporting based on its own An entity is separate and distinct stable enough to operate in the chosen periods. from the owner or management. long run until such time that it doesn’t. E.g. A company reports their revenue E.g. A business owner uses his per month instead of just the whole personal car for a conference (in E.g. It’s a going concern if year. Therefore the audience would other words, business travel) and there are aspects in the be aware of the months where uses his own money for gas and the company that would cause revenue was high or low. fees in the conference. This means the company to stop that he may reimburse these operating. transactions as it is under a company’s financial expense. Basic Accounting Assumptions
Unit of Measure Accrual Basis Assumption
All transactions must be consistently This is where revenues and expenses are recorded using the same currency. recorded when they are earned, regardless of when the money is actually E.g. When a company is based in the received or paid. Philippines, all transactions must be recorded with the Philippine peso E.g. Recording your transaction before currency. If by any chance that the client receiving the money. Recording your of said company is from the US, then the invoice to your client in your books revenue being recorded should be instead of recording the invoice after converted from US Dollar to Philippine you get paid. Peso. 02 Financial Statements Financial As per revised PAS no. 1 these are the ff. statements:
● Balance Sheet - Statement of financial position
Statements ● at the end of the period. Income Statement - Statement of Comprehensive Income for the period ● Statement of Changes in Equity for the period Written records that convey ● Statement of Cash Flow for the period the business activities and the ● Notes to Financial Statements - summary of a financial performance of a significant accounting policies and other company. explanatory information ● Statement of Financial Position - at the beginning of the earliest comprehensive period Statement of Financial (Balance Sheet) Measures and evaluates the enterprise liquidity, solvency, and financial structure.
Consists of three (3) sections:
● Assets ● Liabilities ● Owner’s Equity Statement of Financial Performance (Income Statement) ● Shows the performance of the enterprise for a given period of time. ● Also known as “results of operations” ● Consists of revenues, expenses, and operating results which would either be profit or loss Statement of Changes in Owner’s Equity Summarizes the changes in equity for a given period of time.
● Increased by the additional investment and profit. ● Decreased by withdrawal and loss Statement of Cash Flow ● A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources.
● It also includes all cash outflows that
pay for business activities and investments during a given period. Notes to Financial Statements ● Comprising a summary of significant accounting policies and other explanatory information. ● Discloses the detailed assumptions made by accountants when preparing a company's financial statements.
A Statement of Financial Position
(beginning of comparative period)
● when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. 03 Basic & Expanded Accounting Equations Basic Accounting Equation
The final rule is that the “total of the left will always be equal to the total of the right”. Expanded Accounting Equation
A form of the basic accounting equation that includes the distinct
components of owner's equity, such as dividends, shareholder capital, revenue, and expenses. 04 Elements of Financial Statements Elements of The Elements are as follows: Financial Statements ● Assets The elements of financial statements ● Liabilities are the general groupings of line items contained within the ● Owner’s Equity statements. These groupings will ● Revenue vary, depending on the structure of the business. ● Expenses Assets Resources controlled by the enterprise as a result of past transactions and events and from which future economic benefits are expected to the enterprise.
Current Assets Non-Current Assets
● Cash ● Cash Equivalents ● Property & Equipment (Land, Building, ● Petty Cash Fund Equipment, Furniture & Fixtures) ● Notes Receivable ● Accumulated Depreciation ● Accounts Receivable ● Intangible Assets ● Estimated Uncollectible Accounts ● Accrued Income ● Advances to Employees ● Inventories ● Prepaid Expenses ● Unused Supplies Liabilities Present obligations of an enterprise arising from past transactions or events, the settlement if which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
Current Liabilities Non-Current Liabilities
● Accounts Payable ● Notes Payable (long-term) ● Notes Payable (short-term) ● Mortgage Payable ● Accrued Expenses ● Unearned Income Owner’s Equity or Capital
● The residual interest in the asset of the enterprise after deducting all its liabilities. It increases when there is profit or additional capital by the owner. It decreases when there is a loss or withdrawal of capital by the owner. ● The title of an owner’s capital is indicating the name, with the word “capital” written after the name separated by a comma.
E.g. “Rafael Lopez, Capital”
Income / Revenue Gross inflow of economic benefits during the period arising in the course of ordinary activities of an enterprise when those inflows result in increase in equity, other than those relating to Revenue Accounts contributions from owners. ● Service Income ● Professional Income ● Rental Income ● Interest Income Expenses Accounts
Expenses ● Interest Expense ● Rent Expense ● Repairs & Maintenance ● Office Supplies Expense Gross outflow of economic benefits ● Salaries Expense during the period arising in the ● Uncollectible Accounts ordinary activities of an enterprise ● Depreciation Expense when those outflow result in ● Amortization Expense decrease in equity, other than those ● Taxes & Licenses relating to distribution to owners. ● Insurance Expense ● Utilities Expense ● Miscellaneous Expense
