Basic Accountingch3
Basic Accountingch3
INTRODUCTION
Business transactions go through a long process
of recording, classifying, summarizing and
reporting. Accounting follows an orderly manner
of processing financial data which ends
with the preparation of financial reports. The
topics will cover the basic elements of
accounting, recording of transactions and
preparation of statement of financial position
THE ACCOUNTING STRUCTURE OF A
BUSINESS ORGANIZATION
Assets - economic resources owned by the business
Three features :
1. it is a resource obtained from a past event
2. the company has control over it
3. future economic benefits will be received from its
use; the first assets or business resources come from
investors ( sole proprietor, partner or shareholder) and
secondarily from creditors ( bank for loan and
suppliers for goods and services) Assets are therefore
claimable by two parties: creditors and investors
Liabilities – economic obligations or debts of the
business owing to outside parties
Three features:
1. there is a present obligation
2. arose from a past event
3. settlement is expected in the future in the
form of outflow of resource usually Cash but
may also be paid in the form of property or
service
Owner’s Equity – the residual right or interest of
the owner in the assets.
ACTIVITY 1
ACTIVITY 2
7 - 1,000 - 1,000
8 + 20,000 +20,000
Transactions for Lazo
Date
1 The owner, Ms Lazo invested P50,000 cash into her business.
19 - 3,000 3,000
23 - 5,500 - 5,500
24 - 8,000 - 8,000
25 30,000 30,000
28 25,000 25,000
29 - 5,000 - 5,000
30 12,500 -12,500
Accounting Matters to Stakeholders
Stakeholder – a person or entity who has a stake
or interest in the economic performance of a
business:
1. Owner or investor – puts in capital (money or
property) in a business endeavor in order to
earn profit; the investor assesses the risk of
investing in the busines by finding out the
answers to these questions:
a. Is the business PROFITABLE and earning a
satisfactory return on investment (ROI) ?
b. Is the business solvent?
c. Has it accumulated sufficient financial wealth
to remain stable?
Manager – responsible for organizing, planning ,
directing and controlling the operation of the
business; a manager must be a good steward ,
protecting the business resources and helping it
grow in value; financial reports make it possible
for one to evaluate performance of the business
and assess the quality of management of the
officers and supervisors.
Lender - assesses the ability of the business-
borrower to pay the principal debt and an
additional charge called interest
Can the business repay the money on maturity
date? Does it have liquid assets?
The paying ability of the business-borrower can
be obtained by reviewing its financial position.
Supplier – offers goods or merchandise on cash
basis or on credit term depending on the paying
ability of the business
Will it be able to pay its account on the date it
becomes due?
The accounting information to determine the
credit worth of the business is also based on its
financial position
Government – uses the accounting reports in
several ways ; as tax collector , it investigates tax
returns and tax liability; as a regulatory body, it
verifies if one is complying with its rules and
regulations
Employee – wants higher wages , benefits , good
working conditions and security of tenure
A review of the company’s financial reports will
enable one to assess the ability of the business
to grant these demands.
The company cannot afford to grant higher
salaries and more benefits if the business is
losing as reflected in its financial performance.
Customers – assess the company’s ability to
continuously supply the goods they need at the
right price and quality
The fairness o the price is reflected in the
financial performance.
The ability to ensure continuous supply could be
determined from its financial position.
Financial Reports and Financial Information
DRAWING CAPITAL
DEBIT CREDIT DEBIT CREDIT
+ - - +
EXPENSES REVENUE
DEBIT CREDIT DEBIT CREDIT
+ - - +
DATE TRANSACTIONS ACCOUNTS DEBIT CREDIT
Jan.2 Cash investment by Ann, P50,000. Cash + 50,000
? ?
3 Bought supplies for cash, P3,000 Supplies + 3,000
Cash - 3,000