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Essential Accounting Concepts Explained

This document provides an overview of accounting, including its essential elements of identifying, recording, and communicating transactions through journalizing, posting, and preparing financial statements. It describes accounting's common branches and basic concepts, the five major accounts, steps in the accounting cycle, source documents, adjusting entries, and types of accounts. Accounting involves systematically identifying, recording, and reporting financial information about an entity's economic activities.

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86 views3 pages

Essential Accounting Concepts Explained

This document provides an overview of accounting, including its essential elements of identifying, recording, and communicating transactions through journalizing, posting, and preparing financial statements. It describes accounting's common branches and basic concepts, the five major accounts, steps in the accounting cycle, source documents, adjusting entries, and types of accounts. Accounting involves systematically identifying, recording, and reporting financial information about an entity's economic activities.

Uploaded by

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

ACCOUNTING

Essential Elements
1. Identifying - accountable or unaccountable events
2. Recording -Journalizing
-Posting
3. Communicating
-financial statements

 Vs. Bookkeeping
 For external & internal users
 Fra. Luca Pacioli

 Financial statements - structured representation of an entity's financial position & results of


its operations.
 Financial report- financial statements + other information

Common branches of Accounting


 Financial Accounting
 Management Accounting
 Government Accounting
 Auditing
 Tax accounting
 Cost accounting
 Accounting education
 Accounting research

Forms of Business Organizations


 Sole or single proprietorship -DTI (Department of Trade and Industry)
 Partnership - SEC (Securities and Exchange Commission)
 Corporation -SEC
 Cooperative -CDA (Cooperative Development Authority)

Basic Accounting Concepts


 Separate Entity Concept
 Historical Cost Concept
 Going concern assumption
 Matching
 Accrual Basis
 Prudence (or Conservatism)
 Time Period
 Stable monetary unit
 Materiality concept
 Cost-benefit
 Full disclosure principle
 Consistency principle
ASSETS= LIABILITY+ EQUITY*

NOTE: (INCOME-EXPENSES)*

ACCOUNT

The Five Major Accounts


 Assets
 Liabilities
 Equity
 Income (Revenue & Gains)
 Expenses (Expenses & Losses)

 Balance Sheet "Statement of Financial Position"


 Income Statement "Statement of Profit or Loss"
 Chart of accounts

Types of Journals
 Special Journal
A) Sales Journal
b) Purchases Journal
c) Cash receipts journal
d) Cash disbursements journal

 General Journal

 Contra vs. Adjunct account


 Concept of duality
 Concept of equilibrium

Steps in the Accounting Cycle


 Identifying and analyzing
 Journalizing
 Posting
 Prepare the unadjusted trial balance
 Prepare adjusting entries
 Prepare the adjusted trial balance
 Prepare the financial statements
 Closing the books
 Prepare the post-closing trial balance
 Record the reversing entries.

Source Documents
 Sales invoices
 Official receipts
 Purchase orders
 Delivery receipts
 Bank deposit slips
 Bank statements
 Checks
 Statements of account and the like

Adjusting Entries
 Accruals of income and expenses
-income that is already earned but not yet collected
-expense that is already incurred but not yet paid
E.g. Interest receivable xxx
Interest income xxx
#
Interest expense xxx
Interest payable xxx
#
 Recognition of depreciation expense and bad debts expense
E.g. Depreciation Expense xxx
AD xxx
#
3. Deferrals of income and expenses

 Real Accounts (Permanent Accounts)


 not closed at the end of the period
 all balance sheet accounts (ASSET & LIABILITY), except Owner's Equity

 Nominal Accounts
 All income statement accounts, drawings account, clearing accounts and suspense accounts

 Mixed Accounts

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