FUNDA

Accounting - (Fra Luca Pacioli)

 As social science (accounting Is a body of knowledge which has been systematically gathered,
classified and organized.
 As practical science (accounting requires the use of creative skills and judgment)
 Identifying, recording and communicating

Branches of Accounting

1. Financial Accounting
2. Management Accounting
3. Government Accounting
4. Auditing
5. Tax Accounting
6. Cost Accounting
7. Accounting education
8. Accounting research

Users of Accounting Information

1. Internal Users
2. External Users

Forms of Business organizations

1. Sole Proprietorship
2. Partnership
3. Cooperative
4. Cooperation

Types of Business According to Activities

1. Service
2. Merchandising
3. Manufacturing

Basic Accounting Concepts (Assumptions and Postulates)

1. Separate entity- sep. and distinct from owners

2. Historical cost – recorded @ acquisition cost
3. Going concern assumption- continue to exist for an indefinite period
4. Matching Principle- charge expenses when related revenue is recognized
 5. Accrual basis- Income is recorded when earned, expenses is recognized when incurred
6. Prudence/ Conservatism
7. Periodicity
8. Stable Monetary unit
9. Materiality concept- when item is considered material
10. Cost-benefit
11. Full disclosure principle- sufficient detail to disclose and condensation of information
12. Consistency concept – ung di niya kayang gawin sayo hahaha chos

ASSETS= LIABILITIES + EQUITY + (INCOME – EXPESNSES)

1. Assets – economic resources you control Normal Debit Balance

2. Liability/ies – present obligations 1. Assets
3. Equity – capital/net assets/ net worth 2.Expenses
4. Income – increases in economic benefits 3.Equity (drawings)
a. Revenue b. Gains
5. Expenses – decreases in economic benefits Normal Credit Balance
a. Expenses b. Losses 1. Liability
2.Equity (capital)
Books of Accounts 3. Income

1. Journal- book of original entries

a. special journal b. general journal
2. Ledger- book of final entries
a. General Ledger b. Subsidiaries Ledger

Concept of Duality and Equilibrium

1. Duality – two-fold effect on values (value received and value parted with)
2. Equilibrium- equal debits and credits

Accounting Cycle
1.Nominal Account- temporary
1. Identifying
(parang relasyon niyo hahaha)
2. Journalizing
2. Real Account- permanent
3. Unadjusted Trial Balance
(parang friendship niyo kaya
4. Adjusting Entries
pahalagahan)
5. Adjusted Trial Balance
3.Mixed Account- subject to
6. Prepare Financial Statements
adjustments
7. Closing
8. Post Closing Trial Balance
9. Reversing
Source Documents pg. 173-179

1. Sales invoice/ official receipt

2. Purchase order – issued by buyer to seller
3. Delivery Receipt – signed by receiver acknowledging the receipt of goods
4. Bank deposit slip
5. Bank statement – issued by bank
6. Statement of Account Accruals
-Salaries/wages
Adjusting Entries -Utilities
- Interest expense
- Made prior to preparation of financial statements to update certain accounts
- Take up unrecorded income and expenses Deferrals
- To split mixed accounts -Supplies
-Prepayments
-Unearned revenue
1. INCOME -Fixed Asset (PPE)

A. Liability Method (recognized the earned portion (income) of a mixed account)

PRIOR ENTRY ADJUSTING ENTRY

Cash xx Unearned Rent xx

Unearned Rent xx Rent Income xx

B. Income Method (recognized the unearned portion (liability) of a mixed account)

Cash xx Rent Income xx

Rent Income xx Unearned Rent xx

EARNED PORTION -
a.Earned Portion – recognized INCOME
as income, pertains to income
earned
MIXED
b.Unearned Portion –
recognized as liability, remaining
that covers the portion to be
UNEARNED
earned next acctng. period
PORTION- LIABILITY
 2. EXPENSES

A. Asset Method(recognized expired portion (expense) of a mixed account)

PRIOR ENTRY ADJUSTING ENTRY

Prepaid Insurance xx Insurance Expense xx

Cash xx Prepaid Insurance xx

B. Expense Method (recognized unexpired portion (asset) of a mixed account)

Insurance Expense xx Prepaid Insurance xx

Cash xx Insurance Expense xx

a.Expired/Incurred/Use up INCURRED
Portion – recognized as expense, PORTION-
pertains to expense incurred EXPENSE

b.Unexpired Portion –
MIXED
recognized as asset, remaining
that covers the portion to be
NOT YET
incurred next acctng. period
INCURRED
PORTION- ASSET

Closing Entries

- Prepared at the end of accounting period to zero out all nominal accounts.
- All income accounts are debited and all expenses accounts are credited.
- Balance of income summary is closed to owner’s equity 1.Closed Account – an
- Any balance in owner’s drawing is closed to owner’s equity account with no balance
2.Open Account – an
account with balance
Reversing Entries

- Usually made on the first day of next acctng period.

- To reverse certain adjusting entries
- Optional
 - Used to simplify recording process in the next acctng period
- Not all adjusting entries can be reversed. Only
a. Accruals for income/ exp
b. Prepayments initially using expense method
c. Advanced collection initially recorded using income method

Worksheet

- Analytical device used to facilitate the gathering of data for adjustments, preparation of
financial statements, and closing entries

Financial Statements

- Information accumulated and processed in financial accounting

- Balance sheet, income statement, statement of cash flows, statement of changes in owner’s
equity

Merchandising Business

a. Inventory – refers to goods intended for resale

b. Inventory Systems – 1. Perpetual Inv. Sys. – continuing forever ( buti pa system may forever
ikaw wala hahaha) 2. Periodic – occurring or recurring at regular intervals

PERPETUAL SYSTEM PERIODIC SYSTEM

Merchandising Inventory/Inventory xx Purchases xx
Accounts Payable xx Accounts Payable xx

Merchandising Inventory/Inventory xx Freight -in xx

Cash xx Cash xx

Accounts Payable xx Accounts Payable xx

Merchandising Invetory xx Purchase Returns xx

Accounts Receivable xx Accounts Receivable xx

Sales xx Sales xx

Cost of Goods Sold xx

Merchandising Inventor xx
 Sales Returns xx Sales Returns xx
Accounts Receivable xx Accounts Receivable xx

Merchandising Inventory xx
Cost of Goods Sold

STATEMENT OF COST OF GOODS SOLD

(used only in Periodic System)

Beg. Inventory xx
Add: Net Purchases
Purchases xx
Freight-in xx
Purchases Returns and Allowances (xx)
Purchases Discounts (xx) xx
Cost of Goods Available for Sale xx
Ending Inventory (xx)
Cost of Goods Sold xx

INCOME STATEMENT

Sales xx
Less: Sales Returns and Allowances xx
Sales Discounts xx (xx)
Net Sales xx
Cost of Goods Sold (xx)
Gross Profit xx
Less: Expenses xx (xx)
Net Profit xx

FOB SHIPPING POINT - buyer should pay the FREIGHT COLLECT – buyer is the one who
freight charges, upon shipment transfer of pays the charges
ownership happens
FREIGHT PREPAID – seller is the one pays
FOB DESTINATION – seller should pay the for the charges
freight charges, upon destination transfer of
ownership happens
 List Price/Catalog price - actual price
 Invoice Price - price to the buyer
 Credit terms