Introduction to Accounting

Accounting is a service activity. Its function is to

provide quantitative information, primarily financial in
nature, about economic entities that is intended to be useful in
making economic decisions. –Accounting Standards Council,
1983
Accounting is a process of analyzing (business
transactions, recording and communicating information to
users.
1. Accountable events – recordable
 Quantifiable
 Affects assets, liabilities, equity, income
and expenses
 Involves two or more parties
2. Non-accountable events –non-recordable
Forms of Business organization
Sole Proprietorship – single-owned business and may also
tend to be small
service-type businesses and retail establishments
Partnership – business owned and operated by two or more
persons binding
themselves to contribute money, property or industry.
Liable for
any debt incurred by the partnership.
Corporation – business owned by its stockholders. It is
created by
operation of law. Stockholders are not personally
associated for
the corporation’s debts.
Type of Business
Type Activity Structure Examples
 Hiring skilled
Selling people’s Accounting
Services staff and selling
time Legal
their time
Buying block of Farm
Extracting raw
Raw Materials lands to provide Mining
materials
raw materials Oil
Buying a range
of raw materials,
making them
Buying and Wholesalers
Trader available for sale
selling products Retailer
in locations near
to their
customers
Designing
products, Converting raw Construction,
Manufacture assembling materials into media,
finished finished goods chemicals, etc.
products
Transport,
Buying and
Selling the hotels, telecoms,
operating assets;
Infrastructure utilization of sports facilities,
selling
infrastructure property
occupancy
management
Accepting cash
Receiving from depositors
Bank,
deposits, lending and paying them
Financial investment
and investing interest;
house
money charging them
fees
Collecting cash
from many
Pooling
Insurance customers; Insurance
premiums
investing money
to pay the losses
Branches of Accounting
Auditing – most significant service to the public.
– ensures the fairness and reliability of reports that
management submits to users outside the business
entity
 External Auditor – appointed from outside the
organization
– to protect the interest of the users of the FS
– much more selective testing
Internal Auditor – employees of the company
– appointed by the company’s management through
their work
independently
– ensure the accuracy of business records
– perform routine tasks and detailed checking of the
company’s
accounting procedures
Bookkeeping – mechanical task involving the collection of
basic financial
data
Cost Bookkeeping, Costing, and Cost Accounting – process
that involves
the recording of cost data books of accounts. (similar
to bookkeeping except that data are recorded in very much
greater detail)
– deals with collection, allocation, and control of the
cost of producing specific goods and services.
Financial Accounting – focused on the recording of business
transactions
and the periodic preparation of reports on financial
position and
results of operation.
Financial Management – new branch of accounting that is
responsible for
setting financial objectives, making plans based on
those
 objectives
Management Accounting – incorporates cost accounting data
and adapts
them for specific decisions which management may be
called upon to make.
– incorporates all types of financial and non-
financial
Information
Taxation – preparation of tax returns and the consideration of
the tax
Consequences
Government Accounting – identification of the sources and
the uses of
resources consistent with the provisions of city,
municipal, provincial, or national laws
Fundamental Concepts
Entity Concept – most basic concepts in accounting
– organization or a section of an organization that
stands
apart from the other organizations and individuals as a
separate economic unit
Periodicity Concept – subdivided into equal time periods for
reporting
purposes
– allows the users to obtain timely
information
Stable Monetary Unit Concept – allows to add and subtract
peso
– amounts as though each peso has the same
purchasing
power as any other peso
Going Concern – normally prepared on the assumption that
the reporting
entity is a going concern and will continue in
operation for the foreseeable future
– assumed that the entity has neither the intention
nor
the need to enter liquidation
– underlies the depreciation of assets over the
useful lives
Basic Principle
Objectivity Principle – reliability of accounting records;
without this, it
would be based on whims and opinions
Historical Cost – should be recorded at their actual cost
Revenue Recognition Principle – revenue is to be recognized
when goods are
delivered or services are rendered or performed
Expense Recognition Principle – expense should be
recognized in which goods
and services are used up to produce revenue
Adequate Disclosure – all relevant information would affect
the user’s
understanding
Materiality – concerned with information that is significant
enough to
affect evaluations and decisions depending on the size
and nature of the item
Consistency Principle – should use the same accounting
method from
period to period to achieve comparability over time
 A= L+ E

Accounting Equation
Assets - is the resources controlled by the entity, whether
tangible or
intangible.
- provide economic activities/resources
Current Assets – can be used within the 12 - month
period
Cash - includes coins, currency, checks, money
orders, bank deposits and drafts.
Cash Equivalents (Time Deposits) readily
convertible to
known amounts of cash
Contra Asset Account – Allowance for Doubtful
Accounts,
Uncollectible, and Bad Debts
Accounts Receivables - claims against
customers arising
from sale of services or goods on credit.
Notes Receivables - written pledge that the
customer will
pay the business a fixed amount of money
on a
certain date
Inventories - held for sale in the ordinary course
of
business
 Supplies and Other Prepaid Assets
Non-Current Assets – can be used for more than 12
months
PPE – Plant, Property, and Equipment
Equipment
Machinery
Land
Furniture and Fixtures
Building
Contra Liabilities – Accumulated Depreciation
(Credit)
contra account that contains the sum
of the periodic depreciation charges
Investments – (stock & bonds)
Intangibles
Accumulated Amortization (Credit)
Liabilities - present obligation by the entity (cash outflows)
Current Liabilities – payable within 12 months
Accounts Payable
Notes Payable
Unearned Revenue
Accrued Payables – not yet in paid
Non-Current Liabilities – payable for more than 12
months
Bonds Payable
Loans Payable – can be a current liability if the
maturity
is within the year
Mortgage Payable
Equity - all related to owner except to liabilities (Investment
-credit-
 increase equity, Withdrawal debit - decrease equity,
Income credit- increase credit, Expenses- debit -
decrease equity)
Income/ Revenue
Revenues Sales
Fees Income
Expenses
Salaries (Fixed) and Advertising Expense
Wage (Hourly rate) Rent Expense
Expense Insurance Expense
Interest Expense Cost Sales
Bad Debt Expense Travel and Transportation
Utilities Expense Expense
Depreciation Expense
Real Accounts – Assets, Liabilities and Equity
Nominal Accounts – Income/Revenue and Expenses

Difference between ownership and controlled

Liabilities from creditor
Equity from owner
Asset - debit normal balance (to increase debit, to decrease
credit)
Liabilities and Equity – (credit normal balance)to increase
credit, to decrease debit)
A. 10 steps in Accounting Cycle
Step 1: Analyzing business transaction
(recordable/not recordable)
Step 2: Journalizing (process of recording, gather data,
sort and classify)
Step 3: Posting
Step 4: Unadjusted Trial Balance
Step 5: Adjustments (PFRS- Philippine Financial
Reporting
 Standards—Accrual Basis
Step 6: Adjusted Trial Balance
Step 7: Preparation of Financial Statements
Step 8: Closing Entries (Nominal and Real Account)
Step 9: Post Closing Trial Balance (Real/Permanent
Accounts)
Step 10: Reversing Entries
B. Merchandising (Tangible Products) and Service
Type (Intangible
Products) of Business
C. Accounts(Asset,Liability,Equity) (Categorize and
take on the
events and effects) & Account Titles (Under the
accounts)
D. Rulings (Debit and Credit)
Expanded Accounting Equation : Asset = Liabilities + Investments - Withdrawal +
Income – Expenses
Deb Credi
Credit Credit Debit Debit
it t
+ - + -
Asse =
investme withdraw incom expense
t Liabilities
nt al e s

ASSET = LIABLITIES + EQUITY

 
Debit Credit
= + Increase (Debit) = + Increase (Credit)
= - Decrease (CREDIT) = - Decrease (Debit)  
 UNIT 1: PERSPECTIVE OF THE SELF
According to Charles Henry Parkhurst,
Self-Concept – “self-awareness”
- refers to how someone thinks
about, evaluate or perceives themselves
- aware of oneself is to have concept
- believing one self
- greatly influences on how we think, we feel and
how to act on it
Real Self – who we actually are
- reflection of our true self
- it is how we think, we feel, look and act
- “self-image”
Ideal Self – how we want to be
- Idealized image that we have learned from our
experiences and/ from our parents or from
admiration of others
SEE UNIT 1 MODULE FOR MORE REFERENCES

Nature vs. Nurture

Genetic traits vs. social
life

Self vs. Identity

Someone truly is vs.
characteristics or
personalities

Uni vs. Multi Dimensionalities

One vs many factors (social, environmental, hereditary,
person-volitiion)
UNIT II: PHILOSOPHICAL
PERSPECTIVE OF THE SELF
Philosophy – love for wisdom (philo – love; Sophia –
wisdom)

Pre-Socratic Era – studied the “arche” that explains the

multiplicity of things in
a world (complicated things)

Socrates –