CAEC 1 & 2: FINANCIAL ACCOUNTING AND REPORTING

MEMORIZE CHAPTER 2

After studying this module, you should be able to: INTRODUCTION TO

a. Explain the importance of the purpose and
phases of accounting;
b. Classify the financial elements as to assets,
liabilities, equity, income and expense.
ACCOUNTING
DEFINITIONS OF 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 is an information system that measures,

processes and communicates financial information
about an economic entity.
Chapter 1
1. Definition of Accounting Accounting is the process of identifying, measuring
2. Forms of Business Organizations and communicating economic information to permit
3. Activities in Business Organizations informed judgments and decisions by users of the
4. Purpose and Phases of Accounting information.
5. Fundamental Concepts
6. Basic Principles Accounting is the art of recording, classifying and
7. Branches of Accounting
summarizing in a significant manner and in terms of
money, transactions and events which are, in part at
least, of a financial character, and interpreting the
Chapter 2 results thereof.
1. The Accounting Equation
2. The Rules of Debits and Credits FORMS OF BUSINESS ORGANIZATIONS
3. Normal Balance of an Account
4. Types and Effects of Transactions Sole Proprietorship. This form of business
5. Financial Elements organization is owned by one person called the sole
a. Assets proprietor.
b. Liabilities
c. Equity Partnership. It is a business owned and
d. Income operated by two or more persons who bind
e. Expense themselves to contribute money, property or industry
to a common fund, with the intention of dividing the
profits among themselves. The owners in a
partnership are called partners.

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 Corporation. It is an artificial being created
by operation of law, having the rights of succession
and the powers, attributes and properties expressly
authorized by law or incident to its existence. The
owners of a corporation are called stockholders.
ACTIVITIES IN BUSINESS ORGANIZATIONS
The accounting function is part of the
broader business system, and does not operate in
isolation. It handles the financial operations of the
business but also provides information and advice
to other departments. Business transactions are the
economic activities of a business. Recording these
historical events is a significant function of

Financing Activities. Organizations require accounting. Accounts are produced to aid

financial resources to obtain other resources used to management in planning, control and decision-

produce goods and services. They compete for making and to comply with regulations.

these resources in financial markets. Financing

activities are the methods an organization uses to
obtain financial resources from financial markets FUNDAMENTAL CONCEPTS
and how it manages these resources. Primary
EntityConcept. The most basic concept in
sources of financing for most businesses are
accounting is the entity concept. An accounting
owners and creditors, such as banks and suppliers.
entity is an organization or a section of an
Repaying the credtors and paying a return to the
organization that stands apart from other
owners are also financing activities.
organizations and individuals as a separate
Investing Activities. It involve the selection economic unit.
and management including disposal and
Periodicity Concept. An entity’s life can be
replacement of long-term resources that will be
meaningfully subdivided into equal time periods for
used to develop, produce and sell goods and
reporting purposes. It will be aimless to wait for the
services. Investing activities include buying land,
actual last day of operations to perfectly measure
equipment, buildings and other resources that are
the entity’s profit. This concept allows the users
needed in the operation of the business, and selling
these resources when they are no longer needed. Stable Monetary Unit Concept.

Operating Activities. Involve the use of Going Concern.

resources to design, produce, distribute, and market
goods and services. Operating activities include
research and development, design and engineering,
BASIC PRINCIPLES
purchasing, human resources, production,
distribution, marketing and selling, and servicing. Objectivity Principle.
Organizations compete in supplier and labor
markets for resources used in these activities. Also, Historical Cost.
they compete in product markets to sell the goods
Revenue Recognition Principle.
and services created by operating activities.
Expense Recognition Principle.

Adequate Disclosure.
PURPOSE AND PHASES OF ACCOUNTING

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 Materiality. Income Credit Balance
Expense Debit Balance
Consistency Principle.
Normally, assets and expenses have debit
balances, whereas liabilities, equity and income have
credit balances.
BRANCHES OF ACCOUNTING

Auditing.
TRANSACTIONS
Bookkeeping.

Cost Bookkeeping, Costing and Cost

EFFECTS OF TRANSACTIONS
Accounting.

Financial Accounting. Assets Liabilities Equity

1 + = +
2 + = +
3 - = -
THE ACCOUNTING 4 - = -
5 + = -
EQUATION AND THE
6 + = -
DOUBLE-ENTRY SYSTEM 7 - = +
8 + = -
9 + = -
THE ACCOUNTING EQUATION
Legend:
+ means increase
Assets = Liabilities + Equity
- means decrease

Income increases equity whereas expenses

decreases equity.
FINANCIAL ELEMENTS

THE RULES OF DEBITS AND CREDITS

Assets.

Debit Credit
Current Assets.
Assets + -
Liabilities - + Cash. It is any medium of exchange that a
Equity - + bank will accept for deposit at face value . Examples
Income - + are coins, currency, checks, money orders, bank
Expense + - deposits and drafts.

Cash Equivalents. These are short-term,

NORMAL BALANCE OF AN ACCOUNT highly liquid investments that are readily convertible
to known amounts of cash and which are subject to
Debit Credit an insignificant risk of changes in value.
Assets Debit Balance
Liabilities Credit Balance
Equity Credit Balance

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 Notes Receivable. This is a receivable Unearned Revenues
wherein the debtor gives the creditor a promissory
note. Current Portion of a Long-term Debt

Accounts Receivable. These are claims

against customers arising from sale of services or Non-current Liabilities
goods on credit.
Mortgage Payable
Inventories. Per PAS No. 2, these are assets
which are (a) held for sale in the ordinary course of Bonds Payable
business; (b) in the process of production for such
sale; or (c) in the form of materials or supplies to be
consumed in the production process or in the Equity
rendering of services.
Capital
Prepaid Expenses. These are expenses paid
in advance. Examples are Prepaid Rent and Prepaid Withdrawals
Insurance.

Income
Non-current Assets.
Service Revenue
Property, Plant and Equipment. Per PAS No.
16, these are tangible assets that are held by an Sales
enterprise for use in the production or supply of
goods or services, or for rental to others, or for
administrative purposes and which are expected to Expense
be used during more than one period. Examples are
Land, Building, Machinery and Equipment, Furniture Cost of Sales
and Fixtures.
Salaries or Wages Expense
Long-term Investments
Utilities Expense
Intangible Assets. Per PAS NO. 38, THESE
Rent Expense
Other Assets
Supplies Expense
Liabilities.
Insurance Expense
Current Liabilities
Depreciation Expense
Accounts Payable
Uncollectible Accounts Expense
Notes Payable
Interest Expense
Accrued Liabilities

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Reflection on an English teacher’s canon
Objective: Create a visual board on the literary
pieces included by your former English teachers in
their subject compared to one with literary works
that you would personally choose.
Reflect on teaching practices in the English
classroom in choosing literary works to be included
in a course subject.
Task: As an Education student, you are tasked to
reflect on the reading materials included by your
former English teachers in their subjects. Create a
visual board of this. Then plan your own course
content in literature and make another visual board
of your choices.
Tools and resources: Online resources, photos, la
• unities in every literary work: the unities of time,
place, and action. He used the word “catharsis”
to define the purpose of literature. The most
often used definition of this word is to purge the
negative emotions so that the reader or
audience can better handle these emotions,
such as pity or fear.
• Horace stated that literature should aim to teach
and to please. Beyond these functions, nothing
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should be censored for as long as the text
follows decorum—the appropriateness of style
and language to the character presented.
• The Peri Hypsos had often been credited to
Longinus, but recent research had belied this
claim. Nonetheless, the work gave the world
the fourth style in the use of language—the
sublime style. Language, according to the
author of Peri Hypsos, should be elevated and
as such, should transport the reader into the
world of aesthetics, beyond the ordinary
language used in everyday conversation.
Romanticism
• Romanticism is a revolt against the rigid
formalism of the Classicist perspective.
•  The emphasis of the Romanticist
perspective is on man as an individual.
Thus, every literary work celebrates man’s
capacity to reach his potential if only he is
liberated from the strictures of technology
and social dictates.
• Nature is an important component of man’s
identity. To be free, man must live his life in
accordance to the laws of nature.
• Simplicity and a reverence for the common
man’s everyday speech patterns is evident in
the literary selections.
Ballada, Win (2019). Basic Accounting and
Reporting. Manila: Made Easy Books.
Millan, Zeus Vernon B. (2019). Financial Accounting
and Reporting. Baguio City: Bandolin
Enterprise.
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