INTRODUCTION TO ACCOUNTING

INTRODUCTION
-Accounting is a system that helps businesses track events that affect them. The process involves identifying the events
that affect a business, recording these events, and communicating the summarized results to all events within a
particular period of interested parties.

HISTORY OF ACCOUNTING

- It is believed that the history of accounting is thousands of years old and can even be traced to ancient civilizations. A
number of history books suggested that the early development of accounting can be dated back to Ancient
MESOPOTAMIA.
- The reign of EMPEROR AUGUSTUS (63BC – 14AD) provided more evidence about the development of accounting. The
roman government kept detailed financial accounting of the deeds of EMPEROR AUGUSTUS regarding the stewardship
of roman resources.
- Luca Pacioli is acknowledged as the father of accounting.
- The double-entry bookkeeping system is defined as any bookkeeping system that has a debit and a credit for each
transaction. The double-entry bookkeeping system is the system being used to this very day.
- 2 types of bookkeeping system (Single Entry and Double- Entry System)

FUNDAMENTAL OF ACCOUNTING, BUSINESS AND MANAGEMENT

- This is an introductory course in accounting, business and management data analysis that will develop student’s
appreciation.
- Language of business.

THE ACCOUNTING PROCESS

- The starting point of the accounting process is the identification of economic events relevant to a business. To be
identified as a relevant economic event, there should be a transfer of things with value.

NATURE OF ACCOUNTING

*Accounting is a process – a process is composed of multiple steps that lead to a common END GOAL.
*Accounting is an art – is a combination of techniques and its application requires applied skill and expertise. This is the
reason why accounting is considered as an art.
*Accounting deals with financial information and transaction – it only deals with quantifiable financial transaction.
*Accounting is a means and not an end - it is a tool to achieve specific objectives. It is not the object itself.
*Accounting is an information system – it recognized and characterized as a storehouse of information.

FUNCTIONS OF ACCOUNTING

- The American Accounting Association (AAA) defines accounting as [The process of identifying, measuring, and
communicating economic information to permit informed judgments and by the users of information.]
- The American Institute of Certified Public Accountants (AICPA) defines accounting as [The art of recording, classifying,
and summarizing in a significant manner and in terms of money, transaction, and events which are in part at least of
financial character and interpreting the result thereof.]

RECORDING
- This phase of accounting work is popularly called Journalization. Journalization involves the routine and mechanical
process of committing to writing business transactions and events on the books of accounts in a chronological sequence
in accordance with established accounting rules and procedures.
CLASSIFYING
- The classifying phase involves the sorting or grouping of similar and interrelated transactions and events into their
respected classes. Classifying function is performed by posting to the ledger. The ledger is a group of accounts which
are systematically categorized into asset accounts, liability accounts, capital accounts, revenue accounts, and expense
account.

SUMMARIZING
- This part of the accounting work refers to the preparation of financial statements. These statements are prepare
periodically either annually, semi-annually, quarterly or monthly. The basic financial statements are balance sheet,
statement of retained earnings, income statement supported by a schedule of cost of goods manufactured and sold,
and statement of changes in financial position

INTERPRETING
- Interpreting is the analytical phase of accounting. It is this function that makes accounting the language of business.

The analytical function is performed by answering four basic questions;

Is the company Liquid? Solvent? Stable? Or Profitable?

LIQUIDITY- is synonymous with cash

SOLVENCY- is the ability to pay current obligations
STABILITY- is the ability to pay long-term obligation
PROFITABILITY- is the ability to increase capital not form additional investment, but from the results of operation.

* Accounting is a system that identifies, records, and communicates relevant economic events to interested users.
* Function of Accounting in business: Keeping systematic record of business transactions; protecting properties of the
business; communicating the result of various parties interested in or connected in the business; and meeting legal
requirements.

BRANCHES OF ACCOUNTING

Financial Accounting
DEFINITION - Deals with the financial transactions of a business
TYPE OF REPORT GENERATED - Financial statements
PURPOSE OF INFORMATION - To guide external and internal users in their economic decision
FREQUENCY OF REPORTS - Periodic (annually, quarterly, etc.)
INTENDED USERS - External and internal users
STANDARDS/ BASIS OF PRESENTATION - PFRS and PAS

Management Accounting
DEFINITION - Focuses on preparation of reports for use of managers in their decision making
TYPE OF REPORT GENERATED - Management reports
PURPOSE OF REPORTS - Helps management in decision making
FREQUENCY OF REPORTS - Whenever management asks for a report
INTENTED USERS - Internal users only
STANDARDS/ BASIS OF PRESENTATION – None

Government Accounting
DEFINITION - Accounting for the receipt and disposition of government funds
TYPE OF REPORT GENERATED - Periodic financial reports; financial statements of the government
PURPOSE OF REPORTS - Shows the steward by the government of public funds
FREQUENCY OF REPORTS - Periodic (annually, quarterly, etc.)
INTENDED USERS - External and internal users
STANDARD/ BASIS OF PRESENTATION – NGAS

Auditing
DEFINITION - Examines and evaluate financial statements of a company independently
TYPE OF REPORT GENERATED - Auditor’s reports which contains the auditor’s opinion about the financial statements
PURPOSE OF REPORT - Gives credibility to the financial statements of a company
FREQUENCY OF REPORTS - After every audit of a set of financial statements
INTENDED USERS - External users only
STANDARDS/ BASIS OF PRESENTATION - Philippine Standard on Auditing (PSA)

Tax Accounting
DEFINITION - Lays down the different treatments of the taxing authorities regarding financial transaction
TYPE OF REPORT GENERATED - Tax returns to be used by taxing authorities to determine the amount of taxes payable
PURPOSE OF REPORT - Helps determining the amount of taxes payable
FREQUENCY OF REPORTS - Periodic (annually, quarterly, etc.)
INTENDED USERS - Taxing authorities
STANDARDS/ BASIS OF PRESENTATION - NIRC

Cost Accounting
DEFINITION - Finds out the cost of specific cost objects to help in the functions of both financial and management
accounting
TYPE OF REPORT GENERATED - Cost of production report; other cost report
PURPOSE OF REPORT -Finds the cost of a particular object
FREQUENCY OF REPORT - Whenever management asks for a report
INTENDED USERS - Internal users only
STANDARDS/ BASIS OF PRESENTATION – None

Accounting Education
DEFINITION - Deals with the promulgation of accounting knowledge of various interested parties that will aid them in
achieving their individual goal
TYPE OF REPORT GENERATED - Not Applicable
PURPOSE OF REPORT - Educates students in field of accountancy
FREQUENCY OF REPORT - Not Applicable
INTENDED USERS - Students and members of the academe
STANDARDS/ BASISS OF PRESENTATION - None

Accounting Research
DEFINITION - Continuous improvement of the accountancy field through researches and studies
TYPE OF REPORT GENERATED - Research results
PURPOSE OF INFORMATION - Add to the knowledge of accountancy
FREQUENCY OF REPORTS - Varies
INTENDED USERS - Primarily members of the academe
STANDARDS/ BASIS OF PRESENTATION - None

USERS OF ACCOUNTING INFORMATION

Customer
DEFINITION - main source of income of businesses; acquire goods and services for a free
EXAMPLE OF USERS - patrons, clients, people acquiring goods or services for a fee
BENEFITS FROM ACCOUNTING INFORMATION - whether or not to build relationship with the business to have any
dealings with the business

Creditors
DEFINITION - provides of additional funds when the initial investment of owners is exhausted; lend resources to
businesses usually in the form of money
EXAMPLE OF USERS- banks, lending institution, wealthy individual; sometimes the government can also lend resources
to a company
BENEFITS FROM ACCOUNTING INFORMATION - whether or not to lend resources to the business, try to see if the
business is not very risky before lending funds

Potential investors
DEFINITION - providers of additional funds when the initial investment of owners is exhausted; invest resources in the
business hoping to earn decent returns
EXAMPLE OF USERS - wealthy individuals, other businesses planning to invest
BENEFITS FROM ACCOUNTING INFORMATION - whether or not to invest in the business, primary concern is the ability
of the business to provide acceptable returns
Government
DEFINITION - an external user whose primary role is to regulate businesses; studies financial statements to determine
amount of taxes payable
EXAMPLE OF USERS - different government agencies, taxing authorities, government officials
BENEFITS FROM ACCOUNTING INFORMATION – Oversees business operations with the end goal of improving the
economy; checks the accuracy of the financial statements to compute for the correct amount of taxes payable

Academe
DEFINITION - uses accounting information primarily for academic purposes
EXAMPLE OF USERS - professors, lecturers, students, and researchers
BENEFITS FROM ACCOUNTING INFORMATION- uses accounting information in the teaching of accountancy researches
loopholes or errors and possible improvements in the field of accountancy

General public
DEFINITION - citizens and residents of country even though they do not plan to transact with the business; use financial
statements to gauge the condition of economy
EXAMPLE OF USERS - common people not connected with the company
BENEFITS FROM ACCOUNTING INFORMATION - concerned with the overall performance of the economy; use financial
information to estimate economic performance

Management
DEFINITION - employees that can make decisions for the company; considered the brain of the company
EXAMPLE OF USERS - board of directors, top management, middle level managers, Supervisors
BENEFITS FROM ACCOUNTING INFROMATION- uses financial information in making business decisions; allows
management to identify problems immediately and to respond accordingly

Employees
DEFINITION - persons in the company aside from managers and owners or stockholders; do not have authority to
implement decision
EXAMPLE OF USERS - laborers, field workers, non-managerial employees
BENEFITS FROM ACCOUNTIN INFORMATION- check if the business is profitable enough to provide compensation and
other benefits

Owner or Stockholders
DEFINITION - Existing investors of the company; concerned mostly with the profits of the company
EXAMPLE OF USERS - founders of the company, owners, stockholders, partners, proprietors
BENIFTIS FROM ACCOUNTING INFORMATION - mainly concerned with the returns earned from their investment;
owners taking active roles in the operations of the business; also make decisions

USER GROUPS MAY BE BROADLY CLASSIFIED INTO TWO; DIRECT AND INDIRECT USERS

DIRECT USERS
*Owners or Stockholders
* Prospective or Stockholders
* Management
* Creditors
* Employees
* Taxing Authorities
* Customers

INDIRECT USERS
* Regulatory or registration authorities
* Labor unions
* Stock exchange
* Trade association
* Lawyers
* Financial analyst and advisors
* Financial press and reporting agencies
 ACCOUNTING CONCEPTS

INTRODUCTION
- These Generally Accepted Accounting Principle (GAAP) lay down accepted assumptions and guidelines and are
commonly referred to as accounting concepts.

ACCOUNTING CONCEPTS/ PRINCIPLES

1. BUSINESS ENTITY PRINCIPLE/ ACCOUNTING ENTITY CONCEPT

- The business and its owner(s) are two separate existence entity.
- Any private and personal income and expenses of the owner(s) should not be treated as the income and expenses of
the business.
EXAMPLE: IF THE OWNER HAS A BARBER SHOP, THE CASH OF THE BARBER SHOP SHOULD BE REPORTED SEPARATELY
FROM PERSONAL CASH.

2. MONEY MEASURABLE PRINCIPLE

- All transactions of the business are recorded in terms of money.
- It provides a common unit and measurement.
EXAMPLE: 7/11 SHOULD REPORT FINANCIAL STATEMENTS IN PESOS EVEN IF THEY HAVE A STORE IN THE UNITED
STATES OR VICE VERSA.

3. GOING CONCERN PRINCIPLE

- Business is expected to continue indefinitely. Possible losses from the closure of business will not be anticipated in the
accounts.
- Prepayments, depreciation provisions may be carried forward in the expectation of proper matching against the
revenues of the periods. Fixed assets are recorded at historical cost.
EXAMPLE: WHEN PREPARING FINANCIAL STATEMENTS, YOU SHOULD ASSUME THAT THE ENTITY WILL CONTINUE
IDEFINETELY.

4. HISTORICAL COST PRINCIPLE

- Assets should be shown on the balance sheet at the cost of purchase instead of current value.
EXAMPLE: THE COST OF FIXED ASSSETS IS RECORDED AT THE DATE OF ACQUISITION COST. THE ACQUISITION COST
INCLUDES ALL EXPENDITURE MADE TO PREPARE THE ASSETS FOR ITS INTENDED USE. IT INCLUDED THE INVOICE PRICE
OF THE ASSETS, FREIGHT CHARGES, INSURANCE OR INSTALLATION COST.

5. PRUDENCE/ CONSERVATISM PRINCIPLE

- In case of doubt, assets and income should not be overstated while liabilities and expenses should not be understated.
EXAMPLE: IN CASE OF DOUBT, EXPENSES SHOULD BE RECORDED AT A HIGHER AMMOUNT. REVENUE SHOULD BE
RECORDED AT A LOWER AMOUNT. FIXED ASSETS MUST BE DEPRECIATED OVER THEIR USEFUL ECONOMIC LIVES.

6. MATERIALITY PRINCIPLE
- Immaterial amounts maybe aggregated with the amounts of a similar nature or function and need not be presented
separately.
- Materiality depends on the size and nature of the item.
EXAMPLE: SMALL PAYMENTS SUCH AS POSTAGES, STATIONARY AND CLEANING EXPENSES SHOULD NOT BE
DISCLOSED SEPARATELY. THEY SHOULD BE GROUPED TOGETHER AS SUNDRY EXPENSES.

7. OBEJECTIVITY
- The accounting information should free from bias and capable of independent verification.
- The information should be based upon verifiable evidence such as invoices or contracts.
EXAMPLE: THE RECOGNITION OF REVENUE SHOULD BE BASED OF VERIFIABLE EVIDENCE SUCH AS DELIVERY OF
GOODS OR THE ISSUE OF INVOICES.

8. CONSISTENCY
- Companies should choose the most suitable accounting method and treatments, and consistently apply them in every
period. Changes are permitted only when the new method is considered better and can reflect the true and fair view of
the financial position of the company.
- The change and its effect on profits should be disclosed in the financial statements.
EXAMPLE: IF THE COMPANY ADOPTS STRAIGHT LINE METHOD AND SHOULD NOT BE CHANGED TO ADOPT REDUCING
BALANCE METHOD IN OTHER PERIOD. IF THE COMPANY ADOPTS WEIGHT-AVERAGE METHOD AS STOCK VALUTION
AND SHOULD NOT BE CHANGED RO OTHER METHOD. E.G. FIRST-IN-FIRST-OUT (FIFO) METHOD.
9. ACCRUALS/ MATCHING
- Revenues are recognized when they are earned, but not when cash is received. Expenses incurred, but not when cash
is paid.
- The net income for the period is determined by subtracting expenses incurred from revenues earned.
EXAMPLE: EXPENSES INCURRED BUT NOT YET PAID IN CURRENT PERIOD SHOULD BE TREATED AS ACCRUAL/ ACCRUED
EXPENCES UNDER CURRENT LIABILITIES.
> EXPENSES INCURRED IN THE FOLLOWING PERIOD BUT PAID FOR IN ADVANCE SHOULD BE TREATED AS
PREPAYMENT EXPENSES UNDER CURRENT ASSET.
> DEPRECIATION SHOULD BE CHARGED AS PART OF THE COST OF A FIXED ASSET CONSUMED DURING THE PERIOD OF
TIME.

10. REALIZATION
- Revenues should be recognized when the major economic activities have been completed.
- Sales are recognized when the goods are sold and delivered to customers or services are rendered.
EXAMPLE: GOODS SENT TO OUR CUSTOMER ON SALE OR RETURN BASIS. THIS MEANS THE CUSTOMER DO NOT PAY
FOR THE GOODS UNTIL THEY CONFIRM TO BUY. IF THEY DO NOT BUY, THOSE GOODS WILL RETURN TO US.
> GOODS ON THE SALE OR RETURN BASIS WILL NOT BE TREATED AS NORMAL SALES AND SHOULD BE INCLUDED IN
THE CLOSING STOCK UNLESS THE SALES HAVE BEEN CONFRIMED BY THE CUSTOMERS.

11. DISCLOSURE
- Financial statements should be prepared to reflect a true and fair view of the financial position and performance of
the enterprise.
- All material and relevant information must be disclosed in the financial statements.

12. UNIFORMITY
- Different companies within the same industry should adopt the same accounting methods and treatments for like
transaction.
- The practice enables inter-company comparisons of their financial positions.

13. RELEVANCE
- Financial statement should be prepared to meet the objectives of the users.
- Relevant information which can satisfy the needs of most users is selected and recorded in the financial statement.

14. TIME PERIOD ASSUMPTION

- One accounting period (12 months)
- Calendar year (JANUARY TO DECEMBER)
- Fiscal year (when does business transaction starts)

UNDER THE CONCEPT OF REALIZATION

RECOGNITION OF REVENUE
- The realization concept develops rules for the recognition of revenue.
- The concept provides that revenues are recognized when it is earned, and not when money is received.
- A receipt in advance for the supply of goods should be treated as prepaid income under current liabilities.
- Since revenue is a principal component in the measurement of profit, the timing of its recognition has a direct effect
on the profit.

PROBLEMS IN THE RECOGNITION OF REVENUE

- Normally, revenue is recognized when there is a sale.
- The point of sales in the earning process is selected as the most appropriated time to record revenues.
- However, if revenue is earned in a long and continuous process, it is difficult to determine the portion of revenue
which is earned at each stage.
- Therefore, revenue is permitted to be recorded other than at the point of sales.

EXEPTIONS TO RULE OF SALES RECOGNITION

LONG-TERM CONTRATS
- Owning to the long duration of long-term contracts, part of the total profit estimated to have been arisen from the
accounting period should be included in the profit and loss account.
HIRE PURCHASE SALE
- The interest charged on a hire purchase sale constitutes the profit of transaction.
 FORMS OF BUSINESS

SINGLE PROPRIETORSHIP
- A business organization owned by ONLY ONE PERSON
* Easy to organize
* Easy decision making
* Financial Operating are not complicated
*All profits goes to sole owner
* Limited liability to raise funds
* Limited liability
* Less expansions.

PARTNERSHIP
- A business organization owned by two or more persons who contributed property or service into a common fund
* Easy to form
* Flexible operation
* One head + One head = 2 Heads
* DISADVANTAGES
* Unlimited liability
* Limited life
* Limited liability to raise capital based on agreement

CORPORATION
- A business organization Whose COMMON FUND OR CAPITAL IS DIVEDED INTO SHARE OF STOCKS.
* Legal capacity as a legal unit
* Longer life
* Centralized management
* Limited liability
* Ability to raise more capital
* Government control and supervision
* High cost on formation and operation
* High corporate income tax ranges
* Limited powers on decision-making

FYI:
GAAP OR GENERALLY ACCEPTED ACCOUNTING PRINCIPLE
- A collection of commonly-followed accounting rules and standards for financial reporting

IFRS OR INTERNATIONAL FINANCIAL REPORTING STANDARDS

- Standards issued by the IFRS Foundation and the International Accounting Standard Board or IASB to provide common
global language for business affairs so that company accounts are understandable and comparable across international
boundaries.

SFAS OR STATEMENT OF FINANCIAL ACCOUNTING STANDARDS

- Formal document issued by the Financial Accounting Standards Board or FASB created to ensure a higher level of
corporate transparency.

ACCOUNTING OPERATING YEAR

- The average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods
and receive cash from customers in exchange for the goods… longer payment terms shorten the operating cycle since
the company can delay paying out cash. How to calculate:
Divide (annual cost of goods sold or COGS) by (365)
Then Divide the amount of your inventories at the end of the year by (COGS) per day to calculate Days inventories
outstanding or DIO. This will show you how many days it will take you to turn your inventory into sales.

FISCAL YEAR OR FY
- A period that a company or government uses for accounting purposes and preparing financial statements. A Fiscal Year
may not be the same as calendar year and for tax purposes, the Internal Revenue Service or IRS allows companies to be
either Calendar-Year tax payers or fiscal-year tax payers.
 ACCOUNTING/ BOOKEEPING ELEMENTS/ VALUES

Accounting Equation: ASSETS = LIABILITIES + EQUITY

Elements: ASSETS, LIABILITIES, AND CAPITAL

FIVE MAJOR ACCOUNTS (ASSETS, LIABILITIES, CAPITAL, INCOME, AND EXPENSES)

Assets
- are things of value owned by the business and recorded in terms of their monetary value.

ASSETS TITLES:

Cash/ Cash on Hand

- Currency on hand and money in banks under the name of company. Other cash equivalents owned by the business
and not yet deposited in the bank.

Cash in Banks
- is the unwithdrawn deposits in the bank. Usually the name of the bank is used as the account title.

Accounts Receivable
- Amounts or claims from clients or customers resulting from services rendered by the company or by sale of
merchandise. It represents the debtor’s oral promises to pay.

Notes Receivable
- Amounts or claim from clients or customers which are expressed in writing like promissory notes. A promissory note is
a written promise to pay a certain amount of money on a specified or determinable date.

Interest Receivable
- Interest already earned but not yet been collected. Interest earned on notes, on hand, which has not been received in
cash.

Merchandise Inventory
- Goods or merchandise on hand and available for sale. Goods purchased by the business to be sold at a profit.

Goods-in-process
- In the process of production for such sale.

Raw Materials
- To be currently consumed in the production of goods or services to be available for sale.

Office Supplies
- Supplies for office use.

Store Supplies
- Supplies for store use.

Prepaid Expenses
- Advance payments for certain services. Considered as mixed accounts for its shares values that of an assets and
expense account.

Land
- Owned by the business used for building sites and other business purposes.

Building
- Structure used or occupied by the business. Owned and used by the business in its operation.

Office Equipment
- Equipment for office use such as typewriters, calculators, and computers.

Store Equipment
- Equipment for store use such as weighing scales, cash register, freezers used by the business.
Furniture and Fixture
- It includes tables, chairs, showcases, counters, and other similar assets.

Delivery Equipment
- Includes assets used for transporting merchandise.

Accumulated Depreciation
- A contra asset account that aids in determining the net worth of business assets. It is valuation account that reduces
the total cost of the fixed asset. Represents the total amount of depreciation expenses charged in the past and current
period.

2 types of Assets

Current Assets
- are those assets which can be reasonably converted into cash within a short period of time, usually within one
accounting period or within the regular operations of the business or normal operating cycle of the business. It is also
used to liquidate current liabilities.

Noncurrent Assets
- are those assets not classified as current. They include, among others, property, plant, and equipment.

Liabilities
- are debts or financial obligations of the business which usually must be paid on a specific date.

LIABILITIES TITLE:

Accounts Payable
- Amounts owed to creditors for purchase of goods and services received. Goods or services bought on credit.

Notes Payable
- Amounts expresses in written promises to pay the creditor on a specified date. Amounts due to the creditors which
are supported by a promissory notes.

Taxes Payable
- Amounts due to the government like sale taxes and income taxes.

Interest Payable
- Interest already incurred but not been paid.

Rent Payable
- Rent already used but not have been paid.

Salaries Payable
- Employees amounts for services done but not yet been paid.

Unearned Income
- Amounts received in advance before services are rendered.

2 Classification of Liabilities

Current or Short-Term Liabilities

- Those which are due for payment within a short period of time or within one year from the balance sheet date. These
obligations require a current asset for payment.

Fixed or Long-Term Liabilities

- Those which mature beyond one year from the balance sheet date.
Capital/ Owner’s Equity
- These refer to the owner’s interest in the business which consists of the invested capital and results of operations
whether gain or loss.

PROPRIETORSHIP TITLES:

Owner’s Name > Capital

- Amount of capital contributions of the owner to the business.

Owner’s Name > Drawing

- Amount withdrawn by the owner from the assets of the business for personal use.

Income
- Are the different services rendered to customers over a given accounting Period.

INCOME TITLES:

Service Income/ Service Fees

- Amount of income earned from service rendered of a service concern business.

Interest Income
- Refers to interest earned whether received in advance or as realized and/or not yet received.

Rent Income
- Amount of rental earned for the period.

Commission Income
- Refers to service done through commission or percentages.

Professional Fee Income

- Amounts earned by professionals such as CPA’s, Doctors, Lawyers, etc. for services they rendered.

Expenses
- Are the different cost rendered for the different use of a certain services offered to the business.

EXPENSE TITLES:

Salaries Expense
- Refers to compensation or remuneration in whatever from the employees.

Taxes Expense
- Refers to taxes and licenses due to the government. Duties incurred in current period.

Utilities Expense
- Refers to the cost of electricity, water, telephone, and internet consumed by the business.

Advertising Expense
- Expenses incurred to promote the product of the business.

Rent Expense
- Cost of the use of office space in a given period.
PREPAID RENT means ADVANCE PAYMENT
RENTS EXPENCE means MONTHLY EXPENSES

Depreciation Expense
- Allocated cost of fixed assets in a current period.

Interest Expense
- Interest that has been already considered in a period.
Office/ Store – Supplies Expenses
- To consider if supplies has been used up.

Cost of Sales
- Cost of goods purchased and sold or materials manufactured and sold.

Salesmen’s Salaries
- Compensation given to sale agents.

Salesmen’s Commission
- Compensation given to sales agents based on the amount of their sales.

Salesmen’s Travelling Expenses

- Travelling allowance given to sales agents.

Repairs and Maintenance

- Expenses incurred for repairing the assets of the business.

Bad Debts
- Estimated amount of losses from the uncollectible accounts of the business.

ACCOUNTING PERIOD AND ACCOUNTING CYCLE

Accounting period or Fiscal Period is each segment of time, usually a year, in which statements are prepared in order to
know the results of the business operation during that particular period of time. The length of each accounting period
depends on the nature of the business. An accounting period maybe annual, semi-annual, quarterly, or monthly.
Usually, most firms use such a period of time when the business is slow as the end of their accounting period and the
beginning of the next period.

Accounting cycle consists of successive steps starting with the recording of transactions in the books of accounts and
ending with a post-closing trial balance cussed in the subsequent chapters:

1. Journalizing
2. Posting
3. Preparation of the Trial Balance
4. Adjusting Entries
5. Preparation of the Worksheet
6. Preparation of the Financial Statements
7. Closing the Entries
8. Revising the Entries

GOODLUCK! You can do it! :>