I. Define the following.

1. Accounting
It is the systematic and comprehensive recording of financial transactions
pertaining to a business. It also refers to the process of summarizing, analyzing and
reporting these transactions to oversight agencies, regulators and tax collection entities.

2. Four Aspects of Accounting: recording, classifying, summarizing, interpreting.

 Recording
This is technically called bookkeeping. In this phase, business transactions
are recorded thematically and chronologically in the proper accounting books. There
are two kinds of bookkeeping, the single entry bookkeeping and the double entry
bookkeeping.Single Entry Bookkeeping, it does not show the two-fold effects (debit
and credit) of business transactions while Double Entry Bookkeeping on the other
hand reflects the two-folds effects (debit and credit) of business transactions.

 Classifying
This is the phase where items are sorted and grouped. Similar items are
being classified under the same name. Asset Accounts, Liability Accounts, Capital
Accounts or Owner’s Equity Accounts, Revenue Accounts and Expense Accounts
are the following different accounts.

 Summarizing
After each accounting period, data recorded are summarized through
financial statements.In which these financial statements are the Income Statement.

 Interpreting
These are the accountant’s interpretation on the financial statement. This is
called Analysis Report that must be submitted together with the financial reports.

3. Balance Sheet
 It is the one that reports a company's assets, liabilities and shareholders' equity at a
specific point in time, and provides a basis for computing rates of return and evaluating
its capital structure. It is a financial statement that provides a snapshot of what a
company owns and owes, as well as the amount invested by shareholders.

4. Forms of Balance Sheet: account form, report form.

 Account Form
It is a financial statement format where the assets are reported on the left
side and the liabilities and equity are reported on the right side. The account format
is kind of a visual representation of the accounting equation.

 Report Form
It is the one that vertically aligns the asset, liability, and equity accounts
with the descriptions on the left and the account totals on the right.

5. Income Statement
It is a financial statement that reports a company's financial performance over a
specific accounting period. Financial performance is assessed by giving a summary of
how the business incurs its revenues and expenses through both operating and non-
operating activities. It also shows the net profit or loss incurred over a specific accounting
period.

6. Assets
It is a resource with economic value that an individual, corporation or country
owns or controls with the expectation that it will provide a future benefit. Assets are
reported on a company's balance sheet and are bought or created to increase a firm's
value or benefit the firm's operations. An asset can be thought of as something that, in the
future, can generate cash flow, reduce expenses or improve sales, regardless of whether
it's manufacturing equipment or a patent.

7. Liability
It is defined as a company's legal financial debts or obligations that arise during
the course of business operations. Liabilities are settled over time through the transfer of
economic benefits including money, goods or services. Recorded on the right side of the
balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues
and accrued expenses.

8. Owner’s Equity
It is one of the three main components of a sole proprietorship's balance sheet
and accounting equation. It represents the owner's investment in the business minus the
owner's draws or withdrawals from the business plus the net income (or minus the net
loss) since the business began. It is also viewed as a residual claim on the business assets
because liabilities have a higher claim. Owner's equity can also be viewed (along with
liabilities) as a source of the business assets.

9. Cash
It is the legal tender, currency or coins that can be used to exchange goods, debt
or services. Sometimes it also includes the value of assets that can be easily converted
into cash immediately, as reported by a company.

10. Accounts Receivable

It is the balance of money due to a firm for goods or services delivered or used
but not yet paid for by customers. Said another way, account receivable are amounts of
money owed by customers to another entity for goods or services delivered or used on
credit but not yet paid for by clients. It also refers to the outstanding invoices a company
has or the money clients owe the company.

11. Accounts Payable

It is an accounting entry that represents a company's obligation to pay off a
short-term debt to its creditors or suppliers. It appears on the balance sheet under the
current liabilities. Another common usage of AP refers to a business department or
division that is responsible for making payments owed by the company to suppliers and
other creditors.

12. Capital
It is a term for financial assets or their financial value (such as funds held in
deposit accounts), as well as the tangible factors of production including equipment used
in environments such as factories and other manufacturing facilities. Additionally, capital
includes facilities, such as the buildings used for the production and storage of the
manufactured goods. Materials used and consumed as part of the manufacturing process
do not qualify.

13. Supplies
It is a current asset representing the cost of supplies on hand at a point in time.
The account is usually listed on the balance sheet after the Inventory account. A related
account is Supplies Expense, which appears on the income statement. The amount in the
Supplies Expense account reports the amounts of supplies that were used during the time
interval indicated in the heading of the income statement.

14. Cash on Hand

It is the amount of money in the form of cash that a company has after it has
paid all its costs.It is also written at the top of the assets side of a balance sheet to show
the amount of money held by a company in the form of notes and coins.

15. Cash on Bank

It is the sum of all coins, currency and other unrestricted liquid funds that have
been placed on deposit with a financial institution. I is also considered as the highly
liquid form of current asset, and when reported on a business' balance sheet, it is
combined with cash in hand for accounting purposes.

16. Net Income

It is equal to net earnings (profit) calculated as sales less cost of goods sold,
selling, general and administrative expenses, operating expenses, depreciation, interest,
taxes and other expenses. This number appears on a company's income statement and is
an important measure of how profitable the company is. It also refers to an individual's
income after taking taxes and deductions into account.

17. Capital
It is a term for financial assets or their financial value (such as funds held in
deposit accounts), as well as the tangible factors of production including equipment used
in environments such as factories and other manufacturing facilities. Additionally, capital
includes facilities, such as the buildings used for the production and storage of the
manufactured goods. Materials used and consumed as part of the manufacturing process
do not qualify.

18. Purchases
It is a temporary account used in the periodic inventory system to record the
purchases of merchandise for resale. (Purchases of equipment or supplies are not
recorded in the purchases account.) This account reports the gross amount of purchases
of merchandise. Net purchases is the amount of purchases minus purchases returns,
purchases allowances, and purchases discounts.
19. Sale
It refers to the revenues earned when a company sells its goods, products,
merchandise, etc. (If a company sells one of its noncurrent assets that was used in its
business, the amount received is not recorded in its Sales account.) The amounts recorded
at the time of the sales transaction is also known as gross sales since there may be
subsequent subtractions for sales returns, sales allowances, and early payment discounts.
(Gross sales minus these subtractions results in the amount of net sales.)

II. What is the Fundamental Accounting Equation?

The accounting equation, also known as the balance sheet equation, is Assets =
Liabilities + Equity and underpins the balance sheet's foundation. The accounting
equation is the foundation of double-entry accounting, and displays that all assets are
financed by borrowing money or paying with the money of the company's shareholders.
The balance sheet is a complex display of this equation, showing that the total assets of a
company are equal to the total of liabilities and shareholder equity, or said differently, all
uses of capital (assets) are equal to all sources capital (debt: liabilities and equity:
shareholders' equity).

Assets = Shareholders' Equity + Liabilities