Types of Business:

Trader – Buying manufactured goods and making them available for sale in locations near to customers
Financial – Accepting cash from depositors and paying them interest; using the money o provide loans to borrowers,
charging them fees and a higher rate of interest than the depositors receive.
Manufacture – Taking raw materials and using equipment and staff to convert them into finished goods
Services – Hiring Skilled staff and using their time to perform a specific task

Forms of Business Organizations:

Partnership – A form of business where it was operated by mere agreement. The business was consider as separate and
distinct accounting entity to it’s owners.
Corporation - A form of business where it was created by law. The business was consider as separate and distinct legal
entity to it’s owners.
Sole Proprietor - A form of business where it has one owner who generally is the manager.

Fundamental Concepts:

Periodicity Concept - This concept allows the users to obtain timely information to serve as a basis on making decisions
about future activities. For the purpose of reporting to outsiders, one year is the usual accounting period.
Stable Monetary Unit Concept – It allows accountants to add and subtract peso amounts as though each peso has the
same purchasing power as any other person at any time.
Entity Concept - This concept tells that an organization or a section of an organization stands apart from other
organization and individuals as a separate economic unit.

Basic Principle:

Adequate Disclosure – Requires that all relevant information that would affect the user’s understanding and assessment
of the accounting entity be disclosed in the financial statements.
Consistency Principle - This principle tells that the firms should use the same accounting method from period to period
to achieve comparability over time within a single enterprise. However, changes are permitted if justifiable and disclosed
in the financial statements.
Materiality Principle - This principle tells that reporting is only concerned with information that is significant enough to
affect evaluations and decisions. It depends on the size and the nature of the item judged in the particular circumstances
of its omission.
Expense Recognition Principle - This principle tells that a specific transaction is to be recognized in the accounting
period in which goods or services are used up to produce revenue and not when the entity pays for those goods and
services.
Historical Cost - This principle states that the acquired assets should be recorded at their actual cost and not at what the
management thinks they are worth as at reporting date
Revenue Recognition - This principle tells that a specific transaction is to be recognized in the accounting period when
goods are delivered or services are rendered or performed.
Objectivity Principle - This principle tells that accounting records and statements are based on the most reliable data
available so that they will be as accurate and as useful as possible.

Disclaimer – This material will not to be considered as answer key but just a review material for the 1
upcoming 4th quarter examination intended for SHS Grade 12 ABM-Accounting Students (Set A).
Fundamental Principles:

Objectivity - This fundamental principle tells that a professional accountant should not allow bias, conflict of interest or
undue influence of others to override professional or business judgments.
Professional Competence and Due Care – A professional accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a client or employer receives competent professional service
based on current developments in practice, legislation and techniques.
Confidentiality - This fundamental principle tells that a professional accountant should not used any financial information
for it’s personal advantage or third parties without a proper and specific authority unless there’s a legal professional right
or duty to disclose.
Professional Behavior - This fundamental principle tells that a professional accountant should comply with relevant laws
and regulations and should avoid any action that discredits the profession.
Integrity - This fundamental principle tells that a professional accountant should be straight forward and honest in all
professional and business relationships. It also implies fair dealing and truthfulness.

Fundamental Qualitative Characteristics

Faithful Representation - This fundamental characteristic seeks to maximize the underlying characteristics of
completeness, neutrality and freedom from error.
Completeness - Includes all information necessary for a user to understand the phenomenon being depicted including all
necessary descriptions and explanations.
Neutrality – Free from bias. A neutral depiction is not slanted, weighted, emphasized, de-emphasized or otherwise
manipulated to increase the probability that financial information will be received favorably or unfavorably by users.
Freedom from error – No errors or omissions in the descriptions of the phenomenon, and the processed use to produce
the reported information has been selected and applied with no error in the process. In this context, free from error does
not mean perfectly accurate in all respects.
Relevance - This fundamental principle tells that a professional accountant should comply with relevant laws and
regulations and should avoid any action that discredits the profession.

Enhancing Qualitative Characteristics:

Comparability – Enables users to identify and understand similarities in, and differences among items. Unlike the other
qualitative characteristics, comparability does not relate to a single item. A comparison requires at least two items.
Verifiability - It helps to assure the users that information represents faithfully the economic phenomena it purports to
represent. It also means that different knowledgeable and independent observers could reach consensus, although not
necessarily complete agreement, that a particular depiction is a faithful representation.
Timeliness - This means that information is available to decision-makers in time to be capable of influencing their
decisions.
Understandability - Classifying, characterizing and presenting information clearly and concisely makes it
understandable. Financial reports are prepared for users who have a reasonable knowledge of business and economic
activities and who review and analyze the information with diligence

Underlying Assumption

Going Concern - The assumption that states or assumed that the enterprise has neither the intention nor the need to
liquidate or curtail materially the scale of its operations.

Disclaimer – This material will not to be considered as answer key but just a review material for the 2
upcoming 4th quarter examination intended for SHS Grade 12 ABM-Accounting Students (Set A).
Financial Statements:

Income Statement/Statement of Comprehensive Income - Financial statements that contain the entity’s revenues and
expired benefits with the accounting period along with the items that is not reported on the normal operating portion.
Statement of Financial Position - Financial statements that contain the entity’s owned items, indebtedness and the
owner’s capital.
Statement of Cash Flows - Financial statements that contain the summary of transactions pertaining to the company’s
cash condition.
Statement of Changes in Owner’s Equity - Financial statements that contain the summary of transactions pertaining to
owner’s capital account.
Notes to FS - financial statements that contain the summary of computations and disclosures about the accounts used.

General Account Categories:

Income - It increases in economic benefits during the accounting period in the form of inflows or enhancements of assets
or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity
participants.
Expenses - It decreases in economic benefits during the accounting period in the form of outflows or depletion of assets
or incurrence of liabilities that result in decreases in equity, other than those relating to distributions from equity
participants.
Assets - It is the resource controlled by the enterprise as a result of past events and from which future economic benefits
are expected to flow enterprise.
Liability - It is the entity’s obligation to outside parties who have furnished resources.
Equity/Capital - It is the residual interest in the assets of enterprise after deducting all it’s liabilities.
Losses - It represents other items that meet the definition of expense and may or may not, arise in the course of ordinary
activities of an enterprise.
Gains - It represents other items that meet the definition of income and may, or may not, arise in the course of the
ordinary activities of an enterprise.

Accounting Cycle:

Identification of the events to be recorded – It aims to gather information about transactions or events generally
through the source document
Transactions are recorded in the journal - It aims to record the economic impact of transactions on the firm.
Journal entries are posted to the ledgers - It aims to post the transactions from the journals
Preparation of trial balance - It aims to check the equality of debits and credits.
Preparation of the worksheet including adjusting entries - It aims to aid the preparation for Financial Statement.
Preparation of financial statements - It aims to provide useful information to decision-makers
Adjusting journal entries are journalized and posted - It aims to record the accruals, expiration of deferrals,
estimations and other events from worksheet.
Closing journal entries are journalized and posted - It aims to zero-out the temporary accounts.
Preparation of post-closing trial balance - It aims to check the equality of debits and credits after closing entries
Reversing journal entries are journalized and posted – It aims to simplify the recording of certain regular transactions
in the next accounting period

Disclaimer – This material will not to be considered as answer key but just a review material for the 3
upcoming 4th quarter examination intended for SHS Grade 12 ABM-Accounting Students (Set A).
Journalizing and Adjusting Entries:

4 Methods of Journalizing

Asset Method – Recording the transaction relating to asset and expense as asset initially.
Expense Method - Recording the transaction relating to asset and expense as expense initially.
Liability Method - Recording the transaction relating to liability and income as liability initially.
Income Method - Recording the transaction relating to liability and income as income initially.

- If the problem is silent, it is presumably that the method that is in use is either Asset or Liability method.

Ways of adjusting the different method of journalizing

Asset Method – establish the expense or expired portion

Expense Method - establish the asset or remaining portion
Liability Method – establish the income or earned portion
Income Method - establish the liability or unearned portion

Computation for Depreciation Expense:

Asset’s Cost xxx

Less: Salvage Value (if any) (xxx)
Depreciable Cost xxx
Divided by Estimated Useful Life/Economic Life (Whichever is lower) /x
Depreciation Expense xxx

Computation for Cash Shortage/Overage at Petty Cash Fund

1. Count the remaining cash at Cash Box

2. Add all the receipts as basis of amount requested from Petty Cash
3. Compare the sum against the established Petty Cash Fund
4. If the summation of remaining cash and receipts is lesser in comparison to established petty cash fund – the difference
is the shortage, if it is the reverse, the difference is overage (which is very seldom to happen)

Difference between Imprest and Fluctuating Method of accounting Petty Cash Fund:

CIRCUMSTANCES IMPREST FLUCTUATING

Transactions: Accumulated Reflect Immediately
Balance: Not Updated (Unless replenish) Always Updated. Entry for every
requested fund:
Dr. Expense
Cr. PCF
Replenishment Entry (Normally at the Dr. Expense Dr. PCF
end of the month): Cr. PCF Cr. Cash On Hand

Dr. PCF
Cr. Cash On Hand

Disclaimer – This material will not to be considered as answer key but just a review material for the 4
upcoming 4th quarter examination intended for SHS Grade 12 ABM-Accounting Students (Set A).
Difference between Perpetual and Periodic Method of accounting Inventory:

CIRCUMSTANCES PERPETUAL PERIODIC

Transactions:

Purchase Dr. Inventory Dr. Purchases

Cr. Cash/Accounts Payable Cr. Cash/Accounts Payable

Sales Dr. Cash/Accounts Receivable Dr. Cash/Accounts Receivable

Cr. Sales Cr. Sales

Dr. Cost of Sales

Cr. Inventory
Balance Always updated Not Updated (Unless Adjusted)

Computation for VAT Payable/Receivable:

Output Tax xxx

Less: Input Tax (xxx)
VAT Payable/(Receivable) xxx*

*VAT Payable if Output Tax is higher than Input Tax. VAT Receivable if Output tax is lesser than Input tax

Output tax – is the VAT from Sales

Input tax – is the VAT from Purchases

VAT Percentage = 12%

Basic Accounting Transactions:

Assets = Liability + Equity

+++NOTHING FOLLOWS+++

Disclaimer – This material will not to be considered as answer key but just a review material for the 5
upcoming 4th quarter examination intended for SHS Grade 12 ABM-Accounting Students (Set A).