8/9/2019 Basic Accounting for Non-Accountants_Part 1.

ppt

Basic
Accounting for
Non-
Accountants

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Learning Objective
1. Describe the nature of a business and the
role and purpose of accounting in business
2. Describe the accounting concepts and
principles and constraints
3. State the accounting equation and dene
each element of the equation.
4. Introduction to debit and credits
5. Introduction to the accounting process

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What is a Business?
• A business is an organization in which
basic resources (inputs), such as ateria!s
an" !abor, are asseb!e" an" processe" to
provi"e goo"s or services (outputs) to
custoers#
• The obecti!e of most businesses is to
earn a prot.
• "rot is the di#erence bet$een the
amounts recei!ed from customers for
goods or ser!ices and the amounts
paid for the inputs used to pro!ide
the goods or ser!ices.
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 $he %o!e of Accounting in

Business
• Accounting can be "e&ne" as an
inforation s'ste that provi"es
reports to users about the econoic
activities an" con"ition of a business#

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What is AON$*N+?
• is a service activit'#
• *ts function is to provi"e
uantitative inforation,
priari!' &nancia! in nature,
about econoic entities, that
is inten"e" to be usefu!
aing econoic "ecision# in

• Accounting .tan"ar"s ounci!

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• Accounting is the
process of 
/easuring

*nterpreting
ounicating &nancia!
inforation to support 
interna! an" e0terna!
business "ecision aing#

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1urpose of Accounting
• *t gives 'ou an e0ce!!ent gauge of how we!!
'our business is "oing
• Accounting a!so provi"es &nancia!
inforation throughout the 'ear so 'ou
can test the success of 'our business
strategies an" ae course corrections to
ensure that 'ou reach 'our 'ear-en" pro&t
goa!s#
• Acccounting can becoe 'our best s'ste
for anaging 'our &nancia! assets an"
testing 'our business strategies

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 $he Nee" for

Accounting
/anagers, investors, an" other interna! groups
want the answers to two iportant uestions2

3ow we!! "i"

the organization
perfor? Where "oes
the organization
stan"?
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Accountants answer these uestions

with three ajor &nancia! stateents2

*ncoe Ba!ance
stateent sheet

.tateent of 
cash 4ows

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sers of 5inancia!
*nforation

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Accounting
oncepts an"
 $erino!ogies

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Assuptions
%&&'(%  *ncoe is recognize" when earne"
) regar"!ess of when receive"
 60pense is recognize" when incurre"
regar"!ess of when pai"
 $he e7ects of transactions are recognize"
when the' occur
*+I,*  $he business wi!! continue in operationa!
e0istence for the foreseeab!e future
&+,&-'  5inancia! stateents shou!" be prepare" on
, a going concern basis un!ess anageent
either inten"s to !iui"ate the enterprise or
&+,&-"
(SI,-S to cease
 $he tra"ing,
business an" its owner(s) are two
T
S -,TIT/ separate entities

&+,&-" An' private an" persona! incoes an"

e0penses of the owner(s) shou!" not be
T treate" as the incoes an" e0penses of
the business
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Assuptions

TI0-  $he !ife of an entit' is sub"ivi"e" into
"-'I+D tie perio"s which are of eua! !ength
for the purpose of aing &nancia!
reports

sua!!' twe!ve onths

0+,-T%'/Assets, !iabi!ities, capita!, incoe an"
(,IT e0penses shou!" be state" in ters of a
unit of easure (1hi!ippine 1eso)
 $he purchasing power of the 1eso is
stab!e8constant

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6ntities
Sole
Proprietorship • A proprietorship is owne" b' one
in"ivi"ua!#
•   $he' are eas' an" cheap to
organize an" resources are !iite"
Partnership •
Ato
partnership is
those of the owner#
sii!ar to a
proprietorship e0cept that it is owne"
b' two or ore in"ivi"ua!s#
• obines the si!!s an" resources of

Corporation ore than one person#

• A corporation is organize" un"er
state statutes as a separate !ega!

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Accounting oncepts2 9ua!itative

haracteristics
'ele!ance •
 $he capacit' of inforation to
in4uence a "ecision
'eliabilit  $he "egree of con&"ence users p!ace•

upon the truthfu!ness of the

representations in the &nancia!
stateents
 $he ua!it' of inforation that assures
•

users that the inforation is free fro

aithful bias
 $hean" error
actua! an" faithfu!!'
e7ects of the represents •

'epresentat what it purports

transaction to represent
shou!" be proper!'
accounte" for an" reporte" in the
ion &nancia! stateents
Substance  $ransactions shou!" be accounte" •

in accor"ance with their

o!er orm substance in rea!it' an" not
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Accounting oncepts2 9ua!itative

haracteristics
,eutralit*nforation in the 5inancia! •

.tateents ust be free fro

bias
:fairness; •

&onser!atis are an" caution ust be •

&onser!atis
m or e0ercise" when "ea!ing with
uncertainties in the easureent
"rudence process
 $he %evenues an" pro&ts are not •

anticipate"# On!' rea!ize" pro&ts

with reasonab!e certaint' are
&ompletene recognize" in the pro&t
%e!evant inforation an"be
ust !oss •

account
presente" in a wa' that faci!itates
ss
un"erstan"ing an" avoi"s
erroneous ip!ication
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Accounting oncepts2 Accounting

onstraints
•

TI0-)I,-S *nforation ust be avai!ab!e or

S counicate" ear!' enough when a
"ecision is to be a"e

&+ST •  $he bene&t "erive" fro the inforation

-,-IT shou!" e0cee"

obtaining the cost incurre" in
the inforation

0%T-'I%)I • An ite is ateria! if now!e"ge of it

wou!" a7ect or in4uence the "ecision of
T/  the infore" users of the &nancia!
stateents
'-)-%,&- •  $here is a tra"eo7 between re!evance
!s (reporting inforation in a re!evant
'-)I%I)IT/  anner) an" re!iabi!it' (ensuring that the

inforation is re!iab!e)
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 $36 AON$*N+ 69A$*ON

Assets < Liabi!ities = 6uit'

The resources The rights of The rights of the

owned  by a creditors are the owners
business debts of the
business

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Accounting $erino!ogies Basic Accounting for Non-Accountants_Part 1.ppt

• a business event having a onetar'

ipact on the &nancia! stateents of a
T'%,S%&TI
+, •
business
*t is recor"e" in the accounting recor"s
of the business

%&&+(, • A recor" in the genera! !e"ger

that is use" to co!!ect an" store
sii!ar inforation
T
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 $'pes of
Accounts

%SS-T are owne"
are va!uab!e
b'resources
a &r# that
%&&+(,
T

)I%I)IT present ob!igations of the

 / &r#
 
%&&+(,
T -(IT/  represents the owners>
%&&+( resi"ua! interest in the assets
of the business#
,T %esi"ua! interest is another
nae for owners> euit'#
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I,&+0- the pa'ent 'ou receive for 'our

tie, services 'ou provi"e, or the
%&&+(, use of 'our one'
60ap!es inc!u"e coissions, tips,
T "ivi"en" incoe fro stocs, an"
interest incoe fro ban accounts#

-6"-,S- one' 'ou spen" to

%&&+(,T purchase goo"s or
services
soeoneprovi"e"
e!se b'
60ap!es inc!u"e rent,
e!ectricit', an" !ight
e0penses

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,+'0%   $he su of the increases in an

account is usua!!' eua! to or
greater than the su of the
"ecreases in the account# $hus,
)
%)%,& the nora! ba!ance of an account 
is either a "ebit or a cre"it
- "epen"ing on whether increases
in the account are recor"e" as
"ebits or cre"its#
D-I  An accounting entr' that
resu!ts in either an increase in
T assets or a "ecrease in euit'
or !iabi!ities on a copan'>s
ba!ance
account#sheet or in 'our ban
&'-DI  An accounting entr' that either
"ecreases assets or increases
T !iabi!ities an" euit' on the
copan'>s ba!ance sheet#
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ebits an" re"its

 @ou just nee" to un"erstan" that "ebit an" cre"it are
•

two actions that are opposite in nature#

• An e!eent (account) that is e7ecte" b' an accounting
transaction is either "ebite" or cre"ite" (with an
aount that is re4ecte" in the transaction) "epen"ing
on the nature of the account an" the ru!e app!icab!e to
it#
• 6ntries to the !eft si"e of the an account are "ebits
(%), an" accounts with !eft si"e" ba!ances (asset
accounts an" e0pense accounts) are "ebit accounts#
6ntries to the right si"e of the an account are cre"its
(%), an" accounts with right si"e" ba!ances (!iabi!it'
accounts, owners> euit' accounts, an" revenue an"
pro&t accounts) are cre"it accounts# n"erstan"ing
"ebit an" cre"it is essentia! for booeeping an"
ana!'sis of ba!ance sheets#

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ebit an" re"it %u!es

6B*$ %6*$

• An accounting • An accounting
entr' that2 entr' that2
 *ncreases
account an asset  ecreases an
asset account
 *ncreases an  ecreases an
e0pense account e0pense account
 ecreases a  *ncreases a

!iabi!it' account
 ecreases a !iabi!it' account
 *ncreases a
revenue account revenue account

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Summar of Debits and

&redits

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 $he Accounting
1rocess

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.ing!e-entr' vs oub!e-entr'
.ing!e  One account entr' for each
transaction
oub!e  $wo account entries for
each transaction
 One "ebit an" one cre"it

3'bri" s'stes
 /a' not atch incoe with e0penses
 /a' not "istinguish cash, chec, or cre"it

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oub!e-entr' Accounting
•

A process b' which accounting transactions are

entere"
• each in"ivi"ua! transaction a!wa's has an o7setting
transaction#

•
"oub!e-entr' booeeping gets its nae because
'ou enter a!! transactions twice
• One account wi!! receive a C"ebitC entr', eaning
the aount wi!! be entere" on the left  si"e of that
account# Another account wi!! receive a Ccre"itC
entr', eaning the aount wi!! be entere" on the
right  si"e of that account# $he initia! cha!!enge with
"oub!e-entr' is to now which account shou!" be
"ebite" an" which account shou!" be cre"ite"#

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%u!es of ebit an" re"it  Nora! Ba!ances of

Accounts

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Accounting 1rocess

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