MODULE 1 PART 1
processes information into reports and
ACCOUNTING & ITS ENVIRONMENT
- evolution of accounting
- accounting profession
- conceptual framework and business model
- accounting concepts
- conventions
- standards and principles
- business ethics
- branches of accounting and how accounting
is applied to the three types of businesses-
service, merchandising and manufacturing
Business
- everybody with funds for capital can start or
organize any form of business
- comprises the economy
- no economy = no business
- regular conduct of legal activities primarily
intended to accumulate profit
- Corporate Social Responsibility
: obligation of the business to the society
Responsibility of the business toward the
environment where they operate:
• Promote welfare of the employees, respect
their rights, values and traditions
• Providing clean and safe working place.
• Sustaining a healthy environment
• Contribute taxes to the local and national
government.
Accounting
- Relevant in all walks of life and essential in
a business (no business that there is no
accounting department)
- Oldest skills
- Language of business
- an art of recording, classifying and
summarizing in a significant manner and in
terms of money transactions and events
that are at least part of a financial character
and interpreting the results thereof. (AICPA)
- service activity
- system that measures business activities,
communicates results to decision-makers.
- process of identifying, measuring and
communicating economic information to
permit informed judgments and decisions by
users of accounting information.
Evolution
A. Primitive Accounting
- Origin of record-keeping (8500 BC)
- Proof: Archeologists have established
certain clay tokens-cones, disks, spheres
and pellets found in Mesopotamia (modern
Iraq) used as a medium of exchange for
commodities such as sheep, jugs of oil,
bread or clothing.
Bullae
- clay balls where tokens were sealed
- broken on delivery for checking the
shipment against the invoice
- first bill of lading (proof of shipment)
- Clay Tablets replaced the tokens later
- Account records date back to the ancient
civilizations of China, Babylonia, Greece
and Egypt, the initial stage of record-
keeping. (Early traders)
B. Middle Ages
- Northern Italy’s literacy became widespread
(11th to 13th centuries)
- Arabic numerals – result of trade
- Use of credit was prevalent and a
semblance of international banking system
was also functioning
- Development of a more formal account-
keeping methods is attributed to the
merchants and bankers of Florence, Venice
and Genoa in 13th to 15th centuries which
soon gives rise to double-entry
bookkeeping.
- Proof: Earliest evidence of business
bookkeeping were bank ledger fragments
 of 1211 found in Florence, France and
transcribed by Pietro Santini in 1887.
People who contributed:
AMATINO MANUCCI
- inventor of double-entry bookkeeping, giving
importance to the aspect of financial control.
LUCA PACIOLI
- Franciscan friar and mathematician, he is
associated with the introduction of double-
entry bookkeeping through his books where
he described what were prevalent
accounting practices of the day.
NICOLAS PETRI
- first person to group similar transactions in a
separate record and enter the monthly totals
in the journal.
BENJAMIN WORKMAN
- published the first American accounting
textbook, “The American Accountant”
C. Information Age/Modern Age
- Tremendous advances in information
technology have revolutionized and
necessarily bring changes to the field of
accounting.
- Those tasks that are time-consuming when
done manually can now be done with
speed, consistency, precision and reliability
by computers.
DAN BRINKLIN and BOB FRANKSTON
- wrote VisiCalc for Apple II, the first
electronic spreadsheet, a business
application for personal computer.
ASSOCIATION OF SOUTHEAST ASIAN
NATIONS (ASEAN)
- Established on August 8, 1967 in Bangkok,
Thailand with then five (5) founding
members Indonesia, Malaysia, Philippines,
Thailand and Singapore. Later, the following
nations joined the group namely Brunei
Darussalam, Vietnam, Lao PDR, Myanmar
and Cambodia.
- VISION: A stable, prosperous and highly
competitive ASEAN Economic Region in
which there is a free flow of goods, services,
investment and a freer flow of capital,
equitable economic development and
reduced poverty and socio-economic
disparities.
3 Pillar of ASEAN:
1. ASEAN political security community
2. ASEAN economic community
3. ASEAN socio-cultural community
Pillars of ASEAN Economic Community
- Focuses on business
- Strengthen the position of the asean region
a. SINGLE MARKET AND PRODUCTION
BASE
- measures to ensure free flow of goods,
services, investment, capital, skilled labor
and priority integration sector.
b. COMPETITIVE ECONOMIC REGION
- Actions on competition policy, consumer
protection, intellectual property rights,
infrastructure development, taxation and e-
commerce.
c. EQUITABLE ECONOMIC DEVELOPMENT
- SME development, an initiative for ASEAN
integration.
d. INTEGRATION INTO THE GLOBAL
ECONOMY
- Coherent approach towards external
economic relations and enhanced
participation in global supply networks.

Business Model (5 Activities)
1. Investors Provide Capital
- The cash investment will be deposited in the
bank account of the business.
2. Cash Converted into Other Asset Or
Resources
- Other assets can be inventory for sale,
equipment or to pay operating costs such as
salaries, rentals, utilities.
3. Resources Are Used to Produce Goods
or Services
- The basis for producing products.
4. Sale Of Products or Services
- The sale of products generates cash or
receivable
5. Cash Or Collected Receivable
- will be used to pay-off obligations, taxes,
operating costs
- The remaining cash can be sent back to the
cycle or reinvested (stage 2)
Types of Business (activity, structure, examples)
1. Service
- A: Selling people’s time
- S: Hiring skilled staff and selling their time
- E: Accounting firm, law firm, service shops
2. Trader/Merchandising
- A: Buying and selling products
- S: Buying range of raw materials or
manufactured goods, making them available
for sale to customers or online delivery
- E: Wholesaler, Retailer
3. Manufacturing
- A: Designing, aggregating components and
assembling finished goods.
- S: Raw materials are converted into finished
products using equipment and people
- E: Vehicle assembly, Construction,
Engineering, Food and drinks,
Pharmaceuticals
4. Raw Materials
- A: Growing or extracting raw materials
- S: Buying tract of land and using them to
provide raw materials
- E: Farming, Mining, Oil
5. Infrastructure
- A: Selling the utilization of infrastructure
- S: Buying and operating assets; selling
occupancy often in combination of services
- E: Transport (airlines, trains, ferries, buses),
Hotels, telecoms, sport facilities
6. Financial
- A: Receiving deposits, lending and investing
money
- S: Accepts cash from depositors and pay
them interest, use deposit money to provide
loans to borrowers, charging them fees and
higher interest rate than what the depositors
receive.
- E: Banks, Investment houses
7. Insurance
- A: Pooling premiums of many to meet
claims of a few
- S: Collects money from many customers to
pay claims of the insured due to losses. By
accepting the risk of a claim, more premium
income can be earned than claims paid.
- E: Insurance
Forms of Business Organizations
- A business can assume any of the three
forms of business organization. The
accounting procedures depends on which
form the business takes.
1. Sole Proprietorship
- Single owner who also serves as the
manager of the business.
- The owner receives all the profits of the
business and also absorbs all losses.
- Solely responsible for all the debts of the
business.
 - Business affairs is separate and distinct
from the owners.
- Owner: Proprietor
2. Partnership
- A business owned by two or more persons
who contribute money, property or industry
to a common fund with the intention of
dividing profits among themselves.
- Each partner is personally liable for the
debts of partnership
- Business affairs is separate and distinct
from that of the partners.
- Owner: Can have as many Partners as
possible
3. Corporation
- Most complicated one in terms of
accounting (broad)
- A separate legal entity (activities of the
corporation is separate from the owners)
- An artificial being created by the operation
of law
- Intangible but can act as a human being for
it can sue or be sued
- With rights of succession,
- With powers, attributes expressly authorized
by law or incident to its existence.
- The stockholders are not personally liable to
corporate debts.
- Owner: Shareholders or Stockholders
Types of Organizational Activities
- Business activities encompasses all
economic activities that the company
engages in for the purpose of making
PROFIT.
1. Financing Activities
- Methods used in business to obtain financial
resources from financial markets such as
sources of cash from investors or banks and
uses of cash to pay dividends to
shareholders and payment of loans
- Sources and uses of funds
2. Investing Activities
- Include purchase sale of long-term assets
such as land, equipment, buildings and
other resources needed to produce goods
and services and selling these resources
when they are no longer needed
- Buying of PPE
3. Operating Activities
- The core activities of the business directly
related to providing its goods and services
to the market which involves competing with
suppliers and customers.
- Purchase and Sales of goods and payment
for expenses
PART 2
Basic Phase of Accounting
- accounting function - take charge of the
financial operation of the business to
provide information and advice
- part of the broader business system
- Plays an important part for the business.
1. Measuring and Recording
- Business transactions before recording
must be analyzed and measured (put value
to the transactions) or be expressed in
terms of money.
2. Classifying
- Because of numerous data, recorded
business transactions will be useful if it can
be classified into groups or categories,
otherwise the resulting information will be of
limited use.
3. Summarizing
- The results of classifying will be
summarized in order to produce a good
financial statement or financial reports.
4. Interpreting
- To evaluate the liquidity, solvency and
profitability of the business organization the
result of summarization must be interpreted
by interested parties.
Fundamental Concepts
1. Entity Concept
- Business and owners are treated separately
and its transactions should not be
accounted for together because the
business stands apart from other
organizations as a separate economic unit.
- Personal affairs are separated with the
affairs of the business.
2. Periodicity Concept
- Also known as time period assumption,
periodicity allows an entity’s life to be
 subdivided into equal time periods for
reporting purposes and for timely
information as a basis for making decisions.
- Reporting period – annually (1 accounting
period- 12 months), semiannually, monthly
3. Stable Monetary Unit Concept
- The Philippine peso is a reasonable unit of
measure whose purchasing power is
relatively stable overtime and it ignores or
disregards the effects of inflation in
accounting records.
- Foreign transactions must be converted to
peso before recording
4. Going Concern
- A fundamental principle in accounting which
assumes that a reporting entity will continue
in operation even beyond the next
accounting period and will continue its
current plans, use its existing assets and
meet its financial obligations. That it has
neither the intention to enter liquidation or
cease trading.
- All businesses are a going concern.
Assumes to continue until the existence
indicated in the articles of incorporation.
Criteria for General Acceptance of an Accounting
Principles
- Accounting follows what is regulated by the
Generally Accepted Accounting Principles
(GAAP)
RELEVANCE
- A principle has relevance if it results in
information that is meaningful and useful to
those who needs to know something about
a certain organization.
OBJECTIVITY
- A principle has objectivity if the resulting
information is not influenced by the
personal bias or judgment of those who
furnish it thus it connotes reliability and
trustworthiness. It also connotes verifiability
which means that there is some way of
finding out whether the information is
correct.
- Traceability
FEASIBILITY
- A principle has feasibility to the extent that it
can be implemented without undue
complexity of cost. These criteria often
conflict with each other because in some
cases the most relevant solution may be the
least objective and least feasible.
Basic Principles of Accounting
A. OBJECTIVITY PRINCIPLE
- Accounting records and statements should
be based on the most reliable data available
which is verifiable and can be confirmed by
independent observers.
- Free from bias
B. HISTORICAL COST
- States that acquired assets should be
recorded at their actual cost and not at what
management thinks they are worth at a
reporting date.
- Recorded as purchase price
C. REVENUE RECOGNITION PRINCIPLE
- A feature in accrual accounting which
requires that revenue must be recognized in
the period it was realized or earned –not
necessarily when cash is received.
D. EXPENSE RECOGNITION PRINCIPLE.
- States that expenses should be recognized
at the time it was incurred or used up to
produce revenue and not at the time the
entity paid for those goods and services.
E. ADEQUATE DISCLOSURE
- Confirms that all essential information that
would affect the user’s clear understanding
of company’s financial position must be
disclosed in the financial statements.
- Users: owners, management, creditors,
suppliers, investors
F. MATERIALITY PRINCIPLE
- Financial reporting is concerned with
information that is significant enough to
affect evaluations and decisions. It depends
on the size and nature of the item judged in
the particular circumstances of its omission.
G. CONSISTENCY
 - States that the firm should use the same
accounting method from period to period to
achieve comparability overtime within a
single enterprise.
Accountancy in the Philippines
- Accounting has been practiced in the Phils.
since the Spanish period but only on March
17, 1928, this was formally recognized by
the approval of Act No. 3105.
- Act. 3105 – “An act regulating the practice
of Public Accounting; Creating the Board of
Accountancy; Providing for Examinations,
Granting of Certificates and Registration of
Certified Public Accountants; for the
Suspension or Revocation of Certificates;
and Other Purposes”
- Since then, the profession has grown
rapidly from 43 registered accountants in
1923 to more than 160,000 as of 2018
(Ballada,2018). New accountants are added
to the roster every passing year.
Past & Present Luminaries of the Accounting
Profession
• Dr. Vicente Fabella. Became the first
Filipino CPA in the U.S.
• Dr. Nicanor Reyes. Founder and first
President of Far Eastern University
(formerly Institute of Accountancy)
• Belen Enrile-Gutierrez. First Filipina CPA.
• Jaime Hernandez & Paciano Dizon. First
and second Filipino Auditor Generales of
Commission on Audit (COA).
• Manuel Villar. Filipino tycoon, former
Speaker of the House; Senate President.
• Washington Sycip. President of
International Federation of Accountants;
founder of SGV & Co., leading accountancy
firm in the country.
• Jose W. Diokno. Former Senator and
Secretary of Justice.
• Alberto Romulo. Former Senator,
Secretary of Foreign Affairs and many
more.
Scope of Practice
Rep. Act No. 9298 –known as the Philippine
Accountancy Act of 2004 states that the practice of
accountancy shall include but not limited to:
● Practice of Public Accountancy
● Practice in Commerce & Industry
● Practice in Education / Academe
● Practice in Government
Accounting Standards in the PH
ACCOUNTING STANDARDS COUNCIL
- created by the Philippine Institute of
Certified Public Accountants, the official
organization of CPA’s, whose mission is to
establish and improve accounting standards
that will generally be accepted in the
Philippines. It is composed of eight (8)
members from different sectors.
FINANCIAL REPORTING STANDARDS
COUNCIL
- the new accounting standard setting body
as reflected in Sec.9 (A) of the Accountancy
Act of 2004. It is composed of fifteen(15)
members with a chairman and fourteen (14)
representatives, all CPAs from different
fields of practice or agencies.
Role of Ethics in Business
BUSINESS ETHICS
- provide guidelines that businesses follow in
terms of appropriate policies and practices
regarding controversial subjects including
corporate governance, insider trading,
bribery, discrimination, corporate social
responsibility and fiduciary responsibilities.
- The law set the tone for business ethics.
ETHICAL DILEMMA
- situation in which there is no obvious right
or wrong decision but rather right answer.
Business is a good source of ethical
dilemma because its primary purpose is for
profit. There are no easy solution to ethical
dilemmas, we follow a process of ethical
 reasoning based on our own ethical
standards.
Common Ethical Dilemmas
1. WHITE COLLAR CRIME
- fact of business life and should be on the
lookout for it such as fraud, embezzlement,
theft of equipment and supplies, false
insurance claims, bribery, kickbacks, and
other schemes.
2. WHISTLE BLOWING
- Going to authorities or media with proof that
a company is engage in wrong-doing.
3. CONFLICTS OF INTEREST
- Arise when a person must play two
conflicting roles in a situation. Example:
nepotism (employing family members), self-
dealing (doing business for your own favor
instead for the company), etc.
4. FIDUCIARY RESPONSIBILITIES
- In a relationship with client, a professional
must put the interest of the client first ahead
of its own because of the significant trust
the client placed in him and his professional
abilities.
5. SEXUAL HARASSMENT
- Unwanted repeated or aggressive sexual
advances toward another usually happened
between a superior and a person of lower
rank.
6. DISCRIMINATION
- The unjust or prejudicial treatment of
different categories of people or things
especially on grounds of race, religion,
ethnicity, age, sex, gender preferences and
marital status.
Code of Ethics for Professional Accountants
A professional accountant must observe the
following fundamental principles:
1. Integrity. Straightforward and honest in all
professional and business relationships. It
implies fair dealing and truthfulness.
2. Objectivity. Should not allow bias, conflict
of interest or undue influence of others to
override professional or business
judgments.
3. Professional Competence and Due Care.
Has duty to maintain professional
knowledge and skill at a level required to
ensure that client or employer receives
competent professional services which
include exercise of sound judgment.
4. Diligence. Encompasses responsibility to
act persistently in accordance with the
requirements of an assignment and in an
effort to accomplish something.
5. Confidentiality. Respect the confidentiality
of information, not disclosing to third parties
without proper or specific authority.
6. Professional behavior. Should comply with
relevant laws and regulations and should
not avoid any action that discredits the
profession.
Branches of Accounting
AUDITING
- The independent examination that ensures
fairness and reliability of the reports that
management submits to users of accounting
information:
Internal auditing – within the organization.
External auditing – outside the business entity.
BOOKKEEPING
- The routine task of recording financial
transactions to the books of accounts as
part of the process of accounting in
business and keeping its financial records.
FINANCIAL ACCOUNTING
- The focus is on the recording of financial
transactions and the periodic preparation of
reports on financial position and results of
operations. It also applies to the preparation
and subsequent publication of highly
summarized financial information to be used
by management for planning and control
purposes.
FINANCIAL MANAGEMENT
- A new branch of accounting occupied by
financial managers who are responsible for
setting financial objectives, obtaining the
finances needed to achieve plans and
 generally safeguarding all the financial
resources of the entity. Financial managers
are much more heavily involved in
management and draws on a much wider
range of disciplines and relies more on non-
financial data.
MANAGEMENT ACCOUNTING
- The process of preparing reports about
business operations that helps managers
make short-term and long-term decisions. It
incorporates all types of financial and non-
financial data from a wider range of
sources. It incorporates cost accounting
data and adapts them for specific decisions.
TAXATION
- Tax accounting is a structure of accounting
methods focused on taxes rather than the
appearance of public financials statements.
It includes preparation of tax returns and the
consideration of the tax consequences of
proposed business transactions.
GOVERNMENT ACCOUNTING
Accounting Information System
- planned process for the collection, storage
and processing of financial accounting data
to provide reliable information that can be
used by the management and other
stakeholders
- refers to a whole range of records and
special accounting procedures use by the
business in achieving the objectives of
financial accounting, preparation and
communication of financial reports
- A collection of people, procedures,
software, hardware and data which work
together to provide information necessary to
running an organization
- device or an organization of planned
procedures designed to transform economic
information and other data into meaningful
reports
- produce accurate financial reports through
the use of computer, software or hardware
The Accounting Information Cycle

- Refers to the process of recording and

management of all financial transactions
incurred by the government which includes
income and expenditures. It is necessary to
account proper custody of public funds and
its disposition because it involves huge
amount.

MODULE 2 PART 1
THE ACCOUNTING INFORMATION SYSTEM
Accounting Elements and Accounting Equation
Objectives:
1. Process information efficiently at least cost
2. Protect company’s assets, ensure data are
reliable and minimize waste and possibility
of theft and fraud.
3. Be in harmony with entity’s organizational
and human factors.
4. Be able to accommodate growth in the
volume of transactions and organizational
changes.

Importance:
 1. Business record-keeping is required by law.
- RR 17 2013 & RR 05 2014 – all books,
registers, records, vouchers, and other
supporting papers and documents (BIR)
must be kept for a period of 10 years,
efficient time to maintain records for audit
examinations and income tax purposes.
- required by the law to maintain the records.
Record keeping is a must, in order to
comply with the mandate to 10 years.
2. It helps prevent unnecessary cost.
- Good accounting information – maintains
proper business records
- Weak accounting business – waste to
business. Additional cost for the business
3. It facilitates decision-making.
- Guides managers to make economic
decision
Stages of Accounting Information System
Stage 1 – INPUTS
The collection of raw data, acquired from internal
and external sources. Evidence by source
documents (invoices, receipts, contracts, etc)
Gathers data & recalls inputs (recording)
Stage 2 – PROCESS
Refers to data processing which includes
sorting, classifying and summarizing function
according to files and categories. Stored in their
respective records.
Stage 3 - OUTPUTS
The generation of financial reports and
communication of the needed information to the
decision makers or end-users.
Preparation of financial statements
Types of accounting information system
1. Manual accounting system
- utilize paper-based journals and ledgers,
the whole process is done manually.
- This type of system is labor intensive.
- Dependent on human processing (prone to
human errors)
- Most used before globalization
- inferior to computerized systems in terms of
productivity, speed, accessibility, quality of
output, incidence of errors and volume of
data.
2. Computer-based system
- uses modern information technology
resources and transactions are coded and
can be quickly posted by passing the
journalizing process.
- It replaced paper records with computer
records.
- Separate records which allows others to
view or work without affecting the other
parts of the accounting process
- Transactions can be quickly posted and
internal controls and edits can easily be
done to prevent and detect errors (edit and
override-depends on the level of authority)
3. Database system
- it embeds accounting data within the
business event data on which they are
based. It reduces inefficiencies and
redundancies that often exist in a
transaction-based systems.
- It recognizes business rather than just
accounting events.
Elements of Financial Statements
Grouped into broad classes according to economic
characteristics or attributes in the financial
statements.
broad classification of business transactions in the
financial statements - accounting elements.
As defined in March 2018 Conceptual Framework
for Financial Reporting, these elements of financial
statements are:
Financial Statement – 5
Financial Position/Balance Sheet – 3
Comprehensive Income/Income Statement – 2
Assets
- Economic resources owned and controlled
by the entity as a result of past events and
from which future economic benefits are
expected to flow to the entity
- properties or resources that belongs to the
business that they have full control
- An economic resource is a right that has
potential to produce economic benefits for
the entity which has the sole control
- Involves some of money, tangible and
intangible, object that is procured, prepaid,
accrued income
- Contra-accounts: allowances, accumulated
depreciation, withdrawal
-
- Example: right to own land, building,
equipment, machinery, furniture and
fixtures, etc., right to receive cash, right to
receive goods or services
Liabilities
- the present obligations of an entity arising
from past events, the settlement of which is
expected to result in an outflow from the
entity of resources embodying economic
benefits
- debts incurred by the business for the
transfer of economic resources as a result
of past events
- An obligation of the entity, owed to another
party.
- Claim account for the creditors
- Accounts Payables: suppliers, Notes
Payables: bank (there is a promissory note,
sign)
- Payables, Unearned Revenue, Accrued
Expense,
- Example: unpaid expenses, unpaid
salaries, purchases made on account, etc.
Equity
- residual interest in the assets of the entity
after deducting all its liabilities.
- represents owner’s capital and what is left
to the owner after deducting the entity’s
debts or obligation
- It represents claim of the owner/s over the
assets of the business in the form of capital
- Claim account for the owner
- Net Income, Withdrawal,
- Example: R & B Service Business has total
Assets of P1,000,000 and total, Liabilities of
P450,000, therefore, the equity of the owner
is P550,000.
Income
- the increase in economic benefits during the
accounting period in the form of inflow or
enhancement of assets or decrease of
liabilities resulting in an increase in equity
other than those relating to equity claims
from equity participants or equity
contributors.
- The basic accounting principle is that
income increases the equity of the owners
while loss decreases the owner’s equity.
- Revenue; Net Operating Income – deduct
operating expenses
- Example: R & B Service Business profited
from its business as a result of its operating
activities in the amount of P50,000. From
the previous example, its equity amount is
P550,000 , but due to income generated,
the equity amount of R & B will now be
P600,000. However, if it incurs a loss of
 P50,000, R & B’s owners’ equity will
decrease to P500,000.
Expense
- decreases in economic benefits during the
accounting period in the form of outflow or
depletion of assets or incurrence of liabilities
that result in decreases in equity other than
those relating to equity claims from equity
participants or equity contributors
- The basic accounting principle is that
expenses decrease the equity of the
owners
- Example: rent expense, salaries expense,
supplies expense, etc
Accounting Equation
- The most basic tool of accounting is the
accounting equation, also known as
balance sheet equation which is the
foundation of double entry accounting. This
equation presents the resources controlled
by the enterprise, the ASSETS, the present
obligation of the enterprise, the LIABILITIES
and the residual interest in the assets as
shown in this model, the EQUITY.
- Accounting formula derived from the dual
concept of accounting which states that
every value received there must be a
corresponding value parted with
- Final product: Financial statements
PART 2
ACCOUNT
- basic summary device of accounting
-Account.
- accounting record in which the effects of
similar business transactions are grouped or
classified.
- records the increases or decreases of
specific asset, liability, owner’s equity,
revenue and expense.
- name designated to the account -account
title. Ex. Cash, Accounts Receivable, Office
Supplies, Land, Accounts Payable, Notes
Payable, Service Income, Salaries
Expense, Rent Expense, etc.
- account titles used to record accounting
transactions for a particular business should
be uniformly listed and arranged
chronologically in a chart - Chart of
Accounts.
- Asset (most liquid one-cash, accounts
receivable), Liabilities, Equity, Income,
Expense
Books of Accounts
- recording economic transactions and events
1. General Journal
- “book of original entry”
- accounting record that is used to initially
record business transactions known as
journal entry
2. General Ledger
- “book of final entry”
- where the accounts and their related
amounts previously recorded in the journal
are posted and summarized periodically
Double-Entry Accounting System
- based on the dual aspect concept that for
every transaction, there would always be a
two-sided effect to the extent of the same
amount as recorded in the accounting
books. It shows that for every “value
received”, there is a corresponding “value
parted with”. In accounting, value received
is the DEBIT and value parted with is the
CREDIT.
- The recording process requires that the
value of debits must equal the value of
credits for each transaction entry or simply
put, both debits and credits are in balance.
- Basis of Modern Accounting Theory
It is known to be the most acceptable accounting
system in recording accountable transactions due
to the following reasons:
 1. It results in a more accurate accounting
records and financial reports.
2. It allows a more convenient means of
recording business transactions and events.
3. It provides numerous ways to safeguard
and check errors and misstatements
committed.
Debit (Dr.) - left-hand side of the accounting
equation therefore an account is debited when it is
entered in the left side of the T-Account
Credit (Cr.) - the right-hand side of the accounting
equation therefore the account is credited when it is
entered on the right side
T-ACCOUNT
- resembles a big letter T, used to summarize
and determine account balances without the
need for the formal ledger
- informal ledger
- three (3) parts: the account title, the debit
and the credit side
The business transactions must be measurable and
quantifiable in order to be given accounting
recognition.
RULES:
Ground rules for debits and credits:
• For every value received, there is always a
value parted.
• The values received and valued parted with
are equal.
• The values received and the values parted
with are measurable in terms of peso.
The rules of debits and credits lay down the ground
rules and steps to be followed in analyzing
accounting transactions. It depends on the account
type and how increases or decreases in it are
recorded. It involves exchange of values.
The increase-decrease effect should be expressed
in the technical parlance of accounting which is to
debit and to credit as it affects all the accounting
elements.
A. For the elements of financial position
(Assets, Liabilities, Owner’s Equity), the
following rules apply:
Increases in assets are recorded as debits (left
side), while decreases in assets are recorded as
credits (right side).
Increases in liabilities and owner’s equity are
recorded as credits (right side) decreases are
entered as debits (left side)
B. For the elements of financial
performance (Income and Expenses), the
rules of debits and credits are based on
the relationship of these accounts to
owner’s equity.
Income increases owner’s equity and expense
decreases owner’s equity.
Hence, increases in income are recorded as
credits (right side) and decreases are recorded as
debits (left side).
Increases in expenses are recorded as debits (left
side) and decreases are recorded as credits (right
side).
Normal Balance of an Account
AWE(increase-debit) LCI(increase-credit)
The normal balance of an account refers to the side
of the account, debit or credit, where increases are
recorded.
Assets, Owner’s withdrawals and Expenses
increase on the debit side therefore the normal
balance of these accounts is a debit.
Liability, Owner’s Capital and Income accounts
increase on the credit side therefore the normal
balance of these accounts is a credit.