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GENEVA C. MANARANG
FUNDAMENTALS OF

GENEVA C. MANARANG
 Chapter 1
Introduction to Accounting
Learning Objectives
1. Define accounting.
2. Describe the nature and purpose of accounting.
3. Give examples of branches of accounting.
4. State the function of accounting in a business.
5. Differentiate between external and internal users of
accounting information.
6. Narrate the history/origin of accounting.
7. State the forms of business organization.
8. State the types of business according to their
activities.

Chapter 1: Introduction to Accounting

 Definition of Accounting
• Accounting is a process of identifying,
recording and communicating economic
information that is useful in making
economic decisions.
• “Language of Business”

Chapter 1: Introduction to Accounting

 Essential elements of the
definition of accounting
1. Identifying – The accountant analyzes each business transaction
and identifies whether the transaction is an “accountable event” or
“non-accountable event.” This is because only “accountable
events” are recorded in the books of accounts. “Non-accountable
events” are not recorded in the books of accounts.
2. Recording – The accountant recognizes (i.e., records) the
“accountable events” he has identified. This process is called
“journalizing.” After journalizing, the accountant then classifies the
effects of the event on the “accounts.” This process is called
“posting.”
3. Communicating – At the end of each accounting period, the
accountant summarizes the information processed in the
accounting system in order to produce meaningful reports.
Accounting information is communicated to interested users
through accounting reports, the most common form of which is
the financial statements.

Chapter 1: Introduction to Accounting

 Nature of Accounting
• Accounting is a process with the basic
purpose of providing information about
economic activities intended to be useful in
making economic decisions.

Chapter 1: Introduction to Accounting

 Types of information
provided by accounting

1. Quantitative information
2. Qualitative information
3. Financial information

Chapter 1: Introduction to Accounting

 Functions of Accounting in
Business
1. To provide external users with information
that is useful in making investment and
credit decisions; and
2. To provide internal users with information
that is useful in managing the business.

Chapter 1: Introduction to Accounting

 Brief history of accounting
• Accounting can be traced as far back as the prehistoric times, perhaps
more than 10,000 years ago.
• Archaeologists have found clay tokens as old as 8500 B.C. in
Mesopotamia which were usually cones, disks, spheres and pellets.
These tokens correspond to commodities like sheep, clothing or bread.
They were used in the Middle West in keeping records. After some
time, the tokens were replaced by wet clay tablets. During such time,
experts concluded this to be the start of the art of writing. (Source:
http://EzineArticles.com/456988)
• Double entry records first came out during 1340 A.D. in Genoa.
• In 1494, the first systematic record keeping dealing with the “double
entry recording system” was formulated by Fra Luca Pacioli, a
Franciscan monk and mathematician. The “double entry recording
system” was included in Pacioli’s book titled “Summa di Arithmetica
Geometria Proportioni and Proportionista,” published on November 10,
1494 in Venice.
• The concept of “double entry recording” is being used to this day. Thus,
Fra Luca Pacioli is considered as the father of modern accounting.

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Users of Accounting Information
1. Internal users – those who are directly involved in managing the
business. Examples:
• Business owners who are directly involved in managing the
business
• Board of directors
• Managerial personnel

2. External users – those who are not directly involved in managing

the business. Examples:
• Existing and potential investors (e.g., stockholders who are not
directly involved in managing the business)
• Lenders (e.g., banks) and Creditors (e.g., suppliers)
• Non-managerial employees
• Public

Chapter 1: Introduction to Accounting

Forms of Business Organizations

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Types of Business According to
Activities
1. Service business
2. Merchandising (Trading)
3. Manufacturing

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

 APPLICATION OF
CONCEPTS
 

PROBLEM: FOR CLASSROOM DISCUSSION

Chapter 1: Introduction to Accounting

OPEN FORUM
• QUESTIONS
• SUGGESTIONS
• REACTIONS

Chapter 1: Introduction to Accounting

Thank you!

Chapter 1: Introduction to Accounting

 Chapter 1
Introduction to Accounting
Learning Objectives
1. Define accounting.
2. Describe the nature and purpose of accounting.
3. Give examples of branches of accounting.
4. State the function of accounting in a business.
5. Differentiate between external and internal users of
accounting information.
6. Narrate the history/origin of accounting.
7. State the forms of business organization.
8. State the types of business according to their
activities.

Chapter 1: Introduction to Accounting

 Definition of Accounting
• Accounting is a process of identifying,
recording and communicating economic
information that is useful in making
economic decisions.
• “Language of Business”

Chapter 1: Introduction to Accounting

 Essential elements of the
definition of accounting
1. Identifying – The accountant analyzes each business transaction
and identifies whether the transaction is an “accountable event” or
“non-accountable event.” This is because only “accountable
events” are recorded in the books of accounts. “Non-accountable
events” are not recorded in the books of accounts.
2. Recording – The accountant recognizes (i.e., records) the
“accountable events” he has identified. This process is called
“journalizing.” After journalizing, the accountant then classifies the
effects of the event on the “accounts.” This process is called
“posting.”
3. Communicating – At the end of each accounting period, the
accountant summarizes the information processed in the
accounting system in order to produce meaningful reports.
Accounting information is communicated to interested users
through accounting reports, the most common form of which is
the financial statements.

Chapter 1: Introduction to Accounting

 Nature of Accounting
• Accounting is a process with the basic
purpose of providing information about
economic activities intended to be useful in
making economic decisions.

Chapter 1: Introduction to Accounting

 Types of information
provided by accounting

1. Quantitative information
2. Qualitative information
3. Financial information

Chapter 1: Introduction to Accounting

 Functions of Accounting in
Business
1. To provide external users with information
that is useful in making investment and
credit decisions; and
2. To provide internal users with information
that is useful in managing the business.

Chapter 1: Introduction to Accounting

 Brief history of accounting
• Accounting can be traced as far back as the prehistoric times, perhaps
more than 10,000 years ago.
• Archaeologists have found clay tokens as old as 8500 B.C. in
Mesopotamia which were usually cones, disks, spheres and pellets.
These tokens correspond to commodities like sheep, clothing or bread.
They were used in the Middle West in keeping records. After some
time, the tokens were replaced by wet clay tablets. During such time,
experts concluded this to be the start of the art of writing. (Source:
http://EzineArticles.com/456988)
• Double entry records first came out during 1340 A.D. in Genoa.
• In 1494, the first systematic record keeping dealing with the “double
entry recording system” was formulated by Fra Luca Pacioli, a
Franciscan monk and mathematician. The “double entry recording
system” was included in Pacioli’s book titled “Summa di Arithmetica
Geometria Proportioni and Proportionista,” published on November 10,
1494 in Venice.
• The concept of “double entry recording” is being used to this day. Thus,
Fra Luca Pacioli is considered as the father of modern accounting.

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Common Branches of Accounting

Chapter 1: Introduction to Accounting

Users of Accounting Information
1. Internal users – those who are directly involved in managing the
business. Examples:
• Business owners who are directly involved in managing the
business
• Board of directors
• Managerial personnel

2. External users – those who are not directly involved in managing

the business. Examples:
• Existing and potential investors (e.g., stockholders who are not
directly involved in managing the business)
• Lenders (e.g., banks) and Creditors (e.g., suppliers)
• Non-managerial employees
• Public

Chapter 1: Introduction to Accounting

Forms of Business Organizations

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Types of Business According to
Activities
1. Service business
2. Merchandising (Trading)
3. Manufacturing

Chapter 1: Introduction to Accounting

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting

 APPLICATION OF
CONCEPTS
 

PROBLEM: FOR CLASSROOM DISCUSSION

Chapter 1: Introduction to Accounting

OPEN FORUM
• QUESTIONS
• SUGGESTIONS
• REACTIONS

Chapter 1: Introduction to Accounting

Thank you!

Chapter 1: Introduction to Accounting

BSA 1A and 1B
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Intermediate Accounting 1
(Acctg 102)

Geneva C. Manarang
CASH AND CASH EQUIVALENTS

DEFINITION OF CASH

• CASH includes money and other negotiable instrument

that is paybale in money and is acceptable by the bank or
other financial institution for deposit and immediate
credit
• it includes checks, bank drafts, and money order
THE FOLLOWING CASH ITEMS ARE INCLUDED IN
“CASH”
CASH ON HAND
Includes undeposited cash collections and other cash items awaiting deposit such
as customers’ check, cashier’s or manager’s checks, traveler’s checks, bank
drafts and money orders.

CASH IN BANK
This includes demand deposit or checking account and saving deposit which are
unrestricted as to withdrawal.

CASH FUND set aside for current purposes

Such as petty cash fund, payroll fund, and dividend fund (sinking fund, insurance
fund and other funds set aside for non-current purposes are NOT included as
cash but are included as part of non-current investments.
 CASH ITEMS

RESTRICTED and for use

UNRESTRICTED and immediately other than for current
availablefor use in current operation operation
use

Reported as “CASH” in the current asset Reported under in non-current asset

section section
CASH AND CASH EQUIVALENTS

DEFINITION OF CASH EQUIVALENT

PAS 7 (par.6), defines cash equivalents as short-term and

highly liquid investments that are readily convertible into cash
and so near their maturity that they present insignificant risk
of changes in value because of changes in interest rates.

Only high liquid investments that are acquired THREE

MONTHS BEFORE MATURITY can qualify as cash equivalents
EXAMPLES OF CASH EQUIVALENTS

• Three-month BSP Treasury Bill

• Three-year Treasury Bill purchased three months before maturity
date
• Three-month Time Deposit
• Three-month money market intsrument or commercial paper
CASH EQUIVALENT or NOT?
MEASUREMENT OF CASH
FS PRESENTATION
INVESTMENT OF “EXCESS CASH”
BANK OVERDRAFT
COMPENSATING BALANCE
UNDELIVERED OR UNRELEASED CHECKS
POSTDATED CHECKS DELIVERED
STALE CHECKS/CHECKS LONG OUTSTANDING
STALE CHECKS/CHECKS LONG OUTSTANDING
WINDOW DRESSING
WINDOW DRESSING
WINDOW DRESSING
LAPPING
KITING
ACCOUNTING FOR CASH SHORTAGE
ACCOUNTING FOR CASH OVERAGE
IMPREST SYSTEM
PETTY CASH FUND
IMPREST FUND SYSTEM
IMPREST FUND SYSTEM
FLUCTUATING FUND SYSTEM
FLUCTUATING FUND SYSTEM
ASSIGNMENT:

ON A YELLOW PAD: DEADLINE OF SUBMISSION

IS ON MARCH 16, 2022, 10AM
ASSIGNMENT:
EXERCISE 1:
ASSIGNMENT:
EXERCISE 2:
 1
ACCTG 102 (CASH AND CASH EQUIVALENT)
Prepared by: GENEVA C. MANARANG

Problem 1: Statement of Financial Position

The general ledger trial balance of Atticus Company included the following accounts on December
31, 2022:

Inventory, including inventory expected in the ordinary course of 1,000,000

operations to be sold beyond 12 months amounting to P700,000
Accounts Receivable 1,200,000
Prepaid Insurance 100,000
Financial Assets held for trading 200,000
Financial Assets at fair value through other comprehensive 800,000
income
Cash 300,000
Deferred Tax Asset 150,000
Bank Overdraft 250,000

Q: What amount should be recorded as total current assets on December 31, 2022?
A. 2,800,000
B. 2,550,000
C. 3,600,000
D. 2,100,000

Problem 2: Statement of Financial Position

Calliope Company provided the following adjusted account balances on December 31, 2022:

Wages Payable 250,000

Cash 200,000
Mortgage Payable 1,500,000
Dividends Payable 150,000
Prepaid Rent 100,000
Inventory 800,000
Sinking Fund 500,000
Short-term investment 300,000
Investment in Associate 2,800,000
Taxes Payable 220,000
Accounts Payable 240,000
Accounts Receivable 350,000

Q: Total amount of current assets to be reported on December 31, 2022 is:

 2
A. 2,250,000
B. 1,750,000
C. 3,750,000
D. 4,250,000

Problem 3: Statement of Financial Position

Scout Finch Company provided the following data on December 31, 2022:

Trade accounts payable (inc. Cost of of goods

Received on consignment of P150,000) 1,350,000
Accrued taxes payable 125,000
Customers’ deposit 100,000
Amir Company as guarantor 200,000
Bank Overdraft 55,000
Accrued electric and power bills 60,000
Reserve for contingencies 150,000

Q: What should be reported as total current liabilities:

A. 1,840,000
B. 1,740,000
C. 1,650,000
D. 1,540,000

Problem 4: Cash and Cash Equivalent

Harper Company had the following account balances in December 31, 2022:

Cash in bank - current account 5,000,000

Cash in bank - payroll account 1,000,000
Cash on hand 500,000
Cash in bank - restricted account for building
construction expected to be disbursed in 2023 3,000,000
Time deposit, purchased December 15, 2022
and due March 15, 2023 2,000,000

Q: The cash on hand included P200,000 check payable to Harper, dated January 15, 2023. What total
amount should be reported as “cash and cash equivalent” on December 31, 2022?
A. 6,300,000 C. 6,500,000
B. 8,500,000 D. 8,700,000
 3
Problem 5: Cash and Cash Equivalent
Calpurnia Corporation provided the following data on December 31, 2022:

Checkbook Balance 4,000,000

Bank statement balance 5,000,000
Check drawn on Calpurnia’s account, payable to
supplier, dated and recorded on December 31, 2022,
but not mailed until January 15, 2022 500,000
Cash in sinking fund 2,000,000

Q: On December 31, 2022, what amount should be reported as “cash” under current assets?
A. 4,500,000
B. 5,500,000
C. 3,500,000
D. 6,500,000

Problem 6: Cash and Cash Equivalent

Walter Cunningham Company had the following data on December 31, 2022:

Cash in bank 2,250,000

Cash on hand 125,000
Cash restricted for addition to PPE 1,600,000

Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement.
The compensating balance is not legally restricted as to withdrawal.
Q: In the December 31, 2022 statement of financial position, what total cash should be reported under
current assets?
A. 1,775,000
B. 2,250,000
C. 2,375,000
D. 3,975,000

Problem 7: Cash and Cash Equivalent

On December 31, 2022, the cash account of Dill Company showed the following details:

Undeposited collections 60,000

Cash in bank - PCIB checking account 500,000
Cash in bank - PNB (overdraft) ( 50,000 )
Undeposited NSF check received from customer,
dated December 1, 2022 15,000
 4
Undeposited check from customer, dated Jan. 15, 2022 25,000
Cash in bank - PCIB (fund for payroll) 150,000
Cash in bank - PCIB (saving deposit) 100,000
Cash in bank - PCIB (money market instrument, 90 days)2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Financial asset held for trading 120,000

Q: On December 31, 2022, what total amount should be reported as “cash and cash equivalent:?
A. 2,660,000
B. 2,810,000
C. 2,770,000
D. 810,000

“The man who does not read books has no advantage over the one who cannot read them.”