ACCOUNTING 1ST YEAR BSA
MRS. FELISA CAGALINGAN
TRANSCRIBED: BESS T. MASANQUE
INTRODUCTION TO ACCOUNTING
History of Accounting
- The earliest record keeping, and accounting system
were found in 2000 BC in the cities of Babylonia,
Greece, and Egypt.
- Primitive Time do not have formal record.
 They used Leaves and clay as paper.
 Stylus as ballpen.
 It is a single entry
 It only monitors amount of cash to use in
operating the business.
 Event = Transaction
 Element = Value
 NO formal recording
- In 15th century, Italians merchants keep track of their
daily activities, listing down what they owned (assets)
and what they owed (liabilities). From their record it
came the term debtor (one who owes) and creditor (one
who owed). From this term it came the accounting term
DEBIT (value received) and CREDIT (value parted
with).
- First accounting book was written in Naples by
Benedetto Cotrugli in 1458.
 Libro de Larte dela Mercatura (Book of the Art
of Trade)
 A change of from single recording to double
entry accounting system
- Modern bookkeeping system was written in Italy by
Frater Luca Bartolomeo Pacioli in 1494.
 Summa de Arithmetica, Geometrica, Propotioni
et Proporionalita (Everything about arithmetic,
geometry, and proportion)
 Complete book of accounting system
 Father of Accounting
BUSINESS AND ITS MOTIVE
- A business is an undertaking where one seeks to make
profit by selling goods or services in exchange for
money or its equivalent.
THREE VALUE ELEMENTS
Assets – rights or properties owned.
Liabilities - is something a person or company owes.
Capital - is typically cash or liquid assets being held or
obtained for expenditures.
ACCOUNTING – provide accounting information
defined as service activity.
ACCOUNTING ACCORDING TO AICPA
“Accounting is an art of recording, classifying, and
summarizing. In a significant manner and in terms of
money, transactions, and event which are in part at least
of a financial character and interpreting the results
thereof.”
What are recorded, classified, and summarized?
It is recorded in chronological order by date of
transaction and events, and it indicates the amount of
money wherein in peso or dollar.
FOUR FUNCTIONS OF ACCOUNTING
1ST function – Recording = Journalizing entry or
journalization of transactions and events.
2nd function – Classifying = Posting
3rd function – Summarizing = Preparation of the first
accounting report
- Trial Balance, Worksheet (optional)
* Financial Statements
1. Statement of comprehensive income – (profit/loss)
(revenues/expense) (income)
2. Statement of financial position or condition – (balance
sheet) (network)
3. Notes to financial statements
4. Statement of changes in owner’s equity
DOUBLE ENTRY – recording the transaction by which
the dual effect. All accounting elements involved.
Recording using journal entry is a device used in dual
effects of transactions affected by a given accounting
book.
ACCOUNTING PERIOD
ACCOUNTING 1ST YEAR BSA
MRS. FELISA CAGALINGAN
TRANSCRIBED: BESS T. MASANQUE
12 months (Calendar) RULES IN ACCOUNTING EQUATION
Any month except January (Fiscal) 1. Increase in the assets, liabilities & capital should
follow the opposite of the normal assigned to the
4 Quarters = 3 months
element
2 Semesters = 6 months
Assets Liabilities Capital
1 year = 12 months
Dr Cr Dr Cr Dr Cr
Single Proprietorship – only used calendar period
Partnership – Either calendar & fiscal period
ACCOUNTING EQUATION
Normal Side:
Original Equation = A = E
Assets = Debit
(Assets) = (Equity)
Liability = Credit
1st Expansion 1. A = L + C
Capital = +capital (credit)
(Assets) = (Liabilities) + (Capital)
-capital (debit)
2. L = A - C
2. Any decrease in accounting elements should follow
3. C = A - L the opposite of the normal assigned to the element.\
2nd Expansion = A = L + IC/DC Capital
Increasing Capital Increasing Decreasing
- Revenue, Income, Investments - Investments - Expenses/ cost
Decreasing Capital - Revenue - Drawing
- Expenses, Net loss, Drawings - Net Profit/ Net income - Losses/ net loss
Sample: GENERALLY ACCEPTED ACCOUNTING
Total assets are 760,000 and total liabilities is 360,000 PRINCIPLE- GAAP

what is the total capital? - Includes concept and assumptions, which have gained
international acceptance in the business world and
C = A - L accounting profession.
C = 760,000 - 360,000 Principles – ideas with serve as basis for
something
C = 400,000
Concept – thoughts
Total Capital = 240,000, Total Liability = 1/3 of the total
assets. TA = ? TL = ? Assumptions – kutob
A = 1/3 (A) + 240,000 - Principles that governs the application of accounting
procedures.
= 240,000 divided by 2/3
- Widely accepted
Total Assets = 360,000

Other standard used in Philippines

TL = 360,000 x 1/3
1. Philippine accounting standard (PAS)
TL = 120,000
2. Philippine Financial Reporting (PFRS)
ACCOUNTING 1ST YEAR BSA
MRS. FELISA CAGALINGAN
TRANSCRIBED: BESS T. MASANQUE
3. Financial Reporting Standard (FRSC)
UNDERLYING ACCOUNTING ASSUMPTIONS
1. BUSINESS ENTITY CONCEPT (Separate entity
concept)
- business is treated as having a separate personality
from the owner such as the transactions of the business
must be separate from the transactions of the owners.
- different perspective of owner & business
- personal and business transactions
2. GOING CONCERN CONCEPT
- It is assumed that the business will continue operations
indefinitely unless there is evidence to the contrary.
- if the business is about to be liquidated, the properties
valued at their realizable value if the business is a going
concern the properties are valued at their acquisition
cost.
- period liquidated, profitability & success. Financial
response to help regains the success of the business
Ex. Loss of employees, loss of income
3. ACCRUAL BASIS OF ACCOUNTING
- This simply mean that expense of the business is
recognized or recorded when incurred whether paid or
not and revenue is recognized when earned whether
collected or not.
4. OBJECTIVITY
- This simply means that transactions recorded, or
amounts reported can be verified through the supporting
documents. It also means that the information provided
is free from bias.
Ex. Pay slips, receipts, voucher, and when buying
product from the mall they issue receipts as a proof or
evidence that you bought.
5. COST PRINCIPLE
- This simply means that properties or assets acquired
must be recorded at the actual acquisition cost and not at
an estimated cost.
- truly committed with integrity & honesty
Ex. 700,000 original price then 700,000 will be the
recorded price.
6. MATCHING COST AGAINST PRINCIPLE
- This simply means that all cost and expenses incurred
during the period in generating the revenue, must be
matched (subtracted) against the revenue for the same
period.
7. CONSISTENCY (Prudence)
- This means that for the financial statements to be
comparative, the application of the accounting methods,
procedures, or principle must be consistent with the
previous period.
- Which follow accounting method, terminology in the
books of accounts.
8. ACCOUNTING PERIOD
- Considering that the business is assumed to be going
concern, its life dived into periods (usually one year) at
the end of which financial statements are prepared. If
period to period basis.
9. FULL DISCLOSURE
- This simple means that the financial statements should
reflect all significant events or facts, which might
influence the decisions to be made by any interested
party.
- done with “notes to be financial statements” can be
attached to the financial statements.
- All sales transaction (properly labeled) should be
recorded
10. MATERIALITY CONCEPT (monetary concept)
- it is a concept that affect the accounting decision.
BOOKS OF ACCOUNTS
- It is also called books of original entry
- Accounting term “the journals” under non specialist
books of original entry.
- “General Journal” – Simplest non-specialist
BOOKS OF FINAL ENTRY
- Accounting term “ledger”
- Sales, purchase, payments & general journal are under
non specialist
SET OF RULES
- Double entry
- Follows the GAAP
ACCOUNTING 1ST YEAR BSA
MRS. FELISA CAGALINGAN
TRANSCRIBED: BESS T. MASANQUE
ACCOUNTING PROCESS
The four parts of journal entry
1. Date – must be complete with year, month, day
2. Debit – Should have proper account title with correct
debit account.
3. Credit – correct credit amount.
4. Explanation/ Particulars – must be brief but clear
CLASSIFICATION OF JOURNAL ENTRY
1. Time of preparation and purpose for which the
criterion
OPENING JOURNAL ENTRY – prepared at the first
day of new accounting period to put in record balance
account of the preceding accounting period.
CURRENT JOURNAL ENTRY – present or current
accounting period to record current transactions that
have transcribe in the current accounting period.
CORRECTING JOURNAL ENTRY – at the date of
the discovery error and when posting has been done.
(after)
ADJUSTING JOURNAL ENTRY – to adjust the
mixed account. Either simple or compound entry
CLOSING JOURNAL ENTRY – prepared at the end
of the given accounting period, results of the operation
- for only nominal accounts
REVERSING JOURNAL ENTRY – at the beginning
of the new accounting period to reverse adjusting entry
at the end of the preceding accounting period.
SIMPLE JOURNAL ENTRY
- it has only one debit and credit.
COMPOUND JOURNAL ENTRY
- entry with only one debit but two or more credit
- has 2 or more debit and credit
- it is used depends on the nature of transactions.
BOOKS OF ORIGINAL ACCOUNTING ENTRY
“General journal” or “Special journal” – has 6 columns
DATE – 2 columns FOLIO – 1 column
PARTICULARS – 1 column MONEY – 2 columns
DATE PARTICULARS F DEBIT
CREDIT
JAN 1 Cash 101 10,0000
Bess, Capital 105 10,000
Initial inv.
WHEN THERE IS ERRORS AVOID USING
CORRECTION FLUID “NO EASURES IS MUST”, IT
WILL BE CORRECTED IN THE CORRECTING
JOURNAL ENTRY OR BY CROSSING IT OUT
HORIZONTALLY AND PLACE THE RIGHT ENTRY.
DATE PARTICULARS F DEBIT
Land
CREDIT
JAN 1 Cash 101 10,0000
Bess, Capital 105 10,000
Initial inv.
TRANSACTION FORMATION (non-cash order)
1. Amount agreed upon (agreed value) if none
2. Fair market value if none
3. Book value/ carrying amount
- Acquisition cost it is related reserve account
(depreciable)
Depreciation assets – this are buildings, machinery, etc.
Book value = (acquisition – accumulated depreciation)
Accounts receivable = allowance for impairment loss
= (Gross amount – impairment loss)
PARTNERSHIP FORMATION
- contains two or more partners
- individuals who are not yet in business
- combination of who are not yet in business and who
have been in sole proprietorship.
- All in business before of sole proprietorship.
Capitalist Partners – who invest money, land, and etc.
Industrial Partners – invest skills and services.
- Different capital accounts per partners
-Contributing either cash or non-cash
- Recorded in the new sets of partnership books
 Manual
ACCOUNTING 1ST YEAR BSA
MRS. FELISA CAGALINGAN
TRANSCRIBED: BESS T. MASANQUE
 Computerized
- Should be registered in BIR
FORMAL ENTRY OF INDUSTRIAL PARTNER
1ST Method: Follow Accounting process
- Journalizing and posting.
2nd Method: Direct in the general leger
- Credit or across the account of debit and credit
Sample: Bess is admitted as an industrial partner for
contributing her CPA services and will share 20% in the
profit.
PROCEDURE OR REGISTRATION OF SOLE
PROPRIETORSHIP
1st : DTI (Department of trade and industry)
2nd : City government bring registration form from DTI
 LGU
 BARANAGAY
 MUNICIPAL LICENSES
3RD : BIR (Bureau of internal revenue)
 Will be the one to issued TIN
 Registration from of 1901, 0605
 Will pay minimal amount of 500
 You’ll register your employees using from 1902
4th : DOLE (Department of Labor and employment)
 Employee’s registration
PROCEDURE OR REGISTRATION OF
PARTNERSHIP
1ST : Government agencies SEC (Securities & Exchange
commission)
 Contract agreement
 Articles of Co-partnership
 TIN is issued by SEC
(Tax payable identification number)
2nd : Local Government
 LGU, barangay, City Hall
 To pay mayor’s permit and municipal licenses
3rd : BIR (Bureau of internal revenue)
 Approved by SEC articles of partnership
 Registration of employees (1902)
 (1903) from/ payment of annual registration of
500 (0605)
 Registration of books
4th : DOLE (Department of Labor and employment)
 Employee’s registration
AGREEMENT
1. What is to be contributed?
 It is the contribution of former sole proprietor to
transfer in the new book of partnership.
2. Valuations
2.1 Contributing the previous assets, liabilities and
capital agreed to transfer in the new book
 Or before the transfer it can change the value of
net assets.
2.2 Percentage of interest (stated in the articles of
partnership) (CAPITAL RATIO)
 Profit & loss ratio – agreement regarding of
division in any profit & loss.
 According to Capital actually contributed
TOTAL CONTRIBUTED CAPITAL – Actual
contribution
TOTAL AGREED CAPITAL – Recorded in the
book
2.3 The Books of accounts to be used is:
1. Non set of books for partnership
2. The books of sole proprietors may be
used as a book but registered in BIR &
approved.
Sample:
Bess & Choji contributed cash of 100k each agreed that
their profit & loss of ratio is 1:2 respectively.
Percentage of interest in equity is ½ + 3 = 1/3 A , 2/3 B
A = 33.33 % B = 66.67% : NOT PROPORTIONATE
There are cases where the recorded amount of capital is
greater than the total contributed capital. For, ex.
100,000 (total contributed capital) but 120,000 was
recorded. 20,000, the excess is considered as goodwill.
This is because of the background, special skill, or
reputation of the sole proprietor which can be considered
as an Intangible asset.
ACCOUNTING 1ST YEAR BSA
MRS. FELISA CAGALINGAN
TRANSCRIBED: BESS T. MASANQUE
PROCEDURE OF FORMATION OF PARTNERSHIP Accounts Receivable 1,200,000
Merchandise Inventory 800,000
1. Adjust the book of the sole proprietor Equipment 1,050,000
2. Close the book of the sole proprietor Accounts Payable 620,000
Bess Capital 2,690,000
3. Record contribution of the individual not yet in
3,310,000 3,310,000
business and also transfer the net assets of sole pro
which will be his contribution to the partnership in the A. No changes so proceed to the closing of books.
new set of partnership books.
Closing Entry:
If there are NO changes of the value of net assets of sole
proprietor Accounts Payable 620,000
Bess Capital 2,690,000
1. Close totally the books of sole proprietor Cash 260,000
Accounts Receivable 1,200,000
2. In the new set of partnership books, record the Merchandise Inventory 800,000
contribution. Equipment 1,050,000
To close the entry of sole proprietorship
EXERCISE
B. The books of Bess will be used as partnership books
Bess admits Choji into a partnership, Choji will invest
sufficient cash in the business equal to1/4 of the Cash 260,000
contribution of Bess. The books of accounts of Bess Accounts Receivable 1,200,000
Merchandise Inventory 800,000
before the admission of Choji show the following
Equipment 1,050,000
account balances.
Accounts Payable 620,000
Cash – 260,000 Bess Capital 2,690,000
Accounts Receivable – 1,200,000 To transfer to partners’ capital
Merchandise Inventory – 800,000
Equipment – 1,050,000 Cash 672,500
Accounts Payable – 620,000 Choji’s Capital 672,500
Bess Capital – 2,690,000 Initial Investment

- Partners agreed that the net assets of Bess shall be

taken in the partnership books at book value.
1. How much should Choji invest?
2. Prepare journal entry to record formation of the
partnership under each following assumption:
A. New set of books should be used in the
partnership
B. The books of Bess will be used as partnership
books.

ANSWER:
1. Net assets or total contribution of Bess = 2,690,000
Choji’s, Capital = ?
2,690,000 x ¼ = 672,500 (Choji’s Capital)
2. Check if the given is balance
Cash 260,000