Acctg 101 Module 1

FINANCIAL ACCOUNTING AND REPORTING
Course Description: The Financial Accounting and Reporting course covers accounting
terminology; the classifying and recording of financial transactions, including analyzing,
journalizing, and posting; the preparation of the trial balance, work sheet and financial statements.
Program Learning Outcome: The goal of this program is to prepare our graduates for their first
position in the field of accounting and to give them the skills to continue to progress throughout
their careers.
Intended Learning Outcome: Students will be able to discuss and describe the purpose of a
company’s basic financial statements along with being able to prepare the basic financial
statements when presented with account balances.
About the Faculty
Name: Marie Ross S. Rodriguez, CPA

School Graduated: Bataan Peninsula State University (2017)
Currently taking Master in Business Administration at Bataan Peninsula State University
Contact Information
Email: marierossrodriguez.bhc@gmail.com
Facebook: rmarieross@yahoo.com
Module 1
Introduction to Accounting
Transaction Analysis
At the end of this module students are expected to:
a. Recognize accounting and explain its role in business;
b. Explain the fundamental accounting concepts and principles;
c. Define the elements of financial statements;
d. Understand the accounting equation and double-entry system;
e. Summarize the rules of debits and credits depending on the account;
f. Describe the nature of typical account title used; and
g. Analyze and state the effect of business transactions on the elements of financial statements
of an entity
FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 1

This module or any portion thereof may not be reproduced, copied, transmitted or
distributed in any manner whatsoever without the express written permission of the College
or the Author.

Introduction to Accounting
Accounting is a service activity. Its function is to provide quantitative information, primarily

financial in nature, about economic entities that is intended to be useful in making economic
decisions. –Accounting Standards Council, 1983
Major Types of Business
1. Service – Selling people’s time, skills and expertise.

2. Merchandising/ Trader – Buy and sell of products.
3. Manufacturing – Converting raw materials to work-in-process to finished goods.
Forms of Business
1. Sole Proprietorship – has only one owner called proprietor.

Receives all profits and shoulders all losses of the business.
Has unlimited liability (when the business cannot pay its liabilities and expenses, the owner
will pay from her personal property.
The proprietor’s personal transactions are separate and distinct from the business’ own
transaction.
2. Partnership – owned by 2 or more persons, called partners, who bind themselves to
contribute money, property, or industry to a common fund.
The profits and loss are divided among owners.
Partners are classified accordingly.
The business is separate and distinct from its owners.
3. Corporation – owners are called stockholders.
Artificial being created by operation of law.
It has the right of succession.
It has powers, attributes and properties expressly authorized by law or incident to its
existence.
Needs 5 to 15 incorporators to form the corporation.
The owners are nor personally liable to the corporation’s debt.

Fundamental Concepts
1. Entity Concept – the business is classified as separate and distinct from other individuals
and businesses. The owners’ personal transactions are separate and distinct from the
business’ own transaction.
2. Periodicity Concept – the life of the business is divided into equal time period for
reporting purposes. The division may be per annum, semi-annual, quarterly or monthly.
3. Stable Monetary Unit Concept – the Philippine peso is a reasonable unit of measure and
its purchasing power is stable.
4. Going Concern – the business will continue its operations up to the foreseeable future
(minimum of 12 months after the reporting period).
When the business does not include of any statement of not continuing its operations, you
are going to assume it is on a going concern basis.
Liquidating concern – the business will not continue its operations.
Criteria for General Acceptance of an Accounting Principle
1. Relevance – results in information that will be useful for the intended users in making
economic decisions.
2. Objectivity – results in information that will not be influenced by bias, judgment and
personal decisions. Objectivity encompasses reliability, trustworthiness and verifiability.
3. Feasibility – the principle will have a greater benefit to us than the costs we will incur in
having that principle.
Basic Principles
Accountants depend on upon the following principles to produce information that will be useful
for the users to have economic decisions.
1. Objectivity – all information generated by accountants came from accounting records and
reliable data. Accountants are fair-and-square in having information. We are not affected
by other persons’ opinion and judgment. No bias.
2. Historical Cost – Purchased asset are recorded at its actual cost. Actual cost is the amount
how much you actually purchase the asset plus other capitalizable cost.

3. Revenue Recognition Principle – Revenues are recorded when earned. Earned means you
already delivered the goods or you already performed/rendered you services.
4. Expense Recognition Principle – expenses are recorded when incurred.
5. Adequate Disclosure – all relevant information that will affect the users’ decision must be
disclosed in the financial statements.
6. Materiality – Accountants focused on the information that is significant to affect
assessment and decisions. However, materiality differs from business to business.
7. Consistency Principle – business should use the same accounting method every financial
reporting. However, this is not absolute. They can change their accounting method if (1)
the new accounting method will be more appropriate to use for the business, (2) it is
required to change.
Fundamental Principles
Accountants are required to observe the following:
1. Integrity – Accountants must do the right thing even if no one is looking.

2. Objectivity – Accountants must not be bias or influence by others to supersede
professional judgments.
3. Professional Competence and Due Care – Accountants must continue to learn in
updating her knowledge and skills.
4. Confidentiality – accountants must not disclosed information she acquired as a result of
professional and business relationship from other parties unrelated to the said relationship.
However, when the accountant is require by law to disclose the said information, she is
required to do so.
5. Professional Behavior – accountants should not have any action that will discredit the
profession.
Branches of Accounting
1. Auditing – external audit is an independent examination of the financial reports before

the users of financial report can use it and make economic decisions.
External audit is conducted by an external auditor, he is an outside party and not an
employee of your business.

2. Bookkeeping – mechanical task which involves the collection of basic financial data.
Accounting is broader than bookkeeping.
3. Cost Bookkeeping, Costing and Cost Accounting
Cost Bookkeeping is the recording of the data of the cost in the books of accounts.
Cost Accounting extracted data from cost bookkeeping for managerial planning and
control.
4. Financial Accounting is all about recording business transactions and preparation of
financial reports. It follows Generally Accepted Accounting Principle (GAAP). Used by
private institutions.
5. Financial Management – all about setting objectives and making plans for the business
on achieving those objectives.
6. Management Accounting – used both financial and non-financial information for the
decisions or use of management.
7. Taxation – Solving of tax payable, preparing tax returns. It is very critical to follow the
laws of taxation. If the business wants to minimize their tax payable, they do not need to
worry because there are legal ways to do so.
8. Government Accounting – all about the transaction of the government agencies which
includes, but not limited to, sources and uses of resources, their collections and
disbursements.
Elements of Financial Statement
From Financial Position
1. Assets – present economic resource controlled by the entity as a result of past events. The
entity has the rights, control, and potential to produce economic benefits.
2. Liability – present obligation of the entity to transfer an economic resource as a result of
past events.
3. Equity – residual interest in the assets after deducting all of its liabilities.
From Financial Performance
4. Income – increase in equity, other than those relating to contributions from owners.
5. Expenses – decrease in equity, other than those resulting to distributions to owners.

Accounting Equation
ASSETS = LIABILITIES + OWNER’S EQUITY
Assets MUST ALWAYS equal total liabilities and owner’s equity.
Double – Entry System ( Debit and Credit )
Account Title
DEBIT CREDIT
When an account is debited it is written on the left side. On the other hand, when an account is
credited it is on the right side.
The normal balance of an account is the side (whether debit or credit) where the account
INCREASES.
Account Title
DEBIT CREDIT Asset accounts’ normal balance is debit, therefore it
ASSETS LIABILITIES increases on debit side.
& EQUITY Liability and Equity* accounts’ normal balance is

credit
Therefore it increases on the credit side.
*Not all equity accounts have credit normal balance.
We also have contra asset accounts, its normal balance is credit side.
DEBIT CREDIT Expense accounts have a debit normal balance.
EXPENSE INCOME Income accounts have credit normal balance.

If the accounts’ normal balance is debit, therefore it increases its balance on the debit side. Then,
it decreases its balance on the other side which is credit.
If the accounts’ normal balance is credit, therefore it increases its balance on the credit side. Then,
it decreases its balance on the other side which is debit.
ACCOUNTING EVENTS
An accountant must analyze first a transaction if it is an accounting event, when we say an

accounting event, it affects the element/s of your financial statements. There are transactions which
are considered as not accountable therefore we will not include that in the preparation of financial
statements.
Types and Effects of Transactions
ASSETS = LIABILTIES + OWNER'S EQUITY

1 Source of Assets (SA) increase increase
increase increase
2 Exchange of Assets (EA) increase and decrease
3 Use of Assets (UA) decrease decrease

decrease decrease
4 Exchange of Claims (EC) decrease increase

increase decrease
increase and decrease
increase and decrease
Typical Accounts Used
Financial Position
Assets
Current Assets
1. Cash – any medium of exchange that is acceptable by the bank.

2. Cash Equivalent – short term, highly liquid investment that is already convertible into cash
and not affected by changes in value. An investment purchased 3 months or less before
maturity.
3. Accounts Receivable – claims against customers arising from the normal course of
operations.
4. Notes Receivable – formal compared with accounts receivable. There is a normal pledge
written by the customer that he will pay on a certain date.
5. Inventories – held for sale in the normal course of operations. Composed of raw materials,
work-in-process and finished goods. Finished goods of an entity may be the raw materials
of other entity.
6. Prepaid Expenses – already paid in advance but not yet incurred.
Non-current Assets
1. Property, Plant and Equipment – tangible assets that will benefit the entity for more than
12 months. Examples are land, building, machinery and motor vehicles.
Accumulated Depreciation – a contra asset account. Total deducted value of property,
plant and equipment from year 1 to year present.
2. Intangible Assets – identifiable, non-monetary assets and non-tangible assets that will
benefit the entity for more than 12 months.
Liabilities
Current Liabilities
1. Accounts Payable – the seller agreed that we will pay him in the near future.
7. Notes Payable - formal compared with accounts payable. There is a normal pledge written
by us that we will pay on a certain date.
2. Accrued Liabilities – Expenses already incurred but not yet paid.
3. Unearned Revenues – the client already pay for the performance of our services or delivery
of goods but we are not yet giving our service or delivering our goods to them.
4. Current Portion of Long-Term Debt – this is a portion of a long-term debt which is payable
within 12 months after the reporting period.

Non-Current Liabilities
1. Mortgage Payable – a long term debt wherein the entity has pledged asset/s as collateral to
the creditor.
2. Bonds Payable – the entity borrowed money to finance the acquisition of assets. They
obtain these by issuing bonds.
Owner’s Equity
1. Capital Beginning Investment Income

+ Additional investments Less: Expenses
+ Profits
- Loss Profit/(Loss)
- Withdrawals
Ending Capital
2. Withdrawals – advanced distribution of profit.

3. Income Summary – a temporary account used to close income and expense accounts.
Financial Performance
Income
1. Service Income – revenues earned by rendering/performing services.

2. Sales – revenues earned by delivering of goods.
Expense
1. Cost of Sales / Cost of Goods Sold – cost used in purchase or produce your goods.
2. Salaries / wages Expense – all payments made by the employer to the employee due to
their employee-employer relationship.
3. Utilities Expense – expense of telecommunications, water, electricity and gas.
4. Rent Expense – expense for space occupied.
5. Supplied Expense – used supplies of the entity.

6. Insurance Expense – expired or used portion of premium paid.
7. Depreciation Expense – deducted value of a property, plant and equipment for a specific
period.
8. Uncollectible Accounts Expense/Bad Debts Expense/Doubtful Accounts Expense –
portion of your receivable that is doubtful as to collection.
9. Interest Expense – expense you incurred when you borrowed money.
Transaction Analysis
Name of the business: Bataan Heroes College
Name of the proprietor: Amirah Victorio
Transactions:
1. Amirah deposited P1,000,000 in Bataan Philippine Island (BPI) Bank in the name of
Bataan Heroes College.
Accounts Classification Effect Side in the Amount

Affected based on what Double-entry
Element of FS system
Cash Asset Increase Debit P1,000,000
Victorio, Capital Equity Increase Credit P1,000,000
Type of Transaction SA
2. Purchased equipment, P60,000.

Cash Asset Decrease Credit P60,000
Equipment Asset Increase Debit P60,000
Type of Transaction EA
3. Purchased equipment on account, P10,000.

Accounts Liability Increase Credit P10,000
Payable
Equipment Asset Increase Debit P10,000
4. Paid rent in advance, P25,000.

Prepaid Expense Asset Increase Debit P25,000
5. Received P50,000 from a client for services already performed.

Cash Asset Increase Debit P50,000
Service Revenue Income Increase Credit P50,000
6. Received P50,000 from a client for services not yet rendered.

Unearned Liability Increase Credit P50,000
Revenue

7. Rendered services worth P5,000 for a client who already paid in the past.

Unearned Liability Decrease Debit P5,000
Revenue
Service Revenue Income Increase Credit P5,000
Type of Transaction EC
8. Paid salaries, P8,000.

Salaries Expense Expense Increase Debit P8,000
Type of Transactions UA
9. Received telecommunication bill but did not pay, P25,000.

Utilities Payable Liability Increase Credit P25,000
(Accrued
Liability )
Utilities Expense Expense Increase Debit P25,000
Type of Transaction EC
10. Sold equipment, P25,000.

Equipment Asset Decrease Credit P25,000
11. Sold equipment on credit, P25,000.

Accounts Asset Increase Debit P25,000
Receivable
Equipment Asset Decrease Credit P25,000
12. Amirah withdrew P10,000 from the business for personal use.

Amirah, Equity Increase Debit P10,000
Withdrawals
Type of Transaction UA
13. Victoria withdrew P10,000 worth of supplies from the business for personal use.
Accounts Affected Classification based Effect Side in the Double- Amount

on what Element of entry system
FS
NOT
ACCOUNTABLE

14. Ordered P10,000 worth of furnitures and fixture.

FS
NOT
ACCOUNTABLE
15. Hired two accountants. Each accountant will have P35,000 monthly salary.

FS
NOT
ACCOUNTABLE
16. Paid salaries of two employees, P8,000 each.

Type of Transactions UA
17. Salary of the five employees of the entity is P50,000 in total. It is proposed that two of
them will have an increase by P5,000 each. The entity paid employees salary.


18. The customer purchased supplies by issuing a promissory note, P50,000.

Notes Receivable Asset Increase Debit P50,000
Supplies Asset Decrease Credit P50,000
19. Purchased supplies worth P100,000 by issuing a promissory note.

Notes Payable Liability Increase Credit P100,000
Supplies Asset Increase Debit P100,000
20. Paid utilities expense previously billed, P10,000.

Utilities Payable Liability Decrease Debit P10,000
(Accrued
Liability)

ASSESSMENTS:
Assessment # 1
Account Title Element of FS Classification as to Normal Balance Decreases in what side? Increases in what side?
Current, Non-Current or N/A?
1 Cash
2 Accounts Payable
3 Capital
4 Sales
5 Rent Expense
6 Prepaid Expense
7 Accrued Liability
8 Unearned Revenue
9 Accumulated Depreciation
10 Building
11 Salaries Expense
12 Cost of Sales
13 Withdrawals
14 Service Income
15 Bonds Payable
16 Accounts Receivable
17 Notes Payable
18 Depreciation Expense
19 Prepaid Rent
20 Salaries Payable
Assessment # 2
Answer the table below each transaction.
Kayl Ann is a Certified Public Accountant with an accounting firm named Ann Accounting Firm.
The following are the transactions of the entity for the month of April 2020.
April 1 Ann invested additional P500,000 in MetroBanko Bank in the name of Ann Accounting
Firm.
Classification based Side in the
Accounts Affected on Element Effect Double-Entry Amount Type of Transaction
of FS System
April 2 Ann withdrew P10,000 from the business for his family’s personal use.

of FS System
April 2 Sold the old furnitures and fixtures at its book value worth P100,000 on account. The entity
received 50% down payment and a promissory note for the balance to be paid on a certain date.
of FS System
April 3 Issued a promissory note for a land, P600,000.

of FS System
April 5 Received P10,000 each from 5 clients for accounting services to be rendered soon.
of FS System
April 7 Paid 3 months premium on insurance, P30,000.

of FS System
April 8 Purchased supplies for Ann’s sibling worth P500.

of FS System
April 9 Received water and electricity bill but did not pay, P2,000.
of FS System
April 10 Rendered 3 of the services for clients paid in advance on April 5.

of FS System
April 13 Received P20,000 from new clients for services rendered.

of FS System
April 15 The entity has 6 accountants with a total of P120,000salary. The salary of the three
accountants will increased by 15,000 each starting this payroll. The entity paid salaries of the
employees.
of FS System
April 17 Received 40% of payment from the balance of old furnitures and fixtures sold.

of FS System
April 18 Used P5,0000 supplies.

of FS System
April 19 Rendered services to a client but the client is not yet paid, P30,000.
of FS System
April 21 Bought machinery worth P70,000 on credit.

of FS System
April 25 The client paid from the services rendered on April 19.
of FS System
April 26 Performed half of the remaining services from April 5’s transaction.
of FS System

April 27 Paid rent in advance, P45,000.
of FS System
April 30 Paid the accountants’ salary.

of FS System

Reference:
Win Ballada, (2019). Basic Financial Accounting and Reporting. Manila, Philippines: DomDane
Publishers

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FINANCIAL ACCOUNTING AND REPORTING

About the Faculty

Name: Marie Ross S. Rodriguez, CPA

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 1

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 2

Accounting is a service activity. Its function is to provide quantitative information, primarily

Major Types of Business

1. Service – Selling people’s time, skills and expertise.

1. Sole Proprietorship – has only one owner called proprietor.

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 3

Criteria for General Acceptance of an Accounting Principle

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 4

Accountants are required to observe the following:

1. Integrity – Accountants must do the right thing even if no one is looking.

1. Auditing – external audit is an independent examination of the financial reports before

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 5

Elements of Financial Statement

From Financial Position

From Financial Performance

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 6

ASSETS = LIABILITIES + OWNER’S EQUITY

Assets MUST ALWAYS equal total liabilities and owner’s equity.

Double – Entry System ( Debit and Credit )

DEBIT CREDIT Asset accounts’ normal balance is debit, therefore it

ASSETS LIABILITIES increases on debit side.

& EQUITY Liability and Equity* accounts’ normal balance is

Therefore it increases on the credit side.

*Not all equity accounts have credit normal balance.

DEBIT CREDIT Expense accounts have a debit normal balance.

EXPENSE INCOME Income accounts have credit normal balance.

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 7

An accountant must analyze first a transaction if it is an accounting event, when we say an

Types and Effects of Transactions

ASSETS = LIABILTIES + OWNER'S EQUITY

2 Exchange of Assets (EA) increase and decrease

3 Use of Assets (UA) decrease decrease

4 Exchange of Claims (EC) decrease increase

Typical Accounts Used

1. Cash – any medium of exchange that is acceptable by the bank.

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 8

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 9

1. Capital Beginning Investment Income

2. Withdrawals – advanced distribution of profit.

1. Service Income – revenues earned by rendering/performing services.

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 10

Name of the business: Bataan Heroes College

Name of the proprietor: Amirah Victorio

Accounts Classification Effect Side in the Amount

2. Purchased equipment, P60,000.

Accounts Classification Effect Side in the Amount

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 11

4. Paid rent in advance, P25,000.

Accounts Classification Effect Side in the Amount

5. Received P50,000 from a client for services already performed.

Accounts Classification Effect Side in the Amount

6. Received P50,000 from a client for services not yet rendered.

Accounts Classification Effect Side in the Amount

FINANCIAL ACCOUNTING AND REPORTING \\MARIE ROSS S. RODRIGUEZ, CPA 12

Accounts Classification Effect Side in the Amount

8. Paid salaries, P8,000.

Accounts Classification Effect Side in the Amount

9. Received telecommunication bill but did not pay, P25,000.

Accounts Classification Effect Side in the Amount

10. Sold equipment, P25,000.