GRADE 11-ABM Topics

Coverage of Topics---●
1. Introduction to FABM 1
1.1 Definition of Accounting
1.2 Nature of Accounting
1.3 History of Accounting
1.4 Branches of Accounting
1.5 Forms of Business Organization
1.6 Types of Organizatuon
2. The 11 Accounting Principles
3. The Debit-Credit Rule
3.1 Assets
3.2 Liabilities
3.3 Capital
3.4 Drawing
3.5 Revenue or Income
3.6 Expenses
4. The Five Major Accounts
Topic 1.1: Definition of Accounting ●
Accounting
- is the process of identifying, recording, and communicating economic events of an organization to
interested users.
Identifying
- this involves selecting economic events that are relevant to particular business transactions.
Recording
- this involves keeping or chronological diary of events that are measured in pesos. The diary referred
to in the definition are the journals and ledger.
Communicating
- occurs through the preparation and distribution of financial and other accounting reports.
Topic 1.2: Nature of Accounting●
• Accounting is a service activity
• Accounting is a process
• Accounting is both an art and discipline
• Accounting deals with financial information and transactions.
• Accounting is an information system.
●Topic 1.3: Function of Accounting in Business●
Accounting is the means by which business information is communicated to business owners and
stakeholders. The role of accounting in business is to provide information for managers and owners
to use in operating the business. In addition, information allows business owners to assess the
efficiency and effectiveness of their business operations.
●Topic 1.4: History of Accounting●
• The Craddle Civilization "CLAY TABLET" of Mesopotamia
- Around 3600 B.C., record-keeping was already commmon from Mesopotamia, China and India to
Central and South America. The oldest evidencr of this practice was the "Clay Tablet" of
Mesopotamia which dealt with commercial transactions at the time such as listing of accounts
receivable and accounts payable.
Take note: The event here is Craddle Civilization of Mesopotamia and the important thing happened
on that year is the discovery of Clay Tablet.
• 14th Century - Double Entry Bookkeeping
- The most important event in accounting history is generally considered to be the dissemination of
double entry bookkeeping by Luca Pacioli, in 14th century Italy. The Italians of the 14th to 16th
centuries are widely acknowledged as the fathers of modern accounting and were the first to
commonly use Arabic numerals, rather than Roman, for tracking business accounts. Luca Pacioli
wrote Summa de Arithmetica, the first book published that contained a detailed chapter on double-
entry bookkeeping.
Take note: Luca Pacioli is the father of modern accounting. He writes the book Summa de
Arithmetica where clearly defined the double-entry bookkeeping.
• French Revolution (1700s)
- The thorough study of accounting and development of accounting theory began during this period.
Social upheavals affecting government, finances, laws, customs and business had greatly influenced
the development of accounting.
• The Industrual Revolution (1760-1830)
- Mass production and the great importance of fixed assets where given attention during this period.
• 19th Century - The Beginnings of Modern Accounting in Europe and America
- The modern, formal accounting profession emerged in Scotland in 1854 when Queen Victoria
granted a Royal Charter to the Institute of Accountants in Glasgow, creating the profession of the
Chartered Accountant (CA).
●Topic 1.5: Branches of Accounting● - Accounting is divided into several branches to better serve
the needs of different users with varying information needs. • Financial Accounting - this is the
broadest branch and focused and focused on the needs of external users. - concerned with processing
historical data. Examples: The Balance Sheets Income Statement Statement of Cash flow
Government Investors • Management Accounting - Emphasizes the preparation and analysis of
accounting information within organization. - to provide timely and relevant information on for those
internal users such as managers and employees in their decision making. Example: Cost Analysis
Plans to open up branches Customer list • Government Accounting - The process of recording,
analyzing, classifying, summarizing, communication and interpreting financial information about the
government in aggregate and in details reflecting transactions and other economic events involved
receipt, spending, transfer, usability and disposition of assets and liabilities. • Auditing TYPES OF
AUDITING *External Auditing refers to the examination of financial statement by an independent
CPA with the purpose of expressing an opinion as to fairness of presentation and compliance with
the generally accepted accounting principles. *Internal Auditing deals with determining the
operational efficiency of the company regarding the protection of the company's assets. • Tax
Auditing - Helps client follow rules by tax authorities. It includes tax planning and preparation of tax
returns. • Cost Accounting - It is very useful in manufacturing business since they have the most
complicated costing process. • Accounting Education - This branch of accounting deals with
developing future accountants, by creating relevant accounting curriculum. • Accounting Research -
Focuses on the search of new knowledge on the effect of economic event on the process of
summarizing, analyzing, verifying and reporting standardized financial information.
●Topic 1.6: Forms of Business Organizations●
• Sole Proprietorship or Single Business
- The most common form of business organizations.
Example:
Sari-sari Store
Computer Shop
• Partnership
- A form of business owned by two or more person. The details of the arrangement between the
partners are outlined in a written document called articles of partnership.
• Corporation
- Is a business organized as a separate legal entity under the corporation law with ownership divided
into transferable shares of stocks.
• Cooperatives
- Is a duly registered association of person with a common bond of interest, voluntarily joining
together to achieve their social, economic, and cultural needs.
●Topic 1.7: Types of Business Organization●
• Service Business
- This type of business offers professional skills advise and consultations.
Examples:
Barber Shop
Beauty Parlor
Repair Shop
Banks
• Merchandising Business
- This type of business buys at wholesale and later sells the products at retail. They make a profit by
selling prices that are higher than their purchases costs. This type of business is also known ad "buy
and sell".
Examples:
Bookstore
Sari-sari store
Hardware store
• Manufacturing Business
- This busineds buys raw materials and uses them in making a new product, therefore combining raw
materials, labour and expenses into a product for sale later on.
Examples:
Shoe manufacturing business
Car manufacturing business
●Topic 2.1 to 2.11: Accounting Principles● ●Business Entity Principle - a business enterprise is
seperate and distinct from its owner or investor. Example: If the owner has a barber shop, the cash of
the barber shop should be reported separately from personal cash. ●Going Concern Principle -
business is expected to continue indefinitely. Example: When preparing financial statements, you
should assume that the entity will continue indefinitely. ●Time Period Principle - financial
statements are to be divided into specific time intervals. Example: Philippine companies are required
to report financial statements annually. ●Monetary Unit Principle - amounts are stated into a single
monetary unit. Example: Jollibee should report financial statements in pesos even if they have a store
in the United States. ●Objectivity Principle - financial statements must be presented with supporting
evidence. Example: When the customet paid Jollibee for their order, Jollibee should have a copy of
the receipt to represent as evidence. ●Cost Principle - accounts should be recorded initially at cost.
Example: When Jollibee buys a cash register, it should record the cash register at its price when they
bought it. ●Accrual Accounting Principle - revenue should be recognized when earned regardless of
collection and expenses should be recognized when incurred regardless of payment. Example: When
a barber finishes performing his services, he should record it as revenue or income. When the barber
shop receives an electricity bill, he should record it as an expense even if it is unpaid. ●Matching
Principle - cost should be matched with the revenue generated. Example: When you provide tutorial
services to a customer and there is a transportation cost incurred related to the tutorial services, it
should be recorded as an expense for that period. ●Disclosure Principle - all relevant and material
information should be reported. Example: The company should report all relevant information.
●Conservatism Principle - also known as "prudence". In case of doubt, assets and income should not
be overstated while liabilities and expenses should not be understated. Example: In case of doubt,
expenses should be recorded at a higher amount. Revenue should be recorded at a lower amount.
●Materiality Principle - in case of assets that are immaterial to make a difference in the financial
statement, the company should instead record it as an expense. Example: A school purchased an
eraser with an estimated useful life of three years. Since an eraser is immaterial relative to assets, it
should be recorded as an expense.
●Topic 3.1 to 3.6: The Debit-Credit Rule●
●Assets
If asset increased, it will be considered Debit.
If asset decreased, it will be considered Credit.
The normal balance must be Debit.
●Liability
If liability increased, it will be considered Credit.
If liability decreased, it will be considered Debit.
The normal balance must be Credit.
●Capital
If capital increased, it will be considered Credit.
●Drawing
If drawing increased, it will be considered Debit.
The normal balance must be Debit.
●Revenue or Income
If revenue or income increased, it will be considered Credit.
The normal balance must be Credit.
●Expense
If expense increased, it will be considered Debit.
The normal balance must be Debit.
Take note: Capital, Drawing, Revenue or Income, and Expense is always increasing. There is no such
thing of decreasing.
●Topic 4.1: Definition of Each Major Account●
• Assets - are the resources owned and controlled by the firm.
• Liabilities - are obligations of the firm arising from the past events which are to be settled in the
future.
• Equity or Owner's Equity - are the owner's claims in the business. It is the residual interest in the
assets of the enterprise after deducting all its liabilities.
• Revenue or Income - is the increase in economic benefits during the accounting period in the form
of inflows of cash or other assets or decreases of liabilities that result in increase in equity.
• Expenses - are decreases in economic benefits during the accounting period in the form of assets or
incidences of liabilities that result in decreases in equity.
●Topic 4.2: Different Types of Assets●
• Current Assets are assets that can be realized (collected, sold, used up) one year after year-end date)
• Non-Current Assets are assets that cannot be realized (collected, sold, used up) one year after year-
end date.
• Tangible Assets are physical assets such as cash, supplies, and furniture & fixtures.
• Intangible Assets are non-physical assets such as patents and trademarks.
●Topic 4.3: Account Titles used for Asset Account●
○ Current Assets
• Cash is money on hand, or in banks, and other items considered as medium of exchange in business
transactions.
• Accounts Receivable are amounts due from customers arising from credit sales or credit services.
• Notes Receivable are amounts due from clients supported by promissory notes.
• Merchandise Inventories are assets held for resale.
• Supplies or Supplies Unused are items purchased by an enterprise which are unused as of the
reporting date.
• Prepaid Expenses are expenses paid in advance. They are assets at the time of payment and become
expenses through the passage of time
○ Non-Current Assets
• Furniture and Fixtures it includes tables, chairs, showcase, counters, and other similar assets owned
and used by the business in its operation.
• Equipment it includes computers, calculators, cash registers, and other similar assets.
• Automobile includes assets used for transporting merchandise.
• Land owned by the business used for building sites and other business purposes.
• Building owned and used by the business in its operation.
●Topic 4.4: Different Types of Liabilities●
• Current Liabilities are liabilities that fall due (paid, recognize as revenue) within one year after
year-end date.
• Non-Current Liabilities are liabilities that do not fall due (paid, recognized as revenue) within one
year after year-end date.
●Topic 4.5: Account Titles used for Liabilities Account●
○ Current Liabilities
• Accounts Payable are amounts due, or payable to suppliers for goods purchased on account or for
services received on account.
• Notes Payable are amounts due to third parties supported by promissory notes.
• Unearned Income is cash collected in advance; the liability is the services to be performed or goods
to be delivered in the future.
• Salaries Payable are unpaid salaries of the employees at the end of the accounting period.
• Taxes Payable are present obligation due to the government.
○ Non-Current Liabilities
• Loans Payable differs from accounts payable in that. Accounts payable do not charge interest unless
payment is late, and are typically based on the goods or services acquired.
• Mortgage Payable is the liability of a property owner to pay a loan that is secured by property.
• Interest Payable are interests incurred mounted from the loan incurred but unpaid at the end of the
period.
●Topic 4.6: Accounts Title used for Capital Account●
• Owner's Equity is the residual interest of the owner from the business. It can be derived by
deducting liabilities from assets.
• Owner's Drawing is an account debited for assets withdrawn by the other for personal use from the
business.
●Topic 4.7: Account Titles used for Income/Revenue Account●
• Sales is the total of merchandise sold.
• Service Income or Service Revenue is the amount of income earned for service rendered by as
service concern.
• Professional Fees is the amount earned by the professionals such as CPAs, doctors, lawyers, etc. for
services they rendered.
• Rent Income is the amouny of rental earned for the period.
• Interest Income amount earned for lending money.
●Topic 4.8: Account Titles used for Expense Account●
• Cost of Sales is the cost of goods purchased and sold or materials manufactured and sold.
• Advertising Expense ie incurred to promote the product of the business.
• Salaries Expense it is the compensation given to the workers.
• Travelling Expense it is the travelling allowance given to sales agents.
• Supplies Expense amount of supplies used.
• Taxes Expense duties incurred in the current period.
• Utilities Expense amount of power/light and water consumed by the business. This also include the
telephone bill, etc.
• Repairs and Maintenance expenses incurred for repairing the assets of the business.
• Bad Debts or Uncollectible Account Expense is the estimated amounts of losses from uncollectible
accounts of the business.
• Depreciation Expense is the allocated cost of fixed assets in the current period.
• Rent Expense expenses that have been use for rent.