Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL
1st Periodical Examination in Fundamentals of Accountancy, and Business
Management 1 Reviewer
INTRODUCTION TO ACCOUNTING
Accounting
- The art of identifying, recording, classifying, and
summarizing in a significant manner in terms of
money.
- Considered as an art because it requires creative
judgement, skills, discipline, and training
COMPONENTS/ FUNCTIONS OF ACCOUNTING
1. Identifying (of business transactions and
events)
• involves selecting economic events that are
relevant to a particular business transaction.
transactions – the economic
events at an organization
• Transaction and events are generally
supported by documentary evidences of
proofs like sales transactions supported by
sales invoice together with delivery receipts
2. Recording (in the books of accounts)
• the process of making records of all the
transactions that the business made in a
certain period of time
Accounting chronologically records
transactions in the accounting journal
Journal is called the “book of original
entry”
3. Summarizing
• the process that involves grouping of various
accounts
• the classifying process where the accounts
are grouped into assets, liabilities, owner’s
equity, revenue, cost, and expenses.
4. Reporting
• the process of preparing the balance sheets,
income statements, and cash flow to show
the company investors where the invested
money is going
5. Analyzing
• the process of drawing out both the positive
and negative points so that the financial
performance of the company will be
improved.
COMPONENTS OF FINANCIAL SHEET
1. Balance Sheet
• Reports the financial position of the business
at a particular period of time
• Consists of the assets, liabilities, and capital
2. Income Statement
• Reports the financial performance of a
business over a period of time
• Consists of the revenue and expenses
3. Statement of Owner’s Equity
• Shows the changes in the capital or owner’s
equity as a result of additional investments
or withdrawals by the owner, plus or minus
the net income or net loss for the year
4. Statement of Cash Flows
• Summarizes the cash receipts and cash
disbursements for the accounting period
• Shows the net increase or decrease of cash
in a given period and the balance at the end
of the period
Nature of Accounting
ELEMENTS OF A BALANCE SHEET
1. Assets
• Probable future economic benefits obtained
or controlled by a particular entity as a result
of post transactions or events
• The property and rights of value owned by
the business
2. Liabilities
• Probable future sacrifices of economic
benefits
• Include debts, obligations to pay, and claims
of the creditors on the assets of the business
3. Owner’s Equity
• Residual interest in the assets of an entity
that remains after deducting its liabilities
Income Statement
• Captures revenue, expenses, and net
income over a period of time
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL
ELEMENTS OF AN INCOME STATEMENT
1. Revenue
• Monetary compensation given to the
organization in exchange for goods and
services provided
2. Expenses
• Cost incurred by the organization in
providing the goods and services to its
customers
3. Net Income/ Loss
• Difference between income and expense
depending on which is greater
Cash Flow Statement
• Shows how changes in balance sheet
counts, how income affects cash and cash
equivalents, and breaks the analysis down to
operating, investing, and financing activities
Difference Between Accounting and Bookkeeping
- Accounting is broader since it includes the
bookkeeping function.
- Bookkeeping is confined with the recording of
monetary transactions which is part of the
accounting process.
- Bookkeeping is responsible for the recording of
the financial transactions whereas Accounting is
for the interpreting, classifying, analyzing,
reporting, and summarizing the financial
documents.
Brief History of Accounting
• The Cradle of Civilization (3600 B.C.)
Clay tablets were used in keeping
account records
• Double-entry Bookkeeping (14th Century)
Double-entry bookkeeping (debit,
credit) was disseminated by Luca
Pacioli, “The Father of Accounting”
• French Revolution (1700)
Development of accounting theory
began during this period
• The Industrial Revolution (1760-1830)
Fixed assets and mass production
were given importance
• The Beginnings od Modern Accounting in
Europe and America (19th Century)
Modern accounting in America and
Europe began
• The Present (20th Century)
Development in the accounting
profession was developed.
External and Internal Users of Accounting
Information
EXTERNAL USERS
• Individuals or organizations outside the company
who are not involved in operating the business
1. Creditors
• Users who need accounting information
to determine the credit integrity,
worthiness of the organization, and
credit terms
2. Tax Authorities (Bureau of Internal Revenue)
• A government agency that verifies the
accuracy of financial data to ensure the
credibility of the tax returns filed by the
business.
3. Investors
• Users who need accounting information
to evaluate and examine the feasibility of
investing in a company
4. Customers
• Users who evaluate the financial
information of its supplier to keep stable
source of supply in the long-term
5. Regulatory Authorities
• Government agencies like Securities
and Exchange Commission (SEC),
Department of Trade and Industry (DTI),
and Department of Labor and
Employment (DOLE) were established
to supervise if businesses comply with
legal requirements in running one.
INTERNAL USERS
• Individuals inside the organization who plan,
organize, and run the business
• Directly involved in managing and operating
the business
• Also called “primary users” of accounting
information
1. Management
• To know the income/ earnings for the period,
sales, available cash, and production cost
are the reasons why the management needs
the accounting information
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL

• They analyze the organization’s performance In Cash Basis Principle, revenue is

and position and take appropriate measures logged when collected, and expenses
to improve the company results should be recorded when paid.
2. Employees 8. Matching Principle
• They use financial information as factor to • Cost should be matched with the revenue
consider in staying in employment or to look generated
for other employment opportunities • The expenses incurred during a period
3. Owners should be recorded in the same period in
• They use financial information to know the which the related revenues are earned
profit or income for the period, resources, or 9. Disclosure Principle
assets of the business • All relevant information should be reported in
this principle for transparency
THE ACCOUNTING DOCTRINE 10. Conservatisim Principle
• A.k.a. “prudence”
Accounting Concepts and Principles • Assets and income should not be overstated
• GAAP – Generally Accepted Accounting while liabilities and expenses should not be
Principles understated
• In case of doubt, expenses should be
1. Business Entity Principle recorded at a higher amount; revenue should
• There is a separation and distinction of be at a lower account
transaction between the business and its 11. Materiality Principle
owners • Includes all assets that are immaterial to
2. Going-Concern Principle make a difference in the financial statements
• The business is expected to continue which the company should record as an
indefinitely expense
3. Time Period Principle
• The financial statements are usually divided THE ACCOUNTING EQUATION
into specific time intervals
• The business should report the financial A = L + OE
statements appropriate to a specific period Where: A – assets
4. Monetary Principle L – liabilities
• Any amount invested in the business is OE – owner’s equity
stated into a single monetary unit
5. Objectivity Principle Four (4) Elements that Affect Equity
• Financial statement must be presented with 1. Investment
supporting solid evidence - An asset or item acquired with the goal of
• The intent is to keep the management and generating income or appreciation
the department of accounting from making 2. Withdrawal
financial statements that are affected by their - Occurs when funds are removed from an
opinions or biases account for personal use
6. Cost Principle 3. Revenue
• Accounts should be recorded initially at cost - The total amount of income generated by the
as well as assets and their respective cash sale of goods or services
amounts at the time the asset was 4. Expenses
purchased. - The cost of operations that a company incurs to
7. Accrual Accounting Principle generated revenue
• Revenue should be recognized when earned
regardless of collection Note:
• Expenses should be recorded when incurred - Investment and Revenue will cause an
regardless of the payment INCREASE in Owner’s Equity.
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL

- Withdrawal and Expenses will cause a Debits = Credits

DECREASE in Owner’s Equity.
• Assets have a normal debit balance.
To maintain this equation, transactions affecting • Liabilities and Equity have normal credit
financial position accounts may have the following balances.
effects:
THE CHART OF ACCOUNTS
1. Increase in A = Increase in OE
Five Major Accounts
Ex: (Assets invested by the owner)
July 1 – Sandy Dela Cruz started a catering Assets
business. She invested Php 800,000.00 cash and car • The resources owned and controlled by the firm.
amounting to Php 200,000.00 • There are two (2) classifications of assets:
Current Assets
2. Increase in A = Increase in L Non-Current Assets

Ex: (Assets purchased on account) A. Current Assets

July 7 – Various equipment were purchased on • Assets that can be collected, sold, and even
account from Masigasig Trucking Services for Php used even up to one year after year-end
55,000.00 date.

3. Increase in one A = Decrease in another A Examples of Current Assets

(No Effect in Total Assets) 1. Cash
• Money on hand, in banks, and other items
Ex: (Assets purchased in cash) considered as a medium of exchange in
July 10 – Sandy bought tables and chairs from business transactions.
Matibay Furnitures and paid Php 45,000.00 in cash. 2. Accounts Receivable
• Amounts due from customers arising from
4. Decrease in A = Decrease in L debts, credit sales, or credit services.
3. Notes Receivable
Ex: (Payment of Liability) • Amounts due from clients supported by a
July 15 – The account due to Masigasig Trucking written note or promise.
Services was paid in cash. 4. Inventories
• Assets held for resale in the course of the
5. Decrease in A = Decrease in OE business.
5. Supplies
Ex: (Cash withdrawal by the owner) • Items purchased by an enterprise that is
July 18 – Sandy Dela Cruz made a withdrawal of unused as of the reporting date.
Php 5,000 for her personal use. 6. Prepaid Expenses
• Advance payment for expenses.
6. Increase in L = Decrease in OE 7. Accrued Income
• Income or revenue earned by the firm but
Ex: (Accrual of expenses) not yet collected.
July 20 – Yola company billed Sandy for Php 8. Short-term Investments
25,000.00 for the ads. Sandy will pay next month. • Investments made by the company that is
intended to be sold immediately.
Five major accounts will be affected when you
increase or decrease the account. An increase or B. Non-Current Assets
decrease signifies a debit or credit. • Assets that cannot be collected, sold, and
even used even up to one year after year-
end date.
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL
Examples of Non-Current Assets
1. Land
• Real property owned and in use in the
normal operations of business.
2. Building
• Physical structure on land. These are used
in business.
3. Accumulated Depreciation – Building
• Cumulative part of the cost of the building
that has been recognized as expense.
4. Property, Plant, and Equipment
• Long-lived assets that have been acquired
for use in operations.
Accumulated Depreciation –
Equipment
5. Accumulated Depreciation – Building
• The investments of the firm made for long-
term purposes.
C. Tangible Assets
• Physical assets in the form of cash, furniture
and fixtures, and supplies.
D. Intangible Assets
• Non-physical assets in the form of
trademarks and patent.
Liabilities
A. Current Liabilities
• Those that reach its due date for payment
(paid, recognized as revenue) within one
year after year-end date.
Examples of Current Liabilities
1. Accounts Payable
• Amounts due or debts to the suppliers for
goods purchased or for services received on
account.
2. Notes Payable
• Amounts due to third parties supported by a
written note or promise.
3. Accrued Expenses
• Treated as liabilities since these are the
expenses that are incurred but not yet paid.
4. Unearned Income
• Cash or payment collected in advance.
B. Current Liabilities
• Those that do not reach its due date for
payment (paid, recognized as revenue)
within one year after year-end date.
Examples of Non-Current Liabilities
1. Loans Payable
• Contract wherein the owner of the property
gives the right to use it to another party in
exchange for an interest payment and gives
back the property at the end of their contract.
2. Mortgage Payable
• The liability of a property owner to pay a loan
that is secured by a property.
Equity or Owner’s Equity
• The owner’s claims in the business.
• Part of the total assets that the owners of the
company fully own.
• There are two (2) important elements that
comprise the equity:
Owner’s Capital
Owner’s Drawing
A. Owner’s Capital
• From investments
• The worth of cash and other assets invested
in the business.
B. Owner’s Drawing
• From withdrawals
• An account debited for assets withdrawn by
the owner from the business for personal
use.
Revenue or Income
• The money that the company earns from its
regular sales of products or services.
• Earned by the company through sales of
products or service.
Examples of Income Accounts
1. Service Revenue for service entities
2. Sales for merchandising and manufacturing
companies
3. Interest Income
Expenses
• The money that the company spends to produce
the goods or services it sells.
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL

Examples of Expense Accounts EXAMPLE OF A CHART OF ACCOUNTS

1. Cost of Sales/ Cost of Services
• The direct cost of the products sold for the Masigasig Trucking Services
services rendered by the entities. Chart of Accounts
2. Salaries/ Wages Expense Account Code Account Title
• Salaries for services rendered by the Assets
employees. Current Assets
3. Interest Expense 101 Cash
• Interest on debts or monetary obligations. 102 Accounts Receivable
4. Utilities Expense 103 Notes Receivable
• Includes water and electricity used. Non-current Assets
5. Transportation Expense 109 Land
• For the trips and travels. 110 Building
• Cost of gasoline and oil used for company Liabilities
vehicles 201 Accounts Payable
6. Communication Expense 202 Accrued Expenses
• For telephone and Internet. 203 Income Tax Payable
7. Depreciation Expense Owner’s Equity
• The portion of the cost of building and 301 Owner’s Capital
equipment allocated to one accounting
302 Owner’s Drawing
period.
Revenues
8. Representation Expense
401 Sales
• Amount paid to restaurants, hotels for
Expenses
treating customers, and others.
501 Salary/Wages Expense
9. Repairs and Maintenance Expense
Taxes and Licenses
10. Tax and Licenses Expense 502
Expense
503 Transportation Expense
The Chart of Accounts
• A listing of accounts used by companies in
their financial records THE BOOKS OF ACCOUNTS

STEPS IN PREPARING A BASIC CHART OF Books of Accounts

ACCOUNTS: • Comprise of every single business
1. Make two (2) columns. transactions and financial information of a
2. Prepare the assets, liabilities, equity, revenue, company.
and expenses respectively. • Set of books used by accountants to record
3. List all assets, liabilities, equity, revenue, and transactions and events that are financial in
expenses in the first column. nature.
4. In the second column, choose an account code
(this may vary depending on the company). Two (2) Types of Books of Accounts
5. In the third column, write the description of each 1. Journal
account title. • “book of original entry”
• It is where you can find the initial
transactions of a firm
• A chronological record of company’s
transactions listed by date
Journalizing – entering transactions in
the journal
2. Ledger
• “book of final entry”
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL

• Contains the total or balance of each TWO TYPES OF JOURNAL

account A. General Journal
Posting – the process of recording in • The most basic journal composed of spaces
the ledger for dates, account titles and explanations,
references, and two columns for the amount.
Journalizing Process
• The date of the transaction is entered in the Date B. Special Journal
column. • Designed for recording specific types of
• The debit account title or the account to be transactions of a similar nature.
debited is entered at the extreme left margin of Cash Receipts Journal
the Account Titles and Explanation column, Cash Disbursement Journal
and the amount of debit is to be recorded in the Purchase Journal
Debit column. Sales Journal
• The credit account title or the account to be
credited is entered in the next row in the column 1. Cash Receipts Journal
of Account Titles and Explanation. The • Records all cash collections
amount of the credit is recorded in the Credit • Ex:
column. Sales of merchandise in cash
• A short explanation of the transaction appears on Collections from customer’s
the line below the credit account title or the accounts
Description column. • Official Receipts or Cash Receipts issued
• Add a space between every journal entry to by the business is the source document for
make the reading of the journal easy. this journal.
• The column titled P.R., known as Posting 2. Cash Disbursement Journal
Reference is left blank when the journal entry is • Record all cash payments
made. This column will be used when the journal • Ex:
entries are transferred to the ledger accounts. Purchase of raw materials in cash
Purchase of merchandise in cash
Simple Entry – there are only 2 accounts: 1 debit and 1 Payment of expenses and
credit obligations
EXAMPLE: 3. Purchase Journal
Date
Account Title and
P.R. Debit Credit • Records all merchandise bought on account
Explanation
10/01/19 Cash 300,000
• Ex:
Roxas Capital 300,000 Purchasing equipment/ supplies on
To record initial investment credit.
10/03/19 Kitchen Appliances 150,000
Cash 150,000
4. Sales Journal
To record the purchase of • Records all merchandise sold on account
kitchen appliances • Ex:
Goods are purchased by customers
Compound Entry – there are more than 2 accounts on credit.
EXAMPLE: • Sales Invoice or Receipt is the source
Account Title and
Date
Explanation
P.R. Debit Credit document for this journal.
10/17/19 Motorcycle Vehicle 110,000
Cash 80,000 Ledger
Accounts Payable 30,000
To record the purchase of
• “book of final entry”
motorcycle vehicle by paying • An accounting book in which the accounts and
cash and the balance on their related amounts as recorded on the journal
account.
are recorded periodically.
• All the balances in the ledger are used in the
preparation of financial statements called T-
Account.
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL

Movements of specific accounts are either debit or

Two Types of Ledger credit, depending on the account’s normal balance.

A. General Ledger Major Accounts and Their Normal Balances

• Grouping of all accounts used in the Debit Credit
preparation of financial statements. Drawings Liabilities
• Summarizes all the activities that have taken Expenses Equity
place as recorded in its subsidiary ledger Assets Revenue
which is why it is known as controlling
account. • DEBIT: Increases in the accounts on DEBITS
will be recorded as debits, while decreases will
B. Subsidiary Ledger be recorded as credit.
• CREDIT: Increases in the accounts on
1. Accounts Receivable Subsidiary Ledger CREDITS will be recorded as credits, while
• A set up ledger page for each customer. decreases will be recorded as debit.
• The customer’s name, address, and page
number or reference are written here. Analysis of Business Transactions
• The customer’s accounts are to be updated 1. Identify the transaction from source documents.
daily to facilitate collections. 2. Indicate the accounts – either assets, liabilities,
2. Accounts Payable Subsidiary Ledger owner’s equity, revenue, or expenses affected by
• A set up ledger page for each creditor. the transaction.
• The supplier’s name, address, and page 3. Ascertain whether each account is increased or
number or reference are written here. decreased by the transaction.
• The creditor’s accounts are to be updated 4. Using the rules of debit and credit, determine
(preferably) daily to facilitate collections. whether to debit or credit the account to record
its increase or decrease.
THE RULES OF DEBIT AND CREDIT/ ANALYSIS OF
SERVICE BUSINESS TRANSACTION EXAMPLE:
Sarimanok Ads Design owned by Maria Matulungin
Source Documents
• Original written evidences containing information April 1 – Matulungin deposited Php 350,000 to start her
about the nature and the amounts of the new business.
transactions
Cash Matulungin Capital
Sales Invoices
Debit (+) Credit (-) Debit (+) Credit (-)
Official Receipts 4-1 350,000 4-1 350,000
Statement of Accounts
Delivery Receipts April 2 – Matulungin bought a computer accounting to
Validated Deposit/ Withdrawal Slip Php 50,000 by issuing a note payable to Ardiente
Computer Store.
EXPANDED ACCOUNTING EQUATION
Computer Notes Payable
Debit (+) Credit (-) Debit (+) Credit (-)
A = L + OE + R – E 4-2 50,000 4-2 550,000
Where: A – assets
L – liabilities
OE – owner’s equity
R – revenue
E – expenses

The equal sign (=) separates the account on the left side
(debit) from the right side (credit) of the equation.
 Republic of the Philippines
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
BAUAN TECHNICAL HIGH SCHOOL

THE ACCOUNTING CYCLE Trial Balance

• List of all accounts with their respective debit and
Journal credit balances.
• Shows the equality of the debits and credits at a
Journal Format given time.
1. Date • The accounts are listed in the same manner they
2. Account Titles and Explanations appear in the ledger.
3. P.R. (Posting Reference) • The accounts will have either a debit or credit
4. Debit balance following their balances on the ledger.
5. Credit Those having zero (0) balances are skipped.

EXAMPLE OF A JOURNAL ENTRY (SIMPLE) Steps in Preparing the Trial Balance

Date
Account Title and
P.R. Debit Credit
1. Indicate the heading (centered) and the details of
Explanation the trial balance (name of the business, the
10/01/19 Cash 101 300,000
Roxas Capital 301 300,000
terms “Trial Balance”, and the date).
To record initial investment 2. List the open accounts and their balances.
3. Total the debit and credit columns.
10/03/19 Kitchen Appliances 105 150,000
4. Double rule (put two underlines) the total of the
Cash 101 150,000
To record the purchase of debit and credit after the amounts have been
kitchen appliances equaled and balanced.

EXAMPLE OF A JOURNAL ENTRY (COMPOUND) EXAMPLE OF A TRIAL BALANCE

Account Title and
Date P.R. Debit Credit
Explanation
10/17/19 Motorcycle Vehicle 106 110,000 Makabayan Repair Shop
Cash 101 80,000 Trial Balance
Accounts Payable 102 30,000 July 31, 2019
To record the purchase of
Debit Credit
motorcycle vehicle by paying
110 Cash P 171,640
cash and the balance on
account 120 Accounts Receivable 12,160
130 Land 300,000
Machineries and 75,000
Ledger 140
Equipment
• Shows the movements of all transactions 150 Tools 7,000
(increase and decrease) in each account which 210 Notes Payable P 30,000
were initially reflected in the journal as journal 310 Makabayan’s Capital 500,000
entries. 230 Service Revenue 43,800
Tax and Licenses 5,000
• Calculate the running balance of each 240
Expense
transaction in the ledger account by adding if the 250 Utilities Expense 3,000
amounts are in the same column and subtracting TOTAL 573,800 573,800
if the amounts are in different columns.
• After all the transactions have been posted, the
last running balance will be the ending balance. Prepared by:
FELIZA MAYE Y. ADARLO
EXAMPLE OF A LEDGER
Account Title Fundamentals of Accountancy,
Date and P.R. Debit Credit Balance
and Business Management 1 Teacher:
Explanation
2019 RIZA R. CALINGASAN
July 1 Invested Cash J-1 P 30,000 P 30,000
Obtained loan
1 J-1 50,000 80,000
from RDS Bank References:
Purchased PowerPoint Presentations and Handouts
3 J-2 P 10,000 70,000
supplies
Calingasan, R. (2023). Fundamentals of Accountancy,
Business, and Management 1 (FABM 1).