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Fabm 1 - CL Module Week 8
Fabm 1 - CL Module Week 8
I. INTRODUCTION
Good Day! Welcome to the 8th week of our Correspondence Learning Modality for the
midterm. This week, you shall be given another lesson to study and another learning task/s to
submit.
Attached to this 8th week module is the weekly Study and Assessment Guide.
For this week, March 15-18, 2021 of this term, the following shall be your guide for the
different lessons and tasks that you need to accomplish. Be patient, read it carefully before
proceeding to the tasks expected of you. GOOD LUCK!
Assets
Liabilities
Equity
Income
Expenses
Learning Competencies At the end of the lesson, you should be able to:
References Textbooks:
Florendo, J. 2016, Fundamentals of Accountancy, Business, and
Management 1, Rex Book Store
Books:
Ballada, W. 2017, Fundamentals of Accountancy Business &
Management 1, Made Easy
Every sari-sari store has its colorful line-up of snacks, candies, beverages, and noodles
ready for sale. From the long-time favorite snack Piattos, to the Maxx candy, to the C2 drink and
Payless Pancit Canton, a sari-sari store always has something to offer for the craving stomach. But
dis you know that all these brands, despite being diverse from each other, are produced by a
single company?
Universal Robina Corporation (URC), the “first Philippine multinational”, is one of the
largest branded food companies in the Philippines. While most locally known for the snack foods
it manufactures, especially Jack n’ Jill products, it is engaged in an even wider range of food-
related businesses, including the manufacture and distribution of branded consumer foods, hog
farming, manufacture of animal feeds, glucose, soya products and veterinary compounds, flour
milling and pasta manufacturing, sugar milling and refining, and in renewable energy via the bio-
ethanol and biomass cogeneration businesses. The list is almost endless – you name it.
Despite this wide range of products, the company still manages to operate in many
countries outside the Philippines, including China, Malaysia, Indonesia, Vietnam, Australia, and
New Zealand. How, then, can the company manage to keep up with such a fast-growing and wide-
ranging industry?
Classification is the main key for the orderly operations of the company. Back in 1954, it
only had a single product – cornstarch, popularly known as “gewgaw” – produced in Pasig City.
Of course, through the years, new brands were introduced, and new factories were opened. URC
products soon thereafter became prominent in groceries, convenience store chains, and sari-sari
stores. If it were not for its proper inventory handling, fixed assets maintenance, and strong cash
and receivables management, all of the company’s operations would have fallen into a complete
mess.
INTRODUCTION
As we learned from the previous chapter, accounting concepts start from the basic equation:
Assets = Liabilities + Equity. But what actually makes up assets? What compose liabilities and
equity? Things such as cash, plant and equipment, long-term debts would now enter into the
picture. All of these are components of one of the three parts of the accounting equation, called
accounts. In this chapter, we will discuss the major accounts that are contained in the accounting
equation. Later in this chapter, we will also explore revenues and expenses, which are accounts
representing some of the changes in equity.
1. Assets
a. Current Assets
b. Noncurrent Assets
2. Liabilities
a. Current Liabilities
b. Noncurrent Liabilities.
3. Owner’s Equity
4. Income
5. Expenses
ASSETS
Assets are resources controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow to the enterprise (per IFRS Framework). In simple terms,
assets are valuable resources owned by the entity. Assets should be classified only into two:
current assets and noncurrent assets.
Current assets are all assets which are expected to be realized within the ordinary course of
business, or a span of 12 months, whichever is longer. Realization here only means that these
assets are expected to be converted into cash, sold, or disposed after a certain time, or through
the passage of time.
a. Cash Cash is any medium of exchange that a bank will accept for deposit at face
value, perhaps the most basic, liquid, and familiar of all assets.
This includes bills, coins, checks, bank accounts.
Examples:
1. Petty Cash Fund – cash used to pay petty or small amounts.
2. Cash on Hand – cash in the possession and custody of the business.
3. Cash in Bank – cash that are deposited in the banks.
b. Accounts These are claims against customers arising from sale of services or goods
Receivable on credit.
This type of receivable offers less security than a promissory note.
c. Notes A written pledge that the customer will pay the business a fixed amount
Receivable of money on a certain date.
Examples:
1. Prepaid Advertising – advance payment of advertising in all media types
and promotional campaigns.
2. Prepaid Insurance – advance payment of insurance whether it is life
insurance or non-life insurance.
3. Prepaid Rent – advance payment of rent by the tenant or lessee.
4. Prepaid Supplies – advance payment of office supplies and/or store
supplies.
All other assets which are not current, basically fall into the definition of noncurrent assets. Take
note that they do not need to have at least 12 months remaining before their expected
realization; as long as they do not meet current asset classification, they are classified here.
a. Property, These are tangible assets that are held by an enterprise for use in the
Plant, and production or supply of goods or services, or for rental to others, or for
Equipment administrative purposes and which are expected to be used during more
(PPE) than one period/year.
Examples:
1. Land – refers to the surface of the earth that is not covered by a body of
water.
2. Building – a structure with roof and walls that is constructed on land.
3. Machinery – an equipment that has power to produce movements or
forces.
4. Furniture and Fixture – furniture refers to movable things that are result
of design (i.e., sofa, tables, chairs); fixture refers to something attached
to a property such as walls (i.e., lightnings, toilet fixtures).
Take note:
Contra assets are those accounts that are presented in the asset portion of the
statement of financial position but are reductions to firm’s assets (i.e., allowance for
doubtful accounts, accumulated depreciation).
LIABILITIES
The present obligation of the enterprise arising from past events, the settlement of which is
expected to result in an outflow from the enterprise of resources embodying economic benefits
(per IFRS Framework). A plain definition would be – liabilities are obligations of the entity to
outside parties who have furnished resources.
Examples:
1. Salaries/Wages Payable – unpaid salaries and wages of the employees.
2. Utilities Payable – unpaid communication, electricity, and water bills
3. Interest payable – unpaid interest in a loan transaction.
4. Rent Payable – unpaid rent.
5. Taxes Payable – unpaid property and business taxes to be paid in the
government.
d. Unearned This refers to cash received in advance but not yet earned.
Revenues When the business entity receives payment before providing its
customers with goods or services, the amounts received are recorded
in the unearned revenue account (liability method).
When the goods or services are provided to the customer, the unearned
revenue is reduced and income is recognized.
These are liabilities which the entity expects to settle after more than a year, or have the legal or
contractual capacity to defer payment accordingly.
a. Mortgage This account records long-term debt of the business entity for which
Payable the business entity has pledged certain assets as security to the
creditor.
In the event that the debt payments are not made, the creditor can
foreclose or cause the mortgaged asset to be sold to enable the entity
t settle the claim.
b. Bonds The bond is a contract between the issuer and the lender specifying
Payable the terms of repayment and the interest to be charged.
Business organizations often obtain substantial sums of money from
lenders to finance the acquisition of equipment and other needed
assets, they obtain these funds by issuing bonds.
EQUITY
The residual interest in the assets of the enterprise after deducting all its liabilities (per IFRS
Framework). Equity may pertain to any of the following depending on the form of business
organization:
In a sole proprietorship, there is only one owner’s equity account because there is only
one owner.
In a partnership, an owner’s equity account exists for each partner.
In a corporation, owners’ equity, or shareholders’ or stockholders’ equity, consists of share
capital or capital stock, retained earnings and reserves representing appropriations of
retained earnings among others.
a. Capital This account is used to record the original and additional investments
of the owner of the business entity.
It is increased by the amount of profit earned during the year or is
decreased by a loss.
Cash or other assets that the owner may withdraw from the business
ultimately reduce it.
This account bears the name of the owner.
b. Withdrawals When the owner of a business entity withdraws cash or other assets,
such are recorded in the drawing or withdrawal account rather than
directly reducing the owner’s equity account.
Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increase in equity, other than
those relating to contributions from equity participants (per IFRS Framework).
Service Income – the income derived from rendering or performing services for a customer
or client and is the primary income for a service business.
Sales – revenues earned as a result of sale of tangible products.
Expenses are decreases in economic benefits during the accounting period in the form of outflows
or depletions of assets o incurrences of liabilities that result in decreases in equity, other than
those relating to distributions to equity participants (per IFRS Framework). Expenses include the
costs of any material, labor, supplies, and services used in an effort to produce revenue.
1. Cost of Sales (Cost of Goods Sold) – the cost incurred to purchase or to produce the products
sold to customers during the period.
2. Salaries or Wages Expense – includes all payments as a result of an employer-employee
relationship such as salaries or wages, 13th month pay, cost of living allowances and other
related benefits.
3. Utilities Expense – expenses related to use of telecommunications facilities, consumption of
electricity, fuel and water.
4. Supplies Expense – expense of using supplies in the conduct of daily business.
5. Rent Expense – expense for space, equipment or other asset rentals.
6. Insurance Expense – portion of premiums paid on insurance coverage (e.g., on motor vehicle,
health, life, fire, typhoon or flood) which has expired.
7. Interest Expense – an expense related to use of borrowed funds.
8. Bad Debt Expense – the amount of receivables estimated to be doubtful of collection and
charged as expense during an accounting period.
9. Depreciation Expense – the portion of the cost of a tangible asset (e.g., buildings and
equipment) allotted or charged as expense during an accounting period.
1. Advertising Expense
2. Tax Expense
3. Repair and Maintenance Expense
4. Miscellaneous Expense
SIMPLE ACTIVITY
Classify each of the following either as asset (A), liability (L), equity (E), income (I), or expense
(Ex).
GENERALIZATION
In accounting, there are five major accounts: assets, liabilities, equity, income, and expenses.
Assets are grouped into two: current and noncurrent assets. Liabilities are also grouped into two:
current and noncurrent liabilities. Equity is the residual interest of the owners in the assets of the
business after considering all liabilities. Furthermore, equity increases as a result of revenues,
gains, or capital distributions, and equity decreases as a result of expenses, losses, and
distribution to owners.