Summary of Session 1 & 5:

Definition of Accounting:
- Service activity to provide accurate and authentic financial information
regarding a business that assists in making intelligent business
decisions.
- A function to provide financial quantitative information intended to
be useful in making economic decisions.
- The Language of business

The Three Basic Financial Statements:

1. The Balance Sheet – presents the financial status of the firm at a
particular point in time.
2. The Income Statement – presents the results of the firm’s profit-
oriented activities for a certain period.
3. The Statement of Cash Flows – provides relevant information about
the cash receipts and cash payments of a firm during a period.

 Users of Financial Accounting Information are those with direct and

indirect interest.

General Objectives – Financial Accounting:

 Provide reliable information useful for making economic decisions and
predicting potential cash flows.
 To primarily serve users who have limited resources to obtain
information which is why they rely on financial statements as their
principal source of information.
 Provide information useful in judging management’s ability to utilize
resources effectively.
CHART OF ACCOUNTS
ASSETS
101 Cash on hand and in banks
 Cash on hand are paper bill
assets in the business. It may
be stored in safes, registers,
and it may also be with some
employees. While assets in a
bank are money that may be
stored in different banks that
are associated with the
business. Cash is the most liquid
asset, however, when the money
is in the bank, it is easier to
liquidate these assets through
bank transfers.
 Goes with a credit line of loans of
until how much can be borrowed
and until when it will be paid on
time.
 If it is not paid on time, a Notes
receivable will be issued.
102 Accounts Receivable-Trade
- Accounts trade or accounts
receivable are the money that
should be paid by the customers
from the service and sales done
by the business.
- Accounts that can be collected
from people who owe you money.
- Debt that needs to be paid.
- Chart of accounts that consists of
people that owe you money.
- To have a more accurate income
statement you make an estimate
of the amount of doubtful debt.
102-A Provision for Doubtful
Accounts
- Provision for doubtful accounts
occurs when the issued account
receivables have not yet been
collected. It arises when the
accrued receivables are
reviewed, and the debts or
unpaid services or sales will be
seen.
- For us to make informed
decisions.
103 Notes receivables-trade
- Notes receivable trade or TNR
are written promissory note
agreements given by the clients
showing when they will be able
to pay for the services done by
the business with interest. (for
assurance) The service must be
paid on or before the specific
date issued on the TNR.
- Occurs when you didn’t pay for
your debt in Accounts receivable.
-
104 Accrued interest receivable
- Refers to interest income a
company has earned but has not
received in cash.
- The amount of bond interest that
has accumulated since the last
time a bond interest payment
was made.
- Existing time deposit date.
- Recognizing something when it’s
done.
- Kita mo na hineram sayo.
105 Unused office supplies
- Unused office supplies are assets
until they are actually used.
- At the end of the accounting
period you’ll check your supplies
that was left and compute the
cost of your total assets..
106 Prepaid Insurance
- Refers to payments that are
made by individuals and
businesses to their insurers in
advance for insurance services
or coverage. When they aren't
used up or expired, these
payments show up on an
insurance company's balance
sheet. as a current asset. (Paid
before use)
- Every month/year that passes the
insurance amount decreases.
107 Input VAT (Value Added Tax)
- VAT that is added to the price
when goods or services are
purchased that are liable to
VAT. If the buyer is VAT-
registered, and the costs support
a VAT-able activity, they can
deduct the amount of VAT paid
from his/her settlement with the
tax authorities.
- Tax issued by the government.
- You buying/purchasing goods
from a service and the tax is
owed to the government.
108 Land Account Title
What is Land?
- Land is real estate that is
exclusive of any buildings or
other assets situated on the
property used for trade.
Depending on the terms of a land
ownership agreement, the owner
may be awarded the right to
use all natural resources on
and under the land, which may
include water rights, fishing
rights, mining rights, and so forth.
Accounting for Land
- Land assets are classified
within a separate fixed asset
account (Fixed asset account - a
long-term tangible piece of
property or equipment that a firm
owns and uses in its operations
to generate income.) Land is the
only asset that is not depreciated
for financial reporting or tax
purposes. This can result in the
improper shifting of real estate
costs away from the land portion
of an acquisition in order to
maximize the amount of
depreciation that the new owner
can claim as a tax deduction.
- When land is sold, it generates a
capital gain or loss for the owner.
109 Building
- Building is a fixed asset account
that contains the carrying
amount of the buildings owned
by an entity. (halaga ng building
at your appraised value). The
carrying amount is the original
purchase price, plus later
capitalized additions, minus
accumulated depreciation and
any asset impairments.
- Buildings used to conduct
business or trade. Value of this
asset declines yearly.
- The account is updated and
increases the accumulated
depreciation account at the
end of the accounting period
by an adjusting entry.
109-A Accumulated Depreciation
- a contra long-term asset account
which is credited for the
depreciation associated with
Buildings.
- Accumulated depreciation: the
value of something on the day
that you bought it.
- The total value of a depreciable
asset that reduces over time
through use or non-use.
110 Buses
- Fixed asset account purchased
and used by a company. Included
under PP & E (Property, Plant &
Equipment) which are physical or
tangible assets that are long-term
assets that typically have a life of
more than one year.
- Vehicles that are assets to the
company.
110-A Accumulated Depreciation –
Buses
- Total amount of depreciation
expense allocated to buses
- (Asset) that was put into use.
111 Furniture and fixtures
- Physical or Tangible assets used
by a business to carry out its core
operations and generate profits in
the long-term. Examples are:
bookcases, chairs, desks, filing
cabinets, and tables.
111-A Accumulated depreciation –
Furniture and Fixtures
- Total amount of depreciation
expense allocated to furniture
and fixture (Asset) that was put
into use.
112 Machinery and equipment
- (sometimes they are kept in
separate accounts) are major
tools and implements used in
operation of the business.
(Used in the office). For a
manufacturing company, they
include such things as drill
presses, sanders, etc. For a
service company, they include
computers, telephone systems,
copiers, etc.
112-A Accumulated Depreciation –
Machinery and Equipment
- Total amount of depreciation
expense allocated to Machinery
and Equipment (Asset) that was
put into use.
- Deterioration of value or
reduction of accumulated
depreciable asset.
LIABILITIES
201 Accounts Payable-Trade or
Receivable
- Refers to the bills you need to
pay. It’s the money owed to
vendors or suppliers for goods or
services purchased on credit.
- Umutang na kaya bayaran.
- Related to the company’s primary
operations.
Ex.: employee salary.
(Ikaw ang dapat bayaran –
asset.)
 Trade Payables: Payables
related directly to the company’s
primary operations.
Ex: suppliers for raw
materials and inventories,
payables for services
rendered.
 Non-Trade Payables: Payables
which are not directly related to
the core operating business of
the company. (utility bills, tax,
salary.)
202 Accrued Interest Payable
- the amount of interest that has
been recognized as an expense
by the borrowers but has not yet
been paid to the lender.
203 Notes payable–trade
- It’s a written promissory note.
Under this agreement, a borrower
obtains money from a lender and
promises to pay it back with
interest over a time period.
- These are long term liabilities
which indicate the money a
company owes its financiers
(banks, family, friends, etc).
- Extending the due date of the
money you owe. A banks prime
interest rate (cost of money) is
the time deposit of the bank.
Ex: When you hold the
money that you owe
someone, you have to put
a growing interest rate that
matches a banks rate
rather than placing the
money in the bank.
204 Output VAT
- VAT which you must calculate
and collect when you sell goods
and services, provided that you
are registered in the VAT
Register
- The seller is the one who puts
VAT tax into the product you’re
selling.
205 Unearned Fares
- It’s the money a business collects
from a customer up front for
services the company has yet to
perform.
- Pre-payment. Unearned revenue.
Ex: airline tickets,
advance rent payment, prepaid
insurance.
OWNER’S EQUITY:
- represents the owner's
investment in the business minus
the owner's draws or withdrawals
from the business plus the net
income (or minus the net loss)
since the business began.
301 Owner’s (Mr E. Ayot) Capital
- is also referred to as
Shareholders Equity. It is the
money business owners (if it is a
sole proprietorship, partnership,
shareholders, or a corporation.)
have invested in their businesses.
In other words, it represents the
portion of the total assets that
the owners/shareholders’
money has funded and can lay
claim to.
- Extent of interest – mag kano
yung investement. Adding
additional capital. The owner’s
share of the assets of the
business. After paying off all the
debts. Assets minus liabilities.
- Value of all the assets after
deducting the value of assets
needed to pay liabilities.
REVENUE:
- is the money generated from
normal business operations,
calculated as the average sales
price times the number of units
sold. It is the top line (or gross
income) figure from which costs
are subtracted to determine net
income. Revenue is also known
as sales on the income
statement.
401 Fare Earned
- It contains the fare revenue
earned during a reporting period.
The amount reported as fares
earned would be the amount of
cash received from customers
during the reporting period, if the
reporting entity is operating under
the cash basis of accounting.
- Revenue earned through the
delivery of services and
transportation of passengers.
This includes salary, tips, and
bonuses.
402 Interest Earned
- is the amount of interest earned
over a specific period of time from
investments that pay the holder a
regular series of mandated
payments.
Ex: Interest earned can be
generated from funds
invested in a certificate of
deposit or an interest-
bearing bank account.
EXPENDITURES:
- is a payment or the incurrence of
a liability in exchange for goods
or services.
501 Office supplies Expense
- The cost of administrative
supplies charged to expense in a
reporting period.
- This represents the consumed or
used-up portion of office supplies
during the year.
502 Gas and Oil Expense
- The amount of variable costs,
liabilities, and supplies charged
needed for Gas and Oil which
may be needed in the acquisition,
storage, handling, and
transportation and use of
machinery’s of the company.
503 Depreciation Expense
- refers to the process of reducing
the recorded cost (of a building)
in a methodical way till the time
when the value of the building
either becomes zero or reaches
its salvage value.
 Depreciation expense: represents
the estimated yearly charge or
reduction in the value of a
depreciation asset – mag kano
yung halaga ng asset that is
allocated and reported at the end
of each reporting period.
 Straight-line depreciation
expense is calculated by dividing
the difference bet. Cost of the
asset and its salvage value by the
asset’s useful life.
o The cost of the asset is the
purchase price; the
salvage value is the value
of the asset at the end of
its life. (number of years
the asset is expected to
provide value.)
 Interest earned: derived from
extended credit or money
deposited in the bank.
o Ways that a company can
earn: notes receivable,
money na pumapasok.
504 Depreciation Expense – Buses
- Bus expenses charged and value
that is about to gradually reduce
overtime due to use, wear and
tear or obsolescence.
505 Depreciation Expense – Furniture
and Fixture
- Furniture and Fixture expenses
charged and value that is about
to gradually reduce overtime due
to use, wear and tear or
obsolescence.
506 Depreciation Expense –
Machinery and Equipment
- is a measure of how much a
piece of equipment drops in value
each year. As you calculate the
depreciation of your assets, you
can make wiser maintenance
decisions, particularly for older
equipment.
507 Salaries and wages
- Represents expenses used to pay
for labor and manpower.
- Salaries is the fixed amount given
and agreed by both the employee
and employer, while wages varies
by the hour or performance done
by the employee.
- This line item may also include
payroll taxes and benefits paid to
employees.
508 Repairs and maintenance
- Ordinary upkeep of assets.
- The cost incurred to ensure that an
asset continues to operate. This
may involve bringing performance
levels up to their original level from
when an asset was originally
acquired, or merely maintaining the
current performance level of an
asset.
509 Utilities Expense
- cost consumed in a given period,
this includes the value spent on
electricity, water, waste disposal
and sanitation.
- Service charged by utility
companies.
510 Rent Expense
- total cost spent on the usage of
rental properties such as storing
facilities, offices, factories or any
general space for equipment.
512 Interest Expense
- value or amount incurred by
business owners for borrowed
funds. It is the price that a lender
charges a borrower for the use of
the lender’s money.
- represents interest payable on any
borrowings like bonds, loans or
lines of credit.
- Interest a company has to pay
when they loan money. You can
incur interest expense by the use
of promissory notes.
513 Insurance Expense
- amount of expenditure paid to
acquire an insurance contract by a
business owner to an insurer.
- Used up or expired portion of an
insurance policy. Mag kano yung
nagamit. Incurred for all insurance
contracts including property,
liability, and medical insurance.
514 Taxes and Licenses
- amount owed by a business entity
to the government based on
standard business accounting
regulations and the right to use
assets and properties arising from
the conduct of trade.
515 Doubtful Accounts Expense
- An allowance for doubtful accounts
is considered a "contra asset”
because it reduces the amount of
receivables. It suggests the
management’s estimate of the
accounts receivable that will not be
paid by customers.
- Doubtful account is when you’re
not sure they can complete the
 payment on time.

SUMMARIZING ACCOUNT:  Two types of assets:

1. Those that are expensed
601 Revenue and Expense Summary in the year of purchase.
2. Those that are capitalized.
- it is also called the BAE or
(Budget, Actual, Encumbrance)  Operating assets:
report that reflects the listing of - Assets that are used within a year
the company’s budget, of being purchased, like
expenditures and income within inventory, are considered
its span of operation. operating assets.
- Generally sold or used in the year
of purchase – fully expensed.
Additional Notes:
 Capitalized assets:
 Contra asset: - Provide value for more than one
- To make the value more realistic. year.
Subtracting the asset is
considered an asset but negative.
- Earning money from the people
you offered your service to or
people who owe you money. It’s
contra asset because they
haven’t paid you what they owe.

 Accrued accounting:
- If you perform your duty you
should note it down the
transaction as payment delivered
or collected.
- Since na perform yung duty or
napaheram na yung pera, expect
money to be collected.