Fundamentals of Accounting, Business and Management
Lesson 1: Introduction period. Accounting only deals with financial
Accounting
 Accounting is the language of the business.
(FS, Accurate information, Decision making)
 Accounting is a service activity. Its function is
to provide quantitative information primarily
financial nature, about economic entities that
is intended to be useful in making economic
decisions.
Process of Accounting
“Accounting is the process of IDENTIFYING,
RECORDING, and COMMUNICATING economic events
of an organization to interested users.” – Weygant, J.
 Identifying - This involves selecting economic
events that are relevant to a particular
business transaction. Examples: Sales of
bread and other bakery products, Purchase of
flour that will be used for baking, Purchases of
trucks needed to deliver the products
 Recording - This involves keeping a
chronological diary of events that are
measured in pesos. The diary referred to in
the definition are the journals and ledgers
which will be discussed in the future.
 Communicating - Occurs through the
presentation and distribution of financial and
other accounting reports.
Nature of Accounting
Accounting is a systematic recording of financial
transactions and the presentation of the related
information to appropriate persons.
1. Accounting is a service activity - It helps or
assists in decision-makers by giving them
financial reports that will guide them in
making sound decisions.
2. Accounting is a process - It refers to the
method of performing any specific job or
step-by-step according to the objectives. It
performs specific task or job of collecting,
processing and communicating financial
information.
3. Accounting is a both art and discipline - It is
consider an art because one records,
classifies, summarizes, and finalizes financial
data. The way something is done is referred
to as “Art”. It is a behavioral knowledge
involving an established creativity and skill to
help one achieve distinct objectives.
4. Accounting deals with financial information
and transaction - It records financial
transaction and data, categorizes these, and
finalizes the result given for a specified
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and not with non-monetary or financial
aspects of an information.
5. Accounting is an information system -
Accounting is known and characterized as a
store house of information. It collects,
processes and communicates financial of any
entity. 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,
accounting information allows business
owners to assess the efficiency and
effectiveness of their business operations.
Prepared accounting reports can be compared
with industry standards or to a leading
competitor to determine how the business is
doing. Business owners may also use historical
financial accounting statements to create
trends for analyzing and forecasting future
sales. The brain of the company. Eye of the
company.
History of Accounting
The Cradle of Civilization (3600 B.C)
 Around 3600 B.C., record-keeping was
already common from Mesopotamia, China
and India to Central and South America
Egypt. The oldest
 Evidence 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.
14th Century – Double-Entry Bookkeeping
 The most important event in accounting
history is generally considered to be the
dissemination of double-entry bookkeeping
by Fra. Luca Bartolomeo de Pacioli ‘The
Father of Accounting’ in 14th century Italy.
Pacioli was much revered in his day and was a
friend and contemporary of Leonardo da
Vinci. The Italians of the 14th to 16th
centuries are widely acknowledged as the
fathers of modern accounting and were the
first to commonly
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 Industrial Revolution (1760-1830)
 Fundamentals of Accounting, Business and Management
 Mass production and the great importance of
fixed assets were given attention during this
period.
th
19 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).
 In the late 1800s, chartered accountants from
Scotland and Britain came to the U.S. to audit
British investments. Some of these
accountants stayed in the U.S., setting up
accounting practices and becoming the origins
of several U.S. accounting firms. The first
national U.S. accounting society was set up in
1887. The American Association of Public
Accountants was the forerunner to the
current American Institute of Certified Public
Accountants (AICPA). In this period rapid
changes in accounting practice and reports
were made. Accounting standards to be
observed by accounting professionals were
promulgated. Notable practices such as
mergers, acquisitions, and growth of
multinational corporations were developed. A
merger is when one company takes over all
the operations of another business entity
resulting in the dissolution of another
business.
 Businesses expanded by acquiring other
companies. These types of transactions have
challenged accounting professionals to
develop new standards that will address
accounting issues related to these business
Combination.
The Present – The Development of Modern
Accounting Standards and Commerce
• The accounting profession in the 20th
century developed around state
requirements for financial statement audits.
Beyond the industry's self-regulation, the
government also sets accounting standards,
through laws and agencies such as the
Securities and Exchange Commission (SEC).
• As economies worldwide continued to
globalize, accounting regulatory bodies
required accounting practitioners to observe
International Accounting Standards. This is to
assure transparency and reliability, and to
obtain greater confidence on accounting
information used by global investors.
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• Nowadays, investors seek investment
opportunities all over the world. To remain
competitive, businesses everywhere feel the
need to operate globally. The trend now for
accounting professionals is to observe one
single set of global accounting standards in
order to have greater transparency and
comparability of financial data across
borders.
Lesson 2: Branches of Accounting
Vocabularies
GAAP (generally accepted accounting principles) - is a
collection of commonly followed accounting rules
and standards for financial reporting.
CPA (Certified Public Accountant) - is a trusted
accounting professional who has gone through a
rigorous exam process. They have completed and
mastered the three branches required for this
accounting license, which are education, experience,
and exam. Estimate Reading Time : 9 minutes.
FS (Financial Statements) - is a collection of
summary-level reports about an organization's
financial results, financial position, and cash flows.
They include the income statement, balance sheet,
and statement of cash flows.
Branches of Accounting
1. Financial Accounting - is a collection of
commonly followed accounting rules and
standards for financial reporting.
 the balance sheet (statement of
financial condition)
• income statement (the profit and
loss statement, or P&L)
• statement of cash flows
Financial accounting is primarily concerned
with processing historical data. Although
financial accounting generally meets the
needs of external users, internal users of
accounting information also use this
information for their decision-making needs.
2. Management (or Managerial) Accounting -
process of identifying, measuring &
communicating economic information
whether financial or non- financial
information to assist the management
perform its function effectively.
 Financial analysis,
 Budgeting and forecasting,
 Cost analysis,
 Evaluation of business decisions/
performance
 Fundamentals of Accounting, Business and Management
3. Cost Accounting - process of identifying,
measuring & communicating economic
information about cost. Sometimes
considered as a subset of management
accounting, cost accounting refers to the
recording, presentation, and analysis of
manufacturing costs. Cost accounting is very
useful in manufacturing businesses since they
have the most complicated costing process.
Cost accountants also analyze actual and
standard costs to help managers determine
future courses of action regarding the
company's operations.
Classification of Costing
 Standard Costing
 Job Order Costing
 Process Costing ETC.
4. Government Accounting - process of
identifying, measuring & communicating
economic information about generated
revenues and incurred expenses of the
government. Reflecting transactions and
other economic events involving the receipt,
spending, transfer, usability and disposition of
assets and liabilities. This branch of
accounting deals with how the funds of the
government are recorded and reported.
Government accounting deals with these
transactions, the recording of inflow and
outflow of funds of the government.
5. Tax Accounting - process of identifying,
measuring & communicating economic
information of an entity for tax purposes.
 Tax accounting helps clients follow
rules set by tax authorities. It
includes tax planning and preparation
of tax returns.
 It also involves determination of
income tax and other taxes, tax
advisory services such as ways to
minimize taxes legally, evaluation of
the consequences of tax decisions,
and other tax-related matters.
6. Auditing
 External auditing refers to the
examination of financial statements
by an independent CPA with the
purpose of expressing an opinion as
to fairness of presentation and
compliance with the generally
accepted accounting principles
(GAAP). The audit does not cover
100% of the accounting records but
the CPA reviews a selected sample of
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these records and issues an audit
report.
- Collection and deposit
 Internal auditing deals with
determining the operational
efficiency of the company regarding
the protection of the company’s
assets, accuracy and reliability of the
accounting data, and adherence to
certain management policies. It
focuses on evaluating the adequacy of
a company's internal control structure
by testing segregation of duties,
policies and procedures, degrees of
authorization, and other controls
implemented by management.
- Meet the accounting standard.
7. Accounting Education - This branch of
accounting deals with developing future
accountants by creating relevant accounting
curriculum. Accounting professionals can
become faculty members of educational
institutions. Accounting educators contribute
to the development of the profession through
their effective teaching, publications of their
research and influencing students to pursue
careers in accounting. Accounting teachers
share their knowledge on accounting so that
students are informed of the importance of
accounting and its use in our daily lives.
8. Accounting Research - Accounting research
focuses on the search for new knowledge on
the effects of economic events on the process
of summarizing, analyzing, verifying, and
reporting standardized financial information,
and on the effects of reported information on
economic events. Researchers typically
choose a subject area and a methodology on
which to focus their efforts. The subject
matter of accounting research may include
information systems, auditing and assurance,
corporate governance, financials, managerial,
and tax. Accounting research plays an
essential part in creating new knowledge.
Academic accounting research "addresses all
aspects of the accounting profession" using a
scientific method. Practicing accountants also
conduct accounting research that focuses on
solving problems for a client or group of
clients. Accounting research helps standard-
setting bodies around the world to develop
new standards that will address recent issues
or trend in global business.
 Fundamentals of Accounting, Business and Management

2. Chief Executive Officer

3. Chief Financial Officer
Lesson 3: Users of Accounting Information 4. Vice Presidents
5. Business Unit Managers
6. Plant Managers
What is Accounting? 7. Store Managers
“ACCOUNTING is the process of IDENTIFYING, 8. Line Supervisors
RECORDING and COMMUNICATING economic events
of an organization to interested users” External Users
 External users are individuals and
Because it serves as a means of communication organizations outside a company who want
between business and interested users either Internal financial information about the company.
or external. These users are not directly involved in
managing and operating the business. The
Users of Accounting Information two most common types of external users are
 Accounting communicates financial potential investors and creditors. Potential
information to decision-makers. Investors use accounting information to make
 Different decision-makers are users of decisions to buy shares of a company.
this accounting information. External users (Secondary Users) of accounting
 Users of accounting information are information include the following:
collectively referred to stakeholders. 1. Creditors - for determining the
 These stakeholders can be classified creditworthiness of an organization. Terms of
as internal and external users. credit are set by creditors according to the
assessment of their customers' financial
Internal Users health. Creditors include suppliers as well as
 Internal users of accounting information are lenders of finance such as banks.
those individuals inside a company who plan, 2. Tax Authorities (BIR) - for determining the
organize, and run the business. These users credibility of the tax returns filed on behalf of
are directly involved in managing and a company.
operating the business. These include 3. Investors - for analyzing the feasibility of
marketing managers, production supervisors, investing in a company. Investors want to
finance directors, company officers and make sure they can earn a reasonable return
owners. on their investment before they commit any
Internal users (Primary Users) of accounting financial resources to a company.
information include the following:
1. Manager - income/earnings for the period,
sales, available cash, production cost. Analyze
the organization's performance and position
and take appropriate measures to improve the
company results, sufficiency of cash to pay
dividends to stockholders, pricing decisions.
2. Employees/Labor Unions - Information need:
profit for the period, salaries paid to
employee. Job security, consider staying in the
employ of the company or look for other
employment opportunities.
3. Owners - Information need: profit or income
for the period, resources or assets of the
business, liabilities of the business.
Considerations regarding additional
investment, expanding the business,
borrowing funds to support any expansion
plans.
Examples of Internal Users
1. Board of Directors
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 Fundamentals of Accounting, Business and Management
Lesson 4: Forms of Business Organization
“Suppose you want to open your own sari-sari store
that will need PHP10,000 to start and you used your
PHP10,000 savings to start the said business. You are
the sole owner of the said sari-sari store. This type of
business is called sole/single proprietorship.”
Sole/Single Proprietorship
 The simplest, form of business organization.
 It is owned by one person known as the
proprietorship or entrepreneur.
Advantages of Sole/Single Proprietorship
 EASIEST FORM OF BUSINESS SET UP.
 OWNER RECEIVES ALL PROFITS.
 OWNER HAS FREEDOME TO MANAGE.
 FEW LEGAL RESTRICTIONS
 EASY TO DESOLVE
 OWNER, NOT THE BUSINESS, IS TAXED.
Disadvantages of Sole/Single Proprietorship
 The life of the business is limited to the life of
the owner. Once the owner dies, the business
will cease to operate under the name of the
proprietor.
 The amount of capital is limited only by the
wealth of the proprietor.
“What if the needed amount to start your dream sari-
sari store is PHP50,000 and you only have PHP25,000
cash savings. You ask Juan, your friend if he is willing
to invest his PHP25,000 and become part owner of the
sari-sari store. Assuming he agrees, what form of
business organization was created?”
Partnership
 A association of two or more persons to carry
on as co-owners a business for profit.
Advantages of a Partnership
 Higher capital because two or more persons
will contribute to the common fund.
 It is easy to operate like a sole/single
proprietorship.
Disadvantages of a Partnership
 The profits are divided among the partners.
 A partner can be held liable for the acts of the
other partners.
 In a lawsuit, the personal properties of the
partners can be held beyond their
contributions and may be used to answer for
any liability of the partnership
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“Assuming your dream is to open a grocery store and
not just a sari-sari store but you will need
PHP1,000,000 to start the said business. You have only
PHP25,000, your friend Juan has PHP25,000, and your
mother is willing to invest her PHP50,000, but still
these are not enough to start your dream grocery
store. Where will you get the money to raise the PHP1
million? You may consider setting up a corporation?”
Corporation
 A business owned by five or more persons
whose ownership is evidenced by shares of
stocks. Each owner called stock holder.
 A corporation is a business organized as a
separate legal entity (artificial person) under
the corporation law with ownership divided
into transferable shares of stocks
 Emphasize that it is the law (Corporation
Code of the Philippines) that creates a
corporation.
 The corporation begins its existence from the
date the Articles of Incorporation is approved
by the Securities and Exchange
 Commission (SEC).
 The SEC (Securities and Exchange
Commission) is the government agency
primarily tasked to regulate private
corporations in the Philippines.
 The owners are called stockholders or
shareholders.
Advantages of a Corporation
 Can easily raise additional funds by selling
shares of stocks to the public.
 Shareholders are not personally liable for the
debts of the corporation. The extent of their
liability is limited to their equity (ownership)
in the corporation.
Disadvantages of a Corporation
 It is relatively complicated to set up.
 Subject to several legal restrictions as listed in
the Corporation Code of the Philippines.
“Assuming all the mothers in your barangay decided to
open a sari-sari store where all the members can buy
in cash or in credit. Some mothers were also taught
how to sew dresses and bags as part of the project of
the group. These bags are then sold to a certain
company. Aside from that, the organization provides
seminars to the members on various topics involving
mothers and their roles. At the end of the year, the
profits are distributed among the members based on
their capital contribution. The amount of their
purchases in the sari-sari store during the year is also
 Fundamentals of Accounting, Business and Management
computed and they receive something out of the
profit/surplus based on their purchases. This form of
business organization is called a cooperative.”
Cooperative
 A cooperative is a duly registered association
of persons with a common bond of interest,
voluntarily joining together to achieve their
social, economic, and cultural needs. The
owners are called members who contribute
equitably to the capital of the cooperative.
The members are expected to patronize their
products and services. The word ‘cooperative’
appears in the name of the entity. This form of
business organization is regulated by the
Cooperative Development Authority (CDA).
Advantages of a Cooperative
 Enjoys certain tax exemption privilege
 Promotes the concept of sharing resources
Disadvantages of a Cooperative
 Limited distribution of surplus
 Requires continuous education programs for
members.
 The members have active and direct
participation in the business of the
cooperative.
Lesson 5: Types of Business According to Activities
BUSINESS ORGANIZATIONS COME IN DIFFERENT TYPES
AND FORMS. THE THREE MAJOR TYPES OF BUSINESS
ARE:
1. Service Business
2. Merchandising or Trading Business
3. Manufacturing
Service Business
 No Inventory – If you sell service, you usually
don’t have any inventory. Instead of buying
and selling products, you convince customers
to take advantage of your ability to make their
life easier.
 You’re an expert - If you are developed your
service based on skill you have, you are an
expert in you field. You can increase the size of
your business by becoming better at that skill.
 Difficult Valuation - Your service business is
harder to value than a manufacturing or retail
company. Those inventory, equipment and
other hard assets that have a value. You can
start a service business with a phone and very
little equipment.
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 Demand Cutback - In difficult economic times,
consumers usually cut back on services. They
focus on the products they need to survive
and prosper, and services are often looked
upon extras.
Service Business
 Those which derive their income from sales of
services to client or customers.
Examples: Car repair shops, hospital,
apartment houses, bus operator, travel
agencies, real state brokers, advertising
agency.
 Small-business owners who run service
business often try to grow by offering
products.
Merchandising or Trading Business
 Business which buy goods, and without
changing their form, sell them at profit.
 A small business involved in manufacturing
must deal with over cost. These are the cost
beyond wages and materials that you incur for
maintaining a manufacturing.
Examples: Department Stores, Drug Stores,
Sari-sari Stores, Book Stores, Home Appliances
Store, Rice Dealer, and Stands.
Merchandising or Trading Business
 Bring them in – Merchandising can increase
the amount pf customers who notice and
enter your store. With increased traffic may
come increase your sales and success.
 Increased Sales – Effective merchandising can
have a clear and definite positive effect on
retail sales and the bottom line, which is, after
all, the goal of any business approach.
 Changing Spaces - Proper merchandising may
require the rearrangement of aisles, shelves
display fixture and general layout of the
interior retail space. Interior spaces should
flow more easily while directing the consumer
to important sale items and significant display.
 Demand Staff - An increase in consumers
often translates to a necessary increase in
payroll. With more people coming in on a
daily basis, more sales and more deliveries
comes more customer service issues.
 Once is not enough - The greatest
disadvantage of successful merchandising may
be the need to keep at it to meet the
expectations of your client and to keep steady
stream of new customers coming in. Once bar
has been set, allowing it to fall would
negatively affect your sales and shrink your
customer base.
 Fundamentals of Accounting, Business and Management

 Expense - The expense of installing new secure certificate of incorporation or

fixtures, creating new signage and improving
the overall appearance of your retail space
inside and out can add up quickly. Although
good merchandising can result in an increase
in profitability over the long haul, it will cost
you time, effort and money in the long run.
certificate of partnership with the Securities
and Exchange Commission (SEC) to be
considered as legal. These certificate are also
used as a requirements for register with the
BIR , Mayor’s office, and other government
offices. Take note that sole

Manufacturing Business
 Those business who buys raw materials,
convert them to finish good before finally
selling them at a profit.
Examples: Garment factories , paper mills,
bottling companies, furniture factories, car
assembler.
 A small business involved in manufacturing
must deal with over cost. These are the cost
beyond wages and materials that you incur for
maintaining a manufacturing.
 These cost include such a things as rent,
utilities, employee, benefits, insurance,
equipment depreciation and property taxes.
These are advantages and disadvantages to
these cost that with some planning you can
maximize the benefits while minimizing cost.
Manufacturing Business
 Absorption Costing Advantage – treating
manufacturing overhead as part of the cost of
each product can help you effectively price
your product for profit.
 Tax Advantages – all of your manufacturing
overhead costs are tax deductable. You should
track all of these cost as part of your
manufacturing expenses.
 Rising Prices Disadvantage – in an
inflammatory environment, rising overhead
expenses can for you to raise price on your
products, even if materials and labor do not
rise.
 Cash Flow Disadvantage – overhead cost
continue even if you are not manufacturing

Basic Permit
1. Barangay Clearance - The barangay clearance
is a certificate that your business complies
with requirements of the barangay where
your business is located.
2. DTI Business Name (BN) Registration
Certificate - This is the certificate of
registration of your business trade name. DTI
registration only gives you the authority to use
your business trade name, but it doesn't give
you a license to operate.
3. SEC Certificate of registration - Corporation
( stock or non-stock) and partnership have to
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 Fundamentals of Accounting, Business and Management
Lesson 6: Accounting Concepts and Principles
Development of Accounting Standard
 US standards
 Certified Public Accountant (CPA)
 Philippine Institute of certified Public
Accountants ( PICPA )
 Accounting Standards council ( ASC) 1981 the
Generally Accepted Accounting Principles
(GAAP) in the Philippines.
Fundamental in Accounting
1. Accrual Basis Accounting
 States that income should be
recorded when earned and expenses
should be recorded when incurred.
The income is said to be earned,
incase of service concern business,
when the service was rendered to
client and, in case of merchandising
and manufacturing business, when
good was delivered to customers.
 In contrast to cash Basis Accounting,
the income should be recorded when
cash was received and expenses
should be recorded when they are
already paid.
2. Concept of Equality of the Value Received
and Value Give Up
 States that on every business
transactions recorded and presented
in the books of accounting should
have an equal value of received and
give up.
3. Matching Concept
 States that on every income earned
that is reported should have the
proper matching of the corresponding
expenses incurred.
 The expenses could be directly or
indirectly associated with the income
earned.
Underlying Assumptions
1. Going Concern Assumption - Also called
continuity assumption, It assumes that the
business will continue to operate in
unforeseeable event future time. The
opposite of this assumption is called quitting
concern assumption.
2. Periodicity or Time period - Underlying
concept serves as the basis for preparing the
financial statements at regular intervals.
3. Accounting Entity - The business is considered
as an entity that is separate and distinct from
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the owner or management and from other
businesses.
4. Monetary Value Concept - Also called stable
monetary unit, states that the business
transactions should be reported in a common
currency unit which is peso which can be
objectively measured and quantified.
Basic Accounting Principles
1. Objective - The recorded business
transactions should have a reliable source
documents. The documents are said to be
reliable if it is verify by independent observer
usually the external auditor of the business.
2. Cost or Historical Cost Principle - States that
the acquisition of assets and services should
be recorded on its actual purchase price or
cost and not with the management intended
to report.
3. Adequate Disclosure - The reported
accounting information should include all
significant non financial transaction that could
affect the decisions of the interested users.
NOTES
4. Materiality - The users of the accounting
information is only interested with the
information that is materially significant to
their decision making.
5. Consistency - In recording business
transaction, the methods used should be
applied from period to period.
SUMMARY:
 FUNDAMENTAL CONCEPT OF ACCOUNTING
ARE ACCRUAL BASIS ACCOUNTING, CONCEPT
OF EQUALITITY OF THE VALUE RECEIVED AND
VALUE GIVEN UP AND MATCHING CONCEPT.
 UNDERLYING ASSUMPTION OF ACCOUNTING
ARE GOING CONCERN ASSUMPTION,
PERIODICITY OR TIME PERIOD , ACCOUNTING
ENTITY AND MONETARY VALUE CONCEPT.
Lesson 7: The Accounting Equation and Type of Major
Accounts
Account
 The summary device in accounting (Ballad).
Each account should be made for each
element in financial statements that will show
its increase and decrease for each transaction
where it is affected.
T-Account
 Simplest form of an account.
Three Parts of an Account
 Fundamentals of Accounting, Business and Management
1. Debit (Dr) - from the Latin word debere which
means left. It is the left side of an account.
2. Credit (Cr) - from the Latin word credere
which means right. It is the right side of an
account.
3. Account Title - It is written on the Top portion
of T-account.
Accounting Equation
 For every business transaction that should be
recorded in the book of account maintains the
equality of accounting equation
ASSETS = LIABILITIES + OWNER’S EQUITY
Elements of Financial Statements and Their Account
Titles
Assets
 are the resources owned controlled by the
business as a result of past events and from
economic benefits are expected to flow to
enterprise.
 Assets should be classified into two: current
assets and non-current assets.
The entity shall classify asset as current when:
a. It expects to realize the assets, or intends to
sell or consume it.
b. It holds the assets within primary for the
purpose of trading
c. It expects to realize the asset within twelve
months after the reporting period.
d. The asset is cash or a cash equivalent unless
the asset is restricted from being exchange or
used to settle a liability for at least twelve
months after the reporting period.
Current Asset
 Cash - currency or coins—that can be used to
exchange goods, debt, or services.
 Cash Equivalent - These are the short term,
highly liquid investment that are convertible
to known amounts of cash and which are
subject to an insignificant risk of change and
value.
 Trade and Other Receivable - Claims against
different parties arise from different
transactions.
a. Account Receivable – claims against
customers arising from sales of goods and
service s on credit.
b. Notes Receivable – claims against
customers with the evidence of
promissory notes note and offer more
security than account receivable.
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c. Interest Receivable – interest income
earned and accrued from credit of the
business.
d. Advance to employee – advance cash to
employees and could be deductible to
their salary or payroll
 Marketable Securities - Short term
investment that could be stocks or bond
which are intended for trading purposes.
 Inventories - These are the Assets which are;
a. Goods held for sale in the ordinary course
of business
b. Goods in process of production for sale
c. Goods in forms of materials and factory
supplies to be consumed in the
production process or in rendering
services
 Prepaid Expenses - Expenses paid in advance
such as insurance, rent , advertising, and
supplies.
Non-Current Assets
 Property, Plant and Equipment - Long lived
assets which are used by the business in
producing goods and or services.
a. Land - a piece of lot that could used by
the business for construction of the
building or office.
b. Building – any concrete structure that
used by the business for its office, store or
factory which they can conduct its
operation
c. Equipment – Includes computer, air
conditioner, cash register, calculator, office
equipment, transportation equipment,
Machinery and equipment
 Intangible Assets - As per accounting standard
No. 38, are identifiable non-monetary without
physical substance or appearance held for use
in production or supply of goods and/or
service. This includes trade mark, brand name,
logo, secret process, secret ingredient, and
competition agreement.
 Accumulated Depreciation - contra assets
account that contains the aggregate of the
periodic depreciation charges. This account is
deducted from the cost of the corresponding
such as equipment, building furniture and
fixture
Liabilities
 Is a present obligation of the enterprise
arising from past events, the settlement of
which expected to result in outflow from the
enterprise of resources embodying economic
benefits. Liabilities should be classified into
 Fundamentals of Accounting, Business and Management
two: Current liabilities and non-current
liabilities.
The entity shall classify as current when:
a. It expects to settle with in its normal operating
cycle.
b. It holds primarily for purpose and trading.
c. Its due to be settled within twelve months
after the periodic reporting.
d. The entity does not have a conditional right to
defer settlement of the liability for at least
twelve months after the reporting period.
Trade and Others Payable – it includes payables from
different sources from any of the following:
a. Account Payable – Obligation arising from
acquiring assets and services on account.
b. Notes Payable – Obligation arising from
acquiring assets and services on account
evidence of promissory notes.
c. Accrued Liabilities – the amount owed from
acquiring services arising from expenses
incurred by the business. These include: Utility
payable, interest payable, tax and salary
payable.
d. Loan payable – the amount owed by business
arising from borrowed funds from the bank or
other financial institution payable within
twelve months period after the periodic
reporting.
e. Unearned Revenues – obligation arising from
advance collection of amount from customer
before providing service or delivering goods.
The settlement of this liability is by providing
service or delivery of goods
Non-Current Liabilities
 Bonds Payable - is a legal obligation evidenced
by certificate of indebtedness which obtained
by the business in substantial amount for the
purpose of financing the acquisition of assets
needed for its operations. The bond includes
the terms of repayment and interest to be
charged.
 Mortgage Payable - a long-term debt of the
business which supported by a certain assets
to the creditor. In the event that the business
could not be able to settle this liability, the
creditor can foreclose the mortgaged assets
and to be dispose to settle the creditor's
claim.
 Long-Term Portion of Liabilities - it is the
long-term portion of obligations that could be
notes payable or loans payable.
Owner’s Equity
 it is the residual interest of the owner after
deducting liabilities from assets. This account
aparungao
should be used when the owner made the
original and additional investment to his
business.
 Investments could be assets and/or liabilities.
This account is affected by increasing in profit
or decreasing in loss and withdrawal by the
owner of his investment.
Withdrawals or Drawing - it is the withdrawal of the
owner of cash or other assets in his business.
Income Summary - a temporary account used to close
the income and expenses account of the business.
This account is equal to the profit or loss of the
business and it is close to the capital account.
Income Statement - Income is increases in economic
benefits during the accounting period in the forms of
inflows of assets or decreases of liabilities, that result
for an increase in equity.
Revenue - arises in an ordinary course of business
operations. The account title to be used is based on
the business operations such as:
The business is service concern - If the business is
service concern, the general account title could be
used is Service Income but specifically could used
account title based on the nature of business-like:
Laundry Income, Interest Income, Professional Fees,
Tuition Fees, Legal Fees, Rental Income etc.
If the business is merchandising or manufacturing:
the account title that should be used is Sales arising
for sales of goods.
Gains - any income that does not meet the definition
of revenue which may or may not arise from the
ordinary course of business. An example is Gain on
sale of property, plant and equipment. Not part of the
normal course of the business.
Expenses - is decreases in economic benefits during
the accounting period in the form of outflows of
assets or increases of liabilities, that result from
decrease in equity. Examples are:
Salaries Expenses - expense incurred from the
services provided by employees which includes
compensation, 13th month pay, allowances and other
benefits.
Utilities Expenses - includes expenses incurred from
electricity, water, communication, fuel and gasoline.
Advertising Expense - includes any promotional
activities paid and used to advertise the business like
media, billboards and leaflets.
Depreciation Expense - estimated annual decrease in
cost of depreciable assets like equipment, building,
machinery and furniture and fixtures.
Uncollectible Accounts Expense - also called Doubtful
Accounts Expense or Bad Debts Expense, the amount
of receivables which estimated to be uncollectible.
Interest Expense - expense incurred due to borrowed
funds.
 Fundamentals of Accounting, Business and Management
Losses - any outflow of assets does not meet the
definition of expense which may or may not arise from
the ordinary course of business. Example is Loss on
sale of property, plant and equipment.
Lesson 7 II: The Accounting Equation and Type of
Major Accounts
Owner’s Equity
 Owner's equity is the portion of a company's
assets that an owner can claim; it's what's left
after subtracting a company's liabilities from
its assets.
 Owner's equity grows when an owner
increases their investment or the company
increases its profits.
Double Entry Book Keeping
 It means that there are atleast two accounts
are affected. It also states that there is at least
one debit and least one credit.
Chart Account
 The chart of accounts is the listing of account
titles and the corresponding account number
used by business. The business could assign a
range of code for the account number for the
certain elements of financial statement.
Formulas:
Assets = Liabilities + Equity.
Total Assets = Current Assets + Noncurrent Assets.
Liabilities = Assets – Equity.
Equity = Assets – Liabilities.
Lesson 8: Book of Accounts
Journal Entry
 Journal entry is a record of a business
transaction in the accounting books of a
business.
 Journal entry is the one you need in financial
statement later on
The Journal
 The journal is the book of original entry. It
provides the chronological records of business
transactions in which complete information of
financial business transaction is initially
recorded
Type of Journal
1. General Journal
 The journal may be vary depends on the size
and nature of business operation. The
simplest form of journal .
aparungao
 If the business uses other types of journal, Its
function will be lessen because the company
will only used it when the transactions do not
fit to other types of journals.
What is the Purpose of a General Journal?
 Recording transactions or actions at business
events.
 Tracking investing activities for later taxation
and audit processes.
 Tracking company assets and liabilities.
 Planning and allocating costs appropriately.
 Identifying revenue, expenses, and other
costs.
2. Special Journals
 Special journals are journal of original entry
other that the general journal that are use to
record similar types of transactions. This types
of journals mostly use in merchandising and
manufacturing types of business. The
following are the entries to be recorded in the
specific journals.
 Categories: Sales Journal, Cash Receipts
Journal, Purchase Journal, Cash Payment
Journal.
Sales Journal – Merchandise sold on account.
Cash Receipts Journal - All transaction involving
receipts of cash.
Purchase Journal - Merchandise and other items
purchase done in account.
Cash Payment Journal - All transaction involving
payment of cash.
General Journal - All transaction that do not fit to
special journal.