FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND
BY: IYA GRACE GARCIA
FABM – 1 I E-BOOKS RELATED & NOTES
SOURCE:
https://tinyurl.com/financialandmanagerialacc
https://drive.google.com/drive/folders/
1WjkX2q2SuSkb7IrmiLPLFsW5iCJ1wB0V
ACCOUNTING VOCABULARY: THE
LANGUAGE OF BUSINESS
ACCOUNTING - is the information
system that measures business activity,
processes the data into reports, and
communicates the results to decision
makers. The language of business
FINANCIAL STATEMENTS - Report on a
business in monetary terms.
DECISION MAKERS: THE USERS
ACCOUNTING INFORMATION
FINANCIAL ACCOUNTING provides
information for external decision
makers, such as outside investors and
lenders. Financial accounting provides
data for outsiders.
MANAGERIAL ACCOUNTING focuses on
information for internal decision
makers, such as the company’s
managers. Managerial accounting
provides data for insiders.
 BUSINESSES
Business owners use accounting
information to set goals, to measure
progress toward those goals and to
make adjustments when needed.
 INVESTORS have some ownership
interest (stock) often provide
money to get the business going.
 CREDITORS any person or business
lending money.
 TAXING AUTHORITIES Local, state,
and federal governments levy taxes.
Income tax is 1`figured using
accounting information. Good
accounting records can help
individuals and businesses take
advantage of lawful deductions.
TYPES OF BUSINESS ORGANIZATIONS
 SOLE PROPRIETORSHIP
 PARTNERSHIP
 CORPORATION
 LIMITED-LIABILITY
PARTNERSHIP (LLP) AND
LIMITED-LIABILITY COMPANY
(LLC)
SOLE PROPRIETORSHIP has a single
owner, who often manages the
business. Proprietorships tend to be
small retail stores or professional
businesses,
such as attorneys and accountants.
OF Every proprietorship is distinct
from its owner: The accounting records
of the proprietorship do not include the
proprietor’s personal records.
PARTNERSHIPS joins two or more
individuals as co-owners. This is a
mutual agency.
For accounting purposes, the
partnership is a separate organization,
distinct from the partners.
CORPORATIONS is a business owned by
stockholders, or shareholders. These
are the people who own shares of stock
in the business.
Stock is a certificate
representing ownership interest in a
corporation. A business becomes a
corporation when the state approves its
articles of incorporation, and the first
stock share is issued.
Unlike a proprietorship and a
partnership, a corporation is a legal
entity distinct from its
owners.
This legal distinction between
corporations and traditional
proprietorships and partnerships can be
very important for the following reason:
If a proprietorship or a partnership
cannot pay its debts, lenders can take
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND
BY: IYA GRACE GARCIA

FABM – 1 I E-BOOKS RELATED & NOTES

the owners’ personal assets to satisfy personal use, it should not be
the obligations. But if a corporation included as part of the
goes bankrupt, lenders cannot take the company’s expenses.
personal assets of the stockholders. • Going concern principle – business is
expected to continue indefinitely.
KEY TAKEAWAY Example:
Corporations are formed with the - When preparing financial
state by issuance of a charter. The statements, you should assume
stockholders own the corporation, but that the entity will continue
they have no liability for the indefinitely.
corporation’s actions. Corporations • Time period principle – financial
usually raise capital more easily than statements are to be divided into
other forms of business, but have the specific time intervals.
disadvantage of additional regulation Example :
and additional taxes. - Philippine companies are
required to report financial
ORGANIZATION OF A CORPORATION statements annually.
- The salary expenses from
January to December 2015
should only be reported in 2015.
• Stable Monetary unit principle –
amounts are stated into a single
monetary unit
Example :
- Jollibee should report financial
statements in peso even if they
have a store in the United
States.
- IHOP should report financial
GAAP (GENERALLY ACCEPTED statements in dollars even if
ACCOUNTING PRINCIPLES) they have a branch here in the
Philippines
ACCOUNTING CONCEPTS AND • Objectivity principle – financial
PRINCIPLES statements must be presented with
supporting evidence.
• Business entity principle – a business Example :
enterprise is separate and distinct from - When the customer paid Jollibee
its owner or investor. for their order, Jollibee should
Examples : have a copy of the receipt to
- If the owner has a barber shop, represent as evidence.
the cash of the barber shop - When a company incurred a
should be reported separately transportation expense, a
from personal cash. voucher should be prepared as
- The owner had a business evidence.
meeting with a prospective • Cost principle – accounts should be
client. The expenses that come recorded initially at cost. The cost
with that meeting should be part principle means we list at the amount
of the company’s expenses. If shown on the receipt—the actual
the owner paid for gas for his amount paid.
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND
BY: IYA GRACE GARCIA
FABM – 1 I E-BOOKS RELATED & NOTES
Example :
- When Jollibee buys a cash
register, it should record the
cash register at its price when
they bought it.
- When a company purchases a
laptop, it should be recorded at
the price it was purchased.
• Accrual Accounting Principle –
revenue should be recognized when
earned regardless of collection and
expenses should be recognized when
incurred regardless of payment.
On the other hand, the cash
basis principle in which revenue is
recorded when collected and expenses
should be recorded when paid. Cash
basis is not the generally accepted
principle today. It is because the result
is less accurate and the timing of cash
flow is do not necessarily reflect the
proper timing of changes in the financial
condition of a business.
Example:
 When a barber finish performing
his services he should record it
as revenue. When the barber
shop receives an electricity bill,
it should record it as an expense
even if it is unpaid.
• Matching principle – cost should be
matched with the revenue generated.
Example:
 When you provide tutorial
services to a customer and there
is a transportation cost incurred
related to the tutorial services, it
should be recorded as an
expense for that period.
• Disclosure principle – all relevant and
material
information should be reported.
Example:
 The company should report all
relevant information.
• Conservatism principle – also known
as prudence. In case of doubt, assets
and income should not be overstated
while liabilities and expenses should not
be understated.
Example:
 In case of doubt, expenses
should be recorded at a higher
amount. Revenue should be
recorded at a lower amount.
• Materiality principle – in case of assets
that are
immaterial to make a difference in the
financial
statements, the company should instead
record it as an expense.
Example:
 A school purchased an eraser
with an estimated useful life of
three years. Since an eraser is
immaterial relative to assets, it
should be recorded as an
expense.
THE ACCOUNTING EQUATION
Determining profit through operation
• Accrual basis of accounting vs Cash
basis of accounting
– accrual basis recognizes revenue
when earned and recognizes expenses
when incurred
• Under the expense recognition
principle, expenses can be recognized
either as: (1) matching; (2) systematic
allocation, or; (3) direct
association.
• Profit measures the performance of
the company. If the revenue exceeds
expenses, then it is a net profit;
otherwise, it is a net loss. Received
cash for revenue earned.
TYPE OF MAJOR ACCOUNTS
ASSETS are the resources owned and
controlled by the firm.
CURRENT ASSETS
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND
BY: IYA GRACE GARCIA

FABM – 1 I E-BOOKS RELATED & NOTES

 Cash is any medium of exchange  Intangible Assets are
that a bank will accept for identifiable, non-monetary assets
deposit at face value. Coins, without physical substance.
currency, check, money orders, Includes goodwill, patents,
bank deposits. copyrights, licenses, franchises,
 Notes Receivable are amounts trademarks, brand names, secret
due from clients supported by processes, and software.
promissory notes or written  Biological Assets poultry, farms,
pledge. animals or anything alive
 Accounts Receivable are claims
against customers arising from LIABILITIES are the debts and
sale of services or goods on obligations of the company to another
credit. entity.
 Inventories are assets held for CURRENT LIABILITIES that fall due
resale; in a form of materials or (paid, recognized as revenue) within one
supplies to be consumed in the year after year-end date.
production process or in  Account Payable are amounts
rendering of services. due, or payable to, suppliers for
 Supplies are items purchased by goods purchased on account or
an enterprise which are unused for services received on account.
as of the reporting date.  Notes Payable written promise
 Prepaid Expenses are expenses to pay a certain amount on a
paid in advance; prepaid specific due date.
insurance and rent  Accrued Expenses/Liabilities are
 Accrued Income is revenue expenses that are incurred
earned but not yet collected (recorded on the date when it
 Short term investments are the occurred rather than the date it
investments made by the was paid)
company that are intended to be Salaries payable or accrued
sold immediately salaries, utilities payable,
interest payable and taxes
NON-CURRENT ASSETS payable
 Property, Plant and Equipment  Unearned Revenues or Deferred
are tangible assets long-lived Revenues receives payment first
assets which have been acquired before providing the goods or
for use in operations. services. Down payment
Land, building, machinery,  Current Portion of Long-Term
equipment, furniture and Debt these are portion of
fixtures, and vehicles. mortgage notes, bonds and other
 Long term investments are the long-term indebtedness
investments made by the
company for long-term purposes NON-CURRENT LIABILITIES

 Accumulated Depreciation is a Loans Payable debt from the bank

contra account. The balance of Mortgage Payable (collateral) long-term
this account is deducted from debt of the business for which the entity
the cost of related asset to has pledged certain assets as security
obtain book value. to the creditor.
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND
BY: IYA GRACE GARCIA

FABM – 1 I E-BOOKS RELATED & NOTES

Bonds Payable substantial sums of
money from lenders to finance
acquisition of equipment. The bond is
contract between the issuer and the
lender. Typically, 5 to 10 years
OWNER’S EQUITY
Capital used to record the original and
additional investments of the owner.
Money, property owned by the owner.
Withdrawals or Drawings is an account
debited for assets withdrawn by the
owner for personal use from the
business.
Income Summary temporary account
use only for closing income and expense
accounts. This account shows the profit
or loss for the period before closing the
capital account.
 Utilities Expense
telecommunication, internet,
electricity and water facilities.
 Supplies Expense office supplies
 Rent Expense space equipment
or other asset rentals.
 Marketing and Advertising
Expense for various forms of
advertisements and marketing
promotions used by businesses.
 Insurance Expense portions of
premiums pain on insurance
coverage which has already
expired.
 Depreciation Expense portion of
the cost of a tangible asset
allocated or charge as expense.
 Bad Debts Expense number of
receivables estimated to be
uncollectible. Also called
doubtful account or uncollectible
account expense.
 Interest Expense an expense
related to use of borrowed funds.

INCOME increases in economic benefits;

inflows
 Service Income/Revenue earned
by performance of services for a
customer. Accounting services,
repairs services, laundry
services.
Sales, fees, dividends, and rent.
 Sales revenues earned as a
result of sale of merchandise

EXPENSES
 Cost of Sales or Cost of Goods
Sold are the cost incurred
(performed) to purchase or to
produce the products sold to
customers during the period.
 Salaries Expense includes
salaries, wages, 13th month pay,
cost of living allowance etc.