Review for Previous Lessons

&

Discussion for Accounting Equation

Module 1: INTRODUCTION TO ACCOUNTING (Jan. 29-Feb. 7, 2024)
& BASIC FINANCIAL STATEMENTS
1. define accounting.
2. describe the nature of accounting.
3. explain the functions of accounting in business.
4. differentiate bookkeeping and accounting: and
5. narrate the history and origin of accounting.

Module 2: BRANCHES OF ACCOUNTING (Feb. 12-17, 2024)

1. define branches of accounting;
2. differentiate branches of accounting; and
3. explain the kind/types of services rendered in each of these branches.

Module 3: ACCOUNTING EQUATION (Feb. 19- 26, 2024)

1. illustrate the accounting equation
2. perform operations involving simple cases with the use of accounting equation.
Including more exercises in journal entries.
Activity 1:
The Accounting definition And it’s Nature. Materials: Think a personal
transaction On your community that applied accounting process where
income statement, balance sheet and statement of cash flows happened.

Activity 2:
Kindly identify the following statement:
_________________1. It is the process of IDENTIFYING, RECORDING,
and COMMUNICATING economic events of an organization to interested
users.
_________________ 2. It involves selecting economic events that are
relevant to a business transaction. The economic events of an
organization are referred to as transactions.
_________________ 3. It involves keeping a chronological diary of events
that are measured in pesos.
_________________ 4. It occurs through the preparation and distribution of
financial and other accounting reports.
IDENTIFYING – this involves selecting economic events that are relevant to a business
transaction. The economic events of an organization are referred to as transactions.
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.
COMMUNICATING – occurs through the preparation and distribution of financial and
other accounting reports.
Activity 3:
Let’s now focused on the definition of “Accounting as the process of IDENTIFYING,
RECORDING, and COMMUNICATING economic events of an organization to interested
users.” (Weygandt, J. et. al).
You may now proceeds analyzing what ACCOUNTING is all about. Kindly identify the
following events using IDENTIFYING, RECORDING or COMMUNICATING as an
element of accounting, and kindly write your on the space provided before its number:
_____________1. Joe will no doubt start his business by putting P1,500,000 of his own
personal money buying shares of Direct Delivery's common stock.
_____________2. Direct Delivery will need to buy a sturdy, dependable delivery vehicle
in an amount of P200,000 as an additional fund and recorded.
_____________3. The business will begin earning P 40,000 for delivery fees and billing
clients for delivering their parcels of P 30,000 on account and recording.
_____________ 4. The business will be collecting the fees that were earned.
_____________ 5. The business will incur expenses in operating the business, such as a
salary for Joe, expenses associated with the delivery vehicle, advertising, etc.
Accounting is a systematic recording of financial transactions and the
presentation of the related information to appropriate persons.
Based on this definition we can derive the following basic features of accounting:
• Accounting is a process
• Accounting is a service activity.
• Accounting is an information system
• Accounting is both an art and a discipline
• Accounting deals with financial information and transactions

Activity 4:
The following economic activities below and check if it provides accounting
features. Kindly put a letter “Y” if the transactions conform as an accounting
transaction and a letter “X” if not.
_____________1. Joe earned additional P20,000 on their share at Direct
Delivery, Inc.
_____________2. He bought P 4,500 office supplies.
_____________3. The employee salary was due last January 15, 2018.
_____________4. The business will be collecting the fees that were earned.
_____________5. The business will incur expenses in operating the business,
such as a rent expense, electricity expenses, water and others.
Module 3: The Basic Accounting Equation
The equation has two elements which equally divide the entity into two parts.
The left side of the equation represents what the entity owns. On the other hand,
the right side represents those that the company owes.

Assets= Liabilities + Owner’s Equity

The left side of the equation represents

` what the company owns. These
are resources that the entity controls in order to attain future benefits.

On the other hand, the right side represents the claims of the different
parties to the company’s assets. Liabilities represent the claims of the
entity’s creditors while the equity represents the residual interest of the
owners of the entity.
Also, remember that just like in any equation, the two sides of the
equation should always be balanced.
Hence, what the company owns should always equal what it owes to its
owners.
Accounts Receivable
This represents amounts that are collectible from customers. They arise when a
business sell its goods or services on account or on credit.
Inventories
If you go to a sari-sari store, you will notice piles of assorted products being
offered for sale. Chances are, you may easily find various items that you need or
want such as food and household items.
Equipment
Pandesal shops would need ovens and furnaces in order to properly and actually
create their goods. The product of these ovens are the pandesals which would be
sold later on and eventually increase the cash of the shop.
Land and Building
In most businesses, a physical store is necessary for them to operate. For
example, how can a local carenderia function without an actual store? Where will
a barber shop operate without its building? Such buildings are also assets of the
businesses. These buildings are owned by the company so that they can use them
for their business to operate normally.
Intangible Assets
When we think of the things we can own, we normally think of tangible things or
those that can be seen and touched. However, assets also encompass intangible
things that can neither be seen nor touched. For example, the software used by
computer shops are actually assets that they own.
 ELEMENTS OF THE ACCOUNTING EQUATION
Assets
As we have learned earlier, assets are resources that an entity owns in order to derive
some future benefit. These assets are used by the company in its normal operations
such as the manufacture of goods or delivery of services. The main feature of these
assets is their capability to give benefits to the entity. These benefits are usually in
the form of their ability to directly or indirectly increase the inflow of cash to the
entity or a reduction of its outflows.

Some examples of these assets are the following:

1. Cash
We all know what cash is. Generally, it is the money that we use comprising of the
bills and coins we use in our everyday lives in order to buy the goods that we want
and also avail the services that we need. However, when accounting for cash, we also
consider cash as the money that is deposited in the banks and even undeposited
checks from customers.
Liabilities
Liabilities are one of the claims of external parties from the entity. Basically, they are
the debts of the entity to external creditors. These debts do not always have to be
paid in money. Some of these liabilities are in the form of obligations to do some
service or even give something.

These liabilities can take the form of the following:

1. Accounts Payable
When a local supermarket or convenience store like 7-Eleven buys its goods, it is
unusual for it to immediately pay cash for such goods. Normally, it would only incur
an obligation to pay its supplier after a certain number of days.
For example, when it gets a delivery of milk, it might have an agreement to pay its
supplier only after 30 days. Thus, in the meantime that the product has not been
paid yet, it would only carry a “payable” in its books.
2. Unearned Revenue
Telecommunication companies such as Globe and Smart normally offer prepaid load
to customers. These load credits can be later on used by customers for text
messages or to call other people. On the other hand, when Globe or Smart receive
payments from customers, it creates an obligation for them to actually deliver their
services. Such obligations to give their service are recorded as liabilities.
Equity
The equity reflects the residual claims or net assets of the owners of the entity.
This is similar to the “net worth” part of the SALN of our public servants. Take
note that these are only residual claims of the owners since the creditors get their
share of the entity first before the owners are given their share. This is also why
the “net worth” of individuals is computed by subtracting their liabilities from
their assets.
Generally, equity comes from two sources. The first one comes directly from the
owners in the form of investments of capital. The other comes from the income of
the business from its normal operations. The net income or net loss of the
business from its operations can be determined by using the following equation:

Revenue- Expenses = Net Income/Net losses

Equity
A business will have net income if its revenues exceed expenses and will have a net
loss if its revenues are less than its expenses.
1. Revenues
A business earns revenue when it sells its products or its services. When you go to a
store and buy a phone, the store earns revenue. When you get a haircut from a
barber shop, the shop also earns revenue. Generally, we can say that it is that a
business earns revenue when it expects to earn an economic benefit in the form of
an increase in assets such as cash or a decrease in liabilities. Other terms used for
revenue are sales, rent, fees, etc.
2. Expenses
Matching principle states that no revenue can be earned without incurring
corresponding expenditures. As such, when a store sells a phone, aside from getting
cash for the phone, it also incurs costs for the goods it has sold. On the other hand,
such is also true when services are also rendered. In the barber shop, when someone
gets a haircut, the barber shop incurs costs in the form of salary for its employees.
3. Capital
The capital account of the equity represents the net investments of the business.
This means that any contribution of the owner which increases the assets of the
business or decreases its liabilities will increase the capital account.
Activity 1: Supply the missing amounts to satisfy the basic accounting
equation.

Situation
Assets Liabilities Owner’s Equity (or Capital)
A P120,000 P85,000 ?
B P210,000 ? P195,000
C ? P65,000 P42,000
D P250,000 ?
E P170,000 P50,000 ?

Activity 2:
Carmelita Dresses started operations on July 1, 2014, with P200,000 from
personal savings and P30,000 from a bank loan. During the first year of
operations, net income was P60,000. On December 15, 2014, Carmelita
withdrew P8,000 cash. No additional activities affected owner’s equity in
2014. By December 31, 2014, Carmelita’s liabilities had increased to
P57,600. In Carmelita’s December 31, 2014 financial statements, how much
total assets should be reported?
Activity 3:
A portion of financial statements dated December 31, 2014 with the following accounts and balances
were gathered from Victor’s Rental Studio:

Accounts Payable P25,600

Accounts Receivable 52,000
Accumulated Depreciation-Building 18,000
Building 200,000
Cash 37,700
Depreciation Expense 18,000
Interest Income 1,680
Interest Receivable 1,680
Land 50,000
Mortgage Payable 151,600
Notes Payable 19,800
Notes receivable 14,000
Office Supplies 13,600
Supplies Expense 9,900
Taxes and Licenses 22,800
Utilities Expense 36,600

Based solely on the information above,

1. Compute for total assets
2. Compute for total liabilities
3. Compute for total expenses