Accounting 2.

Classifying
The art of recording, classifying, sorted as assets, liabilities, capital, d. Internal auditing
summarizing in a significant manner & in revenue, & expense accounts. check the records prepared in each
terms of money, transactions & events, department or branch.
w/c are in part, at least, of financial 3. Summarizing
character & interpreting the results thereof. are summarize thru financial statements. e. Research & Education
(American Institute of Certified Public lecturers, faculty, students.
Accountants) 4. Interpreting
to learn if the business gains or not. 3. International Accounting
Luca Pacioli for multi-national corporations dealing w/
father of Accounting and Franciscan friar FIELDS OF ACCOUNTING international trade.
on 15th century.
1. Public Accounting BUSINESS ORGANIZATIONS
Summa de Arithmetica render by a CPA
a modern way of recording business 1. According to Ownership
transactions a. Auditing
by carefully examine & test the accuracy a. Single/Sole Proprietorship
Board of accountancy of the reports. b. Partnership
the body authorized by law to make rules c. Corporation
& regulations involving CPA profession b. Management advisory services - organized by the operation of law.
includes the design, installation, & d. Cooperatives
USERS OF ACCOUNTING improvement of the firm's general acctg
1.Owner system. II. NATURE OF BUSINESS
2. Management
3. Investors c. Tax services a. Service concern
4. Creditors For filing of income tax returns. b. Merchandising- buying & selling goods
5. Employees c. Manufacturing
6. Government 2. Private Accounting
done in private enterprises. Business as an Accounting Equity
FOUR FUNCTIONS OF ACCOUNTING The business is distinct & separate from
a. Gen. Acctg its owners
1. Recording or Bookkeeping recording transactions & preparing
business transactions are recorded financial reports for the users of BRANCHES OF ACCOUNTING
systematically & chronologically. accounting.
1. Financial Accounting
2 Kinds: b. Cost Acctg systematic method of recording
a. Single-entry bookkeeping controlling cost in producing a transactions according to the accounting
shows only the debit or credit. product or service. principles.

b. Double-entry bookkeeping c. Budgeting original form of the accounting process.

has debit & credit. Involves planning for future operation.
The Trial Balances, Profit & Loss Accounts 7. Forensic Accounting TERMINOLOGIES
and Balance Sheets are used by creditors, legal accounting enables calculating
banks and financial institutions to assess the damages or settling disputes in legal  ASSETS
financial status of the company. Further, matters. are property or rights owned by the business.
taxation authorities are able to calculate the tax
based on these records only. ACCOUNTING CONCEPTS & PRINCIPLES A. Current assets
Guidelines on how accountants measure cash & other assets that are easily
2. Management Accounting process, & communicate financial converted into cash.
provides information to management for information to the users of accounting
better administration of the business. information 1. Cash on hand
coins, currencies, check, & other
3. Cost Accounting Generally Accepted Accounting Principles equivalent.
deals with evaluating the cost of a product
or service offered. 1.Relevant 2. Cash in bank
2.Reliable money deposited in the bank
pin points any wastages, leakages and 3. Comparable
defects during manufacturing and 3. Notes receivable
marketing processes. ACCOUNTING PERIOD claims of the business from anyone
The length of time that covers the evidenced by a note.
4. Auditing business transaction being reported upon.
Auditor inspects & certifies the accounts It can be monthly, quarterly, semi- 4. Marketable securities
for accuracy, & internal audit by the annually, or annually. example: stocks
company
Calendar year 5. Interest receivable
5. Tax Accounting a period of twelve months starting Interest earned from customers
include preparation and filing of various January 1 to December 31.
6. Accrued interest income
tax returns and dealing with their legal
implications. Fiscal Year interest income that has been passed
any succession of twelve months starting due
Tax accountants aid in minimizing tax payments with any month except January and
December. 7. Accounts receivable
and also help financial accountants in preparing
sales rendered on account.
financials for tax reporting to various authorities.
5 MAJOR ACCOUNTS
8. Estimated uncollectible account
6. Government Accounting
1.Assets also called allowance for bad debts.
It is done for Central Government and
State Government budget allocations and 2.Liabilities
3.Income 9. Advances
utilization. advance payment to employees.
4.Capital
5.Expenses
 10. Merchandise Inventory 2. Notes payable EXPENSES
goods unsold at the end of the accounting payable within a year
period. obligation bearing a promissory note. 1. Taxes & licenses
payment to government for business
10. Prepaid expenses 3. Interest payable operations. Ex. Mayor's permit
unused supplies an interest due.
2. Salaries expense
An expenses paid in advance. 4. Taxes payable the cost of service rendered by the
employees.
11. Tools 5. Salaries payable
ex. Pliers, hammer, etc. Unpaid salary 3. Supplies expense
the cost of office items.
B. Non-current asset Long-term liabilities
1. Land an obligation that is payable beyond one y 4. Delivery expense
space owned by the business ear. cost of transportation

2. Building Mortgage payable 5. Bad debts

2. Furniture & fixtures
ex. Tables, chairs, cabinets
3. Delivery equipment
ex. Van, truck, motor cycle, etc.
4. Accumulated depreciation
contra-asset account that is deductible
from a particular fixed-asset.
5. Intangible asset
ex. Goodwill, patents, etc.
an obligation secured on real estate.
 CAPITAL/ OWNER'S EQUITY
vested interest of the owner in the
business.
Owner's drawing
the cash withdrawal made by the owner
Income & expense summary
temporary account opened at the end of
the accounting period to absorb the
income & expense account.
portion of accounts receivable that cannot
be collected.
6. Depreciation expense
Cost of the fixed-asset w/c has been
charged to income during the period.
7. Insurance expense
the insurance premium paid by the
business.
8. Rent expense
the space occupied by the business

7. PPE  INCOME 9. Interest Expense

earnings of the business. the amount charged for the use of money.
 LIABILITIES
1. Service income
1. Accounts payable 2. Fees 10. Advertising expense
obligation that arise from the purchase of 3. Legal fee promotional expenses in selling the
goods or services on account. products.
4. Sales
5. Commission income
6. Other income
11. Utilities expense
the cost of light & water used in the
business.
12. Repairs & maintenance
13. Salesmen salary
14. Cost of sales or cost of goods sold
the purchase price
Government Agencies & Professional Bodies
DTI
facilitates registration of sole proprietorship
businesses & regulates consumer commodity
transactions.
BIR
Collection of taxes from the public
SEC
audits financial statements of the organizations,
regulates issuance of shares & bonds to the
public, facilitates registration of partnership &
corporation.
BSP
regulates bank operations, sets monetary policy
& related functions.
PSE
monitors securities transactions of companies
listed in the stock exchange.
COA
audits government related transactions
BOA (Board of Accountancy)
administers board exam for CPA
PRC
issues licenses to successful examinees in the
board exams.
PICPA (Phil. Institute of Certified Public
Accountants)
professional organization of accountants in the
Philippines.
Municipal hall/ City Hall
issues business permits & collects real property
taxes.
Financial Statements
Shows the result of the recording of the business
transactions & are expressed in terms of assets,
liabilities, equity, income, & expenses
4 COMPONENTS
1. Statement of Financial Position (Balance
Sheet) - financial condition of the business
through its assets, liabilities, & capital.
2. Statement of Profit or Loss (Income
Statement) - financial performance of the
business thru its income & expenses.
2. Statement of Changes in Equity
- changes in capital due to additional investments,
withdrawals, net income, or net loss.
4. Statement of Cash Flows
- cash inflows & the cash outflows of the business
thru its operating, investing, & financing
Transactions
The data recorded in the accounting book. The
economic activities of the firm.
Steps in the Accounting Cycle
1. Journalizing
2. Posting
3. Preparing the trial Balance
4. Preparing the Adjusting entries
5. Preparing the adjusted trial balance
6. Preparing the financial statements
7. Closing entries/Reversing Entries
8. Post-closing trial balance
ACCOUNTING EQUATION
Assets Liabilities + Owner's Equity
An Account
use to summarize the increases & decreases in
the asset, liability, & proprietorship.
Rules of Debit & Credit
DEBIT
1. Increase assets
2. Increase liabilities
3. Decrease proprietorship due to withdrawal
4. Increase in expenses & losses
CREDIT
1. Decrease assets
2. Increase liabilities
3. Increase proprietorship due to investment
4. Increase in income
TRIAL BALANCE
a list of accounts w/ open balances in the
general ledger. It proves the equality of
the debits & credits in the general ledger.

2 Types of Trial balance:

1. Trial balance of balances

accounts with open balances either in
debit or credit balance.

2. Trial balance of Totals

Both have entries of cash in debit and
credit.