LIABILITIES

• These are obligations that the firm owes to other individuals or

organizations for the acquisition of goods and services. Examples are
account payable , notes payable taxes payable,salaries payable and
others. They are increased when assets or services are purchased on
credit. Liabilities may also be created by accepting payments from
customers for goods to be delivered in the future..
• Liabilities are decreased through payments to creditors.Obligations to
creditors may also be settled through issuance of promissory notes
which actually is another form of liability. The obligations of the
business may also be decreased if owners assumespersonally the
payment of same which will result at the same time an increase in
proprietorship or equity.
CAPITAL OR PROPRIETORSHIP or
OWNER’S EQUITY
• This is the financial interest or claim to , the
owner in the assets of the business. It is
thedifference between the amount of assets
and amount of liabilities.
•Principles of Accounting

The following describe the basic

concepts and principles adapted in
financial accounting;
1. Accounting Entity

is the specific business enterprise separate

and distinct from its owners and other
business unit. For example, cash transactions
of a cooperative are separate and distinct from
cash transaction of its individual owners.
The business enterprise is identified in its
financial statements.
2. Going Concern.

An accounting entity is viewed as continuing

business unit without interruptions in its
operation. It is evidenced by financial reports
showing costs that pertain to future activities
and revenues and costs that are assigned to
current period.
A business entity is no longer considered a
going concern if it is in the process of
dissolution or liquidation.
3. Measurement of economic
resources and obligations.

Only those economic activities

that can be quantified should be
measured and reported in
financial statements.
4. Accounting periods.

The financial report should contain

information about economic activities of an
enterprise for specified time periods,
usually one year, that are shorter than the
life of the enterprise. Reports may also be
prepared on a monthly basis to facilitate
comparisons and process of decision
making.
5. Measurement in terms of money.

Economic resources and obligations

and changes in them must be
measured in terms of the peso and
should be identified in the financial
statements.
6. Accrual.

In determining periodic net surplus

(net income), revenues are
recognized as earned rather than
when cash is received; expenses are
recognized when incurred rather
than when cash is paid.
7. Exchanged price.

Financial accounting
measurements are primarily
based on historical prices at the
time economic resources and
obligations are exchanged.