Fundamentals of

Accountancy,
Business and
Management 1
 Lord, we praise and glorify Your
Holy name. Forgive us from our sins
that separate us from your love.
Thank You for the gift of life,
family, health and security. Help us
to responsibly utilize our assets and
find opportunities in them. Bless our
families and our homes. All this we
pray in the name of Jesus Christ our
Savior. Amen.
Learning Objectives:
 classify accounts according to major accounts
 identify what type of journal is applicable to certain
transactions
 differentiate the two types of ledger
 identify and analyze business transactions
 apply the rules of debit and credit
 relate assets and liabilities with the message of the
Scriptures
 What are the
things do you
consider your
assets?
The Five Major
Accounts and
Account Titles
 Financial Statements
• balance sheet shows the financial
position of the business
• income statement shows the profit
or loss of the business
 Balance Sheet
• Assets
• Liabilities
• Equity
 Income Statement
• Income
• Expenses
 Assets
• resources owned by the enterprise as a
result of past events and from future
economic benefits expected to flow to
the enterprise
• properties and rights owned by the firm
• two classifications of assets – current
assets and noncurrent assets
Current assets
• can be readily converted into cash
or sold or consumed within one
year or the normal operating cycle
• expected to be realized within one
year
• Cash and Cash Equivalents consist of coins and
currencies on hand, money orders, checks from
customers and deposits in bank accounts.
• Trading Securities, also known as temporary
investments, are short-term investments funds
available for current operations.
• Receivables represent amounts collectible from
customers, clients and other persons for goods,
services or money given.
a. Accounts Receivables are collectibles from
customers arising from sale of goods or services
on open accounts without any formal written
promise to pay.
b. Notes Receivables are collectibles which are
supported by formal promises to pay in the form
of promissory notes.
c. Accrued Interest Receivable is interest income
earned but not yet collected.
d. Advances to Officers and Employees are loans
given to employees.
 Allowance for Doubtful Accounts or
Allowance for Bad Debts is a contra-asset
account used to record accumulated balance
of customers’ accounts that are doubtful of
collectability. It is a contra-asset account
because it is an offset against an asset.
• Inventories are assets that are held for sale in the
ordinary course of business. In a merchandising
business, Merchandise Inventory is used. In a
manufacturing firm, Raw Materials Inventory,
Work-in Process Inventory, Finished Goods
Inventory and Factory Supplies are used.
• Prepaid Expenses are expenses paid and
recorded as assets before they are incurred, used
or consumed.
a. Prepaid Rent
b. Prepaid Insurance
c. Prepaid Advertising
d. Office Supplies or Store Supplies are supplies
bought but not yet used.
Noncurrent assets
• tangible, intangible, operating and
financial assets of a long-term
nature
• Property, Plant and Equipment are tangible
assets which are held by an enterprise used for
production, supply of goods and services, rental
to others, and administrative purposes, and are
expected to be used for more than one accounting
period.
a. Land is a lot or estate owned and used by a firm
as building site, parking area and other business
operations. Take note that land appreciates and
not depreciates.
b. Building is a structure used to house an office,
store or factory.
c. Equipment includes:
i. Machinery composed of machines, ovens,
conveyors, etc.
ii. Furniture and Fixtures including chairs, tables,
lighting fixtures, wall decorations, etc.
iii. Store Equipment including cash registers,
weighing scales, etc.
iv. Delivery Equipment including trucks, pick-ups,
vans, forklifts, etc.
 Accumulated Depreciation is a contra-asset
account representing usage of asset or
expired cost of the asset up to the present. It
is a contra-asset account because it is
deducted from the appropriate fixed asset
account to produce the book value or
carrying value (describes the net valuation of
an asset).
• Long-term Investments are tangible assets held
by a business for the accumulation of wealth.
These are assets not directly identified with the
operating activities of the business.
a. Investment in Stocks
b. Investment in Bonds
c. Investment Property
d. Fund for noncurrent purposes which are
restricted cash intended for future purchase
of additional property
• Intangible Assets are identifiable non-monetary
assets without physical substance. They are long-
lived assets without physical characteristics.
Whole value lies in the rights, privileges and
competitive advantages that they give the owner.
a. Patent
b. Copyright
c. Trademark
d. Franchise
e. Goodwill
 Liabilities
• present obligations of an enterprise
arising from past transactions or events
• settlement is expected to result in an
outflow of resources
• two classifications of liabilities –
current liabilities and noncurrent
liabilities
Current Liabilities
• obligations expected to be settled in
the normal course of the business’s
operating cycle and are due within
one year
• Accounts Payable refers to indebtedness that
arise from purchase of goods, materials, supplies
or services in an open charge account not
evidenced by any written promise to pay.
• Notes Payable is a payable evidenced by a
promissory note.
• Communications Payable refers to obligations
related to any means of communication received
by the business.
• Utilities Payable refers to obligations to utility
companies and water companies.
• Taxes and Licenses Payable refers to obligations
to government in the form of business and
transfer taxes, income taxes, business permits,
etc.
• Withholding Tax Payable, SSS Payable,
Philhealth Payable, PAGIBIG Payable are
obligations to government agencies representing
payroll-related mandatory contributions of
employers and employees.
• Unearned Revenues represent obligations for
goods and services that a company must provide
or deliver in a future accounting period in return
for an advance payment from a customer. These
are income collected but not yet earned.
Examples of these are Unearned Interest Income,
Unearned Rent Income and Unearned
Subscriptions Revenue.
• Accrued Expenses, also known as Accrued
Liabilities, are expenses incurred but not yet
paid. Examples of these are Accrued Salaries
Payable and Accrued Interest Payable.
Noncurrent Liabilities
• tangible, intangible, operating and
financial liabilities of a long-term
nature
• Long-term Notes Payable is an obligation
evidenced by a promissory note that is to be paid
beyond one year.
• Bonds Payable is a liability supported by a
formal unconditional promise made under seal to
pay a specified sum of money at a determinable
future date.
• Mortgage Payable is a long-term obligation to a
bank or other financial institutions secured by real
properties of the business.
 Equity or Capital
• the residual interest in the assets of the
enterprise after deducting all its
liabilities
• the owner’s contribution to the business
• Owner’s Capital or Owner’s Equity is the
residual amount after deducting liabilities from
asset.
• Owner’s Drawing is used to record the
temporary withdrawals of the owner during the
period.
 Income
• an increase in economic benefits during
the accounting period in the form of
inflow or enhancement of assets or a
decrease in liabilities that results to
increase in equity other than those
relating to contributions from equity
participants
 Income
• is a result of selling goods, rendering
services or performing business
activities
• includes both revenue and gains
Revenue
• arises in the course of the ordinary
activities of a business
• Service Revenue / Professional Fees / Income
from Fees / Service Fees / Service Income refer
to revenue earned by a service business from
selling or rendering services.
• Rent Income refers to revenue earned from
renting out commercial spaces.
• Interest Income refers to revenue earned from
lending money.
• Sales refer to revenues earned by a merchandising
business from selling goods to customers.
 Sales Discount is a contra-revenue account
that refers to the reduction in the amount to
be paid by a customer as a result of early
payment of an invoice.
 Sales Returns and Allowances is a contra-
revenue account representing the return of
merchandise or deduction from the selling
price.
 Sales Returns are merchandise returned at
selling price by customers due to defects,
inferior quality or wrong specifications.
 Sales Allowances are cases where the
customer would be willing to keep the item if
the seller is willing to grant a deduction from
the selling price.
Gains
• represent other items that are
considered as income which may or
may not arise in the ordinary
activities of the business or entity
 Expenses
• are decreases in economic benefits
during the accounting period in the form
of outflows or depletion of assets or
incidences of liabilities that result to
decreases in equity other than those
relating to distributions from equity
participants
 Expenses
• are decreases in owner’s equity
resulting from the costs of goods and
services used up in the course of earning
revenues
• include both expenses and losses
Expenses
• arise in the course of the ordinary
activities of a business
• Advertising Expense refers to the costs of
promoting the product/business.
• Communications Expense refers to the cost of
all means of communications.
• Delivery Expense, also known as Freight out or
Transportation out, refers to the cost of
transporting goods to customers.
• Freight in or Transportation in refers to the cost
of transporting good bought from sale; delivery
expense shouldered by the buyer.
• Depreciation Expense refers to the “wear and
tear” of fixed assets.
• Insurance Expense refers to the insurance
premiums paid by the business.
• Interest Expense refers to the cost of borrowing
money.
• Rent Expense refers to the charges paid to have
the right to use a property.
• Salary Expense refers to the compensation given
to employees.
• Cost of Merchandise Sold or Cost of Sales
represents the value of items sold.
• Purchases refer to the merchandise acquired or
bought during the accounting period.
 Purchase Returns and Allowances is a contra-
expense account representing the reduction from
the amount that the business has to pay for
merchandise bought due to defect, inferior quality
and wrong specifications.
 Purchase Discount is a contra-expense account
that refers to the discount taken by the business
for early payment.
Losses
• represent other items that are
considered as expenses which may
or may not arise in the ordinary
activities of the business or entity
Chart of Accounts
 Chart of Accounts
• a list of all the accounts used by a
business
 Chart of Accounts
Acct. No.   Acct. No.  
100 ASSETS 400 INCOME
110 Cash 410 Service Revenue
120 Accounts Receivable 420 Sales
125 Allowance for Bad Debts 430 Interest Income
130 Notes Receivable 440 Gains
140 Inventory    
150 Prepaid Insurance 500 EXPENSES
160 Land 510 Cost of Sales
170 Building 515 Freight-out
175 Accumulated Depreciation 520 Rent Expense
    525 Utilities Expense
200 LIABILITIES 530 Bad Debts Expense
210 Accounts Payable 535 Depreciation Expense
220 Long-Term Notes Payable 540 Advertising Expense
    545 Taxes and Licenses
300 EQUITY 550 Interest Expense
310 Owner’s Capital 555 Miscellaneous Expense
320 Owner’s Drawing 560 Losses
The first digit in the 3-digit numbering refers to
the five major accounts:
Major types of accounts Assigned Number
Assets 1
Liabilities 2
Equity 3
Income 4
Expenses 5

120 Accounts Receivable

The second digit in the 3-digit numbering refers
to the account titles and the sequence on how
they are listed in the chart of accounts.

120 Accounts Receivable

The third digit in the 3-digit number, if not zero,
signifies that the account is a contra-account.

125 Allowance for Bad Debts

Books of Accounts
 Journal
• “book of original entries”
• accounting record where business
transactions are first recorded
• journal entries
• journalizing
 Special Journal
• used to record transactions of a
similar nature
• simplify the recording process
• provide an efficient way of
recording and retrieving
information
 Special Journal
• Sales journal - used to record sales
on account
• Purchases journal - used to record
purchases of inventory on account
 Special Journal
• Cash receipts journal - used to
record all transactions involving
receipt of cash
• Cash disbursements journal -
used to record all transactions
involving payments of cash
 Accounts affected by a transaction other
Accounts that are normally credited when than “accounts receivable” and “sales” are
cash collection is recorded are separately recorded here. “Sundry” means
indicated here. miscellaneous or various.

Cash Receipts Journal

Sales Sundry Credits
Date Description A/R Credit Cash Debit
Credit Account Title Amount
                     

The amount of credit to a “sundry” The amount of cash collection (debit to

account is recorded here. cash) is recorded here .
 General Journal
• all other transactions that cannot be
recorded in the special journals
• If a business does not utilize or use
special journals, all its transactions
are recorded in the general journal.
 Account titles column indicates
the accounts affected by a
business transaction.

Date column indicates the Account numbers column

recording dates of the indicates the numbering of
transactions. Transactions are accounts found in the Chart of
recorded chronologically. Accounts.
General Journal
Date Account Titles Acct. Nos. Debit Credit
             
             

Debit and credit columns Centavos are placed here.

indicate the monetary effects of
the transaction.
 Case 1
You sold a can of sardines to your
neighbor who promised to pay next
week.
Analysis: This transaction involves
sale on account because there is no
cash involved. Therefore, this
transaction is recorded in the sales
journal.
 Case 2
You sold a sachet of seasoning to your
neighbor who immediately paid in
cash.
Analysis: This transaction involves
sale on cash. You received cash from
your neighbor. Therefore, it is
recorded in the cash receipts journal.
 Case 3
You received your electric bill and
decided to pay next week.
Analysis: This transaction does not
involve sale or purchase of inventory
and receipt or payment of cash.
Therefore, it is recorded in the general
journal.
 Ledger
• “book of secondary entries” or the
“book of final entries”
• systematic compilation of a group
of accounts
• classify the effects of business
transactions on the accounts
• posting
 General Ledger
• contains all the accounts appearing
in the trial balance
 Subsidiary Ledger
• provides a breakdown of the
balances of controlling accounts
• controlling account - ledger
• accounts that compromise the
controlling account - subsidiary
ledger
 Example
Your store has a long list of accounts
receivable due to sales on credit. The
balance of credit sales that needs to be
collected is ₱10,000.
In order to provide detailed information on your
collections, here is the illustration:

General Ledger Subsidiary Ledgers

Accounts Receivable
from Juan, ₱2,000
Accounts Receivable, Accounts Receivable
₱10,000 from Pedro, ₱3,500

Accounts Receivable
from Maria, ₱4,500
When posted to ledger, this is what it looks like:

General Ledger Subsidiary Ledgers

Accounts Receivable No. 120 Accounts Receivable, Juan

Date Ref. Debit Credit Balance Date Ref. Debit Credit Balance
1/19/21 10,000 10,000 1/19/21 2,000 2,000

Accounts Receivable, Pedro

Date Ref. Debit Credit Balance
1/19/21 3,500 3,500

Accounts Receivable, Maria

Date Ref. Debit Credit Balance
1/19/21 4,500 4,500
Rules of Debit and
Credit
• double-entry system
• debit and credit
• involves the use of the concepts of
“duality” and “equilibrium”
• concept of duality - views each
transaction as having two-fold
effect on values; at least two
accounts
• concept of equilibrium - each
transaction is recorded in terms of
equal debit and credit
 Normal Balance
• on the side where an increase in that
account is recorded
• To debit an account with a normal debit
balance means to increase that account.
To credit it means to decrease it.
• To credit an account with a normal
credit balance means to increase that
account.
 Normal Balance
Type of Account Normal Balance Debit Credit
Asset Debit Increase Decrease
Liability Credit Decrease Increase
Equity Credit Decrease Increase
Income Credit Decrease Increase
Expense Debit Increase Decrease
 Example 1
You invested cash as the initial capital of
your business.
Analysis: Cash is an asset. Cash increased.
Thus, we debit cash. Capital increased.
Capital is equity. Thus, we credit capital.
(Debit cash, credit capital)
 Example 2
You purchased inventory on account.
Analysis: Inventory is an asset. Inventory
increased. Thus, we debit inventory. We
purchased it on account. We have accounts
payable. Accounts payable is a liability.
Accounts payable increased. Thus, we credit
accounts payable. (Debit inventory, credit
accounts payable)
 Example 3
You rendered service to a customer on account.
Analysis: You received service revenue for a service
rendered. Service revenue increased. Thus, we credit
service revenue. The customer did not pay in cash;
instead, he/she put it on account. You have a
collection to make under accounts receivable.
Accounts receivable is an asset. Accounts receivable
increased. Thus, we debit accounts receivable.
(Debit accounts receivable, credit service revenue)
 Example 4
You paid your electric and water bills in
cash.
Analysis: Electric and water bills fall
under utilities expense. Utilities expense
increased. Thus, we debit utilities expense.
Cash is an asset. Cash decreased. Thus, we
credit cash. (Debit utilities expense, credit
cash)
 Example 5
You recorded depreciation on your equipment.
Analysis: Accumulated depreciation is a contra-asset
account. This means that it is opposite to the normal
balance of asset which is debit. Thus, we credit
accumulated depreciation. Since we follow the
concept of duality and equilibrium, we record
depreciations expense. Depreciation expense
increased. Thus, we debit depreciation expense.
(Debit depreciation expense, credit accumulated
depreciation)
 Activity!!! 
(for plus points)
1. You purchased inventory on account.
2. You paid cash for rent expense.
3. You paid your loan (w/ promissory note).
4. You paid your loan (w/out promissory note).
5. A customer paid his credit (with promissory
note).
6. A customer paid his credit (without promissory
note).
7. You withdrew cash.
8. You invested your personal furniture to the
business.
 Identifying and
Analyzing Business
Transactions
 Accounting Cycle
• represents the steps or procedures used
to record transactions and prepare
financial statements
• implements the processes of
identifying, recording and
communicating economic information
 Accounting Cycle
1. Identifying and analyzing
2. Journalizing
3. Posting
4. Unadjusted trial balance
5. Adjusting entries
6. Adjusted trial balance (and/or worksheet)
7. Financial statements
8. Closing entries
9. Post-closing trial balance
10. Reversing entries
 Identifying and Analyzing
• only accountable events are recorded in
the book of accounts
• affect the assets, liabilities, equity,
income or expenses of the business
 Identifying and Analyzing
1. Owner’s investment
2. Acquisition of equipment on account
3. Sale of inventory on account with promissory
note
4. Payment of advertising expense
5. Owner’s withdrawal
6. Hiring of new employees
7. Market implementation
8. Doing SWOT analysis
 Activity!!! 
(for plus points)
 Identifying and Analyzing
1. Collection of receivable
2. Closing deal with clients
3. Personnel’s day
4. Implementation of plans
5. Payment of utilities
6. Acquisition of inventory
7. Bought equipment
8. Sale of finished goods
Mary Mother of the Good Shepherd
Pray for us.

Jesus, You are my Lord

My happiness lies in You alone.