Think Ahead

Questions
What is accounting?

Identify the users and uses of information.

Why is ethics a fundamental business concept?

What are generally accepted accounting principles?

Differentiate monetary unit assumption and economic entity assumption.

State the accounting equation and define its component.

Explain the dual effect transaction on the accounting equation.

What are the four financial statements and how are they prepared?

Explain the career opportunities in accounting.

Lesson 1:
Accounting In Action
4 Pics 1 Word

E Q U I P ME N T
_________
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_ _O _V _E _R N_ M
G _ _E _N _T
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_S _A _L _A _R _I _E _S
4 Pics 1 Word

_B _U _I _L _D _I _N _G
4 Pics 1 Word

_ _U _S _I _N _E _S _S
B
4 Pics 1 Word

M
_ _O _N _E _T _A _R Y_ _U _N _I _T
 Introduction
I n Bu s i n e s s , a c c o un t i n g a n d fi n a n c i a l s t at e m e n t s a r e m e a n s f o r co m m u n i ca t i n g n u m b e r s . If
y o u d o n’ t k n o w h o w t o r e a d fi n a n c i al s t a t em e n t , yo u ca n n o t r e a l l y k n o w yo u r b u s i n e s s . Ma ny
c o m p a n i e s s p en d s i g ni fi c a n t r e s o u r c e s t e a c h i n g t he i r e m p l oy e e s b a s i c a cco u n t i n g s o t h a t t h e y
r e a d fi n a n c i a l s t a t e m e n t s a n d u n d e r s t a n d h o w t he i r a ct i o n s a ff e ct t h e co m p any ’s fi n an ci a l
r e s u l t . It i s i m p o r t a n t f o r a n o r ga n i z a t i o n t o h ave go o d fi n a n ci a l i n f o r m a t i o n t o m a ke e ff e ct i v e
business decisions.

W h a t e ve r o n e ’s p u r s u i t f o r o c c u p a t i o n , t h e n e e d f o r fi n a n ci a l i n f o r m a t i o n i s i n e s c a p ab l e . Yo u
c a n n o t e a r n a l i vi n g, s p e n d m o ne y, b u y o n c r e d i t , m a ke a n i nve s t m e n t , o r p ay t a xe s w i t h o u t
r e c e i v i n g, u s i n g , o r d i s p e n s i n g fi na n c i a l i n f o r m a t i o n. G o o d d e ci s i o n m a k i n g d e p e n d s o n g o o d
fi n a n c i a l i n f o rm a t i o n .

L e s s o n 1 a i m s t o s h o w y o u t h a t a c c o u n t i n g i s t h e s ys t e m u s e d t o p r ov i d e u s e f u l fi n a n ci a l
i n f o r m at i o n .
Objectives

Identify the Users Explain monetary

Explain What is
and uses of assumption and
Accounting;
accounting; economic entity
assumption;

State the Analyze the effects Understand the four

accounting equation of the business financial statements
and define its transaction on the and how they are
component; accounting equation; prepared.
 Definition and Nature of accounting
• ACCOUNTING is a service activity, whose function is to
provide quantitative information, primarily financial in
nature, about economic entities, that is intended to be useful
in making economic decisions.

–ACCOUNTING STANDARD COUNCIL

 Definition and Nature of accounting
“TO PROVIDE QUANTITATIVE INFORMATION PRIMARILY FINANCIAL IN NATURE”

https://www.principlesofaccounting.com/ch
apter-5/income-statement-enhancements/
EXAMPLE OF QUANTITATIVE INFORMATION THAT IS FINANCIAL IN NATURE
 Definition and Nature of accounting

https://tycoon.ph/successful-businesses-p
“ABOUT ECONOMIC ENTITIES”
Economic entities are either profit-oriented or non-profit oriented entities.
PROFIT ORIENTED ENTITIES= BUSINESS ENTITIES OR BUSINESS ENTERPRISES

hilippines/
 Definition and Nature of accounting
NON-PROFIT ORIENTED ENTITIES

- A not-for-profit organization does not earn any profits for its owners. Instead, the organization donates the money it
receives to help fund the organization's objectives and goals. A not-for-profit might also use received donations to stay up and
running.
 Definition and Nature of accounting
ALL PARTIES WHO HAVE INTEREST IN AN ENTITY ARE CALLED STAKEHOLDERS.

THESE STAKEHOLDERS WHO USE ACCOUNTING INFORMATION ARE GROUPED INTO TWO, NAMELY:

1. EXTERNAL USERS
- Indirect users.
- External users are those entities interested in the financial results of a business, but take no part in operating
the entity.
EXTERNAL USERS INCLUDE:
-Creditors, Investors, prospective creditors and investors, government, and the public.
 Try this!
Question Asked by External User
- Has the company earned
satisfactory income on its total
investment?
- Should an investment be made in
this company?
- Should the present investment
be increased, decreased, or
retained at the same level?
- Can the company install costly
pollution control equipment and
still be profitable?
- Should a loan be granted to the
company?
- Will the company be able to pay
its debts as they become due?
- Should we make a five-year loan
to that business?
 Definition and Nature of accounting
ALL PARTIES WHO HAVE INTEREST IN AN ENTITY ARE CALLED STAKEHOLDERS.

THESE STAKEHOLDERS WHO USE ACCOUNTING INFORMATION ARE GROUPED INTO TWO, NAMELY:

2. INTERNAL USERS
- Direct users.
- Management personnel in all levels within an entity.
- They make decisions that affect the internal operations of the entity.
INTERNAL USERS INCLUDE:
- Owners, and Managers/the management.
 Try this!
Question Asked by Internal User

- Can we afford to give our - Should we spend - What steps have you - What's your
employees a pay raise? additional money for taken to improve the management style?
redesign of our product? organization's recruitment
- What are reasonable - What strategies do you
payroll benefits and - What is Your Brand and selection procedures?
use to motivate a team?
wages? Strategy? - What's the best change
- What are the costs of - How Are You Developing we can make to prepare
our product's ingredients? the Product? for the future?
- Who Are You Targeting?
- Which Areas Can You
Double the Effort?
 Definition and Nature of accounting
Generally, the reports provided by accountants are expressed and measured in
financial or money terms. These reports are called financial reports, and are of
various types. One type of financial reports are the general-purpose financial
statements. The conceptual framework for Financial reporting issued by the
financial reporting standards council (FRSC) identifies the existing and potential
investors, lenders, and other users.

THE FOLLOWING ARE SOME OF THE USERS OF FINANCIAL INFORMATION AND

THE USE OF SUCH INFORMATION IN THE DECISIONS THAT THEY MAKE.
EXTERNAL USERS

1. INVESTORS – They are concerned with risk inherent in, and return provided by, their investment.
They need information to help them determine whether they should make additional investment,
hold, or sell their investments. SHAREHOLDERS (owners or investor in a corporation) need
information that will enable them to assess the ability of the corporation to pay dividends.

2. LENDERS − They are interested in information that enable them to determine whether their loans,
and interest attaching to them, will be paid when due.

3. SUPPLIERS AND OTHER TRADE CREDITORS − They are interested in information that enable them to
determine whether amounts owing to them will be paid when due.

4. CUSTOMERS – They are interested in information about the continuance of an entity. especially
when they have a long-term involvement with, or are dependent on, the entity.
EXTERNAL USERS

5. GOVERNMENT AND THEIR AGENCIES – They are interested in the allocation of resources and,
therefore, the activities of entities. They also require information so that they can regulate the activities
of entities, determine taxation policies and as the basis for national income and similar statistics.

6. PUBLIC – They are interested in information about the trends and recent development in the
prosperity of the entity and the range of its activities.
INTERNAL USERS

1. BUSINESS OWNERS – any persons, firms or corporation holding legal title to both intangible and
tangible property of a corporation.

2. BOARD OF DIRECTORS – is an elected group of individuals extended to represent shareholders and

establish and support the execution of management policies.

3. MANAGERIAL EXPERIMENT – these are a group of people who are in charge of managing the
expectation of a company, they are responsible for the planning, directing, and continuing the
function.

4. EMPLOYEES - They are interested in the information about the stability and profitability of their
employees. They are also interested in information that will enable them to assess the ability of
their employers to provide remuneration, retirement benefits and employment opportunities.
 Measurement Principles
1. Cost Principle
Dictates that the companies record assets at their cost. This is true not only at the time
the asset is purchased, But also the asset is held.

2. Fair Value Principle

States that assets and liabilities should be reported at fair value *the price received to sell
an asset or settle a liability)
 Assumption
1. Monetary Unit Assumption

The monetary unit assumption requires that companies include in the accounting records only transaction
data that can be expressed in money terms. This assumption enables accounting to qualify (measure)
economic events. The monetary units assumption is vital to applying the cost principle.

2. Economic Entity Assumption

The economic entity assumption requires that the activities of the entity be kept separate and distinct from
the activities of its owner and all other economic entities.
Chart of Accounts
The following is a sample chart
of accounts. It does not
represent a comprehensive
chart of all the accounts used
in this textbook but rather
those accounts that are
commonly used. This sample
chart of accounts is for a
company that generates both
service revenue as well as sales
revenue. It uses the perpetual
approach to inventory. If a
periodic system was used. The
following temporary counts
would be needed to record
inventory purchases;
purchases; freight-in; purchase
returns and allowances; and
purchase discount.
 The Basic Accounting Equation

Assets = Liabilities + Owner’s Equity

 The Basic Accounting Equation
All the process in an accounting system must observe the equality of the
accounting equation, which is basically an algebraic equation.

Assets – are the economic resources you control that have resulted from past
events and can provide you with economic benefits.
Liabilities – Are your present obligations that have resulted from past events and
can require you to give up economic resources when settling them.
Owner’s Equity – is simply assets minus liabilities. Other terms for equity are
“capital,” “net assets,” and “net worth.”
 The Basic Accounting Equation
Record the following transactions in the basic accounting equations:
1. Gracie Ryan invests 17,000 pesos to begin a real estate office.
2. The real estate office buys 600 pesos of computer equipment from
Wal-Mart for cash.
3. The real estate company buys 800 pesos of additional computer
equipment on account from Circuit City
 The Basic Accounting Equation
Solutions
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash + Computer Equipment = Accounts Payable + Gracie Ryan, Capital
+₱17,000 + ₱17,000 1.
17,000 = 17,000 Balance
-600 +600 2.
16,400 + 600 = 17,000 Balance
+ +800 = +800 3.
₱16,400 + ₱1,400 = ₱800 + ₱17,000 Ending Balance
₱17,800 = ₱17,800 
 The Extended Accounting Equation

Assets = Liabilities + Owner’s Capital –

Owner’s Drawings + Revenues - Expenses
 The Extended Accounting Equation
Notice that income is added while expenses are deducted in the equation. These
are because income increases in liabilities, that result in increases in equity while
expenses decrease equity.
Liabilities – is increases in economic benefits during the period in the form of
increases in assets, or decreases in liabilities, that result a in increase in equity,
excluding those relating to distributions to the business owner.
Expenses – are decreases in economic benefits during at the period in the form of
decreases in assets or increases in liabilities, that result in any decrease in equity,
excluding those relating to distributions to the business owner.
 The Extended Accounting Equation
Record the following transactions into the expanded accounting equation for
the Bing Company. Note that all the titles have a beginning balance.
1. Received cash revenue 4,000 pesos
2. Billed customers for services rendered, 6,000 pesos
3. Received a bill for telephone expenses (to be paid next month) 125 pesos
4. Bob Bing withdrew cash for personal use, 500
5. Received 1,000 from customers in partial payment for services performed in
transaction 2.
The Extended Accounting Equation
with beginning balance
Assets = Liabilities + Owner’s Equity

Cash + Account + Cleaning = Account Payable + B. Bing, - B. Bing, + Revenue - Expenses

Receivable Equipment Capital Withdrawal

Beginning Balance ₱10,000 + ₱2,500 + ₱6,500 = ₱1,000 + ₱11,800 - ₱800 + ₱9,000 - ₱2,000

1. +4,000 +4,000

Balance 14,000 + 2,500 + 6,500 = 1,000 + 11,800 - 800 + 13,000 - 2,000

2. +6,000 +6,000

Balance 14,000 + 8,500 + 6,500 = 1,000 + 11,800 - 800 + 19,000 - 2,000

3. +125 +125

Balance 14,000 + 8,500 + 6,500 = 1,125 + 11,800 - 800 + 19,000 - 2,125

4. -500 +500

Balance 13,500 + 8,500 + 6,500 = 1,125 + 11,800 - 1,300 + 19,000 - 2,125

5. +1,000 -1,000

Ending Balance ₱14,500 + ₱7,500 + ₱6,500 = ₱1,125 + ₱11,800 - ₱1,300 + ₱19,000 - ₱2,125

₱28,500 ₱28,500
Without beginning balance

Assets = Liabilities +

Cash + Account Receivable = Account Payable - B. Bing, + Revenue - Expenses

Withdrawal

1. +4,000 +4,000

Balance 4,000 + = - + 4,000 -

2. +6,000 +6,000

Balance 4,000 + 6,000 = - + 10,000 -

3. +125 +125

Balance 4,000 + 6,000 = 125 - + 10,000 - 125

4. -500 +500

Balance 3,500 + 6,000 = 125 - 500 + 10,000 - 125

5. +1,000 -1,000

Ending Balance ₱4,500 + ₱5,000 = ₱125 - ₱500 + ₱10,000 - ₱125

₱9,500 ₱9,500
PUT UP IN YOUR MIND
• In accounting, amounts in parentheses are negative amounts.
• Always remember the double rule.
• The equality of the accounting equation must be maintained in all
the accounting process of recording, classifying and summarizing. If
the accounting equation doesn’t balance, there is something wrong!
 Financial Statement

- The financial statements are the end product of the accounting process.

Objective: To provide information about the financial position, financial

performance and cash flows of an entity that is useful to a wide range of users in
making economic decisions.
Income Statement
1. Income statement

Also known as statement of profit or loss shows

information on income and expenses, and
consequently, the profit or loss for the period.
Component of an income statement
The income statement may have minor
variations between different companies, as
expenses and income will be dependent on the
type of operations or business conducted.
However, there are several generic line items that
are commonly seen in any income statement.
 Financial Statement
REVENUE EXPENSES
- It is when cash or
is the total amount some other valuable
of income generated object goes from a
by the sale of goods person or company to
or services related another person or
to the company's company.
primary operations. -Decreases in assets
or increases in
liabilities that result in
decreases in equity.
 Financial Statement
2 . Owner’s Equity Statement

portrays changes in the capital balance of a business over a

reporting period.

 
Owner’s Equity Statement

For example, a business has $100,000 of capital at the beginning of a reporting period. The
entity earns $15,000 of income, and the owner withdraws $5,000 from the capital account.
The resulting statement of owner's equity reveals the following information:
 
$100,000 Beginning capital balance
+15,000 Income
- 5,000 Draw
 
= $110,000 Ending capital balance
 
The report may also be described as the statement of changes in owner's equity.
 
Res: https://www.accountingtools.com/articles/statement-of-owners-equity.html
 Financial Statement
3. Balance Sheet
- Also known as statement of financial position, shows information on assets, liabilities, and
equity.

Asset
is what the company owns

Current are all the assets of a company that are expected to be sold or used as a result of
standard business operations over the next year.
Non current is the residual definition of current assets
 
Balance Sheet
Liability
is what the company owes
Current liabilities are a company's
debts or obligations that are due to be
paid to creditors within one year.
Non current liability is a long term
liability or obligation which are payable
for a period of time longer than 1 year.

Owner’s Equity
is It's what's left over for the
owner after you've subtracted all the
liabilities from the assets.
 Financial Statement
4. Statement of Cash flows
 
-A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and
leaving a company. Measures how well a company generates cash to pay its debt obligations and fund its operating
expenses.
As a result, there are two methods of calculating cash flow: the direct method and the indirect method.
 
Direct Cash Flow Method
The direct method adds up all the various types of cash payments and receipts, including cash paid to suppliers, cash
receipts from customers, and cash paid out in salaries.
 
Indirect Cash Flow Method
With the indirect method, cash flow from operating activities is calculated by first taking the net income off of a
company's income statement.
 
Res: https://www.investopedia.com/investing/what-is-a-cash-flow-statement/
Statement of Cash Flow
 Presented By: The Group 1

Jehan Vonne Agsalud

Topic:
Definition and Nature
Of Accounting
Markgil Albiso

Al-Yehshein Abubakar Gwandholene Alviar

Topic: Topic:
Introduction Measurement
Objectives Principle
Try Out Iris Nathalia Arellano

Topic:
Financial Statements
Topic:
Assumption

Topic:
Yasmine Amilasan The Basic Accounting Equation and The expanded Accounting Equation Irshelina Hassan
Asaali
Think Ahead
Questions
What is accounting?

Identify the users and uses of information.

Why is ethics a fundamental business concept?

What are generally accepted accounting principles?

Differentiate monetary unit assumption and economic entity assumption.

State the accounting equation and define its component.

Explain the dual effect transaction on the accounting equation.

What are the four financial statements and how are they prepared?

Explain the career opportunities in accounting.

Spin The Wheel

https://wheelofnames.com/