FUNDAMENTALS OF

ACCOUNTING 101
Basic Financial Accounting and Reporting
 Topic Outline:
 1. Getting to know me and you.
 2.Orientation on the course rules and
regulations
 3. Orientation of the LMS
 4. Grading System
 5. Course Outline
 6. Other Matters
 7. Open Discussion
Reference TextBook
Course Outline
Part One
1. Introduction/History of Accounting
2. Accounting Equation and the Double-Entry System
Part Two(Accounting for a Service Business)
3. Recording Business transactions
4. Adjusting the Accounts
5. Worksheet and Financial Statements
6. Completing the Accounting Cycle
Part Three (Accounting for a Merchandise Business)
7. Merchandising Operations
8. Completing the Cycle for a Merchandising Business
Course Outline
9. Special and Combination Journals, and Voucher System
Part Four (Other Topics)
10. Manufacturing Operations
11. Payroll
12. Partnerships: Basic Consideration and Formation
13. Partnership: Operations and Financial Reporting
14. Corporation: Basic Consideration
15. Corporations: Share Capital, Retained Earnings and
Financial Reporting
1. INTRODUCTION
Accounting has evolved, as in the case of medicine and law, in
response to the social and economic needs of society. As a business and
society become more complex, accounting develops new concepts and
techniques to meet the ever-increasing needs for financial information.
Without such information, many complex economic developments and
social programs may never have been undertaken.
In a market economy, information helps decision-makers make
informed choices regarding the allocation of scarce resources under their
control. When decision-makers are able to make well-informed
decisions, resources are allocated in a way that better meets the needs
and goals of those within the market.
Accounting is relevant in all walks of life, and it is absolutely
essential in the world of business. Accounting is a system that measures
business activities, processes that information into reports and
communicates the result to decision-makers.
1. INTRODUCTION
Accounting quantifies business communication. It is called the
language of business. No business could operate very long without
knowing how much it was earning and how much it was spending.
Accounting provides the business with this information and more.
Accountants can be called the scorekeepers of business. Without
accounting, a business couldn’t function optimally; it wouldn’t know
where it stands financially, whether it’s making a profit or not, and it
wouldn’t know its financial situation. Also, a sound understanding of this
language will bring about better management of the financial aspects of
living. Personal financial planning, education expenses, car
amortization, business loans, income taxes and investments are based on
the information system that we call accounting.
1. INTRODUCTION
Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions.
Accounting is the process of identifying, measuring and
communicating economic information to permit informed judgments and
decisions by users of the information.
Accounting is the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events which
are, in part at least, of a financial character, and interpreting the result
thereof.
1. INTRODUCTION
Evolution of Accounting
Primitive Accounting – 8,500 BC
Middle Ages – from 11th to the 13th centuries, The Inca Empire, which
spanned the west coast of South Africa used knotted cords of different
lengths and colors called quipu to keep accounting records
Double-entry bookkeeping is not a discovery of science; it is the outcome
of continued efforts to meet the changing necessities of trade.
Florentine Approach – The earliest evidence of business bookkeeping in
Florence, France was evidenced by the bank ledger fragments of 1211.
Amatino Manucci – the inventor of double-entry bookkeeping, a
merchant based in Florence
Luca Pacioli – introduced the double-entry bookkeeping
1. INTRODUCTION
Evolution of Accounting
Savary and Napoleonic Commercial Code – The earliest systematized
form of accounting regulation developed in continental Europe, starting
in France in 1673.
Nicolas Petri – 17th century the first person to group similar transactions
in a separate record and enter the monthly totals in the journal, rather
than recording all transactions seriatim, that is, in a series
Benjamin Workman (1769) – published The American Accountant, the
earliest know American accounting textbook.
Eugen Schmalenbach (1873-1955) – a German academic and economist.
The Model of Chart of Accounts
1. INTRODUCTION
The business model is built on five activities:
1. First, the investors provide the required capital for the business. The
cash investment will then be held in a bank account.
2. The cash in the business can be:
. Converted into another type of asset that will be used in the business (e.g.
equipment) or sold (e.g. inventory); or
. Spent on operating costs such as salaries, rentals and utilities
3. The combination of business resources provides the basis for producing
the products or services.
4. The sale of a product or service generates an asset called a receivable.
This asset once collected will produce a cash inflow for the business
5. If there’s an existing debt from the banks, the cash inflow from
collections will be used to provide the debt providers with interest on
their loans to the company. The rest of cash can be sent back by being
converted into other assets.
1. INTRODUCTION
Types of Business
1. Services – Hiring Skilled staff and selling their time
2. Trader – Buying and selling products
3. Manufacture – Designing products
4. Raw Materials – Growing or extracting raw materials
5. Infrastructure – selling the utilization of infrastructure
6. Financial – receiving deposits, lending and investing money
7. Insurance – pooling premiums of many to meet claims of a few
1. INTRODUCTION
Forms of Business Organizations
1. Sole Proprietorship
2. Partnership
3. Corporation
MICRO, SMALL AND MEDIUM ENTERPRISES – provide employment for 61%
of the country’s labor force
MICRO enterprises are those with assets, before financing of P3.0 (before
P1.5 million) or less and employ not more than 9 worker
Small enterprises are those with assets, before financing of above P3.0
(before P1.5 million) to P15 million and employ 10 to 99 workers
Medium Enterprises have assets, before financing of above P15 million to
P100 million and employ 100 to 199 workers.
1. INTRODUCTION
Three Types of Organizational Activities
1. Financing Activities – financial resources to obtain other resources used to
produced goods and services
2. Investing Activities – financial activities to acquire other resources used in
the transformation process – that is, to transform resources from one form
to a different form, which is more valuable, to meet the needs of people
3. Operating Activities – involve the use of resources to design, produce,
distribute, and market goods and services.
1. INTRODUCTION
Fundamental Concepts
1. Entity Concept
2. Periodicity Concept
3. Stable Monetary Unit Concept
4. Going Concern
1. INTRODUCTION
CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING PRINCIPLE
Accounting practices follow certain guidelines. GAAP which stands
for Generally Accepted Accounting Principles, encompass the
conventions, rules and procedures necessary to define accepted
accounting practice at a particular time.
Accounting principles are established by humans. The general
acceptance of an accounting principle usually depends on how well it
meets three criteria: relevance, objectivity and feasibility.
A principle is relevance to the extent that it results in information
that is meaningful and useful to those who need to know something
about a certain organization.
A principle has objectivity to the extent that the resulting
information is not influenced by the personal bias or judgement of those
who furnish it. Objectivity connotes reliability and trustworthiness. It
also connotes verifiability, which means that there is some way of
finding out whether the information is correct.
1. INTRODUCTION
CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING PRINCIPLE
A principle has feasibility to the extent that it can be implemented
without undue complexity or cost. These criteria often conflict with
another. In some cases, the most relevant solution may be the least
objective and the least feasible.
1. INTRODUCTION
Basic Principles
1. Objectivity Principle
2. Historical Cost
3. Revenue Recognition Principle
4. Expense Recognition Principle
5. Adequate Disclosure
6. Materiality
7. Consistency Principle
1. INTRODUCTION
Values
Professional Ethics
Moral Values

Role of Ethics in Business

Ethics
Ethical Dilemma
1. INTRODUCTION
Branches of Accounting
1. Auditing
2. 2. Bookkeeping
3. 3. Cost Bookkeeping, Costing and Cost Accounting
4. 4. Financial Accounting
5. 5. Financial Management
6. 6. Management Accounting
7. 7. Taxation
8. 8. Government Accounting