CAT PAPER 1

CB Modules:

1 INTRODUCTION TO ACCOUNTING

2 COMPLETING THE ACCOUNTING CYCLE

3 CONSTRUCTIVE ACCOUNTING

4 SPECIAL JOURNALS
 Module 1: Introduction to 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
1.0 Accounting Defined useful in making economic decisions.
(AICPA,Statement of Accounting Principles Board

• RECORDING. record and analyze bus. transactions

• REPORTING. communicate financial info to
interested parties
2.0 Role of Accounting • ANALYZING. help managers or owners make
in Business decisions

• SERVICE BUSINESS |provides services

• MERCHANDISING BUSINESS |purchase goods &
sells them at their original condition to customers
3.0 Types of Business • MANUFACTURING BUSINESS |converts raw
materials to finished products made for sale
 Module 1: Introduction to Accounting

/Forms of Business Organization PPCC

• PROPRIETORSHIP |single owner

• PARTNERSHIP |owned by two or more persons
• CORPORATION | whose equity is divided into
shares created by the operation of law
4.0 Types of Ownership • COOPERATIVE |whose equity is divided into
Structure members' interest created by operation of law to
foster the welfare of its members
 Module 1: Introduction to Accounting

Proprietorshi Partnership Corporation Cooperative

p
1. One owner. Two or more Minimum of Minimum of
owners five fifteen
incorporators incorporators
but unlimited but unlimited
number of number of
owners members

2. Unlimited Unlimited Limited liability Limited liability

liability for liability for of the of the
unpaid debts. partnership stockholders members for
debts. for corporate the
debts. cooperative
debts
5.0 Characterictics of
3. Owner There is a Management Management
Different Forms of manages the managing is veted in the is vested in the
Business Organization business partner. board of BOD
directors
(BOD)
 Module 1: Introduction to Accounting

6.1 Statement of Financial Position Elements

(Shows the Financial Condition of the Business)

 Assets resources owned or controlled by the entity

 Liabilities economic or legal obligations that a
business owes to other persons.
 Equities is the owner's interest in, or claim to the
assets of the business.

6.0 Elements of Accounting (Accounting Values)

6.2 Statement of Profit or Loss Elements
(Shows the results of the operations)
 Income inflows of assets resulting from revenues or
gains. Income increases equity.
 Expenses are decreases in assets resulting from
cash spent or use of resources or incurrence of
liability. Expenses decreases equity.
 Profit (Loss) excess or deficit of revenue over
expenses for a given accounting period.
Profit increases equity while loss decreases equity
 Module 1: Introduction to Accounting

1) Recording popularly known as

bookkeeping, involves putting into records the
business transactions and events.

2) Classifying involves grouping of similar

items together inorder to make the recording of
the diferent transactions and events more
systematic.

3) Summarizing involves preparation and

7.0 The Accounting
presentation of financial statements
Process
(Functions of
Accounting)
4) Interpreting involves the analysis of
financial statements (by developing financial
ratios and explaining their significance) for the
benefit of the readers or users
 Module 1: Introduction to 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
4.0 Types of Ownership useful in making economic decisions.
Structure (AICPA,Statement of Accounting Principles Board

• RECORDING. record and analyze bus. transactions

• REPORTING. communicate financial info to
interested parties
2.0 Role of Accounting • ANALYZING. help managers or owners make
in Business decisions

• PROPRIETORSHIP |single owner

• PARTNERSHIP |owne by two or more persons
• CORPORATION | whose equity is divided into
3.0 Types of Business shares created by the operation of law
• COOPERATIVE |whose equity is divided into
members' interest created by operation of law to
foster the welfare of its members
 Module 1: Introduction to Accounting

8.1 The Accounting Equation

Presentation equation:
A = L + E
Valuation equation:
A - L = E

*Note: All accounting information is recorded within the

framework of accounting equation. Debit side should
8.0 Recording always equal the Credit side of te equation
Business Transactions
i) If Assets Increase, Liabilities and/or equity increases
in the same amount.
ii) If Assets Decrease, Liabilieties and/or equity
decrease in the same amount.
iii) An increase in an asset or an increase in a liability
may also have a corresponding decrease in another
liability by an equal amount
 Module 1: Introduction to Accounting

8.2 Accounting Equation Expanded

Presentation equation:
Assets = Liabilities + Equity
Cash A/P Owner's Contributions
+A/R +Bank loan -Drawing
+Income
+Supplies
-Expenses
+Equipment

8.0 Recording
8.2.1 The two side of the equation should always
Business Transactions
balance.
8.2.2 The effect of every transaction is an increase or
decrease in one or more of the accounting equation
elements.
8.2.3 The equity is increased by the amount invested
by the owner and decreased by withdrawals. In
addition, the equity is increased by income and is
decreased by the expenses.
 Module 1: Introduction to Accounting

8. 3 Business Transaction
-is an economic event or condition that directly
changes an entity's financial condition or directly affects
its results of operations.
-Accounting transaction takes place when a business
8.0 Recording exchanges a thing or things of value for another
Business Transactions -Debit is the value received or paid for by the business
while Credit is the value parted with or given up by the
business. This is called the dual effect of a transaction.
 Module 1: Introduction to Accounting

8. 4 Financial Statements
Accounting Period
-the period at the end of which financial statements are
prepared.

 Calendar Year a 12-month period ending in

December 31
 Fiscal Year a 12-month period not ending
December 31
 Natural Business Year a 12-month period which
8.0 Recording ends at the time the business activity is at its lowest
Business Transactions
Financial Statements
-are accounting reports prepared at the end of an
accounting period (usually one year) that provide
financial information regarding the transactions that
have been recorded and summarized.
 Module 1: Introduction to Accounting

Principal Financial Statements

a. STATEMENT OF PROFIT OR LOSS| also called
Income Statement, is a statement which shows the
revenue and expenses for a specified period time. It
shows the results of operations. *For the
year/month ended
b. STATEMENT OF CHANGES AND EQUITY|shows
summary of changes in equity in a given period of
time and supplements the Statement of Financial
Position. *For the year/month ended
8.0 Recording c. STAMENT OF FINANCIAL POSITION| statement
Business Transactions which shows the assets, liabilities, and equity of the
business as of the specific date. This statement is
called the Balance Sheet for SMEs. *(as of) Month
end, 20XX
d. STATEMENT OF CASH FLOWS| is summary of
cash inflows and cash outflows for specific period of
time. *(as of) Month end, 20XX
 Module 1: Introduction to Accounting

Principal Financial Statements

a. STATEMENT OF PROFIT OR LOSS| also called
Income Statement, is a statement which shows the
revenue and expenses for a specified period time. It
shows the results of operations. *For the
year/month ended
b. STATEMENT OF CHANGES AND EQUITY|shows
summary of changes in equity in a given period of
time and supplements the Statement of Financial
Position. *For the year/month ended
8.0 Recording c. STAMENT OF FINANCIAL POSITION| statement
Business Transactions which shows the assets, liabilities, and equity of the
business as of the specific date. This statement is
called the Balance Sheet for SMEs. *(as of) Month
end, 20XX
d. STATEMENT OF CASH FLOWS| is summary of
cash inflows and cash outflows for specific period of
time. *(as of) Month end, 20XX
 Module 1: Introduction to Accounting

Principal Financial Statements

a. STATEMENT OF PROFIT OR LOSS| also called
Income Statement, is a statement which shows the
revenue and expenses for a specified period time. It
shows the results of operations. *For the
year/month ended
b. STATEMENT OF CHANGES AND EQUITY|shows
summary of changes in equity in a given period of
time and supplements the Statement of Financial
Position. *For the year/month ended
8.0 Recording c. STAMENT OF FINANCIAL POSITION| statement
Business Transactions which shows the assets, liabilities, and equity of the
business as of the specific date. This statement is
called the Balance Sheet for SMEs. *(as of) Month
end, 20XX
d. STATEMENT OF CASH FLOWS| is summary of
cash inflows and cash outflows for specific period of
time. *(as of) Month end, 20XX