Introduction to

Accounting
Learning Fully understand why business is regarded as an entity
Objectives: that is separate from the owner;

Identify what are business transactions as compared to

personal transactions of the owner;

Learn and acquire familiarity in the basic format of a

financial statements, the basic and expanded accounting
equation;

Learn and understand the Generally Accepted

Accounting Principles and Basic Accounting
Assumption; and

Learn and acquire knowledge of various account titles

that are used in business.
Why Do We
Study
Accounting?
What Knowledge
is Needed in the
Study of
Accounting? ANALYTICAL STOCKED
ABILITY KNOWLEDGE IN
ARITHMETIC

PSYCHOLOGICAL
FACTOR
Importance of
Keeping Business It is very difficult for us to rely on our memory or
even recall all the transactions that the business may
have entered.
Records

A government requirement specifically the Bureau of

Internal Revenue that all business establishments
should maintain their records for accurate
determination of internal revenue taxes due to the
government.

It is also done in compliance with municipal or city

ordinances regarding local business taxation.
Accounting

- 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 financial character, and interpreting the results
thereof.
- It 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.
- It is the process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by users of the information.
Generally Accepted Accounting Principles (GAAP)

- uniform set of
accounting rules, Cost Principle
procedures,
practices and Objectivity Principle
standards that are
followed in Materiality Principle
preparing the
accountant’s
reports – Matching Principle
financial
statements. Consistency Principle
Adequate Disclosure Principle
Basic Accounting Assumptions

ACCOUNTING GOING- TIME-PERIOD UNIT OF ACCRUAL

ENTITY CONCERN MEASURE BASIS
Financial Statements

• End products of the accounting process.

• Provide information about the financial condition and operating results of an enterprise that is vital
in making sound economic decisions.
Elements of Financial Statements
1. Assets
- things of value that are owned and used by the enterprise in its operations.
2. Liabilities
- financial obligations of the business to its creditors. It represents the claim of the creditors over the assets of
the enterprise.
3. Equity
- it is the residual interest in the asset of the enterprise after deducting all its liabilities.
4. Income
- gross inflow of economic benefits during the period arising in the course of ordinary activities of an
enterprise when those inflow result in increase in equity, other than those relating to contribution from owners.
5. Expenses
- gross inflow of economic benefits during the period arising in the course of ordinary activities of an
enterprise when those inflow result in increase in equity, other than those relating to contribution from owners.
Components of Financial
Statements

1. Statement of Financial Positions or

Balance Sheets
2. Income Statement
3. Statement of Cash Flows
4. Statement of Changes in Equity
5. Notes to Financial Statements
Qualities that Financial Statement should Possess

1. Understandability
2. Reliability
3. Relevance
4. Comparability
5. Consistency
Users of Financial Statements

INVESTORS EMPLOYEES LENDERS SUPPLIERS AND CUSTOMERS GOVERNMENT

OTHER TRADE AND THEIR
CREDITORS AGENCIES

PUBLIC
 Account Titles Used
Assets
A. Current Assets
1. Cash
2. Petty Cash Fund
3. Cash Equivalents
4. Accounts receivable
5. Estimated uncollectible Accounts
6. Advances to Employees
7. Inventories
- Merchandise Inventory
- Supplies Inventory
- Raw materials Inventory
- Work In Process Inventory
- Finished Good Inventory
8. Prepaid Expenses
B. Non-Current Assets
1. Property and Equipment
- Land
- Building
- Equipment
- Furniture & Fixtures
- Accumulated Depreciation
2. Intangible Assets
- Goodwill
- Patent
- Trademark
- Copy rights
 Liabilities
A. Current Liabilities
1. Accounts Payable
2. Notes Payable (Short-term)
3. Accrued Expenses
4. Unearned Income

B. Non-Current Liabilities
5. Notes Payable (Long-term)
6. Mortgage Payable
Equity

1. Capital
2. Withdrawal
Income

1. Sales
2. Sales Returns & Allowances
3. Sales Discount
4. Service Income
- Professional Income
- Rental Income
- Interest Income
- Miscellaneous Income
 Cost and Expenses
A. Cost
1. Cost of Sales or Cost of Goods Sold
2. Freight-in
3. Purchases
4. Purchase returns & allowances
5. Purchase Discounts
6. Merchandise Inventory, Beginning
B. Expenses
1. Freight-Out
2. Supplies Expense
3. Rent Expense
4. Repairs and Maintenance
5. Salaries Expense
6. Uncollectible Accounts
7. Depreciation Expense
8. Taxes and Licenses
9. Insurance Expense
10. Utilities Expense
11. Interest Expense
12. Miscellaneous Expense
13. Gas & Oil
 Forms of Business Organization

Sole
Partnership Corporation
Proprietorship
Nature of Business

1. Service Concern
2. Merchandising Concern
3. Manufacturing Concern
4. Agri-business
5. Hybrid Companies