Define Accounting.

The Accounting standards Council defines accounting as follows:

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 decision.
The Committee on Accounting Terminology of the American
Institute of Certified Public Accountants defines accounting as
follows:

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 results thereof.
The American Accounting Association in its Statement of Basic
Accounting Theory defines accounting as follows:

Accounting is the process of identifying, measuring and

communicating economic information to permit informed
judgment and decision by users of the information.
 ACCOUNTING PROCESS
STEPS IN ACCOUNTING PROCESS
1. Analyzing
2. Journalizing
3. Posting
4. Unadjusted Trial Balance
5. Adjusting Entries
6. Financial Statements
7. Closing Entries
8. Postclosing Trial Balance
9. Reversing Entries
Actually, the accounting process can be classified into two parts,
namely recording phase and summarizing phase.

The recording phase include analyzing the transaction, journalizing

and posting.

The summarizing phase includes the unadjusted trial balance,

adjusting entries, financial statements, closing entries,
postclosing trial balance and reversing entries.

The postclosing trial balance, reversing entries and worksheet are

optional.
What is a journal?

The most fundamental journal is the general journal, often called simply as
journal.

A journal is chronological record of transactions.

A general journal entry consists of the transaction date, the accounts and the
amounts to be debited, the accounts to be credited, and a brief explanation of the
transaction.

A simple journal entry consists of one debit and one credit.

A compound journal entry consists of two or more debits or two or more credits.
What is a ledger?

The general ledger, often called simply as the ledger, is a group of

accounts.

An account is the accounting device used in summarizing the effects of

transactions on each asset, liability, equity, revenue and expense.

The accounts used by a particular entity are usually expressed in the form
of chart of accounts.

A chart of accounts is a listing of all the entity general ledger accounts in

a systematic form.
What is a trial balance?

A trail balance is a list of general ledger accounts with their respective

debit and credit balance.

The trial balance prepared at this time is often called the unadjusted trial
balance because account balances do not yet reflect adjustments.

A trial balance is prepared at the end of every accounting period after all
transactions for the period have been recorded and posted to the ledger.

The trial balance is a control device that helps eliminate accounting errors.
When total debits do not equal total credits, the trial balance is out of
balance. This condition alerts the accountant that errors have been made.
On the other hand, if the total debits equal to total credits, the trial balance is
said to be in balance. However, this condition does not necessarily signify the
absence of errors.

For example, the trial balance does not indicate the failure to record a
transaction or the recording of a transaction in the wrong account.

What are the purposes of trial balance?

The trial balance provides evidence that the total debits in the general ledger
equal the total credits.
The trial balance provides information that helps the accountant to formulate
adjustments.
Describe transposition, transplacement and error of omission.
Transposition – The figures are interchanged. For the example,
P1,234 is written as P1,200.
Transplacement – Error in placing the decimal point. For
example P12,000 is written as P1200.
Error of omission – A transaction is not recorded. For example, a
sale of P10,000 is not journalized.
What are the two methods of recording expense?

Expense Method

Asset method
What are the two methods of recording income?

Income Method

Liability Method
What are the two methods of recording income?

Income Method

Liability Method
What are adjusting entries?
Adjusting entries are made at end of every accounting period in order
to split mixed accounts or to bring the accounts up to date. Adjusting
entries allocate revenue and expenses between current and future
periods.
Moreover, every adjusting entry affects both a real account and a
nominal account. Under the cash basis of accounting, revenue is
recorded only when cash is received, and expenses are recorded when
paid in cash.
In contrast, the accrual basis of accounting requires recognition of
revenue when earned and recognition of expenses when incurred.

Generally accepted accounting principles require the use of accrual

accounting. Accordingly, adjusting entries are necessary for a fair and
accurate measurement of performance and financial position on the
accrual basis.
What are the items that normally require adjusting entries?

Ending inventory

Doubtful accounts

Depreciation
Prepaid expenses

Accrued expenses
Deferred Income

Accrued income
What is a worksheet?
A worksheet is multicolumn sheet of paper that an accountant uses in
compiling and summarizing the information necessary for the preparation of
the financial statements.
A worksheet is not a formal statement
A worksheet is only a tool of an accountant in preparation of financial
statements.
The accountant prepares a worksheet at that stage of the accounting cycle
when it is time to make adjustments and prepare financial statements.
A worksheet facilitates the preparation of financial statements by:
a. Providing a place where adjusting entries can be made informally before
they journalized and posted.
b. Providing an orderly means whereby each account can be classified
according to the financial statement in which it will appear.
c. Providing a balancing mechanism that helps to uncover accounting
errors.
Actually, the balancing figure in the worksheet is the net income or
net loss.
If the total of the debits exceeds the total of the credits in the
income statement columns, there is a net loss.
Accordingly, in the statement of financial position columns. If the
total of the credits exceeds the total of the debits, there is also is a
net loss.
If the total of credits exceeds the total of the debits in the income
statement columns, there is net income.
Accordingly, in the statement of financial position columns if the
total of the debits exceeds the total of the credits, there is also a
net income.
What are closing entries?
Closing entries are made at end of an accounting period after
adjusting entries and financial statements have been prepared for
the purpose of closing all nominal or temporary accounts.
What is a post closing trial balance?

A post closing trial balance is simply a listing of general ledger

accounts after the closing entries have made.
What is reversing entries?

Reversing entries are made at the beginning of the new accounting

period in order to transfer all accrued and prepaid items
established by adjusting entries to the nominal accounts that are to
be used in recording transactions during the new period.