FUNDAMENTALS OF

ACCOUNTING THEORY AND

PRACTICE 1B
ABE INTERNATIONAL COLLEGE OF BUSINESS AND ECONOMICS
2ND TRIMESTER
A.Y. 2023-2024
 REVIEW OF THE BASIC
ACCOUNTING CONCPET AND
PRINCIPLES
PART I
LEARNING OUTCOMES

• Recall the definition of accounting and numerate the different phases of

accounting
• Enumerate the accounting elements and the account titles under them.
• Recall the normal balances of each account
• Remember the T-Account and the rules of debit and credit
• Recall the Accounting Equation
• Recall and performer the different steps in the accounting cycle.
 WHAT IS ACCOUNTING?

• Is a service. Its function is to provide quantitative information

primarily financial in nature
• Is an information system that measures, process and communicates
financial information about economic entity
• Is the process of identifying, measuring and communicating
economic information to permit informed judgement and decision
by users of the information.
 PHASES OF ACCOUNTING

• RECORDING – recording transactions in journals

• CLASSIFYING – refers to sorting and group. We used ledger as
company’s book
• SUMMARIZING – preparation of Trial Balance and Financial Statement.
• INTERPRETING – analyzing the financial data regarding the profitability
and financial condition of the business.
ACCOUNTING ELEMENTS

• 1. ASSETS – right or properties, tangible or intangible owned by the

business
• 2. LIABILITIES – debts or obligation of the business to its creditor
• 3. CAPITAL – equity or right of the owner over the asset of the business
 ACCOUNT TITLES AND EACH ELEMENTS

• Chart of Accounts includes the account number corresponding account

title and account description.
• Normal Balance pertains to the account’s amount or balance position
in the accounting equation or in T-Accounts.
• The normal balance of an account is usually on its increase side in T-
Accounts.
NORMAL BALANCES

• ASSET accounts – normal balance is debit

• LIABILITIES accounts – normal balance is credit
• CAPITAL accounts – normal balance is credit
RULES OF DEBIT CREDIT

• ASSET = + debit - credit

• LIABILITIES = + credit - debit
• CAPITAL
• REVENUE = +credit - debit
• EXPENSE = + debit - credit
CLASSIFICATION OF ACCOUNTS

• NOMINAL or TEMPORARY ACCOUNTS

• - Found in the incomes statement
• REAL or PERMANENT ACCOUNTS
• - found in the balance sheet
ACCOUNTING EQUATION

• 1. DEBIT = CREDIT
• 2. ASSET = LIABILITIES + CAPTIAL
• 3. ASSET = LIABILITIES + CAPITAL – DRAWING + REVENUE –
EXPENSES
INTRODUCTION TO
PARTNERSHIP
PART II
LEARNING OUTCOMES

• State and explain the definition of partnership

• Enumerate and understand the characteristics of partnership
• Understand the advantages and disadvantages of partnership
• Describe a partnership contract and its contents
• Enumerate and define the classification of partnerships
• Enumerate and define the kinds of partners
 WHAT IS PARTNERSHIP?

• Is one of the forms of business entities

• More complex as compared to sole proprietorship
• Complexities capital requirement and contribution, sharing of
profits and losses, the dissolution process.
 ART. 1787 OF RA 386

• Partnership defined as by the contract of partnership, two or

more person bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing
the profits among themselves. Two or more persons may also
form a partnership for the exercise of a profession.
 CHARACTERISTICS OF PARTNERSHIP

• 1. Separate legal personality – Has a juridical personality and distinct from each
of the partners.
• 2. Limited life – if one or more of the partners withdraws from the partnership,
the old partnership will be dissolve and new partnership might be created to
continue the same business.
• Mutual agency – each partner can act as an agent of the partnership within the
regular partnership business operation.
• 4. Unlimited Liability – each partner, except limited partner is
individually or personally liable to the partnership obligations debt
in the event that a partnership can no longer pays its obligation with
the business assets. Creditors may run after the personal asset o the
general partners.
5. Co-ownership of properties and division of profits. All the assets
invested by all partners and those acquired or owned the partnership
belongs to the partnership. Profits are shared by the partners
depending on their agreement. In the absence of any agreement on
how the profits and the loses will be divided, it will be shared in the
ratio of their contribution to the partnership. Industrial partners do not
share in the losses of the partnership
 ADVANTAGES OF PARTNERSHIP

• 1. Compare to a sole proprietorship, capital is bigger as it can raise more capital

because of the two or more persons performing it.

• It has a better management partners bring together their expertise

• Compared to a corporation, its easier and less expensive to form or organize

• Less legal requirement of the government as compared to corporation. It can be

organized for the practice of professions like CPA, lawyers etc.
 DISADVANTAGES OF PARTNERSHIP

• The possibility that disputes and misunderstanding may arise among partners.

• Unlimited Liability of general partners will result to their personal obligation to the
partnership debts.

• Limited life of the partnership as compared to a corporation. Corporation may have a

maximum life of 50 years and renewable.

• The transfer of interest of a partner requires the consent of all partners.

• Compared to a corporation, a partnership has a smaller capital.

ARTICLES OF PARTNERSHIP

• 1. The name of the partnership and the partners forming it

• 2. The purpose
• 3. Location of the business
• 4. Date of the scope of the operation.
• 5. Date of its formation and terms of existence
• 6. Contribution to be made by every partner and the capital credits given to
them
• 7. The books of accounts to be used by the partnership and how
will they are kept.
• 8. The methods on how the profit and losses will be shared by the
partners and the special compensation that might be given to
partners for service to be rendered,
• 9. Rights, power, roles, responsibilities and obligation of each
partner
• 10. Issues on additional investment that a partner will put into the
partnership, and limitation on withdrawals that a partner can make.
• 11. Arbitration of misunderstanding and disputes among partner
• 12. Provisions, in case of the dissolution of the partnership.
• 13. The methods that will be used in determining the value of the business
in case of sale, death, disability or withdrawal partner and dissolution.
CLASSIFICATION OF PARTNERSHIP

• 1. Universal and particular partnership – partners agree to bring

into the partnership their whole property.
• Two Kinds:
UNIVERSAL PARTNERSHIP OF ALL PRESENT
PROPERTIES – whole property of a partner in the time of the formation
of the partnership becomes common property for all partners as well as
the profits that can be derived from them.
• UNIVERSAL PARTNERSHIP OF PROFITS – once which states that only
property acquired through work and services of the partners during the
existence of the business become a common fund of the partnership. The
property of each of the partners at the time of the contract shall be owned by
each of them.

2. Particular partnership is one where the partners unite to have a single

individual transaction or business and divide the profits among themselves.
 CLASSIFICATION OF PARTNERSHIP

• GENERAL AND LIMITED

• General partnership is the basic form of partnership. Each partner is called
general partner in an owner of the firm sharing all the privileges, profit, losses and
risk of the business.
• Limited Partnership is a partnership composed of at least two kinds of partners: a
general and limited. The general partner will the majority of risk of the business
especially when it goes bankrupt. The limited partner are so called because their
personal obligations liabilities of the partnership is up to the extent of their capital
contribution.
 KINDS OF PARTNERS

• 1. GENERAL PARTNER – Liabilities is unlimited

• 2. LIMITED PARTNER – partnership debts is limited to the extent of his
capital contribution.
• 3. CAPITALIST PARTNER – one who contributed money or property to the
common fund
• 4. INDUSTRIAL PARTNER – one who contribute his industry of service only
to the partnership. He shared in the profits of the partnership but not in the
losses.
• 5. SILENT PARTNER – one who is known publicly as a partner but
does not participate in running the affairs of the partnership
• 6. DORMANT PARTNER – one who is not known as a partner and
does not participate in the running of the partnership.
• 7. SECRET PARTNER – one not known as a partner but actively
participates in managing the partnership
• 8. NOMINAL PARTNER – a partner who contributes nothing to the partnership
but allows his name to be used by the firm.

• 9. CAPITALIST-INDUSTRIAL PARTNER – one who contribute money or

property and services to the partnership.

• 10. OSTENSIBLE PARTNER – one whose name appears in the firm name and
known publicly as a partner.