INTRODUCTION TO ACCOUNTING

ACCOUNTING DEFINED

Is a service activity. Its primary function is to provide quantitative

information, primarily financial in nature, about economic entities, that is
intended in making economic decisions.
In a general sense, Accounting is an information system that provides reports
to stakeholders about economic activities and condition of the business.
It is a compilation of different accounts wherein the main function is to
balanced and to know where to put the said accounts.
Need to understand the rules of DR (Debit) and CR (Credit).
Need to understand the ALCRE Rule.

ALCRE
ROLE OF ACCOUNTING IN BUSINESS
1. Help the owners in management to make decisions.
2. Record and analyze business transactions.
3. Communicate financial information to all interested parties.
TYPE OF BUSINESS
1. Service Business entities that provide services to customers.
2. Merchandising Business entities that purchase products from other
businesses and sell them to customers.
3. Manufacturing Business entities that convert raw materials into finished
products which are sold to customers.
USERS OF ACCTG.
INFORMATION
Owner
Supplier
Creditor / Lender
Banks / Financial
Intermediaries
Government
Employees
Shareholders
Board of Director

CAREER
OPPORTUNITIES
IN ACCTG
Accounting Staff
Accounts Payable
Specialist
Accounts Receivable
Specialist
Bookkeeper Tax
Specialist
Accountant CFO
Accounting Consultant
Internal Auditor
External Auditor

MAJOR AREAS OF
ACCTG SPECIALIZATION
Financial Accounting
Management Accounting
External Audit
Tax Accounting
Payroll Accounting

TYPES OF OWNERSHIP STRUCTURES (Forms of Business Organization)

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INTRODUCTION TO ACCOUNTING
1. Proprietorship is a business that is owned and operated by a single
individual. The owner is called proprietor).
2. Partnership is a business that is owned by two or more individuals. The
owner are called partners.
3. Corporation is a business whose capital is divied into shares of stocks that is
created by operation of law. The owners are called stockholders.
4. Cooperative is a business that is exempted by taxation. The owners are
called members.
CHARACTERISTICS OF THE DIFFERENT FORMS OF BUSINESS ORGANIZATION
Proprietorship
1. One owner
2. Unlimited
liability for
unpaid
debts
3. Owner
manages
the
business.

Partnership
1. Two or more
owners
2. Unlimited
liability for
unpaid
debts
3. There is a
managing
partner.

Corporation
1. Unlimited
owners.
2. Limited
liability of the
stockholders for
corporate debts.
3 Management
is vested in
the Board of
Directors
(BOD).

Cooperative
1. Unlimited
owners.
2. Limited
liability
of the
members for the
cooperative debts.
3 Management
is vested in
the BDO.

BASIC ELEMENTS OF ACCONTING (Accounting Values)

1. Statement of Financial Condition Elements
Assets economic resources that have values and owned by the
business. Included in this elements are cash, receivables, pre
payments, inventory, marketable securities, land, building, machinery,
furniture and equipment.
Liabilities economic or legal obligations that a business owes to other
businesses or individuals. Included in this elements are accounts
payable, notes payable, loans payable, payables to governments and
unpaid (accrued) expenses.
Owners Equity is the owners interest in, or claim to, the assets of a
business. It is the difference between the amounts of assets and the
amount of liabilities,
2. Statement of Comprehensive Income Element
Revenues inflows of assets resulting from sale of goods or services.
Revenues increases owners equity.
Expenses outflows of assets resulting from cash spent or liability
incurred in order to produce revenue. Expenses decrease owners
equity.

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INTRODUCTION TO ACCOUNTING

Net Income (Loss) the excess (deficit) of revenue over expenses for a
given accounting period. Net income increases owners equity while
net loss decreases owners equity.

THE ACCOUNTING PROCESS (Functions of Accounting)

Accounting is a measurement and communication process designed to provide
useful ad timely financial information. Its function are the following:
1. Recording this is more popularly known as BOOKKEEPING, which involves
putting into records the business transactions and events. This can be done
manually, with the use of mechanical devices or electronically, or with the
use of computers.
2. Classifying - this involves the grouping of similar items together in order to
make the recording of the different transactions and events more systematic.
3. Summarizing this involves the preparation of financial statements.
4. Interpreting this involves the analysis of financial statements (by developing
financial ratios and explaining their significance for the benefit of the readers
and users.
RECORDING OF THE BUSINESS TRANSACTIONS
THE ACCOUNTING EQUATION
The relationship between the three basic accounting elements of the Statement of
Financial Condition Assets, Liabilities and Owners Equity can be expresses in the
form of a simple equation known as the Accounting Equation. All accounting
information is recorded within the framework of the accounting equation. The basic
accounting equation is shown below.
ASSETS (P500,000)
(200,000)
OR

= LIABILITIES (300,000)

+ OWNERS EQUITY

ASSETS (P500,000)
(200,000)

- LIABILITIES (300,000)

= OWNERS EQUITY

The equality of the accounting equation is always maintained for every transaction
that is recorded. The peso amount of the left side of the equation (called DEBIT)
should always be equal to the peso amount on the right side of the equation (called
CREDIT). If assets increase, liabilities and/or owners equity must increase by the
same amount. Conversely, if the assets decrease, there will be a corresponding
decrease by the same amount in the liabilities and/or owners equity. An increase in
an asset may also have a corresponding decrease in another asset or an increase in
a liability may also have a corresponding decrease in another liability by an equal
amount.
ACCOUNNTING EQUATION EXPANDED
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INTRODUCTION TO ACCOUNTING
ASSETS
Cash + Accounts
Receivable+
Supplies + Repair
Equipment

LIABILITIES
Accounts Payable + Bank
loan

OWNERS EQUITY
Owners Capital Drawing
+ Revenues Expenses

1. The two sides of the equation should always balance.

2. The effect of every transaction is an increase or decrease in one or more of
the accounting equation elements.
3. The owners equity is increased by the amount invested by the owner and
decreased by withdrawals. In addition, the owners equity is increased by
revenue and is decreased by expenses.

Exercise I
Dr (CR)

A, L, C, R
or E

Increase
(Decrease)
Capital

BS or IS

Real or
Nominal
Account

Cash on Hand
Notes
Receivable
Owners
Equity
Accounts
Payable
Withdrawal
Utilities
Machineries
Long Term
Notes Payable
Sales
Communicatio
n Expense
Exercise 2

40,000

Capital
350,00
0
50,000

40%

60,000

Asset
600,000

Liabilities

1
1
1
2
1
3

Asset
180,000

Liabilities

Capital
58%

40%,
100,000
200,000

40%

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INTRODUCTION TO ACCOUNTING
4

25%,
100,000
480,000

180,00
0
70%
300,00
0, 60%

6
7
8
9
1
0

125,000

1
4

36%
66,000
40%

35,000

1
2
3
4
5

750,000

35%

Revenue

Expenses

350,000
450,000

200,000

Net Income
(Loss)
200,000

650,000

350,000
25%, P100,000

60%,
600,000

Exercise 3
1
2
3
4
5

Identification
With 2 to 15 owners.
With 2 or more owners, mostly they are called members.
One ownership.
With 2 or more owners, mostly they are called shareholders.
What is ALCRE?

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