ACCOUNTING
Defined as an art of recording, classifying,
summarizing in a significant manner and in terms of
money, transaction, and events, which are in part of
financial character and interpreting the results
thereof (Committee on Terminology of the American
Institute of Certified Public Accountant).
 ART- communicates financial information.
Users:
 Owner/stockholders
 Manufacture management
 Employees
 Government
 Creditors/suppliers
 Investors
 4 PHASES OF ACCOUNTING
 Recording. “bookkeeping”, business
transactions are recorded
systematically and chronologically in
the proper accounting books. Two
kinds of bookkeeping: single entry and
double entry bookkeeping.
 Classifying. Items are sorted and
grouped. Similar items are classified
under the same name. Assets,
liabilities, capital, income and
expenses.
 Summarizing. Data recorded are
summarized through financial
statements after each accounting
period.
 Interpreting. Analysis are submitted
together with financial statements,
“profitability.”
Stability- comparing the total
assets and total liabilities.
Liquidity- cash/available for
current operation.
TRANSACTIONS
o Economic activities of the business
o Value received and value parted with
Business Organizations according to
Nature
1. Service Concern. Deals with
rendering of services to the customers.
2. Trading or Merchandising
Concern. Deals with the buying of
goods and selling of the same for
profit.
3. Manufacturing Concern. Involves
the purchase of raw materials and
converting into finished products.
Business Organizations according to
Ownership
1. Single or sole proprietorship.
Owned by one person. Usually
supplies the capital or borrows funds
from banks or other lending
institutions.
2. Partnership. With two or more
owners. The owners, called partners
agree on the capital contributions,
management of the firm, distribution
of profits and losses, and other
matters pertaining to the operation of
the business.
3. Corporation. Organized by operation
of law, with no less than five persons.
4. Cooperative. Governed by the “one-
member, one-vote” principle.
Worker Cooperative- owned
and operated by people
working there.
Consumer Cooperative-
owned and operated by people
who buy the goods or services
from that coop.
Producer Cooperative-
owned and operated by the
people who collaborate to
process and market their
products.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLE (GAAP)
 Are accounting rules, procedure, practices and
standards which served as guide in the preparations
of financial statements. They were developed based on
reason, usage, experience, and necessity.
ACCOUNTING ASSUMPTIONS
 Foundation of all accounting practices and
principles.
 Business as an Accounting Entity (Entity
Principle)
 Going Concern or Continuity Assumption
The business is assumed to have a continuous
operation from the date it is established.
 Time Period
One accounting period is usually one year.
 Monetary Unit
ACCOUNTING ELEMENTS OR VALUES
 Assets
-Are economic resources owned by the business.
1. Current Assets are those assets which can be  Properties- land, building, furniture and
reasonably converted into cash within a short fixtures.
period of time, usually within one accounting  Equipment
period or within the regular operation of the  Long-term Investments-cash in bank,
business or the normal operating cycle of the bonds and stocks.
business.  Intangible Assets- patent, copyright,
goodwill.

SERVICE CONCERN  Liabilities

-are debts or obligations of the business.
Cash
Service 1. Current or short-term liabilities are those
Rendered Accounts Cash which are due for payment within one year.
 Accounts payable
Receivable
 Notes payable
Notes Cash  Accrued expense
receivable  Unearned income

2. Fixed or long-term liabilities are those which

mature beyond one year.
MERCHANDISING CONCERN  Mortgages
 Bonds payable
Cash
Capital
Selling Accounts Cash -represents the owner’s equity or investment in the
of business.
Receivable
Goods
Income- special kind of growth in the firm’s
Notes Cash assets.
receivable Expense- use up of the firm’s assets.

T-ACCOUNT

MANUFACTURING CONCERN Account is an accounting device used to

summarize the increases and decreases in the asset,
Purchase of Finished liability, proprietorship, income, and expenses of the
raw materials Goods business.

Cash Debit Credit

Selling
Finished of Accounts 1.Increase asset 1.Decrease asset
Goods Finished Receivable
2.Decrease liabilities 2.Increase liabilities
Goods
Note
3.Decrease capital 3.Increase capital
Receivable
a. Withdrawal a. Investment

 Cash b. Income
b. Expense
 Receivables- represent amounts
collectibles from customers arising
from sales of merchandise, claims of
GOING-CONCERN PRINCIPLE OR THE
money lent or the performance of
PRINCIPLE OF CONTINUITY
services.
 the business from the day of establishment up
 Prepaid Expenses- those which are already
to the current day and divide the life of a
paid before they are used or consumed.
business.
2. Noncurrent Assets are those assets which
ACCOUNTING PERIOD
include property, plant and equipment.
  “fiscal period”, is a portion of the life of the
business.
 To know the result or development financial
condition.
ACCOUNTING CYCLE
 Consists of successive steps from opening of
the books of account up to closing
Steps:
1. Journalizing
2. Posting
3. Preparation of trial balance
4. Adjusting the entries
5. Preparation of the worksheet
6. Preparation of the financial statements
7. Closing the entries
8. Preparation of post-closing trial balance
9. Reversing the entries (for next accounting
period)
 Journalizing
-first step in the accounting cycle.
-process of recording business transactions in
a journal.
- “Journal” is a book of accounts where
business transactions are recorded for the first
time.
TWO KINDS OF JOURNAL
 General Journal. Simplest and most
flexible journal.
 Special Journal. Cash receipts
journal, cash payments journal, sales
journal, purchases journal etc.
JOURNAL ENTRY
- Record of business transactions in the journal.
 Simple journal entry. Contains only
one debit and credit accounts.
 Compound journal entry. Contains
either one debit and two or more
credits or two or more credits and one
credit, or two or more debits and two
or more credits.
 Posting
-process of transferring the records from the
journal to the ledger.
- “Ledger” constitutes a group of accounts.
-called the book of final entry.
 Trial Balance
-list of accounts with open balances in the general
ledger.
TWO TYPES OF TRIAL BALANCE
 Trial balance of balances. Contains
accounts with open balances.
 Trial balance of total. The total of the
debits and the total of the credits of
each account.
FINANCIAL STATEMENTS
 Income Statement- which contains the
income and expense accounts shows the
results of the business operation or the
performance of the business.
 Statement of Financial Position- contains
the assets, liabilities, and proprietorship of
the business. It shows the financial condition
of the business.
TWO FORMS
 Report form
 Account form
MERCHANDISING
Deals with buying and selling of goods or
merchandise.
Purchases- debited when goods are bought.
FORMS OF PURCHASE
1. Cash basis
2. On account basis
3. On account basis with down payment
4. On account basis, supported by promissory note
5. On account basis, with down payment, remainder
supported by a promissory note.
Freight-in- transportation expense paid by the buyer
for the delivery of goods bought, added to cost of
goods.
Purchase Return and Allowance- credited when goods
purchased are returned.
Discount- certain amount deducted from the original
price.
TWO KINDS OF DISCOUNT
 Trade discount. Not recorded in the books of
the buyer and the seller.
 Cash discount. Given if the payment is mode
within the discount period.
Terms: 2/20, 1/20, n/30
Sales- income account, credited when goods are sold.
TERMS OF SALE
1. Cash basis
2. On account basis
3. On account basis with down payment
4. On account basis, supported by promissory note
5. On account basis, with down payment, remainder
supported by a promissory note.
Freight-out- transportation expense paid by the seller
for the delivery of goods bought, operating expense.
Sales Returns and Allowances- credited when goods
are sold and returned.