WHAT IS ACCOUNTING?
- Accounting is a process of recording, identifying, and communicating economic info.
(Identifying)– selecting economic events
(Recording) – keeping chronological diary
(Communicating) – Preparation and distribution
HISTORY OF ACCOUNTING
423 B.C – The profession was born
“AUDITOR”
1300 – Accountants were mentioned in historical records.
Florentine Approach (Amatino Manucci) – journal entry
Venetian Approach (Andrea Bargarico) – ledger posting
Luca Pacioli – father of the modern accounting
His book “Summa De Arithmetic, Geometria, proportioni et Proportionalita”
DEBIT (Owes) CREDIT (Trust)
Jaques Savary – historical cost
Nepoleom Boraprts – Market value
Eugene schmalennbach – price level accounting
1913 – Income tax in the Philippines
1923 – Accounting Law (Republic act NO.3105)
1967 – law was revised (Republic Act NO.5166)
1973 – IASC (International Accounting Standard Committee) was created
1975 – accountancy law was revised (presidential Decree NO.692 )
1981 – Philippines Institute of Certified Public Accountant (PICPA) created the Accounting
Standard Council (ASC)
NATURE OF ACCOUNTING
1. Service Activity
2. Process
3. Information system
4. Both an Art and discipline
5. Financial Information and Transaction
MAJOR ACCOUNTS
Asset
Liabilities
Owner’s equity
Expense
Revenue
Users Of Accounting Info
Internal Users – Those who make decisions on behalf of the organization.
External Users- Those who make decisions based on the company’s financial.
Accounting Principle
Business Entity Principle- business interprise should be separated from the
owner.
Monetary Unit Principle- amounts are state into a singlr monetary unit .
Objectivity Principle- financial statement w/evidence.
Cost Principle- accounts should be recorded initially at cost.
Accrual Accounting Principle- revenue should be recognized when earned and
expenses should be recognized when incurred.
Matching Principle- cost and revenue should be match.
Disclosure Principle- all should be reported.
Conservatism Principle- as “ Prudence”.
Materiality Principle- immaterial relative assets should be recorded as expense.
Accounting Equation
Assets = Liabilities + Capital
Account Title
Debit Credit
Debit Credit
Assets = L + C
Normal Balance
Debit Credit
Asset Liabilities
Expenses Capital
Drawing Revenues
Contra-Asset
FORMULA
A+L=C
L+C=A
C+A=L
Books of Account
Journal – a journal functions as a financial diary. ( Book of original entry)
TYPES OF JOURNAL
*Special Journal – records recurring transactions.
Sales Journal (SJ) – sales merchandise on account.
Purchases Journal ( PJ ) – purchase of merchandise on account.
Cash Receipts Journal (CRJ) – a receipts of cash from whatever source.
Cash Disbursements Journal (CDJ)- payments cash of whatever purpose.
*General Journal – records all business transactions not recorded in the special journal
*Ledger – collective record of individual accounts used by a business.
TYPES OF LEDGER
General Ledger – used to accumulate and classify individual transactions from the
journal
( T – account ).
Subsidiary Ledger – used to provide information about specific ledger account.
MAJOR ACCOUNTS
*Types Of Assets
Current Assets – are the assets that can be realized within one year.
Non-current Assets – are assets that cannot be realized one year after year end.
Tangible Assets – physical asset
Intangible Assets – non-physical assets.( Patents and Trademark )
CURRENTS ASSETS
Cash – money on hand or in banks.
Accounts Receivable – money owed by the costumers to the business.
Notes Receivable- money owed by the costumers to the business with promissory
note.
Inventories – Assets held for sale.
Unused Supplies – remain unused at the end of the accounting period.
Prepaid Rent – advances payments made by the business for future rental payments.
NON-CURRENT ASSETS
Equipment – this represents manual or automated machines.
Furnitures and Fixtures – assets like sofa, tables, chairs, etc..
Buildings – physical structure owned and used by the business.
Land – refers to physical site.
Allowance for doubtful Accounts – conta-asset
Accumulated Depreciation - conta-asset
CURRENT LIABILITIES
Account Rayable – money owed by the business to the creditors or suppliers.
Notes Rayable – money owed by the business with primissory note.
Unearned Revenue – cash collected in advance for a service or good that is yet to be
performed or deliver.
NON-CURRENT LIABILITIES
Loans Payable – money borrowed by the business to the third party creditors.
Mortgage Payable – money borrowed by the business which is secured by collateral.
REVENUE
Service Revenue – income earned.
Sales – total merchandise sold.
Professionals Fees – earned by the professionals.
Interest Income – earned for lending money.
Rent income – rental earned.
EXPENSE
Utilities Expense – amount of light and water consumed by the business.
Salaries Expense – compensation given to the workers.
Wages Expense – for temporary employee.
Taxes and Licenses Expenses – tax expense and license expenses of the
company/business
Cost of Sales – this are the expenses of all the materials to make the product
Supplies Expense – the cost of the supplies
Doubtful Accounts Expense – account receivables that will not be paid on that year
for some reason
Depreciation Expense - when the equipment depreciate (the value decreased)
ACCOUNTING CYCLE
1. Collecting and Analyzing Accounting Document- Examine the source
documents and analyze.
2. Posting in journal- the debit and credit must be equal. This is repeated throughout
the accounting period.
3. Posting in ledger- a ledger is simply collection of all accounts.
4. Preparation of Trial Balance- trial balance is summary of all the balances of
the ledger accounts irrespective of whether they carry debit or credit balance.
This is usually done after the accounting period.
5. Posting adjusting entries- in the most of the cases we used accrual basis of
accounting to find the correct value of all the accounts, we need to do these
adjustment entries.
6. Adjusted Trial Balance- a platform to prepare the financial statements of a
company.
7. Preparation of Financial Statement- show the financial health of a firm by
depicting its profit or losses.
8. Post-closing entries – the net balance of these entries represents the
profit or loss of the company.
9. Post-closing Trial Balance- represents the balances of the Assets,
Liabilities & Capital account.
