ACCOUNTING TERMS and their definitions

• FINANCIAL STATEMENTS – set of formal records of financial activities, performance,

cashflow or position of a business or a person.

1. STATEMENT OF FINANCIAL POSITION OR THE BALANCE SHEET – reports

the financial position, the ASSETS, LIABILITIES AND EQUITY in a SPECIFIC
point of time

1. ASSETS – resources owned by the company

1. Owned by the entity

2. Probable future economic benefit will flow

3. Its cost can be measured reliably

2. LIABILITIES – present obligations of the company arising from past

events the settlement of which is expected to result in an outflow of
entities resources

1. Present obligation

2. Arise from past events

3. Settlement will result in outflow of resource

3. EQUITY- residual claims of the owners

• ASSETS

1. Current Assets – Expected to be realized in the entity’s normal operating cycle.

Held primarily for the purpose of trading. Expected to be realized within 12
months after the reporting period.

1. Cash usually refers to money in the form of liquid currency, such as

banknotes or coins.

2. Inventories are products on hand for sale to customers.

3. Accounts receivable are amounts collectible from its customers. It is the

claim against a DEBTOR for an uncollected amount, generally from a
completed transaction of sales or services rendered

• ASSETS

Non Current Assets / Fixed Assets / Long term assets – Assets with useful life more than 1
year
 • Property Plant and Equipment are assets used in the production of
goods and services

• Intangible Assets - which are non-monetary assets which are without

physical substance and identifiable (either being separable or arising from
contractual or other legal rights

• LIABILITIES

• Current Liabilities - are those to be settled within the entity's normal operating cycle or
due within 12 months

• Accounts Payable is the amount owed to a CREDITOR for delivered goods or

completed services

• Income Taxes Payable is income taxes due including current portion of deferred
taxes.

• LIABILITIES

Non Current Liabilities – refers to financial obligations of a company not expected to be settled
within one year

– Loans Payable is the account title used to record amounts to be paid for
borrowed money. This is also called Notes Payable.

– Notes Payable is the account title used to record amounts to be paid for
borrowed money and evidenced by a promissory note. This is also called Loans
Payable.

STATEMENT OF CHANGES IN EQUITY contributed capital and retained earnings during the
period.

• Equity represents the residual claims of owners

• Capital is called equity.

• Drawing is when a business proprietor draws money for personal needs

• Retained Earnings are profits of the business that have not been paid out to the owners
as of the balance sheet date.
III. STATEMENT OF CASHFLOW - It categorizes net cash provided or used during a period
as operating, investing and financing activities, and reconciles beginning and ending
cash and cash equivalents

• Operating Activities –revenue producing activities

• Investing Activities – acquisition and disposal of long term assets / investments

• Financing Activities – changes in equity and borrowings

• II. STATEMENT OF COMPREHENSIVE INCOME / INCOME STATEMENT/

PROFIT AND LOSS STATEMENT – reports the financial performance of an entity
during an accounting period

• i. INCOME – Increases in economic benefits during an accounting period

• ii. EXPENSE– decreases in economic benefits during an accounting period

• III. Net Profit/ Net Income - Total Income minus total expense. Income > Expense

• IV. Net Loss- Total Income minus total expense. Income < Expense

• Income is the inflow of REVENUE during a period of time. This also money received by
a person or organization because of effort (work), or from return on investments.

• Revenue represents the inflow of assets (or decrease in liabilities) due operating
activities. This may include sales of products, merchandise, and services; and earnings
from INTEREST, DIVIDEND, rents.

• Rent income is money received by a person or organization from rental of premises

and/or other assets.

• Interest Income includes amounts from interest on all interest-bearing deposits and
accounts.

• Dividend income is income received from ownership shares in a corporation. A

dividend is a distribution to a corporations stockholders usually in cash;

• Expenses represent the outflow of assets (or increases in liabilities) due to a company’s
operating activities

• Salaries/wages expense is an account title used to record salaries, wages, and

benefits an employee receives from an employer.

• Rent expense is the expenditure made to cover the rental for the premises.
• Utilities expense is an account title used to record amount incurred on heat, light,
water, and power

• Depreciation is the process of allocating the cost of property, plant and equipment
assets to the periods that will benefit from its use

• Philippine Financial Reporting Standards often known as PFRS are a set of

accounting standards. They are issued by the Financial Reporting Standards
Council. [FRSC].

• Bookkeeping is the recording of all financial transactions undertaken by a

business (or an individual). A bookkeeper (or book-keeper), sometimes called an
accounting clerk in the is a person who keeps the books of an organization.

• Internal Control is the process designed to provide reasonable assurance

regarding achievement of various management objectives such as the reliability of
financial reports.

• Accounting equation is assets equals liabilities plus equity. (A = L + E)

• Account is a formal record that represents, in words, money or other unit of

measurement, certain resources, claims to such resources, transactions or other
events that result in changes to those resources and claims

• Accounting period/year is a period of 12 consecutive months chosen by an entity as its

ACCOUNTING period which may or may not be a calendar year.

• Accounting Manual is a document prepared to provide bookkeepers with direction and

guidance in connection with those bookkeeping requirements of entities

• Chart of Accounts is a systematic listing of all accounts used by an entity.

• Transactions and events are recorded as they occur, recorded even if cash is not
received or paid and affects the accounting equation.

• Journal is a book where all transactions are initially recorded.

• General Journal is the most basic of journals. It is a chronological list of

transactions.

• Sales Journal in which all invoices outgoing to customers are recorded.

• Purchases Journal.– in which all incoming merchandise invoices are recorded.

• Cash Payments Journal is a book used to record all payments made in cash such as
for accounts payable, merchandise purchases, and operating expenses; also termed
cash disbursements journal

• Cash Receipts Journals is a book used to record all collections made in cash such as
for accounts receivable , merchandise sold, and interest income

• Journalize transactions is the process of recording a business transaction in a journal.

• Journal entry are the logging of business transactions and their monetary value into the
t-accounts of the accounting journal as either debits or credits. A journal entry is usually
backed up with a piece of paper; a receipt, a bill, an invoice, or some other direct record
of the transaction; making them easy to record and to maintain traceability for each
transaction.

• Adjusting journal entries are accounting entries to account for a periods

changes, omissions or other financial data required to be reported "in the books"

• Closing entries are prepared after the financial statements have been completed

• Routine journal entries Recurring financial activities reflected in the accounting records
in the normal course of business.

• Posting is the process of transferring figures from the journal to the ledger accounts

• Ledger is a tool used for classifying and summarizing information about increases,
decreases, and balances of items in the chart of accounts.

• General Ledger is the collection of all ASSET, LIABILITY, owners EQUITY, REVENUE,
and expense accounts. This is a book of accounts in which data from transactions
recorded in journals are posted and thereby classified and summarized. Also called
ledger.

• Subsidiary Ledger is a group of subsidiary accounts the sum of the balances of which
is equal to the balance of the related control account in the general ledger

• Chart of Accounts is a systematic listing of all accounts used by an entity.

• Trial balance confirms that accounts are still in balance.

• Preliminary Trial Balance is a listing of the accounts in the general ledger and their
balances as of a specified date. A trial balance is usually prepared at the end of an
accounting period and is used to see if additional adjustments are required to any of the
balances.

• Adjusted Trial Balance reflects totals after the adjusting entries are posted to the
general ledger.

• Post Closing Trial Balance is balance sheet in trial balance form.

• Worksheet is a document or schedule in which a bookkeeper uses to gather

information to substantiate an account balance

• Documents are bases of recording transactions in bookkeeping. This may include

but not limited to sales invoice and official receipts.

• Sales invoice is a document issued by a vendor for specific materials or supplies

furnished. It is called purchase invoice from the point of view of the seller.

• Purchase invoice is a bill from a vendor for specific materials or supplies

furnished or services rendered. It is called sales invoice from the point of view of
the seller.

• Official receipts is a document issued to acknowledge receipt of cash from services

received

• Vouchers is a written record of expenditure, disbursement, or completed

transaction.

• Debit (dr) - means an entry to the left hand side of an account. Entry on the left side of a
DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET or
expense or the reduction to a LIABILITY or REVENUE. (See CREDIT.)

• Credit (cr) - means an entry to the right hand side of an account. Entry on the right side
of a DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an
ASSET or expense or the addition to a LIABILITY or REVENUE. (See DEBIT.)

• Balance is the Sum of DEBIT entries minus the SUM of CREDIT entries in an
ACCOUNT. If positive, the difference is called a DEBIT BALANCE; if negative, a
CREDIT BALANCE
Accounting
• 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 financial
character, and interpreting the results thereof - American Institute of Certified Public
Accountants (AICPA)

Purpose of Accounting

• in 1970 the Accounting Principles Board of AICPA also

emphasized that the function of accounting is “to provide
quantitative information, primarily financial in nature, about
economic quantities, that is intended to be useful in making
economic decisions.”

Accounting is the LANGUAGE OF BUSINESS

Users of information
• Shareholders, Investors or OWNERS

• Management / Board of Directors

• CREDITORS, SUPPLIERS, LENDERS

• CUSTOMERS

• GOVERNMENT- BIR, PSA, DTI etc

• EMPLOYEES