College Department

College of Business Administration and Bachelor of Science in Office Administration

Ritchel John H. Arellano, CPA, LPT
Mobile Number: 09399182946/09772442912
Email: rjharellano@gmail.com
September 21, 2020

Dear Student,

Please find enclosed the course materials for the course titled:

ACCTG 1&2: Basic Accounting

We are pleased that you have chosen to study with us here at the College of Business
Administration of Assumption College of Nabunturan. It is our hope that we will be able to
provide the support and information you need to succeed in this course.

I am the instructor of this course and will be your primary point of contact in relation to any
academic matters concerning your study in this course. My contact details are shown above. I
look forward to communicating with you, particularly by email or text messages. I also expect
your full participation in our incoming discussions in google classroom. If you have doubts with
the concepts presented, feel free to ask for clarification by posting questions in the dialog box.

I suggest also that you take time to support your classmates by reading their posts and leaving
comments if you agree with their views and ideas on the topic discussed. By then we will be
able to build a supportive learning community in this course which is essential for the completion
of this course.

Once again let me welcome you. I look forward to working with you throughout the semester.

Yours sincerely,

Ritchel John H. Arellano, CPA, LPT

College Part-Time Instructor
 ACCTG 1&2: BASIC ACCOUNTING
Course Pack

Instructor: Ritchel John H. Arellano, CPA, LPT

Semester: 1st Semester AY 2020-2021
Course Credit: 6 Units

Course Description:

This course provides an introduction to accounting within the context of business and business
decisions. Students obtain basic understanding of the principles and concepts of accounting as
well as their applicability and relevance in the national context and learn how to use various
types of accounting information found in financial statements and annual reports. Emphasis is
placed on understanding the reasons underlying basic accounting concepts and providing
students with an adequate background on the recording, classification, and summarization
functions of accounting to enable them to appreciate the varied uses of accounting data.

Contact Hours: 4 hours online and 2 hours consultation per week.

Course Objectives:

At the end of the course, learners are expected to:

1. Live the gospel values of Christ;

2. Effectively communicate orally and in writing using both the English or Filipino language;
3. Explain and describe the nature, functions, scope, and limitations of accounting, its
various users and its relationship with other disciplines and its professional status;
4. Discuss the logic of double entry bookkeeping and the nature and significance of each
step in the accounting cycle;
5. Apply the concept of double entry bookkeeping system and the process of identifying,
analyzing, recording, classifying and summarizing typical business transaction of a single
proprietorship engaged in service or merchandising concern;
6. Analyze business transactions and prepare the correct journal entries and posting it to
the ledgers;
7. Identify, compare, and contrast computerized and manual accounting systems,
components of financial statements, internal control, business documents and forms,
their design and uses, and relationships between accounting records and reports;
8. Design his/her own chart of accounts for a sole proprietorship business engaged in
merchandising and service concern;
9. Prepare, in good forms, properly classified financial statements and its components for a
sole proprietorship business engaged in service or merchandising business;
10. Use correctly common technical terms applicable to accounting for a service or
merchandising sole proprietorship business.
11. Evaluate the role of accounting in business.

Course Content:

1. Introduction to Accounting and Its Importance in Business

2. Branches of Accounting
3. Users of Accounting Information
4. Forms of Business Organization
5. Accounting Concepts and Principles
6. The Basic Accounting Equation and The Rules of Debit and Credit
7. Accounting Information Systems and Business Transactions
8. The Accounting Cycle: Journalizing Transactions
9. The Accounting Cycle: Posting and Trial Balance Preparation
10. The Accounting Cycle: Worksheet and Creation of Financial Statements
11. The Accounting Cycle: Adjusting Entries
 12. The Accounting Cycle: Closing Entries and Post-Closing Trial Balance
13. Introduction to Merchandising Concern
14. The Accounting Cycle: Merchandising Concern
15. Special (Combination Journals)
16. Subsidiary Ledgers
17. Comprehensive Examination/Practice Set

Course Requirements:

1. Completed Online Exercises

2. Activity Outputs
3. Timely Submission of Assignments
4. Weekly Quizzes and Periodic Examinations

Grading System:

1. Assignments: 25%
2. Quizzes: 30%
3. Periodic Examinations: 45%
4. Total: 100%
Lesson 5: Types of Major Accounts

OBJECTIVES:

At the end of the lesson, you will be able to:

a. Determine the different financial reports included in a financial statement;
b. Differentiate the functions of each financial report
c. Identify the account as assets, liabilities, capital, income or expense; and
d. Cite an example of each of type of account;

REVIEW:

In our last session, we discussed about the different generally accepted accounting
principles. These concepts are the rules, procedures, practice, and standards followed
in the preparation and presentation of financial statements. These concepts help in
achieving the objective of accounting which is to provide information to respective users
of financial information.

Our topic for today will give us an insight on the initial processes, steps, and
background as to how financial information are collected, stored, and analyzed as
businesses have their operations.

INSTRUCTION:

Financial statements are written records that convey the business activities and the
financial performance of a company. The financial statements are often audited to
ensure accuracy and to identify if the business entity follows the different accounting
standards in recognizing, recording, and reporting business transactions.

A financial statement is composed of the following reports:

a. Statement of Financial Position (Balance Sheet) - provides an overview of a

company's assets, liabilities, and stockholders' equity as a snapshot in time. The
date at the top of the balance sheet tells you when the snapshot was taken,
which is generally the end of the accounting period.

Below is an example of a balance sheet:

b. Income Statement (Statement of Financial Performance) - covers a range of

time, which is a year for annual financial statements and a quarter for quarterly
 financial statements. The income statement provides an overview of revenues,
expenses, net income and earnings per share. It shows the financial
performance of a business entity.

Below is an example of an income statement:

c. Statement of Changes in Owner’s Equity - reports the changes in company

equity. The changes that are generally reflected in the equity statement include
the earned profits, dividends, inflow of equity, withdrawal of equity, net loss, and
so on.

Below is an example of a statement of changes in owner’s equity:

 d. Statement of Cash Flows - a financial statement that summarizes the amount of
cash and cash equivalents entering and leaving a company. It shows the cash
inflows and cash outflows of a business entity in a specific period of time.

Below is an example of a statement of cash flows:

e. Notes to financial statements - are the supplemental notes that are added to
the published financial statements of a company. The notes are used to explain
further the numbers included in the financial statements, as well as the
accounting policies adopted by the company. They help different types of users,
such as financial analysts and investors, to interpret all the numbers added in the
financial statements.

After we identify the different financial reports that make up a complete set of financial
statements, we will now discuss the elements that comprises these financial reports.
But before we go on to details, let’s first discuss what is an account.

An account is the basic summary device of accounting. A separate account is

maintained for each element of the financial statements. Simply stated, it gives us a
detailed of the increases, decreases and
balance of each element that appears in a
business entity’s financial statements. The
most basic form of an account is known as a
T-account, owing to its similarity to the letter
“T”.
An account has three parts: the account title, the debit side, and the credit side. We will
now discuss each part of an account.

ACCOUNT TITLE

An account title is the element of a financial statement. It could be divided in following

groups:

a. Balance Sheet Accounts – these accounts are shown in the balance sheet.
They are also called Real or Permanent Accounts since they will not be closed at
the end of the accounting period. These are the Asset, Liabilities, and Capital
or Equity Accounts.

 Assets – are valuable resources owned by the entity. It is a resource

controlled by the business as a result of past events and from which future
economic benefits are expected to flow to the enterprise.

Assets are classified in to two groups: current or non-current. How can

we determine if an asset is current or non-current? We must check the
business entity’s operating cycle. Operating cycle is the time between
the acquisition of assets for processing and their realization in cash or
cash equivalents. When an operating cycle is not identifiable, it is
assumed to be twelve months.

An asset is current if it will be held, sold, or consumed within its operating

cycle or realized within twelve months after the reporting period.
Otherwise, it is non-current.

The following are examples of current and non-current assets:

Current Assets:
1. Cash – any medium of exchange that a bank will accept for deposit at
face value. It includes coins, currency, checks, money orders, bank
deposits and drafts.
2. Accounts Receivable – these are claims against customers arising
from sale of services or goods on credit.
3. Notes Receivable – is a written pledge that the customer will pay the
business a fixed amount of money on a certain date.
4. Inventories – are assets which are (a) held for sale in the ordinary
course of business; (b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the
production process or in the rendering of services.
5. Prepaid Expenses – are expenses paid for by the business in
advance.

Non-current Assets:
1. Property, Plant and Equipment – tangible assets that are held by an
enterprise for use in the production or supply of goods or services, or
for rental to others, or for administrative purposes and which are
expected to be used during more than one period. Examples are land,
building, machinery and equipment, furniture and fixtures, and motor
vehicles and equipment.
2. Accumulated Depreciation – it is a contra account that contains the
sum of the periodic depreciation charges. The balance in this account
is deducted from the cost of the related asset to obtain book value.
3. Intangible assets – are identifiable, nonmonetary assets without
physical substance held for use in the production or supply of goods or
 services, for rental to others, or for administrative purposes. These
include goodwill, patents, copyrights, licenses, franchises, trademarks,
brand names, secret processes, subscription lists, and non-competition
agreements.

 Liabilities – are obligations of the entity to outside parties who have

furnished resources. It is a present obligation of the enterprise arising from
the past events, the settlement of which is expected to result in an outflow
from the enterprise of resources embodying economic benefits.

Just like an asset, a liability can be categorized as a current or non-

current. A liability shall be classified as current if it is to be expected to be
settled within a normal operating cycle, or held primarily for the purpose of
trading, or due to be settled within twelve months after the reporting
period. Otherwise, it shall be classified as non-current liabilities.

The following are examples of liabilities.

Current Liabilities:
1. Accounts Payable – represents the reverse relationship of the
accounts receivable. By accepting the goods or services, the buyer
agrees to pay for them in the near future.
2. Notes Payable – the opposite of a note receivable, the business entity
is the maker of the note, promising to pay the other party a specified
amount of money on a specified future date.
3. Accrued Liabilities – amounts owed to others for unpaid expenses.
4. Unearned Revenues – these represent the amounts received in
advance from customer. As goods or services were provided, income
is recognized.

Non-current Liabilities:
1. Mortgage Payable – long-term debt of the business entity for which
certain assets are pledged as security to the creditor.
2. Long-term Notes Payable – these are promissory notes with a long
term.

 Owner’s Equity – these is known as the residual interest of the business.

You will later know why equity is a residual interest.
1. Capital – account used to record the original and additional investment
of the owner of the business entity.
2. Withdrawals/Drawings – account used to record withdrawals of cash
or other assets by the owner, directly reducing the owner’s equity.

b. Income Statement Accounts - these accounts are shown in the income

statement. They are also called Nominal or Temporary Accounts since they will
be closed to the capital account at the end of the accounting period. These are
the Income and Expense accounts.

 Income – increases in economic benefits during the accounting period in

the form of inflows or enhancements of assets or decreases of liabilities
that result in increases in equity, other than those relating to contributions
from equity participants.

The following are examples of income:

1. Service Income – revenues earned by performing services for a
customer or client.
2. Sales – revenues earned as a result of sale of merchandise.
  Expense – decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrences of liabilities
that result in decreases in equity, other than those relating to distributions
to equity participants.

The following are examples of expenses:

1. Cost of Sales – cost incurred to purchase or to produce the products
sold to customers during the period; also called cost of goods sold.
2. Salaries or Wages Expense – includes all payments as a result of an
employer-employee relationship such as salaries or wages, 13 th month
of pay, cost of living allowances and other benefits.
3. Utilities Expense – expenses related to the use of telecommunication,
consumption of electricity, fuel, and water.
4. Rent Expense – expense for payment of rentals.
5. Supplies Expense – expense of using supplies in the conduct of daily
business.

ACTIVITY #1:

Answer the activity included in Microsoft Forms.

INSTRUCTION:

THE RULE OF DEBIT AND CREDIT

Since we have discussed in detail the different types of account titles, we will now
proceed to the other parts of an account: Debit and Credit.

It has always been erroneously discussed that debit represents increases and credit
represents decreases. This is wrong. In order to fully appreciate debit and credit, we
must always remember that debit is the left side of an account while credit is the right
side of an account.
We must remember always that accounting
is based on a double-entry system,
meaning, that the dual effects of a business
transaction is recorded. For every
business transaction, a debit side entry
must have a corresponding credit side
entry. Every transaction must affect at
least two accounts. Always remember that
in a transaction, debit must be equal to
credit.

An account is debited when an amount is entered on the left side of the account and
credited when an amount is entered in the right side.

Most importantly, the account type determines how increases or decreases are
recorded. Increases of assets are recorded as debits (left side) while decreases in
assets are recorded as credits (right side).

On the other hand, increases in liabilities and owner’s equity are recorded as
credits (right side) while decreases in liabilities and owner’s equity are recorded
as debits (left side).

As to income and expense, the rules of debit and credit are based on their relationship
or effect to owner’s equity. As discussed in the definition earlier, income increases
owner’s equity while expense decreases owner’s equity. Therefore, increases in income
are recorded as credits while decreases are recorded as debits.

Expenses decrease owner’s equity, hence, increases in expense are recorded as debits
while decreases in expense are recorded as credits.

The normal balance of an account is the side in which increases are recorded. The
illustration below summarizes the Rules of Debit and Credit:

ACTIVITY NO. 2:

Answer the activity included in Microsoft Forms.

ASSESSMENT:

Answer the activity posted in Microsoft Forms.

ENRICHMENT:

Check the Assignment Tab in Microsoft Teams