Bookkeeping

Accounting - Identifying, recording, classifying, summarizing,

communicating.
Accounting
Reports

Business Firms Decision Makers

Decisions

Note: Accountants are considered as the back bone of the company.

Revenue - Income
Expenses - money spent (REM)
Net Income - take-home revenue
Example
Net Income = Total Revenue - Total Expenses
P1400 = P2000 - P600

Asset - owned and controlled (net worth)

Equity - Assets - Liabilities

Money Received - Paid = Profit

Bookkeeping
recording financial transactions to keep track of the revenues and
expenses as well as the assets and liabilities.
written in systematic and chronological manner
provides interpretation of financial reports.
Liquidity - sufficient cash on hand
(cash is the most liquid asset)
Solvency - ability to pay long-term debts
(assets must be greater then the sum of its financial obligations)

ASSESTS > LIABILITIES

Brief History of Accounting
Primitive Era
-Trading
-Clay Tokens
-Clay tablets
Middle Ages
-Genoa, France and Venice
-Double entry records
1. Method of Venice
-Double entry recording system
-Fr. Luca Pacioli
-Summa de Arthmetica (book)
-Cotrugli in Naples (1st accounting book)
-Tenedo De Libro

Fr. Luca Pacioli - The father of Accounting

Business
engages in buying and selling of good and services.
the main reason is to earn a profit
Role Of Business
-Job Opportunities
-pays taxes to the government
-contributes to the county’s economy
Business Man vs Entrepreneur
Business man - they usually starts a business to compete to another
business and sometimes their business is also inspired to the other
business around
Entrepreneur - produce original ideas and create new things as they
create new opportunities
Forms Of Businesses
Sole Proprietorship - means only one person is running a business
Partnership - a business is owned by two to four business entities
Corporations- owned by five or above business entities
Note: must be registered in SEC
Types of Business Activities
Financing Activities
- owner finances the business with a start-up capital (cash & other
resources)
- additional financing can be extended by banks and other financing
institutions if the owner’s contribution is insufficient
- includes withdrawals (capital withdrawn) made by owner/investor
and loans repaid to lenders
Investing Activities
- acquisition of resources other than cash to be able to operate
- acquisition of properties (land, furniture, machinery, and
equipment).
- these properties are disposed of and retired on their maturity date.
Operating Activities
- earning of income by selling goods and services
- incurred expenses such as wages, rent, utilities, and transportation
paid

Management
getting things done using recourses, and directing efficiently
In order for the business to be successful, management must be efficient
and effective.
- Efficiency is the ability to maximize output with minimum input
- Effectiveness is the attainment of a goal.
Manager - takes a leadership role, manage teams of employees
Objectives
1. resources are being used productively
2. customers are satisfied with the product or service, and
3. business is generating adequate profit
Accounting Defined
It is a service activity, prepare financial reports that will provide
relevant information
recording, classifying and summarizing transactions and events
which are financial in nature and interpreting the results thereof
Users of financial information
Stakeholders - It is a person or entity who has a “stake” or interest in the
business. It is defined as an individual or group that has an interest in any
decision or activity of an organization
1. Owner/Investor - The one who puts in the capital (money or
property) in business. Also, financial reports are important to them
to minimize the risk of losing money.
2. Manager - The person who is responsible for running the business.
Also, manager uses financial reports to evaluate the performance of
the business ;requires the submission of a weekly performance report
of the different sales department, as a basis of reviewing and
evaluating performance.
3. Lender/creditor - They are usually the banks that supplies money as
a loan in exchange for loan interest. They assesses the paying ability
of the business-borrower
4. Supplier - They offer goods or merchandise on a cash basis or credit
term. They based the credit worth of the business on its financial
status
5. Government - Bureau of Internal Revenue as its tax agent,
investigates tax returns and assesses the truthfulness of the reported
profit as well as the tax liability paid by the business. Penalizes
individuals and businesses for late filing of returns and for deficient
payment of taxes. Taxes - all firms are required to pay taxes to the
Bureau of Internal Revenue (BIR)
 6. Employee - It assesses the ability of the business to grant demands
through financial reports (a losing business cannot afford to give higher
salaries and more benefits).
7. Costumers - It assesses the company’s ability to continuously supply
the goods they need (with the right price and right quality)
TWO CLASSIFICATION OF ACCOUNTING INFORMATION
SYSTEM (AIS)
CONTROL PRINCIPLE
Internal Control methods and procedures:
1. Properties of business are protected
2. Properties of business are protected
3. Company policies comply with the performance of business units or
divisions are properly evaluated
COST-BENEFIT PRINCIPLE
Holds that the benefits of an accounting system should always outweigh
its costs.
Benefit > Cost
RELEVANCE PRINCIPLE
It prescribes that information must be reported promptly and that
information must be useful to enable statement users to reach a
conclusion and make decisions.
COMPATIBILITY PRINCIPLE
It prescribes a system designed to fit the unique characteristics of the
company (personnel, activities, and structures).
FLEXIBILITY PRINCIPLE
It prescribes that the company’s system should allow for changes.
Changes needed must be timely and updated according to external
factors (industry demand, government promulgation, technological
advances, and competitive pressures).
Transactions - activity or events between two parties that involves
exchange in money
Business Documents - words and amounts the nature of the
transaction
Input Device - instrument used to record data captured in the
documents.
✓ In a manual system, the pen or pencil is the input device.
✓ In a computer-based system the keyboard is the input device.
Journal entry - data input be it manual or computerized
Records - The books of accounts that must be maintained by the
accounting department. Accounting data are gathered and
recorded in a book called Journal.
Ledger - book where data stored is organized and classified into
related groups.
Method - procedures of processing captured data from the
documents.

ACCOUNTANTS
They assist decision-makers in making informed decisions by
interpreting financial data through a tool called financial statement
analysis.
 Financial Reports Ilustraited
As mentioned, there are four financial reports in which bital
information can be extracted
a. ) Income Statement- the performance report against
cost and expenses.
b. ) Statement of Owner's Equity- shows why owner's net
worth changed by listing the activities that caused it to
increase or decrease.
c. ) Statement of Cash Flows- cash report showing where
the business got and used the money.
d. ) Statement of Financial Position- the progress report
showing the list of assets and liabilities.

The financial reports are illustrated using the business set up by Ms. Doria who
opened a Xerox Servuce Center by investing on June 1 Php200,000 out of her
Php300,000 pension. She also borrowed from UCPB another Php 200,000 for
use in business. With this she baought a copying machine for Php 350,000, and
supplies for Php 20,000. The remaining Php 30,000 she set aside for oparating
needs of the business. For June, she recieved Php 48,000 from the costumers for
reproduction work and paid Php 5,000 for rent and Php 3,000 for power and
water. Of the supllies bought, 40% were used up.

income Statement (wealth produced) for June:

Sales revenue P 48, 000
Supplies used - 20,000 x 40% ( 8,000)
Rent ( 5,000)
Power and water
━━━━━━
( 3,000)
Profit for the month of June 30, 2020
━━━━━━
P 32, 000

Statement of changes in Equity (change in owner's wealth)

Doria Capital, June 1, 2020 P200, 000
Add Profit for the month
━━━━━━
32, 000
Doria Capital, June 30, 2020
━━━━━━
232, 000

Statement of Cash Flows Statement of Financial Positions

(change in cash) for June: (wealth accumulated) for June 30:
Cash Investment, June 1 P200,000 Cash P 70, 000
Cash borrowed from bank 200,000 Supplies 12, 000
Cash receipts from service sales 48,000 Copying machine
━━━━━
350, 000
Cash paid from copying machine
Cash paid for supplies
(350, 000)
( 20, 000)
Total Assets
━━━━━━
P432, 000

Cash paid for rent ( 5, 000) Loan payable 200,000

Cash paid for power and water
━━━━━━
( 3, 000) Doria Capital
━━━━━
232, 000
Cash balance, June 30
━━━━━━
P 70, 000 Total liabilities and Owner's Equity
━━━━━━
P 432, 000
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