BASIC FINANCIAL ACCOUNTING

AND REPORTING
POINTERS
Accounting- is the process of identifying, measuring
and communicating information to help the user in
their decision making.
- Is to provide quantitative information
primarily financial in nature, about
economic entities intended to be useful in
making economic decisions.
FUNDAMENTAL CONCEPTS
1.) Entity Concept/Economic
Entity/Accounting Entity – stands part from
the organization and individuals as a separate
economic unit. Each entity should be evaluated
separately.
2.) Periodicity Concept – Allows the user to
obtain timely information to serve as a basis on
making decisions about future activities.
3.) Stable Monetary Unit Concept –
quantifiability , stability, constant, does not
change, measured/expressed in terms of
money/peso.
4.) Going Concern - an accounting term for a
company that has the resources needed to
continue operating indefinitely until it provides
 evidence to the contrary. This term also refers
to a company's ability to make enough money
to stay afloat or to avoid bankruptcy.

BASIC PRINCIPLES
1.) Objectivity – Accounting records and
statements are based on the most reliable
data available so that they will be as accurate
and as useful as possible.

2.) Historical Cost – acquired asset should be

recorded at their actual cost and not at what
management thinks they are worth as at
reporting date.
3.) Revenue Recognition Principle – When
goods are delivered or services are rendered
of perform.
4.) Expense Recognition Principle – Goods
and services are used up to produced revenue
and not when the entity pays for those goods
and services.
5.) Adequate Disclosure – Revenue,
timeless, cost benefit
6.) Materiality – Financial reporting in only
concerned with information that is significant
enough to affect evaluation and decisions.
 7.) Consistency Principle – use the same
accounting method from period to period to
achieve comparability overtime within a single
enterprise.

FORMS OR BUSINESS ORGANIZATION

 SOLE PROPRIETORSHIP – Single owner
 Partnership – one or more than person
 Corporation – Owned by Stockholders

TYPES OF BUSINESS
 Service * Infrastructure
 Merchandising * Financial
 Manufacturing * Insurance
 Raw Materials

BUSINESS ACTIVITIES
1. Financing 2. Investing 3.
Operating Activities

Accountancy Act of 2004 R.A 9298 (May 2004)

– Pres. Gloria M. Arroyo
1. Public Practice 2. Commerce and
Industry 3. Government
4. Education Academe
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLE
1. Relevance - the concept that the
information generated by an accounting system
should impact the decision-making of someone
perusing the information. The concept can
involve the content of the information and/or its
timeliness, both of which can impact decision
making.
2. Objective – true or fact information
3. Feasible – easy to use or easy to apply

FINANCIAL STATEMENT OF A
BUSINESS
1. Statement of Financial Position ( Balance
Sheet )
2. Statement of Income and Expense
3. Statement in Changes in Equity
4. Statement of Cash Flows
5. Notes of Financial Statement

A. Statement of Financial Position

Assets – present economic resources controlled
by an entity as a result of past events.
Liabilities – present economic obligation of an
entity to transfer economic resources as a result of
past events.
 Capital/Equity – residual interest in the assets of
the entity after reducing all its liabilities.
1. Source of Assets – Asset, Liabilities, Equity
2. Exchange of Assets – One Asset decrease with
increase in another Asset
3. Use of Asset – Asset (-) , Liabilit/Equity (-)
4. Exchange of Claims – one Liability/Equity
increase another Liability/Equity decrease
B. STATEMENT OF INCOME AND
EXPENSES
- Income/Revenue
- Expenses
ASSETS – Current Assets and Non-Current Assets
CURRENT ASSETS – Expected to be consumed
within 12 months
1.Cash – medium of exchange that a bank will accept
for deposit as a face value it may be cash or
cheques.
2.Cash Equivalents - are securities that are meant for
short-term investing. Normally, they have solid credit
quality and are highly liquid. True to their name, they
are considered equivalent to cash because they can
be converted to actual cash quickly.
3.Notes Receivable - is an asset account tied to an
underlying promissory note, which details in writing
the payment terms for a purchase between a
“payee” (typically a company, and sometimes called
a creditor) and the “maker” of the note (usually a
customer or employee, and sometimes called a
debtor).
4.Account Receivable - are the funds that customers
owe your company for products or services that have
been invoiced. The total value of all accounts
receivable is listed on the balance sheet as current
assets and include invoices that clients owe for items
or work performed for them on credit.
5.Inventories - are the finished products a company
intends to sell for profit; these include materials,
merchandise, and products that are either finished or
unfinished. Furthermore, a company's accounting
records inventory as a current asset on its balance
sheet.
6.Prepaid Expense - are future expenses that are paid
in advance, such as rent or insurance. On the
balance sheet, prepaid expenses are first recorded as
an asset. As the benefits of the assets are realized
over time, the amount is then recorded as an
expense.
NON-CURRENT ASSETS – not expected to be
consumed within 12 months.
1.Property, Plant and Equipment - are tangible
assets, meaning they are physical in nature or can be
touched; as a result, they are not easily converted
into cash.
2.Accumulated Depreciation - is the total amount of
depreciation expense allocated to a specific asset
since the asset was put into use. It is a contra-asset
account – a negative asset account that offsets the
balance in the asset account it is normally associated
with.
3.Intangible Assets - is an asset that is not physical
in nature, such as a patent, brand, trademark, or
copyright. Businesses can create or acquire
intangible assets. An intangible asset can be
considered indefinite (a brand name, for example) or
definite, like a legal agreement or contract.
LIABILITIES
Current Liabilities - (also called short-term liabilities)
are debts a company must pay within a normal
operating cycle, usually less than 12 months (as
opposed to long-term liabilities, which are payable
beyond 12 months). Paying off current liabilities is
mandatory.
1. Accounts Payable - refer to a company's short-
term obligations owed to its creditors or suppliers,
which have not yet been paid. Payables appear on a
company's balance sheet as a current liability .
2. Notes Payable - are long-term liabilities that
indicate the money a company owes its financiers—
banks and other financial institutions as well as other
sources of funds such as friends and family. They are
long-term because they are payable beyond 12
months, though usually within five years.
3. Accrued Liabilities - refers to an expense incurred
but not yet paid for by a business. These are costs for
goods and services already delivered to a company
for which it must pay in the future.
4. Unearned Revenues - is money received by an
individual or company for a service or product that
has yet to be provided or delivered. It is recorded on
 a company's balance sheet as a liability because it
represents a debt owed to the customer.
5. Current Portion or Long Term Debt - (CPLTD)
is the amount of unpaid principal from long-term
debt that has accrued in a company's normal
operating cycle (typically less than 12 months). It is
considered a current liability because it has to be
paid within that period.
NON CURRENT LIABILITIES
1.Mortgage Payable - is the liability of a property
owner to pay a loan that is secured by property.
From the perspective of the borrower, the
mortgage is considered a long-term liability. Any
portion of the debt that is payable within the next
12 months is classified as a short-term liability.
2.Bonds Payable - are a form of debt financing issued
by corporations, governments, and other entities in
order to raise capital. As part of the financing
arrangement, the issuer of the bonds is obligated
to pay periodic interest across the borrowing term
and the principal amount on the date of maturity.
OWNERS EQUITY
1.Capital - are "those durable produced goods that
are in turn used as productive inputs for further
production" of goods and services. At the
macroeconomic level, "the nation's capital stock
includes buildings, equipment, software, and
inventories during a given year.
2.Withdrawals/Drawings - Withdrawal refers to the
removal of a partner from the partnership, while
drawing refers to the withdrawal of funds by a
 partner from the partnership for personal use. It
is important to understand the differences
between the two terms and their implications for
partnership accounting.
INCOME
1.Service Income - is the net income a company
earns from the services provided. It refers to all
activities a company performs to generate
economic benefits to the business and its
customers. Service revenue doesn't include
interest income or income earned from product
shipments.
2.Sales - A transaction between the buyer and the
seller in which the seller sells intangible or
tangible goods, assets, or services against
money is known as a sale. Sale is done between
two or more parties. In broader terms, a sale can
be is understood as a contract between two or
more parties i.e. the buyer and the seller.
EXPENSES
1. Repairs and Maintenance
2. Costs of Sales
3. Salaries and Wages Expenses
4. Rent Expense
5. Supplies Expense
6. Insurance Expense
7. Depreciation Expense
8. Utilities Expense
9. Uncollectible Account Expense