Session 4: September 30, 2022 -​ Owner is solely responsible for

the business’ growth and failure.

Introduction to Accounting -​ The business is an outside entity
rather than the owner.
What is accounting? -​ Partnership
-​ Art of recording, classifying, and -​ Two or more owners/investors.
summarizing in a significant manner -​ Can be a share of skill/money,
and in terms of money, transactions and money/property,
events, which are, in part, or least, of a property/products.
financial character and interpreting the -​ Each partner is responsible for
results thereof. (AIPAC, 1953) profits/debts.
-​ It is a separate entity than the
Four aspects of accounting partner/s.
-​ Record -​ Corporation
-​ Journaling -​ Many investors.
-​ Classify -​ A legal entity exists.
-​ Ledger -​ ‘Ownership of stocks’
-​ “Organizing” -​ “Stockholders”
-​ Summarize -​ Stockholders can only get profit
-​ Creation of financial statements when the company declares the
-​ Interpret dividends.
-​ Cooperative
Types of Business
-​ Service Accounting Concepts and Principles
-​ Software Developer, Accountant, 1.​ Entity concept
Barber a.​ A business enterprise is
-​ Based on skills and talents separate and distinct from its
-​ Trading/Merchandising owner or investors.
-​ Selling goods 2.​ Periodicity concept
-​ Buying from a company and a.​ Financial statements are to be
reselling it to other people divided into specific time
(Merchandising) intervals.
-​ Sari-sari store i.​ Calendar Year
-​ Manufacturing 1.​ A twelve-month
-​ They make the goods that period that
merchandisers sell. starts on
-​ More on production, less on January 1 and
merchandise. ends on
-​ Factories December 31.
ii.​ Fiscal Year
Types of Business Organization 1.​ A twelve-month
-​ Sole Proprietorship period that can
-​ Owned/Managed by one person start anytime in
only. a year.
-​ Mostly small merchandising 2.​ (e.g. Starts on
businesses. June 31, 2021,
 ends on June a.​ Requires that all relevant
31, 2022) information that would affect
3.​ Going Concern concept the user’s understanding and
a.​ The business is expected to assessment of the accounting
continue in operation for the entity be disclosed in the
foreseeable future. financial statements.
b.​ It assumes that the entity has 6.​ Materiality
neither the intention or the need a.​ Financial reporting is only
to enter liquidation or to close concerned with information that
operations. is significant enough to affect
4.​ Stable Monetary Unit concept. evaluations and decisions in
a.​ Amounts are stated into a single deciding whether an item or an
monetary unit. agreement of terms is material,
the nature and size of the item
Basic Accounting Principles are evaluated.
1.​ Objectivity Principle 7.​ Consistency Principle
a.​ Accounting records and a.​ The firm should use the same
statements are based on the accounting method from period
most reliable date available so to period to achieve
that they will be as accurate and confidentiality over time within
useful as possible. a single enterprise. However,
2.​ Historical Cost changes are permitted if
a.​ Acquired properties (assets) justified and discussed in the
should be recorded at their financial statements.
actual cost and not at what b.​ Per revised Philippine
management thinks they are Accounting Standards (PAS) 1,
worth as at reporting date. Presentation of Financial
3.​ Revenue Recognition Principle / Accrual Statements, the presentation
Principle and classification of items in the
a.​ Income or revenue is to be financial statements.
recognized in the accounting 8.​ Matching Principle
period when goods are delivered a.​ Requires that revenues and any
or services are rendered or related expenses be recognized
performed. together in the same reporting
b.​ Deferral: Income is already paid period.
but goods and services are not 9.​ Conservatism Principle
yet rendered. a.​ Otherwise known as prudence,
4.​ Expense Recognition Principle this principle means that in
a.​ Expenses should be recognized situations where there are two
in the accounting period in possibilities, choose the one that
which goods and services are will have the least favorable
used up to produce revenue and effect on the financial
not when the entity pays for the statements.
goods or services. Session 5: October 4, 2022

5.​ Adequate Disclosure Principle

Text - Lesson Title
Text - Main Ideas ■​ Relate to reporting
Text - Examples (of Main Ideas) entity’s financial
Text - Definitions, Main Supporting Details performance
Text - Supporting Details
Text - Formulas ➔​ Assets
Text - Quoted Words ◆​ A present economic resource
controlled by the entity as a
The Accounting Equation result of the past events. An
➢​ Types of Financial Statements economic resource is a right
○​ Statement of Financial Position that has the potential to produce
■​ Also known as the economic benefits.
‘Balance Sheet’ ◆​ Everything that one person
■​ Shows the financial owns.
position of a company ➔​ Liability
as of a given period. ◆​ A present obligation of the entity
○​ Statement of Financial to transfer an economic
Performance resource as a result of the past
■​ Also known as ‘Income events.
Statement’ ➔​ Equity
◆​ The residual interest in the
■​ Shows the result of
assets on the entity after
operations for a given
deducting all its liabilities.
period of time.
◆​ Assets minus Liabilities
○​ Statement of Owner’s Equity
➔​ Income and expenses
■​ Changes in capital or
the owner’s equity as a ➔​ Relate to a reporting entities
result of additional financial performance
investments or
withdrawals by the ➢​ Elements of Financial Performance
owners, plus or minus ○​ Income
the net income or loss ■​ Increases in assets or
for the financial year. decreases in the
○​ Statement of Cash Flows liabilities that result in
■​ Summarizes the cash increase in equity, other
activities (receipts and than those relating to
disbursements) contributions from
operating investing and holders of equity claims.
financial activities. ○​ Expenses
■​ Decreases in assets or
➢​ Elements of Financial Statements increases in liabilities
○​ Assets, Liability, and Equity that result in decreases
■​ Relate to a reporting in equity other than
entity’s financial those relating to
position distribution to holders
○​ Income and Expenses of equity claims.
 Assets = Liability + Equity

Equity = Investments - Withdrawals +/- Income

Credit ⬇️ ⬇️ ⬇️
(Loss)

Assets = Liability + (Investments - Withdrawals

+/- Income (Loss))

Liabilities Owner’s Income
Capital

DEBIT and CREDIT Debit ⬇️ ⬇️ ⬇️

“A debit side entry must have a
corresponding credit side entry.” Credit ⬆️ ⬆️ ⬆️
a.​ Accounting is based on a double
entry system which means that Typical Account Titles

the dual effect of a business

transaction is recorded. Types of Assets
b.​ A debit side entry must have a 1)​ Current Assets
corresponding credit side entry a)​ Expected to be used within a
year. (Periodicity Principle)
Assets: Debit Accounts b)​ It expects to realize the asset, or
Liabilities & Equity: Credit Accounts intends to sell or consume it, in
its normal operating cycle.
Double-Entry System c)​ It holds the asset primarily for
the purpose of trading.
Balance Sheet Accounts: d)​ It expects to realize the asset
within twelve months after the
Balance Increase and Decrease reporting period.
e)​ Short Term
Debit Credit
2)​ Non-Current Assets
Assets ⬆️ ⬇️ a)​ Expected to be used in more

Liabilities
and Owner’s
⬇️ ⬆️ than a year.
b)​ Long Term

Equity Cash and Cash Equivalents

-​ Cash refers to money held in register
(coins and bills), bank checking or
Debit Credit savings accounts, electrical fund

⬆️ ⬇️
transfers from credit card companies and
Expenses certificates of deposit

Income ⬇️ ⬆️ -​ These are funds readily available to be

spent.

Trade and Other Receivables

1.​ Account receivables
a.​ Collectible from customers who
Assets Expenses Withdrawals
purchased on account/credit
Debit ⬆️ ⬆️ ⬆️ 2.​ Notes receivable
 a.​ Promissory notes issued by the a.​ Edifice or structure used to
customer accommodate the store, office or
3.​ Advances to employees warehouse of the business.
a.​ Money found to employees and 3.​ Equipment and Machinery
are subject to salary deduction. a.​ All such instruments which are
4.​ Accrued Income used for producing any product
a.​ Income already earned but not or machine or service
yet received. 4.​ Furniture and Fixtures
a.​ larger items of movable
Inventories equipment that are used to
-​ Inventories are products held by furnish an office
businesses as defined by PAS No. 2 5.​ Motor Vehicles
-​ For sale (unsold merchandise) a.​ cars
-​ In the process of production and
intended for sale after Accumulated Depreciation
completion (unsold finished -​ Accumulated Depreciation is a
goods) contra-asset account that contains the
-​ In the form of raw materials or sum of periodic depreciation charges.
supplies which will be needed in The balance is deducted from the cost of
production. the needed asset to obtain the book
value.
Prepaid Expenses
-​ Are expenses paid by the business in Intangible Assets
advance (benefits to be received by the -​ Intangible assets are identifiable,
business in the future) nonmonetary assets without physical
substance held for use in the production
Non-Current Assets or supply of goods and services for
rentals to others, or the administrative
Property, Plant, and Equipment (PPE) purposes.
-​ Property, Plant, and Equipment, as per -​ Examples of intangible assets:
PAS No. 16, are tangible assets that are -​ Goodwill
held by an enterprise for use in the -​ Patients
production or supply of goods and -​ Copyrights
services, or for rental to offers, as for -​ Licenses
administrative purposes and which are -​ Franchises
expected to be used during more than -​ Trademarks
one period. -​ Brand names
-​ Secret processes
Types of PPE’s -​ Subscription lists
1.​ Land -​ Non-completion agreements
a.​ Never goes down in value
b.​ Real estate owned by the Types of Liabilities
business. 1.​ Current Liabilities
2.​ Building a.​ Per revised PAS No. 1, an entity
shall classify liability as current
when:
 i.​ It expects to settle the -​ Interest Payable
liability in its normal -​ Taxes Payable
operating cycle;
ii.​ It holds the liability Mortgage Payable
primarily for the -​ Mortgage Payable is collateral asset
purpose of trading; -​ Mortgage Payable records long-term
iii.​ The liability is due to be debt of the business entity for which the
settled within twelve business entity has pledged for advice
months after the
reporting period; or, Bonds Payable
iv.​ The entity does not have -​ Bonds are certificates of indebtedness
unconditional right to the seal of a corporation specifying the
defer settlement of the term of repayment and interest rate.
liability for at least
twelve months after the Equity Accounts
reporting period.
2.​ Non-current Liabilities Capital
a.​ Obligations that are not -​ The capital account is used to record the
required to be paid within 12 original and additional investments of
months. the owner of the business entity.

Trade and Other Payables Withdrawals/Drawings

1.​ Accounts Payable -​ Instead of directly reducing the owner’s
a.​ loans/debts of the business equity account or capital account,
2.​ Notes Payable withdrawals of cash and/or other assets
a.​ loans/debts of the business made by the business owner are
evidenced by a promissory note recorded under withdrawal or drawings
3.​ Loans Payable account..
a.​ loans/debts of the business or Income Summary
financial institutions payable in -​ Income summary is a temporary
less than one year. account used at the end of the
accounting period to close income and
Unearned Revenue expenses. This account shows the profit
-​ Unearned revenue represents or loss for the period before closing to
obligations of the business arising from the capital account.
advance payments received before goods
and services are provided to the Typical Account Titles
customer. 1.​ Service Income
a.​ Service Income represents the
Accrued Liabilities revenue earned by performing a
-​ Unearned revenue are amounts owed to service for a client.
others for expenses already incurred but 2.​ Expense Accounts
not yet paid. a.​ Salaries and wages
-​ Examples are: b.​ Telecommunications Expense
-​ Salaries Payable c.​ Utilities Expense
-​ Utilities Payable d.​ Rent Expense
 e.​ Supplies Expense -​ Inventory
f.​ Insurance Expense -​ Prepaid Expenses
g.​ Interest Expense -​ Property, Plant, and Equipment (PPE)
3.​ Depreciation Expense -​ Intangible Assets
a.​ Depreciation Expense represents
the portion of the cost of a Liabilities
tangible asset (PPE) allocated or -​ Accounts Payable
charged an expense during an -​ Notes Payable
accounting period. -​ Salaries Payable
4.​ Uncollectible Accounts Expense -​ Insurance Payable
a.​ Uncollectible accounts expense -​ Long-term Loans Payable
or bad Debts Expense represents
the amount of receivables Equity
estimated to be doubtful of -​ Owner’s Capital
collection and charged as -​ Owner’s Withdrawal
expense during an accounting -​ Income/Revenue
period. -​ Expenses

Session 6: October 5, 2022 ●​ Double entry system means that every

transaction has a dual effect (affecting
Accounting Business Transactions AT LEAST two accounts). Quality views
-​ Business transactions are events that each transaction as having a two-fold
have a monetary impact on the effect on values.
statements.

Which of the following events would be

recognized in the accounting records of the
company?
1.​ Professor invested 1million pesos cash.
(Yes)
2.​ Professor hired Tokyo as a shop clerk,
offering her a Php500 daily wage. (No)
3.​ Professor purchased Php5,000 supplies
on account. (Yes)
4.​ Professor rendered Php10,000 services
for cash. (Yes)
5.​ Professor went out on a dinner with
Lisbon at Solenad and spent Php8,000.
(No)

Typical Account Titles

Assets
-​ Cash
-​ Accounts Receivable
-​ Supplies