Fundamentals of Accounting

Kolehiyo ng Pantukan
FUNDAMENTALS OF
ACCOUNTING
P R O F . J O S H U A J A Y B . J E S U R O , C P A
A U G U S T 3 1 ,
2 0 2 3
TABLE OF CONTENTS
01 02 03
What is Financial Elements of Financial Recognition of the

Statements? Statements Elements of FS
04 05 06
Measurement of the Accounting Accounting Equation

Elements of Financial Information System
Statements
TABLE OF CONTENTS
07 08 09 10
Debits & Credits- the Normal Account Types and Effects of Typical Account Titles
Double Entry System Balance Transactions Used
WHAT IS
FINANCIAL
STATEMENTS?
Financial statements are structured financial representations

of the financial position, financial performance and cash
flows of an entity.
WHAT ARE THE
ELEMENTS OF FS?
COMPLETE SET OF FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
STATEMENT OF COMPREHENSIVE INCOME
STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CASH FLOWS

2. Income Statement (Statement of Financial
Performance) NOTES TO FINANCIAL STATEMENTS
• Revenue: Income generated from primary operations.
• Expenses: Costs incurred in generating revenue.
• Income: Revenue minus expenses.
STATEMENT OF FINANCIAL POSITION
(BALANCE SHEET)
• a formal statement showing the three elements comprising the financial position at a certain
date, namely:
1.. Assets
2. Liabilities
3. Equity
• provide the following information:

1.. Liquidity and Solvency
2. The need of the entity for additional financing
ASSETS
• a present economic resource controlled by the entity as a result of a

past event. An economic resource is a right that has the potential to
produce economic benefits.
The essential characteristics of an asset are:

a)The asset is controlled by the entity.
b)The asset is the result of a past transaction or event.
c)The asset has the potential to produce economic benefits.

d)The economic resource is a right.
ASSETS
CURRENT ASSETS
• Cash
• Cash Equivalents
• Notes Receivable
• Accounts Receivable
• Inventories
• Prepaid Expenses
NONCURRENT ASSETS
• Property, Plant and Equipment
• Accumulated Depreciation
• Intangible Assets
LIABILITIES
• is a present obligation of an entity to transfer an economic resource as
a result of past event.
a)The entity has an obligation

b)The obligation is to transferan economic resource
c)The present obligation is a resultof a past event.

LIABILITIES
CURRENT LIABILITIES
• Accounts Payable
• Notes Payable
• Accrued Liabilities
• Unearned Revenues
• Current Portion of Long-Term Debt
NON-CURRENT LIABILITIES
• Mortgage Payable
• Bonds Payable
EQUITY
• is the residual interest in the assets of the entity after deducting all of
its liabilities.
a)The entity has an obligation

b)The obligation is to transferan economic resource
c)The present obligation is a resultof a past event.

EQUITY
• Capital
• Withdrawals
• Income Summary
STATEMENT OF COMPREHENSIVE INCOME
(FINANCIAL PERFORMANCE)
• shows the financial performance of an entity for a certain period of time
Components of Comprehensive Income:
1.)_INCOME STATEMENT
- A.K.A Net Income/Loss is the total of income less expenses, excluding the
components of Other Comprehensive Income
2.) OTHER COMPREHENSIVE INCOME
- those income and expenses that are not recognized in the income statement
INCOME
• is the increase in economic benefit during the accounting period in the

form of an inflow or increase of asset or decrease of liability that
results in increase in equity, other than contribution from equity
participants.
• encompasses both revenue and gains

INCOME
• REVENUE:
-arises from ordinary course of business
-presented in the FS at gross amount
• GAINS:
-arises from incidental or peripheral operations
-presented in the FS at net amount (net of direct cost)
INCOME
• Service Income
• Sales
EXPENSES
• is the decrease in economic benefit during the accounting period in the

form of outflow or decrease in asset and increase in liability that
results in decrease in equity, other than distribution to equity
participants.
• encompasses losses
EXPENSES
• Cost of Sales
• Salaries or Wages Expense
• Telecommunications, Electricity, Fuel and Water Expenses
• Rent Expense
• Supplies Expense
• Insurance Expense
• Depreciation Expense
• Uncollectible Accounts Expense
• Interest Expense
STATEMENT OF CHANGES IN EQUITY
• shows the movement in the elements or components of the equity
STATEMENT OF CASH FLOWS
• report cash flows during the period classified by operating, investing and financing activities
NOTES TO FINANCIAL STATEMENTS
• provide narrative disaggregation of items presented in the financial statements and

information about items that do not qualify for recognition
• all other information intended to be read
RECOGNITION OF THE ELEMENTS OF
FINANCIAL STATEMENTS
Recognition
the process of reporting an asset, liability, income or
expense on the faceof the financial statements of an
entity
CRITERIA:
a) It meets the definition of an asset, liability, equity,
income or expense and
b) Recognizing it would provide useful information

EXPENSE RECOGNITION PRINCIPLES
MATCHING PRINCIPLE
• requires that those costs and expenses incurred in earning a
revenue should be reported in the same period.
• Cause and effect association

• "the expense is recognized when the revenue is already
recognized"
• Systematic and rational allocation
• some costs are expensed by simply allocating them over
the periods benefited
• Immediate recognition
• the cost incurred is expensed outright
MEASUREMENT OF THE ELEMENTS
OF FINANCIAL STATEMENTS
01. Historical Cost

Assets are recorded;
• @ the amount of cash/cash equivalents paid.
• @ Fair value of consideration, given to acquire them @ the time of
acquisition.
Liabilities are recorded;
• @ the amount of proceeds received in exchange for the obligation.
02. Current Cost

Assets are carried;
• @ the amount of cash/cash equivalents that would have to be paid if the
MEASUREMENT same/ an equivalent asset was acquired currently.
IS THE PROCESS OF DETERMINING MONETARY AMOUNTS

Liabilities are carried;
AT WHICH THE ELEMENTS OF FINANCIAL STATEMENTS ARE
• @ the undiscounted amount of cash/cash equivalents that would be required
TO BE RECOGNIZED AND CARRIED IN THE BALANCE SHEET to settle the obligation currently.
AND INCOME STATEMENT
MEASUREMENT OF THE ELEMENTS
OF FINANCIAL STATEMENTS
03. Realizable (Settlement Value)

Realizable value;
• Assets are carried @ the amount of cash/ cash equivalents that could
currently obtained by selling an asset in an orderly disposal.
Settlement value;are carried @ the undiscounted amounts of cash/ cash

• Liabilities
equivalents expected to be paid to satisfy the liabilities in the normal
course of business.
04. Present Value

Assets are carried;
MEASUREMENT • @ present discounted value of future net cash inflows that the item is
expected to generate in the normal course of business.
IS THE PROCESS OF DETERMINING MONETARY AMOUNTS

Liabilities are carried;
AT WHICH THE ELEMENTS OF FINANCIAL STATEMENTS ARE
TO BE RECOGNIZED AND CARRIED IN THE BALANCE SHEET • @ present discounted value of future net cash outflows that are expected to
AND INCOME STATEMENT be required to settle liabilities in the normal course of business.
ACCOUNTING
FOR BUSINESS
TRANSACTIONS
T - ACCOUNT
ASSETS = LIABILITIES + OWNER’S EQUITY
ASSETS = LIABILITIES + OWNER’S EQUITY
Dr Cr
DAE = CILL
ASSETS, EXPENSES = INCOME, LOSSES, LIABILITY
THE ACCOUNTING FORMULA AND THE T- ACCOUNT
TYPES AND EFFECTS OF TRANSACTIONS:
SOURCE OF ASSETS (SA) EXCHANGE OF ASSETS (EA)
An asset account increases and a One asset account increases and another
corresponding claims (liabilities/ equity asset account decreases.
account increases.
USE OF ASSETS (UA) EXCHANGE OF CLAIMS (EC)
An asset account decreases and a One claims (liabilities or equity) account

corresponding claims (liabilities/ equity increases and another claims (liabilities or
account decreases. equity) account decreases.
ACCOUNTING
INFORMATION
SYSTEM
An Accounting Information System (AIS) is a
structured and integrated system designed to
collect, store, process, and communicate
financial and accounting information within an
TYPES OF AIS:
organization. It combines accounting
principles, information technology, and • Manual System
business processes to facilitate the efficient
• Computer-Based Transaction System
and effective management of financial data.
• Database System
THANK YOU

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Kolehiyo ng Pantukan

What is Financial Elements of Financial Recognition of the

Measurement of the Accounting Accounting Equation

Financial statements are structured financial representations

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASH FLOWS

• provide the following information:

• a present economic resource controlled by the entity as a result of a

The essential characteristics of an asset are:

c)The asset has the potential to produce economic benefits.

The essential characteristics of an asset are:

a)The entity has an obligation

c)The present obligation is a resultof a past event.

The essential characteristics of an asset are:

a)The entity has an obligation

c)The present obligation is a resultof a past event.

Components of Comprehensive Income:

components of Other Comprehensive Income

2.) OTHER COMPREHENSIVE INCOME

• is the increase in economic benefit during the accounting period in the

• encompasses both revenue and gains

• is the decrease in economic benefit during the accounting period in the

• shows the movement in the elements or components of the equity

STATEMENT OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS

• provide narrative disaggregation of items presented in the financial statements and

b) Recognizing it would provide useful information

• Cause and effect association

01. Historical Cost

02. Current Cost

IS THE PROCESS OF DETERMINING MONETARY AMOUNTS

03. Realizable (Settlement Value)

Settlement value;are carried @ the undiscounted amounts of cash/ cash

04. Present Value

IS THE PROCESS OF DETERMINING MONETARY AMOUNTS

SOURCE OF ASSETS (SA) EXCHANGE OF ASSETS (EA)

USE OF ASSETS (UA) EXCHANGE OF CLAIMS (EC)

An asset account decreases and a One claims (liabilities or equity) account

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