ACCOUNTING FOR A START UP

BUSINESS
FINANCIAL ACCOUNTING AND
REPORTING
LEARNING OUTCOMES

A
Describe the financial structure of a business,
list and define the three economic elements and
express these in an accounting equation

B
Define business transactions, enumerate its three
features, analyze the transactions applying the
relationship of balance among the three accounting
C values.
Show the statement of financial position of a start up
business, explain the qualitative attributes of the
information appearing in this statement, and discuss the
Accounting process starts with
1) tracking down the business transactions,
2) analyzing, measuring, and recording the
transactions and 3) summarizing what was recorded
into financial reports.
Outcome A: describe the financial
structure of a business

Manuel
Zenaida
by Prof
Accounting
Simplified
THE THREE BASIC ELEMENTS OF A
BUSINESS
What are assets?
 DO
IT !!!
REVIEW OF FINANCIAL
STRUCTURE
The following items were found in the records of Desiree's
Food Haus which you should group into two: Assets and
Liabilities
Cash P150,000 Accounts P250,000
Receivable
Bank Loan 500,000 Accounts Payable 150,000
Food Inventory 30,000
Car 800,000
Equipment 300,000
Furniture and 250,000
ASSETS Fixtures
LIABILITIES

How much is owner’s equity?

Objective B. Define business transaction.
Discuss its three features
BUSINESS TRANSACTIONS
 DO IT !! Review- FINANCIAL and N0n Financial Transactions
 Transactions are either financial or non financial in nature. Only those that
are financial in nature are recorded in the accounting records. In the space
provided on the left, put an X on the non financial transactions:
_____1. Helen put up a travel agency by investing P100,000 cash.
_____2. Hired tourist guides for an hourly rate of P100 each.
_____3. Paid cash of P10,000 when she signed a lease contract to
rent an office space for a monthly fee of P5,000
_____4. An order for P5,000 worth of medical supplies was placed with Good
Health Trading.
_____5. The order from Good Health was received and paid.
_____6. Helen retired and received P500,000 in cash half of which was
invested in
a business.
_____7. Two tourist guides submitted their time reports for a total of 20 hours
of work rendered.
Accounting Concept:For a value received there should be an equal
 ACCOUNT TITLES FOR ASSETS
 We assign “names” to transactions involve in an exchange of value. We

Manuel
Zenaida
by Prof
Accounting
Simplified
call this the account. It is a brief description of items that represent the
accounting elements. It is also a device used to record the changes
(increases or decreases) in the accounting elements.
 cash- currencies and coins, bank checks and bank drafts
 merchandise- goods available for sale if a trading business
 office supplies- bond paper, piece of chalk, erasers, ball pens, pencils
 furniture and fixtures- tables, chairs, cabinets, lighting fixtures, desks.
 office equipment- computers, printers, fax machines, air con and air fan
units
 lands- locations or premises where business is located
Liabilities are usually identified by the word payable such as
1) accounts payable- supported by an oral promise to pay by the
business.
2) notes payable- supported by a written promise to pay by the business

3) loans payable- arises for amounts borrowed

4) mortgage payable- supported by a chattel mortgage such as land

which can be
Owner’s equityto
subject is attachment
usually represented by four
when debtor failsaccounts:
to pay his obligation.
1) Owner, Capital (for investments in assets made) and which increases the
owner’s
equity or net worth over the business.
2) Owner, Drawing- represent withdrawals in assets made intended for
personal use and which decreases the owner’s equity or net worth.
3) Revenues- amount charged to customers/clients for service rendered or
for goods sold.
4) Expenses- decrease in assets (increase in liabilities) as a result of
services or efforts made by others to the business so it may be able to
DUAL EFFECT OF BUSINESS
TRANSACTIONS
For every value received there is an = value parted with

1. Increase in assets (cash)= Increase in owner’s equity (Barbie, Capital)

2. Increase in assets (Equipment) = Decrease in assets (Cash)
3. Increase in assets (supplies)= Decrease in assets (Cash)
4. Increase in assets (equipment)= Increase in Liabilities (Accounts Payable)
5. Decrease in assets (Cash) = Decrease in Owner’s Equity (Barbie, Drawing)
6. Decrease in assets (cash) = Decrease in Liabilities (Accounts Payable)

In parentheses are the account titles representing the accounting values.

Analyzing business activities was introduced in Module 1. Here is
another sample. Take note of the last column, where the heading
is Barbie, Capital and the items or accounts on the extreme right
gives the explanation or reason why capital increased. In red is
the transaction being analyzed
Transactions (Problem)
 Transactions (Problem)

Transaction 2 shows a decrease in asset cash= an

increase in asset equipment
 Transactions (Problem)

Transaction 3 shows a decrease in asset cash= an increase in asset

supplies
 Transactions (Problem)

Transaction 4 shows an increase in asset equipment= an

increase in liability accounts payable.
 Transactions (Problem)

Transaction 5 shows a decrease in asset cash and a decrease in

capital
 Transactions (Problem)

20,000 + 4,000 + 150,000 = 75,000 + 99,000

TOTAL ASSETS P174,000 = TOTAL LIABILITIES AND OWNER’S EQUITY 174,000

Objective E BARBIE’S BEAUTY SHOP
 STATEMENT OF FINANCIAL POSITION
 DATE

Cash P20,000 Accounts Payable

Supplies 4,000 P75,00
Equipment 150,000 Barbie Capital
100,000
Barbie Drawing
TOTAL ASSETS TOTAL LIABILITIES(1,000)
AND
P174,000 P174,000
OWNER’S EQUITY
 Qualitative
Characteristics
 Qualitative
Characteristics
Qualitative Characteristics
Qualitative Characteristics
 Review of Qualitative Characteristics
Let’s do
it !!
What qualitative characteristics are violated?
1.Hunt is the President of Digital Printing with investors who gave capital money of
P10,000,000. The investors were dissatisfied with the net income earned by the
business. The business earned only P20,000 but this was before accrued expenses of
P100,000 were recorded. Actually, the business was losing. Hunt asked Wanda, the
chief accountant, to approve the reports prepared by Gil who was ordered to delay
the recording until after the investors’ meeting.
2. Toys R Us company employees got sick after eating spaghetti in
a restaurant on New Year’s Eve. The restaurant was sued for
P500,000 and it is probable the claim will prosper. The liability
was not included in the December 31 statement of financial
position of the restaurant. Nor was the Loss on Lawsuit included
in its profit or loss statement.
3. In 2019 the firm bought land for P800,000. In 2021 its
appraised value is P2,500,000. The accountant recognized the
land at the appraised value because this will increase the assets
 Basic Accounting
Principles
Basic Accounting Principles

Monetary Unit Assumption – include

in the accounting records only
transaction data that can be expressed
or measured in terms of money.
Economic Entity Assumption –
requires that activities of the entity be
kept separate and distinct from the
activities of its owner and all other
economic entities.
 BASIC ACCOUNTING
PRINCIPLES
Objectivity Principle- dictates that transactions
should be verifiable and substantiated by
documents such as official receipts when
collecting cash from clients and customers.
Going Concern Principle- assumes that the
business will be operating for an indefinite period
of time not just for a month or a year.
 Basic Accounting
Principles
Cost Principle (Historical) – dictates that companies
record assets at their cost.
Reported at cost when purchased and also over the
time the asset is held.
Cost easily verified, whereas market value is often
subjective.
Fair value information may be more useful.
Basic Accounting Principles
Reporting Period- transactions are recorded and
financial statements prepared for a period usually
one year- January to December (calendar period)
or ending other than December 31 (fiscal period).
Accrual Principle- assets, liabilities, revenues
and expenses should be recorded at the time
period they relate or took place regardless of when
cash is collected or paid.
 DO Review Accounting Principles
IT!!!
 Generally accounting principles have been developed to serve as guide in the
preparation of the financial statements. Encircle the appropriate principle
described in each of the following situations:

The owner-manager bought a computer and placed

this in her house. The invoice was given to the
accountant who recorded it as asset of the business.
a. Economic Entity Concept
b. Accrual Concept
c. Going Concern
d. Objectivity Principle
 DO Review Accounting Principles
IT!!!
 Generally accounting principles have been developed to serve as guide in the
preparation of the financial statements. Encircle the appropriate principle
described in each of the following situations:

The statement of financial position showed total Cash

P1,048,500 consisting of Cash on Hand P100,000; Cash in
Bank P900,000 including a dollar savings account for $10,000
translated to pesos based on the exchange rate as at report
date.
a. Unit of Measure Concept
b. Accrual Concept
c. Going Concern
d. Objectivity Principle
 DO Review Accounting Principles
IT!!!
 Generally accounting principles have been developed to serve as guide in the
preparation of the financial statements. Encircle the appropriate principle
described in each of the following situations:

The Financial statements for Miguel’s business are

prepared yearly by his accountant. Managers are also
given interim financial statements prepared monthly
and quarterly for planning purposes.
a. Accrual Concept
b. Periodicity Principle
c. Going Concern
d. Objectivity Principle
 DO Review Accounting Principles
IT!!!
 Generally accounting principles have been developed to serve as guide in the
preparation of the financial statements. Encircle the appropriate principle
described in each of the following situations:

The business imported an equipment from Hong Kong and

paid HK$15,000 in 2018. This was recorded converting the
dollars into pesos. When the rate changed on December 31,
2020, the cost of the equipment was still reported based on
the previous rate.
a. Accrual Concept
b. Cost Principle
c. Objectivity Principle
d. Cost Principle
 DO Review Accounting Principles
IT!!!
 Generally accounting principles have been developed to serve as guide in the
preparation of the financial statements. Encircle the appropriate principle
described in each of the following situations:

The business received cash of P20,000 on December 15, 2020

for floral arrangement of a wedding that will take place in
January 2021. The business did not record a revenue account
until January 15, 2021 when the even took place.
a. Accrual Concept
b. Cost Principle
c. Objectivity Principle
d. Cost Principle
 DO Review Accounting Principles
IT!!!
 Generally accounting principles have been developed to serve as guide in the
preparation of the financial statements. Encircle the appropriate principle
described in each of the following situations:

Alvin operates a canteen besides a shoe store owned by him.

The assets and liabilities of the canteen are reported in a
statement of financial position separately from that of the
shoe store.
a. Economic Entity Concept
b. Going Concern Principle
c. Objectivity Principle
d. Accrual Principle
END OF DISCUSSION

THANK YOU!