Alis, Ma. Angela Connie O.

June 20,2014
Comsec 2C Assignment #1


1. The History of Accounting
- The history of accounting or accountancy is thousands of years old and can be traced
to ancient civilisations.
[1][2][3]

- The early development of accounting dates back to ancient Mesopotamia, and is closely related to developments
in writing, countingand money;
[1]
there is also evidence for early forms of bookkeeping in ancient Iran,
[4][5]
and
early auditing systems by the ancientEgyptians and Babylonians.
[2]
By the time of the Emperor Augustus,
the Roman government had access to detailed financial information.
[6]

- Double-entry bookkeeping developed during in medieval Europe,
[7]
and accounting split into financial
accounting and management accounting with the development of joint-stock companies.
[8]
Accounting began to
transition into an organized profession in the nineteenth century,
[9]
with local professional bodies in England
merging to form the Institute of Chartered Accountants in England and Wales in 1880.
[10]


2. Discuss/Explain the Accounting Equation
- From the large, multi-national corporation down to the corner beauty salon, every business transaction will
have an effect on a company's financial position. The financial position of a company is measured by the
following items:
- Assets (what it owns)
- Liabilities (what it owes to others)
- Owner's Equity (the difference between assets and liabilities)
- The accounting equation (or basic accounting equation) offers us a simple way to understand how these three
amounts relate to each other. The accounting equation for a sole proprietorship is:

Assets = Lialibilities + Owners Equity

The accounting equation for a corporation is:

Assets = Liabilities + Stockholders Equity


- The basic accounting equation, also called the balance sheet equation, represents the relationship between
the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry bookkeeping
system. For each transaction, the total debits equal the total credits.
- In a corporation, capital represents the stockholders' equity. Since every business transaction affects at least
two of a companys accounts, the accounting equation will always be in balance, meaning the left side should
always equal the right side. Thus, the accounting formula essentially shows that what the firm owns (its
assets) is purchased by either what it owes (its liabilities) or by what its owners invest (its shareholders equity
or capital).

3. Give the Following Account Titles from Assets, Liabilities,Capital or Owners Equity,
Revenue,Income,Expenses.

Assets - are the resources owned by a business which benefit its future operations and are convertible to cash
(cash itself is also an asset). Examples are cash, land, building, vehicles, receivables, etc.

List of Asset Accounts

Following are the common asset accounts:

Cash: In accounting, cash includes physical money such as bank notes and coins as well as amount deposited in bank
for current use.
Accounts Receivable: It includes the money owed to the business by outsiders such as customers and other businesses. In
most cases accounts receivable arise from sales or services provided on credit. There is no interest on accounts receivable.
Notes Receivable: Notes receivable includes the money owed to business by outsiders for which there is a formal document
for proof of debt. In most cases Notes receivable also involve interest.
Prepaid Insurance: The cost of insurance premium paid in advance.
Inventory: These are goods and materials held by a business for the purpose of sale or for the production process.
Supplies: Supplies include items held for use in miscellaneous activities by the business. It may include items used by
business staff (for example: stationary products) and items used in production process (for example nails used in
production of furniture).
Equipment: Equipment having life more than a year. Examples are Vehicles, Production Machinery, Computers etc.
Buildings: Buildings owned by the business. Examples are Office Building, Factory Building, Godown, Garage etc.
Land: Includes cost of all the land owned by the business. Also includes cost of the land with building on it.
Patents, Trade Mark, License: These are assets have no physical existence but have properties of assets.
The assets cash, accounts receivable, notes receivable, prepaid insurance, inventory and supplies are categorized as
Current Assets.
Equipment, buildings, land and patents are categorized as Non-Current Assets.
Those assets which have no physical existence are called intangible assets.


Liabilities - represent the obligation of the business towards creditors and their settlement is expected to result in an
outflow of assets.
Liability Accounts List

Following are the common liability accounts:
Accounts Payable: The amount that a business owes to outsiders, which is unpaid yet.
Notes Payable: Money which the business owes to third parties which is represented by a written promise to repay at
specified date and often bearing interest.
Unearned Revenue: The money received in advance for a certain service or goods to be provided in future. Unearned
revenue is listed as liability up to the point when the service or goods are provided thus finishing the liability and it is
converted to revenue.
Salaries/Wages Payable: The salaries that are incurred but are not yet paid to employees.
Interest Expense: The amount of interest that is incurred on a note payable or bond is accumulated here and paid when
due.
Sales Tax Payable: Sales tax collected on sales but yet to be paid to tax collection authority.
Other: Utilities Payable, Short-term Borrowings, Bonds Payable, etc.






Capital or Owners Equity - Equity accounts represent the owners' interest in the assets of a business. The owners'
interest is the part of assets that is left after all liabilities are paid. Therefore equity is sometimes called Net Assets.

Types of Equity Accounts

Equity accounts may be divided into following important types:
Contributed Capital: Contributed capital is the part of capital that directly comes from its owners. In case of sole-
proprietorship and partnerships, it is the initial capital deposit by owner plus any additional capital deposits during the
life of the business. In case of Corporations it is the value of Common Stock at par plus additional paid it capital plus
any additional stock issuances.
Gained Capital: Includes net income by the business less dividends. If the business is earning more than its dividend
payments then gained capital accumulated over the years.
Revenues: Revenue is the actual money that a business receives or recognizes for its services or sales during an
accounting period before any deductions (discounts, sales returns, cost of goods sold, expenses) etc. are made.
Expenses: Expenses actually reduce owners' equity so expenses are technically contra equity accounts.
Equity Accounts List
Following are the most common equity accounts for single owner businesses and partnerships:
Capital: is the simplest equity account and it is used for sole proprietorships and partnerships. It includes both
contributed capital and invested capital.
Drawings: represents the money drawn by the owner of a small business for their personal use.
Following are some of the equity accounts which are used by corporations:
Common Stock: is the basic account used for equity of corporations. It records the portion of contributed capital that
relates to common stock issued at par value.
Paid-in Capital Most often the amount that stockholders pay for a company stock is higher than par value per share.
Since the common stock account only records the portion that relates to par value, therefore the extra amount is recorded
and Paid-in Capital account.
Treasury Stock Treasury Stock records those share of a company own common stock that are purchased back for some
financial reasons.
Dividends: Records the amount of money given to stockholders of a business in the form of income sharing. This have
same function as of Drawings account of small businesses.
Retained Earnings: Not all of the earnings of a corporation are distributed among the stockholders. Some are retained
form future operations and are recorded in retained earnings account.

Revenue -