Teacher: Timotea M.

Dela Pena
Objectives:
 To be able to determine the value of
Financial Statements
 Demonstrate journal entries
 Identify the debit and credit accounts
 What is
Accounting?
 What is Accounting?

 Accounting is defined as an information

system that measures, processes, and
communicates information, which are
primarily financial in nature about an
identifiable entity for the purpose of
making economic decisions.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 History of Accounting
 Accounting is an old discipline that dates
back to thousand of years, but the one
closest to what we now have dates back to
1400 in Italy. The Italian mathematician,
scholar, and philosopher Fra Luca Pacioli
has been referred to as the “Father of
Accounting.”

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 To sum up:

Accounting is the art of

analyzing, recording, classifying,
summarizing, reporting and
interpreting the results of
financial transactions and events.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

Accounting Process
1. Analyzing

2. Recording

3. Classifying

4. Summarizing

5. Reporting

6. Interpreting
 What is analyzing?
 Analyzing is the first phase of the
accounting process where the accountant
must look at the transactions entered into,
economic events that have been taken
place, and determine their effects on the
business. These transactions and events are
generally supported by documentary pieces
of evidence or proofs.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is recording?
 Recording involves writing the effects of
the transactions and events that have been
analyzed. This recording may be done
manually, or it may encoded with the use
of computers or data processing machines,
includes the inputting of information in the
accounting books called journals. These
journals are general and special.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 The special journals are

1. cash receipts book

2. cash disbursements book
3. sales book, and
4. purchases book

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is classifying?
 Classifying is the sorting or grouping of
similar transactions and events into specific
account titles. This process is almost like
putting similar information in boxes.
 The journalized transactions and events are
classified in ledgers.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is classifying?

 The ledgers are general ledgers and

subsidiary ledgers.
 The subsidiary ledgers show the details
of those transactions and events
classified in the general ledger.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is summarizing?
 Summarizing is the process that involves
grouping together the various accounts
referred to in the classifying process.
 These is where the accounts are grouped into
assets, liabilities, owner’s equity, revenue,
cost and expenses.
 The summaries are taken from the accounts in
the general ledger.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is reporting?
 Reporting involves the preparation of
financial summaries called financial
statements. These are written or
documentary media where the
 (1) results of the operation (income
statement)

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is reporting?

 (2) financial position (balance sheet), and

 (3) cash flows (statement of cash flows)
are communicated to the users of
information

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is interpreting?
 Interpreting is the last step in the
accounting process. It is the step that
directs attention to the significance of
various matters and relationships.
 This step involves the computation of
figures from the financial reports and
schedules.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 What is interpreting?

 Interpreting is a combination of figures and

narrations based on the figures presented.
 The relationships may be in percent or in
ratios, may be with in the financial report,
or may be one report in relation to another
report.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 Business Entity Concept
 There is a need to clearly identify the entity
or business entity for which accounting
should be done.
 We have to make sure that there is a clear
identification between the different
transactions and events done in a business
and the personal transactions to the owners
of the business.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 Business Entity Concept
Example:
Not proper to record
1. Paid the restaurant bill as an expense during the birthday
of the daughter of the owner of the business.
2. Record rental expense from the house used by the family
of the shareholder of a corporation.
3. The owner of Company X married the daughter of the
owner of Company Y.
4. XYZ Corporation hires 100 new employees under the HR
Department.
5. ABC Agency recognized their newly hired manager
Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS
Double Entry System
 It is a processing system that involves of entering two
effects of every transaction.
 Double Entry means “value received” and “value
parted with.”
 Debit is the term coined of “value received.”
 Credit is the term coined of “value parted with.”

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 Double Entry System
Example:
1. Bought office supplies from suppliers P70,000.
Using double entry:
office supplies 70,000
cash 70,000
2. Paid the rental fee of the business establishment
P25,000.
Using double entry:
rent expense 70,000
cash 70,000

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 Financial Statements
 Used to provide information about the
financial position, result of operation, and
cash flow of enterprises and of individuals.
 Financial statements consist of :
1. Balance Sheet
2. Income Statement
3. Cash Flow Statement

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

Financial Statements
Balance Sheet
 Also called Statement of Financial Position
 the financial statement that reports assets,
liabilities and owners equity.
Income Statement
 Also called Statement of Financial Performance
 The financial statement that reports the net
income or net loss for a period of time.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 Financial Statements

 Financialstatement are prepared during

Accounting Period.
 Calendar Year is an accounting period that
ends on December 31.
 Fiscal Year is an accounting period that
ends on a date other than December 31.

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

 Accounting Equation

A = L + OE
(Assets) (Liability) (Owner’s Equity)

Fundamentals of Accountancy, Business, and Management 1 SANHS- SHS

Accounting Equation
 Assets
– tangible and intangible things that are
owned and used by the business
 Liabilities
- these are the present obligation of
the enterprise arising from the past events.
 Owner’s Equity- the residual interest or the
remainder of the asset of the enterprise after
deducting all its liabilities.
Accounting Equation
Example:
A = L + OE
1. P800,000.00 =____________________ + 69,000.00
2. __________ = 123,456.65 + 789,010.69
3. P56,123.44 = 65,123.44 + ______________
4. P7,696,969.69 = 0 +_______________
5. P12,546,890,034.75 = _______________________ + - 100,001.05
Check yourself:

Answer pages 10
and 11, Excercises
1-1 and 1-2.