1.

Identification Of Economic
Events Relevant To A Business
Examples of this are the sale of
Toyota cars, provision of services
by a hospital, payment to
suppliers and purchase of
equipment for the manufacturing
of Bench shirts.
2. Recording of Relevant
Economic events
After a company identifies
the relevant economic
events, it records those
events which will serve as
the history of its financial
activities.
3. Companies Summarize all
the Recorded Economic
Events into Accounting
Reports.
1. Accounting is a process
2. Accounting is an art
3. Accounting deals with
financial information
and transactions
4. Accounting is a
means and not an
end.
5. Accounting is an
information system
1. Keeping systematic
record of business
transactions
Recording transactions
does not only involve
entering the transactions
in the accounting books.
1. Protecting Properties of
the Business
The accounting records
serve as the evidence that
properties of a business
do exist or how much of a
particular resource does a
company have.
3. Communicating Results to
Various Parties in or
Connected with the Business
Communication of the
results of operations of a
company’s essential for all
concerned parties to enable
them to take well-informed
decisions.
4. Meeting Legal
Requirements
This procedure aims to
protect the public by
providing them the
necessary information to
make a sound decisions.
It is believed that the history of
accounting is thousands of years old
and can even be traced to ancient
civilizations.
Early development to Ancient
Mesopotamia.
The reign of Emperor Augustus (63BC-
14AD), provided more evidence about
the development of accounting
The Roman government kept
detailed financial information
of the deeds of Emperor
Augustus regarding the
stewardship of Roman
resources, this is evidence by
the Res Gestae Divi Augusti
(Deeds Of the Divine
Augustus).
The Roman Suetonius and
Cassius Dio recorded that in
23 BC, Augustus prepared a
rationarium which listed
public revenues, the amounts
of cash in the aerarium, in
the provincial fisci and in the
hands of publicani.
Double-entry
bookkeeping of Luca
Pacioli in the 14th Century
Italy is the most important
event in accounting history
why he is acknowledged as
the Father of Modern
Accounting because of this.
Double-entry
bookkeeping system is
defined as any bookkeeping
system that has a debit and
credit for each transaction.
Review on Arithmetic,
Geometry, Ratio, and
Proportion
First book printed with a
treatise on bookkeeping
At present times,
accounting standards are
already available to guide
accountants in their
practice of the profession.
Some of this include the
following:
1. Philippine Financial
Reporting Standard
(PFRS)
2. Philippine Accounting
Standards (PAS)
ACTIVITY:
In a one page paper, give
atleast three examples of
how people from earlier
periods made use of the
accounting the process. How
did the accounting process
help such persons in their
lives?
1. FINANCIAL ACCOUNTING
Is a branch of accounting primarily
handling the recording of financial
transactions of a business. It is later
summarized into a standardized
accounting reports, more popularly
known as, Financial statements.
Purpose of information: To guide external
and internal users in their economic
Frequency of Reports:
Periodic
Intended Users: External
and Internal users
Standards/Basis of
presentation: PFRS and PAS
Investors
Creditors
Shareholders/Stockholders
Government Agencies
Auditors
Other interested outside
parties
Topmanagement
Department managers
Other internal parties
2. Management Accounting
Focuses on the preparation of
reports for use of managers in
their decision-making.
Type of report generated:
Management reports
Purpose of information: Helps
management in decision making
Frequency of reports:
Whenever management asks for
a report.
Intended users: Internal users
only
Standards/Basis: None
According to Chartered Institute of
Management Accountants (CIMA),
chartered management accountants
perform the ff. roles:
1. Advise managers about the
financial implications of projects.
2. Explain the financial consequences
of business decisions.
1. Analysis
2. Strategy
3. Risk
4. Planning
5. Communication
3. Government Accounting
 according to Section 109 of
Presidential Decree 1445,
government accounting
encompasses the process of
analyzing, recording,
classifying, summarizing all
Transactions involving the
receipt and disposition of
government fund and property
and interpreting the result
thereof.
Type of report generated:
Periodic financial reports;
financial statements of the
government.
Purpose of information: Helps
management in decision-
making
Frequency of reports: Periodic
Intended users: External and
internal users
Standards/Basis: NGAS
 New Government Accounting
System (NGAS)
It enhances responsibility
accounting .
Simply stated, responsibility
accounting relates financial
results to a particular
responsibility center.s
1. Declaration of General
Appropriation Act (GAA)
2. Commission on Audit (COA)-
responsible for keeping of the
government’s general accounts and
accounting books, and disseminate
accounting rules and regulations to
be used by all agencies.
3. Department of Budget and
Management (DBM)- in accordance
with Section 2, Chapter 1, Title XVII,
Book IV of the Administrative Code
of the Phils., DBM, shall be
responsible for the formulation and
implementation of the National
Budget with the goal of attaining our
national socio-economic plans and
objectives.
4. Bureau of Treasury (BTr)- is
responsible for the safekeeping
of the national funds,
responsible for the
management and control of the
disbursements of such funds.
Examines and evaluates financial
statements of a company
independently.
Types of report generated: Auditor’s
report
Purpose of information: Gives
credibility to the financial
statements of a company.
Frequency of reports: After
every audit of a set of
financial statements.
Intended users: External
and internal users.
Standards: Phil. Standard
on Audit (PSA)
Lays down the different treatments of
the taxing authorities regarding
financial transactions.
Type of report generated: Tax returns to
be used by taxing authorities to
determine the amount of taxes payable.
Purpose of information: Helps in
determining the amount of taxes
payable
Frequency report:
Periodic
Intended users: Taxing
authorities
Standards: National
Internal Revenue Code
(NIRC)
Finds out the cost of specific cost
objects to help in the functions of
both financial and management
accounting.
Type of report generated: Cost of
production report
Purpose of info.: Finds the cost of
a particular object.
Frequency report: Whenever
management asks for a
report.
Intended users: Internal
users only
Standards: None
1. Cost- the resource sacrificed to
achieve an objective.
2. Cost object- anything that you wish to
find the cost
3. Cost driver- an activity that is caused
of the incurrence of costs.
4. Direct cost- costs that can
economically be traced to a cost
object.
5. Indirect cost- costs that
cannot be traced to a cost
object
6. Fixed cost- costs that do not
change within a relevant range
of activity
7.Variable cost- costs that
change as the level of activity
or production increases.
Deals with the promulgation of
accounting knowledge to various
interested parties that will aid them
in achieving their individual goals.
Type of generated report: None
Purpose of information: Educates
students in the field of accountancy.
Frequency of reports:
None
Intended users: Students
and members of the
academe.
Standards: None
1. Must be a high school graduate
2. Must have a college entrance
examination of above average or
depending on the specific rating set
by the school.
3. Aside from the college entrance
examination, must pass the separate
aptitude test specific for BS in
Accountancy
4. Must pass the interview conducted by
the college admission officer.
5. Some schools require a high school QPA
of 85% and above with no grade less than
80% in all subjects.
6. There are schools who require students
to have an 85% or higher average rating in
the National Secondary Assessment Test
(NSAT)
7. As set by CHED, all schools must
conduct an English Proficiency
examination to all BS in Accountancy
Applicants.
8. Admission for the Philippine
Educational Placement Test (PEPT) passers
mainly depends on the selection on the
school’s discretion since some colleges
and universities offer only selected
courses.
It is a comprehensive test composed
of seven subjects, each subject will
be taken within 3 hours so the exam
will be for 21 hours all in all.
A candidate should achieve a general
average of at least 75% with no
rating below 60% in any of the seven
subjects in order to pass the exam.
Continuous improvement of the
accountancy field through researches and
studies.
Type of generated report: Research
results
Purpose of information: Adds to the
knowledge of accountancy
Frequency of reports: Varies
Intended users: Primarily members of the
academe
1. Deciding and implementing new
accounting and auditing standards
2. Presenting unusual economic
transactions in the financial statements
3. Learning how new tax laws impact
clients and employers.
4. Discerning how the accounting
profession affects the capital markets
through academic accounting research.
1. EXTERNAL USERS
A. Customers- main source of
income of business; acquire
goods or services for a free.
Example of users: patrons, clients,
people acquiring goods or services
of a company for a fee.
Decisions made using
accounting information/
benefits from accounting
information: Whether or
not to build relationship
with the business.
2. Creditors: providers of
additional funds when the
initial investment of
owners is exhausted; lend
resources to business
usually in the form of
money.
Example of users: Banks,
lending institutions,
wealthy individuals;
sometimes the
government can also lend
resources to a company.
Decisions made using
accounting information/
benefits from accounting
information: Whether or not
to lend resources to the
business, try to see if the
business is not very risky
before lending funds
3. Potential investors-
providers of additional funds
when the initial investment
of owner is exhausted;
invest resources in the
business hoping to earn
decent returns.
Example of users:
Wealthy individuals,
other business planning to
invest.
Decisions made using
accounting information/
benefits from accounting
information: whether or not
to invest in the business,
primary concerns is the
ability of the business to
provide acceptable returns.
4. Government: an
external user whose
primary role is to
regulate business; studies
financial statements to
determine amount of
taxes payable.
Example of users:
different government
agencies, taxing
authorities, government
officials.
Decisions made using accounting
information/ benefits from
accounting information:
oversees business operations
with the end goal of improving
the economy; checks the
accuracy of the financial
statements to compute for the
correct amount of taxes
payable.
5. Academe: uses accounting
information primarily for
academic purposes.
Example of users: Professors,
lecturers, students and
researchers.
Decisions made using
accounting information/
benefits from accounting
information: uses accounting
info. in the teaching of
accountancy; researches
loopholes and possible
improvements in the field of
accountancy.
6. General public: citizens and
residents of the country even
though they do not plan to
transact with the business; use
financial statements to gauge
the condition of the economy.
Example of users: Common
people not connected with the
company.
Decisions made using accounting
information/ benefits from
accounting information:
Concerned with the overall
performance of the economy,
use financial information to
estimate economic
performance.
1.Management: employees that
can make decisions for the
company, considered the brain
of the company.
Example of users: Board of
directors, top management,
middle-level managers,
supervisors.
Decisions made using accounting
information/ benefits from
accounting information: Uses
financial information in making
decisions, allows management
to identify problems
immediately and to respond
accordingly.
2. Employees: persons in the
company aside from managers and
owners or stockholders; do not
have authority to implement
decisions.
Example of users: Laborers, field
workers, non-managerial
employees.
Decisions made using accounting
information/ benefits from
accounting information: check
if the business is profitable
enough to provide compensation
and other benefits.
3. Owners or stockholders: Existing
investors of the company;
concerned mostly with the profits
of the company.
Example of users: Founders of the
company, owners, stockholders,
partners, proprietors.
Decisions made using accounting
information/ benefits from
accounting information: mainly
concerned with the returns earned
from their investment; owners
taking active roles in the
operations of the business; also
make decisions.
1. SOLE PROPRIETORSHIP
A form of business organization
with only one owner.
Has no separate legal
existence
Can take fictitious names.
Most common form of business
organization; easiest to
establish.
ADVANTAGES:
1. Ease of formation- much
easier to establish than other
forms of business organization.
2. The owner has full control
of the business- the owner can
single-handedly decide on
matters pertaining to the
business.
3. Owners can mix personal
and business assets- owners
may freely mix their personal
assets with business assets since
Sole proprietorships are not
separate juridical entities
distinct from the owners.
4. Owners have all the profits
for themselves- all the profits
generated by a business
operating as a sole
proprietorship belong to the
owner.
5. Simple taxation- The owner
needs only to declare then
income of the business in his or
her tax returns and it will be
taxed accordingly.
DISADVANTAGES:
1. Unlimited liability- an owner
is personally liable for all the
debts incurred by the business
Since a sole proprietorship has
no separate legal existence
distinct from the owner.
2. Difficulty of raising
additional capital- the initial
investment of the owner is the
capital of the business when all
of the initial investments are
used up, the owner is the only
Can provide additional capital.
3. Owner’s bias- Only the sole
proprietorship has the authority
to make decisions for the
business.
2. PARTNERSHIP
A contract whereby two or
more persons bind themselves
to contribute money, property,
or industry to a common fund,
with the intention of dividing
the profits among themselves.
May also be formed for the
exercise of a profession.
1. Two or more persons are
needed.
2. Money is not the only
resource that a person can
contribute in a partnership
but also property and
industry.
3. Established for the purpose
of obtaining profit, if an
Organization is created for
purpose.
4.Partnership are the common
form of business org. used by
the companies who generate
profits by the practice of a
profession.
FEATURES OF A PARTNERSHIP
1. Separate legal existence-
partnership is also defined as
an artificial being created by
operation of law.
2. Mutual agency- means that
the acts of a partner are
binding on a partnership
even though he or she has no
Authority to do so as long as the
act concerns the normal
business operations of the
partnership.
3. Unlimited liability- even
though a partnership has
separate legal existence,
partners are still liable for debts
and obligations that cannot be
Paid by partnership assets.
4. Limited life- the life of a
partnership can be easily ended
through partnership dissolution
or liquidation. Partnership
dissolution occurs when one of
the partners withdraws from the
partnership or if a new partner
is admitted.
Dissolution occurs when there is
a change in the relationship
among partners.
5. Co-ownership of partnership
property- partners contribute
money, property, and industry
into a common fund.
6. Partnership agreement- the
definition provided by the law
States that a partnership is a
contracts are perfected through
oral or written agreement.
Articles of partnership- is also
known as written contract
contains the ff.info.:
1. Name of the partnership
2. Location of the principal
office of the partnership.
3. The names, citizenship, and
residence of the partners.
4. Term for which the partnership
exist.
5. The purposes for which the
partnership is formed.
6. Original capital contributions of
the partners.
7. Profit and loss sharing
ADVANTAGES OF PARTNERSHIP
1. Easier to create than a
corporation
2. Better ability to acquire
additional capital than sole
proprietorships
3. Larger pool of human capital
than sole proprietorships.
 DISADVANTAGES OF
PARTNERSHIP
1. Unlimited liability
2. Mutual agency
3. Limited life
 OTHER FORMS OF A
PARTNERSHIP
1. Limited Partnership- at
least one partner has
unlimited liability and at
least one partner has
limited liability.
General partners- partners
having unlimited liability.
Limited partners- partners
having limited liability.
2. Limited Liability
Partnership- is a type of
partnership that aims to
protect innocent partners
From the malpractice and
wrong doings of other
partners.
3. Limited Liability
Company- is another of
organization having
partnership characteristics.
Limited liability companies
Have features of both a
corporation and a partnerships.
The owners are called members
and then enjoy limited liability.
3. CORPORATION- an artificial
being created by operation of
law, having the right of
succession and the powers,
attributes and properties
expressly authorized by law or
incident to its existence.
 FEATURES OF A CORPORATION
1. Separate legal existence- it
is treated by law as an
artificial being separate and
distinct from its owners.
2. Limited liability- the
personal assets of the
stockholders of a corporation
are protected from the
Claims of creditors and other
outside parties.
3. Transferable ownership
rights- it is represented by
stocks.
Stocks- is an intangible asset
evidencing a proportionate
share in the properties of a
corporation.
4. Virtually unlimited life- a
corporation shall exist for a
period not existing 50 years
from the date of its
formation.
5. Corporation management-
the management structure of
a corporation is more
complex than that of the
other forms of business
organizations. Stockholders are
the owners of a corporation.
Board directors- represents the
interest of the stockholders and
they are responsible for creating
operating policies for the company.
Stockholders can also be a member
of the board of directors.
6. Government regulations-
corporations are subject to
stricter government regulation
than sole proprietorship and
partnerships.
7. Double Taxation- the income
of a corporation is taxed on the
corporate level and the
individual level.
8. Dividends- this are the
income distributed to
stockholders. Maybe in form of
cash, stock, or property.
ADVANTAGES OF CORPORATION
1. Ability to acquire additional
capital
2. Transferable ownership
rights.
3. Limited liability of
stockholders
4. Virtually unlimited life
5. Large pool of human capital.
DISADVANTAGES OF
CORPORATION
1. Heavily regulated by the
government
2. Double taxation
3. Not easy to form
4. More expensive to form than
sole proprietorships and
partnerships.
4. COOPERATIVES- a duly
registered association of
persons, with a common bond of
interest, who have voluntarily
joined to achieve a lawful
common social or economic
end, making equitable
contributions to the capital
required and accepting a fair
Share of the risks and benefits of
the undertaking in accordance with
universally accepted cooperative
principles.
It is composed of at least 15
persons
Its income is called, “Net
surplus”.
A cooperative has its set of board
of directors.
Is an organization that
covers inputs or resources
such as material, labor
and overhead into outputs
which are usually either
goods or services.
1. SERVICE
Firms that generally use
their employees to
provide services to
customers.
Input: Labor
Output: Intangible;
service
Advantages:
1. Absence of inventory
2. No production
facilities
Disadvantages:
1. Inability to
standardize service
2. Maintaining human
capital.
Examples: Accounting
and law firms, hospitals,
Schools, salons, etc.
Service revenues- it is
the performance of
service.
Operating cycle-
include paying out
money for employees
And other operating
expenses, performing
the services, and
collecting cash
payments from
customers.
2. Merchandising
 firms that buy finished
or almost finished
goods from their
suppliers and resell the
same to customers.
Input: Goods or
merchandise bought
from suppliers.
Output: Tangible;
merchandise
Advantages:
1. Visible products
2. Less conversion,
time, and effort
Disadvantage:
1. Managing inventory.
Examples:
Supermarkets,
convenience stores,
bookstores, department
stores.
Sales revenue or sales-
refers to primarily earn
Revenues from the sale
of goods or
merchandise.
TWO TYPES OF
MERCHANDISING
1. Retailer
2. Wholesaler
3. Manufacturing
 firms that create their
own products.
Input: Raw materials,
labor, overhead.
Output: Tangible;
manufactured products.
Advantages:
1. Quality control
2. Visible products
Disadvantages:
1. Generally need
production facilities
2. High conversion costs
3. Cost of quality control
4. Managing inventory
Examples: Car
companies, consumer
products companies,
electronics companies,
energy manufacturers.
1. Accrual Accounting
An accounting basis wherein income
is recognized when earned and
expenses are recognized when
incurred irrespective of the timing of
cash receipt or payment. Accrual
accounting results in more accurate
financial statements.
Cash basis of accounting
Opposite of the accrual
basis of accounting;
recognizes income when
cash is received and
recognizes expenses when
cash is paid.
2. Matching Principle
 a concept closely related
to accrual accounting which
states that expenses should
be recorded in the same
period as the related
revenues.
3. Accounting judgment and
estimates
 not all items in a company’s
accounting record can be
determined precisely. This is
the reason why estimates are
used. Estimates are
determined using professional
judgment, study of historical
data, and through research.
4. Prudence
 also called “Conservatism”
Means exercising care in
decisions regarding
recognition of items in the
accounting records. In case
of doubt, recognize
liabilities and expenses and
Do not recognize assets and
income.
5. Substance over form
The substance of some business
transactions differ from their
legal form.
A common example of this is a
contract of lease, if substance
differs from legal form, you
should follow the treatment of
the transaction based on the
substance.
6. Going concern
assumption
 the assumption that entity
will continue operations
indefinitely into the future.
It can be abandoned if
there evidences supporting
the contrary.
7. Accounting entity
assumption
The assumption that the
business is an entity separate
and distinct from the owners,
managers, and employees.
Personal transactions of
owners, managers and
employees should not distort
the results of company
operations.
8. Time period assumption
The assumption that the
indefinite life of a company
can be divided into
multiple time periods with
equal lengths.
The result of this is the
periodic presentation of a
company’s financial
statements. A calendar year
is a 12-month period that
ends on December 31. A
fiscal year is a 12-month
period that ends on any
month.
9. Generally Accepted
Accounting Principles (GAAP)
Set of accounting principles,
concepts, rules and guidelines
that companies follow to
enhance the consistency and
comparability of their
financial statements.
10. International Financial
Reporting Standards (IFRS)
 pronouncements made by
the IASB that intend to
enhance the consistency
and comparability of the
financial statements of the
companies all around the
world.
11. Philippine Financial
Reporting Standards (PFRS)
 the Philippine version of the
IFRS.
It includes the pronouncements
of the IFRS, the PAS which
corresponds with the IAS, and
the interpretations of
accounting standards by the
Philippine Interpretations
Committee.
 ASSETS=
LIABILITIES+EQUITY
 ELEMENTS OF THE ACCOUNTING
EQUATION
ASSETS
Are resources that an entity in
order to derive some future
benefits.
What the entity owns.
 EXAMPLES OF ASSETS
1. Cash- it is the money we use
comprising of the bills and coins
we use in our everyday lives.
2. Accounts Receivable-
represents amounts that are
collectible from customers.
They are arise when a business
sells its goods and services on
account or credit
 EXAMPLES OF ASSETS
3. Inventories- these products
are inventory which normally
held for sale by the store in its
normal operation.
4. Equipment
5. Land and building
6. Intangible assets- ex.
Software.
 LIABILITIES
 are one of the claims of
external parties from the entity.
Basically, they are the debts of
the entity to external creditors.
What the entity owes to its
creditors.
FORMS OF LIABILITIES
1. Accounts Payable-it would only
incur an obligation to pay its
supplier after a certain number
of days.
2. Unearned Revenue-
Telecommunication companies
such as Globe and Smart
normally offer prepaid load to
customers.These load credits can
be later on used by customers for
text messages or call.
EQUITY
-reflects the residual claims or net
assets of the owners of an entity.
This is similar to the net worth part
of the SALN of our public servants.
Generally, equity comes from two
sources: a. Comes from the owners
in the form of investment capital,
b. income of the business from its
normal operations.
EQUATION of NET LOSS

REVENUES – EXPENSES=
NET INCOME/ NET LOSS
REVENUES
- A business earns revenue
when it sells products or
its services.
EXPENSES
- Matching principle states
that no revenue can be
earned without incurring
corresponding
expenditures.
CAPITAL
- Represents the net
investments of the
business. This means that
any contribution of the
owner which increases the
assets of the business or
decreases its liabilities will
increase capital account.
In using the accounting
equation, there should
always be a dual effect
in the equation to
preserve the accounting
identity.
Initial investment. Manang
Rosie has been well known
for her delicious variety of
barbecues. As such, she
decided to open up a
baebecue store in her
neigborhood. The store
would be a sole
proprietorship business. In
order to do so, she invested
P25,00 as initial capital.
Purchase of
equipments.To actually
create her famous
barbecue she would need
the proper equipment to
cook it. Thus, she went to
the local hardware store
and bought the necessary
equipment such as grills
and utensils for P20,000.
Purchase of inventories through
credit. Manang Rosies barbecues
require only the freshest meat
which can be bought from Ate
Shayne Store in the market. Since
they cost P10,000, Manang Rosie
does not have enough money to
purchase this. Despite that, Manang
Rosie is already a trusted suki of
this store. As such, Ate Shayne
decided to give the meat to Manang
Rosie on the condition that she will
have to pay her in 30 days.
Payment of expenses. To
actually set up a business,
one of her friends told her
that she has to obtain
business and other permits
from the local government.
As such, she paid P1,000
to obtain such permits.
 ASSETS = LIAB + EQUITY
ILITI
ES
ACCOUNTS OWNER’S EXPENSES
CASH EQUIPMENT INVENTORIES PAYABLE CAPITAL
P5,000 P20,000 P10,000 P10,000 P25,000

(4)- (4)-P1,000
P1,000

P4,000 P20,000 P10,000 P10,000 P25,000 -P1,000

P34,000 P34,000
Sales of barbecues. With
everything in place, Manang Rosie
can now sell her famous
barbecues. During the first of her
new business venture, she was
able to sell P1,000 barbecues with
a selling price of P20,000. Half of
which was paid cash. The other
half was to be paid in 5 days.
 ASSETS = LIABILTI + EQUITY
ES
CASH ACCOU EQUIP INVEN ACCOUNTS OWNER’S REVEN EXPEN
NTS MENTS TORIES PAYABLE CAPITAL UES SES
RECEIV P10,000
ABLE
P4,000 P20,00 P10,00 P25,000 P1,000
+P10,0 +P10,0 0 0 +P20,0
00 00 00

P14,00 P10,00 P20,00 P10,00 P10,000 P25,000 P20,00 -

0 0 0 0 0 P1,000

P54,000 P54,000
1. Assets
a. Current Assets- are all assets which are
expected to be realized within the
ordinary course of business, or span of 12
months, whichever is longer. Realization
here only means that these assets are
expected to be converted into cash, sold,
or disposed after a certain time, or
through the passage of time.
a.1. Cash
a.2. Accounts Receivable
a.3. Short-term Investments-
contains company’s investments
in low-risk, highly liquid assets
such as bonds and stocks, which
are expected to be liquidated
in less than a year.
a.4. Notes Receivable-
represents promises to the
entity to receive cash at a later
date, with the main distinction
that notes receivable are all
written, and hence, more
formal than accounts received.
a.5. Inventories- It includes also
raw materials, work-in process
items, and supplies.
Work-in process- once they are
entered into production, but
awaiting completion.
Raw materials- basically inputs
for producing other materials
Supplies- items which do not
actually serve as an input for a
product but are nevertheless used
during the production.
Finished goods- known as the end
products.
a.6. Prepayments- is an amount
simply paid in advance for goods
or services anticipated to be
received by the entity in the
future.
b. Noncurrent Assets-all other
assets which are not current
basically fall into the definition
of noncurrent assets. Take note
that they do not need to have
at least 12 months remaining
before their expected
realization.
a. Investments- investment
account includes all the
company’s investments which
it does not expect to realize
within 1 year.
b. Fixed Assets- called as the
most tangible, longest-serving
assets a company can have.
They are expected to not be
converted into cash
immediately and are regularly
placed as means of production.
c. Intangible assets- lack
physical substance, and yet are
similarly realizable over long
periods of time. Their value and
assets are harder to measure
and evaluate. Examples:
trademarks, franchises,
copyrights and licenses.
d. Other assets

LIABILITIES
1. Current Liabilities- liabilities
which are expected to be
settled or paid out by the entity
within 12 months.
a.1. Accounts Payable- is opposite of
accounts receivable, while in
accounts receivable, the entity is on
the receiving side, the entity is now
on the paying side, hence the
borrower.
a.2. Notes Payable- are written
promises of the entity to pay a sum
certain in a future determinable
time. It can be paid in lump sum or
installment, on a personal level,
monthly payments of home loans
a.3. Accrued Liabilities-are all
other accounts which the
company should pay, arising
from the normal business. Ex.
Electric bills, wages, rent, etc.
a.4. Current Portion of Long-
term Debts- these are long-
term debts payable within the
coming year.
a.5. other payables
2. NONCURRENT LIABILITIES-
liabilities which the entity
expects to settle after more
than a year, or have the legal or
contractual capacity to defer
payments accordingly.
a.1. Bond Payable- are a form
of long-term debt, often huge
sums, contained in an
agreement called as bond
indenture. Have stated interest
rates, they are usually issued by
the government, banks, and
huge corporations seeking huge
financing sources.
Term bonds- bonds which have
principal that mature in a single
dates.
Serial bonds- those that mature
in multiple dates.
3.Equity/Owner’s
Capital/Stockholder’s Equity-
To illustrate the concept of
equity, consider a sole
proprietor obtains a loan from a
bank in addition to investing his
or her own money. In this case,
the business technically has two
owners: the creditor bank and
the sole proprietor.
Owner’s capital- called as the equity
of sole proprietorships and
partnerships.
Shareholder’s equity or stockholders’
equity- called as the equity in a
corporations.
a.1. Common stock- it is a security
which represents ownership in a
corporation.
Common stock holder- those who
own a common stock of a
corporation.
A common stock holder has many
rights among which are the
following:
a. Right to vote in the
stockholders’ meeting
b. Right to receive dividends
c. Pre-emptive right which is the
right to be offered first to buy
additional shares in the event
of a future issuance.
-all common stock comes with a
par value. This is the legal
nominal value assigned to it, and it
is illegal for it to be issued for less
than this price.
a.2. Preferred stock- represents
the number of preferred shares
issued and outstanding multiplied
by the stock’s par value.
Preferred stockholder- is also
a security represents ownership
in a corporation and owner of
preferred stock.
a.3. Additional Paid-in Capital-
also called share premium,it is
the excess over par-value
contributed by the company’s
shareholders in a stock issue.
a.4. Retained earnings-
represent the accumulated net
income from operations over
several periods. It is a measure
of how much the company
earned since the day one of its
operations.
INCREASES IN EQUITY- equity
increases as a result of revenues,
gains, or capital contributions.
Revenues are the amounts
received by a business earned as a
result of selling something or
rendering a service.
- It is the increases in equity as a
result of day-to-day operations.
Revenues can be classified as
follows:
1. Operating Revenue-revenues
that originate from main
business operations.
2. Non-operating revenue-
revenues do not originate from
main business operations and
are result of some side
activities.
Examples of revenue accounts:
1. Sales revenue- main source of
revenue for businesses that sell
products.
2. Service revenue- main source
of revenue that render
services.
3. Interest revenue- revenue
earned as a result of
investment in debt securities
4. Dividend revenue- revenue
earned as a result of dividend
declaration of a company where in
a business has invested stocks.
5. Contributions revenue-
revenue earned by not-for-profit
organizations usually in the form
of donations by outside parties.
DECREASES IN EQUITY- equity
decreases as a result of
expenses, losses, and
distribution to owners.
Expenses are the amounts
consumed by the business to
operate.
Examples of expenses:
1. Cost of goods sold
2. Utility expense
3. Depreciation expense
4. Office supplies expense
5. Insurance expense
6. Salaries expense
7. Bad debt expense
8. Interest expense
Losses is the direct opposite of
gains.
1.JOURNAL- is a chronological
record of all company’s
transactions listed by date. It is
often referred to as the “ book
of original entry”
Journalizing- it is the recording of
financial information into the
journal.
Book of accounts- are the finance
records, ledgers and journals that
compose of the company’s
accounts.
- Serve as company’s financial
memory and comprise of every
single business transactions and
financial information of a
company.
General Journal- typically
displays the transaction’s date,
account titles and explanations,
references and respective
amounts of corresponding
accounts.
1. Date. The date at which the
transaction occurred.
2. Account Titles and
Explanation. The account to
be debited and the account to
be credited are recorded.
3. Reference Number. Reference
number of each account
journalized.
The Ref column is left blank
during the journalizing process
and is filled out during the posting
process.
4. Debit. Corresponding amount
of the account debited is entered.
5. Credit. Corresponding amount
of the account credited is
entered.
LEDGERS- is the grouping of all
accounts of a company showing its
respective outstanding balances.
It is also called as the “book of
final entry” of accounting
transactions.
Posting- involves the transferring
of journal entries to the ledger
accounts to bring together the
effect of the transactions to the
Individual accounts of the
company.
GENERAL LEDGER- contains all
the assets, liability and owner’s
equity accounts of the company.
- Are usually grouped according to
their chart of accounts and
arranged according to the order
on how they appear on the
financial statements, starting
The assets accounts, followed by
the liability accounts, and finally,
the equity accounts including the
revenues and expenses accounts
as shown in the figure.
1. Account Title. The general
ledger contains all of the
company’s accounts and its
balances.
2. Ledger Account Reference
Number. With reference to the
company’s Chart of Accounts,
each of the account titles
corresponds to a reference
number.
3. Date. The date of the
transaction is also entered in
reference to the journal.
4. Explanation. A brief
description of the business
transaction is defined. This is
sometimes omitted since the
entries on the journal already
provide an explanation of the
transactions.
5. Reference. This column
displays the journal page number
from which the transaction was
6. Debit. Amounts debited to the
account are inputted.
7. Credit. Amounts credited to
the account are entered.
8. Balance. What distinguished a
ledger from the journal is the
running outstanding balances
provided by the ledger. After
every transaction, the balances of
each of the accounts are known
Without the need for further
computations.
SPECIAL JOURNAL
- Are used to record typical and
similar types of transactions.
- The number of special journals
managed by a company is
dependent on the types of
transactions that occur
frequently.
SALES JOURNAL
- Used in journalizing all sales of
merchandise on account
CASH RECEIPTS JOURNAL
- Used in journalizing all cash
received
PURCHASES JOURNAL
- Used in journalizing all purchases of
merchandise on account
CASH PAYMENTS JOURNAL
- Used in journalizing all cash paid.
A. SALES JOURNAL
1. Special journal title- the name of
the special journal- Sales journal
2. Special Journal Reference
number- reference no. of the
special journal that is used during
posting to the ledgers.
3. Date- the date at which
transaction occurred.
4. Account Debited
5. Invoice Number- pre-numbered
invoices ensure that all invoices
transactions are journalized.
6. Reference- A check mark is inputted
under this column when postings are
made in the ledger.
7. Dr. Accounts Receivable, Cr. Sales-
since all transactions in each special
journal are of the same type,
explanation of transactions in each
journal entry are eliminated.
8. Total- at the end of each month the
total is computed.
B. CASH RECEIPTS JOURNAL
1. Special Journal Title
2. Special Journal Reference Number
3. Date
4. Account Credited
5. Reference- it is left blank upon
journalizing and is filled out during
the posting process. A check mark is
inputted under this column when
postings are made in the ledger.
6. Dr. Cash- the corresponding
amount of cash debited is entered.
7. Cr. Accounts Receivable, Sales,
Other Accounts- the respective
amount credited is entered.
8. Totals- these will be posted to the
general rather than the individual
entries.
SUBSIDIARY LEDGER
- Is a group of accounts with a
similar characteristics.
- It is an additional record to
the general ledger utilized by
the company to track the per-
individual accounts of the
company’s customers,
creditors and the like.
 Two types of Subsidiary Ledger
1. Accounts Receivable Ledger-
used in tracking individual
accounts receivable balances
of company’s customers.
2. Accounts Payable Ledger-
used in tracking individual
accounts payable balances in
company’s creditors.
This documents is in need in
order to proceed with the
analyzing, identifying, and
measuring phase, are found in
this document.
 Examples of Source
Documents:
1. RECEIPT
Purpose: to evidence the
receipt of cash for a sale
Where generated by/whom:
outside, the seller firm
 Examples of Source
Documents:
2. SALES INVOICE BILL
Purpose: to evidence a
purchase, and thus the
recording of a liability to the
seller.
Where generated by/whom:
outside, the seller firm
 Examples of Source
Documents:
3. BANK STATEMENT
Purpose: to evidence the bank
charges for the period which
the firm would otherwise not
know about.
Where generated by/ whom:
outside, the depository bank.
 Examples of Source
Documents:
4. TIME CARD
Purpose: to evidence the
number of hours worked by
employees, to be used as basis
for determining wages.
Where generated by/whom:
within, workers
T-ACCOUNT
It is visual representation of an
account.
It resembles the capital letter
T: left side contains all the
debits to the account while the
right side contains all credits.
 The terms left and right are used
to refer to the debit side and the
credit side of the account,
respectively.
 The following list of rules of
debits and credits:
a. Increases in assets are recorded
as debits; decreases are recorded
as credits.
b. Increases in liabilities are
recorded as credits; decreases are
recorded as debits.
c. Increases in equity are
recorded as credits; decreases are
recorded as debits.
Transaction1. Investment of
capital. Mr. Telagaku invested P
9,000,000 into the business on
January 1, 2014. This is recorded
as follows:
2014
1 Jan Dr. Cash 9,000,000

Cr.Telagaku,Capital 9,000,000
Transaction 2. Payment of
business permit fees. He pays a
total of P 1,200 evidenced by an
official receipt from the city hall.
Transaction 3. Purchase of
building. On June 2, 2014, Mr.
Telagaku purchases a building
costing P12.35M. He pays P5M in
cash and signs a note with a bank
for the balance.
Transaction 4. Receipt of cash for
January rent. Matalino Dormitory
received P30,000 from dormers in
payment of their January rent.
Adjusting Entries
 are prepared at the end of an
accounting period to unrecorded
revenue that has been earned
and unrecorded expenses that
have incurred during the
accounting period.
CHARACTERISTICS OF ADJUSTING
ENTRY
1. Each entry is recorded at the end
of accounting period
2. Each entry has at least one
balance sheet account and at
least one income statement
account.
3. Each entry has no cash account in
either the debit or credit side
Six Classification of Adjusting
Entries:
1. Depreciation
2. Bad debts
3. Prepaid expense
4. Accrued Expense
5. Deferred revenues
6. Accrued revenues
DEPRECIATION
- Is applied to components of
property, plant, and equipment or
PPE. These are assets held by an
entity and expected to benefit
more than one accounting period.
Depreciation expense- is an
income statement
Accumulated Depreciation- is a
balance sheet account.
Book value- it is the difference
between PPE account and its
Accumulated Account.
Formula in Computing
Depreciation:
Depreciation expense= Cost of
PPE – Estimated Residual Value
Estimated Useful Life
BAD DEBTS-is an application of
the conservatism principle of
accounting which when applied to
assets will imply that
overstatement of assets is
undesirable.
PREPAID EXPENSES- are usually
periodic expenses which are paid
at the beginning of a certain
period of time for convenience of
both the payor and the payee.
ACCRUED EXPENSE-