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- 1. JMH
- 3. JMH Accounting Definition: ➢ Accounting is a process of identifying, recording, and communicating information that is useful in making economic decisions. ➢ Key Points: 1. Identifying ✓ Accountable X Not accountable 2. Recording Journalizing & Posting 3. Communicating Financial Reporting
- 4. JMH Bookkeeping Definition: ➢ Refers to the process of recording transactions of the entity ICPAR-ACTI CB Program a. Fundamentals of Accounting b. Accounting Cycle: i. Recording Phase ii. Summarizing Phase
- 5. JMH “Accounting is the language of business” W F H HAT OR WHOM OW C O M M U N I C A T I O N Accounting information Interested users Financial Reports (FS)
- 6. JMH Users of Financial information External Users – users outside the entity Examples: i. Investors ii. Lenders & Creditors iii. Government iv. Public Internal Users – users inside/within the entity Examples: i. Owners ii. Board of Directors iii. Managers
- 7. JMH Forms of Business Organization 1. Sole proprietorship Ownership Formation/ Registration One individual (sole proprietor) ➢ DTI 2. Partnership More than one (Partners) ➢ contractual agreement ➢ SEC 3. Corporation More than one (shareholders) ➢ Operation of law ➢ SEC 4. Cooperative More than one (members) ➢ Cooperative Code ➢ CDA
- 8. JMH Types of Business according to activities 1. Service Business ➢ Offers services professional skills, expertise, & other similar services 2. Merchandising Business ➢ Buys & Sells goods w/o changing their physical form 3. Manufacturing Business ➢ Buys product and use them to produce a new product
- 9. CLASSIFICATION OF ACCOUNTS ASSETS A EQUITY E EXPENSE INCOME I LIABILITIES L E BALANCE SHEET INCOME STATEMENT
- 10. JMH The Accounting Equation ASSETS = LIABILITIES + EQUITY
- 11. JMH ASSETS ➢ Key Points: exclusive right to enjoy benefits 2. Resulted from past event 3. Can provide economic benefits 1. Control
- 12. JMH LIABILITIES ➢ Key Points: 2. Resulted from past event 3. Requires you to give up economic resources when settling them 1. Present Obligation
- 13. JMH EQUITY ➢ Key Points: 2. Assets – Liabilities = Equity 1. What the owner owns
- 14. JMH Accounting Equation ASSETS = LIABILITIES + EQUITY Mr. Pogi decided to put up a Milk Tea business and have estimated that he need 5,000 as start-up capital. He withdrew and invested all his savings from the bank amounting 3,000. Also, Mr. Pogi asked Mr. DJ Bombay to lend him 2,000. ASSETS = LIABILITIES + EQUITY 3,000 = 0 + 3,000
- 15. JMH Accounting Equation ASSETS = LIABILITIES + EQUITY After singing Hush hush, DJ Bombay finally lent Mr. Pogi. ASSETS = LIABILITIES + EQUITY 5,000 = 2,000 + 3,000
- 16. JMH The Expanded Accounting Equation ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
- 17. JMH Income Types of Income 1. Revenue – income arises from the ordinary activities of a business 2. Gain– income arises from activities other than from the ordinary activities of a business
- 18. JMH Expenses Types of Expenses 1. Expenses – arises from the ordinary activities of a business 2. Loss– expense arises from activities other than from the ordinary activities of a business
- 19. JMH Asset Accounts Cash - includes money or its equivalent that is readily available for unrestricted use (e.g. Cash on hand and Cash in bank) Accounts Receivable - receivables supported by oral or informal promises to pay ➢ A customer bought a milk tea worth 1,000 from Mr. Pogi and told that he will pay for it next week
- 20. JMH Asset Accounts Notes Receivable - receivables supported by written or formal promises to pay in the form of promissory notes ➢ A customer bought a milk tea worth 1,000 from Mr. Pogi and he wrote a promissory note that he will pay for it within 30 days. Inventory - Represents the goods that are held for sale by a business ➢ Mr. Pogi purchased milk worth 3,000 to be used as ingredient for his milk tea business
- 21. JMH Asset Accounts Equipment - Consist of various assets such as machineries, vehicles, furniture & fixtures to be used in the business ➢ Mr. Pogi purchased a sealing machine worth 5,000.
- 22. JMH Liability Accounts Accounts Payable - Obligations supported by oral or informal promises to pay by the debtor ➢ Mr. Pogi bought ingredients worth 3,000 from a supplier and told that he will pay for it next week. Notes Payable - obligations supported by written or formal promises to pay by the debtor in the form of promissory notes ➢ Mr. Pogi borrowed money from the bank and he wrote a promissory note that he will pay for it within 5 years.
- 23. JMH Equity Accounts Owner’s Capital/Owner’s Equity - The residual amount of assets after deducting liabilities ➢ Mr. Pogi invested 3,000 for his milk tea business Owner’s Drawing - this account is used to record the temporary withdrawals of the owner during the period.
- 24. JMH Income Accounts Service Fees - Revenues earned from rendering services ➢ Ex. Services of salon, bookkeeping service, etc. Sales - Revenues earned from sale of goods ➢ Ex. Sale of milk tea Gains - Income earned that are not classified as revenues ➢ Ex. Gain from sale of old sealing machine
- 25. JMH Expense Accounts Cost of Goods Sold - Represents the value of inventories that have been sold ➢ Ex. The cost of the milk tea that was sold for 1,000 is 800. Freight-out - Represents the sellers’ cost of delivering goods to customers ➢ The total cost of gasoline used in delivering milk tea to customer amounted to 1,000
- 26. JMH Expense Accounts Salaries Expense - Salaries earned by employees for the services they have rendered in the business ➢ Ex. Mr. pogi hired a cashier and her salary for the month is 5,000 Rent Expense - Represents the rentals that have been used up ➢ Ex. Mr. pogi rent a space for his milk tea business. The rent is 2,000 per month.
- 27. JMH Activity Accounts Receivable Building Notes Payable Rent Expense Owner’s Equity Interest Income Cash Computer Equipment Utilities Payable Freight-out Rent Income Taxes & Licenses Furniture Fixtures →ASSETS →ASSETS →LIABILITIES →EXPENSE →EQUITY →INCOME →ASSETS →ASSETS →LIABILITIES →EXPENSE →INCOME →EXPENSE →ASSETS
- 28. JMH Activity Supplies Expense Interest Expense Inventory Land Accounts Payable Notes Receivable Rent Payable Computer Equipment Sales Interest Receivable Transportation Equipment →EXPENSE →EXPENSE →ASSETS →ASSETS →LIABILITIES →ASSETS →LIABILITIES →ASSETS →INCOME →ASSETS →ASSETS
- 29. JMH Normal Balance of Accounts The normal balance of an account is on the side where an increase in the account is recorded. The following are the normal balances of accounts: Type of Account Normal Balance ASSET DEBIT LIABILITY CREDIT EQUITY CREDIT INCOME CREDIT EXPENSES DEBIT
- 30. JMH Activity Accounts Receivable Salaries Expense Building Service Fees Utilities Payable Unearned Income Equipment Interest Receivable Owner’s Capital Freight-out Inventory →DEBIT →DEBIT →DEBIT →CREDIT →CREDIT →CREDIT →DEBIT →DEBIT →CREDIT →DEBIT →DEBIT