The simplest way to start your
Accounting Operation
• Whatever type of business you are in, merchandising, manufacturing o...
where;
Assets -refers to the tangible and intangible items owned by
the business as valued
Examples of assets are:
•Cash
•...
Liabilities
refers to the short and long term payables
of the company derived from acquisition and/or cash proceeds
receiv...
Owner’s Equity - Components of the owners equity can be
simplified by the following equation where;
• Owner’s Equity = Tot...
The double entry system is used where transactions are recorded either on a
debit or credit side of the equation as the ca...
The Accounting Cycle
• The personnel in charge of the accounting process complete the steps of
the accounting cycles. The ...
.

Business Transaction
Journalizing General Journal,
Special Journals

Preparation of
Reversing Entrie

Preparation of po...
In the absence of a worksheet it is necessary that all the necessary adjustments are
journalized and posted to update all ...
Journalizing The process of which transactions are recorded in the general or special journal otherwise known as
the book ...
Posting
This is the process of classifying the effects of transactions on specific Asset, Liability, Equity, Income &
Expe...
SUMMARIZING
This phase includes the necessary steps for the preparation of the periodic
summary reports:
• Preparation of ...
Compilation of Data for Adjustment
This is the process of updating balances of certain accounts in the books of the compan...
Preparing a Worksheet
An accounting worksheet is large table of data which may be
prepared by accountants as an optional i...
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Powerpoint 3rev1

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Powerpoint 3rev1

  1. 1. The simplest way to start your Accounting Operation • Whatever type of business you are in, merchandising, manufacturing or service industry, it is essential that you understand the basics of the accounting operation. Our organization aims to serve your requirements in this area and we are hoping that at the end of this chapter you will be guided and understand the basics of accounting. • Accounting Procedure • This refers to the accounting process or various steps in obtaining information relative to the business that will form part of the financial statement. This information has to be recorded and summarized accordingly. • Recording • you an overview of general bookkeeping practices and accounting terminology it is necessary that you understand the accounting equation and the relationship of all the accounts in the books of accounts of your organization as follows:
  2. 2. where; Assets -refers to the tangible and intangible items owned by the business as valued Examples of assets are: •Cash •Accounts Receivables •Notes Receivables •Furnitures & Fixtures •Inventory •Land, Building & Equipment
  3. 3. Liabilities refers to the short and long term payables of the company derived from acquisition and/or cash proceeds received from creditor or from any financial institution. Examples are: •Notes payable •Loans payable •SSS/Pag-ibig Payable •Salaries Payable •Tax Payable
  4. 4. Owner’s Equity - Components of the owners equity can be simplified by the following equation where; • Owner’s Equity = Total Assets – Total Liabilities Owner’s Equity =Capital Investment by owner + Profits/(Losses) or Retained Earnings • • Total Assets Earnings - Total Liabilities = Capital + Retained
  5. 5. The double entry system is used where transactions are recorded either on a debit or credit side of the equation as the case may be and the following rules must be followed. – Debit – Credit - Left side of the equation Right side of the equation Accounts Title Debit Increase in Asset Decrease in Liability Decrease in Equity due to Withdrawals by owners Dicrease in Income Increase in Expense Decrease in Assets Increase in Liability Increase in Equity due to Additional Investments Increase in Income Decrease in Expense Credit xxxxx xxxxx xxxxx xxxxx xxxxx _______ Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - --- -- - -- - xxxxx ===== xxxxx xxxxx xxxxx xxxxx xxxx _______ xxxxx =====
  6. 6. The Accounting Cycle • The personnel in charge of the accounting process complete the steps of the accounting cycles. The workflow includes the tasks of entering transactions from documentation up to the preparation of the Financial Statements. Closing the books at the end of the accounting period and followed the same steps for the next accounting period. • The following basic step details the tasks to b e done as you start your general accounting up to its completion:
  7. 7. . Business Transaction Journalizing General Journal, Special Journals Preparation of Reversing Entrie Preparation of postclosing Trial Balance Posting - General Ledger, Subsidiary Ledgers Journalizing and posting of adjusting and closing entries Preparation of a Trial Balance Preparation of Financial Statements Compilation of data for adjustments Preparation of Work Sheet
  8. 8. In the absence of a worksheet it is necessary that all the necessary adjustments are journalized and posted to update all the account balances in the general ledger before the preparation of the financial statements. THE RECORDING PHASE • Documentation-This refers to the original documents received to validate the business transactions. Examples of these documents are the collection receipts, sales invoices, Official Receipts, Purchase Invoice, Purchase Order, Debit/Credit Memoranda, Contracts, etc.
  9. 9. Journalizing The process of which transactions are recorded in the general or special journal otherwise known as the book of original entry since transactions are recorded the first time bearing in mind the debit and credit rules. The company may use a special journal where transactions occur frequently such sales journal, purchase journal, cash receipts journal and cash disbursements journal. On the other hand General Journal is a flexible type of document where almost all the following standard set of accounts issued by the Bureau of Internal Revenue to identify all business transactions. • • • • • • • • • • • • • • • Advertising & Promotion Amortization Bad Debts Charitable Contributions Commission Communication, Light & Water Depletion Depreciation Fringe Benefits Fuel & Oil Insurance Interest Janitorial & Messengerial Services Losses Management and Consultancy • • • • • • • • • • • • • • • • • • Miscellaneous Office Supplies Other Services Professional fees Repair & Maintenance – Labor Repair & Maintenance - Materials/supplies Representation & Entertainment Royalties Salaries & Allowances Security Services SSS, GSIS, Medicare, HDMF, and other Contributions Taxes & Licenses Tolling Fees Trainings & Seminars Transportation & Travel Total regular allowable itemized deduction (sum of items 1 – 35) (To item 63C/D/E/F/G/H)
  10. 10. Posting This is the process of classifying the effects of transactions on specific Asset, Liability, Equity, Income & Expense accounts. This ledger is called the Book of final entry wherein the recorded transactions from the journal are transferred. Depending upon the needs of the company, both general ledger and subsidiary ledger may be used. The General Ledger contained all the accounts that are reported on the financial statements, namely assets, liabilities, equity, income and expenses. It may include contra accounts established to record Accumulated Depreciation to show the book value of the property, plant & equipment. Discount deducted from sales and purchase discounts deducted from purchases. Adjunct accounts - are accounts set up to effect addition to related accounts such as freight in to be added to purchases. The subsidiary ledger on the other hand is being used to determine the composition of account balances found in the general ledger. To illustrate assuming that balance of the accounts receivables in the General Ledger totals to P20,500.00. Accounts receivables from the subsidiary ledger enumerates clients with their corresponding account balances. This is called the Control Account of the general ledger.
  11. 11. SUMMARIZING This phase includes the necessary steps for the preparation of the periodic summary reports: • Preparation of a Trial Balance A summary is prepared for all the account balances in the General Ledger to obtain a Trial Balance. This will show the balance of the debit and credit of the statement but it is not a measure of accuracy of the account balances. Should there be erroneous entry in recording in the general ledger it may cause variances or effects in the actual trial balance accounts. For example a debit to accounts receivable was erroneously debited to notes receivables, recording the same transaction twice, failure to record a business transaction, etc., etc. This process requires adjustments that is normally done in the work sheet.
  12. 12. Compilation of Data for Adjustment This is the process of updating balances of certain accounts in the books of the company. Adjustments based on compiled data are recorded before the preparation of the Financial Statements. The necessary adjustments are required so that income and expenses may not be misstated as to the period they are earned and incurred respectively. Examples: • Accrued expenses - expenses incurred but remain unpaid as of the end of the accounting period. • Accrued Income – Income earned but not yet received as of the preparation of the financial statement. It has to be stated to match with the expenses of the current period. Depreciation of property, plant and equipment and other cost allocation. It is a systematic allocation of the depreciable amount of individual item of property, plant and equipment over its useful life. • • Uncollectible accounts – outstanding accounts receivables that may no longer be collected and may be considered as bad debts. • Prepaid Expenses –expenses paid in advance i.e., prepaid insurance premium and rent. • • Unearned Income - income received in advance but not yet earned as of the statement of the financial position date. Examples includes advance collection from rental, subscription, clients miscellaneous deposits, etc., Deferred income or deferred revenue normally used for this account. Inventory - Adjustments are necessary if the company is using the periodic inventory system.
  13. 13. Preparing a Worksheet An accounting worksheet is large table of data which may be prepared by accountants as an optional intermediate step in an accounting cycle. The main purpose of a worksheet is that it reduces the likelyhood of forgeting an adjustment and it reveals arithmatic errors. A worksheet acts as a tool for an accountant and it is not usually intented to be used by third parties. It is an informal document. A typical worksheet consists of a column on the left showing main account titles and 10 more columns of debits and credits showing trial balance, adjustments, adjusted trial balance, incomes statement and balancesheet.

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