This document discusses accounting concepts and principles including:
1. Accrual accounting - recognizing income when earned and expenses when incurred regardless of cash flow.
2. Matching principle - expenses are matched to related revenues in the same period.
3. Use of judgment and estimates - approximations made in financial statements.
It provides examples and explanations of how these concepts are applied in accounting transactions and financial reporting.
Fundamentals of abm2 statement of comprehensive income abm specialized subjectGian Paulo Rabanal, LPT
Fundamentals of ABM2
based on the book Fundamentals of ABM 2 by D. R. C. Salazar, CPA
Learning Competencies Covered:
ABM_FABM12-Ic-d5
ABM_FABM12-Ic-d6
ABM_FABM12-Ic-d7
The document discusses various asset accounts including cash, receivables, inventory, and prepaid expenses. It provides details on what each asset includes, such as cash including cash on hand and in bank accounts, receivables arising from credit sales and loans, inventory for goods held for resale, and prepaid expenses for items paid in advance like insurance. Examples are given for each type of asset to illustrate the accounting concepts.
This document defines and provides examples of major types of accounts used in accounting, including assets, liabilities, capital/equity, income/revenue, and expenses. Assets are divided into current assets (those expected to be converted to cash within one year) and non-current assets. Current assets include cash, accounts receivable, inventory, and prepaid expenses. Non-current assets include long-term tangible and intangible property. Liabilities are also split between current and non-current, with current liabilities expected to be paid within one year. Capital/equity represents the owner's residual claim in the business assets. Income increases equity, while expenses decrease equity.
This document discusses key accounting concepts and principles, including:
- Accrual accounting, where transactions are recognized in the period they occur rather than when payment is made.
- Matching principle, where expenses match related revenues in the same period.
- Cost principle, where assets are recorded at their purchase price.
- Use of estimates and judgment in accounting given some items cannot be precisely measured.
- Prudence or conservatism, where higher estimates are used for expenses and lower estimates for revenues.
- Substance over form, where the economic reality of transactions matters more than legal form.
Accounting can be viewed from both a structural and functional viewpoint. Structurally, accounting is both an art and a science - it applies established principles but also requires judgment. It records the financial history of a business. Functionally, accounting identifies financial transactions, measures resources and obligations, and communicates financial information to users for decision making. Accounting provides essential information to management and fulfills legal reporting requirements.
This document provides information about the Statement of Comprehensive Income (SCI), including its purpose, components, and how to prepare it. It defines the SCI as a financial statement that reports the results of a company's operations for an accounting period. The key elements discussed are revenues, expenses, and net income. It also explains the differences between revenues and gains, and expenses and losses. Specific accounts like sales, cost of goods sold, bad debts expense, and other income/expenses are described.
This document discusses adjusting entries in accounting. It explains that adjusting entries are necessary at the end of an accounting period to update accounts for transactions that have occurred but not yet been recorded. There are two main types of adjusting entries - deferrals and accruals. Deferrals relate to prepaid expenses and unearned revenue, while accruals accumulate revenues and expenses that were incurred in a period but not yet recorded. The document provides examples of prepaid expenses, depreciation, and interest earned to illustrate the adjusting entry process.
Fundamentals of abm2 statement of comprehensive income abm specialized subjectGian Paulo Rabanal, LPT
Fundamentals of ABM2
based on the book Fundamentals of ABM 2 by D. R. C. Salazar, CPA
Learning Competencies Covered:
ABM_FABM12-Ic-d5
ABM_FABM12-Ic-d6
ABM_FABM12-Ic-d7
The document discusses various asset accounts including cash, receivables, inventory, and prepaid expenses. It provides details on what each asset includes, such as cash including cash on hand and in bank accounts, receivables arising from credit sales and loans, inventory for goods held for resale, and prepaid expenses for items paid in advance like insurance. Examples are given for each type of asset to illustrate the accounting concepts.
This document defines and provides examples of major types of accounts used in accounting, including assets, liabilities, capital/equity, income/revenue, and expenses. Assets are divided into current assets (those expected to be converted to cash within one year) and non-current assets. Current assets include cash, accounts receivable, inventory, and prepaid expenses. Non-current assets include long-term tangible and intangible property. Liabilities are also split between current and non-current, with current liabilities expected to be paid within one year. Capital/equity represents the owner's residual claim in the business assets. Income increases equity, while expenses decrease equity.
This document discusses key accounting concepts and principles, including:
- Accrual accounting, where transactions are recognized in the period they occur rather than when payment is made.
- Matching principle, where expenses match related revenues in the same period.
- Cost principle, where assets are recorded at their purchase price.
- Use of estimates and judgment in accounting given some items cannot be precisely measured.
- Prudence or conservatism, where higher estimates are used for expenses and lower estimates for revenues.
- Substance over form, where the economic reality of transactions matters more than legal form.
Accounting can be viewed from both a structural and functional viewpoint. Structurally, accounting is both an art and a science - it applies established principles but also requires judgment. It records the financial history of a business. Functionally, accounting identifies financial transactions, measures resources and obligations, and communicates financial information to users for decision making. Accounting provides essential information to management and fulfills legal reporting requirements.
This document provides information about the Statement of Comprehensive Income (SCI), including its purpose, components, and how to prepare it. It defines the SCI as a financial statement that reports the results of a company's operations for an accounting period. The key elements discussed are revenues, expenses, and net income. It also explains the differences between revenues and gains, and expenses and losses. Specific accounts like sales, cost of goods sold, bad debts expense, and other income/expenses are described.
This document discusses adjusting entries in accounting. It explains that adjusting entries are necessary at the end of an accounting period to update accounts for transactions that have occurred but not yet been recorded. There are two main types of adjusting entries - deferrals and accruals. Deferrals relate to prepaid expenses and unearned revenue, while accruals accumulate revenues and expenses that were incurred in a period but not yet recorded. The document provides examples of prepaid expenses, depreciation, and interest earned to illustrate the adjusting entry process.
This document provides an overview of the statement of financial position (SFP), previously known as the balance sheet. It defines the SFP and its purpose, which is to present information about a company's assets, liabilities, and equity at a point in time. The learning objectives are to identify the elements of the SFP and prepare it using the report and account forms with proper classification of current and non-current items. The key components of the SFP - assets, liabilities, and equity - are also defined. Finally, exercises are provided to help learners practice preparing an SFP in the account form format.
The document defines key accounting concepts like accounts, T-accounts, the five major accounts (assets, liabilities, equity, income, expenses), and chart of accounts. It provides examples of common types of accounts for each major category. Assets include current assets like cash, accounts receivable, and inventory, as well as non-current assets like property, plant, and equipment. Liabilities are divided into current and non-current. Income and expenses affect equity. A chart of accounts lists and organizes all the accounts used by a company in its financial records.
Accounting is the process of documenting a company's financial transactions. Accounting entails summarizing, evaluating, and reporting these transactions to oversight organizations, regulators, and tax collecting agencies.
There are several main branches of accounting:
Financial accounting focuses on external users and communicating information through financial statements. Management accounting provides timely information for internal decision-making. Government accounting deals with recording and reporting government funds. Auditing examines books of accounts to ensure compliance, while tax accounting prepares tax returns. Cost accounting concerns cost collection and control, and helps set product prices. Accounting education and research develop curriculum and standards.
The document discusses accounting journals and ledgers. It explains that journals are used to initially record transactions in chronological order, while ledgers provide a complete record of financial transactions over the life of a company. It also distinguishes between general ledgers, which provide a summary of all financial transactions, and subsidiary ledgers, which store specific transaction types to avoid cluttering the general ledger. Finally, it emphasizes that every transaction in a subsidiary ledger is periodically summarized and posted to a corresponding general ledger account.
The document discusses the five major accounts in accounting:
1) Assets - resources controlled by a business from past transactions that are expected to provide future economic benefits. Examples include cash and inventory.
2) Liabilities - obligations of a business arising from past transactions that are expected to result in an outflow of resources. Examples include accounts payable and loans payable.
3) Equity - the residual interest in the assets of an entity after deducting all its liabilities, known as owner's equity or net assets.
4) Revenue - increases in economic benefits in the form of inflows that result in increases in equity.
5) Expenses - decreases in economic benefits in the form of
Adjusting entries bring account balances up to date at the end of an accounting period by recording changes that have not been entered in the accounting records, such as items that have been deferred or accrued. Adjusting entries are necessary when using accrual basis accounting to adhere to the matching principle. Adjusting entries are internal transactions that do not have a source document and involve at least one income statement and one balance sheet account, but do not affect the cash account.
The document discusses the accounting equation and how business transactions affect the equation. The accounting equation is Assets = Equities, where equities are made up of liabilities and proprietorship. Several examples are provided of different types of business transactions and how each affects the accounting equation by increasing or decreasing assets, liabilities, and proprietorship.
The accounting equation states that assets are equal to liabilities plus owner's equity. It represents the relationship between what a business owns (assets), what it owes (liabilities), and the owner's claim on the assets (owner's equity). Every transaction affects at least two accounts to maintain the balance of the accounting equation. The equation ensures that the sources of a business's assets are identified as either belonging to creditors (liabilities) or the owner (owner's equity).
Bookkeeping is important for a business for several key reasons. It allows a business owner to monitor the progress of their business by seeing what products are selling and where improvements can be made. It also enables accurate preparation of important financial statements like income statements and balance sheets to assess performance and secure financing. Good records identify sources of income, track deductible expenses for tax purposes, and keep track of the basis in property owned. Finally, bookkeeping provides the necessary documentation to properly prepare tax returns and support any items reported should the IRS audit returns.
This document discusses key concepts related to the statement of cash flows (SCF). It begins by outlining the learning objectives for understanding the SCF. It then defines cash and the cash account, explaining the sources and uses of cash. It introduces the SCF and describes its three sections for reporting cash flows from operating, investing, and financing activities. Examples of transactions in each section are provided. The document also demonstrates how to analyze changes in accounts like accounts receivable, inventory, and accounts payable to determine cash amounts. It contrasts the direct and indirect methods for preparing the operating activities section of the SCF.
1. Equipment P 15,000
2. Annual depreciation P 3,000
3. Accumulated depreciation as of Dec 31, 2016 (P 3,000 x 2 years) P 6,000
4. Net book value of Equipment as of Dec 31, 2016 (P 15,000 - P 6,000) P 9,000
Statement of Financial Position
The document outlines the basic rules of debit and credit for five types of accounts: assets, expenses, liabilities, owner's equity, and revenues. Assets and expenses are normally debited to record increases and credited to record decreases. Liabilities and owner's equity are normally credited to record increases and debited to record decreases. Revenues are credited to record increases and debited to record decreases. Examples are provided to illustrate applying debit and credit entries to record typical business transactions for each type of account.
The document defines a chart of accounts as a listing of account names used to record transactions in a company's general ledger. It then outlines the main account categories in a chart of accounts - assets, liabilities, equity, revenue, and expenses. Assets are divided into current assets, meant to be used within a year, and non-current/fixed assets. Liabilities are separated into current, due within a year, and non-current/long-term. Revenue represents money received from sales and services, while expenses are costs to generate that revenue.
The document discusses the Statement of Changes in Equity (SoCE) and provides examples of how to prepare an SoCE for different business organizations. Specifically, it defines an SoCE as a statement that shows the reconciliation of beginning and ending equity account balances and summarizes equity transactions with owners during the year. It then provides examples of preparing an SoCE for a sole proprietorship, partnership, and corporation. For each, it discusses what equity accounts are included and how net income or owner contributions/withdrawals are treated.
The document discusses key accounting principles including the four main financial statements, the basic accounting equation, and different types of accounts. It also covers topics like accrual versus cash accounting, depreciation, financial analysis methods, and financial ratios used to evaluate business performance and health. The document is intended to provide an overview of basic accounting concepts.
Keeping accurate financial records is essential for running a successful small business. Good records allow business owners to monitor the financial performance and profitability of the business, make informed decisions, obtain financing, prepare tax filings, comply with payroll regulations, and determine distributions to owners. Without proper record keeping, business owners risk making poor decisions, paying unnecessary taxes and penalties, and not having the financial information needed to expand or obtain capital. It is recommended that small business owners hire an accountant or bookkeeping service to properly maintain their financial records.
Adjusting entries are journal entries made at the end of an accounting period to allocate revenues and expenses to the appropriate period. This is necessary because under the accrual basis of accounting, revenues are reported in the period they are earned and expenses in the period they are incurred. Some accounts, like prepaid expenses and unearned revenue, require adjustment to adhere to the revenue recognition and matching principles. The document provides examples of accounts that need adjustment, the cash versus accrual accounting methods, and the purpose of adjusting entries in ensuring financial statements reflect the proper period's financial activity.
This document discusses key accounting concepts and principles, including:
- Accrual accounting, which states that transactions should be recorded in the period they occur rather than when payment is received/made.
- The matching principle, which requires expenses to be matched with related revenues in the same period.
- Use of estimates and judgments in accounting when items cannot be exactly measured.
- The prudence concept, which requires that losses are recorded and gains are not overstated.
- Additional concepts like substance over form, going concern assumption, accounting entity, time period assumption, and GAAP.
Accounting concepts and principles provide a framework for financial reporting and ensure users are not misled. Some key concepts are:
- Going concern assumes the business will continue operating indefinitely.
- Entity treats the business and its owners separately.
- Duality means every transaction has two aspects recorded.
- Realization recognizes revenue when goods/services are delivered.
- Matching recognizes revenue and expenses in the periods to which they relate.
This document provides an overview of the statement of financial position (SFP), previously known as the balance sheet. It defines the SFP and its purpose, which is to present information about a company's assets, liabilities, and equity at a point in time. The learning objectives are to identify the elements of the SFP and prepare it using the report and account forms with proper classification of current and non-current items. The key components of the SFP - assets, liabilities, and equity - are also defined. Finally, exercises are provided to help learners practice preparing an SFP in the account form format.
The document defines key accounting concepts like accounts, T-accounts, the five major accounts (assets, liabilities, equity, income, expenses), and chart of accounts. It provides examples of common types of accounts for each major category. Assets include current assets like cash, accounts receivable, and inventory, as well as non-current assets like property, plant, and equipment. Liabilities are divided into current and non-current. Income and expenses affect equity. A chart of accounts lists and organizes all the accounts used by a company in its financial records.
Accounting is the process of documenting a company's financial transactions. Accounting entails summarizing, evaluating, and reporting these transactions to oversight organizations, regulators, and tax collecting agencies.
There are several main branches of accounting:
Financial accounting focuses on external users and communicating information through financial statements. Management accounting provides timely information for internal decision-making. Government accounting deals with recording and reporting government funds. Auditing examines books of accounts to ensure compliance, while tax accounting prepares tax returns. Cost accounting concerns cost collection and control, and helps set product prices. Accounting education and research develop curriculum and standards.
The document discusses accounting journals and ledgers. It explains that journals are used to initially record transactions in chronological order, while ledgers provide a complete record of financial transactions over the life of a company. It also distinguishes between general ledgers, which provide a summary of all financial transactions, and subsidiary ledgers, which store specific transaction types to avoid cluttering the general ledger. Finally, it emphasizes that every transaction in a subsidiary ledger is periodically summarized and posted to a corresponding general ledger account.
The document discusses the five major accounts in accounting:
1) Assets - resources controlled by a business from past transactions that are expected to provide future economic benefits. Examples include cash and inventory.
2) Liabilities - obligations of a business arising from past transactions that are expected to result in an outflow of resources. Examples include accounts payable and loans payable.
3) Equity - the residual interest in the assets of an entity after deducting all its liabilities, known as owner's equity or net assets.
4) Revenue - increases in economic benefits in the form of inflows that result in increases in equity.
5) Expenses - decreases in economic benefits in the form of
Adjusting entries bring account balances up to date at the end of an accounting period by recording changes that have not been entered in the accounting records, such as items that have been deferred or accrued. Adjusting entries are necessary when using accrual basis accounting to adhere to the matching principle. Adjusting entries are internal transactions that do not have a source document and involve at least one income statement and one balance sheet account, but do not affect the cash account.
The document discusses the accounting equation and how business transactions affect the equation. The accounting equation is Assets = Equities, where equities are made up of liabilities and proprietorship. Several examples are provided of different types of business transactions and how each affects the accounting equation by increasing or decreasing assets, liabilities, and proprietorship.
The accounting equation states that assets are equal to liabilities plus owner's equity. It represents the relationship between what a business owns (assets), what it owes (liabilities), and the owner's claim on the assets (owner's equity). Every transaction affects at least two accounts to maintain the balance of the accounting equation. The equation ensures that the sources of a business's assets are identified as either belonging to creditors (liabilities) or the owner (owner's equity).
Bookkeeping is important for a business for several key reasons. It allows a business owner to monitor the progress of their business by seeing what products are selling and where improvements can be made. It also enables accurate preparation of important financial statements like income statements and balance sheets to assess performance and secure financing. Good records identify sources of income, track deductible expenses for tax purposes, and keep track of the basis in property owned. Finally, bookkeeping provides the necessary documentation to properly prepare tax returns and support any items reported should the IRS audit returns.
This document discusses key concepts related to the statement of cash flows (SCF). It begins by outlining the learning objectives for understanding the SCF. It then defines cash and the cash account, explaining the sources and uses of cash. It introduces the SCF and describes its three sections for reporting cash flows from operating, investing, and financing activities. Examples of transactions in each section are provided. The document also demonstrates how to analyze changes in accounts like accounts receivable, inventory, and accounts payable to determine cash amounts. It contrasts the direct and indirect methods for preparing the operating activities section of the SCF.
1. Equipment P 15,000
2. Annual depreciation P 3,000
3. Accumulated depreciation as of Dec 31, 2016 (P 3,000 x 2 years) P 6,000
4. Net book value of Equipment as of Dec 31, 2016 (P 15,000 - P 6,000) P 9,000
Statement of Financial Position
The document outlines the basic rules of debit and credit for five types of accounts: assets, expenses, liabilities, owner's equity, and revenues. Assets and expenses are normally debited to record increases and credited to record decreases. Liabilities and owner's equity are normally credited to record increases and debited to record decreases. Revenues are credited to record increases and debited to record decreases. Examples are provided to illustrate applying debit and credit entries to record typical business transactions for each type of account.
The document defines a chart of accounts as a listing of account names used to record transactions in a company's general ledger. It then outlines the main account categories in a chart of accounts - assets, liabilities, equity, revenue, and expenses. Assets are divided into current assets, meant to be used within a year, and non-current/fixed assets. Liabilities are separated into current, due within a year, and non-current/long-term. Revenue represents money received from sales and services, while expenses are costs to generate that revenue.
The document discusses the Statement of Changes in Equity (SoCE) and provides examples of how to prepare an SoCE for different business organizations. Specifically, it defines an SoCE as a statement that shows the reconciliation of beginning and ending equity account balances and summarizes equity transactions with owners during the year. It then provides examples of preparing an SoCE for a sole proprietorship, partnership, and corporation. For each, it discusses what equity accounts are included and how net income or owner contributions/withdrawals are treated.
The document discusses key accounting principles including the four main financial statements, the basic accounting equation, and different types of accounts. It also covers topics like accrual versus cash accounting, depreciation, financial analysis methods, and financial ratios used to evaluate business performance and health. The document is intended to provide an overview of basic accounting concepts.
Keeping accurate financial records is essential for running a successful small business. Good records allow business owners to monitor the financial performance and profitability of the business, make informed decisions, obtain financing, prepare tax filings, comply with payroll regulations, and determine distributions to owners. Without proper record keeping, business owners risk making poor decisions, paying unnecessary taxes and penalties, and not having the financial information needed to expand or obtain capital. It is recommended that small business owners hire an accountant or bookkeeping service to properly maintain their financial records.
Adjusting entries are journal entries made at the end of an accounting period to allocate revenues and expenses to the appropriate period. This is necessary because under the accrual basis of accounting, revenues are reported in the period they are earned and expenses in the period they are incurred. Some accounts, like prepaid expenses and unearned revenue, require adjustment to adhere to the revenue recognition and matching principles. The document provides examples of accounts that need adjustment, the cash versus accrual accounting methods, and the purpose of adjusting entries in ensuring financial statements reflect the proper period's financial activity.
This document discusses key accounting concepts and principles, including:
- Accrual accounting, which states that transactions should be recorded in the period they occur rather than when payment is received/made.
- The matching principle, which requires expenses to be matched with related revenues in the same period.
- Use of estimates and judgments in accounting when items cannot be exactly measured.
- The prudence concept, which requires that losses are recorded and gains are not overstated.
- Additional concepts like substance over form, going concern assumption, accounting entity, time period assumption, and GAAP.
Accounting concepts and principles provide a framework for financial reporting and ensure users are not misled. Some key concepts are:
- Going concern assumes the business will continue operating indefinitely.
- Entity treats the business and its owners separately.
- Duality means every transaction has two aspects recorded.
- Realization recognizes revenue when goods/services are delivered.
- Matching recognizes revenue and expenses in the periods to which they relate.
GAAP (Generally Accepted Accounting Principles) consists of basic accounting principles, detailed FASB rules and standards, and industry practices. Public companies must follow GAAP in their financial statements. GAAP aims to standardize accounting to allow for consistency and comparability between companies. The 10 basic accounting principles that underlie GAAP include the economic entity assumption, monetary unit assumption, time period assumption, cost principle, full disclosure principle, going concern principle, matching principle, revenue recognition principle, materiality principle, and conservatism.
This document provides an overview of key accounting concepts and conventions used to prepare financial statements. It discusses 10 accounting concepts: [1] entity concept, [2] dual aspect concept, [3] going concern concept, [4] accounting period concept, [5] money measurement concept, [6] cost concept, [7] revenue realization concept, [8] matching concept, [9] verifiable objective evidence concept, and [10] accrual concept. It also briefly explains 7 accounting conventions including entity concept, dual aspect concept, going concern concept, accounting period concept, money measurement concept, cost concept, and revenue realization concept. The document is intended to outline the basic principles and rules of accounting.
1. The accounting process involves recording business transactions in journals and ledgers, preparing a trial balance to check for errors, and using the trial balance to create final accounts including a trading account, profit and loss account, and balance sheet.
2. Generally Accepted Accounting Principles (GAAP) provide uniform rules and guidelines for recording and reporting business transactions to standardize financial statement preparation and presentation.
3. Key accounting concepts include the business entity, money measurement, going concern, accounting period, cost, dual aspect, revenue recognition, matching, full disclosure, consistency, conservatism, materiality, and objectivity concepts.
Accounting involves recording, classifying, and summarizing financial transactions and events in terms of money. It has the objectives of providing information for decision-making, external reporting, and statutory compliance. Some key principles of accounting include the business entity assumption, cost principle, dual aspect concept, and matching principle. Accounting follows conventions like conservatism, consistency, and full disclosure. Financial statements are prepared according to generally accepted accounting principles using either a single-entry or double-entry bookkeeping system.
This document provides an overview of accounting concepts and principles. It defines accounting as the process of recording, classifying, and summarizing financial transactions and interpreting the results. It describes the evolution of accounting from ancient times to the development of the double-entry system. The key accounting concepts discussed include the accounting cycle, branches of accounting, users of accounting information, and accounting concepts and conventions such as the business entity, cost, and matching concepts. It also summarizes the classification of accounts, golden rules of double-entry accounting, and the objectives of accounting.
The document discusses accounting concepts and conventions. It defines 12 key accounting concepts: historical cost, entity, going concern, money measurement, accounting period, dual aspect, accrual, matching, materiality, disclosure, conservatism, and consistency. It provides examples to illustrate each concept. The concepts establish the fundamental assumptions, principles, and rules of accounting used to prepare and present financial statements.
This document provides an overview of 12 generally accepted accounting principles (GAAP): 1) Economic entity assumption 2) Monetary unit assumption 3) Time period concept 4) Cost principle 5) Full disclosure principle 6) Continuing concern concept 7) Consistency principle 8) Revenue recognition convention 9) Objectivity principle 10) Conservatism 11) Matching principle 12) Materiality. Each principle is briefly defined in 1-2 sentences.
This document provides an overview of key accounting concepts and conventions. It discusses 12 concepts: entity, dual aspect, going concern, money measurement, cost, cost attach, accounting period, accrual, periodic matching of costs and revenues, realization, verifiable objective evidence. It also discusses 5 conventions: disclosure, consistency, materiality, conservatism. The concepts and conventions provide the foundational principles for preparing uniform accounting information, such as treating the business as a separate entity and recording transactions based on accrual accounting rather than cash basis.
Accounting involves identifying, measuring, recording, classifying, and communicating the financial transactions and events of a business or organization. It provides essential financial information to evaluate an entity's activities. The key aspects of accounting include recording business transactions and activities, processing and storing financial data, and communicating information through financial reports. The accounting process involves setting up record keeping systems to track assets, liabilities, equity, revenues, and expenses according to accounting principles like the accounting equation.
This document outlines the syllabus for the Financial Accounting course for the 1st year of a B.Com degree. The syllabus covers key accounting concepts like the double-entry system, accounting standards, and preparation of final accounts. It also covers topics like partnership accounts, joint venture accounts, and accounting for non-profit organizations. The syllabus is divided into 5 units that will cover fundamental accounting principles, journals, ledgers, adjustments to accounts, branch accounts, and partnership accounts.
This document outlines the syllabus for the Financial Accounting course for the 1st year of a B.Com degree. The syllabus covers key accounting concepts like the double-entry system, accounting standards, and preparation of final accounts. It also covers topics like partnership accounts, joint venture accounts, and accounting for non-profit organizations. The syllabus is divided into 5 units that will cover fundamental accounting principles, journals and ledgers, adjustments to accounts, various specialized accounting topics, and partnership accounts.
Adjusting entries are needed at the end of each accounting period to ensure revenues and expenses are recorded in the correct period. There are two categories of adjusting entries: prepaids, where cash is paid before an expense is recorded, and accruals, where an expense is recorded before cash is paid. Examples of adjusting entries include recording prepaid rent and insurance expenses as they are used up each period, and accruing expenses like salaries that have been incurred but not yet paid. Adjusting entries ensure the financial statements accurately reflect the assets, liabilities, revenues and expenses for the period.
This document discusses key accounting concepts and conventions. It explains concepts like business entity, money measurement, going concern, accounting period, cost, dual aspect, matching, realization and accrual. It also covers conventions like consistency, full disclosure, materiality and conservatism. The concepts and conventions establish the fundamental assumptions and guidelines for preparing financial statements according to standard accounting principles.
Accounting Concepts and Conventions.pdf.chalotrav5
The document discusses key accounting concepts and conventions. The concepts include business entity, money measurement, going concern, accounting period, cost, dual aspect, matching, realization and accrual. The conventions discussed are consistency, full disclosure, materiality and conservatism. Accounting concepts define the assumptions used to prepare financial statements, while conventions are common practices followed in recording and presenting accounting information. Key concepts include recording transactions in monetary terms, treating the business as separate from its owners, and recognizing revenue when earned rather than when cash is received.
Accounting principles , conventions and conceptsSanjeet Yadav
This document discusses accounting principles, conventions, and concepts. It defines generally accepted accounting principles (GAAP) as rules, guidelines, and principles derived from experience and practice that become accepted. The major accounting conventions discussed are conservatism, disclosure, and consistency. Finally, the document outlines 12 key accounting concepts including the period concept, dual aspect concept, money measurement concept, and accrual concept.
Accounting principles are the rules and guidelines for recording accounting transactions. They include concepts like separate entity, going concern, historical cost, and matching; and conventions like consistency, full disclosure, materiality, and conservatism. Concepts are basic assumptions like recording assets at cost rather than market value. Conventions are customary practices like only reporting significant information consistently over time with full transparency.
FINANCIAL accounting various topics coveredSachinManjhi
The document discusses accounting principles, concepts, and conventions related to financial accounting and measuring business income. It provides definitions for key terms like Generally Accepted Accounting Principles (GAAP), which are the common set of standards that accountants follow when preparing financial statements. The matching principle and revenue recognition principle are also explained, which state that expenses must be matched to the period in which revenue is earned. Finally, the document outlines the objectives and procedures for measuring business income, including identifying the accounting period, revenues and expenses, and using the matching principle to determine net income.
This presentation provides an overview of key accounting concepts, principles, assumptions, and constraints. It defines the monetary unit, economic entity, time period, and going concern assumptions. It also explains the revenue recognition, matching, full disclosure, and cost principles. Finally, it discusses the materiality concept and conservatism constraint in accounting. The presentation is intended to familiarize the audience with generally accepted accounting concepts and principles.
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https://www.oeconsulting.com.sg/training-presentations]
This presentation is a curated compilation of PowerPoint diagrams and templates designed to illustrate 20 different digital transformation frameworks and models. These frameworks are based on recent industry trends and best practices, ensuring that the content remains relevant and up-to-date.
Key highlights include Microsoft's Digital Transformation Framework, which focuses on driving innovation and efficiency, and McKinsey's Ten Guiding Principles, which provide strategic insights for successful digital transformation. Additionally, Forrester's framework emphasizes enhancing customer experiences and modernizing IT infrastructure, while IDC's MaturityScape helps assess and develop organizational digital maturity. MIT's framework explores cutting-edge strategies for achieving digital success.
These materials are perfect for enhancing your business or classroom presentations, offering visual aids to supplement your insights. Please note that while comprehensive, these slides are intended as supplementary resources and may not be complete for standalone instructional purposes.
Frameworks/Models included:
Microsoft’s Digital Transformation Framework
McKinsey’s Ten Guiding Principles of Digital Transformation
Forrester’s Digital Transformation Framework
IDC’s Digital Transformation MaturityScape
MIT’s Digital Transformation Framework
Gartner’s Digital Transformation Framework
Accenture’s Digital Strategy & Enterprise Frameworks
Deloitte’s Digital Industrial Transformation Framework
Capgemini’s Digital Transformation Framework
PwC’s Digital Transformation Framework
Cisco’s Digital Transformation Framework
Cognizant’s Digital Transformation Framework
DXC Technology’s Digital Transformation Framework
The BCG Strategy Palette
McKinsey’s Digital Transformation Framework
Digital Transformation Compass
Four Levels of Digital Maturity
Design Thinking Framework
Business Model Canvas
Customer Journey Map
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1. ,LESSON 3 - ACCOUNTING CONCEPTS AND PRINCIPLES
Objectives :
At the end of this chapter, thestudents should be able to:
1. Explain the varied accounting concepts and principles;
2. Identify generally accepted accounting principles; and
3. Solve exercises on accounting principles as applied in various cases.
INTRODUCTION
Accounting concepts, principles, and assumptions are essential in the practice of accountancy. Financial statements become
more comparable and more useful to users if these concepts , principles, and assumptions are followed by businesses. We can look at these
as a set of rules that govern the accounting process.
Accounting concepts, principles, and assumptions serveas the foundation of accounting in order to avoid misunderstanding and
enhance the understanding and usefullness of thefinancial statements.
In this chapter , various accounting concepts, principles, assumptions will be explained. The topics to be discussedin this
chapter are as follows:
1. Accrual Accounting – The effects of business transactions should be recognized in the period in which they occurred. Income
should be recognized in the period when it is earned regardless of when the payment is received. Expenses should be recognized
in the period when it is incurred regardless of when the expenses are paid.
Suppose Andrew, a budding entrepreneur , established a merchandising business that sells ready -to-wear clothes to
different ukay-ukay stores in the country. The income from the Andrew’s business primarily comes from selling goods to
customers. Sales to customers can be for cash or on credit . If the business was able to sell goods for cash, this will be recorded in
theaccounting records of thecompany. On theother hand , if thegoods were sold on credit , thetransaction should still be recorded
in the accounting records as accounts receivable.
Accrual accounting also results in financial statements that are more accurate and more reliable in terms of assessing the
past performance of thecompany. Since income is recognized when earned and expenses are recognized when incurred, financial
statements for a particular period properly reflect the financial transactions pertaining to that period.
The opposite of accrual accounting is the cash basis of accounting. Under the cash basis of accounting, income is
recognized when cash is received and expenses are recognized when cash is paid. As its name implies, under the cash basis of
accounting, the receipt and/or payment of cash is requisite before transactions are recorded in the accounting records of a company.
2. Matching Principle- the matching principle is closely related to accrual accounting. Under the
matching principle expenses are recognized in the same period as the related revenue. Revenues of a business always
come with expenses. No business can generate revenues without incurring expenses. The matching principle states that related
revenues and expenses should always go together. In other words, if the revenues are recorded in period 1, the related expenses
should also be recorded in period 1.
Example: Rudy , a car salesman who works for Honda, has a monthly salary of P 30,000. Aside from that, he receives
a commission of 5% for all thesales he made for themonth. During themonth of December, he was able to sell 10 cars for a total
amount of P12M. TheP12M is recorded as sales of the company . By selling 10 cars for the month, Rudy is entitled to receive P
630,000 (i.e. P 30,000 monthly salary plus P 600,000 commission). Themonthly salary of Rudy plus his commission are expenses
of the company. By the end of the month, the salary of Rudy and his commission are still not yet paid. Under the matching
principle, theP630,000 will be recorded as an expense in December even though it is not yet paid since it is related to the P12M in
revenues. Without the matching principle, the P630,000 may be recorded as an expense in January when the payment is made.
3. Use of Judgment and estimates
Accounting estimates – are approximations made by accountants or the managements in the preparation of financial
statement. The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine
their reliability.
Warranty expense – is an item in the accounting records that requires the use of estimates. A warranty is a guarantee
made by the seller to the buyer promising to repair or replace the thing sold is necessary within a specified period of time. When
a seller sells goods, there are revenues generated that are recorded in the company’s accounting records. According to matching
principle, all related expenses should also be recorded in the same period the revenue are recognized. Warranty expense is related
to therevenues generated fromthesale of goods. Theproblemis what amount of warranty thecompany recognizein theaccounting
records.
2. 4. Prudence – in accounting sense is also called conservatism. Some financial transactions are sometimes uncertain (like the
warranty expense in the previous example) when they will occur. Nevertheless, we still need to report these transactions if they
pertain to a specific period. In reporting thesetransactions, an accountant needs to apply theconcept of prudence. When applying
the concept of prudence, an accountant makes sure that income and assets are not overstated and liabilities and expenses are not
overstated.
In the simplest words, conservatism means in case of doubt, record any loss and do not record any gain.
Example:
When an accountant is unsurewhether or not to recognize an expense, theconcept of prudencestates that heor sheshould
recognize it in theaccounting records. On theother hand, if an accountant is unsure whether or not to recognizer income, prudence
states that he or she should not recognize it.
5 . Substance over form
Information presented in the financial statements of a company should truthfully and faithfully represent the financial
condition and financial performance of the company. For this to be possible, an accountant should look at the substanceof every
financial transaction rather than its legal form.
Most of the time, the substanceof a transaction does not differ from its legal form. An example is the sale of goods. In
this transaction, there can be no doubt that the substance and legal form of the transaction is a sale.
A transaction where the substancediffers from thelegal form is a lease. In a lease, the lessor allows thelessee to use the
former’s property in exchange of a periodic fee.
6. Going Concern Assumption
States that the operations of a business will continue indefinitely into the future. This means that the operations of a
business will not stop in the near future and it will not be forced to liquidate its assets to pay off its liabilities. The going concern
assumption allows accountants to defer recognition of expenses in the future.
Example:
Company A rents a building for P100,000 per month. On January 1, 2016, the company paid the rent for two years in
the amount of 2,400,000. Under the going concern assumption, the company can recognize the part of the P2,400,000 that is not
yet incurred. In this case, the accountant can record an asset (i.e. prepaid expense) instead of recognizing an expense immediately.
If the entity is not a going concern, there is no point recognizing the payment as an asset since the company will not derive all
benefits from it. A company that is not a going concern will halt operations in the near future, so the payment of P 2,400,000 will
be recognized wholly as an expense instead of recording an asset.
If there is substantialdoubt about the ability of a company to continue as a going concern, thecompany can abandon this
assumption.
The following items are evidences that a company is not a going concern:
1. The results of operations consistently show losses
2. Inability to pay theobligations of the company in time
3. Loan defaults
4. Suppliers do not sell on credit to the company
5. Legal proceedings against the company.
7. Accounting entity
According to the accounting entity assumption, the business (which can be a sole proprietorship, partnership, or
corporation) is separate from the owners, managers, and employees operating the business. Likewise, if a person owns multiple
businesses , each business is distinct from all the others. This means that if a person has three businesses, then each business will
keep its own accounting records. The assets and liabilities of the three businesses should not be mixed with one another.
Personal transactions of an owner should also not affect thefinancial statements of or her businesses. If an owner incurs
expenses for the repair of his or her personal vehicle this should not be reflected in the financial statements of any of his or her
businesses
3. 8. Time period Assumption
The purpose of financial statements is to show the overall results of the operations of a company. The final and
comprehensive report of the results of a company operations cannot be produced until thecompany is at theend of its life (i.e. after
liquidation)
Users of the accounting information of a company need periodic reports to enable them to make economic decisions.
The assumption that theindefinite 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
The generally accepted accounting principles (GAAP) consists of accounting principles, standards, rules, and guidelines
that companies follow to achieve consistency and comparability in their financial statements. Companies that apply the GAAP
help not only external users of accounting information, but also themanagement as well. Since theGAAP enhances theconsistency
and comparability of a company’s financial statements, it will be easier for the external users to examine if the company is doing
well currently or in relation to its past performance. GAAP also helps the management in understanding trends persistent in the
company. Management can also compare past and current performance to check the strong and weak points of a company
operations.
10. International Financial Reporting Standards (IFRS)
Are pronouncements issued by the International Accounting Standards Board (IASB) that intend to enhance the
comparability of the financial statements of all companies around the world. In light of globalization, the IFRS will providea way
for users of accounting information to easily understand the results of operations of companies all around the globe.
In the past, the function of IASB is performed by the International Accounting Standards Committee (IASC). The
pronouncements of theIASC are called International accounting Standards (IAS). Up to this day, theIASB stilladheres to theIAS
in addition to their own pronouncements – the IFRS.
Philippines follows the standards of both the IAS and the IFRS. In contrast, USA follows guidelines provided by the GAAP.
Philippines is fully complaint with the IFRS effective January2005.
The following factors are considered in the decision to adapt the IFRS:
1. Philippineorganizations’ support of international accounting standard.
2. Increasing internalization of businesses which greatly calls for a common language for financial reporting.
3. Improvement of international accounting standards or removal of free choices of accounting treatment.
4. International accounting standards being recognized by the world Bank, Asian Development Bank, and World Trade
Organization.
11. Philippine financial Reporting Standard (PFRS)
ThePhilippineFinancial Reporting Standard Council ( PFRSC) issues standards to be used in thePhilippines in theform
of Philippine Financial Reporting Standards (PFRS).
The PFRS include all of the following:
1. Philippine Financial Reporting Standard (PFRS) which corresponds to International financial Reporting Standards ( IFRS).
2. Philippine Accounting Standards (PAS) which corresponds to International Accounting Standards ( IAS)
3. Interpretations of accounting standards issued by the Philippine Interpretations Committee in accordance with interpretations of
the International Financial Reporting Interpretations Committee ( IFRIC) and the Standing Interpretations Committee.
4. Activities:
Below are accounting concepts and principles. Match each description to the correct accounting concept and principle.
Accrual Accounting
Going Concern Assumption
Matching Principles
Prudence
Use of Judgement and Estimates
Accounting Entity Assumption
Time Period Assumption
_________1. The indefinite life of a company can be divided into periods of equal length for the preparation of financial
reports.
_________2. Income and assets are not overstated and liabilities and expenses are not overstated.
_________3. Income should be recognized in the period when it is earned regardless of when the payment is received.
_________4. The business is separate from the owners, managers, and employees operating the business.
_________5. Expenses are recognized in the same period as the related revenue.
_________6. Approximations made by accountants or the management in the preparation of financial statements.
_________7. It is assumed that the operations of a business will continue indefinitely in to the future.
Below are accounting concepts and principles. Match each case or transaction to the correct accounting concept and
principles.
Accrual Accounting
Accounting Entity Assumption
Time Period Assumption
Use of Judgement and Estimates
Matching Principles
__________1. Joe, a business owner, incurs expenses for the repair of his house. This expense should not be reflected in the
financial statements of his business. It should be considered as a personal expense.
__________2. Joey, a car salesman, rendered service for a car company in December. Joe was able to sell five cars in
December. However, he was paid by the company in January of the next year. Joe’s salary will be recorded as
an expenses of the car company in December.
__________3. A company prepares financial reports every year for the benefits of the stockholders.
__________4. A company records warranty expense even though it is not entirely sure when warranties will be performed.
__________5. Credit sales are recorded by a company as revenue even though no cash is received.