FABM1 Lesson 3: Discussing Accounts, T-Accounts, Accounting Equation and Chart of Accounts PDF

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND LESSON 3: DISCUSSING MANAGEMENT 1 ACCOUNTS, T-ACCOUNT, (FABM1) AC...

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND LESSON 3: DISCUSSING MANAGEMENT 1 ACCOUNTS, T-ACCOUNT, (FABM1) ACCOUNTING EQUATION, RULES OF DEBIT AND Registration Number: QAC/R63/0216 CREDIT AND PREPARING CHART OF ACCOUNTS Department of Education-Division of Quezon  LESSON OBJECTIVES At the end of the session, students are expected to: Discuss the concept of major accounts, T-account and accounting equation Identify and explain each of the items of Assets, Liabilities, Owner’s Equity, Revenue and Expense Analyze the the rules of debit and credit Prepare a chart of account Registration Number: QAC/R63/0216 Department of Education-Division of Quezon  Registration Number: QAC/R63/0216 Department of Education-Division of Quezon  Types of Major Accounts Registration Number: QAC/R63/0216 Properties or economic resources owned and controlled by the entity ASSETS (SFP) as a result of past events and from which economic benefits are expected to flow. They are classified as either current assets or Existing obligation noncurrent assets. of the entity LIABILITIES arising from past events the (SFP) settlement of which is expected to result in an outflow from the resources embodying economic benefits. Department of Education-Division of Quezon  Types of Major Accounts Registration Number: QAC/R63/0216 OWNER’S Simply assets less liabilities; the EQUITY (SFP) residual interest of the owner of the entity. Increase in future economic benefits REVENUE/ related to an increase in an asset or INCOME (SCI) decrease of a liability that can be measured reliably. Decrease in future economic benefits related to a decrease in an EXPENSE asset or an increase of a liability (SCI) that can be measured reliably. Department of Education-Division of Quezon  Current Assets Registration Number: QAC/R63/0216 It is expected to be realized in, or is intended for sale or consumption in the entity’s normal operating cycle. It is held primarily for the purpose of being traded. It is expected to be realized within the twelve (12) months after the SFP date. It is cash equivalent, unless restricted from being changed, or used to settle a liability at least twelve (12) months after the SFP date. Department of Education-Division of Quezon  Current Asset Registration Number: QAC/R63/0216 Accounts Cash on Hand Coins, currencies, checks, postal money orders, express money orders, and cash that is intended to be deposited with the bank. Petty Cash Fund The amount collectible from the customer to whom sales have been made or services have been rendered on account or on credit. Department of Education-Division of Quezon  Current Asset Registration Number: QAC/R63/0216 Accounts Cash in Bank Cash deposited in savings and/or checking accounts. Accounts Receivable Amounts due from customers arising from credit sales or credit services. Department of Education-Division of Quezon  Current Asset Registration Number: QAC/R63/0216 Accounts Notes Receivable Amount due from others supported by a promissory notes. Inventories Assets held for sale in the ordinary course of business or in the process of production for such sale. Department of Education-Division of Quezon  Current Asset Registration Number: QAC/R63/0216 Accounts Unused Supplies/Supplies Laboratoy supplies, office supplies, warehouse supplies, etc., bought but not yet used. Prepaid Expenses Expenses paid for the business in advance; prepaid items that represent future economic benefits until the time they contribute to the earning process. Department of Education-Division of Quezon  Noncurrent Assets Registration Number: QAC/R63/0216 Noncurrent assets are a company's long- term investments for which the full value will not be realized within the accounting year. Examples of noncurrent assets include investments in other companies, intellectual property (e.g. patents), and property, plant and equipment and furniture and fixtures. Department ofDEPARTMENT Education-Division OF EDUCATION of Quezon  Noncurrent Asset Registration Number: QAC/R63/0216 Land Accounts A piece of lot or real estate owned by the enterprise on which a building can be constructed for business purposes. Building An edifice or structure used to accommodate the office, store or factory of a business enterprise in the conduct of its operations. Department of Education-Division of Quezon  Noncurrent Asset Registration Number: QAC/R63/0216 Equipme Accounts nt Includes air-conditioner, filing cabinet, computer, electric fan, trucks ,cars used by the business in its office, store or factory. Specific account titles may be used such as: Office Equipment, Store Equipment, Delivery Equipment, Transportation Equipment, Machinery & Equipment. Department of Education-Division of Quezon  Noncurrent Asset Registration Number: QAC/R63/0216 Furniture & Accounts Fixtures tables, chairs, lamp and lighting Includes fixtures and wall decors. Specific account titles may be used such as Office Furniture & Fixtures and Store Office Furniture & Fixtures. Accumulated Depreciation Cummulative portion of the cost of noncurrent assets except land that has been recognized as expense. Department of Education-Division of Quezon  Current Liabilities Registration Number: QAC/R63/0216 It is expected to be satisfied in the entity’s normal operating cycle. It is due to be settled within twelve (12) months after the SFP date. The entity does not have an unconditional right to deter settlement of the liability for at least twelve (12) months after the SFPdate. Department of Education-Division of Quezon  Current Liability Registration Number: QAC/R63/0216 Accounts Accounts Payable Includes debts arising from purchase of an asset or acquisition of services on account. Notes Payable Includes debts arising from purchase of an asset or acquisition of services on account Department of Education-Division of Quezon  Current Liability Registration Number: Accounts QAC/R63/0216 Short-term Loan Payable A liability to pay the bank or other financing institutions arising from funds borrowed by the business from these institutions which is payable within twelve months. Unearned Revenues Represent obligations of the business arising from advance payments received before goods or services are provided to the customer. Department of Education-Division of Quezon  Current Liability Registration Number: QAC/R63/0216 Accounts Accrued Expense Payable Include amounts owed to others for expenses incurred but not yet paid. Example: salaries payable, utilities payable, taxes payable and interest payable. Department of Education-Division of Quezon  Registration Number: QAC/R63/0216 Noncurrent Liabilities Long-term financial obligations listed on a company’s statement of financial position. These liabilities have obligations that become due beyond twelve months in the future, as opposed to current liabilities which are short-term debts with maturity dates within the following twelve month period. Department of Education-Division of Quezon  Noncurrent Liability Registration Number: QAC/R63/0216 Accounts Long-term Loan Payable A liability to pay the bank or other financing institutions arising from funds borrowed by the business from these institutions which maturity is beyond twelve months. Mortgage Payable Loans payable secured by the entity’s real state property. Department ofDEPARTMENT Education-Division OF EDUCATION of Quezon  Equity Accounts Registration Number: QAC/R63/0216 Owner’s Equity Value of cash and other assets contributed to the business by the owner. This account is increased by the profits not taken out of the business and decreased by the losses of the business. Owner’s Drawings This account is increased by net profit and decreased by net loss. Department of Education-Division of Quezon  Revenue Accounts Registration Number: QAC/R63/0216 Service Includes revenues earned or generated Income/Sale by the business in performing services s for a customer or sales of goods to customers. Sales Return Amount deducted from the account of and the customer due to return of Allowances purchased goods. Discount given to customers for Sales prompt payment of their accounts. Discount Department of Education-Division of Quezon  Cost and Expenses Registration Number: QAC/R63/0216 Accounts Cost of The cost incurred to purchase or to Sales/Cost of produce the products sold to Goods Sold customers during the period. The amount charged for the shipment Freight-out of the sold merchandise. Includes all payments made to Salaries employees or workers for rendering services to the company. Department of Education-Division of Quezon  Cost and Expenses Registration Number: QAC/R63/0216 Accounts An expense related to the use of Utilities Expense electricity, fuel, water and telecommunication facilities. Covers office supplies used by the Supplies business in the conduct of its daily Expense operations. The expired portion of premium paid on insurance coverage such Insurance premiums paid for health or life Expense insurance, motor, vehicles or other properties. Department of Education-Division of Quezon  Cost and Expenses Registration Number: QAC/R63/0216 Accounts Annual portion of the cost of a tangible Depreciation Expense asset such as buildings, machineries and equipment charged as expense for the year. Advertising The amount charged for the cost of Expense advertising and promoting the product or service. The amount of money charged to the Interest Expense borrower for the used of borrowed funds. Department ofDEPARTMENT Education-Division OF EDUCATION of Quezon  Registration Number: Cost and Expenses QAC/R63/0216 Accounts Expense for space, equipment or other Rent Expense asset rentals. The amount of receivables estimated to Uncollectible be doubtful of collection and charged to Account expense during the accounting period. Expense Represenat Amount paid to restaurants, hotels for ion treating customers and others. Expense Department of Education-Division of Quezon  Cost and Expenses Registration Number: QAC/R63/0216 Accounts TransportationExpense for trips and travels; cost of Expense gasoline and oil used for company vehicles. Department of Education-Division of Quezon  The Accounts Registration Number: QAC/R63/0216 Basic storage of information in accounting; it is a record of the increase or decrease in a specific asset, liability, equity, revenue or expense. It may be depicted through a so called “T- account” becuase it resembles the letter “t”. A T-account has three parts: account title - describes the specific item of asset, liability, equity, revenue or expense. Debit Side - the left side of the account. Credit Side - the right side of the account. Department of Education-Division of Quezon  The T-Account Registration Number: QAC/R63/0216 Department of Education-Division of Quezon  Chart of Accounts Registration Number: QAC/R63/0216 A listing of all the accounts and their account numbers in the ledger. It is arranged in the financial statement order: assets, liabilities, owner’s equity, income and expenses. Department of Education-Division of Quezon  Types of Accounts Registration Number: QAC/R63/0216 Identify the appropriate account to be used for the following items: 1.Laptop 6. Office table 2.Cheque 7. 300-square meter commercial lot 3.Bond papers 8. Newly constructed stockroom 4.Printer 9. Office sofa 5.Paper shredder 10. Typrewriter Department of Education-Division of Quezon  Registration Number: Accounting Equation QAC/R63/0216 Left side or debit side The value received Right side or credit side by the business or what the business Source of the value paid for received OWNER’S ASSETS = LIABILITIES + EQUITY Department of Education-Division of Quezon  Accounting Equation Registration Number: QAC/R63/0216 Fill in the amount of the missing element of financial ASSETS position LIABILITIES OWNER’S EQUITY 1. 860,000 460,000 ? 2. 3,400,000 ? 640,000 3. ? 208,000 860,000 4. 726,600 476,240 ? 5. ? 900,000 (200,000) Basic Accounting 18th Edition. Ballada Win Department of Education-Division of Quezon  Rules of Debit and Credit Registration Number: QAC/R63/0216 Left side or debit side Right side or credit side DR CR OWNER’S Increase decreas Increase decreas ASSETS = LIABILITIES + EQUITY e e + Revenues CR - Expenses DR + Investment - Drawings increase in assets = debit increase in liabilities/Owner’s Equity = credit decrease in assets decrease in liabilities/Owner’s Equity = debit =credit Department of Education-Division of Quezon  Registration Number: QAC/R63/0216 Simplifying the Rules of Debit MAJOR and Credit NORMAL INCREASE DECREAS ACCOUNT BALANCE E S Assets (A) Debit (left) Debit Credit Liabilities Credit Credit Debit (L) (right) Owner’s Credit Credit Debit Equity (O) (right) Revenue Credit Credit Debit (R) (right) Department of Education-Division of Quezon  Rules of Debit and Credit Registration Number: ivity 1 - Review of the Rules of Debit and Credit QAC/R63/0216 Direction: For each transaction, tell whether the accounts under Assets, Liabilities, and Owner’s Equity is debited (Dr) or credited (Cr). Transaction A L OE 1. Bought computer, paying cash of P 15,000. 2. Paid the monthly rent expense for P 1,500. 3. Purchased office supplies supplies on account. 4. Made an additional investment of P 5,000 in the business. 5. Charged customers for services provided on account, P 3,000. 6. Received payment from customers on account, P 4,200. 7. Received cash for services rendered today, P 2800. Department of Education-Division of Quezon  Rules of Debit and Credit Registration Number: QAC/R63/0216 Identify whether the following changes in the different accounting values will be debited or credited. 1.Increase in owner’s 7. Decrease in Revenue equity 8. Decrease in Owner’s 2.Increase in Expenses Equity 3.Decrease in Drawings 9. Decrease in Expenses 4.Decrease in Assets 10. Increase in Drawing 5.Increase in Liabilities 11. Decrease in Liabilities 6.Increase in Assets 12. Increase in Revenue Department ofDEPARTMENT Education-Division OF EDUCATION of Quezon  Registration Number: QAC/R63/0216 THANK YOU VERY MUCH! Department of Education-Division of Quezon