Summary

This module covers the fundamentals of accountancy, business, and management 1, and explains major accounts such as assets, liabilities, and equity. It outlines the importance of accounting equations and chart of accounts.

Full Transcript

Fundamentals of Accountancy, Business, and Management 1 By: MRS. KRYSTHEL JOY A. SARMIENTO Learning Objective At the end of the lesson the learner: Discuss the five major accounts; and, Prepare a chart of accounts. Account Is simply a record of all changes to a specific asset, liabili...

Fundamentals of Accountancy, Business, and Management 1 By: MRS. KRYSTHEL JOY A. SARMIENTO Learning Objective At the end of the lesson the learner: Discuss the five major accounts; and, Prepare a chart of accounts. Account Is simply a record of all changes to a specific asset, liability, or equity. Are typically named and numbered in order to categorize and keep track (debit balance) Current Assets Non-current Assets Current Assets All assets which are expected to be realized within the ordinary course of business, or a span of 12 months, whichever is longer. (Florendo, 2016) Realization here only means that these assets are expected to be converted into cash, sold, or disposed after a certain of time. Some account Titles under Current Assets Cash – most familiar of all assets that includes money and other form of money from bank deposits (savings and checking accounts). It also include checks provided by customers in payments of goods and services received. Some account Titles under Current Assets Accounts Receivable – refers to the amount of money customers owe a business for goods or services sold on credit. Short-term Investments - contains the 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. Some account Titles under Current Assets Notes Receivable – it is a promise to receive cash but unlike the latter, it is more formal. The borrower can seek legal remedies to recover what has been lent. Inventories - Aside from the products for sale, there are also inventory that includes raw materials, work-in-process items and supplies. Some account Titles under Current Assets Prepayments – an amount simply paid in advance for goods or services anticipated to be received by the entity in the future. Inventories - Aside from the products for sale, there are also inventory that includes raw materials, work-in-process items and supplies. Some account Titles under Non-Current Assets Fixed Assets – include equipment, vehicles, machinery, and even computers. These assets generally have a useful life of more than one year. Intangible Assets – not all assets are physical. Some assets like goodwill, stock investments, patents, and websites that can’t be touch. (credit balance) Current Liabilities Non-current Liabilities Some account titles under Current Liabilities Accounts Payable – purchase of inventory on credit that usually has 30 days to pay. Accrued Expenses – all other accounts which the company should pay, arising from the normal course of business. Some account titles under Non-Current Liabilities Bonds Payable – These are more formal than notes payable. Often in huge sums and in long term debt contained in an agreement called as bond indenture.. Notes Payable – is a long-term contract to borrow money from a creditor. Some account titles under Non-Current Liabilities Unearned Revenue – arises when a company sells goods or services to a customer who pays the company but doesn’t receive the goods or services. (credit balance) Some account titles under Equity Capital – initial investment made by owners. Withdrawal – have a debit balance and always reduce the equity account. Revenues – money received by a company or due to a company for providing goods and services. Expenses – essentially the costs incurred to produce revenue. Some account titles under Equity (Partnership) Partner’s Capital – initial investment made by partnerships. Partner’s Withdrawal – have a debit balance and always reduce the equity account. Some account titles under Equity (Corporation) Ordinary Share (Common Stock) – record the amount of money investors initially contributed to the corporation. Share Premium or Paid-in Capital – xcess over par-value contributed by the business’ shareholders in a stock issue. Some account titles under Equity (Corporation) Dividends – distributions of company profits to shareholders. Retained Earnings – accumulated earnings of companies that are not distributed to shareholders. Contra Accounts Is an account with a balance opposite the normal accounts in its category. Used to reduce normal accounts on the balance sheet. (credit balance) Income/Revenue Recognized when incurred and when entity already incurs the related expenses. Operating Revenues – generated from a company’s main business activities. Non-operating Revenues – generated by a company outside of its normal operations. Example of Operating Income/Revenue Sales Revenue – exchange of goods for cash that typically made by manufacturers, wholesalers, and retailers. Service Revenue – main source of revenue for business rendered services. Interest Revenue – revenue earned as a result of investment in debt securities or receivables from other entities. (debit balance) Expenses Cost incurred to generate revenues Operating Expenses – all costs that are incurred to generate operating revenues Non-operating Expenses – all costs that are incurred to generate non-operating revenues. Example of Expenses accounts Cost of Goods Sold – what the company incurred to make the inventory sell. Utility Expense – includes electricity and water used by the company Depreciation Expense – due to using of equipment and building Office Supplies Expense – result of purchasing office supplies Example of Expenses accounts Insurance Expense – paying insurances of the company. Salaries Expense – result of recognizing the hard work of the employees Bad Debt Expense – an estimate of how much accounts receivable the company will not be able to collect Interest Expense – interest to be paid for the amount borrowed. Chart of Accounts Listing of all accounts used by the company in its operations. It is the foundation of the financial statements and helps us identify where the money is going and coming from. Steps in the preparation of the basic chart of accounts 1. Create columns (Discretion of the company. They can have two or more columns. They might add additional column for additional information about the account.) 2. Remember the accounting equation ASSETS = LIABILITITES + CAPITAL. The order must be first the assets, then the liabilities, then capital, then the revenue and lastly the expenses. Steps in the preparation of the basic chart of accounts 3. List all the assets, liabilities, equity, revenue and expenses account in the first column. 4. On the second column, choose an account code (The account code may vary depending on the company on whatever account code they will use.) 5. On the third column, write the description for each account on when to use it. (Other chart of accounts does not have third column. They have two columns only for account code and account name.) References: https://www.investopedia.com/articles/08/accounting-history.asp De Guzman, A. A., DBA, CPA. Fundamentals of Accountancy, Business, and Management 1. Lori Mar Publishing

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