TLE 10 - QE Past Paper

REVIEWER: Technology and Livelihood Education (TLE) First Quarter┃Users of Accounting Information ┃Generally Accepted Accounting Principles (GAAP)┃Rules of Debit and Credit┃Accounting Equation → Users of Accounting Internal Users Information -...

REVIEWER: Technology and Livelihood Education (TLE) First Quarter┃Users of Accounting Information ┃Generally Accepted Accounting Principles (GAAP)┃Rules of Debit and Credit┃Accounting Equation → Users of Accounting Internal Users Information - those within or inside the business. External Users - Those outside the business that 1. Management have financial interest or claims. The decision maker in the 1. Customers company Whether or not they can 2. Employees buy or get the product or Interested to know if the services of the company company or employer can give them salaries, 2. Creditors benefits,and retirement. Concerned with the ability 3. Owner of the owners to pay the debts and the interest of Puts money in the the business business 4. Stockholders 3. Investors The existing investors in Those who would like to the company. provide additional funds in the business. →Generally Accepted Accounting 4. Government Principles (GAAP) To regulate the business for the purpose of What is GAAP? taxation - Generally Accepted Accounting Principles 5. Academe or Research - Defined as the set of accepted (Education) industry rules, practices and Uses accounting guidelines for financial information for academic accounting purposes and research. - Includes the standards, conventions, and rules 6. Public accountants follow in recording We are the public who and summarizing transactions, want to know the and in the preparation of contribution of the financial statements business to the national economy. We are aware Concepts are Principles are of such business but ideas that need basic rules oftentimes we do not buy deeper that we need the products or services. understanding. to follow. A. FUNDAMENTAL CONCEPTS This principle is important 1. Business Entity Concept because it allows companies to record assets and liabilities at It is a concept regarding the their historical cost, rather than business enterprise as separate at liquidation or fire-sale values. and distinct from its owner and from other enterprises. B. BASIC ACCOUNTING PRINCIPLES ○ Maja, an entrepreneur, always withdraws money from her business to buy 1. Objectivity Principles some luxurious items. All business transactions that will be entered in the accounting 2. Entity concept records must be duly supported In accounting, a business or an by verified evidence. organization and its owners are “Relies on FACTS rather than treated as two separate parties. FEELINGS" The business stands apart from ○ Hazel is selling a designer other organizations as a item bag without any separate economic unit. receipts/invoice. 3. Periodicity Concept 2. Accrual Principle (Income) Providing financial accounting Income should be recognized at information for a specified time the time it is earned such as period. It also means that the when goods are delivered or company shall divide its life into when service has been rendered periods in which to report and NOT when the business financial information. receives the payment a. Fiscal year - 12 month When a client makes an advance period that starts on any payment. month until you finish 12 ○ Ex: Karding received an months. advanced payment from his b. Calendar year - 12 month customer from the dental period that starts on services he offered. January 1 and ends on December 31. 3. Accrual Principle (Expense) Ex: Benjo faced difficulties in Expenses should be recognized his business. He doesn't at the time it is incurred such as know the lapses and gaps in when goods and services are his business each period. actually used and NOT at the 4. Going concern time when the entity pays for those goods and services. Assumption that a business will When a customer fully uses their continue to operate for the prepaid goods and services. foreseeable future and will not be forced to liquidate or significantly curtail its operations. →Debit and Credit Operates day to day or daily Debit - Debere or “To owe” Systematic Credit - credere or “To entrust” Posted to ledger after Transactions are initially Compound entry recorded in a journal Two or more debit or credit The simplest and most flexible entries. form of journal Simple entry One credit or debit Ledger “ Book of Final Entry ” A record containing all accounts + - used by the company and their balance Assets Summarizes transactions and Withdrawal ending balance. Expense T - account - + A simple and skeletal form of ledger Liabilities Double entry bookkeeping Income It gives the two-fold effects of a Captial business transaction. Chart of accounts A list of account titles used by →Accounting Equation the business and serves as a guide to the bookkeeper. A=L+P Trial Balance A list of accounts which proves the equality of the debits and P=A-L credits in the general ledger. Footing L=A- P The adding process in a T-account - Based on the double entry bookkeeping Normal Balance: - All assets should be equal to all liabilities, in the book of accounts 1. Assets - Debit 2. Liabilities - Credit 3. Proprietorship →Journalizing and Posting a. Capital - Credit Journal b. Drawing - Debit c. Personal - Debit “ Book of original Entry “ d. Income - Credit Recording transactions in e. Expense - Debit chronological order