Bookkeeping in Dental Clinic PDF

LEARNING OBJECTIVES •At the end of the session, the learners shall be able to: 1. Define the term Accounting 2. Describe the nature of Accounting 3. Explain the functions of accounting 4. Narrate the history / origin of accounting WHAT IS ACCOUNTING? • The committee on Technology of the American I...

LEARNING OBJECTIVES •At the end of the session, the learners shall be able to: 1. Define the term Accounting 2. Describe the nature of Accounting 3. Explain the functions of accounting 4. Narrate the history / origin of accounting WHAT IS ACCOUNTING? • The committee on Technology of the American Institute of Certified Public Accountants (AICPA) defined accounting as “ the art of recording, classifying, summarizing in a significant manner and in terms of money, transactions, and events, which are in part, at least, of financial character and interpreting the results thereof. INCOME & EXPENDITURES Four phases of accounting • 1. Recording – this is technically called BOOKKEEPING. Some people confuse bookkeeping and accounting as one and the same. • However, bookkeeping is only part of accounting – the recording phase. In this phase business transactions are recorded systematically and chronologically in the proper accounting books. There are two kinds of bookkeeping •Single entry bookkeeping and double entry bookkeeping •Single entry bookkeeping does not show the two fold effects of business transactions. It shows only the debit or the credit of each transaction. There are two kinds of bookkeeping •Single entry bookkeeping and double entry bookkeeping •Double entry bookkeeping, however, reflects the twofold effects of business transactions. It shows both credit and debit. 2. CLASSIFYING • In this phase, items are sorted and group. Similar items are classified under the same name. • They maybe classified as ASSET ACCOUNTS, LIABILITY ACCOUNTS, CAPITAL ACCOUNTS, INCOME ACCOUNTS, AND EXPENSE ACCOUNTS. • This classification is very useful to the management. 3. SUMMARIZING •After each accounting period, data recorded are summarized through financial statements. •These reports are submitted to management at the end of each accounting period or as the need arises. 4. INTERPRETING • Due to the technicality of accounting reports, the accountant’s interpretation of the financial statement is needed. • In this case, analysis are submitted together with financial statements. NATURE OF ACCOUNTING: Why we need accounting? • Can you remember what you spent yesterday? Or last week? Or last month? • Everyday transactions cannot all be retained in our memory • To avoid these, transactions and other important event should be recorded for future reference. Why study accounting? •Accounting helps us appreciate and understand the financial reports of any business. •The study of accounting shows us how data from business transaction are gathered. FIELDS OF ACCOUNTING • 1. PUBLIC ACCOUNTING – it is a professional service rendered by a CPA and his employees to the public for a fee. Most common services are: • A. AUDITING – principal service by public accountants. In making an audit, they examine, the test, and check the accuracy of the reports and financial data from which these reports were taken. FIELDS OF ACCOUNTING • B. MANAGEMENT ADVISORY SERVICES – this includes the design, installation and improvements of the firm’s general accounting system and other systems deemed necessary for controlling and distributing manufacturing costs. • In addition, advice on financial planning, budgeting, forecasting, and inventory control are offered. FIELDS OF ACCOUNTING • C. TAX SERVICES – this includes preparation and filing of income tax returns. FIELDS OF ACCOUNTING •2. PRIVATE ACCOUNTING • A. GENERAL ACCOUNTING – this includes recording transactions and preparing financial reports for the use of management, owners, creditors, governmental units, and other interested parties. FIELDS OF ACCOUNTING •2. PRIVATE ACCOUNTING B. COST ACCOUNTING – this has to do with determining and controlling costs in producing a product. FIELDS OF ACCOUNTING •2. PRIVATE ACCOUNTING • C. BUDGETING – this provides management with a plan for future operations. After this plan has been applied, summaries and reports comparing the actual accomplishments with the plan are provided. FIELDS OF ACCOUNTING • 2. PRIVATE ACCOUNTING D. INTERNAL AUDITING – aside from the audit done by a public accountant, some business firms usually maintain a staff of internal who check the records prepared and maintained in each department or branch. These internal auditors see to it that the established accounting procedures are being followed throughout the year. FIELDS OF ACCOUNTING •3. GOVERNMENT ACCOUNTING – government officials, like private business firms, rely on accumulated accounting data. Accountants are responsible for the accumulation of these data. They also check and audit the income., payroll, and tax returns submitted to the government. FIELDS OF ACCOUNTING •4. ACCOUNTING EDUCATION – faculty members in Accounting departments of various colleges and universities are Certified Public Accountants. FIELDS OF ACCOUNTING •5. INTERNATIONAL ACCOUNTING – this field of accounting is concerned with the transactions and special problems of multinational business organizations in their dealings in the international trade. FIELDS OF ACCOUNTING 6. SOCIAL ACCOUNTING – this involves the measurement of social costs and benefits such as the measurement of traffic patterns for the most efficient used of traffic funds. FIELDS OF ACCOUNTING 7. ACCOUNTING RESEARCH – performs either of the two types of research. The positive and the normative research. Positive research – is a branch of academic research in accounting that seeks to explain and predict actual accounting practices while Normative research seeks to device and prescribe accounting standards. BUSINESS ORGANIZATION •AS TO OWNERSHIP: •1. SINGLE OR SOLE PROPRIETORSHIP – owned by one person. Usually owner is also the manager of the business. He usually supplies the capital or borrows funds from banks or other lending institutions. BUSINESS ORGANIZATION •AS TO OWNERSHIP: •2. PARTNERSHIP – with two or more owners. The owners are called partners, agree on capital contributions, management of the firm, distribution of profits and losses, and other matters pertaining to the operation of the firm. BUSINESS ORGANIZATION •AS TO OWNERSHIP: •3. CORPORATION – of no less than five persons. It is organized by operation of law. BUSINESS ORGANIZATION •AS TO OWNERSHIP: •4. COOPERATIVE – governed by the “one-member, one-vote principle. BUSINESS ORGANIZATION •AS TO NATURE OF BUSINESS: •1. SERVICE CONCERN – deals with rendering of services to the customers such as tailoring shops, beauty shops, firm’s of CPA’s, lawyers, doctors, and others. BUSINESS ORGANIZATION •AS TO NATURE OF BUSINESS: •2. TRADING OR MERCHANDIZING – deals with the buying of goods and selling of the same for profit. Examples are sari-sari, department stores, grocery stores, etc. BUSINESS ORGANIZATION • AS TO NATURE OF BUSINESS: • 3. MANUFACTURING CONCERN – involves the purchase of raw materials and converting these into finished products. Examples are textile manufacturing firms, candy manufacturing firms, etc. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) •GAAP are accounting rules, procedures, practices, and standards which served as guide in the preparation and presentation of financial statements. They were developed based on reason, usage, experience, and necessity. ACCOUNTING ASSUMPTIONS • ACCOUNTING ASSUMPTIONS ARE THE FOUNDATION OF ALL ACCOUNTING PRACTICES AND PRINCIPLES: • 1. ACCOUNTING ENTITY • 2. GOING CONCERN • 3. TIME PERIOD • 4. MONETARY UNIT BUSINESS AS AN ACCOUNTING ENTITY (ENTITY PRINCIPLE) • In accounting, the business is always considered separate from its owner or owners. Which means that the personal properties of the owners are different from the assets of the business; the liabilities of the business are different from his personal obligations; and the expenses incurred by the business are also different from his personal expenses. Therefore, the transactions entered into by the owners in behalf of the business should be recorded in the books of the firm. BUSINESS AS AN ACCOUNTING ENTITY (ENTITY PRINCIPLE) • For example, Mr. V. Santos, who owns a store and manages his own business receives a monthly salary of P20,000.00. Since this salary is given to Mr. Santos at the end of each month, it is an expense of the business and should be recorded in the accounting books of the firm. This principle holds true to all types of business, whether sole proprietorship, partnership, or corporation. GOING CONCERN OR CONTINUITY ASSUMPTION •The business is assumed to have a continuous operation from the date it is established. TIME PERIOD •The final result of any business operation may not be obtained unless the business is terminated and liquidated. Users of financial reports, however, need periodic reports of the business. •This is the reason for dividing the life of the business into accounting periods. TIME PERIOD •One accounting period is usually one year. It could be a calendar year, January 1 to December 31, or natural business year which consists of 12 months that ends on the lowest or slack period of the business. MONETARY UNIT •The Peso is the Philippine monetary unit. Thus, assets, liabilities, equity, income, and expenses should be presented in this unit of measure. TRANSACTION • The data recorded in the accounting books are called transactions. • Transactions are the economic activities of the firm. • Activities that involve one enterprise and another are called external transactions • Activities within the enterprise are called internal transactions. TRANSACTION • When there is transaction there is an exchange of values, that is, there is always a value received and a value parted with. • These values received and parted with may either be money, property, or services. • Transactions also affect the accounting elements or values. ACCOUNTING ELEMENTS OR VALUES •ASSETS – are economic resources owned by the business. They include properties and other things of value whose ownership title is in the name of the business. ASSETS CAN BE GROUPED INTO CURRENT/NONCURRENT •CURRENT ASSETS – those can be easily converted to cash within a short period of time., usually within one accounting period or within the regular operation of the business or normal operating cycle of the business is the period between the rendering of service ( in case of service concerns) to the receipt of cash, (in case of merchandising and manufacturing concerns). SERVICE CONCERN CASH • SERVICE PERIOD ACCOUNT RECEIVABLES CASH NOTES RECEIVABLES CASH (upon maturity of the note) MERCHANDISING CONCERN • PURCHASE OR ACQUISITION OF GOODS OR MERCHANDISE Selling of goods CASH Selling of goods A/R CASH Selling of goods N/R CASH MANUFACTURING CONCERN MANUFACTURING Purchase or Acquisition of Raw Materials Finished Goods MERCHANDISING CONCERN • FINISHED GOODS Selling of finished goods CASH Selling of finished goods A/R CASH Selling of finished goods N/R CASH CURRENT ASSETS • CASH OR CASH ON HAND AND IN BANKS - this includes currency of cash items on hand , peso or foreign currency deposits in banks which are unrestricted and immediately available for use in the current operation of the business. (SFAS – Statement of Financial Accounting Standards) • RECEIVABLES – represent amounts collectible from customers arising from sales of merchandise , claims of money lent, or the performance of services. If it is supported by a promissory note, it is presented as note receivable. CURRENT ASSETS • INVENTORIES – constitute items of tangible personal property which are: • Merchandise inventory/finished goods – held for sale in the ordinary course of business • Goods-in-process – in the process of production for such sale • Raw materials – to be currently consumed in the production of goods or services to be available for sale CURRENT ASSETS •PREPAID EXPENSES – those already paid before they are used or consumed. Noncurrent • Those assets which include among others, property, plant, and equipment. PPE are tangible assets used in the operation of the business, have a useful life that exceeds one year, and are not intended for sale. • Examples are: land, building, equipment, furniture, and fixtures. Other noncurrent are long-term investments, intangible assets, and other noncurrent assets which are discussed In detail in higher accounting subjects. Liabilities •These are debts or obligations of the business to a party other than its owner. •Classified as : 1. current or short-term liabilities or 2. fixed or long-term liabilities Current of short-term liabilities • Those which are due for payment within a short period of time or within one year from the balance sheet details. • Example: • 1. accounts payable – indebtedness arising from purchase of goods and services in the ordinary course of business • 2. accrued expenses – already incurred but are not yet paid as of the balance sheet date. Current of short-term liabilities • Those which are due for payment within a short period of time or within one year from the balance sheet details. • Example: • 3. Unearned interest – arises when payments for undelivered goods or services not yet rendered are received. This item is included among current liabilities because there is already obligation to deliver the goods or the services once payment is received. Fixed or long-term liabilities • Those which mature beyond one year from the balance sheet date. • Examples are: • 1. mortgage payable • 2. bonds payable • 3. Note payable due beyond one year CAPITAL • Represents the owner’s equity or investment in the business. Other terms also used synonymously are Owner’s Equity and Proprietorship Other two major accounts are: • 1. income – is a special kind of growth in the firm’s assets • 2. expense – use to up the firm assets. IMPORTANCE OF ACCOUNTING EQUATION •Business transactions affect the assets, liabilities, and proprietorship of the business. These effects can be expressed in the accounting equation: ASSETS = EQUITIES • EQUITIES - is the right, claim, or interest of a person over the assets of the business. • LIABILITY – represents such claim in the assets of the business and proprietorship is the owner’s or owners’ interest in the business. • EQUITIES LIABILITIES PROPRIETORSHIP •And since there are two sources of equities, one from the creditors (liabilities) and one from the owner (proprietorship), then we can express the accounting equation as: ASSETS = LIABILITIES + PROPRIETORSHIP ILLUSTRATION • Transaction 1 • Oct. 1 – Dr. Gil opened a dental clinic and invested P100,000 cash. A = Cash P100,000 = L 0 + P + Gil, Capital P100,000 Analysis: The asset, cash, is increased by P100,000. The proprietorship account is also increased by P100,000 2. Oct. 3 - He purchased dental supplies worth P25,000 on credit from De Mesa Trading A DENTAL SUPPLIES P25,000 = L = ACCOUNT PAYABLE P25,000 + + • ANALYSIS: • The asset, dental supplies, is increased by P25,000. • Accounts payable is increased by P25,000. P 0 3. Oct. 5 - Billed M. Manzano for dental work done on his clinic, P12,000.00 A ACCOUNT RECEIVABLE P12,000 = = L 0 + + P GIL, CAPITAL P12,000 Analysis: The asset, accounts receivable, is increased by P12,000. The proprietorship account is also increased by P12,000 due to the revenue from services rendered. 4. Oct. 7 - He bought a table and chairs for the business worth P6,000.00 A FURNITURE P6,000 CASH (P6,000) = = L 0 + + P 0 • Analysis: • One form of asset, furniture, is increased and another form of asset, cash, is decreased. •A •0 5. Oct. 12 - Issued a promissory note to De Mesa Trading to apply on his account. (Refer to transaction 2). = L = ACCOUNTS PAYABLE (P25,000) NOTES PAYABLE P25,000 + P + 0 Analysis: One form of liability, accounts payable, is decreased and another liability, notes payable, is increased 6. Oct. 15 - Paid the salary of the assistant worth P5,000 cash •A = L •CASH (P5,000) = 0 + P + GIL,CAPITAL (P5,000) •Analysis: •The asset, cash, is decreased by P5,000 and the proprietorship account is also decreased by P5,000 due to salary expense incurred by the business 7. Oct. 20 - Paid the note issued to De Mesa Trading (Transaction 5) •A = L + P •CASH (P25,000) = NOTE PAYABLE (P25,000) + 0 •Analysis: •The asset, cash, is decreased by P25,000 and liability, notes payable, is also decreased by P25,000. 8. Oct. 29 - Dr. Gil withdraw P15, 000 from the business for his personal use. •A = L •CASH (P15,000) = 0 + P + GIL, CAPITAL (P15,000) •Analysis: •The asset, cash, is decreased and the proprietorship is also decreased due to the amount withdrawn by the owner. SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •1. Dr. Abanico opened a dental clinic by investing P300,000 cash: land P200,000; small building for clinic and office P1,800,000 A =L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •2. Purchased dental supplies for cash P55,000.00 A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •3. Purchased dental equipment from BB Trading on credit, P106,000.00 A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •4. Paid for promotion of the clinic, P10,000.00 A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •5. Completed dental work for J. Carlos and collected P12,000.00 therefore. A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •6. Paid P60,000.00 to BB Trading as partial settlement of the account. A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •7. Paid the dental assistant’s salary, P6,500.00 A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •8. Completed additional work for J. Carlos and collected P6,000.00 and a promissory note for the balance of 12,000.00 at the end of the month. A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •9. Paid the balance of the account due to BB Trading. A = L + P SEAT WORK: State the effect of the following transactions on the assets, liabilities, and capital of Dr. Abanico •10. Withdrew P15,000.00 for personal use. A = L + P CHART OF ACCOUNTS - Is a list of account titles used by the business. It serves as a guide for the bookkeeper. Such accounts are divided into sections and each title has a given code number.