Elements of Financial Accounting PDF

CHART OF ACCOUNTS 6. Advances to Employees - Collectible from - A list of account titles that is prepared by the employees for allowing them to make a accountant beforehand to guide cash advance which are deductible...

CHART OF ACCOUNTS 6. Advances to Employees - Collectible from - A list of account titles that is prepared by the employees for allowing them to make a accountant beforehand to guide cash advance which are deductible to bookkeepers describing the exchanges of salaries. values. 7. Inventories - The accounts are arranged according to These are assets: (generally) Assets, Liabilities, Owner`s Equity, Income held for sale in the ordinary course of and Expense and the same arrangement business; we see in the General Ledger. in the process of production for such - Consists of real accounts and nominal sale; accounts. in the form of materials or supplies to be - The chart of accounts includes an entity`s consumed in the production process or in accounts titles and account number. It is the rendering of services. designed based on an entity’s accounting a. Ending Inventory (Manufacturing) system. I. Raw Materials (unused materials at the end of accounting period) ELEMENTS OF FINANCIAL STATEMENTS: II. Goods In Process (unfinished work at 1. ASSETS the end of accounting period) or “work in - “Resources controlled by the enterprise as a process” result of past transactions and events and III. Finished Goods (unsold finished goods from which future economic benefits are at the end of the accounting period) expected to flow to the enterprise”. IV. Manufacturing Supplies - In layman's language, assets denote things 8. Prepaid Expenses - Expenses already of value that are owned and used by the paid but not yet incurred or have not yet expired enterprise in its operations. such as prepaid rent, prepaid insurance, prepaid interest, prepaid advertising, and etc. Characteristics of an Asset: 9. Unused Supplies - Available supplies or a.) Controlled by the enterprise cost of supplies on hand. b.) Result by a past transaction or event 10. Biological Assets - This account refers to c.) Provides future economic benefit living animals and plants that are intended for d.) Reliably measured sale. 11. Input VAT Classifications of Asset: For VAT, the value added tax added to the I. Current Assets - collectible or realizable price you pay for eligible goods or services. within 1 year. For a non-VAT registered taxpayer, the input Kinds of Current Assets: VAT is an expense if it relates to an 1. Cash expense, or part of the cost of the asset Cash on Hand (Change Fund) (e.g. equipment) if the same relates to the Petty Cash Fund (Revolving Fund) purchase of an asset. Cash in Bank 2. Accounts Receivable - collectible from II. Non-current Assets - collectible or realizable customer beyond 1 year. 3. Notes Receivable - collectibles with Kinds of Non-current Assets: promissory note 1. Property, Plant, and Equipment - 4. Allowance for Doubtful Accounts - “Tangible assets which are held by an contra-asset and deductible from accounts enterprise for use in production or supply of receivable. goods and services, for rental to others, or 5. Accrued Income - income earned but not for administrative purposes, and are yet collected.  expected to be used during more than a Trademark - Is a symbol, sign, slogan or period.” name used to mark a product to 2. Land - Refers to the acquisition cost of the distinguish it from other products. land used for its main operation. Franchise - Is an agreement made by 3. Building - Refers to the acquisition / one party called “franchisor” to grant construction cost of the building and its certain rights to another party called improvement on the land owned and used “franchisee” to operate business with for its main operation. originality belongs to the franchisor 4. Equipment - Refers to the acquisition cost Goodwill - An intangible advantage a of the equipment and used for its main business possesses by which it is able to operation. earn more than what is normal. Only 5. Furniture and Fixtures - Chairs, tables, purchased goodwill that has been paid cabinets, among others used in the shall be recognized as an asset with a business. certain limitation. 6. Accumulated Depreciation - Previous and Amortization - Is the systematic current depreciation. allocation of the cost or revalued amount 7. Investment in Associate at Equity - of intangible asset over its legal or Investor and investee relationship accounting estimated life. 8. Long-Term Investment Plant Expansion Fund - Used to pay for 2. LIABILITIES the eventual purchase, expansion, or - “Present obligation of an enterprise arising construction of a manufacturing plant or from past transactions or events, the facility. settlement of which is expected to result in Investment in Bonds - A fixed income an outflow from the enterprise of resources instrument that represents a loan made embodying economic benefits”. by an investor to a borrower (typically - In layman's language, liabilities denote corporate or governmental). financial obligations of the business to its Cash Surrender Value - This term is creditors. It represents the claim of the normally used with a life insurance or life creditors over the assets of the enterprise. annuity contract. The amount which the insurance firm will pay upon the Characteristic of a Liability: surrender and cancellation for the life a.) Present Obligation of a particular enterprise. insurance policy. (life insurance). b.) Arises from past transactions or events. 9. Intangible Assets c.) This means liability is not recognized until it is Patent - An exclusive right granted by not incurred. the government to an investor enabling d.) Outflow of resources embodying economic him to control the manufacturer, sell and benefits. use of his inventions for a specified period of time. Classifications of Liability: Copyright - An exclusive right granted I. Current Liabilities - payable within 1 year by the government to the author, Are financial obligations of the enterprise which are: composer or artist enabling them to a.) Expected to be settled in the normal course of publish, sell or otherwise benefit from his the operating cycle; works. The term protection for copyright b.) Due to be settled within one year from the is the life of the author and 50 years after balance sheet date. his death in accordance with R.A no. 8293 is known as “ intellectual property Kinds of Current Liabilities: code of the Philippines”. 1. Accounts Payable - Refers to obligations/indebtedness to suppliers for  purchase of goods and services intended - In layman's language, Owner`s Equity or for sale. (Plain accounts payable) Capital is the amount of money or value of 2. Notes Payable - written agreements property put by the proprietor into the (promissory notes) in which one party business to start with the operation which is agrees to pay the other party a certain referred to as “ initial Investment” or “Initial amount of cash. Alternatively put, a Capital”. Ex. JESIE B. DUA, CAPITAL Note payable is a loan between two parties. The following information is contained in a 1. Initial Investment - Initial contribution of the note payable: owners for the business. Is the amount a.) The amount to be paid. required to start a business or a project b.) The interest rate. 2. Withdrawal - Drawing or withdrawal from 3. Accrued Expenses - Expenses incurred the business by the owners for personal but not yet paid ex. Rent, salaries, interest, use. taxes payable, and etc. 3. Income and Expense Summary - a 4. Pre-collected or unearned income - temporary account created at the end of the Already collected income but not yet earned accounting period where INCOME and (to be rendered for services). EXPENSE are temporarily closed to this 5. Output VAT - The value added tax that you account. calculate and charge on your own sales of a.) Shareholder’s Equity goods and services if you are registered for Issued Share Capital - issued share and VAT. fully paid 6. Cash Dividend Payable - Dividends that a Subscribed Share Capital- issued share and company's board of directors has declared not fully paid. to be payable to its shareholders. b.) Reserves Share premium II. Non-current Liabilities - payable beyond 1 Revaluation surplus year. Retained earnings appropriated Kinds of Non-current Liabilities: Plant for expansion 1. Notes Payable - (Long-term) written Treasury shares agreements (promissory notes) in which Contingencies one party agrees to pay the other party a c.) Accumulated profit / loss retained earnings / certain amount of cash. Alternatively put, a free / unrestricted earnings note payable is a loan between two parties. The following information is contained in a 4. REVENUES note payable: - Gross inflow of economic benefits during a.) The amount to be paid. the period arising in the course of ordinary b.) The interest rate. activities of an enterprise when those 2. Mortgage Payable - (Prenda) a financial inflows result in increase in equity, other obligation of the enterprise which requires a than those relating to contributions from fixed or tangible property to be pledged as owners. Gains including income from collateral to ensure payment. activities and events that do not form part of 3. Deferred Income - (Unearned revenue) the ordinary course of the business advance payment a company receives for operation. Ex. Gain on sale of property and products or services that are to be delivered equipment, etc. or performed in the future. 1. Sales - Income from ordinary course of 3. OWNER’S EQUITY / CAPITAL business. Like selling products or items. - is the residual interest in the assets of the 2. Service Income - Income from rendering enterprise after deducting all its liabilities. services. Ex. Professional income, rental  income, interest income, miscellaneous 6. Salaries Expense - Is the fixed pay earned income. by employees. The expense represents the cost of non-hourly labor for a business. 5. EXPENSES 7. Uncollectible Accounts (Bad Debts) - Is - Gross outflow of economic benefits during the fixed pay earned by employees. The the period arising in the course of ordinary expense represents the cost of non-hourly activities of an enterprise when those labor for a business. outflow result in Decrease in equity, other 8. Depreciation Expense - Portion of the cost than those relating to distribution to owners. of property and equipment or fixed assets Losses represent decreases in assets or that has expired based on rational and increases in liabilities arising from activities systematic allocation procedure. or events that are outside the ordinary Straight line method. Current depreciation. course of business operation. 9. Amortization Expense - Expired or expense portion of an intangible asset Ex. Loss from sale of property and equipment, loss 10. Taxes and Licenses - A fee paid to the due to theft or pilferage(steal in small amounts), government for the privilege of being and etc. licensed to do something (such as selling liquor or practicing medicine) license fee, PROFIT (LOSS) - the excess of revenues over licensing fee. expenses is called “PROFIT”, if expenses exceed 11. Insurance Expense - Is the amount that a the revenues, it is called a LOSS”. company pays to get an insurance contract and any additional premium payments. 1. Cost of Sales / Cost of Goods sold - Cost 12. Utilities Expense - The cost incurred by to produce and sell the goods. using utilities such as electricity, water, 2. Interest Expense - It represents interest waste disposal, heating, and sewage. payable on any borrowings – bonds, loans, 13. Miscellaneous Expense - Refers to small, convertible debt or lines of credit. It is infrequent transaction amounts are essentially calculated as the interest rate recorded. The account miscellaneous times the outstanding principal amount of expenses should be used as the last resort. the debt. For example, the small bank fees would be 3. Rent Expense - Is the cost incurred by a better recorded in a separate account such business to utilize a property or location for as bank service charges instead of an office, retail space, factory, or storage recording them in miscellaneous expenses. space. 4. Repairs and Maintenance - The cost incurred to ensure that an asset continues to operate. For example, replacing the oil filter in a truck is considered a maintenance cost, while replacing the roof of a building extends the life of the building, and so its cost will be capitalized. 5. Stationary and Office Supplies Expenses - The amount of administrative supplies charged to expense in a reporting period.