FUNDAMENTALS OF ACCOUNTING REVIEWER.pdf

Fundamentals of accounting ❁ SEMESTER 1 PRELIMS | ACCT 018 | PROF. BETANIO...

Fundamentals of accounting ❁ SEMESTER 1 PRELIMS | ACCT 018 | PROF. BETANIO SY. 2024-2025 MAJOR ACCOUNTS EQUATIONS Account - basic storage of information in accounting. Accounting equation = A = L+OE It is a record of the increases and decreases in a Expanded Accounting Equation = A= L+OE+R/I-E specific item of asset, liability, equity, income or expense. CHARTS OF ACCOUNTS ASSETS – economic resources you control that have ACCOUN resulted from past events and can provide you with Assets economic benefits Cash – readily available with no constrain Tangible - assets with a physical form and - most liquid asset Happens that hold value. Accounts Receivable – oral/verbal ung kapag may Intangible - a non-physical asset such as ibabayad (unsecured loans) pinautang / a patent, brand, trademark, or copyright. Notes Receivable – formal written ikaw aggreement (secured loans) tumatanggap (Collectibles) Liabilities - present obligations that have resulted Allowance for Bad Debts – utang na di from past events and can require you to give up masisingil (uncollectable) economic resources when settling them. Prepaid Supplies Advance Current Liabilities / Short term Prepaid Rent payment loans – liabilities within 1 year Prepaid Insurance Non- current Liabilities – more than 1 Land – does not depreciate (bumababa ung year value) Building – physical base/ physical store Owners’ equity / Capital – residual value of asset Accumulated Depreciation - accumulated and liabilities reduction in the value of an asset over time. Gain in 2 parts – investments and capital Equipment – involved in producing products Claim of owners on the total assets of an (equipment, vehicles, planta) entity Inventory – good sheld for sale (finish product that put in the warehouse) Income / Revenue - are increases in economic Liabilities – always has “payable” (babayaran benefits during the period in the form of inflows or palang) in word enhancements of assets or decreases of liabilities Accounts Payable Kayo ung that result in increases in equity, other than those Notes Payable magbabayad relating to investments by the business owners. Interest Payable – this is automatically if you have notes payable EXPENSES - are decreases in economic benefits Salaries Payable during the period in the form of decreases in assets, Utilities Payable – electricities, water, or increases in liabilities, that result in decreases in telephone bills equity, excluding those relating to distributions to the Unearned Income – advance payment ni business owner. customer pero di pa nagbibigay ng service/product or an amount a business profit or loss - difference between income and owes expenses (Expenses – Income/ Revenue) EQUITY Owner’s Capital – residual value Income Statement - a financial statement that lays Owners Withdrawal – money that owner out a company's revenue, expenses, gains, and losses during a set accounting period. withdraw in the business Income Balance Sheet – giving information of overall Service Fees – happens when you have performance of the company service business Sales – happens when you are selling products Interest Income – automatically if there are notes receivable  Fundamentals of accounting ❁ SEMESTER 1 PRELIMS | GE 002 | PROF. CAPELLAN SY. 2024-2025 Gains - does not arise on a normal operating transactions ( if you have laundry shop and you are selling other stuffs like detergent etc.) EXPENSES – nabayaran na Cost of Sales – how much the cost in producing a product Freight out – expenses in delivery Salaries Expense Rent Expenses Magkano nabayaran Utilities Expenses Supplies Expenses Bad Debts – how much uncollectable that left Depreciation Expense – always included of accumulated depreciation (contract account) - How much is the cost of accumulated depreciation Advertising Expense - promotion expense Taxes/Licenses Expenses – start of the business (filling tax returns) Transportation/ Travel Expenses Miscellaneous Expenses – small amounts of expenses ( pamasahe ng employee na inutusan mo ) Loses – lugi, it occur natural disaster and when inventory is damaged T-ACCOUNT Debit – value received Credit – value parted with  Introduction to Accounting Corporation Stockholders/Shareholders Accounting is a process of identifying, recording and Formed by operation of law communicating economic information that is useful in Registered with Securities and Exchange making economic decisions. Commission (SEC) Separate legal entity Essential Elements in Definition of Accounting : Cooperative Members Identifying Equal in decision Accountable events recorded in the books of Registered in Cooperative Development Authorities accounts. Those that affect the assets, liabilities, (CDA) equity, income or expenses of a business Non -accountable events are not recorded in the Types of Business According to Activities books of accounts Recording / Journalizing Merchandising / Trading The accountant recognizes (i.e., records) the Buy and sell “accountable events” he has identified. Service Journalizing – Classifies effects on the accounts – Rely on skill/ expertise posting – ledger Small capital Communicating It doesn’t set standard summarizes the information processed in the Manufacturing accounting system in order to produce meaningful Conversion of raw materials to finish goods reports through financial statements Big capital Production of product Types of Accounting Information Hybrid Quantitative – express in numbers Combinations of 3 activities Qualitative – express in words Financial – currency Branches of Accounting Financial Accounting Functions of Accounting General record keeping maintenance of External Users – investment, credits, suppliers, government, Journals and Ledgers non-managerial employees, lenders Provides informations that is used in other Internal Users – directly involved in managing the business branch of accounting such as owners, BOD General Purpose Financial Statement (annually) History of Accounting External users mostly benefit Archaeologists have found clay tokens as old as Management Accounting 8500 B.C. in Mesopotamia which were usually cones, disks, spheres and pellets. Management reports / Special Purpose Financial Reports Double entry records first came out during 1340 A.D. in Genoa Internal users mostly benefit Cost Accounting Fra Luca Pacioli Analyzing the cost of your products and Franciscan monk and mathematician services father of modern accounting Tax Accounting He published the book “Summa di Arithmetica Preparation of tax returns and providing tax Geometria Proportioni and Proportionista” on advice November 10, 1494 in Venice. Auditing Double entry recording system - system of bookkeeping Expression of auditor’s opinion (Independent where every financial transaction is recorded in at least two Auditors Report) accounts. Checking of FS if reliable and credible Material (big effect in the company) Forms of Business Immaterial (small effect in the company) Sole Proprietorship Accounting Research Betterment improvement Proprietor Research papers and articles Registered with Department of Trade and Industry (DTI) Accounting Education Partnership Build because of skill/ expertise Teaching of accounting Partners Government Accounting Formed by contractual agreement Preparation of budgets and accountability Registered with Security and Exchange reports Comission (SEC) Generals Appropriations Act  keeping in mind the cost-benefit principle. Accounting Concepts and Principles Consistency Concept only one technique use in recording of Accounting Concepts and Principles – served as transactions guidelines for recording of transactions and record keeping in books of accounting Philippine Financial Reporting Standards (PFRSs) Separate Legal Entity Concept are Standards and Interpretations adopted by business is viewed as a separate entity, the FRSC distinct from its owner Only the transactions of the business are - Philippine Financial Reporting Standards recorded in the books of accounts. The (PFRSs); personal transactions of the business - Philippine Accounting Standards (PASs); and owner(s) are not recorded. - Interpretations Historical cost concept / Cost Principle assets are initially recorded at their acquisition Qualitative Characteristics cost (how much you acquire the products) Fundamental Qualitative Characteristics – makes Going Concern Assumption information useful business is assumed to continue to exist for an Relevance – it can affect the decisions of users indefinite period of time. Predictive value – the information can be used Value-ing of assets on its historical cost in making predictions Liquidating Concern Assumption Confirmatory value – the information can be Predicting that business will not continue to used in confirming past predictions operate Materiality – is an ‘entity-specific’ aspect of Matching relevance. costs are initially recognized as assets and charged as expenses only when the related Faithful representation - the information provides a revenue is recognized. true, correct and complete depiction of what it purports If there are expenses there are revenue to represent Accrual Basis of accounting Completeness – all information necessary for income is recorded in the period when it is users to understand the phenomenon being earned rather than when it is collected, while depicted is provided. expense is recorded in the period when it is Neutrality – information is selected or incurred rather than when it is paid. presented without bias. Recording of transactions in the periods when Free from error – there are no errors in the they occur,not when they are affected by cash description and in the process by which the Cash Basis of Accounting information is selected and applied Records when there are cash received or lumabas na cash Enhancing Qualitative Characteristics Prudence Comparability – the information helps users in observance of some degree of caution when identifying similarities and differences exercising judgments under conditions of between different sets of information. uncertainty Verifiability – different users could reach recording of unfavorable one (expenses over consensus as to what the information purports income ) to represent. if the expense is high the tax is low Timeliness – the information is available to Reporting Period / Accounting Period / Time Period users in time to be able to influence their life of the business is divided into series of decisions. reporting periods Understandability – users are expected to made up of 12 months have: reasonable knowledge of business Stable Monetary Unit activities; and willingness to analyze the Using of one currency information diligently Materiality Concept item is considered material if its omission or misstatement could influence economic decisions. Not all material in company is material to others Cost Benefit costs of processing and communicating information should not exceed the benefits to be derived from the information’s use. Full Disclosure Principle Information communicated to users reflect a balance between detail and conciseness,