Professional Documents
Culture Documents
Accounting 1 Materials
Accounting 1 Materials
Present
and
INFORMATION
Firms
profitability
and
current
financial condition.
Detailed
up-to-date
information
about the business to measure
performance.
potential Firms ability to pay bills/obligations
1
creditors
PRIVATE ACCOUNTING
-it is an accounting job done in
private business enterprises.
General Accounting
Cost Accounting
Budgeting
Internal Auditing
Government Accounting
Accounting Education
International Accounting
Social Accounting
focuses
on
the
development
and
communication of financial information for external users.
2. MANAGEMENT ACCOUNTING is concerned primarily with financial
reporting for internal users. Internal users, especially management, have
control over the accounting system and can specify precisely what
information is needed and how the information is to be reported.
3. GOVERNMENT ACCOUNTING focuses on the accounting development and
communication of financial affairs of governmental agencies.
BUSINESS ORGANIZATIONS can be classified into two (1) according to
ownership and (2) according to the nature of business.
TYPE OF OWNERSHIP STRUCTURES:
1. SINGLE OR SOLE PROPRIETORSHIP is a business that is owned by a
single individual.
2
PARTNERSHIP
Two or more
partner
Partners
share
risks
Partners
may
disagree on how to
run business
CORPORATION
Shareholders
Shareholders have
limited risks
Shareholders may
have
a
little
influence
on
business decision.
TYPE OF BUSINESSES:
1. SERVICE BUSINESS this provides services to customers like professional
services,
transportation,
entertainment,
financial
and
telecommunications.
2. MERCHANDISING BUSINESS this purchase products from other
businesses and sell them to customers.
3. MANUFACTURING BUSINESS this converts materials, labor and overhead
into finished products that are sold to customers.
BASIC ELEMENTS OF ACCOUNTING:
BALANCE SHEET (Financial Condition):
1. ASSETS economic resources of value that is owned by the business.
Examples of asset accounts that are reported on a company's balance
sheet include:
Cash
Petty Cash
Temporary Investments
Accounts Receivable
Inventory
Supplies
Prepaid Insurance
Land
Machinery
Buildings
Equipment
Goodwill
Furniture
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Common Stock
Preferred Stock
Retained Earnings
4
Both owner's equity and stockholders' equity accounts will normally have
credit balances.
Contra owner's equity accounts are a category of owner equity accounts with
debit balances. (A debit balance in an owner's equity account is contraryor
contrato an owner's equity account's usual credit balance.) An example of a
contra owner's equity account is Mary Smith, Drawing (where Mary Smith is
the owner of the sole proprietorship). An example of a contra stockholders'
equity account is Treasury Stock.
INCOME STATEMENT (RESULTS OF OPERATIONS):
1. REVENUES inflows of assets resulting from the sale of goods or
services. Revenues increase owners equity.
2. EXPENSES outflows of assets resulting from cash spent or liability
incurred in order to produce revenue. Expenses decrease owners
equity.
3. NET INCOME (LOSS) the excess (deficit) of revenue over expenses for
an accounting period. Net income increases owners equity while net
loss decreases owners equity.
THE ACCOUNTING PROCESS
Accounting is a measurement and communication process designed to provide
useful and timely financial information.
FOUR PHASES OF ACCOUNTING
Based on the definition, accounting has 4 phases:
1. RECORDING this is technically called bookkeeping.
In this phase,
business transactions are recorded systematically and chronologically in
the proper accounting books. The data that we are record in the
accounting books are called transactions.
Transactions are the
economics activities of the firm.
2. CLASSIFYING in this phase, items are sorted and grouped. Similar items
are classified under the same name. They may be classified as asset
accounts, liability accounts, capital accounts, revenue accounts and
expense accounts.
This classification is useful to the needs of
management.
3. SUMMARIZING after each accounting period, data recorded are
summarized through financial statements. These reports are submitted
to the management at the end of accounting period or as the need arises.
4. INTERPRETING usually, due to the technicality of accounting reports,
the accountant interpretation on the financial statement is needed. In
this case, analysis reports are submitted together with the financial
statements.
BASIC ACCOUNTING EQUATION
5
The accounting equation (or basic accounting equation) offers us a simple way
to understand how these three amounts relate to each other. The accounting
equation for a sole proprietorship is:
The accounting equation must always balance. The amount on the left side of
the equation should always equals on the right side of the equation.
FINANCIAL STATEMENTS are accounting reports that provide the financial
information of the transactions that have been recorded and summarized. The
principal financial statements of a single proprietorship are:
INCOME STATEMENT is a summary of the revenue and expenses for a specific
period of time such as a month or a year.
STATEMENT OF OWNERS EQUITY - is a summary of the changes in owners
equity that have occurred during a specific period of time, such as a month or
a year.
BALANCE SHEET is a list of assets, liabilities and owners equity as of specific
date at the end of the month or year.
STATEMENT OF CASH FLOWS is a summary of cash inflows and cash outflows
for a specific period of time, such as a month or a year.
DOUBLE-ENTRY ACCOUNTING is a record keeping system in which each
business transactions affects at least two accounts.
AN ACCOUNT is the record used to classify and store information about
increases and decreases in an item.
THE T ACCOUNT so called because of its T shape, is used to show the increase
or decrease in an account to analyse the parts of transactions.
Accountants and bookkeepers often use T-accounts as a visual aid for seeing
the effect of the debit and credit on the two (or more) accounts.
We will begin with two T-accounts: Cash and Notes Payable.
The T account has a top, a left side, and a right side. On the top of the T is
the title of the account. The left side of the T account is always used for debit
amounts. The right side of the T account is always used for credit amounts.
TRIAL BALANCE
After all transactions have been entered in the appropriate T accounts, each
account must be totalled to determine the balance. The account balances are
ruled (double lined) to make a distinction and would make an easy reference
when you prepare a trial balance.
RULES OF DEBIT AND CREDIT:
Debits and credits are used to record the increases and decreases en each
account affected by a business transaction. The rules of debit and credit vary
according to whether an account is classified as an asset, liability or an
owners equity.
RULES FOR ASSET ACCOUNTS:
1. An asset account is increased (+) on the debit side.
2. An asset account is decreased (-) on the credit side.
3. The normal balance for an asset account is a debit balance.
RULES FOR LIABILITY AND OWNERS EQUITY ACCOUNTS:
1. The liability and capital accounts are increased (+) on the credit side.
2. The liability and capital accounts are decreased (-) on the debit side.
3. The normal balance for the liability and capital accounts is a credit
balance.
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Ledger
to
Trial
Accounts
to
Balance