Service type - firms offer professional skills, expertise, advice, and other similar products.

– IT DEALS WITH
INDUSTRY

Trading - They make profit by selling the products at prices higher than their purchase costs.

Manufacturing – purchase a raw product and covert it into finished goods

Hotel – service

Restaurant - service

shoe factory – manufacturing manufacturing business buys products with the intention of using them as
materials in making a new product. (The process involves combining raw materials, technology, human
labor and overhead costs to create a manufactured good that can be sold to customers)

textile mill – manufacturing (types of fibers such as yarn or fabric are produced and processed
into usable products)

barber shop - service

furniture store – merchandise (business buys products at wholesale price and sells the same at retail
price. ) (sometimes manufacturing) (. The process involves combining raw materials, technology,
human labor and overhead costs to create a manufactured good that can be sold to customers)

poultry supply store - trading

grocery store - merchandise

news stand - merchandise

automobile repair shop - service

dress shop – merchandise (. The process involves combining raw materials, technology, human labor
and overhead costs to create a manufactured good that can be sold to customers )

department store - merchandise

school - service

medical clinic - service

appliance store – merchandise

Income statements: shows the revenues earned during a period, minus the expenses, to arrive at a
profit or loss. Since
PRINCIPLES

ASSUMPTIONS

Accounting entity

- The business and its owner(s) are two separate existence entity
- Any private and personal incomes and expenses of the owner(s) should not be treated as the
incomes and expenses of the busines
- IF MAY UTANG BAWAL HABULIN ANG PROPERTY SINCE IT IS CONSIDERED AS 2 SEPARATE
INDIVIDUALS

Going concern

- The business will continue in operational existence for the foreseeable future
- Assumes that an entity will remain its existence for an indefinite long time
- Cost and revenues are allocated

Measurements and Units of Measure

- Financial statements only show quantifiable resources with monetary equivalent

- Financial statements must be reported in the currency where the business operates

Periodicity

- A life of business can be divided into measured periods of time, for which financial statements
are prepared
- It can be prepared on an annual, semi-annual, quarterly, monthly basis
- Helps in proper execution in the operation of business
- If there is no report in BIR, there is penalty.

PRINCIPLES

Historical Cost

- Assets should be shown on the balance sheet at the cost of purchase instead of current value
- Book value – running balance of the cost the asset

ACCRUAL – record it whenever you earn it

CASH VS ACCRUAL

Cash – income is recorded when cash is received

Accrual – revenue are recognized when earned

Revenue Recognition

- Accounting rule that revenue should be recorded only when the revenue generation process
has been substantially completed
- Revenue must be recorded when earned and measurable
- Payment should never be the basis

Matching Principle

- Cost of a product must be recorded during period

Disclosure

- Financial statements should be prepared to reflect a ture and fair view of fianancial position
and performance of enterprise
- Material information

CONSTRAINTS

Estimates/Judgements

- You need to base the amount in estimation and right judgment in nearest possible value
- The use of reasonable estimates is an essential part of the preparation of financial statements
and does not undermine their reliability
- Example is uncollectible amounts

Materiality

-  In case of assets that are immaterial to make a difference in the financial statements, the
company should instead record it as an expense
- Materiality depends on the size and nature of the item

Consistency

- Assets and revenues should not be overstated (bawal palakihin)

- The change and its effect on profits should be disclosed in financial statements
- Must be following accounting procedures year after year
- Changes are permitted only when the new method is considered better and can reflect the
true and fair view of financial position company

Conservatism

- Revenues and profits are not anticipated

- Only realized profits with reasonable certatinty are recognized in profit and loss account

On term, on credit – receivable

ACCOUNTING EQUATION

ASSETS (owned by the business) = LIABILITIES (owed by the business) + CAPITAL (investment of the
owner)

- An increase in asset either came from Borrowing or from Investment by the owner
- Point of view of business

Real accounts

- Carry its balance from one acconting period to another

- Examples – Assets, Liabilities, Capita

Nominal

- Account that does not carry its balance from one operating year to another
- Also call temporary acconunts
- Examples: Income & Expenses

T- account – has 2 sides, the debit on the left side and the credit on the right side

Debit - we have to debit whenever:

- Increase asset (pag may pumasok na cash)

- Decrease/paid liabilities (pay out our obligations)
- Decrease capital due to:
 Withdrawal of assets by the owner
 Increase in expenses and losses
 Decrease in income

Credit

- Decrease asset
- Increase liabilities
- Increase capital due to:
 Investment by the owner
 Decrease in expenses and losses
 Increase in income