ACCOUNTING WORDS

ACCRUAL - Income is recognized before payment is received and expenses are

recognized before they are paid. Accruals are adjusting entries that relate to the
accrual basis of accounting
INCURRED - Natanggap or Nakuha or Nagkaroon
ACCRUED - Naipon
OBSOLESCENCE - Pagkaluma
RESIDUAL VALUE / SALVAGE VALUE - It is the value expected in the asset after its useful
life.
LESSOR - The owner of the asset that is leased or rented to another party known as the
lessee.
LEASE - grant a property
LESSEE - A person who rents land or property from a lessor.
COINCIDES - Happen at the same time
ASCERTAIN - make sure, to discover
LIAISON - builds and maintains mutually beneficial relationships between
organizations.
DEPRECIATION - is a decline in the value of an asset due to wear and tear obsolescence
and passage of time.
 FORMS OF BUSINESS ORGANIZATIONS
 Sole Proprietorship
Also referred to as a sole trader or a proprietorship is an unincorporated
business that has just one owner. Sole proprietorship is easy to establish and
dismantle due to a lack of government involvement making them popular with
small business owners and contractors.
 Partnership
By the contract of partnership, two or more persons bind themselves to
contribute money (Starting Capital), property, or industry to a common fund,
with the intention of dividing the profits among themselves.
 Corporation
A corporation is an artificial being, created by the operation of law,
having the right of succession and the powers, attributes, and properties
expressly authorized by law or incidental to its existence. A corporation is
owned by its shareholders and appoint a board of directors to supervise the
whole company or business
 Cooperatives
Cooperatives are people-centered enterprises owned, controlled, and
run by and their members to realize their common economic, social, and
cultural needs and aspirations.

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TYPES OF BUSINESS ACCORDING TO

ACTIVITIES
 Service Business/industry
Is a business that generates income by providing services for a fee.
EXAMPLE : Accounting service, and spa
 Merchandising Business
Is a type of business of buying and selling of goods. A company
purchases goods from a supplier, in which these goods will be sold to
customers.
EXAMPLE: Boutiques, and mall
 Manufacturing Business
A company that purchases raw materials, in which this raw materials will
undergo a process, until it becomes finished goods to be sold to customers.
EXAMPLE: Ice cream and car manufacturing company
INCOME STATEMENT FOR SERVICE BUSINESS
Service Revenue XXX
Less Operating Expenses (XXX)
Net Income (loss) XXX

MERCHANDISING AND MANUFACTURING

Sales Revenue xxx
Less: Cost of Goods Sold (xxx)
Gross profit (Tubo) xxx
Less: Operating Expenses (xxx)
Net Income (Loss) xxx

EXAMPLE: Problem #1 in Service Business

A barber shop earned P60,000.00 during the month of April. Salaries paid to
barbers amounted to 20,000.00, utilities paid for is 6,000.00 and rent of the
space for the barbershop is 5,000.00. How much is the net income of the
barbershop?

SERVICE BUSINESS
Service Revenue 60,000
Less Operating Expenses
Salaries 20,000
Rent 6,000
Utilities 5,000 `- 31,000
Net Income (loss) 29,000

EXAMPLE: Problem #2 in Merchandising Business

A grocery store earned 225,000 from selling their goods during the month of
April. These goods sold were first purchased at an amount 160,000. Salaries
paid is 25,000 utilities paid is 4,000 and rent of selling area is 6,000. How much
is the net income?

MERCHANDISING BUSINESS
Sales Revenue 225,000
Less: Cost of Goods Sold (160,000)
Gross profit 65,000
Less: Operating Expenses (35,000)
 Net Income (Loss) 30,000

EXAMPLE: Problem #3 in Manufacturing Business

A Car Manufacturing Company sold 2 cars totaling of 3,000,000 during the
month of April. Car parts and materials used for these cars amounted to
600,000, labor costs paid amounted to 800,000 and other indirect costs to
manufacture the cars amounted to 100,000. Salaries paid to office employees
amounted to 50,000, utilities paid is 20,000 and rent of selling area, and office
space is 10,000. How much is the net income of the car company?

MANUFACTURING BUSINESS
Sales Revenue 3,000,000
Less: Cost of Goods Sold
Labor 800,000
Materials 600,000
Overhead 100,000 - 1,500,000
Gross profit 1,500,000
Less: Operating Expenses
Salaries 50,000
Utilities 20,000
Rent 10,000 - 80,000
Net Income (Loss) 1,420,000

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ACCOUNTING CONCEPTS AND PRINCIPLES

Generally Accepted Accounting Principles (GAAP) refer to a common
set of accounting principles, standards, and procedures issued by the Financial
Accounting Standards Board (FASB). The GAAP in the Philippines is the
Philippine Financial Reporting Standards (PFRS) and Philippine Accounting
Standards (PAS). This PFRS and PAS serves as our guiding principles on how to
record transactions.

ACCOUNTING CONCEPTS
 Economic Entity or Accounting Entity
 The personal transactions of the owner are separate from that of the
business he/she owns. The transactions of the owner that are personal will never affect
the book of accounts in the business entity.

 Accrual Basis of Accounting

In accounting, we record revenue when it is earned, and expenses when
it happened regardless of when cash is paid or received. For example, you
would record revenue when a project is complete rather than when you get
paid.
 Going Concern Concept
The company will continue operating indefinitely until the foreseeable
future, and that the company closure is not imminent.
 Monetary Unit Concept
Transactions are express in a monetary unit of measure.
 Time Period Concept
Transactions are summarized and reported at a regular time intervals.
Fiscal year (any month starting point + 12 months)
Calendar Year (Jan. 1 - Dec. 31)

ACCOUNTING PRINCIPLES
 Cost Principle
Amounts shown in financial reports are historical costs.
 Full Disclosure Principle
The accountant should include all of the information needed so that the
readers of the financial statements will have informed judgments.
 Matching Principles
Matching revenues with expenses to know the profit of the business.
 Revenue Recognition Principle
Recognize revenue when goods are sold or services are rendered,
regardless of cash receipt. (We record revenue when it happens and not when
the cash is recieved from the customers.)
 Materiality
In accounting, Materiality refers to the impact of an omission or
misstatement of information in a company’s financial statements on the user of
those statements. If it is probable that users of the financial statements would
have altered their actions of the information had not been omitted or
misstated, then the item is considered to be material. (If it changes your
decision, if it affects your decision because of that misstatement or omission
then parang yung impact niya malaki so, the amount is material.) The concept
of materiality is usually used in audit not in accounting.
 Conservatism
If there are two acceptable alternatives in a situation, the accountant
will choose the alternative that will result in lesser income or resource. (Kung
saan mas dehado)
 Objectivity
Recording and reporting process should be performed with
independence, which is free from bias.

QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL

INFORMATION
The qualitative characteristic of useful financial information is divided
into two (2): the Fundamental Characteristics and the Enhancing
Chararteristics. (pagsinabing fundamental characteristics yun na dapat ang
meron siya, while yung enhancing pagagandahin pa lalo). Under the
Fundamental Characteristics are the Relevance and Faithful Representation.
(An item is considered relevant pag may effects sayo, if it has both Predictive
Value and Confirmatory Value. Pag Predictive Value because of the items that
we report we are able to see or predict what can happen in the future. Pag
sinabi namang confirmatory value, you are able to confirm what happened in
the past. Only then, you can say that the information is relevant. And then, we
also have Faiithful Represenation, Financial reports/statements should be
faithfully represented, and to be able to achieve that certain level of
faithfulness it should be complete, neutral, and free from error.

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THE ACCOUNTING EQUATION

The accounting equation is assets = Liabilities + Capital
 Assets
An asset is a resource controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to the entity.
(entity refers to a person or organization possessing separate and distinct legal
rights.) Assets are the things or value owned by the business. i.e. cash, land,
building owned by the company.
 Liabilities
A liability is a present obligation of the entity arising from past events,
the settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits. Present obligations of the company.
Liabilities includes accounts payable.
 Capital / Equity
Equity is the residual interest in the assets of the entity after deducting
all its liabilities.

In accounting, our Resources = Claims, The resources of the company is equal to

both the claims of creditors + the claims of the owner also known as assets =
Liabilities + Capital

Assets = Liabilities + Capital

Liabilities = Assets - Capital
Capital = Assets - Liabilities

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TYPES OF MAJOR ACCOUNTS

Elements of Financial Statements

TWO KINDS OF ASSETS

CURRENT ASSETS (1 year)
Current assets are those assets that are related to their normal operating cycle
or those that are useful one year after the reporting period.

 Cash
 Accounts Receivable (expected amount to receive from the customersafter you
rendered your service)
 Office Supplies
 Merchandise Inventory
 Prepayments covering less than 1 year

NON-CURRENT ASSETS (More than 1 year)

Non-current assets are assets na pangmatagalan

 Long term receivable

 Land
 Building
 Equipment and Machineries
 Furniture and Fixtures
 Investments in equity securities
 Intangible assets (Intangible assets are assets that cannot be touched. i.e (Goodwill
and Intellectual property)
 Investment Properties
 Prepayments extending more than 1 year

TWO KINDS OF ASSETS

CURRENT LIABILITIES (1 year)
 Accounts Payable (Utang)
 Short-term Notes Payable (Notes Payable is when they signed a promissory note of
promise to pay within 1 year)
 Unearned Revenue (the company received the payment of the customers in advance
but you haven’t rendered services or the goods are not yet provided to them)
 Accruals (expenses natin within the period pero next period pa mababayaran that is
an expense pero that is also payable)
 Other short-term liabilities

NON-CURRENT ASSETS (More than 1 year)

 Long term notes payable
 Bonds Payable
 Deferred Tax Liabilities
 Other Long term liabilities

CAPITAL
SOLE PROPRIETORSHIP
Owner’s equity
Owner’s Drawings
PARTNERSHIP CORPORATION
Partner’s Equity (there as Share Capital
many capital accounts based
on the number of partners)
Partner’s Drawings Share Premium
Retained Earnings

REVENUE
SERVICE COMPANIES MERCHANDISING AND
MANUFACTURING
Service Revenue Sales Revenue
EXPENSES
 Salaries
 Rent
 Utilities
 Depreciation (we have a systematic way of allocating the cost of an assets
depending kung pano siya naluluma)
 Repairs and Maintenance
 Gas and Oil
 Representation
 Transportation
 Communication and etc.

CHART OF ACCOUNTS
A chart of accounts is a listing of the names of the accounts that a company has
identified and made available for recording transactions.
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BOOKS OF ACCOUNTS
 GENERAL JOURNAL
A book of account were all transactions are recorded. It is also called the
Book of Original Entry.
 GENERAL LEDGER
A book of account where all transactions are classified based on their
account titles. It summarizes all of the transactions that has happened in an
account. Also called the Book of Final Entry.
 SPECIAL JOURNALS
Are journals designed for transactions that are repetitive and recurring,
in which the use of a general journal would be inefficient.
 SUBSIDIARY LEDGERS
Are ledgers that support the main general ledger account.
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 ANALYSIS OF BUSINESS TRANSACTIONS
Analysis of business transactions is actually the first step of the
accounting cycle in which we analyze all of the source documents of the
business transactions that the entity has entered into in a specific
accounting period.

Business transactions are transactions that has an effect in the resources,

obligation, and capital of the company. It can either be internal or extranal
transactions. Internal business transactions affects only the firm. However,
external transactions are those which involves outsiders.

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RULES OF DEBIT AND CREDIT

A T-account or an account summarizes all of the transactions that has
happened in one account title. The left side of an account is called the debit
side, while the right side of an account is called the credit side.

The elements of financial statements are the Assets, Liabilities, Capital,

Drawing, Revenue, and Expenses.
Assets are being increased on the debit side and decreased on the credit
side.
Liabilities are being increased on the credit side and decreased on the debit
side.
Capital is being increased on the credit side and decreased on the debit
side.
Drawing is being increased on the debit side and decreased on the credit
side.
Revenue is being increased on the credit side and decreased on the debit
side.
Expenses are being increased on the debit side and decreased on the credit
side.

Account increasing in DEBIT: Assets, Drawing, and Expenses

Accounts increasing in CREDIT: Liabilities, Capital, and Revenue
 REMEMBER: In each transaction, there are always at least two (2) accounts
that are being affected.

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JOURNALIZING
Second step of the accounting cycle is the journalizing.

Compound Entry in journalizing can have two (2) debits or three (3) credits.

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POSTING
Third step of the accounting cycle is posting. We summarized the
transactions based on what happened on the account.
Cross-indexing
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PREPARATION OF THE INITIAL AND

UNADJUSTED TRIAL BALANCE
TRIAL BALANCE
Fourth step of the accounting cycle is the unadjusted Trial Balance. Will
check the equality of the debit and credit doon sa posting, journalizing, and
analysis na ginawa.
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ADJUSTING ENTRIES
Fifth step of the accounting cycle in which the documents needed for
the adjustments are being prepared and analyzed.
ADJUSTING ENTRIES
Entries made at the end of the accounting period before closing
procedures to update balances of asset, liability, revenue, and expense
accounts to make their balances ready for the preparation of financial
statements.

KINDS OF ADJUSTING ENTRIES

 Prepaid Expenses (are the expenses that was paid for in advance by a company.
It starts as an assets and that asset expires i.e prepaid rent).
 Deferred Revenue (Tayo yung naka receive ng advance payment from the
customers, may utang tayo na service sa kanila. Pero once we rendered our
services to them it becomes our revenue. It starts as a liability then it becomes
revenue).
 Accrued Revenue (You rendered services to customers pero di ka pa binayaran.)
 Accrued Expenses (expenses were already incurred pero hindi pa bayad)
 Asset Depreciation (Change in monetary value of the capital asset that decreases
over time due to wear, tear, or obsolescence)
 Uncollectible Accounts (Receivable na baka hindi na natin ma receive so
nagiging expense, also called uncollectible account expense or bad debts expense)
 Subsequent Measurements of asset and liability accounts.

ADJUSTING ENTRIES ADHERE TO THE FOLLOWING PRINCIPLES

 Completeness
 Freedom from Error
 Timeliness
 Accrual Basis of accounting (whether or not cash is receive or paid already by the
company basta nangyari na yung transaction kailangan ma record mo yung
revenue and expense)
 Revenue recognition Principle (whatever happens even if the payment is not yet
received from the customers, you have to record the revenue basta you already
rendered your services)
 Matching Principle (we match revenue and expenses in order for us to see if we
have net income or net loss).

STRAIGHT-LINE METHOD OF DEPRECIATION

One method of depreciation is the straight-line method of depreciation.
It gives us the formula:
Asset Cost - Residual Value of the Asset / Life in Years = Annual
Depreciation.

The difference between the Asset Cost and Residual Value is called the
depreciable amount.
The account Accumulated Depreciation is a contra asset account. When
we say contra asset account it is also an asset account but it deducts the
value of the related asset

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 FINANCIAL STATEMENTS
Financial Statements are structured representation of the entity’s financial
position, financial Performance, and cash flows of an entity that is useful to a
wide range of users in making economic decision.
Statement of Financial Position (Balance Sheet)

 Presents the entity’s assets, liabilities, and capital as of the period.

Statement of Comprehensive Income (Income Statement)

 Presents Entity’s revenue and expenses during accounting period that

tells users on whether the entity enjoyed profit or suffered a loss during
the period. List all the revenue and expenses from the ten-column
worksheet.
Statement of Changes in Equity (Capital statement)

 Presents the changes in the equity of the owner due to investments,

additional contribution, net income or loss, and personal withdrawals.
Statement of Cash Flow

 Presents the entity’s cash inflows and outflows on three (3) major
activities: Operating, Investing, and Financing.
Operating Activities include cash activities related to net income.
(i.e. cash generated from rendering services and cash paid for expenses
are operating activities because revenues and expenses are included in
net income.
Investing Activities include cash activities related to noncurrent
assets. Noncurrent assets include long-term investments and property,
plant, and equipment.
Financing Activities comes from conducting financing activities
for the business. In other words, financing cash flow includes obtaining
or repaying capital, be it equity or long-term debt.
Notes and Disclosures
Organization refers to the entity or company that comprises a group of
people working together to achieve a common goal. Management aims to
attain the objectives and goals of the organization which cannot be done
individually. It is the process of reaching organizational goals by working
with and through people and other organizational resources.

Management is both a science and an art. Science deals with knowledge. It

is an art since it deals with knowledge through the use of skills.

The tendency of people to assume, procrastinate, wait for directives, and

rely on others often lead to failure in achieving the goal of an organization.
The fact remains that the success of any organization depends on its people
as it is considered to be the company’s greatest asset.

THE CHARACTERISTICS AND NATURE OF

MANAGEMENT
 Management is goal-oriented
Management is not an end itself. It is a means to achieve certain
goals. Management has no justifications to exist without goals. The
success of management is measured by the extent to which the
established goals are achieved. Management goals is called
organizational goals
 Management is universal
Management is an essential element of every organized activity
irrespective of the size or the type of activity.
 Management is a continuous process
The cycle of management continues to operate as long as there
is an organized action for the achievement of group goals.
 Management is multi-disciplinary
Because management techniques, principles, and theories are
drawn from other disciplines such as engineering, and anthropology.
 Management is an intangible force
 Management cannot be seen but its presence can be felt in the
form of results.
 Management is situational
In order to solve particular problems it must taken into account
 Management is both a science and an art