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Simplified Notes Unit 1 and 2
Simplified Notes Unit 1 and 2
II. PARTNERSHIP
A business form in which two or more persons agree to carry on business and share profits &
losses mutually is known as Partnership.
III. CORPORATION
A company is an association of persons who invests money towards a common stock, for
carrying on a business and shares the profits through dividends.
KINDS OF BUSINESS OPERATIONS
Service-Concern
A business organization that provides services to its consumers. Some of the examples of these is
providing accounting and auditing skills to clients
Merchandising
These is also known as a ‘buy-and sell’ business. The organization bought goods from other
business organization and sells those with mark-up.
Manufacturing
An organization that produce or manufacture goods and sell it for profits. In other words, these
organization shift the raw materials into a new consumable product.
UNDERLYING ASSUMPTIONS OF ACCOUNTING
The underlying assumptions of accounting are the basic notions or fundamental premises on
which the accounting process. These is also termed or knows as postulates.
ACCOUNTING METHOD
CASH BASIS OF ACCOUNTING
The rule in cash basis of accounting is that, income is being recognized if cash has already
received and expenses ire recognized if it was been paid. These type of accounting method is not
acceptable for the purpose accounting reporting.
ACCRUAL BASIS OF ACCOUNTING
The rule in accrual basis of accounting is that, income is being recognized when earned
regardless if cash is received or not. And, expenses are recognized when it is incurred regardless
if it paid or not. These is the acceptable method of accounting.
BOOKKEEPING VERSUS ACCOUNTING
Bookkeeping is the process or an activity of recording the day-to-day transaction of business
organization while accounting is the process of recording, measuring and communicating the
accountable transaction in which helpful in making economic decisions.
IDENTIFYING AND ANALYZING
The step in which we try to identify whether the transaction is accountable or not. A
transaction is considered accountable if any of the elements of accounting is being
affected. The five essential elements of accounting are assets, liabilities, equity (capital),
income and
expenses.
a. Assets
– are controlled resources by the entity. An inflow of future economic benefits is
expected from those resources.
- are recognized if it is probable that future economic benefits will flow in the
entity and can be measured reliably.
b. Liabilities
- are obligations of the entity and it is expected that future outflow of resources
is expected to extinguish such obligation.
- are recognized if is probable that there is future outflow of resources in order
to extinguish obligations and such outflow can be measured reliably.
c. Equity
- is the investment of owners to the organization coming from its own personal
resources.
- it is the difference between total assets and total liabilities.
- the residual value or amount after paying all liabilities of the company
d. Income
- are inflows or other enhancements, or savings in cash flow, of future
economic benefits in the form of increases in assets or reductions in liabilities
of the entity, other than those relating to contributions by owners, that result in
increase in equity during the reporting period.
- a revenue should be recognized in the operating (performance) when it is
probable that the inflow or other enhancement or savings in outflows of future
economic benefit has occurred and can be measured reliably.
e. Expenses
- are consumptions or losses of future economic benefits in the form of
reductions in assets or increase in liabilities, other than those relating to
distributions to owners that result in decrease in equity.
- an expense is recognized when it is probable that consumption or loss of
economic benefits resulting in reduction in assets and or liabilities has
occurred and can be measured reliably.
JOURNALIZING
Journalizing is the process of recording a business transaction in the accounting process.
This activity only applies to the double-entry system.
The double entry system is a fundamental concept underlying in bookkeeping and
accounting. This system requires that every financial transaction has equal and opposite
effect in at least two different accounts. The said system shall satisfy the accounting
equation.
The accounting equation: