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Part 5 Fundamentals of Accountancy 1
Part 5 Fundamentals of Accountancy 1
JENILUZ MAMAYSON
Business transactions
A business is any organization that operates for
commercial purpose. It engages itself into various events,
and transactions in order to earn profits and continue
operating.
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ELEMENTS OF FINANCIAL STATEMENTS
(1) Balance Sheet/Statement of Financial Position (ASSETS,
LIABILITIES, EQUITY)
(2) Income Statements/Statement of Profit and Loss
(INCOME, EXPENSES)
(3) Statement of Changes in Owner’s Equity
(4) Statement of Cash Flows
(5) Notes to Financial Statements
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CLASSIFICATIONS OF ACCOUNTING ELEMENTS
Accounting Elements are the business values or financial
values that increase or decrease when the business enters
into business transactions.
There are five accounting elements, and these are:
+ ASSETS
+ LIABILITIES
+ EQUITY OR CAPITAL
+ INCOME
+ EXPENSES
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ASSETS
ARE RESOURCES CONTROLLED BY THE ENTITY AS A RESULT OF
PAST EVENTS AND FROM WHICH FUTURE ECONOMIC BENEFITS
ARE EXPECTED TO FLOW TO THE ENTITY
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CLASSIFICATION OF ASSETS
ASSETS ARE CLASSIFIED ONLY INTO TWO, NAMELY CURRENT
ASSETS AND NON-CURRENT ASSETS
b) TRADING SECURITIES
d) INVENTORIES
e) PREPAID EXPENSE
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CLASSIFICATION OF ASSETS
PRESENTATION OF NON-CURRENT ASSETS
+ NON-CURRENTS ASSETS IS A RESIDUAL DEFINITION. SIMPLY STATES THAT “ AN
ENTITY SHALL CLASSIFY ALL OTHER ASSETS NOT CLASSIFIED AS CURRENT AS
NON-CURRENT
+ IN OTHER WORDS, WHAT IS NOT INCLUDED IN THE DEFINITION OF CURRENT
ASSETS IS DEEMED EXCLUDED. ALL OTHERS ARE CLASSIFIED AS NON-CURRENT
ASSETS. ACCORDINGLY, NON-CURRENT ASSETS INCLUDES THE FOLLOWING
a) PROPERTY, PLANT, AND EQUIPMENT
b) LONG-TERM INVESTMENT
c) INTANGIBLE ASSETS
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CLASSIFICATION OF LIABILITIES
LIABILITIES ARE CLASSIFIED ONLY INTO TWO, NAMELY CURRENT
LIABILITIES AND NON-CURRENT LIABILITIES
a) THE ENTITY EXPECTS TO SETTLE THE LIABILITY WITHIN THE ENTITY'S NORMAL OPERATING CYCLE
b) THE ENTITY HOLDS THE LIABILITY PRIMARILY FOR THE PURPOSE OF TRADING.
c) THE LIABILITY IS DUE TO BE SETTLED WITHIN TWELVE MONTHS AFTER THE REPORTING PERIOD.
d) THE ENTITY DOES NOT HAVE AN UNCODITIONAL RIGHT TO DEFER SETTLEMENT OF THE LIABILITY
FOR AT LEAST TWELVE MONTHS AFTER THE REPORTING PERIOD.
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CLASSIFICATION OF LIABILITIES
PRESENTATION OF CURRENT LIABILITIES
+ THE FACE OF THE STATEMENT OF FINANCIAL POSITION SHALL INCLUDE THE
FOLLOWING LINE ITEMS FOR CURRENT LABILITIES:
b) CURRENT PROVISIONS
c) SHORT-TERM BORROWING
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CLASSIFICATION OF LIABILITIES
PRESENTATION OF NON-CURRENT PAYABLES
IT IS ALSO A RESIDUAL DEFINITION THAT PROVIDES THAT ALL LIABILITIES NOT
CLASSIFIED AS CURRENT ARE CLASSIFIED AS NON-CURRENT. EXAMPLES OF
NON-CURRENT LIABILITIES ARE:
a) NON-CURRENT PORTION OF LONG-TERM DEBT
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EQUITY
THE TERM EQUITY IS THE RESIDUAL INTEREST IN THE ASSETS
OF THE ENTITY AFTER DEDUCTING ALL OF ITS LIABILITIES.
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EQUITY
THE TERM USED IN REPORTING THE EQUITY OF AN ENTITY
DEPENDING ON THE FORM OF THE BUSINESS ORGANIZATION
ARE:
a) OWNER'S EQUITY IN A PROPRIETIRSHIP
b) PARTNER'S EQUITY IN A PARTNERSHIP
c) STOCKHOLDER'S EQUITY OR SHAREHOLDER'S EQUITY IN
A CORPORATION
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INCOME
+ It is the amount of money that the company receives
from selling goods or services and interest and
dividends earned from marketable securities.
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EXPENSE
+ It is the amount of money that the company spends
to produce the good or services that it sells.
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“
+ CURRENT – WITHIN 1 YEAR/ 12 MONTHS
+ NON-CURRENT – BEYOND 1 YEAR/ 12
MONTHS
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QUESTIONS?
THANK YOU!
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