Accounting is an art of recording, classifying and summarizing in a significant

manner and in terms of money, transactions, and events which are, in part at least,
of a financial character, and interpreting the results thereof.

ACCOUNTANCY ACT OF 2004 – RA No. 9298

Practice of Accounting
a. Public Practice
b. Commerce and Industry
c. Education/Academe
d. Government

 The basic summary device of accounting is the account.

 An accounting event is an economic occurrence that cause changes in an
enterprise’s assets, liabilities, and/or equity.
 A transaction is a particular kind of event that involves the transfer of
something of value between two entities.

ACCOUNTING EQUATION:
ASSETS = LIABILITIES + OWNER’S EQUITY
ASSETS- LIABILITIES = EQUITY

ELEMENTS OF FINANCIAL STATEMENTS

ASSETS – resource controlled by the entities as a result of past events and
from which future economic benefits are expected to flow to the entity.

Current – within 12 months / 1 year

a. Cash – on hand, in bank, cash equivalents
b. Accounts receivable – on account transactions
c. Trading securities –
d. Inventories –
e. Prepaid expenses -

Noncurrent - >12months
a. PPE
b. Land

LIABILITES – present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the enterprise of
resources embodying economic benefits.

Current – Accounts Payable

Non current – Bonds payable, Mortgage payable

EQUITY – residual interest in the assets of the enterprise after deducting all
its liabilities.

INCOME - increase in economic benefits during the accounting period in the

form of inflows or enhancements of assets or decreases of liabilities that
result in increases in equity, other than those relating to contributions from
equity participants.

- Revenue
- Gains
- Sales
- Fees

EXPENSE- decrease in economic benefits during the accounting period in the

form of outflows or depletions of assets or incurrences of liabilities that result
in decreases in equity, other than those relating to distributions to equity
participants.

- Cost of sales
- General and admin

Asset - DR
Expense - DR
Withdrawals - DR

Liabilities- CR
Revenue - CR
Capital - CR
FINANCIAL STATEMENTS
 Balance Sheet
 Income Statement
 Statement of Changes in Owner’s Equity
 Statement of Cash Flows

EXAMPLE:
Leopoldo Medina decided to establish a sole proprietorship business and
named it as Medina Graphics Design. Medina is a graphic designer who has
extensive experience in drawing, layout, typography, lettering, diagramming
and photography. During March 2020, the first month of operations, various
financial transactions took place.

March 1 Medina started his new business by depositing P350,000 in a bank

account in the name of Medina Graphics Design at BPI Población Branch.

Cash in bank 350,000

Medina, Capital 350,000

March 5 Computer equipment costing P145,000 is acquired on cash basis.

Computer equipment 145,000

Cash 145,000

March 9 Computer supplies in the amount of P25,000 are purchased on

account.

Computer supplies 25,000

Accounts Payable 25,000

March 11 Medina Graphics collected P88,000 in cash for designing

interactive websites for two exporters based inside the Davao Ecozone.

Cash 88,00
Service Income 88,000

March 16 Medina paid P18,000 to Bills Express, a one-stop bills payment

service company. For the semi-monthly utilities.

Utilities Expenses 18,000

Cash 18,000
March 19 Medina made a partial payment of P17,000 for the March 9
purchase on account.

Accounts Payable 17,000

Cash 17,000

March 21 Medina withdrew P20,000 from the business for his personal use.

Medina, Withdrawals 20,000

Cash 20,000

March 31 Medina paid his assistant designer salaries of P15,000 for the
month.

Salaries Expense 15,000

Cash 15,000