Module 1 ACCTG 015

1.1 Introduction to Accounting: ACCTG 015-ACTCY11S1 - Financia... https://tip.instructure.com/courses/35207/pages/1-dot-1-introduction-t...
1.1 Introduction to Accounting
You may not be aware of it, but accounting is part of your daily life. From the time that you
were born, and up to now as an ordinary student, you are already experiencing accounting.
Take for example, when you try to balance your daily expenditures against the limited
allowance that you receive from your parents, that is what we call budgeting. And budgeting is
part of accounting.
Accounting has various definitions given by different accounting bodies, but simply
speaking “Accounting is also called the “language of business”. Every business needs an
accountant to do the accounting for them in order to summarize all their transactions and to
come up with financial reports that will be useful to them in making future economic decisions.
As an accounting student, this course is relevant to you in order to fulfill your dream of
becoming a CPA someday. To be employed in a big company or even becoming your own boss
in your own business. And, that is what is important for now.
So, I welcome you to the world of Accounting!
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1.1.1 The History and Definition of Accounting: ACCTG 015-ACT... https://tip.instructure.com/courses/35207/pages/1-dot-1-1-the-history-...
1.1.1 The History and Definition of

Accounting
Have you ever wondered how accounting came about? Is accounting this hard from
the beginning? Why is it that accounting always starts with a problem expressed in words, then
you have to interpret it in terms of numbers? What is the origin of Debit and Credit?
Well, everything in this world has a story to tell, and that will be our topic for today...
The History of Accounting
Accounting is as old as civilization. The earliest bookkeeping records were used by

the Egyptians in building their pyramids. This is to keep track of the number of slaves, the
number of days work, and the materials used in building these pyramids. It is also used to
register people living in towns or cities for purposes of collecting taxes which is similar to
the “ census” of today. It is also used in various trading ports to record their cargoes loaded
and unloaded.
If Matthew does not have records, how can he collect taxes from the people?
However, it is very evident that the modern-day accounting has an Italian influence.
In Genoa, Italy, The oldest double-entry books were written in 1340 entitled"Massari
(Treasury Officials) Ledgers of Commune de Genoa". These books were known as a
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"perfect double-entry form". Under the present system, this is the simplified T-Account.
In Florence, Italy, 14th century, Amantino Manucci, invented the double-entry records
wherein debits were written over credits or the Florentine Approach. This method is
now shown in the Journal Entries.
In Venice, Italy, Merchants kept their accounts in a bilateral form (Alla Veneziana), with
debits recorded on the left side of the page across from credits. This is the“Venetian
Approach” now our ledger postings. This method was introduced in the extant books of
Andrea Bargarigo.
Florentine Approach Venetian Approach
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The "Summa de Aritmetica"
In this book Fr. Pacioli introduced three(3) important book of records, namely:
Memorandum book- contains all the information about the transaction (narrative)
Journal Book - for the original entry
ledger book - for the final entry (posting) , the center of the accounting system
Through the Venetian Method, double-entry accounting became known to the world.
The present Ledger posting is the modern adoption of the Venetian method. For this
reason, Fr. Luca Pacioli is known as the "Father of Modern Accounting" even if he was
neither an accountant or a merchant.
Actually, The Debit and Credit or the “DR. and CR.” used in double-entry bookkeeping
are from the Latin words “ Debere and Credere".
Debit or Debere (DR.) means ”to receive.”

A credit or Credere (CR.) means “ to part with”
The double-entry bookkeeping system emphasizes the principle of balance in every

transaction, wherein “for every value received, there is a corresponding value parted with.”
Let us illustrate, your left hand or left side represents the Debit, and your right hand or right
side represents the Credit. Both hands should have equal values. And, this is easily
represented by the T-account.
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The CPA can practice accounting in four (4) major fields such as public accounting
(for accountants in accounting/auditing firms), private accounting (for accountants in private
companies), education accounting (for accounting teachers), and government accounting
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(for government accountants).
The CPA in the Philippines was only forty -three (43) in the 1920s and would you
believe that to date the number has grown to more than one hundred sixty (160,000)
thousand plus.
So, that is the history of accounting. The End.
Now, let us proceed to the definition of Accounting
Definition of Accounting
Accounting has many definitions given by different accounting bodies:
1. ACCOUNTING Is the 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. (American Institute of Certified Public
Accountants-AICPA)
2. ACCOUNTING is a service activity. Its function is to provide quantitative information,

primarily financial in nature, about economic entities that is intended to be useful in making
economic decisions. (Accounting Standards Council-ASC)
3. ACCOUNTING is the process of identifying, measuring, and communicating economic

information to permit informed judgments and decisions by users of the information.
(American Association of Accountants-AAA)
ACCOUNTING is an information system that measures, processes, and communicates

financial information about an economic entity in making economic decisions.
ACCOUNTING is also called "the language of business " because it is fundamental in

the communication of financial information.
To simplify:
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1.1.2 The Accounting Profession and

Other Related Topics
The Practice of Accounting in the Philippines actually started in the Spanish period until
it was recognized as a profession in the 1920s. From forty-three (43) registered accountants in
1923, it has grown to more than 160,000 today.
Would you believe that the accounting profession now, has attained its' status as equivalent
to that of law and medicine? So you see, that is how important the practice of accounting is.
And, to regulate the accounting profession in the Philippines, the Board of Accountancy
(BOA) was created. It is under the Professional Regulations Commission (PRC) , the body
which is in-charge in the licensing of all specialized professions in the Philippines.
THE ACCOUNTING PROFESSION
REPUBLIC ACT 9298

(Philippine Accountancy Act of 2004)
serves as the regulating law for the practice of Accountancy in the Philippines.
Sections of RA 9298 :
scope of practice of accountancy
creation of the Professional Regulatory Board for CPAs
examination and qualification of applicants
Scope of the examination and required rating
Report of ratings of passed and failed candidates
Four Sectors in the Practice of Accountancy
Public Accountancy -involves the rendering of an audit or accounting-related services to

more than one (1) client on a fee basis.
Commerce and Industry - refers to employment in the private sector requiring professional
knowledge as a CPA.
Education and Academe - involves the teaching of accounting, auditing, taxation, and
other technology-related subjects.
Government - employment in the government where professional knowledge as a CPA is a
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prerequisite.
The work of an accountant goes far beyond the simple summarizing of financial
information for the business entity to know how much profit was made, its' receivables and
obligations, The accountant also embarks on different types of work or what we call
specialization.
Branches of Accounting
Financial Accounting - focuses on general-purpose financial statements

Management Accounting - focuses on special purpose financial reports for use by an
entity's management
Tax Accounting - involves the preparation of tax returns and rendering tax advice.
Government Accounting - refers to the accounting for the government, the emphasis is on
the custody and disposition of public funds.
Cost Accounting - the systematic recording and analysis of the cost materials, labor, and
overhead incident to production.
Auditing - the process of evaluating the correspondence of certain assertions with
established criteria and expressing an opinion thereon.
Three (3) Requirements to qualify to practice the Accountancy Profession
The person must:
be a holder of a Bachelors Degree in Accountancy

pass the difficult CPA Licensure Examination (CPALE) administered by the Board of
Accountancy with an average rating of 75% (with no grade lower than 65% in any subject).
The examination is given every May and November of each year.
accredited by the BOA to practice accounting upon showing that such registrant has:
acquired a minimum of 3 years of meaningful experience in any of the areas of public
practice including taxation
completed the required 120 Continuing Professional Development (CPD) units as
mandated by RA 10912, the law strengthening all regulated professions to enhance the
technical skills and competence of the CPA.
Related Topics:
Click the links to view the details
The Accounting Standards (https://tip.instructure.com/courses/35207/pages/1-dot-1-2-dot-1-
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the-accounting-standards)
The Conceptual Framework / The Basic Accounting Concepts and Principles

(https://tip.instructure.com/courses/35207/pages/1-dot-1-2-dot-2the-conceptual-framework-and-
the-basic-accounting-concepts-and-principles)
The Accounting Information System (https://tip.instructure.com/courses/35207/pages

/1-dot-1-2-dot-3-the-accounting-information-system)
The Financial Statements (https://tip.instructure.com/courses/35207/pages/1-dot-1-2-dot-4-the-

financial-statements)
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1.1.2.1 The Accounting Standards

The Need for Reporting Standards
Entities should follow a uniform set of generally acceptable reporting standards when
preparing and presenting financial statements; otherwise, financial statements would be
misleading.
The term “generally acceptable” means that either
the standard has been established by an authoritative accounting rule-making body; or
the principle has gained general acceptance due to practice over time and has been
proven to be most useful
Accounting Standards in the Philippines

The Philippine Financial Reporting Standards (PFRSs) adopted by the Financial Reporting
Standards Council (FRSC) constitute the “highest hierarchy” of Generally Accepted
Accounting Principles (GAAP) in the Philippines which is comprised of the following:
1.Philippine Financial Reporting Standards (PFRS)
2.Philippine Accounting Standards (PAS), and
3.Interpretations
The PFRSs are accompanied by a guidance to assist entities in applying their requirements.
Accounting Standard-Setting Bodies and other Relevant Organizations

Financial Reporting Standards Council (FRSC)
It is the official accounting standard-setting body in the Philippines created under the
Philippine Accountancy Act of 2004 (RA 9298).
It is composed of a chairman and 14 representative members.
It replaced the Accounting Standards Council (ASC) which was created in 1981 to
establish and improve the generally accepted accounting standards in the Philippines.
Philippine Interpretations Committee (PIC)
It has the role of reviewing the interpretations of the International Financial Reporting
Interpretations Committee (IFRIC) for approval and adoption of the FRSC.
International Accounting Standards Board (IASB)
the standard-setting body of the IFRS Foundation with the main objective of developing and
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promoting global accounting standards.
International Financial Reporting Interpretations Committee (IFRIC)
the committee that prepares interpretations of how specific issues should be accounted for
under the application of the IFRS.
IFRS Advisory Council (IFRSAC)
group of organizations and individuals with an interest in international financial reporting.
International Federation of Accountants (IFAC)
it is a non-profit, non-governmental, non-political organization of accountancy bodies that

represents the worldwide accountancy profession.
Board of Accountancy (BOA)
the professional regulatory board created under RA 9298 to supervise the registration,
licensure, and practice of accountancy in the Philippines.
It consists of a chairperson and 6 members with a tenure of 1 year.
Philippine Institute of Certified Public Accountant (PICPA)
The national professional organization of Certified Public Accountants in the Philippines

having the basic authority of setting-up and implementing rules vital to the accounting
profession.
Accounting Associations under the wing of PICPA
National Association of Certified Public Accountants in Education (NaCPAE)
Government Association Certified Public Accountants (GACPA)
Association of CPAs in Public Practice (ACPAPP) –
Association of CPAs in Commerce and Industry (ACPACI)
Securities and Exchange Commission (SEC) - in charge of regulating the business
operations of partnerships, corporations, and foundations.
Bureau of Internal Revenue - in charge of the collection of taxes.
Bangko Sentral ng Pilipinas (BSP) - in charge of regulating the operations of banks and
other financial institutions.
Cooperative Development Authority (CDA) - in charge of regulating the business operations
of coopearatives.
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1.1.2.2The Conceptual Framework

and the Basic Accounting Concepts
and Principles
The “Conceptual Framework" for Financial Reporting

a set of concepts and principles used in the preparation and presentation of financial
statements and is divided into eight (8) chapters as shown above.
The objective in the preparation of the financial statements
is to provide information about the financial position, performance and changes in the
financial position of an entity that is useful in making economic decisions.
To meet these objectives, the financial statements must be prepared based on generally
accepted accounting principles and assumptions.
The “Qualitative Characteristics” that make the financial statements trustworthy and useful
for stakeholders are the following:
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Fundamental
Relevance- the ability of the information to help the user forecast future events (predictive
value), confirm or correct prior expectations (feedback value). The information must also be
“material and timely” so as to greatly influence the decision of the user.
Faithful Representation-the accounting information must contain factual transactions and
other events that it is supposed to represent. It must be complete, neutral and free from
error.
Enhancing
Understandability - the financial information must be clear when it comes to terminologies

used, form and presentation must be in order, and the user must have reasonable
knowledge of accounting and other related fields such as finance and economics to be able
to understand the information.
Verifiability- the information is free from bias and material errors or misstatements. The
information should be verifiable and based on facts.
Comparability- the financial information should be comparable with another business
enterprise on the same line of business. It is also a requirement that the company is
consistent or uses the same accounting principles and methods from year to year.
Timeliness- information must be available on time when needed if it is to influence
decisions.
The Accounting Concepts and Principles used in analyzing financial

data are the following:
1. Going-concern assumption -assumes that the business enterprise will continue to
operate for an indefinite period of time or for more than one year.
2. Monetary unit assumption -business transactions are expressed in terms of money ( or
the legal currency of the country).
3. Economic/Business entity concept- the owner is separate from the business. So, the
personal transactions of the owner is not mixed with the transactions of the business.
4. Time period assumption -the life of the business is divided into a series of reporting
periods which can be monthly, quarterly, semi-annual, or yearly. An accounting period is
normally a period of twelve (12) months. It can either be a “calendar year’ or a fiscal year.
5. Accrual basis assumption -revenues should be recorded when earned and expenses
when incurred. It does not matter if cash has been received or paid.
6. Materiality concept- a business transaction is considered material if its omission or
misstatement could greatly influence an economic decision which can be based on the
nature and size of the transaction.
7. Cost-Benefit principle- the value of acquiring financial information should not exceed the
benefits derived from it.
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8. Cost Principle (Historical Cost Concept) -the value of an asset should be recorded
based on its’ acquisition cost or the actual price that you paid for the asset.
9. Concept of Articulation- the components of a complete set of financial statements are
interrelated, so they should be interpreted as a whole see the whole picture.
10. Full disclosure principle- all necessary information that can not be presented on the face
of the financial statements should be included in the notes to the financial statements.
11. Consistency concept -the financial statements are prepared based on the same
accounting methods and principles from year to year, and any change in the accounting
policies should be disclosed in the notes.
12. Matching principle- the corresponding expenses should be recognized on the same
period that the revenue or income is generated.
13. Entity theory- It gives emphasis on the income statement and the basic accounting
equation “Assets = Liabilities + Equity. “
14. Prudence concept (Conservatism principle)- emphasizes on the use of caution when
making estimates such that “assets/revenues are not overstated and liabilities/ expenses
are not understated.
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1.1.2.3 The Accounting Information System: ACCTG 015-ACTCY11... https://tip.instructure.com/courses/35207/pages/1-dot-1-2-dot-3-the-a...
1.1.2.3 The Accounting Information

System
Principles of an effective and efficient Accounting Information System
1. The accounting system must be cost effective.Benefits of information must outweigh the
cost of providing it.
2. It must be useful to serve its purpose. The financial statements and reports generated
should be relevant, reliable , accurate and timely.
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3. It must be flexible to changes such as technological advances,government rules

,regulations and de-regulations,increased competition, and changing accounting principle.
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1.1.2.4 The Financial Statements

Why are the accountants very famous every first quarter of the year ? That is because
of the financial statements that accountants prepare for submission to different regulatory
bodies like the BIR , SEC, BSP and other interested parties.
The Financial Statements (FS)
are the basic financial reports of the business enterprise which provides information about
the financial position, financial performance and changes in its’ equity, including its cash
flows.
The Complete set of Financial Statements:
1. The Statement of Financial Performance
2. The Statement of Changes in Equity
3. The Statement of Financial Position
4. The Statement of Cash Flows
5. The Notes to the Financial Statements
Statement of Financial Performance (or the Income Statement)
this statement provides information regarding the financial performance of the business or
its profitability for a certain period of time.
It has two (2) elements, the “Revenues and Expenses”.
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If the revenues exceed the expenses, the results of its operation is “Net Income” But if, the
expenses exceed the revenues , the result of its operation is “Net Loss”
Statement of Changes in Equity
this statements shows the changes in the capital of the owners.
Statement of Financial Position (or the Balance Sheet)
this statement provides information regarding the financial condition of the business at a
given date.
It has three (3) basic elements , the “Assets, Liabilities and Equity”. This statement
shows the liquidity or solvency of the business.
Statement of Cash Flows
this statement shows the cash inflows (sources of cash) and the cash outflows (uses of
cash) in the business
has three activities namely : the operating, investing and financing activities.
Notes to the Financial Statements
is not a financial statement, but it is a mandatory requirement in the preparation of the

Financial Statements.
contains the details or breakdown of items that cannot be presented on the face of the
financial statements
makes the financial statements more meaningful to the user by making it more
understandable.
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1.1.3 Business Types, Forms and

Activities of a Business
What is a Business?
It is a commercial activity intended for the development and distribution of goods
and services with the main objective of generating profit.
In other words, a business is one who is either engaged in the performance of services to
others for a fee; buying and selling of goods, or processing/manufacturing of goods for sale
with a mark-up.
And, in order for the business to know if the business is profitable, liquid or stable, It relies
on the analysis and evaluation of financial reports. Again, that is why we need to study
accounting.
Business Classifications
Legal Forms of Businesses
Sole Proprietorship
business is set-up and managed by 1 person called the proprietor
Partnership
owned by 2 to 5 persons called partners who contribute money, property, talent /skill or
industry to a common fund with the purpose of sharing the profits among themselves
Corporation
composed of 2 – 15 persons called incorporators;
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Separate legal entity from the owners; can conduct business or enter into a contract by
itself.
One-Person Corporation (paid-up capital of 1 Million minimum)
Comparison of the three (3) Forms of Businesses

Number of Owners and Capital
Note:
Under the Revised Corporation Code of the Philippines (R.A. 11232) dated Feb. 2019, An
individual can form a Corporation or a
"One Person Corporation" subject to capitalization requirement of P 1 Million Pesos.
Management, Profit and Formation
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Expansion, Lifespan and Liabilities
Types of Business Operations

Service Business
provides service for a fee to clients or customers
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Merchandising
buys and sells goods or merchandise
Manufacturing
buys raw materials and process these to finished goods then sells to customers
Types of Business Activities:
Financing Activity
When the owner finances the business with start-up capital in cash and other resources.
Withdrawal of capital by owner or investor
Loans from lenders
Loans repaid to lenders
Investing Activity
Acquisition of properties in land, building, machinery, equipment, furniture, and securities.
Operating Activities
Earning income
Incurring expenses
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1.2 The Accounting Cycle

THE ACCOUNTING CYCLE
is a series of sequential steps or procedures performed to accomplish the accounting

process.
Step 10: Reversing entry (optional)
The accounting cycle is divided into two phases:
Recording phase (steps 1-3) -these steps are accomplished during the accounting period.
Summarizing phase (steps 4-9)- these steps are accomplished at the end of the
accounting period
Reversing entry (step 10 -optional)-accomplished at the beginning of the next accounting
period and applicable only to accounts using the revenue/expense method.
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1.2.1 The Accounting Equation and

the Double -Entry System
Before we can proceed to the first phase of the accounting process, it is important to
introduce technical accounting terms that we are going to use. Familiarization of these terms
will give you a better understanding of the process of recording transactions. And, we will start
with the accounting elements.
Click the link below to view the details of the Accounting Elements
The Accounting Elements and the Chart of Accounts (https://tip.instructure.com

/courses/35207/pages/1-dot-2-1-dot-1-the-accounting-elements-and-the-chart-of-
accounts)
The accounting elements are affected by “business transactions”.
A business transaction is an exchange of values (of equal amounts) between two parties
expressed in terms of money. It must have a dual effect or a “debit and credit”, this is what we
call the double-entry bookkeeping system.
The relationship of balance between the accounting elements is represented by :
Let us have an example :
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ALO
Assets = Liabilities + Owner's Equity
500,000 = 100,000 + 400,000
Let us expand this equation:
Assets = Liabilities + +Capital - Drawing + Revenues- Expenses
Always remember that both sides of the equation should always be equal.
Please take note that in the accounting equation, the elements of financial performance
“revenues and expenses” are under the Equity account.
Traditionally, the left side of the accounting equation is called the DEBIT (DR) , and the right is
called the CREDIT (DR).
So as not to be confused in analyzing transactions, your point of reference is always the

normal balance of the account.
Guide
Increase the Decrease the

Account Normal Balance
account account
Asset DR DR CR
Liabilities CR CR DR
Revenues CR CR DR
Expenses DR DR CR
Capital CR CR DR
Drawing DR DR CR
Let us now summarize the effects of business transactions on the accounting elements through
the use of the accounting equation:
(+) increase in the accounting element
(-) decrease in the accounting element
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Now, Total both sides of the equation. 825,000 =

825,000
Totals: Assets = P 825,000
Liabilities + Equity = P 90,000 + P 735,000 = P 825,000
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1.2.1.1 The Accounting Elements and

the Chart of Accounts
The Accounting Elements and the Chart of Accounts
The Accounting Elements ( 5 types of major accounts)
1. Assets
refer to the monies and properties owned by the business.

They are further classified as Current Assets (blue) or Non-Current Assets (violet) . If the
asset is already cash or convertible into cash within a period of one year, then it is classified
as current, otherwise, it is non-current.
balance sheet accounts
Account Titles used:
Cash and Cash Equivalents
Accounts Receivables
Notes Receivables
Supplies
Prepaid Expenses
Property, Plant, and Equipment (PPE) itemized as:
Furniture and Fixtures
Equipment
Machinery
Building
Land
Accumulated Depreciation of the PPE -contra-asset account
Intangible Assets (Goodwill, patents, copyrights)
2. Liabilities
refers to the obligations/payables of the business.

They are further classified as Current Liabilities (blue) or Non- current Liabilities (violet)
. If the liability is payable within a period of one year, then it is classified as current,
otherwise, it is non-current.
Account Titles used
Accounts Payable
Notes Payable
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Accrued Liabilities
Unearned Income
Mortgage Payable
Bonds Payable
3. Equity
refers to the residual amount due to the owners after payment of all the obligations of the
business.I t is also called the “net assets or net worth” of the business.
It is the difference between the Assets and Liabilities of the business.
There are three (3) types of Equity, which depends on the legal form of the business.
If the business is a single proprietorship, the equity is called “Owner’s Equity;
If the business is a partnership, it is called “Partners Equity” and
if a corporation, it is called “Shareholders Equity”.
Account Titles used
Capital - investment by the owner in the business, in the form of cash or other assets.
Example : Cruz, Capital
Drawing -refers to the withdrawal of cash by the owner for his personal use, which is
considered as an advance distribution of profits.
Example: Cruz, Drawing
4. Revenues
refers to all income generated by the business through its operations, which results in an
increase in the capital.
income statement accounts
Service Income ( for service business)
Sales (for merchandising /manufacturing business)
5. Expenses
refers to all disbursements or payments made by the business in order to render service,
sell or produce goods, which results to a decrease in the capital.
income statement accounts
Taxes and Licenses
Salaries and Wages expense
Rent Expense
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Utility expense ( Light, Water, Telephone, Internet)

Supplies expense
Insurance Expense
Depreciation expense
Interest Expense
Bad Debts Expense
(Refer to pp. 111-117 book of Milan for the detailed description of the account)
Chart of Accounts
the list of account titles used by the business
each account title is assigned a unique account no. as reference for the General Ledger
accounts.
Assets start with 1
Liabilities starts with 2
Equity starts with 3
Revenues start with 4
Expenses starts with 5
arranged chronologically.
Back1.2.1 The Accounting Equation and the Double -Entry System

(https://tip.instructure.com/courses/35207/pages/1-dot-2-1-the-accounting-equation-and-the-
double-entry-system)
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1.3 Accounting for a Service Business: ACCTG 015-ACTCY11S1 - ... https://tip.instructure.com/courses/35207/pages/1-dot-3-accounting-fo...
1.3 Accounting for a Service Business
(https://secure.flickr.com/photos/7156765@N05/23730422303)
In this lesson, we are going to learn how to record the business transactions which is the first
phase in the accounting process. Our transactions will also focus on the service business
because it is the simplest of the business operations.
Steps in the Recording Phase:
1. Analyzing the transactions
2. Journalizing the transactions in the Journals
3. Posting in the Ledgers
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1.3.1 Transaction Analysis and Journalizing Transactions: ACCTG 0... https://tip.instructure.com/courses/35207/pages/1-dot-3-1-transaction-...
1.3.1 Transaction Analysis and

Journalizing Transactions
The recording phase starts with the analysis of business transactions based on what
we call "business documents" such as the Official Receipts, Invoices, Billing Statements,
Bank Statements, Debit/Credit memos, etc. These documents are arranged chronologically or
by date. These are the supporting documents for your transactions.
After the transactions are analyzed, these transactions are recorded in the Journal or the
“book of original entry”.
Journalizing is the process of recording chronologically business transactions based on the

double-entry accounting system. These journalized transactions are what we call “Journal
Entries.”
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1.3.1 Transaction Analysis and Journalizing Transactions: ACCTG 0... https://tip.instructure.com/courses/35207/pages/1-dot-3-1-transaction-...
page 1
General Journal
Date Particulars Ref Debit Credit
2020
Jan. 1 Cash P 100,000
M. Cruz, Capital P 100,000
To record cash investment
Equipment
2 20,000
Cash 20,000
To record the purchase of equipment
The color blue - represents the debit entry
The color red - represents the credit entry
The color black - represents the date of the transaction and the explanation
If the transactions of the business are few, the business can just use the General
Journal. But if the transactions of the business are numerous, Special Journals are designed
to record repetitive transactions of the business conveniently. Examples of Special Journals are
the Purchase and Sales Journals, Cash Receipts and Cash Disbursement Journal, and
Combination Journals. (We will have a separate discussion on the Special Journals.)
Two (2) Types of Journal Entries:
1. Simple entry - there is only one (1) debit and one (1) credit entry.
2. Compound entry - if there are three(3) or more accounts required in one (1) journal entry.
Click to view the Summary of Journal Entries (https://tip.instructure.com/courses/35207/pages

/1.3.1.1%20Summary%20of%20Journal%20Entries?titleize=0)
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1.3.1.1 Summary of Journal Entries
Next (https://tip.instructure.com/courses/35207/pages/1-dot-3-2-the-ledger-and-posting-of-
transactions)
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1.3.2 The Ledger and Posting of Transactions: ACCTG 015-ACTCY... https://tip.instructure.com/courses/35207/pages/1-dot-3-2-the-ledger-...
1.3.2 The Ledger and Posting of

Transactions
Now that we are finished journalizing our transactions, The journal entries are then transferred
to their corresponding accounts in terms of DR. and CR. in the General Ledger or the “book
of final entry”. This procedure is what we call “posting”.
The Ledger refers to the entire group of accounts maintained by the company
The General ledger (GL) contains all the assets, liabilities, and owner's equity accounts
The simplified General ledger is what we call the “ T-account”, for the simple reason that it
looks like the letter T.
The General Ledger (GL) is where the transactions of each account are accumulated and
the balance is extracted at the end of the accounting period. Each GL account is assigned an
account no. for easy referencing.
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Posting a Journal Entry from the Journal to the Ledger:
General
Journal page 1
Date Particulars Ref Debit Credit
2020
Jan. 1 Cash 101 P 100,000

P
A. Cruz , Capital 301
100,000
To record the investment
How to post the journal entry above:
In the General Ledger (GL) below, Post the Debit and Credit entries in their appropriate
accounts (Cash and Cruz, Capital), including the date of the transaction and the General
Journal (GJ) page no. in the Reference (Ref) Column.
After posting in the GL, go back to the General Journal and fill-up the Ref. Column with the
Account no. of the GL, to indicate that the entry had been posted.
The General Ledgers
Cash 101
Date Particulars Ref Debit Credit Balance
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2020
Jan. 1 Investment GJ1 P 100,000 P100,000
A. Cruz, Capital 301

Date Particulars Ref Debit Credit Balance
2020
Jan. 1 Investment GJ1 P 100,000 P 100,000
The T-Account can also be used for posting (for illustrative purposes)
Note: Always check for the equality of the balances by applying the accounting equation
Warning: Journalize first before posting, and not the other way around.
The Control Account and the Subsidiary Ledgers

Subsidiary Ledgers
A Subsidiary Ledger is a group of accounts with a common characteristic, such as

customer accounts.
The subsidiary ledger is assembled to facilitate the recording process by freeing the general
ledger from details concerning individual balances.
Two common subsidiary ledgers are the Accounts Receivable Ledger (customers) and the
Accounts Payable Ledger (suppliers or creditors).
Control Account
The General Ledger account that summarizes subsidiary ledger data is called a Control
Account.
Each general ledger control account balance must equal the composite balance of the
individual accounts in the Subsidiary Ledger.
RELATIONSHIP OF GENERAL LEDGERS AND SUBSIDIARY LEDGERS
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Advantages of using subsidiary ledgers :
1. Show transactions affecting one customer or one creditor in a single account.

2. Free the general ledger of excessive details.
3. Help locate errors in individual accounts by reducing the number of accounts combined in
one ledger and by using controlling accounts.
4. Create a division of labor in posting by allowing one employee to post to the general ledger
and a different employee to post to the subsidiary ledger.
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1.3.3 The Trial Balance (Unadjusted or Preliminary Trial Balance): ... https://tip.instructure.com/courses/35207/pages/1-dot-3-3-the-trial-ba...
1.3.3 The Trial Balance (Unadjusted

or Preliminary Trial Balance)
After all the transactions have been posted to the General ledger and the balances for each
account determined.
The balances are transferred to the Trial Balance.

The Trial Balance is prepared to prove the equality of the DR. and the CR.
This is the first step in the Summarizing Phase
Trial Balance
is a list of accounts and their balances at a given time.

The primary purpose of a trial balance is to prove the mathematical equality of debits and
credits after posting.
A trial balance also uncovers errors in journalizing and posting.
The procedures for preparing a trial balance consist of
listing the account titles and their balances,
totaling the debit and credit columns, and
proving the equality of the two columns.
Gallardo Accounting Service
Trial Balance
December 31, 2019

Account
Account Title Debit Credit
No.
10 Cash P 100,000
11 Accounts receivable 50,000
12 Supplies 10,000
13 Prepaid Insurance 10,000
14 Equipment 50,000
15 Land 750,000
20 Accounts payable P 50,000
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1.3.3 The Trial Balance (Unadjusted or Preliminary Trial Balance): ... https://tip.instructure.com/courses/35207/pages/1-dot-3-3-the-trial-ba...
21 Notes payable 150,000
22 Taxes payable 50,000

30 F. Gallardo, Capital 500,000
31 F. Gallardo, Drawing
40 Service Income 300,000
51 Licenses expense 30,000
52 Rent expense 50,000
53 Salaries expense 50,000
54 Utilities expense 50,000
Totals P 1,100,000 P 1,100,000
The equality of the DR and the CR provides a check on the accuracy of the recording and
postings. This initial trial balance is referred to as the “Preliminary or Unadjusted Trial
Balance.” But, If the Trial Balance is out of balance errors might have been committed during
the journalization or posting of transactions.
However, the equality of the debit and the credit in the trial balance does not necessarily
mean that no errors have been committed. There are errors that cannot be detected by the trial
balance and might need some adjustments.
There are three (3) types of Trial Balance:
Preliminary Trial balance - Unadjusted Trial balance (before adjustments)

Adjusted Trial Balance - Trial Balance after the adjusting entries had been posted.
Post -Closing Trial Balance - Trial balance after the closing entries had been posted.
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Summary 1: Introduction to Accounting and the Service Business: ... https://tip.instructure.com/courses/35207/pages/summary-1-introducti...
Summary 1: Introduction to
Accounting and the Service Business
Introduction to Accounting and the Service Business
1.1. Introduction to Accounting
Accounting is a system that measures business activities, processes information into

reports, and communicates the results to decision-makers. It is also called the language of
business.
The accounting profession is regulated by the Board of Accountancy under R.A. 9298.
Four sectors in the practice of Accountancy
Public Accountancy
Commerce and Industry
Education and Academe
Government
Entities should follow a uniform set of generally accepted reporting standards when
preparing and presenting financial statements; otherwise, financial statements would be
misleading.
Branches of accounting
Financial Accounting
Management Accounting
Tax Accounting
Government Accounting
Cost Accounting
Auditing
Legal forms of business
Sole Proprietorship
Partnership
Corporations
Types of Business Operations
Service business
Merchandising business
Manufacturing
Types of Business Activities
Operating activities
Investing activities
Financing activities
The basic financial statements
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Summary 1: Introduction to Accounting and the Service Business: ... https://tip.instructure.com/courses/35207/pages/summary-1-introducti...
Statement of Financial Position (Balance Sheet)

Statement of Financial Performance(Income Statement)
Statement of Changes in Equity
Statement of Cashflows
1.2 The Accounting Cycle
The basic Accounting Equation is Assets = Liabilities + Owner's Equity

The elements of Financial Position
Assets
Liabilities
Equity (Capital and Drawing accounts)
The elements of Financial Performance
Revenues
Expenses
Recording phase-
analyzing transactions
journalizing transactions in the Journals
posting of transactions in the Ledger
Summarizing phase
Trial Balance (unadjusted)
Adjusting Entries
Adjusted Trial Balance
Financial Statements
Closing Entries
Post-closing Trial Balance
Reversing entries (optional)
Post-Closing Trial
1.3 Recording Transactions of a Service Business
Analyzing transactions based on business documents.

Journalizing transactions in the General Journal (Book of original entry) using the double
-try bookkeeping system.
The Debit and Credit entries should always be equal.
The journal entries are posted in the General ledger (Book of final entry) where the
transaction s of each account is accumulated.
The balances in the General ledgers are extracted and transferred to the Trial Balance.
The Trial Balance is used to check the equality of the debits and credits.
The equality of the debits and credits in the Trial Balance does not necessarily mean that
the transactions for the period have no errors in journalizing or posting.
2 of 2 02/10/2022, 10:43 PM

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1.1 Introduction to Accounting: ACCTG 015-ACTCY11S1 - Financia... https://tip.instructure.com/courses/35207/pages/1-dot-1-introduction-t...

1.1 Introduction to Accounting

So, I welcome you to the world of Accounting!

1.1.1 The History and Definition of

The History of Accounting

Accounting is as old as civilization. The earliest bookkeeping records were used by

Florentine Approach Venetian Approach

The "Summa de Aritmetica"

Debit or Debere (DR.) means ”to receive.”

The double-entry bookkeeping system emphasizes the principle of balance in every

(for government accountants).

So, that is the history of accounting. The End.

Now, let us proceed to the definition of Accounting

Accounting has many definitions given by different accounting bodies:

1. ACCOUNTING Is the art of recording, classifying, and summarizing in a significant

2. ACCOUNTING is a service activity. Its function is to provide quantitative information,

3. ACCOUNTING is the process of identifying, measuring, and communicating economic

ACCOUNTING is an information system that measures, processes, and communicates

ACCOUNTING is also called "the language of business " because it is fundamental in

1.1.2 The Accounting Profession and

THE ACCOUNTING PROFESSION

REPUBLIC ACT 9298

Four Sectors in the Practice of Accountancy

Public Accountancy -involves the rendering of an audit or accounting-related services to

Financial Accounting - focuses on general-purpose financial statements

Three (3) Requirements to qualify to practice the Accountancy Profession

The person must:

be a holder of a Bachelors Degree in Accountancy

Click the links to view the details

The Accounting Standards (https://tip.instructure.com/courses/35207/pages/1-dot-1-2-dot-1-

The Conceptual Framework / The Basic Accounting Concepts and Principles

The Accounting Information System (https://tip.instructure.com/courses/35207/pages

The Financial Statements (https://tip.instructure.com/courses/35207/pages/1-dot-1-2-dot-4-the-

1.1.2.1 The Accounting Standards

Accounting Standards in the Philippines

1.Philippine Financial Reporting Standards (PFRS)

2.Philippine Accounting Standards (PAS), and

Accounting Standard-Setting Bodies and other Relevant Organizations

Philippine Interpretations Committee (PIC)

International Accounting Standards Board (IASB)

promoting global accounting standards.

International Financial Reporting Interpretations Committee (IFRIC)

IFRS Advisory Council (IFRSAC)

group of organizations and individuals with an interest in international financial reporting.

International Federation of Accountants (IFAC)

it is a non-profit, non-governmental, non-political organization of accountancy bodies that

Board of Accountancy (BOA)

Philippine Institute of Certified Public Accountant (PICPA)

The national professional organization of Certified Public Accountants in the Philippines

1.1.2.2The Conceptual Framework

The “Conceptual Framework" for Financial Reporting

The objective in the preparation of the financial statements

Understandability - the financial information must be clear when it comes to terminologies

The Accounting Concepts and Principles used in analyzing financial

1.1.2.3 The Accounting Information

Principles of an effective and efficient Accounting Information System

3. It must be flexible to changes such as technological advances,government rules

1.1.2.4 The Financial Statements

The Financial Statements (FS)

Statement of Financial Performance (or the Income Statement)

Statement of Changes in Equity

this statements shows the changes in the capital of the owners.

Statement of Financial Position (or the Balance Sheet)