ACCOUNTING NOTES 2

The Accounting Concepts and Basic Financial Statements p1

Underlying Assumptions

- Going Concern (PERIOD ENTITY CONCEPT) (SEPARATE BUSINESS ENTITY)

Enterprise will continue in operation for an indefinite period.
- Accrual Basis
Transactions are recognized/recorded upon occurrence. (DEALING W)
 Accrual Basis
-Service=Revenue

Receivable – revenue
-The clients/customers needs to pay not you.

-Cash basis
* Cash out = expense
* Cash in = revenue

Payable – expense
-You are the one who needs to pay

CASH VS. ACCURAL

-If the problem is silent, the enterprise is using accrual basis.

Cash – small businesses

Accrual – big companies

QUALITATIVE CHARACTERISTICS

Understandability – must be easily understood by the users.

Relevance

- Predictive value
- Confirmatory value
- Materiality

Reliability – free from material error and bias.

Faithful Representation – it must present faithfully the transactions.
Substance Over Form
Prudence or Conservatism – Revenue & Expenses: not overstated
Expenses & Liabilities: not understated
Comparability

- Intra-comparability
- Inter-comparability
Completeness
Neutrality – free from bias
Timeliness

BASIC FINANCIAL STATEMENTS OF BUSINESS ORGANIZATIONS

- 4. STATEMENT OF FINANCIAL POSITION OR BALACE SHEET :: ASSETS; LIABILITIES; CAPITAL

- 1. STATEMENT OF COMPREHENSIVE INCOME OR INCOME STATEMENT :: REVENUE &
EXPENSES
- 3. STATEMENT OF CHANGES IN EQUITY OR CAPITAL :: BEG, CAP(+) ADDITIONAL INV(-)
WITHDRAWAL = END, CAP
- 2. STATEMENT OF CASH FLOW :: OPERATING, INVESTING, FINANCING
- 5. NOTE TO FINANCIAL STATEMENTS :: NARRATIVE INFORMATION

ASSETS

- Resources controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow to the enterprise.

Cash
Accounts Receivable
Notes Receivable
Notes Receivable
Merchandise Inventory
Supplies
Prepaid Expense
Equipment
Service Vehicle Patents
Furniture and Fixtures
Copyright
Franchise
Land

Prepaid Expense
Rent, insurance, subscription
Expenses paid in advance.

LIABILITIES

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

Accounts Payable
Notes Payable
Loans Payable
Salaries Payable
Utilities Payable
WHT Payable, SSS Payable, Philhealth Payable, Pag-ibig Payable
Mortgage Payable
Chattel Mortgage Payable
Customer’s Deposit
Unearned Revenue

Unearned Revenue
Payment of clients received in advance.
No service is rendered yet.

Capital/Equity

- Residual interest in the asset of an entity that remains after deducting all its liabilities.

Revenue

- Are increases in economic benefits during the accounting period.

Service Revenue
Professional Fees Earned
Sales
Rent Income
Dividend Income
Interest Income
Subscription Income
Gain on Sale

Expenses

- Are decreases in economic benefits during the accounting period.

Cost of Sales
Depreciation Expense
Wages and other Benefits
Utilities Expense
Insurance Expense
Taxes and Licenses
Repairs and Maintenance
Representation Expense
Losses
Rent Expense
Salaries Expense
Supplies Expense