Terms

C.1 Accounting

Fra Luca Pacioli

Essential Elements
1 Identifying
Accountable events
2 Recording
Account
3 Communicating
Financial statements

Types of information provided by accounting

1 Quantitative information
2 Qualitative information
3 Financial information

Functions of Accounting
1 To provide extenrnal users with information that is useful in making , among others, investments and credi
2 To provide internal users with information that is useful in managing the business

Users of Accounting information

1 Internal users
2 External users

Types of accounting classified as to user's needs

1 General purpose accounting
2 Special purpose accounting

Common branches of accounting

1 Financial Accounting
PFRSs

Financial Reporting
2 Management accounting
3 Government accounting
4 Auditing
5 Tax Accounting
6 Cost Accounting
7 Accounting Education
8 Accounting Research

Forms of business organizations

1 Sole or single proprietorshi

2 Partnership

3 Corporation

4 Cooperative

Patronage refund

Advantages
Sole Proprietorship
1. You are the boss and you
keep all the profit

2. Decision making is
simple

3. Easier and less costly to

form
4. Lower extent of
government regulation and
lover taxes

Disadvanatages
Sole Proprietorship
1. You assume all the risk of
loss
2. You take all the
responsibility and rely on
yourself in making
decisions

3. More difficult to raise

capital
4. Personably liable for the
debts and oblgations of the
business
 Types of Business According to Activities
1 Service Business

2 Merchandising Business

3 Manafacturing Business

Some businesses are call hy

C.2 Accounting concepts and principles (assumptions or postulates)

Basic and most common accounting principles

1 Separate entity concept

2 Historical cost concept

3 Going concern assumption
Liquidating concern

4 Matching

5 Accrual basis of accounting

6 Prudence

7 Time Period

calendar year period

fiscal year period
interim period
8 Stable monetary unit

9 Materiality concept
material

10 Cost-benefit
11 Full disclosure principle
 12 Consistency concept

Accounting concepts and pri

explicit
implicit
concepts, principles, standards, assumptions, postulates

GAAP

PFRSs

FRSC

The Conceptual Framework for Financial Reporting

Qualitative Characteristics of useful financial information

Qualitative Characreristics
1 Fundamental Qualitative Cha
1

2 Enhancing Qualitative Charac

1
2
3
4

C.3 The Accounting Equation

 Expanded Accounting Equat

C.4 Types of Major Accounts

Account

T-Account

Five Major Accounts

1 Assets

Control

1
2
3
4
5
6
7
8
9
10
11
12

13
2 Liabilities
Obligation

1
2
3
4
5
6

3 Equity

1
2

4 Income

1
2
3
4

5 Expenses

1
2
3
4
5
6
7
 8
9
10
11
12
13
14
15

Balance Sheet Accounts

Balance sheet

Income Statement Accounts

Income statement

Chart of Accounts

C.5 Books of Accounts and Double-Entry System

Major Books of Accounts
1 Journal

types of journal
1

2 Ledger

types of ledger
 1

2
controlling accounts

Double-entry System

1
2

Normal Balance
Asset
Expenses
Liabilities
Equity
Income

Contra Accounts
Adjunct Accounts

C.6-9 Business Transactions and their Analysis

Accounting Cycle

STEPS in Accounting Cycle

1 Identifying and Analyzing
Sourced documents

1
2
3
4
5
6
 7
types of events
1
2

2 Journalizing

Simple journal entry

Compound journal entry

3 Posting to the ledger

4 Preparing unadjusted trial balance

trial balance

types of trial balance

1
2
3

errors revealed by the trial balance

1
2
3
4
errors not revealed by trial balance
1
2
3
4

Unadjusted trial balance

heading
5 Adjusting entries
purposes

3
Real Accounts
Nominal Accounts

Mixed Accounts
1
2
INCOME
Methods of Initial Recognition
1

EXPENSES
Methods of initial Recognition
1
 2

ACCRUALS
DEFERRALS

6 Adjusted Trial Balance / Worksheet

Worksheet

Cross-footing
Footing
Double Rule

7 Financial Statements
FS
1
 2

in the worksheet
1
2
8 Closing Entries

1
2

4
 9 Post-closing trial balance

closed account
open account

10 Reversing Entries

purposes

adjusting entries that may be reversed

1
2

3
 HINTS

C-10 Accounting Cycle for Merchandising System

inventory

merchandising business

Inventory

inventory systems
1 Perpetual inventory system

2 Periodic Inventory System

FORMULA
Net Purchases FORMULA

Cost of Goods Sold FORMUL

Periodic Inventory system

Journal Entries

Gross Profit
Net Sales FORMULA

Gross Profit FORMULA

Net Profit FORMULA

Preparing Income Statement under Perpetual - EXTERNAL REPORTING

Preparing statement of cost of goods sold and gross profit - INTERNAL REPORTING
 Definition
is a process of identifying, recording and communicating economic information that is useful in making economic de
as a social science, it is a body of knowledge which has been systematically gathered, classified and organized
as a practical art, it requires the use of creative skills and judgment
as an information system, that consists of an input, a process and an output
the language of business
bookkeeping and accounting are not the same, "bookkeeping" refers to the process of recording the accounts or tra
as early as 8500 B.C., accounting has already existed
a Franciscan monk and mathematician, formulated the double entry system, "father of modern accounting"

analyzes each business transaction and identifies whether it is accountable or non accountanble event. Only accoun
or economic events are those that affect the assets, liabilities, equity, income or expensesof a business
recognizes the identified accountable events, this process is called "journalizing", after that, classifies the effect of t
is the basic storage of information in accounting, ex: cash, land, sales..
summarizes the information processed in the accounting system in order to produce meaningful reports
the most common form of communicating to interested users

tion provided by accounting

expressed in number, quantities, or units
expressed in words or descriptive form, found in the notes to FS, as well on the face of other components
expressed in money, also quantitative information

rnal users with information that is useful in making , among others, investments and credit decisions
al users with information that is useful in managing the business

ting information
those who are directly involved in managing the business, ex: business owners directly involved, board of directors a
those who are not directly involved in managing the business, ex: existing and potential investors who are not direc

ng classified as to user's needs

designed to meet the common needs of most statement users, provided by financial accounting primarily for extern
designed to meet the specific needs of particular statement users, provided by management accounting or other br

es of accounting
focuses on general purpose financial statements, structured representation of an entity's financial position and resu
governed by Philippine Financial Reporting Standards
Financial accounting and financial reporting are often used interchangeably
includes financial statements plus other information provided outside FS
primary objective: to provide information about an entity's economic resources, claims and changes to those resour
secondary objective: to provide information useful in assessing the managements stewardship, improve user's abilit
 involves accumulation and communication of information for internal users, offshoot of this is the management adv
refers to the accounting for the government and its instrumentalities, focusing on the custody of public funds
involves inspection of an entity's financial statements or business processes, with established criteria
preparation of tax returns and rendering of tax advice
systematic recording and analysis of cost incident to the production of goods or rendering of services
refers to the teaching of accounting and accounting related subjects
pertains to the careful analysis of economic events and other variables to undertand their impact on decisions

s organizations
owned by only one individual
common, simplest form
business owner: sole proprietor
registered in Dpartment of Trade and Industry (DTI)
business that is owned by 2 or more individuals entered into a contract to carry on the business
business owners: partners
registered on Securities and Exchnage Commission (SEC)
has a juridical personality, but partners are viewed as agents, can transact on behalf of the partnership
also owned by more than one
created by operation of law rather than a contract
ownership is represented by shares of stocks, business owners: stockholders or shareholders
artificial being or juridical person, separate from its owners, can transact on its own
registered on Securities and Exchnage Commission (SEC)
also owned by more than one, formed in accordance with the provisions of the Philippine Cooperative Code of 2008
owners: members, founding shall not be less than 15 individuals
joined together to constribute capital, and achieve certain goals
has a juridical personality also
if it earns profit, members can recover the costs thru patronage refunds
profit that the cooperative returns to its owners
registered in Cooperative Development Authority (CDA)

Partnership
1. You share the business risk and responsibility with your partner/s

2. Better business decisions can be made

3. Compared to corporation and cooperative it is easier to form

4. Lower extent of government regulations compared to corporation

5. Greater capital compare d to sole proprietorship

Partnership
1. You don’t keep all the profits

2. Making decisions may give rise to conflict among partners

3. Lesser capital compared to corporation

4. Unlimited liability, liable up to their personal assets

5. Limited life, can be easily dissolved

6. A partnership except GPP is taxed like a corporation
s According to Activities
offers services as its main product, ex: professional skills, expertise, advice, lending services
ex: schools, professionals, hospials, banks, hotels and restaurants, transportation, ertertainment
trading business, buys and sells goods without changing their physical form
ex: grocery stores, dept stors, pharmacies, online stores, sari sari stores, rice wholesalers, vegetable dealers, 2nd ha
buys raw materials and processes them into final products, changes its physical form
ex: car manufacturers, technology companies, food processing companies, factories

engage in more than one type of activity

for ex: a restaurant - 1. uses ingredients to cook a meal - manufacturing 2. sells coca cola (merchandising) 3. serves f
hybrid businesses are classified into the major business type that is most in line with the business purpose.
Restaurants are expected to fill in custoder orders and provide dining services, thus they are more of a service type

epts and principles (assumptions or postulates)

set of logical ideas and procedures that guide the accoutant in recording and communicating economic information
sourced from the standards of PFRS, Conceptual framework for financial reporting
ommon accounting principles
the business is viewed as a separate person, distinct from its owners
only business transactions are record in the books of accounts
assets are initially recorded at their acquisition cost
the business is assumed to continue to exist for an indefinite period of time
the opposite of going concern, it is the case if the business intends to end its operations or if it has no other choice b
assets under liquidating are measured at net selling price rather than at historical cost
or association of cause and effect
some cost are initially recognized as assets and charged as expenses when the related revenue is recognized
events are recorded in the period in which it occur, income is recorded when earned, expense is recognized when in
or conservatism
between potentially unfavorable or favorable outcome, the accountant chooses the unfavorable one
reasons: so assets or income are not overstated, and liabilities or expenses are not understated
or periodicity, accounting period, reporting period
the life of business is divided into series of periods
12 months starting jan 1, ending dec 31
12 months starting any date other than jan 1
shorter than 12 months, can be a month, quarter or semiannual period
economic events are stated in terms of a common unit of measure, which is the peso in the philippines
purchasing power of peso is regarded as stable, inflation is ignored
accounting principles are applicable only to material items
if its omission or misstatement could influence economic decisions
it’s a matter of professional judgment, based on the size and nature of the item being judged
or cost constraint, the cost processing should not exceed the benefits to be derived
related both to materiality and cost benefit
reflect a series of judgmental trade offs that strive for sufficient details that make a difference, sufficient condensati
 requires business to apply accounting policies consistently and present information consistently from one period to
can be changed , as per standard but must be disclosed

are either
those that are specifically mentioned in the conceptual framework for financial reporting and PFRS
those that are not specifically mentioned but customarily used because of their general and long time acceptance w
les, standards, assumptions, postulates
are often used interchangeably, but STANDARDS is used specifically refer to the PFRSs
traditionally, accounting standards refer to as Generally Accepted Accounting Principles (GAAP)

Philippine Financial Reporting Standards

are standards and interpretations adopted by the Financial Reporting Standards Council (FRSC)
consist of the ff:
PFRSs, PASs (Philippine Accounting Standards), Interpretations
official accounting standard setting body in the Philippines
this is patterned from the IFRSs - International Financial Reporting Standards issued by IASB - International Accounti

ramework for Financial Reporting

prescribes accounting concepts that are relevant to the preparation of financial statements
not a standard, but rather a general frame of reference in developing or applying the standards

cteristics of useful financial information

traits that determine whether an item is useful to users, classified into two
make information useful to users, consist of the ff:
Relevance
if It can affect the decisions of users, relevant info has the following aspects
a. Predictive Value - f it can help make predictions about future outcomes
b. Confirmatory value or feedback value - if it can help users confirm their past predictions
c. Materiality - if imitting or misstating could influence the decisions of users
Faithful Representation
if it is factual, It represents actual effects of events, has the following aspects:
a. Completeness - have a complete understanding of the FS provided
b. Neutrality - presented without bias
c. Free from error - not materially misstated, no errors in the description and in the process
supports the fundamental characteristics
Comparability - if it can help user to identify the similarities and differences between info, comparison requires atlea
Verifiability - if different users could reach a general agreemen as to what the infromation intends to present
Timeliness - if it is available to users in time to be able to influence their decisions
Understandability - if it is presented in a clear and concise manner, must have knowledge of business activities and

Assets = Liabilities + Equity

Assets - Liabilities = Equity
Assets - Equity = Liabilities
Assets = Liabilities + Equity + Income - Expenses
Assets = Liabilities + Equity + Profit / - Loss

is the basic storage of information in accounting

may be depicted through a T-Account
has three parts
a. Account Title - describes specific item
b. Debit Side - left side of the account, value received
c. Credit Side - right side of the account, value parted with

the difference between total debits and credits represents balance of the account
debit balance - kapag mas mataas ung total ng debit
credit balance - kapag mas mataas yung total ng credit

elements of the FS
economic resources you control, resulted from past events and can provide economic benefits
not necessarily that you own it, necessary that you control the right.
have the exclusive right and enjoy the benefits and prevent others from enjoying those benefits
Common Account Titles
Cash - includes money or its equivalent that is readily available for unrestricted use
Accounts Receivable - supported by oral or informal promises to pay
Allowance for bad debts - allowance for doubtful accounts - estimated losses from uncolllectible AR - CONTRA ASSET
Notes Receivable - supported by written or formal promises to pay in the form of promissory notes
Inventory - goods that are held for sale , for manufacturing - may include goods under the process of production and
Prepaid Supplies - unused office and other supplies
Prepaid Rent - rent paid in advance
Prepaid Insurance - cost of insurance paid in advance
Land - the lot in which the building of the business is constructed, or a vacant lot for future plant site. Not depreciab
Building - the structure owned for use in the operations
Accumulated depreciation - building - total amount of depreciation expenses recognized CONTRA ASSET
Equipment
a. Machineries and other factory equipment
b. Transportation equipment
c. Office Equipment (refer to those used in office)
d. Computer Equipment
e. Furnitre and Fixtures - usually movable
*Immovable items - included in building improvement account or leasehold improvement account)
Accumulated depreciation - equipment - total amount of depreciation expenses recognized - CONTRA ASSET
*LAND, BUILDING, EQUIPMENT - referred to as PPE, Capital Assets or Fixed Assets
present obligations, resulted from past events, can require you to give up economic resources when settling them, c
duty or responsibility, can either
1. Legal Obligation - results from a contract, legislation, law
2. Constructive Obligation - results from your past actions that have a valid expectation on others
Common Account Titles
Accounts Payable - obligations supported by oral or informal promises to pay by the debtor
Notes Payable - obligations supported by written or formal promises to pay by a debtor
Interest Payable - interest incurred but not yet paid
Salaries Payable - salaries already earned by employees but not yet paid
Utilities Payable - utilities already used but not yet paid
Unearned Income - items related to income that were collected but not yet earned

capital, net assets , net worth, owner's claims

Common Account Titles
Owner's capital - residual amount after deducting the liabilities from assets
Owner's drawings - used to record the temporary withdrawals of the owner

increases assets or decreases in liabilities that results in increases the equity, excluding those relating to investment
there is profit - if income is greater than expenses
income includes:
a. revenue - arises in the course of ordinary activities of a business
b. gains - represent other items that meet the definition of income and may or may not arise in the course of ordina
Common Account Titles
Service fees - revenues earned from rendering services
Sales - revenues earned from the sale of goods
Interest Income - revenues earned from the issuance of interest-bearing receivable
Gains - income earned from the sale of assets (except inventory) or from enhancement of assets or decreases in liab

decreases in assets or increases in liabilities, that result in decreases in equity, excluding those relating to distributio
there is loss - if income is less than the expenses
expenses includes:
a. expenses - arise in the course of ordinary activities of the business
b. loss - represent other items that meet the definition of expenses and may or may not arise in the course of ordina
Common Account Titles
Cost of sales or cost of goods sold - value of inventories that have been sold
Freight -out - cost of delivering goods to customers
Salaries expense - salaries earned by employees
Rent expense - rentals that have been used up
Utilities expense - cost of utilitiesthat have been used up
Supplies expense - cost of supplies that have been used
Bad debt expense or doubtful accounts expense- estimated losses from uncollectible AR
 Depreciation expense - portion of the cost of depreciable asset that has been allocated
Advertising expense - cost of promotional marketing activities
Insurance expense - cost of insurance
Taxes and licenses - cost of business and local taxes required by the government
Transportation and travel expenses
Interest expense - cost of brrowing money, finance cost of borrowing cost
Miscellaneous expense - various small expenditures which do not warrant separate presentation
Losses - may or may not arise from the ordinary course of business, sale of assets other than inventory and decrease

Assets, Liabilities, Equity

statement of financial position, shows the financial position of a business, one of the component of FS

Income, Expenses
statement of profit or loss, subcomponent of the statement of comprehensive income, shows the profit ot loss of a

list of all accounts used by a business

account numbers are assigned to the accounts to facilitate recording, cross-referencing and retrieval of information
usually if 3 digits - 1st is the number assigned to the type of account, 2nd is the sequence of the subaccount, 3rd if n

s and Double-Entry System

also called book of original entries

accounting record where business transactions are recorded first
process is called journalizing

Special Journal - used to record transactions of a similar nature

Sample Format - CRJ
Date - Description - AR credits - Sales Credit - Sundry Credits (Account Title Amount) - Cash Debit
a. sales journal - sales on account
b. purchase journal - purchases of inventory on account
c. cash receipts journal - record all transactions involving receipts of cash
d. cash disbursement journal - record all transactions involving payments of cash
General Journal - all other transactions that cannot be recorded in the special journals are recorded here. Ex: purcha
Sample Format
Date - Account Titles - Acct Nos.- Debit - Credit - other columns that will show reference numbers , below the entr

systematic compilation of group of accounts

used to classify the effects of business transactions on the accounts
also called book of secondary entries or book of final entries
process is called posting
 general ledger - contains all the accounts appearing in the trial balance
Sample Format
Accounts Receivable Acct No.
Date - Ref - Debit - Credit - Balance
subsidiary ledger - provides a breakdown of the balances of controlling accounts
is one which consists of a group of accounts with similar nature
total balance is shown in the general ledger
breakdown comprising the controlling accounts is shown in the subsidiary ledger
only those accounts necessarily need a breakdwon

all transactions in accountingg are recorded using this system

each transaction is recorded in two parts - debit and credit
to be belanced at all times
involves 2 concepts
the concept of duality - having 2 fold effect on values - a value received and value parted with, atleast 2 accounts
the concept of equilibrium - record in terms of equal debits and credits

where the accounts increase

Debit
Debit
Credit
Credit
Credit

deduction to the related accounts

addition to the related accounts

tions and their Analysis

represents the steps and procedures used to record transactions and prepare FS

identifying a business transaction and analyzing whether accountable or not accountable events
this is where transactions are normally identified
written evidences containing information about transactions
some examples of business documents
Sales Invoice - used for the sale of goods
Official receipt - used for rendering of services
Purchase order - issued by a buyer to a seller , for what the buyer intends to purchase, internal control over purchas
Delivery receipt - document signed by the receiver to acknowledge the receipt of goods
Bank deposit slip - evidences a deposit to a bank account
Bank statement - a report issued by the bank on a monthly basis that shows deposits, withdrawals, cumulative depo
 Statement of account - a report issued by the business to its customer listing the transactions , payment made and t

external events - involve external party, ex: sale, purchase, borrowing of money, payment of liabilities
internal events - do not involve expterna party , ex: production of goods, casualty losses

by means of journal entry

format
date

*chronologically recorded

contains one single debit and a single credit

contains two or more debits and credits

transferring date from the journal to the ledger

to classify the effects

sted trial balance

list of general ledger accounts and their balances
prepare to check the equality of total debits and credits
creates a starting point in the fs preparation

unadjusted - prepared before adjusting entries are made

adjusted - prepared after after adjusting entries but before the fs are prepared
post -closing - prepared after the closing process

y the trial balance

jorunalizing and posting one half of an entry
recording one part of an entry for different amount
transplacement error - digit of an amount is incorrectly increased or decreased
transposition error - digits in an amount interchanged
ed by trial balance
omitting entirely the entry for transaction
journalizing or posting an entry twice
using a wrong account title with the same normal balance as the correct account
wrong computation with same erroneous amount posted both the debit and credit

simply the list of ending balances of accounts in the ledger

1. Name of business
2. Title of the report - Unadjusted Trial Balance
3. Date of the report
account titles are listed in order of assets - liabilities - equity - income - expenses

entries made prior to preparation of fs to update certain accounts so that they reflect correct balances
1. to take up unrecorded income and expense for the period
2. to split mixed accounts (into their real and nominal elements)

Accruals of income and expenses

give rise to both income and receivable , expense and payable
involve atleast 1 balance sheet account and 1 income statement accoun
affect all the profit or loss for the period
a. income that is already earned but not yet collected
ex: debit interest receivable (company received)
credit interest income
debit rent receivable
credit rent income
b. expense that is already incurred but not yet paid
ex: debit interest expense (company issued)
credit interest payable
debit utilities expense
credit utilities payable
debit salaries expense
credit salaries payable
Recognition of depreciation expense
the expenditure to acquire equipment is initially record all as asset, this asset is not associate with sales so the expe
debit depreciation expense
credit accumulated depreciation
carrying amount is computed by total amount of equipment less accumulated depreciation
Recognition of bad debt expense
uncollectible portion in the AR
debit bad debt expense expense
credit allowance for bad debts
Splitting of mixed accounts
or permanent accounts, not closed at the end of accounting period, includes all balance sheet account - assets , liab
closed at the end of the period, include all income statement accounts such as income and expenses, drawing accou
a. clearing accounts - used temporarily to store amounts that will eventually be transferred to another account, ec:
income summary - closed to owner's capital before fs prep
b. suspense accounts - used temporarily to store discrepancies in the accounts pending their analysis and permanen
ex: cash shortage or cash overage, depending on the investigation, this is closed to either accounts receivable or or

have both real and nominal account components, subject for adjustment
includes unadjusted prepayment - prepaid assets
includes deferral - unearned income
 expired portion - nominal accounts
uneaxpired portion - real accounts
advanced collection
l Recognition
Liability Method
initially credited to liability account,
earned portion - recognized as income
unearned portion - remain a liability
ex:
initial
Cash
Unearned rent
adjusting
Unearned rent
Rent Income

Income Method
initially credited to an income account
unearned portion - recognized as liability
earned portion remains as income
ex:
initial
Cash
Rent iIncome
adjusting
Rent Income
Unearned rent

prepayment of expenses
l Recognition
Asset Method
initially debited to asset
incurred portion - recognized as expense
unused portion - remain as assets
ex:
initial
Prepaid insurance
cash
adjusting
Insurance expense
Prepaid insurance
 Expense Method
initially debited to an expense account
unused portion - recognized as asset
incurred portion - remain as expense
ex:
initial
Insurance expense
Cash
adjusting
Prepaid insurance
Insurance expense

recognize income not yet collected, expense not yet paid

postpone the income recognition of an advance collection, postpone the expense recognition of a prepayment

lance / Worksheet
analytical device used to facilitate the gathering of data for adjustments, preparing fs and closing entries
optional only
Format

Account Titles

Totals

Adjustments

Totals

involves adding or subtracting amounts HORIZONTALLY

involves adding or subtracting amounts VERTICALLY
used to connote total or the end of computation

greatly facilitated by worksheet

end product of the accounting process
Statement of Financial Position or Balance Sheet - shows information about the assets, liabilities and equity, headin
format
Name of business
Balance Sheet
As of Dec 31 20x1
ASSETS
.
.
.
TOTAL ASSETS

LIABILITIES
.
.
.
TOTAL LIABILITIES

EQUITY
Owner's Equity
TOTAL EQUITY

TOTAL LIABILITIES ND EQUITY

Statement of Profit or Loss or Income Statement - shows information on income and expenses, and the profit or los

Name of business
Income Statement
For the period ended Dec 31 , 20x1

INCOME
Service Fees / Sale of Goods

EXPENSES
.
.
.
TOTAL EXPENSES

PROFIT FOR THE PERIOD

the adjusted trial balance column

all income and expenses accounts - are extended to income statement columns
all assets, liability and equity accounts - are extended to balance sheet columns
Format
Account Titles

Totals

Adjustments

Totals
Plus Income Summary
Total

prepared at the end of end of accounting period to zero - out all NOMINAL ACCOUNTS (income, expenses, drawings
closing the books
accounts to be closed (presentation in worksheet)
all income accounts - must be DEBITED
all expense accounts - must be CREDITED
journal entry
income
income summary (here, if loss)

income summary - must be closed to owner's equity (if loss - debit to equity, if income - credit to equity)
journal entry
income summary (if income)

owner's equity

owner's drawings - must be closed to owner's equity - DEBITED

journal entry
owner's equity

Account Titles

Totals

Adjustments
 Totals
Plus Income Summary
Total

contains only REAL ACCOUNTS (assets, liabilities, equity)

same with the balance sheet columns , except the owner's aquity, balance is updated for the profit or loss, and dedu
account that has no balance
account that has a balance

Account Titles

Totals

Adjustments

Totals
Plus Income Summary
Total

usually made on the first day of the next accounting period to reverse certain ADJUSTING ENTRIES
optional, but business often use reversing entries to
1. to facilitate the recording of cash receipts and disbursements in the next accounting period
2. to promote convenience in recording the next period's year end adjustments for accrual
3. to promote consistency of accounting procedure
*business customarily use this

that may be reversed

accruals for income and expenses
Accruals of income and expenses
give rise to both income and receivable , expense and payable
involve atleast 1 balance sheet account and 1 income statement accoun
affect all the profit or loss for the period
a. income that is already earned but not yet collected
ex: debit interest receivable (company received)
credit interest income
debit rent receivable
 credit rent income
b. expense that is already incurred but not yet paid
ex: debit interest expense (company issued)
credit interest payable
debit utilities expense
credit utilities payable
debit salaries expense
credit salaries payable
Reversing entries
ex:
interest income

interest payable

Prepayment initially recorded using EXPENSE METHOD

Expense Method
initially debited to an expense account
unused portion - recognized as asset
incurred portion - remain as expense
ex:
initial
Insurance expense
Cash
adjusting
Prepaid insurance
Insurance expense

Reversing entries
ex
insurance expense

Advanced collection initially recorded using the INCOME METHOD

Income Method
initially credited to an income account
unearned portion - recognized as liability
earned portion remains as income
ex:
initial
Cash
 Rent iIncome
adjusting
Rent Income
Unearned rent

Reversing entries
Unearned rent

Depreciation and Bad Debt expenses - ARE NOT REVERSIBLE

Adjusting entries involving receivables and payable are normally reversible

customary way to debit expense, credit income

if may reversing entries under

accrual of income or expenses
journal entry for reversing entries
journal entry for the collection or for the payment

prepayment under expense method

journal entry for reversing
journal entry AJE on the end of the year - NONE

for Merchandising System

is one that buys and sells goods without changing their physical form

main difference between service and inventory is that a merchandising business necessarily holds inventory of phys
refers to the goods that a merchandising business has purchased and primarily intended to resale, normally in their

layman's term perpetual - means continuing forever

called as such because under this system the inventory account or merchandise account is updated each time a pur
records called stock cards and stock ledger cards are maintained under this system, from which the quantitiesand b
all increases and decreases in inventory such as purchases, freight in, purchase returns, purchase discounts, cost of
Cost of goods sold is also updated each time a sale or sale return is made
commonly used for inventories that are specifically identifiable and are relatively high valued, such as cars, machine

layman's term, the word periodic, means occurring or recurring at regular intervals
called as such because under this system, the inventory account is updated only when a physical count of inventory
the business does not maintain recordsthat show the running balances of inventory on hand and cost of goods sold
quantity counted X unit cost to get the balance of the inventory account, the amount is then used to compute for th
Purchases
ADD: Freight In
LESS: Purchase returns
LESS: Purchase discounts
NET PURCHASES

Beginning Inventory
ADD: Net Purchases
Total Goods Available for Sale
LESS: Ending inventory (physical count)
COST OF GOODS SOLD

no entry is made to recognize cost of goods sold when inventory is sold

the balance of cost of goods sold prior to a physical count is zero
commonly used for inventories that are normally interchangeable, relatively low valued, and have a fast turnover ra

Perpetual System
Purchase a goods on account
Inventory
Accounts Payable
Paid shipping costs
Inventory
Cash
Returned damaged goods
Accounts Payable
Inventory
Sold goods costing 5,000 for 20,000 on account
Accounts Receivable
Sales

Cost of goods sold

inventory
Customer returned goods with sale of P800 and cost of 200
Sales Return
Accounts Receivable

Inventory
Cost of Goods Sold

/ gross income / gross margin / sales profit

 simply the Net sales minus cost of goods sold

Sales
LESS: Sales Returns
LESS: Sales Discounts
NET SALES

Net Sales
LESS: Cost of Goods Sold
GROSS PROFIT

Net Sales
Less: Cost of Goods Sold
Gross Profit
Rent Expense
Depreciation Expense
Salaries Exp . Etc
Profit (Net Profit)

e Statement under Perpetual - EXTERNAL REPORTING

Business Name
Income Statement
For the period ended ______

Sales
Sales Discounts
Sales Returns
Net Sales
Cost of Goods Sold
Gross Profit
Rent Enxoense
Supplies Expnese
Depreciation Expense
Salaries Expense
Profit

ent of cost of goods sold and gross profit - INTERNAL REPORTING

it is not a formal accounting report that is prepared for external reporting. For internal purposes
similar to the income statement, part of an income statement. However the statement of cost of goods sold and gro

if theres some shortage - charged either as a receivable (if fault of the employee), or a loss (if nobody's fault)

if overage -
use the should be vs. entry made
should be - ito dapat
entry made - ito ang ginawa

if there are no discrepanices

Statement of cost of goods sold and gross profit

Name of Bar
Statement of cost of goods sold and gross profit
for the period ended december 31, 2021

sales
cost of goods sold:
Beginning inventory
add: net purchases
total goods available for sale
less ending inventory
gross profit
nomic information that is useful in making economic decisions
systematically gathered, classified and organized

s and an output

g" refers to the process of recording the accounts or transactions, normally ends with the preparation of trial balance, does not

le entry system, "father of modern accounting"

is accountable or non accountanble event. Only accountable events are recorded in the books of accounts
s, equity, income or expensesof a business
called "journalizing", after that, classifies the effect of the events on the accounts, this process is called "posting"

tem in order to produce meaningful reports

o FS, as well on the face of other components

vestments and credit decisions

: business owners directly involved, board of directors and managerial personnel

s, ex: existing and potential investors who are not directly involved, lenders, governmentagencies, non-managerial employees,

rs, provided by financial accounting primarily for external users

users, provided by management accounting or other branches primarily for internal users

representation of an entity's financial position and results of its operation

nterchangeably
d outside FS
conomic resources, claims and changes to those resources
ng the managements stewardship, improve user's ability to make efficient economic decisions
 r internal users, offshoot of this is the management advisory services
entalities, focusing on the custody of public funds
ness processes, with established criteria

duction of goods or rendering of services

r variables to undertand their impact on decisions

a contract to carry on the business

, can transact on behalf of the partnership

rs: stockholders or shareholders

can transact on its own

e provisions of the Philippine Cooperative Code of 2008

age refunds

Corporation
1. A stockholder who is not a BOD, is
releived from managerial
responsibilities, does not need to
work to earn income
Cooperative
1. Your say on cooperative affairs is not affected by
the number of shares you owned, each member is
entitled to only one vote regardless of the
shareholdings, but those with larger shares are
entitled to larger share in profit

2. Limited liability of the owners, 2. Limited liability, liable only up to the amount they
liable only up to the extent of their have invested
invested capital

3. Compared to corporation, it is easier and less

costly to form
 4. Generally exempt from paying taxes. The main
advantage. It may even receive assistance from the
government

3. Greater capital and ease In raising

additional funds
4. If the corporation is listed, you can
easily transfer your shares o other
investors

5. Unlimited life, can be renewed 5. Unlimited life, can be renewed after 50 years
after 50 years

Corporation Cooperative

1. Your say on corporate affairs 1. Prone to poor management, due to one member
depends on the number of your one vote policy
shares

2. More difficult and most costly to

form

3. Greater extent of government

regulation and higher taxes
4. You have to wait for the BOD to 2. There are restrictions on the distribution of
declare dividends before you can get profits, portion of its annual profit must be
your share in the profit appropriated to some funds, only the remaining
must be distributed. When it gets dissolved, the
amount in the "reserve fund" will not be returned
but rather donated to another cooperative or to the
community

3. Susceptible to corruption
4. More difficult to sustain growth as compared to
corporation
5. There are restrictions on the transfer of shares,
there must be approval of the board before a
member can transfer
pertise, advice, lending services
rants, transportation, ertertainment
r physical form
sari stores, rice wholesalers, vegetable dealers, 2nd hand car dealers
hanges its physical form
ng companies, factories

nufacturing 2. sells coca cola (merchandising) 3. serves food to customers (service)

that is most in line with the business purpose.
de dining services, thus they are more of a service type business

in recording and communicating economic information

for financial reporting

period of time
tends to end its operations or if it has no other choice but to do so
her than at historical cost

xpenses when the related revenue is recognized

s recorded when earned, expense is recognized when incurred

accountant chooses the unfavorable one

es or expenses are not understated

nual period
easure, which is the peso in the philippines

nature of the item being judged

benefits to be derived

ent details that make a difference, sufficient condensation to make info understandable
nd present information consistently from one period to another period

ework for financial reporting and PFRS

ed because of their general and long time acceptance within the accountancy profession

cifically refer to the PFRSs

epted Accounting Principles (GAAP)

eporting Standards Council (FRSC)

orting Standards issued by IASB - International Accounting Standards Board

aration of financial statements

veloping or applying the standards

sified into two

lowing aspects
ure outcomes
confirm their past predictions
ecisions of users

ollowing aspects:

description and in the process

and differences between info, comparison requires atleast two items

en as to what the infromation intends to present
uence their decisions
anner, must have knowledge of business activities and willingness to analyze
alance of the account

nd can provide economic benefits

others from enjoying those benefits

le for unrestricted use

estimated losses from uncolllectible AR - CONTRA ASSET

to pay in the form of promissory notes
may include goods under the process of production and raw materials

cted, or a vacant lot for future plant site. Not depreciable

ciation expenses recognized CONTRA ASSET

nt or leasehold improvement account)

preciation expenses recognized - CONTRA ASSET
Assets or Fixed Assets
ou to give up economic resources when settling them, creditor's claims

at have a valid expectation on others

promises to pay by the debtor

romises to pay by a debtor

not yet paid

ted but not yet earned

es from assets
ls of the owner

eases the equity, excluding those relating to investments by business owners

ncome and may or may not arise in the course of ordinary activities of the entity

rest-bearing receivable
ory) or from enhancement of assets or decreases in liabilities that are not classified as revenue

creases in equity, excluding those relating to distributions to business owners

penses and may or may not arise in the course of ordinary activities of the entity

have been sold

osses from uncollectible AR

et that has been allocated

by the government

orrowing cost
o not warrant separate presentation
siness, sale of assets other than inventory and decreases in the value of assets

of a business, one of the component of FS

of comprehensive income, shows the profit ot loss of a business

ecording, cross-referencing and retrieval of information

account, 2nd is the sequence of the subaccount, 3rd if not zero, represents a contra account

s (Account Title Amount) - Cash Debit

eipts of cash
ng payments of cash
ded in the special journals are recorded here. Ex: purchase of inventory in exchange for notes payable, adjusting entries, correti

mns that will show reference numbers , below the entries can add a short description as well
controlling accounts

he subsidiary ledger

e received and value parted with, atleast 2 accounts

and credits

where the accounts decrease ending balance of an account

credit if has debit balance - normal, if credit balance - abnormal
credit if has debit balance - normal, if credit balance - abnormal
debit if has credit balance - normal, if debit balance - abnormal
debit if has credit balance - normal, if debit balance - abnormal
debit if has credit balance - normal, if debit balance - abnormal

if the normal balance of the related account is debit, contra account's normal balance is credit, the opposite
if the normal balance of the related account is debit, adjunct account's normal balance is the same

tions and prepare FS

ountable or not accountable events

uyer intends to purchase, internal control over purchases

wledge the receipt of goods

asis that shows deposits, withdrawals, cumulative depositor's bank balance

customer listing the transactions , payment made and the remaining balance

orrowing of money, payment of liabilities

on of goods, casualty losses

account title to be debited XX

account title to be credited XX
short description
*2 parts - debit and credit
*short description - for future reference

he fs are prepared

ased or decreased

the correct account

th the debit and credit
- income - expenses

ounts so that they reflect correct balances

ent accoun

s asset, this asset is not associate with sales so the expenditure is recognized as expense over the perios the equipment is used

less accumulated depreciation

period, includes all balance sheet account - assets , liabilities, equity except owner's drawings
t accounts such as income and expenses, drawing accounts, clearing and suspense account
t will eventually be transferred to another account, ec: income summary

es in the accounts pending their analysis and permanent classification

ation, this is closed to either accounts receivable or or loss account (if shortage), or a payable or gain (if overage)

r adjustment
ostpone the expense recognition of a prepayment

djustments, preparing fs and closing entries

Company Name
Workshet
For the month ended Dec 31, 20x1
Unadjusted trial balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit

xx xx

xx xx xx

ormation about the assets, liabilities and equity, headings NAME OF BUSINESS - TITLE OF FS - As of _______ (represents cumula
 P XX
XX
XX
P XX

P XX
XX
XX
P XX

P XX
P XX

P XX

ormation on income and expenses, and the profit or loss for the period , headings - NAME - TITLE OF FS - FOR THE PERIOD ENDE

P XX

P XX
XX
XX
P XX

P XX

statement columns
nce sheet columns

Company Name
Workshet
For the month ended Dec 31, 20x1
 Unadjusted trial balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit

xx xx

xx xx xx

t all NOMINAL ACCOUNTS (income, expenses, drawings, temporary accounts such as clearing and suspense accounts) in the le

expenses
income summary (here, if income)
debit to equity, if income - credit to equity)

owner's equity

income summary (if loss)

owner's drawings

Company Name
Workshet
For the month ended Dec 31, 20x1
Unadjusted trial balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit

xx xx
 xx xx xx

quity, balance is updated for the profit or loss, and deduction of drawings

Company Name
Workshet
For the month ended Dec 31, 20x1
Unadjusted trial balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit

xx xx

xx xx xx

o reverse certain ADJUSTING ENTRIES

nts in the next accounting period

ar end adjustments for accrual

ent accoun
interest receivable

interest expense

prepaid insurance
 Rent income

mally reversible

chandising business necessarily holds inventory of physical goods for sale

ased and primarily intended to resale, normally in their original form and withoutany further processing

unt or merchandise account is updated each time a purchase or sale is made. Thus, the invenotry account shows a continuing o
ned under this system, from which the quantitiesand balances of goods on hand and goods sold can be determined at any give
reight in, purchase returns, purchase discounts, cost of goods sold, and sale returns are recorded in the inventory account.
turn is made
ble and are relatively high valued, such as cars, machineries, furniture and heavy equipment

ing at regular intervals

unt is updated only when a physical count of inventory is performed. Thus the amounts of inventory and cost of goods sold are
g balances of inventory on hand and cost of goods sold at any given point of time. To determine this, a physical count must be
ory account, the amount is then used to compute for the cost of goods sold, which is the residual amount in the formula
 XX the account used to record purchases of inventory unDEBITED
XX or transportation in - the account used record the sh DEBITED
(XX) the account used to record the returns of purchased gCREDITED
(XX) the account used to record cash discounts availed of CREDITED
XXXX

XX
XX
XXXX
(XX)
XXXX

tory is sold

eable, relatively low valued, and have a fast turnover rate, such as grocery items, medicines, electrical parts and office suppplie

Periodic System

Purchases
Accounts Payable

Freigh-In
Cash

Accounts Payable
Purchase returns

Accounts Receivable
Sales

NO ENTRY

Sales Return
Accounts Receivable

NO ENTRY
XX include both cash sales and credit sales
(XX) the account used to record goods returned by customCONTRA ACCOUNT - DEB
(XX) the account used to record cash discounts given to c CONTRA ACCOUNT - DEB
XXXX

XX
(XX) Gross Profit
XX represents the profit a business earns after deducting the cost of the goods so

Profit or net profit

- different from gross profit. It the amount derived after deducting all other ex

XX
(XX)
XXXX
(XX)
(XX)
(XX)
XXXX

XX
(XX)
(XX)
XXXX
(XX)
XXXX
(XX)
(XX)
(XX)
(XX)
XXXX
 nal reporting. For internal purposes
nt. However the statement of cost of goods sold and gross profit ends with the gross profit - meaning it does not show informati

ault of the employee), or a loss (if nobody's fault)

16,660

1000
4800
5800
-1040 -4760
11,900
trial balance, does not require interpretation

anagerial employees, customers, public

justing entries, correting entries, reversing entries and the like
t, the opposite
he equipment is used
djusted Trial Balance
ebit Credit

xx

__ (represents cumulative amounts)

FOR THE PERIOD ENDED (closed every end of period)
djusted Trial Balance Income Statement Balance Sheet
ebit Credit Debit Credit Debit Credit

xx xx xx xx xx
here if incomhere if loss here if loss here if income
xx xx xx xx

nse accounts) in the ledger

djusted Trial Balance Income Statement Balance Sheet Closing Entries

ebit Credit Debit Credit Debit Credit Debit Credit
INCOME
EXPENSE
income summarincome summary (if income - owner
owner's drawings to owner's equity
 xx xx xx xx xx xx xx
here if incomhere if loss here if loss here if income
xx xx xx xx

djusted Trial Balance Income Statement Balance Sheet Closing Entries

ebit Credit Debit Credit Debit Credit Debit Credit
INCOME
EXPENSE
income summarincome summar
owner's drawings to owner

xx xx xx xx xx xx xx
here if incomhere if loss here if loss here if income
xx xx xx xx
 t shows a continuing or running balance of the goods on hand
etermined at any given point of time without the need of performing a physical count of inventories
nventory account.

cost of goods sold are determined only periodically

physical count must be performed periodically (daily, weekly, monthly or annual basis)
t in the formula
rts and office suppplies
ONTRA ACCOUNT - DEBITED
ONTRA ACCOUNT - DEBITED

he cost of the goods sold or services rendered, but before deducting other expenses

deducting all other expenses from the gross profit

oes not show information about the other expenses
come summary (if income - owner's equity )
gs to owner's equity
Post-closing trial balance
Debit Credit
ALL ASSETS
ALL LIABILITIES
income summar TOTAL EQUITY (updated after profit or loss, drawings)
owner's drawings to owner's equity

xx xx
 Terms Definition
PPE Property, Plant and Equipment
1 tangible assets meaning with physical substance
2 used in business meaning used in production or supply of goods or se
3 expected to be used over a period or more than 1 year
Examples
1 Land 7
2 Land Improvements 8
3 Building 9
4 Machinery 10
5 Ship 11
6 Aircraft 12

Classes of PPE
1 Land classified as ppe if it is used in entity's operation as owner occupied p
ex: land in which the entity's office building was constructed, land use

not PPE under land

1 land being sold in the ordianry course of business
2 land held for sale - classified as non current asset held for sale
3 land held for long term capital appreciation - classified as investment
4 land held for currently undetermined future use - classified as investm
5 land held as site for a building being constructed or developed for fut
6 land leased out under operating lease - classified as investment prope
7 land leased out under finance lease - derecognized in the lessor's boo

cost of land
1 purchase price including other necessary cost such as broker's commi
2 closing cost , such as titling cost, attorney's fees, recording fees
3 cost incurred in getting the land in the condition for its intended use,
4 unapid taxes prior to date of acquisition assumed by the buyer. Taxes
5 assumption of any liens, mortgages or encumbrances on the property
6 special assessment for local government maintained improvements ,
7 option paid to acquire the land. Options paid not acquired - expense
8 cost incurred to induce tenants to vacate premises abd cost of relocati
9 initial estimate of restoration cost for which the entity has a present o
10 any additional land improvements that have indefinite life, such as co

2 Land improvement enhancement to the land which have a definite useful life, such as - p
subject for depreciation
recognized separately from land
3 Building classified as PPE if it is used in the entity's operations as owner occup

Not an examples
1 land held for speculation 6
2 land held for an undetermined 7
3 land and / or building classif 8
4 property held for sale in the ordinary course of business
5 assets classified as held for sale

Recognition of PPE
1 probable that future economic benefits associated with the asset will
2 cost of the asset can be measured reliably

most spare parts and servicing requipment - usually carried as inveno

major spare parts and stand-by equipment - qualify as ppe when it Is

Measurement at Recognition
1 Shall be measured initially at cost
1 Cost amount of cash or cash equivalent paid and the fair value of the othe
Elements of cost
1 Purchase price - including import duties and nonrefundable purchase
2 Cost directly attributable to bringing the asset to the location and con
3 Initial estimate of the cost of dismantling and removing the asset and

Directly attributable costs examples

1 cost of employee benefits arising directly from the acquisition of ppe
2 cost of site preparation
3 intiial delivery and handling cost
4 installation and assembly cost
5 professional fees
 6 cost of testing whether the asset is functioning properly

proceeds from sample / testing

1 shall be included in profit or loss
2 the proceeds are no longer deducted from the cost of ppe, if not sold

Costs not qualifying for recognit expensed immediately, not included in the cost of ppe
1 cost for opening a new facility
2 cost of introducing a new product or service, advertising and promoti
3 cost of conducting business in a new location or with a new class of cu
4 administration and other general overhead costs
5 cost incurred while an item of operating in the manner intended by th
6 initial operating losses
7 cost of relocating or reorganizing part or all of an entity's operations

2 Measurement after recognition either

1 cost model
means that PPE are carried at cost less any accumulated depreciation

2 revaluation model
means that PPE are carried at revalued carrying amount
revalued carrying amount the fair value at the date of revaluation class less any subsequent accu

Ways of acquiring PPE

1 Cash Basis cost of ppe is the cash price equivalent at the recognition date
includes the cash paid plus directly attributable costs
when several assets are acquired at a "basket price" or "lump sum pri
example
land and building acquired at a single cost of 5,500,000. At the time o
compute for the allocation of cost
1 get the percentage base on the total fv of 2 asstes
fv
land and building acquired at a 1,000,000.00
bldg 4,000,000.00
total 5,000,000.00

2 Acquisition on account the cost of asset is equal to the invoice price minus the discount - reg
if discount is not taken - the amount is charged as purchase discount
cash discounts are generally considered as reduction of cost and NOT
example
equipment is purchased for 100k, 2/10 discount, n/30 term
1 journalize the acquisition and payment
 acquisition equipment 100,000

payment within the discount period

accounts payable 100,000

payment beyond the discount period

accounts payable 100,000
purchase discount lost 2,000

3 acquisition on installment basis when ppe is deferred beyond normal credit terms , the cost is equiva
with available cash price the excess of the installment price over the cash price is treated as an
example
machinery is purchased at an installment price of 350,000 . The terms
the cash price of the machinery is 290,000. Promissory note is issued
1 journalize, compute for the discounts on note payable
acquisition machinery 290,000
discounts on note payable 60,000

first installment note payable 100,000

amortize the discounts on note pget the percentage para malaman yung hatian per year
base sa outstanding balance every year

interest expense 30,000

note payable percentage

1st yr 300,000 50%
2nd yr 200,000 33%
3rd yr 100,000 17%
total 600,000

acquisition on installment basis the asset is recorded at an amount equal to the PRESENT VALUE of al
with no available cash price down payment plus present value of the note during the start of the y
example
machinery is acquired at 700k. Terms are 100k dp and the balance is p
 note is issued for the balance of 600k
implied interest is 10%
solution get the present value if the annuity of 1 , answer is 2.487 times 1st in
dp 100,000.00
present value of note 497,400.00

total cost of machinery 597,400.00

get the amount of discounts of notes ,determine the interest expens

note payable 600,000
less present value of the note 497,400.00
amount to be amortized 102,600.00

journal entries
acquisition machinery 597,400.00
discount of note payable 102,600.00

first installment note payable 200,000

amortize the discount on note p interest expense 49,740

the effective interest method is used in amortizing the discount on note paya

amortization of discounts
year payment interest
1-Jan
first yr 200,000.00 49,740.00
second yr 200,000.00 34,714.00
third yr 200,000.00 18,185.40

4 issuance of share capital if shares are issued for consideration other than actual cash, procced
cal substance
roduction or supply of goods or services, for rental purposes and for administrative purposes
or more than 1 year

Motor Vehicle Other examples:

Furniture and Fixtures land used in business, land held for future plant site
Office Equipment building used in business
Patterns, molds and dies equipment used in the production of goods, equipment used for enviro
Tools major spare parts and long live stand-by equipment
Bearer plants

y's operation as owner occupied property

building was constructed, land used as a plant site, land held for future plant site

rse of business
current asset held for sale
reciation - classified as investment property
ed future use - classified as investment property
g constructed or developed for future use as investment property
ase - classified as investment property
e - derecognized in the lessor's books of account

essary cost such as broker's commissions

ttorney's fees, recording fees
the condition for its intended use, such as surveying, grading, filling, draining and clearing
sition assumed by the buyer. Taxes incurred after - expenses
or encumbrances on the property
ment maintained improvements , such as pavements, street lights, sewers and drainage system
tions paid not acquired - expense
vacate premises abd cost of relocating and rconstructing property belinging to others
or which the entity has a present obligation
that have indefinite life, such as cost of draining, clearning, grading, leveling, filling, surveying, subdividing, ad other permanent

ve a definite useful life, such as - private driveways, walks, fences, parking lots, drainages, water system
entity's operations as owner occupied property

biological assets related to agricultural activity , other than bearer plants

intangible assets
minor spare parts and short lived stand by equipment
ry course of business

efits associated with the asset will flow to the entity

uipment - usually carried as invenotry and recognize as an expense when consumed

uipment - qualify as ppe when it Is expected to be used In more than one period

paid and the fair value of the other consideration given to acquire an asset at the time of acquisition or construction

uties and nonrefundable purchase taxes, after deducting trade discounts and rebates
g the asset to the location and condition necessary for it to be capable of operating in the manner intended by the managemen
ntling and removing the asset and restoring the site on which it is located and for which an entity has a present obligation as re

irectly from the acquisition of ppe

 functioning properly

ed from the cost of ppe, if not sold, samples are accounted for a inventory

d in the cost of ppe

or service, advertising and promotion

w location or with a new class of customer, including cost of training staffs
verhead costs
ating in the manner intended by the management has yet to be broght into use or is operated at less than full capacity

art or all of an entity's operations

ess any accumulated depreciation and any accumulated impairment loss

ued carrying amount

tion class less any subsequent accumulated depreciation and subsequent accumulated impairment loss

lent at the recognition date

attributable costs
t a "basket price" or "lump sum price" - apportion the single price to the assets acquired on the basis of RELATIVE FAIR VALUE

le cost of 5,500,000. At the time of acquisition the relative fv of land is 1M and the building is 4M.

al fv of 2 asstes
percentage sharing in the cost
20% 1,100,000.00
80% 4,400,000.00
5,500,000.00

oice price minus the discount - regardless if discount is taken or not

nt is charged as purchase discount loss, which is shown as other expense
ered as reduction of cost and NOT as income

2/10 discount, n/30 term

 accounts paya 100,000

cash 98,000
equipment 2,000 (100k times 2%)

cash 100,000
equipment 2,000

mal credit terms , the cost is equivalent to the cash price

over the cash price is treated as an INTEREST EXPENSE to be amortized over the credit period

lment price of 350,000 . The terms are 50k dp and the balance will be paid equally for three years
290,000. Promissory note is issued for 300k
nts on note payable

note payable 300,000

cash 50,000

cash 100,000

yung hatian per year

discounts on n 30,000

sharing per year in the interest expense

30,000.00
20,000.00
10,000.00
60,000

equal to the PRESENT VALUE of all payments using an implied interest rate
of the note during the start of the year

ms are 100k dp and the balance is payable equally for 3 years

y of 1 , answer is 2.487 times 1st installment amount

200,000 * 2.487
how to 2.487 = 1.10//====-1=/10%

tes ,determine the interest expense to be amortized

cash 100,000
note payable 600,000

cash 200,000

discount on no 49,740

principal present value

497,400.00
150,260.00 347,140.00
165,286.00 181,854.00
181,814.60 0

on other than actual cash, procced s shall be measured at FAIR VA

s, equipment used for environmental and safety reasons, equipment held for rentals

dividing, ad other permanent improvements

on or construction

intended by the management

has a present obligation as required by law or contract
ess than full capacity

sis of RELATIVE FAIR VALUE