CHAPTER 1 – Introduction to Accounting and Business

XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER

ACCOUNTING Users of Accounting Information
● It is a service activity. The activity utilizes the ● Internal Users of Business
- Primary users or parties inside the company.
complete process of identifying, measuring, and
- Those stakeholders that are directly involved in
communicating financial information to
managing the business.
formulate reports that will be used to provide
- These users use accounting information for
relevant information to perform decision-making.
specific needs, such as managing the
● Serves as a bridge between the company and business.
stakeholders. - Examples: Owners, Managers, Employees
● This enables communication between business
and stakeholders through making a record of the
growth and decline of the business or owner’s ● External Users of Business
net worth. - Secondary users or parties outside the
- Net Worth – It represents the wealth or company.
finance of the business which is - Those individuals that are indirectly involved in
composed of its properties or assets. managing the business.
- They use accounting information for common
● First three parts of the Accounting Cycle found in
use.
the bookkeeping:
- Examples: Lender or Creditors, Government,
🡺 Track down business activities from the
Suppliers, Customers
time cash is used to transact,
🡺 Analyze, calculate, and record business
activities (transactions), and
🡺 Prepare progress reports through making
financial reports.

History of Accounting
● Earliest Bookkeeping Records
- In the early centuries, bookkeeping records
were used to keep track of the construction of
pyramids and palaces being constructed;
monitoring the manpower, materials, and FOUR ASPECTS OF ACCOUNTING
number of days to be utilized in the project.
● Recording
- Bookkeeping was also used for census or the
- Writing down financial activities
registry of people living in a province to serve
chronologically after analyzing each
as a guide for collection of taxes.
transaction.
● History of Accounting in the Philippines
● Classifying
- Introduced by the Spaniards
- Grouping recorded transactions or financial
- The bookkeeper at that time was called
activities into specific account classifications.
Tenedor de Libro.
- Classify/arrange into: Assets, Liabilities, Owner’s
- In early history, business records were prepared
Equity, Revenue, and Expense.
and kept by the traders.
● Summarizing
● Benedetto Cotrugli
- Process of preparing financial reports that is
- He wrote the first mercantile book “Libro de
used for decision-making by the users of
Larte dela Mercatura” in 1458.
accounting information.
- Cotrugli is a Ragusan Merchant
- Reporting through making financial
● Fr. Luca Pacioli
statements: Balance Sheet, Income Statement,
- Notorious to be the “Father of Modern
Capital Statement, and Cash Flow Statement.
Accounting.”
● Interpreting
- He introduced the concept of double-entry
- Interpretation of reports based on the
bookkeeping through his first printed exposition
provided Financial Statements and
titled “Summa de Arithmetica” in 1594.
presentation of this information in a qualitative
- Pacioli is an Italian Mathematician.
and quantitative form.

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CHAPTER 1 – Introduction to Accounting and Business
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
- The process of supplying answers to questions
▪ Management is More
about the financial standing of the company:
Profitability, Solvency, Stability, and Liquidity of Efficient (Division of
business. Responsibilities)

TYPES AND FORMS OF BUSINESSES -

● Corporation
● Business
- This is a type of business which is created
- An economic unit that engages in buying and
through a separate legal entity that is owned
selling of goods or rendering services to other
by more than one individual called
people.
shareholders/stockholders.
- Its primary reason is to earn profit and create
- The business is separate from its owners, hence
job opportunities. Moreover, its role in society
why it can conduct business on its own.
involves paying more taxes to the government,
- This type of business organization is not
which is then used for the development of the
managed by the owner, but by the Elected
community.
Board of Directors (BOD) that are sometimes
shareholders too.
Types of Business Organizations
- Advantages and Disadvantages:
● Sole Proprietorship
- The business is owned and operated by one
Advantages Disadvantages
person only.
- Most small businesses in different industries are ▪ More Capital ▪ Higher Risk on
sole proprietor-owned businesses.
Corporate Debts
- Advantages and Disadvantages: ▪ Can Hire Experts
▪ More Legal and Tax
Advantages Disadvantages ▪ Perpetual Existence
Requirements
▪ Small Amount of ▪ Difficult to Expand
Capital Needed
▪ More Stable ▪ Abuse of Power by
▪ No Indefinite Life
▪ Managed Easily Board of Directors
▪ Higher Amounts of
▪ Owner Gets All the ▪ Unlimited Liabilities (BOD)
Profit Profit

▪ Ease in Formation -

(Minimum
Types of Business Operations
Requirement to
● Service
Legally Operate) - Operation involves rendering service for a fee
to customers.
- Examples: Beauty salon, clinic, travel agency,
● Partnership
and school.
- A business is owned by two or more individuals
- Advantages and Disadvantages:
that are called partners. Each partners
decided to contribute knowledge and cash
Advantages Disadvantages
and non-cash assets to start up a business with
the intent of dividing the profit eventually, ▪ No Need for Inventory ▪ Services are Harder to
- Most partnership-owned businesses are owned
Value
by professionals, such as doctors, lawyers, and ▪ Skills can be Improved
accountants. ▪ Less Demand During
- Advantages and Disadvantages:
Economic Downturns

Advantages Disadvantages

▪ Ease in Managing ▪ No Indefinite Life ● Merchandising or Trading

- Engaged in the buying and selling of goods or
▪ Unlimited Liabilities merchandise to customers.
- The products sold are already manufactured
and ready to use.

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CHAPTER 1 – Introduction to Accounting and Business
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
- Examples: Shoe store, drugstore, bookstore,
and clothing store. ● Compatibility Principle
- Advantages and Disadvantages: - It advises that the AIS System to be used by the
business must be designed to fit the unique
Advantages Disadvantages characteristics of the overall company.
● Flexibility Principles
▪ Good Merchandising ▪ Profits are Highly
- It suggests that the company system should
Attracts More Dependent on Prices allow and adapt for changes when needed.
Customers Set ● Control Principle
- It prescribes that the business’ AIS must have
▪ Flexible to Changes ▪ Merchandise
good internal control.
Inventory maybe ▪ Internal Control – Enumerates the
Perishable methods and procedures necessary to
monitor the activities of the business to
ensure efficient operation.
● Manufacturing
- Take part in the production of items or the AIS COMPONENTS
purchase of raw materials and processing ● People – The system users.
them into finished products to be sold for cash. ● Data or Documents – The various accounting
- Examples: Factories, bakeshops, and food transactions and support of the analyzed data.
stalls. ● Procedure or Methods – The process of capturing
- Advantages and Disadvantages: data from the documents in a meaningful
manner by performing the phases of AIS.
Advantages Disadvantages ● Equipment or Devices – The hardware used to
operate the AIS through processing data and
▪ Continuous Demand ▪ Capital Intensive
generating information, which are then
on Manufactured summarized through financial reports.
Goods ● Records or Software
- Records: Books of accounts maintained by the
▪ Higher Job
accounting department. Journal (Where
Satisfaction gathered accounting data are recorded) and
Ledger (Storing and classifying recorded
transactions into new books by posting) are
● Hybrid Business some examples of records by the said
- Performs more than two of the department.
abovementioned business operations. It is the - Software: Computer programs used by
combination of either service and business to employ the AIS.
merchandising or all the three (service,
merchandising, and manufacturing).
- Examples: Restaurant, café, and insurance
business.
-
ACCOUNTING INFORMATION SYSTEM (AIS)
- The set of rules to be followed by the business. QUALITATIVE CHARACTERISTICS OF FINANCIAL
- A system that an entity utilizes to collect, store, INFORMATION
and manage its financial data. ● FUNDAMENTAL
a. Relevance
AIS PRINCIPLES - The quality of information should make a
● Cost-Benefit difference and influence the user to conclude
- It states that the advantages enjoyed must with a meaningful decision.
outweigh its cost. - Information must provide feedback value (Past
● Relevance performance of the business) and predictive
- It prescribes that information must be reported value (Useful in projecting what might take
promptly and must be useful for the user to place).
make a right decision and conclusion.

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CHAPTER 1 – Introduction to Accounting and Business
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
-
Include all information which is material to the
entity.
b. Faithful Representation
- Financial statements must be correct,
complete, and neutral.
- Information provided should be objective and
free from misrepresentations, so one must
exercise caution when preparing financial
reports.
● Enhancing
c. Verifiability
- Reports should be possible to be duplicated or
reproduced by another entity or an
independent measure, like a third party.
- The results from the company auditor should
be the same as the results the external auditor
shall generate.
d. Timeliness
- The financial reports must be submitted on
time or when needed to come up with a
sound judgment and make informative
decisions, especially when there is a need to
solve a problem.
- Being able to act on time when the reports are
needed.
e. Understandability
- The generated financial reports must be
presented where terminologies used are
ensured to be clear and easy to comprehend,
especially if the user does not have
background accounting knowledge.
- Present in an orderly manner and avoid the
use of accounting jargon when interpreting.
f. Comparability
- The statements you generated for the year
must be prepared under the same accounting
principles of the previous years, hence the
business can compare the findings from the
current year and previous years.
- Helps one identify changes taking place
between two periods.
- Requires uniformity of accounting treatment.
MAJOR ACCOUNTS
● Account
- It refers to the device used to record the
changes, either increase or decrease, in the
accounting elements. Similar transactions are
grouped together under one account.
Assets
- Classified and presented according to liquidity
with the most liquid by those with lesser
liquidity.
- Economic Resources.
- Resources obtained from the past.
- Entity has control over the resource.
- There are future economic benefits.
- Classified into two:
1. Current Assets
- Realized in the normal operating cycle (1
Year)
- Held Primarily for trading purposes.
- Cash, Cash Equivalents, Marketable
Securities, Receivables, Accrued
Income, and Prepaid Expenses
2. Non-Current Assets
- Long-term assets with a full value that
cannot be recognized until after one
year.
- Long term investments, Property, Plant,
Equipment (P.P.E), and Intangible Assets
Liabilities
- A present obligation arising from a past event
and a settlement is expected.
- Economic Obligations.
- Classified into two:
1. Current Liabilities
- Payables to be settled within one (1)
normal operating year. It does not have
an unconditional right to defer
settlement.
2. Non-Current Liabilities
- Obligations needed to be settled for
more than one (1) accounting period.
- Mortgage Payable, and Bonds Payable.
- Not expected to be paid immediately.
Owner’s Equity
- Includes the interest of the owner in the
business, claims of the owner on the assets of
the business.
- Economic Residual
- Investment of the owner plus (less) the results of
operations
- Two main sources – Investment and Earnings
- Two account titles:
1. Capital
- Represents the original and additional
investment of the owner to business.
2. Drawing

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CHAPTER 1 – Introduction to Accounting and Business
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
- Represents the withdrawals made by the
owner of the business in cash or other
assets.
o Income Summary - Temporary Account –
containing the next income or loss – used
at the end of the period to close nominal
accounts.

Revenue
- Refers to the cash earned or generated by the
business in performing services or delivering
goods.
- Increase in assets or decrease in liabilities.
- Increase in economic benefits during a period
that results in an increase in equity.
- Product sales, service sales, gain on sale of
equipment.
- Income – Represents an inflow of cash or
assets for service rendered or merchandise
sold.
- Revenue – Income coming from the normal
course of business. Example: Medical Fees
- Gain – Income that does not come from the
normal course of business. Example: Sold
Medical Equipment
o Service Income – Revenue common to
all servicers.
o Sales – Revenue used by merchandisers
and manufacturers.

- Expenses
- It refers to the cost or charges incurred in the
process of generating or earning revenue.
- Reduction in the value of an asset as it is used.
- Interest expense, compensation expense,
utilities expense, etc.

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CHAPTER 2 – The Demands of Global E-Commerce
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
TRADE LIBERALIZATION - The sector of accounting that deals with tax
- Free flow of goods and services anywhere matters affecting the firm.
around the world - It ensures compliance with rules and
regulations and minimizes a company’s tax
liability.
TRADE INTERNATIONALIZATION
8. Forensic Accounting
- Market has become global-wider and more
- The new discipline in the field of accounting
diverse. Goods must suit different cultures, values,
integrates accounting, auditing, and
and habits of people from different part of the
investigative skills.
world.
- It focuses on examining the reliability of the
business by checking for fraudulent financial
ACCOUNTING AREAS/COURSES activities.
1. Financial Accounting and Reporting (FAR) - The purpose is to check for illegal transactions.
- The main activity of this area is bookkeeping, 9. Accounting Education
where it prepares interim or annual financial - The domain where it involves formal teaching
statements of the business. in an educational institution.
2. Intermediate Accounting 10. Accounting Research
- This area involves deeper analysis of the - The area is dedicated for the continuous
financial elements in the business. improvement of the field through filling the
- It is the next stage of financial accounting and current gaps and discovering new accounting
reporting (FAR).
knowledge.
- Compliance with legal and regulatory
requirements are needed here.
3. Cost Accounting CAREER OPPORTUNITIES IN ACCOUNTING
- The domain where accountants use
1. Public Accounting
accounting for all the costs necessary to
- Career open for firms and individual
produce and sell a product.
accounting professionals who offer expert
- Details acquired here are used for making
services like auditing, accounting, tax,
sound economic decisions for the business.
managerial, and financial services.
4. Management Accounting
- One must pass the Licensure Examination for
- This sector focuses on the financial and
Certified Public Accountants (LECPA) as
non-financial information needed for
contained in the Accountancy Act of 2004.
managing the business.
2. Industry/Commerce
- Information here includes budgeting,
- Also known as “Private Accounting”
forecasting, and financial analysis tools the
- Many accountancy graduates work here
manager and other internal users need for
because of the immense number of businesses
deciding.
in different areas.
5. Auditing
- They render services as financial accountant,
- The field where independent verification and
controller, budget officer, etc.
examination of accounting records are done
3. Government
to check the reliability of the financial
- The field where accountants work as treasurer,
statements.
accountant, and auditor of government
- Checks the business’s compliance with
agencies.
standards, fairness, and transparency of
4. Research and Education
reports.
- A professional field where accountants assume
6. Government Accounting and Nonprofit
the roles of a researcher and instructor.
Accounting
- Non-Profit Accounting is also called “Fund
Accounting.” PROFESSIONAL REGULATORY BODIES
- It deals with the administration or use of public ● The accounting profession is governed by the
or community funds for the people. following:
- All transactions involving the receipts and 1. Professional Regulation Commission (PRC)
disposition of government funds. - The government body in charge of regulating
7. Tax Accounting and licensing the practice of a profession.
2. Board of Accountancy (BOA-Board)

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CHAPTER 2 – The Demands of Global E-Commerce
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
- RA 3105 (Accountancy Act of 1978) regulated Objectives:
the practice of accounting by creating the a. Standardization and regularization of accounting
BOA on March 17, 1978. education.
- Under the jurisdiction of the PRC. b. Examination for registration of certified public
- Its purpose is to set up and promulgate a set of accountants.
professional standards and ethics. c. Supervision, control and regulation of the
- It monitors the practice of accountancy in the practice of accountancy in the Philippines.
Philippines regularly.
3. Philippine Institute of Certified Public Accountants ACCOUNTING FRAMEWORK
(PICPA) ▪ This framework guides accountants in preparing
- Established in 1929. financial statements and FRS Council in
- It represents the Filipino CPAs, regulate the developing and revising standards.
accounting practice and the CPA board ▪ The accounting framework consists of the basic
exam. rules, objectives, and principles for the
- Accredited by BOA and PRC per PRC accounting practice.
Accreditation No. 15 on October 2, 1975.
- It is the national professional organization of
CPAs.
- PICPA has the authority to set and implement
rules vital to the profession.
- Created the Philippine Financial Reporting
Standards Council (PFRC) and Philippine
Interpretation Council in 2006.

ACCOUNTING ASSOCIATIONS UNDER PICPA

a. NACPAE – National Association of CPAs in
Education
b. ACPACI – Association of CPA in Commerce
and Industry
c. GACPA – Government Association of CPA
d. AIA – Association of Internal Auditors
e. ACPAPP – Association of CPA in Public
Practice
f. Philippine Financial Reporting Standards
Council (PFRSC) – assist in promulgating and
formulating standards.
g. Accounting Standards Council (ASC) – assist
the PFRSC.

4. Securities and Exchange Commission (SEC)

- Established on October 26, 1936.
- Tasked to safeguard public interest, especially
investors in the capital market.
5. Bangko Sentral ng Pilipinas (BSP)
- It regulated the operations of all banks and
financing institutions.
- The purpose of BSP is to promote and maintain
peso stability,
6. Bureau of Internal Revenue (BIR)
- Its responsibility is to oversee the tax and
license compliance of individuals and business
entities earning income.

ACCOUNTANCY ACT OF 2004 (RA 9298)

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CHAPTER 3 and 4 – ANALYZING TRANSACTIONS AND EXPANDED ACCOUNTING EQUATION
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP)
1. Business Entity Concept
-Assumes that a business enterprise is separate
and distinct from its owner.
2. Going Concern Principle
- Expects that the business will continue to exist
indefinitely.
3. Monetary Unit Principle or Measurement in
Terms of Money
- States that all business transactions are
recorded in only one unit of measurement and
currency.
4. Reporting Period or Periodicity Principle
- Asserts that the business shall always record
the activities of a business on a regular basis or
in a standard time period.
4.a Calendar Year – Standard (January 1 -
December 31)
4.b Fiscal Year – Starts on any month of the year
(May 1 - April 30)
5. Accrual Assumption
- Requires that financial statements be
prepared on an accrual basis. Assets, liabilities,
and the owner’s equity shall be recognized
based on the period they relate regardless of
whether or not cash is immediately collected.
6. Matching Principle
- All revenues and expenses should match or
balance. All expenses related to
revenue-generating transactions must be
recorded the moment revenue is recognized.
6.a Revenue Recognition – Revenues are
recognized when realized and earned.
6.b Expense Recognition – Expenses are
recognized at the same time revenues are realized.
7. Objectivity or Reliability Principle
- All transactions should be supported with
unbiased and verifiable evidence.
8. Historical Cost Principle
- States that one must record the original
acquisition cost of the transaction.
9. Full Disclosure Principle
- All necessary information should be provided
for transparency.
10. Cost-Benefit Principle
- The cost of providing information shall not
exceed its utility to users,
11. Materiality Principle
- Include all transactions in the financial
statements is their omission that would
otherwise influence the decisions of a person
using the financial statements.
12. Conservatism Principle
- Recognize expenses and liabilities as soon as
possible, but only recognize revenues and
assets when they are assured of being
received.
TRANSACTION
- It is the exchange of values between two
parties.
- Transactions are analyzed as to their effects on
the assets, liabilities, and owner’s equity using
an accounting tool (accounting equation).
- What happened can be considered a
transaction when:
- There is an exchange of values;
- Involves two parties; and
- Expressed in terms of money.
- The value of transactions is assumed to be of
equal value or amount. Example: The local
book publisher sold a book to a young girl for 2
textbooks who paid cash of 1,500.
BUSINESS TRANSACTION
- Must always have a dual effect; for every
value received, there is an equal value parted.
- In the bookkeeping system, the dual effect is
called double entry or the venetian model.
NON-FINANCIAL TRANSACTIONS
- No exchange of values and should not be
recorded in the books of the identity.
- Examples:
a. A travel agency hired a tourist guide for a
salary of 10,000.
b. A travel agency signed a lease contract.
c. An order for office supplies amounting to
5,000.
ACCOUNTING EQUATION
- Also known as the balance sheet equation
- It relies on the double-entry system of
accounting, where every transaction results in
a dual effect.
● Dual Effect – Every transaction
affects at least two accounts
(debit and credit)
- Asset – Economic value the company controls
and used for the benefit of business.
- Liabilities – Debts the business has incurred.
- Owner’s Equity – Amount that would remain if
the entity liquidated all of its assets and paid all
of its debts.
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CHAPTER 3 and 4 – ANALYZING TRANSACTIONS AND EXPANDED ACCOUNTING EQUATION
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
L = 520,000
A = L + OE
Owner’s Equity
● A = Assets
OE = 520,000 × 2
● L = Liabilities
OE = 1,040,000
● OE = Owner’s Equity
3. If the owner’s equity of XYZ Law Firm is 115,000,
EFFECTS OF TRANSACTIONS IN THE ACCOUNTING which is 40% of the total assets, how much is the
EQUATION total liabilities of the law firm?
- Business transactions impact the accounting Assets
equation by affecting either one or both sides A = 115,000 / 40% = 287,500
of the equation. A = 287,500
- The following are examples of transactions that
can affect the accounting equation: Liabilities
L = A - OE
TRANSACTIONS ASSETS LIABILITIES OWNER’S L = 287,500 + 115,000
EQUITY L = 172,500
Investment of Increase Increase
4. The economic resources of XFN Co. is 180% of its
assets by the
residual interest. Its residual interest is 125% of its
owner
economic obligation. How much is the total
Withdrawal of Decrease Decrease economic resources and residual interest of XFN
assets by the Co. if its economic obligations are 320,000?
owner Given:
Purchase of Increase A = 180% of OE (OE ✖ 180%)
assets in cash and L = 320,000
Decrease OE = 125% of L (L ✖ 125%)

Purchase of Increase Decrease

Liabilities
assets on OE = 320,000 ✖ 125%
account OE = 400,000
Settlement of Decrease Decrease
liabilities in Assets
cash A = 400,000 ✖ 180%
Settlement of Increase A = 720,000

account with and

ASSETS = 720,000, OWNER’S EQUITY = 400,000
a note Decrease
Settlement of Decrease Decrease
liabilities from 5. If SBA Co. has an Assets amounting to 360,000,
owner’s Liabilities 80% of Equity, what are the liabilities
personal and owner’s equity of SBA Co.?
cash Owner’s Equity
360,000 = x + 80%x
360,000 1.8𝑥
=
SAMPLE PROBLEMS 1.8 1.8

1. A = 180,000, L = 90,000, OE = ? OE = 200,000

OE = A – L LIABILITIES
OE = 180,000 – 90,000 L = A – OE
OE = 90,000
L = 360,000 – 200,000
L = 160,000
2. A = 1,560,000, L = ?, OE = 2x the Liabilities
Liabilities: LIABILITIES = 160,000, OWNER’S EQUITY = 200,000
1,560,000 = x + 2x
1,560,000 3𝑥
3
= 3

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CHAPTER 3 and 4 – ANALYZING TRANSACTIONS AND EXPANDED ACCOUNTING EQUATION
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
EXPANDED ACCOUNTING EQUATION
- Expanded the accounting equation by
adding two more elements derived from the
distinct components of Owner’s Equity –
Revenues and Expenses.
- - Difference between “(R – E)” represents
the profit or loss.
o Profit = Income is greater than expenses.
Increases Equity
o Expenses = Expenses are greater than
income. Decreases Equity.
- Formula:
Cost - Salvage Value = Depreciable Cost ÷
Estimated Useful Life
SAMPLE PROBLEM
● Veronica bought a laptop for 60,000 with an
estimated useful life of 5 years and an estimated
salvage value of 3,000 every year. If she bought it
on May 1, what is its depreciated value on
December 31?

Solution:
A = L + OE + (R – E)
Cost = 60,000
● A = Assets Salvage Value =3,000
● L = Liabilities Estimated Useful Life: 5 yrs
● OE = Owner’s Equity
● R = Revenue 60,000 - 3,000 = 57,000 ÷ 5 = 11,400
● E = Expenses
Difference of (R-E) 11,400 ✖ (8/12) = 7,600
● Net Loss = Higher Operating Expense
● Net Income = Higher Income Depreciated Value = 7,600

SAMPLE PROBLEM
● Show the accounting equation based on the
following transactions:
Zenaida Law Firm
1. Zenaida invested P500,000 cash in the business.
2. Purchased P95,000 furniture and fixtures on
account.
3. Received a total of P30,000 for the first month of
operation.
4. Paid P5,000 for utilities.
5. Zenaida invested P20,000 worth of Furniture and
Fixtures.

Assets Liabilities Owner’s Equity

Cash Furniture Accounts Capital Remarks
and Payable
Fixtures
500,000 500,000 Initial
Investment
95,000 95,000
30,000 30,000 Service
Income
(5,000) (5,000) Utilities
Expense
20,000 20,000 Additional
Investment

DEPRECIATION EXPENSE
- The allocation of plant asset cost over its
estimated useful life.

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 CHAPTER 5 - DOUBLE ENTRY BOOKKEEPING FOR A SERVICE PROVIDER
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
THE FIRST FOUR (4) STEPS OF THE ACCOUNTING 103 Notes Receivables 203 Furniture and Fixtures
CYCLE 104 Supplies 204 Land

Current Liabilities Non-Current Liabilities

301 Accounts Payable 401 Notes Payable
302 Loans Payable 402 Mortgage Payable
303 Utilities Payable
304 Rents Payable

Owner’s Equity Revenues

501 Owner, Capital 601 Service Income
502 Owner, Drawings 602 Lease Income

Expenses
701 Salaries Expense
702 Utilities Expense

T-ACCOUNTS
- This is where the effects of transactions on
each of the accounting values are posted.
- Fundamental training tool showing how one
side of an accounting transaction is reflected
in another account.
- Debit entries are depicted on the left side,
while credits are shown to the right. The total
BUSINESS PAPERS
will depend on the normal balances of the
- Source documents evidencing business
account.
transactions of a business:
- Used to analyze transactions and immediately
1. Invoice – Issued when a service is given to a
determine balances of accounts.
customer.
- Format:
2. Official Receipts – Issued when cash is received
by the business entity.
3. Cash or Check Voucher – A document used
Account Title Account No.
when cash is paid, or a check is issued.
4. Check – A negotiable instrument used as a
Debit (DR) Credit (CR)
substitute for cash. Payment is drawn against the
entity’s bank account.
5. Promissory Notes – A written promise to pay a
certain sum of money at a future date.
6. Statement of Accounts – A bill presented to a
customer for service rendered where payment is
demandable. THE JOURNAL
- Book of original entry
CHART OF ACCOUNTS - Transactions are arranged chronologically with
their debits and credits. Debit entries are
- This refers to the listing of account titles that
always recorded first. Credit entries are always
guides the bookkeeper in recording
indented when recorded.
transactions. Accounts are properly arranged
- Formal books of account where the
with assets listed first, then liabilities and lastly
transactions are formally recorded.
by the owner’s equity.
- Involves analyzing and recording documents.
- Example of Chart of Accounts:
- Provides a complete recording of a
transaction.
Current Assets Non-Current Assets
- Two-Column General Journal – Simplest forms
101 Cash 201 Vehicles
of journal.
102 Accounts Receivables 202 Equipment

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CHAPTER 5 - DOUBLE ENTRY BOOKKEEPING FOR A SERVICE PROVIDER
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
- Journalization – Process of recording in this - Schedule of Account: Also called the Control
book. Account. Balances from the subsidiary
- Journal Entry – The term used for every entry ledgers are compiled to create a summary
made. of how much the balance of the Accounts
- Format: Receivables/Accounts Payables the business
General Journal have.
Date Particulars PR Debit Credit - Format:

CSC-SBA AA.CO.
Schedule of Accounts Payable
- Simple Journal Entry – Only 2 accounts are M DD, YYYY
affected. Journal entry with one debit and one Business name P xxxx
credit. Business name xxxx
- Compound Journal Entry – There are 3 or more Total P xxxxxxxx
accounts affected. Journal entry that has
more than one debit or credit. RULES OF DEBIT (DR) AND CREDIT (CR)

THE LEDGER NORMAL INCREASE DECREASE

- The book of final entry. BALANCES
- Formal book of account where a separate DEBIT DEBIT CREDIT
page is maintained for each account.
ASSETS ASSETS ASSETS
- It displays all the changes that took place for a
WITHDRAWALS WITHDRAWALS WITHDRAWALS
particular account.
- Involves classifying and posting from the
EXPENSES EXPENSES EXPENSES
journal to another book (ledger). CREDIT CREDIT DEBIT
- Extends the T-Account by using an additional LIABILITIES LIABILITIES LIABILITIES
third column showing the running balance. CAPITAL CAPITAL CAPITAL
- Shows the balance of an account after each INCOME INCOME INCOME
item has been posted.
- Posting – Process of transferring the debits and TRIAL BALANCE
credits from the journal to the ledger.
- The simplest tool used to analyze the effects of
- Format:
Account Title Account No. the transactions on each account.
Date Particulars PR Debit Credit Balances - It ensures the totals of the debit column are
equal to the totals of the credit column.
- Trial Balance is simply the list of accounts with
their ledger balances.
- There are two sides: one for recording increases
and the other side for recording decreases.
THE SUBSIDIARY LEDGER AND CONTROL ACCOUNTS - Left part: Debit. Right part: Credit.
- Subsidiary Ledger: Also called the Customer’s - Involves the extracted values from the balances
Card and Creditor’s Card. It is a ledger that is of each account found in the ledger.
more specific than the general ledger since - Format:
it is an individual’s record of transactions.
- Format: CSC-SBA AA.CO.
Subsidiary Ledger Trial Balance
Name: Customer M DD, YYYY
Date Particulars PR Debit Credit Balances DEBIT CREDIT

Cash P xxxx
Accounts Receivables xxxx
Equipment xxxx
Furniture & Fixtures xxxx

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CHAPTER 5 - DOUBLE ENTRY BOOKKEEPING FOR A SERVICE PROVIDER
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
Land xxxx CSC-SBA AA.CO.
Accounts Payable P xxxx Income Statement
Loans Payable xxxx For the period ended M DD, YYYY
Mortgage Payable xxxx Revenues P xxxx
Owner, Capital xxxx Less: Cost of Revenues (xx)
Owner, Drawings xxxx Gross Profit P xx
Less: Other Expenses (x)
Service Income xxxx
Net Income (Loss) P xx
Salaries Expense xxxx
Utilities Expense ____xxxx______________
Totals: P xxxxx P xxxxx Statement of Changes in Owner’s Equity
- Capital Statement
- Also known as the Statement of Owner’s Net
Worth.
*Current Assets to Non-Current Assets to Current Liabilities
- A financial statement that provides a report
to Non-Current Liabilities to Equity to Income to Expenses
regarding the changes in the owner’s wealth.
- This report shows why the net worth changed
*Expenses are recorded in a decreasing order (highest to
over the period by listing the activities that
lowest value)
caused it to increase or decrease.
- The reconciliation of the beginning and ending
Reasons Why Trial Balance may not be Balance:
balances in a company’s equity during a
1. Error in footing the debit and credit columns;
reporting period.
2. Error in transferring from the ledger to the trial
- Format:
balance;
3. Error in posting (e.g. posting debit to credit side of
CSC-SBA AA. CO.
account);
Statement of Owner’s Equity
4. Error in journalizing; and
For the period ended Dec 31, YYYY
5. Error of omission.
CSC-SBA AA. CO., Capital, Jan. 1 P xxxx
Add: Additional Investment xx
FINANCIAL STATEMENTS OF THE BUSINESS
Net Income xx
- These are structured representations with the
Gross Profit P xxxx
objective of providing information about the
Less: Withdrawals (xx)
financial position, performance, and cash flows
CSC-SBA AA. CO., Capital, Dec. 31 P xx
of an entity.
- Financial statements are used by internal and
Statement of Financial Position
external users to make financial economic
- Balance Sheet
decisions.
- Exhibits the progress report of the business’s list of
- Prepared at the end of an accounting period.
assets and liabilities.
- It shows how the wealth of the business has
Statement of Comprehensive Income
progressed by enumerating the assets, liabilities,
- Income Statement
and net worth of the business.
- Profit or Loss Statement
- Snapshot of the financial condition of the
- Progress report that displays the revenue against
business.
cost and expense; the net income or net loss.
- There are 2 types of formats to prepare the
- Shows the result of operation of a given period balance sheet:
and how wealth is produced. 1. Account Form – Horizontal format with left
- Accounts in this financial position are classified as listing the left column and the right listing the
nominal accounts or temporary accounts. liabilities and equity.
- Format: 2. Report Form – Presented in a vertical
orientation. There is only one column that
spans the entire width of a page.
- Format:

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CHAPTER 5 - DOUBLE ENTRY BOOKKEEPING FOR A SERVICE PROVIDER
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
CSC-SBA AA.CO.
Statement of Financial Position
M DD, YYYY
Assets
Current Assets
Cash P xxxx
Accounts Receivable xx
Total Current Assets xxxxxx
Non-Current Assets
Property, Plant, and Equipment xxxx
Total Assets P xxxxxxxxxx

Liabilities
Current Liabilities
Accounts Payable P xxxx
Notes Payable xx
Total Current Liabilities xxxxxx

Owner’s Equity
CSC-SBA AA. CO., Capital xxxx
Total Liabilities and Owner’s Equity P xxxxxxxxxx

Statement of Cash Flows

- A report involving all the cash transactions that
displays where the business got (revenue) and
where the business used (expenses) the money.
- Its particular focus is on the following types of
activities:
o Operating Activities –
revenue-generating activities
o Investing Activities – Payments made to
acquire long-term assets.
o Financing Activities – Activities that will
alter the equity.
- Format:

CSC-SBA AA CO.
Statement of Cash Flows
For the period ended M DD, YYYY
Cash Flows from Investing Activities P xxxx
Cash Flows from Operating Activities xxxx
Cash Flows from Financing Activities xxxx
Net Increase (Decrease) in Cash P xxxx
Cash, January 1 xxxx
Cash, December 31 P xxxx

The Correct Order of Preparing FS

1. Statement of Comprehensive Income
2. Statement of Changes in Owner’s Equity
3. Statement of Financial Position
4. Statement of Cash Flows

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CHAPTER 1-5 PRELIMS EXAM (FUNACC)
XFUNAC (PRELIM) | FIRST YEAR 1ST SEMESTER
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Business, and Management for Senior High School 1 transactions/using-debit-and-credit/
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Accountancy, Business, and Management for Senior High Trial%20balances%20are%20used%20to,helps%20spot%20
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Rabo, Tugas, & Salendrez (2016). Fundamentals of

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CSC-SBA Academic Affairs Bridging Program Reviewer

(2023):

AccountingTools. (2023, January 14). Basics of

accounting. https://www.accountingtools.com
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Birt J., et al. (2020). Accounting: Business reporting for

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brief history and modern job requirements.
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https://www.investopedia.com/terms/a/accounting-equ
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