LEARNING OBJECTIVES

• At the end of the session, the learners shall be able to:

1. Define the term Accounting
2. Describe the nature of Accounting
3. Explain the functions of accounting
4. Narrate the history / origin of accounting
 WHAT IS ACCOUNTING?
• The committee on Technology of the American Institute of
Certified Public Accountants (AICPA) defined accounting as

“ the art of recording, classifying, summarizing in a

significant manner and in terms of money,
transactions, and events, which are in part, at least,
of financial character and interpreting the results
thereof.
 Four phases of accounting
• 1. Recording – this is technically called BOOKKEEPING. Some
people confuse bookkeeping and accounting as one and the
same.

• However, bookkeeping is only part of accounting – the

recording phase. In this phase business transactions are
recorded systematically and chronologically in the proper
accounting books.
 There are two kinds of bookkeeping

• Single entry bookkeeping and double entry bookkeeping

• Single entry bookkeeping does not show the two fold

effects of business transactions. It shows only the debit
or the credit of each transaction.
 There are two kinds of bookkeeping
• Single entry bookkeeping and double entry
bookkeeping

• Double entry bookkeeping, however, reflects the two-

fold effects of business transactions. It shows both
credit and debit.
 2. CLASSIFYING
• In this phase, items are sorted and group. Similar items are
classified under the same name.

• They maybe classified as ASSET ACCOUNTS, LIABILITY ACCOUNTS,

CAPITAL ACCOUNTS, INCOME ACCOUNTS, AND EXPENSE ACCOUNTS.

• This classification is very useful to the management.

 3. SUMMARIZING
• After each accounting period, data recorded are
summarized through financial statements.

• These reports are submitted to management at the end

of each accounting period or as the need arises.
 4. INTERPRETING
• Due to the technicality of accounting reports, the
accountant’s interpretation of the financial statement is
needed.

• In this case, analysis are submitted together with financial

statements.
NATURE OF ACCOUNTING:
Why we need accounting?
• Can you remember what you spent yesterday? Or last week?
Or last month?

• Everyday transactions cannot all be retained in our memory

• To avoid these, transactions and other important event

should be recorded for future reference.
 Why study accounting?

• Accounting helps us appreciate and understand the

financial reports of any business.

• The study of accounting shows us how data from

business transaction are gathered.
FIELDS OF ACCOUNTING
• 1. PUBLIC ACCOUNTING – it is a professional service
rendered by a CPA and his employees to the public for
a fee. Most common services are:
• A. AUDITING – principal service by public
accountants. In making an audit, they examine, the
test, and check the accuracy of the reports and
financial data from which these reports were taken.
 FIELDS OF ACCOUNTING
• 1. PUBLIC ACCOUNTING – it is a professional service
rendered by a CPA and his employees to the public for a fee.
Most common services are:
• B. MANAGEMENT ADVISORY SERVICES – this includes
the design, installation and improvements of the firm’s
general accounting system and other systems deemed
necessary for controlling and distributing manufacturing
costs.
• In addition, advice on financial planning, budgeting,
forecasting, and inventory control are offered.
FIELDS OF ACCOUNTING
• 1. PUBLIC ACCOUNTING – it is a professional
service rendered by a CPA and his employees to
the public for a fee. Most common services are:

• C. TAX SERVICES – this includes preparation

and filing of income tax returns.
FIELDS OF ACCOUNTING
• 2. PRIVATE ACCOUNTING
• A. GENERAL ACCOUNTING – this includes
recording transactions and preparing financial
reports for the use of management, owners,
creditors, governmental units, and other
interested parties.
FIELDS OF ACCOUNTING

•2. PRIVATE ACCOUNTING

B. COST ACCOUNTING – this has to do with

determining and controlling costs in
producing a product.
FIELDS OF ACCOUNTING
• 2. PRIVATE ACCOUNTING
• C. BUDGETING – this provides management
with a plan for future operations. After this plan
has been applied, summaries and reports
comparing the actual accomplishments with the
plan are provided.
FIELDS OF ACCOUNTING
• 2. PRIVATE ACCOUNTING
D. INTERNAL AUDITING – aside from the audit done by
a public accountant, some business firms usually
maintain a staff of internal who check the records
prepared and maintained in each department or
branch. These internal auditors see to it that the
established accounting procedures are being followed
throughout the year.
FIELDS OF ACCOUNTING

•3. GOVERNMENT ACCOUNTING –

government officials, like private business
firms, rely on accumulated accounting data.
Accountants are responsible for the
accumulation of these data. They also
check and audit the income., payroll, and
tax returns submitted to the government.
FIELDS OF ACCOUNTING

•4. ACCOUNTING EDUCATION –

faculty members in Accounting
departments of various colleges and
universities are Certified Public
Accountants.
FIELDS OF ACCOUNTING

•5. INTERNATIONAL ACCOUNTING – this

field of accounting is concerned with the
transactions and special problems of
multinational business organizations in
their dealings in the international trade.
FIELDS OF ACCOUNTING

6. SOCIAL ACCOUNTING – this involves the

measurement of social costs and benefits
such as the measurement of traffic patterns
for the most efficient used of traffic funds.
 FIELDS OF ACCOUNTING
7. ACCOUNTING RESEARCH – performs either of the
two types of research. The positive and the normative
research.
Positive research – is a branch of academic
research in accounting that seeks to explain and
predict actual accounting practices while
Normative research seeks to device and prescribe
accounting standards.
History of Accounting
• Ancient Egyptians kept records of all the goods
kept in the royal storehouses.
• Scribes of Mesopotamia also kept business
records on clay tablets.
• Ancient Greek bankers account books show that
they changed and loaned money.
• Ancient Romans bank accounts were kept by the
heads of the family.
History of Accounting
• The term bookkeeping first appeared in the
1500’s and meant the work of keeping account
books.
• Luco Pacioli is the Father of Accounting released
in 14th century Italy.
• He described double-entry bookkeeping and
other business-related concepts in his book “De
Computis et Scriptures” (Of Reckoning and
Writings)
History of Accounting
• In 1954 Scotland, Queen Victoria granted a royal
charter to the Institute of Accountants in
Glasgow, creating the profession of chartered
accountant (CA), this was the start of the
modern accounting profession.
• The chartered accountants from Scotland and
Britain came to the US to audit British
investments. Some of these accountants stayed
in the US and practiced their profession, this was
the origins of US accounting firms.
BUSINESS ORGANIZATION

•AS TO OWNERSHIP:
•1. SINGLE OR SOLE PROPRIETORSHIP –
owned by one person. Usually owner is also
the manager of the business. He usually
supplies the capital or borrows funds from
banks or other lending institutions.
BUSINESS ORGANIZATION
• AS TO OWNERSHIP:

• 2. PARTNERSHIP – with two or more owners.

The owners are called partners, agree on capital
contributions, management of the firm,
distribution of profits and losses, and other
matters pertaining to the operation of the firm.
BUSINESS ORGANIZATION

•AS TO OWNERSHIP:
•3. CORPORATION – of no less than
five persons. It is organized by
operation of law.
BUSINESS ORGANIZATION

•AS TO OWNERSHIP:
•4. COOPERATIVE – governed by the
“one-member, one-vote principle.
BUSINESS ORGANIZATION

•AS TO NATURE OF BUSINESS:

•1. SERVICE CONCERN – deals with rendering
of services to the customers such as
tailoring shops, beauty shops, firm’s of
CPA’s, lawyers, doctors, and others.
BUSINESS ORGANIZATION

•AS TO NATURE OF BUSINESS:

•2. TRADING OR MERCHANDIZING – deals

with the buying of goods and selling of the
same for profit. Examples are sari-sari,
department stores, grocery stores, etc.
BUSINESS ORGANIZATION
• AS TO NATURE OF BUSINESS:

• 3. MANUFACTURING CONCERN – involves the purchase of raw

materials and converting these into finished products. Examples are
textile manufacturing firms, candy manufacturing firms, etc.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)

•GAAP are accounting rules, procedures,

practices, and standards which served as
guide in the preparation and presentation of
financial statements. They were developed
based on reason, usage, experience, and
necessity.
ACCOUNTING ASSUMPTIONS
• ACCOUNTING ASSUMPTIONS ARE THE FOUNDATION
OF ALL ACCOUNTING PRACTICES AND PRINCIPLES:

• 1. ACCOUNTING ENTITY
• 2. GOING CONCERN
• 3. TIME PERIOD
• 4. MONETARY UNIT
BUSINESS AS AN ACCOUNTING ENTITY
(ENTITY PRINCIPLE)
• In accounting, the business is always considered separate
from its owner or owners. Which means that the personal
properties of the owners are different from the assets of the
business; the liabilities of the business are different from his
personal obligations; and the expenses incurred by the
business are also different from his personal expenses.
Therefore, the transactions entered into by the owners in
behalf of the business should be recorded in the books of
the firm.
BUSINESS AS AN ACCOUNTING ENTITY
(ENTITY PRINCIPLE)
• For example, Mr. V. Santos, who owns a store and
manages his own business receives a monthly salary
of P20,000.00. Since this salary is given to Mr. Santos
at the end of each month, it is an expense of the
business and should be recorded in the accounting
books of the firm. This principle holds true to all types
of business, whether sole proprietorship, partnership,
or corporation.
GOING CONCERN OR CONTINUITY
ASSUMPTION

•The business is assumed to have

a continuous operation from the
date it is established.
TIME PERIOD
• The final result of any business operation may
not be obtained unless the business is
terminated and liquidated. Users of financial
reports, however, need periodic reports of the
business.
• This is the reason for dividing the life of the
business into accounting periods.
TIME PERIOD

•One accounting period is usually one

year. It could be a calendar year,
January 1 to December 31, or natural
business year which consists of 12
months that ends on the lowest or slack
period of the business.
MONETARY UNIT

•The Peso is the Philippine monetary

unit. Thus, assets, liabilities, equity,
income, and expenses should be
presented in this unit of measure.
 TRANSACTION
• The data recorded in the accounting books are called transactions.

• Transactions are the economic activities of the firm.

• Activities that involve one enterprise and another are called

external transactions

• Activities within the enterprise are called internal transactions.

 TRANSACTION
• When there is transaction there is an exchange of
values, that is, there is always a value received and a
value parted with.

• These values received and parted with may either be

money, property, or services.

• Transactions also affect the accounting elements or

values.
ASSIGNMENT
1.Accounting Elements or values

2.Make a list of businesses within your

community and identify the
accounting field/branch that they
require.
ACCOUNTING ELEMENTS OR VALUES

•ASSETS – are economic resources owned

by the business. They include properties
and other things of value whose
ownership title is in the name of the
business.
ASSETS CAN BE GROUPED INTO
CURRENT/NONCURRENT
• CURRENT ASSETS – those can be easily
converted to cash within a short period of time.,
usually within one accounting period or within
the regular operation of the business or normal
operating cycle of the business is the period
between the rendering of service ( in case of
service concerns) to the receipt of cash, (in case
of merchandising and manufacturing concerns).
SERVICE CONCERN

CASH

ACCOUNT CASH
• SERVICE PERIOD RECEIVABLES
NOTES CASH (upon
RECEIVABLES maturity of
the note)
MERCHANDISING CONCERN

• PURCHASE OR Selling of
goods CASH
ACQUISITION OF Selling of
goods A/R CASH
GOODS OR
Selling of
MERCHANDISE goods N/R CASH
MANUFACTURING CONCERN

MANUFACTURING
Purchase or
Acquisition of Finished Goods
Raw Materials
MERCHANDISING CONCERN

Selling of
finished goods CASH
• FINISHED Selling of
finished goods A/R CASH
GOODS
Selling of
finished goods N/R CASH
CURRENT ASSETS
• CASH OR CASH ON HAND AND IN BANKS - this includes currency of
cash items on hand , peso or foreign currency deposits in banks which
are unrestricted and immediately available for use in the current
operation of the business. (SFAS – Statement of Financial Accounting
Standards)

• RECEIVABLES – represent amounts collectible from customers arising

from sales of merchandise , claims of money lent, or the performance
of services. If it is supported by a promissory note, it is presented as
note receivable.
CURRENT ASSETS
• INVENTORIES – constitute items of tangible personal
property which are:
• Merchandise inventory/finished goods – held for
sale in the ordinary course of business
• Goods-in-process – in the process of production for
such sale
• Raw materials – to be currently consumed in the
production of goods or services to be available for
sale
CURRENT ASSETS

•PREPAID EXPENSES – those already paid

before they are used or consumed.
 Noncurrent
• Those assets which include among others, property, plant, and
equipment. PPE are tangible assets used in the operation of the
business, have a useful life that exceeds one year, and are not
intended for sale.

• Examples are: land, building, equipment, furniture, and fixtures.

Other noncurrent are long-term investments, intangible assets,
and other noncurrent assets which are discussed In detail in
higher accounting subjects.
Liabilities

• These are debts or obligations of the business to

a party other than its owner.

• Classified as :
1. current or short-term liabilities or
2. fixed or long-term liabilities
 Current of short-term liabilities
• Those which are due for payment within a short period of
time or within one year from the balance sheet details.

• Example:
• 1. accounts payable – indebtedness arising from purchase
of goods and services in the ordinary course of business
• 2. accrued expenses – already incurred but are not yet
paid as of the balance sheet date.
 Current of short-term liabilities
• Those which are due for payment within a short period of time
or within one year from the balance sheet details.

• Example:
• 3. Unearned interest – arises when payments for undelivered
goods or services not yet rendered are received. This item is
included among current liabilities because there is already
obligation to deliver the goods or the services once payment is
received.
Fixed or long-term liabilities
• Those which mature beyond one year from the
balance sheet date.

• Examples are:
• 1. mortgage payable
• 2. bonds payable
• 3. Note payable due beyond one year
CAPITAL
• Represents the owner’s equity or investment in the
business. Other terms also used synonymously are
Owner’s Equity and Proprietorship

• Other two major accounts are:

• 1. income – is a special kind of growth in the firm’s
assets
• 2. expense – use to up the firm assets.
Chapter 2: IMPORTANCE OF ACCOUNTING
EQUATION
•Business transactions affect the assets,
liabilities, and proprietorship of the
business. These effects can be expressed in
the accounting equation:

ASSETS = EQUITIES
• EQUITIES - is the right, claim, or interest of a person over
the assets of the business.

• LIABILITY – represents such claim in the assets of the

business and proprietorship is the owner’s or owners’
interest in the business.
LIABILITIES
• EQUITIES
PROPRIETORSHIP
•And since there are two sources of equities,
one from the creditors (liabilities) and one
from the owner (proprietorship), then we
can express the accounting equation as:

ASSETS = LIABILITIES + PROPRIETORSHIP

ILLUSTRATION
• Transaction 1
• Oct. 1 – Mr. Gil opened a motor repair shop and invested P100,000 cash.
A = L + P
Cash P100,000 = 0 + Gil, Capital P100,000

Analysis:
The asset, cash, is increased by P100,000.
The proprietorship account is also increased by P100,000
 2. Oct. 3 - He purchased repair supplies worth
P25,000 on credit from De Mesa Trading

A = L + P
REPAIR SUPPLIES = ACCOUNT PAYABLE + 0
P25,000 P25,000

• ANALYSIS:
• The asset, repair supplies, is increased by P25,000.
• Accounts payable is increased by P25,000.
 3. Oct. 5 - Billed M. Manzano for repair work done
on his automobile, P12,000.00
A = L + P
ACCOUNT RECEIVABLE = 0 + GIL, CAPITAL P12,000
P12,000

Analysis:
The asset, accounts receivable, is increased by P12,000.
The proprietorship account is also increased by P12,000 due to the
revenue from services rendered.
 4. Oct. 7 - He bought a table and chairs for
the business worth P6,000.00
A = L + P
FURNITURE P6,000 = 0 + 0
CASH (P6,000)

• Analysis:
• One form of asset, furniture, is increased and another form
of asset, cash, is decreased.
 5. Oct. 12 - Issued a promissory note to De Mesa
Trading to apply on his account. (Refer to
transaction 2).
•A = L + P

•0 = ACCOUNTS PAYABLE (P25,000) + 0

NOTES PAYABLE P25,000

Analysis:
One form of liability, accounts payable, is decreased and
another liability, notes payable, is increased
 6. Oct. 15 - Paid the salary of the assistant
worth P5,000 cash
•A = L + P
• CASH (P5,000) = 0 + GIL,CAPITAL (P5,000)

• Analysis:
• The asset, cash, is decreased by P5,000 and the
proprietorship account is also decreased by P5,000
due to salary expense incurred by the business
 7. Oct. 20 - Paid the note issued to De Mesa
Trading (Transaction 5)
•A = L + P
• CASH (P25,000) = NOTE PAYABLE (P25,000) + 0

• Analysis:
• The asset, cash, is decreased by P25,000 and liability,
notes payable, is also decreased by P25,000.
 8. Oct. 29 - Mr. Gil withdraw P15, 000 from
the business for his personal use.
•A = L + P
• CASH (P15,000) = 0 + GIL, CAPITAL (P15,000)

• Analysis:
• The asset, cash, is decreased and the proprietorship
is also decreased due to the amount withdrawn by
the owner.
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico
•1. Dr. Abanico opened a dental clinic by investing
P300,000 cash: land P200,000; small building for
clinic and office P1,800,000
A =L + P
CASH P300,000 = 0 ABANICO, CAPITAL
LAND 200,000 P2,300,000
BUILDING 1,800,000
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•2. Purchased dental supplies for cash

P55,000.00
A = L + P
CASH (P55,000) = 0 + 0
DENTAL SUPPLIES
P55,000
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico
•3. Purchased dental equipment from BB
Trading on credit, P106,000.00
A = L + P
DENTAL EQUP’T = Accounts Payable + 0
P106,000 P106,000
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•4. Paid for promotion of the clinic,

P10,000.00
A = L + P
CASH (P10,000) = 0 + Abanico, Capital
(P10,000)
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•5. Completed dental work for J. Carlos and

collected P12,000.00 therefore.
A = L + P
CASH P12,000 = 0 + Abanico, Capital
P12,000
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•6. Paid P60,000.00 to BB Trading as partial

settlement of the account.
A = L + P
CASH (P60,000) = Accounts Payable
(P60,000)
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•7. Paid the dental assistant’s salary, P6,500.00

A = L + P
CASH (P6,500) = 0 + Abanico, Capital
(P6,500)
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico
•8. Completed additional work for J. Carlos and
collected P6,000.00 and a promissory note for
the balance of 12,000.00 at the end of the
month.
A = L + P
CASH P6,000 = 0 + Abanico, Capital
Notes Receivable P18,000
P12,000
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•9. Paid the balance of the account due to BB

Trading.
A = L + P
CASH (P46,000) = Accounts Payable + 0
P (46,000)
SEAT WORK: State the effect of the following transactions
on the assets, liabilities, and capital of Dr. Abanico

•10. Withdrew P15,000.00 for personal use.

A = L + P
CASH (P15,000) = 0 + Abanico, Capital
(P15,000)
 CHART OF ACCOUNTS
- Is a list of account titles used by the
business. It serves as a guide for the
bookkeeper. Such accounts are divided
into sections and each title has a given
code number.