CLUSTER 3:

ACCOUNTING
JAYSON CHIO, CPA, CMA, MBA
SAN BEDA UNIVERSITY
AGENDA
1. NATURE, FUNCTION AND HISTORY OF ACTIVITIES
ACCOUNTING
6. ACCOUNTING CONCEPTS
2. BRANCHES AND AREAS OF
7. FINANCIAL STATEMENTS
ACCOUNTING
8. ACCOUNTING BOOKS
3. EXTERNAL AND INTERNAL USERS OF
FINANCIAL INFORMATION 9. ANALYSIS AMD INTERPRETATION OF
FINANCIAL STATEMENTS
4. FORMS OF BUSINESS ORGANIZATION
10. INCOME AND BUSINESS TAXATION
5. TYPES OF BUSINESS ACCOUNTING TO
DEFINITION

Process of identifying, measuring, and communicating economic

information to permit informed judgment and decision (AICPA)

Service activity. Its main purpose is to provide quantitative

information primarily financial in nature about economic entities that
is intended to useful in making economic decisions. (ASC)

Art of recording, classifying and summarizing in a significant manner

and in terms of money transactions and events which are in part at
least of financial character and interpreting the results thereof.
HISTORY

• AS EARLY AS 2000 BC. BABYLONIA, GREECE, EGYPT

• 3500 BC ASYRIA
• FIRST ACCOUNTING BOOK – CONTRUGLI
• FATHER OF MODERN DAY BOOKKEEPING/ ACCOUNTING
– LUCA PACIOLI
• 15 CENTURY – ITALIAN MERCHANTS (DEBTOR/ CREDITOR) – DEBIT CREDIT
TH

• 16 CENTURY – PROFIT WAS CALCULATED

TH

– PNL REPORT STARTED

CAREER FIELDS Accounting areas
• Basic accounting
• Financial accounting
1. PUBLIC ACCOUNTING • Cost Accounting
– AUDITOR – OPINION • Management
– TAX CONSULTANT accounting
– MANAGEMENT CONSULTANT
• Auditing
2. INDUSTRY (PRIVATE)
• Tax
– BOOKKEEPER
• Government Accounting
– CONTROLLER
– CHIEF ACCOUNTING OFFICER
– INTERNAL AUDITOR

3. GOVERNMENT & NOT FOR PROFIT

4. RESEARCH AND EDUCATION
ACCOUNTING
SYSTEM
• THE ACCOUNTING PROCESS:
• ANALYZES - LOOKING AT WHAT
HAPPENED
• RECORDS - PUTTING INFORMATION
INTO SYSTEM
• CLASSIFIES - GROUPING SIMILAR
ACTIVITIES
• SUMMARIZES - TOTALING THE
RESULTS
• REPORTS - ISSUING THE STATEMENTS
• INTERPRETS - EXAMINING THE
STATEMENTS
• COMMUNICATES - PROVIDES REPORTS
INTERNAL EXTERNAL INDIRECT
Lenders Stock Exchange
Owner Suppliers Trade Association
Manager Government Regulatory Bodies
agencies
Employee Customers Financial Anlayst

USERS
TYPES OF BUSINESS ORGANIZATION
Sole • Owned by one individual
proprietorship
• Agreement of two or more parties binding themselves together
Partnership for a common goal and distributing the profits among
themselves

• an artificial being created by operation of law, having the right

Corporation of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence
TYPES OF BUSINESS OPERATIONS
Selling of ones expertise to the
Service public

Buying and selling of goods to

Merchandising consumers

Creating the goods that a

Manufacturing company sells to consumers
TYPES OF FINANCIAL STATEMENTS

Financial Position –
“commonly known
Income Cash Flow Changes in
as balance sheet” Statement Equity
Provides Provides Provides Provides
information about information information about information about
the financial about the the inflows and the changes in the
position of a outflows of cash of company’s owner’s
performance of a
company at a point a company from its equity
in time
company for a business activities
period of time for a period of time
 Operating
the functions of a business
directly related to providing its
goods and/or services to the
market.
These are the company's core
business activities, such as
manufacturing, distributing,
marketing, and selling a product
or service.
TYPES OF BUSINESS ACTIVITIES
Investing
refers to the purchase and sale
of long-term assets and other
business investments, within a
specific reporting period
Financing
transactions involving long-term
liabilities, owner’s equity and
changes to short-term
borrowings.
These activities involve the flow
of cash and cash equivalents
between the company and its
sources of finance
ACCOUNTING PRINCIPLES

• Income is recognized not when cash is received but when it is earned.

Accrual principle • Expense is recognized not when cash is paid but when it is incurred.

ENTITY PRINCIPLE • BUSINESS IS SEPARATE AMD DISTINCT FROM THE OWNER

GOING CONCERN • BUSINESS WILL OPERATE FOR AN INDEFINITE PERIOD OF TIME

TIME PERIOD • INDEFINITE PERIOD IS SUBDIVIDED INTO PERIODS OF EQUAL INTERVALS

MONETARY UNIT • INFORMATION SHOULD BE PRESENTED IN TERMS OF MONEY

ACCOUNTING EQUATION
ASSETS = LIABILITIES + EQUITY
ASSETS = LIABILITIES + EQUITY

ASSET LIABILITIES EQUITY

Resources controlled by PRESENT OBLIGATIONS of the rights of financial claim to
the entity as a result of entity from PAST the assets
PAST TRANSACTIONS OR TRANSACTIONS or EVENTS
EVENTS and from which the settlement of which is
FUTURE ECONOMIC BENEFITS expected to result in an
are expected to flow to the OUTFLOW from the entity of
entity. resources embodying
economic activities
EXAMPLES OF ACCOUNTS
Cash, accounts receivable, prepayments,
Assets inventory, land, equipment, investments

ACCOUNTS PAYABLE, ACCRUED EXPENSES,

LIABILITIES UNEARNED REVENUE

CAPITAL (FOR SOLE PROP AND PARTNERSHIP),

EQUITY SHARE CAPITAL, SHARE PREMIUM, RETAINED
EARNINGS (FOR CORPORATION)
EXAMPLE TRANSACTIONS
ASSETS LIABILITIES EQUITY
1. ON JAN 1, 2024, MR E. HEMPLO
1,000,000 1,000.000
OPENED HIS SCHOOL SUPPLIES
BUSINESS BY INVESTING
NO ENTRY
P750,000 IN CASH AND
P250,000 IN OFFICE
EQUIPMENT
2. ON JAN 3, 2024, MR. E. HEMPLO
AGREED TO LEASE A SPACE FOR
A MONTHLY RENTAL OF
P20,000 FOR ONE YEAR.
EXAMPLE TRANSACTIONS
3. ON JAN 5, 2024 MR. E. HEMPLO ASSETS LIABILITIES EQUITY
PAID THE ONE YEAR RENT AND
+240k -240k
RECOGNIZED A PREPAID ASSET
200,000 200,000
4. ON JAN 7 2024, MR. E HEMPLO +NO ENTRY
BOUGHT INVENTORY FROM
BENTA CORP. ON ACCOUNT
AMOUNTING TO P200,000.
5. ON JAN 7, 2024 HIRED 2
EMPLOYEES FOR THE SHOP
EXAMPLE TRANSACTIONS
6. ON JAN 9 2024, BOUGHT ASSETS LIABILITIES EQUITY
OFFICE SUPPLIES FOR CASH +50,000 – 50,000
AMOUNTING TO P50,000
20,000 20,000
7. ON JAN 12, SOLD GOODS 50,000 50,000
AMOUNTING TO P20,000 FOR
CASH.
8. ON JAN 13, SOLD GOODS TO
MODELO COMPANY AMOUNTING
TO P50,000 ON ACCOUNT.
EXAMPLE TRANSACTIONS
9 ON JAN 16, 2024, PAID HALF ASSETS LIABILITIES EQUITY
OF THE BALANCE PERTAINING -100,000 -100,000
TO JAN 7 TRANSACTION 30,000 – 30,000

9. ON JAN 25, 2024,

COLLECTED P30,000 FROM
CUSTOMER RELATED TO JAN
13 TRANSACTION
EXPANDED ACCOUNTING EQUATION
ACCOUNTING CYCLE
IDENTIFY
TRANSACTIONS
(OPTIONAL)
JOURNALIZE
JOURNALIZE
TRANSACTIONS
REVERSING ENTRIES

PREPARE POST
POST TO GENERAL
CLOSING TRIAL
LEDGER
BALANCE

PREPARE
JOURNALIZE
UNADJUSTED TRIAL
CLOSING ENTRIES
BALANCE

PREPARE FINANCIAL JOURNALIZE

STATEMENTS ADJUSTING ENTRIES

PREPARE ADJUSTED
TRIAL BALANCE
 JOURNALIZE
TRANSACTIONS
GENERAL JOURNAL
• BOOK OF ORIGINAL ENTRY
GENERAL LEDGER
POSTING TO GENERAL LEDGER
PREPARE UNADJUSTED TRIAL
BALANCE
PREPARE ADJUSTING ENTRIES
• ADDITIONAL INFORMATION
• AT MONTH END, OFFICE SUPPLIES ON HAND AMOUNTED TO P20,000.
• BASED ON THE MONTH END INVENTORY COUNT, INVENTORY REMAINING WAS
VALUED AT P170,000

• OFFICE EQUIPMENT HAD A USEFUL LIFE OF 10 YEARS USING STRAIGHTLINE

DEPRECIATION METHOD

• SALARIES AND UTILITIES ACCRUED AT MONTH END AMOUNTED TO P10,000 AND

P5,000, RESPECTIVELY
PREPARE ADJUSTING ENTRIES
PREPARE ADJUSTED TRIAL BALANCE
PREPARE FINANCIAL STATEMENTS
JOURNALIZE CLOSING ENTRIES
PREPARE POST CLOSING TRIAL
BALANCE
ACCOUNTING BOOKS
• GENERAL JOURNAL
• SPECIAL JOURNAL
• SALES JOURNAL
• PURCHASE JOURNAL
• CASH RECEIPTS JOURNAL
• CASH DISBRUSEMENT JOURNAL

• GENERAL LEDGER
• SUBSIDIARY LEDGERS
GENERAL JOURNAL
• BOOK OF ORIGINAL ENTRY
CASH RECEIPTS, SALES JOURNAL
AND SUBSIDIARY LEDGER (AR)
CASH DISBURSEMENT, PURCHASE
AND SUBSIDIARY LEDGER (AP)
FINANCIAL STATEMENT
ANALYSIS

• FINANCIAL STATEMENT ANALYSIS IS THE PROCESS OF ANALYZING A

COMPANY'S FINANCIAL STATEMENTS FOR DECISION-MAKING PURPOSES
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS
Managers should look beyond the ratios.

Industry Consumer
trends tastes

Technological Economi
changes c factors
 Using FINANCIAL STATEMENTS
ITSELF
• VERTICAL ANALYSIS
HOW TO • HORIZONTAL ANALYSIS
• TREND ANALYSIS
ANALYZE
FINANCIAL RATIOS
STATEMENTS?
• LIQUIDITY
• SOLVENCY
• PROFITABILITY
• ACTIVITY
HORIZONTAL ANALYSIS
Calculating Change as a Percentage

Percentage Current year - prior year

Change
=
prior year × 100%
HORIZONTAL ANALYSIS
EXAMPLE COMPANY
Comparative Balance Sheets
December 31

Increase (Decrease)
This Year Last Year Amount %
Assets
Current assets:
Cash 12,000 23,500
Accounts receivable, net 60,000 40,000
Inventory 80,000 100,000
Prepaid expenses 3,000 1,200
Total current assets 155,000 164,700
Property and equipment:
Land 40,000 40,000
Buildings and equipment, net 120,000 85,000
Total property and equipment 160,000 125,000
Total assets 315,000 289,700
VERTICAL ANALYSIS

•VERTICAL ANALYSIS FOCUSES ON THE

RELATIONSHIPS AMONG FINANCIAL STATEMENT
ITEMS AT A GIVEN POINT IN TIME. A COMMON-
SIZE FINANCIAL STATEMENT IS A VERTICAL
ANALYSIS IN WHICH EACH FINANCIAL
STATEMENT ITEM IS EXPRESSED AS A
PERCENTAGE.
TREND PERCENTAGES

Trend percentages state

several years’ financial data
in terms of a base year, which
equals 100 percent.
FINANCIAL RATIOS -LIQUIDITY
FINANCIAL RATIOS – ACTIVITY
RATIOS
FINANCIAL RATIOS – PROFITABILITY
INCOME TAX DEFINED
• THE INHERENT POWER OF THE SOVEREIGN,
EXERCISED THROUGH THE LEGISLATURE, TO
IMPOSE BURDENS UPON THE SUBJECTS AND
OBJECTS WITHIN ITS JURISDICTION, FOR THE
PURPOSE OF RAISING REVENUES TO CARRY OUT
THE LEGITIMATE OBJECTS OF THE GOVERNMENT.
• THE ACT OF IMPOSING A TAX BY A SOVEREIGN
STATE TO RAISE REVENUE FOR GOVERNMENT
EXPENSES.
 • POWER TO TAX
• THE ABILITY OF THE GOVERNMENT TO
COLLECT TAXES WHICH IS USED TO FUND
THE VARIOUS PROJECTS NEEDED BY THE
PEOPLE. THE PROCESS BY WHICH OUR
GOVERNMENT, THROUGH OUR
LAWMAKERS, RAISES INCOME TO PAY ITS

3 INHERENT •
NECESSARY EXPENSES.
POLICE POWER

POWERS OF A • THE POWER OF THE GOVERNMENT TO

MAKE POLICIES THAT ENCOURAGE THE

STATE PUBLIC ’S HEALTH, MORALITY,

PROTECTION, AND THE WELL-BEING OF
THE PEOPLE.

• EMINENT DOMAIN
• THE POWER OF THE GOVERNMENT TAKES
OVER PRIVATELY OWNED LAND, MATTERS
RELATING TO THE PAYMENT OF JUST
COMPENSATION BEING USED FOR PUBLIC
CONSIDERATIONS.
 • PRIMARY
• TO RAISE REVENUE IN ORDER TO SUPPORT
THE GOVERNMENT

• SECONDARY
PURPOSE •
•
1) USED TO REDUCE SOCIAL INEQUALITY
2) UTILIZED TO IMPLEMENT THE POLICE
OF POWER OF THE STATE
• 3) USED TO PROTECT OUR LOCAL
TAXATION INDUSTRIES AGAINST UNFAIR COMPETITION
• 4) UTILIZED BY THE GOVERNMENT TO
ENCOURAGE THE GROWTH OF LOCAL
INDUSTRIES
 • INDIVIDUAL
• CITIZEN
• RESIDENT CITIZEN - >183 DAYS
• NONRESIDENT CITIZEN - <183 DAYS
• ALIEN
•
TYPES OF
RESIDENT ALIEN - >1YR >180 DAYS
• NONRESIDENT ALIEN ENGAGED IN

TAXPAYERS TRADE OR BUSINESS - < 1 YR >180

DAYS
• NONRESIDENT ALIEN NOT ENGAGED IN
TRADE OR BUSINES

• CORPORATION

• PARTNERSHIP

• ESTATES / TRUST
INCOME TAX ON
INDIVIDUALS
• CAPITAL GAINS TAX
• FINAL TAX ON PASSIVE INCOME
• INCOME TAX
• COMPENSATION
• PRACTICE OF PROFESSION
• FROM BUSINESS
TYPES OF INDIVIDUALS TAX BASE TAX RATE SOURCE

RESIDENT CITIZEN NET INCOME GRADUATED WITHIN AND WITHOUT OF

THE PHILIPPINES

NONRESIDENT CITIZEN NET INCOME GRADUATED WITHIN THE PHILIPPINES

RESIDENT ALIEN NET INCOME GRADUATED WITHIN THE PHILIPPINES

NRAETB NET INCOME GRADUATED WITHIN THE PHILIPPINES

NRANETB GROSS FINAL TAX 25% WITHIN THE PHILIPPINES

INCOME

SUMMARY OF INCOME TAXATION FOR VARIOUS TAXPAYERS

INCOME TAX –
TRAIN LAW
• 8% TAX RATE
• SALES LESS THAN 3MILLION
PESOS
• NONVAT PAYER
• BUSINESS INCOME / PRACTICE
OF PROFESSION
 TABLE 2 - Tax Rates (effective January 1, 2023 and onwards)
If Taxable Income is: Tax Due is:
Not over P250,000 0%
Over P250,000 but not over P400,000 15% of the excess over P250,000
Over P400,000 but not over P800,000 22,500 + 20% of the excess over P400,000

Over P800,000 but not over P2,000,000 102,500 + 25% of the excess over P800,000

Over P2,000,000 but not over P8,000,000 402,500 + 30% of the excess over P2,000,000

Over P8,000,000 P2,202,500 + 35% of the excess over P8,000,000

INCOME TAX TABLE (TRAIN LAW)