ACC-003 Fundamentals of Accounting Part 2

Lesson Title: Reviewing the Accounting Cycle. Reference: Financial Accounting

And Reporting Part One by Reyno

Lesson Objectives:.

At the end of this module, I should be able to:.

1. Learned how the use of T-account.

2. Apply the rules of debit and credit and also able to prepare closing entries.

A. LESSON PREVIEW/REVIEW

The accounting cycle refers to a series of chronological steps which means according to duties or
procedure s performed to accomplish the accounting process.

B.MAIN LESSON

THE T-ACCOUNT

An account is a form of record that summarize s the increases or decreases of any specific accounting
value. The simplest form of an account because of its resemblance to a capital letter T. The left side of
the T -account is called debit side and the right side is called credit side.

THE RULES OF DEBIT AND CREDIT

DEBIT to. CREDIT to

1. increase in asset. 1. decrease in asset

2. decrease a liability. 2. increase a liability

3. decrease a capital. 3. increase a capital

4. increase a withdrawal. 4. decrease a withdrawal

5. decrease an income. 5. increase an income

6. increase an expenses. 6. decrease an expense

STEPS IN CLOSING THE ACCOUNT

1. Closing the revenue account transferring the credits balance in the revenue account to a clearing
account called income summary.

2. Closing the expenses account transferring the debit balance in the expenses accounts to a clearing
account income summary.

3. Closing the income summary account transferring the balance of the income summary account to the
retained earnings account.

4. Closing the dividends account transferring the debit balance of the dividends account to the retained
earnings account.

Therefore in accounting,we often refer to the process of closing as closing the books. Only revenue,
expense, and dividend account are closed. Not asset , liability, common stock, or retained earnings
accounts.After completing journal entries we need to post to the same ledger card or t-account. When
we post,we do not change anything from journal entries we debit (left side) when we did in the entries
and credit (right side) whenever we did in the entries.
 ACC-003 Fundamentals of Accounting Part 2

Lesson Title: Partnership. Reference: Partnership and Corporation

by: Palma

Lesson Objective:

At the end of this module,I should be able to

1. to understand what is partnership.

2. to identify the characteristics of partnership.

A. Lesson Preview/Review

Define " Partnership"

A partnership is a formal arrangement by two or more parties to manage and operate a business and
share it profits.

B. Main Lesson

Definition of Partnership

According to article 1767 of new civil code of the Philippines defines partnership as an association of
two or more persons who bind themselves to contribute money, property, or industry to a common
fued with the intention of dividing the profits among themselves.

Characteristics of a Partnership

1. Mutual Angency - any partner can bind the other partners to a contract if he is acting within his
express or implied authority.

2. Limited Life - a party has a limited life. It may be dissolved by the admission, death, insolvency,
incapacity, withdrawal of a partner or expiration of the term specified in the partnership agreement.

3. Unlimited Liability - all partners ( except limited partners), including industrial partners, are personally
liable for all debts incurred by the partnership.
4. Division of Profits or Losses - the essence of a partnership is that each partner must share in the
profits of losses of the venture.

5. Co-ownership of Contributed Assets - all asset contributed into the partnership are owned by the
partnership by virtue of its separate and distinct juridical personality.

6. Partner's Equity Account - accounting for partnerships is much like accounting for sole proprietorship.
The difference lies in the number of the partner's equity account s.

7. Mutual Contribution - there cannot be a partnership without contribution of money, property, or

industry to a common fund.

Advantage of Partnership

1. Combining skills and resources of two or more individuals.

2. Ease of formation.

3. Freedom from governmental regulations and restrictions.

4. Ease of decision making.

Disadvantage of Partnership

1. Mutual Agency.

2. Limited Life.

3. Unlimited Liability.

Therefore a partnership is a form of business organization in which owners have unlimited personal
liability for the actions of the business. The owners of a partnership have invested their own funds and
time in the business,and share proportionally in any profits earned by it. There may also be limited
partners in the business, who contribute funds but do not take part in day to day operations.
 ACC-003 Fundamentals of Accounting Part 2

Lesson Title: kinds of Partnership and Partners. Reference: Partnership and

Corporation by: Palma

Lesson Objective:

At the end of this module, I should be able to:

1. Differentiate the kinds of Partnership and Partners

A. Lesson Preview/Review

Give atleast five characteristics of a partnership?

1. Mutual Agency. 4. Mutual Contribution.

2. Limited Life. 5. Division of Profits or Losses.

3. Unlimited Liability.

B. Main Lesson

Kinds of Partnership

1. General Partnership - in a general partnership , each partner shares equally in the workload, liability,
and profits generated and paid out to the partners. All partners are actively involved in the business
operations.

2. Limited Partnership - limited partnership allow outside investors to buy into a business but maintain
limited liability and involvement, based on their contributions. This is a more complicated form of
partnership, which also has more flexibility in terms of ownership and decision-making.

3. Joint Venture - short-term projects or alliances that bring together multiple partners for a project any
typically structured as a joint ventures. If the venture performs well,it can be continued as a general
partnership. Otherwise, it can be shuttered.

Kinds of Partners

1. General Partner - one who is liable to the extent of his separate property after all the assets of a
partnership are exhausted.
2. Limited Partner - one who is liable only to the extent of his capital contribution.

3. Capitalist Partner - one who contributes money or property to the common fund of the partnership.

4. Industrial Partner - one who contributes his knowledge or personal service to the partnership.

5. Managing Partner - one whom the partners has appointed as manager of the partnership.

6. Liquidating Partner - one who is designated to wind up or settle the affairs of the partnership after
dissolution.

7. Dormant Partner - one who does not take active part in the business of the partnership and is not
known as a partner.

8. Silent Partner - one who does not take active part in the business of partnership though may be
known as a partner.

9. Secret Partner - one who takes active part in the business but is not known to be a partner by outside
parties.

10. Nominal Partner or Partner by Estoppel - one who is actually not a partner but also represent himself
as one.

Therefore a partner can mean one thing in a law or accounting firm, and something different in a
company, corporation, international agreement between two nation, or a joint venture. A business
partner is a person or commercial entity which has some kind of alliance with another person or
commercial entity. In a partnership,partners could be people who agree to cooperate in order to
advance their common ( mutual interest). Two organization may partner together in order to improve
the likelihood of achieving their mission and amplify their teach.
 ACC-003 Fundamentals of Accounting Part 2

Lesson Title: Accounting for Partnership. Reference: Partnership and

Corporation by: Palma

Lesson Objective:

At the end of this module, I should be able to:

1. distinguish between partner's capital and drawing accounts.

A. Lesson Preview/Review

What is a drawing account?

A drawing account is a ledger that tracks money withdrawn from a buy, usually a sole proprietorship or
partnership, by its owner(s).

What is capital?

Capital refers to the financial resources that businesses can use to fund their operations like cash,
machinery, equipment, and other resources. These are the assets that allows the business to produce a
product or service to sell to the customer.

B. Main Lesson

Partner's Capital Account

Debit Credit

1. Permanent withdrawals. 1. Original investment

2. Debit balance of the drawing account 2. Additional investment

or the end of the period. 3. Credit balance of the drawing

account at the end of the period.

The capital account is used to record the accounts the co-owners of a company invest in the business.
Each partner's capital account contains the amount she /he initially invested, additional investments
amde after sharing the business, earned profits and guaranteed payments provided for in the
partnership.

Partner's Drawing Account

Debit. Credit

1. Temporary withdrawals 1. Share in profit ( this may be credited

2. Share in loss ( this may be directly to capital).

debited directly to capital).

The drawing account's purpose is to report separately the owner's draws during each accounting year.
Since the capital account and owner's equity account are expected to have credit balances, the drawing
account (having a debit balance) is considered to be a conta account. In addition , the drawing account is
a temporary account since it's balance is closed to the capital account at the end of each accounting
year.