Summarizing Summarizing is the preparation of financial statements which include the balance sheet, income statement, cash flow

statement, statement of changes in equity and notes to financial statements.

In Information Technology, computer languages allow a programmer to communicate with machines in order to get the desired output or result

The basic purpose of accounting is to supply financial information to users of the information to help them informed judgement and better decision.

For example, a company is considering obtaining a loan from the bank. Accounting provides the following information, among others, relevant to this decision

 The resources of the business

or we called

ASSET

If management sees that the company has other resources (for example investments in government Treasury Bills), it may decide instead to sell the investments and use the resulting cash to finance business operations.

 The obligations of the business

or we called

LIABILITY

Management also analyzes the obligations of the business to check if they could still handle additional obligations as a result of borrowing from the bank

Interest being paid on the obligations of the business

Inflows and outflows resulting from business operations

Cash inflows and outflows are analyzed to see other possible sources of financing or to determine how the business would repay the bank loan, if it ever materializes

Bookkeeping is the recording of business data in the prescribed manner. Accounting is primarily concerned with the design of the system of records, the preparation of reports and the interpretation of reports.

Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control.

Stakeholder Owner or investor Supplier and other trade creditors Lenders Employee Individual

and other trade creditors

The preparation and presentation of financial statements is govern by a set of principles known as generally accepting accounting principle or GAAP GAAP comprises the accounting principles and processes, standards, and underlying assumptions that are used in preparing financial statements.

Business entity principle This concept states that the business is considered distinct and separate from the owner(s) of the business. Personal transactions of the owner(s) is/are not included in the records of the business.

Assume that on a certain day, Joy received P25,000 cash P10,000 from the sale of her cellphone to Sheena, a personal friend; and P15,000 from customers of her laundry business.

Under the business transaction principle which is to be accounted in preparing financial statements of?

Dual-effect of business transactions When a business transaction takes place ( for example, the rendering of services, delivery of goods, purchase of equipment, payment of salaries to employees, etc.) accounting assumes that the value received is equal to value given up (for every value received, there is an equal value given up)

Transactions
a. Bought a typewriter for office use, paying cash therefore b. Received cash as payment of professional service rendered c. Payment of debt owing to a credit d. Payment of office rent f. Payment of cash for wages of employess g. Purchase of merchandise for cash h. Sale of merchandise for cash i. Sale of merchandise on credit

Value Received

Value Given Up

Transactions
a. Bought a typewriter for office use, paying cash therefore b. Received cash as payment of professional service rendered

Value Received
Typewriter

Value Given Up
Cash

Cash

Service

c. Payment of debt owing to a credit

d. Payment of office rent f. Payment of cash for wages of employees g. Purchase of merchandise for cash h. Sale of merchandise for cash i. Sale of merchandise on credit

Cancellation of debt
Right to use property Merchandise Services rendered by the employees Cash Obligation or debt collectible

Cash
Cash Debt or obligation to pay the seller Cash Merchandise Merchandise

Matching principle Net income or net loss can only be measured if there is a proper matching of the income earned and the expenses incurred within one accounting period

When income from the sale of goods is reported in the financial statements for a particular period, the related sales commissions paid to sales persons, cost of goods sold and other expenses for the same accounting period are also reported in the financial statement

Accrual Basis
There are two common bases in accounting for business transaction. These are the cash and accrual basis. Under the cash, income is recognized when cash is received, and expenses are recognized when it is paid. Under the accrual basis income is recognized when it is earned and, regardless of when cash is received. Expenses are recognized when incurred, regardless of when cash is paid.

Stable monetary unit

For a business transaction to be included in the accounting records and financial statements of the enterprise, it must be in terms of a uniform means of measurement In the Philippines, the monetary unit is Peso For multinational companies, financial statements distributed worldwide according to

Periodicity (Time Period Concept)

If economic decisions are to be effective, timely information must be available to decision-makers. Operating life of an enterprise may be divided into time periods of equal length (one year), called accounting periods. Makes it possible for users of financial statements to assess the condition and performance of the business ( for example, comparing the amount of net income this year to last year.

Going Concern (Continuity Assumption)

The FS are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future.

Balance Sheet Income Statement Statement of Changes in Equity Statement of Cash Flows Notes to Financial Statements

ABC CORPORATION Statement of Financial Position December 31, 2009

Assets Cash Accounts receivable Supplies Equipment Total assets Liabilities and Stockholders' Equity Liabilities Accounts Payable Notes Payable Total liabilities Stockholders' Equity Contributed Capital Total Stockholders'equity Total liabilities and stockholders'equity P

Increase
Amount of cash in the businesss bank account Amount owed to ABC for prior credit sales Amount of food and paper supplies on hand Cost of ovens, tables, etc. Total amount of the businesss resources

10,000 1,000 3,000 40,000 54,000

7,000 20,000 27,000 27,000 27,000 54,000

Amount owed to suppliers for prior purchases on credit

Amount of loan owed to the bank

Total claims on the resources by creditors

Amount contributed to the company by stockholders

Total claims on the resources by stockholders

Total claims on the businesss resources

ABC CORPORATION Statement of Comprehensive Income For the month ended December 31, 2009

Increase

Revenues Service Revenue P 15,000

Amount charged to customers in December

Expenses Salaries and wages expense 8,000 Rent expense 2,400 Utilities 600 Advertising expense 400 Insurance expense 300 Total expense 11,700 Net income P 3,300

Manager salaries and stylist 'wages in December

Cost of renting store space in December Cost of water, power, etc. In December Cost of advertising done in December Cost of insurance coverage in December Sum all expenses

=15,000 11,700