Beruflich Dokumente
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Agranum
Instructor 1,
College of Business Management and Accountancy
Overview of Business
Business – an undertaking of an individual or group of
individuals to engage and perform activities which will
produce income. Activities which use the organizations
resources whose primary objective is to gain profit.
Business organizations may also be termed as
economic unit or economic entity.
Note: 1)determine how the 2) know the meaning of above 3)provide transaction for the
above accounts come into use of above account titles
existence in the entity.
Accounting tools
Account – the basic summary device of accounting. A detailed
record of the increases, decreases and balance of each element
that appears in an entity’s financial statements.
T-account – this has three parts, account title, left side (Debit
side) and right side (Credit side)
Accounting Equation – the basic tool of accounting. Assets
must always equal liabilities and owner’s equity.
Assets = Liabilities + Owners’ Equity
Above equation also means that creditor and owner have
claims over the assets of the entity
Double-Entry System – Debit and Credit – Accounting is
based on a double entry system which means that the dual
effects of a business transaction is recorded.
Normal balance of an account – refers to the side of the
account- debit or credit where increases are recorded . Asset,
owner’s withdrawal and expense accounts normally have debit
balances; liability, owner’s equity and income accounts normally
have credit balances.
Rules of Debit and Credit
Accounting events and transactions
An accounting event is an economic occurrence that causes changes
in an enterprise’s assets, liabilities, and/or equity. Events may be
internal or external actions.
A transaction is a particular kind of event that involves the transfer
of something of value between two entities.
Types and effects of transactions:
1. Source of Assets (SA)- an asset account increases and a
corresponding claims or equity account increases.
2. Exchange of Assets (EA) – One asset account increases and
another asset account decreases.
3. Use of Assets (UA) – An asset account decreases and
corresponding claims account decreases.
4. Exchange of Claims (EC) – One claims account increases and
another claims account decreases.
2. The entity acquired three sets of computers each amounting to P55,000 , gave P55,000 down
payment and the balance payable next year.
Analysis: Asset Computer equipment increased by P165,000, cash decreased by P55,000 and the liability account
increased by P110,000. (EA) and (UA)
5. Paid Mayors permit and other requirements to establish the business for P10,000 and took a one
year fire insurance from Insular for 12,000.
Analysis: Asset Prepaid Expenses increased by P22,000 and another asset Cash decreased. (UA)
(note: require students to provide more transactions, then eventually determine when to debit and
credit accounts.)
Accounting cycle
accounting cycle
Activities
performed in an
accounting period
that help the
business keep its
records in an
orderly fashion.
Invoice Receipt
Memorandum Check stub
source document
A paper prepared as the evidence that a transaction occurred.
Source documents
sales invoice, cash register tapes, official receipt, bank deposit slips, bank
statements, checks, purchase orders, time cards and statement of accounts
Here is an example showing the analysis of a business transaction
and its general journal entry:
Business Transaction
journal
A chronological record of the transactions of a business.
journalizing
The process of recording business transactions.
Need for adjustments (step 5)
Financial statements are prepared on the accrual basis of accounting,
except the for the cash flow statements.
Each adjusting entry affects a balance sheet account and an income
statement account. There are two types of adjusting entries, deferrals
and accruals.
These entries are needed to measure properly the profit for the period,
and to bring related asset and liability accounts to correct balances for
the financial statements.
Deferral is the postponement of the recognition of “an expense
already paid but not yet incurred”
example of deferrals that need adjustments: prepayments, depreciation
of property and equipments, allocation of revenues received in advance
to revenues.
Accrual is the recognition of “an expense already incurred but unpaid”.
example of accrual that needs adjustments: unpaid expenses already
incurred for the period, accrued revenues, accrual fro uncollectible
accounts.
The worksheet (still at step 5)
Preparing the worksheet:
1. Enter the account balances in the unadjusted trial balance columns
and total the amounts.
2. Enter the adjusting entries in the adjustment columns and total the
amounts
3. Compute each accounts adjusted balance by combining the
unadjusted trial balance and the adjustment figures. Enter the
adjusted amounts in the adjusted trial balance columns.
4. Extend the asset, liability and owner’s equity amounts from the
adjusted trail balance columns to the balance sheet columns. Extend
the income and expense amounts to the income statement columns.
5. Compute profit or loss as the difference between total revenues and
total expenses in the income statement. Enter profit or loss as a
balancing amount in the income statement and in the balance sheet,
and compute the final column totals.
Step 6. Preparing Financial Statements Once worksheet is completed, it is easy to prepare
the financial statements. Most of the information needed to prepare income statements,
statement of changes in equity and balance sheet are available from the worksheet.
Step 7 – Adjustments are journalized and posted. This step in the
accounting cycle brings the ledger into agreement with the data
reported inn the financial statements.
Step 8 – Closing entries are journalized and posted. Temporary
accounts are closed to Income Summary accounts at the end of
the accounting period. The closing procedure: 1. Close income
accounts 2. Close the expense accounts. 3. close the income
summary account, and 4. close the withdrawal account.
Step 9- Preparation of Post-Closing Trial Balance. To test the
equality of all the remaining open accounts, preparation of trial
balance after closing all temporary accounts has to be done. This
contains only balance sheet items.
Step 10 – Reversing entries. An optional step, in the accounting
cycle. A reversing entry is the opposite of a related adjusting
entry made at the end of the period. Reversing entry should be
made for adjusting entries that increased an asset or a liability
account.
Application of the above learning is through the use of
practice set, thus students will be required to comply with.
Suggest that students have to take down notes during
discussion.
end of review
note: that most of the discussion and illustration were from the
book of Win Lu and Susan Ballada.
May the Lord God be by your side in your quest for knowledge.