FUNDAMENTALS OF ACCOUNTANCY - ACCOUNTING 1 - JOURNALIZING TO TRIAL BALANCE

It is an ACCOUNTING DEVICE used to summarize the changes in the accounting values or elements

T-Accounts

EXCHANGE of goods and services between two (2) parties

Business Transaction

one CREDIT and one DEBIT

Simple Entry

two or more DEBITS and/or CREDITS

Compound Entry

Listing of balance of different accounts

Trial Balance

is a mathematical expression which states that
the total amount of assets is EQUAL to the total
amount of liabilities PLUS the total amounts of
capital.

BASIC ACCOUNTING EQUATION

- These are the properties and rights owned and controlled by the business that have present and future benefits.
- In short "Pag mamay-ari ng kumpanya natin."

ASSETS

Represent debts or monetary obligations of a business that results from past transactions that would normally results in outflow from the assets.

LIABILITY

represents the money or properties
invested by the owner in the business.

CAPITAL

represents financial interest or residual claim
of the owner in the assets of the business after
deducting all liabilities. (CLAIMS OF OWNERS IN
ASSETS)

EQUITY

EFFECTS in CAPITAL/EQUITY - Investments of the owner
(Owner's Equity)

INCREASE

EFFECTS in CAPITAL/EQUITY - Withdrawals of the Owner
(Owner's Drawings)

DECREASE

EFFECTS in CAPITAL/EQUITY - Income from Operations
(Income/Revenue)

INCREASE

EFFECTS in CAPITAL/EQUITY - Expenses from Operations
(Expenses)

DECREASE

EXPANDED ACCOUNTING EQUATION

Assets = Liabilities + Capital + Revenues - Expenses
(BALANCE SHEET) (INCOME STATEMENT)

meaning resources are acquired on credit from the creditors (LIABILITIES)

EXTERNAL FINANCING

means resources are acquired by means of investment of the owner (CAPITAL/EQUITY) and by the results of the operations of the business (income) .

INTERNAL FINANCING

is any organization that operates for commercial purpose.

BUSINESS

FIVE (5) FINANCIAL STATEMENT

Balance Sheet/Statement of Financial Position
Income Statement/Profit or Loss Statement
Statement of Changes in Owner's Equity
Statement of Cash Flows
Notes to Financial Statements (Supplement to FS)

- Shows the financial condition, or financial status/health of the company as of a specified date.
- Provide a "snapshots" on the financial status/health.
- Shows the details of ASSETS, LIABILITIES, and OWNER'S EQUITY.

STATEMENT OF FINANCIAL POSITION /
BALANCE SHEET

- Shows the financial performance of the business for a particular period.
- It also shows the results of operations: "PROFIT OR LOSS"
- Shows the details of the INCOME and EXPENSES of the business.

PROFIT OR LOSS STATEMENT /
INCOME STATEMENT

- Shows the changes in the capital or equity of the owner.
- As a results of additional investments or withdrawals of the owner, plus/minus the net income or net loss for the year.

STATEMENT OF CHANGES IN EQUITY / CAPITAL STATEMENT

- Shows the movement of cash of the business.
- "CASH INFLOWS OR CASH OUTFLOWS"
- It summarizes the cash receipts and cash disbursements.

STATEMENT OF CASH FLOWS

- Are the supplemental notes that are included with the published financial statements of a company.
- The notes are used to explain the assumptions used to prepare the numbers in the financial statements, as well as the accounting policies adopted by the company.

NOTES TO FINANCIAL STATEMENTS

FIVE (5) BASIC ACCOUNTING ELEMENTS

1.) ASSETS
2.) LIABILITIES
3.) EQUITY OR CAPITAL
4.) INCOME
5.) EXPENSES

are the business values or financial values that increase or decrease when the business enters into business transactions.

ACCOUNTING ELEMENTS

Assets that are reasonably expected to be converted into cash or used/consumed in operations within 1 (one) year or 12 months (in normal operating cycle)

CURRENT ASSETS

Assets that do not meet the criteria to be classified as current. Assets that are expected to be used/consumed beyond 1 (one) year or 12 months.

NON-CURRENT ASSETS

CLAIMS of the business AGAINST the other companies.

RECIEVABLE

amounts owed to the entity for services performed or products sold but not yet collected by the entity at reporting date.

ACCOUNTS RECIEVABLE

In business, not all receivables can be collected; All receivable that is uncollectible is called

BAD DEBTS OR DOUBTFUL ACCOUNTS

goods that are being sold in the normal business activity.

INVENTORY

- expenses not yet incurred but already paid.
- expenses paid in advance.

PREPAID EXPENSE

(also called Plant Assets or Fixed Assets) - Long lived tangible assets acquired for use in operations and not intended for sale.

PROPERTIES, PLANT AND EQUIPMENT (PPE)

decrease in the cost or value of PPE / Fixed Assets.

DEPRECIATION

long term assets that has no physical substance.

INTANGIBLE ASSETS

debts or obligations that is expected to be settled or paid within 1 (one) year or 12 months (in normal operating cycle)

CURRENT LIABILITIES

debts or obligations of the business that will due and expected to be settled or paid beyond 1 (one) year or 12 months.

NON-CURRENT LIABILITIES

refers to debts or obligations of the business that arises from the acquisition of service or merchandise on account.

ACCOUNTS PAYABLE

recorded because their financial effects (increases and decreases) on the different accounting elements (assets, liabilities, capital, income and expense) that comprises the business.

BUSINESS TRANSACTION

this is the listing of all the account titles and control/account numbers of the business, used by the bookkeeper as a guide in recording business transactions.

CHART OF ACCOUNTS

Assets, Liabilities, Capital/Equity (ALC)

BALANCE SHEET

Income and Expense (IE)

INCOME STATEMENT

are the MANUAL INSTRUMENTS used for record keeping all accounting/business transactions.

BOOK OF ACCOUNTS

it is where the book of accounts officially registered and stamped as the official book of the business.

BUREU OF INTERNAL REVENUE (BIR)

TWO (2) MAJOR's BOOK OF ACCOUNTS

JOURNAL AND LEDGER

- it is also called the "Book of Original Entry".
- it is the accounting record where business transactions are FIRST recorded.
- this is a recording of business transactions chronologically.

JOURNAL

Business transactions are recorded in the journal through

JOURNAL ENTRIES

JOURNAL recording process is called

JOURNALIZING

TWO (2) TYPES OF JOURNAL

GENERAL JOURNAL AND SPECIAL JOURNAL

- Is used to record transactions of a SIMILAR nature.
- It simplify the recording process, thus providing an efficient way of recording and retrieving of information.

SPECIAL JOURNAL

a common example of SPECIAL JOURNAL that is used to record sales on
account/credit.

SALES JOURNAL

a common example of SPECIAL JOURNAL that is used to RECORD PURCHASES of inventory on account/credit.

PURCHASES JOURNAL

a common example of SPECIAL JOURNAL that is used to record all transactions involving RECIEPTS of cash.

CASH RECIEPTS JOURNAL

a common example of SPECIAL JOURNAL that is used to record all transactions involving PAYMENT OF CASH.

CASH DISBURSEMENT JOURNAL

- All other transactions that cannot be recorded in the special journals are recorded here

GENERAL JOURNAL

- it is also called the "Book of Final Entries" or "Book of Secondary Entries".
- It is used only AFTER business transactions are first recorded in the Journals.

LEDGER

The process of recording in the Ledger is called ____________________________. It is the method of transferring items from journal to ledger basically a sorting/grouping process. It groups similar accounts according to its nature
and type.

POSTING

TWO (2) TYPES OF LEDGERS

GENERAL AND SUBSIDIARY LEDGER

(Control Account/Master Account)
contains all the accounts appearing in the trial balance

GENERAL LEDGER

- contains the details to support General Ledger control account.
- large or high volume transactions.

SUBSIDIARY LEDGER

All transactions are recorded in the ACCOUNTING RECORDS using this!

DOUBLE ENTRY SYSTEM

Under DOUBLE ENTRY SYSTEM, each transaction is recorded in two (2) parts

DEBIT AND CREDIT (DEBERE AND CREDERE)

Views that each transaction as having a two-fold effects on the values and
each transaction is recorded using at least two accounts.
"AT LEAST 2 EFFECTS"

CONCEPTS OF DUALITY

Requires that each transaction is recorded in terms of equal debits and
credits.
"DEBIT = CREDIT"

CONCEPT OF EQUILIBRIUM

- is an accounting entry that either increases an asset or expense
account, or decreases a liability or equity account.
- it is positioned to the LEFT in an accounting entry.

DEBIT (DR)

- is an accounting entry that either increases a liability or equity account, or
decreases an asset or expense account.
- it is positioned to the RIGHT in an accounting entry.

CREDIT (CR)

used to indicate that the entry is posted in the respective ledger accounts and it links the journal with the respective ledger account. The abbreviation used for it is "PR". it is also called a FOLIO.

POSTING REFERENCE

The side where the account INCREASES is called

NORMAL BALANCE

FOUR (4) PHASES OF ACCOUNTING

RECORDING
CLASSIFYING
SUMMARIZING
INTERPRETING

PRIMARY END-PRODUCT OF ACCOUNTING

FINANCIAL STATEMENT

ACCOUNTING CYCLE

IDENTIFICATION OF TRANSACTION
JOURNALIZING
POSTING
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE (WORKSHEET - OPTIONAL)
FINANCIAL STATEMENT PREPARATION
CLOSING
POST-CLOSING TRIAL BALANCE
REVERSING ENTRIES