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Accounting
system designed to identify, collect, process, measure and communicate economic information about the business entity to those users having interest in the financial affairs of the entity
Accounting (accounting standards council)
is a service activity
Accounting (accounting standards council)
Its function is to provide quantitative information, primarily financial in nature, about finances, about economic entities, that is intended to be useful in making economic decision.
Accounting (committee on accounting terminology of the american institute of certified public accountants)
the 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 a Financial character and interpreting the results thereof.
Accounting (american accounting association)
the method of recognizing, appraising and communicating economic details to permit informed judgment and decision by users of the information.
Statement of financial position
Also known as Balance sheet
Statement of financial position
It presents the financial position of an entity at a given date
As at, as of
The date of the statement of financial position is always “” or “” the end of the period
Assets, liabilities, and equity
SFP shows the company’s _____, _____, and ______
Debit and credit
SFP is divided into two parts
Liabilities
claims of creditors
Equity
claims of owners
Real accounts
The accounts in the balance sheet is called
Real accounts
accounts where their balances are carried forward into the next accounting period
Closing
Real accounts always have a _______ balance
Assets
What you “own”
Assets
Control and inflows
Debit
Normal balance of Assets
Assets
SFP balances start with ______
Assets
company resources that are expected to have future economic benefits
Liabilities
What you “owe”
Liabilities
No control and outflows
Liabilities
These are obligations of the company
Credit
Normal balance of Liabilities
Equity
What you “own” - What you “owe”
Equity
Residual Interest
Equity
the excess of assets over liabilities
Equity
the net assets of the business
Current assets
A type of asset wherein items listed on a company’s balance sheet that are expected to be converted into cash within one fiscal year (12 months of the transaction date)
Current assets
assets that are expected to be converted to cash or consumed within one year.
Noncurrent assets
A type of asset wherein long-term assets that a company expects to hold over one fiscal year (more than 12 months) that cannot be readily converted to cash within a year
Noncurrent assets
assets that are expected to be used for more than one year.
Cash, cash equivalents, account receivables, trading securities, inventories, supplies, and other prepaid assets
Examples of Current Assets (C, CE, AR, TS, I, S, and OPS)
Cash
Include bills and coins on hand, bank accounts, and operating funds
Cash
currency readily available to be used for the company's operations
Cash
It is any medium of exchange that a bank will accept for deposit at face value
Cash equivalents
Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value
Cash equivalents
technically not cash because it is not immediately available for use. It is almost cash in the sense that it will become cash within the next 90 days.
Cash equivalents
includes investment and treasury bills (t-bills)
Account receivables
Amounts owed by customers to the entity
Receivables
a general term that refers to the company's right to collect payment from third parties, such as customers and employees
Receivables
arise from contractual rights to receive cash or other assets from third parties.
Trade receivables
claims from suppliers from unpaid sales or services rendered in advance to customers
Trade receivables
came from the normal operating activities of the company. This is usually the largest receivables of an entity.
Discount
amount to be deducted in a customer payment
Discount period
a period where the customer could avail a discount
Notes receivables
Are evidenced by a promissory note
Promissory note
a piece of paper signed by the borrower where it promises to pay a certain amount at a certain time
Interest receivables
Are collectible amounts due to the cost of borrowing money
Trading securities
Securities that have been purchased by a company for the purposes of realizing a short term profit
Inventories
This balance sheet account represents cost of unsold merchandise
Inventories
company’s assets that are sold in the normal course of its business
Merchandise inventory
goods held for sale by the trading or merchandising company, account use in merchandising business (buy and sell)
Raw materials inventory
materials held for use in the production of finished foods of a manufacturing company
Goods in process inventory
materials in process in the production area but not yet finish
Finished goods inventory
finished product held for sale by the manufacturing company
Manufacturing business
from raw materials that will undergo the process into finished products
Supplies
Those that are to be used in the day-to-day operations of the business such as Office supplies are not Inventories. It is classified as an asset called
Supplies and other prepaid assets
This include office supplies to be consumed by the business and prepaid assets.
Prepaid expenses
expenses not yet incurred but paid in advance
Property, plant, and equipment, intangibles, investment properties, biological assets, accumulated depreciation
Examples of Non-current Assets (PPE, IA, IP, BA)
Property, plant, and equipment
Include fixed assets used in the normal operating cycle or production of the business.
Property, plant, and equipment
Long term assets with physical substance
Fixed assets
old term of Property, plant, and equipment
Property, plant, and equipment
These assets are long-term assets that are used in the operations of the company
Land, building, equipment, land and building improvements, leasehold improvements
Examples of PPE are: (L, B, E, LBI, LI)
Land
real property used in operations or for rent. This is a fixed asset not subject to deprecation.
Building
real property used in operations such as warehouse and office buildings.
Equipment
this includes office computers, automobiles, delivery vehicle, and manufacturing equipment.
Land and building improvements
these are enhancements to land or building. Land improvements includes landscaping, parking lots and driveways. Building improvements includes floor and roof renovation.
Leasehold improvements
it’s like building improvements, except that the premise is just rented by the company.
Intangibles
an asset but without physical substance (e.g. trademarks, patent, copyright, goodwill)
investment properties
are long-lived assets not used in production
Biological assets
Are living plants or animals held by the business for resale or for breeding
Accumulated depreciation
Is a valuation account which represents the decrease in value of a fixed asset except for land due to continued use, wear and tear, passage of time and obsolescence
Current liabilities
Are obligations or debts of the business which will be settled within 12 months of the date on the balance sheet.
Noncurrent liabilities
Are obligations or debts of the business that will be due and payable beyond one year or 12 months
Accounts payable, notes payable, interest payable, other accrued expenses, income tax payable, unearned income
Examples of current liabilities
Accounts payable
Are open accounts relating to purchase of goods and/or raw materials
Notes payable
Are evidenced by a promissory note.
Other accrued expenses
These accounts pertain to expenses incurred but not yet paid.
Income tax payable
Business organization’s tax liability to the government where it operates
Unearned income
This represents income received in advance but not yet earned. In short, collection are already made but services are not yet rendered.
Notes payable, mortgage payable, loan payable, bonds payable
Examples of Noncurrent Liabilities