ACCO20213-ACCOUNTING-PRINCIPLES

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  • Title: Instructional Material for ACCO 20213 Accounting PrinciplesCompiled by: Melinda S. Balbarino, Leonardo Coquilla, Maria Teresa M. Corrales, etc.

  • Year: 2020

  • Subject: Accounting Principles

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General Information about the Course

  • Course Code and Title: ACCO 20213 – Accounting Principles

  • Semester and Academic Year: First Semester, Academic Year 2020-2021

  • Course Credit: 3 Units

  • Pre-Requisite: None

  • Course Description:

    • Introduction to accounting principles, concepts, and their relevance to business decisions.

    • Emphasis on understanding basic accounting processes, including recording, classification, and summarization of financial data for a sole proprietorship service entity.

Course Outcomes

  1. Knowledge and understanding of single proprietorship accounting processes.

  2. Ability to produce entries and financial records for a sole proprietorship.

  3. Competence and honesty in accountancy service.

  4. Demonstrate qualities of future accountants.

  5. Skilled in using calculators, computers, and business equipment.

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Overview of Instructional Material

  • Five modules cover essential accounting topics.

  • For Students with Internet Access: Complete activities as instructed.

  • For Students without Internet Access: Complete activities using additional paper as necessary, either handwritten or printed.

House Rules

  1. Manage time effectively for reading and understanding the modules.

  2. Avoid procrastination; complete tasks on time.

  3. Familiarize with assessment tools before starting tasks.

  4. Review different materials related to the course in advance.

  5. Maintain awareness of submission deadlines.

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Table of Contents

  • Module 1: Introduction to Accounting (Pages 5 – 29)

  • Module 2: The Accounting Equation and Analyzing Business Transactions (Pages 30 – 41)

  • Module 3: Recording and Posting the Business Transactions (Pages 42 – 66)

  • Module 4: Adjusting Entries (Pages 67 – 84)

  • Module 5: Completion of the Accounting Process (Pages 85 – 107)

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Module 1: Introduction to Accounting

  • Overview: Accounting is essential for all business operations, operated by bookkeepers or accountants.

  • Importance: Critical for decision making and performance measurement. Knowing the definition, history, principles, and standards of accounting is essential.

Learning Objectives

  1. Understanding the history and evolution of accounting.

  2. Defining accounting and its purpose in economic information systems.

  3. Comprehending basic accounting principles and their application.

  4. Recognizing different business types and forms of organization.

  5. Mastering the basic accounting equation and its components.

History of Accounting

  • Notable Figure: Fra Luca Pacioli, known for double-entry bookkeeping in 1494.

  • Early Records: Some of the first records date back over 7,000 years to Ancient Mesopotamia.

Evolution During the Roman Empire

  • Detailed accounts of financial dealings were recorded, hinting at early forms of accounting for decision making.

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Contributions of Luca Pacioli

  • Summa de Arithmetica: The book included the first published work addressing bookkeeping.

Accounting in the Middle Ages

  • Shift from bartering to monetary economies led to more structured accounting practices.

Today’s Accounting Systems

  • Integration of technology and adherence to standards and regulations.

Definition of Accounting

  • Accounting: Process of recording, summarizing financial transactions. Definition by AICPA highlights its role in transactions and interpreting results.

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Branches of Accounting

  1. Financial Accounting: Historical data and financial statements reporting.

  2. Cost Accounting: Internal assessment focused on costs, mainly in manufacturing.

  3. Auditing: Ensuring compliance and accuracy in financial reporting.

  4. Managerial Accounting: Internal reporting to assist in decision-making.

  5. Accounting Information Systems (AIS): Management of accounting systems.

  6. Tax Accounting: Compliance with tax regulations and preparation of returns.

  7. Forensic Accounting: Investigation of fraud and legal disputes.

  8. Fiduciary Accounting: Managing another party’s assets.

Uses of Accounting Information

  • Performance Measurement: Evaluate company performance using financial ratios.

  • Budget Creation: Using historical data for future planning.

  • Business Decision Making: Assessing operations and making strategic decisions based on financials.

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Generally Accepted Accounting Principles (GAAP)

  • Overview of GAAP, its significance in preparing financial statements, and its requirements for public companies.

Main Accounting Principles

  1. Economic Entity Assumption: Separation of owner and business transactions.

  2. Monetary Unit Assumption: Transactions measured in Philippine pesos.

  3. Time Period Assumption: Reporting activities over defined time periods.

  4. Historical Cost Principle: Record expenses at their initial costs.

  5. Full Disclosure Principle: Important information should be disclosed in financial statements.

  6. Going Concern Principle: Assumption that the entity will continue to operate.

  7. Matching Principle: Matching revenues with associated expenses.

  8. Revenue Recognition Principle: Recognizing revenue at the point of sale, regardless of cash receipt timing.

  9. Materiality: Ignore small items to simplify bookkeeping.

  10. Conservatism: Reporting should be cautious, especially regarding gains and losses.

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Accounting Standards

  • Global Standards: IFRS Foundation, IASB, and their significance in regulating financial reporting.

  • Philippine Standards: PFRS/PAS and convergence with global standards.

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Forms of Business Organization

  1. Sole Proprietorship: Owned by one person, all profits/losses belong to them.

  2. Partnership: Owned by two or more individuals, can have limited or unlimited liability.

  3. Corporation: Legal entity distinct from its owners, limited liability for shareholders.

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Types of Business Activity

  1. Service Business: Provides intangible products (e.g., consulting).

  2. Merchandising Business: Buys and sells physical products without alteration.

  3. Manufacturing Business: Transforms raw materials into finished goods.

Financial Statements Generated

  • Balance Sheet: Snapshot of assets, liabilities, and shareholder’s equity at a point in time.

  • Income Statement: Overview of revenue and expenses over a specific period.

  • Cash Flow Statement: Summary of cash inflows and outflows.

  • Statement of Owner’s Equity: Shows the changes in owner’s equity over a period.

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Income Statement Section

  • Structure: Revenue - Expenses = Net Income

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Activities and Assessment Examples

  • Identifying accounting principles from scenarios.

  • Defining accounting terms and principles.

  • Discussing forms of business organization and types of business activities.

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Conclusion on Overall Structure and Approach

  • Accounting provides necessary tools for financial decision-making, performance measurement, and compliance regulation.

  • Understanding accounting principles, forms of business, and types of transactions are integral to all business operations.