1-HRS-ACC-11-Introduction-to-Accounting

Introduction to Accounting

Overview

• Course Title: Bookkeeping NC III

• Module Title: Introduction to Accounting

• Duration: 3 hours

• Developed by: Sarah Joy Dumalay Martin

• Document No: 90-ACC 11

Specific Learning Objectives

At the end of this module, you should be able to:

1. Analyze the value received and value parted with.

2. Analyze documents using rules of debit and credit.

3. Journalize different business transactions of a Single Proprietorship.

4. Prepare a ledger.

5. Post journal entries to the ledger.

6. List account titles and transfer balances from the ledger.

7. Summarize trial balance.

8. Prepare financial statements of a single proprietorship.

Module Content

Topics

1. Need for Accounting

2. Why Study Accounting

3. Definition of Accounting

4. Four Phases of Accounting

5. Business Organizations

6. Business Accounting as an Accounting Equity

7. Accounting Elements or Values

Need for Accounting

• Human limitations make it hard to remember daily transactions accurately.

• Written records are essential for future reference and decision-making.

• Various stakeholders (owners, management, investors, creditors, employees, government) rely on accounting information for different decisions.

Role of Direct Users

1. Owners: Assess business performance and investment decisions.

2. Management: Evaluate resources, debts, expenses, and profitability.

3. Prospective Investors: Determine financial viability before investing.

4. Creditors: Evaluate business’s ability to meet obligations before lending.

Why Study Accounting

• Understanding financial reports leads to informed decision-making.

• Appreciate data gathering and recording processes.

• Potential career path in accounting, which is rewarding and interesting.

Definition of Accounting

• Accounting is defined as the art of recording, classifying, summarizing, and interpreting financial transactions.

• It acts as a language of business, facilitating communication about financial performance among stakeholders.

Four Phases of Accounting

1. Recording (Bookkeeping): Systematic and chronological documentation of transactions.

   • Types:

     • Single Entry: Records only one aspect of a transaction.

     • Double Entry: Records both debit and credit aspects.

2. Classifying: Sorting transactions into categories for analysis.

3. Summarizing: Generating financial statements at the end of each accounting period.

4. Interpreting: Requires analysis from accountants due to the technical nature of financial reports.

Business Organizations

Types by Ownership

1. Sole Proprietorship: Owned and managed by one person.

2. Partnership: Owned by two or more partners.

3. Corporation: Owned by at least five persons, organized by law.

Types by Nature of Business

1. Service: Offers services (e.g., salons, law firms).

2. Trading/Merchandising: Buys and sells goods (e.g., stores).

3. Manufacturing: Converts raw materials into products.

Business as an Accounting Entity

• The business is considered separate from its owners, meaning personal belongings and liabilities are distinct from business assets and liabilities.

• Owner's transactions on behalf of the business must be recorded in accounting books.

Transactions

• Definition: An exchange of value, involving both a value received and a value parted with.

• Illustrative Examples:

  • Purchased tools for cash: Tools (value received) - Cash (value parted).

  • Paid rent for shop: Right to occupy (value received) - Cash (value parted).

Accounting Elements or Values

Components

1. Assets: Economic resources owned by the business.

   • Current Assets: Quickly convertible to cash within operating cycles (e.g., cash, accounts receivable).

   • Fixed Assets: Long-term resources (e.g., buildings, equipment).

2. Liabilities: Debts owed to external parties, categorized as:

   • Current Liabilities: Due within a year (e.g., accounts payable).

   • Long-term Liabilities: Due after more than a year (e.g., mortgages).

3. Capital: Owner's equity or investment in the business, synonymous with Owner's Equity.

Introduction to Accounting Overview

Course Title: Bookkeeping NC IIIModule Title: Introduction to AccountingDuration: 3 hoursDeveloped by: Sarah Joy Dumalay Martin

Specific Learning Objectives

• Analyze value received and value parted with.

• Apply rules of debit and credit to document transactions.

• Journalize transactions for a Single Proprietorship.

• Prepare and post ledger entries, and summarize trial balances.

• Produce financial statements for a single proprietorship.

Key Topics

1. Need for Accounting: Essential for accurate transaction record-keeping and decision-making, helping stakeholders like owners, management, investors, and creditors.

2. Why Study Accounting: Enhances understanding of financial reports and data processes, promoting informed decision-making and rewarding career prospects.

3. Definition of Accounting: Art of recording, classifying, summarizing, and interpreting financial transactions; serves as the business's language.

4. Four Phases of Accounting:

   • Recording: Documenting transactions (Single Entry vs. Double Entry).

   • Classifying: Categorizing transactions.

   • Summarizing: Generating statements at accounting period's end.

   • Interpreting: Analyzing financial reports.

5. Business Organizations:

   • Types: Sole Proprietorship, Partnership, Corporation.

   • Nature: Service, Trading/Merchandising, Manufacturing.

6. Accounting as an Entity: Business is separate from its owners; transactions on behalf of the business must be recorded efficiently.

7. Transactions: Defined as exchanges of value, with both value received and value parted with.

8. Accounting Elements:

   • Assets: Economic resources (Current: easily convertible to cash; Fixed: long-term).

   • Liabilities: Debts (Current: due within a year; Long-term: due after more than a year).

   • Capital: Owner’s equity or investment in the business.

This overview serves as a concise reviewer for students on the essentials of accounting.

Accounting Equation Overview

Accounting Equation: The fundamental equation that underpins double-entry bookkeeping.

Formula: [ \text{Assets} = \text{Liabilities} + \text{Owner's Equity} ]

Key Components:

1. Assets: Resources owned by a company that provide future economic benefits (e.g., cash, equipment, inventory).

2. Liabilities: Obligations or debts a company owes to external parties (e.g., loans, accounts payable).

3. Owner's Equity: The residual interest in the assets of the business after deducting liabilities; it includes contributions from owners and retained earnings.

Importance of the Accounting Equation:

• Demonstrates the relationship between assets, liabilities, and owner's equity.

• Ensures that financial statements balance, which is critical for accuracy in reporting.

• Forms the basis of the double-entry accounting system where every transaction affects at least two accounts.

Example:

• If a business has $100,000 in assets and $60,000 in liabilities, the owner's equity is: [ Owner's Equity = Assets - Liabilities = 100,000 - 60,000 = 40,000 ]

This reviewer serves as a concise understanding of the Accounting Equation, integral for anyone studying basic accounting principles.

Accounting Equation Overview

• Accounting Equation: Fundamental equation of double-entry bookkeeping.

• Formula: Assets = Liabilities + Owner's Equity

Key Components:

1. Assets: Resources owned by a company providing future economic benefits (e.g., cash, equipment).

2. Liabilities: Obligations a company owes to external parties (e.g., loans).

3. Owner's Equity: Residual interest in the business's assets after deducting liabilities, including owners' contributions and retained earnings.

Importance:

• Demonstrates relationships among assets, liabilities, and owner's equity.

• Ensures financial statements balance, critical for accurate reporting.

• Forms the basis of the double-entry accounting system, where every transaction affects at least two accounts.

Example:If a business has $100,000 in assets and $60,000 in liabilities, thenOwner's Equity = Assets - Liabilities = 100,000 - 60,000 = 40,000

This overview is crucial for understanding basic accounting principles.