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University of San Carlos

ACCOUNTING FOR NON-ACCOUNTANTS

Submitted by: Cortes, Marlou Paige Descallar, Vaniza Jean Econ, Mark Noel Gozon, Earl Jason

Submitted to: Mr. Marlon Ardiente Human Resource Manager Bright Star Industries, Inc. May 17, 2013

Accounting for Non-Accountants


Accounting Overview
Learning Objectives: 1. To review basic concepts of accounting 2. To know the purpose and functions of accounting 3. To learn the Basic elements of accounting 4. To understand the accounting cycle What is Accounting? Accounting is the art of recording, classifying and summarizing in significant manner and in terms of money, transactions and events which are, in parts at least of a financial character and interpreting the result thereof. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions, in making reasoned choices among alternative courses of action

Purpose and Functions To provide quantitative, financial information about economic entities to statement users so that they could make informed judgment and better decision.

Uses of Accounting Information Accounting is an information system that measures business activities, processes information into reports and communicates the reports to decision makers. A key product of this information system is a set of financial statementsthe documents that report financial information about an entity to decision makers. These reports tell us how well an entity is performing in terms of profits and losses and where it stands in financial terms

Elements of Financial Statements Financial Statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. Financial Position: Assets, Liabilities, Equities Financial Performance: Income and Expenses

A.

Financial Position An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits Equity is the residual interest in the assets of the entity after deducting all the liabilities.

B. Financial Performance Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases inequity, other than those relating to contributions from equity participants. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incidences of liabilities that result in decreases inequity, other than those relating to distributions to equity participant

Accounting Cycle
Accounting cycle is a sequence of accounting procedures which are used to record, classify and summarize accounting information. 1. Transactions Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the companys assets, the establishment or payoff of a debt, or the deposit from or payout of money to the companys owners. 2. Journal entries The transaction is listed in the appropriate journal, maintaining the journals chronological order of transactions. The journal is also known as the book of original entry and is the first place a transaction is listed. 3. Posting The transactions are posted to the account that it impacts. These accounts are part of the General Ledger, where you can find a summary of all the businesss accounts. 4. Trial balance At the end of the accounting period (which may be a month, quarter, or year depending on a businesss practices), you calculate a trial balance.

5. Worksheet Unfortunately, many times your first calculation of the trial balance shows that the books arent in balance. If thats the case, you look for errors and make corrections called adjustments, which are tracked on a worksheet. Adjustments are also made to account for the depreciation of assets and to adjust for one-time payments (such as insurance) that should be allocated on a monthly basis to more accurately match monthly expenses with monthly revenues. After you make and record adjustments, you take another trial balance to be sure the accounts are in balance. 6. Adjusting journal entries You post any corrections needed to the affected accounts once your trial balance shows the accounts will be balanced once the adjustments needed are made to the accounts. You dont need to make adjusting entries until the trial balance process is completed and all needed corrections and adjustments have been identified. 7. Financial statements You prepare the balance sheet and income statement using the corrected account balances. 8. Closing the books You close the books for the revenue and expense accounts and begin the entire cycle again with zero balances in those accounts.

THE REVENUE CYCLE


Learning objectives Revenue Cycle Deals with transaction processing involved in selling goods or services Sales can be made for cash or on credit To learn about the revenue cycle business activities. To learn to flow chart the revenue cycle business activities. To understand the processing of the revenue cycle transactions using a computer. To know what the control practices and procedures are in the revenue cycle.

Revenue Cycle Business Activities Main functions (cash sale): accepting customer requests for goods or services delivery of goods or services invoicing dealing with returned goods receiving and recording customer payments

-Additional functions (credit sale): approving credit and credit limits recording accounts receivable sending periodical statements to customers dealing with bad debts

Categories of activities in revenue cycle: 1. processing customer orders -Customer orders: 1. accepting requests from customers 2. preparing sales order -Approving credit and credit limits: 3. screening new customers 4. setting maximum limit 5. processing requests to increase limit 6. periodic checks on existing customers 2. delivery/shipping -Delivery/shipping of goods: receiving sales order preparing the dispatch order and delivery notes

-Providing a service: recording labor and materials used (job card)

3. invoicing -Details on sales invoice: invoice number name of supplier date of invoice description of goods quantity of goods discount allowed

Types of Invoicing

Pre-invoicing: invoice prepared when sales order is approved

Post-invoicing: invoice prepared and dispatched after delivery of goods or services

4. accounts receivable ledger Customers referred to as debtors Accounts receivable is an asset Subsidiary ledger maintains asset details Source document for this ledger is sales invoice issued Statement of accounts sent to customers at end of each period showing details of account transactions and outstanding balance Credit or adjustment notes: a. prepared when goods are returned b. recorded in sales returns journals c. Bad debts: d. amounts owing by debtors that are unable to be collected \ Revenue cycle ends with customer payments that may take the form of: a. cash from cash sales b. checks most common form of payment c. bank transfers d. direct deposits or EFT Details of all payments are recorded in the cash receipts journal

FLOW CHARTS Sales Function

Sales Returns Function

Internal controls procedures for the revenue cycle Prompt transfer of customer orders to sales orders Strict procedures for granting credit Set policy on credit amounts and terms and discounts Prompt invoicing in separate department Segregation of duties on dispatch

invoice preparation

Proper authorisation procedures for discounts, returns and allowances and bad debt write offs Sequentially pre-numbered invoices, receipts etc. Cash registers with sealed till roles

Computer application systems for the revenue cycle Computers play an important role where large numbers of transactions are processed: record the information in the same categories as a manual system quickly produce the documentation required record reservation of goods and services ordered easily generate detailed reports for management use reduce labour costs reduce errors in pricing etc.

Controls in the computer environment Application controls required: Input controls detect and prevent errors when data is input

Processing controls detect and prevent errors while processing is in progress

Output controls detect and prevent errors in outputs from processing

TERMS: Customers purchase order -a request of merchandise by a customer Sales order -a prenumbered document for recording the description, quantity, and related information for goods ordered y a customer.

Shipping document of Bill of lading -a prenumbered document prepared toinitiate shipment of the goods, indicating the description of the merchandise, the quantity shipped, and other relevant data. Sales invoice -a prenumbered document indication the description and quantity of goods sold, the price including freight, insurance, terms, and other relevant data. Credit memo -a prenumbered document indicating a reduction in the amount due from a customer because of returned goods or an allowance granted. Remittance advice -a document that a customer attaches to a check in payment of an invoice. Accounts receivable statement/ monthly statement -a document sent to each customer indicating the beginning balance of accounts receivable, the amount and date of each sale, cash payments received, credit memos issued, and ending balance due.

PAYROLL CYCLE
Learning objectives Describe the major business activities and related data processing operations performed in the payroll cycle. Identify the major threats in the payroll cycle. To know the control practices and procedures in HRM and the payroll cycle. To learn to flow chart payroll cycle business activities.

What are the basic activities performed in the payroll cycle? 1. Update master payroll file 2. Update tax rates and deductions 3. Validate time and attendance data 4. Prepare payroll -computation of gross pay - Calculate employer-paid benefits and taxes 5. Disburse payroll 6. Disburse payroll taxes and other deductions

1. Update master payroll file The first activity in the payroll cycle involves updating the payroll master file to reflect payroll changes such as new hires, terminations, changes in pay rates, or changes in discretionary withholdings. It is important that all payroll changes are entered in a timely manner and are properly reflected in the next pay period.

2. Update tax rates and deductions The second activity in the payroll cycle involves updating information about tax rates and other withholdings. These changes happen whenever updates about changes in tax rates and other payroll deductions are received from various government units and insurance companies.

3. Validate time and attendance data The third activity in the payroll cycle is to validate each employees time and attendance data. This information comes in various forms, depending on an employees status. What are some pay schemes? 1. time cards for those paid on an hourly basis 2. self report for professionals 3. straight commission or salary plus commission 4. incentives and bonuses 4. Prepare payroll The fourth activity in the payroll cycle involves preparing payroll. Data about the hours worked are provided by the department in which the employee works. Pay rate information is obtained from the payroll master file. The person responsible for preparing paychecks cannot add new records to this file. All payroll deductions are summed and the total is subtracted from gross pay to obtain net pay. What are types of payroll deductions? 1. withholdings 2. voluntary deductions

5. Disburse payroll The fifth activity is actual disbursement of paychecks to employees. Most employees are paid either by check or by direct deposit of the net pay amount into the employees bank account. Some are paid in cash.

6. Disburse payroll taxes and other deductions The final activity in the payroll process involves paying the payroll tax liability and the other voluntary deductions of each employee. The timing of these payments is specified by the respective government agencies. The funds voluntarily withheld from each employees paycheck for various benefits must be disbursed to the appropriate organizations.

Threats 1. Unauthorized changes to the master payroll file 2. Inaccurate time data 3. Inaccurate processing of payroll 4. Theft or fraudulent distribution of paychecks 5. Loss or unauthorized disclosure of payroll data

Controls segregation of duties direct deposit paycheck distribution by someone independent of payroll process investigation of all unclaimed paychecks separate payroll checking account access control backup procedures

flowchart