INTRODUCTION

TO
ACCOUNTING
INTRODUCTION TO ACCOUNTING

Accounting is introduced primarily for business. It

has evolved in response to the need of business
managers for relevant financial information
necessary run the business effectively and guide
them in making plans or making decisions.
WHAT IS BUSINESS?

A business is the exchange of goods or

services that results in mutual benefit for
both parties incolved. The primary
objective of a business is to make profits.
KINDS OF BUSINESS
1. Trading or Merchandising- this involves buying of goods or
merchandise which will be sold at a price higher than the purchase
cost.
2. Manufacturing- this involves the conversion of raw materials into
finished product, which will be sold at a price higher than the cost
of production.
3. Servicing- this involves the rendering of services for a certain fee
which is higher than the cost of service rendered.
FROMS OF BUSINESS (as to ownership)

1. Sole Proprietorship
2. Partnership
3. Corporation
4. Cooperative
USERS OF ACCOUNTING INFORMATION

1.Internal users
2.External Users
NATURE OF ACCOUNTING

•Accounting is a service activity whose

function is to provide quantitative
information, primarily financial in
nature, about economic entities that is
intended to be useful in making
economic decision.
DEFINITION OF ACCOUNTING
• Accounting is the art of recording, classifying,
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.
BRANCHES OF ACCOUNTING
1. Financial Accounting
2. Cost Accounting
3. Managerial or Management Accounting
4. Government Accounting
5. Auditing
6. Taxation
ACCOUNTING REPORTS
1. Income Statement or Statement of Financial Performance
2. Balance Sheet or Staement of Financial Position
3. Statement of Changes in Owners Equity
4. Cashflow Statement
5. Notes to Fiancial Statements
 GENERALLY ACCEPTED ACCOUNTING
PRINCIPLE(GAAP), CONCEPTS AND ASSUMPTION
• Generally Accepted Accounting Principle(GAAP)- are principles
which have gained international acceptance in the business world and
the accountancy profession.
• Business Entity Concept- the business is treated as having a separate
personality from the owner/s.
• Going Concern Concept-it is assumed that the business will continue
operations indefinitely unless there is evidence to the contrary.
• Accrual Basis of Accounting- expenses of the business should be
recorded when incurred whether paid or not, and revenue is
recognized when earned whether collected or not.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLE(GAAP), CONCEPTS AND ASSUMPTION
• Objectivity- this means that transaction recorded or amounts
reported can be verified thru the supporting documents.
• Cost Principle- this means that property or assets acquirted must be
recorded at the actual acquisition cost and not at an estimated cost.
• Matching Cost Against Revenue- all cost and expenses incurred
during the period in generating the revenue, mudt be matched
against the revenue for the same period.
• Consistency-for the finacial statements to be comparative, the
application of the accounting methods, procedures or principles must
be consistent with previous period.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLE(GAAP), CONCEPTS AND ASSUMPTION
• Accounting Period- considering that the business is assumed to be
going concern, its life is divided into periods (usually one year) at the
end of which financila statements are prepared.
• Full Disclosure- financial statements should reflect all significant
events or facts, which might influence the decisions to be made b any
interested party.
GOVERNMENT REGULATORY AGENCIES(related to
Accounting)
1. Professional Regulations Commission(PRC)
2. Board of Accountancy(BOA)
3. Financial Reporting Standards Council(FRSC)
4. Securities and Exchange Commission(SEC)
5. Cooperative Development Authority(CDA)
6. Bureau of Internal Revenue(BIR)
7. Banko Sentral ng Pilipinas(BSP)
FIELDS/SECTOR of ACCOUNTING
• Private/Commerce and Indsutry Accounting
• Government Accounting
• Public Accounting
• Academe Accounting
 RECORDING
THE BUSINESS
TRANSACTION
BASIC ACCOUNTING ELEMENTS OR VALUES
• Assets
• Liabilities
• Capital

A= L + E
The Debit and The Credit

Debit(DR) = Credit(CR)

Assets Liabilities
and
Capital
The Debit and The Credit

Assets

Increase Decrease
The Debit and The Credit

Liabilities

Decrease Increase
The Debit and The Credit

Equity

Decrease Increase
Additional Accounting Values or Elements
• Drawing(Personal)
• Revenues(Income)
• Expenses

+ Revenues
ASSETS=LIABILITIES+EQUITY - Expenses
- Drawings
The Debit and The Credit

Revenues Expenses Drawings

Decrease Increase Increase Decrease Increase Decrease

WHAT WILL BE RECORDED?

Only the business

transactions and the
events.
WHERE ARE THE BUSINESS TRANSACTIONS
RECORDED?

•Book of original entry

•Book of final entry
WHO WILL DO THE RECORDING?

This is the function

of the bookkeeper.
WHY MUST THE TRANSACTION BE
RECORDED?

It is a requirement by
the BIR.
HOW ARE THE BUSINESS TRANSACTION
RECORDED?
RULES OF DEBIT AND CREDIT
DEBIT- the value received by the bsuiness or what the businee paid for
CREDIT- the value parted with or given up by the business or the source
of the value received by the business.
PRACTICE!!!!!!!!
N. Santos invested P200, 000 to start an auto repair business

DEBIT CREDIT

CASH N. SANTOS, CAPITAL

PRACTICE!!!!!!!!

N. Santos Invested his tools

costing P14, 000 in the business
PRACTICE!!!!!!!!

Bought a computer from

ACE hardware for cash,
P20, 000.
PRACTICE!!!!!!!!

Bought tables and chairs

from Nicky Co. on credit,
P12, 000.
PRACTICE!!!!!!!!

Issued a promissory note

for repiar equipment
bought, P45, 000.
PRACTICE!!!!!!!!

Received cash for

repair services
rendered, P40, 000.
PRACTICE!!!!!!!!

Received a promissory
note, P4, 000 for repair
service rendered.
PRACTICE!!!!!!!!

Paid rent for the office

space, P3, 000.
PRACTICE!!!!!!!!

The owner withdrew

cash for his personal
use, P2, 500.
PRACTICE!!!!!!!!

The business paid

P20, 000 to ACE
hardware.
JOURNAL ENTRY DRILL

PLEASE SEE ILLUSTRATIVE PROBLEM 1