Week 1,2 Accounting

1.
Introduction to Accounting (Chapter 1)
a. Definition of Accounting
Accounting is the process of measuring, processing, and sharing financial and other
information about businesses and corporations.
b. Purpose of Accounting
To accumulate and report on financial information about the performance, financial
position, and cash flows of a business.
c. Fundamental Concepts
(i) Entity Concept - States that the business is separate from its owners or other
businesses. Financial records are maintained for the entity alone, not for the
owners’ personal finances.
(ii) Periodicity Concept - divides the life of a business into regular intervals for
reporting purposes, such as months, quarters, or years.
(iii) Stable Monetary Concept - assumes that the cur.--rency used in financial
reporting remains stable over time, ignoring inflation or deflation.
(iv) Going Concern
d. Criteria for General Acceptance of an Accounting Principle
(i) GAAP - (Generally Accepted Accounting Principles): These are standardized
guidelines and rules for financial accounting and reporting.
(ii) Relevance - Information must be relevant to the decision-making needs of users.
(iii)Objectivity - Financial information should be unbiased and based on verifiable
evidence.
(iv) Feasibility - The principles should be practical and capable of being
implemented without undue cost or complexity.
e. Basic Principles
(i) Objectivity Principles - Financial statements should be based on objective
evidence. “UNBIASED”
(ii) Historical Cost - Assets are recorded at their original purchase cost, not their
current market value. “ORIGINAL COST”
(iii) Revenue Recognition Principle - Revenue is recognized when it is earned,
regardless of when the cash is received. “ALREADY REVENUE EARNED”
(iv) Expense Recognition Principle - Expenses are recognized when they are
incurred, not necessarily when they are paid. “ Dictates when expenses should
be recorded in financial statements”
(v) Adequate Disclosure - All relevant financial information should be disclosed in
the financial statements. Accounting guideline for companies to report all
essential information, including financial statements to investors
(vi) Materiality - Only information that would influence the decision of a
reasonable person needs to be disclosed.
(vii) Consistency Principle - The same accounting methods should be used from
period to period to ensure comparability.
2. Accounting Equation and the Double-Entry System
a. Elements of Financial Position
(i) Assets - Resources owned by a business that are expected to provide future
economic benefits.
(ii) Liabilities - Obligations of the business to outsiders or creditors.
(iii) Equity - The residual interest in the assets of the entity after deducting
liabilities.
b. Elements of Financial Performance
(i) Revenue or Income - Inflows of economic benefits during a period that
increase equity, other than contributions from equity participants.
(ii) Expenses - Costs incurred by a business in the process of earning revenue.
Examples include salaries, rent, and utilities.
c. Accounting Equation - The accounting equation states that a company’s total assets are
equal to the sum of its liabilities and its shareholders’ equity.
d. Debit and Credit - The two sides of every financial transaction in double-entry
bookkeeping. Debits (Dr) increase assets or expenses and decrease liabilities, equity, or
revenue. Credits (Cr) do the opposite “of what DR do.
e. Normal Balance of an Account - The side of the account that is positive or
increasing. “Put double line when you got the NB”
f. Difference between Accounting Events and Transactions/ Accountable and Non
Accountable Transactions.
Accounting Events: Any occurrence that affects the financial statements of a business. Not all events
are recorded. Transactions: Specific types of accounting events that involve an exchange of value
and are always recorded in the financial statements.
Accountable vs. Non-Accountable Transactions:
Accountable Transactions: Transactions that impact the financial position and are recorded in the
accounting books.
Non-Accountable Transactions: Events that do not affect the financial position and are not recorded
in the accounting books.
g. When shall be a property be classified as Asset – A property is classified as an asset

when it is owned by the business and is expected to provide future economic benefits.
h. When shall be a transaction be classified as Liability - A transaction is classified as a
liability when it creates an obligation for the business to transfer resources to another
entity in the future.
i. Current and Noncurrent Accounts –
Current Accounts: Accounts that are expected to be settled within one year (e.g.,
accounts receivable, accounts payable). Noncurrent Accounts: Accounts that are
expected to be settled beyond one year (e.g., long-term investments, long-term debt).
j. Assets
(i) Current Asset - Assets expected to be converted to cash or used up within one
year.
 Cash - Money available on hand or in bank accounts. “CURRENCY”
 Cash Equivalents - Short-term, highly liquid investments. “ EASILY
CONVERTED INTO CASH”
 Notes Receivable - Written promises for amounts to be received.
“Promissory Note”
 Accounts Receivable - Amounts owed by customers. “Their debt to you”
 Inventories - Goods available for sale.
 Prepaid Expenses - Payments made for expenses not yet incurred.
 Noncurrent Assets - Assets not expected to be converted to cash within
one year.
(ii) Noncurrent Asset - Long-term investments and property.
 Property Plant and Equipment - (PP&E) Tangible long-term assets
used in operations. “Real estate, equipment, land, furnishings, and cars”
 Intangible Assets - Non-physical assets like patents and trademarks.
k. Liabilities
(iii) Current Liability - Debts a company must pay within one year.
 Accounts Payable - Amounts owed to suppliers.”Your Debt”
 Notes Payable - Written promises to pay amounts owed.
 Accrued Liabilities - An expense incurred but not yet paid for by a
business.
 Unearned Revenues - Payments received before services are performed.
 Current Portion of Long-Term Debt - Part of long-term debt due
within one year.
(iv) Noncurrent Liability - Business's long-term financial obligations “debt” that
are due beyond the following 12-month period.
 Mortgage Payable - Long-term loan secured by property.
 Bonds Payable - Long-term debt issued by the company.
l. Owner’s Equity or Capital - The owner’s claim on the assets of the business after all
liabilities have been deducted.
 Withdrawals - Amounts taken out by the owner for personal use.
 Income Summary - Temporary account used to close revenue and expense
accounts at the end of an accounting period.
m. Income - Inflows of economic benefits during a period.
 Service Income - Revenue earned from providing services. “no shipment no
interest”
 Sales - Revenue earned from selling goods/products. “might have interest
because of shipment”
n. Expenses - Costs incurred to generate revenue.
 Cost of Sales - Direct costs attributable to the production of goods sold.
 Salaries and Wages - Payments to employees for their services.
 Telecommunications, Electricity, Fuel, and Water Expenses
(Miscellaneous) - Costs for utilities and other miscellaneous expenses.
 Rent Expense - Cost of renting property or equipment.
 Supplies Expense - Cost of supplies used in operations.
 Insurance Expense - Cost of insurance policies.
 Depreciation Expense- Allocation of the cost of tangible assets over
their useful lives.
 Uncollectible Accounts Expense - Estimated amount of receivables that
may not be collected.
 Interest Expense - Cost of borrowing money.
FIELDS IN ACCOUNTING - Private, Public, Government, Academic.
A=L+OE
A- ASSETS L- LIABILITIES OE- OWNER’S EQUITY
BOOKEEPING – RECORDING ONLY
ACCOUNTING – CLASSIFYING, SUMMARIZING, INTERPRETATING
DECEPREATION FORMULA – D= COST – SCRAP VALUE / YEARS

Week 1,2 Accounting

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1.

Introduction to Accounting (Chapter 1)

Accountable vs. Non-Accountable Transactions:

g. When shall be a property be classified as Asset – A property is classified as an asset

FIELDS IN ACCOUNTING - Private, Public, Government, Academic.

A- ASSETS L- LIABILITIES OE- OWNER’S EQUITY

BOOKEEPING – RECORDING ONLY

ACCOUNTING – CLASSIFYING, SUMMARIZING, INTERPRETATING

DECEPREATION FORMULA – D= COST – SCRAP VALUE / YEARS

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