ACCOUNTING - is the process of identifying, recording, and communicating economic

information.

Fr. Luca Pacioli - The Father of Accounting and Bookkeeping

There are 3 TYPES of a BUSINESS :

1. Service Business - using professional skills, advise and, consultations
2. Merchandising Business - Buy and Sell
3. Manufacturing Business - Combining raw materials, labor and, expenses

ACCOUNTING EQUATION: ASSET (A) = LIABILITY (L) + EQUITY (E)

ASSET - something an entity owns (resources that a business owns)

LIABILITY - obligations that a business owes to someone
EQUITY - what the business owes to its customers.

5 Major Accounts :
1. Asset
2. Liabilities
3. Equity
4. Revenues
5. Expenses

Double Book keeping - 2 or more accounts affected.

DEBIT - Asset (+), Liabilities (-), Equity(-), Revenue (-), expenses(+)

CREDIT - Asset (-), Liabilities (+), Equity (+), Revenue (+), Expenses (-)

ACCOUNTING CYCLE :

General Journal - The book of original entry

General Ledger - The book of final entry
*sales journal - sales on account (DEBT) — source doc. sales invoice
*cash receipt journal - paid sales — source doc. official receipt
*purchases journal - purchase debt or merchandise bought on account (BUSINESS TO
BUSINESS)
*cash disbursement journal - all cash payments (cash outflows) — source doc. disbursement
voucher.
STEPS IN ACCOUNTING CYCLE:
1. Analyzing Transactions
2. Journal Entries
3. Posting to Ledger
4. Unadjusted Trial Balance
5. Worksheet
6. Adjusting Journal Entries
7. Financial Statements
8. Closing The Book

Closing Entries - closing all nominal account

Nominal Accounts - are temporary accounts

● revenue, income, expenses, and withdrawal.
- reverse the nominal accounts
- If the capital is on DEBIT = net loss
- If the capital is on CREDIT = net income.

Income is already earned when service is rendered.

DEFINITION OF TERMS

ACCOUNT is a formal record that represents, in words, money or other units of measurement,
certain resources, claims to such resources, transactions or other events that result in changes
to those resources and claims.

ACCOUNTING is the recording and reporting of financial transactions, including the origination
of the transaction, its recognition, processing, and summarization in the FINANCIAL
STATEMENTS.

ACCOUNTING EQUATION is assets equals liabilities plus equity. (A=L+E)

ACCOUNTING PERIOD/YEAR is a period of 12 consecutive months chosen by an entity as its

accounting period which may or may not be a calendar year.

ACCOUNTS PAYABLE is the amount owed to a Creditor for delivered goods or completed
services.

ACCOUNTS RECEIVABLE are amounts collectible from its Customers. It is the claim against
a Debtors for an uncollected amount, generally from a completed transaction of sales or
services rendered.
ADJUSTING JOURNAL ENTRIES are accounting entries to account for a periods changes,
omissions or other financial data required to be reported "in the books"

ADJUSTED TRIAL BALANCE reflects totals after the adjusting entries are posted to the
general ledger.

ASSET represents future benefit to the company with reliable measurement.

ACCOUNTING MANUAL is a document prepared to provide bookkeepers with direction and

guidance in connection with those bookkeeping requirements of entities.

BALANCE is the SUM of DEBIT entries minus the SUM of CREDIT entries in an ACCOUNT. If
positive, the difference is called a DEBIT BALANCE; if negative, a CREDIT BALANCE.

BALANCE SHEET reports the financial position at a point in time (end of the quarter or year).

BOOKKEEPING is the recording of all financial transactions undertaken by a business (or an

individual). A BOOKKEEPER (or book-keeper), sometimes called an accounting clerk, is a
person who keeps the books of an organization. The organization might be a business, a charity
or even a local sports club.

BUSINESS is the social science of managing people to organize and maintain collective
productivity toward accomplishing particular productive goals, which is usually to generate profit.

CAPITAL is called equity.

CASH usually refers to money in the form of liquid currency, such as banknotes or coins.

CASH PAYMENTS JOURNAL is a book used to record all payments made in cash such as for
accounts payable, merchandise purchases, and operating expenses; also termed cash
disbursements journal.

CASH RECEIPTS JOURNAL is a book used to record all collections made in cash such as for
accounts receivable, merchandise sold, and interest income.

CHART OF ACCOUNTS is a systematic listing of all accounts used by an entity.

CLOSING ENTRIES are prepared after the financial statements have been completed.

CORPORATION is a form of doing business pursuant to a charter granted by the government.

CREDIT (CR) means an entry to the right hand side of an account. Entry on the right side of a
DOUBLE-ENTRY BOOKKEEPING system that represents the reduction of an ASSET or
expense or the addition to a LIABILITY or REVENUE.
DEBIT (DR) means an entry to the left hand side of an account. Entry on the left side of a
DOUBLE-ENTRY BOOKKEEPING system that represents the addition of an ASSET or
expense or the reduction to a LIABILITY or REVENUE.

DEPRECIATION is the process of allocating the cost of property, plant and equipment assets to
the periods that will benefit from its use.

DIVIDEND INCOME is income received from ownership shares in a corporation. A DIVIDEND is

a distribution to a corporation's stockholders usually in cash.

DOCUMENTS are bases of recording transactions in bookkeeping. This may include but not
limited to sales invoice and official receipts.

DRAWING is when a business proprietor draws money for personal needs.

EQUITY represents the residual claims of owners.

EXPENSES represent the outflow of assets (or increases in liabilities) due to a company's
operating activities.

FINANCIAL STATEMENTS report the business activities during the year and the financial
condition at the end of the year. It is also the presentation of financial data including BALANCE
SHEETS, INCOME STATEMENTS and STATEMENTS OF CASH FLOW, or any supporting
statement that is intended to communicate an entity's financial position at a point in time and its
results of operations for a period then ended.

Generally accepted accounting standards (GAAP) determine what to record, when to record,
and amount to record. It is also the rules, and procedures necessary to define accepted
accounting practice at a particular time.

GENERAL JOURNAL is the most basic of journals. It is a chronological list of transactions.

GENERAL LEDGER is the collection of all ASSET, LIABILITY, owners EQUITY, REVENUE, and
expense accounts. This is a book of accounts in which data from transactions recorded in
journals are posted and thereby classified and summarized. Also called ledger.

INCOME is the inflow of REVENUE during a period of time. This is also money received by a
person or organization because of effort (work), or from return on investments.

INCOME STATEMENT shows the components of net income in detail. It is the summary of the
effect of REVENUES and expenses over a period of time.

INCOME TAXES PAYABLE is income taxes due including the current portion of deferred taxes.
INTEREST INCOME includes amounts from interest on all interest-bearing deposits and
accounts.

INTERNAL CONTROL is the process designed to provide reasonable assurance regarding

achievement of various management objectives such as the reliability of financial reports.

INVENTORIES are products on hand for sale to customers.

JOURNAL is a book where all transactions are initially recorded.

JOURNAL ENTRY are the logging of business transactions and their monetary value into the
t-accounts of the accounting journal as either debits or credits. A journal entry is usually
backed up with a piece of paper, a receipt, a bill, an invoice, or some other direct record of the
transaction; making them easy to record and to maintain traceability for each transaction.

JOURNALIZE TRANSACTIONS is the process of recording a business transaction in a journal.

LEDGER is a tool used for classifying and summarizing information about increases, decreases,
and balances of items in the chart of accounts.

LIABILITY represents obligations, payables or debts owed. DEBTS or obligations owed by one
entity (DEBTOR) to another entity (CREDITOR) payable in money, goods, or services.

LOANS PAYABLE is the account title used to record amounts to be paid for borrowed money.
This is also called Notes Payable.

NOTES PAYABLE is the account title used to record amounts to be paid for borrowed money
and evidenced by a promissory note. This is also called Loans Payable.

OFFICIAL RECEIPTS is a document issued to acknowledge receipt of cash.

PARTNERSHIP is a form of entity with two or more owners.

PHILIPPINE FINANCIAL REPORTING STANDARDS often known as PFRS are a set of

accounting standards. They are issued by the Financial Reporting Standards Council.
[FRSC].

POST CLOSING TRIAL BALANCE is balance sheet in trial balance form.

PRELIMINARY TRIAL BALANCE is a listing of the accounts in the general ledger and their
balances as of a specified date. A trial balance is usually prepared at the end of an accounting
period and is used to see if additional adjustments are required to any of the balances.
POSTING is the process of transferring figures from the journal to the ledger accounts

PROPERTY PLANT AND EQUIPMENT (PPE) are assets used in the production of goods and
services.

PURCHASE INVOICE (view of consumer) is a bill from a vendor for specific materials or
supplies furnished or services rendered. It is called a sales invoice from the point of view of the
seller.

PURCHASE JOURNAL This is a payable system involving a Purchases Journal -- in which all
incoming merchandise invoices are recorded.

RATIO ANALYSIS is the comparison of actual or projected data for a particular company to
other data for that company or industry in order to analyze trends or relationships

RECEIVABLES are amounts of money due from customers or other DEBTORS

RENT EXPENSE is the expenditure made to cover the rental for the premises.

RENT INCOME is money received by a person or organization from rental of premises and/or
other assets.

RETAINED EARNINGS are profits of the business that have not been paid out to the owners as
of the balance sheet date.

REVENUE represents the inflow of assets (or decrease in liabilities) due operating activities.
This may include sales of products, merchandise, and services; and earnings from INTEREST,
DIVIDEND, rents.

ROUTINE JOURNAL ENTRIES Recurring financial activities reflected in the accounting records
in the normal course of business.

SALARIES/WAGES EXPENSE is an account title used to record salaries, wages, and benefits
an employee receives from an employer.

SALES JOURNAL This is a receivables system involving a Sales Journal in which all invoices
outgoing to customers are recorded.

SALES INVOICE is a document issued by a vendor for specific materials or supplies furnished
or services rendered. It is called a purchase invoice from the point of view of the seller.

SOLE PROPRIETORSHIP is a form of entity with one owner and the simplest possible form of
business.
STATEMENT OF CASH FLOW reports sources and uses of cash. This is one of the basic
financial statements that are required as part of a complete set of financial statements prepared
in conformity with generally accepted accounting principles. It categorizes net cash provided or
used during a period as operating, investing and financing activities, and reconciles beginning
and ending cash and cash equivalents

STATEMENT OF CHANGES IN EQUITY explains the changes in contributed capital and

retained earnings during the period.

SUBSIDIARY LEDGER is a group of subsidiary accounts the sum of the balances of which is
equal to the balance of the related control account in the general ledger.

TRANSACTIONS AND EVENTS are recorded as they occur, recorded even if cash is not
received or paid and affects the accounting equation.

TRIAL BALANCE confirms that accounts are still in balance.

UTILITIES EXPENSE is an account title used to record amount incurred on heat, light, water,
and power.

VOUCHERS is a written record of expenditure, disbursement, or completed transaction.

WORKSHEET is a document or schedule in which a bookkeeper uses to gather information to

substantiate an account balance.