ENTREPRENEURSHIP 10 - Quarter III

LESSON 2 PREPARES AND MAINTAINS FINANCIAL RECORDS AND REPORTS

LEARNING OUTCOME 1: Journalize Transactions

Objectives:
By the end of this session students will learn to;
A. Identify the different accounting terminologies
B. Classify the accounts.
C. Prepare chart of account
D. Apply the rules of debit and credit

Information Sheet 3.1

ACCOUNTING TERMINOLOGIES

Accounting is a very necessary subject in the field of commerce. It is very hard to

imagine business without accounting. Accounting terminology gives the complete description of the
terms that are used and it is important to know the accounting terminology before delving into the
subject.

Assets - resources owned by a company and which have future economic value that can be
measured and can be expressed in cash.
Current assets - are assets which can easily be converted into cash or used to pay-off
current liabilities within one year.
 Cash on Hand - consists of un-deposited collections
 Cash in Bank - made up of bank accounts that are unrestricted as to withdrawal
 Accounts Receivable - receivables from customers arising from rendering of
services or sale of goods
 Notes Receivable - receivables from customers which are backed up by
promissory notes
 Allowance for Bad Debts - a contra-asset account deducted from Accounts
Receivable. It represents the estimated uncollectible amount of the receivable.
 Office Supplies includes pens bondpapers, scissors, carbon paper and other
office materials.

Non-current - assets are assets which represent a longer-term investment and cannot be
converted into cash quickly. They are likely to be held by a company for more than a year.
 Land, Building, Machinery, Equipment, Office Equipment, Delivery
Equipment, Furniture and Fixtures,
 Accumulated Depreciation - a contra-asset account deducted from the related
PPE account. It represents the decrease in value of the asset due to continuous
use, passage of time, wear & tear, and obsolescence.

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  An intangible has no physical form but from which benefits can be derived and its
cost can be measured reliably.
Intangibles include Patent for inventions, Copyright for authorship, compositions
and other literary works, Trademark, Franchise, Lease Rights, and Goodwill.

Liabilities - A liability is technically defined as a "present obligation of an enterprise arising from

past transactions or events, the settlement of which is expected to result in an outflow from the
entity of resources embodying economic benefits".
Current liabilities are short-term in nature.
 Accounts Payable - refers to indebtedness that arise from purchase of goods, materials,
supplies or services and other transaction in the normal course of business operations
 Notes Payable - obligations that are evidenced by promissory notes that are to be paid
within 1 year
 Income Tax Payable - current income tax obligation of the company payable to the
government
 Withholding Tax Payable - includes wage taxes withheld from employees that will be
remitted to the appropriate government agency. Separate accounts for Social Security
Payable and Medicare Payable are also often used
 Accrued Expenses - expenses already incurred but not yet paid. Accrued expense
accounts include: Salaries Payable, Rent Payable, Utilities Payable, Interest
Payable, Telecommunications Payable, and other unpaid expenses
 Unearned Revenues - represents advanced payments from customers which requires
settlement through delivery of goods or services in the future
Non-Current liabilities are long-term obligations, i.e. expected to be settled beyond one year.
 Long-Term Notes Payable - obligations evidenced by promissory notes which are to be
paid beyond 1 year; also commonly referred to as Loans Payable
 Bonds Payable - liabilities supported by a formal promise to pay a specified sum of money
at a future date and pay periodic interests.
 Mortgage Payable - long-term obligation to a bank or other financial institution, secured
by real properties of the business

Equity (or capital) refers to the residual interest of the owners in the assets of a company after
all liabilities are settled.

Revenues (or income) refer to economic benefits received from business activities.
Service Revenue - revenue earned from rendering services. Other account titles may be used
depending on the industry of the business, such as Professional Fees for professional practice
and Tuition Fees for schools.
Rent Income - earned from leasing out commercial spaces such as office space, stalls, booths,
apartments, condominiums, etc.
Interest Income - revenue earned from lending money
Commission Income - earned by brokers and sales agents
Royalty Income - earned by the owner of a property, patent, or copyrighted work for allowing

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others to use such in generating revenue
Franchise Fee - earned by a franchisor in a franchise agreement
Expenses refer to costs incurred in conducting business.
Advertising Expense - costs of promoting the business such as those incurred in newspaper
publications, television and radio broadcasts, billboards, flyers, etc.
Delivery Expense - represents cost of gas, oil, courier fees, and other costs incurred by the
business in transporting the goods sold to the customers.
Depreciation Expense - refers to the portion of the cost of fixed assets (property, plant, and
equipment) used for the operations of the period reported
Insurance Expense - insurance premiums paid or payable to an insurance company who accepts
to guarantee the business against losses from a specified event
Interest Expense - cost of borrowing money
Rent Expense - cost paid or to be paid to a lessor for the right to use a commercial property such
as an office space, a storeroom, a building, etc.
Repairs and Maintenance - cost of repairing and servicing certain assets such as building
facilities, machinery, and equipment
Salaries Expense - compensation to employees for their services to the company
Supplies Expense - cost of supplies (ball pens, ink, paper, spare parts, etc.) used by the
business. Specific accounts may be in place such as Office Supplies Expense, Store Supplies
Expense, and Service Supplies Expense.
License Fees and Taxes - business taxes, registration, and licensing fees paid to the
government
Telecommunications Expense - cost of using communication and telephony technologies such
as mobile phones, land lines, and internet
Utilities Expense - water and electricity costs paid or payable to utility companies

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 Q uiz No. 1
Read and understand the questions below and then write the letter of the correct
answer on your answer sheet.

1. It is known as the language of business.

a. Accounting c. Transaction
b. Bookkeeping d. Posting
2. It refers to recording business and event in a systematic and chronological manner.
a. Bookkeeping c. Transaction
b. Accounting d. Liability
3. It is written on the left side of an account journal
a. debit c. profit
b. credit d. sales
4. It refers to the financial position of the business that shows the assets, liabilities, and owners‟
equity.
a. financial statement c. income statement
b. balance sheet d. cash flow
5. It is a report that summarizes the revenue items, expenses and profit/loss for the period.
a. expense c. income statement
b. deprecation d. balance sheet
6. It refers to the things of value owned by a business.
a. capital c. cash
b. inventory d. asset
7. It is the amount of merchandise sold and valued at selling price.
a. sales c. purchase
b. receivables d. proprietorship
8. It refers to the amount to be collected or received from a debtor in the future or at a later date.
a. receivables c. gross profit
b. net profit d. expenses
9. It consists of cash and other assets that in the normal operations are expected to be converted
into cash.
a. fixed assets c. other assets
b. current assets d. all of the above
10. It is the expense balance computed from the analysis of cash payment and comparative
balance sheet data.
a. Depreciation c. Revenue items
b. Expenses items d. All of the above

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 ACTIVITY 3.1
CLASSIFYING ASSETS ACCOUNT

Name: _______________________ Grade & Section:_____________

Classify the following Account titles according to CURRENT OR NON-CURRENT

ASSETS
1. Cash
2. Prepaid Insurance
3. Prepaid Rent
4. Accounts Receivable
5. Notes Receivable
6. Goodwill.
7. Cash on Hand
8. Cash in Bank
9. Land
10. Interest Receivable
11. Machinery
12. Franchise
13. Office Equipment
14. Office Supplies
15. Delivery Equipment
16. Furniture and Fixtures
17. Inventories
18. Allowance for Bad Debts
19. Copyright
20. Trademark
21. Equipment
22. Lease Rights
23. Building
24. Accumulated Depreciation
25. Prepaid expense

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 ACTIVITY SHEETS
ACTIVITY 3.2
CLASSIFYING LIABILITIES ACCOUNT

Name: _______________________ Grade & Section:_____________

Classify the following liabilities into current and long-term.

1. Accounts Payable
2. Notes Payable
3. Interest Payable
4. Bonds Payable
5. Notes Payable due in three years
6. Mortgage Payable
7. Withholding Taxes Payable
8. Salaries Payable
9. Taxes and licenses Payable
10. Utilities Payable

QUIZ NO.2
CLASSIFYING REVENUE AND EXPENSES

Name: _______________________ Grade & Section:_____________

Choose the letter of the correct answer. Write the letter on the space provided
before the number.

a. Expenses f. Advertising Expense

b. Repairs and Maintenance Expense g. Revenue
c. Supplies Expense h. Commission Income
d. Taxes and Licenses Expense i. Interest Income
e. Rent Income j. Utilities Expense

______1.It refers to economic benefits received from business activities.

______2. It refer to costs incurred in conducting business.
______3. Earned by brokers and sales agents.
______4. Revenue earned from lending money.
______5. Earned from leasing out commercial spaces such as office space, stalls, booths,
apartments, condominiums, etc.
______6. Costs of promoting the business such as those incurred in newspaper publications,
television and radio broadcasts, billboards, flyers, etc.
______7. Cost of supplies (ball pens, ink, paper, spare parts, etc.) used by the business.
______8. Water and electricity costs paid or payable to utility companies.
______9. Business taxes, registration, and licensing fees paid to the government
______10. Cost of repairing and servicing certain assets such as building facilities, machinery,
and equipment.

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Information Sheet 3.2 CHART OF ACCOUNTS

A List of Account Titles in Accounting

A list of account titles to be used in the recording is called Chart of Accounts. Each
account will be assigned a name or a title as well as code number for easy reference. The
accounts are normally listed in the order in which they appear in the financial statements. The
balance sheet accounts first, in the order of assets, liabilities, and owner’s equity. The income
statement accounts are then listed in the order of revenues and expense.

Sample Chart of Accounts

CHARTS OF ACCOUNTS

100 – Assets
101 – Cash
102 – Accounts receivable
103 – Note receivable
104 – Tools
105 – Furniture & Fixtures
106 – Office Equipment
107 – Repair Equipment

200 – Liabilities
201 – Accounts Payable
202 – Note Payable
203 – Loan Payable
204 – Mortgage Payable

300 – Owner’s Equity

301 – Nelson Santos Capital
302 – Nelson Santos Drawing

400 – Revenue
401 – Repair Income
402 – Rental Income

500 – Expenses
501 – Office Supplies Expense
502 – Rent Expense
503 – Salaries Expense
504 – Insurance Expense
505 - Advertising Expense
506 – Light & Water Expense
507 – Miscellaneous Expense

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 ACTIVITY 3.3
PREPARING CHART OF ACCOUNTS

Prepare Chart of Account. Classify the following accounts according to 100-ASSETS, 200-
LIABILITIES, 300-CAPITAL, 400-REVENUE, 500-EXPENSE.

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 Information Sheet 1.3

Parts of an Account
In bookkeeping, an account refers to assets, liabilities, income, expenses, and equity, as
represented by individual ledger pages, to which changes in value are chronologically recorded
with debit and credit entries. These entries, referred to as postings, become part of a book of
final entry or ledger.

Rules of Debit and Credit

Debit and Credit are two actions of opposing nature that are relevant to the process of
accounting.

Debiting an account and crediting an account are the two actions that are the result of an
accounting transaction. We either debit an account or credit an account in relation to an
accounting transaction but not both.

They are as fundamental to accounting as addition (+) and subtraction (−) are to
mathematics. Trying to apply this mathematical analogy in all cases would give a distorted
meaning. It would not be appropriate to consider debit to be an equivalent of addition and credit
to be an equivalent of subtraction or vice versa.

We just need to understand that debit and credit are two actions that are opposite in nature.

An element (account head) that is effected by an accounting transaction is either debited or

credited, with an amount that is reflected in the transaction, depending on the nature of the
account and the rule applicable to it.

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 QUIZ NO.3
RULES OF DEBIT AND CREDIT

DIRECTION: Multiple Choice: Select the letter of the best answer. Write it on your answer sheet.

1. What side of an account refers to the increase side of any asset account?
a. debit b. credit c. both a & b
2. What is the decrease side of any liability account?
a. debit b. credit c. both a & b
3. Which of the following refers to the book of original entry?
a. ledger b. journal c. worksheet
4. What is the normal side of the liability account?
a. debit b. credit c. both a & b
5. Which of the following is called the book of final entry?
a. journal b. ledger c. worksheet
6. In which of the following part of the journal or ledger book is the current date reflected?
a. debit column b. credit column c. any side
7. Which part of the journal and the ledger book is used for referencing?
a. date column b. folio column c. item column
8. What is the normal side of an expense account?
a. debit b. credit c. any side
9. When an asset account decreases, in what side of the account will it be recorded?
a. debit b. credit c. both a & b
10. What do you call the process of writing or recording business transactions?
a. posting b. journalizing c. analysis

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