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Basic Accounting Concepts and Procedure

This document provides an overview of basic accounting concepts and procedures. It discusses the different types of businesses, ownership structures, accounting equation, basic elements of accounting like assets, liabilities and owner's equity. It also demonstrates accounting transactions through examples and explains the principal financial statements used by single proprietorships. The key information covered includes types of businesses, proprietorship, partnership and corporation structures, accounting equation, assets, liabilities, owner's equity, revenues, expenses and the three principal financial statements.

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133 views34 pages

Basic Accounting Concepts and Procedure

This document provides an overview of basic accounting concepts and procedures. It discusses the different types of businesses, ownership structures, accounting equation, basic elements of accounting like assets, liabilities and owner's equity. It also demonstrates accounting transactions through examples and explains the principal financial statements used by single proprietorships. The key information covered includes types of businesses, proprietorship, partnership and corporation structures, accounting equation, assets, liabilities, owner's equity, revenues, expenses and the three principal financial statements.

Uploaded by

Kïtëł Gägüï
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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BASIC ACCOUNTING

CONCEPTS AND
PROCEDURE
TYPES OF BUSINESS
Service Business

Merchandising
Business

Manufacturing Business
Service Business
Provides services to customers like professional services,
transportation, entertainment, financial and the like.
Merchandising Business
This purchase products from other businesses and sell
them to customers.
Manufacturing Business
This converts materials, labor and overhead into finished
products that are sold to customers.
OWNERSHIP STRUCTURES

PROPRIETORSHIP

PARTNERSHIP

CORPORATION
PROPRIETORSHIP
Business that is owned by one person. It has to be
registered with DTI and BIR.
PARTNERSHIP
Business that is owned by two or more individuals. Partnership
must be registered with and its Articles of Co-Partnership
approved by the Securities of Exchange Commission (SEC).
CORPORATION
Business that is owned by its shareholders and is organized under operation of
law that has a separate and legal entity. However, its legal personality starts only
after it has been registered with and its Articles of Incorporation approved by the
Securities of Exchange Commission or SEC.
PROPRIETORSHIP
ADVANTAGES DISADVANTAGES
 ONE OWNER OWNER ASSUMES ALL
 OWNER MAKES ALL RISKS
DECISION DIFFICULTY OF BUSINESS
 OWNER GETS ALL THE EXPANSION
PROFITS UNLIMITED LIABILITY
PARTNERSHIP
ADVANTAGES DISADVANTAGES
 TWO OR MORE PARTNERS UNLIMITED LIABILITY
 MORE IDEAS PETTY QUARRELS
 PARTNERS CAN MANAGED EARLY LIQUIDATION/
THE BUSINESS INSOLVENCY
CORPORATION
ADVANTAGES DISADVANTAGES
 LIMITED LIABILITY LITTLE INFLUENCE ON
 HAS AN INDEFINITE LIFE BUSINESS DECISION.
 SHAREHOLDERS ARE NOT
REQUIRED TO PAY
CORPORATE DEBTS OUT
OF THEIR PERSONAL
PROPERTIES
ACCOUNTING
Is a LANGUAGE OF BUSINESS that provides useful and timely
information about the financial activities of an individual,
business, or other organization. It is the system of recording,
summarizing, and analyzing an economic entity’s financial
transactions.

ACCOUNTING
STAKEHOLDERS
COMPANY INFORMATION
OR USERS
SYSTEM
CAREER OPPORTUNITIES IN
ACCOUNTING
Accounting Clerk – one who records, sort and file accounting
information.
Bookkeeping – one who generally supervise the work of
accounting clerks, help with daily accounting works, and summarizes
accounting information.
Accountant – one who designs the accounting information
system and focuses on analyzing and interpreting information.
ACCOUNTING CAREERS
Private Accounting
• Accounting Information System
• General Auditing
• Cost Auditing
• Budgeting
• Tax Accounting
• Internal Accounting
Public Accounting
• Auditing
• Taxation
• Management Consulting
Government and not for Profit Accounting
BASIC ELEMENTS OF
ACCOUNTING
ASSETS
Economic resources of value that is owned by the
business. This includes:
• Cash
• Accounts receivables
• Land
• Inventory
• Machinery and furniture
• Intangible assets
LIABILITIES
Legal obligations that a business owes to other
businesses or individuals. This includes:
• Accounts Payable
• Notes Payable
• Accrued Expenses
• Unearned Fees
OWNER’S EQUITY
The residual right or interest of the owner(s) in the
entity’s net assets. This includes:
• Capital
• Withdrawals
REVENUES
The inflows of assets resulting from goods sold or
services rendered. It increases the owner’s equity.
EXPENSES
The outflows of assets resulting from cash spent or
liability incurred in order to produce revenue. It
decreases owner’s equity.
ACCOUNTING EQUATION
Illustration 1: Assume Peter Soriano invested
P200,000 cash in a travel agency. It will show:
OWNER’S
ASSETS =
EQUITY

SORIANO, CAPITAL
CASH P200,000 =
P200,000

Illustration 2: Assume Soriano borrowed cash of


P100,000 from the bank for use in the business. It
will show:
OWNER’S
ASSETS = LIABILITIES +
EQUITY

CASH P300,000 Loan Payable SORIANO, CAPITAL


= +
P100,000 P200,000
DEMONSTRATION PROBLEM

*ASSETS INVESTED BY THE OWNER


March 1 – May Gomez opened a tour and travel service
by investing cash of P 50,000 and cars of P 750,000.
Analysis: Assets increase in the form of cash and cars
ASSET = OWNER’S EQUITY
CASH P 50,000 GOMEZ, CAPITAL P 800,000
CARS 750,000
P800,000 P 800,000
DEMONSTRATION PROBLEM

*CASH BORROWED FROM THE BANK


March 3 – Gomez borrowed P 100,000 cash from
Metrobank for use in her business.
Analysis: ASSETS increase and liability increase.
ASSET = LIABILITY OWNER’S EQUITY
CASH P150,000 LOANS P. P100,000 GOMEZ, CAPITAL P 800,000
CARS 750,000
P900,000 P100,000
DEMONSTRATION PROBLEM

* PURCHASED FOR CASH


March 7 – Bought tables and chairs from Blims and
paid cash P 45,000.
Analysis: ASSETS increase in the form of furniture and
decrease in the form of cash.
ASSET = LIABILITY OWNER’S EQUITY
CASH P105,000 LOANS P. P100,000 GOMEZ, CAPITAL P 800,000
CARS 750,000
FURNITUR 45,000
E
P900,000 P100,000 P 800,000
* PURCHASED ON ACCOUNT
March 15 – Equipment purchased on account from
National Winners for P 55,000.
Analysis: ASSETS increase in the form of equipment.
ASSET = LIABILITY OWNER’S EQUITY
CASH P105,000 LOANS P. P100,000 GOMEZ, CAPITAL P 800,000
CARS 750,000
FURNITURE 45,000
EQUIPMENT 55,000 ACCTS. PAY. 55,000
P955,000 P155,000 P 800,000
* CASH WITHDRAWN BY OWNER
March 18 – Gomez made a cash withdrawal of P 5,000
for personal use.
Analysis: Assets decrease in the form of cash. O.E
decrease in the form of withdrawing cash.
ASSET = LIABILITY OWNER’S EQUITY
CASH P100,000 LOANS P. P100,000 GOMEZ, CAPITAL P 800,000
CARS 750,000 GOMEZ, DRAWING 5,000
FURNITURE 45,000
EQUIPMENT 55,000 ACCTS. PAY. 55,000
P950,000 P155,000 P 795,000
* PAYMENT OF LIABILITY
March 20– The account due to National Winners was
paid in cash
Analysis: Assets decrease in the form of cash and
liabilities.
ASSET = LIABILITY OWNER’S EQUITY
CASH P 45,000 LOANS P. P100,000 GOMEZ, CAPITAL P 800,000
CARS 750,000 GOMEZ, DRAWING 5,000
FURNITURE 45,000
EQUIPMENT 55,000
P 895,000 P100,000 P 795,000
ACCOUNTING EQUATION EXPANDED
DATE ASSETS = LIABILITIES + OWNER'S EQUITY
MARCH CASH CARS EQUIP FURNITURE = LOANS ACCOUNTS + GOMEZ GOMEZ
= PAYABLE PAYABLE + CAPITAL DRAWING
1 50,000.00 750,000.00 = + 800,000.00
3 100,000.00 = 100,000.00 +
7 (45,000.00) 45,000.00 = +
15 55,000.00 = 55,000.00 +
18 (5,000.00) = + (5,000.00)
20 (55,000.00) = (55,000.00) +
45,000.00 750,000.00 55,000.00 45,000.00 = 100,000.00 - + 800,000.00 (5,000.00)

895,000.00 = 100,000.00 + 795,000.00


HAPPY TOUR & TRAVEL
Statement of Financial Position
March 20, 2009

ASSETS LIABILITIES & OWNER’S


EQUITY
CASH P 45,000 LOANS PAYABLE P 100,000
CARS 750,000 GOMEZ, CAPITAL 795,000
EQUIPMENT 55,000
FURNITURE 45,000
P 895,000 P 895,000
FINANCIAL STATEMENTS:

FINANCIAL STATEMENTS – are accounting reports that provide the


financial information of the transactions that have been recorded and summarized.
The principal financial statements of single proprietorship are:

Income Statements – is a summary of the revenue and expenses for a specific


period of time such as month or a year.

Statement Owner’s Equity – is a summary of changes in equity that have


occurred during a specific period of time, such as month or year.

Balance Sheet – is a list of assets, liabilities, and owner’s equity as of specific


date, usually at the end of the month or year.

Statement of Cash Flows – is a summary of cash inflows and cash outflows for a
specific period of time, such as a month or a year.

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