Introduction to

Accounting
 • This course is designed for individuals without
Course accounting background but who need to
understand and appreciate how business
Description transactions are recorded, summarized, and
interpreted for decision-making purposes.
 Coverage

Introduction to Accounting Accounting Rules and The Accounting Cycle

Regulations
Definition Boundary Rules Anaysis of Business Transactions
History of Accounting Measurement Rules Journalization
Branches of Accounting Ethical Rules Posting
Users of Accounting Information Trial Balance
Forms of Business Organization Adjusting Entries
Basic Financial Statements Adjusted Trial Balance
Financial Satements
Closing Entries
Post Closing Trial Balance
Reversing Entries
 Nature •Accounting is a service provided

and for those who need information

about an entity’s performance,
its assets and liabilities.
Purpose
 The word “account”

Historical Primitive era

Development
Reasons why a recording
system was devised
There are two main reasons why a recording system devised
in medieval times has lasted for so long:

●It provides an accurate record of what has happened to a

business over a given period of time.

●Information extracted from the system can help the owner

or the manager to operate the business much more effectively
Primitive Accounting
Basic Questions:

The system provides the

answers to three basic
● What profit has the
questions that both owners
business made?
and managers want to
know. They are as follows:

● What does the business

● How much does the
have and how much is owed
business owe?
to it?
Branches of
Accounting
Users of
Accounting
Information
• Investors
• Employees
• Lenders
• Suppliers and other trade
creditors
• Customers
• Government and other
agencies
• Public
 Sole Proprietor
Forms of
Business
Organizatio Partnership
n
Corporation
Basic Financial Statements
• Income Statement – Statement of Financial
Performance
• Balance Sheet – Statement of Financial
Position
• Statement of Cash Flow
• Statement of Owner’s Equity
• Notes to Financial Statements
 Accounting Rules &
Regulations

FOR INSTRUCTIONAL MATERIALS ONLY

Learning Objectives

By the end of this topic, 1. Identify the basic

you should be able to: accounting rules
The Basic Accounting Rules
Boundary Rules

Going Monetary
Entity Periodicity
Concern Quantities
Entity

•The affairs of a business is

separate from the private
affairs of its owners.
Periodicity The accounting
(or Period of period is accepted
to be 12 months.
Account)
Going Concern
• In accounting, an entity is said to be a going
concern if it is assumed that it will continue
in business for the foreseeable future for at
least next 12 months from the accounting
year end.
Monetary
Quantities
• Accounting information is
usually restricted to that
which can be easily quantified
in monetary terms.
 This determines how data
should be recorded.
• Money measurement
Measurement • Historical cost
Rules • Realization
• Matching
• Dual Aspect
• Materiality
 Money
Measurement
What monetary value needs to be attributed? How
can that which counts be measured in money?
Historic Cost
• Assets and Liabilities are usually valued at
their historic cost, i.e., the price paid or
received for them when they were originally
exchange.
Realization
• When goods are sold or purchase or sold on
credit terms, it is customery practice to treat
them as being exchange at the point when the
legal title to the goods is transferred, i.e.,
when they are realized.
Matching
• Accounts are not usually
prepared on the basis of cash
received and cash paid during
a 12-month period.
Dual Aspect
• Basic rule: every transaction
has two effects. As a result, a
recording system known as
double entry bookkeeping has
evolved.
Materiality
•Materiality is a matter of
context; it requires judgement
and different people will come
to a different conclusion.
Ethical rules
Ethical rules relate to There are four main ethical
the moral code or rules:
principles to be • Prudence
adopted in the • Consistency
preparation of • Objectivity
accounts. • Relevance
Prudence
(Conservatism)

• The rule states that if

there is some doubt over
the treatment of a
particular transaction,
then income should be
understated and
expenditure overstated.
Consistency
The same accounting
policies and rules should
be followed in successive
accounting periods.
Objectivity

This rules requires accountants and managers to avoid personal

bias and prejudice when selecting and applying the accounting
rules.

Accounting records are based on information that flows from

activities documented by objective evidence.
Relevance

• Financial statements
should not include
matters that prevent
users from learning what
they need to know.
Financial statements
should give a true and
fair view of the financial
affairs of the entity.
Types of Books
Every taxpayer needs to prepare and manage the following books:
• CASH RECEIPTS – These are sales receipts you get every month. It
divides into Vatable and Non-vatable sales, and include the Output VAT.

• CASH DISBURSEMENT – Keeps track of cash issued. Purchases are set

into Vatable and Non-vatable purchases as well as the Input VAT.

• GENERAL JOURNAL

• GENERAL LEDGER- It shows the summary of debits and credits made by

the company
Four Key Steps in Bookkeeping Basics

1.Collect all the documents you need, including bank statements,

check and deposit records. You will also need vendor
bills, purchase receipts and invoices.
2.Record this information from the source documents to your
books.
3.Perform procedures like balancing accounts and reconciliations
4.Close the books.
Accounting Cycle
The Accounting Cycle

The accounting cycle refers to a series of sequential steps or

procedures performed to accomplish the accounting process.
The Accounting
Cycle
Accounting for Business Transactions

A business transaction is the occurrence of an event or a condition

that affects financial position and can be reliably recorded.
Source Documents

Transactions and events are the starting points in the accounting cycle.
These are the bases for the journal entries some of the more common
sources are
1. sales invoices
2. official receipts
3. bank deposit slips
4. checks
5. purchase orders,
6. time cards.
 SALES
INVOICE
OFFICIAL
RECEIPTS
 Bank
Deposit Slip
Checks
New Check Format (starting May 1, 2024)
Purchase
Orders
Accounting Terminologies

STATEMENT OF FINANCIAL POSITION

Current Assets

Cash. Any medium of exchange that a bank will accept for deposit
at face value. It includes coins, currency, checks, money orders,
bank deposits and drafts.
 Short term, highly liquid
Cash Equivalents.
investments that are readily convertible to
known amounts of cash and which are
subject to an insignificant risk of changes in
value.
Notes Receivable. A note receivable
is a written pledge that the customer
will pay the business a fixed amount
of money on a certain date.
Accounts Receivable. These are claims
against customers arising from sale of
services or goods on credit. This type of
receivable offers less security than a
promissory note.
Inventories. Assets which are
(a)held for sale in the ordinary course of business
(b)in the process of production for such sale;
(c)in the form of materials or supplies to be
consumed in the production process or in the
rendering of services.
Prepaid Expenses. These are
expenses paid for by the business in
advance.
Non-current assets

Property, Plant and Equipment. Tangible assets that are held by

an enterprise for use in the production and supply of goods or
services, or for rental to others, or for administrative purposes
and which are expected to be used during more than one period.
Accumulated Depreciation. It is a contra
account that contains the sum of the
periodic depreciation charges.
Intangible Assets. Nonmonetary assets
without physical substance held for use in
the production or supply of goods or
services, for rental to others, or for
administrative purposes.
Current Liabilities

Accounts Payable. This account

represents the reverse relationship of
accounts receivable. By accepting the
goods and services, the buyer agrees to
pay for them in the near future.
Notes Payable. A note payable is like a
notes receivable but in the reserve sense.
The business entity is the maker of the
note; that is, the business entity is the
party who promises to pay the other party
a specified amount of money on a
specified future date.
Accrued Liabilities. Amounts owed to
others for unpaid expenses. This
account includes salaries payable,
utilities payable, interest payable and
taxes payable.
Unearned Revenues. When the
business entity receives payment
before providing customers with
goods or services
Current Portion of Long Term Debt. These are
portions of mortgage notes, bonds and other
long-term indebtedness which are to be paid
within one year from the balance sheet data.
Non-Current Liabilities

Mortgage Payable. This accounts records long-

term debt of the business entity for which the
business entity has pledged certain assets as
security to the creditor.
Bonds Payable. Business organizations often
obtain substantial funds of money from lenders
to finance the acquisition of equipment and
other needed assets. They obtain these funds
by issuing bonds. The bond is a contract
between the issuer and the lender specifying
the terms of repayment and the interest to be
charged.
 INCOME STATEMENT
Income

Service Income. Revenues earned by performing

services for a customer or client.

Sales. Revenues earned as a result of sales of

merchandise.
Expenses

Cost of Sales. The cost incurred to purchase

or to produce the products sold to customers
during the period.

Salaries or Wages Expense. Includes all

payment as a result of an employer-employee
relationship.
Telecommunications, Electricity, Fuel and Water
Expenses. Expenses related to telecommunications
facilities, consumption of electricity, fuel and water.

Rent Expense. Expense for space, equipment or

other asset rentals.

Supplies Expense. Expense of using supplies in the

conduct of daily business.
Insurance Expense. Portion of premiums paid on
insurance coverage which has expired.

Depreciation Expense. The portion of the cost of a

tangible asset allocated or charged as expense during
an accounting period.

Uncollectible Accounts Expense. The amount of

receivables estimated to be doubtful of collection and
charged as expense during an accounting period.
Interest Expense. An expense related to
the use of borrowed funds.
 • NORMAL BALANCE OF AN ACCOUNT

ACCOUNT INCREASES REC. BY NORMAL BALANCE

DEBIT CREDIT DEBIT CREDIT

ASSETS X X

LIABILITIES X X

OWNERS X X
CAPITAL
WITHDRAWALS X X

INCOME X X

EXPENSES X X
JOURNALIZATION
Posting to the Ledger
ADJUSTING THE ACCOUNTS
ADJUSTING THE ACCOUNTS

Adjusting entries assigned revenues to the period to which they are

earned and expenses to the period they are incurred.
Deferrals and Accruals

Deferrals is the postponement of the recognition of “an expense

paid but not yet incurred” or of “revenue already collected but not
yet earned”.

Accrual is the recognition of “an expense already incurred but

unpaid” or “revenue earned but uncollected”.
Adjustments for Accruals

1.Accrued Expenses
2.Accrued Interest
3.Accrued Revenues
4.Accrual for Uncollectible Accounts
Adjusting Entries for Deferrals

Allocating Assets to Expenses

1.Prepaid Expenses
2.Prepaid Rent
3.Prepaid Insurance
4.Supplies
5.Depreciation

Allocating Revenues Received in Advance to Revenues