Bernal, Mary Grace D.

BSIE 1-2

OUTLINE OF TOPICS DISCUSSED IN FINANCIAL ACCOUNTING

I. Definition of Terms

A. Financial Accounting- is the branch of accounting that focuses on general purpose financial
statements

B. Management Accounting- involves the accumulation and communication of information for use by
people who are managing the business

C. Tax Accounting- is the preparation of tax returns and rendering the tax advice, such as determination
of tax consequences of certain proposed business endeavors

D. Auditing- involves the inspection of an entity's financial statements or business processes to ascertain
the correspondence with an established criteria

II. Users of Accounting Information

A. Internal Users- people who were directly involved in managing the business

1. owners of the business who were directly involved in managing the business itself

2. Board of Directors

3. Managerial personnel

B. External Users- people who were not directly involved in managing the business

1. Existing and potential investors (e.g., stakeholders that are not directly involved in managing the
business)

2. Lenders (e.g., banks) and Creditors (e.g. suppliers)

3. Government agencies (e.g., Bureau of Internal Revenue 'BIR' and Securities and Exchange
Commission 'SEC')

4. Non-managerial employees

5. Customers

6. Public

III. Forms of Business Organization

A. Sole Proprietorship- is a business that is owned by only one individual and was the most common and
simplest form of business organization in which the owner was referred as "sole proprietor"

B. Partnership- is a business that is owned by two or more individuals who were called partners entered
into contract to carry on the business and divide among themselves the earnings therefrom
 C. Corporation- is a business comprised of two or more individuals called stockholders/shareholders and
was created by operation of law

D. Cooperative- is an association of individuals who joined together to contribute capital and cooperate
in order to achieve certain goals

IV. Types of Business According to Activities

A. Service Business- a type of business that offers services as its main product like professional skills,
expertise, advise, and lending service (e.g., schools, professionals, hospitals and clinics, banks and other
financial institutions, hotels and restaurants, and transportation and travel)

B. Merchandising (Trading)- is the type of business that buys and sells goods without changing their
physical form (e.g., General merchandise resellers, distributors, and dealers)

C. Manufacturing- a type of business that buys raw materials and process them into final goods (e.g., car
manufacturers, technology companies, food processing companies, and factories)

V. Types of Expenses

A. Cost of Sales/Goods sold- represents the value of inventories that have been sold during accounting
period

B. Freight-out- represents the sellers' costs of delivering goods to customers

C. Rent Expense- represents the rentals that have been used up during the accounting period

D. Salaries Expense- represents the salaries earned by employees for the services they have rendered
during accounting period

E. Interest Expense- it is the price that a lender charges a borrower for the use of the lender's money

F. Utilities Expense- represents the cost of utilities that have been used during the accounting period

G. Supplies Expense- represents the cost of supplies that have been used during the period

H. Bad Debt Expense- the amount of estimated losses form uncollectible accounts receivable during the
period

I. Depreciation Expense- the portion of the cost of depreciable asset that has been allocated to the
current accounting period

J. Advertising Expense- represents the cost of promotional or marketing activities during the period

K. Accrued Expense- expense wherein the goods was consumed first before they were paid

L. Insurance Expense- represents the cost of insurance pertaining to the current accounting period

M. Taxes and Licenses- represents the cost of business and local taxes required by the government for
the conduct of business

N. Transportation Expense- represent the necessary and ordinary cost of employees getting from one
workplace to another which are reimbursable by the business
 O. Travel Expense- represent the costs incurred when travelling on business trips

P. Miscellaneous Expense- represents various small expenditures which do not warrant separate
presentation

VI. Types of Assets based on Convertibility

A. Current Assets

1. Receivables (e.g., notes, interests, accounts)

2. Inventories

3. Supplies- considered as consumed after using (e.g., office supplies, folders, ink, glue etc.)

B. Fixed Assets

1. Buildings/establishment where business is conducted

2. Transport equipment (e.g., Bus, Delivery Trucks, Aircrafts, etc.)

VII. Accounting Equation

A. Meaning

1. Accounting equation- is an algebraic equation that was used to observe all the processes in an
accounting system and was characterized by the equation Asstes (A) = Liabilities (L) + Capital/Equity (C)

2. Assets- are economic resources that was control that have resulted in from past events and can
provide economic benefits

3. Liabilities- are present obligations that have resulted from past events that requires economic
resources to settle them

4. Equity/Capital- is simply the difference between asset minus liabilities

B. Types of Business Transaction based on Accounting Equation

1. A(+) = L + C(+)

- Means Investment

(A+) cash or assets

(C+) Kobe, capital

2. A(+) = L(+) + C

- Buys an account

(A+) increase in office equipment/assets

(L+) accounts payable

- Borrows money
 (A+) cash

(L+) notes payable

3. A(-) = L + C(-)

- Withdrawal

(A-) personal use of cash

(L-) kobe, drawing; goods/inventory

- Expense

(A-) cash

(C-) salary expense

4. A(-) = L(-) + C

- Pays Account

(A-) cash

(L-) accounts payable, notes payable

5. A(+/-) = L + C

- Buys using Cash

(A+) school supplies

(A-) cash

- Collect for Debtors

(A+) cash

(A-) cash receivables

6. A = L(+) + C(-)

- Accrued Expense

(L+) interest payable

(C-) interest expense

VIII. Types of Financial Report

A. Income Statement- is used to asses the company's performance and financial position

B. Capital Statement- is a document which represents the opening balance of the capital at the first line,
and then any kind of addition in shape of investments or profits earned during the accounting period is
added in the next line arriving at the total balance of the capital
 C. Balance Sheet- is a statement of the financial positions that lists the assets, liabilities, and the owner's
equity at a particular point of time

IX. Journals, Ledger, and Trial Balance

A. Journalizing- a process of recording transaction in the journal; also called as "Book of Original"

Other Types of Journal

1. Special Journal- for particular purpose only

2. Cash Dispersement Journal- for the one's whose "always paying"

3. Purchase Journal

B. Ledger- is an account or record used to store bookkeeping entries for balance sheet and income-
statement transactions and use in the act of classifying data; also called as "Book of Final Entry"

C. Trial Balance- a list of account to see to it the equality of debit and credit; used in summarizing data