Intro to Basic

Accounting
ANALYZING & RECORDING
Accounting
 is a service activity. Its function is to provide quantitative information, primarily financial in
nature, about economic entities that is intended to be useful in making economic decisions
 is the art of recording, classifying and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least, of a financial character, and
interpreting the results thereof.
 is an information and measurement system that identifies, records and summarizes relevant,
reliable and comparable information to users for better decision making
Accounting Cycle
1. Identification of events to be recorded
2. Transactions are recorded in a Journal Analyzing and
3. Journal entries are recorded to the Ledger  POSTING Recording Process
4. Preparation of a Trial Balance
5. Preparation of a Worksheet including Adjusting Entries
6. Preparation of Financial Statements
7. Adjusting Entries are Journalized and Posted
8. Preparation of a Post-Closing Trial Balance
9. Reversing Journal Entries are Journalized (Optional)
Step 1:
Identification of events to be recorded
 analyze each transaction and event from source documents

 Source documents
 Account and its analysis
 Types of accounts
Source Documents
Account and its analysis
ACCOUNT
- a record of increases and decreases in a specific asset, liability, equity, revenue or expense
item. Information from an account is analyzed, summarized and presented in reports and
financial statements.
 Physical things (tangible or intangible) or
rights owned by the business entity which
have monetary value and expected future
benefits Debts or obligations
owed by the entity

Claim held by the owner

against the assets after
the total liabilities are
deducted
Increases in the owner’s equity as a result of the
performance of services or sales by the business

Decreases in the owner’s equity caused by the

revenue generating activities of the business

Amount by which total revenues exceed total

expenses.

Net Loss – amount by which total expenses

exceed total revenues
Typical Account Titles Used:
Balance Sheet
ASSETS ARE SUBDIVIDED INTO TWO MAJOR CLASSIFICATIOS: CURRENT AND NON-CURRENT

Current Assets Non-Current Assets

• Cash • Long-term investments

• Cash Equivalents • Equipment
• Accounts Receivable • Buildings
• Notes Receivable • Land
• Inventory • Intangibles
• Supplies
• Prepaid Expenses
Typical Account Titles Used
Current Liabilities Non-Current Liabilities

• Accounts Payable/ Trade • Mortgage Payable

Payables • Bonds Payable
• Notes Payable
• Accrued Liabilities
• Unearned Revenues
Typical Account Titles Used
Owner’s Equity

• Owner, Capital
• Owner, Withdrawals or drawings
• Contra-equity account
Typical Account Titles Used:
Income Statement
Revenues Expenses

• Service Revenue • Cost of sales / Cost of Goods Sold

• Sales Revenue • Salaries or wages
• Utilities Expense
• Rent Expense
• Supplies Expense
• Depreciation Expense
• Uncollectible Accounts Expense
• Interest Expense
Chart of Accounts
• list of all accounts and includes an identifying number for each account
T-Account
- simplest form of the account; tool used to understand the effects of one or more transactions
DEBITS AND CREDITS
Double Entry System – the dual effect of business
transactions must be recorded. A debit side entry
must have a corresponding credit side entry. Each
transaction affects at least 2 accounts.

The total debits must always equal to total credits.

Rules of Debits and Credits
Rules of Debits and Credits
Accounting Cycle
1. Identification of events to be recorded
2. Transactions are recorded in a Journal
3. Journal entries are recorded to the Ledger  POSTING
Analyze transactions & Source
4. Preparation of a Trial Balance documents
5. Preparation of a Worksheet including Adjusting Entries
6. Preparation of Financial Statements
7. Adjusting Entries are Journalized and Posted
8. Preparation of a Post-Closing Trial Balance Apply double-entry
accounting
9. Reversing Journal Entries are Journalized (Optional)
Accounting Cycle
1. Identification of events to be recorded
2. Transactions are recorded in a Journal
3. Journal entries are recorded to the Ledger  POSTING
4. Preparation of a Trial Balance
5. Preparation of a Worksheet including Adjusting Entries
6. Preparation of Financial Statements
7. Adjusting Entries are Journalized and Posted
8. Preparation of a Post-Closing Trial Balance
9. Reversing Journal Entries are Journalized (Optional)
Journal
Companies initially record transactions in chronological order (the order in which they occur).
Thus, the journal is referred to as the book of original entry. For each transaction, the journal
shows the debit and credit effects on specific account. Companies may use various kinds of
journals, but every company has the most basic form of journal, a general journal.

JOURNALIZING
- entering transaction data in the journal
- Companies make separate journal entries for each transaction A complete entry consists of:
1. Date of transaction
2. Accounts and Amounts to be debited and credited
3. Brief explanation of the transaction
Contents of the General Journal
SIMPLE AND COMPOUND ENTRIES
Simple Entry
One debit and one credit
Compound Entry
Has three or more accounts in an entry
Balance columnar ledger accounts
Accounting Cycle
1. Identification of events to be recorded
2. Transactions are recorded in a Journal
3. Journal entries are posted to the Ledger
4. Preparation of a Trial Balance
5. Preparation of a Worksheet including Adjusting Entries
6. Preparation of Financial Statements
7. Adjusting Entries are Journalized and Posted
8. Preparation of a Post-Closing Trial Balance
9. Reversing Journal Entries are Journalized (Optional)
After extensive planning, Welly Mirthy started a barber shop called Patupi. The following events occurred during
its first month:
a. On August 1, Mirthy invested P13,000 cash and P25,000 equipment in Patupi.
b. On August 2, Patupi paid P1,600 cash for furniture for the shop.
c. On August 3, Patupi paid P1,500 cash to rent space in a strip small for August.
d. On August 4, it purchased P2,200 of equipment in credit for the ship (using a long term note payable).
e. On August 5, Patupi opened for business. Cash received from services provided in the first week and a half of
business (ended August 15) is P1,900.
f. On August 15, it provided P200 of haircutting services on account.
g. On August 17, it received a P100 check for services previously rendered on account.
h. On August 17, it paid P200 cash to an assistant for working during the grand opening.
i. Cash received from services provided during the second half of August is P2,100
j. On August 31, it paid a P400 installment toward principal on the note payable entered into on August 4.
k. On August 31, Mirthy made a P1,900 cash withdrawal for personal use.
 ASSETS = LIABILITY + EQUITY

Accounts Store Notes Mirthy, Mirthy,

Cash Receivable
Furniture = + Revenues Expenses
Equipment Payable Capital Withdrawals

k
 ASSETS = LIABILITY + EQUITY

Accounts Store JK,

Cash Receivable
Furniture Equipment
= Notes Payable + JK, Capital Revenues Expenses
Withdrawals

a 13,000 25,000 38,000

b (1,600) 1,600
c 1,500 (1,500)
d 2,200 2,200
e 1,900 1,900
f 200 200
g 100 (100)
h (200) (200)
i 2,100 2,100
j (400) (400)
k (1,900) (1,900)
On August 1, Worthy invested P13,000
cash and P25,000 equipment in Patupi.
Assets = Liabilities + Equity

General Journal Page 1

Date Description PR Debit Credit

2019
Aug 1
T-Accounts
Ledger

Account No.

Date Description PR Debit Credit Balance

Account No.

Date Description PR Debit Credit Balance

Account No.

Date Description PR Debit Credit Balance

Discussion Questions
What is the difference between a note payable and an
account payable?
Which financial statement is sometimes called the
statement of financial position?
If assets are valuable resources and asset accounts have
debit balances, why do expense accounts also have
debit balances?
If assets are valuable resources and asset accounts have
debit balances, why do expense accounts also have
debit balances?
Identify the normal balance (debit or credit) for each of
the following accounts.

a. Office supplies
b. Owner Withdrawals
c. Fees earned
d. Wages Expense
e. Cash
f. Prepaid Insurance
g. Wages Payable
h. Building
i. Owner Capital