Saturday, January 10, 2009
Friday, January 9, 2009
SPECIAL JOURNALS
Use to record and post transactions that are of the same nature and which
frequently occur.
SALES JOURNAL
Only transactions involving “sale of merchandise on account”
Or “on credit terms” are recorded in this book.
....................................Pro-forma Journal Entries
.................Accounts Receivable..................................Phpxx
..........................Sales ...............................................................Phpxx
..........................Output Tax ..........................................................xx
PURCHASE JOURNAL
Only transactions involving “purchase of merchandise on account” or “on credit terms” are recorded in this book.
....................................Pro-forma Journal Entries
.................Purchases .................................................Phpxx
.................Input Tax ........................................................xx
...........................Accounts Payable........................................Phpxx
CASH RECEIPTS JOURNAL
Only transactions involving “receipts of cash” are recorded in this book such of sale on merchandise in cash, collection from the customer’s account, investment by the owner in terms of cash, cash received from a bank loan, refund from supplier for return of merchandise purchased in cash, etc.
.....................................Pro-forma Journal Entries
....................Cash ........................................................Phpxx
.........................(Various credits as mentioned
..........................Above) ...........................................................Phpxx
CASH DISBURSEMENT JOURNAL
Only transactions involving “cash payments” are recorded in this book such as purchases of merchandise in cash, payments of supplier’s account, owner’s drawing in cash, cash refund to customers whose merchandise purchased in account was returned, cash of fixed assets, payment of expenses, etc.
............................................Pro-forma Journal Entry
................(Various debits) ........................................Phpxx
........................Cash ................................................................Phpxx
frequently occur.
SALES JOURNAL
Only transactions involving “sale of merchandise on account”
Or “on credit terms” are recorded in this book.
....................................Pro-forma Journal Entries
.................Accounts Receivable..................................Phpxx
..........................Sales ...............................................................Phpxx
..........................Output Tax ..........................................................xx
PURCHASE JOURNAL
Only transactions involving “purchase of merchandise on account” or “on credit terms” are recorded in this book.
....................................Pro-forma Journal Entries
.................Purchases .................................................Phpxx
.................Input Tax ........................................................xx
...........................Accounts Payable........................................Phpxx
CASH RECEIPTS JOURNAL
Only transactions involving “receipts of cash” are recorded in this book such of sale on merchandise in cash, collection from the customer’s account, investment by the owner in terms of cash, cash received from a bank loan, refund from supplier for return of merchandise purchased in cash, etc.
.....................................Pro-forma Journal Entries
....................Cash ........................................................Phpxx
.........................(Various credits as mentioned
..........................Above) ...........................................................Phpxx
CASH DISBURSEMENT JOURNAL
Only transactions involving “cash payments” are recorded in this book such as purchases of merchandise in cash, payments of supplier’s account, owner’s drawing in cash, cash refund to customers whose merchandise purchased in account was returned, cash of fixed assets, payment of expenses, etc.
............................................Pro-forma Journal Entry
................(Various debits) ........................................Phpxx
........................Cash ................................................................Phpxx
ANALYZING and SUMMARIZING BUSINESS TRANSACTIONS OF A.....
SERVICE ENTITY
Analyzing Business Transactions
Business Transaction
“is the exchange between two parties of things and rights the value of
which are expressed in monetary terms or pesos.”
“Not all business activities are “accountable”. For example, the hiring of employees, death of company’s president and the entering into contracts are all business activities that cannot be qualified or expressed in terms of unit of measure, thus cannot be recorded in the books of the enterprise.”
“Business activities are said to be accountable and are called business transactions and events when they affect the elements of the accounting equation.”
Accounting Equation
Asset = Liabilities + Owner’s Equity ( - Drawings + Income – Expense)
Therefore: Assets- Liabilities= Owner’s Equity
Assets- Owner’s Equity= Liabilities
“The accounting equation shows the relationship among assets, liabilities and owner’s equity. Assets appear on the left hand side of the equation while the legal and economic claims against the assets- the liabilities and owner’s equity- appear on the right hand side of the equation. The two sides must ALWAYS be EQUAL.”
............................LEFT SIDE ......................................RIGHT SIDE
...........................ASSET .................................LIABILITIES
................................................................................+
....................................................................OWNER’S EQUITY
“Every transaction must always have a dual-effect or must affect atleast two
accounts.”
“The business transactions are analyzed from the viewpoint of the business. If the transaction is “Purchased” or “Bought”, it is the business that is buying. If the transaction is “Sold”, it is the business that is selling, if the transaction is “Paid” it is the business that pays, if the transaction is “Collected” it is the business that receives the payment…..
“ALWAYS CONSIDER YOURSELF AS THE BUSINESS” when making the analysis.”
RULES OF DEBIT AND CREDIT
The effect of changes in Assets, Liabilities and Owner’s Equity are being summarized in an accounting device called “account”. This device will group these accounting values with their amounts belonging to one item only. In the item “cash” for example, all amounts representing increases and decreases in cash are entered in the account “cash”.
As discussed earlier, an “account” is divided into two sides. The left-hand side which is called the “debit side” and the right-side is called the “credit side”
DEBIT ...............................................................CREDIT
Increase in Asset ..............................Decrease in Asset
Decrease in Liability ........................Increase in Liability
Increase in Drawing .........................Increase in Capital
Increase in Expense......................... Increase in Income
Normal Balance corresponds to the increase in each account.
Therefore:
INCREASE
DEBIT ....................................................................CREDIT
ASSET ...................................................................LIABILITY
EXPENSE ...............................................................INCOME
DRAWINGS ...........................................................CAPITAL
Analyzing Business Transactions
Business Transaction
“is the exchange between two parties of things and rights the value of
which are expressed in monetary terms or pesos.”
“Not all business activities are “accountable”. For example, the hiring of employees, death of company’s president and the entering into contracts are all business activities that cannot be qualified or expressed in terms of unit of measure, thus cannot be recorded in the books of the enterprise.”
“Business activities are said to be accountable and are called business transactions and events when they affect the elements of the accounting equation.”
Accounting Equation
Asset = Liabilities + Owner’s Equity ( - Drawings + Income – Expense)
Therefore: Assets- Liabilities= Owner’s Equity
Assets- Owner’s Equity= Liabilities
“The accounting equation shows the relationship among assets, liabilities and owner’s equity. Assets appear on the left hand side of the equation while the legal and economic claims against the assets- the liabilities and owner’s equity- appear on the right hand side of the equation. The two sides must ALWAYS be EQUAL.”
............................LEFT SIDE ......................................RIGHT SIDE
...........................ASSET .................................LIABILITIES
................................................................................+
....................................................................OWNER’S EQUITY
“Every transaction must always have a dual-effect or must affect atleast two
accounts.”
“The business transactions are analyzed from the viewpoint of the business. If the transaction is “Purchased” or “Bought”, it is the business that is buying. If the transaction is “Sold”, it is the business that is selling, if the transaction is “Paid” it is the business that pays, if the transaction is “Collected” it is the business that receives the payment…..
“ALWAYS CONSIDER YOURSELF AS THE BUSINESS” when making the analysis.”
RULES OF DEBIT AND CREDIT
The effect of changes in Assets, Liabilities and Owner’s Equity are being summarized in an accounting device called “account”. This device will group these accounting values with their amounts belonging to one item only. In the item “cash” for example, all amounts representing increases and decreases in cash are entered in the account “cash”.
As discussed earlier, an “account” is divided into two sides. The left-hand side which is called the “debit side” and the right-side is called the “credit side”
DEBIT ...............................................................CREDIT
Increase in Asset ..............................Decrease in Asset
Decrease in Liability ........................Increase in Liability
Increase in Drawing .........................Increase in Capital
Increase in Expense......................... Increase in Income
Normal Balance corresponds to the increase in each account.
Therefore:
INCREASE
DEBIT ....................................................................CREDIT
ASSET ...................................................................LIABILITY
EXPENSE ...............................................................INCOME
DRAWINGS ...........................................................CAPITAL
Bookkeepping and Financial Statements
BOOKKEEPPING
Is the process of recording business transactions. Since bookkeeping traditionally assumes the responsibility of recording functions it runs short of classifying and summarizing.
FINANCIAL STATEMENT
Objective: to provide information about financial position, performance and cash flows of an enterprise that is vital in making sound economic decisions.
Statement of Financial Position (Balance Sheet)
“shows the Financial position of an enterprise as of a particular date.”
Elements
a. Assets
“are business resources that have probable future economic
economic benefits and are under management’s control that are results
of past transactions.
b. Liabilities
“are business’ present obligations that are result of past transactions.
c. Owner’s Equity
“the residual interest of the owner in the assets of the business
entity.”
Statement of Comprehensive Income (Income Statement)
“shows the performance of the enterprise”
Elements
a. Revenues- are inflows from services rendered and other activities.
b. Expenses- are outflows of assets or incurrence of liabilities.
Results
Gains- “increase to equity”
“R>E”
Loss- “decrease to equity”
“R Statement of Changes in Owner’s Equity
“summarizes the changes in equity for a period of time”
Elements
1. Investment by the owners
2. Distribution to owners
3. Capital Maintenance Adjustment
Statement of Cash Flows
“provides information about cash inflows (receipts) and outflows (payments)”
1. Operating Cash Flows
2. Investing Cash Flows
3. Financing Cash Flows
Notes that Accompany Financial Statements
“adequate disclosures is perhaps the most important accounting principles to the
users of financial statements.”
Qualities of Financial Statement
1. Understandability- FS should be prepared and represented in a way that
should be prepared and represented in a way that it can be understood by the users.
2. Reliability- FS should carry the degree of confidence when used by
interested parties.
“to be reliable, it must be “free” from material misstatement and from bias”
2.1 Faithful Representation- the FS must be adequate and shows what it
purports to show
2.2 Neutrality- “FS must be free from bias”
- “It is not good to give favor to one party in detriment to
the other”
2.3 Conservatism- Alternative which has the least effect on Owner’s
equity should be chosen.
2.4 Completeness- FS is said to be complete if it contains full disclosure
of significant information.
2.5 Substance over Form- emphasizes the economic substance of events
3. Relevance- “information must be relevant to the decision-making needs of the
users.”
1.1 Materiality- determining whether an item is material or not.
1.2 Predictive Value- FS’s information enables the users to
forecast and make predictions about the outcome.
1.3 Feedback Value
1.4 Timeliness- Financial informations must be available at the
time of need.
4. Comparability-Financial Statement must be worth comparing for with
other companies’.
5. Consistency- method does not only maintain comparability but also
reliability.
Is the process of recording business transactions. Since bookkeeping traditionally assumes the responsibility of recording functions it runs short of classifying and summarizing.
FINANCIAL STATEMENT
Objective: to provide information about financial position, performance and cash flows of an enterprise that is vital in making sound economic decisions.
Statement of Financial Position (Balance Sheet)
“shows the Financial position of an enterprise as of a particular date.”
Elements
a. Assets
“are business resources that have probable future economic
economic benefits and are under management’s control that are results
of past transactions.
b. Liabilities
“are business’ present obligations that are result of past transactions.
c. Owner’s Equity
“the residual interest of the owner in the assets of the business
entity.”
Statement of Comprehensive Income (Income Statement)
“shows the performance of the enterprise”
Elements
a. Revenues- are inflows from services rendered and other activities.
b. Expenses- are outflows of assets or incurrence of liabilities.
Results
Gains- “increase to equity”
“R>E”
Loss- “decrease to equity”
“R
“summarizes the changes in equity for a period of time”
Elements
1. Investment by the owners
2. Distribution to owners
3. Capital Maintenance Adjustment
Statement of Cash Flows
“provides information about cash inflows (receipts) and outflows (payments)”
1. Operating Cash Flows
2. Investing Cash Flows
3. Financing Cash Flows
Notes that Accompany Financial Statements
“adequate disclosures is perhaps the most important accounting principles to the
users of financial statements.”
Qualities of Financial Statement
1. Understandability- FS should be prepared and represented in a way that
should be prepared and represented in a way that it can be understood by the users.
2. Reliability- FS should carry the degree of confidence when used by
interested parties.
“to be reliable, it must be “free” from material misstatement and from bias”
2.1 Faithful Representation- the FS must be adequate and shows what it
purports to show
2.2 Neutrality- “FS must be free from bias”
- “It is not good to give favor to one party in detriment to
the other”
2.3 Conservatism- Alternative which has the least effect on Owner’s
equity should be chosen.
2.4 Completeness- FS is said to be complete if it contains full disclosure
of significant information.
2.5 Substance over Form- emphasizes the economic substance of events
3. Relevance- “information must be relevant to the decision-making needs of the
users.”
1.1 Materiality- determining whether an item is material or not.
1.2 Predictive Value- FS’s information enables the users to
forecast and make predictions about the outcome.
1.3 Feedback Value
1.4 Timeliness- Financial informations must be available at the
time of need.
4. Comparability-Financial Statement must be worth comparing for with
other companies’.
5. Consistency- method does not only maintain comparability but also
reliability.
ASSUMPTIONS
1. Accounting Entity- business is considered as an entity that is separate and
distinct from the owner and management.
2. Going-Concern Assumption- the business is assumed to have a continuous
life of existence.
3. Time Period Assumption- the life of the business is divided into equal
periods called Accounting Period.
a. Calendar Year – January 1 to December 31
b. Fiscal Year- starts from any month except Jan. and ends on its
12th month afterwards
c. Natural Business Year- a 12 month period that ends on any
month when the business is at the lowest or slack season
4. Unit of Measure- “ the country’s currency”
5. Accrual Basis- income is recognized when earned.
Expense is recognized when incurred
distinct from the owner and management.
2. Going-Concern Assumption- the business is assumed to have a continuous
life of existence.
3. Time Period Assumption- the life of the business is divided into equal
periods called Accounting Period.
a. Calendar Year – January 1 to December 31
b. Fiscal Year- starts from any month except Jan. and ends on its
12th month afterwards
c. Natural Business Year- a 12 month period that ends on any
month when the business is at the lowest or slack season
4. Unit of Measure- “ the country’s currency”
5. Accrual Basis- income is recognized when earned.
Expense is recognized when incurred
Generally Accepted Accounting Principles
1. Cost Principle
Asset should be recorded at original/ acquisitioned cost.
2. Objectivity Principle
Accounting records should be reliable.
3. Materiality Principle
Practicability in determining the value of an item.
4. Matching Principle
Revenue is recognized when earned.
Expense is recognized when incurred.
5. Adequate Disclosure Principle
Financial Statement must be free from material misstatement.
Asset should be recorded at original/ acquisitioned cost.
2. Objectivity Principle
Accounting records should be reliable.
3. Materiality Principle
Practicability in determining the value of an item.
4. Matching Principle
Revenue is recognized when earned.
Expense is recognized when incurred.
5. Adequate Disclosure Principle
Financial Statement must be free from material misstatement.
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