Basic Accounting for

Non-Accountants
(A Bookkeeping Course)
DR. DORINGER P. CABRERA, CPA, AFBE
Dean, College of Business and Accountancy
University of Batangas
President, Philippine Institute of CPAs - Batangas

February 1 & 2, 2018

Knowing Me…
Knowing You…
Why are we here for?
Why are we here for?

• EXPECTATIONS…..

• EXPECTATIONS…..

• EXPECTATIONS…..
Topic Outline
Module 1: Accounting and Its
Environment

Module 2: Accounting Cycle (Simple

Bookkeeping)

Module 3: Preparation of Financial

Statements
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.
Accounting
- is the process of identifying,
measuring and communicating
economic information to permit
informed judgments and decisions by
users of the information.

- is the language of business.

Phases of Accounting
• Identification
• Measurement
• Communication
Bookkeeping
- is a mechanical task involving the
collection of basic financial data.
Objective of General Purpose
Financial Reporting

To provide financial information about the

reporting entity that is useful to present and
potential investors, lenders and other
creditors, who use that information to make
decisions about buying, selling or holding
equity or debt instruments and providing or
settling loans or other forms of credit.
• Financing activities provide necessary funds
to start a business and expand it after it
begins operating.
• Investing activities provide valuable assets
required to run a business.
• Operating activities focus on selling goods
and services, but they also consider expenses
as important elements of sound financial
management.
 Accounting — An Information Process
Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

User
Reports
Decisions
 Users of Accounting Information

• investors
Financial Accounting • creditors
EXTERNAL USERS • regulators
• customers
• competitors
Managerial Accounting
INTERNAL USERS • owners
• managers
• employees
The Need for Accounting

Managers, investors, and other internal groups

want the answers to two important questions:

How well did

the organization
perform?
Where does
the organization
stand?
Qualitative Characteristics
• Relevance
• Faithful Representation (Reliability)
• Comparability
• Understandability
 Manual Accounting Cycle

1. Transactions are analyzed

and recorded in journal.
Documents Journal

2. Transactions are posted

from journal to ledger.
Journal Ledger
3. Trial balance is prepared,
adjustment data is organized,
work sheet is completed.
Work Sheet

4. Financial statements are IS SOE BS SCF

prepared and distributed.
Financial
Statements
The Basic Accounting Equation
• Financial accounting is based upon the
accounting equation.
Assets = Liabilities + Owners' Equity
– This is a mathematical equation which
must balance.
– If assets total P300 and liabilities total
P200, then equity must be P100.
The Basic Accounting Equation
• The balance sheet is an expanded
expression of the accounting equation.
The Basic Accounting Equation
Balance Sheet
Assets Liabilities and Owners’ Equity
Cash 5,000 Liabilities
Accounts receivable 7,000 Accounts payable 8,000
Inventory 10,000 Notes payable 2,000
Equipment 7,000 Total liabilities 10,000
Members’ equity 19,000
Total assets 29,000 Total liabilities and
Members’ equity 29,000
Assets
• Assets are valuable resources that are
owned by a firm.
– They represent probable future economic
benefits and arise as the result of past
transactions or events.
Liabilities
• Liabilities are present obligations of
the firm.
– They are probable future sacrifices of
economic benefits which arise as the
result of past transactions or events.
Equity
• Equity represents the owners' residual
interest in the assets of the business.
– Residual interest is another name for
equity.
– Sole proprietorship = owner’s equity
– Partnership = partners’ equity
– Corporation = stockholder’s equity
– Cooperative = members’ equity
The Basic Accounting Equation
• Both liabilities and equity represent
claims on the assets of a business.
• Liabilities are claims by people
external to the business.
• Equity is a claim by the owners.
Analyzing Transactions
• Transaction analysis is the central
component of the financial accounting
process.
– Remember that every transaction must
keep the accounting equation in balance.
A transaction is any event that affects the
financial position of an organization
and requires recording.
The Entity Assumption
• The entity assumption dictates that
business records must be kept
separate and distinct from the
personal records of the owners.
– If a person owns more than one business,
then each business must have its own set
of records.
A transaction may do one of
several things:
• It may increase both the asset side and
the liabilities and equity side.
• It may decrease both the asset side
and the liabilities and equity side.
A transaction may do one of
several things:
• It may cause both an increase and a
decrease on the asset side.
• It may cause both an increase and a
decrease on the liabilities and equity
side.
A transaction may do one of
several things:
• Regardless of what transaction occurs,
the accounting equation must be in
balance after the transaction is
analyzed.
Transaction Analysis
Owners’ Original Investment
ASSETS = LIABILITIES + OWNERS’ EQUITY
Cash H.Jacobs, capital
P50,000 P50,000
Transaction Analysis
Bank Loan
ASSETS = LIABILITIES + OWNERS’ EQUITY
Cash Notes
P20,000 Payable
P20,000
Transaction Analysis
R e nt
ASSETS = LIABILITIES + OWNERS’ EQUITY
Cash
(P12,000)
Prepaid
rent
P12,000
Transaction Analysis
Inventory
ASSETS = LIABILITIES + OWNERS’ EQUITY
Inventory Accounts
P30,000 Payable
P30,000
Transaction Analysis
Equipment
ASSETS = LIABILITIES + OWNERS’ EQUITY
Cash
(P25,000)
Equipment
P25,000
Transaction Analysis
ASSETS
Cash Prepaid Rent Inventory Equipment
50,000
20,000
(12,000) 12,000
30,000
(25,000) 25,000
33,000 12,000 30,000 25,000
Transaction Analysis
LIABILITIES OWNER’S EQUITY
Accounts Payable Notes Payable H.Jacobs, Capital
50,000
20,000

30,000

30,000 20,000 50,000

Transaction Analysis
Balance Sheet
Assets Liabilities and Owners’ Equity
Cash 33,000 Liabilities
Accounts receivable 12,000 Accounts payable 30,000
Inventory 30,000 Notes payable 20,000
Equipment 25,000 Total liabilities 50,000
H.Jacobs, capital 50,000
Total assets 100,000 Total liabilities and
owners’ equity 100,000
The Rules of Debit and Credit

Increase Decrease
Assets Dr Cr
Liabilities Cr Dr
Capital Cr Dr
Withdrawal Dr Cr
Revenue Cr Dr
Expense Dr Cr
Items that need adjustment
• Accrued expenses
• Accrued revenues
• Prepaid expenses
• Unearned revenues
• Depreciation expense
• Doubtful accounts expense
 Business Transactions
Entry A. Chris Clark (investor)

Chris Clark
deposits P250,000 Cash A promise
in a bank account to the owner
for NetSolutions.

receive NetSolutions give

give
Debit (investee) Credit
Credit

General Journal
Date Description Debit Credit
11/1 Cash 250,000
Chris Clark, Capital 250,000
 Business Transactions
Entry B. (seller)

NetSolutions buys
computer for Computer Cash
P20,000.

receive NetSolutions give

give
Debit (buyer) Credit
Credit

General Journal
Date Description Debit Credit
11/5 Computer 20,000
Cash 20,000
 Business Transactions
Entry D. Various suppliers

NetSolutions paid:
Services,
wages, P21,250; rent, Cash
benefits
P8,000; utilities,
P4,500; and
miscellaneous,
P2,750. receive NetSolutions give
give
Debit (buyer) Credit
Credit

General Journal
Date Description Debit Credit
11/18 Wages Expense 21,250
Rent Expense 8,000
Utilities Expense 4,500
Misc. Expense 2,750
Cash 36,500
 NetSolutions
Chart of Accounts

Balance Sheet Income Statement

1. Assets 4. Revenue
11 Cash 41 Fees Earned
12 Accounts Receivable 42 Rent Revenue
14 Supplies
15 Prepaid Insurance 5. Expenses
17 Land 51 Wages Expense
18 Office Equipment 52 Rent Expense
19 Accumulated Depreciation 53 Depreciation Expense
54 Utilities Expense
2. Liabilities 55 Supplies Expense
21 Accounts Payable 56 Insurance Expense
22 Wages Payable 59 Miscellaneous Expense
23 Unearned Rent
3. Owner’s Equity
31 Chris Clark, Capital
32 Chris Clark, Drawing
 NetSolutions
Statement of Financial Performance
For Two Months Ended December 31, 2012

Fees earned P16,840

Rent revenue 120
Total revenues P16,960
Expenses:
Wages expense P 4,525
Supplies expense 2,040
Rent expense 1,600
Utilities expense 985
Insurance expense 100
Depreciation expense 50
Miscellaneous expense 455
Total expenses 9,755
Net income P 7,205
 NetSolutions
Statement of Owner’s Equity
For Two Months Ended December 31, 2012

Chris Clark, capital, November 1, 2012 P 0

Investment on November 1, 2012 P15,000
Net income for November and December 7,205
P22,205
Less withdrawals 4,000
Increase in owner’s equity 18,205
Chris Clark, capital, December 31, 2012 P18,205
 NetSolutions
Balance Sheet
December 31, 2012
ASSETS
Current assets:
Cash P 2,065
Accounts receivable 2,720
Supplies 760
Prepaid insurance 2,300
Total current assets P 7,845
Noncurrent assets:
Land P20,000
Office equipment 1,800
Less accum. depr. (50)
Total noncurrent assets 11,750
Total assets P29,595
 NetSolutions
Balance Sheet
December 31, 2012

LIABILITIES
Current liabilities:
Accounts payable P 900
Wages payable 250
Unearned rent 240
Total liabilities P 1,390
OWNER’S EQUITY
Chris Clark, capital 28,205
Total liabilities and
owner’s equity P29,595
 NetSolutions
Statement of Cash Flows – Direct Method
For the Month Ended November 30, 2012

Cash flows from operating activities:

Cash received from customers P 7,500
Deduct cash payments for expenses
and payment to creditors 4,600
Net cash flow from operating activities P 2,900
Cash flows from investing activities:
Cash payments for acquiring land (10,000)
Cash flows from financing activities:
Cash received as owner’s investment P15,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 13,000
Net cash flow and ending cash balance P 5,900
END OF DAY 1