FUNDAMENTALS OF

Naz Carcosia
ACCOUNTING Senior High School
D e p a r t me n t
( F U N D A M E N TA L S O F A C C O U N TA N C Y, B U S I N E S S , A N D M A N A G E M E N T 1 )
 ACCOUNTING

ASSETS = LIABILITIES + OWNER’S EQUITY

 BUSINESS DEFINED

Legally- recognized organizational entity

Economically free country design
To sell goods and to provide services
BUSINESS OWNERSHIP

SINGLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION
COOPERATIVE
 ACCOUNTING

Is the art of recording, classifying and

summarizing in a significant manner, and
in terms of money, transactions and
events which are in the part at least of
financial character, and interpreting the
results thereof.

- Committee on Accounting Terminology of

the American Institute of CPA
 ACCOUNTING

Is the process of IDENTIFYING,

MEASURING AND COMMUNICATING
economic information to permit informed
judgment and decision by the users of the
information

- American Accounting Association

 ACCOUNTING
 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 Standards Council

 ACCOUNTING

Is an information system that measures,

processes and communicates financial
information about economic entity

- Financial Accounting Standard Board

 ELEMENTS OF PERTAINING
TO FINANCIAL POSITION

ASSETS
LIABILITIES AND
EQUITY
 ASSETS

• Assets are resourced owned and

controlled by the enterprises
• Assets are acquired by an
enterprise as a result of a past
transaction or event
 EXAMPLES OF ASSETS

CASH
ACCOUNTS RECEIVABLES- Services or
goods have not yet been paid
OFFICE EQUIPMENT
LAND
BUILDING
 LIABILITIES

A Liability is a present obligation

arising out of a past event
EXAMPLE of events are
purchase transaction,
or a borrowing transaction
A liability is required to be
settled in the future
 EXAMPLES OF LIABILITIES

ACCOUNTS PAYABLE- Goods

purchased on account
SALARIES PAYABLE- Salaries due
to employees which are unpaid
UTILITIES PAYABLE- Ex. electricity,
water and internet charges
 OWNER’S EQUIT Y / CAPITAL

Arises from original investment by owner

into the business
Equity is increased by additional
investment and by profit earned during a
period of time.

Technically, CREDITORS AND OWNERS both

have claims on the assets of the
enterprise/ business
 ELEMENTS PERTAINING TO
PERFORMANCE OR PROFITABILIT Y

INCOME EXPENSES
 Accounting period Accounting period in
inform of inflows the form of outflows
 Enhancements of Depletion of assets
assets
Or incidences of
 Or decrease of
liabilities
liabilities
 ELEMENTS PERTAINING TO
PERFORMANCE OR PROFITABILIT Y
REVENUE
Arises in the course of the ordinary activities of
an enterprise and referred to by variety of
different names including SALES, FEES,
INTEREST, DIVIDENS, ROYALTIES, AND RENT

EXAMPLES OF EXPENSES
Salaries Expense
Rent Expense
Expenses for electricity, water, other utilities
Taxes, business permits etc
 THE ACCOUNTING EQUATION AND THE
DOUBLE -ENTRY BOOKEEPING SYSTEM

ASSETS = LIABILITIES + OWNER’S EQUIT Y

ASSETS = LIABILITIES + OWNER’ EQUITY+ REVENUE - EXPENSES

 NORMAL BALANCES OF ACCOUNTS

DEBIT CREDIT

ASSETS LIABILITIES
DRAWING CAPITAL
EXPENSES REVENUE
 ACCOUNTING RULE

“NEVER ASSUME UNLESS

OTHERWISE STATED”
 ACTIVIT Y

 D e n i s e G a n i g a n , C PA , d e c i d e d to s t a r t h e r p r a c t i ce a s a n A c c o un t a n t b y
e s t a b l i s h i n g h e r o w n a c c o un t i n g f i r m . Fo l l ow in g a r e t h e t r a n s a c t io n s o f t h e
a c c o un t i n g f i r m d u r i n g O c to b e r 2 016 . I t s f i r s t m o n t h o f o p e r a t i o n .
June 1 O p e n e d a b u s i n e s s b a n k a c c o un t w i t h d e p o s i t o f P 5 0 , 0 0 0 f r o m
personal funds
June 2 P u r c h a s e d o f f i ce s u p p l i e s f o r c a s h P 4 , 5 0 0
June 8 Re c e i v e d P 3 0 , 0 0 0 c a s h f r o m c l i e n t f o r s e r v i c e s r e n d e r e d .
June 9 P u r c h a s e d O f f i c e E q u i p m e n t w o r t h P 4 0 , 0 0 0 o n a c c o un t
June 11 B i l l e d a c l i e n t f o r s e r v i c e r e n d e r e d o n a c c o un t P 2 0 , 0 0 0
June 13 P a i d o f fi c e S a l a r i e s P 1 2 , 0 0 0
I n s t r uc t i o n s
1 . S h o w t h e e f f e c t o f t h e a b o v e t r a n s a c t io n s u s i n g t h e ex p a n d e d a c c o un t i n g
equation.
2 . C o m p ute t h e b a l a n c e s a f te r e a c h t r a n s a c t i o n .
3 . Yo u m ay u s e t h e f o l l ow i n g A c c o un t s :
CASH FEES EANED
AC C O U N T S R E C E IVA B G A N I G A N , C A P I TA L
O F F I C E S U P P L IE S S A L A R I E S E X P E NS E
OFFICE EQUIPMENT
* 4 . P r e p a r e a n i n c o me s t a te m en t a n d a b a l a n c e s h e et f o r O c to b e r 2 016