FUNDAMENTALS

OF
ACCOUNTANCY,
BUSINESS AND
MANAGEMENT 1
Prepared by:
Ms. Loverne C. Escano
ACCOUNTING
“Accounting is the process of IDENTIFYING,
RECORDING and COMMUNICATING economic
events of an organization to interested users.”
(Weygandt, J. et.al)

IDENTIFYING – this involves selecting economic

events that are relevant to a particular business
transaction. The economic events of an organization
are referred to as transactions.
RECORDING – this involves keeping a chronologically
diary of events that are measured in pesos. The diary
referred to in the definition are the journals and
ledgers.
COMMUNICATING – occurs through the preparation
and distribution of financial and other accounting
reports.
NATURE OF ACCOUNTING
1. Accounting is a process. A process is composed of multiple
steps that lead to a common goal.
2. Accounting is an art. Art refers to a way of performing
something. It entails creativity and skills to help us attain some
objectives. Accounting is the art of recording, classifying,
summarizing and finalizing financial data. Accounting is a
combination of techniques, and its application requires applied
skill and expertise.
3. Accounting deals with financial information and transactions.
Accounting records financial transactions and data, classifies
these and finalizes their results given for a specified period of
time, as needed by their users.
4. Accounting is a means and not an end. Accounting is a tool to
achieve specific objectives. It is not the objective itself.

5. Accounting is an information system. Accounting is

recognized and characterized as a storehouse of information. As
a service function, it collects processes and
communicates financial information of any entity.
FUNCTIONS OF ACCOUNTING

KEEPING MEETING LEGAL

SYSTEMATIC PROTECTING COMMUNICATING REQUIREMENTS
RECORD OF PROPERTIES OF RESULTS TO In the Philippines, the
BUSINESS BUSINESS VARIOUS PARTIES government requires some
TRANSACTION The accounting records s IN CONNECTED companies (particularly those
erve as the evidence that WITH THE BUSINESS with public accountability) to
Recording properties of a The accounting reports at provide financial reports
transactions does not business do exist or how the end of each quarterly, semi-annually, or
only involve entering much of a particular period are not only used by ext annually. This procedure aims
the transactions in the resource does a ernal parties but also by the to protect the public.
accounting books. company have. management in their
decision-making function.
HISTORY OF ACCOUNTING

The Cradle Civilization 14th Century – French Revolution

(3600 B.C.) Double-Entry (1700s)
Bookkeeping

The Industrial Revolution 19th Century – The Beginnings The Present – The Development of
(1760-1830) of Modern Accounting in Modern Accounting Standards and
Europe and America Commerce
HISTORY OF ACCOUNTING

THE CRADLE CIVILIZATION (3600 BC)

Around 3600 B.C., record-keeping was
already common from Mesopotamia, China and
India to Central and South America. The
oldest evidence of this practice was the “clay
tablet” of Mesopotamia which dealt with
commercial transactions at the time such as
listing of accounts receivable and accounts
payable.
HISTORY OF ACCOUNTING

14th CENTURY - DOUBLE-ENTRY BOOKKEEPING

The most important event in accounting history is gener
ally considered to be the dissemination of double entry
bookkeeping by Luca Pacioli (‘The Father of Accounting’) in
14th century Italy. Pacioli was much revered in his day and
was a friend and contemporary of Leonardo da Vinci. The
Italians of the 14th to 16thcenturies are widely
acknowledged as the fathers of modern accounting and
were the first to commonly use Arabic numerals, rather than
Roman, for tracking business accounts. Luca Pacioli wrote
Summa de Arithmetica, the first book published that
contained a detailed chapter on double-entry bookkeeping.
HISTORY OF ACCOUNTING

FRENCH REVOLUTION (1700S)

The thorough study of accounting and
development of accounting theory began
during this period. Social upheavals
affecting government, finances, laws,
customs and business had greatly
influenced the development of accounting.
HISTORY OF ACCOUNTING

THE INDUSTRIAL REVOLUTION

(1760-1830)
Mass production and the great
importance of fixed assets were
given attention during this period.
HISTORY OF ACCOUNTING
19th CENTURY – THE BEGINNINGS OF MODERN
ACCOUNTING IN EUROPE AND AMERICA
The modern, formal accounting profession emerged in Scotland in
1854 when Queen Victoria granted a Royal Charter to the Institute of Accountants
in Glasgow, creating the profession of the Chartered Accountant (CA).
In the late 1800s, chartered accountants from Scotland and Britain came to
the U.S.to audit British investments. Some of these accountants stayed in the U.S.,
setting up accounting practices and becoming the origins of several U.S.
accounting
firms. The first national U.S. accounting society was set up in 1887. The American
Association of Public Accountants was the forerunner to the current American
Institute of Certified Public Accountants (AICPA).
In this period rapid changes in accounting practice and reports were made.
Accounting standards to be observed by accounting professionals
were promulgated. Notable practices such as mergers, acquisitions and growth of
multinational corporations were developed. A merger is when one company takes
over all the operations of another business entity resulting in the dissolution of
another business. Businesses expanded by acquiring other companies. These
types of transactions have challenged accounting professionals to develop new
standards that will address accounting issues related to these business
combinations.
HISTORY OF ACCOUNTING
THE PRESENT - THE DEVELOPMENT OF
MODERN ACCOUNTING STANDARDS
ANDCOMMERCE
The accounting profession in the 20th century developed
around state requirements for financial statement audits. Beyond the
industry's self-regulation, the government also sets accounting
standards, through laws and agencies such as the Securities and
Exchange Commission (SEC). As economies worldwide continued to
globalized, accounting regulatory bodies required accounting
practitioners to observe International Accounting Standards. This is
to assure transparency and reliability, and to obtain greater
confidence on accounting information used by global investors.
Nowadays, investors seek investment opportunities all over the
world. To remain competitive, businesses everywhere feel the
need to operate globally. The trend now for accounting professionals
is to observe one single set of global accounting standards in order
to have greater transparency and comparability of financial data
across borders.
USERS OF ACCOUNTING
A. EXTERNAL
USERS
External users are individuals and organizations
outside a company who want financial information
about the company. These users are not directly
involved in managing and operating the business.
The two most common types of external users are
potential investors and creditors. Potential Investors
use accounting information to make decisions to
buy shares of a company. Creditors (such as
suppliers and bankers) use accounting information
to evaluate the risks of granting credit or lending
money. Also included as external users are
government regulatory agencies such as Securities
and Exchange Commission (SEC), Bureau of Internal
Revenue (BIR), Department of Labor and
Employment (DOLE), Social Security System (SSS),
and Local Government Units (LGUs).
External users (Secondary Users) of accounting information include the
following:
CREDITORS CUSTOMERS
for determining the credit worthiness of an for assessing the financial position of its
organization. Terms of credit are set by suppliers which is necessary for them to
creditors according to the assessment of their maintain a stable source of supply in the long
customers’ financial health. Creditors include term. Regulatory Authorities (SEC, DOLE): for
suppliers as well as lenders of finance such as ensuring that a company's disclosure of
banks. accounting information is in accordance with
the rules and regulations set in order to protect
TAX AUTHORITIES (BIR) the interests of the stakeholders who rely on
for determining the credibility of the tax returns such information in forming their decisions.
filed on behalf of a company.
ACADEME (PROFESSORS,
POTENTIAL INVESTORS RESEARCHERS, STUDENTS)
for analyzing the feasibility of investing in they utilize financial statements for academic
a company. Investors want to make sure they purposes.
can earn a reasonable return on their
investment before they commit any financial
resources to a company.
USERS OF ACCOUNTING

B. INTERNAL USERS
Internal users of accounting information are
those individuals inside a company who plan,
organize, and run the business. These users are
directly involved in managing and operating the
business. These include marketing managers,
production supervisors, finance directors, company
officers and owners
Internal users (Primary Users) of accounting information include the
following:
MANAGEMENT
Information needed: income/earnings for the period, sales, available cash, production cost
Decisions supported: analyze the organization's performance and position and take appropriate
measures to improve the company results. sufficiency of cash to pay dividends to stockholders;
pricing decisions

EMPLOYEES
Information needed: profit for the period, salaries paid to employees
Decisions supported: job security, consider staying in the employ of the company or look for
other employment opportunities

POTENTIAL INVESTORS
Information need: profit or income for the period, resources or assets of the business, liabilities of
the business
Decisions supported: considerations regarding additional investment, expanding the business,
borrowing funds to support any expansion plans.
Activity 2: Internal or External?
DIRECTION: Classify each of the following as either external user (E)
or internal user (I).
1. Professors
2. Creditor
3. Government
4. Management
5. Potential Investor
6. Customer
7. Employees
8. Owners
9. Researchers
10. Suppliers
Quiz 1: DIRECTION: Identify the following.
1. The Father of Accounting.
2. External users of accounting who uses accounting information for academic purposes.
3. Uses of accounting information for determining the credibility of the tax returns filed on behalf of
the company.
4. Users of accounting information who are involved in planning, organizing, and running the
business.
5. Individuals and organizations outside a company who want
financial information about the company. These users are not directly involved in managing and
operating the business.
6. Involves keeping a chronological diary of events.
7. The first step in accounting process.
8. Mass production and the great importance of fixed assets were given attention during this
period.
9. The most important event in accounting history.
10. The process of identifying, recording, and communicating economic events of an organization to
interested users.
ACCOUNTING
CONCEPTS AND
PRINCIPLES
Accounting concepts and
principles (assumptions or
postulates) are a set of logical
ideas and procedures that guide
the accountant in recording and
communicating economic
information.
Accounting Concepts and Principles
A business enterprise is separate and distinct from its owner
or investor.
1 Business Entity Principle
Example: If the owner has a barber shop, the cash of the barber
shop should be reported separately from personal cash.

Business is expected to continue indefinitely.

Example: When preparing financial statements, you should 2 Going Concern Principle
assume that the entity will continue indefinitely.

Financial statements are to be divided into specific time

intervals.
3 Time Period Principle
Example: The salary expenses from January to December 2015
should only be reported in 2015.

Amounts are stated into a single monetary unit.

Example: Jollibee should report financial statements in pesos 4 Monetary Unit Principle
even if they have a store in the United States.
Accounting Concepts and Principles
Financial statements must be presented with supporting
evidence.
5 Objectivity Principle
Example: When the customer paid Jollibee for their order,
Jollibee should have a copy of the receipt to represent as
evidence.
Accounts should be recorded initially at cost.
Example: When Jollibee buys a cash register, it should record 6 Cost Principle
the cash register at its price when they bought it.

Revenue should be recognized when earned regardless of

collection and expenses should be recognized when incurred
regardless of payment. On the other hand, the cash basis 7 Accrual Accounting Principle
principle in which revenue is recorded when collected and
expenses should be recorded when paid. Cash basis is not
the generally accepted principle today.
Example:
When a barber finishes performing his services he should
record it as revenue.
Accounting Concepts and Principles

Cost should be matched with the revenue generated.

Example: When you provide tutorial services to a customer and 8 Matching Principle
there is a transportation cost incurred related to the tutorial
services, it should be recorded as an expense for that period.

All relevant and material information should be reported.

Example: The company should report all relevant information. 9 Disclosure Principle
This is also known as prudence. In case of doubt, assets and
income should not be overstated while liabilities and
expenses should not be understated.
Example: In case of doubt, expenses should be recorded at a 10 Conservatism Principle
higher amount. Revenue should be recorded at a lower amount.
In case of assets that are immaterial to make a difference in
the financial statements, the company should instead record
it as an expense.
Example: A school purchased an eraser with an estimated 11 Materiality Principle
useful life of three years. Since an eraser is immaterial relative
to assets, it should be recorded as an expense.
IMPORTANCE OF
ACCOUNTING
CONCEPTS AND
PRINCIPLES

Accounting concepts and principles provide

reasonable assurance that information
communicated to users is prepared in a
proper way. They also provide a general frame of
reference by which accounting practice can be
evaluated and they serve as guide in the development
of new practices and procedures.
Activity 3
FUNDAMENTALS
OF
ACCOUNTANCY,
BUSINESS AND
MANAGEMENT 1
Prepared by:
Ms. Loverne C. Escano
LESSON 3:
Accounting Equation; Five
Major Accounts; and Chart of
Accounts
LESSON OBJECTIVES:

Illustrate accounting equation Prepare a Chart Accounts

Discuss the Major Accounts

Pre-Test
THE
ACCOUNTING
EQUATION
All the process in an accounting system must
observe the equality of the accounting equation.
Business transactions affect the assets, liabilities,
and proprietorship of the business. It is expressed by
the equation below:
THE ACCOUNT

Account is the basic storage of

information in accounting. It is a record of
the increases and decreases in a specific
item of asset, liability, equity, income or
expense.
THE FIVE MAJOR ACCOUNTS
The five major accounts, also called the
elements of the financial statements, are
the items in the expanded accounting
equation.

ASSETS EXPENSES

LIABILITIES INCOME
OWNERS
EQUITY
THE FIVE MAJOR ACCOUNTS

ASSETS
These are the resources owned and
controlled by the firm.
● Tangible Assets - These are physical
assets such as cash, supplies, and
furniture and fixtures.
● Intangible Assets - These are
non-physical assets such as patents and
trademarks.
These are assets that can be realized (collected, sold, used up) one year
A. CURRENT ASSETS ⮚
after year-end date. Examples are:
These are assets that cannot be realized (collected, sold, used
B. NON-CURRENT ASSETS ⮚
up) one year after year-end date. Examples are:
THE FIVE MAJOR ACCOUNTS

LIABILITIES
• These are obligations of the firm arising
from past events which are to be settled
in the future.
• These are the debts and obligations of
the company to another entity.
A. CURRENT LIABILITIES ⮚ Liabilities that fall due (paid, recognized as
revenue) within one year after year-end date.
Examples are:
B. NON-CURRENT LIABILITIES
⮚ These are liabilities that do not fall due (paid,
recognized as revenue)within one year after
year-end date.
⮚ Examples are Loans Payable, Mortgage
Payable, and Bonds Payable
THE FIVE MAJOR ACCOUNTS
OWNER’S EQUITY
● These are the owner’s claims in the
business. It is the residual interest in the
assets of the enterprise after deducting
all its liabilities.
A. Capital -It is the value of cash and
other assets invested in the business
by the owner of the business.
B. Drawing -It is an account debited for
assets withdrawn by the owner for
personal use from the business.
THE FIVE MAJOR ACCOUNTS

INCOME
● It is the increase in resources resulting
from performance of service or selling of
goods.
● Income increases equity.
● Examples - Service revenue for service
entities; and Sales for merchandising and
manufacturing companies
THE FIVE MAJOR ACCOUNTS

EXPENSES
● Expense is the decrease in resources
resulting from the operations of
business.
● Expenses decreases equity.
● Examples - Salaries Expense; Interest
Expense; and Utilities Expense
CHART OF ACCOUNTS
• It is a list of all account titles used by the company with their corresponding
account numbers. Account numbers are assigned to the accounts to facilitate
recording, cross-referencing, and retrieval of information.
• The first digit in the 3-digit numbering refers to the major types of accounts:

• Account titles are arranged in financial statement order.

• Balance sheet accounts which include assets, liabilities, and owner’s equity
come first.
CHART OF ACCOUNTS
• Account titles in the income statement which include revenue and expenses follow. Below
is an example.
JOURNALS
• Companies initially record transactions
and events 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 accounts.
• There are two types of journals, the
General Journal and the Special Journal.
TWO TYPES OF JOURNALS
GENERAL JOURNAL
The general journal is the most basic journal.
Typically, a general journal has spaces for dates,
account titles and explanations, references, and two
amount columns. The journal makes several
significant contributions to the recording process:
- It discloses in one place the complete effects of a
transaction.
- It provides a chronological record of transactions.
- It helps to prevent or locate errors because the debit
and credit amounts for each entry can be easily
compared
• Entering transaction data in the journal is known as Journalizing. Companies
make separate journal entries for each transaction. A complete entry consists
of:
a. The date of the transaction which is entered in the Date Column.
b. A brief explanation of the transaction which appears on the line below the
credit account title. A space is left between journal entries. The blank space
separates individual journal entries and makes the entire journal easier to read.
c. The column titled P.R (which stands for Post Reference) which is left blank
when the journal entry is made. This column is used later when the journal
entries are transferred to the ledger accounts.
d. The Debit Account title which is entered first at the extreme left margin of the
column headed “Account Titles and Explanation,” and the amount of the debit is
recorded in the Debit column.
e. The Credit Account title which is indented and entered on the next line in the
column headed “Account Titles and Explanation,” and the amount of the credit is
recorded in the Credit column.
EXAMPLE 1:
To illustrate the recording of transactions in the
general journal, let us use the following transactions as
an example:
• August 21, 2020 Mr. J Pacs invested PHP500, 000 in
a coffee shop business.
• August 30, 2020 purchased equipment for his
business amounting toPHP100, 000 by cash.
• September 6, 2020 started his operations and made
a sales for that day amounting to PHP20, 000
EXAMPLE 2:
On December 25, 2020, Mr. J Pacs purchased
furniture costing PHP80, 000.He pays PHP30, 000 cash
and agrees to pay the remaining PHP50,000 on
account .
TWO TYPES OF JOURNALS
SPECIAL JOURNAL
Some businesses encounter voluminous quantities
of similar and recurring transactions which may
create congestion if these transactions are recorded
repeatedly in a single day or a month in the general
journal. These journals are used to record specific
types of high-volume information that would
otherwise be recorded in and overwhelm the general
ledger.
COMMONLY USED IN SPECIAL JOURNAL
a. Cash Receipts Journal – used to record all cash that has been received. The cash
receipts journal is used to record transaction involving receipt or collection of cash. The
source document for this journal is the Official Receipts or Cash receipts issued by the
business. The following illustrate the format of a cash receipts journal:
• The date of the transaction is entered in the Date column.
• A brief explanation of the transaction is entered in the description column.
• The column titled Ref. (which stands for Reference) which is left blank when the journal
entry is made. This column is used later when the journal entries are transferred to the
ledger accounts.
• The Debit Cash column represents the amount of cash received for a particular
transaction.
• Major categories of receipts, such as cash sales and collection of accounts receivable
are provided with separate columns. These transactions are frequent and repetitive
items; therefore, a separate column is provided.
• The column sundry is used for various miscellaneous and less regular items, such as
capital investment, receipt of loan proceeds, among others.
CASH
RECEIPTS
JOURNAL
COMMONLY USED IN SPECIAL JOURNAL
b. Cash Disbursements Journal – used to record all transactions involving cash
payments. The cash disbursements journal is the opposite of the cash receipts journal. It
is the journal where all cash payments are recorded. The source documents used to
update this journal are the check voucher or cash voucher, cash receipts or official
receipts from suppliers or vendors. The following illustrate the format of a cash
disbursement journal:
• The date of the transaction is entered in the Date column.
• A brief explanation of the transaction is entered in the description column.
• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is made. This
column is used later when the journal entries are transferred to the ledger accounts.
• The Check or Voucher number represents the identifying number of the check issued for the related cash
payment. Most of the time, a check or cash voucher accompanies the disbursement. The voucher number
maybe used as the alternative for this column.
• The Debit Cash column represents the amount of cash received for a particular transaction.
• Major categories of receipts, such cash sales and collection of accounts receivable are provided with
separate columns. These transactions are frequent and repetitive items; therefore, a separate column is
provided.
• The column sundry is used for various miscellaneous and less regular items, such as capital investment,
receipt of loan proceeds, among others
CASH
DISBURSEM
ENTS
JOURNAL
COMMONLY USED IN SPECIAL JOURNAL
c. Sales Journal (Sales on Account Journal) – used to record all sales on credit (on
account). The Sales Journal or Sales on Account Journal is used in recording several
sales transactions on account. The source document for this journal is the charge invoice
or sales invoice to various customers or clients. The following illustrate the format of a
Sales Journal:
• The date of the transaction is entered in the Date column.
• A brief explanation of the transaction is entered in the description column or the name
of the customer.
• The column titled Ref. (which stands for Reference) which is left blank when the journal
entry is made. This column is used later when the journal entries are transferred to the
ledger accounts.
• The Charge Invoice Number or Sales Invoice Number represents the identifying number
of the source document issued to the customer when the sale was made.
• The Debit Accounts Receivable column represents the amount of the sale transactions
indicated in the charge invoice.
• The Credit Sales column represents the amount of the sale transactions indicated in
the charge invoice. The source document for this journal is the Charge Invoice issued
by the business.
SALES ON
JOURNAL
ACCOUNT
COMMONLY USED IN SPECIAL JOURNAL
d. Purchase Journal (Purchase on Account Journal) – used to record all purchases of
inventory on credit (or on account). The Purchase journal or the Purchases on Account
Journal is used to record recurring transactions of purchases on account. The source
documents for purchase journal are the invoices from the supplier of the company. The
following illustrate the format of a Purchase Journal:
• The date of the transaction is entered in the Date column.
• A brief explanation of the transaction is entered in the description column or the name of the
supplier
• The column titled Ref. (which stands for Reference) which is left blank when the journal entry
is made. This column is used later when the journal entries are transferred to the ledger
accounts.
• The Charge Invoice Number or Sales Invoice Number represents the identifying number of the
source document issued by the supplier when the items, goods or merchandise were
delivered to the company when the purchase was made.
• The Debit Purchases column represents the amount of the goodspurchases as indicated in
the charge invoice from the supplier
• The Credit Accounts Payable column represents the amount of the goodsor items purchased
on credit from the supplier. The amount is indicated inthe charge invoice issued by the
supplier.
PURCHASE
JOURNAL
LEDGER
• The ledger refers to the accounting
book in which the accounts and
their related amounts as recorded
in the journal are posted
periodically. The ledger is also
called the “book of final entry‟
because all the balances in the
ledger are used in the preparation
of financial statements. This is also
referred to as the T-Account
because the basic form of a ledger
is like the letter “T‟
TWO TYPES OF LEDGER
GENERAL LEDGER
The general ledger (commonly referred
by accounting professionals as GL) is a
grouping of all accounts used in the
preparation of financial statements. The GL)
is a controlling account because it
summarizes all the activities that have
taken place as recorded in its subsidiary
ledger.
FORMAT OF
GENERAL
LEDGER
• The account portion refers to the Account Title for example: Cash, Accounts
Receivable.
• The account number is an assigned number for each account title to
facilitate ease in recording and cross-referencing.
• The Date column identifies when the transaction happened.
• The Item or Explanation represents the source journal and the nature of the
transactions.
• The Journal Reference identifies the page number of the General or Special
Journal from which the information was taken.
• The Debit and Credit columns are used in recording the amount of
transactions from the general journal or special journal.
• The Balance Column represents the running balance of the Account after
considering the debit and credit amounts. If the running balance amount is
positive, the account has a debit balance whereas if it has a negative running
balance, the accounts has a credit balance.
Posting is the process of transferring information from the
journal to the ledger. Debits in the journal are now correspondingly
posted as debits in the ledger, and credits in the journal are
likewise posted as credits in the ledger. The steps in posting are
as follows:
a. From the journal, copy the Date of the transaction to the ledger.
b. Under the Journal Reference (J.R.) column of the ledger, copy
the page number of the journal.
c. Under the Debit column in the ledger, transfer the Debit amount
from the journal. Similarly, under the Credit column in the
ledger, transfer the credit amount from the journal.
d. After posting the amount to the ledger, write the Account
Number in the Posting Reference (P.R.) column on the journal.
TWO TYPES OF LEDGER
SUBSIDIARY LEDGER
• A subsidiary ledger is a group of like accounts
that contains the independent data of a specific
general ledger. A subsidiary ledger is created or
maintained if individualized data is needed for a
specific general ledger account.
• An example of a subsidiary ledger is the
individual record of various payables to
suppliers. The total amount of these subsidiary
ledgers should equal the balance in the
Accounts Payable general ledger
FORMAT OF
SUBSIDIARY
LEDGER
• The upper portion indicates the name of the vendor or supplier.
• The vendor number is an assigned number for each vendor as
reference in keeping the records of a supplier.
• The Date column identifies when the transaction happened.
• The Item or Description Column describes the nature of
transaction.
• The Reference identifies the page number of the general our
special journal from which the information was taken.
• The Debit and Credit columns reflect the various effects of
every transaction to the record of the supplier or vendor.
• The Balance column provides the running balance of every
supplier. Take note that the total running balance for all
subsidiary ledgers should equal the Accounts payable general
ledge
The purpose of keeping Subsidiary Ledgers is
for accuracy and efficiency. They aid us in
keeping accurate records. Since the total of a
certain subsidiary ledger must agree with the
balance shown in the general ledger account, this
system helps us find mistakes. It provides an
internal control over record keeping. Today,
computerized accounting information systems
use the same method to store and total amounts,
but it takes a lot less time.
JOURNAL AND LEDGER
BOOKS OF
ACCOUNTS

JOURNAL LEDGER

GENERAL SPECIAL SUBSIDIARY

GENERAL
JOURNAL JOURNAL LEDGER
LEDGER

CASH CASH
SALES PURCHASE
RECEIPT PAYMENT
JOURNAL JOURNAL
JOURNAL JOURNAL
Example:
You are required to pass journal entries. Use the following transactions.
• On April 1, 2022, Jenny deposited Php 3,000.00 of her personal funds into
the business bank account to help get the business up and running.
• On April 15, 2022, Jenny secured a business loan from her bank for the
business for Php 7,000.
• On April 21, 2022, Jenny had to purchase more vases from Vase Co. these
were bought on credit to the values of Php 250.00.
• On April 23, 2022, Jenny took Php 150.00 to buy groceries for home.
• On April 27, 2022, Jenny took Php 90.00 to pay the vet for hew cat’s
vaccination.
• On April 30, 2022, the bank took their first loan re-payment of Php 325.00.
SEATWORK 1
Fundamentals
of ABM1
WELCOME
TO:
LESSON FIVE
Who do you think is/are
involved in the
preparation of the
financial report?
BRANCHES OF
ACCOUNTING
PICPA
- a.k.a. “Philippine Institute of Certified
Accountants”
- An association of Certified Public Accountants
engaged in the various fields of accounting.
PICPA classifies theses field or branches of
accounting into 4 main sectors namely:
a. Public Accounting
b. Private Accounting (commerce and
industry)
c. Government Accounting
d. Accounting Education
SECTORS OF
ACCOUNTING

PUBLIC ACCOUNTING
•External Auditing
•Tax Preparation and Planning
Service
•Management Advisory
Services
SECTORS OF
ACCOUNTING

PRIVATE ACCOUNTING
•Financial Accounting
•Cost Accounting
•Budgeting
•Account Information System
•Tax Accounting
•Internal Auditing
SECTORS OF
ACCOUNTING

GOVERNMENT ACCOUNTING
•It is a system used
in government
offices to record
and report financial
transactions.
SECTORS OF
ACCOUNTING

ACCOUNTING EDUCATION
• Responsible in training future accountants. It
engages in teaching accounting, financial
management, taxation, and other related
business courses.
• Commission on Higher Education (CHED):
“should possess educational qualification,
professional experiences, classroom and
teaching ability, computer literacy, scholarly
research productivity, and other attributes
that are essential for the successful conduct
of a professional accounting program.”
BRANCHES OF
ACCOUNTING
BRANCHES OF
ACCOUNTING

FINANCIAL ACCOUNTING
•Focused on the recording
of business transactions
and the periodic
preparation of reports on
financial position and
results of operations.
BRANCHES OF
ACCOUNTING

MANAGEMENT ACCOUNTING
• Incorporates cost accounting
data and adapts them for
specific decisions which
management may be called upon
to make. MA system in
corporates all types of financial
and non-financial information
from a wide range of sources.
BRANCHES OF
ACCOUNTING

GOVERNMENT ACCOUNTING
•Concerned with the
identification of the sources
and uses of resources
consistent with the
provisions of city, municipal,
provincial or national laws.
BRANCHES OF
ACCOUNTING

AUDITING
•An independent examination
on the fairness and reliability
of the reports that
management submits to
users outside the business
entity.
BRANCHES OF
ACCOUNTING

TAX ACCOUNTING
•Includes the preparation of
tax returns and the
consideration of the tax
consequences of proposed
business transactions or
alternative courses of action
BRANCHES OF
ACCOUNTING

COST ACCOUNTING
•It deals with the collection,
allocation and control of the
cost of producing specific
goods and services. One of
the main sub-branches of
management accounting.
BRANCHES OF
ACCOUNTING

ACCOUNTING EDUCATION
•Deals with the promulgation
of accounting knowledge to
various interested parties
that will aid them in
achieving their individual
goals.
BRANCHES OF
ACCOUNTING

ACCOUNTING RESEARCH
•Deals with the
creation of new
knowledge.
3 TYPES OF
BUSINESS ORGANIZATIONS

Service businesses - Manufacturing

provide services to Merchandising
businesses - turn basic
customers rather businesses - sell to
inputs into products
than products. customers products
which are sold to
they buy from other
consumers.
businesses.
FORMS OF BUSINESS
ORGANIZATIONS
1. Sole
Proprietorship
2. Partnership
3. Corporation
FORM 1
SOLE PROPRIETORSHIP
It is a one-person business. The owner has full control
over the finances and operations and decides alone.
Advantages:
a. Tax preparation is faster. Simply file an individual income tax return including
losses and profits to your business. Your personal and business income is
considered the same and the tax implications for self-employed individuals would
apply.
b. Sole proprietorship has lower start-up costs.
c. Handling money for the business is easier.
d. Sole proprietorships have the least government rules and regulations that affect
them.
e. The sole proprietor can own the business for as long as he/she wants, and when
he/she wants to move out, he/she can cash in and sell the business.
f. Even in common practice, the sole proprietor can pass the business down to
FORM 1
SOLE PROPRIETORSHIP
It is a one-person business. The owner has full control
over the finances and operations and decides alone.
Disadvantages:
a. The sole proprietor is personally liable for all debts and
actions of the enterprise.
b. There is lack of financial control because of looser
structure of sole proprietorship.
c. There could be difficulty in raising capital.
FORM 2
PARTNERSHIPS
It is a business relationship between two or more people. It refers to
an arrangement where individuals share a business venture's profits
and liabilities. The partners give feedback on how to use the capital
and other critical strategic decisions that may provide different
perspectives.
Advantages:
a. Partnership business lacks formality as compared with managing a
limited company or corporation.
b. It is easy to start. The partnership may be created either verbally
or in writing.
c. You share the burden. You have companion and support.
d. Every partner would add his/her own expertise, skills, experience,
and connections to the business, thus giving it a greater chance of
success.
FORM 2
PARTNERSHIPS
It is a business relationship between two or more people. It refers to
an arrangement where individuals share a business venture's profits
and liabilities. The partners give feedback on how to use the capital
and other critical strategic decisions that may provide different
perspectives.
Advantages:
f. There is privacy. The business deals may be kept confidential by
the partners.
g. The partners own and control the business.
h. The more partners there are, the more funds are available in the
company, which can be used for possible expansion. Its borrowing
capacity is also likely to be higher.
i. There is an easy access to profits in a business partnership. The
partners just have to divide the profits.
FORM 2
PARTNERSHIPS
It is a business relationship between two or more people. It refers to
an arrangement where individuals share a business venture's profits
and liabilities. The partners give feedback on how to use the capital
and other critical strategic decisions that may provide different
perspectives.
Disadvantages:
a. The business does not have any independent legal status.
b. The business has no separate legal personality, so the partners are
personally liable for the debts and losses incurred.
c. The partnership business often seems to lack the sense of prestige
more closely associated with a corporation.
d. A partnership will often find it more difficult to raise money than a
corporation.
e. There is a potential of differences and conflicts.
FORM 2
PARTNERSHIPS
It is a business relationship between two or more people. It refers to
an arrangement where individuals share a business venture's profits
and liabilities. The partners give feedback on how to use the capital
and other critical strategic decisions that may provide different
perspectives.
Disadvantages:
f. Decision-making can be slower because there is a need for
consultation among partners.
g. The profit must be shared among the partners.
h. It may require a lot of time and energy thus may affect life-work
balance.
i. The profits earned by the partnership will be translated to income
on the individual partners. Thus, they are subject to income tax in the
financial year in which they are made.
FORM 3
CORPORATIONS
It is an entity created by law that is independent and distinct from
its owners and relies on the corporate laws of the state in which it is
incorporated to continue its existence. Corporations have an
advantage in generating money for the company. It can raise funds by
selling shares of stocks. It files taxes separately from its owners.
Advantages:
a. The liability of the shareholders of a corporation is
limited up to the amount of their investments.
b. A publicly held corporation may sell shares or issue
bonds to raise substantial amounts.
c. It is easy for a shareholder to sell shares in a
corporation.
d. A corporation’s life has no limit, ownership can pass
through many
FORM 3
CORPORATIONS
It is an entity created by law that is independent and distinct from
its owners and relies on the corporate laws of the state in which it is
incorporated to continue its existence. Corporations have an
advantage in generating money for the company. It can raise funds by
selling shares of stocks. It files taxes separately from its owners.
Disadvantages:
a. The corporation pays taxes on its income
depending on its type and the shareholders pay
dividend taxes, so income gets taxed twice.
b. The management team of a corporation can
operate the business without any real oversight
from the owners.
QUIZ
REVIEW!
TYPES OF
BUSINESS
ORGANIZATION
- SERVICE’S BUSINESS

- MERCHANDISING BUSINESS

- MANUFACTURING BUSINESS

FORMS OF
BUSINESS
ORGANIZATION
- SOLE-PROPRIETORSHIP
- PARTNERSHIPS
- COOPERATION