Accounting Lesson 1to 3
Accounting Lesson 1to 3
Accounting Lesson 1to 3
COURSE OUTCOMES :
In this course, you should be able to:
1. Provide a basic understanding of the theories, concepts and practices
used in financial accounting.
2. Analyze business transactions.
3. Produce journal entries to prepare three financial statements.
4. Use information from the financial statements in making managerial
decisions.
Lesson 1
Basics of Accounting
I. Leaning Outcomes
The learners should be able to:
1. define accounting;
2. describe the nature of accounting;
3. differentiate Bookkeeping and Accounting;
4. explain the functions of accounting in business;
5. illustrate the fundamental business model;
6. differentiate the types of business organizations; and
7. identify the different types of businesses and the activities they are
engaged in.
II. Pre-Assessment
ENGAGE
Mr. Turtle is diligent and has excellent cooking skills but is very shy
and timid. No wonder Mr. Turtle is still single at age 40.
Mr. Snake is very intelligent and cunning. But unlike Mr. Turtle and Mr.
Monkey, Mr. Snake is cold as ice and lazy. No wonder Mrs. Snake left him.
One day, Mr. Turtle and Mr. Monkey decided to put up a fast food
restaurant. Mr. Turtle was in-charge of the cooking while Mr. Monkey did the
marketing.
When Mr. Snake heard about this, he offered himself to be the business'
cashier and bookkeeper. With his slyness, he was able to make Mr. Turtle and Mr.
Monkey accept him as co-owner of the business for a very minimal amount of
investment.
After years of operation, the business has gained considerable growth. The
business even received recognition from various organizations for its excellence;
However, Mr. Turtle and Mr. Monkey, the founders of the business, have never
tasted yet the fruits of their labor in monetary terms. They got frustrated,
which eventually led them to cease their operations and call it quits.
----The End----
Question:
What are the factors that contributed to the closure of the business?
EXPLORE
a. Service (5 businesses)
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b. Merchandising (5 businesses)
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c. Manufacturing (5 businesses)
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d. Cooperative (5 businesses)
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EXPLAIN
“Language of business”
Savings – the process by which individuals and groups set aside rights
to present consumption in exchange for rights to future consumption.
1. First, the investors provide the required capital for the business.
The cash investment will then be held in a bank account.
The model illustrated the way money flows around a business and provides
the basis of accounting. To manage a business effectively it is important
to know how the cash has been spent and how profitable the products or
services have been to the business. The availability of this historic
information helps management to make judgements on how to improve the
performance of a business.
TYPES OF BUSINESS
Although the fundamental business model does not vary, there are
infinite ways of applying it to provide the range of products and services
that make up the business world. However, the range of products and services
can be summarized in seven broad categories, they are as follows:
EXTEND
EVALUATE
V. Topic Summary
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.
The range of products and services can be summarized in seven broad
categories: Service, Trading/Merchandising, Manufacturing, Raw
Materials, Infrastructure, Financial and Insurance.
Sole Proprietorship. This business organization has a single owner
called the proprietor who generally is also manager. It tends to be
small service-type (e.g. physicians, lawyers and accountants) business
and retail establishments. The owner receives all profits, absorbs all
losses and is solely responsible for all debts of the business.
Partnership. A business owned and operated by two or more persons who
bind themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves. Each
partner is personally liable for any debt incurred by the partnership,
except limited partner.
Corporation. A business owned by its stockholders. It is an artificial
being created by operation of law, having the rights of succession and
the powers, attributes and properties expressly authorized by law or
incident to its existence. The stockholders are not personally liable
for the corporation’s debt.
Cooperative. A business owned by members. A cooperative is an autonomous
and duly registered association of persons, with a common bond of
interest, who have voluntarily joined together to achieve their social,
economic, and cultural needs and aspirations by making equitable
contributions to the capital required, patronizing their products and
services and accepting a fair share of the risks and benefits of the
undertaking in accordance with universally accepted cooperative
principles.
VI. Post-Assessment
I. Multiple Choice:
1. This is a process of identifying, recording and communicating economic
information that is useful in making economic decisions.
a. Accounting c. Auditing
b. Bookkeeping d. Marketing
II. Case
Questions:
1. What form of business is Professor Rodrigo proposing?
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Lesson 2
Fundamental Concepts and Principles of Accounting
I. Learning Outcomes
The learners should be able to:
1. identify the basic purpose of accounting;
2. differentiate Economic Entity versus Business Entity;
3. identify the functions of accounting and the users of accounting
information;
4. explain the varied accounting concepts and principles;
5. solve exercises on accounting principles as applied in various
cases;
II. Pre-Assessment
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PURPOSE
UNDERLYING FUNCTIONS
ASSUMPTIONS
Accounting
PRINCIPLES USERS
FUNDAMENTAL
CONCEPTS
ENGAGE
INSTRUCTION: Find the ten (10) words related to accounting. The word read
forward, backward, up, down, diagonally, but always in straight line never
skipping letters. Circle the word you find.
A C C R U A L B E T T E R E A M E N T S
S C Y S T E M A B T I C A M L W A Y S T
H A C P P Y B I R C T H D P A Y T O Y O
E X P O E N S E R E D C O L G N I T I O
N P R I U E N C I P L R E O A D E Q U A
T E B C O N S I S T E N C Y A S I S C H
A C T E R T T I S T I C F E G S C A R E
E R O P P I O I R T U N I E H T I E S Y
C O M M E T A N N U A L R S I J C E A P
N D I N D Y U S T G R Y P U B K L I C E
P R A C T I C E T E O D O C I L O T U R
O A S O C A A T H E A R I N E M P A C I
A T A N G J U N A L M A Y E T A U O Z O
O L E E C O N O M I C O B A G A L A Y D
C E A P R A C T I C E Z A H J A N E P I
A L O M A L I S O N D R A U S T R A I C
T E O D O C I O T U O Z O S G T H O N I
L Y I N T H P R A C T I C E E P H I L T
C O M M E T A N N M A T E R I A L I T Y
P R A C T I C E I P P E N S M Y D E A R
EXPLORE
EXPLAIN
FUNCTIONS OF ACCOUNTING
recognition
Identification. The accounting
of business activities as
process of recognition or non-
accountable events or whether has
accounting relevance.
Internal Users are those who make decisions directly affecting the
internal operations of the business.
Fraud - the act of making money by making people believe something which is not true
True.
FUNDAMENTAL CONCEPTS
Entity Concept
The most basic concept in accounting is the entity concept. An
accounting entity is an organization or a section of an organization that
stands apart from other organizations and individuals as a separate economic
unit. Simply put, the transactions of different entities should not be
accounted for together. Each entity should be evaluated separately.
Periodicity Concept
An entity’s life can be meaningfully subdivided into equal time periods
for reporting purposes.
2. Quarterly
4. Annual
Fiscal Year – annual reporting that ends other than December
31
Inflation – a greater increase in the supply of money or credit than in the production
of goods and services, resulting in higher prices and a fall in the purchasing power of
money.
BASIC PRINCIPLES
Accounting practices follow certain guidelines. The set of guidelines and
procedures that constitute acceptable accounting practice at a given time is
GAAP, which stands for generally accepted accounting principles. In order to
generate information that is useful to the users of financial statements,
accountants rely upon the following principles.
Objectivity Principle. Accounting records and statements are based on the most
reliable data available so that they will be as accurate and as useful as
possible. Reliable data are verifiable when they can be confirmed by
independent observers.
Historical Cost. This principle states that acquired asset should be recorded
at their actual cost and not at what management thinks they are worth as at
reporting date.
Actual Cost – the total cost of producing or buying an item, which may
include, e.g. its price plus the cost of delivery or storage.
Consistency Principle. The firms should use the same accounting method from
period to period to achieve comparability over time within a single
enterprise. However, changes are permitted if justifiable and disclosed in the
financial statements.
UNDERLYING ASSUMPTIONS
Accrual Basis
Financial Statements are prepared on the accrual on the accrual basis of
accounting and not as cash or its equivalent is received or paid. Under this
assumption, the effects of transactions and other events are recognized when
they occur and they are recorded in the accounting records and reported in the
financial statements of the periods to why they relate.
In short, transactions are recognized when “Revenue as they earned, even not yet
received and; Expenses as they incurred, even not yet paid.
In cash basis accounting, however, does not record a transaction until cash is
received or paid. Generally, cash receipts are treated as revenues and cash payments
as expenses.
Going Concern
Financial statements are normally prepared on the assumption that an
enterprise is a going concern and will continue in operation for a foreseeable
future. It is assumed therefore that the enterprise has neither the intention
nor the need to liquidate its operations.
CHARACTERISTICS
CAREER OPPORTUNITIES
The professional accountant is presented with a myriad of opportunities.
The demand for accounting services has increase with the increase in number,
size and complexity of businesses. The accountant may be engaged in any of
the following areas of competence:
1. Public Practice
3. Government Service
4. Education/Academe
EXTEND
EVALUATE
I. Case: Mr. ABC acquired his business for P3 million. The fair market
value of the business is P5 million. Will it be useful if accounting
records were adjusted corresponding to the fair market value amount of
the business? Justify your answer.
II. Essay
V. Topic Summary
The purpose of accounting is to provide quantitative information
about economic entities intended to be useful in making economic
decisions.
The users of accounting information are: managers, employees,
officers, internal auditors, investors, lenders, suppliers and other
trade creditors, customers, government and other agencies and
public.
Accounting concepts and principles (assumptions or postulates) are a
set of logical ideas and procedures that guide the accountants in
recording and communicating economic information.
The most basic concept of accounting is the entity concept.
An entity’s life is subdivided into equal time periods for reporting
purposes: Monthly, Quarterly, Semi-annually and Annually.
In accrual basis of accounting, transactions are recognized when
“revenues are earned even not yet received/collected, and expenses
are incurred even not yet paid”.
Under the going concern assumption, an entity is viewed as
continuing in business for the foreseeable future. General purpose
financial statements are prepared on a going concern basis, unless
management either intends to liquidate the entity or to cease
operations, or has no realistic alternative but to do so.
Accountancy qualifies as a profession because it possesses the
following attributes:
All members of the accountancy profession are Certified Public
Accountants, which means they have earned a Bachelor of Science in
Accountancy (BSA) degree and have passed the CPA Licensure
Examinations.
CPAs have their own body of language. They use terminology
peculiar to the profession (e.g. debits and credits).
CPAs adhere to a Code of Ethics. This code upholds the CPA’s
responsibility to serve the public with competence and integrity.
The public, in return, expresses its confidence to CPAs by relying
on the financial statements they audit.
Like other professions, CPAs are members of a national
organization, the PICPA, whose role is to ensure the continued
improvement of the accountancy profession to meet the demands of
the times.
VI. Post-Assessment
Identify the following statements:
1. This refers to a set of logical ideas and procedures that guide the
accountant in recording and communicating economic information.
2. Under this concept, the business is treated separately from its owners.
Therefore, only the transactions of the business are recorded in the
accounting books.
3. Under this concept, the business is assumed to continue to exist for an
indefinite period of time.
4. Under this concept, assets are initially recorded at their acquisition
cost.
5. Under this concept, some costs are initially recognized as assets and
recognized only as expenses when the related revenue is recognized.
6. This concept is an offshoot of the time period concept.
7. Under this concept, the accountant observes some degree of caution when
exercising judgements needed in making accounting estimates under
conditions of uncertainty.
8. Under this concept, the life of the business is divided into series of
reporting period.
9. This concept guides the accountant when applying accounting principles.
10. This concept is related to both concepts of materiality and cost-
benefit.
VII. References
Ballada, Win and Susan Ballada. (2018). Basic Accounting Made Easy 21st Edition.
Manila: Domdane Publishers and Made Easy Books.
Ballada, Win and Susan Ballada. (2019). Accounting Fundamentals Made East 2019
Issue- 5th Edition.Manila: Domdane Publishers and Made Easy Books.
Lopez, Rafael M. Jr. (2008). Fundamentals of Accounting Millennial Edition. Davao
City: MS Lopez Printing and Publishing.
Ledesma, Ester L. (2014). Financial Accounting Theory Review Booklets. Manila: CRC-Ace
The Professional CPA Review School.
Rante, Gloria Aradaniel. (2013). Accounting for Service Entities. Mandaluyong City:
Millenium Books, Inc.
Ferrer, Rodiel C. and Millan, Zeus Vernon B. (2017). Fundamentals of Accountancy,
Business and Management Part 1. Baguio City: Bandolin Enterprise.