Basic Financial Accounting and Reporting

Brief History of Accounting  In simple terms, bookkeeping is just a

step in accounting, accounting is the
14th-17th Century – Renaissance Period
whole process itself, but bookkeeping is
Single Entry pa rati ang gamit part of that accounting process.

 Fra. Luca Pacioli – Father of Accounting, What is Accounting?

Europe, Italy
 Accounting is a service activity. As an
*Binasag niya ang single entry noon dahil sabi accountant, we are giving our clients an
niya na may 2 lagi naapektuhan which is; accounting service.
 Quantitative information - numbers;
Double Entry Bookkeeping
information that is financial in nature
In = Out (how much).
 used in making economic decisions and
Debere = Credere (Latin Word) choices in alternative courses of action.
Debit = Credit  It is often called the “language of
business” because it serves as a
Left = Right communication tool for the owners,
A = L+E and managers of the company to
understand the operation of the
There’s already business back then, there are company better in financial terms.
some merchants and trading that happens Accounting as a language will
because there is civilization. Those merchants communicate to its owner on what
need record keeping and the art of record happened to their financial operation
keeping is accounting already. during the period.
 “art of recording, classifying, and
 Father of Accounting - Luca Bartolomeo
summarizing in a significant manner
de Pacioli an Italian Mathematician and
and in terms of money, transactions,
Franciscan Friar
and events, which are, in part at least,
 Book chapter about details of
of financial character, and interpreting
calculation and recording in business
the results thereof” (defined by AICPA
 Double entry bookkeeping (debit and
or American Institute of Certified Public
credit)
Accountants)
 In every transaction, there are two or
more accounts affected using debits Nature of Accounting
and credits.
 Art
What is Bookkeeping?  Financial
 Process
 is the recording process of accounts.
 Information System
Once you’re already done in recording
process, you can now enter to Users of Accounting Information
accounting process that will analyze and
interpret financial information and Internal Users - inside of the company that
prepare financial reports. makes decisions for it.

Owners, Managers

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Basic Financial Accounting and Reporting

External Users - seeks for the accounting ng business sa original price nila or acquisition
information. cost o yung tinatawag na “presyo noong binili
mo”) kung magkano ang pinambili mo ng bagay
Employees - (not literally inside) they are not
na yan nung time na yon, yun ang irerecord mo
internal users because they did not make
kahit anong mangyari.
decisions about the accounting information.
They are only curious if the company will last Full Disclosure Principles - Accountants should
and would sustain their desired salary. include all of the information needed so the
However, accountant employees are still readers of the financial statement will have
external users since they only make accounting informed judgment. Sundin kung ano ang nasa
information through the financial statements, accounting standard.
but the decision is still on the top positions like
Objectivity Principle – requires that accounting
owners and managers.
records should be based on reliable and
Employees, Investors, Creditors, Customers, verifiable data as evidence of transactions. Iwas
Suppliers, Tax Authorities, Government, General sa bias, kung anong nangyari sa transaction,
Public irecord mo.

Forms of Business Organizations Materiality Principle – dictates practicability to

rule over theory in determining valuation of an
Sole Proprietorship, Partnership, Corporation
item (irerecord lang natin yung mga item na
Cooperatives - common goals where they can material. For example, sumakay tayo ng jeep
benefit from each other. which is 10 pesos ang pamasahe, irerecord pa
ba natin? Ang sagot is either yes or no, it
Types of Business depends kung ano yung policy ng business
Service - provides service to generate income regarding these kinds of matter. Pero most of
the immaterial or mga maliit na perang
Merchandising - buying and selling of goods nagagastos sa business is pinapasok at
Manufacturing - purchase raw materials and nirereplenish gamit ang “Petty Cash Fund”) If
process then sell to customers (prepares what may impact ang misinformation na nangyari sa
they will sell) financial statements. Kapag ang decision mo
nagbago dahil sa item na yon, ibig sabihin the
Generally Accepted Accounting Principles item is material. If it changes your decision the
(GAAP) amount of it is material.
- are our guiding principles as accountants on Matching Principle – is the combined concept
how we are able to record transactions of Revenue Recognition (and Expense
appropriately. It helps for consistency and Recognition Principle para alam mo kung
uniformity of how we report things in kumikita ka o nalulugi ka (meaning, kapag nag
accounting. record ka ng transaction dapat double entry,
itong double entry na ‘to it only states na kapag
Generally Accepted Accounting Principles that
may debit ka, dapat may credit ka rin.
are still applicable and followed are:
Conservatism - choose kung saan mas dehado
Cost Principle – requires that assets should be
hindi ron sa mas magbebenefit sa gaganda
recorded at original or acquisition cost.
itsura ng financial statement to be so glamorous
(Meaning, kailangan mo irecord yung mga asset
go on the conservative side.

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Basic Financial Accounting and Reporting

Revenue Recognition – revenue should be Business/Accounting/Economic Entity Concept

recognized when earned – the business transactions are separated and
distinct from the owner’s other transactions (sa
(magrerecord ka ng revenue/income kapag nag
POV ng Accounting, kapag naglagay or invest si
perform ka ng service or nagbenta ka ng
owner ng pera at property sa business, hindi na
product kahit pa utang ito ng customer sa’yo)
sa kanya yun kundi pagmamay-ari na ng
Expense Recognition – expense should be business. In other words, may clear separation
recognized when incurred during same period and distinction ang business transaction at
as revenue is earned personal affairs ni owner.) Anything happening
in the business is not related personally to what
(magrerecord ka ng expense kahit hindi mo pa is happening on the owner.
nababayaran, for example, is yung pasweldo mo
sa mga trabahador. Nakapag-trabaho na sila sa Accrual Basis Accounting - revenue should be
business pero hindi mo pa binibigay sweldo nila) recognized when earned regardless of collection
and expenses should be recognized when
Consistency Principle/Time Period Principle – incurred regardless of payment. Records even
requires that accounting methods and the cash is not yet received and when it
procedures should be applied on a uniform happens regardless when it is paid.
basis from period to period.
Cash Basis Accounting - revenue is recorded
(so, gumagawa tayo ng financial statements when collected and expenses should be
from period to period. For example, from recorded when paid. Cash basis is not the
January to December or what we call Annual generally accepted principle today.
period dito na rin papasok yung tinatawag natin
na “CALENDAR YEAR” at “FISCAL YEAR”)

1. Calendar Year – annual period ending Qualitative Characteristics of Accounting

December 31. Information
2. Fiscal Year – is a period of any 12
1. Fundamental
consecutive months. Not on Dec 31 and
a. Relevance - kapag may effect sayo
adjusting entries.
relevant sayo.
3. Natural Business Year – 12 month
i. Predictive Value -
period that ends when the business
because of the items
activities are at the lowest level of the
that we reported we
annual cycle. (pinakamahina ang
are able to see what
benta/production/activities).
will happen in the
4. Interim Period – less than one year.
future
Going Concern – is the assumption that an ii. Confirmatory Value -
entity will remain in business for the future. (In May nangyari dati tapos
simple terms, hangga’t merong pera yung nilabas yung financial
business, hindi siya magstop ng operations. reports tapos naconfirm
Tuloy-tuloy lang.) Records transaction as if mo yung nangayari in
there is no closure. the past
b. Faithful Representation - should be
Monetary Unit Concept - Record transaction in complete, neutral (no bias like ),
Philippines PESO since you’re in the Philippines. free from error

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Basic Financial Accounting and Reporting

2. Enhancing – series of steps that gather process, summarize

a. Verifiability - the items in the financial data to produce meaningful information to
statements are verifiable dapat ganun communicate to users
din lalabas kapag cinompute ng another
1. Identification of Events to be
accountant. May supporting para
Recorded
maverify.
 Gather information, identify the events
b. Comparability - Intracomparability (we
on source documents.
are comparing our own financial
2. Transactions are Recorded in the
statements from different years).
Journal (Journalizing)
Intercomparability (we are comparing
our own financial statements to other General Journal - book of original entries,
companies within the same industries). chronological (first to last) order or records the
Dapat kahit anong company yan dapat entity’s transactions.
consistent ang reporting para maging
comparable. Chart of Accounts – listing of all accounts
c. Understandability - Kailangan yung and their account numbers in the ledger.
financial reports naiintindihan and (Guide).
dapat yung babasa ay may basic Billed – nagbigay ng statement na yun ang
knowledge ng business and accounting. nagastos nila (A/R).
d. Timeliness - quick dapat kung kailan
nangyari ang transaction irecord agad Vale – Cash advance of employees (Advances to
para timely. Employees.

Accounting Equation Office Supplies – short term use within 1 year.

Assets- anything that the business owns. Office Equipment – long term use more than 1
year.
*People (employees)- are not asset because
they have no specific amount to be put in and *Pwede maging asset ang mukhang expense,
the company don’t have control over them. kung papasok siya sa “Directly Attributed Cost”.
Directly na kailangan mo para magamit mo ang
Liabilities- obligations (utang) asset in a sense na directly attributed cost are
Equity- matitira, matatawag mo na iyo. cost needed in bringing the asset to their
location and condition for intended use.
Normal Balances Debit Credit
Drawing/ + - Loss on Flood – expense
Withdrawals 3. Journal Entries are Posted to the
Expenses + - Ledger
Asset + -
 grouping entity’s accounts. “Reference
Liabilities - +
Book” summarize transactions.
Capital/Equity - +
Organizes information by account; T-
Revenue - +
Account.

General Ledger – is the collection of all the

Accounting Cycle
account titles and summarizes of the
transaction has happen in an account.

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Basic Financial Accounting and Reporting

Cross Indexing in Posting Reference Used Supplies Unused/Remaining

Supplies
 page number of the journal should be *Nalalaman ang method na gagamitin based on
put in the posting reference of the the original/first entry.
ledger.
 account number of the ledger should be B. Deferred Revenue- tayo ang
put in the posting reference of the nakakareceive ng advance payment ng
journal. client. Tayo ang may utang ng service
na hindi pa narerender. By the time na
Steps on Posting: narerender na natin siya, naeearn na
I. Posting – transfer info from journal to natin siya as revenue. Liability to
ledger. Revenue.
II. Footing – adding all the debits and Original/First Entry
credits. Liability Method Income Method
III. Balancing – determine the balance of Cash Dr. Cash Dr.
the accounts. Unearned Income Cr. Income Cr.
4. Preparation of a Trial Balance Adjusting Entry
- list of all accounts with their respective Liability Method Income Method
debit and credit balances. Liability Dr. Income Dr.
- to check the equality of debit and credit Income Cr. Liability Cr.
on all the steps in accounting cycle na Used Revenue/ Unused Revenue/
nauna. Already Earned Not already Earned
5. Preparation of the Worksheet
including Adjusting Entries
C. Accrued Revenue- narender na ang
a. Adjusting Entries
service pero di pa bayad ni customer.
- end of accounting period before closing
Earn Revenue(/) Payment(X).
procedure to update the balances of
different accounts in the ledger an asset representing account to be collected
(Receivable). Service provided during the period
Kinds of Adjusting Entries
that are neither collected nor billed at the end
A. Prepaid expenses- nagbabayad tayo in of the period.
advance na nagiging expense natin dahil
D. Accrued Expense- may expense na pero
ginagamit natin sa mga susunod na
di pa nababayaran. Incur Expense(/)
buwan kumabaga nagiging pamabala
Payment(X).
natin sa susunod na panahon. Asset to
Expense. a liability representing account to be paid.
Expense incurred but not yet paid. (Salaries,
Original/First Entry
Utilities, Interest, Taxes).
Asset Method Expense Method
Asset Dr. Expense Dr. E. Asset Depreciation- ang mga asset
Expenses Cr. Asset Cr. through time ay naluluma o nasisira.
Adjusting Entry Nagdedepreciate.
Asset Method Expense Method
Expense Dr. Asset Dr. Factors of Depreciation (Things to Consider):
Asset Cr. Expenses Cr.

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Basic Financial Accounting and Reporting

1. Depreciable Amount – Cost of Asset less Write Off and Recovery

Residual Value
1. Write Off – actual na pagtatanggal ng
2. Residual Value – estimate amount if the
receivable kasi hindi na totoong
asset is at the end of its useful life.
nakabayad yung customer mo.
- Masasabi mong end na siya ng useful
life if hindi mo na siya magagamit doon Allowance for Doubtful Accounts Dr.
sa intended purpose para sa kaniya (or
scrap value/salvage value). Accounts Receivable Cr.
3. Useful Life – period of when an asset is 2. Recovery – ni-write off mo pero
expected to be available for use paglipas ng panahon ay nagbago ang
(estimated) or number of production or isip at nagbayad ang customer at
similar units expected to obtained nakakolekta ka.
*Not all Property, Plant, and Equipment doesn’t 2 Entries will do:
depreciate, because Land doesn’t depreciate.
Accounts Receivable Dr.

Allowance for Doubtful Accounts Cr.

Cash Dr.

Accounts Receivable Cr.

Normal Entry:

Depreciation Expense Dr.

b. Worksheet
Accumulated Depreciation Cr. - multi-column document sinusummarize
yung mga ginawa sa mga naunang
*Always minus the Accumulated Depreciation
steps. Helps to easily do financial
to the specific account (like equipment) to see
statements efficiently.
the carrying amount.
Profit and Loss - Income Statement (Revenue,
Nearest Month Method
Expenses)
Day 1-15 beginning of the month (treat as day
Financial Position - Balance Sheet (Asset,
1)
Liability, Contra Asset, Capital, Drawing)
Day 16-31 treat as end of the year
Net Income- Magkalayo
F. Uncollectible accounts- mga receivables
Net Loss- Magkalapit
o utang ng clients na baka hindi na natin
mareceive pa. Nagiging expense yon or 6. Preparation of the Financial
what we call bad debts/ Statements
uncollectible/doubtful expense. - communicated to the users. End
product or main output of the financial
Normal Entry:
accounting process.
Doubtful Accounts Expense Dr. - provide information about the financial
position, financial performance, and
Allowance for Doubtful Accounts Cr.
cash flows of an entity that is useful to a

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Basic Financial Accounting and Reporting

wide range of users in making economic Non-Current Liabilities = Mortgage - Loans

decisions.
*Okay lang magkabali-baliktad ang liabilities
1. Income Statement - Statement of dahil lahat sila utang
Comprehensive Income
Owner’s Equity = Reflects on ending capital in
Revenue – Expenses = Net Income or Net Loss statement of changes in equity.

2. Capital Statement - Statement of Changes in 4. Statement of Cash Flows

Equity
Operating Activities - related to net income
Capital, Beginning (expenses) activities na nagbibigay ng income sa
entity.
Add: Investment
– involves providing services, and producing and
Add: Net Income
delivering goods. Ang pera ay related sa
Less: Withdrawals mismong operation ng negosyo whether ito ay
pagpasok o paglabas ng pera.
Capital, Ending
Investing Activities - related to non-current
3. Balance Sheet - Statement of Financial asset like long term investment, property, plant,
Position and equipment.
a. Report Format – making and collecting loans, ikaw nagpautang.
Asset Pertaining to assets na investments mo sa
business, pang matagalan. Property and
Liabilities equipment and other productive assets.
Equity Financing Activities - income that is not in
b. Account Format operating activities/ debt investment

Asset Liabilities – obtaining resources from owners and

creditors. Pag uutang na hindi related sa
Equity business, hindi pang araw-araw sa operasyon
but rather sa mas malaking bagay pa. Like pag
utang upang pagpapatayo ng building mo para
Arranged in Liquidity sa business.

Liquidity – ability to be converted to cash easily. *Must be same on the cash reported in the
balance sheet.
Current Assets = Cash – Receivables/contra
accounts/Accrued Income – Prepaid Expenses

Non-Current Assets = Land/Property, Plants,

Equipment/contra accounts

*Wag paghiwalayin ang may mga contra

accounts

Current Liabilities = Payables – Accrued

Expenses – Unearned/Deferred Revenue

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Basic Financial Accounting and Reporting

7. Adjusting Journal Entries are – exact opposite of a related adjusting entries

Journalized and Posted made at the end of the period. Babaliktarin
8. Closing Journal Entries are Journalized lang.
and Posted
These are the only accounts to be reversed:
– bringing the temporary/nominal accounts to
1. Accrued Income
zero balance by transferring them to the capital
2. Accrued Expense
or owner’s equity.
3. Prepaid Expense (Expense Method)
Temporary/Nominal Accounts: Income, 4. Unearned Income (Income Method)
Expenses, Withdrawals.
*To know the method, see the first/original
Permanent/Real Accounts: Asset, Liabilities, entry.
Capital.
Baliktarin ang ginawang adjusting entry noong
*Para hindi mapahalo sa next accounting dec 31 if that’s the end of accounting period,
period. Yung income, expenses, at withdrawals gagawin agad ang reversing entry sa first day of
na yon ay para roon lang sa last accounting accounting period which is kunwari Jan 1.
period. Balikatrin lang mismo yung sa adjusting entry.
Para pagdating ng date kung kailan pa yon
*Kailangan mo pa rin sa susunod na accounting
babayaran o gagawin, hindi mo na iisipin yung
period ang asset, liabilities, at capital.
adjusting na ginawa mo, kundi irerecord mo
Procedure: yung transaction na parang walang nangyari.

1. To close all credits (income) to income

summary accounts.
2. To close all debits (expense) to income
summary accounts.
3. To close income summary account to
capital.
4. To close withdrawal account to capital.

Income summary account – nabuhay lang

because of closing entries. Dito napupunta lahat
para magclose, summary dahil nagsasama-sama
lahat sila rito. Temporary/suspense account.

9. Preparation of a Post-Closing Trial

Balance

– final trial balance. Test the equality of

accounts. Verifies all debits equal the credits.
Contains only assets, liabilities, and equity
accounts since revenues, expenses, and
withdrawals are already closed.

10. Reversing Journal Entries are

Journalized and Posted (OPTIONAL)

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Basic Financial Accounting and Reporting

7. Auditing – giving opinions with regards

to the fairness of the financial
statements. it needs for the data to be
Based on Accounting Your Life with Ms. Beth more reliable.
8. Government Accounting – sources and
*From recorded vids uses of funds. Allocation.
Career Opportunities Qualifications of Examinee in CPALE:
1. Public Practice – involved in auditing,  Filipino Citizen (PSA)
taxation, and also for management
 Good moral character (from OSSA)
advising services.
 Holder of degree in BS Accountancy
2. Commerce and Industry – working in
(Diploma and TOR)
multinational firms and local firms.
 Not convicted of any criminal offense
(e.g., sm, san miguel, finance manager)
involving moral turpitude (NBI
3. Government Service – work in BIR,
Clearance)
Commission on audit, bangko sentral,
department of budget and Fundamental Principles
management.
 Integrity – being honest and truthful.
4. Academe – professor
 Objectivity – free from bias, neutral,
Branches of Accounting not in favor to someone. Verifiable
data.
1. Bookkeeping – gathering data,
 Professional Competence and Due Care
collection, and recording those data in
– continuing professional development/
book of original entry.
knowledge and skills.
2. Financial Accounting – after the
 Confidentiality – should not be shared.
preparation of financial statement.
 Professional Behavior – abide laws and
Broader of coverage and should be
regulations. Obey policies of the
based on GAAP.
government.
3. Financial Management – don’t use
GAAP, more on management and Generally Accepted Accounting Principles
control of accounts in financial
statement. - Rules, practices, and standards followed
4. Cost Accounting – recording of cost in preparation and presentation of
data. More on data that affects financial statements. Like laws.
manufacturing and production. Criteria for GAAP:
5. Management Accounting – data from
cost accounting are used in 1. Relevance -meaningful in making
management accounting in making decisions.
decisions for the benefit of the 2. Objectivity – neutral, reliable and
company. Involves both financial and verifiable of data.
cost data. 3. Feasibility – can be applied not costly
6. Taxation – tax to be recorded and and complex. Kung kaya iapply kapag
returns. ginagawa.

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Basic Financial Accounting and Reporting

Basic Principles: - Quantitative information, reported in

statement of financial position and
1. Objectivity – reliable and verifiable,
income statement.
always have supporting documents.
2. Historical Cost – actual cost. Kung Financial Position: Asset, Liability, Equity
anong cost ng item na yon noong binili (Balance Sheet)
ay yun ang irerecord.
Financial Performance: Income, Expense
3. Revenue Recognition Principle – income
(Income Statement)
is recognized when earned regardless of
cash is received.
4. Expense Recognition Principle –
expense is recognized or recorded Asset – company owned, results of past events,
when incurred regardless of when paid. economic resource that has the potential to
5. Adequate Disclosure – kapag ang produce economic benefits.
information ay magiging cost para Essential Characteristics of Asset
mabago ang decision dapat
nakadisclose or sabihin siya. If the
information affects our decision, it
should be disclosed.
6. Materiality – makakaapekto ba siya sa
decision mo if malaki ang value ng isang
bagay.
7. Consistency Principle – susundin ang
method na ginawa noong past period
like first in, first out, straight line
depreciation. Hindi magiging
- Right to receive cash
comparable ang financial statement
- Right over physical object
kung pabago bago ng accounting
- Right established by contract
method.
Liability – present obligation as a result of past
Fundamental Concepts
events
1. Entity Concept – business is separate
and distinct from the owner.
2. Periodicity Concept – We see the
business will live forever. Divided into
periods.
3. Stable Monetary Unit Concept – peso
considers as stable. Record transactions
in peso.
4. Going Concern – the company will exist
indefinitely.

Elements of Financial Statements

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Basic Financial Accounting and Reporting

a. Obligation is a duty or responsibility

that an entity has no practical ability to
avoid. Legal or constructive.
b. Obligation to deliver noncash resources.
Obligation to provide service.
c. Result of past events

Capital – difference between assets and

liabilities, a net worth.

Income – increase in assets or decrease in

liabilities that result in increases in equity.
Revenue and gains.

Classification of Income:

2. Gain from disposal of noncurrent asset. Hindi

purpose na pagbenta. Binenta nang mas mahal.

Expense – decreases in assets or increases in

liabilities that result in decreases in equity.
Based on transactions of business.

2. Loss from disposal of noncurrent asset.

Binenta nang mas mababa.

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