ACCOUNTING

FOR
NON-ACCOUNTANTS

Atty. Rheneir P. Mora, CPA

Manager, R.P. Mora Accounting & Law Office
Director, Next Generation Security Agency, Inc.
What is Accounting?
 M

Importance of Accounting
is a
Accounting
Accounting Identifies
Identifies
system that

Records
Records

information
Relevant
Relevant Communicates
Communicates
that is

Reliable
Reliable
to
tohelp
helpusers
usersmake
make
Comparable better
betterdecisions.
decisions.
Comparable
3
 The accounting
process

Accounting
links decision
makers with Accounting
Economic
economic
activities information
activities and
with the results of
their decisions.

Actions
(decisions)
Decision makers
 M

Accounting Activities

Identifying Recording
Business Business
Activities Activities

Communicating
Business
Activities

5
 M

Users of Accounting
Information
External Users Internal Users

Banks Media Board Members Departments

Bond Holders External Auditors Administrators Budget Officers
Governments Grantors Internal Auditors Controllers

6
 S

Generally Accepted
Accounting Principles
Financial
Financialaccounting
accounting practice
practiceisisgoverned
governedby
by
concepts
conceptsand
andrules
rules known
known asas generally
generallyaccepted
accepted
accounting
accountingprinciples
principles (GAAP).
(GAAP).

Relevant
Relevant Affects
Affectsthethedecision
decisionof
of
Information
Information its
itsusers.
users.

Reliable
Reliable Information
Information Is
Istrusted
trustedby
by
users.
users.

Comparable
Comparable Is
Ishelpful
helpfulin
incontrasting
contrasting
Information
Information organizations.
organizations.
7
 Information is Power
What do you want to know about your business?

How much money am I bringing in? Sales

How much am I spending? Expenses

Is my business making any money? Sales Expenses

Whats the value of what my

Assets
business owns?
How much does my business owe to Liabilities
others?
What is my business worth? Equity
 M

Accounting Equation

Assets
Assets = Liabilities
Liabilities + Equity
Equity

Liabilities
Assets & Equity

9
 Balance Sheet

Shows the assets,

liabilities, and
equity at a given
moment in time
Assets =
Liabilities + Equity

Equity also referred to

as Owners Equity
or Retained Equity.
 Major Account Types
Assets
Current (cash, inventory, Everything your
accounts receivable, etc.) business
Fixed (property, vehicles, possesses
machinery, etc.)
Liabilities
Current (within one year) Everything your
business has
Long Term
borrowed
Equity
Contributed capital: owners Everything your
investment business owns
Retained earnings (profits)
Assets = Liabilities + Equity
 M

Assets

Cash
Cash
Accounts
Accounts Notes
Notes
Receivable
Receivable Receivable
Receivable
Resources
Resources
owned
owned or
or
Vehicles
Vehicles controlled
controlled Land
Land
by
by aa school
school

Store
Store Buildings
Buildings
Supplies
Supplies Equipment
Equipment
12
EQUITY
 M

Liabilities

Accounts
Accounts Notes
Notes
Payable
Payable Payable
Payable

Creditors
Creditors
claims
claims on
on
assets
assets
Benefits
Benefits Wages
Wages
Payable
Payable Payable
Payable

15
 M

Equity
Restricted
Restrictedoror
Unrestricted
Unrestricted
Equity
Equity

Owners
Owners
claim
claim
on
on
assets
assets
Revenues
Revenues Expenses
Expenses

16
 Cash Flow: Money In and Money Out
Money In Money Out

Sales
Expenses

CUSTOMERS YOUR
BUSINESS VENDORS

Services /
Products Services /
Out Products
In
Income Statement

Summarizes the
revenue and
expenses of a
company over a
period of time
Also called a
Profit & Loss or
P&L
INCOME STATEMENT
Revenue - Cash inflows
or other enhancements of
assets of an entity during
a period from delivering
or producing goods,
rendering services, or
other activities that
constitute the entity's
ongoing major operations.
 INCOME STATEMENT
Expenses - Cash outflows or other
using-up of assets or incurrence of
liabilities during a period from delivering
or producing goods, rendering services,
or carrying out other activities that
constitute the entity's ongoing major
operations.
 M

Expanded Accounting Equation

Equity
Assets
Assets = Liabilities
Liabilities + Equity
Balance
Balance

Equity
Equity
Balance + Revenues
Revenues _ Expenses
Expenses
Balance

Caution!
If this equation yields zero, you have a
Deficit Equity balance.
21
Debit and credit rules
 M

Debits and Credits

A T-account represents a ledger account and is a

tool used to understand the effects of one or more
transactions.

These abbreviations are remnants of the

18th-century recordkeeping practices where
the terms debitor and creditor were used
instead of debit and credit.
23
 M

Double-Entry Accounting

Assets
Assets = Liabilities
Liabilities + Equity
Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

+ - - + - +

24
 M

Transaction Analysis
Equation
The accounting equation must remain in
balance after each transaction.

Assets
Assets = Liabilities
Liabilities + Equity
Equity

25
 TRANSACTIONS AND THE
ACCOUNTING EQUATION
All business transactions, from the simplest to the
most complex, can be stated in terms of the resulting
change in the three basic elements of the accounting
equation. Before a transaction can be recorded in the
book of accounts, it must be analyzed into its debit and
credit elements. The following questions will be helpful in
analyzing a business transaction;
Which item (items) is/are affected Assets, Liabilities,
Capital?
How is each item affected it is increased or
decreased?
According to the rules of debit and credit, is the increase
or the decrease in the item to be debited or credited?
What account titles should be used to record the debit
or credit item?
 S

Journalizing and Posting

Transactions
Assets
Assets = Liabilities
Liabilities + Equity
Equity

Step 1: Analyze
Step 2: Apply double-
transactions and source
entry accounting
documents.

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 4: Post entry to ledger Step 3: Record journal entry

27
 DOUBLE-ENTRY BOOKKEEPING
SYSTEMS
Debits and Credits vs. Account Types
Account Type Debit Credit
Assets Increases Decreases
Liabilities Decreases Increases
Income Decreases Increases
Expenses Increases Decreases
Notice that for every increase in one account, there
is an opposite (and equal) decrease in another.
That's what keeps the entry in balance. Also notice
that debits always go on the left and credits on the
right.
 S

Transaction Analysis
Sold obsolete school computer
receiving P3,000 cash.

The accounts involved are:

(1) Cash (asset)
(2) Revenues (equity)

29
 S

Transaction Analysis
Sold obsolete school computer
receiving P3,000 cash.

30
 S

Transaction Analysis

Paid salaries of $800 to employees.

The accounts involved are:

(1) Cash (asset)
(2) Salaries expense (equity)

Remember that the balance in the salaries

expense account actually increases.
But, equity actually decreases because expenses
reduce equity.
31
 S

Transaction Analysis

Paid salaries of $800 to employees.

Remember that expenses decrease equity.

32
 S

Journalizing Transactions

Transaction
Transaction Titles
Titles of
of Affected
Affected
Date
Date Accounts
Accounts

Transaction
Transaction Dollar
Dollar amount
amount of
of
33
explanation
explanation debits
debits and
and credits
credits
 DOUBLE ENTRY BOOKKEEPING

As the basis of this illustration, assume

that on September 1, 19xx Nick Requijo
establishes a sole proprietorship to be
known as Requijo Taxi. Each transaction
or group of similar transactions during the
first month of operations is described
followed by an illustration of its effect(s) on
the accounting equation and the
corresponding two-column journal entry
and explanation of entry for each give
transaction.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION ONE
Nick Requijo deposited P500,000 in a
bank account in the name of Requijo Taxi.
The effect of this transaction is to increase
the asset cash by P500,000 and to
increase capital, on the other side of the
equation, by the same amount. After the
transaction, the equation for Requijo Taxi
will appear as follows:
 Table 1.3

ASSETS LIABILITIES CAPITAL

+Requijo,
+ Cash Capital
1 P500,000 P500,000
DOUBLE ENTRY BOOKKEEPING

It should be noted that the equation

relates only to the business enterprise.
Nick Requijos personal assets, such as
his home, car, his personal bank account,
and his personal liabilities are excluded
from consideration. The business is
treated as a distinct entity, with cash of
P500,000 and the owners equity of
P500,000.
 Table 1.4

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 1 Cash 500,000

Nick Requijo, Capital 500,000

To record investment
of the owner
 DOUBLE ENTRY BOOKKEEPING

The explanation of each debit or credit

entry on the journal is based on the rules
of debit and credit. Cash was debited
because of increase in asset while Capital
was credited because of increase in
capital due to investment of the owner.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION TWO
Requijos next transaction on September 5 is
to purchase land as a future building site, for
which P100,000 cash is paid. This transaction
changes the composition of the assets but does
not change the total amount. The items in the
equation prior to this transaction, the effects of
this transaction, and the new balance after the
transaction are as follow:
 Table 1.5

ASSETS LIABILITIES CAPITAL

+ Cash + Requijo, Capital

1. P500,000 P500,000
- Cash
P100,000
2.
+ Land
P100,000
 DOUBLE ENTRY BOOKKEEPING

After the transaction, there is a land

costing P100, 000 but the balance is
reduced to P400, 000. The total assets
composed of cash and land total to P500,
000. Notice that there is no change in the
liability and capital items.
Table 1.6

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 5 Land 100,000

Cash 100,000
To record purchase
of land for cash
 DOUBLE ENTRY BOOKKEEPING

In the transaction recorded, there was

a change in the asset element. Land was
debited because of increase in assets
while Cash was credited because of
decrease in assets. The reason for the
debit and credit comes from the rules of
debit and credit.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION THREE
Requijos current plans are to lease cars and other
equipment from California Bus Company for several
months until he can arrange financing for the purchase
of cars and other equipment and for the construction of
garage and storage facilities.
On September 7 Requijo purchases P60, 000 of
parts and other supplies from various suppliers, agreeing
to pay in the near future. This type of transaction is
called purchase of supplies on account and the liability
created is termed accounts payable. Consumable
commodities acquired, such as supplies, are considered
to be prepaid expenses. Prepaid expenses are
expenses paid in advance and are classified as
asset.
 DOUBLE ENTRY BOOKKEEPING

In actual practice, each purchase

would be considered and recorded as it
occurred and a separated record would be
maintained for each creditor. In this
illustration, however, the purchases are
recorded as a group. The effect is to
increase the assets and liabilities by P600,
000, as indicated below:
 Table 1.7

ASSETS LIABILITIES CAPITAL

+ Cash + Requijo, Capital
1. P500,000 P500,000
- Cash
2. P100,000
+ Land
P100,000

+ Supplies P + Account Payable

3. 60,000 P60,000
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total assets amount

to P560,000 composed of Cash P400,000, Land
P100, 000, and Supplies P60,000. The total
equity is also P560,000 composed of Accounts
Payable P60,000 and Capital of P500,000. The
total of the two column, debit and credit, still
balance.
 Table 1.8

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 7 Supplies 60,000

Accounts Payable 60,000

To record purchase of
supplies on account
In the transaction recorded, Supplies (unused) was
debited because of increase in assets while
Accounts Payable is credited because of increase
in liability.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION FOUR
On September 9, P10,000 is paid to
creditors on account, thereby reducing
both assets and liabilities. The effect on
the equation is as follows:
 Table 1.9

ASSETS LIABILITIES CAPITAL

+ Cash + Requijo, Capital
1. P500,000 P500,000
- Cash
P100,000
2.
+ Land
P100,000

+ Supplies P +Account Payable

3. 60,000 P60,000
- Cash P - Account Payable
4. 10,000 P10,000
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total assets amount

to P550, 000 composed of Cash P390, 000,
Land P100, 000, and Supplies P60, 000. The
total equity is also P550, 000 composed of
Accounts Payable P50, 000 and Capital P500,
000. The equation is still balance.
 Table 1.10

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 9 Accounts Payable 10, 000

Cash 10,000

To record payment of
account
In the transaction recorded, Accounts Payable
was debited because of decrease in liability
while cash was credited because of decrease
in assets.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION FIVE
The principal objective of the owner of a business
enterprise is to increase capital through earnings. For
Nick Requijo, this means that the cash and other assets
acquired through the sale of taxi services must be
greater than the cost of the gasoline and other supplies
used, the wages of drivers, the rent, and all of the other
expenses of operating the business.
In general, the amount charged to customers for goods
or services sold to them is called revenue. Alternative
terms may be used for particular types of revenue, such
as sales for the sale of merchandise or business
services, fees earned for charges by a physician to
patients, rent revenue for the use of real estate or other
property, and fares earned for Requijo Taxi.
 DOUBLE ENTRY BOOKKEEPING

In a broad sense, the amount of assets consumed or

services used in the process of earning revenue is called
expense. Expenses would include supplies used, salaries
and wages of employees, and other assets and services
used in operating the business.

The excess of the revenue over the expenses incurred in

earning the revenue is called net income or net profit. If
the expenses of the enterprise exceed the revenue, the
excess is a net loss. Since it is ordinarily impossible to
determine the exact amount of expense incurred in
connection with each revenue transactions, it is
considered satisfactory to determine the net income or
the net loss for a specified period of time, such as a
month, or a quarter, a semester, or a year, rather than
each of small group of sales.
 DOUBLE ENTRY BOOKKEEPING

During the first month of operations Requijo Taxi

earned fares of P150, 000, receiving the amount
in cash. The total effect of these transactions is to
increase cash by P150, 000 and to yield revenue
in the same amount. The revenue can be viewed
as though it affected a P150, 000 increases in
capital.
At the time expenses of the business are
incurred, they are treated as offsets against
revenue and hence as reduction in capital. In
terms of the accounting equation, the effect of the
receipt of cash for services performed follows:
Table 1.11
ASSETS LIABILITIES CAPITAL
+ Cash + Requijo, Capital
1. P500,000 P500,000
- Cash
2. P100,000
+ Land
P100,000
+ Supplies +Account Payable
3. P 60,000 P60,000
- Cash - Account Payable
4. P 10,000 P10,000

+ Cash + Fares Earned

5. P150,000 P150,000
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total assets amount to P700, 000 composed
of Cash P540, 000, Land P100, 000, and Supplies P60, 000. The total
equities are also P700, 000 composed of Accounts Payable P50, 000
and Capital of P650, 000 (including the fare earned).
Instead of requiring payment of cash at the time goods or services are
sold or rendered, a business may make sales of goods or services on
account, allowing customer to pay later. In such cases, the business
acquires a claim against the customer, called an account receivable.
An account receivable is as much an asset as cash, and the revenue
is realized in exactly the same manner as if cash had been
immediately received. At a later date, when the money is collected,
there is only an exchange of one asset for another, with cash
increasing and accounts receivable decreasing.

In the transaction recorded, Cash was debited because of increase in

assets while Fares Earned was credited because of increase in
capital due to increase in revenue.
 Table 1.12
Post
Date DESCRIPTION Ref. Debit Credit

Sept. 30 Cash 150,000

Fares Earned 150,000

To record receipt of
revenue from various
customer.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION SIX
Various business expenses incurred and
paid during the month were as follow: wages,
P40, 000; rent, P20, 000; gas and oil, P50, 000;
miscellaneous expenses, P10, 000. The effect of
this group of transaction is to reduce cash and to
reduce capital, as indicated in the following
manner in the equation:
 TableASSETS
1.13 LIABILITIES CAPITAL
+ Requijo, Capital
1. + Cash P500,000 P500,000
- Cash P100,000
2.
+ Land P100,000
+ Supplies P 60,000 +Account Payable
3. P60,000
- Account Payable
4. - Cash P 10,000 P10,000
+ Fares Earned
5. + Cash P150,000 P150,000
- Wages Expense
6. - Cash P120,000 P40,000
- Rent Expense
P20,000
- Gas & Oil
P50,000
- Misc. Expense
P10,000
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total asset

amount to P580, 000 composed of Cash
P420, 000, Land P100, 000, and Supplies
of P60, 000. The total equities are also
P580, 000 composed of Accounts Payable
P50, 000 and Capital of P530, 000. It
should be remembered that revenue and
expense accounts are temporary capital
accounts; these items are closed to
capital at the end of the accounting period.
 Table 1.14
Post
Date DESCRIPTION Ref. Debit Credit

Sept. 30 Wages Expense 40,000

Rent Expense 20,000

Gas and Oil Expense 50,000

Miscellaneous Expense 10,000

Cash 120,000
To record payment of
expenses.
 DOUBLE ENTRY BOOKKEEPING

In the transaction recorded, Wages

Expense, Rent Expense, Gas and Oil
Expense, Miscellaneous Expense were
debited because of decrease in capital
due to increase in expenses while cash
was credited because of decrease in
assets.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION SEVEN
At the end of the month it is determined that the cost
of supplies on hand is P40, 000, the remainder of P20,
000 (P60, 000- P40, 000) have been used in the
operations of the business. This deduction of P20, 000 in
supplies and capital may be shown as follows:

After this transaction, the total assets amount to

P560, 000 composed of Cash P420, 000, Land P100,
000, and Supplies of only P40, 000. The total equities
are also P560, 000 composed of Accounts Payable of
P50, 000 and Capital of P510, 000.
 Table 1.15
ASSETS LIABILITIES CAPITAL

1. + Cash P500,000 + Requijo, Capital P500,000

- Cash P100,000
2.
+ Land P100,000

3. + Supplies P 60,000 +Account Payable P60,000

4. - Cash P 10,000 - Account Payable P10,000

5. + Cash P150,000 + Fares Earned P150,000

6. - Cash P120,000 -Wages Expense P 40,000

-Rent Expense P 20,000

-Gas & Oil P 50,000

-Misc. Expense P 10,000

7. - Supplies P20,000 -Supplies Expense P20,000

DOUBLE ENTRY BOOKKEEPING
Table 1.16

Date Particulars Debit Credit

Supplies Expense P20,000

Supplies P20,000

To record part of the

supplies used in the
operation of the business
 Post
Date DESCRIPTION Ref. Debit Credit

Sept. 30 Supplies Expense 20,000

Supplies 20,000

To record part of
supplies in the operation of
the business
In the transaction recorded, Supplies Expense was
debited because of decrease in capital due to
increase in expenses while Supplies (Unused) was
credited because of decrease in assets. Note to
Students The terms unused, unexpired,
inventory, and prepaid denote asset.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION EIGHT
At the end of the month, Nick Requijo withdraws from the
business P20, 000 in cash for his personnel use. This
transaction, which affects a decrease in cash and a
decrease in capital, is the exact opposite of an
investment in the business by the owner. The
withdrawal is not a business expense, and it should
be excluded from consideration in determining the
net income from operations of the enterprise. The
effect of the P20, 000 withdrawals on the equation is as
follows:
After this transaction, the total assets amount to P540,
000 composed of Cash P400, 000, Land P100, 000, and
Supplies of P40, 000. The total equities are also P540,
000 composed of Accounts Payable P50, 000 and
Capital P490, 000.
Table 1.17
ASSETS LIABILITIES CAPITAL
1. + Cash P500,000 + Requijo, Capital P500,000
- Cash P100,000
2.
+ Land P100,000

3. + Supplies P 60,000 +Account Payable P60,000

4. - Cash P 10,000 - Account Payable P10,000
+ Fares Earned
5. + Cash P150,000 P150,000
6. - Cash P120,000 -Wages Expense P 40,000
-Rent Expense P 20,000
-Gas & Oil P 50,000
-Misc. Expense P 10,000
7. - Supplies P20,000 -Supplies Expense P20,000
- Cash P20,000
8. -Requijo, Drawing P20,000
DOUBLE ENTRY BOOKKEEPING
Table 1.18

Post
Date DESCRIPTION Ref. Debit Credit
Sept. 30 Requijo, Drawing 20,000
Cash 20,000
To record withdrawal of
owner.
In the transaction recorded, Requijo, Drawing was
debited because of decrease of capital due to
withdrawal and cash was credited because of
decreases in assets
 SUMMARY
The business transactions of Requijo Taxi are
summarized in tabular form below. The transactions are
identified by transaction numbers and the balance of
each item is shown after each transaction. The following
observations, which apply to all types of businesses,
should be noted:
The effect of every transaction can be stated in terms of
increases and/or decreases in one or more of the
accounting elements.
The equality of the two sides o the accounting equation
is always maintained.
Table 1.19
 ACCOUNTING STATEMENTS

BALANCE SHEET
A kind of financial statement that list the assets, liabilities, and
capital of a business entity as of a specific dated, usually at the
close of the last day of a month or of a year. It is a kind of financial
statement that shows the financial position of the business entity as
of a given date, usually the end of the year.

The amount of Requio Taxis assets, liabilities, and capital at

the end of the first month of operation appears on the last line of the
summary in the preceding page. Minor arrangements of these data
and the addition of a heading yield the balance sheet illustrated
below. This form of balance sheet, with the liability and capital
section presented below the asset section, is called the report
form. Another arrangement in common use lists the assets on the
left and the liabilities and capital on the right. Because of its
similarity to the account, a basic accounting device described earlier
in the chapter, it is referred to as the account form of the balance
sheet.
 Requijo Taxi
Balance Sheet
September 30, 19xx
Assets
Cash P400, 000
Supplies 40, 000
Land 100, 000
Total Assets P540, 000
Liabilities
Accounts Payable P 50, 000
Capital
Capital 490, 000
Total Liabilities and Capital P540, 000
It is customary to begin the asset section with cash, which is
followed by receivables, inventory (for trading business),
supplies, prepaid expense items, and other assets that will
be converted into cash or consumed in the near future. The
assets of a relatively permanent nature, such as land,
buildings, and equipment, follow in that order. Note that in
the balance sheet presented the total assets and the total of
liability and capital are equal.
The balance sheet shows the liquidity (solvency) and stability
of as enterprise. Solvency refers to the ability of the business
to pay currently maturing liabilities while stability refers to the
ability of the enterprise to pay maturing obligations and give
return on the investment of the owner(s).
 In the liabilities and capital section of
the balance sheet, it is customary to
present the liabilities first followed by
capital. In the illustration for Requijo Taxi
the liabilities are composed entirely of
accounts payable. When there are two or
more categories of liabilities, each should
be listed and the total amount of liabilities
presented in the following manner:
 ACCOUNTING STATEMENTS

Liabilities
Accounts Payable P150, 000
Notes Payable 50, 000
Salaries Payable 6, 000
Total Liabilities P206, 000
 ACCOUNTING STATEMENTS

INCOME STATEMENT
A kind of financial statement that shows the
summary of the revenue and the expenses of a business
entity for a specific period of time, such as a month or a
year. It is a kind of financial statement that shows result
of business operations for a period of time, usually a
year.

Revenue earned and expenses incurred during the

month were recorded in the equation as increases and
decreases in capital, respectively. The details together
with net income in the amount of P10, 000, are reported
in the income statement presented below.
 Requio Taxi
Income Statement
For
Fares Earned
the Month Ended September
P150, 000
30,
Operating19xx
Expenses
Gas & Oil Expense P 50, 000
Wages Expense 40, 000
Rent Expense 20, 000
Supplies Expense 20, 000
Miscellaneous Expense 10, 000
Total Operating Expenses 140,000

Net Income P 10, 000

 The order in which the operating expenses are
presented in the income statement varies among
businesses. One of the arrangements commonly
followed is to list them in the order of size, beginning with
the larger items. Miscellaneous expenses is usually
shown as the last item regardless of the amount.
In the income statement, users will know if the
operation of the business is profitable. Profitability
refers to the ability of the business to increase owners
capital. If the total net asset inflow is more than the net
asset outflow, the resulting effect is net income. If the net
asset outflow is more than the net asset inflow, it is a net
loss.
 ACCOUNTING STATEMENTS

CAPITAL STATEMENT (Statement of Owners Equity)

It is a statement that shows the summary of the changes
in capital of a business entity that have occurred during a
specific period of time, such a month or a year.
Comparison of the original investment of P500, 000 at
the beginning of the month with the P490, 000 of capital
reported in the balance sheet at the end of the month
reveals a decrease of P10, 000. This net decrease is
composed of two significant changes in capital that
occurred during the period: (1) the net income of P10,
000, and (2) a withdrawal of P20, 000 by the owner. This
information is presented in the capital statement, which
serves as a connecting link between the balance sheet
and the income statement.
 Requijo Taxi
Capital Statement
For the Month Ended September 30,
19xx

Capital, September 1, 19xx P500, 000

Net Income P10, 000
Withdrawal 20, 000
Decrease in Capital 10, 000
Capital, September 30, 19xx P490, 000
 Basically, there are two accounting
period, the calendar year and the fiscal
year. A calendar year is a twelve-month
period that ends on December 31 while
the fiscal year is a twelve-month period
that ends at the end of any month other
than December. In the Philippines, only
partnership and corporation are allowed to
use fiscal year, single proprietorship is
allowed only to use calendar year.
 ACCOUNTING STATEMENTS

STATEMENT OF CASH FLOWS

The statement of cash flows consists of three sections: (1)
operating activities, (2) financing activities, and (3)
investing activities. Each of these sections is described
below:

Cash Flows form Operating Activities

This section reports a summary of cash receipts and cash
payments from operations. The net cash flow from
operating activities will normally differ from the amount of
net income for the period. This difference occurs because
revenues and expenses may not be recorded at the same
time that cash is received from customers and cash is paid
to creditors.
 ACCOUNTING STATEMENTS

Cash Flows from Financing Activities

This section reports the cash transactions related to cash
investments by the owner, borrowing, and cash withdrawals
by the owner.

Cash Flow from Investing Activities

This section reports the cash transactions for the
acquisition and sale of relatively long-term or permanent-
type assets.
The preparation of the statement of cash flow is required by
pronouncement, every year that the income statement is
presented. Preparing the statement of cash flows requires
an understanding of concepts that we will not discuss in the
chapter. But a simple illustration will be given to be able to
illustrate how statement of cash flow is prepared.
 Requijo Taxi
Statement of Cash Flows
For the Month Ended September 30, 19xx
Cash Flows from Operating Activities:
Net Income P10, 000

Add: Increase in Supplies 40, 000

Total P50, 000
Less: Increase in Accounts Payable 50, 000

Cash from Operating Activities P 0

Cash Flows from financing Activities

Investment of Owner 500, 000

Cash Flows from Investing Activities

Acquisition of Land (100, 000)
Increase in Cash P400, 000
Flow of information
Cash receipts journal
Cash payments journal
Sales journal
Purchases journal
Sales and purchase return
General journal
 Ledgers
T Account
Ledgers (continued)
Columnar format
 Trial Balance

Trial Balance assists in finding:

arithmetic error
recording only half of an entry.
THANK YOU VERY MUCH

IN YOUTH YOU LEARN,

IN AGE YOU UNDERSTAND.