BRANCHES OF ACCOUNTING

BOOKKEEPING - is a mechanical task involving the collection of basic

financial data.
 Data are first entered in the accounting records or the books of
accounts then extracted, classified and summarized in the form of
income statement, balance sheet and cash flows.
FINANCIAL ACCOUNTING - focus on the recording of business transaction
and the periodic preparation of reports on financial position and results
of operations.
THE ACCOUNT
 The basic summary device of accounting is the account.
A separate account is maintained for each element appears in the
balance sheet (assets, liabilities, and equity) and in the income
statement (income and expenses).
 FORMS OF BUSINESS
ORGANIZATIONS
 SOLE PROPRIETORSHIP – has a single organization has a
single owner called the proprietor who generally is also the
manager.
 PARTNERSHIP – two or more persons bind themselves to
contribute money, property, or industry to a common fund,
with the intention of dividing the profit among themselves.
Each owner called partner.
 CORPORATION – is a business owned by its stockholders.
It is an artificial created by operation of law, having rights of
succession and the powers attributes and properties
expressly authorized by law or incident to its existence.
 Advantages and Disadvantages of Partnership

Advantages:
 Brings greater financial capability to the business.
 Combines special skills, expertise and experience of the partners.
 Offer relative freedom and flexibility of action in decision-making.
 Easier and less expensive to organized.
 More personal information.
Disadvantages:

 Easily to dissolve and thus unstable compared to a corporation.

 Mutual agency and unlimited liability may create personal
obligations to partners.
 Less effective than a corporation in raising large amounts of capital.
 PURPOSE OF BUSINESS
ORGANIZATIONS
 Service - companies perform services for a fee (e.g. law
firms, accounting and audit firms, stock brokerage, beauty
salons, and recruitment agencies).
 Merchandising – companies purchase goods that are ready
for sale and sell these to customers (e.g. car dealers, clothing
stores and supermarkets).
 Manufacturing – companies buy raw materials, convert them
into products and sell the products to other companies or to
final consumers (e.g. paper mills, steel mills, car
manufacturers and drug manufacturers).
 Equity - is the residual interest in the assets of the enterprise
after deducting all its liabilities.
 Income - increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets or
decreases of liabilities that result in equity.

 Expenses – are decreases in economic benefits during the

accounting period in the form of outflows or depletions of assets
or incurrences of liabilities that result in decreases in equity.
 Revenue – arises in the course of the ordinary activities of an
enterprise.
 THE ACCOUNTING EQUATION
The most basic tool of accounting is the accounting equation.
It states that assets must always equal liabilities and owner’s equity.
Assets = Liabilities + Owner’s Equity
 Asset – is source controlled by the enterprise as a result of past
events and from which future economic benefits are expected to
flow to the enterprise.
 Liability – is a present obligation of the enterprise arising from the
past events, the settlement of which is expected to result in an
outflow from the enterprise of resources embodying economic
benefits.
The simplest form of the account is known as
“T” account because of its similar to the letter
“T” the account has three parts.

ACCOUNT TITLE
Left side or Right side or
Debit side Credit side
 A debit side entry must have a corresponding credit side
entry.
 For every transaction, there must be one or more
accounts debited and one or more accounts credited.
 The total debit is always equal to total credits.
 An account is debited when an amount is entered on the
left side of the account and credited when an amount is
entered on the right side. The abbreviations for debit and
credit are Dr. and Cr. respectively.
 Balance Sheet Accounts
Assets Liabilities and Owner’s Equity
Debit Credit Debit Credit
(+) (-) (-) (+)
Increases Decreases Decreases
Increases

Income Statement Accounts

Expenses Income
Debit Credit Debit Credit
(+) (-) (-) (+)
Increases Decreases Decreases
Increases
EXAMPLE:
Mar .1 Calaguas started his new business by depositing P250,000 in a
bank account in the name of Calaguas WebPage at BPI Shangri-La
Branch.
Calaguas WebPage Express
Financial Transaction Worksheet
Month Of March 2008

Assets = Liabilities +
Owner’s Equity
Cash =
+ Calaguas, Capital
P250,000
P250,000
 TYPICAL ACCOUNT TITLE USED
 Current Assets
Cash – any medium of exchange that a bank will accept for deposit at face
value.
Cash Equivalents – these are short-term, highly liquid investments that are
readily convertible to known amount of cash.
Notes receivable – written pledge that the consumer will pay the business a
fixed amount of money on a certain date.
Accounts receivable – claims against customers arising from sale of services
on goods or credit.
Inventories - held for sale in the ordinary course of business.
Prepaid expenses – paid for by the business in advance.
 Non-Current Asset
Property, plant and equipment – tangible asset held by the enterprise for
use in the production or supply of goods and services or rental to others
during more than period of time.
Accumulated Depreciation – contra account that contains the sum of the
periodic depreciation charges. The balance is deducted from the cost of
the related asset- equipment or buildings-to obtain book value.
Intangible Assets – nonmonetary assets without physical substance use
in the production of goods or services, for rental. Include licenses,
franchises, trademarks, brand names, secret processes, subscription lists
and non-competition agreements.
 CURRENT LIABILITIES
Accounts Payable – reverse relationship to the account receivable.
Notes Payable – like note receivable but in a reverse sense.
Accrued Liabilities – amount owed to others for unpaid expenses.
Includes salaries payable, utilities payable, interest payable and taxes
payable.
Unearned Revenue – business entity receives payment before providing
its customers with the goods or services, the amount receive are recorded.
 NON-CURRENT LIABILITIES
Mortgage Payable – account records long-term debt of the business entity
for which the business entity has pledge assets as security to the creditor.
Bond Payable – sums of money from lenders to finance the acquisition of
equipment and other needed asset.
 OWNER’S EQUITY
Capital – used to record the original and additional
investments of the owner of the business entity.
Withdrawal – owner of business entity withdrawals cash or
other assets, such are recorded in the drawing or
withdrawal account rather than directly reducing the
owner’s equity account.
Income Summary – temporary account used at the end of
the accounting period to close income and expenses. This
show the profit or loss for the period before closing to the
account.
 INCOME

Service income – revenues earned by performing services for the customer or client; for
e.g. accounting services by CPA
Sales – revenues earned as a result of sale of merchandise; e.g. sale of building materials
by construction supplies firm.
 EXPENSES

 Cost of Sales – cost incurred to purchased or to produce the products sold to

customers during the period; also called cost of goods sold.
 Salaries or Wages expenses – includes all payments as a result of an employee-
employer relationship such as salaries and wages, 13 th month pay, cost of living
allowances and other related benefit.
 Rent Expense - expense for space, equipment or other asset in
rentals
 Supplies expense – expense of using supplies in the conduct of daily
business.
 Insurance expense – promotion of premiums paid on insurance
coverage
 Depreciation expense – cost of tangible asset e.g. building and
equipment allocated or charges as expense during the accounting
period.
 Interest Expense – expense related to use of borrowed funds.
 CORPORATION – is a business owned by its stockholders. It
is an artificial created by operation of law, having rights of
succession and the powers attributes and properties expressly
authorized by law or incident to its existence.
 ATTRIBUTE OF CORPORATION
1. A corporation is an artificial being with a personality
separate and apart from its individual shareholders or
members.
2. It is created by operation if law.
3. It enjoy the right of succession.
4. It has the powers, attributes and properties expressly
authorized by law or incident to its existence.
ADVANTAGES OF CORPORATION
1. The corporation has the legal capacity to act as a legal
entity.
2. Shareholders have limited liability.
3. It has continuity of existence.
4. Shares of stock can be transferred without the consent of
the others shareholder.
5. Its management is centralized in the board of directors.
6. Shareholders are not general agents of the business.
7. Greater ability to acquire funds.
DISADVANTAGES OF A CORPORATION
1. A corporation is relatively complicated in formation and
management.
2. There is a greater degree of government control and supervision.
3. It requires a relatively high cost of formation and operation.
4. It is subject to heavier taxation than other forms of business
organizations.
5. Minority shareholders are subservient to the wishes of the majority.
6. In large, management and control have been separated from
ownership.
7. Transferability shares permits the uniting of incompatible and
conflicting elements in one venture.
CLASSES OF CORPORATION
STOCK CORPORATION – which shares capital dividends or allotments of
the surplus profits on the basis of the shares held.
NON-STOCK CORPORATION – is one where no part of its income is
distribution as dividends to its members, trustees or officers.
COMPONENTS OF CORPORATION
1. Corporators – are those who compose a corporation whether as
shareholder at any time.
2. Incorporators- shareholder or members mention in the articles of
incorporation as originally forming and composing the corporation.