PARTNERSHIP & CORPORATION

ACCOUNTING
JULIET OZOA CABANLIT, CPA
Instructor
 What is Accounting?
• The accounting function is to provide
quantitative information, primarily
financial in nature, about economic
entities, that is intended to be useful
in making economic decisions.
(Accounting Standards Council)
Quantitative
• Information that can be quantified(measured)
and expressed in numbers. (How Many?)
• It can be considered quantifiable only when it
has effects on the assets, liabilities and equity.

Financial in nature
• Refers to money or amounts (How much?)
• NOTE: Information should be both
quantitative and financial in nature.
Economic entities
• Any type of organization or unit in the society
• Examples: businesses, hospitals, schools,
government agencies, etc.

Useful in making economic decisions

• The information is used in making decisions
• Example: Should we continue with the business?
Should we close? Should we invest? Should we
hire more?
 What is Accounting?
• Accounting is an art of recording,
classifying, and summarizing in a
significant manner and in terms of
money, transactions and events
which are in part at least of a
financial character and interpreting
the results thereof. (American Institute of CPA)
Recording
• Recording is a basic phase of accounting that
is also known as bookkeeping. In this phase,
all financial transactions are recorded in a
systematical and chronological manner in the
appropriate books or databases.
Classifying
• The classifying phase of accounting involves
sorting and grouping similar items under the
designated name, category or account.
Summarizing
• The summarizing phase of accounting involves
summarizing the data after each accounting
period, such as a month, quarter or year. The
data must be presented in a manner which is
easy to understand and use by both external
and internal users of the accounting
statements.
Interpreting
• The interpreting phase of the accounting process
in concerned with analyzing financial data, and is
a critical tool for decision-making. This final
function interprets the recorded data in a manner
which allows end-users to make meaningful
judgments regarding the financial conditions of a
business or personal account, as well as the
profitability of business operations. This data is
then used to prepare future plans and frame
policies to execute financial plans.
Example: Students’ grades
• You record the scores per student (recording)
• Create columns for pretest, chapter test, mid
term and finals (classifying)
• Compute the average of the students’ grades
(summarizing)
• Mark passed or failed (interpreting)
 DOUBLE ENTRY ACCOUNTING
• Double entry, a fundamental concept underlying
present-day bookkeeping and accounting, states that
every financial transaction has equal and opposite
effects in at least two different accounts.
• In the double-entry system, transactions are recorded
in terms of debits and credits. Since a debit in one
account offsets a credit in another, the sum of all
debits must equal the sum of all credits. The double-
entry system of bookkeeping or accounting makes it
easier to prepare accurate financial statements and
detect errors.
Under the systematic process of accounting,
these interactions are generally classified into
accounts. There are seven different types of
accounts that all business transactions can be
classified:
-Assets
-Liabilities
-Equities
-Revenue
-Expenses
 ACCOUNTING EQUATION
• Asset = Liabilities + Equity • 200 = 150 + 50
• Asset – Liabilities = Equity • 200 – 150 = 50
• Asset – Equity = Liabilities • 200 – 50 = 150
• Liabilities + Equity = Asset • 150 + 50 = 200

NOTE: LEFT SIDE = RIGHT SIDE

ALWAYS
 ASSETS
• Defined as resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the entity.
• Classified as Current or Non-current assets
 Examples of ASSETS
CURRENT ASSET NON- CURRENT ASSETS
• Cash and Cash Equivalents • Property, Plant and
• Trade and Other Equipment
Receivables • Long Term Investments
• Inventories • Intangible Assets
• Prepaid Expenses
• Short term investments
 LIABILITIES
• Defined present obligation of an entity arising from
past events, the settlement of which is expected to
result in an outflow from the entity of resources
embodying economic benefits.
• Classified as current or non-current
 Examples of Liabilities
Current Non-current
• Trade and other payables • Non current portion of long
• Current provisions term debt
• Short term borrowing • Finance lease liability
• Current portion of long • Long term obligations to
term debt (due within 1 officers
year)
 EQUITY
• Residual interest in the assets of the entity after
deducting all of its liabilities.
• Net assets
 REVENUE
• In accounting, revenue is the income that
a business has from its normal business
activities, usually from the sale of goods and
services to customers.
• It is called SALES when the company sells
products.
• Its is called REVENUE or SERVICE REVENUE if
the company offers services.
 EXPENSES
• The cost of operations that a company incurs
to generate revenue.
• Can be operating or non-operating expenses
 EXPENSES
Operating expenses Non-operating expenses
• Operating costs are • A non-operating expense is
expenses associated with a business expense
the maintenance and unrelated to the core
administration of a business operations.
on a day-to-day basis.
 HOW TO INCREASE when creating a
journal entry?
DEBIT CREDIT
• Assets • Liabilities
• Equity
• Expenses • Revenue/Sales
Example 1:
1. Mr. A purchased land P1,000,000 for cash.
Debit Land 1,000,000.00
Credit Cash 1,000.000.00

Land is an asset. Since Mr. A bought the land, it means that

land should be increased, that’s why it is DEBITED.

Cash is an asset. Since Mr. A bought the land, he paid cash for
it, which means that his cash will be decreased, that’s why it
is CREDITED.
Take note:
• Every journal entry should always have Debit
and Credit.
• When an asset is to be increased, it is debited.
• When an asset is decreased, it is credited.
 This means that the balance of
Example 2: P350,000.00 is debt or accounts
payable.

2. Mr. A purchased land -P500,000.00. He paid

P150,000.00 in cash and the balance is in credit.
Land P500,000.00
Cash P150,000.00
Accounts Payable P350,000.00
The same
explanation
in Example 1 Accounts Payable is a
liability account. Since his
liability is INCREASED
Since he paid P150,000.00 in cash it because the remaining
means that his cash is decreased that’s P350,000 is “utang”, it is
why it is CREDITED . CREDITED.
Take note:
• It doesn’t matter how many debits or credits
there are in a journal entry as long as the
TOTAL OF ALL DEBITS is equal to the TOTAL OF
ALL CREDITS. If you can see in the example,
there are 2 credits – Cash and Accounts
Payable, but the total debit is P500,000.00
and total credit is P500,000.00.
Example 3
3. Mr. A pays P100,000.00 from his accounts
payable in example 2.

Accounts Payable 100,000.00

Cash 100,000.00
Since he is paying his
debts, it means that the
accounts payable
should be decreased,
therefore it is DEBITED.
 Example 4
4. Mr. A has cash sales worth P50,000.00.
Cash 50,000.00
Sales 50,000.00

Again, since he sold his Since he sold products, it

products for cash, it means that his sales
means that the customer increased. That’s why it is
paid him cash. Therefore, CREDITED.
his cash will increase,
that’s why it is DEBITED.
Take Note:
• To increase sales, it is credited.
• To decrease sales, it is debited.
Example 5
5. Mr. A paid for the salaries of his employees
worth P20,000.00
Salaries Expense P20,000.00
Cash P20,000.00
Since he paid his
employees, it means
that his expense will
increase, that’s why it is
DEBITED.
Take note:
• To increase expense, it is debited.
• To decrease expense, it is credited.