Kolehiyo ng Pantukan

FUNDAMENTALS OF
ACCOUNTING
P R O F . J O S H U A J A Y B . J E S U R O , C P A

A U G U S T 3 1 , 2 0 2 3
 TABLE OF CONTENTS
01 02 03

What is Financial Elements of Financial Recognition of the

Statements? Statements Elements of FS

04 05 06

Measurement of Accounting Accounting

the Elements of Information Equation
Financial System
Statements
 TABLE OF CONTENTS

07 08 09 10

Debits & Credits- Normal Account Types and Effects Typical Account
the Double Entry Balance of Transactions Titles Used
System
WHAT IS
FINANCIAL
STATEMENTS?

Financial statements are structured financial

representations of the financial position,
financial performance and cash flows of an
entity.
WHAT ARE THE
ELEMENTS OF FS?
 COMPLETE SET OF FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASH FLOWS

2. Income Statement (Statement of
Financial Performance)
NOTES TO FINANCIAL STATEMENTS
Revenue: Income generated from primary
operations.
Expenses: Costs incurred in generating
revenue.
Income: Revenue minus expenses.
 STATEMENT OF FINANCIAL POSITION
(BALANCE SHEET)

a formal statement showing the three elements comprising the financial

position at a certain date, namely:
1.. Assets
2. Liabilities
3. Equity

provide the following information:

1.. Liquidity and Solvency
2. The need of the entity for additional financing
 ASSETS

a present economic resource controlled by the entity

as a result of a past event. An economic resource is a
right that has the potential to produce economic
benefits.

The essential characteristics of an asset are:

a)The asset is controlled by the entity.

b)The asset is the result of a past transaction or event.

c)The asset has the potential to produce economic benefits.

d)The economic resource is a right.

 ASSETS

CURRENT ASSETS
Cash
Cash Equivalents
Notes Receivable
Accounts Receivable
Inventories
Prepaid Expenses

NONCURRENT ASSETS
Property, Plant and Equipment
Accumulated Depreciation
Intangible Assets
 LIABILITIES

is a present obligation of an entity to transfer an

economic resource as a result of past event.

The essential characteristics of an asset are:

a)The entity has an obligation
b)The obligation is to transferan economic resource

c)The present obligation is a resultof a past event.

 LIABILITIES

CURRENT LIABILITIES
Accounts Payable
Notes Payable
Accrued Liabilities
Unearned Revenues
Current Portion of Long-Term Debt

NON-CURRENT LIABILITIES
Mortgage Payable
Bonds Payable
 EQUITY

is the residual interest in the assets of the entity after

deducting all of its liabilities.
 EQUITY

Capital
Withdrawals
Income Summary
 STATEMENT OF COMPREHENSIVE INCOME
(FINANCIAL PERFORMANCE)

shows the financial performance of an entity for a certain period of time

Components of Comprehensive Income:

1.)_INCOME STATEMENT
- A.K.A Net Income/Loss is the total of income less expenses, excluding the
components of Other Comprehensive Income
2.) OTHER COMPREHENSIVE INCOME
- those income and expenses that are not recognized in the income
statement
 INCOME

is the increase in economic benefit during the

accounting period in the form of an inflow or increase
of asset or decrease of liability that results in increase
in equity, other than contribution from equity
participants.

encompasses both revenue and gains

 INCOME

REVENUE:
-arises from ordinary course of business
-presented in the FS at gross amount

GAINS:
-arises from incidental or peripheral operations
-presented in the FS at net amount (net of direct
cost)
 INCOME

Service Income
Sales
 EXPENSES

is the decrease in economic benefit during the

accounting period in the form of outflow or decrease
in asset and increase in liability that results in
decrease in equity, other than distribution to equity
participants.

encompasses losses
 EXPENSES

Cost of Sales
Salaries or Wages Expense
Telecommunications, Electricity, Fuel and Water
Expenses
Rent Expense
Supplies Expense
Insurance Expense
Depreciation Expense
Uncollectible Accounts Expense
Interest Expense
 STATEMENT OF CHANGES IN EQUITY

shows the movement in the elements or components of the equity

STATEMENT OF CASH FLOWS

report cash flows during the period classified by operating, investing and
financing activities

NOTES TO FINANCIAL STATEMENTS

provide narrative disaggregation of items presented in the financial

statements and information about items that do not qualify for recognition
all other information intended to be read
RECOGNITION OF THE ELEMENTS
OF FINANCIAL STATEMENTS

Recognition
the process of reporting an asset, liability,
income or expense on the faceof the
financial statements of an entity

CRITERIA:
a) It meets the definition of an asset,
liability, equity, income or expense and

b) Recognizing it would provide useful

information
EXPENSE RECOGNITION PRINCIPLES

MATCHING PRINCIPLE
requires that those costs and expenses
incurred in earning a revenue should be
reported in the same period.

1. Cause and effect association

"the expense is recognized when the
revenue is already recognized"
2. Systematic and rational allocation
some costs are expensed by simply
allocating them over the periods benefited
3. Immediate recognition
the cost incurred is expensed outright
 MEASUREMENT OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
01. Historical Cost
Assets are recorded;
@ the amount of cash/cash equivalents paid.
@ Fair value of consideration, given to acquire them @ the
time of acquisition.
Liabilities are recorded;
@ the amount of proceeds received in exchange for the
obligation.
02. Current Cost
Assets are carried;

MEASUREMENT @ the amount of cash/cash equivalents that would have to

be paid if the same/ an equivalent asset was acquired
currently.
IS THE PROCESS OF DETERMINING MONETARY AMOUNTS
Liabilities are carried;
AT WHICH THE ELEMENTS OF FINANCIAL STATEMENTS
@ the undiscounted amount of cash/cash equivalents that
ARE TO BE RECOGNIZED AND CARRIED IN THE BALANCE would be required to settle the obligation currently.
SHEET AND INCOME STATEMENT
 MEASUREMENT OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
03. Realizable (Settlement Value)
Realizable value;
Assets are carried @ the amount of cash/ cash equivalents
that could currently obtained by selling an asset in an
orderly disposal.
Settlement value;
Liabilities are carried @ the undiscounted amounts of cash/
cash equivalents expected to be paid to satisfy the liabilities
in the normal course of business.

04. Present Value

Assets are carried;
MEASUREMENT @ present discounted value of future net cash inflows that
the item is expected to generate in the normal course of
business.
IS THE PROCESS OF DETERMINING MONETARY AMOUNTS
Liabilities are carried;
AT WHICH THE ELEMENTS OF FINANCIAL STATEMENTS
ARE TO BE RECOGNIZED AND CARRIED IN THE BALANCE @ present discounted value of future net cash outflows that
SHEET AND INCOME STATEMENT are expected to be required to settle liabilities in the
normal course of business.
ACCOUNTING
FOR BUSINESS
TRANSACTIONS
T - ACCOUNT
THE ACCOUNTING FORMULA AND THE T- ACCOUNT
 TYPES AND EFFECTS OF TRANSACTIONS:

SOURCE OF ASSETS (SA) EXCHANGE OF ASSETS (EA)

An asset account increases and a One asset account increases and

corresponding claims (liabilities/ another asset account decreases.
equity) account increases.

USE OF ASSETS (UA) EXCHANGE OF CLAIMS (EC)

One claims (liabilities or equity)

An asset account decreases and a
account increases and another
corresponding claims (liabilities/
claims (liabilities or equity)
equity) account decreases.
account decreases.
 ACCOUNTING
INFORMATION
SYSTEM
An Accounting Information System (AIS) is a
structured and integrated system designed to
collect, store, process, and communicate
financial and accounting information within an
TYPES OF AIS:
organization. It combines accounting
principles, information technology, and Manual System
business processes to facilitate the efficient Computer-Based Transaction System
and effective management of financial data.
Database System
THANK YOU