Record Expenses Manage Accounts Receivable Manage Accounts Payable Produce Financial Reports

DEFINITIONS AND FUNCTIONS OF BOOKKEEPING AND ACCOUNTING, FORMS OF
BUSINESS ORGANIZATION, AND TYPES OF BUSINESS ACTIVITIES
Accounting and Bookkeeping
Accounting is the art of recording, classifying, and summarizing in significant manner and
in terms of money, transactions and events which are, in part at least, of a financial
character, and interpreting the result thereof.
The Four Phases of Accounting
Accounting has four phases, namely Recording, Classifying, Summarizing, and Interpreting.
 Recording – This is technically called bookkeeping. In this phase, business transactions

are recorded systematically and chronologically in the proper accounting books.
 Classifying – This is the phase where items are sorted and grouped. Similar items are
being classified under the same name. The following are the different ACCOUNTS:
 Asset Accounts
 Liability Accounts
 Capital Accounts or Owner’s Equity Accounts
 Revenue Accounts
 Expense Accounts
 Summarizing – After each accounting period, data recorded are summarized through
financial statements.
 Interpreting – These are the accountant’s interpretation on the financial statement.

This is called Analysis Report that must be submitted together with the financial
reports.
Bookkeeping is the process of recording daily transactions in a consistent way, and is a

key component to building a financially successful business.
 Record Expenses
 Manage Accounts Receivable
 Manage Accounts Payable
 Produce Financial Reports
Financial Reports:
Date Developed:
CBLM for January 2020
Bookkeeping NC III / Page
Develop and Practice Developed by: ARNEL HIMZON 1 of 22
Negotiation Skills Checked by: LIHKS
1. Balance Sheet/ Statement of Financial Position
2. Income Statement/ P&L Statement/ Statement of Financial Performance
3. Statement of Cash Flows
Types of Business Organization
A business assumes one of the three forms of organization. The accounting procedure
depend on which form the organization takes.
 Sole Proprietorship. This business organization has a single owner called the
proprietor who generally is also the manager. The owner receives all profits,
absorbs all losses and is solely responsible for all debts of the business.
 Partnership. A partnership is a business owned and operated by two or more

persons who bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profit among themselves.
 Corporation. A corporation is a business owned by its stockholders. It is an

artificial being created by operation of law, having the rights of succession and the
powers, attributes and properties expressly authorized by law or incident to its
existence.
Types of Business Activities
 Service. Service companies perform services for a fee. (e.g. accounting and law
firms, dry cleaning establishments)
 Merchandising. Merchandising companies purchase goods that are ready for sale
and then sell these to customers. (e.g. car dealers, clothing stores and
supermarkets)
 Manufacturing. Manufacturing companies buy raw materials; convert them into

products to other companies or to final customers. (e.g. car manufacturer, steel
mills and drug manufacturer)
Date Developed:
SELF-CHECK NO. 1.1-1
DEFINITIONS AND FUNCTIONS OF BOOKKEEPING AND ACCOUNTING, FORMS OF
BUSINESS ORGANIZATION, AND TYPES OF BUSINESS ACTIVITIES
Identification. Identify the following. Write your answer on the space before the number.
_______________________ 1. It is a business owned by its stockholders.
_______________________ 2. It is the art of recording, classifying, and summarizing in
significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character, and interpreting
the result thereof.
_______________________ 3. It is a type of business activity where companies purchase goods
that are ready for sale and then sell these to customers.
_______________________ 4. This business organization has a single owner called the
proprietor who generally is also the manager.
_______________________ 5. It is the process of recording business transactions systematically
and chronologically in the proper accounting books.
BASIC FINANCIAL STATEMENT
Basic Financial Statements

 Statement of Financial Position
Date Developed:
The balance sheet shows the financial position of the business. It presents the
assets of the business, its liabilities and the equity of the owner in the business.
Assets
Assets are physical things (tangible) or rights (intangible) which have monetary
values and are owned by the business entity. They are economic resources of
business that are expected to be of future benefit. Assets are commonly subdivided
into two major classifications: current assets and non-current assets.
Current assets are generally those which can be expected to provide
benefits to the business within the normal operating cycle of the business or
one year, whichever is longer.
Non-current assets are those which are used to provide the business entity
with benefits over a number of years.
Typical Account Title for Assets
 Current Assets
 Cash – any medium of exchange that a bank will accept at face value. It
includes coins, currency, checks, money orders, bank deposits and drafts.
 Cash Equivalent – these are short-term, highly liquid investments which
are readily convertible to cash and with original maturities of three
months or less. i.e Treasury Bills
 Short-term investments – investments which are readily marketable
and represents temporary investments of fund available for current
operations and are intended to meet working capital requirements.
 Notes Receivable – a notes receivable is a written pledge that the
customer will pay the business a fixed amount of money on a certain date.
 Accounts Receivable – these are claims against customers arising from
sale of services or goods on credit. This type of receivable offers less
security than a promissory note.
 Inventory – these constitute items of tangible personal property which
are (a) held for sale in the ordinary course of business, (b) in the process
of production for such sale, or (c) to be currently consumed in the
production of goods or services to be available for sale.
 Prepaid Expenses – these are expenses paid for by the business in
advance. It is an asset because the business avoids having to pay cash in
the future for a specific expense. i.e insurance
 Non-current Assets
 Long-term Investments – these are assets not directly identified with
the operating activities of the company or involved in the sale or
production of goods and services.
 Equipment – these account records the acquisition of office machines,
desk, cars, trucks, file cabinets, and similar items. They are used in the
Date Developed:
conduct of business and are not intended for sale in the ordinary course
of business.
 Buildings – included in this account are factories, warehouses, and office
buildings.
 Land – owned and used by the business entity.
 Intangibles – these are relatively long-lived assets without physical
characteristics which value lies in rights, privileges and competitive
advantages, which they give the owner.
Liabilities
Liabilities are debts owed to outsiders (creditors). The economic obligations are
often identified by the account titles that include the word “payable.” They are
typically fall into two major groups: Current Liabilities and Long-term Liabilities.
Current liabilities are obligations which are reasonably expected to be settled
through the use of existing current assets or the creation of other current liabilities
within the normal operating cycle or one year, whichever is longer. Long-term
Liabilities are obligations which are payable beyond the normal operating cycle or
one year, whichever is longer or those obligations which though payable within one
year will not be liquidated by existing current assets.
Common Liability Accounts
 Current Liabilities
 Notes Payable – is like a note receivable but in the reverse sense. In the
case of a note payable, the business entity is the maker of the note; that is,
the business entity is the party who promises to pay the other party a
specified amount of money on a specified future date.
 Accounts Payable – this account represents the reverse relationship of
accounts receivable. By accepting the goods or services, the buyer agrees
to pay for them in the future.
 Accrued Liabilities – Amounts owed to others for unpaid expenses.
 Unearned Revenues – When the business entity receives payment
before providing its customers with goods or services, the amounts
received are recorded in the unearned revenue account.
 Long-term Liabilities
 Mortgage Payable – this account records long-term debt of the business
entity for which the business entity has pledged certain assets as security
to the creditor.
 Bonds Payable – business organizations often obtain substantial sums of
money from lenders to finance the acquisition of equipment and other
needed assets. They obtain the fund by issuing bonds. The bond is a
contract between the issuer and the lender specifying the terms of
repayment and the interest to be charge.
Owner’s Equity
Date Developed:
It is the claim held by the owner against the assets of the business after the total
liabilities are deducted.
Common Owner’s Equity account
 Capital – this account is used to record the original and additional
investments of the owner if the business entity. This account title bears the
name of the owner.
 Withdrawals – when the owner of a business entity withdraws cash or other
assets, such are recorded in the drawing or withdrawal account rather than
directly reducing the owner’s equity account,
 Statement of Financial Performance (Income Statement)
Revenues
These are the increases in the owner’s equity as a result of the performance services
or the sales of merchandise by the business.
Common Revenue Accounts
 Service Revenue – revenues earned by performing services for a customer
or client.
 Sales Revenue – revenues earned as a result of sale of merchandise.
Expenses
Expenses are the decrease in the owner’s equity caused by the revenue generating
activities of the business.
Common Expense Accounts
 Cost of Sales – this cost incurred to purchase or to produce the products sold
to customers during the period; also called cost of goods sold.
 Salaries or Wages Expense – includes all payments as a result of an
employer-employee relationship such as salaries or wages, 13 th month pay,
cost of living allowances and other related fringe benefits.
 Telecommunications, Electricity, Fuel and Water Expense – expense
related to use of telecommunications facilities, consumption of electricity,
fuel and water.
 Rent Expense – expense for space, equipment or other asset rentals
 Supplies Expense – expense using supplies in the conduct of daily business.
 Depreciation Expense – the portion of the cost of a tangible asset allocated
or charged as expense during an accounting period.
 Uncollectible Accounts Expense – the amount of receivables estimated to
be doubtful of collection and charged as expense during an accounting
period. i.e Bad Debts Expense, Allowance for Doubtful Accounts
 Interest Expense – an expense related to use of borrowed funds.
Date Developed:
 Statement of Changes in Capital (Equity)
The Statement of Changes in Capital (or Equity) shows the balance of the capital
account at the beginning of the period, the changes that occurred during the period,
and the ending balance as a result of such changes. Capital is affected by
contributions and withdrawals of owners, income, and expenses.
The title used for this report varies depending upon the form of business ownership.
It is called Statement of Owner's Equity in sole proprietorships, Statement of
Partners' Equity in partnerships and Statement of Stockholders' Equity in
corporations.
 Statement of Cash Flows
The Statement of Cash Flows, or Cash Flow Statement, presents the beginning
balance of cash, the changes that occurred during the period, and the cash balance at
the end of the period as a result of the changes.
The cash flow statement shows the cash inflows and outflows from three activities:
operating, investing, and financing.

BASIC FINANCIAL STATEMENT
Instruction: True or False. Write TRUE if the statement is correct otherwise write False.
Write your answer on the space provided.
_______________________ 1. When the business entity receives payment before providing its
customers with goods or services, the amounts received are
recorded in the unearned revenue account.
_______________________ 2. Sales revenues are revenues earned by performing services for a
customer or client.
_______________________ 3. Expenses are the decrease in the owner’s equity caused by the
revenue generating activities of the business.
_______________________ 4. Current assets are those which are used to provide the business
entity with benefits over a number of years.
_______________________ 5. Cash Equivalents are short-term, highly liquid investments which
are readily convertible to cash and with original maturities of
three months or less.
Date Developed:
_______________________ 6. Owner’s equity is the claim held by the outsiders against the
assets of the business after the total liabilities are deducted.
_______________________ 7. The bond is a contract between the issuer and the lender
specifying the terms of repayment and the interest to be charge.
_______________________ 8. Long-term Liabilities are obligations which are payable beyond
the normal operating cycle or one year, whichever is longer or
those obligations which though payable within one year will not
be liquidated by existing current assets.
_______________________ 9. Interest expense is an expense related to use of borrowed funds.
_______________________ 10. A notes payable is a written pledge that the customer will pay the
business a fixed amount of money on a certain date.
BASIC ACCOUNTING EQUATION
The Account
The basic summary device of accounting is the account. A separate account is maintained
for each item that appears on the balance sheet (assets, liabilities and owner’s equity) and
on the income statement (revenues and expenses). Thus, an account may be defined as a
detailed record of the increases, decreases and balance of each item that appears in an
entity’s financial statements.
Date Developed:
The basic form of an account is the “T” account because of its similarity to the letter “T”.
The account has three parts as shown below:
Account Title
Left side or Right side or

Debit side Credit side
Normal Balance:
DR: Assets, Expenses
CR: Liabilities, Owner’s Equity and Income
The Chart of Accounts
A listing of all the accounts and their account numbers in the ledger is known as chart of
accounts. The chart is arranged in the financial statement order, that is, assets first (from
current assets to non-current assets), followed by liabilities (from current to non-current
liabilities), owner’s equity, revenues and expenses. The amount should numbered in a
flexible manner to permit indexing and cross-referencing.
When analyzing transactions, the accountant refers to the chart of accounts to identify the
pertinent accounts to be increased or decreased. If an appropriate account title is not listed
in the chart, an additional account may be added.
Presented below is the chart of accounts for the illustration:
Del Mundo Advertising Agency

Chart of Accounts
Balance Sheet Accounts Income Statements Accounts
Assets 190 Office Equipment

110 Cash 195 Accumulated Depreciation - Office
120 Accounts Receivable Equipment
130 Fees Receivable Liabilities
140 Art Supplies 210 Notes Payable
150 Office Supplies 220 Accounts Payable
160 Prepaid Rent 230 Salaries Payable
170 Prepaid Insurance 240 Interest Payable
180 Art Equipment 250 Unearned Art Revenue
185 Accumulated Depreciation - Art
Equipment Owner’s Equity
Date Developed:
310 Del Mundo, Capital 530 Office Supplies Expense
320 Del Mundo, Withdrawal 540 Rent Expense
330 Income Summary 550 Insurance Expense
560 Electricity Expense
Revenues 570 Telecommunications Expense
410 Advertising Revenues 580 Depreciation Expense – Art
420 Art Revenues Equipment
Expenses 590 Depreciation Expense – Office
510 Salaries Expense Equipment
520 Art Supplies Expense 600 Interest Expense
The Accounting Equation
Financial statements tell us how a business is performing. They are the final product of the
accounting process. The most basic tool of accounting is the accounting equation. This
equation presents the resources of the business and the claims against these resources.
The accounting equation states that assets must always equal liabilities and owner’s
equity. The basic accounting model is:
Economic Resources Financial Obligations Owner’s Claims on the

Owned by a Business or Debts of a Business Assets of a Business
Effects of Transactions
Every accountable event has a dual but self-balancing effect on the accounting
equation. These events may be grouped into nine types of effects as follows:
Type of Effect Events
 Purchase of an asset on
account
1. Increase in Asset = Increase in Liability
 Borrowings from
creditors
2. Increase in Asset = Increase in Owner’s  Owner’s investment

Date Developed:
 Render of service
Equity
 Sales of
goods/merchandise
 Cash purchase of an
3. Increase in Asset = Decrease in Another
asset
Asset
 Collection of receivables
 Payment of
liability/payables
4. Decrease in Asset = Decrease in Liability
 Return of asset
purchased on account
5. Decrease in Assets = Decrease in  Owner’s withdrawal for

Owner’s Equity personal use
 Payment of an expense
6. Increase in Liabilities = Decrease in  Accrual of

Owner’s Equity expense/expense payable
7. Increase in one Liability = Decrease in  Conversion of an account

another Liability payable to note payable
and vice versa
8. Increase in Owner’s Equity = Decrease in  Realization of an

Liabilities Unearned Revenue
9. Increase in one Owner’s Equity =  Unusual event that

Decrease in another Owner’s Equity requires the owner to
invest equity replacing an
asset, such as when a
natural disaster destroys
equipment or inventory
Date Developed:
BASIC ACCOUNTING EQUATION
Instruction: For each transaction, indicate the assets (A), Liabilities (L) or owner’s equity
(OE) increased (+), decreased (-) or did not change (0) by placing the appropriate sign in
the appropriate column.
A=L+OE
Transactions A L OE
1. Received cash as additional investment. + 0 +

2. Purchased supplies on account. + + 0
3. Charge customers for service rendered made on + 0 +
account.
4. Rendered service to cash customers. + 0 +
5. Paid cash for rent on building. - 0 -
6. Collected on account receivable in full. +- 0 0
7. Paid cash for supplies +- 0 0
8. Returned supplies purchased on account. - - 0
9. Paid cash to settle accounts - - 0
10. Paid cash to owner for personal use - 0 -
Date Developed:
ANALYZING DOCUMENTS
Transaction Analysis
The analysis of transactions should follow these four basic steps:
1. Identify the transaction from source documents.

2. Indicate the accounts affected by the transaction.
3. Ascertain whether each account is increased or decreased by the transaction.
4. Using the rules of debit and credit, determine whether to debit or credit the account
to record its increase or decrease.
Types of Business Document
Here are some of the most common source documents in accounting:
 Invoices are documents listing goods or services provided, as well as their prices.
They are the primary source documents for sales and similar forms of income.
Businesses normally send an invoice together with goods (or once services have
been delivered) so as to indicate the amount of payment required to be paid to
them.
In addition, invoices often indicate when the payment is to be made, the business
banking details, etc.
 Official Receipts evidences the receipt of cash by the seller or a service provider.
Receipts thus normally relate to payment that has been made by cash or through a
debit or credit card.
 A check (or cheque) is a common form of payment, instructing a bank to transfer

money from one bank account to another.
Where checks are used by a business to make payments, check counterfoils serve as
the source documents.
A check counterfoil is the part of the check kept by the drawer (writer) of the check
as a record of the transaction - a record that the check was written and the payment
was made.
 Payment Confirmations are documents serving as proof that payment has been
made by electronic transfer (payments made through the internet, using a
Date Developed:
cellphone, computer or other electronic means).
 A statement of account is an itemized report showing the amount owed by one

business to another, as well as details of transactions between the two businesses.
 Credit Memorandum is a form used by the seller to notify the buyer that account
has been decreased due to errors or other factors requiring adjustments.
SELF-CHECK N0. 1.2-1

ANALYZING DOCUMENTS
Matching Type. Match Column A with Items on Column B. Write the letter of your answer
on the space provided.
Column A _____1. Official Receipt
Date Developed:
_____2. Service Income and Column B
Accounts Receivable
a. Billed a customer for a service rendered on account.
_____3. Check
b. Collected P2,000 from a client for the service
_____4. Santos, Withdrawal and
rendered last week.
Cash
c. Evidences the receipt of cash by the seller or a
_____5. Supplies and Cash
service provider.
_____6. Rent Expense and Cash
d. It is a common form of payment, instructing a bank
_____7. Credit Memorandum
to transfer money from one bank account to
_____8. Equipment and Accounts
another.
Payable
e. It is a form used by the seller to notify the buyer
_____9. Cash and Accounts
that account has been decreased due to errors or
Receivable
other factors requiring adjustments.
_____10. Accounts Payable and
f. Mr. Santos withdrew cash for personal use.
Cash
g. Paid monthly rental of the office used.
h. Paid P1,000 owed to the supplier.
i. Purchased office equipment on account.
j. Purchased office supplies worth P3,000.
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP) are set of guidelines and procedures that
constitute acceptable accounting practices at a given time. The following principles are
relied upon by account
 Objectivity Principle. To make accounting records and statements as accurate and

as useful as possible, they are based on the most reliable data. Reliable data are
information that flows from activities documented by objective evidence and can be
confirmed by independent observers. Without this principle, accounting records
are subject to dispute since it would be based on whims and opinions.
Date Developed:
 Historical Cost. Assets acquired, as stated by this principle, should be recorded at
their actual or historical cost and not at what the management thinks they are
worth at the reporting date.
 Revenue Recognition Principle. This principle states that revenue is to be

recognized in the accounting period services are rendered or goods are delivered.
 Matching Principle. In the accounting period, expenses should be recognized in

which goods and services are used up to produce revenue and not when the goods
and services are paid by the entity.
 Adequate Disclosure. Requires that all relevant information that would affect
user’s understanding and assessment of the accounting entity should be disclosed in
the financial statements.
 Consistency Principle. States that firms should use the same accounting method
from period to period in order to achieve comparability over time within the single
enterprise. Changes however are permitted provided it is justifiable and is
disclosed in the financial statements.
 Materiality. Financial reporting is only concerned with information that is

significant enough to affect evaluations and decisions.
 Conservatism. This is a principle that requires company accounts to be prepared

with caution and high degrees of verification. All probable losses are recorded when
they are discovered, while gains can only be registered when they are fully realized.
 Timeliness. Accounting information is communicated early enough to be used for

the economic decision it might influence.
The Accounting Equation
Accounting equation is the most basic tool of accounting. It states that assets always equal
liabilities and owner’s equity. A business transaction is the occurrence of an event or a
condition that affects the financial position and can be reliably recorded.
Every financial transaction can be analyzed and expressed in terms of its effect on the
accounting equation. The financial transactions will be analyzed by means of a financial
transaction worksheet which is a form used to analyzed increases and decreases in the
assets, liabilities or owner’s equity of a business entity.
Date Developed:
To illustrate:
Lolita Bellen opened a business called Lolita Bellen Dance Studio. During the month of May
2019, the following financial transactions took place:
May 1 Bellen invested P150,000 from her personal savings account in the business.
When a specific asset, liability or owner’s equity is created by a financial transaction, it is

listed in the financial transaction worksheet using the appropriate accounts. The
worksheet that follows shows the first transaction of Lolita Bellen Dance Studio. The dates
are enclosed in a parenthesis.
Lolita Bellen Dance Studio

Financial Transaction Worksheet
Month of May
Assets = Liabilities + Owner’s

Equity
Cash Bellen,
Capital
(1 P150,000 = P150,000
)
May 5 Acquired office equipment costing P70,000.

Month of May

Equity
Cash + Office Bellen,
Date Developed:
Equipment Capital
(1) P150,000 = P150,000
(5) (70,000) P70,000
P80,000 + P70,000 = P150,000
P150,000 = P150,000
May 8 Purchased office supplies on account in the amount of P3,500.

Month of May

Equity
Cash + Office + Office Account Bellen,
Supplies Equipment s Capital
Payable
(1 P150,000 = P150,000
)
(5 (70,000) P70,000
)
(8 P3,500 P3,500
)
P80,000 + P3,500 + P70,000 = P3,500 + P150,000
P153,500 = P153,500
May 10 Lolita Bellen Dance Studio collected P25,000 in cash for dance lessons.

Month of May

Equity
Date Developed:
Payable
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
P105,000 + P3,500 + P70,000 = P3,500 + P175,000
P178,500 = P178,500
May 14 Paid Himzon Services for the monthly utilities, P15,000.

Month of May

Equity
Payable
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
P90,000 + P3,500 + P70,000 = P3,500 + P160,000
P163,500 = P163,500
May 16 Lolita Bellen billed the clients for the dance lessons she had given for the month,
P50,000.

Month of May

Equity
Cash + Accounts + Office + Office Accounts Bellen,
Date Developed:
Receivable Supplies Equipment Payable Capital
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
P90,000 + P50,000 + P3,500 + P70,000 = P3,500 + P210,000
P213,500 P213,500
May 17 Lolita Bellen made a partial payment of P2,000 for the May 8 purchase of
supplies.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
P88,000 + P50,000 + P3,500 + P70,000 = P1,500 + P210,000
P211,500 P211,500
May 20 A check in the amount of P40,000 is received from the clients billed May 16.

Month of May
Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
Date Developed:
(17) (2,000) (2,000)
(20) 40,000 (40,000)
P128,000 + P10,000 + P3,500 + P70,000 = P1,500 + P210,000
P211,500 P211,500
May 22 Lolita Bellen made a P2,500 withdrawal for personal use.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
(20) 40,000 (40,000)
(22) (2,500) (2,500)
P125,500 + P10,000 + P3,500 + P70,000 = P1,500 + P207,500
P209,000 P209,000
May 25 Lolita Belles paid her dance instructors’ salaries in the amount of P30,000.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
(20) 40,000 (40,000)
(22) (2,500) (2,500)
Date Developed:
(25) (30,000) (30,000)
P95,500 + P10,000 + P3,500 + P70,000 = P1,500 + P177,500
P179,000 P179,000
Establish the following accounts in a financial transaction worksheet: Cash; Accounts

Receivable; Supplies; Service Vehicle; Accounts Payable; and Llaneta, Capital. Record in the
worksheet the transactions listed below.
Dec. 1 Elena Llaneta formed Llaneta Signs and Design by investing P400,000.
Dec. 2 Acquired supplies for cash, P73,000.
Dec. 3 Acquired service vehicle in the amount of P210,000 on account.
Dec. 8 Received P60,000 for the signs painted.
Dec. 11 Paid the monthly rental of P25,000.
Dec. 13 Painted Signs for Mendribe Kitchenette on account, P10,000.
Dec. 14 Paid 60,000 for the account on Dec. 3.
Dec. 15 Withdrew P20,000 for personal use.
Dec. 20 Collected from Mendribe Kitchenette, P5,000.
Dec. 27 Paid the salaries of employees for the month, P36,000.
Dec. 30 Paid PLDT for the communication services for the month P1,300.
Date Developed:

Record Expenses Manage Accounts Receivable Manage Accounts Payable Produce Financial Reports

Uploaded by

Copyright:

Available Formats

Record Expenses Manage Accounts Receivable Manage Accounts Payable Produce Financial Reports

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Record Expenses Manage Accounts Receivable Manage Accounts Payable Produce Financial Reports

Uploaded by

Copyright:

Available Formats

DEFINITIONS AND FUNCTIONS OF BOOKKEEPING AND ACCOUNTING, FORMS OF

BUSINESS ORGANIZATION, AND TYPES OF BUSINESS ACTIVITIES

Accounting and Bookkeeping

The Four Phases of Accounting

 Recording – This is technically called bookkeeping. In this phase, business transactions

 Interpreting – These are the accountant’s interpretation on the financial statement.

Bookkeeping is the process of recording daily transactions in a consistent way, and is a

Types of Business Organization

 Partnership. A partnership is a business owned and operated by two or more

 Corporation. A corporation is a business owned by its stockholders. It is an

Types of Business Activities

 Manufacturing. Manufacturing companies buy raw materials; convert them into

BASIC FINANCIAL STATEMENT

Basic Financial Statements

 Statement of Financial Performance (Income Statement)

 Statement of Cash Flows

SELF-CHECK NO. 1.1-2

BASIC ACCOUNTING EQUATION

Left side or Right side or

Presented below is the chart of accounts for the illustration:

Del Mundo Advertising Agency

Balance Sheet Accounts Income Statements Accounts

Assets 190 Office Equipment

The Accounting Equation

Economic Resources Financial Obligations Owner’s Claims on the

Type of Effect Events

2. Increase in Asset = Increase in Owner’s  Owner’s investment

5. Decrease in Assets = Decrease in  Owner’s withdrawal for

6. Increase in Liabilities = Decrease in  Accrual of

7. Increase in one Liability = Decrease in  Conversion of an account

8. Increase in Owner’s Equity = Decrease in  Realization of an

9. Increase in one Owner’s Equity =  Unusual event that

1. Received cash as additional investment. + 0 +

The analysis of transactions should follow these four basic steps:

1. Identify the transaction from source documents.

Types of Business Document

Here are some of the most common source documents in accounting:

 A check (or cheque) is a common form of payment, instructing a bank to transfer

 A statement of account is an itemized report showing the amount owed by one

SELF-CHECK N0. 1.2-1

Generally Accepted Accounting Principles (GAAP)

 Objectivity Principle. To make accounting records and statements as accurate and

 Revenue Recognition Principle. This principle states that revenue is to be

 Matching Principle. In the accounting period, expenses should be recognized in

 Materiality. Financial reporting is only concerned with information that is

 Conservatism. This is a principle that requires company accounts to be prepared

 Timeliness. Accounting information is communicated early enough to be used for

The Accounting Equation

When a specific asset, liability or owner’s equity is created by a financial transaction, it is

Lolita Bellen Dance Studio

Assets = Liabilities + Owner’s

May 5 Acquired office equipment costing P70,000.

Lolita Bellen Dance Studio

Assets = Liabilities + Owner’s

May 8 Purchased office supplies on account in the amount of P3,500.

Lolita Bellen Dance Studio

Assets = Liabilities + Owner’s

Lolita Bellen Dance Studio

Assets = Liabilities + Owner’s