FABM2 - Lesson 1

FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS
AND MANAGEMENT 2
LET’S HAVE A REVIEW
WHAT IS THE MEANING OF ACCOUNTING?
“Accounting is the process of IDENTIFYING, RECORDING, and
COMMUNICATING economic events of an organization to interested
users.”
WHAT ARE THE BRANCHES OF ACCOUNTING?
• Financial Accounting
• Management Accounting
• Government Accounting
• Auditing
• Tax Accounting
• Cost Accounting
• Accounting Education
• Accounting Research
USERS OF ACCOUNTING INFORMATION
INTERNAL
Internal users of accounting information are those individuals
inside a company who plan, organize, and run the business. These
users are directly involved in managing and operating the
business. These include marketing managers, production
supervisors, finance directors, company officers and owners.
EXTERNAL
External users are individuals and organizations outside a company
who want financial information about the company. These users are not
directly involved in managing and operating the business. The two most
common types of external users are potential investors and creditors.
Examples of External Users:
• Potential Investors
• Banks
• Suppliers
• BIR
• DOLE
FORMS OF BUSINESS ORGANIZATIONS
• Sole/ Single Proprietorship
• Partnership
• Corporation
• Cooperatives
THE ACCOUNTING EQUATION
Assets = Liabilities + Equity

Remember: For every transaction, the accounting
equation should always be balanced.
IMPORTANT NOTE:
Assets and Expenses are Debited when they Increase, and they
are Credited when they Decrease. While Liabilities, Equity and
Revenue are Debited when they Decrease, and they are Credited
when they Increase.
Review Activity:
Determine where the following accounts belong:

Assets, Liabilities, Equity, Revenues, or Expenses.
1.Cash
2.K. Tah, Capital
3.Salaries
4.Accounts Payable
5.Professional Fees Income
6.Communication Expense
7.K. Tah, Personal
8.Notes Receivable
9.Notes Payable
10. Equipment
Exercises:
Determine the missing amounts based on accounting equation:
Total Assets ?
1.
Total Liabilities P335,000 Total Assets P762,000
Total Equity P375,000 Total Liabilities ?
3.
Total Equity P398,000
Total Assets P685,000

2. Total Liabilities P245,000
Total Equity ?
Lesson 1:
Statement of Financial Position (SFP)
LEARNING OBJECTIVES:
1. Identify the elements of the SFP and describe each of these

items for a single/sole proprietorship business
2. Prepare an SFP for a single/sole proprietorship business
using the report form
3. Prepare an SFP for a single/sole proprietorship business
using the account form
DO YOU STILL REMEMBER THE FOLLOWING TERMS?
1.Accounting Equation
 Assets = Liabilities + Equity
2. Assets
 are the resources owned and controlled by the firm.
 Current Assets
 Non-current Assets
 Current Assets
• Cash is money on hand, or in banks, and other items considered as medium of exchange
in business transactions.
• Accounts Receivable are amounts due from customers arising from credit sales or credit services.
• Notes Receivable are amounts due from clients supported by promissory notes.
• Inventories are assets held for resale
• Supplies are items purchased by an enterprise which are unused as of the reporting date.
• Prepaid Expenses are expenses paid in advance. They are assets at the time of payment and become
expenses through the passage of time.
• Accrued Income is revenue earned but not yet collected
• Short term investments are the investments made by the company that are intended to be sold
immediately
 Non-current Assets
• Property, Plant and Equipment are long-lived assets which have been
acquired for use in operations.
• Long term Investments are the investments made by the company for
long-term purposes
• Intangible Assets are assets without a physical substance. Examples
include franchise and copyright.
3. Liabilities
 are obligations of the firm arising from past events
which are to be settled in the future.
 Current Liabilities
 Non-current Liabilities
Current Liabilities
• Accounts Payable are amounts due, or payable to, suppliers for goods
purchased on account or for services received on account.
• Notes Payable are amounts due to third parties supported by promissory notes.
• Accrued Expenses are expenses that are incurred but not yet paid (salaries
payable, taxes payable)
• Unearned Income is cash collected in advance; the liability is the service to
performed or goods to be delivered in the future.
 Non-current Liabilities
• Loans Payable
• Mortgage Payable
liabilities that do not fall due (paid, recognized as revenue) within one year after year-end
date
4. Equity
 the owner’s claims in the business. It is the residual interest in the
assets of the enterprise after deducting all its liabilities.
 Capital
5. Single/sole Proprietorship Business

 form of a business owned by one person; the simplest, and the most
common form of business organization
 It is not separate from the owner. The business and the owner are
inseparable
STATEMENT OF FINANCIAL POSITION
Also known as the balance sheet. This statement

includes the amounts of the company’s total assets,
liabilities, and owner’s equity which in totality
provides the condition of the company on a specific date.
(Haddock, Price, & Farina, 2012)
PERMANENT ACCOUNTS – As the name suggests, these accounts are
permanent in a sense that their balances remain intact from one accounting period to
another. (Haddock, Price, & Farina, 2012) Examples of permanent account include
Cash, Accounts Receivable, Accounts Payable, Loans Payable and Capital among
others. Basically, assets, liabilities and equity accounts are permanent
accounts. They are called permanent accounts because the accounts are retained
permanently in the SFP until their balances become zero. This is in contrast with
temporary accounts which are found in the Statement of Comprehensive Income
(SCI). Temporary accounts unlike permanent accounts will have zero balances at the
end of the accounting period.
CONTRA ASSETS – are those accounts that are presented under the assets
portion of the SFP but are reductions to the company’s assets. These include Allowance
for Doubtful Accounts and Accumulated Depreciation. Allowance for Doubtful Accounts
is a contra asset to Accounts Receivable. This represents the estimated amount that the
company may not be able to collect from delinquent customers. Accumulated
Depreciation is a contra asset to the company’s Property, Plant and Equipment. This
account represents the total amount of depreciation booked
against the fixed assets of the company
Report Form – A form of the SFP that shows asset accounts first and
then liabilities and owner’s equity accounts after. (Haddock, Price, &
Farina, 2012)
Account Form – A form of the SFP that shows assets on the left side
and liabilities and owner’s equity on the right side just like the debit
and credit balances of an account. (Haddock, Price, & Farina, 2012)
a. Emphasize that the two are only formats and will yield the same
amount of total assets, liabilities and equity
b. Emphasize that assets should always be equal to liabilities and
equity
EXAMPLE:
REPORT FORM
ACCOUNT FORM
PRACTICE:
1. Learning is Fun Company had currents assets amounting to Php
100,000. Non-current assets for the year totaled Php 76,000. How
much is the company’s total assets?
2. Happy Selling’s had the following accounts at year end: Cash-

250,000, Accounts Payable- 70,000, Prepaid Expense- 15,000.
Compute for the company’s currents assets.
3. Company’s Total Liabilities and Equity amounted to Php

285,000. Total non-current assets ended at Php85,000. Cash
totaled Php50,000. Inventory amounted to Php100,000. Assuming
the company had no other assets, how much is Accounts
Receivable?
ASSIGNMENT:
Prepare a Statement of Financial Position using the following accounts
(one in report form and one in account form):
Cash – 15,000
Loans Payable – 88,500
Accounts Receivable – 22,600
Supplies – 12,300
Equipment – 57,000
Owner’s equity – 199,000
Accounts Payable – 32,400
Building – 213,000
You can use any business name and the end of the current
year for the heading.

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FUNDAMENTALS OF ACCOUNTANCY,

• Sole/ Single Proprietorship

Assets = Liabilities + Equity

Determine where the following accounts belong:

Total Assets P685,000

1. Identify the elements of the SFP and describe each of these

5. Single/sole Proprietorship Business

Also known as the balance sheet. This statement

2. Happy Selling’s had the following accounts at year end: Cash-

3. Company’s Total Liabilities and Equity amounted to Php

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