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    FABM2 - Lesson 1

    Uploaded by

    wendell john mediana

    Copyright:

    © All Rights Reserved
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    of 27

    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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