Fundamentals
Accounting
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of
Accounting- art of recording,
classifying, and summarizing in a
significant, manners and in terms of
money, transactions and events, and
interpreting the result
Generally Accepted Accounting
Principles (GAAP)- widely accepted
set of rules, concepts and principles
of accounting procedures.
Separate Entity/ Economic Entityassumes that all the business
transactions are separate from the
business
owner’s
personal
transactions.
Cost principle- all assets acquired
should be values and recorded based
on acquisition cost not the prevailing
market value.
Matching Principle- principles that
requires that expenses be matched
with revenue in a given accounting
period.
Time Period Principle- requires the
business to complete the whole
accounting process over a specific
operating period.
Current Assets- considered short
term assets, convertible into cash
within a year.
Non-current Assets- are long term
investments, convertible into cash
not only within a year.
Current liabilities- paid over a short
period of time.
Non-current liabilities- paid over a
long period of time.
Financial Statements
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documents
that
describe
a
company’s operations and financial
performance.
collection
of
records
that
demonstrates the financial standing
of your business at a given period.
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provides important information
regarding to the assets and
depths of a certain business.
Government
organizations,
accounting companies, etc.
frequently
audit
financial
statement to guarantee accuracy
and for tax, financing, or
investing purposes.
Financial Statements includes:
1. Balance Sheet/ Statement of
Position
2. Income
Statement/
Comprehensive Income
3. Cash Flow Statement
4. Statement of changes in equity
1. Balance Sheet/ Statement of Position
Accounting Equation
Assets= Liabilities + Shareholder’s
Equity
 It lists the assets, liabilities, and
shareholder’s equity of a business at
a particular period.
 So called “book value”, which is
determines by deducting all of its
obligations(liabilities)
and
shareholder equity from its total
assets.
 Assets- anything that a
business owns which holds
some amount of quantifiable
value, meaning that it could
be liquidated and turned into
cash. These are the goods and
resources owned by the
business.
 Current Assets
Cash
Cash Equivalents
Prepaid Expenses
Inventory
Marketable securities
Accounts Receivable
 Non-current Assets
Land
Equipment
Building
Furnitures
and
fixtures
Difference: Fixed assets or non-currents
assets experience or undergo depreciation,
which divides and led a business’s cost for
non-current assets to expense them over
their useful lives.
Customer Deposits
Current Position Debt
Payable
Deferred Revenue
Income Taxes Payable
Interest Payable
Payroll
Expense
Payable
Salaries Payable
Sales Taxes Payable
o Non-current Liabilities
Bonds Payable
Loan Payable
Notes Payable
Deferred tax liability
 Owner’s Equity- represents
the owner’s investment in the
business minus the owner’s
draws or withdrawals from
the business plus the net
income or minus, since the
business began.
o Capital
Retained earnings
Owner’s drawings
 Depreciation- refers to an
accounting method used to
allocate the cost of a tangible
or physical assets over its
useful life. It represents how
much of an asset’s value has
been used and allows
business/ companies to earn
revenue from the assets they
own by paying for them over
a certain period of time.
1. Accumulated Depreciation – refers
to the sum of all depreciation
recorded on an asset to a specific
date.
Depreciation= Cost – Residual Value
Life Spa
Example:
Equipment: Delivery Truck
Purchase price: 1,000,000
Purchase Date: March 1, 2018
1. Calculate the depreciation per
month
2. Calculate
the
accumulated
depreciation on February 28,
2021
Depreciation= 1,000,000 – 100,000
5 years or 60 months
= 900,000
60
Depreciation per month = 15,000
March 1, 2018 – February 28, 2021=
3 years or 36 months
= 15,000 x 36
= 1,000,000-540,000(dep.)
=460,000
 Liabilities- company owes,
usually a sum of money.
These are settled over time
through
transferring
of
economic benefits including
money, goods, or services.
Can also mean legal or
regulatory risk or obligation
to asset.
o Current Liabilities
Accounts Payable
Accrued Liabilities
Accrued Wages
2.Income Statement/ Profit and Loss
Net Income= (Total revenue + Gains)
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Contains the revenue and expenses
items of the company that has not
been realized. Typically presented
after the income statement within
the financial statements.
 Elements
of
Income
Statement
o Revenues and Gains
o Operating Revenue
o Non-Operating
Revenue
o Gains
o Expenses and Losses
o The cost for a
business to continue
operation and turn a
profit is known as an
expense.
o Primary
Activity
Expenses
o Secondary
Activity
expenses
o Losses as expenses