Basic Accounting for Non-Accountants_Part 1.ppt

8/9/2019 Basic Accounting for Non-Accountants_Part 1.ppt

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BasicAccounting forNon-Accountants

Learning Objective

1. Describe the nature of a business and therole and purpose of accounting in business

2. Describe the accounting concepts andprinciples and constraints

3. State the accounting equation and deneeach element of the equation.

4. Introduction to debit and credits

5. Introduction to the accounting process

What is a Business?

• A business is an organization in whichbasic resources (inputs), such as ateria!san" !abor, are asseb!e" an" processe" toprovi"e goo"s or services (outputs) to

custoers#• The obecti!e of most businesses is to

earn a prot.

• "rot is the di#erence bet$een the

amounts recei!ed from customers forgoods or ser!ices and the amountspaid for the inputs used to pro!idethe goods or ser!ices.

$he %o!e of Accounting in

Business• Accounting can be "e&ne" as an

inforation s'ste that provi"es

reports to users about the econoicactivities an" con"ition of a business#

What is AON$*N+?• is a service activit'#

• *ts function is to provi"e

uantitative inforation,priari!' &nancia! in nature,about econoic entities, that

is inten"e" to be usefu! inaing econoic "ecision#

• Accounting .tan"ar"s ounci!

•Accounting is theprocess of /easuring

*nterpretingounicating &nancia!inforation to support

interna! an" e0terna!business "ecision aing#

1urpose of Accounting• *t gives 'ou an e0ce!!ent gauge of how we!!

'our business is "oing

• Accounting a!so provi"es &nancia!inforation throughout the 'ear so 'oucan test the success of 'our businessstrategies an" ae course corrections toensure that 'ou reach 'our 'ear-en" pro&tgoa!s#

• Acccounting can becoe 'our best s'stefor anaging 'our &nancia! assets an"testing 'our business strategies

$he Nee" for

Accounting/anagers, investors, an" other interna! groups/anagers, investors, an" other interna! groups

want the answers to two iportant uestions2want the answers to two iportant uestions2

3ow we!! "i"3ow we!! "i"

the organizationthe organization

perfor?perfor? Where "oesWhere "oesthe organizationthe organization

stan"?stan"?

Accountants answer these uestionsAccountants answer these uestionswith three ajor &nancia! stateents2with three ajor &nancia! stateents2

*ncoe*ncoe

stateentstateentBa!anceBa!ancesheetsheet

.tateent of .tateent of

cash 4owscash 4ows

sers of 5inancia!*nforation

Accountingoncepts an" $erino!ogies

Accounting oncepts2 n"er!'ingAssuptions

*ncoe is recognize" when earne"

regar"!ess of when receive"60pense is recognize" when incurre"

regar"!ess of when pai" $he e7ects of transactions are recognize"

when the' occur

%&&'(%%&&'(%

*+I,**+I,*

&+,&-'&+,&-'

&+,&-"&+,&-"TT

$he business wi!! continue in operationa!e0istence for the foreseeab!e future

5inancia! stateents shou!" be prepare" ona going concern basis un!ess anageenteither inten"s to !iui"ate the enterprise or

to cease tra"ing, $he business an" its owner(s) are twoseparate entities

An' private an" persona! incoes an"e0penses of the owner(s) shou!" not be

treate" as the incoes an" e0penses ofthe business

(SI,-S(SI,-S

S -,TIT/S -,TIT/

&+,&-"&+,&-"

Accounting oncepts2 n"er!'ingAssuptions

Assets, !iabi!ities, capita!, incoe an"e0penses shou!" be state" in ters of aunit of easure (1hi!ippine 1eso)

$he purchasing power of the 1eso isstab!e8constant

TI0-TI0-"-'I+D"-'I+D

0+,-T%'/0+,-T%'/

(,IT(,IT

$he !ife of an entit' is sub"ivi"e" intotie perio"s which are of eua! !ength

for the purpose of aing &nancia!

reports

sua!!' twe!ve onths

A ti t B i

• A proprietorship is owne" b' onein"ivi"ua!#

• $he' are eas' an" cheap toorganize an" resources are !iite"

to those of the owner#• A partnership is sii!ar to aproprietorship e0cept that it is owne"b' two or ore in"ivi"ua!s#

• obines the si!!s an" resources of

ore than one person#

PartnershipPartnership

• A corporation is organize" un"erstate statutes as a separate !ega!

ta0ab!e entit'#

CorporationCorporation

SoleSole

ProprietorshipProprietorship

Accounting oncepts2 Business6ntities

Accounting oncepts2 9ua!itativeharacteristics

• $he actua! e7ects of thetransaction shou!" be proper!'accounte" for an" reporte" in the&nancia! stateents

aithfulaithful

'epresentat'epresentat

ionion

• $he capacit' of inforation toin4uence a "ecision

'ele!ance'ele!ance

• $he "egree of con&"ence users p!aceupon the truthfu!ness of the

representations in the &nancia!stateents

• $he ua!it' of inforation that assuresusers that the inforation is free frobias an" error an" faithfu!!' representswhat it purports to represent

'eliabilit'eliabilit

• $ransactions shou!" be accounte"in accor"ance with theirsubstance in rea!it' an" not

SubstanceSubstance

o!er ormo!er orm

• *nforation in the 5inancia!.tateents ust be free frobias

• :fairness;

,eutralit,eutralit

• are an" caution ust be

e0ercise" when "ea!ing withuncertainties in the easureentprocess

• $he %evenues an" pro&ts are notanticipate"# On!' rea!ize" pro&tswith reasonab!e certaint' arerecognize" in the pro&t an" !ossaccount

&onser!atis&onser!atis

m orm or

"rudence"rudence

• %e!evant inforation ust bepresente" in a wa' that faci!itatesun"erstan"ing an" avoi"s

erroneous ip!ication

&ompletene&ompletene

Accounting oncepts2 9ua!itativeharacteristics

Accounting oncepts2 Accountingonstraints

•*nforation ust be avai!ab!e orcounicate" ear!' enough when a"ecision is to be a"e

TI0-)I,-STI0-)I,-SSS

• $he bene&t "erive" fro the inforation

shou!" e0cee" the cost incurre" inobtaining the inforation

&+ST&+ST

-,-IT-,-IT

• An ite is ateria! if now!e"ge of itwou!" a7ect or in4uence the "ecision of

the infore" users of the &nancia!stateents

0%T-'I%)I0%T-'I%)I

T/ T/ • $here is a tra"eo7 between re!evance

(reporting inforation in a re!evantanner) an" re!iabi!it' (ensuring that the

inforation is re!iab!e)

'-)-%,&-'-)-%,&-

'-)I%I)IT/ '-)I%I)IT/

Assets < Liabi!ities = 6uit'

$36 AON$*N+ 69A$*ON

The resources

owned by a

business

The rights of

creditors are the

debts of the

business

The rights of the

owners

T'%,S%&TI+,

• a business event having a onetar'

ipact on the &nancia! stateents of abusiness

• *t is recor"e" in the accounting recor"sof the business

• A recor" in the genera! !e"gerthat is use" to co!!ect an" store

sii!ar inforation

%&&+(,%&&+(,

Accounting $erino!ogies

are va!uab!e resources thatare owne" b' a &r#%SS-T%SS-T%&&+(,%&&+(,

)I%I)IT)I%I)IT

%&&+(,%&&+(,TT

present ob!igations of the&r#

-(IT/-(IT/

%&&+(%&&+(

represents the owners>resi"ua! interest in the assetsof the business#%esi"ua! interest is anothernae for owners> euit'#

$'pes ofAccounts

I,&+0-I,&+0-

%&&+(,%&&+(,TT

-6"-,S--6"-,S-

%&&+(,T%&&+(,T

the pa'ent 'ou receive for 'ourtie, services 'ou provi"e, or the

use of 'our one'60ap!es inc!u"e coissions, tips,

"ivi"en" incoe fro stocs, an"interest incoe fro ban accounts#

one' 'ou spen" topurchase goo"s or

services provi"e" b'soeone e!se60ap!es inc!u"e rent,

e!ectricit', an" !ighte0penses

)%)%,&-

$he su of the increases in anaccount is usua!!' eua! to orgreater than the su of the

"ecreases in the account# $hus,the nora! ba!ance of an account is either a "ebit or a cre"it"epen"ing on whether increasesin the account are recor"e" as"ebits or cre"its#

An accounting entr' thatresu!ts in either an increase inassets or a "ecrease in euit'or !iabi!ities on a copan'>s

ba!ance sheet or in 'our banaccount#&'-DIT

An accounting entr' that either"ecreases assets or increases!iabi!ities an" euit' on thecopan'>s ba!ance sheet#

ebits an" re"its• @ou just nee" to un"erstan" that "ebit an" cre"it are

two actions that are opposite in nature#

• An e!eent (account) that is e7ecte" b' an accountingtransaction is either "ebite" or cre"ite" (with an

aount that is re4ecte" in the transaction) "epen"ingon the nature of the account an" the ru!e app!icab!e toit#

• 6ntries to the !eft si"e of the an account are "ebits(%), an" accounts with !eft si"e" ba!ances (assetaccounts an" e0pense accounts) are "ebit accounts#6ntries to the right si"e of the an account are cre"its(%), an" accounts with right si"e" ba!ances (!iabi!it'accounts, owners> euit' accounts, an" revenue an"pro&t accounts) are cre"it accounts# n"erstan"ing"ebit an" cre"it is essentia! for booeeping an"ana!'sis of ba!ance sheets#

ebit an" re"it %u!es

• An accountingentr' that2

*ncreases an assetaccount

*ncreases ane0pense account

ecreases a

!iabi!it' accountecreases a

revenue account

• An accountingentr' that2

ecreases anasset account

ecreases ane0pense account

*ncreases a

!iabi!it' account*ncreases a

revenue account

Summar of Debits and

&redits

$he Accounting

1rocess

.ing!e-entr' vs oub!e-entr'.ing!e One account entr' for eachtransaction

oub!e $wo account entries foreach transaction

One "ebit an" one cre"it

3'bri" s'stes /a' not atch incoe with e0penses

/a' not "istinguish cash, chec, or cre"it

oub!e-entr' Accounting

A process b' which accounting transactions areentere"

• each in"ivi"ua! transaction a!wa's has an o7settingtransaction#

• "oub!e-entr' booeeping gets its nae because'ou enter a!! transactions twice

• One account wi!! receive a C"ebitC entr', eaningthe aount wi!! be entere" on the left si"e of thataccount# Another account wi!! receive a Ccre"itCentr', eaning the aount wi!! be entere" on theright si"e of that account# $he initia! cha!!enge with"oub!e-entr' is to now which account shou!" be"ebite" an" which account shou!" be cre"ite"#

%u!es of ebit an" re"it Nora! Ba!ances ofAccounts

Accounting 1rocess

Basic Accounting for Non-Accountants_Part 1.ppt

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