PARCOR Lecture Notes

Definition of Accounting ●​ This is the phase of accounting

●​ Accounting is an art of recording, which involves the completion of the
classifying, summarizing, in a significant financial statements and the
manner and in terms of money, transactions accounting requirements as well.
and events which are, in part at least, of This starts from striking a trial
financial character, and interpreting the balance, plotting down or adjusting
results thereof. (AICPA) entries in the worksheet and the
●​ Process of identifying, measuring, and preparation of closing entries,
communicating economic information to post-closing trial balance and
permit informed judgments and decisions by reversing entries.
users of the information. (AAA) 4.​ Interpreting
●​ It is a service activity. Its function is to ●​ This is the phase of accounting
provide quantitative information, primarily which involves the “analytical and
financial in nature, about economic entities interpretive works”, It is them, that
that is intended to be useful in making when financial statements are
economic decisions. (ASC) analyzed, interpreted and is
communicated to those interested
Transaction Analysis parties where these could be of help
1.​ Recording to management as a basis for
●​ Technical known as bookkeeping making a sound decision
○​ Accounting supporting
function that involves the
systematic recording of Booking differs from Accounting
business transactions, either ●​ Bookkeeping: is the process of accounting
manually or electronically “systematically” the business transactions in
●​ This is the phase of accounting a “chronological manner”. It is systematic
which involves the routine and because it follows procedures and
mechanical process of writing down principles. It is chronological because the
the business transactions and transactions are recorded in “order
events in the books of accounts in a ●​ Accounting: requires complete and
chronological manner called accurate bookkeeping records necessary in
“journalizing” the performance of its responsibility which is
2.​ Classifying the analysis and interpretation of the
●​ This is the phase of accounting financial reports
which involves sorting or grouping of
similar transactions and events into What are Business Transactions?
their respective kind and classes. ●​ Are exchanges of equal monetary values.
This is actually the process of This definition implies the following concept
transferring the entries from the of understanding:
journal to the ledger called ○​ For every value received, another
“Posting” value is given away as an exchange
●​ You group all debit and credit ○​ These values are measured in terms
together of pesos which are presumed to be
3.​ Summarizing equal
 ●​ Summary: In every transaction there is a _________________________________________
value received, we call this debit and value
parted with, this credit as expressed in an T-account
equation: ●​ The effect of changes in assets, liabilities,
●​ Debit, value received = credit, value and owner’s equity are being summarized in
parted an accounting device called “account”. This
device will group these accounting values
How are business transactions analyzed with their amounts representing increases
-​ Business transactions are analyzed from and decrease in cash are entered in the
the viewpoint of the business. If the account “cash”
transaction is “purchased” or “bought” it the ●​ An account is divided into 2 sides: The
business that is buying; If the transaction is left-hand side which is called the “debit
“sold”, it is the business that is selling; if the side” and the right-hand side which is called
transaction is “paid”, it is the business that is the “credit side”. The left-hand side or debit
paying; if the transaction is “collected”, it is side shows the value received while the
the business that is collecting, if the right-hand side or the credit side shows the
transaction is “rendered services”, it is the value parted with a transactional analysis.
business that is rendering services, etc. and ●​ The device is commonly known as
not the other way around t-account. An account title is written above
the t-account
●​ An amount entered on the left-hand side of
INCREASE DECREASE the account is called a “debit entry” while
Account Balance
Title the amount entered on the right-hand side is
called the “credit entry”. The moment an
Assets Debit Dr. Cr. “account” is assigned to an item to which a
title has already been designated, such
Liabilities Credit Cr. Dr.
account becomes identical to the item
Capital/ Credit Cr. Dr. thereafter. For instance, the account
Equity assigned to the item “cash” becomes “cash
account”; the account assigned to the item
Dividends/ Debit Dr. Cr. “notes receivable” becomes “notes
Drawings
receivables account”; the account assigned
Revenue Credit Cr. Dr. to the item “rent expense” becomes “rent
expense account” and so forth.
Expense Debit Dr. Cr.
Account Balance
*Purchase discount is different from purchase ●​ The difference between the debit total and
returns credit total of an account is called an
_________________________________________ “account balance”, if the total of the debit
Transaction Analysis Example: side exceeds the total of the credit side, the
Transaction 1: Bought supplies on credit from account is said to be a “debit balance”.
Santos Auto Parts, P25,000 Conversely, if the total of the credit side
exceeds the total of the debit side, the
Transaction 13: Returned account is said to be in a “credit balance”. If
 the debit total equals with that of credit total, ●​ Refers to a business paper or business form
the account is said to be “in-balance” or that provides details of a
“closeted account”
○​ Won’t appear in financial position
since it’s a closed account Voucher System
●​ Generally, companies provide an internal
The Rules of Debit and Credit accounting control procedure for purchase
●​ The accounting equation, A=L+OE has and other cash disbursements through the
developed the rules to be followed in the adoption of a voucher system.
study of accounting. The equation stands ●​ A voucher system is a method for
for the “normal balances” or “increases side” authorizing the cash disbursements in order
in each of the accounting elements. In other to ensure that the money of the business is
words, the normal balances refer to the spent only an authorized and approved
increased side of the accounts which may purchases or cash payments
either be a debit or a credit. For assets, the ●​ Vouching: is the process of checking and
increase side is the debit side (left) while examining vouchers. It is the process of
liabilities and owner’s equity, the increase looking over vouchers to make sure that the
sides are on the credit side (right) entire made in the books are accurate and
●​ We then say, Debit to increase an asset and supported by sufficient evidence. It aims to
credit to decrease an asset; credit to validate the transactions included in the
increase a liability and debit to decrease a books of account and is frequently referred
liability, credit to increase an owner’s equity to as the backbone of auditing.
and debit to decrease owner’s equity ●​ Schedule of vouchers payable: Is a list of
all unpaid vouchers in the voucher register.
THe total shown is the amount of the
Illustration
business’s short-term debt at the end of the
Dr​ Cr​ Cr (Additional inv. income)
accounting period and should match the
A = L + OE
balance in the Accounts Payable account in
​ ​ Debit if decrease (costs and
the general ledger
​ ​ expenses, drawings)

Setting up a charts of accounts

●​ The increases and decreases of an owner’s ●​ Chart of accounts: is a listing of all the
equity are summarized as follows: accounts and their account numbers as they
○​ Investment by owner and revenue - should be reflected in the general ledger. It
increase owner’s equity is the foundation of an entity’s accounting
○​ withdrawals by owner and expenses system
- decrease owner’s equity ●​ Example:
○​ Drawings or personal - the
Account Code Particulars
reduction of an owner’s equity
G 100 100 Cash in bank
*include pics from aug 29*
100 110 RCBC
What is a source document (subsidiary of 100
100)
 ●​ Operating cycle: Is the interval of time from
100 120 MBTC
the date of acquisition of the merchandise
G 100 200 Petty Cash Fund inventory, sell the inventory to customers
and the ultimate collection of cash from sale
100 300 Cash equivalents ●​ Cash: is the account title used to describe
100 400 A/R money, either in paper or coins and money
substitutes like check postal money orders,
-​ The name that you give the account will bank drafts, etc. When cash is deposited in
appear on the financial statements. When the bank, the account title used is “Cash in
you create a chart of accounts, classify the bank”
items into what the business owns (assets); ●​ Petty Cash Fund: is the account title for
what the business owes (liabilities); the money set aside for small or petty
value of the business to the owners (equity); expenses. This account exists when
business income (revenue); and what the business used the imprest system of
business spends to provide the income keeping cash
(expenses). Asset accounts tend to follow a ●​ Cash Equivalent: are defined as short-term
standard that lists the most liquid assets highly liquid instruments that could readily
first. Revenue and expenses accounts tend be converted into cash and they present
to follow the standards of first listing the insignificant risk of changes in values
items most closely related to the operations because of changes in interest rates
of the business ●​ Notes receivable: is the account title used
for a promissory note that is received by the
business from the customer arising from
Typical Account Title Used rendering service, sale of merchandise, etc.
●​ Permanent or Real Accounts (Balance ●​ Accounts receivable:
sheet and income statements ?) are listed *page 33 in the book*
ahead of the Temporary or Nominal
Accounts (income and expense accounts)
in the charts
●​ The three accounting elements found in the
basic equation are considered permanent
accounts since their balances are carried
forward to the next accounting period. They
are reported in the company’s statement of
financial assets, liabilities, and equity
accounts.
●​ Assets: Assets are classified into two,
namely:
○​ Current assets: refer to all assets
that are expected to be realized,
sold or consumed within the
enterprise’s normal operating cycle
○​ Non-current assets

Current Assets