What is Accounting?

- Accounting is the art of recording, classifying and summarizing in a significant manner and in
terms of money.

STEPS OF ACCOUNTING PROCESS

1. IDENTIFICATION OF FINANCIAL TRANSACTIONS - Records only monetary transactions.
2. RECORDING - Process of entering business transactions in Journal. Also called as book of original entry.
3. CLASSIFYING - Process of grouping transactions of one nature at one place. Transactions recorded in journal are
posted to main book of account called Ledger GENERAL JOURNAL- The journal consists of raw
4. SUMMARISING - Presenting the classified data in an understandable manner . accounting entries that record business
Preparing financial statements transactions, in sequential order by date.
LEDGER - The general ledger is more formalized
a. Profit & Loss and tracks five key accounting items: assets,
b. Balance Sheet liabilities, owner's capital, revenues, and expenses.
5. INTERPRETING - Analyzing financial data so that users can make judgment about profitability & financial position
of the business.
6. COMMUNICATING - Communicating financial information to its users. To internal as well as external users.

Communication to the Users Financial Transactions

(Are the users of financial (sales to customer, salary of Recording
information will be satisfied with the employees, purchase of equipment) (record the financial transaction in
company’s financial statements? the GENERAL JOURNAL)

Interpreting Classifying
Summarizing (grouping of the financial
(Do the company suffers loss? Do the (where the financial transactions classified
entity generate income?) transaction/s as an expense, an
as expense, as income, etc. should be
income, etc.in the LEDGER)
presented?)
Profit & Loss Statement - Expense and

OBJECTIVES OF ACCOUNTING
• MAINTAINING ACCOUNTING RECORDS- To record financial transactions & events in the books of account in a
systematic manner.
• DETERMINING PROFIT OR LOSS- To determine the Net results of transactions over a period of time through Profit &
Loss also called as Income Statement.
• DETERMINING FINANCIAL POSITION- To determine financial position through Balance Sheet Also called as Position
statement
• FACILITATING MANAGEMENT- Provides financial information to management.
Assists management in decision making, effective control & forecasting.
• PROVIDING INFORMATION TO USERS- Provides Accounting information to users to analyze information as per their
needs

INTERNAL USERS EXTERNAL USERS

-Owners -Government
-Management -Banks
-Employees -Investors
-Creditors

BRANCHES OF ACCOUNTING
1. Financial Accounting
-the broadest branch and is focused on the needs of external users.
- information is communicated in a complete set of financial statements.
- primarily concerned with processing historical data.
-uses information for decision-making needs.
2. Management Accounting
-provide timely and relevant information for those internal users of accounting information, such as the managers and
employees in their decision-making needs.
-involves financial analysis, budgeting and forecasting, cost analysis, evaluation of business decisions, and similar areas.
3. Government Accounting- Deals with how the funds of the government are recorded and reported. The recording of
inflow and outflow of funds of the government.
4. Auditing - Involves looking at financial records to ensure they’re accurate and honest. It's a way to verify that things
are being done properly.
a) Internal - deals with determining the operational efficiency of the company regarding the protection of the
company’s assets, accuracy and reliability of the accounting data, and adherence to certain management policies .
b) External - refers to the examination of financial statements by an independent CPA (Certified Public Accountant) with
the purpose of expressing an opinion as to fairness of presentation and compliance with the generally accepted
accounting principles (GAAP). The audit does not cover 100% of the accounting records but the CPA reviews a selected
sample of these records and issues an audit report.
6. Tax Accounting
-Tax accounting helps clients follow rules set by tax authorities. It includes tax planning and preparation of tax returns. It
also involves determination of income tax and other taxes, tax advisory services such as ways to minimize taxes legally,
evaluation of the consequences of tax decisions, and other tax-related matters.
-involves the preparation of income tax returns and the determination of correct amount of taxes due and payable to
the government.
7. Cost Accounting
-Sometimes considered as a subset of management accounting, cost accounting refers to the recording, presentation,
and analysis of manufacturing costs.
-Cost accounting is very useful in manufacturing businesses since they have the most complicated costing process. Cost
accountants also analyze actual and standard costs to help managers determine future courses of action regarding the
company's operations. Cost accounting will also help the owner set the selling price of his products. For example, if the
cost accounting records shows that the total cost to produce one can of sardines is PHP50, then the owner can set the
selling price atPHP60.00

TYPES OF BUSINESS ORGANIZATIONS

1. SINGLE PROPRIETORSHIP - a form of business that is owned, managed and controlled by an individual. It is the
simplest and the most numerous forms of business organization. This business organization has a single owner
called the proprietor who generally is also the manager. Sole proprietorships tend to be small service-type (e.g.
physicians, lawyers and accountants) businesses and retail establishments. The owner receives all profits,
absorbs all losses and is solely responsible for all debts of the business. From the accounting viewpoint, the sole
proprietorship is distinct from its proprietor. Thus, the accounting records of the sole proprietorship do not
include the proprietor's personal financial records.
Advantages Disadvantages
-Ease of Formation - Unlimited liability
-Owner has full control of the business -Difficulty of raising additional capital
-The owner can freely mix personal assets with business assets - Owner's bias.
-Owner has all the profits for himself or herself
-Simple Taxation

2. PARTNERSHIP - A partnership is a business owned and operated by two or more persons who bind themselves
to contribute money, property, or industry to a common fund, with the intention of dividing the profits among
themselves. Each partner is personally liable for any debt incurred by the partnership. Accounting considers the
partnership as a separate organization, distinct from the personal affairs of each partner.
Different Types of Partners:
■ General partners - Who invest in the partnership, participate in the day-to-day operations and are liable for debts and
lawsuits of the partnership.
■ Limited partners - Who invest in the partnership but who have no participation in day-to-day operations and who are
not usually considered to have liability is distinct from its proprietor. Thus, the accounting records of the sole
proprietorship do not include the proprietor's personal financial records.
Different Types of Partnership:
■ General Partnership - An association of two or more persons that carry on as the co-owners of a business in order to
generate a profit. The default rule is equality between all members and the only way to change this is through a formal
written agreement. Each partner possesses an equal voice in management and the authority to act as agent for the
partnership. Each partner can be held liable for all debts of the partnership, and for torts committed by other partners
within the course of the partnership's business.
■ Limited Partnership – A limited partnership is formed by two or more persons, having one or more general partners
and one or more limited partners. A limited partner has no voice in the active management of the limited partnership,
which is conducted by the general partner(s). Every limited partner's liability is limited to the capital he has contributed
to the partnership.
Advantages Disadvantages
-Easier to create than corporation - Unlimited liability
-Better ability to acquire additional capital than sole proprietorships - Mutual agency
-Larger pool of human capital than sole proprietorship. - Limited life

3. CORPORATION - A corporation is a business owned by its stockholders. It is an artificial being created by

operation of law, having the rights of succession and the powers, attributes and properties expressly authorized
by law or incident to its existence. - Sec.2 of B.P. Blg. 68 (Corporation Code of the Philippines). The stockholders
are not personally liable for the corporation's debts. The corporation is a separate legal entity.
Advantages Disadvantages
- Ability to acquire additional capital - Heavily regulated by the government
- Transferable ownership rights - Double taxation
- Limited liability of stockholders - Not easy to form
 Virtually unlimited life - More expensive to form than sole proprietorship and partnership.
 FUNDAMENTAL CONCEPTS
1. Entity Concept - The most basic concept in accounting is the entity concept. An accounting entity is an
organization or a section of an organization that stands apart from other organizations and individuals as a
separate economic unit. Simply put, the transactions of different entities should not be accounted for together.
Each entity should be evaluated separately.
2. Periodicity Concept - An entity's life can be meaningfully subdivided into equal time periods for reporting
purposes. It will be aimless to wait for the actual last day of operations to perfectly measure the entity's profit.
This concept allows the users to obtain timely information to serve as a basis on making decisions about future
activities. For the purpose of reporting to outsiders, one year is the usual accounting period.
Calendar Year Standard one-year period from January 1 to December 31.
Different
Accounting Fiscal Year Custom one-year accounting period e.g. October 1 to September 30
Reporting Period
Shorter periods within a fiscal or calendar year, often used for
Interim Period
quarterly or semi-annual reporting.
3. Stable Monetary Unit Concept - The Philippine peso is a reasonable unit of measure and that its purchasing
power is relatively stable. It allows accountants to add and subtract peso amounts as though each peso has the
same purchasing power as any other peso at any time. This is the basis for ignoring the effects of inflation in the
accounting records.
4. Going Concern - Financial statements are normally prepared on the assumption that the reporting entity is a
going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity
has neither the intention nor the need to enter liquidation or to cease trading. This assumption underlies the
depreciation of assets over their useful lives. The COVID19 pandemic continues to cause significant
deterioration in economic conditions for many entities worldwide. The economic uncertainties may cast doubt
on the entity's ability to continue as a going concern. Business
Entity Concept Self
Periodicity Concept
Fundamental
Concepts Stable Monetary Unit Concept
Going Concern

Recording General Statement of FINANCIAL a.k.a PROFITL/ LOSS

Journal PERFORMANCE STATMENT
Binubuo ng
Statement of Changes in
General Revenue/Sales
Classifying Owner’s Equity
Steps in Ledger Statement of Binubuo ng: Beg. Capital
accounting FINANCIAL POSITION + Add’l Investment +/-
Summarizing Financial Statement of Net Income /Net Loss –
process
Statement (FS) Cash Flow
Binubuo ng: Assets
Financial/accounting Internal Users (Current & NonCurrent),
Communicating
informations na nasa FS External Users Liablities (CL &NCL), and
Owner’s Equity/Capital

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relevance to the extent that it results in information
CRITERIA FOR GENERAL RELEVANCE that is meaningful and useful.
ACCEPTANCE OF AN extent that the resulting information is not influenced by
OBJECTIVITY the personal bias or judgment of those who furnish it.
ACCOUNTING PRINCIPLE
FEASIBILITY feasibility to the extent that it can be implemented
without undue complexity or cost.

Basic Principles

1. Objectivity Principle- Accounting records and statements are based on the most reliable data available so that
they will be as accurate and as useful as possible. Reliable data are verifiable when they can be confirmed by
independent observers. Ideally, accounting records are based on information that flows from activities
documented by objective evidence. Without this principle, accounting records would be based on whims and
opinions and is therefore subject to disputes.
To be audited External Auditor to Audited FS to be
Financial /reviewed by issue an opinion after submitted to SEC on or
Statements External Auditor auditing the company’s before April 15th of
(independent CPA) FS. the following year

2. Historical Cost- This principle states that acquired assets should be recorded at their actual cost and not at what
management thinks they are worth as at reporting date.
Value of something in current year- Fair Value amount
difference of Historical Cost less Fair Value amount- Revaluation Surplus
3. Revenue Recognition Principle - Revenue is to be recognized in the accounting period when goods are delivered
or services are rendered or performed.
an asset that should be recorded together with revenue account- Receivable
4. Expense Recognition Principle- Expenses should be recognized in the accounting period in which goods and
services are used up to produce revenue and not when the entity pays for those goods and services.
5. Adequate Disclosure- Requires that all relevant information that would affect the user's understanding and
assessment of the accounting entity be disclosed in the financial statements.
6. Materiality- Financial reporting is only concerned with information that is significant enough to affect
evaluations and decisions. Materiality depends on the size and nature of the item judged in the particular
circumstances of its omission. In deciding whether an item or an aggregate of items is material, the nature and
size of the item are evaluated together. Depending on the circumstances, either the nature or the size of the
item could be the determining factor.
7. Consistency Principle- The firms should use the same accounting method from period to period to achieve
comparability over time within a single enterprise. However, changes are permitted if justifiable and disclosed in
the financial statements.
Objectivity Principle

Historical Cost

Basic Revenue Recognition Principle

Priciples
Expense Recognition Principle

Adequate Disclosure
Materiality

Consistency Principle

Asset – pag mamay-ari mo.

Liability – utang.
6 Basic
Accounts Owner’s Equity/Capital - Puhunan

Sales/Income/Revenue (SIR) – Kita o benta.

Expense - Gastos

Withdrawal/Drawing – Kabawasan sa capital ni owner

ELEMENTS OF FINANCIAL STATEMENT

Normal Operating cycle / Ordinary course of business – defined

Ito yung mga activities ng entity/business/company na kung saan routinary or day-to-day na ginagawa ng
business to incur an expense or to generate an INCOME from buying of product/goods to selling these
goods/productives or performing services.
Example:
a.) Purchase of Raw Materials
Day to day activities YES b.) Delivery of Goods/Products
ng company from c.) Selling of Goods/Products
Normal Operating incurring an expense
Cycle or Ordinary up to generating an Example:
NO
course of business INCOME a.) Lent a certain amount to
employee
b.) a bakery buying a new delivery
Not in the ordinary truck
course of business

Financial Position

OWNER’S
EQUITY
ASSET
LIABILITY
WITHDRAWAL
REVENUE and INCOME or DRAWING
Current Assets (CA)
EXPENSES SUMMARY ACCOUNT
- Less than a year or Non-Current Current Liabilities (CL)
12 months Assets (NCA) - Less than a year or
- More than a year 12 months Changes in
- Long term Non-Current Liabilities Financial
Owner’s Equity
- More than a year Performance
- Long term

1. Asset- Is a present economic resource controlled by the entity as a result of past events. An economic resource
is a right that has the potential to produce economic benefits. There are three aspects to these definitions:
"right"; "potential to produce economic benefits"; and "control"
Rights that correspond to an obligation of another party,
RIGHT
1.rights to receive cash.
2.rights to receive goods or services.
ASSET 3.rights to exchange economic resources with another party on favorable terms.
4 rights to benefit from an obligation of another party to transfer an economic
resource if a specified uncertain future event occurs.
POTENTIAL TO PRODUCE
ECONOMIC BENEFITS (a) receive contractual cash flows or another economic resource;
CONTROL (b) exchange economic resources with another party on favorable terms;
(c) produce cash inflows or avoid cash outflows by,
a.) present ability to direct the use of the economic resource (d) receive cash or other economic resources by selling the economic resource; or
and obtain the economic benefits that may flow from it. (e) extinguish liabilities by transferring the economic resource.
b.) Control includes the present ability to prevent other parties
from directing the use of the economic resource and from
obtaining the economic benefits that may flow from it

2. Liability- A liability is a present obligation of the entity to transfer an economic resource as a result of past
events. For a liability to exist, three criteria must ALL be satisfied:
•An obligation is a duty or responsibility that an entity has no practical ability
to avoid. An obligation is always owed to another party (or parties).
OBLIGATION • The other party (or parties) could be a person or another entity, a group of
Liability people or other entities, or society at large.
• If one party has an obligation to transfer an economic resource, it follows
that another party (or parties) has a right to receive that economic resource.

OBLIGATIONS TO TRANSFER AN (a) obligations to pay cash.

ECONOMIC RESOURCETO TRANSFER (b) obligations to deliver goods or provide services.
AN ECONOMIC RESOURCE (c) obligations to exchange economic resources with another party on
unfavorable terms.
(d) obligations to transfer an economic resource if a specified uncertain future
RESULT OF PAST EVENTS event occurs.
(e) obligations to issue a financial instrument if that financial instrument will
oblige the entity to transfer an economic resource
(a) the entity has already obtained economic benefits or taken an action; and
(b) as a consequence, the entity will or may have to transfer an economic resource that it
would not otherwise have had to transfer
 3. Equity - Equity is the residual interest in the assets of the enterprise after deducting all its liabilities. In other
words, they are claims against the entity that do not meet the definition of a liability.
There is only one owner's equity account
Sole Proprietorship
because there is only one owner.
Equity may pertain to any
Partnership An owner's equity account exists
of the following
for each partner.
depending on the form of
business organization Owners' equity or stockholders' equity consists of share
Corporation capital, retained earnings and reserves representing
appropriations of retained earnings among others.
THE ACCOUNT

The basic summary device of accounting is the account. A separate account is maintained for each element that appears
in the balance sheet (assets, liabilities and equity) and in the income statement (income and expenses). Thus, an account
may be defined as a detailed record of the increases, decreases and balance of each element that appears in an entity's
financial statements. The simplest form of the account is known as the "T" account because of its similarity to the letter
"T".

THE ACCOUNTING EQUATION

This equation presents the resources controlled by the enterprise, the present obligations of the enterprise and the
residual interest in the assets. It states that assets must always equal liabilities and owner's equity. The basic accounting
model is: Assets = Liabilities + Owner’s Equity

Note that the assets are on the left side of the equation opposite the liabilities and owner's equity. This explains
why increases and decreases in assets are recorded in the opposite manner ("mirror image") as liabilities and owner's
equity are recorded. The equation also explains why liabilities and owner's equity follow the same rules of debit and
credit.

DEBITS AND CREDITS-THE DOUBLE-ENTRY SYSTEM

A debit side entry must have a corresponding credit side entry. For every transaction, there must be one or more
accounts debited and one or more accounts credited. Each transaction affects at least two accounts. The total debits for
a transaction must always equal the total credits.

An account is debited when an amount is entered on the left side of the account and credited when an amount
is entered on the right side. The abbreviations for debit and credit are Dr. (from the Latin debere) and Cr. (from the Latin
credere), respectively.

NORMAL BALANCE
Dito tumataas, nadadagdagan, at lumalakas ang isang partikular na balanse ng isang Account. (Assets, Liabilities,
Owner’s Equity/Capital, Revenue, Expense, Drawing)

TYPES AND EFFECTS OF TRANSACTIONS

It will be beneficial in the long-term to be able to understand a classification approach that emphasizes the effects of
accounting events rather than the recording procedures involved. This approach is quite pioneering. Although business
entities engage in numerous transactions, all transactions can be classified into one of four types, namely:
1. Source of Assets (SA). An asset account increases and a corresponding claims (liabilities or owner's equity)
account increases. Examples: (1) Purchase of supplies on account; (2) Sold goods on cash on delivery basis.
2. Exchange of Assets (EA). One asset account increases and another asset account decreases. Example:
Acquired equipment for cash.
3. Use of Assets (UA). An asset account decreases and a corresponding claims (liabilities or equity) account
decreases. Example: (1) Settled accounts payable; (2) Paid salaries of employees.
4. Exchange of Claims (EC). One claims (liabilities or owner's equity) account increases and another claims
(liabilities or owner's equity) account decreases. Example: Received utilities bill but did not pay.

Every accountable event has a dual but self-balancing effect on the accounting equation. Recognizing these events will
not in any manner affect the equality of the basic accounting model. The four types of transactions above may be
further expanded into nine types of effects as follows:
1. Increase in Assets = Increase in Liabilities (SA)
2. Increase in Assets = Increase in Owner's Equity (SA)
3. Increase in one Asset = Decrease in another Asset (EA)
4. Decrease in Assets = Decrease in Liabilities (UA)
5. Decrease in Assets = Decrease in Owner's Equity (UA)
6. Increase in Liabilities = Decrease in Owner's Equity (EC)
7. Increase in Owner's Equity = Decrease in Liabilities (EC)
8. Increase in one Liability = Decrease in another Liability (EC)
9. Increase in one Owner's Equity = Decrease in another Owner's Equity (EC)
 Financial Performance

REVENUE EXPENSES

The total amount that the business generated from The total amount of money spent or
rendering services or selling goods/products/merchandise/ incurred by a business to generate income.
inventory to the customers.

Financial Performance Financial Position a.k.a

a.k.a Income Statement Balance Sheet

REVENUE EXPENSES ASSET OWNER’S

LIABILITY
EQUITY
Net Income/Net Loss

Kino-close ang laman ng Statement of Financial HINDI po kino-close ang laman ng Statement of
Performance every end of the period. Itong Net Financial Position every end of the period.
Income/Net Loss ay mapupunta sa Capital Nagpapatuloy na gumalaw kada period ang mga
Account na under ng Owner’s Equity section na laman nito. Kaya nga other name sya is “Balance”
nasa Statement of Financial Position. Sheet kase kapag tiningnan ng user/s of FS ito ay
makikita agad nila yung balanse ng kada accounts ng
Kaya ang nakalagay na phrase dito ay “For the
entity.
year ended 20xx “. Kase nga masasara o mawala
na yung laman dito sa katauhan ng Net
Income/Net Loss.
With this, ang nakalagay na phrase na mababasa mo
rito ay “As of the year ended 20xx “ E
E
Financial Performance Financial Position a.k.a
a.k.a Income Statement Balance Sheet

REVENUE EXPENSES ASSET OWNER’S

LIABILITY
EQUITY
Net Income/Net Loss

NOMINAL ACCOUNTS REAL ACCOUNTS

(Temporary accounts) (Permanent accounts)
- Kase itong mga accounts na ito ay - Dahil ang mga balanse ng accounts na ito ay
sinasara/kino-closed every end of the period. nagpapatuloy sa movement nila kada period. Hindi
sila sinasara unlike ng Revenue at Expenses.

Normal Balance ACCOUNTS:

(Mnemonics – ALOE-CREW=
A,L,OE,C,R,E,W)

Debit (Dr.) Credit (Cr.)

ACCOUNT TITLES:
REVENUE
e.g. Cash, A/R, A/P,
Utilities Expense etc..
ASSET EXPENSE LIABILITIES CAPITAL

WITHDRAWALS OWNER’S
EQUITY
 CURRENT ASSETS

CASH NOTES ACCOUNTS INVENTORIES PREPAID

CASH EQUIVALENTS RECEIVABLE RECEIVABLE EXPENSES

Cash is any Per PAS No. 7, A note These are Per PAS No. 2, These are
medium of these are short- receivable is a claims against these are assets expenses paid for
exchange that term, highly written pledge customers which are by the business in
a bank will liquid that the arising from advance.
(a) held for sale
accept for investments that customer will sale of services
in the ordinary It is an asset
deposit at face are readily pay the or goods on
course of because the
value. It convertible to business a credit. This type
business; business avoids
includes coins, known amounts fixed amount of receivable
having to pay cash
currency, of cash and of money on a offers less (b) in the
in the future for a
checks, money which are subject certain date. security than a process of
specific expense.
orders, bank to an insignificant promissory production for
deposits and risk of changes in note. such sale; or These include
drafts. value. insurance and
(c) in the form
rent. These
Notes of materials or
prepaid items
Receivable. A supplies to be
represent future
note receivable is consumed in the
economic
a written pledge production
benefits- assets-
that the process or in the
until the time
customer will pay rendering of
these start to
the business a services.
contribute to the
fixed amount of
earning process;
money on a
these, then,
certain date.
become expenses

NON- CURRENT ASSETS

PROPERTY, PLANT ACCUMULATED INTANGIBLE

AND EQUIPMENT DEPRECIATION ASSETS.
(PPE)

Per PAS No. 16, these are It is a contra account that Per PAS No. 38, these are
tangible assets that are held by contains the sum of the periodic identifiable, nonmonetary assets
an enterprise for use in the depreciation charges. The without physical substance held
production or supply of goods balance in this account is for use in the production or
or services, or for rental to deducted from the cost of the supply of goods or services, for
others, or for administrative related asset-equipment or rental to others, or for
purposes and which are buildings-to obtain book value. administrative purposes. These
expected to be used during include goodwill, patents,
more than one period. copyrights, licenses, franchises,
trademarks, brand names,
Included are such items as
secret processes, subscription
land, building, machinery and
lists and non- competition
equipment, furniture and
agreements.
fixtures, motor vehicles and
equipment.
 CURRENT LIABILITIES

ACCOUNTS NOTES ACCRUED CURRENT

UNEARNED
PAYABLE PAYABLE LIABILITIES PORTION OF
REVENUES
LONG-TERM DEBT

This account A note payable is Amounts owed to When the business These are portions
represents the like a note others for unpaid entity receives of mortgage notes,
reverse receivable but in a expenses. This payment before bonds and other
relationship of the reverse sense. In account includes providing its long-term
accounts the case of a note salaries payable, customers with indebtedness which
receivable. By payable, the utilities payable, goods or services, are to be paid
accepting the business entity is interest payable the amounts within one year
goods or services, the maker of the and taxes payable. received are from the balance
the buyer agrees note; that is, the recorded in the sheet date.
to pay for them in business entity is unearned revenue
the near future. the party who account (liability
promises to pay the method). When the
other party a goods or services are
specified amount of provided to the
money on a customer, the
specified future unearned revenue is
date. reduced and income
is recognized.

NON-CURRENT LIABILITIES

MORTGAGE BONDS
PAYABLE PAYABLE

This account records long-term debt of the Business organizations often obtain substantial sums
business entity for which the business entity has of money from lenders to finance the acquisition of
pledged certain assets as security to the creditor. equipment and other needed assets. They obtain
In the event that the debt payments are not these funds by issuing bonds. The bond is a contract
made, the creditor can foreclose or cause the between the issuer and the lender specifying the
mortgaged asset to be sold to enable the entity to terms of repayment and the interest to be charged.
settle the claim.

OWNER’S EQUITY

CAPITAL WITHDRAWALS INCOME

SUMMARY

(from the Latin capitalis,

meaning "property"). This When the owner of a business It is a temporary account used
account is used to record the entity withdraws cash or other at the end of the accounting
original and additional assets, such are recorded in the period to close income and
investments of the owner of the drawing or withdrawal account expenses. This account shows
business entity. It is increased by rather than directly reducing the the profit or loss for the period
the amount of profit earned owner's equity account. before closing to the capital
during the year or is decreased account.
by a loss. Cash or other assets
that the owner may withdraw
from the business ultimately
reduce it.

This account title bears the name

of the owner.
Cost of Sales- The cost incurred to purchase or to produce the products sold t0 customers during the period;
also called cost of goods sold.
Salaries or Wages Expense- Includes all payments as a result of an employer-employee relationship such as
salaries or wages, 13th month pay, cost of living allowances and other related benefits.
Telecommunications, Electricity, Fuel and Water Expenses-Expenses related to use of telecommunications
facilities, consumption nof electricity, fuel and water.
Rent Expense- Expense for space, equipment or other asset rentals.
Supplies Expense- Expense of using supplies (e.g. office supplies) in the conduct of daily business.
Insurance Expense- Portion of premiums paid on insurance coverage (e.g. on motor vehicle, health, life, fire,
typhoon or flood) which has expired.
Depreciation Expense- The portion of the cost of a tangible asset (e.g. buildings and equipment) allocated or
charged as expense during an accounting period.
Uncollectible Accounts Expense- The amount of receivables estimated to be doubtful of collection and
charged as expense during an accounting period.
Interest Expense- An expense related to use of borrowed funds.

REVENUE: GAIN:
Kita from non-
Kita sa LAHAT ng Business Activities operational activities
kunyare nagbenta ka ng
SALES: lumang asset mo.
Kita sa good/service sold.

INCOME:
Kita after all expenses are
deducted

SALES:
Kita sa good/service sold.

Owner's equity represents the

residual interest in the assets of a
business after deducting liabilities

CAPITAL:

1.It records the initial and additional

contributions made by the owner(s)
and may also include adjustments for
withdrawals.

2.The capital account focuses

specifically on investments, net
income/net loss and withdrawals

made by the owner.