Accounting Assignment

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Submitted by:
Bolante, Rio Rosa O.
Submitted to:
Prof. Marquez
1. i!e t"e di#erent A$$ount %itles and t"eir meanin&s.
Cas" – Cash includes: currency and coins, checks, money orders, bank drafts and demand
deposit accounts.
*eld for %radin& Se$urities – Temporary investments of excess cash which are primarily
held for short term gain.
+oans and Re$ei!ables – include trade receivables and non trade receivables. Trade
Receivables are claims against others which arise in the ordinary course of doing business.
xamples are: Trade accounts receivable! these are claims against customers arising from
the provision of services or delivery of goods on credit.
%rade )otes Re$ei!able – " note receivables is a written promise from the customer to
pay a #xed amount of money on a certain future date. $eing a formal and written document,
it o%ers more security than accounts receivable.
)on %rade Re$ei!ables – represent all other claims which are not trade. They may be non!
trade accounts receivable or non!trade notes receivable.
,n!entories – These are assets which are &a' held for sale in the ordinary course of
business( &b' in the process of production for such sale( &c' in the form of materials or
supplies to be consumed in the production process or in the rendering of services.
Pre-aid '.-enses – These are expenses paid for by the business in advance. xamples are
)repaid Rent and )repaid *nsurance. )repaid expenses are assets when they are paid for.
+ubse,uently, they become expenses.
+on&/term ,n!estments – "n investment is an asset held by an enterprise for the
accretion of wealth through capital distribution, such as interest, royalties, dividends and
rentals, for capital appreciation or for other bene#ts to the investing enterprise such as
those obtained through trading relationships. *nvestments are classi#ed as long term when
they are intended to be held for long periods of time.
Pro-erty, Plant and 'qui-ment – These are tangible assets held by an enterprise for use
in the production or supply of goods or services, or for rental to others, or for administrative
purposes and which are expected to be used during more than one accounting period.
xamples are land, building, transportation and delivery vehicles, furniture and #xtures,
machinery and e,uipment.
,ntan&ible Assets – These assets are identi#able, non monetary assets without physical
substance. These include patents, copyrights, licenses, franchises and trademarks.
+,AB,+,%0 ACCO()%S
A$$ounts Payable 1 This account is the opposite of accounts receivable. xamples include
purchasing goods or receiving services for which the buyer agrees to pay in the near future.
)otes Payable – " note payable is like a note receivable, except that this time the
enterprise is the one who promises to pay &not the one who receives the promise'
A$$rued +iabilities – These are amounts owed to others for unpaid expenses. They are
similar to accounts payable, except that accounts payable are for items which have already
been consummated &such as the purchase of goods', while accrued expenses are for items
which are continuing in nature &such as utility services like electricity and water'. xamples
are salaries payable, interest payable, taxes payable and accruals for utility expenses.
(nearned Re!enues – +ometimes the enterprise receives payment before providing its
customers with goods or services. This creates an obligation on the part of the enterprise to
deliver goods or provide services. -nce the enterprise complies with what is re,uired of it,
the advance collections from customers are already earned and become part of income.
Mort&a&e Payable – This account is used for recording long!term debt&s' of an enterprise
for which the company has pledged certain assets as security for the debt &collateral'.
Bonds Payable – " bond is a contract between the issuer and the lender specifying the
terms of repayment as well as the interest to be p aid.
'2(,%0 ACCO()%S
'quity 1 or Capital is used to record the original and additional investments of the owner of
the business entity. Capital is increased by net income earned during the year. Conversely, a
net loss decreases capital.
3it"dra4als – .hen the proprietor &or a partner in a partnership' withdraws cash or others
assets for non business use, such withdrawals are re/ected in the 0withdrawals1 account.
+ome accounting references use the term 0drawings1 or 0personal1 instead of 0withdrawals1
,n$ome Summary – *t is temporary account used to summari2e all income and expenses
for a given period. *f total income is greater than total expenses, a net income results. *f the
opposite happens, a net loss was sustained by the business. +ome accounting references
use the term 0)ro#t or 3oss +ummary1 instead of 0*ncome +ummary1.
Ser!i$e ,n$ome or 5ees ,n$ome – Revenues earned by performing services for customers.
Sales – Revenues earned as a result of sale of merchandise.
'6P')S' ACCO()%S
Cost of Sales – the cost incurred to purchase or to produce the products sold to customers
during the period. 4or a service business, any expense which could be directly attributed to
the provision of services is called cost of services.
Salaries and 3a&es '.-ense – *ncludes all payments as a result of an employer!
employee relationship such as salaries and wages, 56th mo. pay and other related employee
(tilities '.-ense 7%ele-"one, 'le$tri$ity, 5uel and 3ater '.-enses8 – xpenses
related to use of communication facilities, the consumption of electricity and water.
Rent '.-ense – xpense for leased o7ce space,, e,uipment, or other assets rented from
+upplies xpense – The account used for recording the usage of supplies &e.g. o7ce
supplies' in the normal course of business.
,nsuran$e '.-ense – )ortions of premiums paid on insurance coverage which has expired.
9e-re$iation '.-ense – The portion of the cost of a tangible asset allocated or charged as
expense during the accounting period.
Bad 9ebts '.-ense – The amount of receivables estimated to be uncollectible and
charged as expense during an accounting period. "lso known as 08ncollectible "ccounts
,nterest '.-ense – "n expense related to use of borrowed funds. "lso known as #nance
2. i!e t"e de:nition of A$$ountin&.
The systematic and comprehensive recording of #nancial transactions pertaining to a
business. "ccounting also refers to the process of summari2ing, analy2ing and reporting
these transactions. The #nancial statements that summari2e a large company9s operations,
#nancial position and cash /ows over a particular period are a concise summary of hundreds
of thousands of #nancial transactions it may have entered into over this period. "ccounting
is one of the key functions for almost any business( it may be handled by a bookkeeper and
accountant at small #rms or by si2able #nance departments with do2ens of employees at
larger companies.
;. )ature of A$$ountin&
.e know "ccounting is the systematic recording of #nancial transactions and presentation of
the related information of the appropriate persons. The basic features of accounting are as
1. "ccounting is a process: " process refers to the method of performing any speci#c :ob
step by step according to the ob:ectives, or target. "ccounting is identi#ed as a
process as it performs the speci#c task of collecting, processing and communicating
#nancial information. *n doing so, it follows some de#nite steps like collection of data
recording, classi#cation summari2ation, #nali2ation and reporting.
2. "ccounting is an art: "ccounting is an art of recording, classifying, summari2ing and
#nali2ing the #nancial data. The word ;art< refers to the way of performing something.
*t is a behavioral knowledge involving certain creativity and skill that may help us to
attain some speci#c ob:ectives. "ccounting is a systematic method consisting of
de#nite techni,ues and its proper application re,uires applied skill and expertise. +o,
by nature accounting is an art.
3. "ccounting is means and not an end: "ccounting #nds out the #nancial results and
position of an entity and the same time, it communicates this information to its users.
The users then take their own decisions on the basis of such information. +o, it can
be said that mere keeping of accounts can be the primary ob:ective of any person or
entity. -n the other hand, the main ob:ective may be identi#ed as taking decisions on
the basis of #nancial information supplied by accounting. Thus, accounting itself is
not an ob:ective, it helps attaining a speci#c ob:ective. +o it is said the accounting is
;a means to an end< and it is not ;an end in itself.<
4. "ccounting deals with #nancial information and transactions( "ccounting records the
#nancial transactions and date after classifying the same and #nali2es their result for
a de#nite period for conveying them to their users. +o, from starting to the end, at
every stage, accounting deals with #nancial information. -nly #nancial information is
its sub:ect matter. *t does not deal with non!monetary information of non!#nancial
5. "ccounting is an information system: "ccounting is recogni2ed and characteri2ed as
a storehouse of information. "s a service function, it collects processes and
communicates #nancial information of anyentity. This discipline of knowledge has
been evolved out to meet the need of #nancial information re,uired by di%erent
interested groups.
%y-e of A$$ounts ,n$rease 9e$rease )ormal Balan$e
"sset =ebit Credit =ebit
3iability Credit =ebit Credit
Capital Credit =ebit Credit
=rawing =ebit Credit =ebit
*ncome Credit =ebit Credit
xpense =ebit Credit =ebit
<. '#e$ts in A$$ountin& %ransa$tion
5. *ncrease in an asset, decrease in another asset.
>. *ncrease in an asset, increase in a liability.
6. *ncrease in an asset, increase in stockholders9 e,uity.
?. =ecrease in an asset, decrease in a liability.
@. =ecrease in an asset, decrease in stockholders9 e,uity.
=. )ormal balan$es of ea$" a$$ountin&
The sum of the increase recorded in an account is customarily e,ual to or greater than the
sum of the decreases recorded in the account( conse,uently( the normal balances of all
accounts are positive rather than negative. 4or example, the total debit &increases' is an
asset account will ordinarily be greater than the total credits &decreases'( thus asset
accounts normally have debit balances. *t is entirely possible, of course, for the debits and
the credits in an account to be e,ual in which case the account is said to be in balance.
The rules of debit and credit, and the normal balances of the various types of accounts, are
summari2ed below. Aote that drawing and expense accounts are considered in the positive
sense. *ncreases in both types of accounts, which represent decreases in capital, are
recorded as debits.
.hen an account that normally has debit balance actually has credit balance, or vice versa,
it is an indication of an accounting error or of an unusual transaction. 4or example, a credit
balance in the o7ce e,uipment account could result only from an accounting error. -n the
other hand, a debit balance in a creditor<s account could result from an overpayment.
>. *istory of a$$ountin&
*n the +ummer of [email protected] * enrolled in courses sponsored by both the +ociety of Canagement
"ccountants of +askatchewan and "thabasca 8niversity. *n particular, * remember taking two
classes, the #rst was an introduction to #nancial accounting and the other course was in
microcomputer business applications. *t was during this time that my father became by
academic mentor. Cy father introduced me to the management philosophy of the 3earning
-rgani2ation( * remember his comments and laughs when in studying accounting we
reali2ed that even professional accountants and authors would not provide the needed
ethical guidance for young business students&5' . * also remember that when studying the
accounting component of the microcomputer business applications course he mentioned
that accounting and computeri2ed accounting should take a new direction altogether. De
emphasi2ed this new direction by pointing out how the Euicken&>' #nancial package doesn9t
re,uire the closing of accountsFcategories for reporting the #nancial statements. 3ater, he
showed me how another accounting package, )acioli >GGG for .indows&6' , would treat all
the accounts, be balance sheet or income statement accounts, as registers. These
experiences and my appreciation for new technologies have motivated the writing of this
Ori&in of a$$ountin& and boo??ee-in&
*n her notes compiled in 5BHB, )rofessor 3inda )lunkett&?' of the College of Charleston +.C.,
calls accounting the Ioldest professionI( in fact, since prehistoric times families had to
account for food and clothing to face the cold seasons. 3ater, as man began to trade, we
established the concept of value and developed a monetary system. vidence of accounting
records can be found in the $abylonian mpire &[email protected] $.C.', in pharaohs9 gypt and in the
Code of Dammurabi &>>@G $.C.'. ventually, with the advent of taxation, record keeping
became a necessity for governments to sustain social orders.
The *talian Renaissance brought the artistic accomplishments of man to new heights. "t this
time, Jenice was the business cradle of urope, and it was here among merchants that
double entry accounting was invented and practised. =uring this period 4ra 3uca )acioli
wrote his I+ummaI dealing with record keeping and double!entry accounting, one of the
very #rst published books of the time that would become the accounting ItextbookI for the
next @GG years.
4ra 3uca )acioli&@' was born during [email protected] in +ansepolcro, Tuscany. De was a mathematician
and friend of 3eonardo da Jinci. De wrote and taught in many #elds including mathematics,
theology, architecture, games, military strategy and commerce. *n 5?B?, )acioli published
his famous book I+umma de "rithmetica, Keometria, )roportioni et )roportionalitaI &The
Collected Lnowledge of "rithmetic, Keometry, )roportion and )roportionality&M' '. -ne
section of this book was dedicated to the description of double!entry accounting. The
+umma was one of the #rst books published on the Kutenberg press, became an instant
success and was translated into Kerman, Russian, =utch, and nglish. The +umma made
)acioli a celebrity and insured him a place in history, as IThe 4ather of "ccounting.I&H'
4ra 3uca did not invent double!entry accounting, instead, he superbly described a method
used by merchants in Jenice during the *talian Renaissance. Dis system included most of
today9s accounting routines such as the use of memorandums, :ournals and ledgers. Dis
ledger included assets!!receivables and inventories!!liabilities, capital, income, and expense
accounts. De described the year!end closing entries and proposed that a trial balance be
used to prove a balanced ledger. *n addition, his +umma made reference to the certi#cation
of books, ethics and cost accounting.
There would be little modi#cation to )acioli9s system for the next @GG years. The present day
trial balance sheet did not get its form until 5NMN and the income statement was developed
before ..**&N'. *n the 5BNGs, statements of #nancial position were developed with the
purpose to provide relevant Iinformation about the operating, #nancing, and investing
activities of an enterprise and the e%ects of those activities on cash resourcesI &C*C" [email protected]?G'.
%"e ,nformation A&e
The cost of today9s products is mostly made up of RO=, intellectual assets and services&B'.
)acioli9s accounting system has not changed practically for the last @GG years, and as long
as our wealth was physical and our costs included mostly material and labour, this system
was ade,uate. The double!entry accounting system relied on historical information and has
traditionally provided #nancial reports and statements two weeks after the month!end
closing period&5G'. $usinesses today, re,uire information not two weeks after month!end but
immediately( accounting information, activities and indices of performance must be
available at the push of a buttonFkey. The trends in the information age is to conceptuali2e
and implement accounting as a data base information system gathering all the ,uantitative
and ,ualitative events of all the areas of a company. -racle&55', )eople+oft&5>', and +")&56'
are world players in this re!conceptuali2ation of accounting as a data base information
system, and they provide services to large corporations There are also excellent accounting
software packages which are available in the market place. xamples of these packages are
)acioli >GGG for .indows, )eachtree Complete "ccounting&5?', and Euickbooks )ro&[email protected]'. The
power of such software can be appreciated by making reference to the web site listing the
features of )acioli >GGG for .indows&5M', and to my father9s paper I)acioli >GGG for
.indows: "n "ccounting +oftware +olution to "ddress the problems of "ccountability of
+askatchewan =istrict Dealth $oardsI&5H', Pune 5BBM.
The knowledge economy along with the ongoing information technology changes are
a%ecting the way we are doing business. .e are becoming customers of each other, and the
economic value chain is integrating our businesses with our suppliers, customers, and
governments. "s accounting is concerned, these peculiar changes are being re/ected in the
present trends of shifting our attention from an obsolete ,uantitative approach to a
,ualitative obsession where ,uality, customer satisfaction, and innovation become the most
important components.

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