LET'S TALK ABOUT ACCOUNTING

As an ABM student, we are required to study Fundamentals of Accounting and Business Management which serves as our specialized subject in our strand. So here are some lessons about topics we learn in our Accounting subject.

What is Accounting?

It is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transaction, and events, which are in part at least of financial character, and interpreting the result thereof. (The American Institute of Certified Public Accountants (AICPA)). Mainly, accounting is the systematic process of measuring and reporting relevant financial information about the activities of an economic organization or unit.

Fra Luca Pacioli

Luca Pacioli who was known as the father of accounting known for his first book, Summa de arithmetica, geometria and proportioni et proportionalita.

FOUR ASPECTS OF ACCOUNTING

1. RECORDING

It is the writing down of business transactions chronologically in the book of accounts as they transpire.

2. CLASSIFYING

It is the sorting similar and related business transactions into three categories of assets, liabilities and owner's equity.

3. SUMMARIZING

It is the preparing financial statements from the transaction recorded in the books of account that are designed to meet the information needs of its users.

4. INTERPRETING

It is the representing the qualitative and quantitative financial information about the business transactions in a language comprehensive to the users of financial statement.

 ACCOUNTING CYCLE

The accounting cycle is the name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. Additional accounting records used during the accounting cycle include the general ledger and trial balance.

Following are the major steps involved in the accounting cycle. We will use a simple example problem to explain each step.

1.     Analyzing and recording transactions via journal entries

2.     Posting journal entries to ledger accounts

3.     Preparing unadjusted trial balance

4.     Preparing adjusting entries at the end of the period

5.     Preparing adjusted trial balance

6.     Preparing financial statements

7.     Closing temporary accounts via closing entries

8.     Preparing post-closing trial balance

THE ACCOUNTING EQUATION

ASSETS

    Current

Cash

Cash Equivalents

Marketable Securities

Trade & Receivables

·        Accounts receivable

·        Notes receivable

·        Interest receivable

·        Advances of employees

·        Accrued Income

Inventories

Prepaid Expense

Contra Asset

    Non - Current

Long term investment

Property, Plant and Equipment

LIABILITIES

Current

Trades and Other Payables

·        Accounts Payable

·        Notes Payable

·        Loan Payable

·        Utilities Payable

·        Accrued Liablities

·       Unearned Revenue

Non - Current

Mortgage Payable

Bonds Payable

OWNER'S EQUITY

Capital

Drawing

Income Summary