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BAC 2 - Module 1 - Review of Basic Accounting (Single Prop)

Overview of basic accounting topics

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28 views

BAC 2 - Module 1 - Review of Basic Accounting (Single Prop)

Overview of basic accounting topics

Uploaded by

galvezmariane70
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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MODULE 1

REVIEW OF BASIC ACCOUNTING ( Single Proprietorship)

This module covers the following topics:

1. Definition of Accounting
2. Basic Accounting Assumptions, concepts, principles
3. Analysis of transactions
4. Preparation of journal entries using general journal
5. Postings to general ledger
6. Completing the accounting cycle

Generally accepted definitions of Accounting:

According to the Accounting Standards Council (ASC)

Accounting is a service activity. Its function is to provide quantitative


information, primarily financial in nature, about economic entities,
that is intended to be useful in making economic decision.

According to the Committee on Accounting Terminology of the


American Institute of Certified Public Accountants (AICPA) as
follows:

Accounting is the art of recording, classifying and summarizing in a


significant manner and in terms of money, transactions and events
which are in part at least of a financial character and interpreting the
results hereof.

According to the American Accounting Association (AAA) in its


Statement of basic Accounting Theory defines accounting as follows:

Accounting is the process of identifying, measuring and


communicating economic information to permit informed judgment
and decision by users of the information.

Important concepts from the definitions:

Accounting is a service activity.

Accounting is a process.

Accounting is art.
2

Four major fields of Accounting Practice:

a. Public c. Education
b. Private d. Government

BASIC ACCOUNTING ASSUMPTIONS, CONCEPTS AND PRINCIPLES:

A. Assumptions:
1. Business Entity Concept
2. Going Concern
3. Time Period
4. Accrual
5. Monetary Unit

B. Accounting Principles:
1. Cost Principle
2. Matching Principle
3. Revenue/Expense Recognition Principle

Seven sections covered in the framework used in the preparation


and presentation of financial statements.
a. Objectives of financial statements
b. Underlying assumptions
c. Qualitative characteristics
d. Accounting Principles
e. Elements of financial statements and its recognition and
measurement
f. Financial statements
g. Concepts of capital and capital maintenance
3

Review Exercise - BASIC ACCOUNTING CYCLE

Analysis of Transactions and Preparation of Journal Entries

Mr. Rudy Vasquez opened a car rental agency named U-DRIVE-IT. Transactions for the
month of July, 2021 are the following:

July
1 Rudy Vasquez invested P 440,000 cash and equipment costing P 50,000 but with a
fair market value of P 60,000 as initial investment.
2 Paid office July rent, P 30,000.
3 Newspaper advertising paid, P 8,000.
6 Purchased furniture & fixtures with a fair value of P 80,000. Terms: 40% down,
balance on account.
8 Paid gas and oil bills , P 15,000.
13 Cash rentals for the week, P 40,600.
15 Received and paid the bill for gas and oil , P 7,500.
15 Paid attendants’ salary, P 10,000.
20 Paid office supplies purchased, P 4,000.
20 Sent a bill to Roman Jose, P 10,000, for rental of cars used at his son’s wedding party.
25 Paid P 9,000 for repairs to the automobiles.
27 Cash rentals received for the week, P 40,100.
29 Collected P 5,500 from Roman Jose on our bill on the 20th.
30 Rudy Vasquez withdrew P 20,000 for personal use.
31 Car rentals by John Lapuz, P 28,000 on account.

Required:
1.) Analyze the foregoing transactions and determine their effects to the accounting values.
Indicate the effects of each transaction by writing the letter corresponding to the effects
given below. Use the “Folio”column of your general journal sheet to write your
letter answer corresponding to your analysis.

A. Increase an asset, increase owner’s equity.


B. Increase an asset, decrease another asset.
C. Increase an asset, increase a liability.
D. Decrease an asset, decrease a liability.
E. Decrease an asset, decrease owner’s equity
F. Decrease a liability, increase owner’s equity
G. Increase in asset, decrease in another form of asset, increase in liability.

2.) Record the foregoing transactions using the two- column general journal.

Note: Use the following chart of accounts for the account titles to be used in your
recording the transactions.

Balance Sheet Accounts Income & Expense Accounts


4

ASSETS INCOME
Acct. No. Account Title Acct. No. Account Title

101 Cash 401 Car Rental Income


102 Accounts Receivable
103 Supplies
104 Equipment
105 Furniture & fixtures

LIABILITIES & OWNER’S EQUITY EXPENSES


201 Accounts Payable 501 Rent Expense
502 Advertising Expense
301 Rudy Vasquez, Withdrawal 503 Gas and oil expense
302 Rudy Vasquez, Capital 504 Repairs expense
505 Salary expense

3.) Post the entries in T-accounts. Extract the balances. ( Construct your T-accounts in a
bond paper).
4.) Prepare the trial balance. (Use general Journal sheet)

Note: Review the theory of debit and credit as well as the different accounting values or
accounting elements to be able to accomplish the requirements of the aforementioned
problem.

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