•Bookkeeping is the process of

recording all financial transactions

made by a business.
Bookkeepers are responsible for recording, classifying, and
organizing every financial transaction that is made through the
course of business operations. Bookkeeping differs from
accounting. The accounting process uses the books kept by the
bookkeeper to prepare the end-of-the-year accounting
statements and accounts.
 CAGAYAN STATE UNIVERSITY
COLLEGE OF TEACHER EDUCATION
ENTREPRENEURSHIP

What is
Bookkeeping?
•Bookkeeping is the process of
keeping track of every financial
transaction made by a business—
from the opening of the firm to the
closing of the firm.
Depending on the type of accounting system used by the business,
each financial transaction is recorded based on supporting
documentation. That documentation may be a receipt, an invoice, a
purchase order, or some similar type of financial record showing that
the transaction took place.
Single-Entry
• Single-entry bookkeeping is probably only going to
work for you if your business is very small and
simple, with a low volume of activity. It is actually
similar to keeping your own personal checkbook.
You keep a record of transactions like cash, tax-
deductible expenses, and taxable income when
you use single-entry bookkeeping.
Single-Entry
• Single-entry bookkeeping is characterized by the
fact that only one entry is made for each
transaction, just like in your check register. In one
column, entries are recorded as a positive or
negative amount. In single-entry bookkeeping, you
can actually keep a two-column ledger, one
column for revenue and one for expenses. It’s still
considered single-entry because there is just one
line for each transaction.
Single-Entry
• This type of bookkeeping is not for large, complex
companies. It does not track accounts like
inventory, accounts payable, and accounts
receivable. You can use single-entry bookkeeping
to calculate net income, but you can’t use it to
develop a balance sheet and track the asset and
liability accounts. Transactions are a single entry,
rather than a debit and credit made to a set of
books like in double-entry bookkeeping.
Double-Entry
• Most businesses, even most small businesses,
use double-entry bookkeeping for their
accounting needs. Two characteristics of double-
entry bookkeeping are that each account has two
columns and that each transaction is located in
two accounts. Two entries are made for each
transaction – a debit in one account and a credit
in another.
Double-Entry
• An example of a double-entry transaction would be if the company
wants to pay off a creditor. The cash account would be reduced by the
amount the company owes the creditor. That would be the debit. Then,
the double-entry reduces the amount the business now owes to the
creditor account as it has received the amount of the credit the
business is extending. That is the credit.
• If you want to keep track of asset and liability accounts, you want to
use double-entry bookkeeping instead of single-entry. Other
advantages that double-entry bookkeeping has over single-entry
bookkeeping are that the owner can accurately calculate profit and
loss in complex organizations, financial statements can be prepared
directly from the books, and errors or fraud are easy to detect.
 Income Statement and
Bookkeeping: Revenue,
Expenses, and Costs

The income statement is developed by using revenue from sales

and other sources, expenses, and costs. In bookkeeping, you
have to record each financial transaction in the accounting journal
that falls into one of these three categories.
Revenue is all the income a business receives in selling
its products or services. Costs, also known as the cost of
goods sold, are all the money a business spends to buy
or manufacture the goods or services it sells to its
customers. The purchases account on the chart of
accounts tracks goods purchased.
Expenses are all the money that is
spent to run the company that is not
specifically related to a product or
service sold. An example of an
expense account is salaries and
wages or selling and administrative
expenses.
A bookkeeper is responsible for identifying the
accounts in which transactions should be
recorded. For example, if the business makes a
cash sale to a customer and your business
uses double-entry bookkeeping, you would
record the cash received in the asset account
called cash and the sale would be recorded in
the revenue account called sales.
 CAGAYAN STATE UNIVERSITY
COLLEGE OF TEACHER EDUCATION
ENTREPRENEURSHIP

FINANCIAL
NATURE and

STATEMENTS
OBJECTIVES of
 Financial Statements
•The financial information being provided
to users are called financial statements.
These financial statements are general-
purpose financial statements.
•A reporting entity is an entity for which
there are users who rely on the financial
statements as their major source of
financial information about the entity.
Component of Financial Statements
According to PAS 1, Presentation of Financial Statement (revised
2007), paragraph 10, a complete set of financial statements
comprises:
1. a statement of financial position (balance sheet) as of the
end of the period;
2. a statement of comprehensive income for the period;
3. a statement of changes in equity for the period:
4. a statement of cash flows for the period;
5. notes, comprising a summary of significant accounting
policies, and other explanatory information; and
6. a statement of financial position as at the beginning of the
earliest comparative period when an entity applies an
accounting policy retrospectively or makes a retrospective
restate mentor items in its financial statements or when it
reclassifies items in its financial statements.
Users of Financial Statements
According to PAS 1 (revised 2007), paragraph 9, the users of
financial statements include present and potential investors,
employees, lenders, suppliers and other trade creditors, customers,
the government and its agencies (BIR, SEC, NEDA), and the public.
They use financial statements in order to satisfy some of their
different needs for information. These needs include the following:
1.Investors and Shareholders
• The providers of risk capital and their advisers are concerned
with the risk inherent in, and the return provided by their
investment.
• They need information to help them determine whether they
should buy, hold or sell their investment in the corporation.
• Shareholders are enables them to assess the ability of the
entity to provide remuneration, retirement benefits and
employment opportunities.
2. Managers
•Using accounting information,
managers and executives fulfill their
function of planning (budgeting),
directing (execution), and control
(monitoring actual vs. budget) by
evaluating the operational efficiency
and taking remedial actions
whenever necessary.
3. Employees
•Employees and their
representative groups are
interested in information about the
stability and profitability of their
employer.
4. Lenders
•Lenders are interested in information
that enables them to determine whether
their loans, and the interest attached to
them, will be paid when due.
5. Suppliers and other Trade Creditors
•Suppliers and other trade creditors are
interested in information that enables
them to determine whether amounts
owing to them will be paid when due.
6. Customers
• Customers are interested on information about the
continuance of an entity, especially if they have a long-term
involvement with, or are dependent on the entity for supply of
inventory.
7. Government and their agencies
• Government and their agencies require information from
economic entities in order to regulate the activities of such
entities, determine taxation policies, and use such information
as basis for national income statistics and similar statistics.
8. Public
• Entities affect members of the public in a variety of ways. For
example, entities may make a substantial contribution to the
local economy in many ways including the number of people
that they employ, their patronage of local suppliers, and paying
of local and national taxes.
 Importance of Understanding Financial Statements to
Management
The chief executive officer (CEO) or any corporate officer considered
as among those belonging to the top management echelon, need not be
an accountant, an auditor, or a CPA. He can master fundamental
financial management skill and make major policy decision with
assurance if:
1. He knows the meaning of each asset and liability account on his
balance sheet and the meaning of each major item appearing on
the income statement.
2. He is thoroughly familiar with the financial ratio analysis of his
financial statements so that he can accurately assess his company`s
position and draw meaningful conclusions when comparing the
results of his company with those of its competitor and industry.
 OBJECTIVE OF FINANCIAL
STATEMENTS
•To provide information about the financial position,
financial performance, and cash flows of an entity that
is useful to a wide range of users in making economic
decisions.
•Financial statements prepared for this purpose meet
the common needs of most users.
•Financial statements also show the result of the
stewardship of management, or the accountability of
management for the resources entrusted to it.
To meet this objective, financial statements
provide information about an entity’s:
A. assets;
B. liabilities;
C. equity;
D. income and expenses, including gains and losses;
E. changes in equity; and
F. cash flows.
 Presentation of Financial Statements
According to Philippine Accounting Standard No. 1 (PAS
1):
“Financial statements shall present fairly the financial position,
financial performance and cashflows of an entity. Fair presentation
requires the faithful representation of the effects of transactions,
other events and conditions in accordance with definitions and
recognition criteria for assets, liabilities, income and expense set
out in the Framework.
The application of the International Financial Reporting Standard
(IFIRS), with additional disclosure when necessary, is presumed
to result in financial statements that achieve a fair presentation."
 Responsible for the Preparation of an
Entity's Financial Statements
The management of an entity is primarily responsible in the
preparation and presentation of its financial statements. The Board of
Directors reviews and authorizes the financial statements for issuance
to the stockholders of the entity and to the public.
As required by the Securities and Exchange Commission and the
Bureau of Internal Revenue, all audited financial statements should
include the Statement of Management Responsibility, which state that
the management of the company is primarily responsible for the
preparation of the financial statements being audited an example, is
provided
VARACE AIR CORPORATION
Statement Of Management's Responsibility
For Financial Statements

The management of is responsible for the preparation and fair presentation of the financial statements for the years
ended December 31, 2012 and 2011,in accordance with the prescribed financial reporting framework indicated therein.
This responsibility includes designing and implementing internal controls relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to fraud or error, selecting
and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

The Board of Directors reviews and approves the financial statements and submits the same to the stockholders.

Corazon B. Zabala, the independent auditor, appointed by the stockholders have examined the financial statements of
the company in accordance with the Philippine Standards on Auditing, and in its report to the stockholders, has
expressed its opinion on the fairness of presentation upon completion of such examination.

AURORA P.ACELAJADO
President and Chairman

ROBERTO Z. PALMA
Treasurer

JOEZETTE ACELAJADO-TENORIO
Director
 Generally Accepted Accounting
Principles (GAAP)
• In the Philippines, the development of GAAP was initially formalized through the
creation in 1981of the Accounting Standard Council (ASC). The accounting
standards promulgated by ASC constitute thegaap in the Philippines.
• From the start of the accounting profession up to 1995, the Philippines is
developing its accountingstandard following the standard setting body in the USA,
the Financial Accounting Standard Board(FASB). But beginning 1996, the
Philippines has started to develop new accounting standard or GAAP based from
the International Accounting Standard Board (IASB). The pronouncements of
IASB are called“International Financial Reporting Standard" (IFRS).
• Today, the Generally Accepted Accounting Principles (GAAP) includes those
principles regardingthe recognition criteria for assets, liabilities, income and
expense set out in the PAS's Framework for thepreparation and Presentation
of Financial Statement.
Underlying Assumptions of
Financial Statements
1. Accrual Basis Principle (PAS 1, Framework, revised 2007,
paragraph 22)
• It refers to the recording of revenues of a company as these are
earned and expenses as these are incurred, even when no money
has changed hands yet. Under this basis, the effects of
transactions and other events are recognized, when they occur
(and not as cash or its equivalents is received or paid) and they
are recorded in the accounting records and reported in the
financial statements of the periods to which they relate.
Underlying Assumptions of
Financial Statements
2. Going Concern Principle (PAS 1, Framework , revised 2007,
paragraph 23)
The financial statements are normally prepared on the
assumption that an entity is a goingconcen and will continue in
operation for the foreseeable future in the absence of evidence to
thecontrary.Hence, it is assumed that the entity has neither the
intention nor the need to liquidate orcurtail materially the scale
of its operations; if such intention or need exists, the financial
statementmay have to be prepared on a different basis and, if so,
the basis used is disclosed.
Qualitative Characteristics
of Financial Statements

3.Understandability Principle (PAS

1,Framework, revised 2007, paragraph 25)
users are assumed to have a reasonable
knowledge of business and economic activities
and accounting and a willingness to study the
information withreasonable diligence.
Qualitative Characteristics
of Financial Statements

4. Relevance Principle (PAS 1, Framework, revised 2007,

paragraph 26)
To be useful, the information must be relevant to the
decision-making needs of users. Information is relevant
when it influences the economic decisions of users by
helping them evaluatepast , present or future events or
confirming, or correcting, their past evaluations.The
predictiveand confirmatory roles of information are
interrelated.
Qualitative Characteristics
of Financial Statements
5. Materiality Principle (PAS 1, Framework, revised 2007, paragraph
29)
The relevance of information is affected by its nature and materiality. In
the preparation offinancial statements, each material class of similar
items shall be presented separately. Items of adissimilar nature or
function shall be presented separately unless they are immaterial. An item
inthe financial statements is material if its omission or misstatement
could individually or collectivelyinfluence the economic decisions of the
users. Materiality depends on the size and nature of theomission or
misstatement judged in the surrounding circumstances. The size or nature
of the item,or a combination of both, could be the determining factor.
Qualitative Characteristics
of Financial Statements
6. Reliability Principle (PAS 1,Framework, revised 2007, paragraphs 31 to 36)
Information has the quality of reliability when it is free from material error
and bias (neutrality)and can be depended upon by users to represent
faithfully (faithful representation) that whichit either purport to represent
or could reasonably be expected to represent. Information maybe relevant
but so unreliable in nature or representation that its recognition may be
potentiallymisleading to the user. Included in reliability is completeness.
To be reliable, the information in thefinancial statement must be complete
within the bounds of materiality and cost. An omission cancause
information to be false or misleading and thus unreliable.
Neutrality Principle
This is one of the elements of reliability. To be reliable, the
information contained in thefinancial statements must be neutral,
that is free from bias.
Faithful Representation
Principle
This is one of the elements of reliability. To be reliable, the
information must representfaithfully the transactions and other
events it either purports to represent or could reasonably Be
expected to represent. Most financial information are subject to
some risk of being lessthan a faithful representation of that which
it purports to portray.
Substance Over Form
Principle
This is an element of faithful representation. If information is to
represent faithfullythe transactions and other events that it
purports to represent, it is necessary that they areaccounted for
and presented in accordance with their substance and economic
reality andnot merely their legal form.

Completeness Principle
This is an element of reliability. To be reliable, the information in
the financial statementsmust be complete within the bounds of
materiality and cost. An omission can cause informationto be
false and misleading and thus unreliable and deficient in terms of
its relevance.
 Qualitative Characteristics of
Financial Statements
7.Comparability Principle (PAS 1,Framework, revised 2007, paragraph 39)
Users must be able to compare the financial statements of an entity through time in order
toidentify trends in its financial position and performance. Users must be able to compare the
financialstatements of different entities in order to evaluate their relative financial position,
performance,cash flows, and changes in equity.
Included in the essence of comparability is the quality of consistency of the applicationof
accounting policies through time. It means the presentation and classification of items in
thefinancial statements should be retained from one period to another. Except when a Standard or
aninterpretation permits or requires otherwise, comparative information shall be disclosed in
respectof the previous period for all amounts reported in the financial statements.Comparative
informationshall be included for narrative and descriptive information when it is relevant to an
understanding ofthe current period's financial statements.
Also, financial statements should be prepared for this year and last year for easy
comparison,analysis and preparation of cash flows statement.
 Qualitative Characteristics of
Financial Statements
8. Prudence (Conservatism) Principle
The preparers of financial statements have to contend with the
uncertainties that inevitably surround many events and circumstances,
such as the collectivity of doubtful account receivables,the probable
useful life of plant and equipment and the number of warranty claims that
may occur.In this regard, the exercise of prudence or conservatism in the
preparation of financial statementsis required. Prudence or conservatism
is the inclusion of a degree of caution in the exercise ofthe judgments
needed in making the estimates required under conditions of uncertainty,
such thatassets or income are not overstated and liabilities or expenses
are not understated.
Qualitative Characteristics of
Financial Statements
9. Cost Principle
The financial statements shall be prepared on the basis of
historical cost, except when astandard or Interpretation
permits, and do not take into account changing market
prices and currentcost of non-current assets. Assets are
recorded at the amount of cash or cash equivalents paid
orthe fair value of the consideration given to acquire them
at the time of their acquisition.
Qualitative Characteristics of
Financial Statements
10. Matching Principle
Expenses are recognized in the period in which the related
revenue was earned. The cost ofinventory sold, therefore,
is charged from income in the period when the sale
(revenue) was made.Costs that are difficult to match with
revenues earned during the period, or whose benefit in
futureperiods is uncertain or indeterminable, are
immediately recognized as expense such as researchand
development expenses.
Qualitative Characteristics of
Financial Statements
11. No Offsetting Principle
Assets and liabilities, and income and expenses, shall not
be offset unless required orpermitted by a Standard or an
Interpretation. A receivable and a payable to the same
companyshould not be offset and an income from a
company and an expense to the same company should not
be offset.
Measuring assets net of valuation allowance - for example,
obsolescence allowance oninventories,allowance for
doubtful account for receivables - is not offsetting.
Qualitative Characteristics of
Financial Statements
12. Separate Entity Principle
From the point of view of accounting, the enterprise is
assumed to be a separate entity fromits owner.The assets
and liabilities of the owner should not be mingled with the
assets and liabilitiesof the enterprise.
Constraints on Relevant and
Reliable Information
13. Timeliness
If there is undue delay in the reporting of information, it
may lose its relevance to provideinformation on a timely
basis. It may often be necessary to report before all aspects
of a transactionor other event are known, thus impairing
reliability.
Constraints on Relevant and
Reliable Information
14. Benefit and Cost Principle
The balance between benefit and cost is a pervasive
constraint rather than a qualitativecharacteristic. The
benefits derived from information should exceed the cost
of providing it.
Constraints on Relevant and
Reliable Information
15. Measurement in terms of Money Principle
To allow for aggregation and comparability, assets
(economic resources) and liabilities(obligations) should be
measured in monetary terms. This principle also imposes
the constraint thatonly information presented in the
financial statements is that which can be expressed in
objectivelydetermined monetary terms.
Constraints on Relevant and
Reliable Information
All financial statements issued in the Philippines for
shareholders andinvestors should be in terms of Philippine
peso; those issued in the United States of America,should
be in US dollars; and those issued in Japan, should be in
Japanese Yen. Thus, a multi-national corporation whose
shares of stocks are traded in various stock markets in the
world arerequired to prepare financial statement in terms
of their local currency.
Compliance with GAAP

An entity whose financial statements comply with

generally accepted accounting principles shallmake an
explicit and unreserved statement of such compliance in
the notes to the financial statements.
Financial statements shall not be described as complying
with GAAP unless they comply withthe Philippine
Accounting Standard or all the requirements of each
applicable Philippine financialreporting Standard
(PFRS).
 CAGAYAN STATE UNIVERSITY
COLLEGE OF TEACHER EDUCATION
ENTREPRENEURSHIP

and Statement of
Financial Position
Income Statement
Philippine Accounting Standard
(PAS) 1
PAS 1 is effective for annual financial statement periods
beginning on or after January 1, 2005.
income statement
is the financial statement that shows the financial
performance of the entity during a given period of time,
usually a year. The financial performance is also called the
result of operation during a given period of time. Income
statement measures the profitability of the entity
considering its resources. Sometimes it is also called
Profit and Loss statement.
income
The conceptual framework defines income as an increase
in economic benefit during the accounting period in the
form of inflows or enhancements of assets or decrease of
liabilities that result in increases of equity, other than those
relating to contributions from equity participants.
According to PAS 1, paragraphs 74 to 77, the term income
includes revenues and gains. Revenue arises in the
course of the ordinary activities of an entity that include
sales of products, professional fees, service income,
interest income, divided income, royalty income and rent
income.
Gains represent other items that meet the definition of
income and may, or may not, arise in the course of
ordinary activities of the enterprise.
Gains are incidental income from peripheral
transaction of the entity.
Expense is a decrease in economic benefit during the
accounting period in the form of outflow or depletion of
assets or incident of liabilities that result in the decrease of
equity.
Classification of expenses includes the following:
1. Cost of goods sold or cost of sales
Cost of goods sold is the value of goods sold to customers.
For manufacturing entity, the formula to compute the cost
of goods sold: cost of goods manufactured plus finished
goods at the beginning of the period less finished goods at
the end of the period equals cost of goods sold.
Classification of expenses includes the following:
2. Selling or distribution expenses
Selling expenses are expenses related to selling and
marketing activities of products and services, such as
advertising and promotion and delivery of products to
customers. Selling expenses for example, include expenses
of a store such as store supplies expense, sales lady's
salary. store rent expense, store utility expense, and
depreciation expense of store furniture, equipment,
delivery vehicles and all depreciable assets in the store.
Classification of expenses includes the following:
3. Administrative or general expenses
Administrative expenses are expenses in managing the
business. These are office rent expense, taxes and licenses
(excluding income tax), bad debts expense, office proe
supplies. Expenses such as office salaries and wages,
office employees fringe benefits, office fees expense,
transportation expense, depreciation expense of office
building, expense of office building, office furniture and
equipment, and amortization of intangibles.
Classification of expenses includes the following:
4. Other expenses
Other expenses are expenses or losses from peripheral or
incidental transaction of the entity such as loss on sale of
investments.
Classification of expenses includes the following:
5. Financing cost
Financing costs are the expenses incurred for borrowing to
finance the operation of the business such as interest
expense from a bank loan, interest expense from bonds
payable and business such as others.

6. Income tax expense is equal to the accounting income

subject to tax multiplied by the tax rate.
 ACCOUNTING EQUATION:
ASSETS = CAPITAL + LIABILITIES