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What are the values

which can be
developed in studying
accounting?
 LESSON 3:
ACCOUNTIN
G
CONCEPTS
AND
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LESSON OBJECTIVES objectives

L1 Explain the varied accounting concepts

and principles
L2 Analyze the accounting elements or values and its
equation
L3 Make a summary of the Generally
Accepted Accounting Principles
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Concepts of Accounting
ACCOUNTING STANDARDS
• authoritative statements of how particular types of
transactions and other events should be reflected
in the financial statements.
• Compliance with accounting standards will
normally be necessary for the fair presentation of
financial statements.
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Concepts of Accounting
ACCOUNTING STANDARDS
• create a common understanding between preparers and
users of financial statements particularly on how items
are treated.
• Accounting Standards Council - give the task of
developing and promulgating accounting standards.
• The accounting standards promulgated by the ASC
constitute the Generally Accepted Accounting Principles.
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Generally Accepted Accounting

Principles (GAAP)
• a set of guidelines and procedures that constitute
acceptable accounting practice at a given time.
• It represents the rules, procedures, practice and
standards followed in the preparation and
presentation of financial statements.
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major accounting concepts and
principles
-Relevance -
Materiality
-Reliability - Going
Concern
-Matching Concept - Accruals
-Timeliness -
Business Entity
-Neutrality -
Substance over Form
-Faithful Representation - Realization
Concept
-Prudence - Duality
Concept
-Completeness - Historical
Cost
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The Accounting Equation

• Financial statements tell us how a business is
performing and where it stands.
• They are the final output of the accounting
process.
• These financial statements are based on the most
basic principle of accounting, the accounting
equation.
• Business transactions affect the assets, liabilities
and proprietorship of the business. These effects
can be expressed in the accounting equation.
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The Accounting Equation

• This equation expresses the constant relationship
among the assets, liabilities and owners’ equity.
This is often expressed as:
ASSETS = LIABILITIES + OWNERS’
EQUITY
EQUITY= ASSETS - LIABILITIES
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The Accounting Equation

• Assets - the economic resources of the
business.
• These are found at the left-hand side of the
equation which we termed as debit while,
Liabilities and Owners’ Equity are found at the
right-hand side of the equation which we
termed as credit.
• The final rule is that the total of the left will
always be equal to the total of the right.
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The Accounting Equation

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Expanded Accounting Equation

• includes revenues and expenses.
• Revenue will increase owners’ equity and will be
decreased by expenses.
• Owners’ withdrawal is an outright reduction from
owners’ equity.
• Even if the owners’ equity includes revenue and
expenses, the two sides of the accounting
equation will always remain equal.
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Expanded Accounting Equation

• The expanded accounting equation is

expressed as:

ASSETS = LIABILITIES + OWNER’S

EQUITY (+ REVENUE – EXPENSES)
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ACCOUNTING ELEMENTS OR VALUES

A. ASSETS
B. LIABILITIES
C. EQUITY / CAPITAL /PROPRIETORSHIP
D. INCOME OR REVENUE
E. EXPENSES OR COSTS
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ACCOUNTING ELEMENTS OR VALUES

A. ASSETS
• They are resources controlled by the
enterprises as a result of past event and from
which future economic benefits are expected
to flow to the enterprise.
• These are classified into current and non-
current assets.
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ACCOUNTING ELEMENTS OR VALUES

Current Assets
1 Cash – the account title to describe money, either on
paper or coins and money substitutes like check,
postal money orders, bank drafts, and treasury
warrants.
Cash on Hand when cash is within the premise of
the business
Cash in Bank if deposited in the bank.
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ACCOUNTING ELEMENTS OR VALUES

2 Petty Cash Fund – the account title for money

placed and set aside for petty or small expenses.
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ACCOUNTING ELEMENTS OR VALUES

3 Notes Receivable - this is promissory

note that is received by the business from
the customer arising from rendering of
services, sale of merchandise, etc.
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ACCOUNTING ELEMENTS OR VALUES

4 Accounts Receivable – the account title

for amounts collectible arising from services
rendered to a customer or client or credit or
sale of goods to customers on accounts.
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ACCOUNTING ELEMENTS OR VALUES

5 Allowance for Bad Debts – this is a

contra-asset account to provide for
uncollectible amounts. It is deducted from
Accounts Receivable to present the amount
still collectible from the debtors.
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ACCOUNTING ELEMENTS OR VALUES

6 Supplies Unused – miscellaneous

supplies which have been bought for office
use but are still unused as of the balance
sheet date.
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ACCOUNTING ELEMENTS OR VALUES

7 Prepaid Expenses – account title for

expenses that are paid in advance but are
not yet incurred or have not yet expired.
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ACCOUNTING ELEMENTS OR VALUES

8 Inventories – these are assets which are

held for sale in the ordinary course of
business in the process of production for
such sale.
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ACCOUNTING ELEMENTS OR VALUES

Non- Current Assets

1 Land – an account title for the site where

the building used as office or store is
constructed.
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ACCOUNTING ELEMENTS OR VALUES

2 Building – account title for a finished

construction owned by the business in its
operation.
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ACCOUNTING ELEMENTS OR VALUES

3 Furniture and Fixtures – include chairs,

tables, counters, display cases and similar
assets owned and used by the business
in its operation.
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ACCOUNTING ELEMENTS OR VALUES

4 Equipment – includes calculators,

typewriters, adding machines, computers,
steel filing cabinets and the like.
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ACCOUNTING ELEMENTS OR VALUES

5 Accumulated Depreciation – this is an

asset offset or contra-asset account.This
is called as valuation account which is
shown as a deduction from property and
equipment.
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ACCOUNTING ELEMENTS OR VALUES

B. LIABILITIES
• present obligation of the enterprise arising from past events,
the settlement of which is expected to result in an outflow
from the enterprise of resources embodying economic
benefits.
• These are classified into current or short term and non-
current or long term liabilities.
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ACCOUNTING ELEMENTS OR VALUES

Current or Short-term

1 Unearned Income – this is an account

title for an income collected or received in
advance but services have not been
rendered yet.
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ACCOUNTING ELEMENTS OR VALUES

2 Accounts Payable – an account title for a

financial obligations of an enterpriseor
amounts due to creditors for the goods or
services bought on credit.
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ACCOUNTING ELEMENTS OR VALUES

3 Notes Payable – amount due to creditors

which are supported by promissory notes.
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ACCOUNTING ELEMENTS OR VALUES

4 Notes Payable – amount due to creditors

which are supported by promissory notes.
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ACCOUNTING ELEMENTS OR VALUES

5 Salaried Payable – account title used for

salaries earned by the employee but no
payment yet.
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ACCOUNTING ELEMENTS OR VALUES

6 Utilities Payable – account title used for the

cost of power, light and water incurred but not
yet paid.