ACCOUNTING

FOR
NON-ACCOUNTANTS

Atty. Rheneir P. Mora, CPA

Manager, R.P. Mora Accounting & Law Office
Director, Next Generation Security Agency, Inc.
What is Accounting?
 M

Importance of Accounting
is a
Accounting Identifies
system that

Records

information
Relevant Communicates
that is

Reliable
to help users make
Comparable better decisions.

3
 The accounting
process

Accounting “link
s” decision
makers with Accounting
Economic
economic
activities information
activities  and
with the results of
their decisions.

Actions
(decisions)
Decision makers
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Accounting Activities

 Identifying  Recording
Business Business
Activities Activities

Communicating
Business
Activities

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 M
Users of Accounting
Information

External Users Internal Users

•Banks •Media •Board Members •Departments

•Bond Holders •External Auditors •Administrators •Budget Officers
•Governments •Grantors •Internal Auditors •Controllers

6
 S
Generally Accepted
Accounting Principles
Financial accounting practice is governed by
concepts and rules known as generally accepted
accounting principles (GAAP).

Relevant Affects the decision of

Information its users.

Reliable Information Is trusted by

users.

Comparable Is helpful in contrasting

Information organizations.
7
 Information is Power
What do you want to know about your business?

• How much money am I bringing in? Sales

• How much am I spending? Expenses
• Is my business making any money? Sales – Expenses
• What’s the value of what my
business owns? Assets

• How much does my business owe to

Liabilities
others?
• What is my business worth? Equity
 M

Accounting Equation

Assets = Liabilities + Equity

Liabilities
Assets & Equity

9
 Balance Sheet

• Shows the assets,

liabilities, and
equity at a given
moment in time
• Assets =
Liabilities + Equity

Equity also referred to

as Owners Equity
or Retained Equity.
 Major Account Types
• Assets
– Current (cash, inventory, Everything your
accounts receivable, etc.) business
– Fixed (property, vehicles, possesses
machinery, etc.)
• Liabilities
– Current (within one year) Everything your
– Long Term business has
borrowed
• Equity
– Contributed capital: owner’s Everything your
investment business owns
– Retained earnings (profits)
Assets = Liabilities + Equity
 M

Assets

Cash
Accounts Notes
Receivable Receivable
Resources
owned or
Vehicles controlled Land
by a school

Store Buildings
Supplies
Equipment
12
EQUITY
 M

Liabilities

Accounts Notes
Payable Payable

Creditors’
claims on
assets
Benefits Wages
Payable Payable

15
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Equity
Restricted or
Unrestricted
Equity

Owner’s
claim
on
assets
Revenues Expenses

16
 Cash Flow: Money In and Money Out
Money In Money Out

Sales
Expenses

CUSTOMERS YOUR
BUSINESS VENDORS

Services /
Products Services /
Out Products
In
Income Statement

• Summarizes the
revenue and
expenses of a
company over a
period of time
• Also called a
Profit & Loss or
P&L
INCOME STATEMENT
• Revenue - Cash inflows
or other enhancements of
assets of an entity during
a period from delivering or
producing goods,
rendering services, or
other activities that
constitute the entity's
ongoing major operations.
 INCOME STATEMENT
• Expenses - Cash outflows or other
using-up of assets or incurrence of
liabilities during a period from delivering
or producing goods, rendering services,
or carrying out other activities that
constitute the entity's ongoing major
operations.
 M

Expanded Accounting Equation

Assets = Liabilities + Equity

Balance

Equity
+ Revenues _ Expenses
Balance

Caution!
If this equation yields zero, you have a…
Deficit Equity balance.
21
Debit and credit rules
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Debits and Credits

A T-account represents a ledger account and is a
tool used to understand the effects of one or more
transactions.

T- Account
(Left side) (Right side)
Debit Credit

These abbreviations are remnants of the

18th-century recordkeeping practices where
the terms debitor and creditor were used
instead of debit and credit.
23
 M

Double-Entry Accounting

Assets = Liabilities + Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

+ - - + - +

24
 M
Transaction Analysis
Equation
The accounting equation must remain in
balance after each transaction.

Assets = Liabilities + Equity

25
 TRANSACTIONS AND THE
ACCOUNTING EQUATION
All business transactions, from the simplest to the
most complex, can be stated in terms of the resulting
change in the three basic elements of the accounting
equation. Before a transaction can be recorded in the
book of accounts, it must be analyzed into its debit and
credit elements. The following questions will be helpful in
analyzing a business transaction;
• Which item (items) is/are affected – Assets, Liabilities,
Capital?
• How is each item affected – it is increased or
decreased?
• According to the rules of debit and credit, is the increase
or the decrease in the item to be debited or credited?
• What account titles should be used to record the debit
or credit item?
 S
Journalizing and Posting
Transactions
Assets = Liabilities + Equity
T- Account
(Left side) (Right side)
Debit Credit

Step 1: Analyze
Step 2: Apply double-
transactions and source
entry accounting
documents.

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 4: Post entry to ledger Step 3: Record journal entry

27
 DOUBLE-ENTRY BOOKKEEPING
SYSTEMS
Debits and Credits vs. Account Types
Account         Type Debit          Credit
Assets             Increases          Decreases
Liabilities         Decreases          Increases
Income            Decreases          Increases
Expenses         Increases          Decreases
• Notice that for every increase in one account, there is
an opposite (and equal) decrease in another. That's
what keeps the entry in balance. Also notice that
debits always go on the left and credits on the right.
 S

Transaction Analysis
Sold obsolete school computer
receiving P3,000 cash.

The accounts involved are:

(1) Cash (asset)
(2) Revenues (equity)

29
 S

Transaction Analysis
Sold obsolete school computer
receiving P3,000 cash.

30
 S

Transaction Analysis

Paid salaries of $800 to employees.

The accounts involved are:

(1) Cash (asset)
(2) Salaries expense (equity)

Remember that the balance in the salaries

expense account actually increases.
But, equity actually decreases because expenses
reduce equity.
31
 S

Transaction Analysis

Paid salaries of $800 to employees.

Remember that expenses decrease equity.

32
 S

Journalizing Transactions

Transaction Titles of Affected

Date Accounts

Transaction Dollar amount of

33
explanation debits and credits
 DOUBLE ENTRY BOOKKEEPING

As the basis of this illustration,

assume that on September 1, 19xx Nick
Requijo establishes a sole proprietorship
to be known as Requijo Taxi. Each
transaction or group of similar transactions
during the first month of operations is
described followed by an illustration of its
effect(s) on the accounting equation and
the corresponding two-column journal
entry and explanation of entry for each
give transaction.
 DOUBLE ENTRY BOOKKEEPING

• TRANSACTION ONE
Nick Requijo deposited P500,000 in a
bank account in the name of Requijo Taxi.
The effect of this transaction is to increase
the asset cash by P500,000 and to
increase capital, on the other side of the
equation, by the same amount. After the
transaction, the equation for Requijo Taxi
will appear as follows:
 Table 1.3

  ±ASSETS ±LIABILITIES ±CAPITAL

+Requijo,
+ Cash Capital
1 P500,000   P500,000
DOUBLE ENTRY BOOKKEEPING

It should be noted that the equation

relates only to the business enterprise.
Nick Requijo’s personal assets, such as
his home, car, his personal bank account,
and his personal liabilities are excluded
from consideration. The business is
treated as a distinct entity, with cash of
P500,000 and the owner’s equity of
P500,000.
 Table 1.4

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 1 Cash   500,000  

    Nick Requijo, Capital     500,000

To record investment
    of the owner      
 DOUBLE ENTRY BOOKKEEPING

The explanation of each debit or

credit entry on the journal is based on the
rules of debit and credit. Cash was debited
because of increase in asset while Capital
was credited because of increase in
capital due to investment of the owner.
 DOUBLE ENTRY BOOKKEEPING

• TRANSACTION TWO
Requijo’s next transaction on September 5
is to purchase land as a future building site, for
which P100,000 cash is paid. This transaction
changes the composition of the assets but does
not change the total amount. The items in the
equation prior to this transaction, the effects of
this transaction, and the new balance after the
transaction are as follow:
 Table 1.5

  ±ASSETS ±LIABILITIES ±CAPITAL

+ Cash + Requijo, Capital

1. P500,000   P500,000
- Cash    
P100,000
2.
+ Land    
P100,000
 
 DOUBLE ENTRY BOOKKEEPING

After the transaction, there is a land

costing P100, 000 but the balance is
reduced to P400, 000. The total assets
composed of cash and land total to P500,
000. Notice that there is no change in the
liability and capital items.
 Table 1.6

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 5 Land   100,000  

    Cash     100,000
To record purchase
    of land for cash      
 DOUBLE ENTRY BOOKKEEPING

In the transaction recorded, there

was a change in the asset element. Land
was debited because of increase in assets
while Cash was credited because of
decrease in assets. The reason for the
debit and credit comes from the rules of
debit and credit.
 DOUBLE ENTRY BOOKKEEPING

• TRANSACTION THREE
Requijo’s current plans are to lease cars and
other equipment from California Bus Company for
several months until he can arrange financing for the
purchase of cars and other equipment and for the
construction of garage and storage facilities.
On September 7 Requijo purchases P60, 000 of
parts and other supplies from various suppliers, agreeing
to pay in the near future. This type of transaction is
called purchase of supplies on account and the liability
created is termed accounts payable. Consumable
commodities acquired, such as supplies, are considered
to be prepaid expenses. Prepaid expenses are
expenses paid in advance and are classified as
asset.
 DOUBLE ENTRY BOOKKEEPING

In actual practice, each purchase

would be considered and recorded as it
occurred and a separated record would be
maintained for each creditor. In this
illustration, however, the purchases are
recorded as a group. The effect is to
increase the assets and liabilities by P600,
000, as indicated below:
 Table 1.7

  ±ASSETS ±LIABILITIES ±CAPITAL

+ Cash + Requijo, Capital
1. P500,000   P500,000
- Cash    
2. P100,000
+ Land    
  P100,000

+ Supplies P + Account Payable

3. 60,000 P60,000  
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total assets

amount to P560,000 composed of Cash
P400,000, Land P100, 000, and Supplies
P60,000. The total equity is also P560,000
composed of Accounts Payable P60,000 and
Capital of P500,000. The total of the two column,
debit and credit, still balance.
 Table 1.8

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 7 Supplies   60,000  

    Accounts Payable     60,000

To record purchase of
    supplies on account      
In the transaction recorded, Supplies (unused) was
debited because of increase in assets while
Accounts Payable is credited because of increase
in liability.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION FOUR
On September 9, P10,000 is paid to
creditors on account, thereby reducing
both assets and liabilities. The effect on
the equation is as follows:
 Table 1.9

  ±ASSETS ±LIABILITIES ±CAPITAL

+ Cash + Requijo, Capital
1. P500,000   P500,000
- Cash    
2. P100,000
+ Land    
  P100,000
+ Supplies P +Account Payable
3. 60,000 P60,000  
- Cash P - Account Payable
4. 10,000 P10,000  
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total assets

amount to P550, 000 composed of Cash P390,
000, Land P100, 000, and Supplies P60, 000.
The total equity is also P550, 000 composed of
Accounts Payable P50, 000 and Capital P500,
000. The equation is still balance.
 Table 1.10

Post
Date DESCRIPTION Ref. Debit Credit

Sept. 9 Accounts Payable   10, 000  

    Cash     10,000

To record payment of
    account      
In the transaction recorded, Accounts Payable
was debited because of decrease in liability
while cash was credited because of decrease
in assets.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION FIVE
The principal objective of the owner of a business
enterprise is to increase capital through earnings. For
Nick Requijo, this means that the cash and other assets
acquired through the sale of taxi services must be
greater than the cost of the gasoline and other supplies
used, the wages of drivers, the rent, and all of the other
expenses of operating the business.
In general, the amount charged to customers for
goods or services sold to them is called revenue.
Alternative terms may be used for particular types of
revenue, such as sales for the sale of merchandise or
business services, fees earned for charges by a
physician to patients, rent revenue for the use of real
estate or other property, and fares earned for Requijo
Taxi.
 DOUBLE ENTRY BOOKKEEPING

In a broad sense, the amount of assets consumed

or services used in the process of earning revenue is
called expense. Expenses would include supplies used,
salaries and wages of employees, and other assets and
services used in operating the business.

The excess of the revenue over the expenses

incurred in earning the revenue is called net income or
net profit. If the expenses of the enterprise exceed the
revenue, the excess is a net loss. Since it is ordinarily
impossible to determine the exact amount of expense
incurred in connection with each revenue transactions, it
is considered satisfactory to determine the net income or
the net loss for a specified period of time, such as a
month, or a quarter, a semester, or a year, rather than
each of small group of sales.
 DOUBLE ENTRY BOOKKEEPING

During the first month of operations Requijo Taxi

earned fares of P150, 000, receiving the amount
in cash. The total effect of these transactions is to
increase cash by P150, 000 and to yield revenue
in the same amount. The revenue can be viewed
as though it affected a P150, 000 increases in
capital.
At the time expenses of the business are
incurred, they are treated as offsets against
revenue and hence as reduction in capital. In
terms of the accounting equation, the effect of the
receipt of cash for services performed follows:
Table 1.11
  ±ASSETS ±LIABILITIES ±CAPITAL
+ Cash + Requijo, Capital
1. P500,000   P500,000
- Cash    
2. P100,000
+ Land    
  P100,000
+ Supplies +Account Payable
3. P 60,000 P60,000  
- Cash - Account Payable
4. P 10,000 P10,000  

+ Cash + Fares Earned

5. P150,000   P150,000
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total assets amount to P700, 000

composed of Cash P540, 000, Land P100, 000, and Supplies P60,
000. The total equities are also P700, 000 composed of Accounts
Payable P50, 000 and Capital of P650, 000 (including the fare
earned).
Instead of requiring payment of cash at the time goods or services
are sold or rendered, a business may make sales of goods or
services on account, allowing customer to pay later. In such cases,
the business acquires a claim against the customer, called an
account receivable. An account receivable is as much an asset as
cash, and the revenue is realized in exactly the same manner as if
cash had been immediately received. At a later date, when the
money is collected, there is only an exchange of one asset for
another, with cash increasing and accounts receivable decreasing.

In the transaction recorded, Cash was debited because of increase in

assets while Fares Earned was credited because of increase in
capital due to increase in revenue.
 Table 1.12
Post
Date DESCRIPTION Ref. Debit Credit

Sept. 30 Cash   150,000  

    Fares Earned     150,000

To record receipt of
revenue from various
    customer.      
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION SIX
Various business expenses incurred and
paid during the month were as follow: wages,
P40, 000; rent, P20, 000; gas and oil, P50, 000;
miscellaneous expenses, P10, 000. The effect of
this group of transaction is to reduce cash and to
reduce capital, as indicated in the following
manner in the equation:
 Table 1.13
  ±ASSETS ±LIABILITIES ±CAPITAL
+ Requijo, Capital
1. + Cash P500,000   P500,000
- Cash P100,000    
2.
+ Land P100,000    
 
+ Supplies P 60,000 +Account Payable
3. P60,000  
- Account Payable
4. - Cash P 10,000 P10,000  
+ Fares Earned
5. + Cash P150,000   P150,000
- Wages Expense
6. - Cash P120,000   P40,000
- Rent Expense
    P20,000
- Gas & Oil
    P50,000
- Misc. Expense
 DOUBLE ENTRY BOOKKEEPING

After this transaction, the total asset

amount to P580, 000 composed of Cash
P420, 000, Land P100, 000, and Supplies
of P60, 000. The total equities are also
P580, 000 composed of Accounts Payable
P50, 000 and Capital of P530, 000. It
should be remembered that revenue and
expense accounts are temporary capital
accounts; these items are closed to
capital at the end of the accounting period.
 Table 1.14
Post
Date DESCRIPTION Ref. Debit Credit

Sept. 30 Wages Expense   40,000  

    Rent Expense   20,000

    Gas and Oil Expense   50,000  

    Miscellaneous Expense   10,000  

    Cash     120,000
To record payment of
    expenses.      
 DOUBLE ENTRY BOOKKEEPING

In the transaction recorded, Wages

Expense, Rent Expense, Gas and Oil
Expense, Miscellaneous Expense were
debited because of decrease in capital
due to increase in expenses while cash
was credited because of decrease in
assets.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION SEVEN
At the end of the month it is determined that the
cost of supplies on hand is P40, 000, the remainder of
P20, 000 (P60, 000- P40, 000) have been used in the
operations of the business. This deduction of P20, 000 in
supplies and capital may be shown as follows:

After this transaction, the total assets amount to

P560, 000 composed of Cash P420, 000, Land P100,
000, and Supplies of only P40, 000. The total equities
are also P560, 000 composed of Accounts Payable of
P50, 000 and Capital of P510, 000.
 Table 1.15
  ±ASSETS ±LIABILITIES ±CAPITAL

1. + Cash P500,000   + Requijo, Capital P500,000

- Cash P100,000    
2.
+ Land P100,000    
 

3. + Supplies P 60,000 +Account Payable P60,000  

4. - Cash P 10,000 - Account Payable P10,000  

5. + Cash P150,000   + Fares Earned P150,000

6. - Cash P120,000   -Wages Expense P 40,000

    -Rent Expense P 20,000

    -Gas & Oil P 50,000

      -Misc. Expense P 10,000

7. - Supplies P20,000   -Supplies Expense P20,000

DOUBLE ENTRY BOOKKEEPING
Table 1.16

Date Particulars Debit Credit

  Supplies Expense P20,000  

  Supplies   P20,000

To record part of the

supplies used in the
  operation of the business    
 Post
Date DESCRIPTION Ref. Debit Credit

Sept. 30 Supplies Expense   20,000  

    Supplies     20,000

To record part of
supplies in the operation of
    the business      
In the transaction recorded, Supplies Expense was
debited because of decrease in capital due to
increase in expenses while Supplies (Unused) was
credited because of decrease in assets. Note to
Students – The terms “unused”, “unexpired”,
“inventory”, and “prepaid” denote asset.
 DOUBLE ENTRY BOOKKEEPING

TRANSACTION EIGHT
At the end of the month, Nick Requijo withdraws
from the business P20, 000 in cash for his personnel
use. This transaction, which affects a decrease in cash
and a decrease in capital, is the exact opposite of an
investment in the business by the owner. The
withdrawal is not a business expense, and it should
be excluded from consideration in determining the
net income from operations of the enterprise. The
effect of the P20, 000 withdrawals on the equation is as
follows:
After this transaction, the total assets amount to
P540, 000 composed of Cash P400, 000, Land P100,
000, and Supplies of P40, 000. The total equities are
also P540, 000 composed of Accounts Payable P50, 000
and Capital P490, 000.
 Table 1.17
  ±ASSETS ±LIABILITIES ±CAPITAL
1. + Cash P500,000   + Requijo, Capital P500,000
- Cash P100,000    
2.
+ Land P100,000    
 
3. + Supplies P 60,000 +Account Payable P60,000  
4. - Cash P 10,000 - Account Payable P10,000  
+ Fares Earned
5. + Cash P150,000   P150,000
6. - Cash P120,000   -Wages Expense P 40,000
      -Rent Expense P 20,000
    -Gas & Oil P 50,000
      -Misc. Expense P 10,000
7. - Supplies P20,000   -Supplies Expense P20,000
- Cash P20,000
8.   -Requijo, Drawing P20,000
DOUBLE ENTRY BOOKKEEPING
Table 1.18

Post
Date DESCRIPTION Ref. Debit Credit
Sept. 30 Requijo, Drawing   20,000  
    Cash     20,000
To record withdrawal of
    owner.      
In the transaction recorded, Requijo, Drawing was
debited because of decrease of capital due to
withdrawal and cash was credited because of
decreases in assets
 SUMMARY
• The business transactions of Requijo Taxi are
summarized in tabular form below. The transactions are
identified by transaction numbers and the balance of
each item is shown after each transaction. The following
observations, which apply to all types of businesses,
should be noted:
• The effect of every transaction can be stated in terms of
increases and/or decreases in one or more of the
accounting elements.
• The equality of the two sides o the accounting equation
is always maintained.
Table 1.19
 ACCOUNTING STATEMENTS

• BALANCE SHEET
A kind of financial statement that list the assets, liabilities,
and capital of a business entity as of a specific dated, usually at the
close of the last day of a month or of a year. It is a kind of financial
statement that shows the financial position of the business entity as
of a given date, usually the end of the year.

The amount of Requio Taxi’s assets, liabilities, and capital

at the end of the first month of operation appears on the last line of
the summary in the preceding page. Minor arrangements of these
data and the addition of a heading yield the balance sheet illustrated
below. This form of balance sheet, with the liability and capital
section presented below the asset section, is called the report
form. Another arrangement in common use lists the assets on the
left and the liabilities and capital on the right. Because of its
similarity to the account, a basic accounting device described earlier
in the chapter, it is referred to as the account form of the balance
sheet.
 Requijo Taxi
Balance Sheet
September 30, 19xx
Assets
Cash P400, 000
Supplies 40, 000
Land 100, 000
Total Assets P540, 000
Liabilities
Accounts Payable P 50, 000
Capital
Capital 490, 000
Total Liabilities and Capital P540,
000
It is customary to begin the asset section with cash, which is
followed by receivables, inventory (for trading business),
supplies, prepaid expense items, and other assets that will
be converted into cash or consumed in the near future. The
assets of a relatively permanent nature, such as land,
buildings, and equipment, follow in that order. Note that in
the balance sheet presented the total assets and the total of
liability and capital are equal.
The balance sheet shows the liquidity (solvency) and
stability of as enterprise. Solvency refers to the ability of the
business to pay currently maturing liabilities while stability
refers to the ability of the enterprise to pay maturing
obligations and give return on the investment of the
owner(s).
 In the liabilities and capital section of
the balance sheet, it is customary to
present the liabilities first followed by
capital. In the illustration for Requijo Taxi
the liabilities are composed entirely of
accounts payable. When there are two or
more categories of liabilities, each should
be listed and the total amount of liabilities
presented in the following manner:
 ACCOUNTING STATEMENTS

Liabilities
Accounts Payable P150, 000
Notes Payable 50, 000
Salaries Payable 6, 000
Total Liabilities P206, 000
 ACCOUNTING STATEMENTS

INCOME STATEMENT
A kind of financial statement that shows the
summary of the revenue and the expenses of a business
entity for a specific period of time, such as a month or a
year. It is a kind of financial statement that shows result
of business operations for a period of time, usually a
year.

Revenue earned and expenses incurred during

the month were recorded in the equation as increases
and decreases in capital, respectively. The details
together with net income in the amount of P10, 000, are
reported in the income statement presented below.
 Requio Taxi
Income Statement
For the Month Ended September 30,
19xx
Fares Earned P150, 000
Operating Expenses
Gas & Oil Expense P 50, 000
Wages Expense 40, 000
Rent Expense 20, 000
Supplies Expense 20, 000
Miscellaneous Expense 10, 000
Total Operating Expenses 140,000

Net Income P 10, 000

 The order in which the operating expenses are
presented in the income statement varies among
businesses. One of the arrangements commonly
followed is to list them in the order of size, beginning with
the larger items. Miscellaneous expenses is usually
shown as the last item regardless of the amount.
In the income statement, users will know if the
operation of the business is profitable. Profitability
refers to the ability of the business to increase owner’s
capital. If the total net asset inflow is more than the net
asset outflow, the resulting effect is net income. If the net
asset outflow is more than the net asset inflow, it is a net
loss.
 ACCOUNTING STATEMENTS

CAPITAL STATEMENT (Statement of Owner’s Equity)

It is a statement that shows the summary of the changes
in capital of a business entity that have occurred during a
specific period of time, such a month or a year.
Comparison of the original investment of P500, 000 at the
beginning of the month with the P490, 000 of capital
reported in the balance sheet at the end of the month
reveals a decrease of P10, 000. This net decrease is
composed of two significant changes in capital that
occurred during the period: (1) the net income of P10,
000, and (2) a withdrawal of P20, 000 by the owner. This
information is presented in the capital statement, which
serves as a connecting link between the balance sheet
and the income statement.
 Requijo Taxi
Capital Statement
For the Month Ended September 30,
19xx

Capital, September 1, 19xx P500, 000

Net Income P10, 000
Withdrawal 20, 000
Decrease in Capital 10,
000
Capital, September 30, 19xx P490, 000
 Basically, there are two accounting
period, the calendar year and the fiscal
year. A calendar year is a twelve-month
period that ends on December 31 while
the fiscal year is a twelve-month period
that ends at the end of any month other
than December. In the Philippines, only
partnership and corporation are allowed to
use fiscal year, single proprietorship is
allowed only to use calendar year.
 ACCOUNTING STATEMENTS

• STATEMENT OF CASH FLOWS

The statement of cash flows consists of three sections:
(1) operating activities, (2) financing activities, and (3)
investing activities. Each of these sections is described
below:

• Cash Flows form Operating Activities

This section reports a summary of cash receipts and
cash payments from operations. The net cash flow from
operating activities will normally differ from the amount of
net income for the period. This difference occurs because
revenues and expenses may not be recorded at the
same time that cash is received from customers and cash
is paid to creditors.
 ACCOUNTING STATEMENTS

• Cash Flows from Financing Activities

This section reports the cash transactions related to
cash investments by the owner, borrowing, and cash
withdrawals by the owner.

• Cash Flow from Investing Activities

This section reports the cash transactions for the
acquisition and sale of relatively long-term or permanent-
type assets.
The preparation of the statement of cash flow is
required by pronouncement, every year that the income
statement is presented. Preparing the statement of cash
flows requires an understanding of concepts that we will
not discuss in the chapter. But a simple illustration will be
given to be able to illustrate how statement of cash flow is
prepared.
 Requijo Taxi
Statement of Cash Flows
For the Month Ended September 30, 19xx
Cash Flows from Operating Activities:
Net Income P10, 000

Add: Increase in Supplies 40, 000

Total P50, 000
Less: Increase in Accounts Payable 50, 000

Cash from Operating Activities P 0

Cash Flows from financing Activities

Investment of Owner 500, 000

Cash Flows from Investing Activities

Acquisition of Land (100, 000)
Increase in Cash P400, 000
Flow of information
Cash receipts journal
Cash payments journal
Sales journal
Purchases journal
Sales and purchase return
General journal
 Ledgers
• T ̵ Account
Ledgers (continued)
• Columnar format
 Trial Balance

Trial Balance assists in finding:

• arithmetic error
• recording only half of an entry.
THANK YOU VERY MUCH

BALANCE SHEET is defined as

On the LEFT there is nothing RIGHT and
On the RIGHT there is nothing LEFT.