Fundamentals of Accounting

Topics: Sole proprietorship, Balance sheet, Asset Pages: 8 (2483 words) Published: January 14, 2013
Chapter 1 & 2 Summary
Accounting is a process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information. It is a service activity and the language of business. Its main function is to provide qualitative information that is intended to be useful in making economic decisions. The Accounting process is a series of repetitive activities of recording, summarizing and reporting economic transactions from the beginning to the end of the accounting period. It involves Identifying, Measuring and Communicating. The recording phase involves Documentation and Recording (a. Posting to the general journal b. posting to the general ledger). The Summarizing phase involves Preparation of Trial Balance, Preparation of Working Paper, Preparation of post-closing Trial Balance and Preparation of financial statements. The Summary of Debit and Credit Analysis. The T- Account is used as a tool to analyze the effect of business transaction, maintains the equation Debit = Credit. The rules of Debit and Credit can be summarized as Debit (Increases in: Assets Expenses Losses; Decreases in Liabilities, Capital, Revenue and Profit), Credit (Increases in: Liabilities, Capital, Revenue and Profit). Adjusting entries are journal entries which bring some accounts to their current and correct value. Basic adjusting entries are Accruals, Prepayments, Pre-collections, Depreciation and amortization, Uncollectible accounts and Ending Inventory. Accounting errors are misstatements of accounting data due to inaccurate measuring and recording of business transactions. Types of Accounting Errors are namely, Errors due to omission and Errors on amount recorded, account title and accounting treatment. Correcting Entry is a journal entry designed to remove accounting errors made in the general journal in the general journal and general ledger. Partnership by the definition of the Civil Code of the Philippines is that by the contract of partnership, two or more persons bind themselves to continue to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. Major Characteristics of a Partnership are the following: Based on contract, Association of Individuals, Ease of Formation, Co-ownership of Partnership Property, Assignment of Partner’s interest, Mutual Agency, Income Participation, Unlimited Liability, Limited Life Aggregate/Entity Concept. Advantages of Partnership are namely, Easy Formation, Joint Resources, Tax Exemption and Less Government Supervision. The disadvantages are Unlimited Liability, Mutual Agency, Consensual and Limited Life. Kinds of Partnerships are namely a. as to nature are Trading and Non-Trading b. as to purpose are Commercial and General c. as to object are Universal and Particular d. as to liability are General and Limited e. as to duration are Partnership at will and with a fixed term f. as legality of existence are De jure and De facto Partnership Kinds of Partners are namely: a. as to contribution is Capitalist, Industrial and Capitalist-Industrial partner b. as to liability is General and Limited partner c. as to participation is Managing, Silent and Liquidating Partner d. as to third persons is Secret, Dormant and Nominal partner. Chapter 3 Summary

The basic equation of accounting is a very important tool in analyzing the accounting elements affected by all business transactions. In Basic Accounting, the accounting equation takes the following formula: ASSTES = LIABILITIES + CAPITAL. In the formation of a partnership, the accounting equation is used to determine the amount of assets to be contributed, the obligations to be assumed, and the partner’s interest in the partnership. Each capital account is established for each partner.

Account titles used in the accounting for sole proprietor’s operation are also...
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