National University of Management

(NUM)

Chapter I
Introduction to Accounting

Lectured by Sim Makara

Prepare by: Group of Lecture, Finance and

Accounting Department
1-1
What
What isis Accounting?
Accounting?

Three Activities

The accounting process includes the bookkeeping function.

1-2
 Who
Who Uses
Uses Accounting
Accounting Data?
Data?
Internal Users
Management IRS
Human Investors
Resources
There are two broad Labor
groups of users of Unions
Finance
financial information:
internal users and
external users. Creditors
Marketing
Customers SEC
External
Users
1-3
Forms
Forms of
of Business
Business Ownership
Ownership

Sole Trader Partnership Corporation

Generally owned Owned by two or Ownership

by one person. more persons. divided into
Often small shares of stock
Often retail and
service-type service-type Separate legal
businesses businesses entity organized
Owner receives under state
Generally
any profits, corporation law
unlimited
suffers any personal liability Limited liability
losses, and is
Partnership
personally liable
agreement
for all debts.

1-4
The
The Basic
Basic Accounting
Accounting Equation
Equation

Owner’s
Assets = Liabilities +
Equity

Assets

Resources a business owns.

Provide future services or benefits.
Cash, Supplies, Equipment, etc.

1-5
The
The Basic
Basic Accounting
Accounting Equation
Equation

Owner’s
Assets = Liabilities +
Equity

Liabilities

Claims against assets (debts and obligations).

Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.

1-6
The
The Basic
Basic Accounting
Accounting Equation
Equation

Owner’s
Assets = Liabilities +
Equity

Owner’s Equity

Ownership claim on total assets.

Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or
Partnership).

1-7
Owner’s
Owner’s Equity
Equity

Revenues result from business activities entered into

for the purpose of earning income.
Common sources of revenue are: sales, fees, services,
commissions, interest, dividends, royalties, and rent.

1-8
Owner’s
Owner’s Equity
Equity

Expenses are the cost of assets consumed or

services used in the process of earning revenue.
Common expenses are: salaries expense, rent
expense, utilities expense, tax expense, etc.

1-9
 Transactions
Transactions (Problem)
(Problem)
Moon’s Repair Shop was started on May 1 by Moon. Prepare
a tabular analysis of the following transactions for the month
of May.

1. Invested $10,000 cash to start the repair shop.

Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000

1-10
 Transactions
Transactions (Problem)
(Problem)
2. Purchased equipment for $5,000 cash.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3.

4.
5.
6.
7.

8.

9.
10.

1-11
 Transactions
Transactions (Problem)
(Problem)
3. Paid $400 cash for May office rent.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4.
5.
6.
7.

8.

9.
10.

1-12
 Transactions
Transactions (Problem)
(Problem)
4. Incurred $250 of advertising costs, on account.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5.
6.
7.

8.

9.
10.

1-13
 Transactions
Transactions (Problem)
(Problem)
5. Received $5,100 from customers for repair service.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6.
7.

8.

9.
10.

1-14
 Transactions
Transactions (Problem)
(Problem)
6. Withdrew $1,000 cash for personal use.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6. -1,000 -1,000
7.

8.

9.
10.

1-15
 Transactions
Transactions (Problem)
(Problem)
7. Paid part-time employee salaries of $2,000.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6. -1,000 -1,000
7. -2,000 -2,000

8.

9.
10.

1-16
 Transactions
Transactions (Problem)
(Problem)
8. Paid utility bills $140.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6. -1,000 -1,000
7. -2,000 -2,000

8. -140 -140

9.
10.

1-17
 Transactions
Transactions (Problem)
(Problem)
9. Provided $750 of repair services on account.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6. -1,000 -1,000
7. -2,000 -2,000

8. -140 -140

9. +750 +750
10.

1-18
 Transactions
Transactions (Problem)
(Problem)
10. Collected $120 cash for services previously billed.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6. -1,000 -1,000
7. -2,000 -2,000

8. -140 -140

9. +750 +750
10. +120 -120

1-19
 Transactions
Transactions (Problem)
(Problem)
10. Collected $120 cash for services previously billed.
Assets = Liabilities + Owners’ Equity
Accounts Accounts Barone, Barone,
Cash + Receivable + Equipment = Payable + Capital - Drawing + Revenues - Expenses

1. +10,000 +10,000
2. -5,000 +5,000

3. -400 -400

4. +250 -250
5. +5,100 +5,100
6. -1,000 -1,000
7. -2,000 -2,000

8. -140 -140

9. +750 +750
10. +120 -120

+6,680 +630 +5,000 = +250 +10,000 -1,000 +5,850 -2,790

$12,310 $12,310

1-20
 Financial
Financial Statements
Statements

Financial statements

Statement Statement Statement Statement

Note
of Profit of Owner’s of Financial of Cash
Statement
and Loss Equity Position Flows

1-21
 Financial
Financial Statements
Statements

Statement of Profit and Loss

Moon’s Repair Shop Reports the revenues
Income Statement
For the Month Ended May 31, 2021
and expenses for a
Revenues:
specific period of time.
Service revenue $ 5,850
Expenses: Net income – revenues
Salary expense 2,000 exceed expenses.
Rent expense 400
Utility expense 140
Advertising expense 250 Net loss – expenses
Total expenses 2,790 exceed revenues.
Net income $ 3,060

1-22
 Financial
Financial Statements
Statements
Statement of Profit and Statement Owner’s Equity
Loss
Moon’s Repair Shop
Moon’s Repair Shop
Statement of Profit and Loss
Statement Owner's Equity
For the Month Ended May 31, 2021
For the Month Ended May 31, 2021
Revenues:
Opening Balance of Moon's, Capital Equity $May- 1
Service revenue $ 5,850
Add: Investment 10,000
Expenses:
Net income 3,060
Salary expense 2,000
13,060
Rent expense 400
Less: Drawings 1,000
Utility expense 140
Ending Balance of Moon's, Capital Equity May
####
31
Advertising expense 250
Total expenses 2,790
Net income $ 3,060
Net income is needed to determine
the ending balance in owner’s equity.

1-23
 Financial
Financial Statements
Statements
Statement of Financial Position

Moon’s Repair Shop Reports the assets,

Statement of Financial Position liabilities, and owner’s
May 31, 2021
Assets
equity at a specific date.
Equipment $ 5,000
Accounts receivable 630 Assets listed at the top,
Cash 6,680
followed by liabilities
Total assets $ 12,310
Owner's Equity and owner’s equity.
Moon's, capital Equity 12,060
Liabilities Total assets must equal
Accounts payable $ 250
Total Equity & Liability $ 12,310
total liabilities and
owner’s equity.

1-24
 Financial
Financial Statements
Statements

Statement of Financial Statement of Cash Flows

Position Barone’s Repair Shop
Statement of Cash Flows
Moon’s Repair Shop
For the Month Ended May 31, 2010
Statement of Financial Position
May 31, 2021 Cash flow from operating activities
Assets Cash receipts from revenues $ 5,220
Equipment $ 5,000 Cash paid for expenses (2,540)
Accounts receivable 630 Cash provided by operations 2,680
Cash 6,680 Cash flow from investing activitites
Total assets $ 12,310 Purchase of equipment (5,000)
Owner's Equity Cash flow from financing activities
Moon's, capital Equity 12,060 Investment by owners 10,000
Liabilities Divident pay out (1,000)
Accounts payable $ 250 Cash provided by financing 9,000
Total Equity & Liability $ 12,310 Net increase in cash 6,680
Cash balance, May 1 -
Cash balance, May 31 $ 6,680

1-25