identifying
DESCRIPTION
Identifying. John V. Balanquit. Objectives. Student will be able to : Discuss the concept of identifying Summarize the identifying process Distinguish the elements of financial statements and the accounts related to each element. Objectives. Student will be able to : - PowerPoint PPT PresentationTRANSCRIPT
Identifying
John V. Balanquit
Objectives
Student will be able to :• Discuss the concept of identifying• Summarize the identifying process• Distinguish the elements of financial
statements and the accounts related to each element
Objectives
Student will be able to :• Summarize the normal balance concept
and the concept of debit and credit• Relate elements and accounts with their
normal balance
Definition of Identifying
It is the process of determining accountable events from among various business transactions entered into by an entity
Definition of Accountable Events
They are business transactions that affect any element of the financial statements.
Financial Statement Elements
Assets• An asset is a resource controlled by the
entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Financial Statement Elements
Liabilities• A liability is a present obligation of the
entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Financial Statement Elements
Equity• Equity is the residual interest in the assets
of the entity after deducting all its liabilities.
Financial Statement Elements
Income• Income is increases in economic benefits during
the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Financial Statement Elements
• Revenue– Revenue arises in the course of the ordinary activities
of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent.
Financial Statement Elements
• Gain– Gains represent other items that meet the
definition of income and may, or may not, arise in the course of the ordinary activities of an entity.
Financial Statement Elements
Expense• Expenses are decreases in economic benefits
during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
Financial Statement Elements
• Expense– Expenses that arise in the course of the
ordinary activities of the entity include, for example, cost of sales, wages and depreciation.
Financial Statement Elements
• Losses– Losses represent other items that meet the
definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity.
Let’s have a one minute break so that we can absorb the concepts of the previous topic.
The Debit and The Credit
DEBIT• The left side of an
account• Value received
CREDIT• The right side of
an account• Value parted with
The Normal Balance
Each element or account has a debit side and a credit side. The normal balance is the side of an element of account, whether Debit of Credit, where it increases.
The Normal Balance
DEBIT• Asset• Withdrawal• Expense
CREDIT• Liability• Capital• Income
WHY?
The Normal Balance
If A = L + C – W + I – Ex, then:
A + W + Ex = L + C + I
The Normal Balance
Therefore, increases in assets, withdrawal and expenses are recorded in the debit side while increases in the liability, capital and income are recorded in the credit side.
Let’s have a one minute break so that we can absorb the concepts of the previous topic.
The Account Titles
Assets• Cash• Accounts Receivable• Accrued Income• Notes Receivable• Supplies
The Account Titles
Assets• Prepaid Expenses• Land• Building• Machinery and Equipment• Furniture and Fixtures
The Account Titles
Liabilities• Accounts Payable• Notes Payable• Unearned Income• Accrued Expense
The Account Titles
Liabilities• Loans Payable• Mortgage Payable
The Account Titles
Equity• X, Capital• X, Withdrawal• Service Income• Professional Fees• Rent Income
The Account Titles
Equity• Interest Income• Salaries Expense• Utilities Expense• Depreciation Expense• Rent Expense
The Account Titles
Equity• Advertising Expense• Supplies Expense• Bad Debts Expense• Interest Expense
Let’s have a one minute break so that we can absorb the concepts of the previous topic.
Identifying Process
1. Determine the element of account title affected by the transaction
2. Determine whether the said element of account title increased or decreased
3. Determine whether the said elements should be debited or credited
Identifying Process
4. Determine the amount by which each element or account should be increased or decreased
Note: In the identifying process, the Separate Entity Theory must be observed.
Separate Entity Theory
The business and the owner are two separate and distinct entities. Therefore, transactions of the business must not be mixed with transactions of the owner.
Separate Entity TheoryInvestment
WithdrawalBusiness Owner
Basic Application
Debit or Credit?
1. Asset decreased2. Capital increased3. Accounts Payable increased4. Supplies increased
Advanced Example
• Clark invested cash to the business, P1,000.
• The business rendered professional services on account, P3,000.
End of Lecture
Thank You!