Lesson 2

• Basic Accounting uses journal and leger in which can handle only a few transactions each period.
• Features of an Effective Accounting System

  • Control
  • Compatilbility
  • Flexibility
  • Good Cost/Benefit Relationship
• Control – there must be internal controls to safeguard assets and eliminate waste
• Compatibility – works smoothly with the company’s personnel and organizational structure
• Flexibility – accommodates changes in the organization
• Good cost/benefit relationship – gives the most benefit at least cost
• Components of a Computerized System

  • Hardware
  • Software
  • Company Personel
• Hardware – electronic equipment that includes computers, disk drives, monitors, printers and the network that connects them
• Software – set of programs that drives the computer
• Company personnel – competent and honest employees
• Business Transactions - An event that has some effect on the resources of a firm or on the firm’s assets.
• Business Transaction - An activity that involves a change of values and normally involves a value received and a value parted with (receive and give).
• Business Transaction - is either Internal (involves internal party) or External (involves external party). These transactions are based on a source document meaning evidence of a transaction that describes the essential facts of the transaction in which initiates the process of recording a transaction.
• Analyzing Business Transactions Involves 2-step process:

  1. Determine the accounts affected (A,L,C,D,R,E)
  2. Determine the effect of the transaction on the accounts involved in terms of increase or decrease
• Business transactions are analysed, recorded, classified and summarized to be able to determine the financial position and the result of operation of a business. Analysis of business transactions can be done through the accounting equation.
• The accounting equation is: Assets = Liabilities + Owner’s Equity
• Left Side: Assets – properties of the entity

  Right Side: Liabilities and Owner’s Equity – who provide the funds or resources needed by the business
• EQUITY – means the right to properties

  1. Equity of the Creditors – Liabilities (first in the right side of the equation – has preferential rights on the assets of the business
  2. 2. Equity of the Owner – Capital/Owner’s equity
• The statement of Financial Position below is called account form. Another format is Report form in which liabilities and capital are shown below the assets.

  
• The Statement of Cash flows above shows the three types of activities cash are received or disbursed for. Operating activities that involve cash receipts or payments relating to the calculation of net income. Investing activities that involve making and collecting loans or purchasing and selling plant assets, other productive assets, and investments. Lastly, financing activities that include transactions with its owners and long-term creditors.

  
• Manual and Computer-Based Systems: A comparison

  A) Handwritten

  B) Ledger

  C) Trial

  D) Traditional

  E) Data

  F) Automatic

  G) Trial

  H) Modern

  
• Analyzing Business Transactions

  A) Increase

  B) Increase

  C) Increase

  D) Decrease

  E) Decrease

  F) Increase

  G) Increase

  H) Increase

  I) Decrease

  J) Decrease

  K) Increase

  L) Decrease

  M) Increase

  N) Increase

  O) Increase

  P) Decrease