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BASIC ACCOUNTING FOR NON-

ACCOUNTANTS

CebuCityCouncilljune15-16,2013lCebuCity

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Expectation

Content process From co-pax

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Openingquote…

“Lifeislikeabalancesheet.

Onewrongentrycouldchange

everything.Wemakedecisionsthatgiveus

eitheranAssetoraLiability.

Yetintheenditisuptousonhowtomakeadjustmentstobalanceit.”

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LearningObjectives[24hours]

1. Explain the Basic Accounting

Concepts and Procedures2. Explain the different Financial

Statements and their significance ..

3. Apply the Standard Chart of Accounts to respective cooperatives.

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Program – day1

OpeningActivities

Welcome

Courseoutline

BasicAccountingConceptsandProcedures

OrganizationalStructure

PrinciplesofAccounting

InformationUsers AccountingEquation

AccountingCycle

BooksofAccounts

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Program – day2

OpeningActivities

Recap

UnderstandingFinancialStatements

• FinancialCondition[BalanceSheet]

• Operation[IncomeStatement]

• CashFlows

• Computationofstatutoryreserves,Div&Patronagerefund

SCAforCo-ops

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Workshop

Group1-Unsayorganizationalstructure

sainyongco-op?

Group2-Unsayflowofauthorityin

relationtofinance,sainyongco-op?(structure)

Group3-Unsaydutiesug

responsibilitiessatreasurerugauditcommittee?

Group4/5-Unsaymgaaccounting

policiesugprinciplespracticedinyour

co-op?

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Workshop

Group3-Unsaydutiesug

responsibilitiessatreasurerug

auditcommittee?Group4-Unsaymgaaccounting

policiesugprinciplespracticedin

yourco-op?

• Assignadocumentorandreporter

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Cooperative

Structure

GeneralAssembly

Audit CommitteeBoard of

Directors

Management

and Staff

SecretaryCredit

Committee

TreasurerEducation

Committee

Ethics

Committee

Mediation/

Conciliation

Committee

Election

Committee

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TREASURER

Roles/Responsibilities & Limitations

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Functions and Responsibilities

TheTreasurershall:

a. Overseethefinancialmanagementoperationsofthe

cooperative,subjecttosuchlimitationsandcontrolas

maybeprescribedbytheBoardofDirectors;

b. Havecustodyofallfunds,securities,and

documentationsrelatingtoallassets,liabilities,

incomeandexpenditures;

c. Maintainfullandcompleterecordsofallassets,

liabilities,incomeandexpenditures;

d. Submitfinancialreportsanddocumentsrequiredby

theAuditorortheBoardofDirectorsofthe

Cooperative;

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Functions and Responsibilities

e. Ensurethatallcashisdepositedin

accordancewiththepoliciessetbythe

boardofdirectors;

f. Preparespecialreportsrequiredbytheregulatoryauthorities;and

g. Performsuchotherfunctionsasmaybe

prescribedintheBy-lawsand/or

authorizedbytheGeneralAssembly.

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AUDIT COMMITTEE

Roles/Responsibilities & Limitations

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FINANCIAL/INTERNAL AUDIT

• Aformalprocesswherefinancialactivities

andfinancialrecordsareexaminedand

comparedtopredeterminedauditcriteria.

• Processesinvolves:

– Reviewandassessment

– Examinationandvalidation – Conclusionandreporting

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BEFORE

(Current Perception)

• Errordetection

• Reactiveapproach

• PersonnelCompliance

• Lossdetermination

• Legalrecovery

• Risk-based

• Pro-activeapproach

• Systemenhancement

• Personneldevelopment

• Managementmonitoring

• Threatandrisk

management

• Consultative

INTERNAL AUDIT THEN & NOW

TODAY

(Future trend)

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Check/ensure…

observanceofaccountingprocess,principlesand

practices..Systemsand

procedures..

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PERFORMANCE AUDIT

• How the officers and management staff are

carrying out their responsibilities

?? Economy, Efficiency and Effectiveness

• Identify ways of improving value for money

• improve systems and control

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SOCIAL AUDIT

“Art.80.AnnualAudit.– CooperativesregisteredunderthisCodeshallbesubjecttoanannualfinancial,

performanceandsocialaudit.”

economic social

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Components and Social Audit Indicators

TheSocialAuditofthecooperativesshallconsistof

thefollowingmajorcomponents/categorieswith

itsobjectives:

• Membership

• Assets building

• Community involvement and Solidarity

• Information accessing and dissemination• Gender, Youth and Elderly

• Leadership and Organizational Management

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WHATis

accounting?

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Accountingistheartofrecording,

classifyingandsummarizing ina

significantmannerandintermsofmoney,transactionsandevents

whichareinpartatleast,ofa

financialcharacterandinterpreting

theresultsthereof.

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FunctionsofAccounting

• Recordingofdata

• Classifyingofdata

• Summarizingofdata

• Interpretingtheresults

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majorusersofacctginfo

• Ownersofthebusiness• Managementofthebusiness

• Banksorcreditors

• Governmentoritsagencies

• Prospectiveinvestors/members

• Consumers

• Employeesofthebusiness• Thegeneralpublic

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Concepts,Rules&Principlesofaccounting!

aregeneralguidelinesfor

soundaccountingpractices.

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What are they?

Businessentityconcept.

Dualaspectconcept.

Goingconcernconcept.

Accountingperiodconcept. Monetaryconcept/money

measurementconcept.

Historical(cost)concept/costconcept.

Matchingconcept.

Accrualconcept.

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Business Entity Concept

Proprietorofanenterpriseisconsidereddistinctandseparatefromthebusiness.

Onlythebusinesstransactionsare

recordedandreported,andnotthepersonaltransactionsoftheproprietor.

Thepersonalassetsoftheownersorshareholdersarenotconsideredwhilerecordingandreportingtheassetsofthebusinessentity.

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Dual Aspect Concept

• Thisisthebasicprincipleof

accounting.• Allbusinessevents/transactionsare

regardedashavingadualaspectthat

istwofoldeffect.• Eachreceiverisalsoagiver,and

everygiverisalsoareceiver.

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Dual Aspect Concept

• Example1:MrApurchasesfurnitureforcashP1,000,hereceivesfurniture

ononehand,andpaysP1,000onthe

other.Thusthetwofoldeffectis

– Increaseinoneassetthatisfurniture.

– Decreaseinotherassetthatiscash.

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Dual Aspect Concept

• Example2,goodssoldforcash.The

twoaspectsare – Cashreceived.

– Givingawayofgoods.

• Thefinancialstatementsofabusinessshouldreflectthetwofold

effectofeachbusinesstransaction.

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Dual Aspect Concept

• Eachtransactioninvolvestwoentries,

adebitentryandacreditentry.

• Everydebitmusthaveacorrespondingcredit,andviceversa.

• Sinceeverydebithasa

correspondingcredit,thetotaldebitsmustatanytimeequalthetotal

credits.

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Going Concern Concept• Agoingconcernisdefinedas“any

enterprisewhichisexpectedtocontinueoperatingindefinitelyinthe

future.”

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Going Concern Concept

• Significantofthisconcept:

– Financialstatementsarepreparedonthe

basisofthisconcept.

– Continuityofbusinessactivitiesareensuredtooutsidersoveranindefinite

periodoftime.

– Thefluctuationsinthemarketvalueoffixed

assetsisnottakenintoaccount.

– Onthebasisofthisconcept,abusinessis

judgedforitscapacitytoearnprofitsin

future.

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Accounting Period Concept

• Thenetincomecanbemeasuredby

comparingtheassetsofthebusiness

existingatthetimeofits

commencementswiththoseexistingatthetimeofitsliquidation.

• Sincelifeofbusinessisassumedtobe

indefinite,themeasurementofincomeaccordingtothisconceptisnotpossible

foraverylongperiod.

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Monetary Concept/Money

Measurement Concept

• Everytransactionisrecordedin

termsofmoney.

• Afactorhappeningwhichcannotbeexpressedintermsofmoneyisnot

recordedintheaccountbooks.

• …example

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Historical (Cost) Concept/Cost

Concept

• Assetisrecordedatthepricepaidto

acquireit – thatisatcost.

• Thiscostisthebasisforallsubsequentaccountingfortheasset.

• Thiscostpriceatthetimeof

purchaseissystematicallyreducedbytheprocesscalleddepreciation.

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Matching Concept

• Allexpensesincurredinanaccountingyear

arecomparedwiththerevenuesduringthat

year.

• Forthiswehavetorecognizetherevenuesorinflowduringanaccountingperiodand

theexpensesincurredinsecuringthose

inflows.

• Netincomeisarrivedatbyapplyingthe

formula

Netincome=Revenues – Expenses

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Accrual Concept

• Theterm“accrual”means“something

thatbecomesdueespeciallyan

amountofmoneythatisyettobe

paidorreceivedattheendofthe

accountingperiod”.

• Revenueisrealizedatthetimeof

saleofgoodsorservicesirrespectiveofwhenthecashisreceived.

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Accrual Concept (Continue)

• Thefinancialstatementswillnotrevealtrueandfairviewoftheaffairofabusinessunit,

unlessallthetransactionsoreventsofthe

concernedyeararebroughtintothebooksofaccounts.

• Expensesarerecognisedatthetimethe

servicesarereceivedirrespectiveofwhenactualpaymentfortheserviceismade.

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itemsarerecognizedasassets,

liabilities,equityandexpenseswhen

theysatisfythedefinitionandrecognitioncriteriafortheseelements

whilerevenuesmayonlybe

recognizedwhenthereisaninflowof

cashorcashequivalent.

MODIFIEDACCRUALforCO-OP

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Example

interestonloansisrecognizedas

incomeuponcollectionofinstallment

paymentduringthetermofloan.

Incomefrominvestmentsin

cooperativesisrecognizedwhen

cashisreceived.

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Off-setting

isgettingthenetamountofrelated

assetsandliabilitiesandpresenting

thenetamountinthefinancialstatements.Thegeneralruleisthat

thereshouldbenooffsettingofassets

andliabilitiesexceptwhenitis

requiredorallowedbyaccounting

standard.

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ACCOUNTING CONVENTIONS

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Introduction

• tofacilitateitsrecordingofbusiness

transactionsinthebooksofaccounts.

• Theyhelpincomparisonofaccounting

dataofdifferentbusinessunitsorofthe

sameunitfordifferentperiods.

• tomakeaccountingdatamoreuseful.

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Introduction • Accountingconventionsare:

– Conventionofdisclosure. – Conventionofmateriality.

– Conventionofconsistency.

– Conventionofconservatism.

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Convention of Disclosure• Allaccountsmustbehonestly

prepared.• Allmaterialinformationmustbe

disclosedtherein.

• Thebalancesheetandprofitandlossaccountaretobepreparedasperthe

law.

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Convention of MaterialityUnimportantitemsareeitherleftoutormergedwithotheritems.

Ifcertainitemsareimmaterial,thenitdoesnotmatterhowyoudealwithitintheaccounts,becauseitcannotpossiblyhaveanysignificanteffectontheresults.

Thematerialityconventionallowstheotherconventionstobeignoredandasimpleraccountingtreatmenttobeadopted.

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Convention of Materiality • Itshouldbenotedthatanitemof

materialforoneconcernmaybeimmaterialforanother.

• Similarlyanitemmaterialinoneyear

maynotbematerialinnextyear.

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Convention of Consistency• Itstatesthat,oncespecific

accountingpolicieshavebeenadopted,theyshouldbefollowedin

allsubsequentaccountingperiods.

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Convention of

Conservatism/Prudent

• Thisisthepolicyplayingsafe.

• Theneedtomakeestimatesand

formjudgementswhenpreparingfinancialstatements.

• Theconservatismstatesthat,the

accountantshould“errorthesideofcaution”.

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• Inotherwords,aprudentaccountantwill

tendto:

– Understaterevenue,profitsandassets.

– Overstate expenses,lossesandliabilities.

• Itensuresthatfinancialstatementsdo

notgiveandover-optimisticviewofthe

financialperformanceandpositionofa

business.

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Elementsofacctg• Assets

• Owner’sEquity• Revenue

• Expenses

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5 ElementsAssets

☑Resources owned by the coop

☑It has capacity to provide future

services or benefits

☑Result of past transaction or event

☑Can be reliably measured

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ASSETSCash and other cash items

Loans Receivables

Accounts Receivable-Trade

Advances to Officers, Employees & Members

Due from Accountable Officers, Employees & MembersOther Receivables-Advances

Merchandise Inventory

Investment-PCF & VICTO

Leasehold Rights and ImprovementsFurniture, Fixtures and Equipments

Transportation Equipment

Unused Office Supplies

Prepaid Expenses

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5 Elements

Liabilities

☑Present obligations of the coop

☑They arise from past transactions or events

☑Settlement requires outflow of

resources from the coop

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LIABILITIES

Savings Deposit

Accounts Payable

Advances from CustomerAccrued Expenses

Loans Payable-PCF

Loans Payable-KDI (Marketing Fund)

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Equity

☑The residual interest in theassets of the coop that remains

after deducting its liabilities

☑Member’s share capital,donation?grants & statutory fund

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MEMBERS’ EQUITY

Share Capital

Reserve fund

Net Surplus

Mortuary Fund

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5 Elements

Revenue

☑Actual earnings as a result of

the coop’s operation during

the period

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REVENUES/INCOMESales

Interest Income on Loans

Service Fees

Membership Fee

Interest Income on Bank Deposits

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5 Elements

Expenses

☑Cost of assets consumed or

services used in the process or earning revenue

☑Decreases in the equity that

result from operations of the coop

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EXPENSES

Interest Expense on Borrowings

Incentives and Allowances

Other Operating Expenses

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The Accounting Process

Every end o f

account ing

per iod:

Information

is entered in

a Journal

Journal entries

are posted to

Ledger

Trial

BalanceAdjusting

Entries

Post to

ledger

Financial

Statements

Documents

Trial

Balance

ACCOUNTING FRAMEWORK

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TRANSACTIO

N(S)

SOURCE

DOCUMEN

TS

ORIGINAL

ENTRY

FINAL

ENTRY

FINANCI

AL

REPORT

BOOKS OF ACCOUNT

OFFICIAL

RECEIPT 1

2

2

2

CASHDISBURSEMENT

VOUCHER 1

1

JOURNAL

VOUCHER 1

CASH

CASH-IN

CASH-OUT CASH

DISBURSEMENT JOURNAL

GENERAL

JOURNAL

GENERAL

LEDGER

CASH

RECEIPTJOURNAL

SUBSIDIARY

LEDGER

INCOME

STATEMENT

BALANCE

SHEET

CASH-FLOW

STATEMENT

NON-CASH

ADJUSTMENTS

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ACCOUNTINGEQUATION

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BasicAccountingEquation

ASSETS EQUITIES

ASSETS LIABILITIES Member’s Equity

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• PersonalAccounts:

Debitthereceiverandcreditthegiver

• RealAccounts:DebitwhatcomesinandCreditwhatgoesout

• NominalAccount:

DebitexpensesandlosesandCreditincomesandgains

RULES OF DEBIT AND CREDIT

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Double Entry Bookkeeping

• Everytransactionaffectsatleast2accounts• Wherethereisvaluereceived,thereisvaluepartedwith

• Totaldebitsmustequalthetotalcredit

Valuereceived Valuepartedwith

Debit Credit

e.g.

Cash Loans Receivable

Expenses Cash

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Assets Liabilities

Equity

Normal Balance – Real Accounts

Normal

balance (Credit to

decrease)

Normal

balance

Normal

balance(Debit to

decrease)

(Debit toincrease)

(Credit toincrease)

(Debit to

decrease)(Credit to

increase)

N l B l N i l A t

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NormalBalance – NominalAccounts

Normal

balance

Normal

balance

Income

Expenses(Credit to

increase)

(Debit to

increase)

(Debit to

decrease)

(Credit to

decrease)

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WORKSHOP

1.MemberAmakesasharecapitalofP1,0002.CoopbuysacomputeramountingtoP36,000

3.MemberBmakesasavingsdepositofP5,000

4.CoopreceivesloanproceedsfromPCFasfollows:

PrincipalP500,000,ServiceFeeP15,000

5.MemberCpayscooploanasfollows:PrincipalP3,000,

InterestP250

6.CooppaysofficerentforthemonthP2,500

7.CooppaysloantoPCF:principalP10,000,interest

P3,000

8.MemberBmakesasavingsdepositwithdrawalofP500

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ACCOUNTINGCYCLE

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Program – day2

OpeningActivities

Recap

UnderstandingFinancialStatements

• FinancialCondition[BalanceSheet]• Operation[IncomeStatement]

• CashFlows

• Computationofstatutoryreserves,Div&

Patronagerefund

SCAforCo-ops

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RECAP/Winnertakesall…

Round1 – reppergroup

Round2-group

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Questions..

1. Trueorfalse.

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UnderstandingFinancial

Statements…



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TheStandardChartof

AccountsforCo-ops…