 Be in harmony with entity’s organizational and

human factors.
 Be able to accommodate growth in the volume
of transactions and organizational changes.

Importance of AIS
1. Business record-keeping is required by law.
- Record-keeping is a must, therefore, after
processing data, information, reports or
records must be stored to comply with the
mandate of the law of 10 years according to
Accounting Information System (AIS) revenue regulations.
 Accounting information system is the planned
process for the collection, storage and 2. It helps prevent unnecessary cost.
processing of financial accounting data to
provide reliable information that can be used by 3. It facilitates decision-making
the management and other stakeholders.
 It refers to a whole range of records and special Stages of AIS
accounting procedures use by the business in
achieving the objectives of financial accounting,
preparation and communication of financial
reports.
 A collection of people, procedures, software,
hardware and data which work together to
provide information necessary to running an
organization.
 It is a device or an organization of planned
procedures designed to transform economic
information and other data into meaningful
Stage 1: INPUTS
reports.
- The collection of raw data, acquired from
internal and external sources
AIS Cycle

Stage 2: PROCESS
- Refers to data processing which includes
sorting, classifying and summarizing function
according to files and categories.
- Stored in respective record

Stage 3: OUTPUT
- The generation of financial reports and
communication of the needed information to
the decision makers or end-users.
Objectives
 Process information efficiently at least cost
 Protect company’s assets, ensure data are
reliable and minimize waste and possibility of
theft and fraud.
Types of AIS
1. Manual accounting system  right to own land, building, equipment,
- utilize paper-based journals and ledgers, the machinery, furniture and fixtures, etc.
whole process is done manually. This type of  right to receive cash
system is labor intensive  right to receive goods or services
2. Computer-based system
- uses modern information technology 2. Liabilities
resources and transactions are coded and - The term “liabilities” refers to the present
can be quickly posted bypassing the obligations of an entity arising from past
journalizing process. It replaced paper events, the settlement of which is expected
records with computer records. to result in an outflow from the entity of
resources embodying economic benefits.
3. Database system
- An obligation of the entity, owed to another
- it embeds accounting data within the
party.
business event data on which they are
 aid expenses
based. It reduces inefficiencies and  unpaid salaries
redundancies that often exist in a  purchases made on account, etc.
transaction-based system. It recognizes
business rather than just accounting events. 3. Equity
- The term “equity” refers to the residual
In many situations, manual systems are inferior to interest in the assets of the entity after
computerized systems in terms of productivity, speed, deducting all its liabilities.
accessibility, quality of output, incidence of errors and - Equity represents owner’s capital and what
is left to the owner after deducting the
volume of data.
entity’s debts or obligation.
- It represents claim of the owner/s over the
Elements of Financial Statement assets of the business in the form of capital.
 The broad classification of business  R & B Service Business has total Assets of
transactions in the financial statements are P1,000,000 and total Liabilities of P450,000,
called accounting elements. therefore, the equity of the owner is
 As defined in March 2018 Conceptual P550,000.
Framework for Financial Reporting, these
elements of financial statements are: 4. Income
- Statement of Financial Position or Balance - The term “income” refers to the increase in
Sheet economic benefits during the accounting
 Asset period in the form of inflow or enhancement
 Liabilities of assets or decrease of liabilities resulting in
 Equity an increase in equity other than those
- Statement of Comprehensive Income or relating to equity claims from equity
Income Statement participants or equity contributors.
 Income - The basic accounting principle is that income
 Expenses increases the equity of the owners while loss
decreases the owner’s equity.
1. Assets  R & B Service Business profited from its
- The term “assets” refers to the resources business as a result of its operating activities
owned and controlled by the entity as a in the amount of P50,000. From the
result of past events and from which future previous example, its equity amount is
economic benefits are expected to flow to P550,000, but due to income generated, the
the entity. equity amount of R & B will now be
- An economic resource is a right that has P600,000. However, if it incurs a loss of
potential to produce economic benefits for P50,000, R & B’s owners’ equity will
the entity which has the sole control. decrease to P500,000.
used to initially record business transactions
5. Expenses known as journal entry.
- The term “expenses” refers to decreases in
economic benefits during the accounting
period in the form of outflow or depletion of  General Ledger - is known as the “book of
assets or incurrence of liabilities that result final entry” where the accounts and their
in decreases in equity other than those related amounts previously recorded in the
relating to equity claims from equity journal are posted and summarized
participants or equity contributors. periodically.
- The basic accounting principle is that
expenses decrease the equity of the owners.
Double-Entry Accounting System
 rent expense
 salaries expense • The double-entry system of accounting is
based on the dual aspect concept that for
 supplies expense, etc.
every transaction, there would always be a
two-sided effect to the extent of the same
Accounting Equation amount as recorded in the accounting books.
- The most basic tool of accounting is the It shows that for every “value received”,
accounting equation, also known as balance there is a corresponding “value parted with”.
sheet equation which is the foundation of In accounting, value received is the DEBIT and
double entry accounting. This equation presents value parted with is the CREDIT.
the resources controlled by the enterprise, the • The recording process requires that the value
ASSETS, the present obligation of the of debits must equal the value of credits for
enterprise, the LIABILITIES and the residual each transaction entry or simply put, both
interest in the assets as shown in this model, the debits and credits are in balance.
EQUITY.
• It is known to be the most acceptable
accounting system in recording accountable
The Account transactions due to the following reasons:
 The basic summary device of accounting is the 1. It results in a more accurate accounting
Account. records and financial reports.
 It is an accounting record in which the effects 2. It allows a more convenient means of
of similar business transactions are grouped recording business transactions and events.
or classified. 3. It provides numerous ways to safeguard
 It records the increases or decreases of and check errors and misstatements
specific asset, liability, owner’s equity, committed.
revenue and expense.
• Debit (Dr.) The place of debit is the left-hand
 The name designated to the account is called side of the accounting equation therefore an
account title. Ex. Cash, Accounts Receivable, account is debited when it is entered in the
Office Supplies, Land, Accounts Payable, Notes left side of the T- Account.
Payable, Service Income, Salaries Expense, Rent
• Credit (Cr.) The place of credit is on the right-
Expense, etc.
hand side of the accounting equation the
 The account titles used to record accounting
account is credited when it is entered on the
transactions for a particular business should
right side.
be uniformly listed and arranged
chronologically in a chart called Chart of
Accounts. T- Account
• A T-Account is called such because it
Books of Accounts resembles a big letter “T“, used to summarize
The books of accounts commonly used in recording and determine account balances without the
economic transactions and events are as follows: need for the formal ledger.
 General Journal - is called the “book of • The T-Account has three (3) parts: the account
original entry”, is an accounting record that is title, the debit and the credit side.
Statement of Financial Position Accounts

Rules of Debit and Credit

Ground rules for debits and credits:
• For every value received, there is always a value Statement of Comprehensive Income Accounts
parted.
• The values received and valued parted with are
Summary of the Rules
equal.
• The values received and the values parted with
are measurable in terms of peso. Normal Balance of an Account
The rules of debits and credits lay down the ground  The normal balance of an account refers to the
rules and steps to be followed in analyzing accounting side of the account, debit or credit, where
transactions. It depends on the account type and how increases are recorded.
increases or decreases in it are recorded. It involves  Assets, Owner’s withdrawals and Expenses
exchange of values. increases on the debit side therefore the normal
balance of these accounts is a debit.
The increase-decrease effect should be expressed in
the technical parlance of accounting which is to debit  Liability, Owner’s Capital and Income accounts
and to credit as it affects all the accounting elements. increases on the credit side therefore the
normal balance of these accounts is a credit.

a. For the elements of financial position (Assets,

Liabilities, Owner’s Equity), the following rules Accounting Event
apply:  an economic occurrence that causes changes in
 Increases in assets are recorded as debits an entity’s assets, liabilities and/or equity. It can
(left side), while decreases in assets are be an internal event such as the use of
recorded as credits (right side). equipment for the production of goods or
services or an external event such as the
 Increases in liabilities and owner’s equity are purchase of raw materials from a supplier.
recorded as credits (right side) decreases
are entered as debits (left side)
Busines Transaction
b. For the elements of financial performance
(Income and Expenses), the rules of debits and  a particular kind of event that involves the
credits are based on the relationship of these transfer of something of value between two
accounts to owner’s equity. parties such as purchasing and selling of goods
Income increases owner’s equity and expense or services and borrowing funds from creditors
decreases owner’s equity. and that it can be reliably recorded.
 Hence, increases in income are recorded as
credits (right side) and decreases are How can we determine whether a business
recorded as debits (left side). transaction or economic event is recordable or not?
 Increases in expenses are recorded as debits
(left side) and decreases are recorded as
credits (right side).
Can it be measured or quantified?
Effects of Accounting Transaction When the entity renders services on credit, it creates
1. Source of Asset (SA) an account receivable which is an asset account and a
- An asset account increases and a revenue account which increases owner’s equity.
corresponding claim (liabilities or owner’s
equity) account increases. Transaction 3:
Example: Purchase supplies on account. When an electric bill is received, an expense account is
Sold goods for cash on delivery created, but it was not paid, therefore, the incurrence
basis. of an expense decreases the owner’s equity account
and increases the liability account due to non –
payment.

2. Exchange of Asset (EA)

- One asset account increase and another Transaction 4:
asset account decrease. Borrowings increase the asset account Cash and the
Example: Acquired equipment for cash. Notes Payable due to issuance of promissory note
which is a liability account.
3. Use of Assets (UA)
- An asset account decreases and
corresponding claims (liabilities or equity) Transaction 5:
account decreases. The owner withdrew cash for personal use, therefore
asset cash decreases and a withdrawal account is
created which is a contra-equity account. Owner’s
equity account has a normal balance of “credit”,
withdrawal account is contra account and has a
normal balance of “debit”.

NOTE: The analysis should be made from the point of

view of the business. A parenthesis is used to indicate
deduction from the account or a decrease.

Example: Settled accounts payable. Typical Account Titles Used

Paid salaries of employees.
Statement of Financial Position
ASSETS
4. Exchange of Claims (EC)
As per revised Philippine Accounting
- One claim (liabilities or owner’s equity)
Standards (PAS) No. 1, assets should be classified only
account increases and another claim
in two (2):
(liabilities or owner’s equity) account
decreases. Current and Non-Current Asset
Example: Received utilities bill but did not • It holds the asset primarily for the purpose of
pay. trading.
• It expects to realize, consume or intend to sell
Financial Transaction Worksheet the asset within the normal operating cycle of
the business.
• It expects to realize the asset within twelve (12)
Analysis of the Financial Transaction Worksheet
months after the reporting period
Transaction 1:
• If the asset is cash or cash equivalent (as defined
The owner invested cash to the business, Cash in PAS No.7), unless the asset is restricted from
increases an asset account and the equity of the being exchanged or used to settle a liability for
business also increases. at least twelve months after the reporting
period.
Transaction 2:
Current Assets As per revised PAS No 1, an entity shall classify
 Cash. It refers to any medium of exchange that a liability as current liability and non-current liability. A
bank will accept for deposit at face value including liability is current when-
coins, currency, checks, money orders, bank • it expects to settle the liability in its normal
deposits and drafts. operating cycle.
 Cash Equivalents. Per PAS No. 7, these are short- • it holds the liability primarily for the purpose of
term, highly liquid investments that are readily trading.
convertible to known amount of cash and which • the liability is due to be settled within twelve
are subject to insignificant risk of changes in value (12) months after the reporting period.
 Notes Receivable. A written pledge that the
• the entity does not have an unconditional right
customer will pay the business a fixed amount of
to defer settlement of the liability for at least
money on a certain date.
twelve months after the reporting period.
 Accounts Receivable. These are claims against
customers arising from sale of services or goods
on credits
 Allowance for Uncollectible accounts /Bad debts.
A contra-asset account which provides for
possible losses from uncollected accounts
Current Liabilities
receivable.
 Inventories. Per PAS No. 2, these are assets which  Accounts Payable. It denotes obligations or debts
are held for sale in the ordinary course of business; of the business arising from services received,
in the process of production for such sale; or in the merchandise, supplies or property, plant and
form of materials or supplies to be consumed in the equipment acquired on account. It is an “open
production process or in the rendering of services. account” obligation because it is not supported by
 Prepaid Expenses. These are expenses paid for by a promissory note.
the business in advance. It is classified as an asset  Notes Payable. The treatment is similar to
because the business avoids having to pay cash in accounts payable however, this account is
the future for a specific expense. supported with a promissory note executed by
the debtor in favor of the creditor.
 Accrued liabilities. Amounts owed to others for
Non-Current Assets unpaid expenses. This account includes salaries
 Property, Plant & Equipment. Per PAS No. 16, payable, utilities payable, interest payable and
these are tangible assets that are held by an taxes payable.
enterprise for use in the production or supply of  Unearned Revenues. The business entity receives
goods or services, or for rental to others, or for payment before providing the customers with
administrative purposes and which are expected goods or services, the amount received is
to be used during more than one period. recorded to unearned revenue account. When the
Example: Land, Machinery, Equipment, goods or services are provided to the customer,
furniture and fixtures. the unearned revenue account is reduced and
 Accumulated Depreciation. It is a contra-account income is recognized.
that contains the sum of the periodic depreciation
charges. The balance from this account is
Non-Current Liabilities
deducted from the cost of the related asset –
equipment or building – to obtain book value.  Mortgage Payable. This account is used to record
 Intangible Assets: Per PAS No. 38, these are long-term debt that is supported or backed up by
identifiable non-monetary assets without physical a collateral or has pledged certain assets as
substance held for use in the production or supply security to the creditor.
of goods or services, for rental to others, or for  Bonds Payable. Is a contract between the issuer
administrative purposes. and the lender specifying the terms and
conditions of repayment and the amount of
interest to be charged. It is a long-term obligation
LIABILITIES evidenced by certificate of indebtedness.  
EQUITY A decrease in economic benefits during the
The equity represents what is left to the accounting period as a result of outflows or depletion
business after the liabilities are fully paid. It represents of assets.
claims of the owners over the asset of the business.  Cost of Sales. The cost incurred to purchase or
 Capital. This account is used to record the original produce the products sold to the customers
and additional investments of the owner of the during the period. It is also known as cost of goods
business. It is increased by the amount of profit sold.
earned during the year or decreased by a loss or  Salaries and Wages Expense. All payments that
by cash or other assets that the owner may arise from services from workers/ employees in an
withdraw from the business. This account bears employee-employer relationship. It includes
the name of the owner. salaries and wages, 13th month pay, cost of living
Example: if the owner of the business is Mr. allowances and other related benefits.
Landicho, then the capital account Landicho,  Rent Expense. Expense for renting a space,
Capital. equipment or other asset rental.
 Supplies expense. Expense of using supplies like
office supplies, in the conduct of daily business.
 Insurance Expense. Portion of premium paid on
insurance coverage which has expired.
 Withdrawals. When the owner of a business  Depreciation Expense. That portion of the cost of
entity withdraws cash or other assets for personal tangible asset (e.g. buildings and equipment)
use, such is recorded in the withdrawal account allotted or charged to expense during the
rather than directly reducing the owner’s equity accounting period. All tangible assets depreciate
account. except Land.
Example: The account name is owners name
e.g. Landicho, Withdrawals or Landicho, Drawings.

 Uncollectible Accounts or Bad Debts Expense.

Statement of Comprehensive Income or Income The amount of receivables estimated to be
Statement doubtful of collection and charged to expense
during the accounting period.
INCOME
Increases in economic benefits during the Operating Cycle
accounting period in the form of inflows and The time between the acquisition of assets for
enhancement of assets. The definition of income processing and their realization in cash or cash
encompasses both revenue and gains. equivalents. When the entity’s normal operating cycle
Revenue-generated cash inflows from the operating is not clearly identifiable, it is assumed to be twelve
activities of the business (12) months. The entity uses an accounting period that
Gains- it is not related to the operating activities like covers certain accounting functions which can be
selling a non-operating asset either a calendar or fiscal year.
 Calendar year means the accounting operations
 Service Income. Revenues earned by performing of the business covers one year from January and
services for a customer or client. ends in December.
Example: accounting services by a CPA,  Fiscal year or period means any 12-month period
laundry services by a laundry shop. covering the accounting operations of the
 Sales. Revenues earned as a result of sale of business.
merchandise. Example: May 2019 to May 2020 is one fiscal
Example: sale of hardware materials by a period.
hardware company; sale of medicines by a
pharmaceutical company.

EXPENSES