1. Identifying
John V. Balanquit

2. 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

3. 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

4. Definition of Identifying
It is the process of determining accountable events from among various business transactions entered into by an entity

5. Definition of Accountable Events
They are business transactions that affect any element of the financial statements.

6. 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.

7. 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.

8. Financial Statement Elements
Equity
Equity is the residual interest in the assets of the entity after deducting all its liabilities.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. Let’s have a one minute break so that we can absorb the concepts of the previous topic.

16. The Debit and The Credit
The left side of an account
Value received
CREDIT
The right side of an account
Value parted with

17. 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.

18. The Normal Balance CREDIT DEBIT Liability Asset Capital Withdrawal
Expense
CREDIT
Liability
Capital
Income
WHY?

19. The Normal Balance A + W + Ex = L + C + I
If A = L + C – W + I – Ex, then:
A + W + Ex = L + C + I

20. 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.

21. Let’s have a one minute break so that we can absorb the concepts of the previous topic.

22. The Account Titles Assets Cash Accounts Receivable Accrued Income
Notes Receivable
Supplies

23. The Account Titles Assets Prepaid Expenses Land Building
Machinery and Equipment
Furniture and Fixtures

24. The Account Titles Liabilities Accounts Payable Notes Payable
Unearned Income
Accrued Expense

25. The Account Titles
Liabilities
Loans Payable
Mortgage Payable

26. The Account Titles Equity X, Capital X, Withdrawal Service Income
Professional Fees
Rent Income

27. The Account Titles Equity Interest Income Salaries Expense
Utilities Expense
Depreciation Expense
Rent Expense

28. The Account Titles Equity Advertising Expense Supplies Expense
Bad Debts Expense
Interest Expense

29. Let’s have a one minute break so that we can absorb the concepts of the previous topic.

30. Identifying Process
Determine the element of account title affected by the transaction
Determine whether the said element of account title increased or decreased
Determine whether the said elements should be debited or credited

31. 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.

32. 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.

33. Separate Entity Theory
Investment
Business
Owner
Withdrawal

34. Basic Application Debit or Credit? Asset decreased Capital increased
Accounts Payable increased
Supplies increased

35. Advanced Example Clark invested cash to the business, P1,000.
The business rendered professional services on account, P3,000.

36. End of Lecture Thank You!