‘Accounting is the art of recording, classifying and summarizing in a significant mann of money, transactions and events which are in part at least of a financial character, the results thereof. Its also defined as the Language of Business. ‘The important activities in the accounting process are identifying, measuring, ret ‘summarizing and communicating. “Tr classifying, Identifying means the recognition or non-recognition of accountable events, An event is 1 2 ‘Accounting Equation Assets include those economic resources, rights and property both tangible and intal owned and/or controlled by either a natural or a legal entity. Some examples of gen account titles for assets are: Liabilities represent the present economic obligations of an entity that would require! future settiement, Some examples, as follows: THE ACCOUNTING CYL! ‘accountable or quantifiable when it has an effect on Assets, Liability and Equi Measuring is the process of determining the monetary amounts at which the financial statements are to be recognized and carried in the balance sI statement. Recording or joumalizing is the process of systematically maintaining a) ‘economic business transactions after they have been identified and proscar ‘te Classifying is the sorting or grouping of similar and interrelated economic their respective class. It is accomplished by posting to the ledger. ‘Summarizing is the preparation of financial statements. and in terms interpreting ments of the ‘and income record of all isactions into Communicating is the process of preparing and distributing accounting repotts to potential users of accounting information. Equity Theory: ASSETS = LIABILITIES + EQUITY Cash — Money and other medium of exchange that is available for general. Accounts receivable ~ Claims from customers or clients arising from the sal services, on credit basis, in the ordinary course of business operations. Merchandise inventory — Goods and products that are acquired by a business for purposes of reselling them to customers at higher price. ible that are ally accepted ursements. of goods and jerchandising Prepaid expenses — Right to receive benefit from expenses already paid for but are ‘expected to be consumed or used in the following period or periods. ‘supplies for example. Property, plant and equipment are tangible assets which are held by an e1 production or supply of goods and services, for rental to others, or for Purposes and are expected to be used during more than one period. ‘Accounts payable ~ Obligations of the business enterprise to the suppliers buying goods and services, on credit basis, in the ordinary course of operations. Notes payable ~ Obligations as a result of buying goods and/or services, on. ‘as a result of borrowing money, for which a promissory note is given by the Inused office for use in \dministrative me form of las a result of ihe business redit basis, or iness to the supplier or lender. Loan payable — Obligations of the business to lenders as a result of bo Usually, the settlement of loans payable requires the payment of interest. period but are expected to be earned in the following period or periods. Equity represents the residual claim of the owner or owners over the business ent In a single proprietorship, the interest or equity of the owner is called owner's equi comes from the original investment that the owner or owners contributed towards the operations of the business enterprise. It decreases as a result of personal withdi distribution, and the net loss incurred by the business. Therefore, the equity is comp Original Investment + Additional Investments + Profit or (Loss) during the period — Personal withdrawals or profit distributions = Equity of the owner as of the end of the reporting period. +] VJ DELEON mation andSTEPS IN THE ACCOUNTING CYCLE Analyze each Collect and verify aecaceee: es _ ae 7 h SSRN a | iin oa Plabare a \eoorn sei Prepareia post-closing A | "BSF ] work sheet {rial balance x | Journalize and post Hy Closing entries © Prepare financial statements Step1-2. Analyzing means that the accountant determines the impact of the transactions on the financial position as represented by the basic equation “assets equal liabilities plus equity" Rules of Debit and Credit Debits and credits are the opposing sides of an accounting journal entry. They are used to change the ending balances in the general ledger accounts. The rules governing the use of debits and credits in a journal entry are as follows: A debit or debit entry is used to indicate: + An increase in asset, + Adecrease in liability, * Adecrease in equity, * An increase in an expense (or loss), or * A decrease in an income (a revenue or a gain) A credit or credit entry is used to indicate: + An increase in liability, + Adecrease in asset, + An increase in equity, + An increase in income (a revenue or a gain), or * A decrease in expense (or loss) Account type Normal Balan Increase Dechease Asset Debit Debit dit Expense Debit Debit dit Liability Credit Credit bit Revenue Income Credit Credit oir Equity Capital Credit Credit ie Credit. if normal Debit. # normal balance of balabee of contra account is contra dkcount is Lo Gupbane ts credit credic normal account pepie. if normal Credit, balance of bala: contra account is contra debit fnormal ce of count is "2 VSDELEONPractice Test: Indicate the effects of the following transactions on the different accounting elements. Express your answers in terms of the “Debit” and ‘Credit’. [ Transactions ‘Assets_| Liabilities | E Incomel | Expenses ‘Mr Jaybee started business with | — Debit Croat - Capital of 50,000 pesos Purchased machinery for 20,000 in| Debit cash Credit Appointed Lexus as Manager ona|~ NON | ACCOUN | TABLE | EVEN’ ‘salary of 4,000 pesos per month Purchased goods trom Ram on Credit Debit credit, 15,000 | ‘Sold goods to Harie for cash, | Debit Credit 20,000 Withdrew cash for personal use, | _ Credit Debit 5,000. Books of Accounts Business enterprises should keep certain financial records, called book of accounts, accounting books, or simply books, where the business transactions are recorded, classified, and summarized. The most commonly kept books of accounts are grouped into two: the journals ang the ledgers. These books are approved and stamped by the BIR before any business transagtion could be recorded therein. Step3. Journalizing Journal ‘A business transaction, as evidenced by the source documents, is recorded or entefed for the first time in the book called a journal. It is sometimes referred to as the book of origifial entry. The process of recording or entering @ business transaction in a journal is called journalizing or Journalization. This unique style of recording is done through the preparation of jounal entries. A journal entry has the following parts: + The date when the transactions occurred * The effects of the transaction as reflected by the account titles debited and account tiles credited ‘* The monetary values (debit values and credit values) assigned to each accounting element that is effected by the transaction ‘A brief and clear explanation of the transaction ‘The posting references showing the code of the destination ledger account. “These five parts are identified in the following simple journal entry that was prepared original investment of Juan De Leon, a proprietor: to record the Date ‘Account Titie/Explanation PR Dr. cr. June 06, 2019 | Cash 410 100,000.00 Juan De Leon, Capital 30, 100,000.00 To record original invesiment I Think about this © @ ‘+ Whenever cash is received, cash account is debited. Whenever cash is paid, cash account is cr * When the term of a sale or a purchase transaction is ‘on credit’, “on account that would mean that cash has not yet been collected or has not yet been paid) | or “charge”, at the time of, the sale or the purchase. Therefore, the seller debits the accounts receivable, while the buyer credits accounts payable. Expenses incurred tend to deorease the profit of a reporting period, ultimately proprietor's equity, which is why expenses are normally recorded by making Income eamed tends to increase the profit of a reporting period. This ultimately) proprietor’s equity, and is the reason why income accounts are normally credi + In.accounting, the term expenses may include losses. On the other hand, both gains are under the umbrella of income. 3 | VI DELEON reasing the debit entry. increases the nues andCASE PROBLEM: June 04 Purchased merchandise from Mr. Lebron on account, P29,500 terns Mr. Juan started his business with an initial capital of P45,000 invoice 767 0, n/30 per Purchased office supplies costing P1,000 on cash basis. Paid P6,000 cash on the purchase of equipment. Sold merchandise to Mr. Lucas Pacioli as per change invoice #301 P18,000 terms 2/10, 1/30. The cost of merchandise sold is P15,000. Paid P1,000 freight on the sale of merchandise to Mr. Lucas Pacioli Retumed detective merchandise to Mr. Lebron worth P1,500, Received cash from Mr. Lucas Pacioli in full settiement of his account. Paid the account to Mr. Lebron supplier in full Borrowed money from Mr. Aguilar as evidence by promissory note amounting to P20,000 Bought merchandise from Mr. Zanjoe for cash P20,000. Paid wages to his employees for first two weeks of June, P7,000 Received refund from Mr. Zanjoe P1,000, ‘Sold merchandise to Mr. Janine for P24,000 cash. The cost of merchandise sold is 20,000, Purchased merchandise from Mr. Tantan on account, P10,000 terms 2/10, n/30 per invoice 768. No discount is allowed on partial payment. Paid freight on June 23 purchase P100. Paid Mr. Tantan P5,000. ‘Wr. Juan withdrew P5,000 cash for personal use. Made refund to Mr. Janine for defective merchandise, P1,500 Paid Advertising Expense, P1,500; Electricity Expense, P500; and Rent P5000 Paid wages to his employees for last two weeks of June, P7,000 ‘Sold merchandise to Mr. Stephen as per change invoice #302 P3,600 The cost of merchandise sold is P3,000. 8 2/10, 1/30. Mr Juan uses PERIODIC INVENTORY SYSTEM and the following account fitles in/recording the above transactions: CHART OF ACCOUNTS. Code ‘ASSETS Code: INCOME, 101 | Cash 401 | Sales 102 | Accounts Receivable 402__| Sales Return and Allowances 103 | Merchandise Inventory 403 __| Sales Discounts [1047 T Supplies 105__| Equipment EXPENS! 106 | Accumulated Depreciation- Equip. 501 | Cost of Goods Sold ‘602 | Purchases LIABILITIES ‘503 __| Purchase Return and nces 201 | Accounts payable 504 | Purchase Discounts 202 | Notes payable 505 __| Freight In 506 _| Freight Out EQUITY 507 __| Advertising Expense 301 | Mr Juan, Capital 508 | Rent Expenses 302__| Mr Juan, Drawings 509 _| Utilities Expense 510 | Salaries Expense 511 | Supplies Expense { 601 | Income and Expenses Summary 4| VIDE LEON[GENERAL JOURNAL (GJ 4) DATE: ACCOUNT TITLE/ EXPLANATION PR DEBIT CREDIT June 4] Gash 104 45,000.00 Mr. Juan, Capital 301 45,000.00 To record original investment (03|Purchase 502 28,500.00 [Accounts Payable 201 29,500.00 To record purchased of goods (04| Supplies 104 4,000.00 [Cash 401 4,000.00, To record purchased of supplies 06 [Equipment 105 6,000.00 [Cash 101 6,000.00 To record purchased of equipment 07 | Accounts Receivable 02 18,000.00 Sales 401 18,000.00, To record sale of merchandise (08)Freight Out 506 1,000.00 | [Cash 104 I 4,000.00 To record payment of freight on sales 10)Accounts Payable 204 7500.00) Purchase Retum and Allowances 503 4,500.00 To record retum of merchandise to supplior 1] Cash 101 47,640.00 |) [Sales Discount 403 360.00 |) [Accounts Receivable 4102 18,000.00 To record collection of accounts 412|Accounts Payable 201 28,000.00 |} Purchase Discounts 504 560.00, [Cash 401 27,440.00 To record payment of accounts payable 44|Gash 101 20,000.00 Notes Payable 202 20,000.00 To record notes payable 16|Purchase 502 20,000.00 Cash 101 20,000.00 To record puchased of merchandise 16| Salaries Expense 510 7,000.00 Cash 101 7,000.00 To record payment of salaries 48|Cash 101 4,000.00 [Purchase Return and Allowances 503 | 1,000.00 To record retum of merchandise to supplier 22|Cash 101 24,000.00 [Sales 401 To record salos of merchandise 2 T "230,000.00 ||, 5\VJ DELEON|GENERAL JOURNAL (GJ 2) DATE. ACCOUNT TITLE/ EXPLANATION PR DEBIT ‘CREDIT June 23|Purchase 502 40,000.00 [Accounts Payable 201 40,000.00 To record purchased of goods 24|Freight in 505 100.00 [cash 101 4100.00 To record payment of freight 25|Accounts Payable 201 5,000.00 [Cash 101 5,000.00 To record payment of accounts payable (No discount is sllowed for partial payment) 28|Mr. Juan, Drawings 302 5,000.00 [cash 101 5,000.00 To record personal withdrawal 26|Sales Retum and Allowances 402, 4,500.00, Cash 401 4,500.00 To record retum of merchandise from customer 29|Advertising Expense 507, 4,500.00 Utilities Expense 509) ‘500.00 Rent Expense 508 5,000.00 Cash 4101 7,000.00 To record payment of expenses 30] Salaries Expense 510. 7,000.00 Cash 104 7,000.00) To record payment of salaries 30|Accounts Receivable 102 3,600.00, Sales 401 "3,600.00 To record sale of merchandise iy ‘39,200.00 || 39,200.00 “GlVa DE LEONStep4. Post to the Ledger The debits and credits in the journal entries are classified and summarized in the l iger accounts. The process of transferring the data from the journal to the ledger account is call posting. The ledger may either be a general ledger or a subsidiary ledger, depending on the nature of accounts found therein. A general ledger contains all the accounts - one for each asset, liability, equity, income and expenses. Subsidiary ledger is used when the volume of transagtions become voluminous, maintaining one or more subsidiary ledger, also called special ledg Recessary in order that the clerical workload can be distributed systematically accounting employees. The steps to follow in posting an entry from the journal to the T-Form of ledger or de are: 1. Locate the appropriate account in the ledger where the debit entry would is called destination ledger account; 2. Write the date of the journal entry on the date column on the debit side of the destination Posted. This ledger account; 3. Write the source of the posting under the PR column on the debit side of the destination ledger account, 4. Enter the value of on the money column of the destination ledger account; | 5. Compute the up-to-date balance of ledger account; and 8. Go back to the source journal. Write the code ofthe destination ledger account under the PR Column, Practice Test: Account Title: Cash Account Number: 101 Balance Date Item PR Debit Credit Debit daai‘The ledger accounts shown below are derived from the journal eines of Mr Juan. Account Tit: ‘Account Tite: wnt Number: 104 Balance Bato | nem [ros] oer | creat |, Suanee naar] esa] a o00 0) 5,000.09 ol Tas] 7900.00 | 44,000.00 08] Jar] 6,000.00 | 38,000.00 os] [ord 1,000.00 "37,000.00, sl Tess] arsi08 4,540.00 “el Tou [a0 00 27-200 00 tal Tou] o00000 4720000 sel Tou 20,900.00 | 27,200.00 se] Tou 7,000.00 | 20,200 60 ae| [ous] ao000 21,200.00, zl Ies.1] 4000.00 45,200.00 Fa (} 700.00 45100.00, zl Ica] 500.00 | 40,100.00 2a| 12] 1,000.00 {35,100.00 zal cua] 1,500.00 |” 55,600.00 zal [oa] 7,000.00 | 26,600.00 sof [612] 7000.00 [79,600.00 Account Tie isa count Number 103 Balances Date [nom [poe dene | creat | — Berea | Tune so] |S TESCO | 9.000.595 Account Tite: Equipment ‘Account Number: 105 Dato | tem [Post] Debit | creat |p. alee ane 6] |S] acca 5,000.00 Account nts payable ecunt Number: 204 ; ‘Balance ate | em [Post] oebit [creat | Seren res] T69 ea 7.500005 sol Tavs] 1.50000 28,000.09 12] les] 2,000.00 2 zal __[aual 7o0.00 Tap. 25[ [eva] eno 300.00 ‘Account Tie: Me. Juan, Capital nt Number: 304 Belance Date | tem [Post] Debit | creat | a= Blanes —— ane] Tena 5.00000 25,000.09 sof fesa| se;0000, 76,000.00 sof [eva] 5.0000 24,000.00 ‘8IVd DE LEON nts Receivable Debit "0000 Account Number: 102 Balances Debt | crea 7.00000) ato | tem [Pe aq ies reai te | 18000 38000 300.00 Account Number: 104 Balance Bobi] Credit 7,000.00, $00.00 unt Tite: Accumulated Dato | tem post] Dont ‘Account Tie: Me Jusn, Draw Date | tem [Post] Debit aH [ose Tone zal 2‘Account Tie: Sales ‘Account Number 40 Account Tie: Purch Account Number 502 ato | ttom | c Baience os Balance reat | ae Date | tam [Pos] nese | creadl | 5 balance wneo7] [Sr TEGO 75.000 05 Tene 03] [677 a.s00.00 T [20000 zal Tora 24,000.00 22,000.09 1s| [eral 20.0000. 49,500.00, sol Tosa 3,800.00 45,600.00, ‘2a Tes} 1,000.00 59,500.00, [asa] 4550000 : sol Iau 32.5001 Account Tite: Sale Discount Account Number: 403 ‘Account Tits: Seles Return and Allowances nt Number: 402 Balance jj Balance Date | tom [Post] debe [ crecit_ |p _Beanee ete | tiem [Post] Denit | crea a ei] [ea] 36000 360.00 June2a|[ova| reno. 4,500.00 sof Ios 000 : sol |e 7.50000 (Account Tite: Purchase Ret end Al rt Number 503, ‘Account Tie: Purchase Discounts Account Number: 504 oj Balance. = cy Date | tem [Post] deve [crea | 2eenee Dato [tom [Post] dete | credit) | Semen ne 10] [ea] 7000 3,500.00 inal [ea] En} 560.00 xa] [ou #,000.00 2500.00 30] Tova] 550.00, ‘sol [esa] 2800.00 E count Tia: Freight pt Number: 505 ‘Aexount Tite: Fraght account Number: 506 Balance ee Balance ate [tem [post] oenie [crea | = Seance Date Posi] Debt | creat | | >, Bane “iure26] [esa] 100.00 100.60 “iune03| |u| 00060, T|1,000.00| 30] Isa 00.00 3] Ios ETO ‘Account Tie: ng Exper Aczount Number: 607 ‘Account Tie: Rent Expense. ‘Account Number 508, ‘Balance: Balance: Date [tom [Post] oebit | creat [Balance Date | tem [Post] ood | creat | | aenes “tune 36] [2] 4500.00, 1,500.00 “iors 39 [sa] 5000000 5.00000 30[ [esa e000 z 301 Ios 50008 | - Account Tie: Uilies Expense ‘Account Number 509, ‘Account Tie: Setaies rt Number 510 Balance ate | tem | Post] reait = Date | tem [Posi] etic | crea | —-,-Belenee —— Date | tom [Pest] Debit a neo] [era so000 00.00 “ine 16| [esa] e000. 7,900.65 of lov 00.00 : 30] | Gs2l 7,000.09 74,000.00 sof cual edi = ‘Account Tie: Supplies Expense Account Number 514 ‘Account Tie: Income and Expense Summary || Account Number: 60¢ Balanca nce Bate | tem [Post] vob | creck | —=88n00 Dato | tem [Post] Debit | creat | | Baenee June3o| | 6u3] 20000 200.00) une'3o] [653] Ten 18,000.00 30] [ev 20000 : cual 23,74000 62,740.00, cual o650000 f 6,200.00, ‘cual 22.200.00, 760000 leva oN DELEON aaa 7‘Step6. Prepare a trial balance Preliminary trial balance A trial balance is a list of balances of ledger acounts of a business at a specific point of time usually at the end of the period such as month, quarter or year Following is the preliminary trial balance prepared from the ledger accounts of Mr. Ju: JUAN DELA CRUZ Preliminary Trial Balance As of June 30, 20XX Code Account Titles Debit Credit so1_Icash 19,600.00 102__ [Account Receivables 3,600.00 104 |Supplies 1,000.00 105 [Equipment 6,000.00 201 Accounts Payable 5,000.00 202 _|Notes Payable 000.00 301 [MrJuan, Capital 1000.00 302 [Mr Juan, Drawings 5,000.00 401 [Sales 600.00 402 _ [Sales Return and Allowances 4,500.00 403___|Sales Discounts 360.00 502 [Purchases 59,500.00 503 [Purchase Return and Allowances ___ 8500.00 504 [Purchase Discounts 560.00 505 [Freight in 100.00 506 __[Freight Out 1,000.00 a 507 [Advertsing Expense 1,500.00 508 [Rent Expense 5,000.00, 509 __|Utlities Expense 500.00 H| 510 __|Salaries Expense 44,000.00 TOTAL 718,660.00 | __ 118,660.00 ~40|VI DE LEON‘Step6. Prepare a Worksheet Adjusting entries are joumal entries recorded at the end of an accounting income and expense accounts so that they comply with the accrual concept of ‘main purpose is to match income and expenses to appropriate accounting periods. ‘Types of adjusting entries: | 1. Accruals: These include revenue not yet received nor recorded and ¢: iod to adjust wunting. Their snses not yet paid nor recorded. For example, interest expense on loan incurred in the|current period but not yet paid, | 2. Prepayments: These are revenues received in advance and recorded as liabilities, to be recorded as revenue and expenses paid in advance and recorded as/assets, to be recorded @s expenses. For example, adjustments to uneamed revenue, prepaid insurance, office supplies, prepaid rent, etc. 3. Non-cash: These adjusting entries record non-cash items such as deprecistion expense, allowance for doubtful accounts etc. Example: | I This example is a continuation of the accounting cycle problem we have been working on. It the Previous steps we prepared an unadjusted trial balance. Relevant information for the preparation of adjusting er Qf Mr. Ju 1. Office supplies having original cost of P800.00 were unused til the end of the period. 2. Atthe end of the month, there are 19,000 worth of merchandises on hand. The adjusting entries of Mr. Juan are: GENERAL JOURNAL (GJ 3) | DATE | ACCOUNT TITLE/ EXPLANATION | PR DEBIT CREDIT June 30 | Supplies Expenses ie 511 200.00| | | ‘Supplies 104 if 200.00 To record adjusting entry on supplies | Merchandise Inventory 103 19,000.00 | | Income and Expense Summary 601 | 19,000.00 To record inventory end } “| VI DE LEON:‘Step7. Prepare Financial Statements The steps in the accounting cycle culminate in the preparation of the financial statements, The statements are a structured presentation by management of the financial position ang the results of the performance of the business enterprise. They summarize and report the effects ofithe thousands of transactions and activities during a certain period of time. A.complete set of financial staternents comprises: ‘Statement of financial position or balance sheet Statement of financial performance or income statement ‘Statement of changes in equity Statement of cash flows Notes, comprising @ summary of significant accounting policies and other explanatory information. oeonea 4. Balance sheet The three accounting elements that are directly related to the measutement of an enterprise's financial condition, as reported in the balance sheet, are the assets, liabilities, and equity. The two popular forms of presenting the accounting elements in a classified balance sheet are the report form and the account form. 2. Income Statement Profit, also called net income, is frequently used as a measure of the Performance in the operations of a business enterprise. It is important that the accoumtting elements in the income statement are classified and sub-classified in a manner that is u making. The presentation in the income statement involves a process of grouping or income and expenses so that the report will be more relevant to the data-users. In the process of classifying or segregating the income statement elements,|the nature or type of business operations of the enterprise is taken into consideration. Remember that what is Usual for one business or industry maybe unusual for another business or industry Proper classification or segregation helps the users of financial statements in understanding the current performance of the enterprise, ‘and also. In making projections. about is. future performance. 3. Statement of changes in equity Itreports the transactions and events that caused the owner's equity to increase or decrease during a certain period of time. 4, Statement of cash flows Many data-users find this statement as @ useful tool for making finandial decisions. Management uses it to monitor and study the cash inflows and outflows of the bu: ge Creditors and the other data-users use this statement enterprise to generate cash, The statement of cash flows summarizes the sources and uses of cash in c@nnection with the operating, investing and financing activities of business enterprise. Example of cash inflows and outflows that are related to the operating activities are: collections from customers, cash from sale of goods and services to customers, payment of operating expenses, payment of trade obligations, ete. The cash inflows and outflows that are related to the investing activities of the enterprise include: proceeds from the sale of fixed assets, payment of the purchase of fixed assets, etc. ‘Some example of cash inflows and outflows that pertain to the financing aétivities of the enterprise are: proceeds from borrowings, repayments of borrowings, and cash investment and withdrawals of the owner or owners. assessing the ability of the busin« 5. Notes to financial statements Notes to financial statements provide narrative description or disaggregation of items presented in the financial statements and information about items that do not qualify regognition, Notes contain information in addition to that presented in the statement of financial position, income statement, statement of changes in equity and statement of cash flows. Injother words, notes to financial statements are used to report information that does not fit into the body of the statement in order to enhance the understandability of the statements. Notes to financial statement provide additional information and help clatify the items presented in the financial statements. ~~ 3 | VJ DELEONNO@T Ha CAle) [oroo0s | if ~(Se0 7 SUIODUT TENT o0'00z'2z o0'002 ‘asuadxg sonddng 00°000'v» ‘asuadxg SaueieS 000s ‘esuedx3 SeqIINN 00'000'S ‘esuedxg oy o0'008"1 ‘esuedxg Buispenpy 00'000'1 no WBE sesvedx3 Bugeiedo 6309] 00°002'9 Wold $8015] oorors'ze |(o0'000'61) O€ eunr ‘Alojueauy asipueyoreyy ‘0001 ujUBIeN4 (oo'o9s) ‘sunoosig @seyound (ooro0s'@) SOOUEMOTTY pue SUIM|SY OSE YDINg 00'008'6s seseyaind 00°000'r2 pug reyideo ‘uenr 4 e 10 SunP ‘AiouaAu| esipueyoIEW) (00"000'9L) (8807) old JN "PIOS POS JO 1809-888] o0'o00'or reo o0'ov.'er Sees PN| 00'000'S ‘sBuymeip‘uenp —_:8867) 00'098"t 00-098 qunoosiq S91eS 00°000'sy_ qusuyjsenu| 1 :PPY| ‘00°00S'L ‘SeOUEMOIlY pur SUIMEY SeIES :s50]| = GurwuiGag ‘eyed ‘uenp ay 00'009'Sh sees XX0Z ‘Og eunf papus poyied ayy 404 XXx0z ‘0g ounr pepue poyred ayy 105 ‘Aynb3 uy seBueyg Jo juowlaze1g ‘SOUBUNIOLad Jo ]UOLIDIEIS znuo viaa Nvar zo vigaa Nor squawayeyg (ey:NO@T aC £Alp) 00°009'61 pug ‘yseo| ‘0000 ALINDA SUANMO ONV S3LLTIEVI W104 = Buuuibeq used -pp\ ‘on 0096r USE Ul (ese=R0¢) eseeI0UI] 00 000'%2 vendeg ‘ueny an ‘Ainb3 ss8uno| ‘00°000'08 SOHINNOY UIOUBUI. 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(00'0001) sajddns jo jwawikeg ‘00 008 sayddng (o0'orp'zs) yyGnog spoo8 jo awed ‘00°000°61 “AoqweAuyy asipueyaiayy (00°000' seseuypind woy punyu ‘00009 ‘IgeAISOy SjuNooOY O0'OFO'LE ‘S1@UIO}SND YPerD WOH} UORIBHOD 00'009'6 use 00 000% SiBUIO|SNO YSBO WiO4} UORDBOD ‘S]85Sy JUBIINO| sonianoy Bunezedo wo moj4 yseo| SLSSV x02 ‘0¢ euNP pepue pojied ey} 404 ‘Smo|4 USED Jo juEWEHEIS, znuo vad Nynr Xx02 ‘Of eunf Jo sy ontsod jeoueUly jo uoWOIIS znao wig Nvnr‘Step8. Journalize and Post Closing Entries During the period, there are three kinds of accounts in the general ledger of the enterprise - perma ‘and mixed accounts. ‘Mixed accounts have both permanent and temporary components in them. Adjusting entries are Preparation of financial statements in order to break the mixed accounts, After the adjusting entries ‘are no more mixed accounts in the general ledger. ‘The permanent accounts are the assets, liabilties, equity and their affiliated accounts. These a real accounts. They contain the continuous chronological postings of the transactions of more than ‘The temporary accounts, also called nominal accounts, include all accounts whose balances are transferred to capital at the end of each accounting period. At the end of each period, the balances ‘accounts are reduced to zero and nothing is carried forward to the next period. Temporary account. 1. Revenue, Income and Gain Accounts 2. Expense and Loss Accounts 3, Drawings or withdrawals account 4, Income and Expense Summary Account ‘temporary, red before the re posted, there tS are also called ne period. and the nominal clude: Income and Expense Summary account ie temporary account which fectates the closing process The following example shows the closing entries of Mr. Juan. [GENERAL JOURNAL (GJ 4) T DATE ACCOUNT TITLE/ EXPLANATION PR beet || CREDIT June 30|Sales 401 45,600.00 Income and Expense Summary 601 43,740.00 [Sales Return and Allowances 402 1,500.00 [Sales Discounts 403 360.00 To close income accounts Purchase Retum and Allowances 503 2,500.00, [Purchase Discounts 504 560.00 [income and Expense Summary 601 56,540.00 Purchases 502 59,500.00 Freight In 505 400.00 To close purchases accounts Income and Expense Summary 604 22,200.00 Freight Out 506 4,000.00 [Advertising Expense 507 7,500.00 Rent Expense 508 5,000.00, Utities Expense 509 1500.00 [Salaries Expense 510 14,000.00 [Supplies Expense sit 200.00 To close expenses ascounts Mr Juan, Capital 301 46,000.00, income and Expense Summary 601 46,000.00 To close the loss for the period to capital account Mr Juan, Capital 301 5,000.00 Mr Juan, Drawings 302 5,000.00 To close the drawing to capital account "148,400.00 || 148,400.00 75|VI DE LEON”‘Step9, Prepare a post-closing trial balance A post-closing trial balance is a list of balances of ledger accounts prepared after clos entries have been recorded and posted to the respective ledger accounts. The prepar posi-closing trial balance is the last step of the accounting cycle and its purpose is to that sum of debits equal the sum of credits before the start of new accounting period. the openings balance for the ledger accounts of the new accounting period. 19 jon of sure provides The following post-closing trial balance was prepared after posting the closing entries of Mr. Juan to its general ledger and calculating new account balances. JUAN DELA CRUZ Post Closing Trial Balance As of June 30, 20XX Code Account Titles Debit 101 iCash 19,600.00 102 Account Receivables 3,600.00 103 Merchandise Inventory 19,000.00 104 [Supplies 800.00 405 [Equipment 6,000.00 201 [Accounts Payable 5,000.00 202 [Notes Payable 3 000.00 301 Mr Juan, Capital 24,000.00 TOTAL 49,000.00 000.00 het paeeeeeaee ais Eieieeeaeremeee AS Ue Es 16\VJ DELEONAccounting for Merchandising Activities - PERPETUAL INVENTORY SYSTEM. accounting for its inventory. The perpetual system is an alternative to the periodi¢ system. The ‘A merchandising enterprise may use either the periodic system OR the a system in manner of recording purchase and sales transactions under the periodic system previous example, In a perpetual The perpetual inventory system acquired its name from the fact that the invel continuously updated. The acquisition cost, or simply cost, of products purchased debiting merchandising inventory or inventory account. addressed in tem, all transactions affecting the inventory balance are recorded as they occur. records are recorded by When merchandise is sold, two entries are prepared: first, to recognize the revenue from sales at Selling price; and second, to recognize the related cost of goods sold at cost. The second entry Fecognizes the decrease in the balance of the merchandise inventory account as @ result of the sales transactions. CASE PROBLEM: June 01 | Mr. Juan started his business with an initial capital of P45,000 invoice 767 i 04 | Purchased office supplies costing P7,000 on cash basis. 03'| Purchased merchandise from Mr. Lebron on account, P29,500 terms 2/10, n/30 per 06 | Paid P6,000 cash on the purchase of equipment. 07'| Sold merchandise to Mr. Lucas Pacioli as per change invoice #301 P18,000 1/30. The cost of merchandise sold is P15,000, terms 2/10, 08 | Paid P 1,000 freight on the sale of merchandise to Mr. Lucas Pacioli 10 | Returned detective merchandise fo Mr. Lebron worth P1,500. 14 | Received cash from Mr. Lucas Pacioll in full settlement of his account. 12 | Paid the account to Mr. Lebron supplier in full 14 | Borrowed money from Mr. Aguilar as evidencs by promissory note amounting 70 P20,000 16 | Bought merchandise from Mr. Zanjoe for cash P20,000. 16 | Paid wages to his employees for first two weeks of June, P7,000 18 | Received refund from Mr. Zanjoe P1,000. 20,000, 23 | Purchased merchandise from Mr. Tantan on account, P10,000 terms invoice 768. No discount is allowed on partial payment. 22 | Sold merchandise to Mr. Janine for P24,000 cash. The cost of iat sold is 10, n/30 per 24 | Paid freight on June 23 purchase P100. 25 | Paid Mr. Tantan P5,000. 28 | Mr. Juan withdrew P5,000 cash for personal use. I 29 | Made refund to Mr. Janine for defective merchandise, P1,500 i 29 | Paid Advertising Expense, P1,500; Electricity Expense, P50, and Rent P5, 30 | Paid wages to his employees for last two weeks of June, P7,000 ‘The cost of merchandise sold is P3,000. 30 | Sold merchandise to Mr. Stephen as per change invoice #302 P3,600 termns 2/10, n/30. Assuming Mr Juan now uses PERPETUAL INVENTORY SYSTEM. The following jould be the journal entries, respective accounts balances, preliminary trial balance, financial statements and post-closing trial balance. +7 | VJ DELEON[GENERAL JOURNAL (GJ 4) ACCOUNT TITLE/ EXPLANATION PR DEBIT CREDIT June 04|Gash 4101 45,000.00 Mr. Juan, Capital 301 45,000.00 To record original invastment 03| Merchandise Inventory 103 29,500.00 [Accounts Payable 201 29,500.00 To record purchased of goods (04/ Supplies 104 4,000.00 [Cash 404 4,000.00 To record purchased of supplies (06|Equipment 105 6,000.00, [cash 101 6,000.00) To record purchased of equipment O7|Accounts Receivable 102 48,000.00 Sales 401 18,000.00, [Cost of Goods Sold 501 45,000.00 [Merchandise Inventory 103 16,000.00, To record sale of merchandise (08|Freight Out 506 7,000.00 Cash 101 4,000.00 To record payment of freight on sales 410|Accounts Payable 201 4,500.00 [Merchandise Inventory 103 7,500.00 To record return of merchandise to supplier 41] Cash 104 47,640.00 [Sales Discount 403 360.00 [Accounts Receivable 102 18,000.00 To record collection of accounts 2|Accounts Payable 204 28,000.00 Merchandise Inventory 103 560.00 ICash 401 27,440.00 To record payment of accounts payable ialcash 101 20,000.00 Notes Payable 202 20,000.00 To record notes payable 416|Merchandise Inventory 403 20,000.00 cash 101 20,000.00 To record puchased of merchandise 16|Salaries Expense 510 7,000.00 [Cash 401 7,000.00 To record payment of salaries 48|Cash 104 7,000.00, [Merchandise Inventory 403 41,000.00 To record retum of merchandise to Supplier 22|Gash 101 24,000.00 [Sales 401 724,000.00 [Cost of Goods Sora 501 20,000.00 [Merchandise Inventory 103 To record sale of merchandise 7a\VIDELEON™ 755,000.00,[GENERAL JOURNAL (GJ 2) DATE ACCOUNT TITLE/ EXPLANATION PR DEBIT CREDIT June 23| Merchandise Inventory 103 10,000.00 [Accounts Payable 201 10,000.00 To record purchased of goods 24| Merchandise Inventory 403 100.00 [Cash 104 400.00 To record payment of freight 25|Accounts Payable 201 5,000.00 [Cash 101 5,000.00 To record payment of accounts payable (No discount is allowed for partial payment) 26) Mr Juan, Drawings 302 5,000.00 ICesh 401 5,000.00 To record personal withdrawal 29|Sales Return and Allowances 402 4,500.00 [Cash 101 1,500.00 To record retum of merchandise from customer 29] Advertising Expense 607 7,500.00 Utlities Expense 509 ‘500.00 Rent Expense 508 5,000.00 [Cash 404 7,000.00 To record payment of expenses 30) Salaries Expense 510 7,000.00 Cash 404 7,000.00 To record payment of salaries '30|Accounts Receivable 102 3,600.00 [Seles 404 3,600.00 [Cost of Goods Sold 501 3,000.00 Merchandise Inventory 103 3,000.00 To record sale of merchandise i : _ 42,200.00 | 79|Vd DE LEON“Te ledger accounts shown below sre derived frm the oural ies of Wr. Jus, ‘Account Tite: Cash unt Humber: 104 mnt Number 102 ato | tom [Poet] Greate Eales ‘Balance oon Debi Credit Dabit_| Credit “kre oi] [eri] as.c00.00 45,000.00, 58.00.00 oul fous “000.09 | 44.00.00 a oe] To @.00.60-| 38,000.00 OT) ol Tos 71,900.00 {37,000.00 si] Tesal a782000 54.640 00 a] Toss 74009 27,200.09, w4[ Tess] zenon06 47,200.00 6] lou 5.000 09 | 27.200 00 sel leva 7,000.0 {20,200.00 wel Tosa] 90005 21.20000 zal [oa] 24,000.00 4520000 zal aul 700,00 46,100.00, ze| [ou 000.00 |-40 190.00, zal eva] $000.00 | 35 100.00, ze Iou2] 1,500.00 | 33,0000 zal [cua] 7.00.00 | 26,600.00 | __[oi2] 7000.00 [19,500.00 Account Tie: Merchandive Inventory ‘Account Number: 103 Account Tite: Suppl i Balance Dato [tem [poet] debit | creat [pa qBeanee ate | tom [Poet] Debit ines | [eis] 29.00.00 7.500 00 auneoe] [era] 000.00 ‘or _ [ou Tawoaee | 14 500,00 of [ 613] “ol Tor 7,500.00 1,000.00, alos 50.00 | 12.40.00 1s] Ios] 20,000.00 32.40.09 sal Tov “oo 00 | 31,440.00 zal Tos 70,900.00 14440 09, zal Ics] ioa00.06 21.40.00 zal Iya] 100.00 24,540.00 30] Tera] p00 1540.00 count Tite: Equipment Account Number 105 Account Tite: Accumulated Depén Balance Date | tem [Post] Debit | crear | —--Batanee ata | tom [Post] vebt | Creat Tree] [ST] 6000.00 5000.00 Account nts payabe c20unt Number 204 ‘Account Tie: Notes payable ate | tem [pce] debit | creat | Belenee Data | tom [Post] Debit ies] Tony Eo 75,500.00 wee] ol Tosa] 130000 728,000.00 12] Tessa] 26,000.00 = zal aa] 0.90000 Toon, 2s[__ [ela] Sana 500.00 ‘Account Tite: Mr. Juan, Capital ccount Number: 304 lanes: Date [tem [Post] Debit | crea | —p--Selanee —— mooi Tora ‘00009 75,000.00 30 Ios al 6.05000 28,540.00 ‘of fora] 5.00060 ~zs0.00] ‘20|VI DE LEONAccount Tite: Sales ‘Account Number: 404 ‘Account Tie: Sas Nurb 403, aad Balance na tom [Post] Debt [crea | Baatee Date | tem [Post] Debt | creat —_ eo] [67] TEDOOT Yeoo0d| [areTt| [era] sen 360.00 zl tei 24,000.00 42,000.00 30 Tosa 3500 5 sol Tosa 3.50000 45,600.09 30] Jes) ae.e00.00 E ‘Account Tie: Sales Return and A ‘Account Number. 402 Account Tite: Freight Out rt Number: 506 03 Balance = Balance Dato [tom [Post] debit | creat | —p--Balnee —— ste [item [Post] Dene | crea z unezal_ [uz] e000 7,500.05 snecal [ers] 55000. 3,000.60 30o| Tos ESOT E solar 0000 Account Tite: Gost of Goods Sod Account Number 501 Baines Date | nem [Pont] bet [creat | —aBeenee near] [esa] as00000. 75,000.09 2a |u| 20,000.00 35,000.00 30| |e12] 3,000.0 38,000.00 sol oral 3000.00 nt Tite: Advertsing Expense Account Number 607 ‘Account Tite: Rent Expense pes Number: 508, Balance Balance Date [nem [Post] Denit [ crea |= Belance Date | tem [Pest] Devt | creat a neo] [632] 40000 3,500.00 “ie 30] [eva] 5.00008, 3000.00 30] Tosa 7a000 30] oul 500.00 2 ‘Account Tie: Ubiies Expense nt Number £09 ‘Account Tite: Selves Expense. urbe: §10 Balance «i neo. Date | tom [Post] oebe creat belenee Date [item [Post] Dept | cred _ “ire30] [eva] —s00.00 500.00 “ie 16] [eu] 7,000.00, 7,000.00 30| Tosa 200.00 : 30{ [sa 7,000.0. 14,000.00, sof Toul xapoo00| rt Tile: Supolios Expense Account Number 511 ‘Account Tie: Income and Expenge Summar Number: 604 Balance nee. Date [tem [Pose] oepe | crest |! z Dawe [tem [Post] debe | crete [rae Seetee “iane30] [73] —z0060 200.00 izes] [ora 793000001 19,000.00 30[ |osal 200.00 : eri 43,740.00 62,740.00 [esa] 6520.00, 1,200.00 (es. 22,200.00, 1,000.00, ics] 3600000 : ee a us ——— ‘2i|VIDE LEONJUAN DELA CRUZ Preliminary Trial Balance As of June 30, 20XX Code Account Titles Debit Creat 101 |cash 49,600.00 102 __|Account Receivables 3,600.00] | 103___|Merchan: 18,540.00 104 |Supplies 4,000.00 CT 105__|Equipment 6,000.00 201 __|Accounts Payable 5,000.00 202 _|Notes Payable 0,000.00 301 [Mr Juan, Capital 5,000.00 302__|Mr Juan, Drawings 5,000.00 401 |Sales 145,600.00 402___|Sales Return and Allowances 360.00 403 |Sales Discounts 1,500.00 1 501 |Cost of Goods Sold 38,000.00 506__ [Freight Out 4,000.00 507__| Advertising Expense 1,500.00 } 508__|Rent Expense 5,000.00 } 509 __ [utilities Expense 500.00 510__|Salaries Expense 14,000.00 | 1 TOTAL 716,600.00 22) DE LEON”Adjusting Entries: 1. Office supplies having original cost of P800.00 were unused tll the end of the peri i sha DELEON [GENERAL JOURNAL (GJ 3) DATE ACCOUNT TITLE/ EXPLANATION. PR DEBIT CREDIT June 30|Suppiies Expense st 200.00 [Supplies 404) 200.00 [To record adjusting entry on supplies 402 { L —_200.00,|] 300.00OG aes (ovosrot) (sso7)ewoou yen) 00'002'2z 00'002 esuadx3 seriddng 00°000'rL esuedx3 seueles 00'00S esuedx3 sequin 00°000'S esuedx3 yuey 00'00s"t esuedx3 Bulsmenpy 00'000't wo wbiel5 sesuadkg 6uyeiedg $591] o0'0rs‘ez pug eyde9 ‘uenr sy] 00'0rL'S Wold ssp} |(oo'09p‘94) (8807) oid JN 00'000'8e :PIOS POO9 Jo 4809 :3807] 00°000'0r O0'0r'er ‘S@IES }9N| 00°000'S s6uyweup ‘une 00'098"1 00'00S"t qunoosiq sejes, oo'000's+ 007098 SOOUEMOLIY PUE SUIN|SY SOIES -S597] = ByyuuiBeg ‘eyde9 ‘ueNr “| 00°009'Sr sees} XX0z ‘O€ aunr papua poyiad a4) 104 ‘XX0z ‘o¢ eunr pepus poped ey; 104 Aynby uy seBueyo jo juawayeg ‘SOURLIOPed Jo JUOWA}EIS znuo w1a0 NYAr znuo via NvOr squoworers jesoueuyNOWT SC LAlsz ‘00081 pug "use| [coorsey ‘ALINDS SYSNMO ONY SSLLMIGVI W104] = BujwuiBeq _yseo “PP ‘0000961 'yseD Ut (esee100q) eseeIDUI 00'0vs'2 Teudeg “uent ayy ‘Aunb3 s36uN0) 00'000'09 SonINNDY BUISUEUL WO OLA YSED JON 00'000'02 ‘sBuymouiog 00'000'S2 ‘SenmigerT 18101 (00'000's) ‘@8n JeUOsied 105 jEMeIPIAI, ‘00°000'02 ‘ajgekeg S3}0N o0'000'sr qwaUnseAul ‘SOnHIGErT WwOIND-LON| SonanoY BuloueULy WoL MOI USED 00'000's egefeg sjunoooy semnicen weno] (o0°000'9) qyBnog juawdinb3 ALINDS S.YANMO ONY S3LLITIVIT semmoy Buysenu) Wos-4 Mo} YseD| ‘ooorsey SISSY TVLOL| (00°00r've) ‘Seninnoy Bunevedo Woy MOI YSED ION (o0'001) ‘@eyoind uo WOIeI 00°000'9 qwewidinbs (o0'000'%@) sosuedxe Buneiedo yo jweulkeg 2S}288Y WOUIND-LON (00'00S"1) ‘SOLUO}SNO 0} PUNJSY OO OrS'ZF ‘SJOSSV JUALIND [BIOL (00'000'4) sayjddns jo yueukeg 00'008 sayiddng (00 orb'zg) WyBnog spoos jo uewAeg ‘00°0PS'E) ‘Aioqwvanu} esipueyoieyy 0070001 seseyoind wo punIey ‘000096 ‘igeaisoay Syunoooy oorore'zt S4BUIO}SR YPOIO WO UORD|IO 00°009'61 sep 00'000'%z ‘S1OWIOISND YSED WO} VORAIOD Syessy wang] seninjoy Buneiedo wai mola yseO| S1assv X02 ‘Of eunr pepus polled ey 4104 ‘SMmo|4 USED Jo WoWOrEIS zno viaa Nar Xx0z ‘Of eunr jo sy UopIsog [eIOUBULY Jo JUOWE}eIS zndo Wiad NvArClosing Entries [GENERAL JOURNAL (GJ 4) DATE ACCOUNT TITLE/ EXPLANATION PR DEBIT ‘CREDIT June 36|Saies 401 45,600.00 Income and Expense Summary 601 43,740.00 [Sales Retum and Allowances 402 360.00 [Sales Discounts 403 4,500.00 To clase income accounts income and Expense Summary 601 60,200.00 [Cost of Goods Sold 502 38,000.00 Freight Out 508 4,000.00 [Advertising Expense 507 4,500.00) Rent Expense 508 5,000.00 Uitlties Expense 508 500.00 [Salaries Expense 510 44,000.00 [Supplies Expense si 200.00 To close expenses accounts IMr Juan, Capital 301 16,460.00 income and Expense Summary 601 16,460.00 To close the loss forthe period fo capital account [Mr Juan, Capital 301 5,000.00 [Mr Juan, Drawings 302 5,000.00 To close the drawing to capital account pa __127,260.00, VJ DELEONJUAN DELA CRUZ Post Closing Trial Balance As of June 30, 20XX Code Account Titles Debit it 101__|cash 19,800.00 102___|Account Receivables 3,800.00 103 __|Merchandise Inventory 18,540.00 I 104 |Supplies 200.00 405 | Equipment 6,000.00 201 [Accounts Payable 202___|Notes Payable 301__|Mr Juan, Capital TOTAL 48,540.00 " 27\VJ DELEON