Accounting Cycle Hacks (Pt.

3)

Adjusted Trial Balance

1. One of the mistakes on why our amounts in the adjusted trial balance and other financial statements
is because some accounts (especially adjusting entries)

are not listed in these financial statements, or even wrong amounts posted. May mga times na hindi mo
naipapasok ang mga amounts mo sa mga financial statements kasi

nagmamadali ka, or na-overlook mo yung mga accounts and amounts. See to it na naipost lahat ng mga
accounts mo doon (including adjusting entries).

TIP: The pencil tick mark. Are you done with your entries? Have you posted them to your T-
Accounts/Ledgers, and also your adjusted trial balance? Put a small, visible

(but also easily erasable) tick mark on the left of your entries to indicate that you have posted the
account to the ledger/t-account, and also, to the financial

statements. Burahin mo rin afterwards, ha? (Kapag balanced na ang entries and tama na yung mga
amounts sa financial statements mo).

2. Know where to place your entries. Know that some of these entries can be assets (like prepayments
and accrued income), or it can be a liability (like accrued

expenses and deferred income). Identify if they are part of assets, contra-assets, liabilities, or owner's
equity.

TIP: Do not confuse bad debts expense and allowance for bad debts expense, as well as depreciation
expense and accumulated depreciation. Tandaan mo, EXPENSE ang

bad debts expense at depreciation expense at dine-DEBIT po iyan. Ang allowance for bad debts at
accumulated depreciation ay contra assets, and binabawas niya ang

value ng mga assets.

Financial Statements

1) Income Statement

- Components ng income statements are your income, expenses, and profits/losses ng company
na nagenerate ng isang business during the reporting period. Remember
na temporary accounts lamang ang laman ng income statement, kasi hindi mo yan macacarry-over to
the next accounting period. Parang nirereport lang niya kung magkano

ang nagenerate na profit or loss ng company during that year, and the next year statements can be
different. Temporary lang siya in the sense na it only reports

the profit/loss during that certain year only.

- Always remember: INCOME-EXPENSES. If may additional gain, i-add mo. If may additional loss,
i-deduct mo.

- There are 2 ways on presenting an income statement: Functional Form and Natural Form.
Now, let us discuss the differences of the two:

a) Natural Form- it's simple: Revenue minus Expenses. Period. Yun lang. Net income less:
expenses, following a list of expenses, like this:

Income

Less: Expenses

Expenses

Expenses

Expenses

and so on and on...

_____________________________________________________________________________________
___________________________________

Net Income/Loss

b) Functional Form - it presents all the incomes and expenses by FUNCTION, kung ano
ang use ng mga expenses na iyon, at kung saan siya naka-categorize.

Sa Functional Form kasi, each of the expenses fall under a certain category of expense that needs to be
computed in order to know

how much expenditures have been placed on these expenses. Para madaling sabi, "Expenses under an
Expense". By "FUNCTION" ito. Ano ang mga pinaggastahan ng business for

its office/administrative department? How much ang nagastos for the purchase of goods and other
expenses needed to bring these goods to the business' doorsteps? Here

is an example of a functional form income statement supported by a schedule:

 K-Mag's Bookstore

Income Statement

For the Year Ended, December

31, 2019

Sales

Less: Cost of Goods Sold (schedule 1)

Gross Profit

Less: Operating Expense

Selling Expenses (schedule 2)

Administrative Expenses (schedule 3)

_____________________________________________________________________________________
____________________________________

Net Income/Loss

Schedule 1: Cost of Goods Sold

Merchandise Inventory, Jan. 1 xx

Purchases xx

Add: Freight In xx

_______

Total Goods Available for Sale xx

Less: Merchandise Inventory, Dec. 31 xx

_______

Cost of Goods Sold xx

Schedule 2: Selling Expenses

Store Rent Expense xx

Salesmen's Salaries xx

Depreciation - Delivery Truck xx

Advertising Expense xx

_______

Total Selling Expenses xx

Schedule 3: Administrative Expenses

Office Worker's Salaries xx

Depreciation Expense - Office Equipment xx

Office Supplies Expense xx

Insurance Expense xx

________

Total Administrative Expenses xx

What are schedules? It is a form of supporting document which shows evidence of the expenses under
that category of expenses. It is a detailed information list

that shows what expenses have been incurred under that category. Instead of placing all of these
expenses into the Income Statement, why not make a schedule? By the

way, here are some of the advantages of functional form over natural form and vice-versa(from my
POV):
 1. The functional form categorizes each expenses according to their function and usage. Mas
organized itong gawin as compared to natural form. In a sense,

it's better to organize expenses according to their function/usage, rather than nakakalat sila kung saan-
saan. At least mas detalyado ito and more informative. But,

you have to know where you will place these accounts.

2. Ang natural form is simple to use: revenue - expenses, period. Di mo na kailangang i-classify
yung mga expenses na ito, basta ilagay mo nalang sa income or

expenses then compute right away.

COST OF GOODS SOLD (COGS)

- COGS are expenses used to indicate how much merchandise have you purchased, and the necessary
costs to deliver the goods to the business, like freight. Also,

icocompute mo rin dito ang mga goods na nareturn to the seller dahil defective, or maling goods ang
naibigay sa iyo. Irerecord din ang discount ng goods (deduction)

kasi ang discount is a deduction to the original price of the merchandise. Discounts happen within a
certain period, for example, nagpurchase ka ng goods for P90,000,

and ang terms is may 10% discount ka if nabayaran mo within 7 days. If babayaran mo in full within 7
days, may discount ka na P9,000, thus P81,000 ang babayaran mo sa

cash.

Remember: ang COGS are all expenditures related to the purchase of goods, beginning and ending
inventory, and any deductions in the merchandise purchases due to returns

and discounts. Basta related siya sa kung ano ang binebenta ng business na goods, yun ang purchases.
Hindi purchases ang pagbili ng office supplies if ang binebenta

ng isang business is tech devices and gadgets like phones, computers, computer hardware, computer
parts, etc.Purchases siya if gadgets and tech devices ang binebenta

niya.

Selling Expenses

- Expenditures related to the selling of goods and services, or expenditures incurred to aid in the selling
of goods, such as advertising expenses, salaries of

salesmen, and store rent expenses. These expenses are essential to the sense na, if wala ang mga ito,
hindi kikita ang business. These expenses are needed in order
for the business to continue selling products. Ang salesmen, kapag di mo binayaran, di na sila
magtratrabaho para sa iyo. Kapag ang store rent, di mo binayaran,

saan ka ngayon magbebenta ng goods? Sa kalsada? Kapag hindi ka nagbayad ng advertising, paano
malalaman ng mga potential customers ang business mo and your products?

Ask these questions para madali mong maanalyze at maintindihan ang selling expenses.

Administrative Expenses

- Expenditures related to administrative and office duties, like office worker's salaries, office rent
expense, office supplies expense, insurance expense, and

depreciation ng office equipment. These are some examples of expenses na kailangan para sa
administrative and office duties. Again, ask: if wala akong nagastang

office supplies, paano kaya nakapagtrabaho ang mga office workers? If di ko binayaran ang sahod ng
mga office workers, magtratrabaho pa ba kaya sila? If ang

office equipment, di nadepreciate, paano ko malalaman kung hanggang kailan magiging inoperable (or
no longer functioning) yung machine? Baka kapag di ko narecord

yun, siguro yung machine, later on, baka pumalya, tapos hindi na makakatrabaho yung mga workers ko.
Ask these questions to help you identify what expenses are to

be recorded.

BALANCE SHEET/STATEMENT OF FINANCIAL POSITION

1. Ang balance sheet accounts ay PERMANENT, and are carried over to the next reporting period.

2. Remember the accounting equation, A=L+OE? Well, ito ang karga nito. But, let us classify these
elements:

a) Assets - pag-aari ng business mo, one that will give you future economic inflows/benefits
because through the usage of these assets, may magegenerate kang

benefits.

i) Current Assets- assets which can be converted into cash within 1 year. Examples: Cash
and Cash Equivalents, Trade and Other Receivables,

Prepayments.

ii) Non-Current Assets - assets which is not easily convertible to cash within 1 year and
can take a longer period of time before it can be
converted to cash, like Property, Plant and Equipment (Land, Equipment, Vehicles, Furniture).

b) Liabilities - sa Tagalog, mga "utang" mo. These represents your obligations to creditors for
various services rendered like purchase of an asset on account,

cash collections received in advance for services to be rendered in the future, and also, loans from
banks.

i) Current Liabilities - liabilities that are expected to be paid within a year, such as
accounts payable and notes payable supported by promissory

note.

ii) Non-Current Liabilites - liabilities that are expected to be paid for more than a year,
like notes payable with interest-bearing note. As long

as the obligation takes more than a year to be paid, it is a non-current liability.

c) Owner's Equity - ito yung mga ininvest ni business owner for the business, less any drawings
or withdrawals made by the owner. Ito yung share ni owner sa

assets ng business, parang nai-contribute niya for the business.

3. Remember na ang Balance Sheet ay parang nag-aadd ka at nagsusubtract gamit ang accounting
equation, pero yung balances niya dapat manggaling sa ledger/t-account.

There are 2 ways on presenting the Balance Sheet: Report and Account Form.

a) Report Form lists all of elements in a vertical sequence (pababa po siya)

b) Account Form lists the assets in the left side and the liabilities and owner's equity on the right
side, parang A=L+OE.

Tips:

1. Practice, practice, practice. If di mo pa kaya ang mahihirap na problems, try to settle muna sa easy
problems, then get progressive. Challenge yourself to harder

problems every day, yung tipong kung ano muna ang kaya mo, yun muna. If magkamali ka, it's okay. At
least you made a discovery (Eureka!)
2. Read, read, read. Also, learn and analyze. Hindi yung kung ano na ang meron, yun na. Analyze mo ng
maigi yung problem. Para di ka mahirapan, try fitting yourself

into the shoes of the owner to know what happened in the transactions.