Accounting Process

The Accounting Process is a cycle where a bookkeeper collects, organize, process and close
every financial information that a business engages in. The cycle never stops as each
accounting year is substantial to the latter. Because as long as the business runs, the
owner needs to consistently see the financial health of the company in order for him to
mitigate risks in managing the business. And that’s what the accounting process can provide.

1. Identify the transaction that are recognizable from source documents, like purchase
orders, loan agreements, invoices, etc.

2. Journalizing
A Journal is a book where you record every transaction that the business engages
in.That is why you may hear other people referring to journals as the ​“Books of
Original Entry”​, because it is where you should write down all transactions at the
point when that transaction happened. A journal entry should be always listed in a
double entry manner. Each transaction will be debited and credited. It’s important to
make this step flawless for the reason that this will be the foundation of the whole
accounting accounting cycle.

3. Ledger
Post the entry in the individual accounts in ledgers​. Traditionally, the accounts have
been represented as Ts, or so-called T-accounts, with debits on the left and credits
on the right. The account titles are found in the chart of accounts.
The chart of accounts is a listing of all accounts used in the general ledger of an
organization. The chart is used by the accounting software to aggregate information
into an entity's financial statements​. The chart is usually sorted in order by account
number, to ease the task of locating specific accounts. The accounts are usually
numeric, but can also be alphabetic or alphanumeric

4. Trial Balance
At the end of the reporting period (usually the end of the month), create a
preliminary trial balance of all the accounts by (a) netting all the debits and
credits in each account to calculate their balances and (b) totaling all the left-side
(i.e., debit) balances and right-side (i.e., credit) balances. The two columns should
be equal.

5. Adjusting Entries are Journalized and Posted

Make additional adjusting entries that are not generated through specific source
documents. For example, depreciation expense is periodically recorded for items like
equipment to account for the use of the asset and the loss of its value over time.

6. Adjusted Trial Balance

Create an adjusted trial balance of the accounts. Once again, the left-side and
right-side entries - i.e. debits and credits - must total to the same amount.

7. Preparation of Financial Statements

Next is the preparation of ​financial statements (Balance sheet, Income Statement,
Cash Flow Statement and Statement of Changes in Equity). The financial statements
reflects the end results of the business’ efforts within the accounting period.

8. Closing Entries are Journalized and Posted

9. Preparation of Post-Closing Trial Balance

And finally, the last step of the accounting cycle is to create a ​Post-closing Trial
Balance​. This final trial balance contains permanent accounts only; since temporary
accounts are already closed. Never forget to balance your ending debit and credit
 accounts.

10.Reversing Entries (Optional)

Reversing entries are made on the first day of an accounting period in order to remove
certain adjusting entries that were made in the previous accounting period. Two
benefits of reversing entries are: the chance of double-counting revenues and/or
expenses will be greatly reduced, and the processing of subsequent documents will be
more efficient. Reversing entries are most often used with accrual type adjusting
entries. (note: adjusting entries that result in increasing an asset or increasing a
liability account may be reversed)

Comprehensive Illustration

Hannah Miranda is a social entrepreneur from Argao. She is into a lot of interesting causes.
Her fine taste is preeminent such that she is considered and authority in planning weddings.
Upon the advice and prodding of her husband, Ryk Sarza, Miranda decided to organize her
wedding consultancy which will be known as SM Wedding Consultancy. Below are the chart of
accounts and the transactions that occurred for the month of May 2018, the first month of
operations.

Chart of Accounts

Acct No. Account

110 Cash
120 Accounts Receivable
130 Supplies
140 Prepaid Rent
150 Prepaid Insurance
160 Service Vehicle
165 Accum. Depreciation- SV
170 Office Eqpt.
175 Accum Depreciation- OE
210 Notes Payable
220 Accounts
230 Salaries Payable
240 Utilities Payable
250 Interest Payable
260 Unearned Referral Revenues
310 Miranda, Capital
320 Miranda, Withdrawals
330 Income Summary
410 Consulting Revenues
420 Referral Revenues
510 Salaries Expense
520 Supplies Expense
530 Rent Expense
540 Insurance Expense
550 Utilities Expense
560 Depreciation Expense-SV
570 Depreciation Expense-OE
580 Miscellaneous Expense
590 Interest Expense
Transactions for the month of May

● May 1
Miranda Invested P250,000 to SM Wedding Consultancy.
Rented Office space and paid two months in advance for P8,000.
● May 2
Miranda issued a promissory note for a P210,000 loan from BPI. The note carries
20% interest per annum and payable, principal and interest, in full in one year.

Hired and office assistant and an account executive each with a P7,800 monthly salary.
Or, each is to receive P300 per day for the 26-day work month. No entry at this point.
They started work immediately

● May 4
Acquired service vehicle for P420,000.

Paid Prudential Guarantee and Assurance Inc. P 14,400 for one year insurance coverage
on the service vehicle

● May 5
Acquired office equipment from Far Square Emporium for P60,000; paying P15,000 cash
and the balance next month.
● May 8
Purchased supplies on credit for P18,000 from People’s Educational Supply.
● May 9
Paid People’s Educational Supply P10,000 of the amount owed
● May 10
Coordinated and finalized simple bridal arrangements for three couples and collected
fees P8,800 per couple.
● May 13
Paid Salaries P6,600. The entity pays salaries every two saturdays.
● May 15
The entity is earning additional revenues by referring consulting clients to friendly
hotels, caterers, printers, and couturiers. Received P10,000 advance fees for the
clients referred.
● May 19
Coordinated and finalized elaborate bridal arrangements for three couples and billed
P12,000 per couple.
● May 25
Miranda withdrew P14,000 for personal expenses.
● May 27
Paid salaries P7,200.
● May 30
Received the ICC-BayanTel telephone bill P1,400.
Received 24,000 from two clients for service billed last May 19.
● May 31
Settled the electricity bill of P3,000 for the month

Required:
1. Prepare journal entries
2. Post journal entries to the Ledger
3. Prepare trial balance