ACCOUNTING INTRODUCTION Branches of Accounting

Cost Accounting
ACCOUNTING ---- both external
- Provide quantitative information primarily and internal users
financial in nature about economic entities
that is intended to be useful in making
economic decisions, in making reasoned Financial Management
choices among alternative courses of action Accounting Accounting
--- reporting --- reporting
meant for the meant for the
Accounting VS Bookkeeping external users of internal users of
--- analysis and --- routine recording accounting accounting
interpretation of of economic activities information information
financial information, --- mechanical process
conduct of audits and
preparation of
financial statements

Government Accounting
--- Section 109 of the Presidential Decree (PD) No.
Users of Accounting Information 1445
--- encompasses the process of analyzing,
Internal Users VS External Users classifying, summarizing and communicating all
--- managers --- prospective owners transactions that are involved in the receipt and
--- owners --- creditors disbursement of all government funds and
--- government properties and interpreting the results thereof
--- employees
--- customers
--- general public Auditing
--- suppliers --- process of examining an organization’s financial
--- tax authorities records to determine if they are accurate and in
accordance with any applicable rules, (including
accepted accounting standards) regulations and
laws

Tax Accounting
--- structure of accounting methods focused on
taxes
--- governed by an Internal Revenue Code, which
dictates the specific rules that companies and
individuals must follow when preparing their tax
returns

Accounting Education
Accounting Research Calendar Fiscal Interim
VS VS
Year Year Period
Economic Accounting Academic Accounting --- ex: --- one-year --- a
VS
Research Research January 1, period not financial
--- new transactions --- new methodologies 2020 – starting reporting
in the marketplace December with that is
30, 2020 January 1 shorter
--- ex: July than a full
1, 2020 – year
Generally Accepted Accounting Principles June 30, --- ex: April
- common set of accounting principles, 2021 1, 2020 –
standards and procedures issued by the April 30,
Financial Accounting Standards Board 2020
(FASB)
- In the Philippines… 4. Monetary Unit
A. Philippine Financial Reporting --- all of the transactions that we record and
Standards the financial reports that we prepare should
B. Philippine Accounting Standards be in a monetary unit
--- Philippines: Peso (₱)
Accounting Concepts
1. Going Concern 5. Accrual Basis
--- financial statements should be prepared --- revenues are recognized when earned
on the assumption that the entity will --- expenses are recognized when incurred
continue in operations indefinitely or else if
there is an indication that the entity will
close down then the financial statements
should be prepared in a manner that is
related to its liquidity Accounting Princples
1) Cost Principle
2. Accounting Entity/Economic Entity --- amount shown in financial reports are
--- the firm or the business entity is historical costs
separated and distinct from the owner --- requires that assets be recorded at the
cash amount (or its equivalent) at the time
an asset is acquired

3. Time Period
--- a business should report their financial
statements appropriate to a specific time
period
2) Full Disclosure Principle
--- sufficient information for informed
judgments
--- everything should be in record according
to accounting standards

3) Matching Principle
--- matching revenues with expenses to
know the profit of the business
4) Revenue Recognition Principle
--- recognize revenue when good are sold or
services are rendered, regardless of cash
receipt
Characteristic
5) Materiality
--- the impact of an omission or
misstatement of information in a
company’s financial statements on the user
of those statements
--- states that an accounting standard can
be ignored if the impact of doing so has
Characteristics
such a small impact on the financial
statements that a reader of the financial
statements would not be misled
--- the materiality concept varies based on
the size of the entity
6) Conservatism
--- if there are two acceptable alternatives
in a situation, choose the alternative that
will result in lesser income or resource
7) Objectivity
--- recording and reporting process should
be performed with independence which is
free from bias
Characteristics agreement about the financial
Qualitative Characteristics of Useful Financial
Information
Qualitative
Components
Relevance
--- Predictive Value: assist a user in
predicting financial situation or
scenario
--- Confirmatory Value: confirm
predictions or evaluations
Fundamental
Faithful Representation
--- Complete: reason why
“makes
additional explanatory notes are
information
included in a complete set of
useful”
financial statements
--- Neutral: objective, unbiased,
does not intend to deliberately
influence a user’s decision
--- Free from Error: for reasonable
assurance
Comparability
--- intra: able to compare own
financial reports with own
financial reports of different years
--- inter: compare financial reports
of Company A an Company B
within the same industry, same
year
Verifiability
Enhancing --- different users can reach an
“enhances information; about consensus
useful --- financial reports of CPA-1 and
information” CPA-2 are the same
Timeliness
--- information is available to the
users when they need it
--- report regularly, on a timely
basis
Understandability
--- information must be clearly
and concisely scaled down in
order to be understandable
 ELEMENTS OF ACCOUNTING --- Work in progress or goods in
process: goods in the process of
production
A = L + C --- Raw materials: materials and
Assets Liabilities Capital supplies to be consumed in the
production process

ASSETS v. Prepayments Covering less than 1

- Company’s resources, things that they own Year
that gives them benefit in the future --- paid already before they are used
a) Controlled by the Entity: control is or consumed
the ability to obtain the economic
benefits and to restrict the access of
others Non-current Assets
b) Result of Past Transactions or --- tangible assets used in the
Events: the event must be past operation of business, have useful
before an asset can arise life that exceeds beyond one year
c) Provides Future Economic Benefit: and are not intended for sale
evidenced by the prospective i. Lon-term Receivables
receipt of cash ii. Land
d) The cost of an asset can be iii. Building
measured reliably iv. Equipment and Machineries
v. Furniture and Fixtures
Current Assets vi. Investment in Equity
--- assets which can be reasonably Securities
converted into cash within a short period of vii. Intangible Assets
time or within one accounting period or viii. Investment Properties
within regular operation of the business ix. Prepayments Extending
i. Cash more than 1 Year
--- immediately for use in the
current operations of the business

ii. Receivables LIABILITIES

--- amounts collectible from - Obligations to pay
customers
Current Liabilities
--- due for payment within a short period of
time or one year
--- require a current asset for payment
iii. Supplies i. Payables
--- items a company uses to run its
business and drive revenue
ii. Accrued Expenses
iv. Inventory --- expenses already incurred but
--- items that business has made or not yet paid
purchased to sell to customers
--- Finished goods: goods for resell in
the normal course of business
 iii. Unearned Income Sole
Partnership Corporation
--- arises when payments for Proprietorship
undelivered goods or services are - Owner’s - Partner’s - Share Capital
received Equity Equity - Share
- Owner’s - Partner’s Premium
Drawings Drawings - Retained
Non-current Liabilities Earnings
--- are those which mature beyond one year
i. Long-term Debt
--- bank loans as a source of
financing for the entity can be in a REVENUE
span of five years to almost 25 - refers to an increase in benefit during the
years; most loans are serial loans accounting period in the form of increase in
(principal repayment is due every asset (Cash) or decrease in liability
year, a portion of serial loans will be (Unearned Income)
current while most of it is non-
current Merchandising and
ii. Mortgage Payable Service Companies
Manufacturing
--- if certain properties are held as - Service Revenue - Sales Revenue
collateral for loans EXPENSES
- decreases in benefit during the accounting
iii. Bonds Payable period in the form of a decrease in asset
--- bonds are contracts of (Cash) or an Increase in Liability (Payables)
indebtedness sold to a certain i. Salaries
individual; sometimes evidenced ii. Rent
with a bond certificate, unless it is a iii. Utilities
scrip bond iv. Depreciation
v. Repairs and Machineries
iv. Deferred Tax Liabilities vi. Gas and Oil
vii. Representation
viii. Transportation
ix. Communication
CAPITAL
- residual interest of the owner in the assets
of the business after deducting liabilities
- capital is affected by the following:
Increase Decrease
- Initial and - Withdrawals made
Additional by Owner/s
Contributions of - Expenses (losses)
Owner/s
- Income (Revenue,
Gains)
 THE ACCOUNTING CYCLE 3. Trial Balance
--- Book of Accounts that check the Equality
of Debit Values and Credit Values for Totals

ANALYSIS OF BUSINESS TRANSACTIONS

Source Documents
- Transactions and events are the starting
points in accounting cycle. By relying on
source documents, transactions and events
can be analyzed as how they will affect
performance and financial position.
- These original written evidences contain
information about the nature and the
amounts of the transactions.
- Common Source Documents:
--- source document
Official evidencing the receipt of
Receipt payment for services
rendered or goods received
--- paper form supplied by the
CHART OF ACCOUNTS Bank
bank to a customer/depositor
- A listing of the names of the accounts that a Deposit
when depositing funds into a
company has identifies and made available Slips
bank account
for recording transactions
--- written, dated and signed
instrument that contains an
unconditional order from the
BOOKS OF ACCOUNTS Checks
drawer (payor) that directs a
1. General Journal
bank to pay a definite sum of
--- book of accounts where all transactions
money to the payee
are recorded, chronologically
--- request of payment to the
Sales
customer for goods sold or
2. General Ledger Invoices
services provided by the seller
--- book of account where all transactions
--- document signed by the
are classified based on their account titles
receiver of a shipment to
--- T-Account
Delivery indicate that they have in fact
--- Posting: process of transferring the
Receipts received the item being
records from the journal to the ledger
shipped and have taken
possession of it
Completion --- proof that project/activity
Reports was completed

- Source Documents are the bases for the

journal entries
Statement of Account Analyze Transactions
- detailed report of the content of account Accounts Debit Credit
shows billings to and payments from the 1. Cash + +
customer during a specific time period investment by Cash (Asset) Capital
resulting in an ending balance the owner
2. Purchase + +
Business Transaction of Office Office Supplies Accounts
- Transaction that has an effect on resources, Supplies on (Asset) Payable
obligations and capital of the company Account (Liabilities)
3. Payment of - -
Internal VS External an Account Account Cash (Asset)
--- concerned with --- concerned with Payable Payable
inside of the outside of the (Liability)
company company 4. Rendered + +
--- supplies are --- selling of goods service to Cash (Asset) Service Income
consumed and/or services customers, (Revenue)
cash received
5. Payment of + -
Rules of Debit and Credit Expenses Expenses Cash (Asset)
6. Rendered + +
Account service to Accounts Service Income
Debit Credit customers on Receivable (Revenue)
“left” “right” account (Asset)
7. Collection + -
of accounts Cash (Asset) Accounts
receivable Receivable
(Asset)
Account Debit Credit 8. Cash + -
Assets + - withdrawal by Withdrawal Cash (Asset)
Liabilities - + the owner (Drawings)
Capital - +
Drawings + -
Revenue - + Compound Journal Entry
Expenses + - - a combination of two or more simple
journal entries but instead of recording
Accounts Increasing in the… numerous separate journal entries, it is
Debit Credit better to merge multiple journal entries of a
A D E L C R single accounting event into a single
compound entry because it saves time and
Accounts Decreasing in the… keeps the related debits and credits in one
Debit Credit place in the journal
L C R A D E
202 Organization 25,000
0 02 Expense
April
Cash 10,000
Cash 25,000
Notes Payable 10,000
 - Book of account that check the equality of
Simple Journal Entry debit values and credit values for totals
- an accounting entry in which just one
account is debited and one is credited ADJUSTING ENTRIES

2020 0 Organization 25,00 Adjusting Entries

April 2 Expense 0 - Entries made at the end of the accounting
Cash 25,000 period before closing procedures to update
balances of asset, liability, revenue and
0 Cash 10,00 expense accounts to make their balance
2 0 ready for the preparation of financial
Notes Payable 10,000 statements

Normal Balance Kinds of Adjusting Entries

- The side of an account, whether debit or 1) Prepaid Expenses
credit, to which it increases --- prepaid rent, prepaid insurance

Primary Ruling and Balancing of Accounts 2) Deferred Revenue

- Getting the total for both debit and credit in --- you owe the customers goods and/or
an account in ledger and difference if any service/s

Account Balance 3) Accrued Revenue

- The difference between the debit and credit
total of an open account
- Debit Balance: if the debit total is greater
that the credit total
- Credit Balance: if the debit total is greater
than the debit total
--- you’ve given a service/s and/or goods
but the customer hasn’t paid you yet
4) Accrued Expenses
--- you’ve used up the service and/or
received goods but you’re not yet paid

Open Account 5) Asset Depreciation

- Account wherein the debit total and credit --- non-current assets
total are not equal --- land, property, equipment

Closed Account 6) Uncollectible Accounts

- Account wherein its debit total and credit --- bad debts, uncollectible accounts
total are equal expense
- Account should not be included anymore in
the Trial Balance since it has a Zero Balance 7) Subsequent of Measurements of Assets and
Liability Accounts
Cross Indexing --- amortization
- Putting the Page Number from Journal to
the Posting Reference Column of a General
Ledger and also putting the Account Adjusting Entries Adhere to:
Number from Ledger to the Folio Column of - Completeness
a General Journal - Freedom from error
- Timeliness
Trial Balance - Accrual Basis
- Revenue Recognition
- Matching Principle
Supplies

Jim and Company purchased Office Supplies

amounting to P100,000 in which the company
immediately paid in cash. At December 31, 2020
which coincides to be the end of the accounting
period an inventory record shows that the amount
of remaining Office Supplies amount to P40,000.

Asset Method Expense Method

2020 100,00 2020 Office Supplies 100,00

01 Office Supplies 01
April 0 April Expense 0
Cash 100,000 Cash 100,000

100,000 2020 3
Office Supplies 40,000
- 40,000 Dec 1
60,000 Office Supplies 40,000
Expense
2020 3 Office Supplies 60,000
Dec 1 Expense
Office Supplies 60,000
Office Supplies
40,000
Office Supplies
100,000 60,000
40,000

Office Supplies Expense Office Supplies Expense

60,000 100,000 40,000
60,000

How much should be recorded in the income

statement at the end of the year as office supplies
expense? --- P60,000

How much should be presented in the balance

sheet as office supplies? --- P40,000

Effects of Not Making the Adjustment:

--- Expenses Understated
--- Net Income Overstated
--- Assets Overstated
--- Equity Overstated Insurance Expense: 2021
Prepaid Insurance
M 7,440 x 3/12 = 1,860
Jimin Company paid for the following N 12,000 x 12/24 = 6,000
insurance policies in advance: L 16,200 x 12/36 = 5,400
13,260
Policy Amount Coverage Period
M 7,440 April 1, 2020 – March 31, 2021
N 12,000 July 30, 2020 – July 30,2022 Prepaid Expense: 2021
L 16,200 Nov. 1, 2020 – Oct. 31, 2023
Prepaid Insurance, 12/31/2020 ₱ 26,660
7,4400 Less: Expired Insurance for 2021 (13,260)
12,000 Prepaid Insurance, 12/31/2021 ₱ 13,400
+16,200
35,640

Number of
Coverage Period Insurance Expense: 2022
Months
April 1, 2020 – March 31, 2021 12
M 7,440 x 0 = 0
July 30, 2020 – July 30,2022 24
N 12,000 x 7/24 = 3,500
Nov. 1, 2020 – Oct. 31, 2023 36
L 16,200 x 12/36 = 5,400
8,900

Insurance Expense: 2020 Prepaid Expense: 2022

M 7,440 x 9/12 = 5,580 Prepaid Insurance, 12/31/2021 ₱ 13,400

N 12,000 x 5/24 = 2,500 Less: Expired Insurance for 2022 (8,900)
L 16,200 x 2/36 = 900 Prepaid Insurance, 12/31/2022 ₱ 4,500
8,980

Prepaid Expense: 2020

Prepaid Insurance, Beginning ₱ 0 Insurance Expense: 2023

Add: Total Purchase of Insurance 35,640
Less: Expired Insurance for 2020 (8,980) M 7,440 x 0 = 0
Prepaid Insurance, 12/31/2020 ₱ 26,660 N 12,000 x 0 = 0
L 16,200 x 10/36 = 4,500
4,500

How much should be the insurance expense to be Prepaid Expense: 2023

recorded in the financial statements on December
31, 2020? --- P8,980 Prepaid Insurance, 12/31/2022 ₱ 4,500
Less: Expired Insurance for 2023 (4,500)
How much is the remaining balance of prepaid Prepaid Insurance, 12/31/2023 ₱ 0
insurance? --- P26,660
 Asset Method Expense Method

2020 0 35,64 2020 0 35,64

Prepaid Insurance Insurance Expense
April 1 0 April 1 0
Cash 35,640 Cash 35,640

2020 3 2020 3
Insurance Expense 8,980 Prepaid Insurance 26,660
Dec 1 Dec 1
Prepaid Insurance 8,980 Insurance 26,660
Expense

Prepaid Insurance Prepaid Insurance

35,640 8,980 26,660
26,660

Insurance Expense Insurance Expense

8,980 35,640 26,660
8,980

Effects of Not Making the Adjustment:

--- Expenses Understated
--- Net Income Overstated
--- Assets Overstated
--- Equity Overstated
Deferred Revenue

Lipana Tax Consultancy received P150,000

representing advanced payment for six (6) months
tax compliance and consultancy services from one
of their clients on November 1, 2020. The
accounting period of the entity ends on December
31, 2020

Liability Method Revenue Method

2020 0 150,00 2020 0 150,00

Cash Cash
Nov 1 0 Nov 1 0
Unearned 150,000 Tax 150,000
Tax Consultancy
Consultancy Fees
Fees Earned

150,000 x 2/6 = 50,000 150,000 x 2/6 = 50,000

2020 3 Unearned Tax 50,00 2020 3 Tax Consultancy 100,00

Dec 1 Consultancy Fees 0 Dec 1 Fees Earned 0
Tax 50,000 Unearned 100,000
Consultancy Tax
Fees Consultancy
Earned Fees

Unearned Tax Consultancy Fees

50,000 150,000 Unearned Tax Consultancy Fees
100,000 100,000

Tax Consultancy Fees Earned

50,000 Tax Consultancy Fees Earned
100,000 150,000
50,000

Effects of Not Making the Adjustment:

--- Liabilities Overstated
--- Equity Understated
--- Revenue Understated
--- Net Income Understated
Accrued Revenue Accrued Expenses

Lipana Tax Consultancy rendered year-end Salaries Work-Week

tax compliance and consultancy services to ABC Lipana Tax Consultancy pays their liaison
Company on December 15-19, 2020 amounting to officers on a weekly basis. The company has ten
P50,000. It was ascertained that ABC Company will (10) liaison officers receiving P3,000 weekly, every
be paying Lipana Tax Consultancy during the first Friday. The last day of the year, December 31,
quarter of 2021. Prepare the adjusting entry at 2020, fell on a Thursday. Prepare the necessary
December 31, 2020. adjusting entry on December 31, 2020 and the
entry to record the payment of the weekly salary
on January 1, 2021, Friday.
2020 3 Accounts 50,00
Dec 1 Receivable 0 Monda Tuesda Wednesda Thursda
Friday
Tax 50,000 y y y y
Consultancy D-28 D-29 D-30 D-31 J-1
Fees
Earned 3,000 x 10 = 30,000

Payment: 30,000 x 4/5 = 24,000

2021 2 50,00
Cash 2020 3
Jan 5 0 Salaries Expense 24,000
Accounts 50,000 Dec 1
Receivable Salaries 24,000
Payable

Payment:
2021 0
Salaries Expense 6,000
Jan 1
Salaries Payable 24,000
Cash 30,000

Effects of Not Making the Adjustment:

--- Expenses Understated
--- Net Income Overstated
--- Liabilities Understated
--- Equity Overstated
Accrued Expenses

Interest Payable
Lipana Tax Consultancy borrowed P200,000 from a bank, evidenced by a note of promise to pay on
May 1, 2020 with an interest rate of 12%. Both the principal and the interest is payable after one year, that is,
April 30, 2021. Prepare all necessary entries (a) without reversing entries and (b) with the use of reversing
entries.

With Reversing Entries

--- an optional step in the accounting cycle if,
it is useful in facilitating the recording of
assets, liabilities, revenues and expenses in
the usual manner
--- they are just journalized and posted at
the beginning of the new accounting period
Without Reversing Entries
Adjusting Entries that are recommended to
undergo Reversing Entries
--- Payment under Expense Method
--- Deferrals under Revenue Method
--- Accrued Revenues
--- Accrued Expenses

May 1, 2020 Cash 200,000 Cash 200,000

Initial Entry Notes Payable 200,000 Notes Payable 200,000

Borrowing Made: 200,000

200,000 x 12% = 24,000
Add: 12% Interest: 24,000
Total: 224,000
24,000 x 8/12 = 16,000
Computations
Interest 2020: 16,000
Interest of 24,000/12 months
Interest 2021: 8,000
May-Dec. 2020 (8 months): 16,000
Principal: 200,000
Jan.-April 2021 (4 months): 8,000
Total: 224,000

December 31, 2020 Interest Expense 16,000 Interest Expense 16,000

Adjusting Entry Interest Payable 16,000 Interest Payable 16,000

December 31, 2020 Profit or Loss Summary 16,000 Profit or Loss Summary 16,000
Closing Entry Interest Expense 16,000 Interest Expense 16,000

January 1, 2021 Interest Payable 16,000

No Reversing Entry
Reversing Entry Interest Expense 16,000

Notes Payable 200,000

Notes Payable 200,000
April 30, 2020 Interest Expense 8,000
Interest Expense 24,000
Payment Entry Interest Payable 16,000
Cash 224,000
Cash 224,000
 Without Reversing Entries With Reversing Entries

Interest Expense Interest Expense

12/31/202 12/31/202 12/31/202 12/31/202
16,000 16,000 16,000 16,000
0 0 0 0
4/30/2020 8,000 4/30/2020 24,000 1/1/2021 16,000
8,000 8,000

Interest Payable Interest Payable

12/31/202 12/31/202
16,000 16,000
0 0
4/30/2020 16,000 1/1/2020 16,000
Balance 0 Balance 0

Effects of Not Making the Adjustment:

Interest Owed to the Owner:
--- Revenues Understated
--- Net Income Understated
--- Assets Understated
--- Equity Understated

Interest Owed by the Owner

--- Expenses Understated
--- Net Income Overstated
--- Liabilities Understated
--- Equity Overstated
Straight-Line Depreciation
Annual
= 90,000
Depreciation Depreciation
- A decline in value of an asset due to wear
and tear, obsolescence and passage of time 2020 0 500,00
Equipment
Jan 1 0
Residual Value Cash 500,000
- Value expected in the asset after its Useful
Life
2020 Depreciation 90,00
Useful Life 31
Dec Expense 0
- Estimated lifespan of a depreciable fixed Accumulated 90,000
asset, during which it can be expected to Depreciation-
contribute to company operations Equipment

Depreciable Amount
- Difference between asset cot and residual
value Periods Depreciation Accumulated Carrying
Expense Depreciation Value
Contra-Asset Account 1/01/20 500,000
- Asset Account but it deducts the value of 12/31/20 90,000 90,000 410,000
the related asset 2021 90,000 180,000 320,000
2022 90,000 270,000 230,000
Carrying Value 2023 90,000 360,000 140,000
- Current value of an asset after a year or 2024 90,000 450,000 50,000
years of use

Jimin Company purchased equipment on

Annual Asset Cost - Residual Value April 1, 2020 amounting to P500,000 with residual
= value of P50,000 and life of five (5) years. Prepare
Depreciation Useful Life
adjusting entries on asset depreciation and fill up
depreciation table

Jimin and Company purchased equipment

on January 1, 2020 amounting to P500,000 with Annual 500,000 - 50,000
residual value of P50,000 and life of five (5) years. =
Depreciation 5
Prepare adjusting entries on asset depreciation
table.
Annual 450,000
Annual 500,000 - 50,000 =
= Depreciation 5
Depreciation 5

Annual 450,000
= Annual
Depreciation 5 = 90,000
Depreciation
90,000 x 9/12 = 67,500

2020 0 Equipment 500,00

Jan 1 0
Cash 500,000

2020 Depreciation 67,50

31
Dec Expense 0
Accumulated 67,500
Depreciation-
Equipment

Periods Depreciation Accumulated Carrying

Expense Depreciation Value
4/01/20 500,000
12/31/20 67,500 90,000 432,500
2021 90,000 157,500 342,500
2022 90,000 247,500 252,500
2023 90,000 337,500 162,500
2024 90,000 427,500 72,500
2025 22,500 450,000 50,000

Effects of Not Making the Adjustment

--- Expenses Understated
--- Net Income Overstated
--- Assets Overstated
--- Equity Overstated
 Capital Statement
- presents the changes in the equity of the
owner due to investments, additional
contributions, net income or loss and
personal withdrawals
FINANCIAL STATEMENTS -
Balance Sheet
Financial Statements - present’s the entity’s assets, liabilities and
- Structured representation of the entity’s capital as of the period
financial position, financial performance
and cash flows of an entity that is useful to
a wide range of users in making economic Statement of Cash Flows
decisions - presents the entity’s cash inflows and
outflows on three major activities:
1) Statement of Comprehensive Income Operating, Investing and Financing
2) Statement of Changes in Equity
3) Statement of Financial Position Activity Content
4) Statement of Cash Flows --- include cash investments related to
5) Notes and Disclosures net income
--- cash receipts from the following:
(+) sales of goods or services
Financial Contents Date (+) interest received from loans
Statement/Titl (+) dividends received from
e investments
Statement of Revenues and For a Period in Operating --- cash payments for the following:
Comprehensive Expenses Time/For the Activities (-) merchandise purchase from
Income Period Ended suppliers
Statement of Transactions For a Period in (-) materials used to manufacture
Changes in Involving Time/For the products
Equity Owner’s Equity Period Ended (-) employee payroll
Statement of Assets, For a Point in (-) interest paid to lenders
Financial Liabilities and Time/As at/As (-) income taxes
Position Equity of (-) other operating expenses
Statement of Transactions For a Period in Investing --- include cash activities related to
Cash Flows Involving Cash Time/For the Activities non-current assets; investments;
Period Ended property; plant and equipment
Notes and Other N/A --- cash receipts from the following:
Disclosures Information (+) sale of long-term investments
(e.g., bonds and stocks of
Other companies)
(+) sale of property, plant and
Income Statement Equipment
- presents the entity’s revenues and (+) collection of principal loans
expenses during and accounting period that made to other entities
tells users on whether the entity enjoyed --- cash payments for the following:
profit or suffered a loss during the period (-) purchase of long-term
Investments (e.g., bonds and
stocks of other companies)
(-) purchase of property, plant
 and equipment
(-) loans made to other entities
+ Cash - Investing
+ Cash – Financing
= Net Cash Flow
+ Beginning Cash
= Ending Cash

Activity Content
--- comes from conducting financing
activities, for the business
--- financing, cash flow includes
obtaining or repaying capital, be it
equity or long-term debt
--- cash receipts from the following:
(+) issuance of notes (e.g., loan
Financing with a bank)
Activities (+) issuance of bonds
(+) issuance of common stock
--- cash payments for the following:
(-) principal amount of loans
(-) principal amount of bonds
(-) repurchase of common stock
(treasury stock)
(-) cash dividends

Comprehensive Income
Revenue
- Expenses
= Net Income

Changes in Equity
Beginning Capital
+ Investments
+ Additional Contributions
+ Net Income
-
Withdrawal
= Net Income

Financial Position
Total Assets
= Total Liabilities
+ Total Capital

Cash Flows
Cash – Operating

CLOSING PROCEDURES
1. Journalize and Pot Adjusting Entries
2. Journalize and Post Closing Entries
3. Prepare a Post-Closing Trial Balance
Journalize and Post Adjusting Entries
- Adjusting entries were already prepared
and its effects were included in the
worksheet and ultimately in the financial
statements. However, these adjusting
entries are not yet journalized and posted
formally in the book of accounts. After, the
updated balances in the ledger should be
equal to the adjusted trial balance.
Journalize and Post Closing Entries
Closing Entries
- Entries that close the balance of Drawing,
Revenue and Expense accounts to Zero to
prepare them for the next accounting
period
Real Accounts VS Nominal Accounts
--- Accounts which --- Accounts brought
balances continue back to zero for the
--- Cumulative next accounting
--- Assets period
--- Liabilities --- Drawing
--- Capital --- Revenue
--- Expenses
1) Debit all Revenue accounts and Credit the
total to the Profit or Loss Summary
2) Credit all Expense accounts and Debit the
total to the Profit or Loss Summary
3) The Net Effect of the Profit or Loss
Summary account will be closed to the
Capital account
4) Any balance of the Drawing account will be
Charged against the Capital account
After Journalizing and Posting Closing Entries
1) Assets and Liabilities should maintain their
updated balances
2) Drawing, Revenue and Expenses should be
Zero
3) The capital account should be updated with
the amount equal to what I reported in the
Statement of Changes in Equity
Post-Closing Trial Balance
- Trial Balance prepared after all closing
procedures. Since all nominal accounts have
already been closed, the Post-Closing Trial
Balance only include all Assets, all Liabilities
and Capital
Wrapping Up
- After all these procedures, make sure that…
1) The journal shall include the normal
entries, adjusting entries, closing
entries and reversing entries
2) The ledger balances are updated as
to all Assets, all Liabilities and
Capital and Zero as to Drawing,
Revenue and Expenses
3) The Post-Closing Trial Balance had
been prepared