Introduction to Accounting Week 1

Week 001
Introduction to
Accounting
Week 006: Accounting for Corporation
Coverage of the Module

History of Accounting
Definition, nature, scope, objectives of accounting
Branches of Accounting
Stewardship
Users of Accounting Information
Accounting concepts and principles
Professional ethics and values
Career opportunities of the accounting profession https://www.google.com.ph/search?q=intro+to+acco
unting+images+and+photos
Retrieved: August 13, 2017
Week 006: Accounting for Corporation
Learning Objectives
After studying this module, the students are
expected to be able to
•Learn to discuss the brief history of accounting.
•Understand the accounting definition, nature,
scope, and objectives.
•Identify the different branches of accounting.
•Identify the users of accounting information.
•Understand some of the main accounting concepts
and principles.
•Identify the different career opportunities of the
accounting profession.
•Enumerate and understand the professional ethics
and values
Week 001: Introduction to Accounting
History of Accounting
• Florentine approach of reporting –

Double-entry bookkeeping
• Venetian approach of reporting – records
in bilateral form; debits on the left side
and credits on the right side
• Luca Pacioli – father of modern accounting
History of Accounting(continued)
• Code of Savary- 1673 Commercial Code of

France; historical cost as the basis of
valuation.
• Code of Napoleon; Code of Commerce –
assets at fair market value and not on
historical cost.
• Era of industrial revolution (late18th and early
19th century)
• Introduction of new accounting practices such as
Depreciation, Overhead allocation,
Inventory accounting,
Accounting advancements for sole proprie-
torship, partnership, and corporation
New tax accounting systems and procedures
Arrival of Income Taxation and Conflict with
Financial Reporting
• First income tax: Emperor Wang Fang , Xin
dynasty, China, AD 10; 10% flat rate
• First Graduated income tax system: Britain, 1798;
William Pit; 8.335% to 10%
• United States: July 1861, 3% of all income over
US$600
https://www.google.com.ph/search?biw=1242&bih=602&tb
• Philippines: March 31, 1913, creation of the first m=isch&sa=1&q=taxation+and+accounting+images+and+
photos
income tax law Retrieved: August 13, 2017
Definition of Accounting
• Service Activity
• Function: to provide quantitative financial
information for decision-making purposes.
• Accounting: an art of recording,
classifying, summarizing, in a significant
manner and in terms of money,
transactions and events, which are in part
at least of a financial character and
interpreting the results thereof.
Scope of Accounting
• Accounting is used by
Professionals, Social Institutions, Business
Organizations
Non-trading Institutions like hospitals,
schools, cooperative, etc.
• New Areas of Accounting:
Human Resource Accounting, Social
https://www.google.com.ph/search?biw=1242&bih=602&tbm
Accounting =isch&sa=1&q=areas+of+accounting++images+and+photos
National Accounting, Forensic Accounting

Nature of Accounting
• Accounting is a process.
• Accounting is an art.
• Accounting is a means not an end.
• Accounting does business with financial
business transactions and information
only which are quantifiable in terms of
monetary unit.
https://www.google.com.ph/search?biw=1242&bih=60
• Accounting is an information system. 2&tbm=isch&sa=1&q=nature+of+accounting++images
+and+photos
Objectives of Accounting
• Records business transactions and end up

summarizing them with their balances.
• Provides the financial information that
serves as the basis of business managers’
decisions and accountability.
• Aids in corporate planning.
2&tbm=isch&sa=1&q=objectives+of+accounting++ima
ges+and+photos
Branches of Accounting
Major Branches:
• Financial Accounting- for the needs of
external users.
• Management Accounting- caters the needs
of internal users.
• Cost Accounting- determines the costs of
products, processes and services. https://www.google.com.ph/search?biw=1242&bih=60
2&tbm=isch&sa=1&q=majorbranches+of+accounting+
+images+and+photos
Branches of Accounting (continued)
Other fields of accounting are
• Tax Accounting- involves internal revenue
rules and regulations.
• Fund Accounting- for non-profit
organizations including government.
• Auditing- examination and verification of a
firm’s accounts and internal control
system.
02&tbm=isch&sa=1&q=other+fields+of+accounting++
images+and+photos
Branches of Accounting (continued)
• Social Accounting- corporate social

responsibility of any business
organization.
• National Accounting- measures the
economic activities of a country.
• Human Resource Accounting- identifying
and measuring data on human resources.
• Forensic Accounting- using accounting in 2&tbm=isch&sa=1&q=national+accounting++images+

and+photos
litigation cases.
Concept of Stewardship
• Accountants act as stewards for the

owners’ of the business
• Present trustworthy financial information
about the firm’s assets and obligations.
• Stewardship governance of the executives
to protect the interest of the
shareholders, https://www.google.com.ph/search?biw=1242&bih=602&t
bm=isch&sa=1&q=stewardship+and++accounting++imag
to make decisions in behalf of the owners es+and+photo

•Users of Accounting Information
• Internal Users (Primary Users)
Business Owners
Business Managers
Employees and Labor Unions
• External Users (Secondary Users)
Prospective Investors
Creditors
Government Agencies
Consumers and the General Public
Accounting Concepts and Principles
• Accrual Principle- income and expense recognition in
the accounting period when they are actually earned
and incurred.
• Conservatism Principle- expenses and liabilities
should be recorded as soon as they are incurred and
revenues and assets when they will surely happen.
• Matching Principle- charging of expenses incurred by
the firm to the income statement for a particular
period in which the revenues related to them
(expenses) are earned.
Accounting Concepts and Principles (continued)
• Consistency Principle- consistent application of
accounting principles to aid comparison of the firm’s
financial statements over different accounting periods.
• Cost Principle- a business organization should record
assets, liabilities, and equity at their original purchase
costs.
• Going Concern Principle- financial statements are
prepared on the basis of the continuity of operations of
the business in the future.
• Economic Entity Principle- the business transactions of an
entity be separated from the owner’s personal transactions
and other businesses.
• Full Disclosure Principle- the business should include in its
financial report all the necessary information that will help
the reader or user understand the contents of the
statements.
• Materiality Principle- Information is material if its omission
or misstatement could influence the economic decisions of https://www.google.com.ph/search?biw=1242&bih=602&tb
m=isch&sa=1&q=economic+entity+principle+of++accounti
users taken on the basis of the financial statements (IASB ng++images+and+photos
Framework).
• Monetary Unit Principle- only
transactions that can be expressed in
monetary currency should be recorded.
• Reliability Principle- business transactions
or information that can be verified by the
users should be recorded.
• Revenue Recognition Principle- revenue
recognition using the accrual concept.
• Time Period Principle - application of an
accounting period to report and evaluate the
performance and position of the business.
• Substance over Form- business transactions and
events must be recorded in its economic
substance instead of just its legal form .
• Duality Principle- fundamental basis for double-
entry accounting system https://www.google.com.ph/search?biw=1242&bih=602
&tbm=isch&sa=1&q=duality+principle+of++accounting+
+images
Career Opportunities in the Accounting Profession
• Private accountants - the presence of an

employer-employee relationship.
• Public Accountants -rendered services to
the general public in exchange for
professional fees.
• Accounting Education – Accountants as
teachers .
Basic Professional Values and Ethics
Values:
Credibility
Professionalism
Quality of Services
Confidence
Basic Professional Values and Ethics (continued)
The fundamental principles are:

Integrity
Objectivity
Professional Competence and due Care.
Confidentiality
Professional Behavior
Technical Standards
Thank you very
much…
God bless
everyone!
Week 002
Business Organizations
and Activities
Week 002: Business Organizations and Activities
Module Coverage
Business Organizations as To Ownership
Sole Proprietorship
Partnership
Corporation
Business Organizations as To Nature of Activity
Service Concern
Merchandising Concern
Manufacturing Concern
Different Categories of Business Activities
Operating Activities https://www.google.com.ph/search?q=business+organ
izations+and+activitiesimages+and+photos
Investing Activities Retrieved: August 12, 2017
Financing Activities
Learning Objectives
At the end of the module, you are expected to be able to
•Enumerate, define, and differentiate the different

business organizations as to ownership; as to nature of
business activity
•Enumerate, define, and cite examples of different

business activities
Types of Business Organizations
According to Ownership
• Sole Proprietorship- owned by one person.
• Partnership- consists of two or more individuals
called partners.
• Corporation- consists of at least five persons to
incorporate; created by operation of law.
https://www.google.com.ph/search?q=+business+org
anizations+images+and+photos
Comparison of Business Organizations

Sole
Proprietorship Partnership Corporation
One owner, Two or more
called owners, called Many (at least five) owners, called
Ownership proprietor partners shareholders
Limited, depends
Organization's Limited, on the owner's Indefinite life ( in the Philippines, 50
life span depends on the decision or death years renewable
owner's
decision or
death
Owners'
personal Owner
liability for the personally Partners
business liable personally liable Shareholders are not personally liable
obligations or
debts
Organization's
accounting Separate from Separate from the
status the proprietor partners Separate from the corporation
https://www.google.com.ph/search?q=+business+o
rganizations+images+and+photos
Types of Business Organizations (continued)
According to the Nature of Activity

• Service concern- rendering services to clients as the
source of income
• Merchandising – buying goods and selling the same
as is.
• Manufacturing Concern – producing finished goods
to be sold in the market https://www.google.com.ph/search?q=merch
andising+and+manufacturing++images+and+
photos
Categories of Business Activities
Operating Activities - generation of revenues and incurrence of

expenses in the company’s main line of business.
Examples:
Collections from customers
Interest received on Notes Receivable
Dividends received on investments in stocks
Payments to suppliers
Payments to employees
https://www.google.com.ph/search?q=op
Payments for interest erating+activitiess+images+and+photos
Payments for income taxes

Categories of Business Activities (continued)

Investing Activities. Related to buying and selling of the long-
term assets (plant, property, and equipment, stocks, bonds) for
business use.
Examples :
Sale of plant assets
Sale of investments that are not cash equivalent
Receipts on loans receivable
https://www.google.com.ph/search?q=investing
Acquisition of plant assets +activitiess+images+and+photos
Purchase of investments that are not cash equivalents
Making loans
Categories of Business Activities (continued)

Financing activities. Raising funds from prospective investors
and creditors needed by the firm to start or to sustain the
business.
Examples :
Issuance of stocks
Selling treasury stocks
Borrowing funds
Payment of dividends
https://www.google.com.ph/search?q=financing+
Purchase of treasury stocks activitiess+images+and+photos
Payment of principal amount of long-term debts

Thank you very
much and
God bless you all…
Week 003
Accounting Information
System
Week 003: Accounting Information System
Module coverage
Accounting Information System (AIS) Definition

Features and Functions of AIS
Components of AIS
Types of AIS
Manual System
Computerized System
Learning objectives
After studying this module, the students should be able

to:
• Define accounting information system.
• Describe the features of an effective accounting
system.
• Enumerate the components of a computerized
system.
• Compare computerized and manual accounting
systems.
Accounting Information System Defined
A system of recording, processing, and reporting

business transactions or financial data.
Generally, a computer-based approach for
monitoring business activities.
https://www.google.com.ph/search?hl=en-
PH&tbm=isch&q=accounting+information+system
+images+and+photos
Functions of AIS
• Provides efficient and effective ways of

collecting, storing, and processing accounting
and financial data.
• Supplies valuable information.
• Warrants accurate recording and processing
of data.
Features of AIS
• Internal Operations Control

• Flexibility
• Compatibility with the operations, people and
business structure
• Positive Cost-benefit analysis
https://www.google.com.ph/search?biw=1242&bih=
602&tbm=isch&sa=1&q=characteristics+of+account
ing+information+system+images+and+photos
Principles of AIS
Five basic principles (AICPA)

• Security
• Confidentiality
• Privacy
• Processing Integrity
• Availability
PH&tbm=isch&q=accounting+information+system
+images+and+photos
Components of AIS
People - the system users, including
professionals such as accountants, business
analysts, managers, consultants, chief financial
officers, and auditors.
Procedures and Instructions- different
approaches or techniques, manual and
automated, the firm uses
Data- relevant financial information of the https://www.google.com.ph/search?hl=en-
PH&tbm=isch&q=accounting+information+syste
m+images+and+photos
business activities and practices. Retrieved: August 13, 2017
Components of AIS (continued)
Software- computer programs that will be used to

store, retrieve, and process and analyze the financial
data of the firm.
Information Technology Infrastructure- the hardware
components .
Internal controls of AIS- security measures that will
protect sensitive data.
PH&tbm=isch&q=accounting+information+sy
stem+images+and+photos
Types of Accounting Information Systems
Manual Accounting Information System-

performs the steps in the accounting cycle by
hand. Must be understood to understand
computerized system.
Computerized Accounting Information System -
uses electronic equipment and software to
record, store, process accounting data.
PH&tbm=isch&q=accounting+information+s
ystem+images+and+photos
Manual and Computerized AIS Compared
https://www.google.com.ph/search?hl=en
P&tbm=isch&q=accounting+information+
system+images+and+photos
How Accounting Information System Works?

In both systems, the data processing involves three
phases:
Inputs(Data) - different source documents
(examples: sales invoice/receipts, fax
orders, banks’ deposit slips, etc.)
Process(Accounting)- manual or computerized
Outputs(Reports)- processed data; financial reports

PH&tbm=isch&q=accounting+information+sys
tem+images+and+photos
Week 005
Analyzing, Recording,
Summarizing Business
Transactions
Week 005: Analyzing, Recording and Summarizing Business Transactions
Module Coverage
• An overview of the accounting cycle
•Business transactions; double-entry system
•Accounting elements; accounting equation
•T-accounts; rules of debit and credit
•Chart of accounts, definition of accounts, and their
normal balances
•Posting the journal entries to the ledger
•Preparing the trial balance. 602&tbm=isch&sa=1&q=accounting+cycle+images
+and+photos
•Analyzing and recording business transactions in the
general journal
Learning Objectives
•Understand the accounting cycle.
•Explain the double-entry system.
•Define business transactions and analyze them.
•Enumerate, define, and understand the accounting
elements.
•Understand the importance of T-accounts and the
rules of debit and credit.
•Prepare a chart of accounts.
•Define all the account titles or accounts that will be
used in the accounting process and identify their
normal balances.
•Analyze transactions prior to recording in the journal. https://www.google.com.ph/search?biw=1242&bih=602
&tbm=isch&sa=1&q=accounting+cycle+images+and+p
•Record the transactions in the prescribed document, hotos
the general journal.
•Learn to post the general journal entries to the ledger.
•Extract a trial balance from the ledger.
The Accounting Cycle

Accounting Process- cyclic activity of tracking
business transactions.
Accounting Period- the span of time covered
by the financial statements.
First three phases of accounting :
• Recording Phase
• Classifying and Summarizing Phase https://www.google.com.ph/search?biw=1242&bih=602&tbm
=isch&sa=1&q=accounting+cycle+images+and+photos
• Clearing Phase
The Accounting Cycle (continued)
Recording Phase includes the following steps:

1. Gathering the documents.
2. Analyzing the business transactions.
3. Recording the business transactions in
the journal.
4. Posting the journal entries to the ledger.
&tbm=isch&sa=1&q=journalizing++images+and+photo

Summarizing Phase consists of : Adjusting
entries are prepared or journalized, recorded
and posted in the general ledger to correct or
update the account balances.
1. The adjusted account balances in the
general ledger will be taken to be listed in
the (adjusted) trial balance. 2&tbm=isch&sa=1&q=financial+statements+images+
and+photos
2. The financial statements are prepared.

Clearing Phase involves the following steps:
1. Closing the temporary accounts.
2. Preparing the post-closing trial
3. Preparation of the reversing entries (this
is optional and done at the start of the
new accounting period.
https://www.google.com.ph/search?biw=1242&bih=602&
tbm=isch&sa=1&q=post+closing+trial+balance+images+
and+photos

To simplify the steps in the accounting process are:
1. Analyzing and Journalizing the business
transactions.
2. Posting the journal entries to the general ledger.
3. Preparation of the trial balance.
4. Preparation of the worksheet or spreadsheet
(optional)
5. Preparation (Journalizing) of the adjusting
entries.
6. Preparation of the adjusted trial balance. https://www.google.com.ph/search?biw=1242&bih=60
2&tbm=isch&sa=1&q=accounting+cycle+images+and+
7. Preparation of the financial statements photos
8. Preparation (journalizing) the closing entries.
9. Preparing the post-closing trial balance.
Business Transactions and Source Documents

Business transaction - an event or an activity that
involves one entity and another company.
External transaction or Exchange transactions-
with physical exchanges. Examples are buying or
purchasing, selling, collection of receivables.
Internal transaction or Non-exchange transactions -
do not involve physical exchanges but with changes
in values quantifiable also in terms of money. https://www.google.com.ph/search?biw=1242&bih=6
02&tbm=isch&sa=1&q=business+transactions+imag
es+and+photos
Example is depreciation.
Features of Business Transactions
•Transactions should involve the business

organization.
•Transactions should be of a financial
character, measurable in terms of money.
•Transactions should have a two-fold effect
on the accounting elements.
• They should be supported by a source https://www.google.com.ph/search?biw=1242&bih=602&t
bm=isch&sa=1&q=FEAtures+of+business+transactions+i
mages+and+photos
document. Retrieved: August 14, 2017
Source Documents
Examples of source documents are:
•Official receipts for cash received
• Sales invoices
•Cash vouchers when paying in cash
•Supplier or seller’s invoice
•Statement of account from suppliers
•Promissory notes
•Credit or debit memorandum. &tbm=isch&sa=1&q=business+source+documents+im
ages+and+photo
The Account and the T-account
Account - a basic tool in summarizing or

grouping business transactions in
accounting.
Ledger- Book of accounts or group of
accounts.
Three broad categories of accounts based on
the accounting equation: https://www.google.com.ph/search?biw=1242&bih=602&tb
m=isch&sa=1&q=T-Accounts+images+and+photos&oq=T-
Assets = Liabilities + Owner’s Equity (or Accounts+images+and+photos
Capital)
The Account and the T-account (continued)
The T-account is similar to the ledger. It has

two sides:
•Left side or the debit side
•Right side or the credit side
Depending on the account it represents, the
two sides of the T-account are used to record
the increases or decreases of the accounts. https://www.google.com.ph/search?biw=1242&bih=6
02&tbm=isch&sa=1&q=T-
Accounts+images+and+photos&oq=T-
Accounts+images+and+photos

Asset T-accounts: Increases on the left side or debit
side; while on the right side or credit side are the
decreases
liability T-accounts : Increases on the right side or
credit side; while on the left side or debit side are the
decreases .
Capital T-account : Increases on the right side or credit
side; while on the left side or debit side are the
decreases.
Revenue T-accounts : Increases on the right side or
credit side; while on the left side or debit side are the
decrease.
Expense T-accounts: Increases on the left side or debit
side; while on the right side or credit side are the 602&tbm=isch&sa=1&q=T-
decreases. Accounts+images+and+photo
The Rules of Debit and Credit :
Debit to record Increase in Asset

Decrease in liability
Decrease in Owner’s Equity
Increase in Expense
Decrease in Revenue
Credit to record Decrease in Asset
Increase in Liability
Increase in Owner’s Equity
Decrease in Expense https://www.google.com.ph/search?biw=1242&bi
h=602&tbm=isch&sa=1&q=Rules+of+debit+and+
Increase in Revenue credit+images+and+photo
Accounting Equation and the Accounting Elements

The basic accounting equation:
Assets = Liabilities + Owner’s Equity (or Capital)
The Accounting Elements
Assets Liabilities Owner’s Equity
Assets - anything that the business owns. Can be
Tangible (have physical form) ; Intangible (no physical
form )
Kinds of Assets:
Current assets- assets expected to be realized or
converted into cash or sold or consumed within one
year from the balance sheet date.
Non-current assets (also called long-term assets or
Plant, Property, and Equipment)- assets acquired to be 02&tbm=isch&sa=1&q=current+and+nnon-
current+assets+images+and+photos
used in the business for a longer period of time, usually Retrieved: August 14, 2017
more than a year, to generate revenues.
Accounting Equation and the Accounting Elements (continued)

Liabilities- debts or obligations of the business.
Classification of liabilities:
Current liabilities - obligations which are
expected to be settled within a year from
the balance sheet date.
Non-current or long-term liabilities - debts
which will be paid beyond one year.
https://www.google.com.ph/search?biw=1242&bih
=602&tbm=isch&sa=1&q=current+and+nnon-
current+liabilities+images+and+photo
Accounting Equation and the Accounting Elements ( continued)

Owner’s Equity or Capital - pertains to the
owner’s claim to the assets of the business.
Sub-elements: Revenues, Expenses, Drawing
Shareholders’ Equity – (for corporation)
consists of Share Capital, Share Premium,
Retained Earnings, Treasury Shares
https://www.google.com.ph/search?biw=1
Expanded Accounting Equation 242&bih=602&tbm=isch&sa=1&q=Owners
%27+equity+images+and+photos
Assets = Liabilities +Capital +Revenues- Retrieved: August 14, 2017
Expenses-Drawing
Chart of Accounts
Chart of accounts - a listing of account titles
which a business entity will use in recording
business transactions.
Account numbers- number or code assigned
to each account title for recording process of
business transaction.
&tbm=isch&sa=1&q=chart+of+accounts+images+and+p
hotos
Chart of Accounts (continued)

The normal balances of the accounts
All Assets Debit

Assets’ contra Accounts Credit
All Liabilities Credit
All Owners’ Equity/Capital Credit
Drawing Debit
All Revenues Credit
All Expenses Debit
Normal balances (result of Debit less Credit) are

always on the increase side of an account and are https://www.google.com.ph/search?biw=1242&bih=60
positive values. 2&tbm=isch&sa=1&q=normal+balances+of+accounts
+images+and+photos
Analyzing and Recording of Business Transactions

General Journal or Journal – Book of original
entry. The business transactions are first
recorded in chronological order of events.
Journalizing- process of recording business
transactions in the journal.
Journal entry – a record of business transaction
made in the journal.
Simple journal entry - with one debit and one
credit account. https://www.google.com.ph/search?biw=1242&bih=
Compound journal entry - with more than one 602&tbm=isch&sa=1&q=journalizing+images+and+
photos
debit or credit accounts. Retrieved: August 14, 2017
Recording Business Transactions (continued)
Parts of the Journal:
The heading - composed of titles: Journal (at the center
of the first row)
Page number- on the right side and on top of fifth
column.
Column 1 (extreme left) - Date, Year (below the Date)
Column 2 - Account Titles
Column 3 - Posting Reference or Folio
Column 4 – Debit money column
=602&tbm=isch&sa=1&q=journalizing+images+a
Column 5 – Credit money column nd+photos

Example of a Journal

Illustrative Problem 5.1 Analysis of Business Transactions to
Journalizing – Sole Proprietorship, Service Concern
Mr. Erwin Cruz started his Wash and Wear Laundry Shop early
January of the current year. His transactions for the month of January
are as follows: (partial problem for presentation only)
Jan 2 Invested P 100,000 cash to begin his laundry business.
3 Purchased laundry supplies, P10, 000 cash and
Laundry Equipment worth P50, 000 paying ½ and issued a
promissory note for the balance

Illustrative Problem 5.1 Analysis of Business Transactions to Journalizing – Sole
Proprietorship, Service Concern
Solution:
Jan 2
Transaction analysis There is an increase in asset - Cash of the business and
Increase in owner’s equity- E. Cruz, Capital
Effect on the accounting equation:

Assets = Liabilities + Owner’s Equity
Cash, + 100,000 = 0 + E. Cruz, Capital + 100,000
T-accounts:
Cash E. Cruz, Capital
1/2 100,000 1/2 100,000
Journal Entry:
Jan. 2 Cash P100, 000
E. Cruz, Capital P100, 000
Investment.

Jan Transaction analysis The purchase of laundry equipment increased an asset- Laundry
3 Equipment; decreased another Asset -Cash and increased
Liability - Notes payable. The purchase of laundry supplies
increased the asset- Laundry Supplies and decreased the asset -
Cash.
Accounting Equation Assets = Liabilities Owner’s Equity
Laundry Equipment, +50,000 = Notes Payable, +25,000 + 0
Laundry Supplies, +10,000 = 0 +0
Cash, -35,000
T-Accounts
Cash Laundry Equipment
1/2 100,000 1/3 35,000 1/3 50,000
Laundry Supplies Notes Payable

1/3 10,000 1/3 25,000
Journal Entry
Jan 3 Laundry Equipment P 50,000
Laundry Supplies 10,000
Cash P 35,000
Notes Payable 25,000
Purchased laundry equipment and

Below is the partial journal.
Ge n e ra l Jou rn a l Pa ge 1
Da te Accou n ts a n d Exp l a n a ti on P/R De b i t Cre d i t
2017
Ja n 2 Ca s h P 100,000
E. C, Ca p i ta l P 100,000
I n i ti a l i n ve s tme n t.
3 La u n d ry Su p p l i e s 10,000
La u n d ry Eq u i p me n t 50,000
Ca s h 35,000
Note s Pa ya b l e 25,000
Bou gh t l a u n d ry s u p p l i e s a n d l a u n d ry e q u i p me n t,
p a yi n g fu l l a mou n t of the s u p p l i e s
a n d 1/2 of the e q u i p me n t.
4 Re n t Exp e n s e 15,000
Ca s h 15,000
Pa i d re n t.
6 Ca s h 2,500
La u n d ry I n come 2,500
Re n d e re d l a u n d ry s e rvi ce s .
10 Ca s h 2,000
Note s Re ce i va b l e 3,000
La u n d ry I n come 5,000
Re n d e re d l a u n d ry s e rvi ce s .
Below is how the entries are posted in the T-accounts
Posting the Journal Entries to the Ledger
Terms:
Ledger - an individual record of an account.
General Ledger- A compilation of ledgers
General ledger - also called the book of final
entry.
Posting – process of copying or transferring the
information from the journal to the ledger
02&tbm=isch&sa=1&q=posting+to+the+ledgerimage
accounts. s+and+photos
Posting the Journal Entries to the Ledger

Steps in Posting the journal entries to the ledger
• Before doing the postings, prepare all the ledgers
with the corresponding headings.
• Copy or post the transaction date from the journal to
the ledger.
• Copy the journal page number from the journal to the
ledger. Place that in the P/R column of the ledger. It
indicates the source of the information in the ledger.
• Copy the peso amount of the debit or credit from the
journal to the corresponding debit or credit column
in the ledger.
• Copy the account number from the ledger to the https://www.google.com.ph/search?biw=1242&bih=6
journal P/R column align with the account title 02&tbm=isch&sa=1&q=posting+to+the+ledgerimage
s+and+photos
copied in the ledger. Retrieved: August 14, 2017
Posting the Journal Entries to the Ledger (continued)

The ledger after posting the entries
Genera l Ledger General Ledger
Ca s h Account No. 101 Laundry Equipment Account No. 110
Da te Item P/R Debi t Da te Item P/R Credi t
Date Item P/R Debit Date Item P/R Credit
2017 2017
Ja n 2 J1 P 100,000 Ja n 3 J1 P 35,000
2017
Jan 3 P 50,000 J1 P 50, 000
6 J1 2,500 4 J1 15,000
10 J1 2,000 28 J1 12,500
20 J1 3,000 30 J1 6,500
25 J1 2,000 P 69,000
31 J1 1,500
P 42,000 P 111,000
General Ledger
Notes Payable Account No. 203
Genera l Ledger Date Item P/R Debit Date Item P/R Credit
E. Cruz, Ca pi tal Account No. 301 2017 2017
Da te Item P/R Debi t Da te Item P/R Credi t Jan 28 J1 P 12,500 Jan 3 P 12,500 J1 P 25,000
2017
Ja n 2 P 100,000 J1 P 100,000
Genera l Ledger General Ledger

La undry Suppl i es Account No. 105 Rent Expense Account No. 510
Da te Item P/R Debi t Da te Item P/R Credi t Date Item P/R Debit Date Item P/R Credit
2017
Ja n 3 P 10,000 J1 P 10,000 2017
Jan 4 P 15,000 J1 P 15,000

General Ledger
General Ledger
Laundry Income Account No. 401
Salaries Expense Account No. 501
Date Item P/R Debit Date Item P/R Credit Date Item P/R Debit Date Item P/R Credit
2017 2017
Jan 6 J1 P 2,500 Jan 30 P 5,000 J1 P 5,000
10 J1 5,000
15 J1 1,500
25 J1 3,500
P 12,500 P 12,500
General Ledger
General Ledger Utilities Expense Account No. 509
Accounts Receivable Account No. 102 Date Item P/R Debit Date Item P/R Credit
2017
2017
Jan 25 P 1,500 J1 P 1,500 Jan 30 P 1,500 J1 P 1,500
General Ledger
Notes Receivable Account No. 103
2017 2017
Jan 10 J1 P 3,000 Jan 20 J1 P 3,000

The Journal after the posting to the ledger, take note of the P/R column
General Journal Page 1 Genera l Journa l Pa ge 1
Date Accounts and Explanation P/R Debit Credit Da te Accounts a nd Expl a na tion P/R Debi t Credi t
2017 Ja n 15 Accounts Recei va bl e 102 1,500
Jan 2 Cash 101 P 100,000 La undry Income 401 1,500
E. C, Capital 301 P 100,000 Rendered l a undry s ervi ces on a ccount.
Initial investment.
20 Ca s h 101 3,000
3 Laundry Supplies 105 10,000
Notes Recei va bl e 103 3,000
Laundry Equipment 110 50,000 Col l ection from cus tomers .
Cash 101 35,000
Notes Payable 203 25,000
25 Ca s h 101 2,000
Bought laundry supplies and laundry equipment,
Accounts Recei va bl e 102 1,500
paying full amount of the supplies
La undry Income 401 3,500
and 1/2 of the equipment.
28 Notes Pa ya bl e 203 12,500

4 Rent Expense 510 15,000
Ca s h 101
Cash 101 15,000
Pa rtia l pa yment for l a undry equi pment. 12,500
Paid rent.
6 Cash 101 2,500 30 Sa l a ri es Expens e 501 5,000

Laundry Income 401 2,500 Util i ties Expens e 509 1,500
Rendered laundry services. Ca s h 101 6,500
Pa i d s a l a ri es a nd util i ties .
10 Cash 101 2,000
Notes Receivable 103 3,000 31 Ca s h 101 1,500
Laundry Income 401 5,000 Accounts Recei va bl e 102 1,500
Rendered laundry services. Col l ection from cus tomer.
The Trial Balance

Trial Balance - a list of all the accounts/ledger with
their balances.
Common Trial Balance Errors and How to correct them
• If the total debits and total credits are not equal,
there might be a missing amount. Locate it by
tracing each account from the journal to the ledger
• divide the difference by 2. A debit treated as credit
or vice versa, usually doubles the error.
• Divide the out- of- balance amount by 9. If the https://www.google.com.ph/search?q=trial+
balance+images+and+photos&
result is equally divisible by 9, the error may be a
slide or transposition.
Example of a Trial Balance
Wash and Wear Laundry Shop
Trial Balance
January 31, 2017
Account Titles Debit Credit

Cash P 42,000
Account Receivable 1,500
Laundry Supplies 10,000
Laundry Equipment 50,000
Notes Payable P 12,500
E. Cruz, Capital 100,000
Laundry Income 12,500
Rent Expense 15,000
Salaries Expense 5,000
Utilities Expense 1,500
Total P 125,000 P 125,000
Simple Financial Statements

Wash and Wear Laundry Shop
Wash and Wear Laundry Shop Statement of Financial Position
As at January 31, 2017
Income Statement
Assets
For the Month Ended January 31, 2017 Current Assets
Cash P 42,000
Account Receivable 1,500
Laundry Income P 12,500 Laundry Supplies 10,000
Total P 53,500
Less: Operating Expenses Non-current Asset
Laundry Equipment 50,000
Rent P 15,000 Total Assets P 103,500
============
Salaries 5,000 Liabilities and Owner's Equity
Utilities 1,500 21,500 Liability
Notes Payable P 12,500
Net Profit (Net Loss) (P 9,000) Owner's Equity
E. Cruz, Capital, Jan. 2, 2017 P 100,000
Add (deduct) Net Profit (Loss) (9,000)
E. Cruz, Capital Jan. 31, 2017 91,000
Total Liabilities and Owner's Equity P 103,500
===========
Thank you very much.

God bless everyone!
Week 006
Principles of Measuring
Income
Week 006: <Principles of Measuring Income
Module Coverage
•The distinction between the accrual basis accounting

versus cash basis accounting;
• Accounting period, revenue principle, matching
principle, time-period concept;
•Overview of the adjusting process and the accounts to
be adjusted;
•Preparation of an adjusted trial balance and the
financial statements. 602&tbm=isch&sa=1&q=adjusitng+process+images
+and+photos
Learning Objectives
After studying this module, the students should be able
to
•Understand the different principles that will guide us
in calculating and reporting the right income.
•Understand the difference between accrual basis and
cash basis of accounting.
•Explain and apply the revenue principle, matching
principle and time-period concept.
•Understand an overview of the adjusting procedures
and the accounts to be adjusted.
•Prepare an adjusted trial balance.
•Prepare the financial statements from the adjusted
trial balance.
Accrual-basis Accounting and Cash-basis Accounting
Accrual-basis accounting is an accounting method that

records the effects of business events as they occur,
notwithstanding of whether the transactions affected
cash.
Cash-basis accounting is an accounting method that
records the business transactions only when cash is
received or disbursed. https://www.google.com.ph/search?biw=1242&
bih=602&tbm=isch&sa=1&q=accrual+and+cash
+basis+accounting+images+and+photos
Accrual-basis vs. Cash Basis (continued)

An illustrative example is presented below for you to fully understand the
difference between the two methods of accounting.
•Suppose ABC Corporation purchased supplies worth P 10,000 on account
from their supplier on March 29, 2017 and paid the same on April 5,
2017.The business has a monthly accounting period.
Under the accrual basis, ABC recognized an asset- Supplies at the same
time record a liability at the end of the period while in the cash basis, no
entry was made, so the asset and liability are both understated on March
31, 2017 if the latter was applied.
Accrual-basis vs. Cash Basis (continued)

Another example will show us the difference between the two accounting
methods is terms of recognizing revenue.
Suppose on March 30, ABC sold their produce worth P 25,000 on credit to a
customer. The journal entry would be:
Accounts Receivable, an asset will be reported in the balance sheet of ABC and
reports on the income statement the sales revenue even there is no payment
from the customer yet.
Under the cash-basis accounting, the transaction will not be recorded by ABC
because no cash was received yet. No receivable from customers will be
recorded. It will only record the sale when cash is received.
Accounting Period
Accounting period - the range of time covered by the

financial statements.
Calendar year period starts on first day of January
and ends on the last day of December.
Fiscal year is a period that starts on any month
except January and ends on the twelfth month.
https://www.google.com.ph/search?biw=1242&
bih=602&tbm=isch&sa=1&q=accounting+period
++images+and+photos
Revenue Principle, Matching Principle, Time-period Concept

Revenue principle - the cornerstone of the accrual basis of
accounting, thus it determines when to record revenue and
in what amount.
Matching principle -expenses should be reported in the
accounting period when the expenses were incurred and all
revenues related or associated to these expenses were
earned.
Time-period concept - accounting information and financial
results of business operations or activities are reported at https://www.google.com.ph/search?biw=1242&bih
=602&tbm=isch&sa=1&q=accounting+period++im
ages+and+photos
regular intervals, usually monthly, quarterly or annually. Retrieved: August 15, 2017
The Adjusting Process

Adjusting entries - entries made at the end of the accounting period
to report revenues to the period in which they are earned and
expenses to the period in which they are incurred.
Adjusting the accounts or adjusting the books - the procedure of
updating the accounts at the end-of-period.
The Purposes of Adjusting Entries
To show the correct amount of revenues earned and expenses
incurred during a specific period of time.
To present fairly the amount of assets, liabilities, and owner’s
equity in the balance sheet. =602&tbm=isch&sa=1&q=purpose+of+adjusitng+p
rocess+images+and+photos
Adjusting Process (continued)
The Accounts that need to be adjusted:

• Prepaid Expenses - expenses paid in advance.
• Depreciation of plant assets- the allocation of
the cost of a plant asset over its useful life.
• Accrued Revenues - income earned but not
yet collected or not yet due for collection.

The Accounts that need to be adjusted:
Accrued Expenses - expenses incurred during the
accounting period but not yet paid or not yet due for
payment..
Unearned Revenues or deferred revenue- customer’s
advanced cash payment for goods or services.
Provision for Doubtful Accounts- estimated accounts
receivables from customers that is deemed https://www.google.com.ph/search?biw=1242&bih
=602&tbm=isch&sa=1&q=adjusitng+entries+imag
es+and+photos
uncollectible. Retrieved: August 15, 2017

Prepaid Expenses Adjustment
Two methods of recording prepaid expenses:
Asset method – The payment was originally debited to
an asset account.
Example: On March 4, 2017 Mario bought supplies for
his repair shop for cash, P 1,000.
The journal entry is
Mar 4 Supplies P 1,000
Cash P 1,000
Paid cash for supplies.

Expense method – The payment for the asset is debited
to an expense account. Using the same transaction
above, the entry is
Mar 4 Supplies Expense P1, 000
Cash P1, 000
Paid cash for supplies.
The adjusting entry on March 31 is :
Example 1: Assuming, Mario has started his Repair
Using the Asset Method
shop business on March 1, 2017 and is using a monthly
accounting period. On March 31, a physical count
reveals a P450 worth of unused supplies. Supplies Expense P 550
Supplies P 550

Asset Method (continued)
T- accounts show the
following:
The amount of Supplies to be shown in the
balance sheet is P 450. Supplies Supplies Expense
3/4 1,000 3/31 550 3/31 550
Income Statement will reflect Supplies Bal. 450 Bal. 550
Expense of P 550.

Adjusting entry -Expense Method
March 31 Supplies P 450

Supplies Expense P450
Supplies Expense Supplies

3/4 1,000 3/31 450 3/31 450
Bal. 550 Bal. 450

Depreciation of Plant Assets
Plant Assets
Other Names: Long-Lived Tangible Assets
Non-current Assets
Fixed Asset
Plant, Property, and Equipment
Reasons for depreciation:
Wear and tear
Inadequacy,
Obsolescence (due mainly to the evolution of https://www.google.com.ph/search?biw=1242&bih=60
2&tbm=isch&sa=1&q=non-
technology). current+assets++images+and+photos
Retrieved: August15, 2017

Computation of Depreciation:
Example: Let us assume that on March 1, We will be using the simplest method of
2017, Mario bought repair equipment worth computing depreciation, the straight-line
method. The formula is:
P100, 000. The equipment has as estimated D =(C –S) / n
Where D = Depreciation
useful life of 10 years with a salvage value of C = cost of the plant asset
S = salvage value
P 10,000. n = estimated useful life (in
years)
D = (C –S) /n
D = {(P100, 000 – P10, 000) / 10 years x}
1/12
D = P750

Depreciation - an expense account

Accumulated Depreciation - a contra The adjusting entry on March 31 is:
account that accompanies plant
Depreciation Expense -
asset. Repair Equipment P750
Accumulated Depreciation –
- keeps the cumulative sum of all Repair Equipment P750
depreciation expense recorded for

the asset.

After the adjusting entry, the accounts
affected will appear as follows:
The above accounts are presented in the

balance sheet as follows:
Plant Assets
Repair Equipment P100, 000
Less: Accumulated Depreciation 750
P99, 250
The depreciation expense will be shown in

the Income Statement.

Accrued Revenues (Income)
Accrued Revenues -income earned but not
- an Asset, a Receivable.
Example 1: Assume that Mr. Santos Repair
Shop was hired by XYZ Travel and Tours to The adjusting entry to record the
perform repairs and maintenance on a accrual of income on March 31:
regular continuing basis effective March 15,
2017. The contract between the two states Accounts Receivable P750
that XYZ will pay Mr. Santos P1, 500 monthly Service Income P750
and the first payment will be made on April (P1, 500 /1/2 = P750)
15, 2017.

Accrued Expenses
Accrued Expenses- expenses incurred
during the accounting period but not The adjusting entry to record the
yet paid or not yet due for payment. accrual of expense on March 31:
- a liability account with a normal
credit balance. Interest Expense P 500
Accrued Interest Payable P 500
Example: Let us assume that the P 100,000 (Or Interest Payable)
worth of equipment purchased by Mr. Santos
on March 1 was 50 percent paid in cash and Computation:
he issued a promissory note for the balance I = (P100,000 x 50%) x 12% x
dated March 1. Terms of the note: 12%, 90- 30/360 = P500
day.

Unearned revenue Adjustment
Unearned income - an income received in
advance.
- a liability and has a normal
credit balance.
Two methods of recording the original
transaction :
Income method - the receipt of payment was
debited to Cash and credited to an Income
account.
https://www.google.com.ph/search?biw=1242&bih=602&
Liability method - the receipt of payment was tbm=isch&sa=1&q=unearned+income+images+and+pho
tos
debited to Cash and credited to a Liability Retrieved: August 15, 2017
account (Unearned Revenue)

Unearned Income Adjustment

-Income Method The adjusting entry to record the
Example: Assume that on March 20, Mr. unearned income (income method) on
March 31:
Santos received an advance payment of P
5,000 from a customer whom he agreed to Service Income P 5,000
Unearned Service Income P5,000
repair the latter’s car on April 5, 2017.
Unearned Income Adjustment

-Liability method
The adjusting entry to record the
If the job was not performed as of March unearned income (liability method)partly
31, 2017 no need to adjust. performed as at March 31:
But if the job was partly done as given Unearned Service Income P3,000
above (P3, 000 worth of services was Service Income P 3,000
performed as of March 31 )

Provision for Doubtful Accounts Adjustment
Uncollectible Account Expense or Doubtful
Account Expense or Bad Debts Expense- The
cost that the company will incur if some
customers failed to pay.
Two methods of estimating uncollectible

accounts:
Allowance method
Direct Write-off method https://www.google.com.ph/search?biw=1242&bih=602
&tbm=isch&sa=1&q=Uncollectible+accounts++images+
Net realizable value of accounts receivable - and+photos
accounts receivable less its contra account,
Allowance for Uncollectible Accounts.

The basic methods of estimating uncollectibles:
• Percentage of sales method or the Income
The adjusting entry on December 31,
Statement Approach
using the Income Statement Approach
• Percentage of Accounts Receivable method
would be
or the Balance Sheet Approach
Example: Assume that Mr. Cruz, a grocery owner, has an
Uncollectible Account Expense P 5,340
unadjusted trial balance at the end of December 2016 that
includes the following accounts: Allowance for Uncollectible Account P5, 340
Accounts Receivable, P 80,000; Sales Revenue, P 600,000, 70%
of which are cash sales; Sales Returns and allowances Supporting computation:
associated with credit sales, P2, 000. Allowance for Net Credit Sales x 3%
Uncollectible Accounts, P 2,500 (this was a carry-over from his [(P600,000 x 30%) – P2,000] x 3% = P5,340
2015 balance sheet). Adjustment data given on December 31,
2016 include this statement: Three percent of credit sales are
estimated to be uncollectible.

Percentage of Accounts Receivable Method
apportions uncollectible accounts as a
The adjusting entry on December 31,
percentage of the total accounts receivable. using the Balance Sheet Approach is
Assuming in our example above, Mr. Cruz, Uncollectible Account Expense P 1,600
Allowance for Uncollectible Account P1, 600
based on previous experience in his
Supporting Computation:
business, estimated that two percent of the Accounts Receivable x 2%
P80,000 x 2% = P1,600
total accounts receivable is deemed
uncollectible.

Aging of Accounts Receivable Method. Also called
the Balance Sheet approach, this method, this
method calculates the doubtful accounts by
analyzing individual accounts receivable as to the The adjusting entry on December 31
length of time they have been receivable from the would be:
customers.
Given below is the aging analysis of accounts Uncollectible Account Expense P 7,300
Allowance for Uncollectible Account P7, 300
receivable of Mr. Cruz:

Assuming Mr. Cruz, after several
Direct Write-Off Method. This is a simple and attempts of collecting, decides to write
practical way of accounting for uncollectible off the accounts of the customers
under the over 90 days group,
accounts. Once the management decides not
to collect anymore from the customer, the The adjusting entry on December 31,
would be:
accountant will write off the customer’s
Uncollectible Account Expense P 5,500
account by debiting the Uncollectible Account Accounts Receivable P 5,500
Expense and crediting Accounts Receivable.

Pro-forma entries Adjusting Entries:
Accounts Debit Credit Accounts Debit Credit
1. Prepaid Expenses
1.1 Asset method
5. Unearned or Deferred Revenue
Expense P XXX 5.1 Income method
Asset (Prepaid Expense) P XXX Revenue or Income P XXX
1.2 Expense Method
Liability (Unearned Revenue) P XXX
Asset (Prepaid Expense) P XXX
Expense P XXX 5.2 Liability Method
2. Depreciation of Plant assets
Liability (Unearned Revenue) P XXX
Depreciation Expense -(Plant Asset) P XXX Revenue or Inocme P XXX
Accumulated Depreciation -(Plant Asset) P XXX
3. Accrued Revenue
6. Provision for Uncollectible Account
Asset (Accrued Revenue or Receivable) P XXX Uncollectible Account Expense
Revenue P XXX or Doubtful Account Expense P XXX
Allowance for Uncollectible Account P XXX
4. Accrued Expense
Expense P XXX
or Allowance for Doubtful account
Liability (Accrued Expense) P XXX
The Adjusted Trial Balance

Adjusted Trial Balance is a list of all the
Santos Repair Shop
Unadjusted Trial Balance
accounts with their adjusted balances. March 31, 2017
Cash ₱180,000
Illustrative Problem 6.1 Adjusted Trial Accounts Receivable
Notes Receivable
6,000
8,000
Supplies 1,000
Balance Prepaid Rent
Equipment
15,000
100,000
Furniture 5,000
Accounts Payable ₱5,000
On the right is the unadjusted trial balance Notes Payable 50,000
Juan Santos, Capital 180,000
Service Income 92,500
of Santos Repair Shop on March 31, 2017. Salaries Expense 9,500
Total ₱327,500 ₱327,500
The Adjusted Trial Balance (continued)
On March 31, the following adjustment data are given:
1. A physical count resulted to P450 worth of supplies on hand.
2. The rent paid on March 1 is good for three months.
3. The 12% notes received from a customer on March 2 was due on April 30, 2017.
4. The Equipment purchased on March 1 with an estimated useful life of 10 years and
salvage value of P 10,000 was 50% paid in cash and Mr. Santos issued a 12%, 90-day
note for the balance.
5. The furniture bought on March 1 has an estimated useful life of 2 years with no
salvage value.
6. Of the total service income, P5, 000 is still unearned.
7. Services partly rendered to a client on March 25 worth P 750 will be paid on April 15,
2017.
8. The whereabouts of one of the debtors (included in the Accounts Receivable) cannot
be traced and due from him is P 500. Use Allowance method.

Below are the adjusting entries:

Santos Repair Shop
Preparation of the Adjusted Trial Balance Adjusted Trial Balance

March 31, 2017
Accounts Debit Credit
Unadjusted account balances (per Unadjusted Cash

Accounts Receivable
Allowance for Doubtful Accounts
₱ 180,000
6,000
₱ 500
Notes Receivable 8,000
Trial Balance) Accrued Interest Income

Accrued Service Income
Supplies
80
750
450
Prepaid Rent 10,000
Equipment 100,000
Plus (Minus)Adjusting Entries (Adjustments) Accumulated Depreciation-Equipment
Furniture 5,000
750
Accumulated Depreciation-Furniture 208

Accounts Payable 5,000
Equals the Adjusted Account Balances Notes Payable
Accrued Interest Expense
50,000
500
Unearned Service Income 5,000
J. Santos, Capital 180,000
Interest Income 80
Salaries Expense 9,500
On the right is the Adjusted Trial Balance of Rent Expense
Supplies Expense
5,000
550
Depreciation -Equipment 750
Depreciation- Furniture 208
Santos Repair Shop. Doubtful Accounts Expense
Interest Expense
500
500
Total ₱ 330,288 ₱ 330,288
Preparing the Financial Statements

The financial statements will be prepared from the
adjusted trial balance.
• Income Statement
• Statement of Changes in Owner’s Equity
• Statement of Financial Position or Balance Sheet
We will skip the Statement of Cash Flows in this module.
The Heading of each statements consists of the
following :
• Name of the business
• Title of the statement https://www.google.com.ph/search?biw=1242&bih=60
2&tbm=isch&sa=1&q=financial+statements+images+
• The date or period covered by the statement. and+photos
(Please note on how the financial statements are dated)
Preparing the Financial Statements (continued)

Income Statement - the financial statement The Income Statement (Single Step
that shows the results of operations: Net Method) of J. Santos Repair Shop
J. Santos Repair Shop
Profit or Net Loss. Income Statement
For the Month Ended March 31, 2017
Revenues:
It is composed of the nominal or temporary Service Income P 88,250
Interest Income 80
Total Revenues P 88,330
accounts: Revenues and Expenses. Less: Expenses:
Salaries P 9,500
Rent 5,000
Utilities 3,000
Depreciation -Equipment 750
Supplies 550
Doubtful Accounts 500
Interest 500
Depreciation- Furniture 208
Total Expenses 20,008
Net Profit (Loss) P 68,322

Statement of the Changes in Owner’s Equity- shows
Below is the Statement of
the changes in the amount of capital at the end of the
Owner’s Equity of J. Santos
accounting period.
The net profit or net loss is transferred to this Statement of Owner's Equity
statement. For the Month Ended March 31, 2017
Withdrawals or drawings, if any, are deducted from the J. Santos, Capital, March 1, 2017 ₱ 180,000
total of the net profit or net loss and capital beginning. Add: Net Profit 68,322
J. Santos, Capital, March 31, 2017 ₱ 248,322
The resulting figure is the Capital or Owner’s Equity,
End of the accounting period.

Statement of Financial Position or Balance Sheet -
shows the financial position of the company.
Consists of real or temporary accounts –
Assets, liabilities, and capital.

Proof of the accounting equation
Assets = Liabilities + Owner’s Equity
Two forms of Balance Sheet:
The Account form 02&tbm=isch&sa=1&q=Balance+sheet+images+and
+photos
The Report form Retrieved: August 15, 2017

Balance Sheet (Report Form)
Statement of Financial Position
March 31, 2017
Assets
Current Assets
Cash P 180,000
Accounts Receivable P 6, 000
Less: Allowance for Doubtful Accounts 500 5,500
Accrued Interest Income 80
Accrued Service Income 750
Supplies 450
Prepaid Rent 10,000
Total Current Assets P 204,780
Equipment P 100,000
Less: Accumulated Depreciation 750 P 99,250
Furniture P 5,000
Less: Accumulated Depreciation 208 4,792
Total Plant, Property and Equipment 104,042
Total Assets P 308,822
Liabilities and Owner's Equity

Liabilities
Accounts Payable P 5,000
Accrued Interest Expense 500
Total Liabilities P 60,500
Owner's Equity
J. Santos, Capital, March 31, 2017 248,322
Total Liabilities and Owner's Equity P 308,822

Balance Sheet (Account Form)
Statement of Financial Position
March 31, 2017
Assets Liabilities and Owner's Equity

Current Assets
Cash ₱ 180,000 Liabilities
Accounts Receivable ₱ 6,000 Accounts Payable ₱ 5,000
Less: Allowance for Doubtful Accounts 500 5,500 Notes Payable 50,000
Accrued Interest Income 80 Accrued Interest Expense 500
Accrued Service Income 750 Unearned Service Income 5,000
Notes Receivable 8,000 Total Liabilities ₱ 60,500
Supplies 450
Prepaid Rent 10,000
Total Current Assets ₱ 204,780
Equipment ₱ 100,000
Less: Accumulated Depreciation 750 ₱99,250
Furniture ₱ 5,000
Less: Accumulated Depreciation 208 4,792 Owner's Equity
Total Plant, Property and Equipment 104,042 J. Santos, Capital, March 31, 2017 248,322
Total Assets ₱ 308,822 Total Liabilities and Owner's Equity ₱ 308,822
The Relationships among the Three Financial Statements

• The income statement was prepared first
because the resulting net profit or net loss will
be transferred to the owner’s equity account.
• Revenues and Expenses are equity accounts
and net profit or net loss is the difference
between the two.
• The ending balance in the statement of
owner’s equity is transferred to the balance &tbm=isch&sa=1&q=RElationship+among+financial+st
atementsimages+and+photos
sheet.
We’ll continue the cycle in

the next module.
Thank you very much
& God bless all of us!
Week 007
Completing the
Accounting Cycle
Week 007: Completing the Accounting Cycle
Module Coverage
•Definition of accounting cycle

•The worksheet or spreadsheet
•Closing entries
•Post-closing trial balance
•Reversing entries.
Learning Objectives
•Define again accounting cycle.

•Enumerate again the steps in the accounting cycle.
•Prepare an accounting worksheet.
•Use accounting worksheet in preparing the financial
statements.
•Learn the closing entries (for nominal accounts).
•Prepare a post-closing trial balance.
•Understand and prepare reversing entries.
Accounting Cycle Revisited
Accounting cycle- the process by which business

entities prepared their financial statements for a given
accounting period.
The cycle begins with the Analysis and recording of
business transactions and ends up in the preparation of
the reversing entries.
m=isch&sa=1&q=Completing+the+accounting+cycle+ima
ges+and+photos
Accounting Cycle: Two Different Periods

•During the period
o Analyzing and journalizing the business
transactions
o Posting the journal entries to the ledger
•End of the period
o Adjusting some accounts
o Closing the nominal accounts
o Preparing the financial statements. https://www.google.com.ph/search?source=hp&q=ac
counting+cycle+images+and+photos&
o Preparation of the post-closing trial balance
Worksheet
•The work sheet- a tool that helps accountants
prepare financial statements easier.
•The different steps in preparing the work sheet
1. Enter the account titles and their unadjusted
balances in the Trial Balance columns (first two
columns) of the worksheet. Total the amount in the
respective columns.
2. Enter the adjustments in the Adjustment columns
(third and fourth columns) and total.
3. Combine the trial balance columns and the https://www.google.com.ph/search?q=worksheet+a
adjustment columns. Extend the balances to ccounting+images+and+photos
the Adjusted Trial Balance.
Worksheet (continued)
5. Extend the amounts from the Adjusted Trial Balance,
Assets, liabilities, Capital, contra-accounts to the
Balance Sheet columns, and revenue and expenses to
the Income Statement. Total the columns.
6. Extract the difference between the total credit and
total debit of the Income Statement columns, the
variance represents the net profit or net loss.
7. Extract the difference between the total debit and
total credit of the Balance Sheet columns. The
difference should be of the same amount with the
difference in number 5.
https://www.google.com.ph/search?q=worksheet+acco
8. Total all the Income Statement columns and the unting+images+and+photos
Balance Sheet columns; they are all of the same footing Retrieved: August 20, 2017
(equal) now.
Sample of a ten-column worksheet

Aris Castro, CPA
Worksheet
Unadjusted Adjusted
Trial Balance Adjustments Trial Balance Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash ₱ 5,200 ₱ 5,200 ₱ 5,200
Supplies 2,400 1) ₱ 400 2,000 2,000
Prepaid Rent 1,100 2) 200 900 900
Office Equipment 51,100 51,100 51,100
Accumulated Depreciation-O. Equip. ₱ 6,200 3) 300 ₱ 6,500 ₱ 6,500
Accounts Payable 4,600 4,600 4,600
Salary Payable 4) 800 800 800
Unearned Professional Fees Income 4,400 5) ₱ 4,300 100 100
Long-term Notes Payable 10,000 10,000 10,000
Aris Castro, Capital 25,800 25,800 25,800
Aris Castro, Drawing 1,000 1,000 1,000
Professional Fees Income 14,800 5) 4,300 19,100 ₱ 19,100
Salary Expense 3,000 4) 800 3,800 ₱ 3,800
Rent Expense 1,200 2) 200 1,400 1,400
Depreciation Expense 3) 300 300 300
Supplies Expense 1) 400 400 400
Utilities Expense 800 800 800
Total ₱ 65,800 ₱ 65,800 ₱ 6,000 ₱ 6,000 ₱ 66,900 66,900 ₱ 6,700 ₱ 19,100 ₱ 60,200 ₱ 47,800
Net Profit 12,400 12,400
Total ₱ 19,100 ₱ 19,100 ₱ 60,200 ₱ 60,200
Aris Castro, CPA
Income Statement
Preparing the Financial Statements Professional Fees Income

Less: Expenses
₱ 19,100
Salary ₱ 3,800
Rent 1,400
Utilities 800
From the worksheet, use the last four Depreciation

Supplies
Net Profit
300
400
₱
6,700
12,400
Aris Castro, CPA
columns. Balance Sheet

March 31, 2017
Assets
For Income Statement, use only the accounts Current Assets

Cash
Supplies
₱ 5,200
2,000
Prepaid Rent 900
and amounts extended in the statement

Total current ₱ 8,100
Non-current Assets
Office Equipment ₱ 51,100
Less: Accumulated Depreciation 6,500 44,600
Total Assets ₱ 52,700
columns (columns 7 and 8) Liabilities and Capital

Liabilities
Current liabilities
For the Balance sheet, the accounts and Accounts Payable

Salary Payable
Unearned Professional Fees Income
₱ 4,600
800
100
Total current liabilities ₱ 5,500
amounts in columns 9 and 10 will be used. Long-term liabilities

Long-term Notes Payable
Total Liabilities ₱
10,000
15,500
Capital
Capital, March 1 ₱ 25,800
Refer to the sample IS and BS at the right. Add: Net Profit

Total ₱
12,400
38,200
Less: Drawing 1,000
Capital, March 31 37,200
Total Liabilities and Capital ₱ 52,700
Closing the Accounts

• Closing the account- a step in the accounting process
involving the setting of the nominal or temporary accounts
(revenues and expenses) and the drawing account to zero
balance for the next accounting period.
• Closing Entries - the entries to close the nominal accounts.
• Revenue and Expense Summary, also called Income
Summary or Profit and Loss Summary- the controlling
account that summarizes all the nominal accounts and
their balances prior to closing the net profit or net loss to 2&tbm=isch&sa=1&q=closing+entries+images+and+p
hotos
capital account.
Closing the accounts (continued)

Steps in Closing the Accounts
1. Debit each revenue account for the amount of
its credit balance and Credit the Revenue and
Expense Summary (RES) account for the total
of all the revenues.
2. Debit the Revenue and Expense Summary for
the total of all expenses and Credit each
expense account for the amount of its debit
balance.
3. Debit (or credit) Revenue and Expense
Summary for its balance and credit (debit)
the capital account.
4. Debit the capital account for the balance the m=isch&sa=1&q=closing+entries+images+and+photos
drawing account and credit the drawing
account for the same amount.
Sample of the closing entries

Closing Entries
Date Accounts Debit Credit

2017 ₱19,100
Mar 31 Professional Fees Income ₱19,100
Income Summary
To close revenue to Income Summary. 6,700
Income Summary 3,800

Salary Expense 1,400
Rent Expense 300
Utilities Expense 400
Depreciation Expense 800
Supplies Expense
To close expenses to Income Summary.
Income Summary 12,400

Aris Castro, Capital 12,400
To close the balance of Income Summary
to capital.
Aris Castro, Capital 1,000

Aris Castro, Drawing 1000
To close drawing to capital.

Below is the posting of closing entries (CE).
We used T-accounts.
Accu mu l a te d De p re ci a ti on
Cash Fu rn i ture Utilities Expense
Ba l . 180,000 5) 208 Ba l . 3,000 (CE) 3,000
Ba l . 208
Accou n ts Re ce i va b l e Al l owa n ce for I n te re s t Exp e n s e

Ba l . 6,000 Dou b tfu l Accou n ts 4) 500 (CE) 500
8) 500 Ba l . 500 500
Ba l . 500
Note s Re ce i va b l e Accou n ts Pa ya b l e Re n t Exp e n s e

Ba l . 8,000 Ba l . 5,000 2) 5,000 (CE) 5,000
Ba l . 5,000 5,000
Su p p l i e s Note s p a ya b l e De p re ci a ti on - Eq u i p me n t
Ba l . 1,000 1) 550 Ba l . 50,000 4) 750 (CE) 750
Ba l . 450 Ba l . 750 750
Pre p a i d Re n t J. Sa n tos , Ca p i ta l De p re ci a ti on -Fu rn i tru e

Ba l . 15,000 2) 5,000 Ba l . 180,000 5) 208 (CE) 208
Ba l . 10,000 (ce ) 68,322 Ba l . 208 208
Ba l . 248,322

Below is the posting of closing entries (CE).
We used T-accounts.
Eq u i p me n t Accru e d Se rvi ce I n co me Su p p l i e s Exp e n s e
Ba l . 100,000 7) 750 1) 550 (CE) 550
Ba l . 750 Ba l . 550 550
Fu rn i tu re Se rvi ce I n co me I n te re s t I n co me
Ba l . 5,000 6) 5,000 Ba l . 92,500 (CE) 80 3) 80
(CE) 88,250 7) 750 80 Ba l . 80
93,250
88,250 Ba l . 88,250
Accu mu l a te d De p re ci a ti o n
Eq u i p me n t Sa l a ri e s Exp e n s e Do u b tfu l Acco u n t Exp e n s e
4) 750 Ba l . 9,500 (CE) 9,500 8) 500 (CE) 500
Ba l . 750 Ba l . 500 500
Accru e d I n te re s t I n co me Un e a rn e d Se rvi ce I n co me Accru e d I n te re s t Exp e n s e

3) 80 6) 5,000 4) 500
Ba l . 80 Ba l . 5,000 Ba l . 500
Re ve n u e a n d Exp e n s e Su mma ry
(CE) 20,008 (CE) 88,330
(CE) 68,322
88,330 88,330
Post-Closing Trial Balance

Preparation of the post -closing trial balance -
the last step in the accounting cycle.
Post-closing Trial balance - a list of accounts
with their adjusted balances after the closing
entries are recorded and posted in the ledger.
Post-closing trial balance - also described as
a balance sheet in trial balance form. This
also confirms the balances of the ledger in 02&tbm=isch&sa=1&q=post-
closing+trial+balance+images+and+photos
preparation for the next accounting period.

Post-Closing Trial Balance (continued)

Below is the Post-closing Trial Balance of
Santos Repair Shop.
Santos Repair Shop
Post-Closing Trial Balance
March 31, 2017
Account Titles Debit Credit

Cash P180,000
Accounts Receivable 6,000
Allowance for Doubtful Accounts P 500
Accrued Service Income 750
Supplies 450
Prepaid Rent 10,000
Equipment 100,000
Accumulated Depreciation-Equipment 750
Furniture 5,000
Accumulated Depreciation- Furniture 208
Accounts Payable 5,000
Accrued Interest Expense 500
Juan, Santos, Capital 248,322
Total P 310,280 P 310,280
Reversing Entries
•Reversing entries - entries prepared at the
beginning of the next accounting period to
reverse some of the adjusting entries made in
the previous accounting period.
•Adjusting entries that are reversed at the
start of the next accounting period are:
1. Accrued Expenses
2. Accrued Revenue 2&tbm=isch&sa=1&q=reversing+entries+images+and
+photos
3. Prepaid Expenses – expense method Retrieved: August 20, 2017
4. Unearned Income- income method

Reversing Entries (continued)

•Accrued Expenses : Expenses not paid during the
current accounting period are most likely paid in the next
accounting period.
Adjusting Entry Made
Mar 31 Interest Expense ₱ 500

Accrued Interest Expense ₱ 500
Reversing Entry
Apr 1 Accrued Interest Expense 500

Interest Expense 500

Accrued Revenues- income earned but not
Mar 31 Accrued Interest Income ₱ 80

Interest Income ₱ 80
Reversing Entry
Apr 1 Interest Income 80


•Prepaid Expenses – expense method
Prepaid expenses are expenses paid in advance.
Mar 31 Supplies ₱ 450

Supplies Expense ₱ 450
Reversing Entry
Apr 1 Supplies Expense 450

Supplies 450

•Unearned Revenue - income method
Unearned income is revenues collected in
advance.
Adjusting Entry made
Mar 31 Service Income ₱ 5,000

Unearned Service Income ₱ 5,000
Reversing Entry
Apr 1 Unearned Service Income 5,000


Introduction to Accounting Week 1

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Introduction to Accounting Week 1

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Week 001

Coverage of the Module

• Florentine approach of reporting –

• Code of Savary- 1673 Commercial Code of

National Accounting, Forensic Accounting

• Records business transactions and end up

• Social Accounting- corporate social

• Forensic Accounting- using accounting in 2&tbm=isch&sa=1&q=national+accounting++images+

• Accountants act as stewards for the

to make decisions in behalf of the owners es+and+photo

Career Opportunities in the Accounting Profession

• Private accountants - the presence of an

Basic Professional Values and Ethics

Basic Professional Values and Ethics (continued)

The fundamental principles are:

Investing Activities Retrieved: August 12, 2017

At the end of the module, you are expected to be able to

•Enumerate, define, and differentiate the different

•Enumerate, define, and cite examples of different

Types of Business Organizations

Comparison of Business Organizations

Types of Business Organizations (continued)

According to the Nature of Activity

Categories of Business Activities

Operating Activities - generation of revenues and incurrence of

Payments for income taxes

Categories of Business Activities (continued)

Categories of Business Activities (continued)

Payment of principal amount of long-term debts

Accounting Information System (AIS) Definition

After studying this module, the students should be able

Accounting Information System Defined

A system of recording, processing, and reporting

• Provides efficient and effective ways of

• Internal Operations Control

Five basic principles (AICPA)

Components of AIS (continued)

Software- computer programs that will be used to

Types of Accounting Information Systems

Manual Accounting Information System-

Manual and Computerized AIS Compared

How Accounting Information System Works?

Process(Accounting)- manual or computerized

Outputs(Reports)- processed data; financial reports

The Accounting Cycle

Recording Phase includes the following steps:

The Accounting Cycle (continued)

The Accounting Cycle (continued)

The Accounting Cycle (continued)

Business Transactions and Source Documents

Features of Business Transactions

•Transactions should involve the business

The Account and the T-account

Account - a basic tool in summarizing or

The Account and the T-account (continued)

The T-account is similar to the ledger. It has

The Account and the T-account (continued)

The Account and the T-account (continued)

The Rules of Debit and Credit :

Debit to record Increase in Asset

Accounting Equation and the Accounting Elements

Accounting Equation and the Accounting Elements (continued)

Accounting Equation and the Accounting Elements ( continued)