BOOKKEEPING NC III

3. TRIAL BALANCE
LIST OF COMPETENCIES: a. Purpose of preparing a Trial Balance
1. Journalize Transaction b. Parts/Heading of a Trial Balance
2. Post Transaction
3. Prepare Trial Balance 4. FINANCIAL STATEMENTS
4. Prepare Financial Reports a. Statement of Cost of Goods Sold – includes
5. Review Internal Control System the cost of merchandise such as the purchases,
purchase returns, purchase discounts and
MATERIALS NEEDED: freight of merchandise from purchases.
 JOURNAL
 CALCULATOR b. Statement of Financial Performance / Income
 PENCIL/BALLPEN Statement – shows the financial performance of
 ERASER the business wither it is profitable or not. It
 RULER includes the sales, sales returns, sales discounts,
 PAPER PAD/BONDPAPERS cost of goods sold, and operating expenses.

MERCHANDISING c. Statement of Changes in Owner’s Equity – it

 PERIODIC INVENTORY SYSTEM shows the changes of capital by the owner. It
 PERPETUAL INVENTORY SYSTEM includes the owner’s capital beginning,
profit/loss by the business operations, drawing
BASIC ACCOUNTING EQUATION and the capital ending.
A = L + OE
d. Statement of Financial Position / Balance
EXPANDED ACCOUNTING EQUATION Sheet- it shows the position of the company
A= L+OE (-DRAWING+SALES-COST-EXPENSES) comprising the assets, liabilities and owner’s
A. capital.
1. JOURNAL ENTRIES/RECORDING TO JOURNAL
a. How to write your entry in the journal e. Statement of Cash Flows - it shows the
Debit=Credit inflows and outflows of cash in the company for
Note: “The debit entry must always equal the specific accounting period. It includes the
with credit entry.” operating, financing and investing activities of
Ex: The R&R Co. purchase supplies for cash, the business in terms of cash.
P2,000.
NOTE: “The cash balance in the cash ledger
Debit: Supplies 2,000 must be equal with the cash balance of this
Credit: Cash 2,000 statement.”

b. Normal Balances of each account f. Parts/Heading of each Financial Statement –

“Normal balances will be the increase part
of the account.”
c. Parts of Journal
d. Account Titles to be used – account titles for
periodic and perpetual inventory system.
e. Chart of Accounts – lists of all account titles
to be used during the recording of transactions
in the general journal.
 ASSETS – resources of the company
 LIABILITIES – Debts and payables by the
company.
 Owner’s Equity - Capital
 Cost and Expenses
each Financial Statement has its own heading
5. CLOSING ENTRIES
a. Steps in closing entries
b. What accounts need to be closed
6. POST CLOSING TRIAL BALANCE
a. How to prepare a Post-closing Trial Balance
b. Parts/Heading of Trial Balance
B. ADJUSTING ENTRIES:
1. Accrued Expense
2. Prepaid Expense
3. Promissory Notes
4. Pre-collected Incomes
5. Correction of Journal Entries

2. POSTING ENTRIES TO THE GENERAL LEDGER

a. Parts of the General Ledger TAXATION
b. How to post your entries from journal to the
ledger.
c. After postings of all accounts from the journal
make sure to double rule the last amount of
each account for each ledger balances.
 BOOKKEEPING VS. ACCOUNTING
Bookkeeping- represents a process of recording actual
transactions of a business.
- does not involve any analysis of the accounting
data.
- Integral part of accounting, and thus, it
prepares necessary financial information for
accounting
- Transactions include sales, purchases, income,
receipts and payments by an individual or
organization. Usually performed by a
BOOKKEEPER.
Book of accounts: Diary of day to day transactions,
to record all the activities for the day.
Accounting – called the “language of business”, the
language we often hear most business organization.
And we can participate actively and communicate
effectively in the business community if we speak the
same language.
- Is more complex concept that means reflection
of the results of transactions according to the
principles, standards and statutory
requirements in the financial statements and
other business reports.
- Is the systematic recording, reporting and
analysis of financial transactions of a business. It
is a service entity. Its function is to provide
quantitative information, primarily financial in
nature. The person in charge of accounting is
ACCOUNTANT.
BRANCHES OF ACCOUNTING:
1. Auditing
2. Taxation- includes the preparation of tax
returns and the consideration of the tax
consequences of proposed business
transactions or alternative courses of action.
3. Bookkeeping- is a mechanical task involving the
collection of basic financial data.
4. Financial Accounting
5. Management Accounting
6. Government Accounting
Types of Business:
1. Service Concern – generates income from
rendering service to customer
2. Merchandising – generates revenue from sale
of goods or commodities that it buys.
3. Manufacturing – makes and sells finished
products.
MERCHANDISING BUSINESS : generally buy products
from a wide range of distributors domestically and
internationally and market their products in huge
consumer shopping facilities. Basically, there are two
activities involved in this business which is the BUYING
& SELLING.
OWNER – BUYER – SELLER
INVENTORY SYSTEMS: These are methods used in
keeping inventories wherein the account title to be
used for cost of goods or commodities bought depend
upon the method used.
1. Periodic Inventory System – records updates to
inventory cost of sales as scheduled times
throughout the year, not constantly.
- Is characterized by using the account title
PURCHASES when buying goods or
commodities. Purchases are a cost by nature.
The term Purchase Discounts, Purchase Returns
and Allowances and Freight-in are also
commonly used.
2. Perpetual Inventory System – updates
purchases and sales records constantly,
particularly impacting merchandise inventory
and Cost of Goods Sold.
- Is characterized by using the account title
MERCHANDISE INVENTORY when buying good
or commodities. Merchandise Inventory is an
Asset.
BASIC ACCOUNTING EQUATION
A = L + OE
ACCOUNTING EQUATION: the equation that is
the foundation for double entry accounting.
- displays that all assets are either
financed by borrowing money or paying
with money of the shareholders.
A - ASSET (what it owns)
L – LIABILITIES (what it owes to others)
OE – OWNER’S EQUITY (the difference
between assets and owner’s equity
liabilities.
“ Total debits equal the total credits”
Traditionally, the two effects of accounting
entry are known as Debit (Dr.) and Credit
(Cr.). Accounting system is based on the
principal that for every Debit Entry, there
will always be an equal Credit Entry - known
as the Duality Principal.
DEBITS & CREDITS
DEBITS: are components of accounting transaction that
will INCREASE ASSETS and DECREASE LIABILITIES &
EQUITY.
CREDITS : are components of an accounting transaction
that will INCREASE LIABILITIES & EQUITY and
DECREASE ASSETS.
Debit Entries are ones that account for the following
effects:
 Increase in assets
 Increase expense
 Decrease in liability
 Decrease in equity
 Decrease in income
Credit Entries are ones that account for the following a. How to write your entry in the Journal.
effects: Debit=Credit
 Decrease in assets Ex: The R&R Co. purchase supplies for cash,
 Decrease expense P2,000.
 Increase in liability Debit: Supplies 2,000
 Increase in equity Credit: Cash 2,000
b. Normal Balances of each account: will be the
 Increase in income
increase part of the account. (Refer illustration
Debits & Credits)
Normal Balances of each account: (increase part)
c. Parts of Journal
Journal is a book in which transaction are
Assets_______
Debits Credits recorded in the order in which they occur i.e.
Increase Decrease chronological order.
Normal -book of prime entry because all transaction are
Balance entered first in this book
The process of recording a transaction in Journal is
Expenses_______
called a Journalizing. An entry made in Journal is
Debits Credits
Increase Decrease
called Journal Entry.
Normal Kinds of Journal:
Balance 1. General Journal simplest type of Journal, has
a two column.
Owner’s Drawing___ 2. Special Journal
Debits Credits
Increase Decrease
Normal
On June 1 Mr. Ramos invested P200,000 to start his
Balance merchandising business.

Liabilities_______ PAGE NO: __________

DATE PARTICULARS P.R. DEBIT CREDIT
Debits Credits June 1 Cash 200,000
Decrease Increase Ramos, Capital 200,000
Normal To record investment
Balance

Revenues_______
Debits Credits Parts of Journal:
Decrease Increase 1. Date- the date on which the transactions have taken
Normal
place is entered in the date column. The year and
Balance
month are not rewritten for every entry unless the
Owner’s Capital_______ year or month change or a new page is needed.
Debits Credits 2. Account Title and Explanation (Particulars) - this
Decrease Increase column contains the debit and credit accounts and a
Normal brief explanation of the entries.
Balance 3. P.R.- or posting reference contains the post
reference number of the ledger page in which the
T-Account Format: is the most common type of accounts accounts are transferred.
and it is easy to begin the study of accounting with T- 4. Debit – The amount to be debited is entered in the
account. debit column.
-resembles the English letter “T” and has 3 parts. 5. Credit- the amount to be credited is entered in the
1. The Title credit column.
2. The Debit: on the left side d. Account Titles to be used – account tittles for
3. The Credit: on the right side periodic and perpetual inventory system.
e. Chart of Accounts- lists of all account titles to used
Title of Account during the recording of transactions in the general
journal.
Debit Side Credit Side
Assets: resources of the company
In every transaction there is always:-
Liabilities: Debts or payables by the company
Owner’s Equity: Capital
Debit, Value received = Credit, Value Parted with Cost & Expenses
-the “Give & Take” process of accounting as expressed in
and equation Dr = Cr

Debit (DR) VS. Credit (CR) – both has Latin roots. Debit
comes the Latin past participle word debitum/debere
meaning what is due and credit comes from
creditum/credere, defined as something entrusted to
another or loan. Another theory is that DR stands for
“debit record” and CR stands for “credit record”. Finally,
some believe the DR notation is short for “debtor” and CR
is short for “creditor”.

1. JOURNALYZE TRANSACTION – JOURNAL ENTRY/ Account Titles/ Chart of Accounts

RECORDING TO THE JOURNAL for Journalizing, Posting and Trial Balance
 PERIODIC INVENTORY SYSTEM due within 12 months) of non-current (if due after 12
months) of the balance sheet date.
ASSETS  INVENTORY (STOCK ON HAND) - a detailed,
100 Cash itemized list, report, or record of things in one’s
101 Accounts Receivable possession, especially a periodic survey of all goods
102 Merchandise Inventory and materials in stock.
103 Supplies  BUILDINGS – a relatively permanently enclosed
110 Office Equipment construction over a plot off land, having a roof and
usually windows and often more than one level, used
LIABILITIES for any of a wide variety of activities, as living,
120 Accounts Payable entertaining, or manufacturing.
125 Notes Payable  VEHICLES & EQUIPMENT – Tangible property (other
than land or buildings) that is used in the operations of
OWNER’S EQUITY business. Example of equipment include devices,
130 King, Capital machines, tools, and vehicles.
131 King, Drawing  ACCRUED INCOME- the amount of income earned
but not yet collected.
 ADVANCES TO EMPLOYEES – the account title for
REVENUE
amounts collectible from employees for allowing them
140 Sales
to make cash advances which are deductible against
141 Sales Returns and Allow.
their salaries and wages.
142 Sales Discounts
 INVENTORIES – these are assets which are held for
sale in the ordinary course of business
COST AND EXPENSES
 UNUSED SUPPLIES – an account title for cost of
150 Purchases
stationery and other supplies purchased for use but are
151 Purchase Returns and Allow.
left on hand and still unused.
152 Purchase Discounts
 LAND – an account title for the site where the building
153 Freight In
used as office or store is constructed.
160 Advertising
 INTANGIBLE ASSETS – these are identifiable no-
161 Freight Out
monetary assets without physical existence.
162 Rent Expense
2. LIABILITY ACCOUNT: represent the different types of economic
163 Salaries
obligations by a business, such as accounts payable, bank loan, bonds
164 Utilities
payable, accrued interest.
170 Income Summary
 NOTES PAYABLE – the amount of principal due on a formal
written promise to pay. Loans from banks are included in this
account.
 ACCOUNTS PAYABLE – this current liability account will
show the amount a company owes for items or services
Account Titles/ Chart of Accounts
purchased on credit and for which there was not a
for Journalizing, Posting and Trial Balance
promissory note. This account is often referred to as trade
PERPETUAL INVENTORY SYSTEM
payables (as opposed to notes payable, interest payable,
etc)
ASSETS
 SALARIES PAYABLE – the current liability account which
100 Cash
reports the amount of salaries earned by a company’s
101 Accounts Receivable
employees, but which have not yet been paid by the
102 Merchandise Inventory
company.
103 Supplies
 WAGES PAYABLE – the current liability account which
110 Office Equipment
reports the amounts owed to employees for hours worked
but not yet paid as of the date of the balance sheet.
LIABILITIES
 INTEREST PAYABLE – this current liability account reports
120 Accounts Payable
the amount of interest the company owes as of the date of
125 Notes Payable
the balance sheet. (Future interest is not recorded as a
liability.)
OWNER’S EQUITY
 OTHER ACCRUED EXPENSES PAYABLE – obligations
130 King, Capital
that a company has incurred, but has not yet been routinely
131 King, Drawing
recorded in Accounts Payable. For example, if the interest
on the bank loan is paid on the 10th of each month, then on
REVENUE the last day of each month approx 20 days of interest
140 Sales expense is an accrued expense payable.
141 Sales Returns and Allow.  INCOME TAXES PAYABLE – a current liability account
142 Sales Discounts which reflects the amount of income taxes currently due to
the federal, state, and local governments.
COST AND EXPENSES  UNEARNED REVENUES – a liability account that reports
150 Cost of Goods Sold amounts received in advance of providing goods or services.
160 Advertising When the goods or services are provided, this account
161 Freight Out balance is decreased and revenue account is increased.
162 Rent Expense  BONDS PAYABLE – generally a long term liability account
163 Salaries containing the face amount, par amount, or maturity amount
164 Utilities of the bonds issued by a company that are outstanding as of
170 Income Summary the balance sheet date.
3. EQUITY ACCOUNTS : represent the residual equity of a business
( after deducting from Assets all the liabilities) including Retained
TYPES OF ACCOUNTS (TYPICAL ACCOUNT TITLE USED) Earnings and Appropriations.
1. ASSET ACCOUNT: represent the different types of economic  CAPITAL – the owner’s capital be given a title by indicating
resources owned or controlled by business, common examples of the name, with the word capital written after the name which
Asset accounts are cash, cash in bank, building, inventory, prepaid is separated by a “comma”.
rent, goodwill, accounts receivable.  WITHDRAWAL – the owner’s withdrawal is likewise
 CASH (CASH ON HAND) – money in the form of cash indicated by the use of the owner’s name with the word
that a business has at a particular time. Includes coins, drawing or personal written after the name which is
currencies and band deposits. separated with a comma.
 INCOME&EXPENSE SUMMARY- this is a temporary
 CASH EQUIVALENTS – a short term, highly liquid account created at the end of the accounting period where
instruments that are readily convertible into cash and Income and Expenses are temporarily closed to this
they present insignificant risk of changes in values account.
because of changes in interest rates. 4. REVENUE ACCOUNTS OR INCOME: represent the company’s
 ACCOUNTS RECEIVABLE (Debtors)- also known as gross earnings and common examples include Sales, Service revenue
Debtors, is money owned to a business by its clients and Interest Income.
(customers) and shown on its Balance Sheet as an  SERVICE INCOME – serves as a generic term used to
asset. encompass income earned for service rendered.
 PREPAID EXPENSES – are assets that become  PROFESSIONAL FEES – gross billings of a lawyer, doctor,
expenses as they expire or get used up. For example, accountant, engineer or any other professionals for service
office supplies are considered an asset until they are rendered.
used in the course of doing business, at which time  RETAINER FEES – somewhat the same with professional
they become an expense. fees, the only difference is that retainer fees are of a fixed
price for a certain period.

5. EXPENSE ACCOUNTS: represent the company’s expenditures

 NOTES PAYABLE- written promises to receive stated to enable it to operate. Common examples are electricity and water,
sums of money at future dates, classified as current (if rentals, depreciation, doubtful accounts, interest, insurance.
  SALARIES EXPENSE – expenses incurred for the work
performed by salaried employees during the accounting
period. These employees normally receive a fixed amount
on a weekly, monthly, or annual basis.
 WAGES EXPENSE- expenses incurred for the work
performed by non-salaried employees during the accounting
period. These employees receive an hourly rate of pay.
 SUPPLIES EXPENSE- cost of supplies used up during the
accounting period.
 RENT EXPENSE- cost of occupying rented facilities during
the accounting period.
 UTILITIES EXPENSE- costs of electricity, heat, water, and
sewer that were used during the accounting period.
 TELEPHONE EXPENSE- cost of telephone used during the
current accounting period.
 ADVERTISING EXPENSE- costs incurred by the company
during the accounting period for ads, promotions, and other
selling and expenses (other than salaries).
 DEPRECIATION EXPENSE – cost of long-term assets
allocated to expense during the current accounting period.
2. POSTING ENTRIES TO THE GENERAL LEDGER
LEDGER: refers to the accounting book in
which the accounts and their related amounts
as recorded in the journal are posted
periodically.
- is known as the “book of the final entry”
because the balance of accounts in the
ledger is used to prepare financial
statements.
a. Parts of the General Ledger
b. How to post your entries from journal to the
ledger.
c. After postings of all accounts from the journal
make sure to double rule the last
amount of each account for each ledger balances.
3. TRIAL BALANCE
a. Purpose of preparing a Trial Balance
b. Parts/Heading of a Trial Balance
4. FINANCIAL STATEMENTS
a. Statement of Cost of Goods Sold – includes the
cost of merchandise such as the purchases, purchase
returns, purchase discounts and freight of
merchandise from purchases.
b. Statement of Financial Performance / Income
Statement – shows the financial performance of the
business wither it is profitable or not. It includes the
sales, sales returns, sales discounts, cost of goods
sold, and operating expenses.
c. Statement of Changes in Owner’s Equity – it shows
the changes of capital by the owner. It includes the
owner’s capital beginning, profit/loss by the business
operations, drawing and the capital ending.
d. Statement of Financial Position / Balance Sheet- it
shows the position of the company comprising the
assets, liabilities and owner’s capital.
e. Statement of Cash Flows - it shows the inflows
and outflows of cash in the company for the specific
accounting period. It includes the operating,
financing and investing activities of the business in
terms of cash.
NOTE: “The cash balance in the cash ledger must be
equal with the cash balance of this statement.”
f. Parts/Heading of each Financial Statement –each
Financial Statement has its own heading
5. CLOSING ENTRIES
c. Steps in closing entries
d. What accounts need to be closed
6. POST CLOSING TRIAL BALANCE
c. How to prepare a Post-closing Trial Balance
d. Parts/Heading of Trial Balance
B. ADJUSTING ENTRIES are changes to journal entries we’ve already
recorded. Specifically, we’ll make sure that the numbers we have recorded
match up to the correct accounting periods.
When we make an adjusting entry, we’re making sure the activities of our
business are recorded accurately in time. If we don’t make adjusting entries, our
books will show us paying for expenses before they’re actually incurred, or
collecting unearned revenue before we can actually use the money.
So, our income and expenses won’t match up, and we won’t be able to
accurately track revenue. Our financial statements will be inaccurate—which is
bad news, since we need financial statements to make informed business
decisions and accurately file taxes. One more thing: Adjusting journal entries are
essential for depreciating assets. Which is important for reporting tax
deductions and balancing our books.
1. Accrued Expense
2. Prepaid Expense
3. Promissory Notes
4. Pre-collected Incomes
5. Correction of Journal Entries
TAXATION : one of the branches of Accounting that includes
the preparation of tax returns and the consideration of the tax
consequences of proposed business transactions or alternative
courses of action.
-act of laying a tax,i.e., the process or means by which the
sovereign, through its law making body, raises income to defray
the necessary expenses of government. It is merely a way of
apportioning the cost of government among those who in some
measure are privileged to enjoy its benefits and, therefore, must
bear its burdens.
- As a power, taxation refers to the inherent power of the state to
demand enforced contributions for public purpose or purposes.
FOB Shipping Point
Freight on board or FOB shipping poin t is a type of sales
transaction in which the buyer pays for the seller's goods
before shipment occurs. The buyer also pays for shipping
expenses. Transfer of ownership of the products occurs at
the seller's shipping point. For accounting purposes, the
buyer records products in transit as purchases and lists
those items as inventory, according to Accounting Coach, an
accounting information website. The seller reports a sale at
the time of product shipping. The seller's accounts
receivable should reflect the total sale amount.
FOB Destination Transactions
In an FOB or freight on board destination transaction , the
seller pays for delivery expenses to ship purchased products
to the buyer. Products in transit to the buyer are still the
inventory of the seller. This means the seller doesn't adjust
inventory numbers until the buyer receives the purchased
products. The sale doesn't finalize until the buyer receives
the products in question. Because of this, the seller only
records the payment for product purchases in accounts
receivable when the buyer confirms the receipt of
purchased products.
Case Problem 1.1 (Grace Yap)
On June 1 Grace Yap invested P20, 000 to start her merchandising business.
2 Purchased supplies on account, P10, 000.
3 Bought merchandise on account, P5, 000 term; 2/10, N/30.
5 Returned P1,000 worth of merchandise from June 3 transaction.
7 Sold merchandise for cash, P5, 000.
8 Borrowed money from bank, P20,000.
10 Full payment on June 3 purchased.
11 Sold merchandise on account, P4,000 term; 2/10, N/30.
12 Paid freight on June 11 transaction, P200.
13 Partial payment of account on June 2 transaction, P5, 000.
15 Paid Salaries, P1,000.