LEARNING MATERIAL NO.

1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao

REVIEW ON THE ACCOUNTING CYCLE

Learning Objectives:
1. Understand the steps of the accounting cycle
2. Know the proper classification of the different accounting elements
3. Determine the account’s normal balance
4. Prepare the financial statements

I. Steps of the Accounting Cycle

The following are the steps of the Accounting Cycle:

1. Identifying and analyzing the transactions to be recorded
2. Recording transactions in the journal
3. Posting journal entries to the ledger
4. Preparing the trial balance
5. Preparing the worksheet and adjusting entries
6. Preparing the financial statements
7. Journalizing and posting of adjusting journal entries
8. Journalizing and posting of closing journal entries
9. Preparing the post-closing trial balance
10. Journalizing and posting of reversing journal entries
II. Classifications of Accounts
There are six (6) major classifications of accounts, namely:
1. Assets 4. Owner’s, Drawing
2. Liabilities 5. Income
3. Owner’s, Capital 6. Expenses

DRILL NO. 1

Determine the classification of the following accounts:

1. Accounts Receivable 11. Unearned Rent Income
2. Land 12. Prepaid Insurance

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Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
3. Accounts Payable 13. Accrued Rent Expense
4. Accumulated Depreciation 14. Owner’s, Drawing
5. Owner’s, Capital 15. Interest Payable
6. Merchandise Inventory 16. Unearned Interest Income
7. Cash in Bank 17. Accrued Interest Expense
8. Bad Debts Expenses 18. Utilities Expense
9. Salaries Payable 19. Allowance for Bad Debts
10. Cash on Hand 20. Accumulated Depreciation

Sub-classification of Assets and Liabilities

Assets and Liabilities may be sub-classified into Current and Non-current.

DRILL NO. 2

Determine the classification of the following accounts:

CA – Current Asset CL – Current Liability
NCA – Non-current Asset NCL – Non-current Liability
1. Land 11. Petty Cash Fund
2. Cash on Hand 12. Service Vehicle
3. Accounts Payable 13. Mortgage Payable
4. Notes Payable (long-term) 14. Accrued Salaries Expense
5. Bonds Payable 15. Unearned Rent Income
6. Notes Receivable (short-term)
7. Office Equipment
8. Accounts Receivable
9. Building
10. Office Supplies

III. Normal Balance

What is a “normal balance”?
Normal balance is the side of an account where increases are recorded. Decreases are
recorded on the opposite side.

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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
DEBIT CREDIT
Assets Liabilities
Drawing Owner’s, Capital
Expense Income

DRILL NO. 3

Determine the normal balance of the following accounts:

1. Accounts Receivable 11. Unearned Rent Income
2. Land 12. Prepaid Insurance
3. Accounts Payable 13. Accrued Rent Expense
4. Accumulated Depreciation 14. Owner’s, Drawing
5. Owner’s, Capital 15. Interest Payable
6. Merchandise Inventory 16. Unearned Interest Income
7. Cash in Bank 17. Accrued Interest Expense
8. Bad Debts Expenses 18. Utilities Expense
9. Salaries Payable 19. Allowance for Bad Debts
10. Cash on Hand 20. Accumulated Depreciation

IV. Financial Statements

“Financial statement” is considered as the end-product of the accounting process consisting

of the Income Statement, Statement of Changes in Owner’s Equity, Balance Sheet, Statement
of Cash Flows, and Notes to Financial Statements. The financial statements summarize the
result of the company’s operation during the period.
A. Income Statement - shows the company’s performance (profit or loss) for a
given period.
B. Balance Sheet - gives an overall picture of the company’s financial position as of
a given period.
C. Statement of Changes in Owner’s Equity – shows the changes or movement
of the capital account during the period. It reflects some additions to capital (net
income and additional investment) and deduction (withdrawals).

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Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
D. Statement of Cash Flows - summarizes the cash receipts and cash
disbursements of the company for a given period.
E. Notes to Financial Statements – presents summary of significant accounting
policies and explanatory notes. Material information necessary to support the
figures shown on the four major financial statements are presented in this report.

DRILL NO. 4

The following data were extracted from the company’s financial records as of December 31,
2019. Prepare the Income Statement, Statement of Changes in Owner’s Equity, and Balance
Sheet of the company.

Milagrosa Delivery Services

Trial Balance
December 31, 2019

Cash in Bank P 950,000

Accounts Receivable 710,000
Office Supplies 9,000
Prepaid Insurance 60,000
Long-term Notes Receivable 430,000
Land 2,200,000
Building 4,600,000
Accumulated Depreciation – Building P184,000
Delivery Equipment 960,000
Accumulated Depreciation – Delivery Equipment 128,000
Office Equipment 134,000
Accumulated Depreciation – Office Equipment 33,500
Office Furnitures and Fixtures 77,000
Accumulated Depreciation – Office Furnitures and Fixtures 15,400
Accounts Payable 155,000

Salaries Payable 35,000

Utilities Payable 14,000
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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
Unearned Delivery Income 65,000
Long-term Notes Payable 350,000
Milagrosa, Capital 7,147,250
Milagrosa, Drawing 35,000
Delivery Income 2,400,000
Other Income 210,000
Salaries Expense 260,000
Insurance Expense 45,000
Utilities Expense 17,000
Office Supplies Expense 8,000
Interest Expense 13,000
Depreciation Expense 188,150
Bad Debts Expense 9,000
Miscellaneous Expense 32,000 ____________
Total P 10,737,150 P 10,737,150

Additional information:
1. Included in the Cash in Bank and Office Equipment accounts were additional
investment made by the owner during the period amounted to 100,000 and 30,000
respectively.
2. The balance of the Owner’s Drawing account amounted to 35,000 represents the
cash withdrawn by the owner during the period.
3. Milagrosa, Capital balance at the beginning of the period amounted to 7,017,250.
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Solution/Answer Key

Drill No. 1

1. Asset 11. Liability

2. Asset 12. Asset
3. Liability 13. Liability
4. Asset (Contra-Asset) 14. Owner’s Drawing
5. Owner’s, Capital 15. Liability
6. Asset 16. Liability
7. Asset 17. Liability
8. Expense 18. Expense

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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
9. Liability 19. Asset (Contra-Asset)
10. Asset 20. Asset (Contra-Asset)

Drill No. 2
1. NCA 11. CA

2. CA 12. NCA
3. CL 13. NCL
4. NCL 14. CL
5. NCL 15. CL
6. CA
7. NCA
8. CA
9. NCA
10. CA

Drill No. 3
1. Debit 11. Credit
2. Debit 12. Debit
3. Credit 13. Credit
4. Credit 14. Debit
5. Credit 15. Credit
6. Debit 16. Credit
7. Debit 17. Credit
8. Debit 18. Debit
9. Credit 19. Credit
10. Debit 20. Credit

Drill No. 4

Milagrosa Delivery Services

Income Statement
For the Year Ended December 31, 2019

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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
Delivery Income P 2,400,000
Other Income 210,000

Salaries Expense 260,000

Insurance Expense 45,000
Utilities Expense 17,000
Office Supplies Expense 8,000
Interest Expense 13,000
Depreciation Expense 188,150
Bad Debts Expense 9,000

Miscellaneous Expense 32,000 P 572,150

Net Income P 2,037,850

Milagrosa Delivery Services

Statement of Changes in Owner’s Equity
For the Year Ended December 31, 2019

Milagrosa, Capital – Beginning P 7,017,250

Add: Additional Investment 130,000
Net Income 2,037,850 2,167,850
Total 9,185,100
Less: Milagrosa, Drawing 35,000
Milagrosa, Capital – Ending 9,150,100
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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao

Milagrosa Delivery Services

Balance Sheet
As of December 31, 2019

Cash in Bank P 950,000

Accounts Receivable 710,000
Office Supplies 9,000
Prepaid Insurance 60,000
Total Current Assets 1,729,000
Long-term Notes Receivable 430,000
Land 2,200,000
Building 4,600,000
Accum. Depreciation – Building 184,000 4,416,000
Delivery Equipment 960,000
Accum. Depreciation – Delivery Equipment 128,000 832,000
Office Equipment 134,000
Accum. Depreciation – Office Equipment 33,500 100,500
Office Furnitures and Fixtures 77,000
Accum. Depreciation – Office Furn. & Fix. 15,400 61,600
Total Non-Current Assets 8,040,100
Total Assets P 9,769,100

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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao
Accounts Payable P 155,000
Salaries Payable 35,000
Utilities Payable 14,000
Unearned Delivery Income 65,000
Total Current Liabilities 269,000
Long-Term Notes Payable 350,000
Total Liabilities 619,000
Owner’s, Capital 9,150,100
Total Liabilities and Owner’s Equity P 9,769,100

END

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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao

CORRECTING ENTRIES

Paid accounts payable 20,000

WRONG ENTRY MADE WOULD-BE ENTRY CORRECTING ENTRY

Accounts payable 2,000 Accounts payable 20,000 AP 18,000
Cash 2,000 Cash 20,000 Cash 18,000
# #

- Over by 18,000

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 LEARNING MATERIAL NO. 1
Fundamentals of Accountancy, Business, and Management 2
September 13, 2020
Mr. Roneil M. Wenceslao

Collected receivable 109,000

Entry made would be entry correcting

Cash 109,000 Cash 109,000 AP 109K

AP 109,000 AR 109,000 AR 109K
# #

AP - OVER BY 109,000
AR - OVER BY 109,000

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