Accounting Cycle in Business

Republic of the
Philippines Department of
Education National
Capital Region
DIVISION OF CITY SCHOOLS – MANILA
Manila Education Center Arroceros Forest Park
Antonio J. Villegas St. Ermita, Manila
FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT1
Let’s talk accounting cycle in Business…

Source: https://www.thebalancesmb.com/adjusting-entries-in-your-accounting-journals-392996
Quarter 1Week6Module7
Learning Competencies:
1. Analyze common business transactions
using the rules of debit and credit; and
2. Solve problems and exercises in the analyses
of business transactions.
HOW TO USE THIS MODULE?
Before starting the module, I want you to set aside other task/s that may disturb
you while enjoying the lessons. Read the simple instructions below to have
successfully enjoy the objectives of this kit. Have fun!
1. Follow carefully all the contents and instructions indicated in every page
of this module.
2. Write on your notebook the concepts about the lessons. Writing
enhances learning that is important to develop and keep in mind.
3. Perform all provide activities in the module.
4. Let your facilitator/guardian assess your answer using the answer key
card.
5. Analyze conceptually the post-test and apply what you have learned.
6. Enjoy Studying.
PARTS OF THE MODULE
 Expectations - These are what you will be able to know after

completing the lessons in the module.
 Pre-test - This will measure your prior knowledge and the concepts
to be mastered throughout the lesson.
 Looking Back to your Lesson - This section will measure what
learning’s’ and skills did you understand from the previous lesson.
 Brief Introduction- This section will give you an overview of the
lesson.
 Activities - This is a set of activities you will perform with a partner.
 Remember - This section summarizes the concepts and applications
of the lessons.
 Check your Understanding - It will verify how you learned from the
lesson.
 Post-test - This will measure how much you have learned from the
entire module
1
EXPECTATIONS
This module was written for you to accomplish at home. It was carefully
designed so that you can work at your own pace and allow self-discovery of the
concept through activities that you will perform. Activities were also selected to allow
independent learning which also aims to develop students’ reading comprehension
skills through understanding written texts.
After going through the module, you are expected to:
1. analyse common business transactions using the rules of debit and credit;
and
2. solve simple problems and exercises in the analyses of business
transactions.
PRE-TEST
I. Directions: MULTIPLE CHOICE

Choose the letter corresponding to the correct answer for each of the following
questions provided below:
1. It represents steps or procedures used to record transactions and
prepare financial statements.
a. Journalizing c. Posting
b. Accounting cycle d. Adjusting entries
2. It refers to the information from the journal being transferred to the
ledger.
a. Journalizing c. Posting
3. These are the means by which the information processed
is communicated to users.
a. Preparing the financial statement c. Posting
4. It is a document issued by a buyer to a seller indicating the types,
quantities and agreed prices for products or services that the buyer intends to
purchase.
a. Sales invoice c. Official receipt
b. Delivery receipt d. Purchase order
5. It is a document signed by the receiver of the shipment indicating
the fact that the goods were actually received by the intended recipient.
a. Sales invoice c. Official receipt
b. Delivery receipt d. Purchase order
II. TRUE or FALSE

Directions: Before each statement, write TRUE if the statement is correct or FALSE
if it is incorrect.
1. The accountant gathers information from source documents and
determines the effect of the transactions on the account.
2
2. Posting is the identification of accountable events and recorded in the
journal.
3. The equality of debits and credits are again rechecked after the
closing process is called post-closing trial balance.
4. The adjusted trial balance serves as a basis for adjusting entries.
5. A bank deposit slip evidences a deposit to a bank account.
6. External events which do not involve an external party.
7. Compound journal entry contains two or more debits and credits.
8. Journal entries are recorded in the journal chronologically.
9. A short description of the transaction is provided for future reference.
10. A transaction that has an effect on the accounts is an “accountable
event.”
LOOKING BACK TO YOUR LESSON
Before we go to this module 7, kindly recall topics that we discussed already

from module 6:
 The JOURNAL is the record transactions and events in chronological order referred to as the
book of original entry.
 GENERAL JOURNAL is the most basic journal. Typically, a general journal has spaces for dates,
accounts titles and explanations, references, and two amount columns.
 SPECIAL JOURNAL is used when the business encounters voluminous quantities of similar and
recurring transactions which may create congestion if these transactions are recorded repeatedly
in a single day or a month in a general journal. E.g. Cash Disbursement Journal (CDJ), Sales
Journal (Sales on Account Journal), Purchase Journal (Purchase on Account Journal).
 The LEDGER refers to the accounting book in which the accounts and their related amounts as
recorded in the journal are posted periodically and called the “book of final entry’, because all
the balances in the ledger are used in the preparation of financial statements. This is also
referred to as the T-Account because the basic form of a ledger is like the letter “T”.
 GENERAL LEDGER (commonly referred by accounting professionals as GL) is a grouping of all
accounts used in the preparation of financial statements.
 SUBSIDIARY LEDGER is a group of ledgers like accounts that contains the independent data of
a specific general ledger
If you have a problem, contact your teacher. If you have not, continue
reading and analyzing.
BRIEF INTRODUCTION
The Accounting cycle represents the steps or procedures used to record

transactions and prepare financial statements. The accounting cycle implements the
accounting processes of identifying, recording and communicating. The steps are:
3
1. Identifying and analyzing business documents or transactions. – The accountant
gathers information from source documents and determines the effect of the
transactions on the accounts.
2. Journalizing – the identified accountable events are recorded in the journals.
3. Posting – information from the journal is transferred to the ledger.
4. Preparing the unadjusted trial balance – the balances of the general ledger
accounts are proved as to the equality of debits and credits. The unadjusted trial
balance serves as a basis for adjusting entries.
5. Preparing the adjusting entries – the accounts are updated as of the reporting
date on an accrual basis by recording accruals, expiration of deferrals, estimations,
and other events often not signaled by new source documents.
6. Preparing the adjusted trial balance (or worksheet preparation) – the equality of
debits and credits are rechecked after adjustments are made. The adjusted trial
balance serves as the basis for the preparation of the financial statements.
7. Preparing the financial statements – these are the means by which the information
processed is communicated to users.
8. Closing the books – this involves journalizing and posting closing entries and
ruling the ledger. Temporary accounts (or nominal accounts) are closed and the
resulting profit or loss is transferred to an equity account.
9. Preparing the post-closing trial balance – the equality of debits and credits are
again rechecked after the closing process.
10. Recording of reversing entries – reversing entries are usually made at the
beginning of the next accounting period and are made to simplify the recording of
certain transactions in the next accounting period.
Steps 1 and 2 are discussed in this module. The other steps are discussed in
succeeding modules.
How can we identify and analyze transactions of events?

Answer: The steps in Identifying and analyzing transactions of an events are
as follows:
This is the first step in the accounting cycle. It involves identifying a
business transaction and analyzing whether or not that transaction affects the
assets, liability, equity, income or expenses of the business.
A transaction that has an effect on the accounts is an “accountable event,”
which needs to be recorded in the books of accounts. On the other hand,
transactions that have no effect on the account are “non-accountable events,” which
is not recorded in the books of accounts.
Transactions are normally identified from “some documents.” Source
documents are written evidence containing information about transactions. Source
documents come in various forms which include, but not limited to, the following:
a. Sales invoices e. Bank deposit slips
b. Official receipts f. Bank Statements
c. Purchase orders g. Checks
d. Delivery receipts h. Statement of account, and the like
Very Good! Let us now explain the sources or documents needed in identifying
transactions:
1. Sales invoice vs. Official receipt
4
Sales invoices (SI) are used for the sale of goods while Official receipts (OR)
are used for the sale of services. For example, if you buy groceries, the grocery store
will issue you a sale invoice; if you pay your tuition fee in school, the school will issue
you an official receipt.
2. Purchase order is a document issued by a buyer to a seller indicating the types,
quantities and agreed prices for products or services that the buyer intends to
purchase. Purchase orders are prepared as internal control over purchases. For
example, to prevent unnecessary purchases, you require your personnel to prepare
purchase orders for all purchases made by your business.
3. Delivery receipt is a document signed by the receiver of a shipment indicating the
fact that the goods were actually received by the intended recipient.
4. Bank deposit slip -evidences to a bank account. It shows the date of deposit, the
bank account and number, and the amount deposited.
5. Bank statement is a report issued by a bank (on a monthly basis) which shows the
deposits and withdrawals during the period and the cumulative balance of a
depositor’s bank account.
6. Check is an instrument that orders a bank (drawee) to pay the person named on
the check or the bearer thereof (payee) a definite amount of money from the
drawer’s bank account.
7. Statement of account is a report a business sends to its customer listing the
transactions with the customer during a period, the payments made by the customer
and remaining balance due from the customer. A statement of account also serves
as a notice of billing. For example, a school periodically issues statements of
accounts to its students reminding them to settle any unpaid tuition fee.
Then the, types of events are: 1. External events – are transactions
involving the business and another external party. Examples include sale, purchase,
and borrowing of money, payment of liabilities, and the like, and 2. Internal
events are events which do not involve an external party. Examples include
production (cooking of banana cues) and casualty losses (e.g. destruction of
properties due to storm, earthquake, and the like).
After identifying transactions, we are now proceeding with; Journalizing -after

an accountable event is identified and analyzed, the second step is to record it in
the journal by means of a journal entry. This recording process is called
journalizing.
Journal entry
A journal entry takes the following format:
Date Account title to be debited XX
Account title to be credited XX
Short description of the transaction
The following are the parts of a journal entry:

1. Date – journal entries are recorded in the journal chronologically, i.e., arranged
according to the dates they are recorded.
2. Account titles and amounts to be debited and credited – under the double- entry
system, each transaction is recorded in the journal in two parts – debit and credit.
3. Short description of the transaction – a short description of the transaction is
provided for future reference.
5
Simple and Compound journal entries
A journal entry may have one of the following formats:
a. Simple journal entry – one which contains a single debit and a single credit
element. The illustrated journal entry above is an example of a simple journal entry.
b. Compound journal entry – one which contains two or more debits or credits.
Example 1: Journal entries – Start – up

In this example, we will discuss how to set up the accounting records of a
start-up business.
You opened a banana cue stand on January 1, 2020. The following were the
business transactions on this date:
Transaction #1: Initial Investment

You provided ₱900 cash as initial investment to your business
Step#1: Transaction analysis

Account affected: “Cash” (asset) and “Owner’s capital” (equity)
Effects on accounts: Cash is increased; Owner’s capital is increased
Debit/Credit: Asset is increased through debit. Equity is increased through
credit
Step#2: Journal entry

Your initial investment is recorded in the journal as follows:
Journal
Date Account titles Debit Credit
Jan. 1, 2020 Cash 900
Owner’s Capital 900
to record the owner’s initial investment to the business
Note the following parts of a journal entry: (1) date, (2) Accounts and amounts
debited and credited, and (3) Short description of the transaction.
The effects of the entry above on the basic accounting equation are analyzed below:
ASSETS = LIABILITIES + EQUITY
Cash 900 0 Owner’s capital 800
Transaction #2: Loan

The business obtained a loan of ₱1,300 Step
# 1: Transaction analysis
Account affected: “Cash” (asset) and “Note payable” (liability)
Effects on accounts: Cash is increased; Note payable is increased
Debit/Credit: Assets are increased through debit. Liability is increased
through credit
6
Step # 2 Journal entry
The business loan is recorded as follows:
Journal
Jan. 1, 2020 Cash 1,300
Note payable 1,300
to record the loan obtained
Both the journal entries above are examples of “simple journal entries” because they
have single debits and credits.
The effects of the entries above on the basic accounting equation are analyzed
below:
Cash 1,300 Note payable 1,300 0
Totals 2,200 1,300 900
Observe that the equality of the basic accounting equation is maintained as each
transaction is recorded. This is in accordance with the concepts of duality and
equilibrium.
Transaction #3: Capital expenditures

The business acquired the following for cash:
Item description Cost

Banana cue stand ₱1,000
Cooking accessories 120
Beach umbrella 400
The items acquired are considered “capital expenditures” (or “capital assets”.)
because they will be used for a period longer than one year (i.e., they provide future
economic benefits). Thus, the items acquired will be recorded as assets.
Step # 1: Transaction analysis

Account affected: “Equipment” (asset) and “Cash” (asset)
Effects on accounts: Equipment is increased; Cash is decreased
Debit/Credit: Assets are increased through debit and decreased through
credit
Step #2: Journal entry

The acquisition of equipment recorded as follows:
Journal
Jan. 1, 2020 Equipment –Banana cue stand 1,000
Equipment – Cooking accessories 120
Equipment –Umbrella 400
7
Cash (1000 + 120 + 400) 1,520
To record the acquisition of equipment
Additional analyses:
 Equipment (i.e., banana cue stand, cooking accessories and beach umbrella)
is debited because these are the assets that the business has obtained, i.e.,
“value received.”
 Cash is credited because this is the asset given up in order to obtain the
equipment, i.e., “the value parted with.”
The journal entry above is an example of a “compound journal entry” because it has
more than one debit.
below:
Equipment:
- BNQ- stand 1,000
-Cooking
Accessories 120
- Beach
Umbrella 400
Cash (1,520) 0 0
Totals 2,200 1,300 900
Notice that the acquisition of equipment through payment of cash did not affect the
total assets. This is because the transaction of cash recorded as an increase in one
asset (i.e., increase in equipment) and simultaneously a decrease in another asset,
(i.e. / decrease in cash).
Transaction #4: Acquisition of inventory

The business purchased inventory for ₱680 cash Step
#1: Transaction analysis

Account affected: “Inventory” (asset) and “Cash” (asset)
Effects on accounts: Inventory is increased; Cash is decreased
Debit/Credit: Asset is increased through debit and decreased through
credit

The purchase of inventory is recorded as follows:
Journal
Jan. 1, 2020 Inventory 680
Cash 680
To record the acquisition of inventory
8
Inventory is debited because this is the asset obtained while cash is credited
because this is the asset account and recall that an asset is increased by debiting it.
Therefore, to record an increase in inventory, you need to debit the inventory
account.
 When you paid for the inventory purchased, your cash decreased. Cash is an
asset account and recall again that an asset is decreased by crediting it.
Therefore, to record a decreased in cash you need it credit cash account.
The effects of the entries above on the basic accounting equation are analyzed as
follows:
Equipment:
-BNQ - stand 1,000
-Cooking
Accessories 120
- Beach
Umbrella 400
Cash (1,520) 0 0
Inventory 680
Cash (680) 0 0
Totals 2,200 1,300 900
Remember the following:

 The initial investment by an owner to the business is recorded as debit to the
asset contributed (e.g., “Cash”) and credit to an equity account called
“Owner’s capital.”
 Receipts of cash are debited to the “cash” account while payments of cash
are credited to the “Cash” account.
Example 2: Journal entries – Operations

Your banana cue operations started on January 2, 2020. The following were the
business transactions on this date
Transaction #5: Sale

Total cash sales of banana cue amounted to ₱700. The total cost of the banana cue
sold is ₱280.
Step #1: Transaction analysis

Account affected: - “Cash ” (asset) and “Sales” (income);
- “Cost of sales” (expense) and “Inventory” (asset)
Effects on accounts: - “Cash is increased; Sales is increased.
- Cost of sales is increased; Inventory is decreased
Debit/Credit: - Asset is increased through debit and decreased through credit.
9
- Income is increased through credit.
- Expense is increased through debit.

The sales are recorded as follows:
Journal
Jan. 1, 2020 Cash 700
Sales 700
To record total sales of banana cue
The cost sale is recorded as follows :

Journal
Jan. 2, 2020 Cost of goods sold 280
Inventory 280
To record the cost of the banana cue sold as expense
 “Cash” is debited to record the cash you received from the customers.
 “Sales” is credited to record the income you earned from the sale of inventory.
 “Cost of goods sold” is debited to record the cost of the barbecues sold as
expense.
 “Inventory” is credited to record the decrease in inventory due to sale.
The entry above to record the cost of goods sold is an application of the “matching
concept” discussed in the previous modules. Recall that under this concept, costs
that are directly associated with the earning of revenue are recognized as expenses
in the same period where the related revenue is recognized.
Thus, in the transactions above, the cost of the inventory purchased is initially
recorded as asset (i.e., inventory) and recognized as expense (i.e., cost of goods
sold) when the inventory is sold. This way, expense is “matched: or recognized in the
same period where sales revenue is recognized.
as follows:
Equipment:
- BNQ stand 1,000
-Cooking
Accessories 120
- Beach
Umbrella 400
Cash (1,520) 0 0
Inventory 480
Cash (480) 0 0
Cash 700 Sales 700
10
Inventory (280) 0 Cost of Sales (280)
Totals 2,620 1,300 1,320
Observe that “sales” (income) increases equity while “cost of sales” (expense)
decreases equity.
We can also use the expanded accounting equation to analyze the effects of the
entries:
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
2,620 1,300 900 700 280
Transaction
This #6: Expense
is the beginning balance This is the sales This is the coast of goods sold
Of “Owner’s
The business equity”
paid ₱20 for supplies expense Step #1:
Transaction analysis
Account affected: - “Supplies expense” (expense) and “Cash” (asset)
Effects on accounts: - “Cash is decreased; Supplies expense is increased
Debit/Credit: - Expense is increased through debit. Asset is decreased
through credit

The supplies expense is recorded as follows:
Journal
Jan. 2, 2020 Supplies expense 20
Cash 20
To record supplies expense
 “Supplies expense “is debited to record the cost of the supplies used
as expense.
 “Cash is credited to record the cash paid for the purchase of supplies.
as follows:
Equipment:
-BNQ- stand 1,000
-Cooking
Accessories 120
11
- Beach
Umbrella 400
Cash (1,520) 0 0
Inventory 480
Cash (480) 0 0
Cash 700 Sales 700
Inventory (280) 0 Cost of Sales (280)
Supplies
Cash (20) 0 Expense (20)
Totals 2,600 1,300 1,900
Observing the equality of the accounting equation has been maintained all
throughout our recording process.
The expanded accounting equation:
2,600 1,300 900 700 300
This is the beginning balance This is the sales This is the cost of goods sold
of “Owner’s equity”
Example 3: Non-accountable events

A. You are planning to purchase new equipment in the future. You have not yet
placed an order for the new equipment because you don’t have the money yet.
Account affected: None: A mere plan to purchase does not affect the accounts
of the business
Effects on accounts: None
Debit/Credit: None

No journal entry shall be made because the transaction is non-accountable.
B. Your dog, “Tuhod,” died because he ate a banana cues
stick. Step #1: Transaction analysis
Account affected: None. The event does not affect any of the accounts of the
business
Effects on accounts: None
Debit/Credit: None

No journal entry shall be made because the transaction is non-accountable.
12
Recording drills:
Let us have the following recording drills:
Case #1: initial investment in cash
On January 1, 2020, the owner invests ₱110,000 cash to the business The
journal entry to record transaction is as follows:
Jan 1, Cash 110,000
2020 Owner’s capital 110,000
To record the owner’s initial investment to the business
To save space, we will use the above format for journal entries in this illustration and in the
succeeding illustrations.
The effect of the transaction on the basic accounting equation is analyzed as follows
ASSET = LIABILITIES + EQUITY
Cash 110,000 0 Owner’s capital 110,000
Case #2: initial investment in non-cash assets

On January 20, 2020, the owner provides a building valued at ₱1,000,000 and an
automobile valued at ₱500,000 to the business
Account affected: “Building” (asset), “Transportation equipment” (asset), and
“Owner’s capital” (equity)
Effects on accounts: Building and Transportation equipment are increased;
Owner’s capital is increased
Debit/Credit: Assets are increased through debit. Equity is increased
through credit.

The compound journal entry to record the transactions is as follows
Jan 20, Building 1000,000
2020 Transportation Equipment 500,000
Owner’s capital 1,500,000
To record the Owner’s non-cash investment to the
business
Alternatively, the transaction above can be recorded through simple journal entries
as follows:
Jan 20, Building 1000,000
2020 Owner’s capital 1,000,000
business
Jan 20, Transportation Equipment 500,000
2020 Owner’s capital 500,000
business
Both entries above – compounded and simple, are acceptable.
13
The effect of the current transaction on the basic accounting equation is analyzed as
follows:
Building 1,000,000
Transportation 500,000 0 Owner’s capital 1,500,000
Equipment
Total 1,500,000 0 Total 1,500,000
To save space again, we will present only the effect of the current transaction on the accounting
equation. We will not re-illustrate the analyses of the effects of the previous transactions.
Case #2.1: Acquisition of asset – Equipment

On January 25, 2020, the business acquires a machine for P20, 000
Jan 25, Machinery 20,000
2020 Cash 20,000
To record the acquisition of machine
The ―Equipment‖ account may be used in line of the ―Machinery‖ account.
follows:
Machinery 20,000
Cash (20,000) 0 0
_ _
Total 0 0 Total 0
 Notice again that the accounting equation remains balanced each time a
transaction is recorded.
Case #2: Acquisition of asset – Inventory (Cash basis)

On January 26, 2020, the business acquired inventories for ₱50,000 cash. The
journal entry to record the transaction is as follows:
Jan 26, Inventory 50,000
2020 Cash 50,000
To record the acquisition of inventory on cash basis
follows:
Inventory 50,000
Cash (50,000) 0 0
_ _
Total 0 0 Total 0
Case #2.3A: Acquisition of asset – Inventory (On account /Credit)

On January 27, 2020, the business purchased inventories worth ₱70,000 on account
(on credit).
14
Account affected: “Inventory” (asset) and “Accounts payable” (liability)
Effects on accounts: Inventory is increased. Accounts payable is increased.
Debit/Credit: Asset is increased through debit. Liability is increased
through credit.

The journal entry to record the transactions is as follows
Jan 27, Inventory 70,000
2020 Accounts payable 70,000
To record the acquisition of inventory on credit
follows:
Inventory 70,000 Accounts
_ Payable 70,000 0
Total 70,000 70,000 Total 0
Case #2.3B: Payments of accounts payable

On January 31, 2020, the business settled the ₱70,000 on account payable from the
January 27 purchase.

Account affected: “Accounts payable” (liability) and “Cash “ (asset)
Effects on accounts: Accounts payable is decreased. Cash is decreased.
Debit/Credit: Liability is decreased through debit. Assets are decreased
through debit.

Jan 31, Accounts payable 70,000
2020 Cash 70,000
To record settlement of accounts payable
follows:
Cash (70,000) Accounts
_ Payable(70,000) 0
Total (70,000) (70,000) Total 0
Case #3.1B: Liability

On February 1, 2020, the business obtains a bank loan of ₱800,000.
15
Account affected: “Accounts payable” (liability) and “Cash “ (asset)
Effects on accounts: Accounts payable is decreased. Cash is decreased.
through debit.

Feb 1, Cash 800,000
2020 Notes payable 800,000
To record the loan taken from a bank
follows:
Cash 800,000 Accounts 0
Payable 800,000
Case #3.2: Payment of Liability

On March 1, 2020, the business makes a partial payment of ₱400,000 on the bank
loan.

Account affected: “Notes payable” (liability) and “Cash” (asset)
Effects on accounts: Notes payable is decreased. Cash is decreased.
through credit.

Mar 1, Notes payable 400,000
2020 Cash 400,000
To record the partial payment of the note payable
follows:
Cash 400,000 Accounts Payable 400,000 0
Case #4.1. Income – Cash sale

On March 2, 2020, the business made a cash sale of ₱100,000. The cost of the
inventories sold is ₱30,000.
The journal entries to record the transaction are as follows:

Mar 2, Cash 100,000
2020 Sales 100,000
To record the cash sale
16
Mar 2, Cost of sale 30,000
2020 Inventory 30,000
To charge the cost of inventories sold as expense
follows:
Cash 100,000 0 Sales 100,000
Inventory (30,000) 0 Cost of sales (30,000)
Totals 70,000 0 70,000
Recall that income (e.g., sales) increase equity while expenses (e.g., cost of sales)
decrease equity.
The effect of the transaction on the expanded accounting equation is analyzed as
follows:
100,000 100,000 0
(30,000) _ _ 30,000
70,000 100,000 30,000
Case #4.2A: Credit sale (Sale on account)

On March 4, 2020, the business made a sale on account of ₱80,000. The sale price
is collectible on March 8, 2020. The cost of the inventories sold is ₱20,000.

Account affected: - “Accounts receivable” (asset) and “Sales” (income)
- “Cost of sales” (expense) and “Inventory” (asset)
Effects on accounts: - Accounts receivable is increased; Sales is increased
-Cost of sales is increased; Inventory is decreased.
Debit/Credit: - Asset is increased through debit and decreased through
credit.
- Income is increased through credit
-Expense is increased through debit

Mar 4, Accounts receivable 80,000
2020 Sale 80,000
To record the credit sale
Mar 4, Cost of sale 20,000
2020 Inventory 20,000
To charge the cost of inventories sold as expense
follows:
Accounts
Receivable 80,000 Sales 80,000
17
Cost of
Inventory (20,000) Sales (20,000)
Totals 60,000 60,000
Case #4.2B: Collection of accounts receivable

On March 8, 2020, the business collects ₱80,000 accounts receivable. Step
#1: Transaction analysis

Account affected: “Cash” (asset) and “Accounts receivable” (asset)
Effects on accounts: Cash is increased. Accounts receivable is decreased
Debit/Credit: Assets is increased through debit and decreased through
credit

Mar 8, Cash 80,000
2020 Accounts receivable 80,000
To record collection of accounts receivable
Notice that income (i.e., sale) is recognized on March 4, 2020 (i.e., date of sale)
rather than on March 8, 2020 (i.e., date of cash collection). This is according to the
accrual basis of accounting.
follows:
Cash 80,000
Accounts
Receivable (80,000)
Totals 0 0 0
The net effect of case #’s 4,2A and 4.2B is analyzed using the expanded equation as
follows:
Case #4.2A
80,000 0 0 80,000 0
(20,000) 0 0 0 20,000
60,000 0 0 80,000 20,000
Case #4.2B
80,000
(80,000) 0 0 0 0
0 0 0 0 0
60,000 0 0 80.000 20,000
Case #5: Expense – Paid in cash

On March 20, 2020, the business paid ₱5,000 for an advertisement that was aired
on the radio.
18
Mar 20, Advertising expense 5,000
2020 Cash 5,000
To record the cost of advertisement as expense
follows:
Cash (5,000) Advertising Exp. (5,000)
Totals (5,000) (5,000)
Case #6 Owner’s drawings

On April 7, 2020, the owner’s makes temporary withdrawal of ₱10,000 cash from the
business

Account affected: “Owner’s drawings” (contra-equity*) and “Cash” (asset)
Effects on accounts: Owner’s drawings are increased. Cash is decreased.
Debit/Credit: Contra-equity is increased through debit.** Asset is
decreased through credit
* The “Owner’s drawings” account is closed to the “Owner’s capital” account, as a

direct deduction, at the end of the accounting period. Thus the “Owner’s drawings”
account is a contra account to an equity (i.e., contra-equity).
** If equity is increased through credit, then the contra-equity is increased through
debit (i.e., the opposite).
Mar 7, Owner’s drawings 10,000
2020 Cash 10,000
To record owner’s drawing
follows:
Cash (10,000) 0 Owner’s (10,000)
drawings
ACTIVITIES
Independent Activity 1: Directions: MULTIPLE CHOICE

Choose the letter corresponding to the correct answer for each of the following
statements provided below:
19
1. It involves journalizing and posting closing entries and ruling the
ledger.
a. Reversing entries c. Adjusting entries
b. Closing the books d. none of the above
2. It refers to the balances of the general ledger accounts that are
proved as to the equality of debits and credits.
a. Reversing entries c. Unadjusted trial balance
b. Closing the books d. none of the above
3. If you pay your school tuition fee, the school issued you a _ ?
a. Sales invoice c. Bank deposit
b. Statement of account d. Official receipt
4. It is a business report sent to its customer on their list of transactions
during a period, the payments made and their remaining due.
a. Financial report c. Financial statement
b. Statement of account d. Notes payable
5. It is an instrument that orders a bank (drawee) to pay the person
named on the check or the bearer thereof (payee) a definite amount of money from
the drawer’s bank account.
a. Bank deposit c. Check
b. Statement of account d. Notes payable
6. It contains single debit and single credit element
a. Journals c. Ledger
b. Simple journal entry d. Compound journal entry
7. It is usually made at the beginning of the next accounting period and is
made to simplify the recording of certain transactions in the next accounting period.
a. Closing the books c. Recording of reversing entries
b. Worksheet preparation d. Identifying transactions
8. When the accounts are updated as of the reporting date on an
accrual basis by recording accruals, expiration of deferrals, estimations, and other
events often not signaled by new source of documents
a. Preparation of adjusting entriesc. Recording of reversing entries
b. Worksheet preparation d. Identifying transactions
9. It has the following parts: (a) Date. (b) Accounts and Amounts debited
and credited, and (c) Short description of the transaction.
b. Worksheet preparation d. Journal entry
10. A transaction that has no effect on the account is called_ _.
b. non-accountable event d. accountable event
Independent Activity 2: TRUE or FALSE
Directions: Before each statement, write TRUE if the statement is correct or FALSE
if it is incorrect.
1. The accounting process represents the steps or procedures used to
record transactions and prepare financial statements.
2. Analyzing is the first step in the accounting cycle
3. During the process of posting, information from the journal are being
transferred to the ledger.
4. The adjusted trial balance serves as the basis for the preparation of
the financial statements.
20
5. Closing is the last step in the accounting cycle.
6. Source documents are written evidence containing information about
transactions that comes in various forms.
7. Journal entries are not recorded in the journal chronologically.
8. Prepaid supplies are debited to record the cost of the supplies used as
expense.
9. A journal entry has a date, accounts and amounts to be debited or
credited and short description of the transaction.
10. Transactions are normally identified from source documents.
REMEMBER
The accounting cycle represents the steps or accounting procedures used to record transactions and prepare
financial statements.
Steps in the accounting cycle: Identifying and analyzing, Journalizing, Posting, Unadjusted trial balance,
Adjusting entries, adjusted trial balance (and/or worksheet), Financial statements, Closing entries, Post-
closing trial balance, and Reversing entries.
Only “accountable events” are recorded in the accounting records. “Accountable events” are those that
affect the accounts.
Types of events: (a) External events – involve the business and another external party; (b) Internal events –
involve the business only.
Journalizing is the process of recording transactions in the journal by means of journal entries.
A journal entry has the following parts: (a) Date, (b) Accounts and Amounts debited and
credited, and (c) Short description of the transaction.
A simple journal entry is one which contains a single debit and a single credit element. A compound journal
entry is one which contains two or more debits or credits.
CHECK YOUR UNDERSTANDING
Directions: Provide a transaction analysis and journal entry of the following:

1. September 1, 2019 – The business makes a partial payment of ₱200,000 on the
bank loan.
2. September 4, 2019 – The business makes a sale on account of ₱60,000. The sale
price is collectible on September 6, 2019. The cost of inventories sold is ₱10,000.
3. October 7, 2019 – The owner makes a withdrawal of ₱ 20,000 from the business.
4. October 30, 2019 – The business acquired the following for
cash Items Descriptions Cost
Banana cue stand ₱ 1,300
Cooking accessories 700
“Super Kalan” 1,500
21
POST - TEST
Directions: Provide a Journal entry about Marcia Cruz who started her MC
Computer Repairs business on March 14, 2019. The following transactions
transpired in March 2019:
1. March 14, 2019 – Marcia Cruz invested ₱200,000 into her MC Computer Repairs
business.
2. March 15, 2019 – Marcia purchased one computer unit from ABC Computer
Store to be used for her business. She issued check number 001 amounting to
₱25,000.
3. March 16, 2019 – Marcia hired Julie Ann, an efficient receptionist/assistant.
4. March 17, 2019 – Repaired computer of Juan and collected ₱10,000.
5. March 18, 2019 – Repaired the computer of Manuel; however, Manuel will pay
₱15,000 only on April 18, 2019.
6. March 19, 2019 – Marcia purchased Office Supplies for BB
Merchandise amounting to ₱5,000 on account. Marcia will pay this on April
30, 2019.
7. March 25, 2019 – Paid the salary of Julie Ann amounting to ₱4,000.
REFLECTIVE LEARNING SHEET
Student:
_
_
_
_
_
_
_
_
_
_
Teacher: Business decisions rely on understanding of financial terms and

accounting principles. Through these terms, you can gauge your business
performance, communicate with potential investors, determine whether you’re
making a profit, and plan for upcoming expenses, among other
things. According to the Small Business Administration, 78.6% of small
businesses survived only one year between 2005 and 2017.These businesses
may not have had the foundation needed to learn how their profits, expenses,
accounting, and more affected their success. Understanding business
financial terms may help you prevent that problem and have a thriving
business for years to come – Rosemary Carlson
. To further understand the lessons kindly visit:

1. www.thebalancesmb.com/the-accounting-cycle-for-a-small.
2. www.youtube.com/watch?v=zLmILAQEpoY
22
3. www.youtube.com/watch?v=XTspj8CtzPk
23
REFERENCES
• Accounting Theory (n.d.) Retrieved from ttp://accountingtheory.weebly. com/nature-

and-scope-of—accounting
• Andres, C.S., et al.(2016) ‖Teaching Guide for Senior High School Fundamentals of
Accountancy, Business and Management 1‖ – Published by Commission on Higher
Education in collaboration with the Philippine Normal University
• Ferrer R.C. et.al. (2017). Fundamentals of Accountancy, Business and
Management part 1, Bandolin Enterprise, (Publishing and Printing) Bakakeng Sur,
Baguio Rabo City
•, Joy S. et.al. (2019). Fundamentals of Accountancy, Business and Management 1
(K to 12 Revised Edition), Vibal Publishing, Manila
• Valencia, E. and Roxas, G. (2009). Basic Accounting, 3 rd ed. Valencia Education
Supply
• Valix, Conrado T. et.al. (2015). Financial Accounting, Vol. 1, First part. GIC
Enterprises & Co. Inc • Weygandt, J. et. al. (2012) Accounting Principles 10th ed.
John Wiley & Sons (Asia) Pte. Ltd.
Acknowledgements
Writer: Manuel L. Hermosa, EdD
Editor: Isabel A. Gumaru, DBA
Evaluator: Ellaine I. Dela Cruz, DBA
Validators & Reviewers:

Remylinda T. Soriano, EPS, Math
Angelate Z. Modesto, PSDS
George B. Borromeo, PSDS
Management Team:
Maria Magdalena M. Lim-Schools Division
Superintendent- Manila
Aida H. Rondel -Chief Education Supervisor
Lucky S. Carpio - EPS in Charge of LRMS
Lady Hannah C. Gillo, Librarian II-LRMS
24
25

Accounting Cycle in Business

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting Cycle in Business

Uploaded by

Copyright:

Available Formats

Republic of the

Let’s talk accounting cycle in Business…

PARTS OF THE MODULE

 Expectations - These are what you will be able to know after

I. Directions: MULTIPLE CHOICE

II. TRUE or FALSE

LOOKING BACK TO YOUR LESSON

Before we go to this module 7, kindly recall topics that we discussed already

The Accounting cycle represents the steps or procedures used to record

How can we identify and analyze transactions of events?

1. Sales invoice vs. Official receipt

After identifying transactions, we are now proceeding with; Journalizing -after

The following are the parts of a journal entry:

Example 1: Journal entries – Start – up

Transaction #1: Initial Investment

Step#1: Transaction analysis

Step#2: Journal entry

Transaction #2: Loan

Transaction #3: Capital expenditures

Item description Cost

Step # 1: Transaction analysis

Step #2: Journal entry

Transaction #4: Acquisition of inventory

#1: Transaction analysis

Step #2: Journal entry

Remember the following:

Example 2: Journal entries – Operations

Transaction #5: Sale

Step #1: Transaction analysis

Step #2: Journal entry

The cost sale is recorded as follows :

Step #2: Journal entry

Example 3: Non-accountable events

Step #2: Journal entry

Step #2: Journal entry

Case #2: initial investment in non-cash assets

Step #2: Journal entry

Both entries above – compounded and simple, are acceptable.

Case #2.1: Acquisition of asset – Equipment

Case #2: Acquisition of asset – Inventory (Cash basis)

Case #2.3A: Acquisition of asset – Inventory (On account /Credit)

Step #2: Journal entry

Case #2.3B: Payments of accounts payable

Step #1: Transaction analysis

Step #2: Journal entry

Case #3.1B: Liability

Step #1: Transaction analysis

Step #2: Journal entry

Case #3.2: Payment of Liability

Step #1: Transaction analysis

Step #2: Journal entry

Case #4.1. Income – Cash sale

The journal entries to record the transaction are as follows:

Case #4.2A: Credit sale (Sale on account)

Step #1: Transaction analysis

Step #2: Journal entry

Case #4.2B: Collection of accounts receivable

#1: Transaction analysis

Step #2: Journal entry

Case #5: Expense – Paid in cash

Case #6 Owner’s drawings

Step #1: Transaction analysis

* The “Owner’s drawings” account is closed to the “Owner’s capital” account, as a