BTLE 30043 Bookkeeping For Service Business

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University Vision
PUP: The National Polytechnic University
College Mission
The College of Education commits itself to strive for excellence through quality instruction, research,
community extension and international linkages to improve the standard of education in a rapidly
transforming educational system and society, in general.
College Goals
1. Learner-Focused Instruction
2. International comparability of Curricula
3. Empowered Faculty
4. Research Excellence
5. Strengthened Community Engagement
6. Responsive Governance and Management
7. Expanded collaborative Partnership and Networks
8. Sustainable Technology Service
9. Empowered Stakeholders
10. Dynamic Learning Environment
College Objectives
1. Provide students with lifelong learning opportunities.
2. Ensure that all curricula are research-oriented and compliant with national and international
standards of quality and excellence.
3. Build on excellent faculty by providing opportunities for global engagement.
4. Enhance research capability, dissemination and implement research findings.
5. Engage faculty, students and the community in respectful collaboration to address identified
needs of the community and deepen student/faculty civic and academic well-being.
6. Inspire a culture of intellectual curiosity and passion for making a difference.
7. Build on faculty strength within the university and on intellectual collaboration across universities
globally to enrich academic programs.
8. Use of best practices and technologies to optimize learning experiences while modeling
sustainability.
9. Establish contact with stakeholders to ensure that they are well informed and regularly consulted
about the roles they need to perform in contributing the mission of the college.
10. Provide an atmosphere where engagement and passion for learning thrives.
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Cover Page .........................................................................................................................................1
Crouse Syllabus ..................................................................................................................................2
College Vision, Mission, Goals, and Objectives ...................................................................................5
Table of Contents ................................................................................................................................6
Lesson 1A Introduction to Accounting .................................................................................................8
Lesson 1B Introduction to Accounting, a continuation........................................................................13
Lesson 2 Analyzing Business Transactions .....................................................................................19
Lesson 3 Accounting Equation ........................................................................................................25
Lesson 4A Accounting Process of a Service Concern .......................................................................34
Lesson 4B Accounting Process of a Service Concern .......................................................................44
Lesson 4C Accounting Process of a Service Concern .......................................................................52
Lesson 5 6 - Column Worksheet and Financial Statements .............................................................63
Lesson 6 The Closing Entries and Post-Closing Trial Balance ........................................................69
MIDTERM EXAMINATION
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Lesson 7 Adjusting Entries for Depreciation of Property, Plant, and Equipment ..............................73
Lesson 8 Adjusting Entry for Uncollectible Accounts .......................................................................81
Lesson 9 Adjusting Entry for Accrued Expense ...............................................................................86
Lesson 10 Adjusting Entry for Accrued Revenue ...............................................................................93
Lesson 11 Adjusting Entry for Prepaid Expenses (Asset Method) ................................................... 100
Lesson 12 Adjusting Entry for Prepaid Expenses (Expense Method) .............................................. 108
Lesson 13 Comparison Between Asset Method and Expense Method ............................................ 116
Lesson 14 Adjusting Entry for Unearned Revenues (Liability Method) ............................................. 120
Lesson 15 Adjusting Entry for Unearned Revenues (Revenue Method) .......................................... 125
Lesson 16 Comparison Between Liability Method and Revenue Method ......................................... 130
Lesson 17 Completion of the Accounting Cycle of a Service Business ............................................ 134
References ...................................................................................................................................... 135
(Additional activities are to be given during virtual meetings or to be posted on the LMS)
FINAL EXAMINATION
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LESSON
1A INTRODUCTION TO ACCOUNTING
In this lesson, you will be introduced to the basic concepts of

bookkeeping and accounting. You will get to know its brief history, phases, Learning Objectives:
and importance in the business and professional world. 1. Define accounting

and its importance;
2. Distinguish the
difference between
Instructions: Answer the following questions. bookkeeping and
accounting;
What do you consider to be your greatest asset (it may be physical or 3. Determine the
personality trait) Why? fields of accounting,
the types of busi-
ness, and the forms
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• Asset is normally defined as a useful or valuable

thing, person, or quality.
• In accounting, asset is everything that is owned by

the business. These are the resources controlled by
the enterprise as a result of past transactions and
events from which future economic benefits are
expected to flow to the enterprise.
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Congratulations! You were able to distinguish your greatest asset. Now let’s explore Accounting
and its basic concepts.
History of Accounting
A Franciscan monk named FRIAR LUCA PACIOLI is credited

with the ownership of the first written work about algebra, geometry and
bookkeeping. It was entitled “summa de Arithmetica, Geometrica,
Proportioni et Proportionalita (Everything about Arithmetic, Geometry,
Proportions and Proportionality). He was also considered as the father
of double-entry bookkeeping, and also referred to as the father of
accounting. Friar Luca Pacioli
Accounting and Bookkeeping Defined
According to Accounting Standards Council (ASC), accounting is defined as follows:
• It is a service activity. Its function is to provide quantitative information, primarily financial in

nature, about economic entities that are useful in making economic decisions and reasoned
choices among alternative courses of action.
• Coined as the language of the business.
• It is also defined as the art of recording, classifying and summarizing, in a significant manner
and in terms of money, transactions and events which are part at least of a financial character
and interpreting the results thereof.
Three phases of accounting:
• Recording/Bookkeeping – The process of systematically maintain a record of all business

transactions, usually done in chronological order.
• Classifying – The sorting or grouping of similar and interrelated transactions in their respective
class.
• Summarizing – The preparation of financial statements -- the end-product of the accounting
process. It provides information about the financial position and performance of the enterprise
The Role of Accounting in Business
In general, accounting as an information system, provide reports about economic activities and
condition of a business. Accounting provides the necessary information essential in the formulation
and execution of business and non-business policies. For example, Accounting reports summarizing
the profitability of a product help management decide whether to continue selling a product or not.
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Businesspeople must have an orderly wat to keep tract of the countless and varied financial
transactions that occur. Managers can look at the summarized information from the reports and
determine if the business is operating at a profit. Business establishments and the government
acknowledge accounting as an essential tool of management.
The Specialized Fields of Accounting
• Public Accounting – Provides accounting services to the general public. Certified Public
Accountants (CPA) are engaged in this kind of practice. They render services such as auditing,
taxation, and management advisory, etc. to the clients. Auditing attest the accuracy and fairness
of presentation of the accounting data. It involves the independent examination of financial
statements. Taxation include offering advice on tax, calculating tax liability and completing tax
returns. Management Advisory offers examining and providing cost information to the internal
management in order to facilitate planning, controlling, and decision making.
• Private Accounting – Provides accounting services to private companies. Private accountants
may or may not be CPAs.
• Government Accounting – Is a field of specialization wherein accountants are responsible for
the accumulation of accounting data for governmental units.
• Research and Education – Accountants who impart knowledge, expertise, and skills to the
academe. Only CPA’s can practice this profession. They are employed as instructors,
professors, reviewers, or researchers.
Forms of Business Organizations
• Single Proprietorship / Sole Proprietorship – Is a business owned and managed by only one
individual. He is called the proprietor. This is the easiest form of organization to organize.
• Partnership – A contract whereby two or more persons bind themselves to contribute money,
property, or industry into a common fund with the intention of diving profit among themselves.
• Corporation – Is an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its existence.
Types of Business
• Service Business – Performs services to customers or clients for a fee. Examples are repair
shops, beauty parlors, medical or health clinic, etc.
• Merchandising Business – Also known as trading business, they purchase goods in salable form
and sell them to make a profit. Examples are grocery stores, department stores, supermarket,
etc.
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• Manufacturing Business – Makes finished goods from the obtained raw materials and supplies.
Examples are shoe factories, garment factories, clothing manufacturers, etc.
At this point, I want you to do this activity to check your knowledge and understanding of the lesson.
Instructions: Answer the following questions.
1. How important accounting is in the business world?

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2. Can you apply accounting for your personal expenses? Why or why not?
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It’s good to know that you were able to realize the importance of accounting. Here’s another
activity to further check your knowledge.
Instructions: For each of the business listed below, indicate the type of the firm for which each belongs.
Write X on the space provided.
Service Merchandising Manufacturing

1. Car assembler
2. Paper mills
3. Laundry shop
4. Dental clinic
5. Barber shop
6. Gift shop
7. Real estate broker
8. Bookstore
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Service Merchandising Manufacturing

9. Battery maker
10. Movie houses
11. Driving school
12. Hardware
13. Law offices
14. Department store
15. Accounting firm
16. Boutique
17. Groceries
18. Supermarket
19. Sari-sari store
20. Shoe factory
Well done! For your final activity, I want you to write down the meaningful learning you have
acquired in this lesson.
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LESSON INTRODUCTION TO ACCOUNTING

1B
a continuation …
You are now on the second part of lesson 1, a continuation of the

introduction to accounting.
Learning Objectives:
1. Distinguish the
Generally Accepted
Instructions: As part of you review, finish the chart below by providing the Accounting
Principles (GAAP);
different specialized accounting fields with brief explanation.
2. Describe the basic
financial statements
Specialized Accounting Fields
of business;
3. Identify the ele-

ments/components
of financial state-
1. ments.
2.
A Certified Public
3. Accountant (CPA) is an
accounting professional
who has passed the
Uniform CPA examina-
tion and has also met
additional state certi-
fication and experience
requirements.
4.
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Good job! You were able to give and explain the different specialized accounting fields. Now
let’s continue exploring about Accounting.
The Generally Accepted Accounting Principles (GAAP)
It defines what is accepted accounting practice and they are like laws that must be followed in
financial reporting.
• Business entity concept – The business entity is treated as a separate and distinct from its
owner/s and from other business units. The personal transactions of the owner should not be
merged with that of the business he owns.
• Going concern or continuity assumption – This assumes that unless there is evidence to the
contrary, the business will continue to operate for an indefinite period.
• Time period assumption - Requires that the indefinite life of the business be divided into
accounting periods for the preparation of the financial statements.
Accounting periods:
o Monthly basis (shortest accounting period)
o Quarterly (every 3 months)
o Semi-annually (every six months)
o Annually (one year)
• Unit of measurement assumption - Accounting results must be reported in terms of monetary
unit such as the Philippine Peso.
• Revenue recognition – Revenue is recognized when it is earned regardless of collection.
• Expense recognition – Expenses are recognized when incurred regardless of payments.
• Matching concept – Determining net income is a two-fold process of matching revenue for the
period with expenses incurred in generating revenue.
Basic Financial Statements of Business Organizations
• Income Statement / Statement of Comprehensive Income – Shows the summary of the

company’s revenue and expenses in a given period.
• Balance Sheet / Statement of Financial Position – Shows the list of a company’s asset, liabilities,
and owner’s equity as of a specific date. It shows the financial condition of an enterprise as of a
particular date.
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• Capital Statement / Statement of Changes in Owner’s Equity – Shows the summary of changes
in the owner’s equity that have occurred during a specific period of time.
• Statement of Cash Flows – Shows the proper presentation of the three types of business
activities: operating, investing, and financing. A cash flow statement summarizes the amount of
cash and cash equivalents entering and leaving a company.
Qualitative Characteristics of Financial Statement
• Understandability - It must be presented in a form and expressed in terminology that a user

understand.
• Reliability - It is free from errors and bias and can be depended upon by users to represent
faithfully what it purports to presents.
• Relevance - Influence the economic decisions of users helping them to form predictions about
the outcome of past, present, and future events.
• Comparability - Means the ability to bring together for the purpose of noting points of likeness
and differences. Users must be able to compare the financial statements of an entity through
time in order to identify trends in its financial position and performance from one accounting
period to the next.
Elements of Financial Statements
The five (5) basic classification of accounts are as follows:
• Assets - Everything that is owned by the business. These are the resources controlled by the
enterprise as a result of past transactions and events from which future economic benefits are
expected to flow to the enterprise.
Examples of asset accounts:
o Cash - Any medium of exchange that the bank will accept at face value (coins, paper bills,
checks).
o Accounts Receivable - Claims against debtors or customers from services rendered or
sale of merchandise on account.
o Notes Receivable - Claims against debtors evidenced with a promissory note.
o Merchandise Inventory – Are goods on hand and are available for sale.
o Office Supplies - Supplies being used by the business (paper, pens, pencils).
o Office Equipment - Tangible assets used in the operation of the business.
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o Furniture and Fixtures - Properties owned by the business which are not part of the
building itself.
o Prepaid Expenses - Expenses paid in advance. Example: three months’ rent paid in
advance (Prepaid Rent)
o Intangible Assets - Assets with no physical substance but are expected to provide future
economic benefits to the business (franchise, copyright, trademarks).
• Liabilities - Everything that is owed by the business. These are financial obligations or debts.
Examples of liability accounts:
o Accounts Payable - Amounts due to creditors for assets acquired on account.
o Notes Payable - Amounts due to creditors evidenced by a promissory note.
o Mortgage Payable – Are long term debts secured by a collateral.
o Salaries Payable - Unpaid salaries of the employees at the end of the accounting period.
o Taxes Payable - Present obligation due to the government.
o Interest Payable - Interest incurred mounted from a loan but unpaid at the end of the
accounting period.
o Unearned Revenue - Revenue collected but not yet earned.
• Capital - It represents the equity or claims of the owner on the assets of the business.
Examples of capital accounts:
o Owner’s Capital
o Owner’s Drawing / Owner’s Withdrawal – Charged to this are cash or other assets
withdrawn or taken by the owner from the business for personal use.
• Revenue - Gross inflow of economic benefits.

Examples of revenue accounts are: Sales, Service Revenue, Professional Fees, Rent Revenue,
Subscription Revenue.
• Expense - Gross outflow of economic benefits.

Examples of expense accounts are: Salaries Expense, Rent Expense, Advertising Expense,
Travelling Expense, Insurance Expense, Utilities Expense.
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Here’s another activity for you to answer!
1. Why is it important to have a separate accounting for personal transactions from the actual
business accounting transactions?
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2. What is a financial statement? Why is it important to maintain its supposed qualitative

characteristics?
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Terrific! You were able to answer the above questions. Next, let’s try the activity below.
Instructions: Classify the following account titles as to: ASSET (A), LIABILITY (L), CAPITAL (C),
REVENUE (R), and EXPENSE (E).
1. Cash 9. Notes Payable

2. Fees Earned 10. Professional Fees Earned
3. J. Cruz, Capital 11. Machineries
4. Salaries Expense 12. Equipment
5. Sales 13. Accounts Payable
6. Service Revenue 14. E. Dela Cruz, Capital
7. Truck
15. Rent Expense
8. Franchise
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Well done! For your final activity, Write your meaningful learning here.
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LESSON ANALYZING BUSINESS

2
TRANSACTIONS
In Lesson 2, we will now begin analyzing business transactions. Make

sure that you have the knowledge of the elements of the financial statements Learning Objectives:
because it will play a big part in this lesson. 1. Define business
transaction and its
importance to an
organization.
Instructions: To test your preparedness for this lesson, answer the following
2. Analyze business
questions. Identify the word/words being described. transactions and
identify its effects to
the elements of fi-
_______________1. Any medium of exchange that the bank will accept at nancial statements ;
face value. 3. Use source

documents as basis
_______________2. Tangible assets used in the operation of the business. for recording.
_______________3. Amounts due to creditors evidenced by a promissory
note.
_______________4. Present obligation due to the government.
_______________5. Amounts due to creditors for assets acquired on account.
_______________6. Gross inflow of economic benefits.
_______________7. Shows the summary of the company’s revenue and expenses in a given period.
_______________8. Are goods on hand and are available for sale.
_______________9. It represents the equity or claims of the owner on the assets of the business.
_______________10. Gross outflow of economic benefits.
• Official receipt is an example of source document.

• In accounting, source documents are very
important because it attests the faithful
representation of financial data.
• So keep your receipts!
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Good job! You were able to answer the above identification test. We can now move forward to
the next lesson which is analyzing business transactions.
Business Transactions Defined
A business transaction is any event that affects any of the basic accounting elements. This
occurs from ordinary business activities like rendering services, selling, purchasing, producing, and the
like.
It is a must that business transactions are to be analyzed, recorded, and summarized. The result
of which is to generate financial reports, which are necessary for making economic decisions.
Two categories:
• Internal business transaction – When the transaction occur is within the business and does not
involve any outsiders.
• External business transaction – When the transaction is between the business and an outsider.
Source documents are evidence of the economic activities of business enterprise.
Steps in Analyzing Business Transactions
• Determine the accounts involved or affected by the given transaction. There are always two or
more accounts involved or affected.
• Determine the effect of the given transaction on the accounts involved. The effect is either
increase or decrease.
All transactions are to be analyzed on the point of view of the enterprise. Examples:
1. Mr. C. Villegas started his own business by investing P 2 000.

Accounts Affected Effect
Cash Increase
C. Villegas, Capital Increase
2. The business purchased office supplies for cash, P 5 000.

Cash decrease
Office Supplies Increase
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3. Returned office supplies previously bough due to defects, receiving P 2 500 cash refund.
Cash Increase
Office Supplies Decrease
4. Purchased office equipment on account worth P 10 000.

Accounts Payable Increase
Office Equipment Increase
5. Issued check as payment from the office equipment previously bought on account, P 10 000.
Cash Decrease
Accounts Payable Decrease
6. Paid salaries of two helpers, P 10 000.

Cash Decrease
Salaries Expense Increase
7. Rendered services to customers on account, P 3 000.

Accounts Receivable Increase
Service Revenue Increase
8. Received cash payments from customers on account, P 3 000.

Cash Increase
Accounts Receivable Decrease
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9. Rendered services to customers receiving cash, P 4 000.

Cash Increase
Service Revenue Increase
10. The owner, Mr. C. Villegas, withdrew P 2 500 cash for personal use.
Cash Decrease
C. Villegas, Drawing Increase
For you to master analyzing business transactions, answer the activities to follow.
Instructions: Analyze the following business transactions. Write your answer on the space provided.
Number 1 has been done for you.
1. Mr. J. Santos invested cash to start his own business.

Cash Increase
J. Santos, Capital Increase
2. Bought office supplies on account.
3. Borrowed cash from bank with a promissory note.
4. Purchased equipment on account.
5. Received cash from services rendered.

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6. Paid advertising expense for the month.
7. Issued check as payment for transaction no. 4.
8. Paid salaries of employees.
9. The owner invested additional cabinets, tables, and chairs.
10. Rendered service to customer on account.
11. The owner withdrew cash for personal use.
12. Collected cash from transaction no. 10.
13. Paid cash for transaction no. 3.
14. The owner invested additional cash.
15. Bought office supplies for cash.

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Great! You were able to analyze the business transactions given above. Here’s another activity for
you.

1. Why is it important to keep source documents?
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2. Why is it important to analyze business transactions in the point of view of the business?
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Good job! To wrap things up, provide your meaningful learning here.
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LESSON
3 Accounting equation
In this lesson, you will analyze business transactions with the use of Learning Objectives:
accounting equation. In order for you to do that, you should have the 1. Identify the
elements of account-
mastery of analyzing business transactions. Answer activity 1 to show your ting equation.
knowledge on the said lesson. 2. Analyze the
effects of business
transactions to
the accounting
equation.
Instructions: Analyze the following business transactions.
1. The owner, F. Castillo, invested cash.
2. Bought tables and chairs on account.
3. Borrowed money from a bank with a promissory note.
4. Rendered services on account.
5. Received cash for services previously rendered on account.
• A business transaction can also affect

three accounts. Example: The business
bought office equipment worth P50 000
by paying P10 000, and the remaining
balance on account.
Office Equipment Increase
Accounts Payable Increase
Cash Decrease
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Great! You now have the mastery of analyzing business transactions! Get ready for the next
lesson.
The Accounting Equation
Originally the accounting equation states that:

Assets = Equity
However, equity pertains to the right to properties which are equity to creditors (liabilities) and
equity of the owner (capital).
Thus, the equation was derived into:
Assets = Liabilities + Capital (Owner’s Equity)
The left side of the equation represents the asses while the right side represents the liabilities
and the owner’s equity. It should be noted that the equation must be maintained balance.
Furthermore, from the equation above, the following equations can also be derived:
Capital = Assets – Liabilities
Liabilities = Assets – Owner’s Equity
Here’s an activity for you to understand the concept of the equation.
Instructions: Provide the correct answer.

1. Mars Company: 2. Venus Company:
Assets = 150,000 Assets = 180,000
Liabilities = 100,000 Liabilities = _____________?
Owner’s Equity = _____________? Owner’s Equity = 120,000
3. Saturn Company: 4. Jupiter Company:
Assets = _____________? Assets = 300,000
Liabilities = 150,000 Liabilities = _____________?
Owner’s Equity = 110,000 Owner’s Equity = 180,000
Great! You were able to grasp the idea of the accounting equation. Let’s now use the
accounting equation in analyzing business transactions.
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Tabular Analysis of Business Transactions
Let’s check the effect of the business transactions to the accounting equation.
The following are the business transactions of Cruz Repair Shop for the month of May 2020:
May 2 Mr. Juan Cruz invested P50,000 cash to start his own repair shop.
ASSETS = LIABILITIES + Capital
Date Cash Accounts Office Office Accounts Notes J. Cruz,

Receivable Supplies Equipment Payable Payable Capital
May 2 50 000 50 000
Assets = P50 000 Liabilities + Capital = P50 000
• The transaction above explains that assets will increase by P50 000 due to the investment of
the owner with a corresponding increase in the capital of the same amount. Hence, the
accounting equation is balance (P50 000 = P50 000).
Now, let’s proceed with the succeeding transactions of Cruz Repair Shop.
May 4 Purchased office supplies for P7,500 paying cash.

May 2 50 000
May 4 (7 500) 7 500
Balance 42 500 7 500 50 000
• In this transaction, only the asset side of the equation was affected. The purchased of office
supplies using cash resulted in a decrease in cash and an increase in office supplies. There is
a zero effect on both sides of the equation. Hence, the equation is still balance (P50 000 = P50
000).
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May 6 Purchased equipment on account for P25,600.

May 4 (7 500) 7 500
May 6 25 600 25 600
Balance 42 500 7 500 25 600 25 600 50 000
• In this transaction, the purchased of office equipment increased the assets of the business.
However, it was purchased on account. It means that the liabilities of the business will also
increase in the form of accounts payable. As you can see, the accounting equation is still
balance (P75 600 = P75 600).
May 8 Borrowed money from bank by giving a 6-month, non-interest bearing note for P20,000.

May 6 25 600 25 600
May 8 20 000 20 000
Balance 62 500 7 500 25 600 25 600 20 000 50 000
• There is an increase in cash and also an increase in the business’ notes payable. The
accounting equation remained balance (P95 600 = P95 600).
May 10 Paid P12,800 for the equipment purchased on account.

May 8 20 000 20 000
May 10 (12 800) (12 800)
Balance 49 700 7 500 25 600 12 800 20 000 50 000
• The cash and the accounts payable were decreased because of the transaction.
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May 13 The owner withdrew P3,000 cash for his personal use.

May 10 (12 800) (12 800)
May 13 (3 000) (3 000)
Balance 46 700 7 500 25 600 12 800 20 000 47 000
• Take note that cash withdrawals of the owner will always result to a decrease in his capital.
May 17 Rendered services to customers, receiving cash, P6,000.

May 13 (3 000) (3 000)
May 17 6 000 6 000
Balance 52 700 7 500 25 600 12 800 20 000 53 000
• The received of cash from services rendered will always result to an increase in capital.
May 21 Rendered services to customers on account, P10,500.

May 17 6 000 6 000
May 21 10 500 10 500
Balance 52 700 10 500 7 500 25 600 12 800 20 000 63 500
• The service rendered on account will result to increase in accounts receivable and increase in
capital.
Continuation at the next page.

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May 24 Paid rent for store space for the month, P3,000.

May 21 10 500 10 500
May 24 (3 000) (3 000)
Balance 49 700 10 500 7 500 25 600 12 800 20 000 60 500
• The cash payment of rent expense will result to a decrease in cash and capital.
May 27 Paid salaries of helpers, P4,800.

May 24 (3 000) (3 000)
May 27 (4 800) (4 800)
Balance 44 900 10 500 7 500 25 600 12 800 20 000 55 700
• Presented above is the tabular analysis of the transactions of Cruz Repair Shop for the month
of May. We can see that after all the transactions were analyzed, the accounting equation
remained balance.
If you are having a hard time, please go back to the first transaction and analyze it again.
Afterwards, you may proceed to the next activities.
On the succeeding pages, you will find activities regarding the tabular analysis of business
transactions. Answer all of it.
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Instructions: Analyze the following transactions. The table has been provided for you.
Name of Business: Santos Repair Shop
Owner: Juan Santos
Business transactions for the month of June 2020
1 Invested P30,000 cash to start the repair shop.

4 Purchased equipment for P10,000 on account.
7 Paid P4,000 cash for June office rent.
9 Paid P5,000 cash for supplies purchased.
10 Provided repair service on account to customers, P4,000.
11 Borrowed money from a bank worth P15, 000, and issued promissory note.
12 Received P8,200 cash from customers for repair service.
16 Withdrew P5,000 cash for personal use.
19 Paid part-time employee salaries P2,000.
23 Paid utility bills P1,400.
29 Collected cash of P2,400 for services billed in June 10 transaction.
OWNER’S
ASSETS = LIABILITIES +
EQUITY
Accounts Accounts Notes
Date Cash Supplies Equipment
Receivable Payable Payable
June 1
BALANCE
ASSETS =
LIABILITIES =
OWNER’S EQUITY / CAPITAL =
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Name of Business: Castro Repair Shop
Owner: Juan Castro
1 Invested P50, 650 cash to start the repair shop.

3 Purchased office supplies on account, P6, 800
5 Paid office rent for the month P5, 500.
9 Provided service to customer on account, P8, 700.
11 Borrowed money from a bank worth P25, 600 and issued promissory note.
14 Received P4, 200 cash from customers for services rendered.
17 Withdrew P7, 700 cash for personal use.
19 Bought office equipment on account, P 8,000.
22 Collected cash of P5, 500 from June 9 transaction.
24 Paid salaries of employees, P4, 400.
OWNER’S
EQUITY
June 1
TOTAL
ASSETS =
LIABILITIES =
OWNER’S EQUITY / CAPITAL =
33 | P a g e
Name of Business: Sarreal Repair Shop
Owner: C. Sarreal

13 Returned defective supplies worth 2,560, and received cash refund
14 Paid partial payment of P 6,000 for the June 4 transaction.
25 Paid in full the remaining balance for the June 4 transaction.
29 Collected cash of P2,400 for services billed on June 10 transaction.
OWNER’S
EQUITY
June 1
TOTAL
ASSETS = LIABILITIES = OWNER’S EQUITY/ CAPITAL =

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LESSON ACCOUNTING PROCESS OF A

4A
SERIVE CONCERN
In this lesson, you will be introduced to the accounting process of a Learning Objectives:
service business. 1. Enumerate the
steps in the accoun-
ting cycle.
2. Apply the debit

Instructions: and credit rules in
A. Recall the definition of a service business. Write your answer on the recording business
transactions.
space provided.
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
B. Give at least ten (10) examples of a service business.

1.
2.
3.
4.
5. The accounting
cycle/process
6. has eleven (11)
steps.
7.
Be sure to do it
chronologically!
8.
9.
10.
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Good job! You were able to provide the definition and even examples of a service business.
You are now ready for the next lesson.
Overview of the Accounting Process
Accounting process or the accounting cycle consists of the sequence of steps that must be followed
within the accounting period. In order, these are as follows:
1. Analyzing business transactions by examining source documents

2. Journalizing
3. Posting
4. Preparing a trial balance
5. Gathering of necessary adjustment data
6. Preparing a worksheet
7. Preparing the financial statements
8. Journalizing and posting the adjusting entries
9. Journalizing and posting the closing entries
10. Journalizing the post-closing trial balance
11. Preparation of reversing entries
Debit and Credit Rules
The words debit and credit came from Latin words debere and credere. The former means “to
owe” while the latter means “to trust or believe”. Hence, debit is abbreviated as Dr. and credit as Cr.
In accounting, the increase or decrease of an account is interpreted as debit and credit.
Rules of Debit and Credit

Accounts Increase Decrease Normal Balance
Assets Debit Credit Debit
Liabilities Credit Debit Credit
Capital Credit Debit Credit
Drawing Debit Credit Debit
Revenue Credit Debit Credit
Expenses Debit Credit Debit
• It is important to fully understand these rules in order to facilitate the journalizing process
correctly.
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• The rules dictate that for assets, drawings, and expenses, an increase would mean debit while
a decrease would mean credit, and the normal balance of which is debit.
• On the other hand, for liabilities, capital, and revenue, an increase would mean credit while a
decrease would mean debit, and the normal balance of which is credit.
Let us recall the transactions of Cruz Repair Shop to further illustrate the application of the above
rules. The accounts affected with their corresponding debit and credit rules are as follows:
Accounts affected Effect Rule

Cash Increase Debit
J. Cruz, Capital Increase Credit
• As the rule dictates, an increase in asset would mean debit, that is why cash is debited. An
increase in capital would mean credit, that is why J. Cruz, Capital is credited.

Office Supplies Increase Debit
Cash Decrease Credit
May 6 Purchased office equipment on account for P25,600.

Office Equipment Increase Debit
Accounts Payable Increase Credit

Cash Increase Debit
Notes Payable Increase Credit
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Accounts Payable Decrease Debit

J. Cruz, Drawing Increase Debit

Cash Increase Debit
Service Revenue Increase Credit

Accounts Receivable Increase Debit
Service Revenue Increase Credit

Rent Expense Increase Debit

Salaries Expense Increase Debit
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You will find three (3) activities below about the rules of debit and credit. Finish it all.
Instructions: Analyze the following transactions with reference to the rules of debit and credit.
Number one has been done for you.
Name of Business: Santos Repair Shop
Owner: Juan Santos

Cash Increase Debit
J. Santos, Capital Increase Credit




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29 Collected cash of P2,400 for services billed in June 10 transaction.

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Name of Business: Castro Repair Shop
Owner: Juan Castro
1 Invested P50, 650 cash to start the repair shop.

Cash Increase Debit
J. Castro, Capital Increase Credit
3 Purchased office supplies on account, P6, 800

5 Paid office rent for the month P5, 500.

9 Provided service to customer on account, P8, 700.

11 Borrowed money from a bank worth P25, 600 and issued promissory note.
14 Received P4, 200 cash from customers for services rendered.

41 | P a g e
17 Withdrew P7, 700 cash for personal use.

19 Bought office equipment on account, P 8,000.

22 Collected cash of P5, 500 from June 9 transaction.

24 Paid salaries of employees, P4, 400.

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Name of Business: Sarreal Repair Shop
Owner: C. Sarreal





43 | P a g e

13 Returned defective supplies worth 2,560, and received cash refund.

14 Paid partial payment of P 6,000 for the June 4 transaction.




25 Paid in full the remaining balance for the June 4 transaction.

29 Collected cash of P2,400 for services billed on June 10 transaction.

44 | P a g e

4B
SERVICE CONCERN
In this lesson, you will be introduced to the accounting tool, the T- Learning Objective:
Account. 1. Use the T-account
in analyzing busi-
ness transactions.
Instructions: For your review, finish the table by writing debit or credit on the
appropriate column.
CLASSIFICATION OF
INCREASE + DECREASE -
ACCOUNTS
ASSET
LIABILITY
CAPITAL
DRAWING
INCOME
EXPENSE
• The use of Debit and Credit rules will assure that

the accounting equation will always be balance.
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Great! You now have the understanding of the debit and credit rules. Let’s proceed to the
next lesson.
Accounts and T-accounts
An account is an individual record of each asset, liability, capital, drawing, revenue, and expense
items in which the effects (increase or decrease) of busines transactions are recorded.
This is an example of the T-account for cash account.
It is similar to capital letter T that is why it is called T-account. The T-account has three parts:
The account name, which is written at the top of letter T, and the left side (debit) and the right side
(credit).
Chart of Accounts
A chart of accounts is a list of assets, liabilities, capital, drawing, revenues, and expenses
applicable to a business enterprise. It serves as a guide for the bookkeeper as to what account title
can be used for a particular transaction. It is arranged in the following order:
1. Assets – Account number usually starts with 1

2. Liabilities – Account number usually starts with 2
3. Capital & Drawing – Account numbers usually start with 3
4. Revenues – Account number usually starts with 4
5. Expenses – Account number usually start with 5
For your understanding, presented below is an example of chart of accounts:
Chart of accounts (Juan Cruz Repair Shop)
Account Names Acc. No. Account Names Acc. No.

Cash 11 J. Cruz, Capital 31
Accounts Receivable 12 J. Cruz, Drawing 32
Office Supplies 13 Service Revenue 41
Office Equipment 14 Rent Expense 51
Accounts Payable 21 Salaries Expense 52
Notes Payable 22
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Now, we will use the T-account to analyze business transactions. Let us refer again to the
transactions of Juan Cruz Repair Shop.
CASH J. CRUZ, CAPITAL

Debit Credit Debit Credit
5/2 50 000 5/2 50 000
CASH OFFICE SUPPLIES

5/2 50 000 5/4 7 500 5/4 7 500
May 6 Purchased office equipment on account for P25,600.
OFFICE EQUIPMENT ACCOUNTS PAYABLE

5/6 25 600 5/6 25 600
CASH NOTES PAYABLE

5/2 50 000 5/4 7 500 5/8 20 000

5/8 20 000
P20 000
CASH ACCOUNTS PAYABLE
5/2 50 000 5/4 7 500 5/10 12 800 5/6 25 600

5/8 20 000 5/10 12 800
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CASH J. CRUZ, DRAWING
5/2 50 000 5/4 7 500 5/13 3 000

5/8 20 000 5/10 12 800
5/13 3 000

CASH SERVICE REVENUE
5/2 50 000 5/4 7 500 5/17 6 000

5/8 20 000 5/10 12 800
5/17 6 000 5/13 3 000
ACCOUNTS RECEIVABLE SERVICE REVENUE

5/21 10 500 5/17 6 000

5/21 10 500
CASH RENT EXPENSE
5/2 50 000 5/4 7 500 5/24 3 000

5/8 20 000 5/10 12 800
5/17 6 000 5/13 3 000
5/24 3 000
CASH SALARIES EXPENSE
5/2 50 000 5/4 7 500 5/27 4 800

5/8 20 000 5/10 12 800
5/17 6 000 5/13 3 000
5/24 3 000
5/27 4 800
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Presented below is the record of each account of Cruz Repair Shop using T-account. You can
see that the accounting equation is balance.
To complete your understanding about the use of T-accounts, answer the succeeding
activities.
Instructions: On the succeeding pages, provide the t-accounts of the following businesses found in
this module:
a) Santos Repair Shop, Page 31
b) Castro Repair Shop, Page 33
c) Sarreal Repair Shop, Page 35
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4C
SERVICE CONCERN
In this lesson, we will now record and post the transactions in the
Learning Objectives:
general journal and general ledger.
1. Record transact-
tions under double-
entry bookkeeping
2. Post transactions
Instructions: Answer the question.
from general journal
1. What is a T-account? Why is it considered as an important tool in to the ledger.
analyzing business transactions? 3. Create a trial

balance.
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. What is the use of chart of accounts?

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• Posting in the T-account is somehow similar to

posting to the general ledger. You will notice it
when we get there!
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Good job! You were able to discuss the T-account and chart of accounts very well. We will
now proceed with the discussion of Accounting for a Service Concern.
Journalizing
Journalizing is the process of entering a transaction in a journal. Journal is a chronological

record that is, arranged according to the time occurrence of business transactions. It is called the book
of original entry since it is where the transactions are first recorded.
Double Entry-Bookkeeping
A method of bookkeeping system where transactions are necessary to be recorded twice for the
recognition of the dual effect of a transaction. It explains that for every value received, there is a
corresponding value parted with or given away. In short, for every debit entry, there is a corresponding
credit entry with equal amount.
The General Journal
The general journal is composed of the following parts/columns:
• Date column. For the first journal entry on a page, the year, the month and the date are entered
here. The year is written in small figures on top of the first line of this column while the month is
written just below the year on the same first line. The date is written on the first line of the Date's
second sub-column.
• Description column. The first line of an entry shows the account debited and the second line is
the account credited, which is indented to the right. A brief description is written below the entry
to understand the nature of transaction.
• Posting Reference column. This column is filled out only during the transferring of entries to the
ledger. In this column, the account numbers of the debited and Credited accounts are written
right after they are posted to the ledger,
• Debit column. This is where the debit amount is written in line with the account debited,
• Credit column. This is where the credit amount is written in line with the account credited.
Illustrated below is the first two entries on the General Journal of Cruz Repair Shop.
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Observe the following:
• The name of the book, General Journal, is written at the upper portion of every page. A page
number is also written on each sheet of journal.
• Peso sign, comma, and decimal point are not used in columnar sheets. A dash is place when
there are no centavos involved.
• Always leave one space after each journal entry
The Posting Process

Posting is the process of copying the debits and credits from the journal to the general ledger
accounts. All amounts entered in the journal must be posted to the general ledger accounts. If an
account is debited in the journal, it will also be posted on the debit side of the account in the ledger.
In the same way, if an account is credited in the journal, it will also be posted on the credit side of the
account in the ledger. This process simply updates the ledger accounts for the effects of the
transactions in the journal.
The General Ledger

The general ledger is a complete set of all the accounts used by the business. Each account
has an individual record in the general ledger wherein the effects of business transactions are
summarized. The accounts are arranged in the following order: Assets, Liabilities, Capital, Drawing,
Revenue, and Expense accounts. It is called the book of final entry.
The following are the steps in the posting process:
In the ledger account:
1. Enter the date of each transaction in the date column.
2. Enter the page number of the journal from which each transaction is posted in the Posting
Reference column.
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3. Enter the amount of each transaction in the Debit or Credit column as they appear in the
journal.
In the journal:
4. Enter the account number in the Posting Reference column of the journal of each transaction
that is posted.
Cross-referencing or cross-indexing is the process of entering the page number of the journal
in the posting reference of the ledger and entering of account number in the posting reference of the
journal.
After posting all the journal entries to the ledger, the difference between the debit total and the
credit total of each ledger account is to be computed. This process is known as pencil footing.
The account has a debit balance if the debit total is greater than the credit total – hence, the balance
is written on the debit side of the account. On the other hand, the account has a credit balance if the
credit total is greater than the debit total – hence, the balance is written on the credit side of the
account.
Illustrated below is the first journal entry of Cruz Repair Shop to be posted to the general
ledger:
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Preparing the Trial Balance

A trial balance is a summary listing of the account titles and the balance of each account. It is
prepared to test the equality of the debit and credit balances of the account in the ledger. The
accounts with debit balances are listed in the left-hand column while the accounts with credit
balances are listed in the right-hand column. The total of the two columns must agree. A sample of
trial balance is shown at the end of this lesson.
When the trial balance does not balance, the following are the possible errors:
1. Columns of the trial balance may be incorrectly added.
2. Account balance might have been entered in the wrong column.
3. Amounts from the ledger may be incorrectly entered on the trial balance or may be omitted in
the trial balance.
4. While posting, a wrong amount might have been posted on the account.
5. While posting, a debit is erroneously posted on the credit or vice versa.
Illustrated on the next pages are the general journal, general ledger, and trial balance of Cruz
Repair Shop
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General Journal of Cruz Repair Shop:

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General Ledger of Cruz Repair Shop:

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Trial Balance of Cruz Repair Shop:

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Instructions: For your practice, record and post the business transactions on the general journal and
general ledger, and create a trial balance of the following businesses found in this module:
• Use your two-column worksheet (general journal) in journalizing, and general ledger in posting.
• Trial balance will be written on a separate sheet (intermediate paper)
• The teacher will further explain the instructions and will answer your questions in the
scheduled online meeting.
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LESSON 6-column worksheet and

5
financial statements
In this lesson, you will need a 6-column worksheet, which will Learning Objectives:
facilitate you in creating financial statements. 1. Use the 6-column
worksheet correctly.
2. Create an error-
free financial
Instructions: Answer the following questions for your review. statements
1. What is cross-referencing or cross-indexing?

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. What would you if the trial balance doesn’t balance?

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• Accounting worksheets can be of several columns

depending on the need of the business ex. 6, 10, 12,
etc.
• On our case, we will be using 6-column worksheet.
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Congrats! You were able to answer the questions on the previous page and was also able to
answer the exercises given to you last lesson. You are now ready to move forward!
Preparation of Worksheet
The worksheet is a multi-columned document used to summarize information needed to
prepare the adjusting and closing entries and to aid in the preparation of financial statements.
For now, we will just use it to create financial statements. The adjusting and closing entries
will be discussed on the succeeding lessons.
In this lesson, a 6-column worksheet is to be used. This includes sets of columns for trial
balance, the income statement, and the balance sheet.
Steps in the preparation of worksheet:
1. Enter the ledger accounts in the account’s column, and its balances in the trial balance
column.
2. Extend the trial balance amounts into the appropriate financial statement columns. That is, all
revenue and expense account balances to the income statement columns and all assets,
liabilities, and owner’s equity accounts to the balance sheet columns.
3. Total the financial statement columns. Determine and record the net income or net loss which
serves as a balancing figure in both pairs of columns
Net income if revenues exceed expenses and Net loss in expenses exceed revenues.
To illustrate the preparation of worksheet and financial statements, let us use the trial balance of
Cruz Repair Shop.
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Worksheet
CRUZ REPAIR SHOP

Work sheet
May 30, 2020
Accounts Trial Balance Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit
Cash 44900 44900
Accounts Receivable 10500 10500
Office Supplies 7500 7500
Office Equipment 25600 25600
Accounts Payable P12800 12800
Notes Payable 20000 20000
J. Cruz, Capital 50000 50000
J. Cruz, Drawing 3000 3000
Service Revenue 16500 16500
Rent Expense 3000 3000
Salaries Expense 4800 4800
Total 99300 P99300 7800 16500 91500 82800
Net Income 8700 8700
16500 16500 91500 91500
It is called 6-column because we have two column each for the trial balance, income statement,
and balance sheet. Notice that revenue is greater than the expenses that is why it resulted to Net
Income.
Financial Statements
This is the Income Statement of Cruz CRUZ REPAIR SHOP
Repair Shop. Notice that it has the same net Income Statement
income amount from the worksheet. Please May 30, 2020
be mindful of its format and the placement of
peso signs and double rule.
Service Revenue P16500-
Less: Operating Expenses
Rent Expense P3000-
Salaries Expense 4800-
Total Operating Expense: 7800-
Net Income P8700-
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This is the Capital Statement of Cruz CRUZ REPAIR SHOP

Repair Shop. Notice that you added the net Capital Statement
income to the May 1, capital. If it is net loss, May 30, 2020
you will have to deduct it. Drawing will always
be deducted from the capital. Capital, May 1, 2020 P50000-
Add: Net Income 8700-
Now you will have the May 31 balance
Total 58700-
Less: Drawing 3000-
which is P55700. Please be mindful of its
Capital, May 30, 2020 P55700-
format and the placement of peso signs and
double rule.
CRUZ REPAIR SHOP

This is the Balance Sheet. It show the Balance Sheet
business’ assets, liabilities, and capital. Notice May 30, 2020
that the accounting equation is balance.
Assets
Assets = Liabilities + Capital. Please be mindful Cash P44900-
of its format and the placement of peso signs Accounts Receivable 10500-
and double rule. Office Supplies 7500-
Office Equipment 25600-
Total Assets P88500-
Liabilities
Accounts Payable P12800-
Notes Payable 20000-
Total Liabilities P32800-
Capital
J. Cruz, Capital 55700
Total Liabilities and Capital P88500-
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This is the Statement of Cash Flows of Cruz Repair Shop. It involves 3 types of business
activities such as operating, investing, and financing activities. Each category of cash flow includes
both cash receipts and cash payments.
Operating activities generally involves cash received from cash customers, cash collection
from credit customers, cash paid for expenses and supplies. Transactions that involve making and
collecting loans or purchasing and selling plant assets are called investing activities. Financing
activities include the owner’s investment and drawing and borrowing of cash from creditors both short
term and long term.
Lastly, the ending balance in the Statement of Cash Flows should have the same amount as
the cash balance in the general ledger and the Balance Sheet.
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Instructions: For your practice, create a 6-column worksheet and financial statements of the
following:
• Refer to your previous work (journal, ledger, trial balance) to perform this task.
• Use a 6-column worksheet for the worksheet and intermediate papers for the financial
statements.
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LESSON The Closing entries and post-

6
closing trial balance
In this lesson, we will provide the closing entries and prepare the Learning Objectives:
post-closing trial balance. 1. Provide closing
entries for nominal
accounts.
2. Create an error-
Instructions: Answer the following questions for your review. free post-closing
trial balance.
1. How did the worksheet aid you in creating the financial statements?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. Discuss net income and net loss.

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• For this lesson, you will encounter a new account

called Income Summary. This is specifically used
for the closing process.
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Great job! You were able to create a worksheet and financial statements as practice from the
previous lesson. Now, let’s proceed to another lesson.
Closing Entries
Are journal entries that bring temporary or nominal accounts to zero balance and transfer their
balances to the permanent capital account at the end of the accounting period. These temporary
accounts are the revenues, expenses, and drawing accounts.
This process uses the clearing account called Income Summary. It is used as another
temporary account in which the revenue and expense accounts are initially closed to determine
whether the business operations result to income or loss. The other terms used are Profit and Loss
Summary or Revenue and Expense Summary.
Steps:
1. Close the revenue account – Do this by debiting the revenue accounts and crediting the
income summary account.
2. Close the expense account – Do this by debiting the income summary account and crediting
the expense accounts.
3. Clos the income summary account – If it is a net income, the income summary account is
debited while the capital account is credited. If it is a net loss, the capital account is debited
while the income summary account is credited.
4. Close the drawing account – Do this by debiting the capital account and crediting the drawing
account.
Just like the journal entries, closing entries are also recorded in the journal and also posted in the
general ledger. Presented below are the closing entries of Cruz Repair Shop.
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• From the last journal entry, leave one space and write “Closing Entries”. This would separate
the new entries from the previous ones.
• Income summary has an account number (33) next to the drawing account (32).
• Notice that income summary was debited, and the capital account was credited on the third
entry. This is because the business has Net Income.
• The account numbers of the accounts were also posted in the P/R column, meaning they are
posted in the ledger.
• You will have to create a ledger for the income summary account since it is a new account.
Just insert it after the capital ledger.
Post-Closing Trial Balance
The post-closing trial balance is done after all the balances of the temporary accounts have
been closed, which means that their balances were reduced to zero. Therefore, the post-closing trial
balance only shows the balances of permanent accounts. These accounts are the assets, liabilities,
and owner’s equity.
Below is the Post-Closing Trial Balance of Cruz Repair Shop.
CRUZ REPAIR SHOP

Trial Balance
May 30, 2020
Debit Credit
Cash P44900
Accounts Receivable 10500
Office Supplies 7500
Office Equipment 25600
Accounts Payable P12800
Notes Payable 20000
J. Cruz, Capital 55700
Total P88500- P88500-
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Instructions: For your practice, journalize the closing entries on the journal, post in on the ledger, and
create a post-closing trial balance of the following:
• Refer to your previous work (journal, ledger, trial balance) to perform this task.
• You may use a new journal sheet to record closing entries or use the previous journal if there
is enough space.
• Use intermediate paper for the post-closing trial balance.
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LESSON ADJUSTING ENTRIES FOR DEPRECIATION OF

7 PROPERTY, PLANT, AND EQUIPMENT
Adjusting entries is the fifth step of the accounting cycle. It is done Learning Objectives:
after creating the trial balance. We skipped it on the earlier lessons to give 1. Discuss the
rationale of
you background on the accounting cycle as a whole.
adjusting entries.
2. Provide adjusting
entries for deprecia-
tion.
Instructions: Answer the following questions for your review.
1. Discuss closing entries. Why do you need to prepare this?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. What is the purpose of the post-closing trial balance?

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• We have a total of seven adjusting entries to study.

The first is for the depreciation of plant, property,
and equipment.
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Great! You can now proceed with the study of adjusting entries.
Understanding accounting periods

• Monthly
• Quarterly
• Semi-annual
• Annually
Remember that accounting periods are determined for the preparation of the financial
statements.
Annual accounting period
• Calendar year - Begins with January 1 and ends with December 31.
• Fiscal year - An accounting year of 12 consecutive months that may or may not be in accordance
with the calendar year.
Interim financial statements
• Financial Statements that cover one-month activities, three months, and or six months.
Cash basis and Accrual basis of accounting
• Cash basis recognizes revenue when cash is received; and recognize expense when cash is
paid. This basis of accounting does not need adjusting entries.
• Accrual basis recognizes revenue when sales are made or services are performed regardless
of when cash is received or not; and recognizes expenses as incurred regardless of when cash
is paid out or not. This basis of accounting needs the preparation of adjusting entries.
Need for adjusting entries
• Are entries prepared at the end of an accounting period to update and adjust the balances of
accounts.
• They are necessary so that revenue and expenses will be reported in the period they are earned
and incurred.
• All adjusting entries affect at least one income statement account and one balance sheet
account.
Adjusting entry for depreciation of property, plant, and equipment
Depreciation
• In accounting, depreciation is referred to as the decrease in value of the assets.
Property, plant, and equipment
• Assets or physical resources that are owned and used by the business which are relatively fixed
or permanent in nature.
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• They are sometimes referred to as fixed assets or plant assets
Depreciation Expense (name of asset) xxxx

Accumulated Depreciation (name of asset) xxxx
To take up depreciation for the year
This is the entry to record the depreciation.

Straight Line Method of Depreciation:
Asset cost
• Includes purchased price plus other direct costs incurred in acquiring the asset.
Estimated useful life
• Number of years or time the asset can be used.
Estimated residual value
• This is the estimated amount the fixed asset can be sold at the end of its useful life. Other terms
used are salvaged value, scrap value, or trade in value.
EXAMPLES
1. On January 2, 2015, ABC Company bought equipment for a total cost of P 750,000. Its
estimated useful life is 5 years and the residual value is P 25,000. Prepare the adjusting entry
on December 31, 2015.
To determine the depreciation amount: To determine the book value amount:
Cost of fixed asset 750 000 Cost of fixed asset 750 000
Less: Estmd. Residual value 25 000 Less: Accumulated 145 000
Depreciable Cost 725 000 Depreciation
Divide by estmd. Useful life 5 (years) Book Value P 605 000
ANNUAL DEPRECIATION P 145 000
Adjusting entry:
Depreciation Expense - Equipment 145 000

Accumulated Depreciation – Equipment 145 000
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2. On January 2, 2015, DEF Company bought Furniture and Fixtures worth P 450,000. Its
Divide by estmd. Useful life 8 Book Value P 398 750
Adjusting entry:

3. On January 2, 2015, Company A bought a Delivery Truck worth P 900,000. It’s estimated useful
life is 10 years and the residual value is P 100,000. Prepare the adjusting entry on December
31, 2015.
Adjusting entry:

The first three examples shows the steps in computing the annual depreciation. For the
succeeding examples, you will compute monthly depreciation.
If you are having a hard time understanding the concept of adjusting entries for depreciation,
please read and analyze again the examples give.
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4. On October 1, 2015, Company A bought an Office Equipment worth P 120,000. It’s estimated
useful life is 5 years and the residual value is P 4,000. Prepare the adjusting entry on December
31, 2015.
Divide by no. of months in 12

a year
Monthly Depreciation 1 933.3333333
Multiply by no. of months 3

Depreciation expense for 3 P 5 800
months
Adjusting entry:

To take up depreciation for 3 months
Notice that we only recorded the depreciation for 3 months. It is because the equipment was
bought on Oct 1, 2015. Now you count from Oct 1 to Dec 31, 2015. It’s only 3 months.
5. On April 1, 2015, Company B bought an Office Equipment worth P 500,000. It’s estimated useful
life is 10 years and the residual value is P 45,000. Prepare the adjusting entry on December 31,
2015.
Adjusting entry:
Divide by no. of months in a 12
year Depreciation Expense - Equipment 34 125
Monthly Depreciation 3 791. Accumulated Depreciation – Equipment 34 125
666667 To take up depreciation for 9 months
months
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6. On May 1, 2015, GHI Company bought Furniture and Fixtures worth P 675,000. It’s estimated
31, 2015.
Divide by no. of months in a 12

year
Monthly Depreciation 10 000
months
Adjusting entry:

To take up depreciation for 8 months
To test your knowledge, answer the following activities to follow.
Instructions: Provide the adjusting entry and the book value of the items being asked for. You may use
a separate sheet for your computation.
2. On May 1, 2015, GHI Company bought Furniture and Fixtures worth P 440,000. Its estimated
31, 2015.
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3. On April 1, 2015, Company ABC bought a Delivery Truck worth P 600,000. Its estimated useful
2015.
4. On January 2, 2015, Company B bought an Office Equipment worth P 175,000. Its estimated
31, 2015.
5. On October 1, 2015, Company A bought an Office Equipment worth P 120,000. Its estimated
31, 2015.
6. On April 1, 2015, Company B bought Furniture and Fixture worth P 500,000. Its estimated useful
2015.
7. On January 2, 2015, DEF Company bought Automobile for employee’s transportation worth P
2,500,000. Its estimated useful life is 10 years and the residual value is P 110,000. Prepare the
adjusting entry on December 31, 2015.
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8. On July 1, 2015, Book Company bought Equipment worth P 75,000. Its estimated useful life is
5 years and the residual value is P 8,000. Prepare the adjusting entry on December 31, 2015.
9. On January 2, 2015, DEF Company bought Delivery Truck for a total cost of P 900,000. Its
estimated useful life is 8 years and the scrap value is P 120,000. Prepare the adjusting entry on
December 31, 2015.
10. On January 2, 2015, Peace Company bought Equipment for a total cost of P 1 200 000. Its
estimated useful life is 8 years and the scrap value is P 100,000. Prepare the adjusting entry on
December 31, 2015.
Instructions: Answer the following questions below.

1. Why do you need to prepare adjusting entries?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. Differentiate calendar year and fiscal year accounting period.

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
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LESSON ADJUSTING ENTRY FOR

8
UNCOLLECTIBLE ACCOUNTS
You are now on the next adjusting entry, the adjusting entry for
uncollectible accounts. Learning Objective:
1. Prepare adjusting
entry for uncollec-
tible accounts
1. Differentiate cash basis and accrual basis of accounting.
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. What is the purpose of the different accounting periods?

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• Uncollectible Accounts are also referred to as Bad

Debts.
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Great! You were able to answer the questions above. Let’s proceed the adjusting for
uncollectible accounts.
Adjusting entry for uncollectible accounts

• These are the company’s receivables which might not be collected.
• Prepared to recognize the anticipated loss that the business might incur arising from these
uncollectible.
Uncollectible Accounts Expense xxxx

Allowance for Uncollectible Accounts xxxx
To take up provision for uncollectible accounts
This is the entry to record the adjusting for uncollectible accounts.

• Note: Allowance for Uncollectible Accounts has a normal balance of credit. It is a contra asset
account.
• A contra asset account is an account that is being deducted from its related account.
EXAMPLES
1. On December 31, 2015, the company has an outstanding Accounts Receivable balance of
350,000. 5% of these receivables might not be collected. The allowance for uncollectible
accounts has no balance.
350 000 x .05 = 17 500
Adjusting entry: To determine the net realizable value:
Uncollectible Accounts Expense 17,500 Accounts Receivable 350 000

Allowance for Uncollectible Accounts 17,500 Less: Allowance for U.A 17 500
To take up provision for uncollectible accounts NET REALIZABLE VALUE 332 500
2. On December 31, 2015, the company A has an outstanding Accounts Receivable balance of
215,000. Of these, 7% is estimated to be uncollectible. The allowance for uncollectible account
has no balance.
215 000 x .07 = 10 050

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accounts has no balance.
112 000 x .02 = 2 240

4. On December 31, 2015, the company B has an outstanding Accounts Receivable balance of
has no balance.
210 000 x .03 = 203 700

600,000. 3% of these in uncollectible. The allowance for uncollectible account has a credit
balance of 10,000.
To compute for the amount of adjustment: To determine the net realizable value:
Outstanding Accounts 600 000 Accounts Receivable 600 000
Receivable Less: Allowance for U.A 18 000
Multiply by estimated % 3% NET REALIZABLE VALUE 582 000
uncollectible
Required balance of the 18 000 The required balance of AFUA is 18 000.
Allowance Since it already has a balance of 10 000, you only
Less: Allowance before 10 000
adjustment need 8 000 to reach 18 000. That is why the amount
AMOUNT OF ADJUSTMENT 8 000 of adjustment is only 8 000.
Adjusting entry:
Uncollectible Accounts Expense 8 000

Allowance for Uncollectible Accounts 8 000
To take up provision for uncollectible
accounts
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875,000. 6% of these in uncollectible. The allowance for uncollectible account has a credit
balance of 7,600.
To compute for the amount of adjustment: To determine the net realizable value:
Outstanding Accounts 875 000 Accounts Receivable 875 000
Receivable Less: Allowance for U.A 52 500
Multiply by estimated % 6% NET REALIZABLE VALUE 822 500
uncollectible
Required balance of the 52 500
Allowance
Less: Allowance before 7 600
adjustment
AMOUNT OF ADJUSTMENT 44 900
Adjusting entry:
Uncollectible Accounts Expense 44 900

Allowance for Uncollectible Accounts 44 900
To take up provision for uncollectible
accounts
Instructions: Provide the adjusting entry and the net realizable value of the items being asked for.
You may use a separate sheet for your computation.
1. 1. On December 31, 2015, the company has an outstanding Accounts Receivable balance of
accounts has a credit balance of 5,000.
has a credit balance of 8,000.
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120,000. 2/5 of these are estimated to be uncollectible. The allowance of uncollectible account
has a credit balance of 8,000. Provide the adjusting entry.
4. On December 31, 2015, the company C has an outstanding Accounts Receivable balance of
500,000. 5% of this is estimated as uncollectible. The Allowance for uncollectible account has
a credit balance of 8,500. Provide the adjusting entry.
5. 10. On December 31, 2015, the company has an outstanding Accounts Receivable balance of
110,000. 2% of these receivables might not be collected. The allowance of uncollectible
accounts has a credit balance of 1,000. How much is the net realizable value of Accounts
Receivable?

1. What is a contra-asset account?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. Why do you think it is important to determine the uncollectible accounts?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
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9
ACCRUED EXPENSE
You are now on the third adjusting entry. Answer the questions
below to prepare you for the lesson. Learning Objective:
entry for accrued
expense.
1. Discuss how to compute for the book value of a fixed asset (plant,
property, equipment)
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. Discuss how to compute for the net realizable value of accounts receivable.
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• Businesses prepare financial statements mostly in

an annual basis.
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Great! You were able to answer the questions on the previous page. Let’s proceed to the next
adjusting entry.
Adjusting Entry for Accrued Expense
Accrued expense
• (a liability account)
• An expense incurred but not yet paid.
Examples of accrued expenses are:
• Taxes payable
• Interest payable
• Utilities payable
• Salaries payable
• Rent payable
• Advertising payable
EXAMPLES
1. On December 31, 2016, the company has unpaid taxes amounting to P20,000.
Adjusting entry:
Taxes Expense 20 000

Taxes Payable 20 000
To take up accrued taxes expense
Failure to prepare the adjusting entry above will result to taxes expense for the month of
December to be understated, resulting to an overstatement in the net income for the month of
December.
2. On January 31, 2016, the company has unpaid electricity bills amounting to p15,000.
Adjusting entry:
Utilities Expense 15 000

Utilities Payable 15 000
To take up accrued utilities expense
Failure to prepare the adjusting entry above will result to utilities expense for the month
of December to be understated, resulting to an overstatement in the net income for the month
of December.
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3. DEF company pays salaries every Friday, the end of a five-day workweek. The total salaries for
the week ending September 2, 2016 is P270,000. What is the adjusting entry on August 31,
2016?
Adjusting entry:

Salaries Payable 162 000
To take up accrued salaries expense
The workweek is from August 29, Monday – September 2, Friday. The business needs
to prepare financial statements on August 31. Meaning, from August 29-31, they will consider
the salaries as accrued because it is incurred but not yet paid. It will be paid on September 2,
2016.
270 000 / 5 = 54 000 (one-day salary) 54 000 x 3(days accrued) = 162 000 (three-day salary)
4. ABC store helper is earning P1,200 per day. Pay day is every Saturday for a six-day work week
that begins on Monday. Assuming December 31, is Thursday. What is the adjusting entry on
December 31?
Adjusting entry:

The workweek is from December 28, Monday – January 3, Saturday. The business needs
to prepare financial statements on December 31. Meaning, from December 28, Monday-31,
they will consider the salaries as accrued because it is incurred but not yet paid. It will be paid
on January 2, Saturday.
1 200 x 4 = 4 800 (four-day salary)
5. The company pays all employees every Friday. The total salaries for the five-day workweek
ending January 1, 2016 is P225,000.
Adjusting entry:

The workweek is from December 28, Monday – January 1, Friday. The business needs
to prepare financial statements on December 31. Meaning, from December 28-31, they will
consider the salaries as accrued because it is incurred but not yet paid.
225 000 / 5 = 45 000(one-day salary) 45 000 x 4 = 18 000 (four-day salary)
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6. On December 1, 2016 the company issued a 90-day, 10% notes payable worth P75,000.
Assume the company’s accounting period ends on December 31. Provide the adjusting entry.
Adjusting entry:
Interest Expense 625

Interest Payable 625
To take up accrued interest expense
75 000 x .10 = 7 500(annual interest) 7 500 / 12 = 625(monthly interest)

The interest was accrued for 1 month only from December 1-31, 2016.
7. On December 31, 2016 a 60-day, 9% notes payable has a balance of P240,000 in the ledger.
The note was issued on December 1, 2016. No interest has been taken on this note.
Adjusting entry:
Interest Expense 1 800

Interest Payable 1 800
240 000 x .09 = 21 600(annual interest) 21 600 / 12 = 1 800(monthly interest)

The interest was accrued for 1 month only from December 1-31, 2016.
8. Notes payable has a balance of P100,000 issued by the company on August 16, 2016. The
term is 6 months with interest rate of 9%. Provide the adjusting entry on December 31, 2016.
Adjusting entry:


750 x 4.5 = 3 375(August 16-December 31)
The interest was accrued for 4.5 months from August 16-December 31.
9. On June 1, 2016, the company has a P840,000 notes payable balance in the ledger with 8%
interest, and a term of 1 year. The company follows a fiscal year starting March 1, 2016.
Provide the adjusting entry at the end of the accounting period.
Adjusting entry:


5 600 x 9 = 50 400 (June 1, 2016 – February 28, 2017)
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The interest was accrued for 9 months. The company follows a fiscal year starting March
1, 2016. Meaning, their accounting period will end on February 28, 2017. If you can recall a
fiscal year may start any month aside from January and ends exactly after 12 months.
10. On February 1, 2016, Company C has a notes payable of P200,000 with 6% Interest, and a
term of 9months. The company’s accounting period is quarterly, starting January 1, 2016.
Provide the adjusting entry.
Adjusting entry:


1 000 x 2 = 2 000 (February 1, 2016 – March 31, 2016)
The interest was accrued for 2 months. The company follows a quarterly accounting
period that starts on January 1, 2016. Meaning, their accounting period will end on March 31,
2016. The company will create financial statements every 3 months under quarterly accounting
period.
11. Company B has an outstanding 3-month, 12% notes payable dated October 1, 2016 amounting
to P300,000 with a term of 1 year. The company’s accounting period is the calendar year.
Provide the adjusting entry.
Adjusting entry:


3 000 x 3 = 9 000 (October 1, 2016 – December 31, 2016)
The interest was accrued for 3 months. The company follows a calendar year accounting
period. Meaning, their accounting period will start on January 1, 2016 and will end on December
31, 2016. The term of 1 year means that the company has to pay the complete amount within
1 year. Do not include the term on your computation. It has nothing to do with it.
To test your knowledge, answer the activities to follow.

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Instructions: Provide the adjusting entry.

1. Notes payable has a balance of P50, 000, issued by the company on November 1, 2016. The
term is 90 days with an interest rate of 9%. The Company follows the calendar year. Prepare
the adjusting entry.
2. The company pays P25, 500 worth of salaries every Friday from a five-day workweek starting
Monday. Assume that December 31 is Tuesday. Provide the adjusting entry.
3. The company has three employees earning P450 per day, P500 per day, and P550 per day
respectively. Payday is every Saturday for a six-day workweek that begins on Monday.
Assume December 31 is Thursday. Provide the adjusting entry.
4. On August 16, 2016, Company A issued a notes payable worth P360, 000 with 8% interest,
and a term of 1 year. The company follows a fiscal year starting June 1, 2016. Provide the
adjusting entry.
5. Notes payable has a balance of P100, 000 issued by the company on September 1, 2016.
The term is 180 days with interest rate of 9%. The company’s accounting period is semi-
annual beginning July 1, 2016. Provide the adjusting entry.
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6. A company pays salaries every Friday, the end of a five-day workweek. The total salaries for
the week ending January 3, 2017 is P120, 000. Prepare the adjusting entry on December 31,
2016.
7. Notes payable has a balance of P600, 000 issued by the company on November 01, 2016.
The term is 120 days with interest rate of 9%. The company’s accounting period is quarterly
starting October 1, 2016. Provide the adjusting entry.
8. Unpaid taxes as of December 31, 2016, amounted to P90,000.
Instructions: Answer the question below.

1. What will happen in the income statement if you fail to record the accrued expense?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
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10
ACCRUED revenue
You are now on the fourth adjusting entry. Answer the questions
below to prepare you for the lesson. Learning Objective:
entry for accrued
revenue.
1. What is accrued expense? Give examples
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. Discuss how to compute for the interest expense.

_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
• Remember that term on notes payable is the allowed

time that the business will pay the payable in the
whole amount.
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Great! You were able to answer the review questions. You can now proceed to the next
adjusting entry.
Accrued Revenue
• An asset account.
• Refers to income already earned but has not yet been collected.
EXAMPLES
1. Company ABC leases its building space to a tenant on December 1, 2016. The tenant agreed
to pay monthly rental fees of P10,000. On December 31, 2016, ABC Company did not receive
the rental fee yet and no record was made in the journal.
Adjusting entry:
Rent Receivable 10 000

Rent Revenue 10 000
To take up accrued rent revenue
Even though the tenant hasn’t paid his monthly fee, the company has to record its
supposed revenue in the form of accrued revenue. You will debit a receivable because you are
assuming that the tenant will pay his rent. Failure to record the accrued revenue will make the
revenue understated in the Income Statement.
2. The company’s accounting period ends every month. As of March 31, commissions already
earned but not yet collected amounts to P38,000.
Adjusting entry:
Commissions Receivable 38 000

Commissions Revenue 38 000
To take up accrued commissions revenue
3. The tenant who occupies the right side of the shop space hasn’t paid his rental fee beginning
September 1, 2016. The monthly rental is P8,200. The company follows a fiscal year starting
June 1, 2016.
Adjusting entry:
Rent Receivable 73 800

Rent Revenue 73 800
The company follows a fiscal year starting June 1, 2016 which will end on May 31, 2017.
The company has to make the adjusting entry on May 31, 2017
8 200 x 9 = 73 800(September 1, 2016 – May 31, 2017).
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4. ABC Company lent 90,000 with annual interest of 10% interest on December 16, 2016. The term
is 1 year. The company’s accounting period is semi-annual starting July 1, 2016.
Adjusting entry:
Interest Receivable 375

Interest Revenue 375
The company follows a semi-annual accounting period starting July 1, 2016 – December
31, 2016.
750 x .5 = 375(December 16 – December 31, 2016)
5. On August 16, 2016, Entity A lent 300,000 to another entity with an interest rate of 9% and a
term of 1 year. The company follows a fiscal year starting March 1, 2016.
Adjusting entry:
Interest Receivable 16 875

Interest Revenue 16 875
The company follows a fiscal year accounting period starting March 1, 2016 – February
28, 2017.
2 250 x 7.5 = 16 875(August 16, 2016 – February 28, 2017)
Comparison between Accrued Expense and Accrued Revenue

1. On October 16, 2016, ABC Company received a 5-month, 6% promissory note from a XYZ Company in
the amount of P28, 000. Both companies follow a calendar year accounting period.
DEBTOR (Accrued Expense) CREDITOR (Accrued Revenue)
XYZ ABC
Oct 16 Cash 28 000 Oct 16 Notes Receivable 28 000
Notes Payable 28 000 Cash 28 000
Dec 31 Interest Expense 4 200 Dec 31 Interest Receivable 4 200
Interest Payable 4 200 Interest Revenue 4 200
28 000 x .06 = 1680 1680 x 2.5 = 4 200

Remember, you have to be careful on identifying who is the debtor and the creditor.
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Instructions: Complete the table below by providing the correct entries. Refer to the table on the
previous page.
1. Peace Co. Notes receivable has a balance of P120, 000 received from Unity Co. on November
1, 2016. It is a 90-day, 12% note. Both company’s accounting period ends on the last day of
next month.

Unity Co. Peace Co.
2. On October 1, 2016, Book Company lent P150, 000 to Tech Company with an annual interest
of 9% interest. Both follows a fiscal year starting July 1, 2016.
Tech Company Book Company

1. What will happen in the income statement if you fail to record the accrued revenue?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
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Instructions: Write the correct answer on the space provided.

1. Company ABC leased its building space to Company B on May 01, 2016. Company B agreed
to pay monthly rental fees of P8, 000. The company uses the calendar year. Provide the
adjusting entry of Company B.
2. Notes receivable has a balance of P800, 000 received from a customer on May 16, 2016. It is
a 150-day, 12% note. The company’s accounting period is quarterly starting April 1, 2016.
Provide the adjusting entry of the creditor.
3. Notes receivable has a P405, 000 balance received from a customer on July 1,2016. The term
is 12-months with 8% interest. The company follows a fiscal year starting May 1, 2016. Provide
the adjusting entry of the debtor.
4. Company A borrowed 100,000 at 12% interest on March 1, 2016 from Company B. The
accounting period is semi-annual. Provide the adjusting entry of the borrower.
5. Notes payable has a balance of P400, 000 issued by the company on October 16, 2016. The
term is 360 days with interest rate of 9%. The fiscal year starts on August 1, 2016. Provide the
adjusting entry of the creditor.
6. Notes receivable has a balance of P710, 000 received from a customer on August 16, 2016. It
is a 1-year, 12% note. The company’s accounting period is quarterly starting July 1. Provide
the entry of the debtor on August 16, 2016.
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7. The company pays 450,000 worth of salaries every Saturday for a six-day workweek. Assume
December 29 is Monday. Provide the adjusting entry.
8. Company C leased its building space to Company D on March 16, 2016. The annual fee is 72,
000. The fiscal year starts on March 1, 2016. Provide the adjusting entry of Company C.
9. Company AB borrowed 200,000 at 9% interest from Company CD on July 1, 2016. The

accounting period is semi-annual starting July 1, 2016. Provide the adjusting entry of CD.
10. Refer to item number 9. Provide the entry of Company AB on July 1, 2016.
Instructions: Write the correct answer on the space provided.
accounts has a credit balance of 6,000. How much is net realizable value of Accounts
Receivable?
estimated useful life is 8 years and the residual value is P 75,000. How much is the depreciation
from the time it was bought to March 31, 2015.
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4. On July 1, 2015, Company ABC bought a Delivery Truck worth P 2,600,000. Its estimated useful
life is 10 years and the residual value is P 160,000. Fiscal year, April 1, 2015. Prepare the
adjusting entry.
420,000. 2/5 of these are estimated to be uncollectible. The allowance of uncollectible account
6. It is an account that is being deducted from its related account.
7. On December 31, 2015, the company C has an outstanding Accounts Receivable balance of
330,000. 3% of this is estimated as uncollectible. The Allowance for uncollectible account has
a credit balance of 2,500. Provide the adjusting entry.
8. On September 15, 2015, Book Company bought Equipment worth P 120,000. Its estimated
useful life is 5 years and the residual value is P 10,000. Fiscal year, June 1, 2015. Provide the
adjusting entry.
9. On October 1, 2015, ABC Company bought equipment for a total cost of P 700,000. Its
estimated useful life is 12 years and the residual value is P 100,000. The company’s accounting
period starts on July 1, 2015 and ends on December 31, 2015(semi-annual). Provide the
adjusting entry.
10. On August 15, 2015, ABC Company bought equipment for a total cost of P900,000. Its estimated
useful life is 16 years and the residual value is P50,000. Fiscal year, May 1, 2015. Provide the
adjusting entry.
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LESSON ADJUSTING ENTRY FOR PREPAID

11
EXPENSES (asset method)
In this lesson, you will be introduced to the next adjusting entry, the
Learning Objective:
adjusting for prepaid expenses. Answer the activity below for your review.
entry for prepaid
expenses using
asset method.
How important adjusting entries in the accounting cycle? Can you skip it?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Discuss how to compute depreciation for the month.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
• Adjusting entry for prepaid expenses can be done

using two methods:
1. Asset Method
2. Expense Method
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Congratulations! You were able to recall how the adjusting entry works. You may now continue
with the next lesson.
Adjusting Entry for Prepaid Expenses

What is a prepaid expense?
 Expenses paid in advance.
 Expenses paid by the business now but will be utilized in the future.
 Prepaid expenses are treated as asset and become an expense through the passage of time.
 Prepaid rent, prepaid insurance, prepaid advertising, and office supplies.
Asset method
 Under this method, the account debited is an asset account. Upon adjustment, an expense
account is debited with a corresponding credit to an asset account.
EXAMPLES
1. On January 1, 2016, the company purchased office supplies amounting to P50, 000.
On December 31, 2016, the company’s remaining unused supplies amounted to P15, 000.
Asset method:
January 1, 2016:
Cash 50 000
December 31, 2016 (adjusting):
Office Supplies Expense 35 000
To take up the supplies used/expired
Under asset method, we debit an asset account on the upon entry. That is why office
supplies account was debited on January 1.
Upon adjustment, the asset account we debited should be credited, and an expense
account will be debited. As you can see in the adjustment, we debited office supplies expense
for 35 000 and credited office supplies for 35 000.
After the adjustment, the office supplies account will have a debit balance of 15 000 as
stated on the problem (50 000 – 35 000 = 15 000).
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2. On April 1, 2016, the company purchased office supplies amounting to P20, 000.
At the end of the accounting period (December 31, 2016), unused office supplies amounted to
P4, 500.
April 1, 2016:
Cash 20 000
3. On July 16, 2016, the company purchased office supplies amounting to P150, 000.
P1, 500.
July 16, 2016:
Cash 150 000
4. ABC Company is using a monthly accounting period. On March 1, the company paid P50, 000
representing a 4-month rent beginning March 1.
March 1, 2016:
Prepaid Rent 50 000
Cash 150 000
March 31, 2016 (adjusting) :
Rent Expense 12 500
Prepaid Rent 12 500
To take up the expired prepaid rent
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After the adjustment, the prepaid rent account will have a debit balance of 37 500, which
represents the remaining 3 months of payment. (50 000 – 12 500 = 37 500)
Computation: 50 000 / 4 = 12 500 (monthly rent)
March 1 – March 31 (one month expired)
(12 500 x 1 = 12 500)
5. XYZ Company’s annual accounting period starts on January 1, 2016. The company paid P102,
000 representing a 12-month rent beginning March 1.
January 1, 2016:
Prepaid Rent 102 000
Cash 102 000
December 31, 2016 (adjusting) :
Rent Expense 85 000
Prepaid Rent 85 000
March 1 – December 31 (10 months expired)
(8 500 x 10 = 85 000)
6. On September 1, 2016, DEF Repair Shop paid the rental fee for one year amounting to P72,
000. The business follows the calendar year.
September 1, 2016:
Prepaid Rent 72 000
Cash 72 000
Rent Expense 24 000
Prepaid Rent 24 000
September 1 – December 31 (4 months expired)
104 | P a g e
7. On July 1, 2016, the company paid an insurance premium of P660, 000 covering a period of 1
year. The company follows a calendar year accounting period.
July 1, 2016:
Prepaid Insurance 660 000
Cash 660 000
Insurance Expense 330 000
To take up the expired prepaid insurance
Computation: 660 000 / 12 = 55 000 (monthly insurance premium)
July 1 – December 31 (6 months expired)
8. On April 16, 2016, the company paid an insurance premium of P240, 000 covering a period of 2
years. The company follows a calendar year accounting period.
April 16, 2016:
Cash 240 000
April 16 – December 31 (8.5 months expired)
9. On January 1, 2016, the company paid an insurance premium of P120, 000 covering a period
of 1 year. The company’s accounting period is quarterly starting January 1, 2016.
January 1, 2016:
Cash 120 000
105 | P a g e

January 1 – March 31 (3 months expired; quarterly accounting period)
10. On April 1, 2016, Company A paid an advance advertising fee of P300, 000 good for two years.
The company follows a fiscal year starting March 1, 2016.
April 1, 2016:
Prepaid Advertising 300 000
Cash 300 000
February 28, 2017 (adjusting) :
Advertising Expense 137 500
To take up the expired prepaid advertising
Computation: 300 000 / 24 = 12 500 (monthly advertising)
April 1 – Feb 28 (11 months expired)
Instructions: Provide the upon entry and the adjusting entry of the following problems using asset
method.
1. On January 1, 2016, the company purchased office supplies amounting to P40,000.
On December 31, 2016, the remaining supplies amounted to P9,375.
2. On July 1, 2016, the company purchased office supplies amounting to P115,000.

On September 30, 2016, remaining supplies amounted to P45,000.
106 | P a g e
3. Maya Company is using a monthly accounting period. On April 1, the company paid P600,000
representing a 1 year rent beginning April 1, 2016.
4. The business paid P390,000 on April 1, representing a 6-month advertising. The company uses
a quarterly accounting period beginning April 1,2016.
5. XYZ Company’s annual accounting period starts on January 1, 2016. The company paid
P360,000 representing a 12-month rent beginning March 1.
6. On November 1, 2016, SEF Repair Shop paid the rental fee for six months amounting to
P72,000. The business follows the calendar year accounting period.
107 | P a g e
7. On February 1, the company bought P95,000 worth of office supplies. On December 31, 2016,
remaining supplies amounted to P9,800.
8. SIS Company follows a fiscal year starting April 1, 2016. On September 1, the company paid
P264,000 representing 2 years advertising.

1. Discuss the expense method of recording prepaid expenses
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
2. What is a prepaid expense?
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
108 | P a g e
LESSON ADJUSTING ENTRY FOR PREPAID

12
EXPENSES (EXPENSE method)
In this lesson, you will be introduced to the next method in doing Learning Objective:
adjusting entries for prepaid expenses. Answer the activity below for you 1. Prepare adjusting
review. entry for prepaid
expenses using
expense method.
Instructions: Provide only the adjusting entry for the problems below using
asset method.
1. On January 1, 2016, the company paid an insurance premium of P360,000 covering a period of
1 year. The company’s accounting period is quarterly
2. On May 1, 2016, the company paid an insurance premium of P540,000 covering a period of 3
years. The company follows a fiscal year starting April 1, 2016.
3. On August 1, 2016, Cruz Fitness Center paid an advance rental on a space of a building it is
occupying in the amount of 324,000. The amount covers one year rent paid in advance. The
Center’s accounting period is calendar year.
• Remember that whichever method you will use

(asset or expense), you will come up with the same
answer/result.
109 | P a g e
Congratulations! You were able to recall how the asset method works for the prepaid expenses.
Now let’s understand the expense method. The meaning of prepaid expense is written below for your
reference.

What is a prepaid expense?
 Expenses paid in advance.
 Expenses paid by the business now but will be utilized in the future.
 Prepaid expenses are treated as asset and become an expense through the passage of time.
 Prepaid rent, prepaid insurance, prepaid advertising, and office supplies.
Expense method
 Under this method, the account debited is an expense account. Upon adjustment, an asset
account is debited with a corresponding credit to an expense account.
EXAMPLES
Expense method:
January 1, 2016:
Cash 50 000
Under expense method, we debit an expense account on the upon entry. That is why
office supplies expense account was debited on January 1.
Upon adjustment, the expense account we debited should be credited, and an asset
account will be debited. As you can see in the adjustment, we debited office supplies for 15 000
and credited office supplies expense for 15 000.
110 | P a g e
2. On April 1, 2016, the company purchased office supplies amounting to P20, 000.
P4, 500.
April 1, 2016:
Cash 20 000
P1, 500.
July 16, 2016:
Cash 150 000
March 1, 2016:
Rent Expense 50 000
Cash 150 000
Prepaid Rent 37 500
Rent Expense 37 500
To record the unused portion of rent expense
111 | P a g e
April 1 – June 30 (three months unused)
(12 500 x 3 = 37 500)
5. XYZ Company’s annual accounting period starts on January 1, 2016. The company paid P102,
000 representing a 12-month rent beginning March 1.
January 1, 2016:
Rent Expense 102 000
Cash 102 000
Prepaid Rent 17 000
Rent Expense 17 000
January 1 ’17 – February 28 ‘17 (two months unused)
(8 500 x 2 = 17 000)
September 1, 2016:
Rent Expense 72 000
Cash 72 000
Prepaid Rent 48 000
Rent Expense 48 000
Computation: 72 000 / 12 = 6 000 (monthly rent) x 8 (eight months unused)
112 | P a g e
July 1, 2016:
Cash 660 000
To record the unused portion of insurance expense
(6 months unused)
8. On April 16, 2016, the company paid an insurance premium of P240, 000 covering a period of 2
years. The company follows a calendar year accounting period.
April 16, 2016:
Cash 240 000
(15.5 months unused)
9. On January 1, 2016, the company paid an insurance premium of P120, 000 covering a period
of 1 year. The company’s accounting period is quarterly starting January 1, 2016.
January 1, 2016:
Cash 120 000
113 | P a g e

(9 months unused)
April 1, 2016:
Cash 300 000
February 28, 2017 (adjusting) :
To record the unused portion of advertising expense
Computation: 300 000 / 24 = 12 500 (monthly advertising)
(13 months unused)
Instructions: Provide the upon entry and the adjusting entry of the following problems using expense
method.
1. On January 1, 2016, the company purchased office supplies amounting to P40,000.
On December 31, 2016, the remaining supplies amounted to P9,375.
2. On July 1, 2016, the company purchased office supplies amounting to P115,000.

On September 30, 2016, remaining supplies amounted to P45,000.
114 | P a g e
3. Maya Company is using a monthly accounting period. On April 1, the company paid P600,000
representing a 1-year rent beginning April 1, 2016.
4. The business paid P390,000 on April 1, representing a 6-month advertising. The company uses
a quarterly accounting period beginning April 1,2016.
5. XYZ Company’s annual accounting period starts on January 1, 2016. The company paid
P360,000 representing a 12-month rent beginning March 1.
6. On November 1, 2016, SEF Repair Shop paid the rental fee for six months amounting to
P72,000. The business follows the calendar year accounting period.
115 | P a g e
7. On February 1, the company bought P95,000 worth of office supplies. On December 31, 2016,
remaining supplies amounted to P9,800.
8. SIS Company follows a fiscal year starting April 1, 2016. On September 1, the company paid
P264,000 representing 2 years advertising.

1. Discuss the expense method of recording prepaid expenses.
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
116 | P a g e
LESSON COMPARISON between asset

13
method and expense method
In this lesson, your ability to prepare adjusting entries using asset Learning Objective:
method and expense method will be tested. Answer the activity below for you 1. Prepare and
review. compare adjusting
entry for prepaid
expenses using
asset method
expense method.
Instructions: Provide the only the adjusting entry for the problems below using
expense method.
1. On January 1, 2016, the company paid an insurance premium of P360,000 covering a period of
1 year. The company’s accounting period is quarterly
2. On May 1, 2016, the company paid an insurance premium of P540,000 covering a period of 3
years. The company follows a fiscal year starting April 1, 2016.
3. On August 1, 2016, Cruz Fitness Center paid an advance rental on a space of a building it is
occupying in the amount of 324,000. The amount covers one year rent paid in advance. The
Center’s accounting period is calendar year.
• Adjusting entry performed using expense method

needs to be reversed at the beginning of another
accounting period. Reversing entries are to be
discussed in the higher lessons of bookkeeping.
117 | P a g e
Congratulations! You were able to recall how the expense method works for the prepaid
expenses. Now let’s compare both asset method and expense method by reading and analyzing the
examples below.
EXAMPLES
1. On April 1, 2016, the company purchased office supplies amounting to P20, 000. At the end of
the accounting period, unused office supplies amounted to P4, 500.
ASSET METHOD EXPENSE METHOD

Apr 01 Office Supplies 20000 Apr 01 Office Supplies Expense 20000
Cash 20000 Cash 20000
Dec 31 Office Supplies Expense 15500 Dec 31 Office Supplies 4500

Office Supplies 15500 Office Supplies Expense 4500
Notice that whatever method you use, office supplies will amount to 4500
and office supplies expense will amount to 15500.
ASSET METHOD EXPENSE METHOD

Jul 01 Prepaid Rent 72000 Jul 01 Rent Expense 72000
Cash 72000 Cash 72000
Dec 31 Rent Expense 24000 Dec 31 Prepaid Rent 48000

Prepaid Rent 24000 Rent Expense 48000
72000 / 12 = 6000 (monthly rent) 72000 / 12 = 6000 (monthly rent)

6000 x 4 (expired portion) = 24000 6000 x 8 (unused portion) = 48000
Notice that whatever method you use, Prepaid Rent will amount to 48000
and rent expense will amount to 24000.
If you are having a hard time comparing both methods, please review the previous lessons.
Otherwise you may proceed answering the next activities.
118 | P a g e
Instructions: Prepare the adjusting entries only using asset and expense methods. Follow the format
on the previous page for easy comparison.
Asset Method Expense Method
P1, 500.
119 | P a g e

1. Upon adjustment, should you use asset method or expense method? Will there be a difference
on the values of the accounts after adjustment?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
120 | P a g e
LESSON ADJUSTING ENTRY FOR Unearned

14 revenues (liability method)
In this lesson, you will be introduced to the next adjusting entry, the
Learning Objective:
adjusting for unearned revenue. Answer the activity below for your review.
entry for unearned
revenue using
liability method.
Discuss the difference between asset method and expense method in adjusting prepaid
expenses.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
• Adjusting entry for unearned revenue can be done

using two methods:
1. Liability Method
2. Revenue Method
121 | P a g e
Congratulations! You were able to recall how the asset method and expense method works.
Now you may proceed with the next adjusting entry.
Adjusting Entry for Unearned Revenues

Unearned Revenue (Liability Account)
 Revenue already collected but not yet earned.
 Revenues collected or received in advance.
Liability Method
 The account credited upon receipt of cash is a liability account. Upon adjustment, such liability
account will be debited, and a revenue account is credited.
EXAMPLES:
1. On September 1, 2015, MNO Company received P540,000 representing rental fee of an office
space for one year beginning on this date. Prepare the adjusting entry on December 31.
Liability method:
September 1, 2015:
Cash 540 000
Unearned Rent Revenue 540 000
Rent Revenue 180 000
To record the earned portion of unearned rent revenue
Under liability method, we credit a liability account on the upon entry. That is why
unearned rent revenue account was credited on September 1.
Upon adjustment, the liability account we credited should be debited, and a revenue
account will be credited. As you can see in the adjustment, we debited the unearned rent
revenue account and credited rent revenue for 180 000
After the adjustment, the unearned rent revenue account will have a credit balance of 360
000 (540 000 – 180 000 = 360 000), which represents the unearned portion.
Computation: 540 000 / 12 = 45 000
45 000 x 4 = 180 000 (four months earned portion, Sept 1 – Dec 31)
122 | P a g e
2. On August 1, 2015, ABC Company received P768,000 representing rental fee of an office space
for two years. Prepare the adjusting entry on December 31.
August 1, 2015:
Cash 768 000
After the adjustment, the unearned rent revenue account will have a credit balance of 608
000 (768 000 – 160 000 = 608 000), which represents the unearned portion.
Computation: 768 000 / 24 = 32 000
32 000 x 5 = 160 000 (five months earned portion, Aug 1 – Dec 31)
3. On November 1, 2015, DEF Company received P240,000 representing rental fee of an office
space for six months. Prepare the adjusting entry on December 31.
November 1, 2015:
Cash 240 000
Rent Revenue 80 000
Computation: 240 000 / 6 = 40 000
40 000 x 2 = 80 000 (two months earned portion, Nov 1 – Dec 31)
4. On January 1, 2015, GHI Company received P432,000 representing rental fee of an office space
for one year. The company follows a semi-annual accounting period starting January 1, 2015.
January 1, 2015:
Cash 432 000
June 30, 2015 (adjusting):
123 | P a g e

Computation: 432 000 / 12 = 36 000
36 000 x 6 = 216 000 (six months earned portion, Jan 1 – June 30, end of a semi-
annual accounting period starting Jan 1)
5. On September 1, 2015, JKL Company received P300,000 representing an advertising fee for
one year. Prepare the adjusting entry on December 31.
September 1, 2015:
Cash 300 000
Unearned Advertising Revenue 300 000
Advertising Revenue 100 000
To record the earned portion of unearned advertising revenue
Computation: 300 000 / 12 = 25 000
25 000 x 4 = 100 000 (four months earned portion, Sept 1 – Dec 31)
Instructions: Provide the upon entry and the adjusting entry of the following problems using liability
method.
1. On February 1, 2015, XYZ Company received P360,000 representing an advertising fee for two
years. Prepare the adjusting entry on December 31.
124 | P a g e
2. On February 1, 2015, ABC company received P168,000 representing an advertising fee for one
year. The company follows a semi-annual accounting period starting January 1, 2015.
3. On August 1, 2015, HIJ Company received P132,000 representing a 1-year rental fee for a shop
space. The company follows a semi-annual accounting period starting July 1,2015.
4. On October 1, 2015, MNO Company received a 2-year advance payment for a shop space worth
288,000. The company follows a calendar year accounting period.

1. Discuss how you adjust unearned revenue using liability method.
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
125 | P a g e
LESSON ADJUSTING ENTRY FOR Unearned

15 revenues (REVENUE method)
In this lesson, you will learn using revenue method in adjusting
Learning Objective:
unearned revenues. Answer the activity below for your review.
entry for unearned
revenue using
revenue method.
Discuss the difference between prepaid expenses and unearned revenues

_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
• Adjusting entry performed using revenue method

needs to be reversed at the beginning of another
accounting period. Reversing entries are to be
discussed in the higher lessons of bookkeeping.
126 | P a g e
Congratulations! You were able to recall how the liability method works. You may now proceed
with the revenue method. The meaning of unearned revenue is written below for your reference.

Unearned Revenue (Liability Account)
 Revenue already collected but not yet earned.
 Revenues collected or received in advance.
Revenue Method
 The account credited upon receipt of cash is a revenue account. Upon adjustment, such
revenue account will be debited, and a liability account is credited.
EXAMPLES:
Liability method:
September 1, 2015:
Cash 540 000
To record the unearned portion of rent revenue
Under revenue method, we credit a revenue account on the upon entry. That is why rent
revenue account was credited on September 1.
Upon adjustment, the revenue account we credited should be debited, and a liability
account will be credited. As you can see in the adjustment, we debited the rent revenue account
and credited unearned rent revenue for 360 000
After the adjustment, the rent revenue account will have a credit balance of 180 000 (540
000 – 360 000 = 180 000), which represents the earned portion (Sept 1 – Dec 31)
Computation: 540 000 / 12 = 45 000
45 000 x 8 = 360 000 (eight months unearned portion, Jan 1 ’16 – Aug 31 ’17))
127 | P a g e
August 1, 2015:
Cash 768 000
After the adjustment, the rent revenue account will have a credit balance of 160 000 (768
000 – 608 000 = 160 000), which represents the earned portion (Aug 1 – Dec 31).
Computation: 768 000 / 24 = 32 000
32 000 x 19 = 608 000 (nineteen months unearned portion)
November 1, 2015:
Cash 240 000
Computation: 240 000 / 6 = 40 000
40 000 x 4 = 160 000 (four months unearned portion)
January 1, 2015:
Cash 432 000
June 30, 2015 (adjusting):
128 | P a g e

Computation: 432 000 / 12 = 36 000
36 000 x 6 = 216 000 (six months unearned portion)
September 1, 2015:
Cash 300 000
To record the unearned portion of advertising revenue
Computation: 300 000 / 12 = 25 000
25 000 x 8 = 200 000 (eight months unearned portion)
Instructions: Provide the upon entry and the adjusting entry of the following problems using revenue
method.
1. On February 1, 2015, XYZ Company received P360,000 representing an advertising fee for two
years. Prepare the adjusting entry on December 31.
129 | P a g e
2. On February 1, 2015, ABC company received P168,000 representing an advertising fee for one
year. The company follows a semi-annual accounting period starting January 1, 2015.
3. On August 1, 2015, HIJ Company received P132,000 representing a one year rental fee for a
shop space. The company follows a semi-annual accounting period starting July 1,2015.

1. Discuss how you adjust unearned revenue using revenue method.
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
130 | P a g e
LESSON COMPARISON between liability

16 method and revenue method
In this lesson, your ability to prepare adjusting entries using liability Learning Objective:
method and revenue method will be tested. Answer the activity below for you 1. Prepare and
review. compare adjusting
entry for unearned
revenues using
liability method and
revenue method.
Instructions: Provide only the adjusting entry for the problems below using
revenue method.
1. On September 1, 2015, Company A received P216,000 representing rental fee of an office space
for two years. Prepare the adjusting entry on December 31, 2015.
2. On February 1, 2015, Company B received P144,000 representing an advertising fee for 1 ½

year. What is the adjusting entry on December 31, 2015?
• Remember that whichever method you will use

(liability or revenue), you will come up with the
same answer/result.
131 | P a g e
Congratulations! You were able to recall how the revenue method works for the unearned
revenues. Now let’s compare both liability method and revenue method by reading and analyzing the
examples below.
EXAMPLE
LIABILITY METHOD REVENUE METHOD

Oct 01 Cash 288000 Oct 01 Cash 288000
Unearned Rent 288000 Rent Revenue 288000
Dec 31 Unearned Rent 36000 Dec 31 Rent Revenue 252000

Rent Revenue 36000 Unearned Rent 252000
288000 / 24 = 12000(monthly rent) 288000 / 24 = 12000(monthly rent)

12000 x 3 (earned portion) = 36000 12000 x 21 (unearned portion) = 252000
Notice that whatever method you use, unearned rent will amount to 252000
and rent revenue will amount to 36000.
If you are having a hard time comparing both methods, please review the previous lessons.
Otherwise you may proceed answering the next activities.
Instructions: Prepare the adjusting entries only using asset and expense methods. Follow the format
above for easy comparison.
Liability method: Revenue method:
132 | P a g e
133 | P a g e

1. Upon adjustment, should you use liability method or revenue method? Will there be a difference
on the values of the accounts after adjustment?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
134 | P a g e
LESSON Completion of the accounting

17 cycle of a service business
In this lesson, you will complete the steps of the accounting cycle Learning Objective:
including the preparation of adjusting entries. For your review, the steps of 1. Complete
the accounting cycle are below: accurately a
practice set for a
service business.
1. Analyzing business transactions by examining source documents
2. Journalizing
3. Posting
4. Preparing a trial balance
5. Gathering of necessary adjustment data
6. Preparing a worksheet
7. Preparing the financial statements
8. Journalizing and posting the adjusting entries
9. Journalizing and posting the closing entries
10. Journalizing the post-closing trial balance
11. Preparation of reversing entries
You will be given series of activities for the completion of the accounting cycle of a service business.
The activities, including practice set, is to be given and discussed during virtual meeting. Instructions
will also be given to those who do not have the means to attend virtual meeting.
135 | P a g e
Baguino et. Al. Principles of Accounting.

Dumrique et Al. Accounting Made Easy
Peñaflor. Basic Principles of Accounting; Computerized Accounting System

BTLE 30043 Bookkeeping For Service Business

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Cover Page .........................................................................................................................................1

Crouse Syllabus ..................................................................................................................................2

College Vision, Mission, Goals, and Objectives ...................................................................................5

Table of Contents ................................................................................................................................6

Lesson 1A Introduction to Accounting .................................................................................................8

Lesson 1B Introduction to Accounting, a continuation........................................................................13

Lesson 2 Analyzing Business Transactions .....................................................................................19

Lesson 3 Accounting Equation ........................................................................................................25

Lesson 4A Accounting Process of a Service Concern .......................................................................34

Lesson 4B Accounting Process of a Service Concern .......................................................................44

Lesson 4C Accounting Process of a Service Concern .......................................................................52

Lesson 5 6 - Column Worksheet and Financial Statements .............................................................63

Lesson 6 The Closing Entries and Post-Closing Trial Balance ........................................................69

Lesson 8 Adjusting Entry for Uncollectible Accounts .......................................................................81

Lesson 9 Adjusting Entry for Accrued Expense ...............................................................................86

Lesson 10 Adjusting Entry for Accrued Revenue ...............................................................................93

Lesson 17 Completion of the Accounting Cycle of a Service Business ............................................ 134

References ...................................................................................................................................... 135

In this lesson, you will be introduced to the basic concepts of

and importance in the business and professional world. 1. Define accounting

• Asset is normally defined as a useful or valuable

• In accounting, asset is everything that is owned by

A Franciscan monk named FRIAR LUCA PACIOLI is credited

Accounting and Bookkeeping Defined

According to Accounting Standards Council (ASC), accounting is defined as follows:

• It is a service activity. Its function is to provide quantitative information, primarily financial in

Three phases of accounting:

• Recording/Bookkeeping – The process of systematically maintain a record of all business

The Role of Accounting in Business

The Specialized Fields of Accounting

Forms of Business Organizations

Instructions: Answer the following questions.

1. How important accounting is in the business world?

Service Merchandising Manufacturing

Service Merchandising Manufacturing

LESSON INTRODUCTION TO ACCOUNTING

You are now on the second part of lesson 1, a continuation of the

3. Identify the ele-

The Generally Accepted Accounting Principles (GAAP)

Basic Financial Statements of Business Organizations

• Income Statement / Statement of Comprehensive Income – Shows the summary of the

Qualitative Characteristics of Financial Statement

• Understandability - It must be presented in a form and expressed in terminology that a user

Elements of Financial Statements

The five (5) basic classification of accounts are as follows:

• Revenue - Gross inflow of economic benefits.

• Expense - Gross outflow of economic benefits.

Here’s another activity for you to answer!

Instructions: Answer the following questions.

2. What is a financial statement? Why is it important to maintain its supposed qualitative

1. Cash 9. Notes Payable

LESSON ANALYZING BUSINESS

In Lesson 2, we will now begin analyzing business transactions. Make

face value. 3. Use source

• Official receipt is an example of source document.

Business Transactions Defined

Source documents are evidence of the economic activities of business enterprise.

Steps in Analyzing Business Transactions

1. Mr. C. Villegas started his own business by investing P 2 000.

2. The business purchased office supplies for cash, P 5 000.

4. Purchased office equipment on account worth P 10 000.

6. Paid salaries of two helpers, P 10 000.