Accounting Book

Fundamental in Accountancy Business
Management
Accounting
- Is the art of recording, classifying, and summarizing in a significant manner and in
terms of money, transaction and event which are, in part at least, of a financial character and
interpreting the results thereof.
- Its function is to provide quantitative information, primarily financial in nature about
economic entities that is intended to be useful in making economic decision.
- Is a service activity.
Accountant
- The person who perform this job.
Accounting Equation
- Asset equal liabilities plus equity. (A = L + E)
Accounting Manual
- Is a document prepared to provide bookkeepers with direction and guidance in
connection with those bookkeeping requirements of entities.
Accounting Period/Year
- Is a period of 12 consecutive months chosen or an entity as its accounting period which
may or may not use in calendar year.
Accounts Payable
- Are amount due to creditors for the goods or services brought on credit.
Account
- Is a formal record that represents in money or other unit of measurement, certain
resources, and claims to such resources, transactions or other events that result in changes to
those resources and claims.
- It can also be defined as a detailed record of the increases, decreases, and balance of
each statement that appeared in the financial statements.
- The simplest form of the account is the “T” account.
T-Account
- It is the basis for journal entry in accounting T-accounts.
Three basic elements:
* A title
* A left side (Debit/Dr)
* A right side (Credit/Cr)
Adjusting Journal Entries
- Are accounting entries to account for a period changes, commission or other financial
data required to be reported “in the books.”
Adjusted Trial Balance
- Reflects the total after the adjusting entries are posted to the general ledger.
Assets
- Are the company’s resources (things that a company owns.)
Examples:
* Cash * Land
* Accounts Receivable * Building
* Inventory * Equipment
* Supplies * Goodwill
* Investment
As per Philippine Accounting Standard, assets should be classified into two:
1. Current Assets
- Are assets which are expected to be realized within one year, or intended to sell or
consume it in its normal operating cycle.
Examples:
a. Cash
- Is a medium of exchange that a bank will accept for deposit at face value.
b. Cash Equivalents
- A short term
- Highly liquid investment that are readily convertible to known amount of cash and
which are subject to an insignificant risk of changes in value.
c. Accounts Receivable
- Are claims against customers arising from sale of services or goods on credit.
d. Notes Receivables
- A written pledge that the customer will pay the business a fixed amount of
money on a certain date.
e. Inventories
- An assets which are:
* Held for sale in the ordinary course of business.
* In the process of production for such sale.
* In the form of materials or supplies to be consumed in the production process or
in the rendering of service.
f. Prepaid Expenses
- Are expenses paid for by the business in advance.
2. Non-Current Assets
- Are all other assets which are not classified as current assets.
Examples:
a. Property, Plant and Equipment (PPE)
- Are tangible assets that are held by enterprise for use in the production or supply of
goods or services as for rental to others, or for administrative purposes and which
are expected to be used during more than one period.
b. Accumulated Depreciation
- Is a contra account that contains the sum of the periodic depreciation charges.
- The balance in this account is deducted from the cost of the related asset to obtain
book value.
Balance
- The sum of debit entries minus the sum of credit entries in an account.
- If positive, it is called a “debit balance.”
- If negative, it is called a “credit balance.”
A Balance Sheet (Statement of Financial Position)
- Presents the financial position of the entity at a given date (end of the quarter or year).
- It comprises three elements:
*Assets
*Liabilities
*Owner’s Equity
Bank
- A place where the business can keeps its money safe until it is needed.
Banking
- A financial service from banks whereby they receive a business’s money and make it
available when they need to use it.
Bank Account
- Sometimes called a “Current Bank Account.”
- It is used daily to deposit money and pay business accounts or expenses.
Bookkeeper (Book-keeper)
- Sometimes called an “Accounting Clerk”
- A person who records the accounts or transaction of a business.
- A person who keeps the book of an organization.
Organization might be a:
*Business
*Charity
*Even a local sports club
Bookkeeping
- A recording of all financial transaction undertaken by a business or an individual.
- Is the work or skill of keeping account book or systematic records of money
transactions.
- Is a procedural and largely concerned with development and maintenance of
accounting records.
Budget
- A plan of expected income and expenditure for the month.
Capital (Equity)
- Any money and other assets which can be used to start a business.
Cash
- Usually refers to money in the form of liquid currency, such as bank notes or coins.
Cash Payment Journal
- Also termed “Cash Disbursements Journal”
- A book used to record all payments made in cash such as:
*Accounts Payable
*Merchandise Purchases
*Operating Expenses
Cash Receipt Journal
- A book used to record all collection made in cash such as:
*Accounts Receivable
*Merchandise Sold
*Interest Income
Credit
- An accounting entry that either increases a liability or equity account, or decreases an
asset or expense account.
Current Assets
- A temporary assets that can be converted into cash within a year.
Current Liabilities
- A credits that need to be paid within a year, such as a bank overdraft and creditors.
Debit
- An accounting entry that either increases an asset or expense account, or decreases
liability or equity account.
- It is positioned to the left in an accounting entry.
Expenses
- Refers to the amount of money needed for the running business.
Financial Records
- A formal record of the financial activities of a business.
Financial Statements (Financial Report)
- A formal record of the financial activities of a business, person, or other entity.
- Relevant financial information is presented in a structured manner and in a form easy to
understand.
Fixed Assets
- A possessions acquired by the business to use for longer than a year.
Examples:
*Property
*Vehicles
*Land
*Buildings
Income
- The total amount of money earned and received over a period of time.
Income Statement
- Also referred as “Profit and Loss Statement.”
- A reports the company’s financial performance in terms of net profit or net loss over a
specified period.
- Income Statement composed two elements:
*Income
*Expense
Investments
- The International Accounting Standards Committee (IASC), defines investment as
an asset held by an entity for the accretion of wealth through capital distribution, such as
interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the
investing entity such as those obtained through trading relationships.
Intangible Assets
- Are identifiable, nonmonetary assets without physical substance held for use in the
production of supply of goods and services, for rental to other, or for administrative purposes.
Journal
- also known as “The Book of Origin Entry”
- A first recording of financial transaction as they occur in time, so that they can then be
used for future reconciling and transfer to other official accounting records such as the general
ledger.
Journal Entry
- A logging of transactions into accounting journal items.
- Journal entry can consist of several recordings, each of which is either a debit or a
credit.
- The total of debits must equal the total of the credits, otherwise, the journal entry is
said to be “unbalanced”.
Ledger Account
- An account or record used to sort and store balance sheet and income statement
transactions.
Liabilities
- A company’s debt or financial obligations (amounts that a company owes).
Examples:
*Notes or Loans Payable
*Accounts Payable
*Salaries and Wages
*Interest Payable
- According to the revised Philippines Accounting Standards, an entity shall classify
liability as current when:
1. It holds the liability primarily for the purpose of trading.
2. The liability is due to be settled within 12 months after the reposting period.
3. The entity does not have an unconditional right to defer settlement of the liability for at least
12 months after the reporting period.
All other liabilities should be classified as non-current liabilities
Loss
- When the business expenses are higher than the business income.
Net Loss
- A deficiency of revenue over expenses for an accounting period.
Net Income
- The excess of revenue over expenses for an accounting period.
Non-Current Liabilities
- A debts that are paid over a longer period than a year.
Notes or Loans Payable
- These are amounts due to creditors whish are supported by a promissory note.
Owner’s Equity or Shareholder’s Equity
- The amount left over after all liabilities are deducted from the assets.
- Also reports the amounts invested into the company by the owners plus the cumulative
net income of the company that has not been withdrawn or distributed to the owners.
Profit
- When the income is higher than expenses.
Recording
- Is the process of capturing information about business transactions.
Revenue
- The inflow of assets resulting from sale of goods and services.
Savings
- A part of an income that is kept for future use.
Statement of Changes in Equity (Statement of Retained Earnings)
- Details the movement in owner’s equity over a period.
Source Document
- Any form of paper record that is produced as direct consequence of financial
transaction, and as a result, it is an evidence that the transaction has taken place.
- Accounting source documents come in many different forms.
Examples are receipts for goods purchased with:
*Cash *Bank Statements
*Receipts for Cash Received *Cash Register Tapes
*Sales Invoices *Bank Deposit Slips/Forms
*Purchase Invoices *Cheque Stubs
*Supplier’s Statements *Credit Card Receipts and Payroll Records
Transaction
- Any activity where money or items of value are exchanged between people.
- A transaction is recorded on a source document using headings such as date, amount,
items purchased, amount paid etc.
Concept in Bookkeeper and an Accountant
The terms Bookkeeper and Accountant can be used interchangeably to a certain degree,
so let us focus on the literal job roles.
Bookkeeper
- A bookkeeper is a person without a college degree in accounting, who performs much
of the data entry tasks, includes entering the:
*Bills from the Suppliers * Preparing Sales Invoices
*Paying Bills *Mailing Statement to Customers etc.
*Processing Payroll Data
- Many bookkeepers start acting as a data-entry clerk or entry-level bookkeeper for a
business.
- They grow, through experience and merit, into being a go-to person for the day-to-day
financial recording
- The term bookkeeper is literal: the bookkeeper keeps the book and retains
documentation for transactions.
Accountant
- An accountant is likely to have a college degree with a major in accounting and takes
over where the bookkeeper leaves off.
- An accountant may focus on reporting, business analysis and processes, and possibly
advice.
- The accountant will prepare adjusting entries to record expenses that occurred but are
not yet entered by the bookkeeper.
Examples:
Includes interest on bank loans since the last loan payment, wages earned by employees
that will processed next week, etc. Other adjustment to accounts includes the calculation and
recording of depreciation, establishing allowances for uncollectible accounts, etc. After making
the adjusting entries, the accountant prepares the company’s financial statements (income
statement, balance sheet, statement of cash flows). The accountant also assists the company’s
management to understand the financial impact of its past and future decisions.
SAVED!!!
“An experienced or certified bookkeeper may eventually move into being an
ACCOUNTANT”
“Many times a bookkeeper and accountant work in tandem”
with the bookkeeper operating as “Feet on the ground professional”
promoting a stronger relationship between an accountant and a business owner.
1. Collect the
verify source 2. Analyze
9. Prepare a documents. each
Post-Closing
Transaction.
Trial Balance.
8. Journalize 3. Journalize
and Post ACCOUNTING each
Closing Entries. Transaction.
CYCLE
7. Prepared
4. Post to the
Financial
Statements. Ledger.
6. Prepare 5. Prepared
a A Trial
Worksheet. Balance.
Figure 1. The Accounting Cycle

The Basic Steps to the Accounting Cycle:
1. Collect Source Documents
- “This is the first step in the bookkeeping job.”
- The very first step in the accounting cycle is to gather all the documents that are
related to the financial transaction of the organization.
- This documents called Source Documents like:
*Receipts
*Bank Statement
*Checks
*Purchase Orders
2. Analyze Transaction
- “This is still an integral part of the job of a bookkeeper.”
- The purpose of this is to look them over and then decide what effect they have had
on company accounts.
3. Journalize Transaction
- “This must be the look-out of the bookkeeper.”
- The third step is to post entries into the journal for the analyzed transaction.
Journal
- A book or electronic record that documents all of the financial transaction for the
company and the account that are affected by each transaction.
- When journal entry is made, the ‘double-entry’ rule is used.
- This means that for every one transaction, at least two accounts are affected.
- There must be a debit and credit for each transaction and the total must equal
amount of the transaction.
Journal Entries
- Are entered in chronological order, and debits are entered before credits.
4. Post Transactions
- “This is still within the responsibility of the bookkeeper.”
- The fourth step is to transfer information from the journal to the ledger.
Ledger
- A book or an electronic record of all the accounts that a company has.
- These accounts are broken down by account number and class.
- When the information from the journal is transferred to the ledger, it is transferred to
each account that was affected by a transaction.
5. Prepare an Unadjusted Trial Balance
- “This is still the responsibility of the bookkeeper.”
- An unadjusted trial balance is a trial balance that is prepared before adjusting
entries are made into accounts.
- This information comes directly from the ledger.
Trial Balance
- Is a list of all the company’s account and their balance at the time the trial balance is
prepared.
- The total debit balance and total credit balance must be equal.
6. Prepared Adjusting Entries
- “The bookkeeper should do this for the company.”
- Adjusting entries are entries that are made in the journal and posted in the ledger.
- Adjusting entries are made at the end of the accounting period but not the end of the
accounting cycle.
- The purpose of this is to bring account balances to the proper amount.
- Not all accounts will have an adjusting entry.
7. Prepare Trial Balance
- “Who else should do this part except the bookkeeper?”
- Remember, the trial balance is a list of all accounts and their balances after adjustment
have been made.
- This trial balance is prepared to check and make sure that debits and credits equal
after adjusting entries are made.
- It is used to prepare the financial statements.

8. Prepare Financial Statement
- “The bookkeeper is still expected to do this part.”
- The financial statements must be prepared in a very specific order.
- Order for financial statement:
*Income Statement
*Statement of Retained Earnings
*Balance Sheet
*Statement of Cash Flows
- This order is important because information provided in the income statement is used
in the statement of retained earnings, and information from the statement of retained earnings
is used in the balance sheet.
9. Prepare the Closing Entries
- “This is still the responsibility of the bookkeeper who is now getting the book ready
for the next year!”
- Closing entries are prepared after the financial statements are completed.
- The purpose of this is to prepare the accounts for recording transactions and events
for the next period.
Remember:
 For many companies the last step in accounting cycle is to prepare a post-closing trial
balance.
 A post-closing trial balance should only contain the debit and credit balance for
permanent accounts, because these are the only accounts that are remaining after the
closing process.
 The purpose of this trial balance is to ensure that the debits equal the credits and that
all temporary accounts have a zero balance.
10. Reversing Entries
- “The bookkeeper can still do this part.”
- For many companies step 9 is the last step in accounting cycle since the company is
now ready to start the new accounting period. However, some companies, complete one more
step in accounting cycle, step 10 or reversing entries.
- Reversing entries are optional.
- These entries reverse certain adjustment in the next period.
Summary:
 The bookkeeper takes the lead role in each step of the accounting cycle.
 Nothing was actually mentioned about what the accountant should do in each of the step.
 That is how important role as a bookkeeper.
What does the accountant then do?
- It takes the book that bookkeeper prepared, review them, perform business analysis,
advises and makes recommendations based on what you have prepared.
-That is how vital the role of a bookkeeper is in relation to that business and to the
function of an accountant.
Types of Business Organization:
1. Sole-Proprietorship
- It is the simplest form of business.
- A business which is owned by a single person.
- Usually a small service-type business and retail establishments.
- The owner absorbs all losses and is solely responsible for all debts of the company.
2. Partnership
- A business owned and operated by two or more person.
- They bind themselves to contribute money, property, or industry to a common fund

with the intention of dividing the profit among themselves.
3. Corporation
- A business owned by the shareholders.
- An artificial entity being created by operation of law, having the rights of succession
and the powers, attributes and properties expressly authorized by law or incident to its
existence.
- In a corporation, the business entity remains separate from the owners in legal and
financial matters.
Types of Business Activities:
1. Financing Activities
- A transaction that are involved with financing the company or individual customer
financing.
2. Investing Activities
- Are those that are not part of daily operation of the business.
- Are used solely for investing purposes.
3. Operating Activities
- Are all different activities a company will do in their day to day business practices
involved with running the company.
- It also involves the use of resources to design, produce, distribute, and market goods
and services.
Types of Activities Perform by a Business Organization:
*Service Company
*Merchandising Company
*Manufacturing Company
Lesson 2:
Journalizing Transaction
Chart of Account
- Is a list of all account used by a company in its accounting system.
- It makes the bookkeeper’s life easily.
- The accounts included in the chart of account must be used consistently to prevent
clerical and technical errors in the accounting system.
Take note!!!
 There is no standard chart of accounts because its contents depend upon the need of the
company using it.
*Items in the Chart of Account*
Three items included in Chart of Account:
1. Account
- List the account name.
2. Type
- List the type of account (asset, liability, equity, income, cost of goods sold and
expenses)
3. Description
- Contain a description of the type of transaction that should be recorded in the account.
Many companies assign number to the accounts, to be used for coding charges. If
your company is using a computerized system, the computers automatically assign the
account number. Otherwise, you need to plan out your own numbering system.
*Classification of Accounts*
For bigger companies, the most common number system is:
 Asset Accounts: 1 000 to 1 999

 Liability Accounts: 2 000 to 2 999
 (Capital) Equity Accounts: 3 000 to 3 999
 (Revenue) Sales and Cost of Goods Sold Accounts: 4 000 to 4 999
 Expense Accounts: 5 000 to 6 999
This numbering system matches that one used by computerized accounting system,
making it easy for a company transition if at some future time it decides to automate its book
using a computerized accounting system.
Sample Chart of Accounts.
Chart of Accounts
Jeuel Myar Enterprises, Inc.
Assets Normal Description/Explanation
Balance
Current Assets (Assign a code
number of your choice, say 100-140)
100 Cash Debit Currency, coins, checks received from
customers but not yet deposited.
120 Accounts Receivable Debit Amounts owed to the company for
services performed or product sold but
not yet paid for.
130 Service Supplies Debit Cost of supplies that have not yet been
used. Supplies that have been used are
recorded in supplies expense.
Non-Current Assets (Assign a code
150 Furniture and Fixtures Debit Cost of furniture and fixtures bought
by the company.
151 Accumulated Depreciation Credit Amount of the furniture’s cost that has
-Furniture and Fixtures- been allocated to depreciation expense
since the time the furniture was
acquired.
160 Service Equipment Debit Cost to acquire and prepare equipment
for use by the company.
161 Accumulated Depreciation Credit Amounts of the equipment’s cost that
- Service Equipment- has been allocated in depreciation
expense since that time the equipment
was acquired.
Liabilities (Assign a code number of
your choice, say 200-210).
200 Accounts Payable Credit Amounts owned to supplies who
provided goods or services to the
company but did not required
immediate payment in cash
210 Notes Payable Credit The amount of principal due on a
formal written promise to pay. Loans
from the bank are included on this
account.
Equity (Assign a code number of
your choice, say 300-310)
300 Mr. Myar, Capital Credit Amount of the owner invested in the
company (through cash or other asset)
plus earning of the company not
withdrawn by the owner.
310 Mr. Myar, Drawing Debit Amount that the owner of the sole
proprietorship has withdrawn for
personal use during the current
accounting year.
Income (Assign a code number of
400 Service Revenue Credit Amount earned from providing
services to clients, either for cash or
for credit.
Expense (Assign a code number of
500 Rent Expense Debit The cost incurred by a business to
utilize property.
510 Salaries Expense Debit Expense incurred for work rendered
by employees.
520 Taxes and Licenses Debit A fee paid to the government for the
privilege of being licensed to do
something.
Assessment:
1. Set up a chart of accounts for Laine Business Consultancy by arranging the accounts in the
order in which they would appear in the chart. Assign each account a number, using a three-
digit numbering scheme: the 100 series for assets, the 200 series for liabilities, etc. Use the
second digit to indicate specific account within the major category. For example, Cash would
be account number 110.
Patrizia Laine organized a new business and named it Laine Business Consultancy. Listed
below are the accounts that will be needed in the ledger.
Consulting Revenue Laine, Withdrawals
Accounts Receivable Income Summary
Building Office Supplies Expense
Cash Laine, Capital
Rent Expense Notes Payable
Furniture and Fixtures Prepaid Rent
Land Interest Expense
Miscellaneous Expense Salaries Expense
Referral Revenues Unearned Consulting Revenues
Accu. Depreciation – Building Office Supplies
Accu. Depreciation – F/F Interest Payable
Depreciation Expense – Building Insurance Expense
Depreciation Expense – F/F Accounts Payable

Chart of Accounts
Laine Business Consultancy
Assets Description/Explanation
Code Number
Liability
Equity
Income
Expense
Business Transaction
-Is an activity or event that can be measured in terms of money and which affect the
financial position or operation of the business entity.
- In other words, it has an effect on any of the accounting elements:
*Assets *Income
*Liabilities *Expense
*Capital
Thus, a business transaction must have the following characteristic:
1. It must be a transaction involving the business entity.
- Means that there must be a separation between the operation of the business and of its
owners and must be clearly established.
- A money that you use is in your business cash.
- If you used your personal money to buy something that’s not being consider as business
transaction.
2. It must be of Financial Character.
- Means a certain amount of money must be assigned to the elements or accounts
affected.
- In short, it must have an effect on the Basic Accounting Equation.
3. It must have a dual or “two-fold” effect on the accounting elements.
- Every transaction has a dual or two-fold effect.
- For every value received, there is a value given. Or for every debt, there is a credit.
- This is the concept of the double-entry accounting.
- You may refer to the discussion on the Basic Accounting Equation for more
illustrations and example to further understand this.
4. It must be supported by a source document.
- The source documents serve as bases in recording transaction in the journal.
- If the transaction has no sourced document it is not recognized as business transaction.
Basic Accounting Equation
- It is the unifying concept in accounting that shows the relationship between and among
accounting elements: assets, liabilities and capital.
When a business starts to operate, its resources (asset) come from two sources:
*Contribution by Owners.
*Resources Acquired from Creditors or Lender.
*Means that all assets initially come from liabilities obtained and owner’s contribution.
*This is the idea of Accounting Equation.
The Basic Accounting Equation is:
Assets = Liabilities + Capital (Owner’s Equity)
- Company owns (assets) must always equal what it owes (liabilities) to its creditors
plus what it owes (owner’s equity) to the owner or owners.
- Take place, the values of the accounting element change.
Accounting Equation
- At any rate, always stays in balance.
Every transaction has two-fold effect.
- Means that at least two accounts are affected.
Look at the following illustrations:
1. Ms. Grace invested Php100 000.00 to start a rice retailing business.

2. She obtained a loan of Php20 000.00 from the bank in the name of the business.
3. She purchased a weighing scale and paid a total of Php2 500.00
How will the transactions affect the accounting equation?
Let us analyze the transactions.
Transaction 1:
Transaction Assets = Liability + Owner’s Equity
Owner’s +100 000.00 = 0 + +100 000.00
Investment
Analysis: The transaction has a two-fold effect. Assets increased as a result of the increased in
cash. At the same time, capital increased due to the owner’s contribution. If you
remember, capital is increased by contribution of owner’s and income, and decreased
by withdrawals and expenses. No liability is affected, therefore, set at zero.
Transaction 2:
Owner’s 100 000.00 = 0 + +100 000.00
Investment
Loan from Bank 20 000.00 = 20 000.00 + 0
Analysis: In transaction 2, the company received cash. Thus, the value of total assets is
increased. At the same time, it incurred in an obligation to pay the bank. Therefore,
liabilities are increased. This liability should be recorded as loan payable.
Take note!!!
The accounting equation is still balanced.
Transaction 3:
Owner’s +100 000.00 = 0 + +100 000.00
Investment
Loan from Bank +20 000.00 = +20 000.00 + 0
Purchased +2 500.00 = 0 + 0
Weighing Scale -2 500.00
Analysis: The Company acquired a weighing scale, therefore, an increase in asset. But since the
Company used cash to pay for the weighing scale and other supplies. It also results in
decrease in assets.
Transaction 3 resulted in an increased on one asset which is equipment and a decrease in

another asset. Liabilities and capital are not affected. Therefore, the equation in the 3rd
transaction is still equal.
Accounting Equation can be expressed in 3 ways:
* Assets = Liabilities + Owner’s Equity
* Liabilities = Assets - Owner’s Equity
* Owner’s Equity = Assets - Liabilities
Business Transactions
- Occurs on a daily basis as a result of:
*Doing Business.
*Item are Purchased or Sold.
*Credit is extended or borrowed.
*Income is made or expenses are assumed.
Business Transaction result in changes to the three elements of the Basic
Accounting Equation:
 A transaction that increases total assets must also increase total liabilities or owner
equity.
 A transaction that decreases total assets must also decrease total liabilities or owner
equity.
 Some transaction may increase one account and decrease another on the same side of
the equation i.e. (One asset increases and another decrease.)
~Regardless of the nature of the specific transaction, the accounting equation must stay in
balance at all times~
Transaction Analysis
- A process of reconciling the differences made to each side of the equation with each
financial transaction that occurs.
Examples:
Transaction 1: The owner deposit Php50 000.00 in the checking account to begin operation.
Assets = Liability + Owner’s Equity
+Php50 000.00 = 0 + +Php50 000.00
Analysis: The asset “cash” is increased by Php50 000.00 and the owner’s equity is increased by
Php50 000.00. The business owes the owner Php50 000.00.
Transaction 2: The business purchases a computer, on credit, for Php12 500.00.
Assets = Liabilities + Owner’s Equity
+Php12 500.00 = +Php12 500.00 + 0
Analysis: The asset “computer” is increased by Php12 500.00 and the liability is also increased
by Php12 500.00 because the business owes the Php12 500.00.
Transaction 3: The business purchases office supplies using Php5 500.00 cash.
+Php5 500.00 = 0 + 0
-Php5 500.00
Analysis: The asset “office supplies” is increased by Php5 500.00 and the asset “cash” is
decreased by Php5 500.00.
Transaction 4: A business purchases a building for Php1 000 000.00 with a Php250 000.00
cash down payment and an outstanding loan of Php750 000.00.
+Php1 000 000.00 = +Php750 000.00 + 0
- Php250 000.00
Analysis: More than two accounts are affected by this transaction. The asset “building”
increases by Php1 000 000.00, the asset “cash” decreases by Php250 000.00, and the
liability “bank loan” increases by Php750 000.00. The net result is that both side of
the equation increase by Php750 000.00.
Summary of the Transactions:

Bank Deposit, +Php50 000.00 = 0 + +Php50 000.00
Initial Capital
Purchase of +Php12 500.00 = +Php12 500.00 + 0

Computer
Purchase of +Php5 500.00 = 0 + 0

Office Supplies -Php5 500.00
Purchase of +Php1 000 000.00 = +Php750 000.00 + 0

Building -Php250 000.00
~As you can see, regardless of the transaction, the accounting equation must stay balanced~
Expanded Accounting Equation
- Breaks out the owner’s Equity section into two components:
*Revenues
*Expenses
Revenues
- What the business earns for providing goods or services.
Expenses
- The cost of assets the business uses to generate revenues (payroll, depreciation, rent,
utilities, and taxes.)
Profit or Loss = Revenues – Expenses
- In business, if the revenues are more than expenses, there is profit.
- In business, if the expenses are more than revenues, there is loss.
- The owner of the company also has the option to withdraw equity from the company in
the form of drawings (proprietorship and partnerships) or dividends (corporations).
When you look at these relationships to owner’s equity in terms of the accounting
equation, you see that:
 Revenues increase Owner’s Equity.
 Expenses decrease Owner’s Equity.
 Drawings or Dividends decrease Owner’s Equity.
Expanded Accounting Equation
Assets = Liabilities + Owner’s Equity + Revenues – Expenses – Drawings
Examples:
Transaction 5: The business sells goods for Php120 000.00 cash.
+Php120 000.00 = 0 + +Php120 000.00

(Revenue)
Analysis: The asset “cash” is increased by Php120 000.00 and the revenue increases
owner's equity by Php120 000.00.
Transaction 6: The business pays its monthly rent of Php15 000.00 using a company
check.
+Php15 500.00 = 0 + -Php15 000.00

(Expense)
Analysis: The asset “rent” increased by Php15 000.00 and the expense decreases owner’s
equity by Php15 000.00.
Transaction 7: The business owner withdraws Php20 000.00 for his personal use.
-Php20 000.00 = 0 + +Php20 000.00

(Revenue)
Analysis: The asset “cash” is decreased by Php20 000.00 and the drawing decreases
owner’s equity by Php20 000.00.
Accounting Cycle
- Is a sequence of procedures used to keep track of what has happened in the
business and to report the financial effect of those things.
- The financial reports will only make sense if the accounts have been:
*Analyzed Correctly
*The Accounting Equation remains balanced.
Step to analyze and record business transactions:
1. Determine the effect of the transaction on the financial statement of the company.
2. Determine the specific accounts affected and if the account is increased or
decreased.
3. Apply the rules of debit and credit to the transaction.
4. Record the transaction.
Practice Exercises:
1.) Janina Torres opened a Dental Service Olongapo City.
June 1 Initial investment of Ms. Torres was Php75 000.00.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 2 Michelle Torres invested Php64 000.00 cash in a business bank account. The
business received the cash and gave Michelle Torres owner’s equity in the
business.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 3 Purchased Dental Supplies at Php19 000.00.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 4 Paid monthly office rent of Php14 000.00.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 5 Recorded Php50 000.00 revenue for service rendered to patients.

Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 6 Janina Torres completed the following transaction during the latter part of the
month of June.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 15 Borrowed Php50 000.00 from the bank, signing a note payable.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 22 Performed service for patients at Php40 000.00.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 30 Received cash from patients in the amounts of Php10 000.00.

Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 31 Paid monthly salary to the dental nurse in the amount of Php15 000.00.
Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
June 31 Paid interest expense of Php2 500.00 on the bank loan.

Analysis: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Summary transaction of Janina’s Dental Service into one journal:
Transaction Assets = Liability + Owner’s

Equity
Preparing Journal Entry

Task:
March 17, 2019, SNM’ Enterprises purchased of computer equipment for its main office and
paid Php20,000.00 cash.
Which is debited, the computer equipment or the Php 20,000.00 cash? Support your answer.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Which is credited, the computer equipment or Php 20,000.00 cash? Support your answer.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Based on your analysis on what should be credited or debited, fill up the simple journal
below including all the other information:
YYYY is year.
MMM is the first three letter of the month.
00 is day of the month.
Account Debited is amount increased or added.
Account Credited is expenses.
xxxx is the amount as indicated in the transaction.
Date
YYYY Particulars Debit Credit
MMM 00 Account Debited xxxx
Account Credited xxxx
MMM 00 Account Debited xxxx

Account Credited xxxx
Explanation:
Analyzing the above transaction, you will find out that there would be an increase in asset
account. (computer equipment) and a decrease in another asset account (cash) since SNM paid
for the equipment.
You should therefore increase the asset account by debiting the computer equipment and
decrease cash by crediting it.
Looking at the chart, you see that asset and expense account have balance increases when
they are debited and balance decreases when they are credited. In direct contrast, liability,
stockholder’s equity and revenue accounts have balance decreases when they are debited and
balance increases when they are credited. These are very important points to know when
recording transaction.
After analyzing and preparing the business documents, the transaction are then recorded in
the journal. A journal, also known as The Book of Original Entry, keeps record of transaction
in chronological order. In Double Entry Accounting, transaction are recorded in the journal
through journal entries.
Two Kinds of Journal:

 General Journal
- It is the simplest form of journal wherein the two column form may be used.
 Special Journal
- Cash Receipt Journal, Cash Payment Journal, Sales Journal, Purchases Journal and
some other form of combination journals are special journal.
General Journal
Date
Particulars PR Debit Credit
2015
Computer Equipment 20,000.00
Mar 17
Cash 20,000.00
To record purchase of
Computer.
A General Journal contains the following columns:
* Date
- The date of the transaction is entered in this column in a systematic and chronological
manner.
* Particulars
- This column contains the debit and credit and brief explanation of the entries.
* Posting Reference or Folio (PR)
- Contain the post reference number or the ledger page in which the account are transferred.
* Debit
- Contains the amount debited.
* Credit
- Contains the amount credited.
Process in Journalizing Transactions
1. The date of the transaction is on the date column starting from the year month and day of the
transaction.
2. The first entry is the account title/s of the debit, and is written at extreme left margin of the
second column - Accounts title and explanation The amount of debit is recorded in the Debit
column.
3. The next entry is account title of the credit, written on the next line which is indented. The
amount of credit is recorded in Credit column
4. After the credit, a brief explanation of the transaction is entered.
5. After each completed journal entry, a space is provided to record the next transaction.
6. The Posting Reference (PR) Column is referred to as the reference and this is used to signify
that the journal entries were posted to the ledger using a reference number.
Explanation:
In the above example, computer equipment is an asset account. To increase the asset account,
you debit it. Cash is also an asset account, however, since there is a decrease in cash because we
paid for the computer, so we credit it.
When there is only one account debited and one credited, it is called a “Simple Journal
Entry.” There are however instances when more than one account is debited or credited, it is
called “Compound Entries.”
Transaction:
On March 17, 2015, SNM Enterprises purchased computer equipment for its main office at
PhpP12,000.00 cash and the balance is payable within 30 days.
Journal Entry would be:
Date
Particulars PR Debit Credit
2015
Mar 17 Computer Equipment 20 000.00
Cash 12 000.00
Accounts Payable 8 000.00
To record purchased of
computer
Explanation:
The journal entry shows that the company_________________________________________
______________________________________________________________________________
______________________________________________________________________________
In addition, the company incurred an obligation to pay Php8 000.00 after 30 days. The
liability of the company increased. When you increase liabilities, you credit it.
Note:
Total amount of debited should be equal to the total amount credited.
Key Points to Remember:
Double Entry Accounting System and The Rules for Debit and Credit
All accounts are assigned a “normal” balance base on the type of account you are working
with.
The normal balance of an account is its usual balance and is the side (debit or credit) that
increase the account. An account has either credit or debit normal balance. To increase the value
of an account with normal balance of credit, one would credit the account. To increase the value
of an account with normal balance of debit, one would likewise debit the account.
Normal Balance of Accounting Equation

ASSETS EXPENSE
Dr Cr Dr Cr
Normal Balance
Normal Balance
LIABILITIES EQUITY/CAPITAL REVENUES/INCOME

Dr Cr Dr Cr Dr Cr
Normal
NormalBalance
Normal Balance
The account on left side of this equation has a normal balance of debit. The account on
right side of this equation have a normal balance of debit.
Examples:
The transaction here pertain to Jewel Network Services, a small sole proprietorship
business.
Transaction No. 1
On March 1, 2015, Mr. Ivan started Jewel Network Services, he invested Php100 000.00
cash. The journal entry should increase the company cash and increase the capital account of Mr.
Ivan.
Date Particulars PR Debit Credit

2015
Mar 01 Cash 100 000.00
Mr. Ivan, Capital 100 000.00

To record initial investment of
Mr. Ivan
Transaction No. 2
On March 5, Jewel Network Services paid registration and licensing fees for the business
Php2 000.00.

2015
Mar 05 Taxes and Licenses 2 000.00
Cash 2 000.00
To record payment for registration
& licensing fee
Transaction No. 3
On March 6, the company acquired tables, chairs, shelves and other fixtures for a total of
Php6 000.00. The entire amount was paid in cash.
There is an increase in asset account (furniture and fixtures) in exchange for a decrease
in another asset (cash).

2015
Mar 06 Furniture and Fixtures 6 000.00
Cash 6 000.00
To record purchase of furniture
and fixtures
Transaction No. 4
On March 7, the company acquired service equipment at Php16 000.00. The company
paid 50% down payment and the balance will be paid after 60 days.
This will be the result to a compound journal entry. There is an increase in an asset
account (debit service equipment, Php16 000.00) a decrease in another asset account (credit
cash, Php8 000.00 – the amount paid) and an increase in a liability account (credit accounts
payable, Php8 000 – the balance to be paid after 60 days).

2015
Mar 07 Service Equipment 16 000.00
Cash 8 000.00

To record purchase of service
equipment 50% paid in cash, 50%
on account
Transaction No. 5
Also on March 7, the company purchase serviced supplies on account amounting to Php3
000.00.
The company received supplies thus will record a debit to increase supplies. By the
terms “on account”, it means that the amount has not yet been paid, and so, recorded as a
liability of the company.

2015
Mar 07 Service Supplies 3 000.00

To record purchase of supplies on
account
Transaction No. 6
On March 9, the company received Php2 000.00 for services rendered. You will therefore
record on increase in cash (debit the cash account) and increase in income (credit the income
account).

2015
Mar 09 Cash 2 000.00
Service Revenue 2 000.00

To record cash received for
service rendered
Transaction No. 7
On March 12, the company rendered services on account, Php3 950.00. As per agreement
with the customer, the amount is to be collected after 5 days.
Under the accrual basis of accounting, income is recorded when earned.

2015
Mar 12 Accounts Receivable 3 950.00

To record service rendered on
account
In this transaction, the services has been fully rendered (meaning we made an income; we
just haven’t collected it yet). Hence, you record an increase in income and in increase in
receivable account.
Transaction No. 8
On March 14, Mr. Ivan invested an additional Php5 000.00 into the business.
The entry would be similar to what we did in transaction #1, i.e. increase cash and
increase the capital account of the owner.

2015
Mar 14 Cash 5 000.00
Mr. Ivan, Capital 5 000.00

To record additional investment
Transaction No. 9
Rendered services to a big corporation on March 15.As per agreement the Php3 400.00
amount due will be collected after 30 days.

2015
Mar 15 Accounts Receivable 3 400.00

To record services rendered on
account
Transaction No. 10
On March 17, the company collected from the customer in transaction #7. You will
record an increase in cash by debiting it. Then, you will credit account receivable to decrease it.
You are actually reducing the receivable since it has already been collected.
2015
Mar 17 Cash 3 950.00
Accounts Receivable 3 950.00

To record cash collection for
serviced rendered last March 7.
Transaction No. 11
On March 20, the company paid some of its liability in transaction #5 by issuing a check.
The company paid Php1 000.00 of the Php3 000.00 payable.
To record this transaction, you will debit accounts payable for Php1 000.00 to decrease it
by that amount. Then, you will credit cash to decrease it as a result of the payment. The entry
would be:

2015
Mar 20 Accounts Payable 1 000.00
Cash 1 000.00
To record initial payment for the
purchase of supplies last March 5
The balance of the accounts payable in transaction number #5would now be Php2 000.00
credit Php3 000.00 initial credit and now a Php1 000.00 debit.
Transaction No. 12
On March 25, the owner withdrew cash due to an emergency need. Mr. Ivan withdrew
Php10 000.00 from the company. Naturally, there is a decrease in cash since the company paid
Mr. Ivan Php10 000.00. You should increase/record withdrawals (Mr. Ivan, Drawing) for the said
amount.

2015
Mar 25 Mr. Ivan, Drawing 10 000.00
Cash 10 000.00
To record withdrawals of Mr. Ivan
from the company
Transaction No. 13
On March 29, the company paid rent for March at Php5 000.00. Again you should record
the expense by debiting it and decrease cash by crediting it.

2015
Mar 29 Rent Expanse 5 000.00
Cash 5 000.00
To record rent expense for the
month of March
Transaction No. 14
On March 30, the company acquired a Php15 000.00 short term bank loan the entire
amount plus a 10% interest is payable after 1 year. Again, the company received cash so you
increase it by debiting cash. The company now has a liability (Loan Payable). You increase it by
crediting the liability account.

2015
Mar 30 Cash 15 000.00
Loan Payable 15 000.00

To record cash received for the
loan acquired
Transaction No. 15
On March 31, the company paid salaries to its employees at Php5 000.00
For this transaction, you will record/increase the expense account by debiting it and
decrease cash by crediting it. (Note: This is simplified entry to present the payment of salaries.
In actual practice, different payment accounting methods are applied.)

2015
Mar 31 Salaries Expense 5 000.00
Cash 5 000.00
To record payment of salaries for
the month
The transactions for the month of March of Jewel Network Services are
summarized below to give you a total picture of the transaction for the whole month,
presented in one journal.
Date
2015 Particulars PR Debit Credit
Mar 1 Cash 1 0 0 0 0 0 00
Mr. Ivan, Capital 1 0 0 0 0 0 00
To record payment of salaries
for the month
5 Taxes and License 2 0 0 0 00
Cash 2 0 0 0 00
To record payment for
registration & licensing fee
6 Furniture and Fixtures 6 0 0 0 00
Cash 6 0 0 0 00
and fixtures
7 Service Equipment 1 6 0 0 0 00
Cash 8 0 0 0 00
Accounts Payable 8 0 0 0 00
To record purchase of service
equipment 50% paid in cash,
50% on account
7 Service Supplies 3 0 0 0 00
Accounts Payable 3 0 0 0 00
To record purchase of supplies
on account
9 Cash 2 0 0 0 00
Service Revenue 2 0 0 0 00
To record cash received for
serviced rendered
12 Accounts Receivable 3 9 5 0 00
account
14 Cash 5 0 0 0 00
Mr. Ivan, Capital 5 0 0 0 00
To record additional investment
15 Accounts Receivable 3 4 0 0 00
account
17 Cash 3 9 5 0 00
Accounts Receivable 3 9 5 0 00
To record cash collection for
serviced rendered last March 07
20 Accounts Payable 1 0 0 0 00
Cash 1 0 0 0 00
To record initial payment for the
purchase of supplies last March
05
25 Mr. Ivan, Drawing 1 0 0 0 0 00
Cash 1 0 0 0 0 00
To record withdrawals of Mr.
Ivan from the company
29 Rent Expense 5 0 0 0 00
Cash 5 0 0 0 00
To record rent expense for the
month of March
30 Cash 1 5 0 0 0 00
Loan Payable 1 5 0 0 0 00
To record cash received for the
loan acquired
31 Salaries Expense 5 0 0 0 00
Cash 5 0 0 0 00
To record payment of salaries
for the month
Lesson 3:
Posting Transaction
The fourth step in accounting cycle is to post the journal entries to the ledger.
Posting
 Refers to transferring the entries in the journal into the accounts in the ledger.
 Posting to the ledger is actually the classifying phase of accounting.
Cross Indexing
 It is the plowing of the account number of the ledger account in the general journal page
number in the ledger account.
Ledger (Book of Final Entry)
 Refers to books that consist of all accounts used by the company. The debits and credit to
each and the resulting balance. Thus, the Chart of Accounts should be your reference.
 Ledger is a list down transaction chronologically by account title according to the Chart
of Accounts.
Take Note!!!!
 The simpler form of a ledger is the “T-account” because of the letter T that is formed
when preparing entry in the ledger.
 It is the basis for the journal entry in accounting.
 T-accounts have three basic elements:
 The account name
 A left side (Debit)
 A right side (Credit)
Account Name
Debit Credit
Journal (Book of Original Entry)

 Journal is a list down all transactions chronologically.
 Journal Entries made into the general ledger helps to determine your assets, liabilities as
well as net profits or losses.
General Ledger
Account Title __________ Account No. _____

Date P
Explanation Debit Credit
YYYY R
MM
M DD
General Ledger
 Is the basic record for accounting.
 It will be the core of any company record-keeping system.
 It is a go-to document where you can determine the fiscal health of your company.
 It will serve as a record (permanently) for a company.
 When you need to create a balance sheet, most of the information you will need to do
this will be found in the general ledger.
 It is consist of every account from your chart of accounts.
 It is also a key in creating your company’s balance sheet and income statement for each
month.
 General Ledger tracks five categories:
 Asset
 Liabilities
 Owner’s Equity
 Revenue
 Expenses
Take Note!!!!!
It is important to note that may have many different journal is that track different
amounts in your business, each journal record transactions.
Example:
*Sales Journal
*Cash Disbursement Journal
*Purchases Journal
*Receipts Journal
You will take the information from these journals and place the information into your
general ledger.
First Step in setting up a general ledger:

 Is to open your ledger. This amount will not be equal to zero. Instead, you will have any
tangible asset and invested cash cited as assets. Additionally, any liabilities already
accrued (startup loans, mortgage, etc.) will be listed.
Once you have opened a ledger, it is important to maintain the accounting cycle. The
accounting cycle includes the following steps:
1. Record all business transactions in the appropriate journals – update this daily.
2. Ensure all the debits and credits are posted to the general ledger.
3. Make any adjustments for items such as bad debts or accrued interest into general ledger.
4. Once you’ve accounted for all revenue and expenses, you can post net profits in the
owner equity category.
5. Prepare any of your required of financial statement at the end of business periods.
Conclusion:
 Keep current on the accounting cycle to make less work for you in the long run.
 Every aspect of your business need to be recorded in order for it to be analyzed for
accuracy.
Chart of Account
Jeuel Myar Enterprises, inc.
Assets Normal Description/Explanation
Balance
Current Assets (Assign a code
100 Cash Debit Currency, coins, checks received from
customers but not yet deposited.
120 Accounts Receivable Debit Amounts owed to the company for
services performed or product sold but
not yet paid for.
130 Service Supplies Debit Cost of supplies that have not yet been
used. Supplies that have been used are
recorded in supplies expense.
Non-Current Assets (Assign a code
150 Furniture and Fixtures Debit Cost of furniture and fixtures bought
by the company.
151 Accumulated Depreciation Credit Amount of the furniture’s cost that has
-Furniture and Fixtures- been allocated to depreciation expense
since the time the furniture was
acquired.
160 Service Equipment Debit Cost to acquire and prepare equipment
for use by the company.
161 Accumulated Depreciation Credit Amounts of the equipment’s cost that
- Service Equipment- has been allocated in depreciation
expense since that time the equipment
was acquired.
Liabilities (Assign a code number of
your choice, say 200-210).
200 Accounts Payable Credit Amounts owned to supplies who
provided goods or services to the
company but did not required
immediate payment in cash.
210 Notes Payable Credit The amount of principal due on a
formal written promise to pay. Loans
from the bank are included on this
account.
Equity (Assign a code number of
300 Mr. Myar, Capital Credit Amount of the owner invested in the
company (through cash or other asset)
plus earning of the company not
withdrawn by the owner.
310 Mr. Myar, Drawing Debit Amount that the owner of the sole
proprietorship has withdrawn for
personal use during the current
accounting year.
Types of accounts under assets are cash, accounts receivable ad service supplies.
Therefore, you should have a ledger ready to enter the transaction for each. Below are the ledgers
with the accounts titles and account numbers ready for you to enter the transaction as recorded in
the journals.
General Ledger
Account Title Cash Account No. 100

Date P
YYYY R
MM
M DD
General Ledger
Account Title Accounts Receivable Account No. 120 __

Date P
YYYY R
MM
M DD
General Ledger
Account Title Service Supplies Account No. 130 __

Date P
YYYY R
MM
M DD
For the non-current assets, you should have a ledger for furniture and fixtures,
accumulated depreciation – furniture and fixtures, service equipment and accumulated
depreciation – service equipment.
General Ledger
Account Title Furniture and Fixture Account No. 150_____

Date P
YYYY R
MM
M DD
General Ledger
Account Title Accumulated Depreciation Fixture and Furniture Account No. 151
Date P
YYYY R
MM
M DD
General Ledger
Account Title Service Expenses Account No. 160

Date P
YYYY R
MM
M DD
General Ledger
Account Title Accumulated Depreciation Service Equipment Account No. 161

Date P
YYYY R
MM
M DD
You should also have the same ledger for the type of accounts for accounts payable
and notes payable under liabilities, and Ms. Myar, Capital and Ms. Myar, Drawing under
Equity.
With the entire ledger ready for all types of accounts, you are now ready to transfer the
journal entries into the ledgers.
Activity:
Transferring Journal Entries
You’re Tasks
Task 1: Closely analyze each transaction from the journal and start position each in the ledger.
Mar 1 Cash 100 000.00

Ms. Myar, Capital 100 000.00
Now go to the ledger and find the accounts. Post the accounts debited and credited to the
appropriate side. Debit goes to the left and credit goes to the right.
Account Title: Cash Account No. 100

Date
Explanation PR DEBIT CREDIT
GENERAL LEDGER
Account Title: J. Myar, Capital Account No. 310

Date
GENERAL LEDGER
Task 2: Now, try the second transaction.
Mar 5 Taxes and Licenses 2 000.00

Cash 2 000.00
Again, post the accounts debited and credited to the appropriate side. Taxes and Licenses
goes to the left and cash goes to the right.
Account Title: Taxes and Licenses Account No. 530

Date
GENERAL LEDGER

Date
GENERAL LEDGER
There was a debit to Taxes and Licenses so you posted that in the left side (debit side) of
the account. Cash was credited so you posted that on the right side of the account. Noticed that
after posting transaction #2, you now can get a more updated balance of each account. Cash now
has a balance of Php98 000.00 Php1000 000.00 debit and Php2 000.00 credit. Post all the other
entries and you will be able to get the balances of all the accounts.
Posting Procedures:
1. Locate the corresponding account title in the ledger;
2. Transfer to the ledger the date, explanation, and amount;
a. Debit account from the journal are posted on the debit side of the ledger and;
b. Credit amount are posted on the credit side of the ledger.

3. Place the page number of the journal in which the information was taken to the folio
column of the ledger .
4. Place in the folio column of the journal the page number of the ledger in which the
information was posted.
To show a complete illustration of journalizing and posting transaction below are the
transaction of Leanne Bookkeeping Services for the month of August 2015.
Aug. 1 Ms. Leanne Custodio opened a Bookkeeping Service and called it “LPC Holds
Your Books”. She began the businesss by investing Php500 000.00 in cash and
the following assets: Computers Equipment Php25 000.00; Office Supplies
Php100 000.00; Computer Software Php75 000.00.
Aug. 2 Paid Php15 000.00 for business permit and licenses.
Aug. 4 Purchased office tables and chairs and filling cabinets from Andrei
We Furnish on credit amounting Php25 000.00.
Aug. 8 Completed a bookkeeping service for Ailene Hipolito on credit in Php15 000.00.
Aug. 9 Completed a bookkeeping service for Mr. MJ Ejaus at Php7 000.00.

Accepted Php5 000.00 in cash and promised to pay the balance after 10 days.
Aug. 15 Paid utilities for the month for Php5 000.00.
Aug. 18 Paid one half of the amount due to Andrei We Furnish.
Aug. 20 Ailene Hipolito paid her account.
Aug. 25 Withdrew cash for Php20 000.00 for personal use.
Aug. 28 Received from Mr. Lee Jay Php10 000.00 for services rendered.
Aug. 30 Paid rent for the month for Php7 000.00
First Step: Create the Chart of Accounts
Leanne Bookkeeping Services

Chart of Accounts
Assets
110 Cash
120 Accounts Receivable – A. Hipolito
130 Accounts Receivable – M. Ejaus
140 Computer Equipment
150 Office Supplies
160 Furniture and Fixtures
170 Computer Software
Liabilities
210 Accounts Payable – Andrei We Furnish
Owner’s Equity
310 L. Custodio, Capital
320 L. Custodio, Drawing
Income
410 Service Income
Expenses
510 Utilities
520 Rent
530 Taxes and Licenses
Second Step: Journalize the Transaction
General Journal
Date
2015 Particulars F Debit Credit
Aug 1 Cash 110 5 0 0 0 0 0 00
Computer Equipment 140 2 5 0 0 0 00
Office Supplies 150 1 0 0 0 0 00
Computer Software 170 7 4 0 0 0 00
Mr. Custodio, Capital 310 6 1 0 0 0 0 00
Ms. Leanne Custodio
2 Taxes and License 530 1 5 0 0 0 00
Cash 110 1 5 0 0 0 00
4 Furniture and Fixtures 160 2 5 0 0 0 00
Accounts Payable 210 2 5 0 0 0 00
and fixtures on credit to Andrei
We Furnish
8 Accounts Receivable – A. Hipolito 120 1 5 0 0 0 00
Service Income 410 1 5 0 0 0 00
To record service rendered to
Ms. A. Hipolito on credit
9 Cash 110 5 0 0 0 00
Accounts Receivable – M. Ejaus 130 2 0 0 0 00
Service Income 410 7 0 0 0 00
Mr. M Ejaus
15 Utilities 510 5 0 0 0 00
Cash 110 5 0 0 0 00
To record payment for utilities
for the month
18 Accounts Payable 210 1 2 5 0 0 00
Cash 110 1 2 5 0 0 00
To record payment for furniture
purchased in account
20 Cash 110 1 5 0 0 0 00
Accounts Receivable – Hipolito 120 1 5 0 0 0 00
To record payment of Ms. A.
Hipolito
25 Ms. L. Custodio, Drawing 310 2 0 0 0 0 00
Cash 110 2 0 0 0 0 00
To record withdrawal of Ms. L.
Custodio
28 Cash 110 1 0 0 0 0 00
To record receipt of cash for
service rendered to Mr. I. Jay
30 Rent Expense 520 7 0 0 0 00
Cash 110 7 0 0 0 00
To record payment of rent for
the month
Third Step: Post the transaction in the General Ledger classified

according to the Chart of Accounts
GENERAL LEDGER
Account Title Cash Account No. 100

Date P
2015 R
Aug 1 Initial Investment 5 0 0 0 0 0 00
2 Taxes and License 1 5 0 0 0 00
Rendered Service –
8 1 5 0 0 0 00
Hipolito
Rendered Service –
9 5 0 0 0 00
Ejaus
15 Utilities for the month 5 0 0 0 00
18 Partial Payment for
1 2 5 0 0 00
Furniture
20 Payment from A. 1 5 0 0 0 00
Hipolito
25 Cash Withdrawal 2 0 0 0 0 00
28 Payment from L. Jay 1 0 0 0 0 00
30 Rent for the month 7 0 0 0 00
Total 5 4 5 0 0 0 00 5 9 5 0 0 00
Bal. 4 8 5 5 0 0 00
GENERAL LEDGER
Account Title Accounts Receivable A. Hipolito Account No. 120

Date P
2015 R
0
8 1 5 0 0 0
Aug Services Rendered 0
0
20 1 5 0 0 0
Services Rendered 0
Total 0 0
1 5 0 0 0 1 5 0 0 0
0 0
Bal. 0
0
0
GENERAL LEDGER
Account Title Accounts Receivable M. Ejaus Account No. 120

Date P
2015 R
0
8 1 5 0 0 0
Aug Services Rendered 0
Total 0
1 5 0 0 0
0
GENERAL LEDGER
Account Title Computer Equipment Account No. 140

Date P
2015 R
0
1 2 5 0 0 0
Aug Initial Investment 0
Total 0
2 5 0 0 0
0
GENERAL LEDGER
Account Title Office Supplies Account No. 150

Date P
2015 R
0
1 1 0 0 0 0
Total 0
1 0 0 0 0
0
GENERAL LEDGER
Account Title Furniture and Fixture Account No. 160

Date P
2015 R
0
4 2 5 0 0 0
Aug Tables and Chairs 0
Total 0
2 5 0 0 0
0
GENERAL LEDGER
Account Title Computer Software Account No. 170

Date P
2015 R
0
1 7 4 0 0 0
Total 0
7 4 0 0 0
0
GENERAL LEDGER
Account Title Accounts Payable - Andrei Account No. 210

Date P
2015 R
0
4 2 5 0 0 0
Aug Tables and Chairs 0
0
18 1 2 5 0 0
Partial Payment 0
Total 0 0
1 2 5 0 0 2 5 0 0 0
0 0
Bal. 0
1 2 5 0 0
0
GENERAL LEDGER
Account Title L. Custodio, Capital Account No. 310

Date P
2015 R
0
1 6 1 0 0 0 0
Total 0
6 1 0 0 0 0
0
GENERAL LEDGER
Account Title L. Custodio, Drawing Account No. 320

Date P
2015 R
Aug 1 Initial Investment 2 0 0 0 0 0
Total 2 0 0 0 0 0
GENERAL LEDGER
Account Title Service Income Account No. 410 __

Date P
2015 R
Service Rendered Mr. 0
Aug 8 1 5 0 0 0
Hipolito 0
0
9 7 0 0 0
Service Rendered Mr. Ejaus 0
0
28 1 0 0 0 0
Service Rendered Mr. L. Jay 0
Total 0
3 2 0 0 0
0
GENERAL LEDGER
Account Title Utilities Account No. 510

Date P
2015 R
0
15 5 0 0 0
Aug Utilities 0
Total 0
5 0 0 0
0
GENERAL LEDGER
Account Title Rent Account No. 520

Date P
2015 R
0
15 7 0 0 0
Aug Rent 0
Total 0
7 0 0 0
0
GENERAL LEDGER
Account Title Taxes and License Account No. 530

Date P
2015 R
0
15 1 5 0 0 0
Aug Taxes and License 0
Total 0
1 5 0 0 0
0
Summarizing Ledger
Task 1: Given the following ledger, add all the entries in debit side and the credit side.

Date
Explanation P.R Debit Credit
2015
Aug 1 Initial Investment 2.1 5 0 0 0 0 0 00
2 Taxes & License 2.1 1 5 0 0 0 00
8 Rendered Service-Hipolito 2.1 1 5 0 0 0 00
9 Rendered Service-Ejaus 2.1 5 0 0 0 00
15 Utilities for the month 2.1 6 0 0 0 00
Partial Payment for
16 2.1 1 2 5 0 0 00
furniture
20 Payment from Hipolito 2.1 1 5 0 0 0 00
25 Cash Withdrawals 2.1 2 0 0 0 0 00
28 Payment from Jay 2.1 1 0 0 0 0 00
30 Rent for the month 2.1 7 0 0 0 00
5 4 5 0 0 0 00 6 0 5 0 0 00
4 8 4 5 0 0 00
Remember: “Put the final answered in the greater result of the debit and credit side.”
You have summarized a ledger by adding the credits and debits in each ledger
account. To summarize the ledger, the accounts should be footed first. The following procedure
is followed:
1. Foot (or add) the debit side of the account.

2. Foot (or ad) the credit side of the accounts.
3. Take the difference between the total of the debits and credits. If the debit total is more that the
credit totals, the difference is placed on the column of the debit side. If the difference is a credit,
the amount is written on the column of the credit side.
Problem No. 1
Frozen Designs, owned by Ms. Louise Kate, has been operating for two years. Below
is a series of transactions, for each transaction, indicates the accounts that should be debited and
credited.
Jan 2 Purchased equipment amounting to Php90 000.00 for use in the business; paid
one third cash and gave a note payable for the balance.
Jan 4 Paid Php10 000.00 cash for salaries.
Jan 10 Collected Php20 000.00 cash for services performed this period.
Jan 15 Collected Php15 000.00 cash for services performed last period.
Jan 16 Performed services this period on credit. The customer agreed to pay
Php25 000.00 for the services.
Jan 18 Purchased supplies for Php5 000.00 for inventory to be used later. 50% was paid
in cash and the rest is payable in 30 days.
Jan 20 Made a payment on the equipment note in January 1 amounting to Php30 000.00.
Jan 25 Collected cash for the services rendered on January 16.
Jan 28 Paid the 50%cash balance for the supplies purchased on January 18.
Jan 31 The owner, Ms. Louise Kate withdrew from the company Php20 000
(Make A Chart of Account, Journal & Ledger)
Problem No. 2
Following are the transactions of Joshua Ammon, owner of Clarkky Computer
Services for the month of May 2015.
May 1 Mr. Ammon invested cash Php50 000.00 and computer equipment worth
Php10 000.00.
May 2 Purchased tables and chairs worth Php5 000.00.
May 3 Purchased supplies on account, Php3 000.00 to Kaithlyn Merchandising.
May 6 Received Php10 000.00 from various customer for computer services rendered.
May 10 Sent a bill to Rhyn Reiko for computer services rendered on May 6 in the amount
of Php5 000.00.
May 15 He withdrew Php2 000.00 for personnel use.
May 15 He paid salaries amounting to Php3 000.00.
May 20 Received Php2 500.00 from Rhyn Reiko as a partial payment of her account
May 22 Paid Kaithlyn Merchandizing for the supplies purchased.

May 30 Paid salaries amounting to Php3 000.00.
(Make A Chart of Account, Journal & Ledger)
Lesson 4:
Preparing Trial Balance
Trial Balance
- A report listing the ending debit and credit balances in all accounts at the end of a
reporting period.
Activity:
Task: Make Journal Entry, General Ledger, Chart of Account and Trial Balance.
Miss Olivia Montemayor is a caterer. For the month of February, she completed the following
transactions.
Feb. 1 Invested in the business cooking equipment valued at Php56 750.00 and opened
checking account in the name of the business worth Php100 000.00.
Feb. 2 Acquired a service vehicle costing Php36 999.00. Paid Php15 000.00 cash and
signed a note for a balance.
Feb. 4 Purchased ingredient on account for Php5 000.00.

Feb. 5 Completed a catering service for Ms. Yen Regadio and billed the customer
Php76 000.00.
Feb. 7 Received Php30 000.00 cash for catering a birthday party.
Feb. 10 Purchased ingredient for Php6 000.00 cash.
Feb. 11 Received a Php76 000.00 check from Ms. Yen Regadio for the service rendered.
Feb. 12 Paid Php40 000.00 insurance policy for one year coverage.
Feb. 13 Billed Ms. Maita Alseco for catering her valentine party in the amount of
Php46 790.00.
Feb. 14 Paid salaries of waiters and cooks for the first half of the month for Php25 000.00.
Feb. 15 Paid Php2 000.00 for a tune-up of the service vehicle.
Feb. 17 Paid the ingredient purchased on February 4.
Feb. 18 Purchase new oven for Php16 000.00 and the ingredient for a cake for
Php3 000.00 on account.
Feb. 20 Received a cellphone bill and paid Php350.00
Feb. 22 Received Php36 000.00 from Ms. Maita Alceso.
Feb. 23 Transferred Php5 000.00 to personal checking account.
Feb. 24 Received Php15 000.00 cash for a catering service.
Feb. 25 Paid Php14 000.00 on the note signed for a service vehicle.
Feb. 28 Paid salaries for the second half of the month at Php25 000.00.
Synopsis in Trial Balance:

 The format of trial balance is a two-column schedule with all the debit balances listed in
one column and all the credit balances listed in the others.
 The accounts name listed as arranged in the ledger and the balances are placed either
debit or credit column.
 Trial balance prepared after all transactions for the period have been journalized and
posted to the ledger.
Uses of Trial Balance:
 To make sure the debit equal to credit, resulting to a report balance of zero.
 Trial Balance can be used as worksheet for planning adjusting entries.
 Source of Financial Statements. The information on the report can be aggregated to
create financial statements. (In accounting software handle this task automatically).
Procedure in Preparing a Trial Balance:

1. Write the heading of the trial balance.
Heading of the Trial Balance includes the following:
* Name of the business or the owner
* Title of the list “Trial Balance”
* Date of the Trial Balance
2. Determined the balance of each account in the ledger. The debit and credit account are
totalled the process is called “pencil footing”.
3. Accounts in trial balance are listed in order as they appeared in the ledger.
4. The accounts should be written in just one column arranged the following sequenced:
Assets, Liabilities, Capital, Income and Expense.
5. Add each column.
6. Compared the total of each column. Normally, the totals are equal.
Style:
_____(Name of the Business)_____

________ (Title)_____________
___________(Date)_____________
Accounts Titles P.R Debit Credit

The key to preparing trial balance is making sure that all the accounts balances are
listed under the correct column. The appropriate column are as follows:
Assets = Debit Balance

Liabilities = Credit Balance
Expenses = Debit Balance
Equity = Credit Balance
Revenue = Credit Balance
What if the Trial Balance did not balance?
1. Column of the trial balance may not be incorrectly added.
2. Amount from the ledger may be incorrectly entered on the trial balance.
3. Balance may be entered in the wrong column of the trial balance or may be omitted.
4. Balance may be incorrectly computed in the ledger.
5. Balance is entered in the wrong column of the account in the ledger.
6. While posting, wrong amount may be posted to an account.
7. Credit is posted as debit.
8. Debit or Credit posting may be omitted
Errors that will result to an unequal Trial Balance:

1. Recording the same transaction more than once.
2. Failure to journalize a transaction.
3. Failure to post a transaction.
4. Posting is a part of transaction correctly as a debit or credit but to the wrong account title.
5. Recording the same transaction whose debit and credit amount are erroneous more than
once.
Types of Errors:
Transposition
- Occurs when the order of the digit is change.
Example: 914 is written as 941
Sides
- The entire number is erroneously moved one or more spaces to the right or to the left.
Example: Php914.00 as Php91.40 or Php9 140.00
Working Back Method

- The working back method proves effective in locating the error.
- If an error is not revealed by the trial balance, than the best approach is to work back.
- Means you start re-checking the correctness of accounting procedures you performed in
reverse chronological order, that is, start with the trial balance and moved backwards to the
entries in the journal.
Activity:
(Prepared a General Journal, General Ledger,
Chart of Accounts & Trial Balance)
Elena Gilbert began a real estate agency called, “Gilbert Real Estate Agency” and on
September on the current year. She completed of the following transaction:
Sep 1 Began her business by investing Php200 000.00 cash.
Sep 2 Purchased a small building and office equipment from D. Salvante, consisting of
office equipment at Php40 000.00, building at Php250 000.00 and land at
Php500 000.00. Gave Php70 000.00 cash and signed a mortgage contract
agreement to pay a balance over a period the year

Sep 3 Purchased an automobile worth Php300 000.00 on credit from K. Michaelson.
Sep 8 Earned and collected Php90 000.00 commission from sale of a house.
Sep 9 Purchased Php2 940.00 of office supplies and Php6 990.00 additional office
equipment from P. Ferb on credit.
Sep 15 Paid the salary of the office clerk at Php4 950.00.
Sep 16 Completed property management services for P. Ember on credit and billed him
for the services performed worth Php98 000.00.
Sep 18 Paid P. Ferb Php6 000.00 as a partial payment of the account due to him.
Sep 20 Received payment from P. Ember for services rendered to her.
Sep 22 Purchased Php2 000.00 office supplies from M. Salvador on credit.
Sep 23 Earned and collected Php150 000.00 commission from the sale of property.
Sep 26 Paid the newspaper advertising that had appeared amounting to Php5 000.00.
Sep 28 Paid the telephone bill for Php2 000.00.
Sep 30 Withdrew Php15 000.00 for personal use.
Sep 30 Paid the salary of the office clerk amounting for Php4 950.00.
Lesson 5:
Preparing Financial Report
Activity:
Match the term with the given meaning.
* Worksheet
* Income Statement
* Adjusted Trial Balance
* Balance Sheet
* Statement of Changes in Equity
* Statement of Cash Flow
* Financial Statement
* Accrued Expenses
* Accrued Income
Definition of Terms:
a tool used to help bookkeepers and accountants complete the accounting cycle and prepare
year-end reports unadjusted trial balances, adjusting journal entries, adjusted trial balances
and financial statements, is a basically spreadsheet that shows all the major steps in
accounting cycle side by side.
a sheet that summarize and lists the organization’s assets, liability and capital at a particular
point in time.
the end product of the accounting system in any company like the balance sheet, income
statement, statement of retained earnings and statement of cash flow.
a report that explains the changes of the company’s equity throughout the reporting period.
goods have been delivered or services have been rendered but no amount of payment have
been collected or if there is payment, such collection not yet recorded.
expenses already incurred during the period but are not yet paid or recorded.
identifies changes of cash flow generated from operating, investing and financing activities.
a summary of a business income, expenses and profits. A listing of all company accounts
that will appeared on the financial statements after year-end adjusting journal entries have
been made.
Summarizes and list the organization assets, liabilities and capital at a particular point in
time.
Worksheet (Spreadsheet)
 It is a full picture of the posted transaction.
 Specifically refer as the accounting worksheet.
 Accounting Worksheet basically a spreadsheet that shows all of the major steps in
accounting side by side.
 Spreadsheet typically has five set of column that start with the unadjusted trial balance
and ends with the financial statements.
 It becomes tool for bookkeepers and accountants to complete the accounting cycle and
prepared year-end reports.
 Each step list debit and credit with total calculated with the bottom.
 Just like trial balance, the worksheet also has heading that consist of the: company name,
title of the report and time period the report documents.
Steps in preparation of worksheet:

1. Write the heading of the worksheet at the top of the paper with the following information:
* Name of the business
* Worksheet
* For the Period______, 20____.
2. Provide the following column in the worksheet which should have the following entries:
Unadjusted Income
Trial Balance Adjustment Balance Sheet
Trial Balance Statement
Account Debi
Title Debit Credit Debit Credit Debit Credit t Credit Debit Credit
3. Enter The Account Balance In The Trial Balance Column.
The title and the balances of the accounts are copied directly from the ledger into the trial
balance columns. When a worksheet is prepared, a separate trial balance is not required.
However, if it has been prepared, the balances may be posted from it in the worksheet.
4. Enter The Adjustments In The Adjustment Column.
The same adjustments are entered in the adjustment columns of the worksheet. When all
the adjustment have been entered in the relevant debit and credit columns, the pair of adjustment
column must be added. This step proves that the debit and credit of the adjustment are equal and
generally reduces error in the preparation of the worksheet.
5. Enter The Account Balances As The Adjusted In The Adjusted Trial Balance Columns.
The adjusted trial balance is prepared by combining the amount of each accounts in the
original trial balance columns with the corresponding amounts in the adjustment column and
entering combine amount on a line by line basis in the adjusted trial balance columns. Adjusted
trial balance columns are then footed, that is totaled, to check the arithmetical accuracy.
6. Extend the Account Balance from the Adjusted Trial Balance Column to the Profit and
Lost Column or the Balance Sheet Columns.
Every account in the adjusted trial balance is either a balance sheet account or an income
statement account. The accounts are sorted, and each account is extended to its proper place as a
debit and credit either in the balance sheet columns or in the trading and profit & loss column.
Assets and liabilities as well as capital and drawing accounts are then extended to the balance
sheet columns. To avoid over-looking an account, extend the accounts line by line, beginning
with the first line (which is cash) and not omitting any.
7. Total the Income Statement Columns and the Balance Sheet Columns, then enter Net Income
or Net Loss in both pairs of Column as a Balancing Figure and Re-compute Column Totals:
Which Accounts Need to be Adjusted?
1. Adjustment for the Expiration or Prepayments of Expenses.
Prepaid expenses are expenses paid in advance. At the time of the payment, the account
is an asset and as it is used, it becomes an expense.
Example: On Oct. 1, 2015 E. Montes paid Php40 000.00 for a four-month rental of the
office.
Original Entry
Date
Particulars P.R. Debit Credit
2015
Oct 1 Prepaid Rent 40 000
Cash 40 000
Adjusting Entry
Date
2015
Dec 31 Depreciation-Computer Equipment 306.67
Accum. Dep.-Computer Equipment 306.67
Analysis:
On December 31, only Php30 000.00 is recognized as expense because the company used
three months of the rent, that is, from October to December.
2. Adjustment for the Realization of Income Collected in Advance.
Unearned Income arises when payment is received before are delivered or before
services are rendered.
Examples: On October 1 on the current year, the business received Php40 000.00 cash from
the tenant of the vacant space of the store as payment for rent for four months.
Original Entry
Date
2015
Oct 1 Cash 40 000
Rent Income 40 000
Adjusting Entry
Date
2015
Dec 31 Rent Income 30 000
Unearned Rent 30 000
Analysis:
The payment received on Oct. 31 is advance payment for rent for four months, October,
November, December and January. As a December 31, only three months of the rent are already
earned. The payment of January is still unearned.
3. Adjustment for the Accrual of Expense.
Accrued Expense are those expense already incurred during the period but are not yet
paid or recorded.
Example: Salaries of five security guards are paid every two weeks. On December 31, five
day’s salaries of the security guards for Php1 500.00 for day have accrued.
Adjusting Entries
Date
2015
Dec 31 Salaries 7 500
Accrued Salaries 7 500
Analysis:
Expenses are expected to be incurred by the company during the period should be
recognized so that your expenses will not be understated.
4. Adjustment for the Accrual of Income

Accrued Income arises when goods have been delivered or services have been rendered
but no amount of payment have been collected or if there is payment, such collection is not yet
recorded.
Example: A tenant who occupies the right side of the building space, is three months in
arrears as of the balance sheet date. His monthly rental income is Php5 000.00 per
month.
Adjusting Entries
Date
2015
Dec 31 Accrued Rent Income 15 000
Rent Income 15 000
Analysis:
At the end of the period, all expected income to be earned should be entered in the books.
The tenant failed to pay for three months, if you do not record the income, your income for the
period will be understated by Php15 000.00.
5. Provision for Depreciation
Assets which are relatively permanent in nature are fixed assets. They are used by the
business in its operation and are not intended to sale. The value of these assets decreases as time
passes by due to wear and tear from operation or inadequacy or obsolescence, except for land.
These are several ways to compute for depreciation but the simplest is the Straight Line
Method:
Assets Cost xxx

Less: Estimated Salvage Value xxx
Depreciable Cost xxx
Divided by: Estimated Useful Life xxx
Depreciation Expense for each time period xxx
Example: Consider that the accounting period starts on January 1 and end in December 31.
On August 1, 2005, a service vehicle was purchased for Php80 000.00. The asset
is estimated to have 10 years of useful life. The asset is said to have a salvage
value of Php10 000.00.
Assets Cost Php80 000.00
Less: Estimated Salvage Value Php10 000.00
Depreciable Cost Php70 000.00
Divided by: Estimated Useful Life 10yrs
Depreciation Expense for each time period 7 000.00 / year
The annual depreciation of the service vehicle is Php7 000.00. To compute the depreciation from
August 1 to December 31, divide Php7 000.00 by 12months to get the monthly depreciation,
then multiply the monthly depreciation by 5months (August to December).
Php7 000.00 / 12 months = Php583.33/month

Php583.33 * 5 months = Php2 916.67
Adjusting Entry
Date
2015
Dec 31 Depreciation-Vehicle 2 916.67
Accum. Dep.-Vehicle 2 916.67
Activity:
Examples of Complete flow of Worksheet. “Leanne Bookkeeping Services”
General Journal
Date
2015 Particulars F Debit Credit
Aug 1 Cash 110 5 0 0 0 0 0 00
Computer Equipment 140 2 5 0 0 0 00
Office Supplies 150 1 0 0 0 0 00
Computer Software 170 7 4 0 0 0 00
Mr. Custodio, Capital 310 6 1 0 0 0 0 00
Ms. Leanne Custodio
2 Taxes and License 530 1 5 0 0 0 00
Cash 110 1 5 0 0 0 00
4 Furniture and Fixtures 160 2 5 0 0 0 00
Accounts Payable 210 2 5 0 0 0 00
and fixtures on credit to Andrei
We Furnish
8 Accounts Receivable – A. Hipolito 120 1 5 0 0 0 00
Ms. A. Hipolito on credit
9 Cash 110 5 0 0 0 00
Accounts Receivable – M. Ejaus 130 2 0 0 0 00
Service Income 410 7 0 0 0 00
Mr. M Ejaus
15 Utilities 510 5 0 0 0 00
Cash 110 5 0 0 0 00
To record payment for utilities
for the month
18 Accounts Payable 210 1 2 5 0 0 00
Cash 110 1 2 5 0 0 00
To record payment for furniture
purchased in account
20 Cash 110 1 5 0 0 0 00
Accounts Receivable – Hipolito 120 1 5 0 0 0 00
To record payment of Ms. A.
Hipolito
25 Ms. L. Custodio, Drawing 310 2 0 0 0 0 00
Cash 110 2 0 0 0 0 00
To record withdrawal of Ms. L.
Custodio
28 Cash 110 1 0 0 0 0 00
To record receipt of cash for
service rendered to Mr. I. Jay
30 Rent Expense 520 7 0 0 0 00
Cash 110 7 0 0 0 00
To record payment of rent for
the month
Additional Problems:
1. The computer is estimated to have a useful life of 5 years and has a salvage value of
Php1 000.00.
2. Furniture and Fixtures have an estimated useful life of 3 years and would have a salvage value
of Php2 000.00.
3. The computer software has an estimated useful life of 15 years and no salvage value.
Adjusting Entry
Date
2015
Aug 31 Depreciation-Computer Equipment 366.67
Accum. Dep.-Computer Equipment 366.67
Depreciation-Furniture & Fixtures 638.89
Accum. Dep.-Furniture & Fixtures 638.89
Depreciation-Computer Software 416.67
Accum. Dep.-Computer Software 416.67
Worksheet On the Other Paper (Worksheet/Spreadsheet)
Adjusted Trial Balance

 Is a listing of all company accounts that will appear on the Financial Statement after
year-end adjusting journal entries have been made.
 Adjusted Trial Balance is the fifth step in accounting cycle.
 The adjusted trial balance accounts are usually listed in order of their account number or
in balance sheet order starting with the Assets, Liability, and Equity accounts and ending
with income and expense accounts.
 Both debit and credit column are calculated at the bottom of a trial balance.
 Trial Balance are always prepared with a heading:

* Company Name
* “Trial Balance”
* Date of the reporting period
How Trial Balance Prepared?

There are two main way to prepared adjusted trial balance. Both ways are useful
depending on the site of the company and chart of account being used:
1. You can post accounts to the adjusted trial balance using the same method used in creating
unadjusted trial balance. The accounts balances are taken from the T-accounts or ledger account
and listed on a trial balance. Essentially, you are just repeating this process again except now the
ledger accounts include the year-end adjusting entries.
2. You can also take the unadjusted trial balance and simply add the adjustment to the account
that have been changed. This is usually done in smaller companies because every few accounts
will need to be altered.
Be careful to list only active account that will appear on the financial statement on the
trial balance. If an account has a zero balance, there is no need to list it on the trial balance.
How to Prepared Financial Statement?

The general-purpose financial statement including the income statement, statement of
retained earnings, balance sheet and statement of cash flows. It is the most important document
prepared in accounting cycle because it represents the purpose of financial accounting.
The concept of Financial Report and the process of accounting cycle are focused on
providing external users with useful information in the form of financial statements. These
statements are end product of accounting system in any company. Basically, preparing these
statements is what all about.
Preparing general-purpose financial statement can be simple or complex depending on

the size of a company. Some statement need footnote disclosure while other presented without
any. For instance, banks often want basic financial to verify whether the company can pay its
debt while the Sec requires audited financial statement from all public companies.
When business enterprise presents all the relevant financial information in a structure and
easy way to understand manner, it is called Financial Statement.
Financial Statement Purpose: provide both business insider and outsider concise, clear
picture of the current financial status in the business. Therefore, the people who use the statement
must be confident in its accuracy.
Financial Statement how well a company has performed over the year and the level of
profit achieved. Investors and regulators may make decision in a small business based on the
information provided by financial statements. Financial statement must prepare sequenced
because the information in one is needed in next. Using trial balance, the company prepared the
financial statements.
Sequence:
* Income Statement
* Statement of Retained Earnings
* Balance Sheet
* Statement of Cash Flows
Income Statements
The income statement is a summary of a business income, expenses and profits. The
purpose of income statement is to report the company income and revenues for a year including,
net income.
An Income Statement covers a specified period of time. All item listed should relate to
that period of time. The time frame should be listed at the top of the income statement.
An Income Statement shows income and expenses. It does not show the money
received or paid. This is done using cash
How to Prepared Income Statement?

1. List the Sales Figures.
- This is also known as “Gross Revenue”
2. Deduct the Cost of Goods Sold.
- This includes all cost to make or buy the goods.
3. Calculate Gross Profit.
- This is sale less cost of goods sold.
4. Deduct Operating Expense.
- These are often divided into sales related and office/administration related. These
include items like: Salaries, Advertising, Rent, Utilities and Depreciation.
5. Calculated Operating Income
- This Gross Profit less Operating Expense
6. Add other Revenue such as Interest Revenue and Gain on Sale.
7. Deduct other Expenses such as Interest Expense and Loss on Sale.

8. Calculate Net Income.
- This is operating income plus other revenue less other expenses.
Examples:

Income Statement
For the Month of August 31, 2015
Sales Revenue 32, 000

Less: Expenses
Rent Expense 7,000
Utilities Expense 5, 000
Taxes and Licenses 15, 000
Depreciation – F&F 638.89
Depreciation – Computer Equipment 366.67
Depreciation – Computer Software 416.67
28, 422.23
Net Income 3, 577.77
Statement of Changes in Equity (Statement of Retained Earnings)

- Capital Statement.
- It is a report that explains the changes of a company’s equity throughout the reporting
period.
How to Prepared Statement of Changes in Equity?

1. Compute all the assets invested by the owner.
2. Add/Less the Net Profit/Loss for the period.
3. Deduct all the withdrawal by the owner.
4. Compute for the total.
Examples:

Statement of Changes in Equity
For the Month Ended August 31, 2015
L. Custodio, Owner Equity (8/31/15) 610, 000
Add: Additional Investment
Profit _3, 577.77_
Total 606, 422.23
Less: Withdrawals __20,000__
Leanne, Owner’s Equity (5/31/15) 586, 422.23
The Balance Sheet

- It is summarizes and list the organization assets, liabilities and capital at a particular
point in time.
- It is a snapshot of a company overall financial situation.
- Formula of a balance sheet is accounting equation: liabilities plus equity equals assets.
- Balance list a total of all assets, including cash, accounts receivable, inventory and
fixed asset. Liabilities such as bank notes and accounts payable are listed. Along with the
owner’s capital invested.
- The last line of the balance sheet gives the total amount of liabilities and equity, which
must equal to the total assets.
How to Prepare the Balance Sheet

1. Assemble your financial information. You will need record of your asset as well as
your debts. Make sure you have your latest bank statement as well as the balance on any
loans that you owe.
2. List your assets. In the first column, list your asset as well as their value. These include
both financial asset as well as tangible assets. The sum of these assets is your total asset.
Ideally, you want your asset to always be growing.
Major Assets include:

* Cash in bank
* Investments
* Resale value of your home
* Resale value of your vehicle

* Resale value of personal property, such as jewelry and furniture
4. List your liabilities. In the second column, list your liability as well as their value. This is
everything that you owe. As you pay down debt, your liabilities decrease. These can include:
* Student Loans
* Auto Loans
* Credit Card Debt
* Mortgage Balance
5. Subtract your total liabilities from your total assets. This will give you your net worth.
Your net worth will go up as your asset increase and your liabilities decrease.
* Keep your balance sheet updated to track your progress towards your financial goals. Try to
recalculate at least twice a year.

Balance Sheet
As of August 31, 2015
Assets
Current Assets:
Cash 470, 500.00
Accounts Receivable 2, 000.00
Service Supplies 10, 000.00
Total Current Assets 482, 500.00
Non-Current Assets:
Furniture and Fixture 25, 000.00
AccumDep - F&F -638.89
Computer Software 75, 000.00
AccumDep – Computer Software -416.67
Computer Equipment 25, 000.00
AccumDep – Computer Equipment -366.67
Total Non-Current Assets 123, 577.77
Total Assets 606, 077.77
Statement of Cash Flows
The statement of cash flow identifies changes in cash flow generated from:
1. Operating Activities are cash effects of transaction and other events that will
determine if the company will profit or have losses.
Cash inflows from operating activities are generally derived from receipts from sales
of goods and performance of service and receipts from royalties, fees, commission
and other revenues.
Cash outflow are derived from payment to supplier of goods and services, payment
to employees, payment for taxes, payment for interest expense, and payment for
other operating expense.
2. Investing Activities include making and collecting loans, acquiring and disposing of
investment in debts; and obtaining and selling of property and equipment and other
productive assets.
Cash inflow from investing activities derived from receipts from sale of property and
equipment, receipts sale of investment, receipts from collection on notes receivable.
Cash outflow are payment to acquire property and equipment, payment to acquired
debt, payment to make loan to others.
3. Financing Activities are activities which include obtaining resources from owners
and creditors.
Cash inflows from financing activities come from investments by owners and from
issuance of notes payable.
Cash outflows are payments to owners in the form of withdrawals and payments to
settle notes payable
These three activities, along with any non-cash investing and financing activities make up the
statement of cash flow. The statement of cash flow is used to measure a company’s financial
stability and its ability to pay its creditors.

Statement of Cash Flow
For the Month of August 31, 2015
Cash Flows from Operating Activities
Cash Received From Clients 530, 000.00
Payment to Suppliers -15, 000.00
Payment for Office Rent -7, 000.00
Payment for Salaries ______________
Net Cash Provided Used In Operating Activities 508, 000.00
Cash Flows from Investing Activities

Payment to Acquire Equipment
Payment for Furniture -25, 000.00
Net Cash Provided Used In Investing Activities -25, 000.00
Cash Flows from Financing Activities

Cash Received as Investment
Cash Received from Loan
Cash Withdrawal by the Owner -20, 000.00
Net Cash Provided Used In Financing Activities -20, 000.00
Net Increase/Decrease in Cash 463, 000.00
Lesson 6:
Developing & Practicing
Negotiating Skills and Maintaining an Effective
Relationship with Customers/Clients
Negotiation
- Is a method by which people settle differences.
- It is a process by which a compromise or agreement is reached while avoiding argument
and dispute.
In any disagreement, individuals understandably aim to achieve the best possible outcome
for their position (or perhaps an organization they represent).
Principles:
 Fairness
 Seeking mutual benefit
 Maintaining a relationship
Are the key to a success outcome.
Effective negotiation help to resolve situations where what you want conflict with
someone else wants.
The aim of win-win negotiation is to find a solution that is acceptable to both parties
and leaves both parties feeling that they have won, in some way, after the event.
There are different styles of negotiation, depending on circumstances Preparing for a
successful win-win negotiation.
Depending on the scale of the disagreement, some preparation may be appropriate for
conducting a successful negotiation.
For small disagreement, excessing preparation can be counter-productive because it takes
time that is better used elsewhere. It can also be seen as manipulative, just as it strengthens your
position, it can weaken the other person’s.
Following points before you Start Negotiating:
1. Goals
What do you want to get out of the negotiation? What do you think the other person wants?
- The negotiation itself is a careful exploration of your position and the other person’s
position, with the goal of finding mutually acceptable compromise that give you both as much of
what you want as possible.
- People’s positions are rarely as fundamentally opposed as they may initially appear – the
other person may have very different goals from the one you expect!
2. Offer
What do you and the other person have that you can offer to each other?
What do you each have that the other word? What are you each comfortable giving away?
3. Alternatives
If you do not come to an agreement with the other person, what alternatives do you have?
Are these good or bad? How much does it matter if you do not reach agreement?
Does failure to reach an agreement cut you out of future opportunities?
And what alternatives might the other person have?
4. Relationship
What is the history of the relationship? Could or should this history impact the negotiation?
Will there be any hidden issues that may influence the negotiation? How will you handle these?
- Only consider win-lose negotiation if you don’t need to have an on-going relationship with
the other party as, having lost, they are unlikely to want to work with you again.
- For a negotiation to be win-win negotiation if both parties should feel positive about the
negotiation once it is over.
- This helps people keep good working relationship afterwards.
5. Expected Outcome
What outcome will people be expecting from this negotiation?
What has the outcome been in the past, and what precedents have been set?
6. The Consequences
What are the consequences for you of winning or losing this negotiation?
What are the consequences for the other person?
7. Power
Who has what power in the relationship? Who control resources?
What power does the other person have to deliver what you hope for?
Who stand to lose the most if agreement isn’t reached?
8. Possible Solution
- Base on all the considerations, what possible compromises might there be?
In any negotiation, the following three elements are important and likely to affect the
ultimate outcome of the negotiation:
1. Attitudes
- All negotiation is strongly influenced by underlying attitudes to the process itself.
For Example:
Attitudes to the issues and personalities involved in the particular case or attitudes linked to
personal needs for recognition. You must remember that a negotiation is not an arena for the
realization of individual achievement.
2. Knowledge
- The more knowledge you possess of the issues in question, the greater your
participation in the process of negotiation. In other words, good preparation is essential.
Therefore, you have to do your homework and gather as much information as you can about the
issues and how these can be negotiated.
3. Interpersonal Skills
- Needless to say, good interpersonal skills are essential for effective negotiation.
These include:
* Effective Verbal Communication
* Listening
* Reducing Misunderstanding
* Rapport Building
* Problem Solving
* Decision Making
* Assertiveness
* Dealing with Difficult Situation
Tips When Doing Negotiation:

1. Never accept any proposal immediately, no matter how good it sounds.
2. Never negotiate with yourself. Once you’ve made an offer, if the other party doesn’t accept it,
don’t make another offer. Get a counter offer. It’s a sign of weakness when you lower your
own demands without getting your opponent to lower theirs.
3. Never cut a deal with someone who has to go back and get the boss’s approval. That gives the
other side two bites of the apple to your one. They can take any deal you are willing to make
and renegotiate it.
4. If you can’t say yes, it’s no. Just because a deal can be done, doesn’t mean it should be done.
No one ever went broke by saying ‘no’ too often.
5. Just because it may look non-negotiable, doesn’t mean it is. Take that beautifully printed
‘standard contract’ you’ve just been handed. Many a smart negotiator has been able to name a
term and get away with it by making it appear to be chiseled in granite, when they will deal if
their bluff is called.
6. Do your homework before you deal. Learn as much as you can about the other side. Instinct
are no match for information.
7. Rehearse. Practice. Get someone to play the other side. Then switch roles. Instinct are no
match for preparation.
8. Beware the late dealer. Feigning indifference or casually disregarding time table is often just a
negotiator’s way of trying to make you believe he/she doesn’t care if you make a deal or not.
9. Be nice, but if you can’t be nice, go away and let someone else to do the deal. You’ll blow it.
10. A deal can always be made when both parties see their own benefit in making it.
11. A dream is a bargain no matter what you pay for it. Set the scene. Tell the tale. Generate
excitement. Help the other side, visualize the benefits and they’ll sell themselves.
12. Watch the game films. Top players in any game, including negotiating, debrief themselves
immediately after every major session. They always keep a book on themselves and the other
side.
13. No one is going to show you their whole card. You have to figure out what they really want.
Clue: Since the given reason is never the real reason, you can eliminate the given reason.
14. Always let the other side talk first. Their first offer could surprise you and be better than you
ever expected.
After negotiating successfully with your clients or customer, the next competency for you
to develop and maintain is an effective relationship with them. Experts say that it costs you five
times as much to win a new customer than to keep a current one.
Building and Maintaining an Effective

Relationship w/ Clients or Customer
Customer Relations or Customer Service

- Refers to the way a business communicates and interacts with the public to gain and
retain customers.
It is necessary for a business to cultivate good customer relations to attract and keep a loyal
base of customer.
Synopsis:
This is a fact: that customer with good experience will tell it to 3 to 5 person and will
remember it and tell it to others for the next 3 to 5 months while customer with bad
experience will tell it to 20 or more people and will remember and tell it to others for the
next 20 years.
We tend to share these extraordinary stories with others. We all know that the word of
mouth marketing can be absolute best advantage, or the worst drawback for a company. The
popular saying is still very, very true: “It takes 20 years to build reputation and five minutes to
ruin it.” If this is always remembered, you will do things differently.
Basic Rules on Customer Service

Honesty is the Best Policy. You must be ready to admit that you made a mistake and that
you are ready to change or prevent the same mistake from happening again. A regular ‘mea
culpa’ (my fault) will not save you and the company. At some point the plan to fix the problem
must take effect!
Break Glass in Case of Fire Response Time. As soon as you realize that a problem
came up, resolve to fix it once.
Set a Realistic Expectation. Customers who have been promised something that is not
delivered as promised are far more frustrated and disappointed than if they are notified at the
onset you cannot do it sooner than later.
R-E-S-P-E-C-T. Everyone on your company should love your customers. Without them
you have no company. This does not mean you won’t have difficult customer who will push the
limits and try everyone’s patience. But if you don’t have the company philosophy to respect and
appreciate your customers, the opposite tone will infect customer interaction from all
departments. All departments, customer facing or not, should care about customer satisfaction, in
the past, you have been told, “the customer is always right” but of course that is not always
correct. To put correctly, “The customer is not always right, but he has to be treated right.”
How to Measure Customer Satisfaction?

Eighty (80%) percent of business believe that they are providing a superior service
experience, but only eight (8%) percent of customer agree. If you do not measure any parts of
your service delivery, you are missing a huge opportunity to improve, grow or even save your
business.
First question you should ask yourself… How do you measure customer satisfaction?
Customer Satisfaction is not measure by the number of complaints you are receiving, for
not everybody bother to tell you about their horrible experience.
Rather, you have ask them if they are satisfied , to let them feel that your satisfaction
matters. You should consider using regular customer satisfaction survey to monitor customer
happiness and any issue requiring customer care.
Customer complaints are an unfortunate reality for any business. But if you handle them
properly you can often find a swift resolution and may even be able to improve your company
reputation because of it.
Following should be Remember when Complaints are Received:

Listen. The best way to show you take your customer’s complaint seriously is to listen.
While it is tempting to respond right away, try not to get defensive or react immediately. Often,
complainants simply want to be heard. Allowing them to voice their concerns will also help you
to understand exactly what the problem is and what you can do to fix it.
Resolve. Once you have listened to your customer and understand the complaint,
consider what you can do to resolve it. In some cases, it may help the situation to explain why
the mistake was made – but take care not to divert blame or appear like you’re making excuses.
Some complaints may be resolve by simply thanking your customer for bringing it to your
attention. In other instances providing a full or partial refund could do the trick. Do not worry too
much if your business end up on the losing end of a transaction by giving a customer his or her
money back – keeping your customer happy and properly resolving the complaint are more than
worth the small hit to your bottom line.
Follow up. Properly resolving a complaint can often prevent a customer from walking
away with a negative impression of you and your company. But if you follow up afterwards you
could turn a displeased customer into a fan. Keep your follow-up inquiry short – ask how your
customer is doing. Whether they are still satisfied with the resolution and if there is anything else
you can do. The goal is to demonstrate that you truly care about your customer’s well-being.
Document it. Even if you feel the matter has been fully resolved, you should document
the incident. It may come in handy in case the issue resurfaces or the complainants decide to take
legal action down the road. Reviewing your record of disputes regularly will help you identify
any recurring incidents and make changes to avoid similar problems in the future.
Surprise and Delight. Go beyond simply “satisfying” and dissatisfied customer by doing
something really amazing to them. Wow them with the solution they did not expect by turning a
bad situation into something fun and memorable.
Recognize what you cannot fix. The saying, “The customer is always right” makes for a
nice bit of PR but is not necessary true. Most complaints are valid, but occasionally a customer
can be unreasonable or impossible to satisfy. Don’t assume that an issue is a customer fault, but
be able to recognize when there is nothing you could have done to avoid it. In these situation,
and despite your best efforts, That is one of the benefit to being the boss: you can decide who
you work with.
Remember: Connecting to your customers on an emotional level is the key to

establishing a lasting relationship with you.

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Fundamental in Accountancy Business

Figure 1. The Accounting Cycle

7. Prepare Trial Balance

- “Who else should do this part except the bookkeeper?”

- It is used to prepare the financial statements.

- “The bookkeeper is still expected to do this part.”

- The financial statements must be prepared in a very specific order.

- Order for financial statement:

*Statement of Retained Earnings

*Statement of Cash Flows

9. Prepare the Closing Entries

10. Reversing Entries

- “The bookkeeper can still do this part.”

- Reversing entries are optional.

- These entries reverse certain adjustment in the next period.

What does the accountant then do?

- It is the simplest form of business.

- A business which is owned by a single person.

- Usually a small service-type business and retail establishments.

- A business owned and operated by two or more person.

- They bind themselves to contribute money, property, or industry to a common fund

- A business owned by the shareholders.

Types of Business Activities:

- Are used solely for investing purposes.

Types of Activities Perform by a Business Organization:

- Is a list of all account used by a company in its accounting system.

- It makes the bookkeeper’s life easily.

*Items in the Chart of Account*

Three items included in Chart of Account:

- List the account name.

For bigger companies, the most common number system is:

 Asset Accounts: 1 000 to 1 999

Sample Chart of Accounts.

Consulting Revenue Laine, Withdrawals

Accounts Receivable Income Summary

Building Office Supplies Expense

Cash Laine, Capital

Rent Expense Notes Payable

Furniture and Fixtures Prepaid Rent

Land Interest Expense

Miscellaneous Expense Salaries Expense

Referral Revenues Unearned Consulting Revenues

Accu. Depreciation – Building Office Supplies

Accu. Depreciation – F/F Interest Payable

Depreciation Expense – Building Insurance Expense

Depreciation Expense – F/F Accounts Payable

Look at the following illustrations:

1. Ms. Grace invested Php100 000.00 to start a rice retailing business.

How will the transactions affect the accounting equation?

Let us analyze the transactions.

Transaction 3 resulted in an increased on one asset which is equipment and a decrease in

+Php50 000.00 = 0 + +Php50 000.00

+Php12 500.00 = +Php12 500.00 + 0

Summary of the Transactions:

Purchase of +Php12 500.00 = +Php12 500.00 + 0

Purchase of +Php5 500.00 = 0 + 0

Purchase of +Php1 000 000.00 = +Php750 000.00 + 0

+Php120 000.00 = 0 + +Php120 000.00

owner's equity by Php120 000.00.

+Php15 500.00 = 0 + -Php15 000.00

-Php20 000.00 = 0 + +Php20 000.00

owner’s equity by Php20 000.00.

Items in the Chart of Account

Account Title ______ Account No. _