Accounting Cycle Journalizing

1. Analyzing Transactions ❖ Simple Journal Entry - journal entry with one debit and one credit.
❖ Compound Journal Entry – when an entry has more than one debit or more than one
2. Journal Entries Journals credit.
❖ Journals is also known as the Book of Original Entry.
3. Posting Journal Entries Ledgers
› Note that the reference number (F) is not filled up since this is part of the posting
4. Preparing Unadjusted Trial Balance procedure (ledger).
› The money would be recognized as Withdrawals when it’s for personal use.
5. Adjusting Entries › Because there is no Utilities Payable in the company's Chart of Accounts, Accounts
6. Preparing Adjusted Trial Balance Payable is sometimes used for the journal entry of utility bills.
› Whatever is indicated in the Chart of Accounts, we have to strictly adhere. write Ex: kung
7. Preparing Financial Statements Worksheet full name ng owner ang nakalagay sa account ng capital, edi we will also use the full
→ Balance Sheet name.
→ Income Statement
Posting to the Ledger
8. Closing Entries
❖ Ledger shows all the changes (increases or decreases) that took place for a particular
9. Preparing Post-Closing Trial Balance account.
❖ General Ledger is also known as Book of Final Entry
10. Reversing Entries Optional ❖ The process of transferring the debits and credits form the journal to the ledger is called
posting
› Running Balance/Balance – remaining amount of each account after every posting made.
Business Papers (pg. 92) › Cross Reference – facilitates the tracing of an entry to and from the journal and ledger.
› If the F columns of the journal and the ledger are both filled up, it signifies that an entry
❖ Invoice - This is issued when service or merchandise is given to a customer or client. has already been posted.
Signed by the employee preparing it.
❖ Official Receipt - Issued when cash is received by the entity. Signed by the cashier. Trial Balance
❖ Cash or Check Voucher – document used when cash is paid or check is issued. Signed by
the employee preparing it and the officer authorizing the payment. Also signed by the ● This ensures that the debit total is the same as the credit total.
payee or the person who received the cash payment. ● Trial Balances is a list of accounts with ledger balances.
❖ Check - Negotiable instrument used as a substitute for cash, the payment which is drawn ● Sunod-sunod ang pagkalista according to account no. But if wala, assets  liabilities 
against the entity’s current account. owner’s equity  income  expense
❖ Journal Voucher – made by accountant, approved by manager ● Double Rule = Final amount
❖ Promissory Note – written promise to pay a certain sum of money at a future date.
Adjusting Entries
❖ Statement of Account - bill presented to a customer for service rendered or merchandise
given for which payment is demandable. → Done at the end of accounting period
→ Pag walang date na nakalagay sa transaction, ang gagamitin is December 31 dahil yun
Chart of Accounts (pg. 94)
yung kadalasan na end ng accounting period.
→ List of Accounts titles that guides the bookkeeper in the recording of transactions.
→ The Number and nature of accounts depend on the type of business operation. Three Primary Classification
→ Normally, 1 is the start of account no. if assets, 2 if Liabilities, 3 if Owner’s Equity, 4 if 1. Prepayments (Deferrals)
Income, and 5 if Expenses. → Transactions where cash is paid or received before a related expense or revenue is
recognized.
a. Prepaid Expenses (Asset Account)
→ Items paid for in advance of receiving their benefits. Usually involves Supplies, Rent and
Insurance
In adjusting entry:
› Credit the Asset and debit the Expense
› Nababawasan Asset dahil yung nabawas napupunta na sa expense. Napunta sa expense
dahil binabayaran muna natin siya bago gamitin and nag rerecognize tayo ng expense pag
nagamit na.
Asset Method
→ Nirecord mo yung nagamit mong supplies (debit), and binawasan mo yung supplies na
meron ka (credit)
→ Asset Method ang tawag dahil ang initial entry na nirecord ay asset account. Ang
hahanapin mo sa adjustment ay ang expense account.
→ Asset Method ang gagamitin pag hindi ini-specify.
Expense Method
→ In the initial entry, you record it as an expense account.
→ Ang hahanapin mo sa adjustment ay asset account.
→ Nirerecord sa adjustment yung natirang supplies
b. Unearned Income (Liability Account)
→ Cash received in advance of performing services or delivering goods.
→ May utang ka na merchandise or service sa customers mo.
In Adjusting entry:
› Debit Liability and Credit Income
› Revenue is recognized when goods are delivered or services are rendered.
› Nag aadjusting tayo because as time passed by, may portions na nabibigay na natin
sa customers and nababawasan yung liability natin.
Liability Method
→ Pag merchandising business, Sales ang gamit mong account (credit).
→ Initial entry ay Liability Account. Ang hahanapin mo sa adjustment ay Income Account.
→ Liability Method ay gagamitin pag hindi ini-specify dahil you need to report it muna as a
Liability Account according to the accrual principles.
Income Method
→ Initial Entry, you record it first as an Income Account.
2. Accruals
→ Transactions where cash is paid or received after a related expense or revenue is
recognized.
 a. Accrued Expenses (Liability Account) → Same lang yung “Accrued Interest Receivable” and Interest Receivable
→ Recorded when an expense has been incurred prior to cash payment. → Same lang yung “Accrued Interest Income” and “Interest Income”
→ Usually involves salaries, interest and utilities. = nagamit mo na before bayaran → Sa interest, pag ang time ay naka number of days, 365 or 360 ang gagawin mong
denominator. PERO, ginagamit lang ang 365 days, pag nakastate sa transaction. Use 360
days if walang nakastate because that’s the banker’s rule.
In adjusting entry:
3.
Estimates
› Debit Expense and Credit Laibility. a.
Bad Debts
→ Portion of Accounts Receivable which is estimated to be uncollectible.
→ Ways of estimating bad debts under the allowance method:
o Estimating based on a percentage of income
o Estimating based on a percentage of the outstanding accounts receivable

Example:

Bad Debts

→ Pwedeng Accrued Accounts ang entry mo pero pwede ring Payable accounts. Depende sa
Chart of Accounts
→ Formula of Interest
o Pag annual: I = Prt
o Pag ilang months lang hahanapin: I = Prt x n/12

b. Accrued Income (Asset Account) → Ang estimate ng company ay dapat based on professional judgement.
→ Income earned in a period prior to the cash receipt.
→ Na-earned mo na income kahit wala ka pang cash na natatanggap. Example 2:

In adjusting entry:

› Debit Asset and Credit Income

Bad Debts

→ Kaya 50,000 na lang ang recorded imbis na 150,000 ay dahil may allowance for doubtful
accounts na tayo na 100,000.
→ Sa example #1, walang problem kasi ang binigay is assuming bad debts expense is 10%.
Example:
Ang expense accounts and income accounts ay temporary accounts kaya nag ba-back to
→ Pag sinabing collected na or recorded na, wala ka nang ilalagay sa adjustment zero siya and umuulit siya per year.
→ Be careful if Assets, Liabilities and Owner’s Equity have existing balance. Total P 241, 750
→ Allowance for Bad debts is a contra-asset account. (Normal balance is credit) Less Withdrawals (5,000)
Carla, Capital, December 31 P 236,750

 The Statement of Financial Position

- Lists down the economic resources being controlled by the firm, and from which
b. Depreciation liquidity and solvency are determined.
→ Process of computing expense by allocating the cost of depreciable long-term assets over - It helps predict ability of the firm to pay its obligations.
their expected useful lives. - It shows how much of the assets of the firm are being funded by the creditors and
investors.
Formula: - There are two forms: Report form & Account Form
 Check previous assignments or exercises for the format (Report Form yung nasa
Asset Cost −SalvageValue assignment)
Straight −Line Depreciation Expense Per year =
Useful Life  The Statement of Cash Flows
- How cash was affected by operating, investing, and financing activities of the
o Asset Cost – magkano mo siya nabili business.
o Salvage Value – Natitirang value ng asset pagtapos ng useful life niya. Also known as
Activities Inflows Outflows
Scrap Value or Residual Value
Operating Revenue Collections Payment for expenses
o Depreciable value is the difference of Asset Cost – Salvage Value
Investing Sale of securities, PPE Acquisition of securities, PPE
Preparation of Financial Statements Loans extended by creditors Cash paid to creditors or
Financing
or contributions of investors withdrawn by investors.
PAS 1 – General Purpose Financial Statements
 Current and Non-current Classifications
- Intended to meet “equally” the needs of all users.  Current Assets
- Its objective is to provide information about the Financial position, financial o Cash – currencies or coins or negotiable instrument like banks check
performance and changes in the financial position of an enterprise as well as its cash o Cash on Hand - cash items in the custody of the owner or officer-in-charge
flows. o Cash in Bank – deposited money under savings account
 Income Statement
› Cash Equivalents are short term, highly liquid investments such as 3-month
- Financial performance of the business or its profitability which is important as this
time deposits
will enhance the resources of the business and its capacity to generate cash and cash
o Marketable Securities – highly traded in securities such as stocks and bonds
equivalents.
o Receivables – collectibles from costumers
- Also known as the result of operation of an entity
› Accounts Receivable – pag oral agreement lang
- Summary of income earned and expenses incurred
› Notes Receivable – pag may promissory note issued by the debtor.
 Check previous assignments or exercises for the format
o Other Receivables
 The Statement of Changes in Equity
- Changes in the interest of the owner(s) for a sole-proprietor owned business, › Interest Receivable – when interest is collectible on promissory note
partners in a partnership and shareholders in a corporation. › Rent Receivable – rent collectible from tenants
 Example: › Dividends Receivable – dividend collectible by a shareholder from
corporations
CARLA AUTO REPAIR SHOP o Merchandise Inventory – represents stock of goods available for sale
STATEMENT OF CHANGES IN OWNER’S EQUITY o Prepaid Expenses – advance payments made for benefits or services to be received by
For the Year Ended December 31, 2018 the business in the future.
› Supplies
Carla, Capital, January 1 P 100,000
› Prepaid Insurance
Additional Investment 32,850 › Prepaid Rent
Add Profit 108,900 o Allowance for Bad Debts – contra asset account; deducted from accounts receivable
to arrive at its net realizable value.
 1. The revenue accounts which are normally credited should be closed on the debit side and
 Non-current Assets credited to the Income Summary Account.
o Land – lot or real estate owned and used by business
Sample Entry:
o Building
o Equipment – like office equipment, store equipment, and delivery equipment Repair Income xx
o Furniture and Fixture – like office furniture, fixture & store furniture and fixtures.
o Leasehold or Lease Right – lessee is given the right to use the property of a lessor Income Summary xx
over a long period of time. 2. The expense accounts which are normally debited should be closed on the credit side and
o Accumulated Depreciation – Contra asset representing expired cost of the PPE as a debited to the Income Summary account.
result of usage and passage of time. This is a deduction from PPE account
Sample Entry:
 Current Liabilities
Income Summary xx
o Accounts Payable – trade creditors for purchase of goods or services on credit
supported by the oral or implied promise of the business. Taxes Expense xx
› Note Payable – is a liability supported by promissory note issued by the
business to the creditor. 3. if the balance of income summary account has a credit balance (Net Income), close by
o Loan Payable – is a liability to pay a bank or a financing institution for amount of debiting the Income Summary Account and Credit to Increase the Owner’s Capital
account. If net loss, vice versa.
money borrowed by the business.
o Utilities Payable – is a liability to pay utility companies Sample Entry:
o Other payables
› Interest Payable – additional charge and obligation to pay or interest-  Net Income * Net Loss
bearing promissory notes issued by business
Income Summary xx Owner, Capital xx
› Salaries Payable – represents obligation to pay employees for services
received from them Owner, Capital xx Income Summary xx
› Taxes Payable – obligations due to the government for sales, earnings,
gains, and value of property owned/sold by business. 4. The drawing account which normally is a debit balance is credited to close and debited to
capital account to bring a reduction.
 Non-current Liabilities Sample Entry:
o Note Payable – issued to the creditor and evidenced by a promissory note.
o Mortgage Payable – which is an obligation secured by the real property of the Owner, Capital xx
business.
Owner, Drawing xx
o Bond Payable – Long term promise supported by a formal contract containing the
face value of the bond, the interest rate, the interest payment date, and the maturity Post-Closing trial balance
date.
- Prepared after closing the books and contains only real accounts with balances.
Closing Entries

- Closing the books means bringing the temporary or nominal accounts to zero
balance by transferring them to the capital account or owner’s equity.
- Profit or loss goes to the owner
- We carry forward the balances of the assets, liabilities, and owner’s equity to the
next accounting period since these are real or permanent accounts and don’t close
these accounts unless they are disposed.
Reversing entries
- To close out the accounts created when the adjusting entries were prepare such as
the prepaid expense (under the expense method) and the unearned income (under
income method.)
- To recognize the expired/income portion applicable for the succeeding period.

 Income Summary - this is an account used to close the nominal values and bring
them to the capital account.

Steps in making the closing entries:

 - To simplify the bookkeeping entries in the following period. › Ownership: transferred to buyer upon shipment
› Payment of Freight: Buyer, FOB seller
- Since si buyer na ang owner during shipment, siya na rin ang magbabayad.
b. FOB Destination
› Ownership: Transferred upon receipt of inventory. While on shipment, seller is still
the owner. Matrtransfer lang yung ownership kay buyer pag narecieve niya na
› Payment of Freight: seller, FOB buyer
- Since si seller pa ang owner during shipment, si seller din ang magbabayad ng
freight.

Journal Entry

⮚ FOB Shipping point – Freight-In Dr, Cash Cr. (IF YOU ARE THE BUYER)
⮚ FOB Destination – Freight-Out Dr., Cash Cr. (IF YOU ARE THE SELLER & YOU
PAID THE SF; this is considered as selling expense)

Merchandising Business 3. Inspection

a. Purchase Returns and Allowances – Contra expense account (normal balance is credit) ;
→ Buy and sell
nireturn mo sa supplier mo
→ Maintains a level of inventory
Reasons:
→ Offers discounts to create customer loyalty - Wrong item
→ Considered na merchandise pa rin ang isang business kahit nirebrand or binago ang - Wrong specifications
packaging etc., basta hindi naalter yung physical substance ng isang product. - Wrong quantity
- Defective Goods
❖ Flow of Merchandising Business ● On Cash – Cash Dr., Purchase Returns & Allowances Cr.
● On Credit – A.P Dr., Purchase Returns & Allowances Cr.
4. Sales - Income Account (Normal balance is credit)
a. On Cash – Cash Dr., Sales Cr.
b. On Credit – AR Dr, Sales Cr.
c. With Downpayment – Cash, AR. Dr. Sales Cr.
5. Delivery (Journal entry for seller)

Journal Entry

⮚ FOB Shipping point – No Entry

⮚ FOB Destination – Freight-Out Dr, Cash Cr.
1. Purchase - Expense Account (normal balance is debit) 6. Inspection by Buyer
a. On Cash – Purchase Dr, Cash Cr a. Sales Returns and allowances - Contra-income account (Normal Balance is debit) ;
b. On Credit – Purchase Dr, A.P Cr si Customer ang nagbalik
c. With downpayment- Purchase Dr., Cash, Cr., A.P Cr. Reasons:
- Wrong item
2. Delivery (Journal Entry for Buyer) - Wrong specifications
→ Babayaran mo on cash yung freight kahit on credit yung purchase mo. - Wrong quantity
- Defective Goods
Modes of Delivery (FOB: Free on Board)
● On Cash – Sales Returns and Allowances Dr., Cash Cr.
a. FOB Shipping Point ● On Credit – Sales Returns and Allowances Dr., Accounts Receivable Cr.
 DISCOUNTS → Automatically Deducted from list price of goods
→ Not accounted for/not recorded.
1. Cash Discounts
→ to encourage prompt payments
% of Discounts n
→ Expressed as ,
Discount Period Payment Period
Two Methods of accounting for Cash Discount

a. Gross Method – discount is only recorded when taken. Magkakaroon ka lang ng Entry na
Purchase Discount if nagbayad ka within the discount period.

NOTE:

› Trade discount is not recorded because according to the cost principle, whatever is the
transaction between the seller and buyer, yun lang ang dapat irecord.
› Gross invoice price = List Price – Trade discount

Merchandise Inventory

→ Additional Account in Merchandising

→ Stock of goods held for sale.
→ Refers to goods purchased for resale in the normal course of business
b. Net Method – discount is assumed to be taken upon purchase. → Normal balance is Debit

1. Cost of Sales or Cost of goods Sold – part of income statement; These are goods that are
delivered to the customers.
2. Gross Profit or Gross Income = Net Sales – COGS
3. Operating Profit = Gross Profit – Operating Expenses
4. Non-Operating Activities – these are minor income & expenses not recurring and not
part of regular operation.
› Other Revenue and Gains – Rent Income, Interest Income, and Gain from sale
› Other Expenses and losses – Interest Expense and loss from sale of equipment
› If there are no other revenues and other expenses, the operating profit is recognized
immediately as the net profit.

Inventory System
NOTE:
1. Perpetual Method
›Purchase discount lost is part of expenses and loses.
→ This records continuously the movement of merchandise and shows the inventory balance
›If not specifically stated in the transaction, always use the gross method because we have
at any point of time.
to adhere to the conservatism and prudence principle. Do not understate expenses.
→ Goods purchased are debited to an asset (Merchandise Inventory, Dr.) and goods sold are
› Different use of method each transaction is not allowed because it would violate the
debited to cost of goods sold. (COGS, Dr. & Merchandise Inventory, Cr.)
concept of consistency.
→ This method is usually adapted by the business which sells high price – low volume
2. Trade Discount
goods such as cars and appliances.
→ To encourage bulk or wholesale purchases
→ Shortage would immediately trigger an investigation.
 s
2. Periodic Method
- No detailed recording hence no inventory balance can be determined at any point of time.
- Goods bought are debited to purchase account representing immediately a cost of sale
expense. (Purchase dr., Cash cr)
- When stock is delivered to the customer, sales revenue is recorded but the COGS is not
recorded.
- The COGS is only determined at the end of accounting period or periodically when the
entity makes a physical count to determine the inventory on hand.
- This method is adapted by business selling low price – high volume goods such as goods
sold in a supermarket.

Inventory Count

→ Internal control requires that a physical count be made to determine the veracity of
the closing inventory.
→ A list of closing stock is contained in a source document called Inventory sheet.
→ The count is usually supervised by the staff of the Internal Auditor who affixes
signature on inventory count sheet to confirm the count was made.
 Purchase (Amount/1.12) xx
Input Tax (Purchase amnt x .12) xx
Accounts Payable or Cash xx

2. Output Tax – Each time a sale of good or service is made by VAT registered business, a
12% VAT is charged to the customer or client increasing the amount to be collected.
 Entry of Sale with VAT:
Cash xx
Sales (Cash received/1.12) xx
Output Tax (Sales x .12) xx

Closing Entries (I think)

› Income Summary – temporary account use to hold balances. Can be seen in worksheet.
› Kaya siya di kasama sa 3 primary classification dahil pwedeng hindi na siya ilagay sa
adjusting entries.
› Direct appropriation – Idederetso mo siya sa closing entries.

OWNER’S WITHDRAWAL OF MERCHANDISE

If merchandise is withdrawn by the owner for personal use, owner’s equity will decrease with
a corresponding decrease in the cost of purchases.
Journal Entries:
Owner’s Drawing xx
Purchases xx
To record withdrew of merchandise by the owner

VALUE ADDED TAX

1. Input Tax – each time a purchase is made and a 12% VAT is included, buyer pays two
items- cost of merchandise purchased and the tax.
 Entry of purchase with VAT: