Concept

Lesson 07: The Accounting Cycle of

a Service Business
 FUNDAMENTALS OF Lesson Objective
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
100% of the students are expected to achieve at least
➢ Lesson Objective 75% proficiency
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap • Describes the nature of transactions in a service
➢ Check up Test business
• Records transactions of a service business in the
general journal
• Posts transactions in the ledger and
• Prepares a Trial Balance
 FUNDAMENTALS OF Introduction
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service An accounting cycle is a continuous process of accumulating,
Business
summarizing and reporting financial information.
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Video Clip
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test

https://youtu.be/wrnQGqYaQLM
 FUNDAMENTALS OF Video Clip
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test

https://youtu.be/VSNaRBAzbXo
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
Step 1 - Transactions and/or Events.
Identification and measurement of external transactions and
internal events. At this stage, the documents used by the
business are analyzed whether it has financial impact or effect.
Recall the rule that only financial transactions are recorded and
that the amount can be measured. These two conditions must
exist in order that a particular transaction is recognized or
recorded. As defined, financial transactions are those activities
that change the value of an asset, liability or an equity
Examples of financial transactions:
Receipt of cash from a client as advance payment to repair a
computer. In this case, asset will increase. At the same time, the
advances from client (liability) will also increase. The advances
from client is a liability because the business has the obligation
to render future service to the client.
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
Payment of electric bill is a financial transaction. This will
decrease the cash (asset) and reduce the income of the business
at the same time.
Examples of non-financial transactions:
❑ hiring and termination of employees
❑ recognition from the government as most outstanding
business
❑ death of owner
The information needed when recording transactions are taken
from forms used to document these transactions. In a typical
service business, the following are the business documents used:
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
1. Official Receipt or Cash Receipt
This document is used when a business receives money or a
check. An Official Receipt or Cash Receipt is a document that
acknowledges that money or a check have been received.
2. Charge Invoice or Sales Invoice
A charge invoice is a document used when a service has been
rendered, but the client will be billed only after a certain number
of days from the date of service. Often, a company will issue a
statement of account to a customer, with the charge or sales
invoice attached. For example: in a laundry business, a customer
may avail of the services of the business. However, that customer
and the owner of the business had a prior agreement that all
services availed by the customer will be paid only after 30 days.
In this case, a charge invoice is issued on the day the client
availed of the services.
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
3. Check or Cash Voucher
The check voucher is a document used when a check is issued to
pay a certain supplier or vendor. For example, in a laundry
business, for the payment of monthly electricity bills, the
business may pay either in cash or check. But the company must
prepare a cash or check voucher to support this payment. This
document will serve as a record of payment and, at the same
time, as proof that payment has been made by the company.
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
Rules on Debits and Credits
❑ The name of the account to be debited is always listed first.
The debited account is listed on the first line with the amount
in the left side of the register.
❑ The credited account is listed on the second line and is usually
indented. The credited amount is recorded on the right side of
the register.
❑ The total amount of debit should always equal the total
amount of credit.
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service Chart of Accounts
Business
The Chart of Accounts is a listing of all account titles used in the
➢ Lesson Objective
➢ Lesson Introduction
business to record all the transactions. It is arranged according to
➢ Video Clip the order of their appearance in the financial statements. Refer
➢ Lesson Discussion to Table X
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service Let us take the case of Pedro Matapang, a computer technician.
Business
Pedro decided to open his computer repair shop on February 14,
➢ Lesson Objective 2016,naming it Matapang Computer Repairs. Pedro knows that
➢ Lesson Introduction
➢ Video Clip business transactions should be separated from personal
➢ Lesson Discussion finances. Thus, he decided to invest PHP200,000 in this business.
➢ Recap
➢ Check up Test He deposited the amount with Nation Bank.

Notice that we have debited Cash, an asset account and credited

Matapang, Capital, an equity account.
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service February 15, 2016 - Pedro purchased one computer unit from XY
Business
Computer Store to be used for the business. He issued check
➢ Lesson Objective number 001 amounting to PHP25,000.
➢ Lesson Introduction
➢ Video Clip Entry:
➢ Lesson Discussion
➢ Recap
➢ Check up Test

Notice that the debit to office equipment increased the asset

account and the credit to cash decreased the asset account.
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service February 16, 2016 - Pedro hired Juana Magaling, an experienced
Business
secretary.
➢ Lesson Objective
➢ Lesson Introduction
Entry: No entry. This is not a financial transaction.
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
February 17, 2016 – Repaired the computer of Jean and
collected PHP10,000
Entry:
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service February 18, 2016 – Repaired Mike’s computer. However, Mike
Business
will pay PHP15,000 on March 18, 2016
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service February 19, 2016 – Pedro purchased Office Supplies from MM
Business
Merchandise amounting to PHP5,000 on account. Pedro will pay
➢ Lesson Objective this on March 30, 2016.
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
Step 3 – Posting
The summary (in specialized journals) or individual transactions
(in the general journal) are then posted from the journals to the
general ledger (and subsidiary ledgers). Nothing should ever get
posted to the ledgers without first being entered in a journal.
Recall the lesson on the general ledger. We will now post the
previous transactions of Pedro to the general ledger. For
purposes of discussion, we will be using the three-column ledger.
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
Discussion
Step 4 - Unadjusted Trial Balance
At the end of an accounting period (for example, one month or
one year) the working trial balance is prepared. This involves
copying each account name and account balance to a worksheet
(working trial balance). The resulting first two columns of the
worksheet are called the unadjusted trial balance.
In the preparation of the unadjusted trial balance, the balances
in all the general ledgers at the end of the reporting date are
forwarded to the appropriate column. The unadjusted trial
balance for the transactions in our example from Step 3 is the
following:
 FUNDAMENTALS OF Discussion
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test

Notice that all asset accounts are presented first, followed by

liabilities, equity (or capital account), income accounts and lastly,
expenses accounts.
 FUNDAMENTALS OF Recap
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
Review of the Accounting Equation
The basic accounting equation is what drives double-entry
➢ Lesson Objective
➢ Lesson Introduction bookkeeping. The equation reflects the accounts reported in the
➢ Video Clip balance sheet. The basic accounting equation is as follows:
➢ Lesson Discussion
➢ Recap ASSETS = LIABILITIES + OWNERS' EQUITY
➢ Check up Test

This is a very simple algebraic equation that reflects how the

assets of an entity must be supported by either debt or equity. As
in algebra, if we add or subtract something from one side of the
equation we must add or subtract the same amount from the
other side. For example, if we were to increase cash (an asset) we
might have to increase note payable (a liability account) so that
the basic accounting equation remains in balance.
 FUNDAMENTALS OF Recap
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
ASSETS = LIABILITIES + OWNERS' EQUITY
➢ Lesson Objective PHP 500 = PHP 500
➢ Lesson Introduction
➢ Video Clip Applying, the formula to our transactions in Step 3 above,
➢ Lesson Discussion the effects of these transactions to the equation are shown
➢ Recap
➢ Check up Test
below:

Notice that at all times, the effects of the transaction to the

right and left side of the formula should be equal. If not, the
journal entry is erroneous.
 FUNDAMENTALS OF Recap
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business
Worksheet (File : Q1 G11-ABM_L07 Accounting Cycle of a
Service Business – Worksheet)
➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Check-up Test - Assessment
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Check-up Test - Assessment
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 FUNDAMENTALS OF Check up Test
ACCOUNTANCY, BUSINESS &
MANAGEMENT 1 Grade 11-ABM
The Accounting Cycle of a Service
Business

➢ Lesson Objective
➢ Lesson Introduction
➢ Video Clip
➢ Lesson Discussion
➢ Recap
➢ Check up Test
 Concept
Lesson 07: The Accounting Cycle of a Service
Business

THE END