ACCOUNTING PROCESS
2. Accounting Cycle
It is a step-by-step process
of recording,
classification, and
summarization of economic
transactions of a business.
3. Phases of the Accounting
Cycle
a. Recording (steps 1-3)
b. Summarizing (steps 4-10)
3. Steps in the Accounting
Cycle
a. Analyzing the transaction
b. Journalizing
c. Posting
d. Unadjusted trial balance
e. Adjusting entries
f. Adjusted trial balance
g. Financial statements
h. Closing entries
i. Post-closing trial balance
j. Reversing entries
4. Analyzing the Transaction
This is where the
accountant gathers
information from source
documents and
determines the impact of the
transaction on the
financial position.
5. Journalizing
This is the process of
recording the
transactions in the
appropriate journals.
6. Journal
It is a chronological record
of transactions.
It is also known as the book
of original entry.
Kinds of Journals
8. General Journal
It is a journal where all
transactions could be
recorded.
9. Special Journals
These are journals used in
recording large numbers of
like transactions. Usual
Examples of Special Journals
11. Sales Journal
It is a special journal where
only sales of
merchandise on account are
recorded.
12. Cash Receipts Journal
It is a special journal where
all types of cash
receipts are recorded.
13. Purchases Journal
It is a special journal used
to record all
purchases on account of
merchandise, equipment,
supplies, etc.
14. Cash Disbursements
Journal
It is a special journal where
all payments of
cash for any purpose are
recorded.
Types of Journal Entries
According to Form
16. Simple Journal Entry
It is a type of journal entry
which contains a
single debit and a single
credit element.
17. Compound Journal Entry
It is a type of journal entry
which has two or
more elements in either or
both debit and credit
sides and often represents
two or more
transactions.
These are the income
statement accounts
26. Posting
or temporary capital
It is the process of
accounts which are closed at
transferring data from the
the end of the accounting
journal to the appropriate
period (i.e., income and
accounts in the general
expense accounts).
ledger and subsidiary
ledger. This process
22. Mixed Account classifies all accounts that
were recorded in the
While still unadjusted, it
represents a journals.

18. Accounts combination of real and

These are the storage
units of accounting
information and are used to
summarize changes in
assets, liabilities, and equity
including income and
expenses.
Common Account Types
nominal accounts (e.g.,
prepaid expenses).
23. Control Account
It is the general ledger
account that
summarizes the detailed
information in a subsidiary
ledger.
27. Ledger
It is a book containing
accounts in which the
classified and summarized
information from the
journals is posted as debits
and credits. It is also
known as the book of final
entry.

24. Suspense Account

20. Real Accounts
These are the statement of
financial position
accounts or so-called
permanent accounts which
Kinds of Ledgers
It is an account that
holds temporarily
certain information pending 29. General Ledger
for disposition.
It includes all the accounts
appearing on the

are not closed and are
carried over to the next
accounting period (i.e.,
assets, liabilities, and equity
accounts).
21. Nominal Accounts
25. Reciprocal Account financial statements.
It is an account that has
a counterpart in
30. Subsidiary Ledger
another book within the
It affords additional detail
entity or in another ledger
in support of
of another entity.
certain general ledger
accounts.
31. Trial Balance
It is a list of general
ledger accounts with
their respective debit or
credit balances.
32. Adjusting Entries
These are journal entries
made at the end of
an accounting period to
update certain revenue and
expense accounts and to
make sure the entity
complies with the matching
principle.
33. Characteristics of
Adjusting Entries
a. Usually refer to
transactions that have
effects on more than one
accounting
period;
b. Include at least one (1)
nominal account
and one (1) real account; and
c. Are generally not based
on source
documents.
34. Classification of Adjusting
Entries
a. Prepayments
b. Deferred Income
c. Accrued expenses
d. Accrued income
e. Estimates
f. Ending inventory
35. Prepayments
These are expense items
already paid for but
not yet incurred.
36. Methods of Initially
Recording Prepayments
a. Asset method – Dr.
Prepaid expense; Cr.
Cash
b. Expense method – Dr.
Expense; Cr. Cash
37. Pro-Forma Adjusting
Entries for Prepayments
a. Asset method – Dr.
Expense (expired
portion); Cr. Prepaid expense
b. Expense method – Dr.
Prepaid
expense (remaining
portion); Cr.
Expense
38. Deferred Income
It refers to an income
item that is already
collected in cash but not yet
earned.
39. Methods of Initially
Recording Deferred Income
a. Liability method – Dr.
Cash; Cr.
Unearned income
b. Income method – Dr.
Cash; Cr. Income
40. Pro-Forma Adjusting
Entries for Deferred
Income
a. Liability method – Dr.
Unearned income
(earned portion); Cr. Income
b. Income method – Dr.
Income (unearned
portion); Cr. Unearned
income
41. Accrued Expense
It occurs in a transaction
where expense has
already been incurred but
not yet paid for in cash.
42. Pro-Forma Adjusting
Entry for Accrued Expense
Dr. Expense; Cr. Liability
(i.e., payable)
43. Accrued Income
It occurs in a transaction
where income has
been already earned but not
yet collected in cash.
44. Pro-Forma Adjusting
Entry for Accrued Income
Dr. Asset (i.e., receivable);
Cr. Income
45. Estimates
These are items of adjusting
entries that do
not involve cash flows.
Common Types of Estimates
47. Provision for Doubtful
Accounts
It is the estimated amount
of bad debts that
will arise from accounts
receivable that have been
issued but not yet collected.
48. Depreciation
It is the systematic
allocation of the cost of
a fixed asset over its useful
life.
49. Ending Inventory
Adjustment
It is an adjustment used to
set up the year-
end count of the inventory.
This is only applied in
the periodic inventory
system.
50. Preparation of the
Financial Statements
It is the most important
part of the
summarizing phase. This is
where the processed
information is communicated
to users.
51. Basic Financial
Statements
a. Statement of Financial
Position (Balance
Sheet)
b. Statement of
Comprehensive Income
(Income Statement)
c. Statement of Changes in
Equity
d. Statement of Cash Flows
e. Notes and Disclosures.
52. Closing Entries
These are recorded and
posted for the
purpose of closing all
nominal or temporary
accounts to the income
summary account and the
resulting net income or loss
is afterwards closed to
the capital or retained
earnings account.
53. Reversing Entries
These are made at the
beginning of the new
accounting period to
reverse certain adjusting
entries from the preceding
accounting period.
54. Adjusting Entries Subject
for Reversal
a. Prepayments under
expense method
b. Deferred income under
income method
c. Accrued expense
d. Accrued income
55. Optional Steps in the
Accounting Cycle
a. All trial balances
b. Reversing entries
REVISED CONCEPTUAL
FRAMEWORK
57. Missions of IASB in
Developing Accounting
Standards
a. Contribute to
transparency – by
enhancing international
comparability
and quality of financial
information.
b. Strengthen accountability
– of the
people entrusted with the
entity.
c. Contribute to economic
efficiency – by
helping investors identify
opportunities
and risks across the world.
58. Conceptual Framework
a. It aims to assist the IASB in
developing
standards.
b. It helps financial
statement preparers
and users to better
understand and
interpret the standards.
c. It can be used as a
reference by
preparers who are trying
to develop
accounting policies but
cannot find any
applicable standard currently
in place.
d. It is not a standard by
itself, and does not
override the provisions of
any standard.
59. Objectives of Conceptual
Framework
a. To provide financial
information about
reporting entities; and
b. To help investors,
lenders and other
creditors (primary users) in
decision
making.
Chapter 1
61. Objective of General-
Purpose Financial
Reporting
a. To provide financial
information about
reporting entities; and
b. Help investors, lenders
and other
creditors (primary users) in
decision
making.
62. Financial Position
It refers to the financial
condition of the
reporting entity
represented by the
economic
resources it owns and
claims of other entities
against these.
63. Accrual Accounting
It means that the events
should be reflected
in the reports in the
periods when the effects
of
transactions occur,
regardless the related cash
flows.
a. Income shall be
recognized when
earned, rather than when
received in
cash.
b. Expenses shall be
recognized when
incurred, rather than when
paid for in
cash.
64. Past Cash Flows
These are considered
important information
used to assess the
management’s ability to
generate future cash flows.
 It requires that accounting items to which the
transactions and information relates in the
Chapter 2
context
events should be recorded
in a manner that of an individual entity’s
Types of Qualitative financial report.
represents their true
Characteristics of Financial
economic substance.
Information
Elements of Relevance Underlying Characteristics
Maximized by Faithful

67. Fundamental Qualitative Representation

73. Predictive Value
Characteristics
It helps the users of
Their focus is on the
financial statements in 77. Completeness
content or substance of
predicting future trends of It asserts that financial
financial information.
the business. information must be

complete in all material

68. Enhancing Qualitative respects, since omissions
74. Confirmatory Value
Characteristics
of important data may be
It helps the users of
Their focus is on the misleading.
financial statements in
presentation or form of
confirming or correcting any
financial information.
past predictions they 78. Neutrality

have made. It asserts that financial

Fundamental Qualitative information must be
Characteristics
free from bias or not
75. Materiality
prepared with the purpose
It is the threshold above to
70. Relevance
which missing or
influence certain decisions of
Financial information the users.
incorrect information in
possessing this
financial statements is
qualitative characteristic is
considered to have an
capable of making a
impact on the decision
difference in the users’ 79. Free from Error
making of users.
decisions.
It asserts that financial
It is an entity-specific
information must
aspect of relevance
71. Faithful Representation not contain any inaccuracies
based on the nature or
or omissions.
magnitude (or both) of the
80. Prudence / Conservatism
It is the exercise of
caution when making
judgements under
conditions of uncertainty
such
that assets and income are
not overstated and
expenses and liability are not
understated.
Enhancing Qualitative
Characteristics
82. Comparability
It asserts that information
about a reporting
entity is more useful if it can
be compared with a
similar information about
other entities and with
similar information about
the same entity for
another period or another
date.
83. Verifiability
It helps to assure users
that information
represents faithfully the counting cash items).
economic phenomena it
purports to represent.
89. Indirect Verification
It means that different
It is verifying the carrying
knowledgeable and
amount of
independent observers
inventory by checking the
could reach consensus,
inputs (quantities and
although not necessarily
costs) and recalculating the
complete agreement, that
ending inventory using
a particular depiction is a
the same cost flow
faithful representation.
assumption (e.g.,
computing
Aspects of Comparability inventory using first-in, first-
out or FIFO method).
***
85. Horizontal Comparability
It refers to comparison
within an entity from Chapter 3
one period to the next.
91. Financial Statements
86. Dimensional These are written records
Comparability that convey the
It refers to comparison business activities and
between two or more position of a reporting
entities in the same industry. entity.
Methods of Verification
88. Direct Verification
It means verifying an
amount or other
representation through
direct observation (e.g.,