1-2 STEPS IN ACCOUNTING PROCESS

1. Identifying and analyzing business documents or transactions

2. Journalizing
3. Posting
4. Unadjusted trial balance
5. Adjusting entries
6. Adjusted trial balance
7. Preparation of financial statement
8. Closing entries
9. Post-closing trial balance
10. Reversing entries

3-4/5-6 RECORDABLE AND ACCOUNTABLE TRANSACTION/WHEN IS

TRANSACTION RECORDABLE

Accountable transaction - affect the assets, liabilities, equity, income, or expenses of a

business.

7-8/9-10 ALL ABOUT GENERAL LEDGER/ USES OF GENERAL LEDGER

General Ledger - contains all the accounts appearing in the trial balance.
It is where the business transactions, as originally recorded in general journal, are finally
recorded.

The balance of controlling account is shown in the general ledger, while the balances of the
accounts that compromise the controlling account are shown in the subsidiary ledger.

11-12 ITEMS NOT INCLUDED IN CASH

a) Postdated checks - checks dated a future date

b) IOU (I owe you) or advances to employees - treated as receivables
c) Cash fund not available for use in current operations
i. Sinking fund
ii. Plant expansion fund
iii. Depreciation fund - is a form of asset replacement fund wherein cash payments
to the fund are equal to the periodic depreciation charges on the related assets.
iv. Preference share redemption fund
v. Contingency fund
vi. Insurance fund
D) Postage stamps - unused postage stamps are treated as prepaid supplies
E) Unused credit line - not included in as cash but rather disclosed only in the notes
F) Stale checks (?) - checks that remain outstanding for a long period of time cannot be
cashed as they become void.

13-14 All about cash with restrictions - classification in balance sheet

Restricted funds that are excluded from cash are commonly presented as part of “other assets”

Postdated checks and IOU are treated as receivables

Unused postage stamps are treated as prepaid supplies

15-16 All about cash equivalents - inclusions and exclusions

Cash equivalents are short term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.

Treasury bill is a short-term obligation issued by the government at a discount. It normally

have a maturity days of 90 days to less than a year.

Treasury notes and treasury bonds - long term obligations issued also by the government.
Treasury notes have a maturity of 1 year to less than 10 years. Treasury bonds have a maturity
of 10 years or more.

Money market instruments are investment in portfolios of short term securities. Acquired 3
months before maturity date.

Commercial paper consist of short term, unsecured, notes payable issued in large
denominations by large companies with high credit ratings to other companies and
institutional investors. The maturity date is normally less than 270 days and is traded in
money markets and is highly liquid. Acquired 3 months or less before its maturity date may
qualify as cash equivalent.

Time deposit - is a form of a bank deposit normally made in fixed denomination, bears
interest higher than that of regular deposits, has a pre-agreed maturity. A time deposit is
evidence by a certificate of deposit. 3 months din ata

Redeemable preference shares with mandatory redemption that are acquired 3 months or less
before their specified redemption date can qualify as cash equivalent because more on debt
instruments siya rather than equity instruments,

Checks and bank drafts are available for unrestricted and immediate use, they are included as
cash but not as cash equivalents.

Equity securities (investment in stocks) cannot qualify as cash equivalents because share of
stocks do not have a maturity date.

17-18/19-20 Reconciling items in the bank reconciliation to arrive at adjusted cash

balance

Bank reconciliation statement - is a report that is prepared for the purpose of bringing the
balances of cash (a) per records and (b) per bank statement into agreement.

It is prepared on a monthly basis, immediately upon receipt of the monthly bank statement
from the bank.

(alam niyo na kunin yan may tiwala aq sa inyo)

PRO-FORMA

Balance per books, end Balance per bank statement, end

Add: Credit Memos Add: Deposits in Transit
Less: Debit Memos Less: Outstanding check
Add/Less: Book errors Add/Less: Bank errors
Adjusted balance Adjusted balance
21-22 All about Petty Cash Fund - shortage (when?)

When there is a petty cash shortage, the amount of replenishment is increased by the cash
shortage in order to maintain the fixed balance of the fund.

Record as follows:
Various expense account
Cash shortage or overage
Cash in bank

Notice that the “Cash shortage or overage” account is debited when there is a shortage. This is
because cash shortage is closed either to a receivable or a loss account which has normal debit
balance.

23-24 Accounting entries under imprest fund system for petty cash

Record as follows:
Petty cash fund
Cash in bank

25-26 Accounting treatment and entries for unreleased checks

When checks are drawn are either (a) unreleased or undelivered to the payee or (b) postdated,
no payment has actually been made. Therefore, an adjusting entry is needed to revert back the
unreleased check or postdated check to cash and accounts payable.

Journal entry:
Accounts payable
Cash

Adjusting entry:
Cash
Accounts payable

27-28 Not possible combination of a journal entry

Alam niyo na ‘yan.

Ex: Increase in asset and decrease in equity

29-30 All about subsidiray ledger

It is a list of individual accounts with common characteristics. Contains detailed information

on specific accounts on general ledger.

It also provides a breakdown of the balances of controlling accounts.

31- 40 ALL ABOUT ADJUSTING ENTRIES

Adjusting entries - are entries made prior to the preparation of financial statements to update
certain accounts so that they reflect correct balances as of the designated time.
Advance collections of income

Liability method (earned) - income are initially credited to a liability account. The earned
portion is recognized income while the unearned portion remains as liability.

Ex:
Journal entry: Adjusting entry:
Cash Unearned rent
Unearned rent Rent income

Income method (unearned) - income are initially credited to an income account. The
unearned is recognized as liability while the earned remains as income.

Ex:
Journal entry: Adjusting entry:
Cash Rent income
Rent income Unearned rent

Prepayments of expenses

Asset method (used) - expenses are initially debited to an asset account. The incurred portion
is recognized as expense while the unused potion remains as asset.

Ex:
Journal entry: Adjusting Entry:

Prepaid supplies Supplies expense

Cash Prepaid supplies

Expense method (unused) - expenses are initially debited to an expense account. The unused
portion is recognized as asset while the incurred portion remains as expense.

Ex:
Journal entry: Adjusting Entry:

Supplies expense Prepaid supplies

Cash Supplies expense

41-42 All about reversing entries

Reversing entries - are entries usually made on the first day of the accounting period to
reverse certain adjusting entries in the immediately preceding period.

PURPOSE:
1. To facilitate recording of cash receipts and cash disbursements in the next accounting
period.
2. To promote convenience in recording the next period’s year-end adjustments for accruals
3. To promote consistency of accounting procedure

Not all adjusting entries may be reversed. Mga accruals for income or expense lang,
prepayments using expense method, and advance collections using income method.
43-48 All about bank reconciliation - reasons for cash per books and bank do not
balance

Credit Memos - are additions (bank credits) made by the bank to the depositor’s bank account
but not yet recorded by the depositor.
Examples:
i. Collections made by the bank on behalf of the depositor
ii. Interest income earned by the deposit
iii. Proceeds from loan directly credited or added by the bank to the depositor’s
account
iv. Unrolled- over matured time deposits transferred by the bank to the entity’s
account

Debit Memos - are deductions (bank debits) made by the bank to the depositor’s bank account
not yet recorded by the depositor.
Examples:
i. Bank service charges - representing bank charges for fees, interest, penalties,
and surcharges.
ii. NSF (No sufficient fund)/DAF (Drawn against insufficient fund checks) -
checks that are deposited and already recorded by the bank but subsequently
returned to the depositor because the drawer’s fund is insufficient to pay for the
check.
iii. Automatic debits - such as when the depositor and the bank agree that the bank
will make automatic payments of bills on behalf of the depositor
iv. Payment of loans - which the entity (depositor) agreed to be made out directly
from its bank account.

Book errors - errors committed by the depositor.

Deposit in Transit - deposits made but not yet credited by the bank to the depositor’s bank
account.

Outstanding checks - are drawn and released to payees but are not yet encashed with the
bank.
Excluding:
i. Certified checks - they are already deducted from the account so they are no
longer outstanding.
ii. Stale checks - they are added back to the cash balance per books, and are
excluded from outstanding checks.

Bank errors - errors committed by the bank.

49-50 All about Proof of Cash -importance

Proof of cash - is an expanded bank reconciliation that includes proof of cash receipts and
cash disbursements. It is useful in discovering discrepancies in the handling cash over a
certain period of time.

Proof of cash is prepared only when needed, usually in fraud investigations involving cash.