Lecture 1: Documentation. Accounting Cycle.

[Fundamentals of Accounting]

Accounting Cycle > series of steps taken in gathering, processing and summarizing deta so as to
produce meaningful information which we communicated to statement users by way of financial report.

Fin. Report Cycle

1. Documentation > To gather transactions

2. and events by way of source documentation.

Official Receipts
Checks -
Voucher -
Invoices -
Cash Register Taper

Lecture 2: Journal Entries. Accounting Cycle. [Fundamentals of Accounting]

Journal > is a chronological record of the entity's transactions. A journal entry shows all the effects of a
business transaction in terms of debits and credits. Each transaction is initially recorded in a journal
rather than directly in the ledger. A journal is called the book of original entry.

General Journal > is the simplest journal.

Format:
Date Description P.R Debit Credit

Accounting Cycle
1. Documentation
2. Journalization

Best steps to prepare a Journal Entry

Step 1. Do a Financial Transaction Worksheet.

Sample: Bought supplies on account, 10,000

A=L+E
__=__+__

Step 2: Apply the rules of debits and credits

Increase in Asset is DEBIT, decrease in Asset is Credit

Increase in Liabilities is CREDIT, decrease in Liabilities in Debit
Increase in Equity is CREDIT, decrease in Equity is Debit
Increase in Income is CREDIT, decrease in Income is DEBIT
Increase in Expenses is Debit, decrease in Expense is CREDIT

Step 3: Prepare journal entry

Description Debit Credit

Supplies 10,000
Accounts payable 10,000
Bought supplies on account

Remember:
A=L+E
Left = Right
Debit = Credit

Chart of Accounts > a listing of all accounts and their account numbers in the ledger. The chart is
arranged in financial statement order, that is, asset first, followed by liabilities, owner's equity, income
and expenses. The account should be numbered in a flexible manner to permit indexing and
cross-referencing.

Accounting Cycle:
1. Documentation
2. Journalization
3. Posting to ledger
Sample Chart of Account

Asset Income
101 Cash 401 Service Revenue
102 Accounts Receivable 402 Interest Income
103 Notes Receivable 403 Gain on sale of equipment
104 Office Supplies
105 Land
106 Building
107 Service Vehicle

Liabilities Expenses
201 Accounts Payable 501 Salaries Expenses
202 Notes Payable 502 Supplies Expenses
203 Income Taxes Payable 503 Rent Expenses
204 Mortgage Payable 504 Insurance Expenses
505 Utilities Expenses
Owner's Equity 506 Miscellaneous Expenses
301 De La Cruz, Capital 507 Interest Expenses
302 De La Cruz, Withdrawals 508 Loss on flood

Lecture 3: Posting to General Ledger. Accounting Cycle. [Fundamentals of Accounting]

Ledger > is a grouping of entity's accounts. It is the "reference book" of the accounting system and is
used to classify and summarize transactions, and to prepare data for basic financial statements.

Each account has its own record in the ledger.

Every account in the ledger maintains the basic format of the T-account but offers more information.
Compared to a journal, a ledger organizes information by account.

Steps:
1. Posting
2. Footing
3. Balancing

Source: Basic Financial Accounting and Reporting, Win Ballada

Accounting Cycle
1. Documentation
2. Journalization
3. Posting to Ledger
Posting > transferring the information from the journal to ledger.
Footing > adding all the debits and credits.
Balancing > determines the balance of the accounts.

*If the sum of debit > sum of credit therefore, CREDIT

1. Documentation
- Transaction

2. Journalization
2021
Jan 1 Supplies 10,000
Accounts Payable 10,000
Bought supplies
#

3. Posting to Ledger

Supplies Accounts Payable

2021 2021
Jan 1 10,000 Jan 1 10,000
5,000 3,000
18,000 13,000

Lecture 3: Trial Balance. Accounting Cycle. [Fundamentals of Accounting]

Accounting Cycle
1. Documentation
2. Journalization
3. Posting to Ledger
4. Trial Balance

Trial Balance > is a list of all accounts with their respective debit or credit balances. It is prepared to
verify the equality of debits and credits in the ledger at the end of the reporting period or at any time
the postings are updated.
Lesson 5: Adjusting Entries Concept. Accounting Cycle. [Fundamentals of Accounting]

Accounting Cycle
1. Documentation
2. Journalization
3. Posting to Ledger
4. Trial Balance
5. Adjusting Entries

Adjusting Entries > involves changing account balances at the end of the period from what is the
current balance of the account to what is the correct balance for proper financial reporting.

It assigns revenues to the period in which they are earned, and expenses to the period in which they are
incurred.

In effect, these entries are needed to properly measure the profit for the period, and to bring asset and
liability accounts to correct balances for the financial statements.

Going Concern > Periodicity

Matching
a. cause and effect
b. systematic and rational allocation

Accrual Principle
1. Income > rendered
x cash > collected

2. Expenses > received

x cash > paid

Accounting Period

Calendar Year > is an annual period ending in December 31.

Fiscal Year > is a period of any twelve consecutive months.
Natural Business Year > Is a twelve month period that ends when the business activities are at their
lowest level of the annual cycle.
Interim Period > A period of less than one year.

Accounts Receivable > are open accounts arising from the sale of goods and services in the ordinary
course of business and not supported by promissory notes.
Initial
Measurement
Subsequent

Original Invoice Price = Face Value

Net Realizable Value (NRV)

Bad Debts/ Doubtful Accounts/ Uncollectible Accounts

- client accounts that may not be collected anymore or are doubtful of collection.

Pro-format adjusting entries

- Doubtful Accounts Expenses
- Allowance for doubtful accounts

Methods of computing Doubtful Accounts

1. Percentage of sales/Revenue > Doubtful accounts expenses > Income statement approach.
2. Percentage of Receivable > Required allowance > Financial position approach
3. Aging of Receivable

Problem solving
-Total service revenue
-Accounts receivable
-Allow for doubtful accounts, Jan 1.

Write off and recovering

Write off > allow for doubtful accounts/accounts receivable

Recovery > Accounts receivable/allow for doubtful accounts.
Cash>account receivable

Depreciation > systematic allocation of the depreciable amount of an asset over its useful life.

Kinds of Depreciation
1. Physical 2. Functional/Economic

Factors of Depreciation

Depreciable Amount > cost of asset or other amount substituted for cost, less residual value.

Residual Value > estimated net amount currently obtainable if the asset is at the end of useful life.
Useful life > either the period over w/c an asset is expected to be available for use by the entity, or the
number of production or similar units expected to be obtained from the asset by the entity.