ACCOUNTING CYLE

FOR SERVICE BUSINESS

MODULE 3 Part 2
 CONTRA-ACCOUNTS
An account with a balance that is the opposite of the normal balance for that account
classification. The use of contra account allows an entity to report the original amount and
the reduction to the account to arrive at the carrying value or net realizable value.

Examples of Common Contra Accounts:

1. Allowance for Uncollectible/Bad Debts/Doubtful Accounts- is a contra asset account

related to Accounts Receivable. The receivable is an asset with a debit normal balance,
therefore the contra-asset Allowance has a credit normal balance.
 CONTRA ACCOUNTS CONTINUED...
2. Accumulated Depreciation- is a contra account related to any asset under property,
plant and equipment. All assets under this category are subject to depreciation except
Land. Since the normal balance of the related asset is debit, the normal balance of
Accumulated Depreciation is credit.

Depreciation. A reduction in value of an asset with the passage of time, due in particular
to wear and tear.

3. Withdrawal/ or Drawing Account-is a contra-equity account, a reduction in the capital

account. Equity has a normal balance of credit and Withdrawal’s normal balance is the
opposite which is debit.
 THE WORKSHEET
STEP 5. PREPARATION OF THE WORKSHEET including
ADJUSTING ENTRIES
Aim: To verify accuracy of the accounting information and adjust necessary
accounts to provide an up-to-date financial reports.

What is a Worksheet?
It is a multiple-column device or a computer spreadsheet, used for easy
preparation of the financial statements done in a systematic process.

Necessary adjusting entries are also reflected in the worksheet.

 Nov. 25 - Sent billing to two (2) couples for catering services
IV. PROBLEM rendered on account, P15,000 per couple.
JM Catering Services is a service business organized on November 2, 2019 and
owned by Jo Moo and it uses a calendar accounting period. The following 26 - Bought split type aircon on account, P45,000.
transactions were taken from different source documents as follows: 27 – Jo Moo brought his own set of utensils to the
Nov. 2 - Withdrew from his personal bank account the amount of business valued at P25,000.
P300,000 and deposited the same to the bank account of JM 28 – Received P30,000 for catering services rendered in a
Catering Services. nearby barangay.
5 - Paid P5,000 to City Treasurer for taxes and licenses. 29 – Acquired (2) heavy duty burners at P14,000 each.
6 - Received P75,000 for catering services to be rendered on March, 30 – Jo Moo withdrew P 40,000 from the fund for
2020. personal use.
8 - Purchased Tables and Chairs for the business worth P35,000 on 30 – Paid daily wages of five staff at 350 per day for
terms : 50% down payment ; balance payable after 30 days . 15 days.
10 - Received billing from “We Ads” for publication of the opening
of the business, P10,000. REQUIRED:
11 - Received and paid Meralco bill for electric consumption, 1. Prepare chart of accounts with account codes.
P6,000. 2. Prepare proper journal entries with explanation.
15 - Paid daily wages of staff for five people with rates of P350 each 3. Post to T-accounts for account balances .
per day for 10 days.
4. Prepare trial balance in the worksheet.
18 - Paid annual insurance premium P48,000.
5. Extend income statement accounts and compute for net profit or
20 - Purchased supplies on credit, P22,000. net loss
22 - Paid five (5) months rent at P10,000 per month. 6. Extend balance sheet accounts and compute for the bottom
23 – Paid the account from“We Ads” for advertising expense. figures.
7. Prepare formal financial statements.