Accounting Process:

Journalizing – Journalize the economic transactions and events.

Posting – Post the journal entries in number 1 to the general ledger.

Trial Balance – Prepare the trial balance from the general ledger.

Adjusting – Adjust the ledger balances.

Financial Statements – Make income statement and balance sheet from the adjusted trial
balance.

Closing – Close or transfer the income and expense accounts to income and expense
summary and the latter account to owner’s drawing, and the owner’s drawing to owner’s
equity.

Post-Closing Trial Balance – Make a trial balance of all assets, liabilities and owner’s equity.
1. ASSETS
It is a resource controlled by the enterprise as a result of past events and from which future economic benefits
are expected to flow to the enterprise

Example of asset accounts are:

Cash
Accounts Receivable
Notes Receivable
Merchandise Inventory
Office Supplies
Store Supplies
Office Equipment
Prepaid Expense (e.g. Prepaid Rent and Prepaid Insurance)
Intangible Assets (e.g. Francise, Copyright, Patent, Trademarks)
Furnitures & Fixtures
Store Equipment
Automobiles
Machineries
Land
Building
Cash is any medium of exchange that a bank will accept at face value. It includes coins and currencies, checks, money
orders and bank drafts.

Accounts receivable are claims against debtors or customers arising from services rendered on account and sale of
merchandise on account.

Notes receivable are claims supported by promissory note.

Merchandise Inventory are goods on hand and are available for sale.

Office Supplies/Store Supplies are supplies being used by the business. Like papers, pens, pencils, folders, staplers, etc.

Prepaid Expenses are expenses paid by the business in advance. Examples are six months rental paid in advance (Prepaid
Rent) or one year insurance premiums paid in advance (Prepaid Insurance)

Office/Store Equipment includes computers, air-conditioning units, electric fans, freezers, refrigerators, display cabinets,
etc.

Furniture and Fixtures includes offices tables, chairs, filing cabinets, etc.

Intangible Asset is an identifiable non-monetary asset without physical substance. Intangible asset do not have physical
appearance but are expected to provide future economic benefits to the company.
Franchise is a right granted by one party (called franchisor) to another party (called franchisee) for a special period. When
the franchisor is a private entity, it permits the franchisee to use the franchisor’s trademark or process. Example is,
Jollibee Corporation grants Mr. Aga Muchlach a right to operate a Jollibee food store in Alabang.

Copyright is an exclusive right or protection granted to an author for literary, musical or artistic work.

Patent is an exclusive legal right granted by the government for an invention to enable its holder to manufacture, sell and
control an item or process.

Trademarks are words, names, symbols, or other devices used in trade to indicate the source of a product and to
distinguish it from the products of others.

Computer Software or just software is a general term primarily used for digitally stored data such as computer programs
and other kinds of information read and written by computers.
2. LIABILITIES

It is a present obligation of the enterprise arising from past events. The settlement of which is expected to result
in an outflow of resources from the enterprise embodying economic benefits.

Common liability accounts are:

Accounts Payable
Notes Payable
Mortgage Payable
Salaries Payable
Interest Payable
Taxes Payable
Utilities Payable
Unearned Rent Revenue (e.g. Unearned Rent Revenue)
Accounts Payable are amounts due to creditors for assets acquired on account.

Notes Payable are amounts due to creditors evidenced by written promise to pay.

Mortgage Payable are long term debts secured by a collateral.

Salaries Payable are unpaid salaries of employees at the end of an accounting period.

Interest Payable are interest due on borrowed funds.

Utilities Payable examples are unpaid electric and water bills.

Unearned Revenue is revenue collected by the business in advance. When a business receives payments before providing
services to customers, there is an obligation created on the part of the business to provide services. Generally Accepted
Accounting Principles (GAAP) requires that revenue received in advance be treated as liability. Once the business has
provided the services, the advance collection will become earned and will be recognized as income.
3. EQUITY

It is the residual interest or remainder of the asset of the enterprise after deducting all its liabilities.

Common Equity accounts are:

Owner’s Capital
Owner’s Drawing or Owner’s Withdrawal
Retained Earnings

4. REVENUE OR INCOME

These are increases in economic benefits during the accounting period in the form of inflows or enhancements of
assets or decreases of liabilities that result in increases in equity; other than those relating to contributions from equity
participants.

Commonly used revenue accounts are:

Sales
Service Revenue
Professional Fees
Rent Income
Interest Income
Fees Earned
Subscription Revenue
Commissions Earned
5. EXPENSES

These are decreases in economic benefits during the accounting period in the form of outflows or depletion of
assets or incidences of liabilities that results in decrease in equity; other than those relating to distribution to equity
participants. In simple terms, expenses are costs incurred to produce revenue.

Expense account may include the following:

Salaries & Wages Expense

Taxes and License Expense
Rent Expense
Advertising Expense
Insurance Expense
Depreciation Expense
Transportation Expense
Supplies Expense
Utilities Expense
Repair & Maintenance
Uncollectible Accounts Expense or Bad Debt Expense
Miscellaneous Expense
 In order to generate financial reports which will be used for making decisions, business transactions have to be
analyzed, recorded and summarized. In analyzing transactions, the suggested procedures are as follows:

a. Determine the particular accounts affected or involved in the transaction. There are always two or more accounts
involved in every transaction.

b. Determine the effect of the transaction on the accounts involved in terms of increase or decrease.

EXAMPLE 1
Mr. John Lloyd Ruiz started his own business by investing P500,000 cash.
Analysis:
Accounts affected Effect
Cash Increase
J. Ruiz Capital Increase
Journal Entry:
Cash P500,000
J. Ruiz Capital P500,000
EXAMPLE 2

Purchased for cash office supplies worth P5,000.

Analysis:
Accounts affected Effect
Office supplies Increase
Cash Decrease
Journal Entry:
Office Supplies P5,000
Cash P5,000

EXAMPLE 3

Returned office supplies because of defects receiving a cash refund.

Analysis:
Accounts affected Effect
Office supplies Decrease
Cash Increase
Journal Entry:
Cash P5,000
Office Supplies P5,000
EXAMPLE 4

Purchased office equipment on account.

Analysis:
Accounts affected Effect
Office Equipment Increase
Accounts Payable Increase
Journal Entry:
Office Equipment xxxx
Accounts Payable xxxx

EXAMPLE 5

Issued check in payment for the office equipment previously purchased on account.
Analysis:
Accounts affected Effect
Accounts Payable Decrease
Cash Decrease
Journal Entry:
Accounts Payable xxxx
Cash xxxx
EXAMPLE 6

Paid office rental for the month.

Analysis:
Accounts affected Effect
Rent Expense Increase
Cash Decrease
Journal Entry:
Rent Expense xxxx
Cash xxxx

EXAMPLE 7

Mr. John Lloyd, the owner withdrew cash from the business for his personal use.
Analysis:
Accounts affected Effect
J. Ruiz, Drawing Increase
Cash Decrease
Journal Entry:
J. Ruiz, Drawing xxxx
Cash xxxx
EXAMPLE 8

Received cash payments from clients for services rendered to them by the business.
Analysis:
Accounts affected Effect
Cash Increase
Service Revenue Increase
Journal Entry:
Cash xxxx
Service Revenue xxxx

EXAMPLE 9

Rendered services to clients on account.

Analysis:
Accounts affected Effect
Accounts Receivable Increase
Service Revenue Increase
Journal Entry:
Accounts Receivable xxxx
Service Revenue xxxx
EXAMPLE 10

Collected a receivable from the client.

Analysis:
Accounts affected Effect
Cash Increase
Accounts Receivable Decrease
Journal Entry:
Cash xxxx
Accounts Receivable xxxx
EXAMPLE:

Vic Castro opened a portrait studio on December 1, 2016. Following were the company’s transactions
during the month:

Dec 1- Began business by depositing P300,000 in the business.

1- Paid two months’ rent in advance for the studio, P40,000
2- Bought photography equipment on account, P100,000
5- Purchased office equipment for cash, P50,000
8- Purchased photography supplies for cash, P30,000
15- Received cash for portraits, P70,000
16- Billed customers for portraits, P25,000
21- Paid for one-half of the photography equipment purchased on Dec 2, P50,000
22- Paid utility bill for the month of December, P15,000
28- Received payment from customers billed on Dec 26, P12,000
29- Vic Castro withdrew cash for personal use, P20,000
30- Received cash from customers for portraits, P22,000
30- Paid wages of employees, P23,000. The payroll voucher showed the following information:
Gross Pay P25,000
Less: Deductions
Withholding Tax P1,200
SSS Contributions 600
Philhealth Contribution 200 2,000
Net Pay-------------------------------------------------------P23,000
 DATE Description Debit Credit
2016
Dec. 1 Cash 3 0 0 0 0 0
Vic Castro, Capital 3 0 0 0 0 0
Cash investment by the owner

1 Prepaid Rent 4 0 0 0 0
Cash 4 0 0 0 0
Paid two months rent

2 Photography Equipment 1 0 0 0 0 0
Accounts Payable 1 0 0 0 0 0
Bought photography equipment on
account.

5 Office Equipment 5 0 0 0 0
Cash 5 0 0 0 0
Acquired office equipment for cash.

8 Photography Supplies 3 0 0 0 0
Cash 3 0 0 0 0
Purchased supplies for cash.
15 Cash 7 0 0 0 0
Portrait Revenue 7 0 0 0 0
Received cash for portraits.

16 Accounts Receivable 2 5 0 0 0
Portrait Revenue 2 5 0 0 0
Billed customers for portraits.

21 Accounts Payable 5 0 0 0 0
Cash 5 0 0 0 0
Paid half of the liability for the equipment
purchased on account.

22 Utilities Expense 1 5 0 0 0
Cash 1 5 0 0 0
Paid utility bill for December.

28 Cash 1 2 0 0 0
Accounts Receivable 1 2 0 0 0
Received partial payment from customers
on account.
29 Vic Castro, Drawing 2 0 0 0 0
Cash 2 0 0 0 0
The owner withdrew cash for personal
use.

30 Cash 2 2 0 0 0
Portrait Revenue 2 2 0 0 0
Received cash for portraits.

30 Wages Expense 2 5 0 0 0
Withholding Tax Payable 1 2 0 0
SSS Contributions Payable 6 0 0
Philhealth Payable 2 0 0
Cash 2 3 0 0 0
Paid wages of employees.