The Accounting Cycle

First four steps in Accounting Cycle

1. Collecting data from various documents or business papers
2. Analyzing and recording data in the book called the journal
3. Classifying and posting from the journal to another book called the
ledger
4. Extracting the balances of each of the account in the ledger and
prepare trial balance
The Chart of Accounts
- is the listing of accounts title which guides the bookkeeper in the
recording of transaction.
Ex. Happy Tour and Travel
Chart of Accounts
Current Asset- 101 to 104
101 Cash
102 Accounts Receivable
102.1 Allowance for Bad Accounts
103 Notes Receivable
104 Office Supplies
Property and Equipment- 201 to 203
201 Cars
201.1 Accumulated Depreciation- Cars
202 Equipment
202.1 Accumulated Depreciation- Equipment
203 Furniture & Fixtures
203.1 Accumulated Depreciation- Furniture & Fixtures
Current Liabilities- 301 to 303
301 Accounts Payable
302 Loans Payable
303 Utilities Payables
Long- Term Liabilities- 401- 402
401 Notes Payables
402 Mortgage Payable
Equity- 501 to 502
501 Gomez, Capital
502 Gomez, Drawings
Revenues- 601
601 Service Income
Expenses- 701 t0 706
701 Gas and Oil
702 Rent
703 Repairs
704 Salaries
705 Supplies
706 Utilities
The T Account
The simplest tool used to analyse the effects of the transaction on
each account.
Cash
Left side or Right side or
debit side credit side
Assets = Liabilities + Owner’s Equity
Assets Liabilities Owner’s Equity
Debit Credit Debit Credit Debit Credit
- + - + - +
Example
March 1 May Gomez opened a tour and travel service business by I
investing cash of P50, 000 and two cars worth P750,000
Analysis: Increase in assets cash P50,000 and cars
P750,000, and increase in owner’s equity P800,000
Entry: Debit cash P50,000, debit cars P750,000 and credit
Gomez, capital P800,000
Cash Cars Gomez, Capital
March 3 Borrowed P100,000 from Citibank for business use
Analysis: Increase in assets cash and increase in loans
payable P100,000
Entry: Debit cash P100,000 and credit loans payable P100,000
March 7 Bought tables and chair from Blim’s. Paid cash P45,000.
Analysis:
Entry: Debit furniture and fixtures P45,000 and credit cashP45,000
March 10 Purchased from National Winner two aircon units for
P50,000 and an electric fan for P5,000, all on accounts
Analysis:
Entry:
March 18 Gomez made a cash withdrawal of P5,000 for personal use
March 20 Paid the account to National Winner
March 21 P15,000 was received from tourist for a tour package in Baguio
March 22 Paid for gas and oil P500 and repair of car P1,000
March 24 Mr. Gray hired the services of the agency for his visitors promised to
pay P16,000 on March 31.
March 25 Paid PLDT telephone service P500
March 27 Billed Angelicum Faculty Club P20,000 for a tour of Metro Manila
March 30 Collected P8,000 from Mr. Gray
March 31 Paid for office rent P10,000 and salaries of workers P9,000
The Journal
• The transactions are initially recorded in the journal which is also
called the book of original entry. The debits and credits of each
account is recorded chronologically day by day. The simplest form of
journal is the two- column general journal. Every journal entry
contains the following:
• 1. Date
• 2. Account title and amount to be debited
• 3. Account title and amount to be credited
• 4. Explanation
Posting to the Ledger
• The journal does not replace the ledger. The journal provides a
complete recording of a transaction in chronological order while the
ledger shows in one page all the changes that took place for the
particular account.