Week 8 Date: March 22, 2021

Subject Fundamentals of Accountancy, Business and

Management 1
Type of Activity Concept Notes
Activity Title Steps in Accounting Cycle of a Service Business:
Analyzing and Journalizing Transactions
Learning Target Analyze and record transactions of a service business
in the general journal
Reference Title Fundamentals of Accountancy, Business and
Management 1
Author/s Joy S. Rabo, et. Al
DEFINITION OF ACCOUNTING
CYCLE
The accounting cycle is a series of
recurring accounting steps or processes
that span from the start to the end of a
particular accounting period.
STEPS IN THE ACCOUNTING CYCLE :

5. Journalizing and posting adjusting journal entries

4. Preparing trial balance

3. Posting journal entries to the ledger

2. Journalizing the business transactions

1. Analyzing business transactions from source documents

STEPS IN THE ACCOUNTING CYCLE :

10. Journalizing and posting reversing journal entries

9. Preparing post-closing trial balance

8. Journalizing and posting closing journal entries

7. Preparing financial statements

6. Preparing adjusted trial balance

STEPS IN THE
ACCOUNTING CYCLE OF
A SERVICE BUSINESS
STEP 1. Analyzing business transactions from source documents

Transaction analysis involves three simple steps. These are:

1. Classify whether the transaction is a business or a nonbusiness
transaction. If the transaction is nonbusiness, then there is no
need to proceed to step 2.
2. Identify the major account/s and the account title/s affected and
the movements with respect to its/their normal balance/s.
3. Determine the amount/s to be credited or debited.
STEP 1. Analyzing business transactions from source documents

Normal
Increase Decrease
Balance
Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner’s Equity
• Owner’s Capital
Credit Credit Debit
• Owner’s
Debit Debit Credit
Drawing
STEP 1. Analyzing business transactions from source documents
Normal
Increase Decrease
Balance
Revenues Credit Credit Debit
Expenses Debit Debit Credit
Contra-valuation
accounts:
• Allowance for
Doubtful Credit Credit Debit
Accounts
• Accumulated Credit Credit Debit
Depreciation
2. Journalizing the business transactions

Journalizing is the process of entering a business transaction in

the form of an accounting entry in the “journal” or the so-
called “book of original entry.”

A journal is where business transactions are initially recorded

in chronological order.
2. Journalizing the business transactions

Moreover, a journal entry can take the form of a simple

journal entry or a compound journal entry.
• A simple journal entry is a journal entry that has one
debit account and one credit account.

• A compound journal entry is a journal entry with more

than one debit account or more than one credit account,
or both.
2. Journalizing the business transactions

Examples of simple journal entries follow:

GENERAL JOURNAL

Date Particulars F Debit Credit

(Account Title and Explanation)
2019
July 1 Cash 30,000
Mercado, Capital 30,000
To record cash investment

1 Photocopying Equipment 30,000

Mercado, Capital 30,000
To record investment of
photocopying equipment
2. Journalizing the business transactions

An example of a compound journal entry follows:

GENERAL JOURNAL

Date Particulars F Debit Credit

(Account Title and Explanation)
2019
July 1 Cash 30,000
Photocopying Equipment 30,000
Mercado, Capital 60,000
To record investments of cash

and photocopying equipment