ACCOUNTING

PART 2
ASSIGNMENT:
Below is a list of items that might be considered assets by a company.
Indicate whether they should be listed on the balance sheet as an asset and
why or why not
Questions Answers:
1. Money owed by the company to the 1. No. This is a Liability, not an Asset (something
gas company owed rather than something owned)
2. The land that the company’s 2. This depends on whether the company owns the
building is on. land, possible Lease or Land. If it does, the land
is considered an Asset because it has value.
3. A truck used to deliver the products
to customer 3. Yes.
4. Money in the personal bank account 4. No. This is an Asset of the owner, not of the
of the owner company, and these Assets are kept separate
5. Money paid in advance for a three- 5. Yes, this has future benefit to the company since
year insurance policy on the the insurance company owes them insurance for
business three years into the future.
THE ACCOUNTING
PROCESS
 OBJECTIVES
After going through this lesson, you will be able to
Know the meaning and steps of basic accounting
process.
Understand the meaning and importance of journal.
Able to prepare basic journal entry
 THE ACCOUNTING PROCESS

Basic accounting/bookkeeping process for each business transaction:

(1) Determine correct account category (assets, liabilities, net worth, revenue, or expense)
(2) Identify correct line item account (e.g., Salaries & Wages; Employer Share of FICA;
Sick Leave Expense, Annual Leave Expense, etc.)

(3) Ensure correct amount used when recording (posting) the transaction
(4) Be consistent and accurate
DETERMINE CORRECT ACCOUNT CATEGORY
ACCOUNTING METHODS OF
RECORDING
Dictate how the company's  transactions are recorded in the company's financial books

Cash-basis accounting Accrual accounting

companies record expenses in  Revenue is recognized when it is

financial accounts when the earned and Expenses are recognized as
cash is actually laid out, and they are incurred regardless of when the
they record revenue when they cash changes hands
actually hold the cash Revenue is earned when actual
transaction is completed. When goods
are sold or service is rendered.
Expenses are incurred, meaning have
been charged or billed but are not yet
paid
ACCOUNTING METHODS OF
RECORDING
Dictate how the company's  transactions are recorded in the company's financial books
 ACCOUNTING METHODS OF
RECORDING
Dictate how the company's  transactions are recorded in the company's financial books

Example transaction: Received a bill of 500 from Meralco for this month
Cash-basis accounting Accrual accounting

No entry. Entry
Does not record (cash hasn't been paid) Debit Credit
Electricity or Utilities Expenses 500
Accounts or Utilities Payable 500

Example transaction: Paid 500 for a bill you received from Meralco
Debit Credit
Debit Credit
Electricity or Utilities Expenses 500
Electricity or Utilities Expenses 500
Sales 500
Cash 500
ACCOUNTING METHODS OF
RECORDING
Dictate how the company's  transactions are recorded in the company's financial books

Example transaction: Sold goods to ABC Store on credit 5,000

Cash-basis accounting Accrual accounting
No entry. Entry
The company did not receive the cash Debit Credit
payment. Thus, no entry to record sales.
Accounts Receivable 5,000
Sales 5,000

Example transaction: Sold goods to ABC Store on cash 5,000

Debit Credit
Debit Credit
Cash 5,000 Cash 5,000

Sales 5,000 Sales 5,000

 SINGLE-ENTRY VS DOUBLE-
ENTRY
Single – One account entry for each transaction
Double – Two account entries for each transaction
One debit and one credit

Assets = Liabilities + Equity + Revenue

- Expenses
1. IDENTIFICATION OF
TRANSACTION
Example 1 – A business starts with an investment of
P100,000 which is recorded (posted) as:

Assets = Liabilities + Equity + Revenue

Cash Owner’s Capital
P 100,000
100,000 - Expenses
1. IDENTIFICATION OF
TRANSACTION
Example 2 – The business buys a 55,000 building with 5,000
cash and a mortgage which is posted as:

Assets = Liabilities + Equity + Revenue

Cash -5,000 Mortgage
Payable
Building 55,000 50,000 - Expenses
1. IDENTIFICATION OF
TRANSACTION
Example 3 – The company paid salaries 20,000 which is
recorded/posted as:

Assets = Liabilities + Equity + Revenue

Cash -20,000 - Expenses
Salaries Expense 20,000
1. IDENTIFICATION OF
TRANSACTION
Example 4 – Sold goods for cash 30,000 which is
recorded/posted as:

Assets = Liabilities + Equity + Revenue

Cash 30,000 Sales 30,000

- Expenses
1. IDENTIFICATION OF
TRANSACTION
Example 5 – Sold goods to ABC Store on credit 5,000 which is
recorded/posted as:

Assets = Liabilities + Equity + Revenue

Accounts Sales 5,000
Receivable 5,000
- Expenses
1. IDENTIFICATION OF
TRANSACTION
Example 5 – Paid mortgage for the month of June 5,000 which
is recorded/posted as:

Assets = Liabilities + Equity + Revenue

Cash -5,000 Mortgage
Payable -5,000
- Expenses
 2. RECORDING THE
TRANSACTION
Journal is the first book of original entry in which all
transactions are recorded event wise and date-wise and presents
a historical record of all monetary transactions. It may further be
divided into sub-journals as well which are also known
subsidiary books
Journal Entry means recording the business transactions in the
journal. For each transaction, a separate entry is recorded.
Before recording, the transaction is analysed to determine
which account is to be debited and which account is to be
credited.
2. RECORDING THE
TRANSACTION
2. RECORDING THE
TRANSACTION
Reference
2. RECORDING THE
TRANSACTION
1. IDENTIFICATION OF
TRANSACTION
Example 1 – A business starts with an investment of
P100,000 which is recorded (posted) as:

Assets = Liabilities + Equity + Revenue

Cash Owner’s Capital
P 100,000
100,000 - Expenses
 2. RECORDING THE
TRANSACTION
Example 1 – June 1, 2021 A business starts with an investment of
P100,000. Journal entry:

6/1/2021 Cash 100,000

Owner’s Capital 100,000
To record owner’s investment.
1. IDENTIFICATION OF
TRANSACTION
Example 2 – The business buys a 55,000 building with 5,000
cash and a mortgage which is posted as:

Assets = Liabilities + Equity + Revenue

Cash -5,000 Mortgage
Payable
Building 55,000 50,000 - Expenses
 2. RECORDING THE
TRANSACTION
Example 2 – June 5, 2021 The business buys a 55,000 building
with 5,000 cash and a mortgage. Journal entry:

6/5/2021 Building 55,000

Cash 5,000
Mortgage Payable 50,000
To record the purchased building.
1. IDENTIFICATION OF
TRANSACTION
Example 3 – The company paid salaries 20,000 which is
recorded/posted as:

Assets = Liabilities + Equity + Revenue

Cash -20,000 - Expenses
Salaries Expense 20,000
 2. RECORDING THE
TRANSACTION
Example 3 – June 20, 2021 The company paid salaries 20,000.
Journal entry:

6/20/2021 Salaries Expenses 20,000

Cash 20,000
To record payment for employee’s
salaries for the period June 1-15.
 1. IDENTIFICATION OF
TRANSACTION
Example 4 – Sold goods for cash 30,000 which is recorded/posted
as:

Assets = Liabilities + Equity + Revenue

Cash 30,000 Sales 30,000

- Expenses
 2. RECORDING THE
TRANSACTION
Example 4 – June 21, 2021 Sold goods for cash 30,000. Journal
entry:

6/21/2021 Cash 30,000

Sales 30,000
To record cash sales.
1. IDENTIFICATION OF
TRANSACTION
Example 5 – Sold goods to ABC Store on credit 5,000 which is
recorded/posted as:

Assets = Liabilities + Equity + Revenue

Accounts Sales 5,000
Receivable 5,000
- Expenses
 2. RECORDING THE
TRANSACTION
Example 5 – June 21, 2021 Sold goods to ABC Store on credit
5,000 . Journal entry:

6/21/2021 Accounts Receivable 5,000

Sales 5,000
To record sales on account or sales
on credit.
1. IDENTIFICATION OF
TRANSACTION
Example 5 – Paid mortgage for the month of June 5,000 which
is recorded/posted as:

Assets = Liabilities + Equity + Revenue

Cash -5,000 Mortgage
Payable -5,000
- Expenses
 2. RECORDING THE
TRANSACTION
Example 5 – Paid mortgage for the month of June 5,000 . Journal
entry:

6/21/2021 Accounts Receivable 5,000

Sales 5,000
To record sales on account or sales
on credit.
QUIZ
1. In accounting, Debit (Dr) means which side of a ledger or T-account?
A. Left
B. Middle
C. Right
2. Debits and Credits are a part of double-entry bookkeeping?
A. True
B. False
3. To increase an Asset, you Debit the account?
A. True
B. False
4. What will usually cause an asset account to increase?
A. Debit
B. Credit
QUIZ
5. Which term is associated with "right" or "right-side"?
Debit  Credit
6. When the owner withdraws, the account Equity or Owner’s Capital will
be
Debit  Credit
7. When a company pays a bill, the account Cash will be
Debit  Credit
8. When a company pays the Unpaid rent, the account for Liability will be
Debit  Credit
ASSIGNMENT: PREPARE THE JOURNAL ENTRIES
Jose is a sole trader dealing in sports items. From the following
transactions, pass journal entries for the month of March, 2021.
Mar 1 Commenced business with cash 100,000. Chart of Accounts
Assets:
2 Sold goods to Steve Co. (Credit) 38,000 Cash
Accounts Receivable
15 Sold goods for cash 9,000 Purchases

21 Steve Co. paid by cheque 35,000 Liabilities:

Accounts Payable
22 Meralco bill paid by cash 2,000 Owner’s Equity:
Jose, Capital
22 Telephone bill by cash 500 Jose, Drawings
25 Purchased goods from Ram (supplier) 10,000 on credit. Revenue:
Sales
31 Paid rent by cash 2,000
Expenses:
31 Paid salaries by cash 13,000 Telephone Expenses
Rent Expenses
31 Withdrew cash personal use 5,000 Salaries Expenses