THE

ACCOUNTING
PROCESS (A
REVIEW)

Adoption of:
Accounting for Partnership and
Corporation by:
Gloria R. Baysa
Ma. Concepcion Lupisan
INTRODUCTION:

The accounting process refers to

the procedures or series of steps
The accounting process is divided
undertaken to come up with the
into two phases namely: (1) the
information reported in the
recording phase and (2) the
financial statements. The
summarizing phase.
accounting process is also referred
to as the accounting process.
The recording phase covers:

- the collection of information

THE RECORDING
PHASE
- journalizing and

- posting of entries.

These entries arise from transactions representing the events that

changes an asset, a liability or an equity.
DOCUMENTATION

 Information to
be collected will be
based on the
different business
documents that may
arise from the day to
day transactions of
an entity.
DIFFERENT BUSINESS DOCUMENTS

Invoice - issued when Cash or Check Voucher

Official Receipt issued
service or merchandise is – a document used when
when cash is received by
given to a customer or cash is paid or a check is
the entity
client issued

Promissory Note – a written

Check – a negotiable
promise to pay a certain sum Statement of Account -a
instrument used as a
of money at a future date. bill presented to a customer
substitute for cash, the
The make is the debtor who for service rendered or
payment for which is drawn
makes the promise, merchandise given for which
against the entity’s or
addressing it to the payee or payment is demandable
individuals current account.
creditor.
JOURNALIZING

 The business documents listed

above will serve as the basis for
journalizing. Journalization is the
process of recording transactions
for the first time in the accounting
books called journals which is also
called the book of original entry.
POSTING
 Posting is the
process of transferring
the recorded transactions
in the journal to the
accounts in the ledger. A
ledger is a group of
related accounts and is
call the book of final
entry. The objective of
posting is to classify the
effects of transactions on
specific asset, liability,
equity, income and
expense accounts.
 This phase covers the following steps:

- Preparation of a trial balance

- Compiling data for adjustments

SUMMARIZING - Preparation of a worksheet
PHASE - Financial Statements preparation

- Journalizing and posting adjusting and closing entries

- Preparing post closing trial balance

- Journalizing and posting reversing entries

PREPARING A TRIAL BALANCE

 This is the process of preparing

a summary of the balances of the
accounts in the general ledger. This
shows the balances of assets,
expenses and adjunct accounts with
debit balances and on the other
hand, liabilities, equity, income and
contra accounts with credit balances
COMPILING
ADJUSTING DATA
 This is the
process of gathering
and putting together
various data
necessary to update
the balances of
certain accounts in
the books of the
company.
  – this is an expense incurred
but not yet paid as of the
statement of financial position
date.
ACCRUED
EXPENSE  The proforma entry for this
adjustment is:
   Expense xxx
 Payable xxx
  - this is income earned but not yet
received or collected as of the
statement of financial position date.

ACCRUED  The proforma entry for this

INCOME
adjustment is:
 
 Assetxxx
 Income xxx
PREPAID EXPENSE - This is an expense paid or acquired in advance and is not yet incurred. examples of prepaid
expense are insurance premium and rental payments. there are two methods of recording prepayments namely: the
asset method and the expense method.

Asset Method Expense Method

 – Upon initial payment:  Upon initial payment:
   Asset xxx    Expense xxx
 Cash xxx  Cash xxx
     
 At the end of the accounting period  At the end of the accounting period
   Expense xxx    Asset xxx
 Asset xxx  Expense xxx
UNEARNED INCOME –This is income already collected but not yet earned as of the statement of
financial position date. the receipt of the advance payment may be recorded using the liability method or
the income method.

Liability Method Income Method

 Upon initial receipt of cash:  Upon initial receipt of cash:
   Cash xxx  Cash xxx
 Liability xxx  Income xxx
     
 At the end of the accounting period  At the end of the accounting period
   Liability xxx  Income xxx
 Income xxx  Liability xxx
  is the systematic allocation of the
depreciable amount of an item of property,
plant and equipment over its useful life.

DEPRECIATION  The entry to record depreciation expense

is as follows:
 Depreciation Expense xxx
 Accumulated Depreciation xxx
  -these represent customers’ accounts that
may no longer be collected or that may
possibly become bad debts. The entry for
the estimated uncollectible accounts is as
UNCOLLECTIBL
follows:
E ACCOUNTS
 
 Uncollectible Accounts Expense xxx
 Allowance for Uncollectible Accounts
xxx
  – adjustment for inventory is necessary if the
periodic inventory system is used. Under the
periodic inventory system, the company does not
record the physical movement of goods.

 To transfer beginning inventory balance to

Income Summary
INVENTORY   Income Summary xxx
 Merchandise Inventory xxx

 To record the ending inventory balance

  Merchandise Inventory xxx
 Income Summary xxx
PREPARING A
WORKSHEET
   This step is optional.
A worksheet though
considered a scratch
paper helps facilitates the
preparation of financial
statements, the recording
and posting of adjusting
and closing entries and
the preparation of a post
closing trial balance.
 PAS 1 provides that a complete set of financial statements shall
consists of the following:

Statement of Financial Position

PREPARING THE
Statement of Comprehensive Income
FINANCIAL
STATEMENTS Statement of Cash Flow

Statement of Changes in Owners’ Equity.

Notes
  Adjusting data discussed above if
present are to be journalized and
ADJUSTING posted. The balances however of the
nominal accounts which consists of
AND CLOSING
income, expenses and drawing
ENTRIES ARE accounts are to be closed to Income
JOURNALIZED Summary Account. The balance of the
AND POSTED Income Summary account is then
transferred to the owners’ equity
account.
The closing entries are:

  
 To close the balance of Income Summary
 To close the balances of income accounts:
accounts
  Revenue/income xxx
 Income Summary xxx
 (debit balance)
    Capital xxx
 To close the balances of expense accounts:
 Income Summary xxx
  Income Summary xxx
 
 Expenses xxx
  
 To close the balance of Income Summary accounts  To close the balance of the drawing account
 (credit balance)   Capital xxx
  Income Summary xxx
 Capital xxx
 Drawing xxx
   
PREPARING A POST-CLOSING TRIAL
BALANCE

A POST CLOSING TRIAL BALANCE IS

COMPOSED ONLY OF REAL/PERMANENT
ACCOUNTS BECAUSE THIS IS DONE AFTER   
CLOSING THE NOMINAL ACCOUNTS. THIS

IS PREPARED TO CHECK THE EQUALITY
OF DEBITS AND CREDITED AFTER
JOURNALIZING AND POSTING THE
ADJUSTING AND CLOSING ENTRIES.
REVERSING THE ACCOUNTS This step is optional but it facilitates the recording of expense payments and
revenue receipts in the new period in the usual manner

 For Prepaid expense – expense

 For accrued expense
method
 Payable xxx  Expense xxx
 Expense  Prepaid Expense xxx
xxx  
 
 For accrued income  For Deferred revenue or income –
income method
 Income xxx
 Receivable  Unearned Income xxx
xxx  Income
xxx