• Accounting is the art of recording, classifying, summarizing in a

significant manner and in terms of money, transactions and events,

which are in part or at least of a financial in character and interpreting
the result thereof.
• Accounting is the language of business
In short accounting is a skill
In short accounting is a skill
• Natutunan sya kaya wag ka magalala wella hehe
Guides in accounting
Guides in accounting
• GAAP
• IFRS
Sabe natin ACCOUNTING is the language of
business
Sabe natin ACCOUNTING is the language of
business
• But what is a business
Business can be classified as
Business can be classified as
• Service business

• Merchandising or trade business

• Manufacturing business

• Franchising
Business can be classified as
• Service business
• Negosyo mu mag provide ng serbisyo
• Merchandising or trade business

• Manufacturing business

• Franchising
Business can be classified as
• Service business
• Negosyo mu mag provide ng serbisyo
• Merchandising or trade business
• Negosyo mung magbenta ng produkto
• Manufacturing business

• Franchising
Business can be classified as
• Service business
• Negosyo mu mag provide ng serbisyo
• Merchandising or trade business
• Negosyo mung magbenta ng produkto
• Manufacturing business
• Negosyo mung mag produce ng produkto
• Franchising
Business can be classified as
• Service business
• Negosyo mu mag provide ng serbisyo
• Merchandising or trade business
• Negosyo mung magbenta ng produkto
• Manufacturing business
• Negosyo mung mag produce ng produkto
• Franchising
• Negosyo mung mag gawa ng negosyo
Forms of Business:
Forms of Business:
• Depende sa may are
Forms of Business:
• Sole proprietorship
• Partnership
• Corporation
• Cooperatives
Forms of Business:
• Sole proprietorship Isa lang ang may are
• Partnership
• Corporation
• Cooperatives
Forms of Business:
• Sole proprietorship Isa lang ang may are
• Partnership Two or more ang may are
• Corporation
• Cooperatives
Forms of Business:
• Sole proprietorship Isa lang ang may are
• Partnership Two or more ang may are
• Corporation Five or more person ang may are date
• Cooperatives
Forms of Business:
• Sole proprietorship Isa lang ang may are
• Partnership Two or more ang may are
• Corporation 1 or more na ngayun, ang tawag ay share holder
• Cooperatives
Forms of Business:
• Sole proprietorship Isa lang ang may are
• Partnership Two or more ang may are
• Corporation 1 or more na ngayun, ang tawag ay share holder
• Cooperatives ang may are ay mga grupo na nagkaisa para sa
benepisyo ng komunidad
Users of accounting Information
Users of accounting Information
• Internal users
• External users
Internal users
• With the company,
Internal users
• With the company,
• Management
• Board of directors
• Super visors
• managers
External users
External users
• Outside the company
External users
• Outside the company
• Creditors
• Suppliers
• Customers
• Public
Branch of accounting
• Financial Accounting
• Managerial Accounting
• Cost Accounting
• Government Accounting
• Auditing –
• Taxation
Principles in accounting
• Accounting Entity – the firm is separate and distinct from that of the owner and other firm.
• Going Concern – the firm is viewed as operating indefinitely, which is why assets are shown
in the Balance Sheet at historical cost and not at current market prices
• Monetary Unit – or Unit of Measurement – all quantitative unit be stated in Philippine
pesos.
• Time Period – the indefinite life of a firm is divided into periods of equal length (12months)
also known as accounting period.
• Materiality – financial reporting is only concern with information that is significant enough
to effect evaluations and decisions.
• Accrual – requires that the revenues be recognized or recorded when earned regardless of
when payment is received and expenses be recognized when incurred regardless of when
paid.
Principles in accounting
• Accounting Entity – the firm is separate and distinct from that of the owner and other firm.
• Going Concern – the firm is viewed as operating indefinitely, which is why assets are shown
in the Balance Sheet at historical cost and not at current market prices
• Monetary Unit – or Unit of Measurement – all quantitative unit be stated in Philippine
pesos.
• Time Period – the indefinite life of a firm is divided into periods of equal length (12months)
also known as accounting period.
• Materiality – financial reporting is only concern with information that is significant enough
to effect evaluations and decisions.
• Accrual – requires that the revenues be recognized or recorded when earned regardless of
when payment is received and expenses be recognized when incurred regardless of when
paid.
Conceptual Framework: Financial Reporting
• Fundamental Qualitative Characteristics:
Relevance
Faithful Representation
• Enhancing Qualitative Characteristics:
1. Verifiability - Verifiability means that different knowledgeable and independent observers could
reach consensus, although not necessarily complete agreement, that a particular depiction is a
faithful representation.
2. Comparability - Comparability is the qualitative characteristic that enables users to identify and
understand similarities in, and differences among, items.
3. Understandability - Classifying, characterizing and presenting information clearly and concisely
makes it understandable.
4. Timeliness - Timeliness means having information available to decision-makers in time to be
capable of influencing their decisions.
Conceptual Framework: Financial Reporting
• Fundamental Qualitative Characteristics:
Relevance
Faithful Representation
• Enhancing Qualitative Characteristics:
1. Verifiability - Verifiability means that different knowledgeable and independent observers could
reach consensus, although not necessarily complete agreement, that a particular depiction is a
faithful representation.
2. Comparability - Comparability is the qualitative characteristic that enables users to identify and
understand similarities in, and differences among, items.
3. Understandability - Classifying, characterizing and presenting information clearly and concisely
makes it understandable.
4. Timeliness - Timeliness means having information available to decision-makers in time to be
capable of influencing their decisions.
Fundamental Qualitative Characteristics:

• 1. Relevance
• - Relevant financial information is capable of making a difference in the decisions made by users.
• - Financial information is capable of making a difference in decisions if it has predictive value,
confirmatory value or both.
• - Financial information has predictive value if it can be used as an input to processes employed by users
to predict future outcomes.
• - Financial information has confirmatory value if it provides feedback about (confirms or changes)
previous evaluations.
• - Materiality: Information is material if omitting it or misstating it could influence decisions that users make
on the basis of financial information about a specific reporting entity.
• 2. Faithful representation
• - Financial reports represent economic phenomena in words and numbers. To be useful, financial
information must not only represent relevant phenomena, but it must also faithfully represent the
phenomena that it purports to represent. To be a perfectly faithful representation, a depiction would have
three characteristics. It would be complete, neutral and free from error
Fundamental Qualitative Characteristics:

• 1. Relevance
• - Relevant financial information is capable of making a difference in the decisions made by users.
• - Financial information is capable of making a difference in decisions if it has predictive value,
confirmatory value or both.
• - Financial information has predictive value if it can be used as an input to processes employed by users
to predict future outcomes.
• - Financial information has confirmatory value if it provides feedback about (confirms or changes)
previous evaluations.
• - Materiality: Information is material if omitting it or misstating it could influence decisions that users make
on the basis of financial information about a specific reporting entity.
• 2. Faithful representation
• - Financial reports represent economic phenomena in words and numbers. To be useful, financial
information must not only represent relevant phenomena, but it must also faithfully represent the
phenomena that it purports to represent. To be a perfectly faithful representation, a depiction would have
three characteristics. It would be complete, neutral and free from error
Elements of Financial Statement
• Assets - An asset is a resource controlled by the entity as a result of past events and from
which future economic benefits are expected to flow to the entity.
• Liabilities - A liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits.
• Equity - Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
• Income - Income is 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.
• Expenses - Expenses are decreases in economic benefits during the accounting period in the
form of outflows or depletions of assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions to equity participants.
Elements of Financial Statement
• Assets - An asset is a resource controlled by the entity as a result of past events and from
which future economic benefits are expected to flow to the entity.
• Liabilities - A liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits.
• Equity - Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
• Income - Income is 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.
• Expenses - Expenses are decreases in economic benefits during the accounting period in the
form of outflows or depletions of assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions to equity participants.
Objectives of Financial Accounting:
• Relevance –
Objectives of Financial Accounting:
• Relevance –
• information that has no bearing for decision making is useless
regardless of the extent to which it satisfies the other objectives.
Objectives of Financial Accounting:
• Relevance –
• information that has no bearing for decision making is useless
regardless of the extent to which it satisfies the other objectives.
• Understandability –
Objectives of Financial Accounting:
• Relevance –
• information that has no bearing for decision making is useless
regardless of the extent to which it satisfies the other objectives.
• Understandability – aims to present data in the form and terminology
adapted to the user’s range of understanding
Objectives of Financial Accounting:
• Relevance –
• information that has no bearing for decision making is useless
regardless of the extent to which it satisfies the other objectives.
• Understandability – aims to present data in the form and terminology
adapted to the user’s range of understanding
• Verifiability –
Objectives of Financial Accounting:
• Relevance –
• information that has no bearing for decision making is useless
regardless of the extent to which it satisfies the other objectives.
• Understandability – aims to present data in the form and terminology
adapted to the user’s range of understanding
• Verifiability – aims to generate financial statement data that can be
substantially duplicated or corroborated by independent measures
using the same measurement methods.
Objectives of Financial Accounting:
• Neutrality –
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
• Timeliness –
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
• Timeliness – financial statements should be ready and available at a
time when they are needed for decision-making or to guide future
actions.
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
• Timeliness – financial statements should be ready and available at a
time when they are needed for decision-making or to guide future
actions.
• Comparability –
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
• Timeliness – financial statements should be ready and available at a
time when they are needed for decision-making or to guide future
actions.
• Comparability – financial statements data of one firm can be
compared to that of other firms within the industry. Consistency of
application is usually a requisite for comparability.
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
• Timeliness – financial statements should be ready and available at a
time when they are needed for decision-making or to guide future
actions.
• Comparability – financial statements data of one firm can be
compared to that of other firms within the industry. Consistency of
application is usually a requisite for comparability.
• Completeness –
Objectives of Financial Accounting:
• Neutrality – financial statements are prepared for the common users
in mind instead of a particular needs and desire for specific users.
• Timeliness – financial statements should be ready and available at a
time when they are needed for decision-making or to guide future
actions.
• Comparability – financial statements data of one firm can be
compared to that of other firms within the industry. Consistency of
application is usually a requisite for comparability.
• Completeness – seeks to include all financial data necessary to fulfill
the requirements of the other qualitative objectives mentioned above
• Inflation is ignored in accounting due to
• a. Economic entity assumption
• b. Going concern assumption
• c. Monetary unit assumption
• d. Periodicity assumption
• Inflation is ignored in accounting due to
• a. Economic entity assumption
• b. Going concern assumption
• c. Monetary unit assumption
• d. Periodicity assumption
• During the lifetime of an entity, accountants produce financial
statements at arbitrary or artificial points in time in accordance with
which basic accounting concept?
• a. Objectivity
• b. Periodicity assumption.
• c. Materiality
• d. Economic entity
• During the lifetime of an entity, accountants produce financial
statements at arbitrary or artificial points in time in accordance with
which basic accounting concept?
• a. Objectivity
• b. Periodicity assumption.
• c. Materiality
• d. Economic entity
• Enhancing qualities include all of the following, except
• a. Comparability
• b. Completeness
• c. Understandability
• d. Verifiability
• Enhancing qualities include all of the following, except
• a. Comparability
• b. Completeness
• c. Understandability
• d. Verifiability
• In fundamental qualities that make accounting information useful are
• a. Reliability and comparability
• b. Materiality and timeliness
• c. Comparability and consistency
• d. Relevance and faithful representation
• In fundamental qualities that make accounting information useful are
• a. Reliability and comparability
• b. Materiality and timeliness
• c. Comparability and consistency
• d. Relevance and faithful representation
• To achieve faithful representation, the financial statements
• a. Must have predictive and confirmatory value
• b. Must be complete, neutral and reasonably free from error
• c. Are understandable, comparable, verifiable and timely.
• d. All of these achieve faithful representation
• To achieve faithful representation, the financial statements
• a. Must have predictive and confirmatory value
• b. Must be complete, neutral and reasonably free from error
• c. Are understandable, comparable, verifiable and timely.
• d. All of these achieve faithful representation
Accounting Equation

Assets = Liabilities + Equity

Accounting Equation

Assets = Liabilities + Equity

(Revenue –Expenses-Withdrawals)
Accounting Equation

Assets = Liabilities + Equity

1000 = 500 + 500

Dapat Lage sila Equal
Expanded Accounting Equation
Assets = Liabilities + Equity + Revenue – Expenses - Drawings
Expanded Accounting Equation
Assets = Liabilities + Equity + Revenue – Expenses - Drawings
Debits and Credits Mnemonics
Assets = Liabilities + Equity + Revenue – Expenses - Drawings
Debits and Credits Mnemonics
Assets = Liabilities + Equity + Revenue – Expenses - Drawings

Debit Credit
Drawings Liabilities

Expenses Equity
Assets Revenue
Debits and Credits Mnemonics
Assets = Liabilities + Equity + Revenue – Expenses - Drawings

Debit Credit
Drawings Liabilities

Expenses Equity
Assets Revenue
Debits and Credits Mnemonics
Assets = Liabilities + Equity + Revenue – Expenses - Drawings

Debit Credit
Drawings Liabilities
Expenses Equity
Assets Revenue
Ayan yung mga normal balance nila
Debits and Credits Mnemonics
Assets = Liabilities + Equity + Revenue – Expenses - Drawings

Debit Credit
Drawings Liabilities
Expenses Equity
Assets Revenue
Ayan yung mga normal balance nila DEA-LER
1. Identifying Transactions and Other Events
• The first step in the accounting cycle is analysis of transactions and
events whether to record or not. We only record those transactions
and events which affects the elements of the financial statements or
those affects the accounting equation (Asset = Liabilities + Equity).
• The debit and credit analysis of an entry normally takes place
• a. Before an entry is recorded in a journal.
• b. When the entry is posted to the ledger.
• c. When trial balance is prepared
• d. At some other point in the accounting cycle.
• The debit and credit analysis of an entry normally takes place
• a. Before an entry is recorded in a journal.
• b. When the entry is posted to the ledger.
• c. When trial balance is prepared
• d. At some other point in the accounting cycle.
2. Journalizing
• After identifying transactions and events that affects the elements of
the financial statements, the second step is to record those
transactions and events through “Journal Entry”. In preparing the
journal entry, it is important to know the normal balances of each
element in the financial statements. Knowing the normal balances for
each element, will aide us whether to debit or credit an account.
• The normal balance of an account is on the
• a. Debit side of the account.
• b. Credit side of the account.
• c. Side represented by increase in the account balance.
• d. Side represented by decrease in the account balance.
• The normal balance of an account is on the
• a. Debit side of the account.
• b. Credit side of the account.
• c. Side represented by increase in the account balance.
• d. Side represented by decrease in the account balance.
3. Posting
• Posting is the transferring of all the journal entries made in step 2 to
the general ledger. The general ledger contains all the asset,
liabilities, and equity accounts. The general ledger is common called
as T-account since it depicts letter “T”. The left side of the T-account
represents debit, while the right side represents credit. In this step,
we will post in the left side of the account whenever we debit the
account in our journal entry and post in the right side when we credit
the account. At the end a given period, we can compute the balance
of each account by getting the difference of the total debits and total
credits of an account.
• Posting
• a. Accumulates the effects of the ledger entries and transfers them to
the general journal.
• b. Is done only for income statement activity because activity related
to the statement of financial position does not require posting.
• c. Is done once every year.
• d. Transfers journal entries to the ledger accounts.
• Posting
• a. Accumulates the effects of the ledger entries and transfers them to
the general journal.
• b. Is done only for income statement activity because activity related
to the statement of financial position does not require posting.
• c. Is done once every year.
• d. Transfers journal entries to the ledger accounts.
4. Trial Balance
• A trial balance is a list of accounts and their balances at the end of an
accounting period. The trial balance lists the accounts in the order in
which they appear in the ledger, with debit balances listed in the left
column and credit balances in the right column. The totals of the two
columns must agree. The trial balance proves the mathematical
equality of debits and credits after posting. A trial balance also
uncovers errors in journalizing and posting.
• The trial balance
• a. Is a listing of all accounts and their balances in the order the
accounts appear in the statement of financial position.
• b. Prove that all journal entries were made for the period.
• c. Can be used to uncover errors in journalizing and posting.
• d. Is used to prepare the statement of financial position while the
general ledger is used to prepare the income statement
• The trial balance
• a. Is a listing of all accounts and their balances in the order the
accounts appear in the statement of financial position.
• b. Prove that all journal entries were made for the period.
• c. Can be used to uncover errors in journalizing and posting.
• d. Is used to prepare the statement of financial position while the
general ledger is used to prepare the income statement
• A trial balance may prove that debits and credits are equal, except
• a. An amount could be entered in the wrong amount.
• b. A transaction could have been entered twice.
• c. A transaction could have been omitted.
• d. All of these may prove that all debits and credits are equal.
• A trial balance may prove that debits and credits are equal, except
• a. An amount could be entered in the wrong amount.
• b. A transaction could have been entered twice.
• c. A transaction could have been omitted.
• d. All of these may prove that all debits and credits are equal.
Your review of the ledger reveals the following:
(a) each account had a normal balance
(b) debit footings in Property and equipment, and Accounts Payable were each understated by P2,000
(c) debit footings in Rent receivable and Rent revenue were each overstated by P3,000
(d) credit footings in Prepaid insurance and Accrued expenses were each understated by P1,000
(e) credit footings in Cash and Income taxes payable were each overstated by P1,300
(f) transposition errors were made in Accounts Receivable and Service Revenue; the correct balances were P65,300 and P266,900 respectively
(g) credit posting to Advertising Expense of P800 was omitted

The correct debit/credit column totals in Remy Company’s trial balance i

Your review of the ledger reveals the following:
(a) each account had a normal balance
(b) debit footings in Property and equipment, and Accounts Payable were each understated by P2,000
(c) debit footings in Rent receivable and Rent revenue were each overstated by P3,000
(d) credit footings in Prepaid insurance and Accrued expenses were each understated by P1,000
(e) credit footings in Cash and Income taxes payable were each overstated by P1,300
(f) transposition errors were made in Accounts Receivable and Service Revenue; the correct balances were P65,300 and P266,900 respectively
(g) credit posting to Advertising Expense of P800 was omitted

The correct debit/credit column totals in Remy Company’s trial balance i

• Rocky Company’s account balances during the year showed the following changes:
• Current assets P 300,000 Decrease
• Non-current assets 750,000 Increase
• Current liabilities 100,000 Increase
• Non-current liabilities 320,000 Decrease
• Ordinary shares 210,000 Increase
• Premium on ordinary shares 40,000 Increase

• There were no other changes in the retained earnings account other than a P140,000
dividend payment and the current year’s net income. Rocky Company’s current year’s
net income is
5. Adjusting Entries
• Common types of adjusting entries:
1. Accruals: a) Accrued Revenues: Revenues for services performed but not
yet received in cash or recorded.
b) Accrued Expense: Expenses incurred but not yet paid in cash or recorded.
2. Deferrals: a) Prepaid Expenses: Expenses paid in cash before they are used
or consumed.
b) Unearned Revenues: Cash received before services are performed.
3. Adjustment to record Doubtful Accounts expense.
4. Adjustment to record Depreciation Expense.
• Adjusting entries
• a. Are often prepared after the statement of financial position date,
but dated as of the statement of financial position date.
• b. Are necessary to enable the financial statements to conform to
Philippine Financial Reporting Standard.
• c. Include both accrual and deferrals.
• d. All choices are correct regarding adjusting entries
• Adjusting entries
• a. Are often prepared after the statement of financial position date,
but dated as of the statement of financial position date.
• b. Are necessary to enable the financial statements to conform to
Philippine Financial Reporting Standard.
• c. Include both accrual and deferrals.
• d. All choices are correct regarding adjusting entries
• Adjusting entries affect
• a. One nominal account and one real account.
• b. Two nominal accounts
• c. Two real accounts.
• d. No particular combination
• Adjusting entries affect
• a. One nominal account and one real account.
• b. Two nominal accounts
• c. Two real accounts.
• d. No particular combination
• Which of the following properly describes a deferral?
• a. Cash is received after revenue is earned.
• b. Cash is received before revenue is earned.
• c. Cash is paid after expense is incurred.
• d. Cash is paid at the same time period that an expense is incurred.
• Which of the following properly describes a deferral?
• a. Cash is received after revenue is earned.
• b. Cash is received before revenue is earned.
• c. Cash is paid after expense is incurred.
• d. Cash is paid at the same time period that an expense is incurred.
6. Adjusted Trial Balance
• After journalizing and posting all adjusting entries, the company
prepares another trial balance from its ledger accounts. This trial
balance is called an adjusted trial balance. The purpose of an adjusted
trial balance is to prove the equality of the total debit balances and
the total credit balances in the ledger after all adjustments. Because
the accounts contain all data needed for financial statements, the
adjusted trial balance is the primary basis for the preparation of
financial statements.
• An adjusted trial balance
• a. Is prepared after the financial statements are completed.
• b. Proves the equality of the total debit balances and total credit
balances of ledger accounts after all adjustments have been made.
• c. Is required financial statement under IFRS.
• d. Cannot be used to prepare financial statements.
• An adjusted trial balance
• a. Is prepared after the financial statements are completed.
• b. Proves the equality of the total debit balances and total credit
balances of ledger accounts after all adjustments have been made.
• c. Is required financial statement under IFRS.
• d. Cannot be used to prepare financial statements.
7. Preparation of the Financial Statements
• a) Statement of financial position as at the end of the period;
• b) Statement of profit or loss and other comprehensive income for the period;
• c) Statement of changes in equity;
• d) Statement of cash flows for the period;
• e) Notes, comprising a summary of significant accounting policies and other
explanatory information; and
• f) Statement of financial position as at the beginning of the earliest
comparative period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in its financial statements.
• An entity is preparing the annual financial statements based on the
adjusted trial balance. Which financial statement shall be prepared
first?
• a. Statement of financial position
• b. Income statement
• c. Retained earnings statement
• d. There is no particular order because any financial statement may
be prepared first once the adjusted trial balance is prepared
• An entity is preparing the annual financial statements based on the
adjusted trial balance. Which financial statement shall be prepared
first?
• a. Statement of financial position
• b. Income statement
• c. Retained earnings statement
• d. There is no particular order because any financial statement may
be prepared first once the adjusted trial balance is prepared
8. Journalizing and Posting Closing Entries
• The closing process reduces the balance of nominal (temporary)
accounts to zero in order to prepare the accounts for the next
period’s transactions. In the closing process, the company transfers all
of the revenue and expense account balances (income statement
items) to a clearing or suspense account called Income Summary. The
Income Summary account matches revenues and expenses.
• Which of the following best describes the purpose of closing entries?
• a. To facilitate posting and taking a trial balance.
• b. To determine the amount of net income or loss for the period.
• c. To reduce the balances of temporary accounts to zero so that they
may be used to accumulate the revenue, expenses and the dividends
of the next period.
• d. To complete the record of various transactions that were started in
a prior period.
• Which of the following best describes the purpose of closing entries?
• a. To facilitate posting and taking a trial balance.
• b. To determine the amount of net income or loss for the period.
• c. To reduce the balances of temporary accounts to zero so that they
may be used to accumulate the revenue, expenses and the dividends
of the next period.
• d. To complete the record of various transactions that were started in
a prior period.
• Which type of account is always debited during the closing process?
• a. Dividends
• b. Expense
• c. Revenue
• d. Retained earnings
• Which type of account is always debited during the closing process?
• a. Dividends
• b. Expense
• c. Revenue
• d. Retained earnings
9. Post-Closing Trial Balance
• A company may take a third trial balance after posting the closing
entries. The trial balance after closing is called the post-closing trial
balance. The purpose of the post-closing trial balance is to prove the
equality of the permanent account balances that the company
carries forward into the next accounting period. Since all temporary
accounts will have zero balances, the post-closing trial balance will
contain only permanent (real)— statement of financial position—
accounts.
• The post closing trial balance
• a. Consist of statement of financial position accounts only.
• b. Will balance if transaction is not journalized and posted, or if a
transaction is journalized and posted twice.
• c. Shows that accounting equation is in balance at the end of the
accounting period.
• d. All of the choices are correct regarding post closing trial balance.
• The post closing trial balance
• a. Consist of statement of financial position accounts only.
• b. Will balance if transaction is not journalized and posted, or if a
transaction is journalized and posted twice.
• c. Shows that accounting equation is in balance at the end of the
accounting period.
• d. All of the choices are correct regarding post closing trial balance.
Reversing Entries
• Types of adjusting entry that can be reverse:
• 1. Accrued revenue
• 2. Accrued expense
• 3. Deferred revenue recorded initially using nominal account.
• 4. Deferred expense recorded initially using nominal account.
• Reversing entries do not apply to which of the following items?
• a. Unearned revenues (income method)
• b. Accrued wages
• c. Prepaid insurance (expense method)
• d. Depreciation
• Reversing entries do not apply to which of the following items?
• a. Unearned revenues (income method)
• b. Accrued wages
• c. Prepaid insurance (expense method)
• d. Depreciation
• Reversing entries
• a. Impact the income statement only.
• b. Impact the statement of financial position and the income
statement.
• c. Are not allowed under IFRS.
• d. Change amounts reported in the financial statements of the
preceding period.
• Reversing entries
• a. Impact the income statement only.
• b. Impact the statement of financial position and the income
statement.
• c. Are not allowed under IFRS.
• d. Change amounts reported in the financial statements of the
preceding period.
1
Transaction #1: On December 1, 2019, Mr. Donald Gray started Gray Electronic Repair Services by investing $10,000. The
journal entry should increase the company's Cash, and increase (establish) the capital account of Mr. Gray; hence:
Date
2019
Particulars Debit Credit

Dec 1 Cash 10,000.00

Mr. Gray, Capital 10,000.00
Transaction #1: On December 1, 2019, Mr. Donald Gray started Gray Electronic Repair Services by investing $10,000. The
journal entry should increase the company's Cash, and increase (establish) the capital account of Mr. Gray; hence:
Date
2019
Particulars Debit Credit

Dec 1 Cash 10,000.00

Mr. Gray, Capital 10,000.00
Transaction #2: On December 5, Gray Electronic Repair Services paid registration and licensing fees for the business, $370.
First, we will debit the expense (to increase an expense, you debit it); and then, credit Cash to record the decrease in cash as a
result of the payment.

5 Taxes and Licenses 370.00

Cash 370.00
Transaction #2: On December 5, Gray Electronic Repair Services paid registration and licensing fees for the business, $370.
First, we will debit the expense (to increase an expense, you debit it); and then, credit Cash to record the decrease in cash as a
result of the payment.

5 Taxes and Licenses 370.00

Cash 370.00
Transaction #3: On December 6, the company acquired tables, chairs, shelves, and other fixtures for a total of $3,000. The
entire amount was paid in cash.
There is an increase in an asset account (Furniture and Fixtures) in exchange for a decrease in another asset (Cash).

6 Furniture and Fixtures 3,000.00

Cash 3,000.00
Transaction #3: On December 6, the company acquired tables, chairs, shelves, and other fixtures for a total of $3,000. The
entire amount was paid in cash.
There is an increase in an asset account (Furniture and Fixtures) in exchange for a decrease in another asset (Cash).

6 Furniture and Fixtures 3,000.00

Cash 3,000.00
Transaction #4: On December 7, the company acquired service equipment for $16,000. The company paid a 50% down
payment and the balance will be paid after 60 days.
This will result in a compound journal entry. There is an increase in an asset account (debit Service Equipment, $16,000),
a decrease in another asset (credit Cash, $8,000, the amount paid), and an increase in a liability account (credit Accounts
Payable, $8,000, the balance to be paid after 60 days).
7 Service Equipment 16,000.00
Cash 8,000.00
Accounts Payable 8,000.00
Transaction #4: On December 7, the company acquired service equipment for $16,000. The company paid a 50% down
payment and the balance will be paid after 60 days.
This will result in a compound journal entry. There is an increase in an asset account (debit Service Equipment, $16,000),
a decrease in another asset (credit Cash, $8,000, the amount paid), and an increase in a liability account (credit Accounts
Payable, $8,000, the balance to be paid after 60 days).
7 Service Equipment 16,000.00
Cash 8,000.00
Accounts Payable 8,000.00
Transaction #5: Also on December 7, Gray Electronic Repair Services purchased service supplies on account amounting to
$1,500.
The company received supplies thus we will record a debit to increase supplies. By the terms "on account", it means that the
amount has not yet been paid; and so, it is recorded as a liability of the company.

7 Service Supplies 1,500.00

Accounts Payable 1,500.00
Transaction #5: Also on December 7, Gray Electronic Repair Services purchased service supplies on account amounting to
$1,500.
The company received supplies thus we will record a debit to increase supplies. By the terms "on account", it means that the
amount has not yet been paid; and so, it is recorded as a liability of the company.

7 Service Supplies 1,500.00

Accounts Payable 1,500.00
Transaction #6: On December 9, the company received $1,900 for services rendered. We will then record an increase in cash
(debit the cash account) and increase in income (credit the income account).
9 Cash 1,900.00
Service Revenue 1,900.00
Transaction #6: On December 9, the company received $1,900 for services rendered. We will then record an increase in cash
(debit the cash account) and increase in income (credit the income account).
9 Cash 1,900.00
Service Revenue 1,900.00
Transaction #7: On December 12, the company rendered services on account, $4,250.00. As per agreement with the
customer, the amount is to be collected after 10 days. Under the accrual basis of accounting, income is recorded when earned.
In this transaction, the services have been fully rendered (meaning, we made an income; we just haven't collected it yet.)
Hence, we record an increase in income and an increase in a receivable account.

12 Accounts Receivable 4,250.00

Service Revenue 4,250.00
Transaction #7: On December 12, the company rendered services on account, $4,250.00. As per agreement with the
customer, the amount is to be collected after 10 days. Under the accrual basis of accounting, income is recorded when earned.
In this transaction, the services have been fully rendered (meaning, we made an income; we just haven't collected it yet.)
Hence, we record an increase in income and an increase in a receivable account.

12 Accounts Receivable 4,250.00

Service Revenue 4,250.00
Transaction #8: On December 14, Mr. Gray invested an additional $3,200.00 into the business. The entry would be similar to
what we did in transaction #1, i.e. increase cash and increase the capital account of the owner.
14 Cash 3,200.00
Mr. Gray, Capital 3,200.00
Transaction #8: On December 14, Mr. Gray invested an additional $3,200.00 into the business. The entry would be similar to
what we did in transaction #1, i.e. increase cash and increase the capital account of the owner.
14 Cash 3,200.00
Mr. Gray, Capital 3,200.00
Transaction #9: Rendered services to a big corporation on December 15. As per agreement, the $3,400 amount due will be
collected after 30 days.
15 Accounts Receivable 3,400.00
Service Revenue 3,400.00
Transaction #9: Rendered services to a big corporation on December 15. As per agreement, the $3,400 amount due will be
collected after 30 days.
15 Accounts Receivable 3,400.00
Service Revenue 3,400.00
Transaction #10: On December 22, the company collected from the customer in transaction #7. We will record an increase in
cash by debiting it. Then, we will credit accounts receivable to decrease it. We are reducing the receivable since it has already
been collected.
17 Cash 4,250.00
Accounts Receivable 4,250.00
Transaction #10: On December 22, the company collected from the customer in transaction #7. We will record an increase in
cash by debiting it. Then, we will credit accounts receivable to decrease it. We are reducing the receivable since it has already
been collected.
17 Cash 4,250.00
Accounts Receivable 4,250.00