Basic Financial

Accounting and
Reporting and Adjusting
the Accounts
(Topics 3 & 4)
 Accounting Cycle
Step 1: Identification of events to be recorded
Step 2: Transactions are recorded in the journal
Step 3: Journal entries are posted to the ledger
Step 4: Preparation of trial balance
Step 5: Preparation of the worksheet including
adjusting entries
Step 6: Preparation of the financial statement
Step 7: Adjusting journal entries are journalized and
posted
Step 8: Closing journal entries are journalized and posted
Step 9: Preparation of post-closing trial balance
Step 10: Reversing journal entries are journalized and posted
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 Step 1: Identification of events to be recorded

Lukkas Tr ading
Lukkas Tr ading Villa Abes Subd. Tu ndol
"Buy worthy"
Limay Bataan, Philippines
Te l. No. (632) 123- 4567 Fax No. (632) 123-0000 DELIVERY RECEIPT
Va t Reg. TIN: 000-005-001-000
No. 031720
No. 00116
OFFICIAL RECEIPT
SOLD TO: O. F. Cruz DATE Sep 10, 20X1
Received from : O. F. Cruz Date : Sep 05, 20X1
ADDRESS: Balanga, Bataan
TIN/SC-TIN 000-009-020 Terms : Cash

OSCA/PWDA ID No. :
QTY UNIT DESCRIPTION UNIT PRICE AMOUNT
1 Container Oil 1,850 1,850
Business Style : Restaurant 1 25 kg Denorado Rice 1,100 1,100
Address : Balanga, Bataan 1 25 kg Corn Starch 1,150 1,150
5 1L Vinegar 122 610
QTY UNIT ARTICLES UNIT PRICE AMOUNT
50 pcs PLATES 25 1,250 5 1L Patis 165 825
30 pcs GLASS 18 540 5 1L Toyo 183 915
60 sets SPOON AND FOR K 18 1,080 5 pcs Mustard Sauce 1,300 6500
5 1L Ketchup 345 1725
3 Container Parmesan cheese 855 2565

(Paid 50%)

Total Sales (Vat Inclusive) 2,562.50

Less : 12% Vat 307.50
Total Sales (Net of Vat) Net of Vat

Add : 12% Vat Less : SC/PWD Discount

TOTAL AMOUNT DUE 2,870.00 TOTAL AMOUNT 17,240

25Bklts (X2) 0001 - 1250

BIR Authority to Print No. 2HA000014567
Date Issued: 09-24-20; Valid until 09-24-25 Received the above Merchandise
CAN PRINTING PRESS
Dimasalang St., Brgy Bonifacio, Caloocan City Cashier / Authorized Representative Checked and Certified by: in good order and condition
NV TIN: 000-000-000-002
Tel No. (047)600-0000 / 09990000000
Printer's Accreditation No. OBBM20190000000001
Date Issued: 8-27-2019

THIS RECEIPT SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF ATP

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 Step 2: Transactions are recorded in the journal

Journalizing – the process of recording transactions for the first time in the
accounting books called the journals

Journal

Date Account Titles and explanation PR Debit Credit

1 20X1
2 Sep 5 Equipment 2,870.00
3 Cash 2,870.00
4 To record purchase equipment
5

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 Step 3: Journal Entries are posted in the ledger

Posting – process of transferring the recorded transactions in the journal to the

accounts in the ledger

Ledger
Account: CASH Account No:
Date Explanation JR Debit Credit Balance
1 2023 2870.00
2
3
4
5

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 Step 4: Preparation of Trial Balance

Trial Balance – summary of the balances of the accounts in the general ledger.

Name of Company
Trial Balance
June 30, 2023

Debit Credit

Accounts
Accounts
Accounts
Accounts

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 Locating Errors
Error in posting transactions to the
ledger
Error in determining the account
balances
Error in preparing trial balance
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 Step 5: Preparation of worksheet including adjusting entries

Preparation of worksheet is optional but it facilitates the preparation of

financial statements.

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Step 5: Preparation of worksheet including adjusting entries
Name of Company
Worksheet
For the Month Ended June 30, 2023

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 ADJUSTING ENTRIES

The process of gathering and putting together various data necessary to

update the balances of certain accounts in the books of the companies.

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 Adjusting entry 1

▸ Accrued Expense - this is an expense incurred but not

yet paid as of the statement of financial position (balance
sheet) date.
Example: Interest accrued on notes payable,
accrued salaries of employees
Entry:
Expense xxx
Payable xxx

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Example 1: Juswa Company has an outstanding 90-day, 12%
note payable dated December 1, 2022 amounting to
P200,000. The interest is payable upon maturity of the note.
The company is using calendar year.

Interest Expense 8,000

Interest Payable 8,000
Prt 200,000X12%x30/90

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Example 2: Julya Company pays salaries every Friday. The
salaries for the week December 30, 31, January 1, 2 and 3 is
P150,000.

Salary Expense 60,000

Salary Payable 60,000
150,000x2/5

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 Adjusting entry 2

▸ Accrued Income - this is income earned but not yet

received or collected as of financial position (balance
sheet) date.
▸ Example: Accrued interest on notes receivable
Entry:
Receivable xxx
Income xxx

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Example 1: Gilas Company received a 3-month, 12% note
dated December 1, 2022 amounting to P100,000. Interest is
receivable upon maturity of the note
Interest Receivable 4,000
Interest Income 4,000
Prt 100,000x12%x1/3

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 Adjusting entry 3
▸ Prepaid Expense - This is an expense paid or acquired in
advance.
Example: Rent paid in advance, office supplies
purchased

Asset Method Expense Method

1. To record initial payment of expense

Prepaid Expense Expense

Cash Cash
2. To record adjustment

Expense Prepaid Expense

Prepaid Expense Expense
(expired or used portion of prepayment) (unexpired or unused portion of prepayment)

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Example 1: On May 1, 2022 Arjo Cutie Company paid
insurance premium of P30,000 covering a period of one year
beginning on this date.
Asset Method
May 1 Prepaid Insurance 30,000
Cash 30,000
Dec 31 Insurance Expense 20,000
Prepaid Insurance 20,000
30,000x8/12
Expense Method
May 1 Insurance Expense 30,000
Cash 30,000
Dec 31 Prepaid Insurance 10,000
Insurance Expense 10,000
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 Adjusting entry 4
▸ Unearned Income - This is income already collected but
not yet earned as of the balance sheet date
Example: Rental income collected in advance

Liability Method Income Method

1. To record initial receipt of cash

Cash Cash
Unearned Income Income
2. To record adjustment

Unearned Income Income

Income Unearned Income
(earned portion of prepayment) (unearned portion of prepayment

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Example 1: On Sept 1, 2022, Mainey Company received
P240,000 representing rental of an office space for one year
beginning on this date.
Liability Method
Sep 1 Cash 240,000
Unearned Rent 240,00
Dec 31 Unearned Rent 80,000
Rent Income 80,000
240,000x4/12
Income Method
Sep 1 Cash 240,000
Rent Income 240,000
Dec 31 Rent Income 160,000
Unearned Rent 160,000
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 Adjusting entry 5
▸ Depreciation of PPE - systematic allocation of the
depreciable amount of property, plant and equipment over
its useful life.

Entry:
Depreciation Expense xxx
Accumulated Depreciation xxx
Formula using straight line method:
Depreciation Expense per year = Cost – Residual value
Estimated useful life (in years)

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Example 1: Rastaman Company acquired an office
equipment on October 1, 2022 for 310,000. The asset has an
estimated useful life of 5 years and an estimated residual
value of 10,000.

Entry:
Depreciation Expense 15,000
Accumulated Depreciation 15,000
310,000-10,000/5yrs x 3/12

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Thanks!

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