CHAPTER 4: ACCOUNTING CYCLE- Worksheet and Financial Statements

Journalizing, Posting and Trial Balance

Steps in Accounting Cycle
1. Analyzing business transactions through source documents
2. Journalizing
3. Posting to the ledger
4. Preparing the trial balance
5. 10 column worksheet
6. Preparing Financial Statements
7. Recording adjusting entries to the journal and posting to the same ledger
8. Recording and posting of closing entries
9. Ruling and Balancing Real and Nominal Accounts
10.Preparing a post-closing trial balance
11.Preparing reversing entries

Book of Accounts
1. Journal
a. book where transactions are initially recorded in a systematic and
chronological order
b. Also known as book of original entry
c. General journal- most basic form
Procedures for recording journal entries
1. Analyze the business transaction
a. Entry should reflect the transactions economic substance rather than
its legall form
2. Write the date of the entry
3. Record the debit part
4. Record the credit part
5. Provide a brief description
OTHER THINGS TO REMEMBER
1.
2.
3.
4.
5.

Simple journal entry- one account debited and one account credited
Compound journal entry more than one account is involved
Peso sign is not required unless stated
Memorandum entry- narrative format; no debit and credit
A line is drawn through the incorrect part

CHART OF ACCOUNTS

1. Chart of Accounts
a. a list of all accounts of the business and their respective account
numbers
b. Order: Assets, Liabilities, Equity, Income and Expenses
c. Prepared by an accountant
2. Ledger
a. Group of accounts
b. Also known as book of final entry
c. Contains the entire set of accounts used by the business
d. Summarized in individual accounts
PROCEDURES FOR POSTING JOURNAL ENTRY
1. Posting
a. process of transferring the entries from the journal to the accounts in
ledger
b. Normally done at the end of the month
STEPS IN POSTING
1. Locate the account title using the account number (provided in the chart of
accounts)
2. Write the date
3. Write the page of the journal where the entry came from in the reference
column/ JR
4. Transfer the debit and credit amounts to their respective columns
5. Enter the account number in the reference column (posting reference/ PR)
TRIAL BALANCE
1. list of all accounts and their open balances
2. Open balances it has either a debit or credit balance
3. Close balance- if the debits equal total credts
STEPS IN DOING THE TRIAL BALANCE
1. Do the heading. (Company Name, Type of Report, Date)
2. Note all open accoints in the general ledger
3. Transfer the Account numbers, titles and balances in the order of Assets,
Liabilities, Equity, Income and Expenses
4. Debit should be equal to Credit
FOOTING THE ACCOUNTS- adding all the debits and the credits
WHEN TRIAL BALANCE IS NOT BALANCED
1.

do the working back method. Start with the trial balance and work
backwards toward the entries in the general journal

ADDENDUM ( from the Hairy Potter)

1. Sa maling side ng Trial Balance na-post ang isang amount

a. Ang difference ng iyong total debits at credits ay divisible by two
b. Quotient yung hanapin mo
2. May Transposition error na naganap
a. Error na nangyayari kapag na-interchange mo yung order ng digits
b. Ang difference ng debit at credit mo ay divisible by nine
3. May Transplacement o Slide Error na naganap
a. Madalas mangyari sa mga amount na maraming zero
b. Divisible by nine yung difference ng amounts nito

CHAPTER 5: ACCOUNTING CYCLE

Adjusting Journal Entries
Accounting Period
1. May be one mont, one quarter, or one year
2. One year period- calendar year and fiscal year
a. Calendar year December 31
b. Fiscal Year- not December 31
THE NEED FOR ADJUSTMENTS
1. ACCRUAL BASIS income is recognized regardless of when it is received
same as expense
2. CASH BASIS- revenues and expenses are recognized when theyre received or
paid
SIX BASIC END-OF-PERIOD OF ADJUSTMENTS OF A SERVICE BUSINESS
1. ACCRUAL
a. Accrued Expenses-expenses incurred but unpaid and unrecorded
b. Accrued Income- income earned but remain unrecorded and not
received
2. PREPAID
a. Prepaid Expense- to allocate expenses to two or more accounting
period
i. Also known as pre-collections
ii. 2 methods- expense and asset method
Unused asset xx
Unused expense xx
b. Unearned Income- allocate income to two or more accounting periods
i. Also known as deffered income
ii. 2 methods income and liability method
Unearned income xx
Unearned Revenue xx
3. DEPRECIATION (recognize the amount of used economic benefits)
a. Straight line method

b. Carrying value/ carrying amount- difference between cost and

accumulated depreciation
Depreciation expense xx
Accumulated Depreciation xx
Annual depreciation = cost-residual value= cost-residual value
-------------------------------------------------Estimated life (years)
4. BAD DEBTS (uncollectible amounts)
a. 2 methods direct write-off method and the allowance method
Bad Debts Expense xx
Accounts Receivable xx
b. Recovery of accounts written-off (2 entries are made)
Accounts Receivable xx
Bad Debts Recovery xx
To reinstate account previously written off
Cash xx
Accounts Receivable xx
To record full payment of account
c. Direct method is the only method allowed for income tax purposes
d. Allowance method- uses contra account of accounts
receivable : allowance for Bad debts
Bad Debt Expense xx
Allowance for Bad Debts xx
e. Recovery of accounts written-off (2 entries are recorded)
Allowance for Bad debts xx
Bad Debts Expense xx
Cash xx
Accounts Receivable xx
MEASURING BAD DEBTS EXPENSE
1. An objective evidence of impairment/ loss as a result of one event or more
events
2. Impact on the estimated future cash flows
3. A two-step process- individual assessment & collectible assessment
INDIVIDUAL ASSESSMENT (like normal record of bad debts)
Carrying amount of receivable from DEF company
Less: Present Value of Expected Cash Inflows from DEF
75,000
Impairment loss (bad debts expense)
Entry to record the bad debts expense would be
Bad debts expense 25,000
Allowance for Bad debts expense 25,000

P100,000

25,000

COLLECTIVE ASSESSMENT (Percentage of Receivables/ Aging analysis)

a. Assumes a given percentage of companys receivables to be

uncollected
b. Percentage based from experience
NO BEGINNING BALANCE
Bad Debts Expense
25,000
Allowance for Bad Debts
25,000
WITH BEGINNING BALANCE
Bad Debts Expense
15,000
Allowance for Bad Debts
15,000
AGING ANALYSIS OF RECEIVABLES
1. Premise: the longer the amount is uncollected, more likely it will be
uncollectible
Bad Debt Expense
21,500
Allowance for Bad Debts
21,500
Classification
Amount
Required Allowance
Not yet due
160,000
1-30 days past due 80,000
31-60 days past due
60,000
3,600
61-90 days past due
100,000
Over 90 days past due
100,000
TOTAL
500,000

Bad Debts Percentage

2%

3,200
4%

3,200
6%

8%
10%

8,000
10,000
28,000