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ACCTBA Q2 REVIEWER I.

THE RECORDING PROCESS The Account An account is an individual accounting record of increases and decreases in a specific asset, liability, or owners equity item There are separate accounts for the items we used in transactions such as cash, salaries expense and accounts payable T-account TITLE OF ACCOUNT Debit Credit Normal Balances: Normal Balances: Assets Expenses Drawings Increase in assets Increase in expenses Increase in drawings Decrease in liabilities Decrease in equity Decrease in income o Liabilities Equity Decrease in assets Decrease in expenses Decrease in drawings Increase in liabilities Increase in equity Increase in income Date 2010 Jul 1 GENERAL JOURNAL Account Titles and Ref Explanations Delivery Equipment Cash Accounts Payable Purchased truck for cash with balance on account J1 Debit 14 000 8 000 6 000 Credit

Debit balance Credit balance If the total of debit amounts is bigger than credits, the account has a debit (Dr) balance o If the total of credit amounts is bigger than debits, the account has a credit (Cr) balance Steps in the recording process o Identify the transaction from source documents o Analyse each transaction for its effect on the accounts o Enter the transaction information in a journal o Transfer the journal information to the appropriate account in the ledger

The Ledger Entire group of accounts maintained by a business A general ledger contains all the assets, liabilities and owners equity accounts Standard form of account o A simple T-account for is often useful for illustration purposes and to understand transactions quickly o In practice, account forms in ledgers are more structured Posting o Procedure of transferring journal entries to the ledger accounts o Steps Post to DR account date, journal page, amount Enter DR account number in reference column Post to CR account date, journal page, amount Enter CR account number in reference column The Trial Balance A list of accounts and their balances at a given time The primary purpose of a trial balance is to prove debits = credits after posting If debits and credits do not agree, the trial balance can be used to uncover errors in journalising and posting Steps o List the account titles and their balances o Total the debit and credit columns o Prove the equality of the two columns Limitations o A trial balance does not prove all transactions have been recorded or the ledger is correct o Errors may arise even when DR = CR A transaction is completely omitted A correct journal entry is not posted A journal entry is posted twice Incorrect accounts are used in journalising or posting Offsetting errors are made in recording

The Journal Transactions are initially recorded in chronological order before they are transferred to the ledger accounts Every business has a general journal (but may also have other types of journals) The journal contributes to the recording process by: o Disclosing all effects of transaction in one place o Providing a chronological record of transactions with cross-references o Helping to prevent or locate errors by providing ready comparison of debits and credits Journalising o Process of entering transaction data into the journal o Simple journal entry Involves only two accounts o Compound journal entry Involves three or more accounts

Example (adapted from Ms. Fatima Guerreros Handouts DLSZ) GENERAL JOURNAL Date 2010 May 1 GENERAL JOURNAL Account Titles and Ref Explanations Cash Delivery Equipment Accounts Payable Daf O. Dil, Capital Initial investment 12 Accounts Payable Cash Paid half of the account due for the delivery equipment Cash Loans Payable Bank loan Accounts Receivable Service Income Billed a customer for work done Rent Expense Cash Paid rent 4 1 P 50 000 P 50 000 1 2 4 6 J1 Debit P 176 000 P 90 000 P 20 000 P 246 000 Credit

T-ACCOUNTS CASH Debit P 176 000 P 80 000 DELIVERY EQUIPMENT Debit P 90 000 ACCOUNTS RECEIVABLE Debit P 18 000 ACCOUNTS PAYABLE Debit P 50 000 LOANS PAYABLE Debit P 80 000 DAF O. DIL, CAPITAL P 18 000 P 18 000 SERVICE INCOME Debit Debit Credit P 20 000 Credit P 80 000 Credit Credit Credit P 50 000 P 25 000

13

1 5 3 7

P 80 000

15

Credit P 246 000 Credit P 18 000 RENT EXPENSE Credit

20

8 1

P 25 000 P 25 000 Debit P 25 000

POSTING Date 2010 May 1 13 Particulars Initial investment Bank loan F J1 J1 CASH Debit P 176 000 P 80 000 15 Date 2010 May 1 DELIVERY EQUIPMENT Particulars F Debit Initial investment J1 P 90 000 Date Date 2010 May 12 Particulars Paid half of the account due Paid rent Particulars F Accnt No. 1 Credit P 50 000 2010 May RENT EXPENSE F Debit J1 P 25 000 Accnt No. 8 Credit

Date 15

Particulars Paid rent

Date

Particulars

J1

J1 F

P 25 000

Accnt No. 2 Credit

TRIAL BALANCE
Date Particulars F Accnt No. 3 Credit Daf. O Dil May, 2010 Trial Balance of Totals Accounts Accounts Receivable Cash Delivery Equipment Accounts Payable Loans Payable Daf O. Dil, Capital Service Income Rent Expense Debit P18,000 256,000 90,000 50,000 Credit P75,000 20,000 80,000 246,000 18,000 P439,000 Trial Balance of Balances Debit P18,000 181,000 90,000 30,000 Credit

Date 2010 May 15

ACCOUNTS RECEIVABLE Particulars F Debit Billed a customer for work done J1 P 18 000

Date 2010 May 15

Particulars Paid half of account due

ACCOUNTS PAYABLE F Debit J1 P 18 000

Date 2010 May 1

Particulars Initial investment

Accnt No. 4 Credit P 20 000

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80,000 246,000 18,000 25,000 P344,000 P344,000

Date

Particulars

LOANS PAYABLE F Debit

Date 2010 May 13

Particulars Bank loan

Accnt No. 5 Credit P 80 000

25,000 P439,000

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Date

DAF O. DIL, CAPITAL Particulars F Debit

Date 2010 May 1

Particulars Initial investment

Accnt No. 6 F Credit J1 P 246 000

** NOTE: CHANGE THE HEADERS! Im not exactly sure on how to do them :P Sorry. Im not sure of what we should use in the event we need to create a trial balance.

Date

Particulars

SERVICE INCOME F Debit

Date 2010 May 15

Particulars Billed a customer for work done

Accnt No. 7 Credit P 18 000

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II. REVIEW OF CURRENT AND NON-CURRENT ACCOUNTS Current Assets Cash/cash equivalents o Cash on hand o Cash in bank o Cash equivalents Financial assets at fair value through profit or loss (investment in trading securities) o Stocks and bonds that are held for a short term duration Trade and other receivables o Trade receivables (notes, accounts) o Other receivables (interest, rent) o Allowance for doubtful accounts Inventories o Represents the stock of goods available for sale Prepaid expenses Allowance for bad debts (contra account) Non-current Assets Property, plant and equipment o Used for production of supply of goods and services, for rental to others, or for administrative purposes o Expected to be used during more than one period Long-term investments Intangible assets Accumulated depreciation for non-current assets Other non-current assets Current Liabilities Trade and other payables o Accounts payable, notes payable, interest payable, salaries payable Current portion of long term debt o Partial portion of a long-term debt which is due within twelve months after the reporting period Accrued expenses Unearned revenue to be paid within the year Non-current liabilities Notes payable (long term) Mortgage payable Bonds payable o Usually from five to ten years supported by a formal contract

EXERCISE 4-3 Computations of Financial Statements Component Particulars Accounts Payable Accounts Receivable Accrued Expenses Accrued Income Accumulated Depreciation Equipment Accumulated Depreciation Furniture Accumulated Depreciation Office Building Allowance for Bad Debts Bonds Payable Cash in Bank Cash on Hand Equipment Furniture Interest Payable Interest Receivable Land Mortgage Payable Notes Payable (due after 15 months) Notes Payable (due after 6 months) Notes Receivable Office Building Prepaid Insurance Prepaid Rent Prepaid Supplies Unearned Income TOTAL CA TOTAL NCA TOTAL ASSETS TOTAL CL TOTAL NCL TOTAL LIABILITIES OWNERS EQUITY (A L) Classification CL CA CL CA NCA (-) NCA (-) NCA (-) CA (-) NCL CA CA NCA NCA CL CA NCA NCL NCL CL CA NCA CA CA CA CL Amount P 63 200 74 100 20 300 5 000 20 000 10 000 60 000 42 000 1 500 000 280 000 35 000 175 000 96 000 8 400 17 000 1 500 000 600 000 45 000 90 000 75 000 1 820 000 15 000 56 000 7 000 36 000 P 522 100 3 501 000 P 4 023 100 P 217 900 2 145 000 P 2 362 900 P 1 660 200

REMINDERS: Do not forget to bring the ff: o CALCULATOR o 2-column and 10-column worksheets In presenting your computations, make sure you solve it VERTICALLY. Please dont rely on this reviewer alone! This is just a summarized version of the PowerPoint with added examples and such Good luck!