by Marriel Fate D.

Cullano, CPA
• The Accounting Standards Council defines
Accounting as follows:
“Accounting is a service activity, whose function
is to provide quantitative information, primarily
financial in nature, about economic entities, that is
intended to be useful in making economic decisions.”
 1. Analyze
business 2. Journalize the
9. Prepare transactions
post-closing transactions
trial balance
3. Post to ledger
accounts
8. Journalize
and post 4. Prepare a
closing entries trial balance

7. Prepare 5. Journalize
financial and post
statements 6. Prepare adjusting
adjusted trial entries
balance
• Transactions are the exchange of goods or services between
entities, as well as other events that have an economic impact on
a business.

• Business transaction is an economic event that causes a change

in the financial position
• This is the process of recording business transactions in a journal.
Journal – called book of original entry
– accounting record in which business transactions
are entered in chronological order

• Journal entries record transaction information; debits equal

credits.
General Journal Entry Format
Date Debit Entry.................................. xx
Credit Entry............................. xx
Explanation.
 Journal Page 1
Post
Date Description Ref. Debits Credits
Jan 1 Cash 5
Revenue 5
Received cash for
services provided.

4 Supplies 12
Accounts Payable 12
Purchased supplies
on account.

10 Accounts Payable 12
Cash 12
Paid for supplies.
• On January 1 of the current year, Mr. P. Rodriguez opened a
tailoring shop which he named “PR Tailoring”. He invested cash,
₱25,000 and sewing equipment, ₱100,000 in the business.
Post
Date Description Ref. Debits Credits

2018
Jan 1 Cash 25,000
Sewing equipment 100,000
P. Rodriguez, Capital 125,000
To record the initial
investment of P.
Rodriguez.
 Posting is the process of transferring amounts
from the journal to the general ledger.
 A ledger is a book of accounts in which data
from transactions recorded in the journals are
posted, classified, and summarized. It is also
called the book of final entry.
 A chart of accounts lists all accounts used by
the company.
ASSETS (100-199) Long-Term Liabilities (220-239)
Current Assets (100-150) 222 Mortgage Payable
101 Cash
105 Accounts Receivable OWNERS’ EQUITY (300-399)
107 Inventory 301 Capital Stock
330 Retained Earnings
Long-Term Assets (151-199)
151 Land SALES (400-499)
152 Building 400 Sales Revenue

LIABILITIES (200-299) EXPENSES (500-599)

Current Liabilities (200-219) 500 Cost of Goods Sold
201 Notes Payable 523 Rent Expense
202 Accounts Payable 528 Advertising Expense
573 Utility Expense
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004
Cash 101 100,000
Capital 301 100,000
Investment by the shareholders

LEDGER - Cash Acc.

Acc.No.
No.101
100

Date Description Ref Debit Credit Debit Credit

Balance Balance
1 Jan 2004
Initial Investment P1 100,000 100,000

LEDGER - Capital Acc.

Acc.
No.No.
301500

Date Description Ref Debit Credit Debit Credit

Balance Balance
1 Jan 2004
Initial investment P1 100,000 100,000
SUMMARY -Normal Balances of Accounts
Category of the Account Increase Recorded Normal Balance
By

Assets Debits Debit

Liabilities Credits Credit

Capital Credits Credit

Dividends or Withdrawals Debits Debit

Revenues Credits Credit

Expenses Debits Debit

 Determine the account balance for each T-
Account.
 A Trial Balance is a listing of all account
balances. It proves the equality of the debits
and the credits in the general ledger.
 XYZ Company
Trial Balance
December 31, 2017

Debits Credits
Cash ₱ 21
Accounts Receivable 15
Inventory 12
Land 200
Accounts Payable ₱ 30
Capital Stock 150
Retained Earnings 24
Sales Revenue 919
Cost of Goods Sold 850
Advertising Expense 10
Misc. Expenses 15 ______
Total ₱ 1,123 ₱ 1,123
Adjusting entries are required at the end of
each accounting period for accrual-basis
accounting, prior to preparing the financial
statements. The purpose for adjusting entries
are to:
 Bring balance sheet accounts current.
 Reflect proper amounts of revenues and
expenses on the income statement.
 Analytical Process. You must determine what
original entry was made (if any) and what the
ending balances should be before you know what
adjusting entry to make. You cannot memorize
adjusting entries.
 Adjusting entries always incorporate a balance
sheet account and an income statement account.
 Adjusting entries never involve a cash account.
• Accrued Revenues--Revenues that have been
earned but not yet recorded.
• Unearned Revenues--Revenues that have been
recorded but not yet earned.
• Accrued Expenses--Expenses that have been
incurred but not yet recorded.
• Prepaid Expenses--Expenses that have been
recorded but not yet incurred.
 Office employees are paid every two weeks. On
December 31, five days’ salaries of an office
employee for ₱300 per day have accrued.

Adjusting Entry:
Salary Expense ₱1,500
Accrued Salaries ₱1,500
Five-day accrued salaries
of an employee for ₱300/day.
 A tenant who occupies the right side of the shop
space, is two months in arrears as of the balance
sheet date. His monthly rental is ₱2,500 per
month.

Adjusting Entry:
Accrued Rent Income ₱5,000
Rent Income ₱5,000
To record accrued rent income.
• After the adjusting entries have been recorded in
the general journal, they should be posted to the
ledger to adjust the accounts.

• After accounts have been posted, an adjusted trial

balance should be prepared to prove the accuracy
of the postings to the general ledger.
A work sheet is a multiple-column form that
may be used in the adjustment process and in
preparing financial statements.
It is a working tool or a supplementary device
for the accountant and not a permanent
accounting record.
Use of a work sheet should make
the preparation of adjusting entries,
financial statements easier.
 ILLUSTRATION: WORK
SHEET
Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Account Titles Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

4. Extend adjusted
1. Prepare
2. Enter 3. Enter balance to appropriate
trial balance
adjustment adjusted columns.
on the
data. balances 5. Calculate income/loss
worksheet.
and complete the
worksheet.
• After the accounts have been adjusted and
worksheet has been constructed, financial
statements are prepared.

• From the worksheet, the income statement can

be prepared by referring to the income
statement columns and the balance sheet
columns of the worksheet
Components of Financial Statements:
1. Statement of Financial Position/Balance Sheet
- formal statement showing the 3 elements
comprising financial position, namely assets,
liabilities and equity

2. Income Statement
- formal statement showing the financial
performance of an entity for a given period of time
Components of Financial Statements:
3. Statement of Changes in Equity
- basic statement that shows the movements in the
elements or components of the shareholder’s equity

4. Statement of Cash Flows

- basic component of the financial statements which
summarizes the operating, investing and financing
activities of an entity

5. Notes, comprising a summary of significant accounting

policies and other explanatory notes
 Real accounts are permanent accounts not
closed to a zero balance at the end of the
accounting period. These accounts are carried
forward to the next period.
 Nominal accounts are temporary accounts that
are closed to a zero balance at the end of each
accounting period.
 Closing entries reduce all nominal accounts to
a zero balance.
1. Updates the owner’s capital account in
the ledger by transferring net income
(loss) and owner’s drawings to
owner’s capital.
2. Prepares the temporary accounts
(revenue, expense, drawings) for the
next period’s postings by reducing their
balances to zero.
ILLUSTRATION: TEMPORARY VERSUS
PERMANENT ACCOUNTS

TEMPORARY (NOMINAL) PERMANENT (REAL)

These accounts are closed These accounts are not closed

All revenue accounts All asset accounts

All expense accounts All liability accounts

Owner’s drawings Owner’s capital account

(Income Statement /
(Balance Sheet Accounts)
Drawings Accounts)
After all closing entries have been
journalized and posted, a post-closing trial
balance is prepared.
The purpose of this trial balance is to prove
the equality of the permanent (balance sheet)
account balances that are carried forward
into the next accounting period.
 Example: Post-Closing Trial Balance
Jim Brewster, Inc.
Post-Closing Trial Balance
December 31, 2017
Debits Credits
Cash ₱ 8,200
Accounts Receivable 4,000
Inventory 3,000
Supplies 1,000
Accounts Payable ₱ 5,000
Capital Stock 10,000
Retained Earnings 1,200
Totals ₱16,200 ₱16,200
Thank you!