Accounting Cycle Updated

ACCOUNTING CYCLE
FRITZ GERALD B. BUENVIAJE, LPT.

Ballada Win, 2012 Basic Accounting
ACCOUNTANCY, BUSINESS AND MANAGEMENT

SHS w/in Nasugbu East Central School 1
Step 1: Identification of events to be recorded
To gather information about
transactions or events generally
through the source documents

Transaction and events are the starting points in the
accounting cycle. By relying on the source documents,
transactions and events can be analyzed as to how they will
affect performance and financial position

Step 2: Transactions are recorded in the journal
To record economic impact of transactions
on the firm journal, which is a form that
facilitates transfer to accounts

Assets Owners Equity
110 Cash 310 Gevera, Capital
120 Accounts Receivables 320 Gevera, Withdrawals
130 Supplies 330 Income Summary
140 Prepaid Rent Income
150 Prepaid Insurance 410 Consulting Revenues
160 Service Vehicle 420 Referral Revenues
165 Accumulated Depreciation Expenses
170 Office Equipment 510 Salaries Expenses
175 Accumulated Depreciation 520 Supplies Expenses
Liabilities 530 Rent Expenses
210 Notes Payable 540 Insurance Expenses
220 Accounts Payable 550 Utilities Expenses
230 Salaries Payable 560 Depreciation Expense – Service Vehicle
240 Utilities Payable 570 Depreciation Expense – Office Equipment
250 Interest Payable 580 Miscellaneous Expense
260 Unearned Referral Revenues 590 Interest Expense 6
The journal is a chronological record of the entity’s transactions
Assume that Esterlina Gevera established her own wedding consultancy
with an initial investment of P250,000.00 on May 1
Date Account Title and explanation P.R Debit Credit
1 2012
2 May 1 Cash 250,000.00

3 Gevera, Capital 250,000.00
4 Initial Investment
5

Rent Paid in Advance (Exchange of Asset)
May 1. Rented office space and paid two months’ rent in advance 8,000
1 2012
2 May 1 Prepaid Rent (A) 8,000.00

3 Cash (A) 8,000.00
4 Paid rent for two months
5

Note Issued for Cash (Source of Assets)
May 2. Issued promissory note for a P210,000.00 loan from Metrobank. The note
carries 20% interest per annum. Interest and principal are payable in full in one year
1 2012
2 May 2 Cash (A) 210,000.00

3 Notes Payable (L) 210,000.00
4 Issued Promissory note 20% per
annum
5

Service Vehicle Acquired for Cash ( Exchange of Asset)
May 4. Acquired service vehicle for P420,000.00

1 2012
2 May 4 Service Vehicle (A) 420,000.00

3 Cash (A) 420,000.00
4 Acquired service vehicle for cash
5

Insurance Premiums Paid ( Exchange of Asset)
May 4. Paid Prudential Guarantee and Assurance, Inc. P14,400.00 for one
year coverage on the service vehicle
1 2012
2 May 4 Prepaid Insurance (A) 14,400.00

3 Cash (A) 14,400.00
4 One year insurance for service
vehicle
5

Office Equipment Acquired ( Exchange and Source of Assets)
May 4.Acquired office equipment from Fair and Square Emporium for P60,000; paying
P15,000 in cash and the balance next month. Note: Compound entry is needed for this
transaction
1 2012
2 May 4 Office Equipment (A) 60,000.00

3 Cash (A) 15,000.00
4 Accounts Payable (L) 45,000.00
5 Acquired office equipment

Supplies Purchased on Account (Source of Asset)
May 8. Purchased supplies on account for P18,000 from San Jose Merch.
1 2012
2 May 8 Supplies (A) 18,000.00

3 Accounts Payable (L) 18,000.00
4 Purchase supplies on account
5

Accounts payable partially settles (Use of Assets
May 9 .Paid San Jose Merch. P10,000.00 of the amount owed

1 2012
2 May 9 Accounts Payable (L) 10,000.00

3 Cash(A) 10,000.00
4 Partial Payment for A/P
5

Revenue Earned and Cash Collected (Source of Assets)
May 10. Coordinated and finalized simple bridal arrangements from three couples and collected fees
of P8,800/couple. Service includes prospecting churches, reception, couturier, caterer, car services,
flowers, souvenirs and invitations.
1 2012
2 May Cash (A) 26,400.00

10
3 Consulting Revenue (OE:I) 26,400.00
4 Earned consultancy fee
5

Salaries Paid (Use of Assets)
May 13. Paid salaries, P6,600.00. The entity pays salaries every two
Saturdays
1 2012
2 May Salaries Expense (OE:E) 6,600.00

13
3 Cash (A) 6,600.00
4 payment for salaries
5

Unearned revenues Collected ( Source of Asset)
May 15. The entity is earning additional revenue by referring consulting clients to
friendly hotels, caterers, printers and couturiers. Received P10,000.00 advance fees for
three clients referred.
1 2012
2 May Cash (A) 10,000.00

15
3 Unearned Referral Revenues (L) 10,000.00
4 Advance payment received for
consulting services
5

Revenues Earned on Account (Source of Assets)
May 19 Coordinated and finalized elaborate bridal arrangements for three couples and billed fees of
P12,000.00 per couple. Additional services includes documents preparation, consultation with a feng
shui expert as to the ideal wedding date for prosperity and harmony, provision of limousine service
and honeymoon trip
1 2012
2 May Accounts Receivable (A) 36,000.00

19
3 Consulting Revenue (OE:I) 36,000.00
4 Rendered service on account
5

Withdrawal of Cash by owners ( Use of Assets)
May 25. Gevera withdrew P14,000.00 for personal use
1 2012
2 May Gevera, Withdrawals (OE) 14,000.00

25
3 Cash (A) 14,000.00
4 cash drawn for personal use
5

Salaries Paid ( Use of Assets)
May 27. Paid salaries, P7,2000.00
1 2012

27
3 Cash (A) 7,200.00
4 Payment of salaries
5

Expenses Incurred but Unpaid (Exchange of Claims)
May 30 .Received the ICC-Bayan Tel telephone bill, P1,400.00
1 2012
2 May Utilities Expense (OE:E) 1,400.00

30
3 Utilities Payable (L) 1,400.00
4 Accrual of telephone bill
5

AR Partially collected ( Exchange of Assets)
May 30 . Received P24,000.00 from two clients billed last May 19
1 2012
2 May Cash (A) 24,000.00

30
3 Accounts Receivables (A) 24,000.00
4 Payments received from consultation
5

Expenses Incurred and paid ( Use of Assets)
May 31 . Settled the electric bill for the month P3,000.00
1 2012
2 May Utilities Expense (OE:E) 3,000.00

31
3 Cash (A) 3,000.00
4 Payment of electric bill
5

Step 3: Journal entries are posted to the ledger
To transfer the information
from the journal to the ledger
for classification

General Journal
CASH
(the book of original entry)
OFFICE EQUIPMENT
Office Equipment xxx
Cash xxx ACCOUNTS PAYABLE
Accounts Payable xxx

Chart of Accounts – A listing of all the accounts and their
account numbers in the ledger
Posting – transferring the amounts from the journal to the

appropriate accounts in the ledger

Account: Cash Account No: 110
Date Explanation J.R Debit Credit
1 2012
2 May 1 Initial Investment J-1 250,000.00 0.00

Account: Gevera, Capital Account No: 310
JOURNAL
Date Explanation J.R Debit Credit
1 2012
1 2012
2 May 1 Initial Investment J-1 250,000.00
2 May 1 Cash 110 250,000.00
3 Gevera, Capital 310 250,000.00
4 Initial Investment
5 ACCOUNTANCY, BUSINESS AND MANAGEMENT
Each account balance is determined by footing (adding) all the debits
and credits
If the sum of an account’s debit is greater than the sum of its credit’s
account has a debit balance
If the sum of its credit is greater, that account has a credit balance

CASH A/R
May 1 250,000.00 May 1 250,000.00 May 19 36,000.00 May 24,000.00
2 210,000.00 4 420,000.00 31
10 26,400.00 4 14,400.00 Bal 12,000.00
15
30
10,000.00
24,000.00
5
9
15,000.00
10,000.00
Supplies
May 8 18,000.00
13 6,600.00
Bal 18,000.00
25 14,000.00
27 7,200.00 Prepaid Rent
31 3,000.00
May 1 8,000.00
520,400.00 498,2000.00
Bal 8,000.00
bal 22,200.00
Service Vehicle Prepaid Insurance

May 4 420,000.00 May 4 14,400.00 30
Bal 420,000.00 Bal 14,400.00

Office Equipment Notes Payable
May 5 60,000.00 May 2 210,000.00
Bal 60,000.00 Bal 210,000.00
Unearned R. Revenue Accounts Payable

May 15 10,000.00 May 9 10,000.00 May 5 45,000.00
Bal 10,000.00 8 18,000.00
10,000.00 63,000.00
Gevera, Capital Bal 53,000.00
May 1 250,000.00
Bal 250,000.00 Utilities Payable
May 30 1,400.00
Gevera, Withdrawals Bal 1,400.00
May 25 14,000.00
31
Bal 14,000.00
Salaries Expense Consulting Revenues
May 13 6,600.00 May 10 26,400.00
27 7,200.00 19 36,000.00
13,800.00 62,400.00
Bal 13,800.00 Bal 62,400.00
Utilities Expense
May 30 1,400.00
31 3,000.00
4,400.00
Bal 4,400.00
32
Step 4: Preparation of Trial Balance
To provide a listing to verify the equality
of debits and credits in the ledger

Cash P 22,200.00
Accounts Receivable 12,000.00
Supplies 18,000.00
Prepaid Rent 8,000.00
Weddings “R” Us
Prepaid Insurance 14,400.00
Service Vehicle
Trial Balance
420,000.00
ForEquipment
Office the month ended May 31, 2012
60,000.00
Notes Payable P 210,000.00
Accounts Payable 53,000.00
Utilities Payable 1,400.00
Unearned Referral Revenue 10,000.00
Gevera, Capital 250,000.00
Gevera, Withdrawals 14,000.00
Consulting Revenue 62,400.00
Salaries Expense 13,800.00
Utilities Expense 4,400.00
34
586,800.00 586,800.00
EXERCISES

37
Step 5: Adjusting Journal Entries are journalized and
posted
To record accruals, expiration of deferrals,
estimations and other events from the
worksheet

PERIODICITY CONCEPT
Accounting information is valued when it is communicated early
enough to be used for economic decision making. To provide
timely information, accountants have divided the economic life
of a business into artificial time periods.
MONTH
1 YEAR
QUARTER
DEFERRALS
The postponement of the recognition of “ an expense already
paid but not yet incurred,” or of “revenue already collected but
not yet earned”.
This adjustment deals with an amount already recorded in a

balance sheet account; the entry, in effect, decreases the
balance sheet account and increases an income statement
account.

DEFERRALS
1. Allocating assets to expenses to reflect expenses incurred
during the accounting period (e.g. Prepaid insurance, supplies
and depreciation)
2. Allocating revenues received in advance to revenue to reflect

revenues earned during the accounting period ( e.g.
subscriptions)

ACCRUALS
Recognition of an expense already incurred but unpaid or

revenue earned but uncollected.
This adjustment deals with an amount unrecorded in any

account; the entry, in effect, increase both the balance sheet
account and income statement account

ACCRUALS
1. Accruing expenses to reflect expenses incurred during the

accounting period that are unpaid and unrecorded
2. Accruing revenues to reflect revenues earned during the

accounting period that are uncollected and unrecorded

ALLOCATING ASSETS TO EXPENSES :PREPAID EXPENSES
BALANCE SHEET As insurance INCOME STATEMENT

Cost of insurance Policies expire and
Policies and Supplies used
Supplies
Assets Revenues
That will benefit Prepaid Expenses
Future Insurance Insurance Expense
periods Supplies Supplies Expense

PREPAID RENT
On May 1, Weddings R Us paid 8,000.00 for 2 months rent in advance
May 31 ADJUSTMENT
1 2012
2 May Rent Expense (OE:E) 4,000.00

31
3 Prepaid Rent (A) 4,000.00
4 To record the expired portion of rent
5

PREPAID INSURANCE
Acquired a one-year comprehensive insurance coverage on the service
vehicle and paid P14,400.00 premium
1 2012 May 4 to 31 is considered

2 May
31
1 (OE:E)
Insurance Expense month 14,400/12 = 1,200.00
3 Prepaid Insurance (A) 1,200.00 1,200.00
4 To record the expired portion of insurance
5

SUPPLIES ADJUSTMENT
After physical count the inventory show 15,000.00 ending balance
1 2012
2 May Supplies Expense (OE:E) 3,000.00

31
3 Supplies (A) 3,000.00
4 To record the adjustments of used
supplies
5

ALLOCATING ASSETS TO EXPENSES :DEPRECIATION
BALANCE SHEET As the useful life INCOME STATEMENT

Cost of a expires
Depreciable
asset Revenues
Assets Expenses
PPE Depreciation

DEPRECIATION
1 2012
2 May Dep. Expense Service Vehicle (OE:E) 4,000.00

31
3 Accu. Depreciation Service Vehicle (A) 4,000.00
4 To record the depreciation of equipment
5

DEPRECIATION
1 2012
2 May Dep. Expense Office Equip. (OE:E) 1,000.00

31
3 Accu. Depreciation Office Equip. (A) 1,000.00
4 To record the depreciation of equipment
5

DEPRECIATION COMPUTATION
Asset cost xxx
Less: Est. salvage value xxx
Depreciable cost xxx
Divided: Est. useful life xxx
Depreciation Expense for each time period

DEPRECIATION COMPUTATION:SV
Asset cost 420,000.00
Less: Est. salvage value (84,000.00)
Depreciable cost 336,000.00
Divided: Est. useful life 7 years/84mos
Depreciation Expense for each time period 4,000.00

DEPRECIATION COMPUTATION:OE
Asset cost 60,000.00
Less: Est. salvage value 0
Depreciable cost 60,000.00
Divided: Est. useful life 5 years/ 60mos
Depreciation Expense for each time period 1,000.00

DEPRECIATION COMPUTATION:BOOK VALUE
Service Vehicle 420,000.00
Less: Accumulated Depreciation ( 4,000.00)
Book Value 416,000.00
Office Equipment 60,000.00

Less: Accumulated Depreciation ( 1,000.00)
Book Value 59,000.00
ALLOCATING REVENUES REC. IN ADVANCE TO REVENUES
BALANCE SHEET As the goods or INCOME STATEMENT

Value of goods services are
Services provided
To be Liabilities
Provided Revenues
Unearned Revenues from_____
In
Revenues
Future
periods

UNEARNED REFERRAL REVENUES
1 2012
2 May Unearned Referral Revenues (L) 4,000.00

31
3 Referral Revenues (OE:I) 4,000.00
4 To record the service income rendered
5
May 15, 10,000.00 advance payment was received, P4,000.00 has been realized

ACCRUAL: ACCRUED SALARIES
Wedding R Us hired to employees, with P300.00 rate/day, started their work last
May 2, 2012. The payment of salaries is scheduled every 2nd Saturday of theSCHEDULED
week
PAYMENT
Sun M T W Th F Sat
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31
PAYABLE

ACCRUED SALARIES
1 2012

31
3 Salaries Payable (L) 1,800.00
4 To record the 3 days salaries of employees
5
May 29 , 30, 31 (3 days payable) = P300 x 2 (employee) x 3 = 1,800.00

ACCRUED INTEREST
1 2012
2 May Interest Expense (OE:E) 3,500.00

31
3 Interest Payable (L) 3,500.00
4 To record the interest incurred for the
month
5
Interest = Principal x Interest Rate x Length of time

Interest = 210,000.00 x 20% x 1/12
Interest = 3,500.00

ACCRUED REVENUE
1 2012
2 May Accounts Receivables (A) 5,300.00

31
3 Consulting Revenues (OE:I) 5,300.00
4 To record the interest incurred for the
month
5
In the afternoon of May 31, Wedding R us arrange a rush simple wedding of a

madly in love couples. The entity intended to charge fees P5,300.00 for the
services. Earned but unbilled.
ADJUSTED TRIAL BALANCE
61
ADJUSTED TRIAL BALANCE
62
WORKSHEET

Step 6: Preparation of Financial Statements
To provide useful information of
financial statements

Step 7: Closing Journal Entries
To close temporary accounts and transfer
profit to owners equity account

STEP 1: CLOSE THE INCOME ACCOUNTS TO INCOME
SUMMARY
STEP 2: CLOSE THE EXPENSE ACCOUNTS TO INCOME

SUMMARY

STEP 3: CLOSE THE INCOME SUMMARY ACCOUNT
TO CAPITAL ACCOUNT
STEP 4: CLOSE THE DRAWING ACCOUNT TO
CAPITAL ACCOUNT

Step 8: Post Closing Trial Balance
To check the equality of debits and
credits after the closing entries
INCLUDED IN THE WORKSHEET

Step 9: Reversing Journal Entries
To simplify the recording of certain
regular transactions in the next
accounting period

Reversing Journal Entries
A reversing entry is a journal entry which is the exact opposite of a related

Adjusting entry made at the end of the period.
Illustration: The accrued salaries recorded on May 31, 2012

ACCRUED SALARIES
1 2012

31
3 Salaries Payable (L) 1,800.00
4 To record the 3 days salaries of employees
5
May 29 , 30, 31 (3 days payable) = P300 x 2 (employee) x 3 = 1,800.00

Reversing Entry
1 2012
2 June 1 Salaries Payable (L) 1,800.00

3 Salaries Expense (OE:E) 1,800.00
4 To record the reversing entry
5

Reversing Entry
1 2012
2 June Salaries Expense (OE:E) 7,200.00

10
3 Cash (A) 7,200.00
4 Payment of salaries
5


Accounting Cycle Updated

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ACCOUNTING CYCLE

FRITZ GERALD B. BUENVIAJE, LPT.

ACCOUNTANCY, BUSINESS AND MANAGEMENT

ACCOUNTANCY, BUSINESS AND MANAGEMENT

ACCOUNTANCY, BUSINESS AND MANAGEMENT

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 1 Cash 250,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 1 Prepaid Rent (A) 8,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 2 Cash (A) 210,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 4. Acquired service vehicle for P420,000.00

2 May 4 Service Vehicle (A) 420,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 4 Prepaid Insurance (A) 14,400.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 4 Office Equipment (A) 60,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 8 Supplies (A) 18,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 9 .Paid San Jose Merch. P10,000.00 of the amount owed

2 May 9 Accounts Payable (L) 10,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May Cash (A) 26,400.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May Salaries Expense (OE:E) 6,600.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May Cash (A) 10,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May Accounts Receivable (A) 36,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 25. Gevera withdrew P14,000.00 for personal use

Date Account Title and explanation P.R Debit Credit

2 May Gevera, Withdrawals (OE) 14,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 27. Paid salaries, P7,2000.00

Date Account Title and explanation P.R Debit Credit

2 May Salaries Expense (OE:E) 7,200.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 30 .Received the ICC-Bayan Tel telephone bill, P1,400.00

Date Account Title and explanation P.R Debit Credit

2 May Utilities Expense (OE:E) 1,400.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 30 . Received P24,000.00 from two clients billed last May 19

Date Account Title and explanation P.R Debit Credit

2 May Cash (A) 24,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

May 31 . Settled the electric bill for the month P3,000.00

Date Account Title and explanation P.R Debit Credit

2 May Utilities Expense (OE:E) 3,000.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

ACCOUNTANCY, BUSINESS AND MANAGEMENT

ACCOUNTANCY, BUSINESS AND MANAGEMENT

Posting – transferring the amounts from the journal to the

ACCOUNTANCY, BUSINESS AND MANAGEMENT

2 May 1 Initial Investment J-1 250,000.00 0.00

ACCOUNTANCY, BUSINESS AND MANAGEMENT

Service Vehicle Prepaid Insurance

Bal 420,000.00 Bal 14,400.00

Unearned R. Revenue Accounts Payable

ACCOUNTANCY, BUSINESS AND MANAGEMENT