The Accounting Cycle

GENERAL
OVERVIEW OF
ACCOUNTING
Accounting 102
TTh 6:00pm - 9:00pm
ACCOUNTING Defined
“Accounting is the process of identifying,
measuring and communicating economic
information to permit informed judgment and
decisions by users of the information.”
- American Accounting Association

PHILIPPINE FINANCIAL REPORTING STANDARDS
I. Philippine Financial Reporting Standards
II. Philippine Accounting Standards
III. Philippine Interpretations

FINANCIAL STATEMENTS Defined
“Financial Statements are the means by which
information accumulated and processed in
financial accounting is periodically communicated
to the users.”
FINANCIAL STATEMENTS Components
1. Statement of Financial Position
2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes, comprising a summary of significant
accounting policies and other explanatory notes
REVIEW OF THE
ACCOUNTING
CYCLE
ACCOUNTING CYCLE Defined
 A series of sequential steps or procedures performed to
accomplish the accounting process.
 A collective process of identifying, analyzing, and recording

the accounting events of a company.
 A series of steps that begins when a transaction occurs and

ends with its inclusion in the financial statements.
The Accounting Cycle
1 Identify the events to be recorded.
Record the transactions in the journal

2 .
3 Post journal entries to the ledger.
Prepare a trial balance.

4
Prepare worksheet including adjusting

5 journal entries.
The Accounting Cycle
6 Prepare Financial Statements.
Journalize and post adjusting journal

7 entries.
Journalize and post closing journal

8 entries.
Prepare post-closing trial balance.

9
Journalize and post reversing journal

10 entries.
ACCOUNTING CYCLE Practice Problem
On December 1, ABC Company was incorporated for the principal purpose of rendering auto repair
services. ABC Company has authorized share capital of 100,000 shares at P1.00 par value per share or
P100,000, of which, 25,000 shares were subscribed at par value. Of the total subscription, P6,250 was
already collected upon incorporation.
The following transactions occurred during December:
Dec. 2 D contributed P60,000 cash to ABC Company in exchange for 50,000 shares of common stock.
3 Purchased P12,000 of equipment paying cash.
3 Paid P2,000 for a 4-month insurance policy starting on December 3.
9 Paid P22,000 cash to purchase land to be used in operations.
10 Purchased office supplies on account, P3,300.
19 Borrowed a 6-month, P25,000 loan from the bank for business use. D signed a note payable to
the bank in the name of the Company. The principal and interest is payable in lump-sum upon
maturity.
22 Paid P800 for advertising expenses.
26 Paid P1,000 on account.
28 The Company received a bill for utilities to be paid in January, P320.
31 Revenues earned during the month included P10,000 in cash and P1,200 on account.
31 Paid employees' salaries P2,100 and building rent P950. Record as compound entry.
31 The Company received P2,400 for auto screening services to be performed next month.
31 Cash dividends of P3,000 was paid to shareholders.
ACCOUNTING CYCLE Practice Problem
The Company recorded prepayments and advance sales using the Asset and Liability method,
respectively.
Adjustment data are as follows:
a. Office supplies used during the month, P1,000.

b. Depreciation for the month, P400.
c. One month insurance has expired.
d. Accrued interest expense, P100.
Requirements:
1. Prepare the journal entries.

2. Prepare the adjusting journal entries.
3. Post to T-accounts.
4. Prepare a working trial balance (showing the Unadjusted TB, Adjustments and Adjusted TB)*
5. Prepare Statement of Financial Position and Statement of Comprehensive Income. Note: depreciation
expense, and 50% of rent, salaries and utilities are part of cost of service.
*Seatwork
ACCOUNTING CYCLE Solution
Requirement No. 1 : Journal Entries
Requirement No. 2 : Adjusting Journal Entries
Requirement No. 3 : T-Accounts
For reference, the Company’s chart of accounts are as follows:
 Cash  Additional paid-in capital

 Accounts receivable  Retained earnings
 Prepaid supplies  Service revenue
 Prepaid insurance  Advertising expense
 Land  Supplies expense
 Equipment  Insurance expense
 Accumulated depreciation – equipment  Depreciation expense
 Accounts payable  Salaries and wages
 Accrued expenses  Rent expense
 Notes payable  Utilities expense
 Unearned revenue  Interest expense
 Share capital
Requirement No. 4 : Working Trial Balance
Requirement No. 5 : Statement of Financial Position
Requirement No. 5 : Statement of Comprehensive Income

The Accounting Cycle

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GENERAL

- American Accounting Association

I. Philippine Financial Reporting Standards

II. Philippine Accounting Standards

III. Philippine Interpretations

 A collective process of identifying, analyzing, and recording

 A series of steps that begins when a transaction occurs and

Record the transactions in the journal

3 Post journal entries to the ledger.

Prepare a trial balance.

Prepare worksheet including adjusting

Journalize and post adjusting journal

Journalize and post closing journal

Prepare post-closing trial balance.

Journalize and post reversing journal

The following transactions occurred during December:

Adjustment data are as follows:

a. Office supplies used during the month, P1,000.

1. Prepare the journal entries.

For reference, the Company’s chart of accounts are as follows:

 Cash  Additional paid-in capital

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