ACCOUNTING REVIEWER [SERVICE &  Accounting deals with financial

MERCHANDISING TYPE OF BUSINESS] information and transactions

- Accounting records financial
Accounting transactions and data, classifies
 According to American Accounting
these and finalizes their result given
association (AAA), accounting is the
process of identifying, measuring, and for a specific period.
communicating economic information to  Accounting is an information system
permit informed judgement and decisions - It is recognized and characterized
by users of the information. as a storehouse of information. As a
service function, it collects
 According to American Institute of Certified processes and communicates
Public Accountants (AICPA), defines financial information of an entity.
accounting as the art of recording,
History of Accounting
classifying and summarizing in a
significant manner and in terms money, - Accounting is as old as civilization itself.
transactions, and events which are in part at
It has evolved in response to various
least of a financial character, and interpreting
the results thereof social and economic. Accounting started
as a simple recording of repetitive
 According to Accounting Standards Council exchanges. Seen as indistinguishable
(ASC), sees accounting as a service from the history of finance and business.
activity. Its function is to provide quantitative
information, primarily financial in nature, Cradle of Civilization
about economic entities, that is intended to
be useful in making economic decisions. - Early around 3600 B.C., record-keeping
was already common from
Nature of Accounting Mesopotamia, China and India to
 Accounting is a service activity Central and South America. The oldest
- Accounting assists decision-makers by evidence of this practice was the “Clay
providing them financial reports that Tablet” of Mesopotamia which dealt with
will guide them in coming up with commercial transactions at the time such
sound solutions. as the listing of accounts receivable and
 Accounting is a process accounts payable.
- It performs the specific task of 14th Century “Double-Entry Bookkeeping”
collecting, processing, and - The most important event in accounting
communicating financial information. history is generally considered to be the
In doing so it follows some definite dissemination of double-entry
steps like the collection, recording, bookkeeping by Luca Pacioli (Father of
classification, summarization, Accounting) in 14th century Italy. Pacioli
finalization, and reporting of financial was much revered in his day and was a
data. friend and contemporary of Leonardo da
 Accounting is both Science and Art Vinci. The Italians of the 14th to 16th
- Accounting is the art of recording, centuries are widely acknowledged as
classifying, summarizing, and finalizing fathers of modern accounting and were
financial information arising from the first to commonly use Arabic numerals,
rather than Roman, for tracking business
business transactions, while at the
accounts. Luca Pacioli wrote Summa de
same time, following certain
Arithmetica, the first book published that
standards, principles, and professional
contained a detailed chapter on double-
ethics. entry bookkeeping.
19th Century “Beginnings of Modern Accounting - He was known as the “Father of Modern
in Europe and America” Accounting” as he is the first person to
publish detailed material on the double-entry
- The modern, formal accounting profession
system of accounting.
emerged in Scotland in 1854 when Queen
- Also, he was considered as the “Father of
Victoria granted a Royal Charter to the
Double-Entry Bookkeeping”
Institute of Accountants in Glasgow, creating
the profession of Chartered Accountants BRANCHES OF ACCOUNTING
(CA).
- In the late 1800s, chartered accountants from 1. Financial Accounting - is the broadest
Scotland and Britain came to the US to audit branch and is focused on the needs of
British investments. Some of the accountants external users. It is about preparation of
stayed in the US, setting up accounting general-purpose financial statements with the
practices and becoming the origins of several aim of meeting mos.t of the needs of the
US accounting firms. The first national US external users
accounting society was set up in 1887. The Complete Set of Financial Statements:
American Association of Public Accountants
was the forerunner to the current American  Statement of Financial Position or
Institute of Certified Accountants (AICPA.) “Balance Sheet” (SFP)
 Statement of Comprehensive Income or
Basic purpose of accounting: to supply financial “Income Statement” (SCI)
information to users of the information to help them  Statement of Changes in Equity (SCE)
make informed judgements and better decisions  Statement of Cash Flow (SCF)
 Notes to Financial Statements (NOTES)
Accounting is language of the business: used to
communicate financial information to interested 2. Management (Managerial) Accounting –
parties. Through this, different users of information Managerial Accounting involves financial
understand what is happening in the business analysis, budgeting, and forecasting, cost
enterprise analysis, evaluation of business decisions,
and similar areas. It is concerned with
Bookkeeping - procedural or mechanical aspect
financial reporting for internal users
of accounting and involves set-up, update and
(management) and users have control over
maintenance of accounting records. It can be
the accounting system and can specify
done by properly trained non-accountants
precisely the type of reports needed for use in
Important: Bookkeeping and Accounting are decision-making.
different from one another. Bookkeeping, is just 3. Cost Accounting - sometimes considered as
confined with the recording of monetary a subset of management accounting. Cost
transactions, which is one part of the accounting accounting refers to the recording, presenting,
process. and analysis of manufacturing costs. Cost
accounting is very useful in the manufacturing
Luca Pacioli and the Summa business since they have the most
complicated costing process.
- 1494, Fra Luca Bartolomeo Pacioli wrote a book
4. Tax Accounting - Tax accounting helps
containing discussions on the double-entry
clients follow rules set by tax authorities. It
bookkeeping system entitled Summa de
Arithmetica, Geometria, Proportioni et includes tax planning and preparation of tax
Proportionalita (Everything about Arithmetic, returns which involves the determination of
Geometry, Proportion, and Proportionality), income tax and other taxes. This branch of
summary of the existing mathematical accounting also offers tax advisory services
knowledge at the time. that deal with ways to minimize taxes legally
 (Tax Avoidance), evaluation of the  Employees - employees need the
consequences of tax decisions, and other tax- financial information to help them decide
related matters. whether to stay or leave the company and
 Tax Avoidance - using legal way to look for other employment opportunities.
minimize, reduce or eliminate the taxes due External Users - external users are individuals
(tax minimization) and organizations outside a company who want
 Tax Evasion - using illegal means to financial information about the company. These
minimize taxes. users are not directly involved in managing and
5. Government Accounting – encompasses the operating the business.
process of analyzing, classifying, summarizing
and communicating all transactions involving  Potential Investors - they need the
receipt and disposition of government funds and financial information to help them decide
which business to invest in or whether
property and interpreting the results thereof.
they would or would not buy the share of a
Focus is the proper custody, disposition and
company.
accounting for public funds
 Creditors - creditors, like banks, need the
Auditing financial information to help them decide
on whether they would or would not lend
 External Audit - it refers to the examination money to the business, it also allows them
of financial statements by an independent to negotiate the terms of the loans of the
Certified Public Accountant (CPA) to express business.
an opinion as to the fairness of presentation  Suppliers - suppliers need the financial
and compliance with the Accounting information to help them decide on giving
Standards. the terms of credit for the business. The
 Internal Audit - it deals with determining the information also allows them to assess
operational efficiency of the company whether they would still be doing business
regarding the protection of the company’s with the company or abandoning the
assets, accuracy and reliability of accounting business.
data, and adherence to certain management  Government - Government Agencies,
policies. This focuses on evaluating the such as but not limited to the Bureau of
adequacy of a company’s internal control Internal Revenue (BIR), Local
structure implemented by management. Government Units (LGUs), Securities and
USERS OF ACCOUNTING INFORMATION Exchange Commission (SEC),
Department of Labor and Employment
Internal Users - internal users are those individuals (DOLE), and Department of Trade and
inside a company who plan, organize, and run the Industry (DTI) needs the information to
business. These users are directly involved in help them assess the taxes that should be
managing and operating the business. paid by the business and whether or not
the business complies with the laws, rules,
 Management - management needs the
and regulations imposed by the
financial information to run and operate the
government agencies.
business. The information allows them to
 Customers / Clients - Customers or
analyze the organization’s performance and
Clients need the financial information to
position in order to take appropriate
help them decide whether to stay or find
measures to improve the company.
another business to transact with as they
 Owners - they need the information to
could affect the future of their business,
decide whether to continue and invest further
especially in business to business (B2B)
or stop and withdraw investments from the
settings.
business.
FORMS OF BUSINESS ORGANIZATION
 Business - it refers to an organization or among partners
enterprising entity engaged in commercial, industrial,
or professional activities. They can be for-profit
Corporation - is a business organized as a
entities or they can be non-profit organizations that
separate legal entity (artificial person) under the
operate to fulfill a charitable mission or further social
corporation law with ownership divided into
cause.
transferable shares of stocks. The corporation’s
Forms of Business Organization in the
life starts at the date the Articles of Incorporation
Philippines:
(AOI) is approved/registered by the Securities
 Professional and Exchange Commission (SEC).
 Sole Proprietorship - All owners are called stockholders or
 Partnership shareholders and the power to vote/voting
 Corporation rights for the management of the corporation
 Cooperatives is based on the percentage of their ownership.
The proof of ownership in a corporation is
Types of Business according to Business
evidenced by a stock certificate which is
Activity:
denominated in terms of money. The
 Service management of the business is called the
 Merchandising Board of Directors. They are the ones who
 Manufacturing elect the President or CEO of the corporation.
 Hybrid Advantages Disadvantages
Sole Proprietorship - is a form of business that is - Easy to Raise Capital - It Harder to Set Up
owned by one person; it is the simplest and most - Unlimited life - Higher Taxes
common form of business organization and is - Transfer Ownership - Subject to several
- No personal legal restrictions as
registered in the Department of Trade and Industry
liability/Limited liability listed in the Corporate
(DTI) Code of the Philippines
Advantages Disadvantages
- Easy to Set Up - Unlimited Liability Cooperatives - a cooperative is a duly registered
- Controlled by Owner - Difficult to Raise Capital association of persons with a common bond of
- Tax Incentives - The life of the business is
interest, voluntarily joining together to achieve
- Owner keeps all the limited to the life of the owner.
their social, economic, and cultural needs.
profits
Cooperative members should consist of more
than 15 people. The owners are called members
Partnership - is a form of business owned by two or who contribute equitably to the capital of the
more persons. The details of the arrangement cooperatives (1 member = 1 Voting Power).
between the partners are outlined in a written
Cooperatives should be duly registered to the
document called articles of partnership (AOP) and
Cooperative Development Authority (CDA). The
are registered under the Securities and Exchange
word cooperative should appear in the name of
Commission (SEC). The owners are called partners
the entity.
and the profits of the business are divided among
partners based on their agreed sharing. Advantages Disadvantages
- Enjoys the privilege of - Requires continuous
Advantages Disadvantages
Corporation but with education programs for
- Easy to Set Up - Unlimited Liability
fewer restrictions members
- More Resources - Difficult to Raise Capital
- Promotes the concept - The members have
- Shared Control - Responsible for Partner of sharing resources active and direct
Decisions participation in the
- Enjoys tax exemption
- Tax Advantages - Profits are divided privilege business of the
 cooperative BASIC ACCOUNTING EQUATION
Assets = Liabilities + Owner’s Equity

Types of Business Activities A = L+ OE

Service Business - offers intangible products such Possible effects of business transactions:
as but not limited to professional skills, talents, 1. Increase in assets= increase in liabilities
advice, and consultations 2. Increase in assets = increase in equity
Examples are: 3. Increase in one asset= decrease in another
asset
 Barber Shops 4. Decrease in assets= decrease in liabilities
 Repair Shops 5. Decrease in assets= decrease in equity
 Banks 6. Increase in liabilities= decrease in equity
 Accounting Firms 7. Increase in equity = decrease in liabilities
 Law Firms 8. Increase in one liability= decrease in
another liability
Merchandising Business - also known as Buy and 9. Increase in one equity= decrease in one
Sell or Trading buys their products, preferably at equity
wholesale, and later sells them at a higher price.
They make a profit by selling the merchandise or In accounting, we follow the concept of Duality &
products at prices that are higher than their Equilibrium. This means that every event or
purchase cost. transaction of the business will affect at least two
things in the business.
Examples are:
Duality - Kapag meron kang natanggap, may
 Bookstores
ibibigay kang kapalit. For example, Bumili ka ng
 Sari-Sari Store
T-shirt kaya mawawalan ka ng pera dahil
 Supermarket pinangbayad mo.
 Hardware Store
 Shoe Store Equilibrium - Kung magkano yung natanggap
 Shopee & Lazada mo, dapat equal sa ibibigay na kapalit. For
example, 100 pesos yung T-Shirt, kaya
Manufacturing Business - this type of business magbabayad ka ng 100 peso bill sa seller para sa
buys raw materials and uses them in making a new 100 pesos na T-Shirt. Balance palagi, parehas
product, therefore combining raw materials, labor nagkaroon, parehas din nawalan.
and expenses to produce a product that they will
sell. Monetary Unit - currency (₱) sign. UNIT in terms
of money. All transactions that are recorded are
Examples are: only those with economic or monetary value.
 Shoe Manufacturing Business Economic Benefits - are benefits that can be
 Car Manufacturing Business quantified in terms of money generated, such as
 Unilever, Apple, Samsung net income, revenues, etc. It can also be money
saved when discussing a policy to reduce costs.
Hybrid Type of Business - businesses that may be (May pakinabang pa sayo pero kung wala nang
classified under more than one type of business. pakinabang, hindi na siya considered as Asset)
Examples are: Cost Principle - maintains the cost of an asset. It
 Bakery must be recorded the original cost of an asset and
 Restaurants should not be recorded at Fair Market Value or
Future Value. (Kapag bumili ka ng Asset,
irerecord mo yung nabili mo especially, kung 6. Stable monetary unit: it is concerned with
magkano mo nabili, depende kung mababa or information which can be quantified and
mataas. Kung magkano mo binili, ganun pa rin ang expressed in terms of money. For business
price. Total cost ng mga ginastos para dun sa isang transactions to be included in the accounting
item, mga charge, mga transportation, etc). records and financial statements of the
enterprise, it must be expressed in terms of a
Basic Accounting Concepts
uniform means of measurement
1. Business entity principle: business is 7. Periodicity (Time Period Concept):
considered distinct and separate from the operating life of an enterprise may be
owner(s) of the business conveniently divided into time periods of
 Accounting entity - an organization equal length called accounting periods.
accounted for as a separate economic unit
Accounting Framework
2. Dual-effect of business transactions:
whenever a business transaction takes place, it  The Framework for the Preparation and
is assumed that the value receive is equal to the Presentation of Financial Statements sets
value given up (for every value received, there out the concepts that underlie the
is an equal value given up) Debit-Credit preparation and presentation of financial
3. Matching principle: profit or loss is computed statements for external users
by deducting the expenses incurred from the  The Framework is not part of the PFRS
income earned during an accounting period. and in case of conflict, the requirements of
Income recorded and reported in one the PFRS shall prevail over those of the
accounting period should be matched against Framework
the expenses that directly or indirectly
Financial statement - the means by which the
contributed to the generation of the income
information accumulated in and processed by
4. Accrual basis: income is recognized when it is
financial accounting is communicated to users on
earned, regardless of when cash is received.
a periodic basis and is the end-product of the
Expenses are recognized when incurred,
financial accounting process
regardless of when cash is paid
 If services have already been rendered to a Parts of:
customer, income is recognized even if cash
has not been received from the customer 1. Financial Position: assets, liabilities
 If cash is received from customer before a and equity
service is rendered or goods are delivered, 2. Comprehensive Income: Income and
income is not yet earned because there is no expenses
service or delivery of goods yet. The cash 3. Changes in Equity: capital, additional
received would be earned only upon investments and withdrawals
rendering of service or delivery of the goods 4. Cash flows: any activity that results in
 If services have already been received by the inflow or outflow of money or resources
business from its suppliers, expenses are 5. Notes to the financial statements
recognized even if these services have not Information Provided by Financial Statements
yet been paid for by the business
 If cash has already been paid by the  Information about the financial position,
business to its suppliers, an expense is not financial performance and cash flows of an
recorded until it is incurred entity
5. Cash basis of Accounting: income is
1. Financial Position
recognized when cash is received, and
expenses are recognized when cash is paid  Condition of a business, in monetary terms,
(extra concept sometimes used by other as of a given date or point in time and is
businesses) primarily provided in a statement of financial
position or balance sheet. Financial position
 is affected by the economic resources - Additional information that is relevant to
controlled, financial structure,, liquidity, the need of financial statement users.
solvency, and capacity to adapt to changes in May include:
the environment in which an enterprise operates a) disclosures about the risk and
uncertainties concerning the
Liquidity - availability of cash in the near future to
enterprise and any resources and
cover currently maturing liabilities or obligations
obligations not recognized in the
Solvency- availability of cash over the long term to statement of financial position
meet obligations when they fall due b) information about geographical and
industry segments
Capacity for adaptation - ability of the enterprise to
use its available cash for unexpected requirements c) effects on the enterprise of
and investment opportunities or simply called as changing prices
emergency money
General-Purpose Financial Statements
2. Performance or profitability
- financial statements that meet most of
Refers to whether a company is able to generate the needs of other users
profit or incur a loss during a particular accounting  Special-purpose financial statements -
period and is used for statement of comprehensive covered by management accounting and
income. auditing courses.

 2 parts: profit/loss portion and other Underlying Assumptions in the Preparation of

comprehensive income portion. Financial Statements

Income statement - useful tool for evaluating Underlying assumptions -concepts which are
management’s stewardship of the resources of the assumed to have been applied in preparing
enterprise and for assessing the inflow and outflow financial statements
of cash.
 Accrual basis
3. Changes in financial position  Going concern

Information concerning changes about a company’s Elements of Financial Statements

financial position is useful in order to assess its
A. Elements pertaining to financial position
investing, financing and operating activities during
the reporting period. This information provides 1. Assets - resource owned and/or
users with a basis to assess the enterprise’s ability controlled by the enterprise and expected
to generate cash and cash equivalents and the to provide future economic benefits to the
needs of the enterprise to utilize those cash flows enterprise. It is acquired by an enterprise
as a result of a past transaction or event.
Statement of changes in equity - shows balance of
The enterprise should have the capacity
the owner’s investment in the business at the
to restrict or prevent other entities from
beginning of the accounting period, additional
enjoying the economic benefits arising
investments made by the owner, withdrawals by the
from the use of the resource or item
owner for personal use, the profit or loss for the
period, and the balance of the owner’s investment at  Cash - items considered as medium of
the end of the accounting period exchange in business transactions
 Accounts receivable - valid claims from
Statement of cash flows - summarizes cash
customers or clients arising from the
activity for the period, classified according to the
provision of services or delivery of goods
nature of activity
in the ordinary course of business where
4. Other supplementary information the price for these services or goods have
not yet been paid
  Supplies on hand - supplies purchased by course of the ordinary activities of an
an enterprise which are unused as of the enterprise
reporting date 2. Expenses - decrease in economic
 Merchandise Inventory - goods which have benefits during the accounting period in
been bought from suppliers for resale to the form of outflows or depletions of
customers at a higher price than cost assets or incidences of liabilities that
 Property , plant and equipment - long-lived result in decreases in equity other than
assets which have been acquired for use in those relating to distributions to equity
operation participants.
 Losses - other items that meet the
2. Liabilities - present obligation of the definition of expenses and may or may not
enterprise arising from past events, which arise in the course of the ordinary
are to be settled in the future. It is required activities of the enterprise.
to be settled in the future
Measurement of the Elements of the Financial
 Accounts payable - amounts due to Statements
suppliers for goods purchased or services
received on account - Process of determining the monetary
 Salaries payable - due to employees which amounts at which the elements of the
are unpaid as of the reporting date financial statements are to be
 Utilities payable - due to utility companies recognized and carried in the financial
for electricity, heat, light and water charges statements
 Advances from customers - amounts Measurement Bases
received from customers in advance for
delivery of goods or provision of services  Historical cost: assets are recorded at
 Loans payable - obligations of an enterprise the amount of cash or cash equivalents
to lenders paid or the fair value of the consideration
given to acquire them at the time of their
3. Equity - claim; residual interest in the acquisition
assets of the enterprise after deducting all  Current cost: assets are carried at the
its liabilities and arise from the original amount of cash or cash equivalent they
investment by an owner into the business would have to be paid if the same or an
and increased by additional investments by equivalent asset was acquired currently
the owners and by profit earned during a  Realizable (settlement) value: assets are
period carried at the amount of cash or cash
B. Elements pertaining to performance or equivalent that could currently be obtained
profitability by selling the asset in an orderly disposal
 Present value: assets are carried at the
1. Income - increase in economic benefits present discounted value of the future net
during the accounting period in the form of cash inflows that the item is expected to
inflows or enhancements of assets or generate in the normal course of business
decreases of liabilities that result in the
increase of equity other than those a relating Business transaction - exchange of values
to contributions from equity participants involving two parties or within the enterprise

 Revenue - course of the ordinary activities of External transactions - sale of goods to

an enterprise (sales, fees, dividends, customers or the provision of services to clients
royalties and rent) Internal transactions - manufacture of goods for
 Gain - other items that meet the definition of sale and incurrence of losses by the company
income and may or may not arise in the resulting from fire and flood
Source Documents against others which arise in the ordinary
course of doing business
 Original record of a business transaction
 Trade notes receivable - written promise
(date and nature of transaction amount and
from the customer to pay a fixed amount
parties involves)
of money on a certain future date
Examples:  Non-trade receivables - all other claims
which are not trade
1. Sales invoice - issued to evidence a sale for
 Inventories - assets which are held for
cash
sale/ in the process of production/ in the
2. Delivery receipt - evidence the
form of materials and supplies
acceptance/receipt of the goods delivered to
 Prepaid expenses - expenses paid for by
the customer
the business in advance. (e.g. prepaid
3. Official receipt - issued to evidence the
insurance and prepaid rent)
receipt of cash from customers
 Long-term investments - asset held by
4. Vendor’s invoice - issued to the enterprise
an enterprise for the accretion of wealth
by the enterprise’s suppliers
through capital distribution for capital
5. Purchase requisition forms - evidences an
appreciation or for other benefits to the
employee’s request for the purchase of
investing enterprise
needed goods or suppliers
6. IOUs - phonetic spelling of the phrase 'I Owe  Property, plant and equipment - tangible
You’, it is a note acknowledging assets used in the production or supply of
indebtedness to the enterprise goods or services
7. Promissory notes - unconditional promise in  Intangible assets - identifiable, non-
writing made by one person to another monetary assets without physical
8. Bank statements - summary of all financial substance
transactions occurring over a certain period 2. Liability Accounts
on a bank account
9. Minutes of meetings - record of a meeting  Accounts payable - opposite of
10. Business letters - business accounts receivable
correspondences  Notes payable - enterprise is the one
11. Job time tickets - time spent working at a who promises to pay
particular customer order  Accrued liabilities - amounts owed to
12. Certificates of stock - ownership of shares others for unpaid expenses
in a corporation  Unearned revenues - enterprise
13. Time records/timesheets - time-in and time- receives payments before providing its
out of employees customers with goods or services
14. Check voucher - authorization of cash  Mortgage payable - used for recording
disbursement transactions long-term debts of an enterprise
15. Journal voucher - documents used for  Bonds payable - large sums of money
transactions and journal entries for which are often required by a business for
there is no other source document working capital and expansion purposes
1. Asset Accounts and is often obtained by floating bonds

 Cash - medium of exchange for business

transactions
 Held for trading securities - temporary
investments of excess cash which are
primarily held for short-term gain
 Loans and receivables – trade receivables
and non-trade receivables and are claim
3. Equity Accounts 1. For every debit entry, there must be a
corresponding credit entry and accounting
 Equity - used to record the original and equation must always be maintained
additional investments of the owner of the
business entity 2. Each transaction affects at least two
accounts
 Withdrawals - when proprietor withdraws
cash or other assets for non-business use 3. Total debit for a transaction must equal
 Income summary - temporary account total credits
used to summarize all income and
4. An account is debited when an amount is
expenses for a given period entered on the left side of the account and
4. Income Accounts credited when amount is entered on the
right side
 Service income or fees income -
5. The account type determines how
revenues earned by performing services for
increases or decreases in it are recorded
customers
 Sales - revenues earned as a result of sale Account Balances
of merchandise
- Difference between the total debits and the
5. Expense Accounts total credits of each account

 Cost of sales - cost incurred to purchase or Debit balance - if total debits are greater than the
to produce the products sold to customers total credits
during the period
Credit balance - if the total credits are greater than
 Salaries and wage expense - payments as the total debits
a result of an employer- employee
relationship Normal balance - usual balance of an account
 Utilities expense- expenses related to use assuming proper accounting has been made
of communication facilities, the consumption
ACCOUNTING FOR SERVICE BUSINESS
of water and electricity
 Rent expense- expense for leased office Steps in Accounting Cycle:
space, equipment or other assets rented
1. Analyzing business transactions through
from others
source documents
 Supplies expense- account used for 2. Journalizing, or the recording of
recording the usage of supplies in the transactions in a journal
normal course of business 3. Posting or transferring of the entries from
 Insurance expense- portion of premiums the journal to the ledger
paid on insurance coverage which has 4. Preparing the trial balance
expired 5. Preparing the 10-column worksheet and
 Depreciation expense- the portion of the making the necessary adjusting journal
cost of a tangible asset allocated or charged entries
as expense during as accounting period 6. Preparing the financial statements based
on adjusted account balances
 Bad debts expense- amount of receivables
7. Recording adjusting entries to the journal
estimated to be uncollectible and charged and posting the same to the ledger
as expense during an accounting period 8. Recording and posting of closing entries
 Interest expense- expense related to 9. Ruling and balancing real and nominal
borrowed funds accounts
10. Preparing post-closing trial balance
11. Preparing reversing entries (OPTIONAL)

Double-Entry Accounting System

THE ACCOUNTING PROCESS 6. Duplication of Entries – the entry is
duplicated
1. Documentation – Analyzing phase
7. Compensation Errors – an error has
2. Journalizing – Recording phase
been compensated by offsetting entry that
3. Posting – Classifying phase
is also an error (Maling entry na itinatama
4. Preparation of Unadjusted Trial balance
gamit ang isa pang maling entry >_<)
– Classifying phase, 1st trial balance
5. Adjustments – Adjusting entries
6. Preparation of Adjusted Trial balance – Working-Back Method
Summarizing, 2nd trial balance
1. Check if amount is doubled on debit or
7. Preparation of Financial Statements –
credit side
Summarizing, preparation of worksheet
2. Trans placement error - e.g. 1M -> 100,000
8. Post-closing entries – Summarizing,
3. Transposition error - when position of
closing entries
numbers are mixed (e.g. 535,700 ->
9. Post-closing Trial balance – Summarizing,
553,700)
3rd trial balance
10. Reversing entries – optional, beginning of
the next accounting period
Journal - book where transactions are initially
recorded in a systematic and chronological order;
also called the book of original entry.
Simple journal entry - one account debited and
one account credited
Compound journal entry - more than one account
is involved in a single entry
Memorandum entry - an entry which has no debit
or credit, which shows only the date and a brief
explanation or reminder
Chart of accounts - list of all accounts of the
business and their respective account numbers.
Use of this would reduce confusion as to the choice
of account titles and permits uniformity in recording
routine transactions
Ledger - group of accounts and known as the book
of final entry
Trial balance - list of all accounts and their
balances and indicated whether total debit equals
total credit. It does not guarantee that all
transactions have been recorded. It is commonly
taken every month-end
Footing - adding all the debits and credits
Open account - when in trial balance, there is a
balance either on the debit or credit side
Closed account - if the debit equals credit
Cumulative Records – continuous tally to which
new data are added.
Reasons Why Trial Balance may not be
Balance:
1. Errors of Omission – leave out of exclude
a transaction
2. Errors of Commission – this type of error
does not have any effect on financial
statements (ex. Nagmadali kaya namali ng
account title)
3. Errors of principle – accounting entries is
recorded in incorrect account
4. Errors of Original Entry – resulted when
wrong amount is posted to an account
5. Reversal of Entry – when accounting
entry is posted in wrong direction (Debit or
Credit)
ACCOUNTING FOR MERCHANDISING
BUSINESS