ACCOUNTING CYCLE REVIEWER

TERMS
1.GOING CONCERN ASSUMPTION- This means that the business will continue to operate indefinitely,
unless otherwise stated.

2. BASIC ACCOUNTING PRINCIPLES

• Accrual basis- revenue or income is recognized when earned regardless when receive and
expense are recognized when incurred regardless of when paid
• Accounting entity concept- business entity as one accounting entity, separate and distinct from
owners of that business.
• Time period- indefinite life of entity is subdivided into time period.
• Monetary unit assumption- quantifiability (records should state in terms of money) and stability
(purchasing power of the currency is stable)

3. ELEMENTS OF ACCOUNTING
• ACCOUNTS- descriptive storage unit used to collect and store information of similar nature.
• CHARTS OF ACCOUNTS- a list of all accounts used by business. Recording, cross-referencing and
retrieval of information.

TYPES DEFINITION CURRENT NON-CURRENT

1.ASSET • Resources with • Cash, • Long term

economic value • cash equivalents, investment
that individual, • accounts receivable, • Property, plant and
corporation • notes receivable, equipment
owns. • allowances for bad • Accumulated
• A tangible or • depts, inventories, depreciation
intangible used • prepaid expense • intangibles
to produce.
2.LIABILITIES • company depts • Accounts payable • Mortgage payable
• bank loans, • Notes payable • Bonds payable
mortgage, unpaid • Accrued expense
bills • Unearned revenue
• Current portion of
long term

3.CAPITAL- financial resources that business used to fund operations like cash, machinery,
equipment, and other resources.
• Initial/additional contributors, Withdrawals, Income, and Expense
• ACCOUNTING EQUATION (A=L+C) EXPANDED EQUATION (A=L+C-W+I-E)

• EFFECTS OF TRANSACTIONS ON ACCOUNT

1.increase in one account, decrease in another account
2.increase in one account, increase in another account
3.decrease in one account, decrease in another account

EXAMPLE PROBLEM (RJ Catering Services)

RJ Sanchez, a chef, decided to venture in the food industry. At the end of 2021, he decided to
put up a catering service business. Below are the transactions of RJ Catering Services for 2021:

Chart of Accounts: Cash, Notes Receivable, Accounts Receivable, Allowance for Doubtful
Accounts, Interest Receivable, Office Supplies, Prepaid Rent, Cooking Equipment,
Accumulated Depreciation, Accounts Payable, Unearned Catering Fees, Sanchez, Capital,
Sanchez, Withdrawal, Catering Fees, Interest Income, Catering Expenses, Salaries
Expense, Utilities Expense, Rent Expense, Office Supplies Expense, Doubtful Accounts
Expense, Depreciation Expense

Sept 1 Invested cash of P1,850,000 and cooking equipment worth P1,500,000 into the
business.
Sept 1 Paid in advance the rent of the building used as an office place for P187,500.
Prepaid rent was debited upon payment.
Sept 14 Purchase office supplies of 54,600 on account.
Oct 3 Spent P58,570 catering expenses in preparation for a big event to be catered by
RJ Catering Services
Oct 13 Received P118,350 from customers during the big event catered by the business
that day.
Oct 18 RJ Catering Services received P96,000 as an advance payment from a client.
Income Method was used in recording the transaction
Oct 27 Incur P77,200 that will cover all the catering expenses for November and
December’s catering services.
Nov 1 Catered an event for P156,000. The customer paid only 60% of the price and
issued a note for the remainder.
Nov 9 Rendered catering service to a client on credit, P85,400.
Nov 25 Paid P55,600 of the amount owed for the catering expenses incurred on
October 27.
Dec 7 Received P32,900 from the client on November 9.
Dec 15 RJ Sanchez withdrew P45,000 for personal use
Dec 30 Paid salaries of employees and utilities amounting to P88,000 and P43,750
respectively.
STEP1: JOURNAL ENTRY
• Recording transaction in chronological order
• Simple (one debit and one credit) and compound (one or more debit and credit)
• Include date, particulars, PR, Amounts, explanation

RJ Catering Services
General Journal
December 31, 2021

DATE DEBIT CREDIT

PARTICULARS PR
2021
Sep-01 Cash ₱1,850,000
Cooking equipment ₱1,500,000
Sanchez, Capital ₱3,350,000
To record investment by owner

Prepaid rent 187,500

Cash
187,500

Sep-14 Office supplies 54,600

Accounts payable 54,600

Oct-03 Catering Expenses 58,570

Cash 58,570

Oct-13 Cash 118,350

Catering fees
118,350

Oct-18 Cash 96,000

Catering fees 96,000

Oct-27 Catering Expense 77,200

Accounts payable 77,200

Nov-01 Cash 93,600

Notes receivable 62,400
 Catering Fees
156,000

Nov-09 Accounts receivable 85,400

Catering Fees 85,400

Nov-25 Accounts payable 55,600

Cash 55,600

Dec-07 Cash 32,900

Account receivable 32,900

Dec-15 Sanchez, Withdrawal 45,000

Cash 45,000

Dec-30 Salaries expense 88,000

Utilities expense 43,750

Cash
131,750

STEP 2:POSTING TO LEDGER

• Classify journal entries into different accounts
• All transaction of account is grouped into single T account
• Transfer entries from journal to ledger

Cash
01-Sep ₱ 1,850,000 ₱ 187,500 01-Sep
13-Oct 118,350 58,570 03-Oct
18-Oct 96,000 55,600 25-Nov
01-Nov 93,600 45,000 15-Dec
MAHIRAP ILAAG SA WORD ANG
07-Dec 32,900 131,750 30-Dec
LEDGER HAHA GETS MONAMAN
ATA NI. TAS NASA CLASSROOM
MAN NI

₱ 2,190,850 ₱ 478,420
₱ 1,712,430
STEP 3:UNADJUSTED TRIAL BALANCE
• The ending balance of the accounts will be summarized to make a report called unadjusted trial
balance
• Listing of general ledger account balances at the end of accounting period.

SAMPLE (RJ Catering Services)

Account Title Debit Credit

₱
Cash
1,712,430
Notes Receivable 62,400
Accounts Receivable 52,500
Office Supplies 54,600
Prepaid Rent 187,500
Cooking Equipment 1,500,000
Accounts Payable ₱ 76,200
Sanchez, Capital 3,350,000
Sanchez, Withdrawal 45,000
Catering Fees 455,750
Catering Expense 135,770
Salaries Expense 88,000
Utilities Expense 43,750
Totals ₱3,881,950 ₱3,881,950
STEP 4:ADJUSTING ENTRIES
• Update the accounts in the accounting system and bring them to their correct balances. It is made at
the end of accounting period
Below are related information in the business transactions of RJ Catering Services as of
December 31, 2021.

COMPOSITION OF ADJUSTING ENTRY

• Nominal Accounts (temporary accounts)- an account whose balance is measure from period to
period.
• Real approach (permanent accounts)- a balanced that is measured cumulatively, rather than period
to period.

1. ACCRUALS- revenues earned or expense incurred that cash related transaction has not yet changed
hands
• ACCRUED REVENUE/INCOME- income is already earned but not yet recorded because it is
still uncollected.

Receivable account xxxx

Income account xxxx

• ACCRUED EXPENSE- expense already incurred but not yet recorded because it is still unpaid
Expense account xxxx

Liability/ payable account xxxx

2. DEFERRALS- accounting parlance, pertains to advance payments or collection of cash. Pertain

prepaid expense or pre collected income.

• PREPAID/DEFFRED EXPENSE- business pay for expense in advanced, this is recognized as an

asset until benefits for such expenses is consumed.

1. ASSET METHOD (Expired portion)- prepaid expense account is recorded when the
amount is paid.
Expense account xxxx

Prepaid expense xxxx

2. EXPENSE METHOD (unexpired portion)- expense account is recorded when amount

is paid.
Prepaid expense xxxx

Expense account xxxx

 • UNEARNED/DEFFERED INCOME- payment received for goods or services which has not
yet been earned

1.LIABILITY METHOD (Real approach- earned)- unearned income account is recorded

when the amount is received.
Unearned income xxxx

Income account xxxx

2.INCOME METHOD (Nominal approach- unearned)- income account is recorded when the
amount is collected.
Income account xxxx

Unearned income xxxx

3. DEPRECIATION- reduction in the value of asset due to usage and passage of time. Applicable to all
property, plant, and equipment.
• Straight line method
Depreciation= cost – salvage or residual value/useful life
Depreciation expense xxxx

Accumulated depreciation xxxx

4.ALLOWANCE FOR DOUBTFUL ACCOUNTS- pertains portion of receivables that are doubtful to
collection.
• Percentage of sales method
• Percentage of receivable method
• Aging of receivable
Doubtful account expense xxxx

Allowances for doubtful account xxxx

Bad depts expense xxxx

Allowance for bad depts xxxx

SAMPLE PROBLEM OF ADJUSTING (RJ Catering Services)

1. The notes received on November 1 has a 7% interest rate.

2. According to the contract, the prepaid rent covers 15 months rental period.
3. 20% of the supplies purchased remained unused at year-end.
4. The cooking equipment was purchased on September 1, 2021 with a useful life of 12 years
and a residual value of P150,000.
5. Only P63,800 was actually earned on the advance payment received from the customer.
6. Allowance for doubtful accounts is estimated to be 3% of accounts receivable.

DATE DEBIT CREDIT

PARTICULARS PR
2021
1 Interest receivable ₱ 728
Interest income ₱ 728

Rent expense
2
50,000
Prepaid rent
50,000

3 Office supplies expense

43,680
Office supplies
43,680

4 Depreciation expense
37,500
Accumulated depreciation
37,500

5 Catering fees
32,200
Unearned catering fees
32,200

6 Doubtful accounts expense

1,575
Allowance for doubtful accounts
1,575
 STEP 5: 10 COLUMN WORKSHEET
• a columnar template that helps accountants and bookkeepers plan and facilitate the end of period
reporting process. It also helps eliminate errors associated with end of the period adjustment.
• Unadjusted trial balances
• Adjustments (adjusting entries)
• Adjusted trial balance- show updated balances after adjusting entries. Summarizes all current
balances available in general ledger.
• Income statement (revenues and expense)- if the credit sides is larger there will be a positive
net profit and if the debit is larger than credit sides then it is a net loss.
• Balances sheet (asset and liabilities)
RJ Catering Services
Worksheet
December 31, 2021

Unadjusted Trial Balance Adjustment

Account Title Debit Credit Debit Credit

Cash ₱ 1,712,430
Notes Receivable 62,400
Accounts Receivable 52,500
Allowance for Doubtful
Accounts ₱ 1,575
Interest Receivable ₱ 728
Office Supplies 54,600 43,680
Prepaid Rent 187,500 50,000
Cooking Equipment 1,500,000
Accumulated Depreciation 37,500
Accounts Payable ₱ 76,200
Unearned Catering Fees 32,200
Sanchez, Capital 3,350,000
Sanchez, Withdrawal 45,000
Catering Fees 455,750 ₱ 32,200
Interest Income 728
Catering Expense 135,770
Salaries Expense 88,000
Utilities Expense 43,750
Rent Expense 50,000
Office Supplies Expense 43,680
Doubtful Accounts Expense 1,575
Depreciation Expense 37,500
Totals ₱3,881,950 ₱3,881,950 ₱ 165,683 ₱ 165,683
Profit
Totals
 Adjusted Trial Balance Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit

₱ 1,712,430 ₱ 1,712,430
62,400 62,400
52,500 52,500
₱ 1,575 ₱ 1,575
728 728
10,920 10,920
137,500 137,500
1,500,000 1,500,000
37,500 37,500
76,200 76,200
32,200 32,200
3,350,000 3,350,000
45,000 45,000
423,550 ₱ 423,550
728 728
135,770 ₱ 135,770
88,000 88,000
43,750 43,750
50,000 50,000
43,680 43,680
1,575 1,575
37,500 37,500
₱ 3,921,753 ₱ 3,921,753 ₱ 400,275 ₱ 424,278 ₱ 3,521,478 ₱ 3,497,475
₱ 24,003 24,003
₱ 424,278 ₱ 424,278 ₱ 3,521,478 ₱ 3,521,478
 STEP 6: FINANCIAL STATEMENT
• Are the means by which the information accumulated and processed in financial
accounting is periodically communicated to users

SAMPLE PROBLEM (VILLAREY TRAVEL AGENCY) WORKSHEET

VILLAREY TRAVEL AGENCY
Worksheet
December 31, 2021
Unadjusted Trial Balance Adjustments

Account Title Debit Credit Debit Credit

Cash ₱ 126,000

Accounts Receivable 645,000

₱
Prepaid Rent 360,000 120,000

Office Supplies 63,000 36,000

Furniture 2,175,000

Accumulated Depreciation ₱ 435,000 75,000

Notes Payable 900,000
Accounts Payable 285,000

Salaries Payable 105,000

Interest Payable 54,000

Villarey, Capital 1,680,000
Vilarey, Drawing 1,200,000
Travel Revenues 5,133,000
Travel Expenses 3,771,000

Miscellaneous Expense 93,000

Rent Expense ₱ 120,000
Office Supplies Expense 36,000
Depreciation Expense 75,000

Salaries Expense 105,000

Interest expense 54,000
Total ₱ 8,433,000 ₱ 8,433,000 ₱ 390,000 ₱ 390,000
Profit
Total
Adjusted Trial Balance
Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit

₱126,000 ₱ 126,000

645,000 645,000

240,000 240,000

27,000 27,000

2,175,000 2,175,000

₱510,000 ₱510,000

900,000 900,000

285,000 285,000

105,000 105,000

54,000 54,000

1,680,000 1,680,000

1,200,000 1,200,000

5,133,000 ₱5,133,000

3,771,000 ₱3,771,000

93,000 93,000

120,000 120,000

36,000 36,000

75,000 75,000

105,000 105,000

54,000 54,000

₱8,667,000 ₱8,667,000 ₱4,254,000 ₱5,133,000 ₱ 4,413,000 ₱3,534,000

879,000 879,000

₱5,133,000 ₱5,133,000 ₱ 4,413,000 ₱4,413,000

1. INCOME STATEMENT (from the worksheet)

VILLAREY TRAVEL AGENCY

Income Statement
For the year ended December 31, 2021

Revenues
Travel Revenues ₱ 5,133,000
Interest Income 0
Total Revenues ₱ 5,133,000
Expense
Travel expense ₱ 3,771,000
Miscellaneous Expense 93,000
Rent Expense 120,000
Office Supplies Expense 36,000
Depreciation Expense 75,000
Salaries Expense 105,000
Interest Expense 54,000
Total Expense ₱ 4,254,000
Profit ₱ 879,000

2. STATEMENT OF CHANGES IN EQUITY- summarizes the change that occurred in

owners’ equity.

VILLAREY TRAVEL AGENCY

Statement of Changes in Equity
For the year ended December 31, 2021

Villarey, Capital ₱ 1,680,000

Add: Additional investment of Villarey ₱ 0
Profit: 879,000 879,000
Total 2,559,000
Less: Villarey Drawing 1,200,000
Villarey, Capital, 12/31/2021 ₱ 1,359,000
3. STATEMENT OF FINANCIAL POSITION- show the financial condition by listing the
assets, liabilities, and owners’ equity as at a specific date.

VILLAREY TRAVEL AGENCY

Statement of Financial Position
As of December 31, 2021

ASSET
Current Assets
Cash ₱ 126,000
Accounts Receivable 645,000
Prepaid Rent 240,000
Office Supplies 27,000
Total Current Asset ₱ 1,038,000
Noncurrent Asset
Furniture 2,175,000
Less: Accumulated Depreciation 510,000 1,665,000
Total Assets ₱ 2,703,000

LIABILITIES AND OWNERS’ EQUITY

Current Liabilities
Notes Payable ₱ 900,000
Accounts Payable 285,000
Salaries payable 105,000
Interest Payable 54,000
Total of Current Liabilities ₱ 1,344,000
Owners’ Equity
Villarey, Capital 12/31/2021 ₱ 1,359,000
Total Liabilities and Owner's Equity ₱ 2,703,000
4. STATEMENT OF CASH FLOW- provide information about the cash receipts(inflow)
and cash payment(outflow) from operating, investing, and financing activities.

SAMPLE (MARTHY LIU COMPANY)

 Marthy Liu Company
Statemen of Cash Flows
For the year ended December 31, 2021

Cash flow from operating Activities

Cash Received from customer ₱ 500,000
Received from rent income 65,000
Payment for operating expense (195,000)

Payment for taxes and license (5,600)

Payment for employees (108,000)
Payment for utilities (45,500)
Payment of interest in bank loan (4,000)
Net Cash provided by (used in) operating activities ₱ 206,900

Cash flow from Investing Activities

Proceed from sale of equipment 35,000
Proceeds from sale of furniture 5,000
Payment of purchased equipment (₱ 25,600)
Net Cash provided by (used in) investing activities ₱14,400

Cash flow from financing Activities

Cash received as investment of owners ₱ 125,000
Proceeds of bank loan 300,000
Principal of Bank Loan (200,000)
Payments for withdrawal of Marthy Liu (40,000)
Net cash provided by (used in) financing activities ₱185,000

Net increase (decrease in cash) 406,300

Cash balance at the beginning of the period 150,400

Cash balance at the end of the period ₱ 556,700
 STEP 7: COMPLETION OF THE ACCOUNTING CYCLE
1.. CLOSING ENTRIES- Temporary accounts such as income, expenses, and withdrawal are closed
at the end of the period.
• Close the income accounts
• Close the expense account
• Close the income summary account
• Close withdrawal account

EXAMPLE (VILLAREY TRAVEL AGENCY)

Date DEBIT CREDIT

PARTICULARS

Dec-31 Travel Revenues ₱ 5,133,000

Income Summary ₱ 5,133,000
to close income accounts

Income Summary 4,254,000

Travel Expense 3,771,000
Miscellaneous Expense 93,000
Rent Expense 120,000
Office Supplies Expense 36,000
Depreciation Expense 75,000
Salaries Expense 105,000
Interest Expense 54,000
to close expense account

Income Summary 879,000

Villarey, Capital 879,000
to close income summary account

Villarey Capital 1,200,000

Villarey, Withdrawal 1,200,000
To close withdrawal
2.POST-CLOSING TRIAL BALANCE- verifies all the depts equal the credits in the trial
balance. Listing of all balances at the end of reporting period.

VILLAREY TRAVEL AGENCY

Post-Closing Trial Balance
December 31, 2021

Cash ₱ 126,000
Accounts Receivable 645,000
Prepaid Rent 240,000
Office Supplies 27,000
Furniture 2,175,000
Accumulated Depreciation ₱ 510,000
Notes Payable 900,000
Accounts Payable 285,000
Salaries Payable 105,000
Interest Payable 54,000
Villarey Capital 1,359,000
Total ₱ 3,213,000 ₱ 3,213,000

3. REVERSING ENTRIES- journal entry which is the exact opposite of a related adjusting
entry.
• Accrued income
• Accrued expense
• Prepayment (expense method)
• Deferred income (income method)

EXAMPLE (VILLAREY TRAVEL AGENCY)

Salaries payable ₱105,000
Salaries Expenses ₱105,000

Interest Payable 54,000

Interest Expense 54,000
5. CORRECTING ENTRIES- to rectifying and correcting the incorrect entries previously made.
• Slide- wrong decimal point
• Transposition- 2 digits are reversed in an amount
• Omission- no entry had been made
• Duplication- recorded twice
• Incorrect account- incorrect used of account
SAMPLE PROBLEM

Date DEBIT CREDIT

PARTICULARS PR
a Accounts Receivable 16,650
Cash 16,650

b Prepaid Rent 36,000

Cash 36,000

c Service Revenue 25,000

Cash 25,000

d Accounts payable 99
Cash 99

e Notes Receivable 18,500

Cash 18,500
 ACCOUNTING CYCLE
1.JOURNAL ENTRY
2.POSTING IN LEDGER
3. UNADJUSTED TRIAL BALANCE
4.ADJUSTING ENTRIES
5.10 COLUMN WORKSHEET (adjusted trial balance, income statement,
balance sheet)
6.FINANCIAL STATEMENT (Income statement, statement of change in
equity, statement of financial position, statement of cash-flow)
7.COMPLETION OF ACCOUNTING CYCLE (closing entries, post-closing trial
balance, reversing entries, correcting entries)

GOOD LUCK.