COMPLETING THE

ACCOUNTING CYCLE
Accounting Process
1 Analyzing Business Transaction 7 Preparing the financial statements

2 Journalizing 8 Adjusting entries

3 Posting 9 Closing entries

4 Preparing a Trial Balance 10 Post-closing trial balance

Gathering of necessary
5 11 Reversing entries
adjustment data
6 Preparing a worksheet
Financial Statements

Financial statements are structured

representation of the financial position and
financial performance of an entity.
Financial Statements

Financial statements are structured

representation of the financial position and
financial performance of an entity.
Prescribed
format
Financial Statements

Financial statements are structured

representation of the financial position and
financial performance of an entity.
Prescribed Assets, Liabilities,
format and Capital
Financial Statements

Financial statements are structured

representation of the financial position and
financial performance of an entity.
Prescribed Assets, Liabilities, Income,
format and Capital Expenses
Complete Set of Financial Statements

Statement of Financial
Statement of Cash Flows
Position
Asset = Liabilities + Owner’s Equity Operating, Investing, Financing Receipts and Disbursements

Statement of Profit or Loss Notes to Financial

(Comprehensive Income) Statement
Financial Performance Additional information

Statement of Changes in
Equity
Movement of Equity: Capital Contributions, Drawing, Profit/Loss
Statement of Profit or Loss
(Income Statement)
Formats of Income Statement
Function of Expense* Nature of Expense
Net Sales P xxx Net Sales P xxx
Cost of Sales (xxx) Other Income xx
Gross Profit P xxx Total Revenue Pxxx
Other Income xx Changes in Inventories (xx)
Selling Expenses (xx) Net Purchases (xx)
Administrative Expense (xx) Salaries Expense (xx)
Finance Costs (xx) Rent Expense (xx)
Net Income P xxx Advertising Expense (xx)
*Required to disclose nature of expenses in the notes to financial statements.
Other Expenses (xx)
Finance Costs (xx)
Net Income P xxx
Income Statement Debit Credit
Sales 457,500
Sales returns and allowances 5,950
Function of Expense
Sales discount 3,550 Net Sales P xxx
P 448,000
Purchases 270,000 (xx)
Cost of Sales (257,600)
Purchase returns and allowances 5,050
Purchase discounts 2,450 Gross Profit P 190,400
P xxx
Transportation-in 3,100
Other Income xx
10,400
Sales Salaries Expense 37,625
Advertising Expense 12,500 Selling Expenses (xx)
(61,775)
Depreciation – Store Equipment 3,750
Administrative Expense (41,675)
(xx)
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625 Finance Costs (xx)
(5,800)
Miscellaneous Selling Expense 800 Net Income P 91,550
P xxx
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700 Selling expenses are the costs associated
Depreciation Expense – Office Equipment 1,900 with distributing, marketing and selling a
Office Supplies Expense 675 product or service.
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500
Sales returns and allowances 5,950
Sales discount 3,550
Purchases 270,000 The Green Valley Merchandising
Purchase returns and allowances 5,050 Statement of Income
Purchase discounts 2,450 For the Year Ended December 31, 2023
Transportation-in 3,100
Sales Salaries Expense 37,625
Net Sales P 448,000
Advertising Expense 12,500
Depreciation – Store Equipment 3,750 Cost of Sales (257,600)
Store Supplies Expense 1,475 Gross Profit P 190,400
Uncollectible Accounts Expense 5,625
Other Income 10,400
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575 Selling Expenses (61,775)
Rent Expense 13,000 Administrative Expense (41,675)
Insurance Expense 2,700
Finance Costs (5,800)
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Net Income P 91,550
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Review Question
Function of expense in presenting Income Statement include what separate
line items?
a Purchases, transport costs, employee benefits, depreciation,
extraordinary items
b Purchases, distribution costs, administrative costs, employee
benefits, depreciation, taxes
c Depreciation, purchases, transport costs, employee benefits and
advertising costs
d Cost of goods sold, Selling Expense, and Administrative Expense
Statement of Changes in Equity
Balance Sheet Debit Credit
Cash 39,000

Accounts Receivable 56,750

Allowance for bad debts 5,625

Merchandise Inventory 98,000 The Green Valley Merchandising

Prepaid Insurance 2,150
Statement of Changes in Equity
For the Year Ended December 31, 2023
Store Supplies 650

Office Supplies 375

Store Equipment 66,000 P xxx

Capital, January 1, 2022 P 77,300
Accumulated Depreciation – Store Equipment 23,900
Add: Net Income for the year xxx
91,550
Office Equipment 25,000

Accumulated Depreciation – Office Equipment 10,500 Total P 168,850

P xxx
Accounts Payable 33,350
Less: Drawing 20,000
xxx
Salaries Payable 2,500
Capital, December 31, 2023 P148,850
P xxx
Unearned Rent 10,200

Notes Payable 52,500

Ramos, Capital 77,300

Ramos, Drawing 20,000

Statement of Financial
Position (Balance Sheet)
 The Green Valley Merchandising
Account Form Statement of Financial Position
As of December 31, 2023

Assets Liabilities
Current Assets Current Liabilities
Cash P39,000 Accounts Payable P33,350

Accounts Receivable 50,625 Salaries Payable 2,500

Merchandise Inventory Unearned Rent 10,200

98,000
Total Current Liabilities P46,050
Prepaid Insurance 2,150
Store Supplies 650
Non-Current Liabilities
Office Supplies 375
Notes Payable (due 2025) 52,500
Total Current Assets P 190,800
Non-Current Assets
Total Liabilities P98,550
Store Equipment P 42,100
Office Equipment Capital
14,500
Total Non-Current Assets 56,600 G. Ramos, Capital P148,850

Total Assets P247,400 Total Liabilities and Capital P247,400

Balance Sheet Debit Credit
Cash 39,000 The Green Valley Merchandising
Statement of Financial Position
Accounts Receivable 56,250
As of December 31, 2023
Allowance for bad debts 5,625

Merchandise Inventory 98,000

Current Assets
Prepaid Insurance 2,150
Cash P39,000
P xxx
Store Supplies 650
Accounts Receivable P56,250
P xxx
Office Supplies 375
Less: Allowance for Doubtful
Store Equipment 66,000 Accounts 5,625
xxx 50,625
xxx
Accumulated Depreciation – Store Equipment 23,900 Merchandise Inventory 98,000
xxx
Office Equipment 25,000 Prepaid Insurance 2,150
xxx
Accumulated Depreciation – Office Equipment 10,500 Store Supplies 650
xxx
Accounts Payable 33,350 Office Supplies xxx
375
Salaries Payable 2,500 Total Current Assets Pxxx
P190,800
Unearned Rent 10,200

Notes Payable 52,500

Ramos, Capital 77,300

Ramos, Drawing 20,000

Balance Sheet Debit Credit
Cash 39,000 The Green Valley Merchandising
Statement of Financial Position
Accounts Receivable 56,750
As of December 31, 2023
Allowance for bad debts 5,625

Merchandise Inventory 98,000

Current Assets P190,800
Prepaid Insurance 2,150
Non-Current Assets
Store Supplies 650
Store Equipment P66,000
P xxx
Office Supplies 375
Less: Accumulated Depreciation 23,900
xxx 42,100
xxx
Store Equipment 66,000

Accumulated Depreciation – Store Equipment 23,900

Office Equipment P25,000
P xxx
Office Equipment 25,000 xxx
Less: Accumulated Depreciation 10,500
xxx 14,500
Accumulated Depreciation – Office Equipment 10,500 Total Non-Current Assets xxx
56,600
Accounts Payable 33,350
Total Assets P xxx
P247,400
Salaries Payable 2,500

Unearned Rent 10,200

Notes Payable 52,500

Ramos, Capital 77,300

Ramos, Drawing 20,000

Balance Sheet Debit Credit
Cash 39,000 The Green Valley Merchandising
Statement of Financial Position
Accounts Receivable 56,750
As of December 31, 2023
Allowance for bad debts 5,625

Merchandise Inventory 98,000

Current Liabilities
Prepaid Insurance 2,150
Accounts Payable P33,350
P xxx
Store Supplies 650
Salaries Payable xxx
2,500
Office Supplies 375
Unearned Rent xxx
10,200
Store Equipment 66,000
Total Current Liabilities P46,050
P xxx
Accumulated Depreciation – Store Equipment 23,900

Office Equipment 25,000 Non-Current Liabilities

Accumulated Depreciation – Office Equipment 10,500 Notes Payable (due 2025) xxx
52,500
Accounts Payable 33,350

Salaries Payable 2,500

Total Liabilities P98,550
P xxx
Unearned Rent 10,200
Capital
Note Payable (due 2025) 52,500
G. Ramos, Capital P xxx
P148,850
Ramos, Capital 77,300

Ramos, Drawing 20,000 Total Liabilities and Capital P247,400

P xxx
 The Green Valley Merchandising
Account Form Statement of Financial Position
As of December 31, 2023

Assets Liabilities
Current Assets Current Liabilities
Cash P39,000 Accounts Payable P33,350

Accounts Receivable 50,625 Salaries Payable 2,500

Merchandise Inventory Unearned Rent 10,200

98,000
Total Current Liabilities P46,050
Prepaid Insurance 2,150
Store Supplies 650
Non-Current Liabilities
Office Supplies 375
Notes Payable (due 2025) 52,500
Total Current Assets P 190,800
Non-Current Assets
Total Liabilities P98,550
Store Equipment P 42,100
Office Equipment Capital
14,500
Total Non-Current Assets 56,600 G. Ramos, Capital P148,850

Total Assets P247,400 Total Liabilities and Capital P247,400

Review Question
Which of the following assets should be presented as current asset?

a Prepaid insurance
b Office equipment
c Store Equipment
d Land and Building
Closing Entries
Closing Entries

Closing entries are entries made at the

end of the accounting period to bring all
the balances of temporary or nominal
accounts to zero.
Income Statement Debit Credit
Sales 457,500 Sales 457,500
Sales returns and allowances 5,950
Sales discount 3,550
Purchases 270,000
Purchase returns and allowances 5,050
Purchase discounts 2,450
Transportation-in 3,100
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation – Store Equipment 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500 Sales 457,500
Sales returns and allowances 5,950 Purchase returns and allowances 5,050
Sales discount 3,550
Purchases 270,000
Purchase returns and allowances 5,050
Purchase discounts 2,450
Transportation-in 3,100
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation – Store Equipment 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500 Sales 457,500
Sales returns and allowances 5,950 Purchase returns and allowances 5,050
Sales discount 3,550 Purchase discounts 2,450
Purchases 270,000
Purchase returns and allowances 5,050
Purchase discounts 2,450
Transportation-in 3,100
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation – Store Equipment 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500 Sales 457,500
Sales returns and allowances 5,950 Purchase returns and allowances 5,050
Sales discount 3,550 Purchase discounts 2,450
Purchases 270,000
Rent Revenue 10,400
Purchase returns and allowances 5,050
Purchase discounts 2,450
Transportation-in 3,100
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation – Store Equipment 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500 Sales 457,500
Sales returns and allowances 5,950 Purchase returns and allowances 5,050
Sales discount 3,550 Purchase discounts 2,450
Purchases 270,000
Rent Revenue 10,400
Purchase returns and allowances 5,050
Income Summary 475,400
Purchase discounts 2,450
Transportation-in 3,100
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation – Store Equipment 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500 Sales 457,500
Sales returns and allowances 5,950 Purchase returns and allowances 5,050
Sales discount 3,550 Purchase discounts 2,450
Purchases 270,000
Rent Revenue 10,400
Purchase returns and allowances 5,050
Income Summary 475,400
Purchase discounts 2,450
To close income and expenses accounts
Transportation-in 3,100
with credit balances
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation – Store Equipment 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense – Office Equipment 1,900
Office Supplies Expense 675
Miscellaneous Administrative Expense 825
Rent Revenue 10,400
Interest Expense 5,800
Income Statement Debit Credit
Sales 457,500 Income Summary 391,850
Sales returns and allowances 5,950 Sales returns and allowances 5,950
Sales discount 3,550 Sales discount 3,550
Purchases 270,000 Purchases 270,000
Purchase returns and allowances 5,050 Transportation-in 3,100
Purchase discounts 2,450 Sales Salaries Expense 37,625
Transportation-in 3,100
Advertising Expense 12,500
Sales Salaries Expense 37,625
Depreciation – Store Equipment 3,750
Advertising Expense 12,500
Store Supplies Expense 1,475
Depreciation – Store Equipment 3,750
Uncollectible Accounts Expense 5,625
Store Supplies Expense 1,475
Miscellaneous Selling Expense 800
Uncollectible Accounts Expense 5,625
Office Salaries Expense 22,575
Miscellaneous Selling Expense 800
Rent Expense 13,000
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700

Insurance Expense 2,700 Depreciation Expense – Office Equipment 1,900

Depreciation Expense – Office Equipment 1,900 Office Supplies Expense 675

Office Supplies Expense 675 Miscellaneous Administrative Expense 825
Miscellaneous Administrative Expense 825 Interest Expense 5,800
Rent Revenue 10,400 To close income and expenses accounts with
Interest Expense 5,800
debit balances
Balance Sheet Debit Credit
Cash 39,000 Income Summary 91,550
Accounts Receivable 56,250 G. Ramos, Capital 91,550
Allowance for bad debts 5,625 To close the net income to capital
(475,400 - 391,850)
Merchandise Inventory 98,000

Prepaid Insurance 2,150

Store Supplies 650

Office Supplies 375

Store Equipment 66,000

Accumulated Depreciation – Store Equipment 23,900

Office Equipment 25,000

Accumulated Depreciation – Office Equipment 10,500

Accounts Payable 33,350

Salaries Payable 2,500

Unearned Rent 10,200

Notes Payable 52,500

Ramos, Capital 77,300

Ramos, Drawing 20,000

Balance Sheet Debit Credit
Cash 39,000 Income Summary 91,550
Accounts Receivable 56,750 G. Ramos, Capital 91,550
Allowance for bad debts 5,625 To close the net income to capital
(475,400 - 391,850)
Merchandise Inventory 98,000

Prepaid Insurance 2,150

G. Ramos, Capital 20,000
Store Supplies 650 G. Ramos, Drawing 20,000
Office Supplies 375 To close the owner’s drawing account
Store Equipment 66,000

Accumulated Depreciation – Store Equipment 23,900

Office Equipment 25,000

Accumulated Depreciation – Office Equipment 10,500

Accounts Payable 33,350

Salaries Payable 2,500

Unearned Rent 10,200

Notes Payable 52,500

Ramos, Capital 77,300

Ramos, Drawing 20,000

Review Question
What account facilitates the closing of the nominal accounts?

a Income Summary Account

b Drawing Account
c Capital Account
d Net Income Account
Post-Closing Trial Balance
 The Green Valley Merchandising
Post Closing Trial Balance
For the Year Ended December 31, 2023
Debit Credit
Cash 39,000
Accounts Receivable 56,250 Only balance sheet accounts will have
Allowance for bad debts 5,625 balances at the end of the accounting period.
Merchandise Inventory 98,000 The post-closing trial balance will only consist
Prepaid Insurance 2,150 of real or permanent accounts (balance sheet
Store Supplies 650
accounts)
Office Supplies 375
Store Equipment 66,000
Accumulated Depreciation – Store Equipment 23,900
Office Equipment 25,000
Accumulated Depreciation – Office Equipment 10,500
Capital, January 1, 2022 P 77,300
Accounts Payable 33,350
Salaries Payable 2,500 Add: Net Income for the year 91,550
Unearned Rent 10,200 Total P 168,850
Notes Payable 52,500
Less: Drawing 20,000
G. Ramos, Capital 148,850
Total 287,425 287,425 Capital, December 31, 2022 P148,850
Reversing Entries