ABM 1 COURSE PACK - WITH EXCEL DISCUSSION Lesson 3

LESSON 3:
ACCOUNTING CYCLE STEP 1-4: STEP 1 - ANALYSIS

OF TRANSACTIONS AND RULES OF DEBIT AND
CREDIT, STEP 2 - JOURNALIZING TRANSACTIONS,
STEP 3 - POSTING TO THE LEDGER AND STEP 4 -
TRIAL BALANCE
LEARNING OUTCOMES
At the end of the lesson, the learners will be able to:

✓ Determine, identify and analyze business transactions concerning
application of debit and credit rules.
✓ Acquire knowledge on accounting equation and recording
transactions.
✓ Journalize transactions.
✓ Familiarize the proper use of a ledger under the manual accounting
systems and develop skills in posting process.
✓ Prepare a trial balance and determine errors in the trial balance.
WHAT IS THIS LESSON ABOUT?
Hello! This is Build. Welcome to our first destination. In this destination, you
will encounter analyzing transactions. We will now pass the incredible writing
journey of transactions. On the next corner of the journey we will have the lesson
requires you to foot for the debit and credit balances of each account in the ledger.
You will post the journal entries to each T-accounts. These lessons requires the
concepts of your former lessons. Have fun!
TIME FRAME
The content of this lesson is intended to be converted in a single period of 5 to

6 hours depending on the interest, availability of time and scope of understanding.
ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 25

ACTIVITY: Let’s do this!
Activity 1:
Recognizing the Normal Balances and the balances when increase or decrease.
Account Titles Normal Balance Increase Decrease

Cash in Bank
Interest Income
Interest Expense
Accounts Payable
Unearned Retainer Income
Repairs and Maintenance
Petty Cash Fund
Insurance Expense
Advances to Employees
Notes Payable
Unused office supplies
Commission Income
Cash on Hand
Office Supplies Expense
Land
Let us Think!
Answer the following Questions:

1. What are the purpose of journalizing?
2. Why there is a need to post the journal to the ledger?
3. How is a trial balance be not balance?

ABSTRACTION: Let Us Learn!
The Accounting Cycle

There are 10 steps in the accounting process.
1. Analyzing the Business Transactions
2. Journalizing Transactions
3. Posting to the ledger
4. Trial Balance Preparation
5. Adjusting Entries
6. Worksheet
7. Financial Statements
8. Closing Entries
9. Post-Closing Trial Balance
10. Reversing Entries
Accounting Cycle Step 1 - Analysis of Transactions and Rules of Debit and Credit
The definition of accounting mentioned four major activities that will involve
in accounting. These four phases of accounting structured to simplify and organize
business transactions to create a detailed form of output to present to the users of
information. These four phases are:
1. Recording (Journalizing)– this is the phase of accounting which involves the

routine and mechanical process of writing down the business transactions and
events in the books of accounts in a chronological manner called “Journalizing”.
Before recording transactions and events, it should be identified, analyzed and

measured first.
a. Identifying - there should be a basis of determining whether the business
transactions are really business transactions. Only those transactions with
financial bearing to the business should be recognized.
b. Analyzing – in every transaction, there should be a dual effect or an
exchange, the value received and the value parted with.
c. Measuring – assigning of monetary values involved in a transaction using
the common financial dominator which is peso.
2. Classifying (Posting)– it involves sorting or groupings of similar transactions and

events into their respective kind and classes.
3. Summarizing – it is the part of doing the trial balance, adjusting entries in the
worksheet and the preparations of closing entries, post-closing trial balance and
reversing entries.
4. Interpreting – it is where the financial statements are then analyzed, interpreted

and is communicated to those users of information for decision making.

Business Transactions are Exchanges of equal monetary values for which the following
implies concept of understanding:
1. for every value received, another value is given away as an exchange;

2. these values are measured in terms of pesos which are presumed to be equal.
Hence, in every transaction, there is a value received (debit) and value parted with
(credit).
The Double-Entry System (Debit and Credit)
Accounting is based on a double entry system which means that the dual effects of a
business transaction is recorded. This means that in every debit side entry, there must
be a corresponding credit side. Every transaction concerning one or more accounts
debited and one or more account credited, each total debit transactions must always
equal the total credits.
Balance sheet is based on the double-entry accounting system where the total assets of
a company are equal to the total liabilities and shareholder equity.
For a company keeping accurate accounts, every single business transaction will be
represented in at least two of its accounts. For instance, if a business takes a loan from
a financial entity like a bank, the borrowed money will raise the company's assets and
the loan liability will also rise by an equivalent amount. If a business buys raw material
by paying cash, it will lead to an increase in the inventory (asset) while reducing cash
capital (another asset).
Increases recorded by Normal Balance

Account Category Debit Credit Debit Credit
Assets ̸ ̸
Liabilities ̸ ̸
Owner’s Equity
Owner’s Capital ̸ ̸
Withdrawals ̸ ̸
Income ̸ ̸
Expenses ̸ ̸
To easily determine the normal balance of each account, just remember this pattern:
Assets, Withdrawals, Expenses (AWE) - Normal Balance is Debit
Liabilities, Owner’s Equity, Income (LOEI) – Normal Balance is Credit
Transactions may have effect as follows:
Increase in Assets = Increase in Liabilities
Increase in Assets = Increase in Owner’s Equity
Increase in one Asset = Decrease in another Asset
Decrease in Assets = Decrease in Liabilities
Decrease in Assets = Decrease in Owner’s Equity
Increase in Liabilities = Decrease in Owner’s Equity
Increase in Owner’s Equity = Decrease in Liabilities
Increase in one liability = decrease in another liability
Increase in one Owner’s Equity = Decrease in another Owner’s Equity

Basic Steps in Analyzing Transactions
1. Identify the transactions from the source documents.

2. Indicate the accounts-either assets, liabilities, equity, income or expenses affected
by the transaction.
3. Ascertain whether each account is increased or decreased by the transaction.
4. Use the rules of debit and credit, determine whether to debit or credit the account
to record its increase or decrease.
Source Documents – These are original written evidences that contain information
about the nature and amount of the transactions. (Example: Official Receipt issued by
a legitimate store)
Business transactions are analyzed from the point of view of the business. Remember
that transaction is made by the business (separate entity), it means that it is the business
who bought, sell, pay and collect. The value received or the debit is always determined
first before the value parted with or credit.
Let’s work on this!

Transaction – “Bought a car for cash, the amount of the car is P650,000.”
1. What is the value received?
Ans.: Car
2. What is the Value Parted With?
Ans.: Cash
In the given example above, the debit is the car because it is the value we received, and
the credit is the cash because it is the value we parted in exchange of the car.
We shall now say,
Debit- Car P650,000
Credit Cash P650,000
In a much clearer presentation, consider these series of transactions of a service

concern industry.
Transaction 1: Initial Investment

Transaction: Mr. Dilig deposited P250,000 in a bank account in the of the business.
Analysis: Assets increased Owner’s Equity increased.
Rules: Increases in assets are recorded by debits. Increases in owner’s equity are
recorded by credits. (Remember the debit accounts and credit accounts all the time;
Debits- Assets, Withdrawals and Expenses; Credits – Liabilities, Owner’s Equity and
Revenue)
Entry: Increase in asset is recorded by a debit to cash. Increase in Owner’s Equity is

recorded by a credit to Dilig, Capital.
Cash (Asset) P250,000
Dilig, Capital (Owner’s Equity) P250,000

Transaction 2: Tables and Chairs Acquisition
Transaction: Mr. Dilig bought chairs and a table paying cash, P6,700 to Mandaue
Furnitures.
Analysis: Assets increased. Assets decreased.
Rules: Increases in Assets are recorded in debit while decreases in assets are recorded
in credit.
Entry: Increase in Assets is recorded by a debit to Furniture and Fixtures, and decrease
in Assets is recorded by a credit to cash.
Furniture and Fixtures P6,700
Cash P6,700
Transaction 3: Acquisition of Supplies

Transaction: Bought Laundry Supplies on Account from Choice Store amounting to
P3,250.
Analysis: Assets increased. Liabilities increased.
Rules: Increased in Assets are recorded in Debit while the increased in Liabilities is
recorded in credit.
Entry: Increase in Assets is recorded by a debit to Supplies, and increase in liabilities

is recorded by a credit in Accounts Payable.
Supplies P3,250
Accounts Payable P3,250
Transaction 4: Rent Payment

Transaction: Paid rent for the month, P5,750.
Analysis: Expenses increased. Assets decreased.
Rules: Increase in Expense is recorded at Debit and decrease in assets is recorded at
credit.
Entry: Increase in expenses is recorded by debit to rent expense and decrease in asset
is recorded by credit to cash.
Rent Expense P5,750
Cash P5,750
Transaction 5: Acquisition of Equipment

Transaction: Bought Washing machine and dryers from LYR Corp., P115,000, paying
P35,000 in cash and the balance on account.
Analysis: Assets increased. Assets decreased. Liabilities increased.
Rules: Increase in Assets is recorded at debit. Decrease in assets is recorded at credit.
Increase in Liabilities is recorded at credit.
Entry: Increase in Assets is recorded by a debit to Equipment. Decrease in assets is

recorded by a credit to cash. Increase in Liabilities is recorded by a credit to accounts
payable.
Equipment P135,000
Cash P35,000
Accounts Payable 100,000

Transaction 6: Revenues earned
Transaction: Revenues earned on cash basis for the first half of the month, P19,250.
Analysis: Assets increased. Owner’s Equity Increased.
Rules: Increase in Asset is recorded by debits. Increase in Owner’s Equity is recorded
by credit.

recorded by a credit to Revenue account.
Cash P19,250
Laundry Revenue P19,250
Transaction 7: Prepaid Insurance

Transaction: Bought insurance for one year, P5,600.
Analysis: Asset increased. Asset decreased.
Rules: Increase in asset is recorded by a debit. Decrease in Asset is recorded by a credit.
Entry: Increase in asset is recorded by a debit to prepaid insurance. Decrease in asset

is recorded by a credit to cash.
Prepaid Insurance P5,600
Cash P5,600
Transaction 8: Settlement of Account Payable

Transaction: Paid the accounts to LYR Corporation., P7,000.
Analysis: Liabilities decreased. Assets decreased.
Rules: Decrease in liabilities is recorded by a debit and decrease in asset is recorded by
a credit.
Entry: Decrease in liabilities is recorded by a debit to Accounts Payable. Decrease in

asset is recorded by credit to cash.
Cash P7,000
Transaction 9: Expenses Incurred and Paid

Transaction: Received and paid electric bill, P2,080.
Analysis: Assets decreased. Owner’s Equity decreased.
Rules: Decrease in owner’s equity is recorded by a debit to utilities expense. Decrease
in asset is recorded by a credit to cash.
Entry: Decrease in assets is recorded by credit. Decrease in Owner’s Equity is recorded

by debit.
Utilities Expense P2,080
Cash P2,080

Transaction 10: Revenues earned
Transaction: Revenues earned on cash basis for the second half of the month, P12,350.
Analysis: Assets increased. Owner’s Equity Increased.
Rules: Increase in Asset is recorded by debits. Increase in Owner’s Equity is recorded
by credit.

recorded by a credit to Revenue account.
Cash P12,350
Laundry Revenue P12,350
Transaction 11: Salaries Paid

Transaction: Paid salaries of the part-time assistant, P7,400.
Analysis: Assets decreased. Owner’s Equity decreased.
Rules: Decrease in asset is recorded by credit. Decrease in Owner’s Equity is recorded
by debit.
Entry: Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease

in asset is recorded by a credit to cash.
Salaries Expense P6,600
Cash P6,600
Transaction 12: Withdrawal of cash by the owner

Transaction: Dilig withdrew cash for personal use, P5,000.
Analysis: Asset decreased. Owner’s Equity decreased.
Rules: Decrease in assets are recorded by credit. Decrease in owner’s equity is recorded
by debit.
Entry: Decrease in owner’s equity is recorded by a debit to Dilig, Withdrawals.

Decrease in asset is recorded by a credit to cash.
Dilig, Withdrawals P5,000
Cash P5,000
Transaction 13: Settlement of Account Payable

Transaction: Paid the accounts to Choice Store., P2,750.
Analysis: Liabilities decreased. Assets decreased.
Rules: Decrease in liabilities is recorded by a debit and decrease in asset is recorded by
a credit.
Entry: Decrease in liabilities is recorded by a debit to Accounts Payable. Decrease in

asset is recorded by credit to cash.
Cash P2,750


6. Worksheet
8. Closing Entries
Accounting Cycle Step 2 - Journalizing Transactions
The process of journalizing usually starts with identification of transactions. The basis
of identifying these transactions are the supporting business documents that are on the
file or yet to be filed as evidence of transactions to assure reliability and verifiability.
Business documents may be in the form of receipts, invoices, purchase orders, receiving
reports, delivery receipts, checks, etc.
Sample of a Business Document
After we identify the transaction, next step would be to analyze the transaction. In
analyzing transactions, always remember to answer this question, “what is the value
received? And “what is the value parted with in this transaction?”. Then, we come to
measuring of the transactions. This time, we used the peso as the unit of measure.
Cash versus accrual basis of recording income and expense
Under cash basis, income is recorded only when cash is actually received while
expenses are recorded only when actually paid. This basis portrays the scenario of
actual cash collection and disbursements. In other words, no recognition of Accounts
receivable as income earned when not yet collected and no recognition of accounts
payable for the expense when no yet paid. As a result, it does not manifest the true
results of the business operations.

On the other hand, accrual basis records income even if cash is not yet received for as
long as it is earned and expenses are recorded even no payment has been made yet for
as long as they are incurred. This practice results to a matching of income because
revenue against costs could show a meaningful financial statements.
Books of Accounts
All the accounting data that are kept and used by the business are all stored in this record
called books of accounts. These books provide covenience to everyone who prepares
financial statement as it simplify the process that fit to business needs.
There are two set of books that are used by the business. These are the books of original
entry and the books of the final entry. The former is commonly known as Journal which
of two kinds; the General journal and the Special Journal.This is called the books of
original entry because it is in this book where transactions are recorded for the first
time. The latter is called the Ledger which is also of two kinds; the General Ledger and
the Subsidiary Ledger. This is called the books of final entry because it is in this book
where transactions that were recorded in the Journal are transferred for final recording.
General Journal
This is what a General Journal looks like.
A general journal shows the date when the transactions took place. Particulars
(Description) shows the item or the accounts debited or credited as a result of a
transaction analysis as well as a brief or consice explanation of what the transaction is
about. Folio (Post Ref) shows the number of an account in a ledger or page of a ledger
to which it was transferred. Debit and credit column is the money column showing peso
amount of the value received in a transaction.
Amounts entered in the General Journal are not totaled.

Recording – is the first phase of accounting that involves writing down of business
transactions in a systematic manner and in order of their occurrence in the book of
original entry called journal.

The act of recording business transactions in the Journal is journalizing and the entry
being made in the journal is called journal entry.
This entry may be a simple journal entry or a compound journal entry.
A simple journal entry is one that has one debit item and one credit item.
While a compound journal entry, is the one that has more than two entries.
Procedures in filling-up a General Journal
The first part of the date column is the year and below the year is the month and the
day. In each leaf of a journal, the year and the month is written in the front page but not
repeated in the back page. The particulars column is for the account title. The first line
for the particulars will be for the debit item and the second line for the particulars if for
the credit item. For the credit item, there must be a reasonable distance from the column
of the debit item. The corresponding amount of the debit item should have a peso sign
only if it is the first item of the column as well as the credit. Take note that the amount
of the debit should equal the amount of the credit. In the case of compound journal
entry, debit items are entered in a block form occupying the first, second or third line

depending on the number of items. A complete journal entry should have an explanation
that state briefly the nature of the transaction. Explanation is written after the line of the
last entry.
Let’s do it this way!
From the knowledge you have gained from the past lessons.
Samples of Journalizing Transactions
Mr. Jake Babulag opens his contemporary themed barbershop in Compostela under the
business name The Blind Barber. The following are the first month completed
transactions and are to be recorded in the General Journal based on the following chart
of accounts.
Chart of Accounts
(These entries should be used in journalizing the transactions.)
Balance Sheet Accounts
Assets
(110) Cash in Bank
(120) Accounts Receivable
(130) Prepaid Rent
(140) Shop Supplies
(150) Barbershop Equipment
(155) Accumulated Depreciation – Barbershop Equipment
(160) Shop Furniture and Fixtures
(165) Accumulated Depreciation – Shop Furniture and Fixtures
Liabilities
(210) Accounts Payable
(220) Salaries Payable
(230) Utilities Payable
(240) Interest Payable
(250) Unearned Service Revenue
(260) Notes Payable
Owner’s Equity
(310) J. Babulag, Capital
(320) J. Babulag, Drawing
(330) Income Summary
Income Statement Accounts
Income
(410) Service Revenue
Expenses
(510) Salaries Expense
(520) Shop Supplies Expense
(530) Rent Expense
(540) Utilities Expense
(550) Interest Expense
(560) Depreciation Expense – Shop Equipment
(570) Depreciation Expense – Shop Furniture and Fixtures
(580) Miscellaneous Expense
(590) Taxes and Licenses

April
1 – Mr. Jake Babulag deposited P500,000 with Two Network Bank.
Analysis : There is an increase in Assets - Cash in Bank of P500,000 and a
corresponding increase in Owner’s Equity - Babulag, Capital of P500,000.
Rule : Debit increase in Asset and Credit increase in Owner’s Equity.
Journal Entry
2020
April 1 Cash in Bank P500,000
J. Babulag, Capital P500,000
Initial Investment.
1 – Rented shop space with three months’ rent advance, P15,000.

Analysis : There is an increase in Assets - Prepaid Rent of P15,000 and a
decrease in Assets – Cash in Bank of P15,000.
Rule : Debit, increase in Assets and Credit, decrease in Asset.
Prepaid Rent 15,000
Cash in Bank 15,000
Advance Rent.
2 – Mr. Jake Babulag issued a note for a P200,000 loan from Two Network Bank. The
loan will be used for additional fund to acquire Shop Equipment. The note carries
12% interest per annum and agreed to pay the interest and the principal in one-year
duration.
Analysis : There is an increase in Assets – Cash in Bank of P200,000 and an
increase in Liabilities – Notes Payable of P200,000.
Rules : Increases in assets are recorded by debits. Increases in liabilities are
recorded by credits.
2 Cash in Bank 200,000
Notes Payable 200,000
Availment of Loan.
3 – Purchased air-conditioning units and barber’s chairs worth P500,000 paying

P300,000 as down payment and the balance payable on June 15.
Analysis : There is an increase in Asset- Barber Shop Equipment of P500,000 and
a corresponding decrease in Asset – cash in Bank of P300,000 and an increase in
Liabilities – Accounts Payable of P200,000.
Rule : Debit, increase in Asset, Credit, decrease in Assets and Credit,
increase in Liabilities.
3 Barber Shop Equipment 500,000
Cash in Bank 300,000
Purchase of Equipment
4 - Purchased mirrors, various furniture and frames on account from Michelle

Rubinos, P130,000 and purchased barber shop supplies such as talcum powder,
alcohol, cotton, soap, towels, cloth and other toiletries on account from Marge
Morales, P35,000.
Analysis : There is an increase in Asset – Shop Furniture and Fixtures of
P130,000 and an increase in Liabilities of P130,000. Also, there is an increase in

Assets – Shop Supplies Inventory of P35,000 and an increase in Liabilities-Accounts
Payable of P35,000.
Rule : Debit, increase in Asset, Credit increase in liability.
Another Debit, increase in Asset, Credit, increase in liability.
4 Shop Furniture and Fixtures 130,000
Accounts Payable – M. Rubinos 130,000
Purchase on account of F and F.
Shop Supplies Inventory 35,000

Accounts Payable – M. Morales 35,000
Purchase on account of Supplies.
6 – Withdrew the amount of P10,500 from the bank to pay for the business permits
and other government dues.
Analysis : There is a decrease in Owner’s Equity – Taxes and Licenses
Expense of P10,500 and a decrease in Asset – Cash in Bank of P10,500.
Rule : Debit, decrease in Owner’s Equity and Credit, decrease in Assets.
6 Taxes and Licenses Expense 10,500
Cash in Bank 10,500
Payment of Taxes and Licenses.
11- Paid the salaries, P15,750 of the employees for the first Second Saturday. The
entity pays P350 per day for both Barbers and a cashier. The employees agree to
receive their salaries every second and fourth Saturdays of the month.
350 per day X 9 days of work X 5 employees
(Please refer to 2020 calendar)
Analysis : There is a decrease in Assets – Cash in Bank of P15,750 and a
decrease in Owner’s Equity – Salaries Expense of P15,750.
Rules : Decreases in Assets are recorded by credits. Decreases in owner’s
equity are recorded by debits.
11 Salaries Expense 15,750
Cash in Bank 15,750
Payment of Employee’s Salaries.
11 – Income for the week.

Cash Basis P50,000
On account 3,500
Analysis : There is an increase in Asset of P50,000 and P3,500, and a
corresponding increase in Owner’s Equity (Increase in Income) P53,500.
Rule : Debit, increase in Assets and Credit, increase in Owner’s Equity.
Cash in Bank 50,000
Accounts Receivable 3,500
Service Revenue 53,500
Services Income.
15- Blind Barber was contracted by a Local Shampoo company to be part of their
corporate social responsibility called “project STYLE”. On April 15, 2020, the Blind
Barber received P50,000 as an advance for three scheduled jobs. By the end of the
month, one project will be conducted resulting to realize the P15,000 pertaining to
the job. The transaction is analyzed as follows.

Analysis : Liabilities decreased. Owner’s Equity increased.
Rules : Decreases in liabilities are recorded by debits. Increases in Owner’s
Equity are recorded by credits.
Unearned Service Revenue 50,000
Revenue Unearned.
(The liability account unearned referral revenues reflect the referral revenues still to be
earned, P50,000)
18 – Withdrew the amount of P10,000 from the bank for personal use of Mr. Jake
Babulag.
Analysis : There is a decrease in Owner’s Equity of P10,000 and a decrease in
Asset of P10,000.
Rule : Debit, increase in Drawing and Credit, decrease in Asset.
18 J. Babulag, Drawing P10,000
Cash in Bank P10,000
Withdrawal by Owner.
18 – Income for the week:

Cash Basis P65,000
On account 4,000
Cash in Bank 65,000
Services Income.
20 – Withdrew the amount of P35,000 from the bank to pay the account with Marge
Morales.
Analysis : There is a decrease in asset of P35,000 and a decrease in liability for
P35,000.
Rule : Debit, decrease in liability and Credit, decrease in Asset.
20 Accounts Payable 35,000
Cash in Bank 35,000
Payment of account.
21 – Additional investment of Mr. Jake Babulag, P100,000 in the form of cash deposit
to Land Bank of the Philippines.
Analysis : There is an increase in Asset of P100,000 and an increase in
Owner’s Equity of P100,000.
Rule : Debit increase in Asset and Credit increase in Owner’s Equity.
J. Babulag, Capital 100,000
Additional Investment.
25 – Collected the amount of P3,500 for services rendered on April 12.

Analysis : There is an increase in Asset-Cash of P3,500 and a corresponding
decrease in an Asset-Accounts Receivable of P3,500.

Rule : Debit, increase in Asset and Credit, decrease in Asset.
Accounts receivable 3,500
Collection.
25 – Paid the salaries, P21,000 of the employees for the fourth Saturday of the month.
Analysis : Assets decreased. Owner’s Equity decreased.
Rules : Decreases in Assets are recorded by credits. Decreases in owner’s
equity are recorded by debits.
Salaries Expense 21,000
Cash in Bank 21,000
Payment of Salaries to employees.
25 – Income for the week;

Cash Basis P45,000
On account 10,000
Cash in Bank 45,000
Services Income.
29 – Withdrew the amount of P65,000 from the bank in partial payment of account to
Mechille Rubinos.
Analysis : There is a decrease in asset of P65,000 and a decrease in liability for
P65,000.
Rule : Debit, decrease in liability and Credit, decrease in Asset.
29 Accounts Payable 65,000
Cash in Bank 65,000
Payment of account.
29 – Received the World Tel Internet Bill, P2,000.

Analysis : There is an increase in liability of P2,000, and a decrease in
owner’s equity of P2,000.
Rule : Debit, decrease in owner’s equity. Credit, increase in liability.
Utilities Expense 2,000
Utilities Payable 2,000
Internet bill.
30 - Settled the electric bill at NORDECO of P3,000 for the month.

Analysis : There is a decrease in owner’s equity of P3,000 and a decrease in
assets P3,000.
Rule : Debit, decrease in owner’s equity. Credit, decrease in assets.
30 Utilities Expense 3,000
Cash in Bank 3,000
Payment of electric bill.

GENERAL JOURNAL
2020 Particulars Folio Debit Credit
April 1 Cash in Bank 110 P500,000
J. Babulag, Capital 310 P500,000
Initial Investment
Prepaid Rent 130 15,000

Cash in Bank 110 15,000
Rent Advance Payment.
2 Cash in Bank 110 200,000

Notes Payable 260 200,000
Loan Proceeds.
3 Shop Equipment 150 500,000

Purchase of Barbershop
Equipment.
4 Shop Furniture and Fixture 160 130,000

Accounts Payable 210 130,000
Purchase on account of
Furniture and Fixtures.
Shop Supplies 140 35,000

Shop Supplies.
6 Taxes and Licenses Expense 590 10,500

Payment of Taxes and
Licenses.
11 Salaries Expense 510 15,750

Payment of employee salary.

Accounts Receivable 120 3,500
Service Revenue 410 53,500
Services Income.
15 Cash in Bank 250 50,000

Unearned Service Revenue 410 50,000
Unearned Revenue.

18 Babulag, Drawing 320 10,000
Withdrawal by the owner.

Services Income.
20 Accounts Payable 210 35,000

Payment.
21 Cash in Bank 110 100,000

Babulag, Capital 310 100,000
25 Cash in Bank 110 3,500
Collection of accounts.
Salaries Expense 510 21,000

Payment of Employee Salary

Services Income.

Payment of accounts.
Utilities Expense 540 2,000

Utilities Payable 230 2,000
Internet bill.
30 Utilities Expense 540 3,000



6. Worksheet
8. Closing Entries
Accounting Cycle Step 3 – Posting to the Ledger
The General Ledger is a reference book of the accounting system and is used to
classify and summarize transactions, and to prepare data for basic financial
statements.
The accounts in the general ledger are classified into two general groups:
1. Balance Sheet or Permanent accounts (Assets, Liabilities and Owner’s Equity)
2. Income Statement or Temporary Accounts (Income and Expenses)
Note: at the end of the period, the balances of these accounts are transferred to a
permanent owner’s equity account.
Posting
Is a process of transferring the amounts from the journal to the appropriate accounts
in the ledger. Debits in the Journal will be posted as debits also in the ledger, and
credits in the journal will be posted as credits also in the ledger.
How to Post entries to the ledger?
1. Transfer the date of the transactions from the journal to the ledger.
2. Transfer the page number from the journal to the journal reference column of the
ledger.
3. Post the debit figure from the journal as a debit figure in the ledger and the credit
figure from the journal as a credit figure in the ledger.
4. Enter the account number in the posting reference column of the journal once the
figure has been posted to the ledger.

General Ledger
A general ledger has two sides, the debit side (left) and the credit side (right). Each side
has the column for the date, particulars, folio and the money column.
At the end of the accounting period, the debit and credit entries of its item or account
in the ledger are totaled. If the debit side total is bigger than the credit side total, the
difference is called debit balance. On the other hand, if the credit side total is bigger
than that the debit side total, the difference is called credit balance. If the both total of
debit and credit sides are equal, then the account is said to be in-balance or closed
account.
Each account must have separate T-accounts in order to clearly present the balances
of each accounts.
Consider this illustration.

Consider these Journal Entries and foot to the ledger.
GENERAL JOURNAL
2020 Particulars Folio Debit Credit
April 1 Cash in Bank 110 P500,000
J. Babulag, Capital 310 P500,000
Initial Investment
Prepaid Rent 130 15,000

Rent Advance Payment.
2 Cash in Bank 110 200,000

Notes Payable 260 200,000
Loan Proceeds.

3 Shop Equipment 150 500,000
Purchase of Barbershop
Equipment.
4 Shop Furniture and Fixture 160 130,000

Furniture and Fixtures.
Shop Supplies 140 35,000

Shop Supplies.
6 Taxes and Licenses Expense 590 10,500

Payment of Taxes and Licenses.
11 Salaries Expense 510 15,750

Payment of employee salary.

Services Income.
15 Cash in Bank 250 50,000

Unearned Service Revenue 410 50,000
Unearned Revenue.
18 Babulag, Drawing 320 10,000

Withdrawal by the owner.
Services Income.
Payment.
21 Cash in Bank 110 100,000
Babulag, Capital 310 100,000

25 Cash in Bank 110 3,500
Collection of accounts.
Salaries Expense 510 21,000

Payment of Employee Salary.

Services Income.

Payment of accounts.
Utilities Expense 540 2,000

Utilities Payable 230 2,000
Internet bill.
30 Utilities Expense 540 3,000



6. Worksheet
8. Closing Entries

Accounting Cycle Step 4 – Trial Balance Preparation
The trial balance is a list of accounts with their respective debit or credit balances. This
statement is a test to verify that the debits and credits in the ledger at the end of each
accounting period or at any time the postings are equal and updated.
Procedures in the preparation of Trial Balance

1. List the account titles in numerical order.
2. Obtain the account balance of each account from the ledger and enter the debit
balances in the debit column and credit balances in the credit column.
3. Add the debit and credit columns.
4. Compare the totals if it is in balance. The equality serves as a control device
that helps in minimizing errors, though, it is not guarantee that it is accurate.
If it is not in balance, the inequality in totals signal the presence of an error.
We should locate these errors in order to prevent misstatement of the balances.
Errors may include the following:

- Error in posting a transaction to the ledger.
An erroneous amount was posted to the amount
A debit entry was posted as a credit or vice versa
A debit or credit posting was omitted
- Error in determining the account balances.
A balance was incorrectly computed
A balance was entered in the wrong balance column
- Error in preparing the trial balance
One of the columns of the trial balance was incorrectly added
The amount of an account balance was incorrectly recorded on the trial
balance
A debit balance was recorded on the trial balance as a credit or vice
versa, or a balance was omitted entirely.
Sample Trial Balance
Observe the activities from General Ledger to the Trial Balance.


ABM 1 COURSE PACK - WITH EXCEL DISCUSSION Lesson 3

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ABM 1 COURSE PACK - WITH EXCEL DISCUSSION Lesson 3

Uploaded by

Copyright:

Available Formats

LESSON 3:

ACCOUNTING CYCLE STEP 1-4: STEP 1 - ANALYSIS

At the end of the lesson, the learners will be able to:

WHAT IS THIS LESSON ABOUT?

The content of this lesson is intended to be converted in a single period of 5 to

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 25

Account Titles Normal Balance Increase Decrease

Answer the following Questions:

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 26

The Accounting Cycle

1. Recording (Journalizing)– this is the phase of accounting which involves the

Before recording transactions and events, it should be identified, analyzed and

2. Classifying (Posting)– it involves sorting or groupings of similar transactions and

4. Interpreting – it is where the financial statements are then analyzed, interpreted

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 27

1. for every value received, another value is given away as an exchange;

The Double-Entry System (Debit and Credit)

Increases recorded by Normal Balance

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 28

1. Identify the transactions from the source documents.

Let’s work on this!

In a much clearer presentation, consider these series of transactions of a service

Transaction 1: Initial Investment

Entry: Increase in asset is recorded by a debit to cash. Increase in Owner’s Equity is

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 29

Transaction 3: Acquisition of Supplies

Entry: Increase in Assets is recorded by a debit to Supplies, and increase in liabilities

Transaction 4: Rent Payment

Transaction 5: Acquisition of Equipment

Entry: Increase in Assets is recorded by a debit to Equipment. Decrease in assets is

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 30

Entry: Increase in asset is recorded by a debit to cash. Increase in Owner’s Equity is

Transaction 7: Prepaid Insurance

Entry: Increase in asset is recorded by a debit to prepaid insurance. Decrease in asset

Transaction 8: Settlement of Account Payable

Entry: Decrease in liabilities is recorded by a debit to Accounts Payable. Decrease in

Transaction 9: Expenses Incurred and Paid

Entry: Decrease in assets is recorded by credit. Decrease in Owner’s Equity is recorded

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 31

Entry: Increase in asset is recorded by a debit to cash. Increase in Owner’s Equity is

Transaction 11: Salaries Paid

Entry: Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease

Transaction 12: Withdrawal of cash by the owner

Entry: Decrease in owner’s equity is recorded by a debit to Dilig, Withdrawals.

Transaction 13: Settlement of Account Payable

Entry: Decrease in liabilities is recorded by a debit to Accounts Payable. Decrease in

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 32

There are 10 steps in the accounting process.

Accounting Cycle Step 2 - Journalizing Transactions

Sample of a Business Document

Cash versus accrual basis of recording income and expense

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 33

This is what a General Journal looks like.

Amounts entered in the General Journal are not totaled.

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 34

This entry may be a simple journal entry or a compound journal entry.

Procedures in filling-up a General Journal

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 35

Let’s do it this way!

Samples of Journalizing Transactions

ABM 1 – FUNDAMENTALS OF ACCOUNTIN BUSINESS AND MANAGEMENT 36

1 – Rented shop space with three months’ rent advance, P15,000.

3 – Purchased air-conditioning units and barber’s chairs worth P500,000 paying