COMMONLY USED ACCOUNT TITLES IN BUSINESS FOR SINGLE PROPRIETORSHIP

Normal Classification of Type of

Account titles Elements of FS balances accounts accounts

Cash Asset* Debit

Accounts receivable Asset* Debit
Allowance for bad debts Contra-asset Credit
Notes receivable Asset* Debit
Inventory Asset* Debit
Prepaid rent Asset* Debit
Unused supplies Asset* Debit Real/Permanent –
Prepaid insurance Asset* Debit these accounts are
Balance Sheet
Equipment Asset* Debit not closed at the end
– comprises of
Furniture and Fixtures Asset* Debit of the accounting
the assets,
Land Asset* Debit period. They are
liabilities and
extended or
Building Asset* Debit equity.
forwarded to the next
Accumulated depreciation Contra-asset Credit
accounting period.
Accounts payable Liability* Credit
Notes payable Liability* Credit
Unearned income Liability* Credit
Utilities payable Liability* Credit
Accrued salaries expenses or salaries payable Liability* Credit
Interest payable Liability* Credit
Owner’s capital/equity Equity/Capital Credit
Owner’s drawing Contra-equity Debit
Service fees/income Income Credit
Sales Income Credit
Interest income Income Credit
Gains Income Credit
Cost of sales Expense Debit
Salaries expense Expense Debit Nominal/Temporary Income
Utilities expense Expense Debit – these accounts are Statement –
Depreciation expense Expense Debit closed at the end of comprises of
Bad debts expense Expense Debit the accounting the income and
Rent expense Expense Debit period. expenses.
Freight out/Transportation expense Expense Debit
Supplies expense Expense Debit
Advertising expense Expense Debit
Taxes and licenses expense Expense Debit
Interest expense Expense Debit
Miscellaneous expense Expense Debit
Losses Expense Debit

Note: Accounts with asterisk above are further classified into current and noncurrent. As a basic rule, if the assets are
expected to be converted into cash within twelve months or less, it is considered current assets. If the assets are more or
less permanent in nature in the sense they are acquired for use in business and are not intended to be converted into cash,
they are considered noncurrent assets. On the other hand, liabilities that are payable within one year are considered as
current liabilities and those payable beyond one year are generally considered noncurrent liabilities.
ILLUSTRATION ON THE APPLICATION OF THE ACCOUNTING PROCESS/CYCLE:
Ace King, a CPA put up an accounting firm on December 1, 2019. The following transactions were completed during the
month:
Dec. 1 Ace King invested P200,000 as initial capital for his accounting firm.
1 Paid office rent for the month, P16,400.
1 Bought office supplies for cash, P15,500.
Bought computer from Mabuhay Equipment Corporation P80,000, paying 50% down and the balance payable
1
in 90 days.
2 Office tables and chairs were purchased for cash, P12,500.
2 Received cash from a client for accounting services rendered P5,600.
3 Paid Ormeco, P4,000.
4 Billed several clients for services rendered, P38,000.
8 Borrowed money from PNB, P20,000.
10 Received a 60-day note from client for services rendered, P12,000.
15 Paid salaries of the employees, P16,500.
15 King withdrew P10,000 cash for his personal use.
18 Bought filing cabinets from Leeman Trading P15,000, terms 30 days.
20 Issued promissory note to CORTEZ Trading P32,000 for a Copying machine bought.
31 Paid municipal license, P3,000.
31 Paid the salaries of the employees, P14,250.
31 Paid Leeman Trading partially, P4,000.
31 Partial collection of the accounts of clients, P12,800.

CHART OF ACCOUNTS
ASSETS OWNER’S EQUITY/CAPITAL
110 Cash 310 Ace King Capital
120 Accounts Receivable 315 Ace King Drawing
130 Notes Receivable
140 Furniture and Fixtures INCOME
150 Office Equipment 410 Professional Fees

LIABILITIES EXPENSES
210 Accounts Payable 510 Rent Expense
220 Notes Payable 520 Office Supplies Expense
230 Loan Payable 530 Utilities Expense
540 Salaries Expense
550 Taxes and Licenses Expense

Required:
1. Record the foregoing transactions in the general journal.
2. Post the recorded transactions to the general journal.
3. Prepare trial balance.

Step 1: Identification of events to be recorded (Identifying and analyzing business transactions)

1. Indicate what accounts are affected from the given transaction. It could be an ASSET, LIABILITY, EQUITY, INCOME or
EXPENSE.
2. Ascertain whether each account affected is increased or decreased by the transaction.
3. Using the rules of debit and credit, determine whether to debit or credit the account to record the increase or
decrease.
Step 2: Transactions are recorded in the Journal (Journalizing)
GENERAL JOURNAL
Date Account Titles PR Debit Credit
Dec. 1 Cash 110 200,000
Ace King Capital 310 200,000
Initial investment of the owner

 Rent expense 510 16,400

Cash 110 16,400
Payment of office rent

 Office Supplies Expense 520 15,500

Cash 110 15,500
Bought supplies

 Office Equipment 150 80,000

Cash 110 40,000
Accounts Payable 210 40,000
Bought computer
Page 1
GENERAL JOURNAL
2 Furniture and Fixtures 140 12,500
Cash 110 12,500
Bought tables and chairs

 Cash 110 5,600

Professional Fees 410 5,600
Accounting services rendered

3 Utilities Expense 530 4,000

Cash 110 4,000
Paid electricity bill

4 Accounts Receivable 120 38,000

Professional Fees 410 38,000
Accounting services rendered

8 Cash 110 20,000

Loan Payable 230 20,000
Secured a loan

10 Notes Receivable 130 12,000

Professional Fee 410 12,000
Accounting services rendered

15 Salaries Expense 540 16,500

Cash 110 16,500
Paid salaries of the employee

 Ace King Drawing 315 10,000

Cash 110 10,000
Cash withdrawal

18 Furniture and Fixtures 140 15,000

 Accounts Payable 210 15,000
Bought filing cabinets

20 Office Equipment 150 32,000

Notes Payable 220 32,000
Bought copying machine

31 Taxes and Licenses Expense 550 3,000

Cash 110 3,000
Payment of licenses

 Salaries Expense 540 14,250

Cash 110 14,250
Payment of salaries of the employee

 Accounts Payable 210 4,000

Cash 110 4,000
Partial payment

 Cash 110 12,800

Accounts Receivable 120 12,800
Partial collection
Page 2

Step 3: Journal entries are posted to the Ledger (Posting)

1. Transfer the date of the transaction from the journal to 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 (PR) of the journal once the figure has been posted to the
ledger.
GENERAL LEDGER
Cash Account No. 110
Date Journal Reference (JR) Debit Date Journal Reference Credit
Dec. 1 GJ1 200,000 Dec. 1 GJ1 16,400
2 GJ2 5,600  GJ1 15,500
8 GJ2 20,000  GJ1 40,000
31 GJ2 12,800 2 GJ2 12,500
3 GJ2 4,000
15 GJ2 16,500
 GJ2 10,000
31 GJ2 3,000
 GJ2 14,250
 GJ2 4,000

Accounts Receivable Account No. 120

Date Journal Reference Debit Date Journal Reference Credit
Dec. 4 GJ2 38,000 Dec. 31 GJ2 12,800

Notes Receivable Account No. 130

Date Journal Reference Debit Date Journal Reference Credit
Dec. 10 GJ2 12,000
 Furniture and Fixtures Account No. 140
Date Journal Reference Debit Date Journal Reference Credit
Dec. 2 GJ2 12,500
18 GJ2 15,000

Office Equipment Account No. 150

Date Journal Reference Debit Date Journal Reference Credit
Dec. 1 GJ1 80,000
20 GJ2 32,000

Accounts Payable Account No. 210

Date Journal Reference Debit Date Journal Reference Credit
Dec. 31 GJ2 4,000 Dec. 1 GJ1 40,000
18 GJ2 15,000

Notes Payable Account No. 220

Date Journal Reference Debit Date Journal Reference Credit
Dec. 20 GJ2 32,000

Loan Payable Account No. 230

Date Journal Reference Debit Date Journal Reference Credit
Dec. 4 GJ2 20,000

Ace King Capital Account No. 310

Date Journal Reference Debit Date Journal Reference Credit
Dec. 1 GJ1 200,000

Ace King Drawing Account No. 320

Date Journal Reference Debit Date Journal Reference Credit
Dec. 15 GJ2 10,000

Professional Fees Account No. 410

Date Journal Reference Debit Date Journal Reference Credit
Dec. 1 GJ2 5,600
4 GJ2 38,000
10 GJ2 12,000

Rent Expense Account No. 510

Date Journal Reference Debit Date Journal Reference Credit
Dec. 1 GJ1 16,400

Office Supplies Expense Account No. 520

Date Journal Reference Debit Date Journal Reference Credit
Dec. 1 GJ1 15,500

Utilities Expense Account No. 530

Date Journal Reference Debit Date Journal Reference Credit
Dec. 3 GJ2 4,000
 Salaries Expense Account No. 540
Date Journal Reference Debit Date Journal Reference Credit
Dec. 15 GJ2 16,500
31 GJ2 14,250

Taxes and Licenses Expense Account No. 550

Date Journal Reference Debit Date Journal Reference Credit
Dec. 31 GJ2 3,000

Step 4: Preparation of Unadjusted or Preliminary 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
the credit balances in the credit column.
3. Add the debit and credit columns.
4. Compare the totals.

Ace King Accounting Firm

Preliminary Trial Balance
December 31, 2019

Account Titles Debit Credit

Cash 102,250
Accounts Receivable 25,200
Notes Receivable 12,000
Furniture and Fixtures 27,500
Office Equipment 112,000
Accounts Payable 51,000
Notes Payable 32,000
Loan Payable 20,000
Ace King Capital 200,000
Ace King Drawing 10,000
Professional Fees 55,600
Rent Expense 16,400
Office Supplies Expense 15,500
Utilities Expense 4,000
Salaries Expense 30,750
Taxes and Licenses 3,000
Total P358,600 P358,600

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