Engineering Financial

Accounting

KEITH PATRICK HERNANDEZ, CIE

Department of Industrial Engineering
Journal Entries (Debit and
Credit )
& Unadjusted Trial Balance
 Learning Outcomes
• To discuss steps in accounting cycle and
the elements of financial statement.
• To perform debit and credit entry based on
business transactions.
• To perform trial balance
Steps in Accounting Cycle
• Identification of event to be recorded.
• Transaction are recorded in the journal
• Journal entries are posted in ledger
• Preparation of Trial balance
• Preparation of the worksheet including adjusting
entries
• Preparation of Financial statement
• Adjusting journal entries are journalized and posted
• Closing journal entries are journalized and posted
• Preparation of post-closing trial balance
• Reversing journal entries are journalized and posted
 Elements of Financial
Statement
• Financial Position
– Asset – is a resource controlled by the enterprise
as a result of past events and from which future
economic benefits are expected to flow to the
enterprise.
– Classification of Assets: Cash, cash Equivalent,
Notes Receivable, Account receivable,
Inventories, Prepaid expenses, Property, Plant
and Equipment, Investment, Intangible assets
and other assets
 Example of Asset
• Used singly or in combination with other
assets in the production of goods or services
to be sold by the enterprise
• Exchanged for other assets
• Used to settle a liability
• Distributed to the owner of the enterprise
• Liabilities
– obligations of the entity to outside parties
who have furnished resources.
- present obligation of the enterprise arising
from the past events, the settlement of which
is expected to result in an outflow from the
enterprise.
Current Liabilities
(Account Payable, Notes Payable, Accrued
Liabilities, Unearned Rev, Current Portion of
Long-term Debt)
Non-Current Liabilities
( Mortgage Payable, Bonds payable)
• Explanation on the parts of the definition of
a liability
• Obligation – these may be legal or not
• Transfer of Economic benefits – this
could be transfer of cash, or other property,
the provision of a service or the refraining
from activities which would otherwise be
profitable.
• Past transaction or events – refer to
discussion in assets
• Complementary nature of assets and
liabilities - as should be evident from the
above, assets and liabilities are seemed
like mirror images of each other
 Example Liabilities
• Payment of Cash
• Transfer of other assets
• Provision of services
• Replacement of that obligation with another
obligation
• Conversion of the obligation to equity.
• Equity – is the residual interest in the assets of
the enterprise after deducting all liabilities. Equity
may pertain to any of the following depending on
the form of business organization
– In a sole proprietorship, there is only one
owner’s equity account.
– In a partnership, an owner’s equity account
exist for each partner.
– In a corporation, owner’s equity or stockholder
equity consist of share capital
Account titles ( Capital, Withdrawal, Income
Summary)
 Financial Performance
• Income – is increase in economic benefits during
the accounting period in the form of inflows or
enhancement of assets or decrease of liabilities
that result in increase in equity , other than those
relating to contributions from equity participant.
– Revenue - arises in the course of the ordinary
activities of an enterprise and referred to by a
variety of different names including sales, fees,
interest, dividends, royalties, and rent.
– Gains – represent other items that meet the
definition of income and may or may not arise in
the course of the ordinary activities of an
enterprise.
• Expenses – decrease the economic benefits
during the accounting period in the form of
outflows or depletion of assets or incurrence of
liabilities that result in decrease in equity, other
than those relating to distribution to equity
participants.
• Account Titles (Cost of Sales, Salaries or
Wages Expense), (Telecommunication,
Electricity, Fuel and Water Expenses, Supplies
Expense, Rent Expense etc)
 Financial Transaction
Worksheet
1. Bought office supplies on credit
2. Investment of owner
3. Paid creditors
4. Received cash for services rendered
5. Paid employees salaries
6. Bought equipment paying cash
 INDIVIDUAL ACTIVITY #2

1. Cash investment of the owner.

2. Collection from various customers for services rendered.
3. Receipt of cash proceeds of a bank loan.
4. Payment of rent.
5. Receipt of cash from a customer for services to be rendered in
the next period.
6. Additional investment of a computer by the owner.
7. Payment of one-half of the bank loan.
8. Payment of utilities.
9. Cash withdrawal of the owner.
10. Billings to customers for services rendered.
11. Purchased shop supplies on account.
12. Purchased various repair tools for cash.
13. Incurred expenses still unpaid.
14. Issued a note to a supplier to temporarily settle a previous
account.
15. Bought additional shop supplies and repair tools; 50% cash
payment and balance payable in 15days.
 The Account
• Account – basic summary device of
accounting. The simplest for of the account is
known as the “T” account
Account Title

Left side or Right side or

Debit side Credit side

The Accounting Equation:

Assets = Liabilities + Owner’s Equity

 Debit and Credits – the Double
Entry System
• Accounting is based on a double entry system which
means the dual effect of the business transaction is
recorded.
• Debit side entry must have a corresponding credit
side entry.
• Each transaction affects at least two accounts. The
total debit must always equal the total credit.
• An account is DEBITED when an amount is entered
on the LEFT side of the account and CREDITED
when an amount is entered on the RIGHT side.
• Abbreviation for DEBIT = Dr and CREDIT = Cr
RULES
 Accounting Events and
Transaction
ACCOUNTING EVENT
– Is an economic occurrence that causes
changes in an enterprise assets, liabilities and
or equity.
– Internal event – use of equipment for production
– External event – purchase of raw materials.

TRANSACTION – is a particular kind of event that

involves the transfer of something of value
between two entities.
Example: borrowing fund from creditors
 Types and Effects of
Transactions
⚫ Source of Assets (SA) – an asset account increases
and a corresponding claims (liabilities and OE) account
increases.
⚫ Example: Purchase of Supplies on account.
⚫ Exchange of Assets (EA) – one asset account
increases, and another asset account decreases
⚫ Example: Acquired equipment for cash
⚫ Use of Assets (UA) – an asset account decreases and
a corresponding claims (liabilities and OE) decreases
⚫ Example: Settled account payable
⚫ Exchange of Claims – one claims (Liabilities and OE)
account increases and another claims (liabilities and
OE) account decreases.
⚫ Example: Received utilities bill but did not pay
 Nine types of Effects
1. Increase in Assets = increase in liabilities (SA)
2. Increase in Assets = increase in OE (SA)
3. Increase in one asset = decrease in another
Asset (EA)
4. Decrease in Assets = Decrease in Liabilities
(UA)
5. Decrease in Assets = Decrease in OE (UA)
6. Increase in Liabilities = Decrease in OE (EC)
7. Increase in OE = Decrease in Liabilities (EC)
8. Increase in one liability = decrease in another
liability (EC)
9. Increase in one OE = Decrease in another OE
 STEP 1. Recording Business
Transaction
• Transaction Analysis
– The analysis of transaction should follow
these four basic steps:
• Identify the transaction from source documents
• Indicate the accounts - either assets, liabilities,
equity, income or expenses affected by the
transaction
• Ascertain whether each account is increased or
decreased by the transaction.
• Using the rules of debit and credit, determine
whether to debit or credit the account to record its
increase or decrease.
• Accounting cycle
– Refers to a series of sequential steps or
procedures performed to accomplish the
accounting process.

• Journal- is a chronological records of the

entity’s transactions. A journal entry shows
all the effects of a business transaction in
terms of debits and credits. Each
transaction is initially recorded in a journal
rather than directly in the ledger. A journal
is called the book of original entry.
• Journal
– Is a chronological record of the entity’s
transaction.
– The journal entry shows all the effects of a
business transaction in terms of debits and
credits.
– Called book of entry
 Thank you!!!

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