TYPES OF ACCOUNT

TITLES USED
BALANCE SHEET
• Assets - economic resources owned by
the business expected for future gain.
• Liabilities - includes debts, obligations to
pay, and claims of the creditors on the
assets of the business.
• Owner's Equity or Capital - it comes from
two main sources - investment of owners
and earnings of the business.
CURRENT ASSETS
• Cash is money on hand, or in banks, and other items considered as medium
of exchange in business transactions.
• Trade and other Receivables - include the amounts collectible from any of
the following accounts:
– Accounts Receivable
– Notes Receivable
– Interest Receivable
• Inventories are assets held for resale
• Supplies are items purchased by an enterprise which are unused as of the
reporting date.
• Prepaid Expenses are expenses paid in advance. They are assets at the
time of payment and become expenses through the passage of time.
• Contra-Asset Accounts - are accounts deducted from the related asset
accounts:
– Allowance for bad debts - losses due to uncollectible accounts
– Accumulated Depreciation - represents the expired cost of property, plant, and
equipment as a result of usage and passage of time.
NON-CURRENT ASSETS
• Long term Investments are the investments
made by the company for long-term purposes
• Property, Plant and Equipment are long-lived
assets which have been acquired for use in
operations.
– Land
– Building
– Equipment
– Furnitures and Fixtures
– Intangible Assets
CURRENT LIABILITIES
Trade and Other Payables - include payables from any of
the following accounts:
• Accounts Payable are amounts due, or payable to,
suppliers for goods purchased on account or for services
received on account.
• Notes Payable are amounts due to third parties
supported by promissory notes.
• Loan Payable - is a liability to pay the bank or other
financing institution arising from funds borrowed by the
business from these institutions payable within twelve
months or shorter.
• Utilities Payable - obligation to pay utility companies for
services received from them.
NON-CURRENT LIABILITIES
• Mortgage Payable - long-term debt of the
business with security or collateral in the
form of real properties.
• Bonds Payable - certificate of
indebtedness under the seal of a
corporation.
OWNER'S EQUITY
• Capital is the value of cash and other
assets invested in the business by the
owner of the business.
• Drawing is an account debited for assets
withdrawn by the owner for personal use
from the business.
INCOME STATEMENT
• Service income - includes revenues earned or generated by the
business in performing services for a custoemr or client.
• Salaries or wages expense - include all payments made to
employees or workers for a rendering services to a company.
• Utilities expense - expense related to the use of electricity, fuel,
water, and telecommunication facilities.
• Supplies expense - cover office supplies used.
• Insurance expense - the expired portion of premiums paid on
insurance coverage such as premiums paid for health or life
insurance, motor vehicles or other properties.
• Depreciation expense - is the annual portion of the cost of non-
current assets charged as expense for the year.
• Uncollectible accounts expense - amount of receivables charged as
expense.
• Interest expense - the amount of money charged to the borrower.
OWNER'S EQUITY
• Capital is the value of cash and other
assets invested in the business by the
owner of the business.
• Drawing is an account debited for assets
withdrawn by the owner for personal use
from the business.
 RECORDING
BUSINESS
TRANSACTIONS

(DOUBLE-ENTRY
SYSTEM)
THE ACCOUNTING CYCLE

• These are the uniform procedures

done to accomplish the accounting
process
ACCOUNTING CYCLE

1. Identifying and analyzing the events to be recorded.

2. Recording transactions in the journal.
3. Posting journal entries to the ledger.
4. Preparing the trial balance.
5. Preparing the worksheet and adjusting entries.
6. Preparing the financial statements.
7. Journalizing and posting of adjusting journal entries.
8. Journalizing and posting of closing journal entries
9. Preparing the post-closing trial balance.
10. Journalizing and posting of reversing journal entries.
RECORDING TRANSACTIONS IN THE JOURNAL

JOURNAL - is a chronological record of

events or business transactions
showing all the effects of each
transaction in terms of debits and
credits.
A JOURNAL ENTRY SHOULD CONTAIN THE FOLLOWING:

1. Date
2. Account Titles and Explanation
3. P.R. (Posting Reference)
4. Debit
5. Credit
Date Account Title P.R. Debit Credit
and Explanation

May 2 Cash 300, 000

Ong, Capital 300, 000
THE SIMPLE AND COMPOUND ENTRY

• Simple Journal Entry - only two

account are affected.
• Compound Journal Entry - three or
more accounts are affected.
JOURNALIZING THE TRANSACTIONS

• JOURNALIZING - is the process of

recording a transaction in the joural
after it has been recognized and
measured.
RULES FOR DEBIT AND CREDIT

You debit to show: You credit to show:

• Increase in assets • Decrease in assets
• Decrease in • Increase in
liabilities liabilities
• Decrease in • Increase in owner's
owner's equity equity
– Owner's withdrawal – Initial investment
– Expenses – Additional
Investment
– Revenue/Income
 ILLUSTRATIVE PROBLEM
• The following are transactions for Anime
World Gallery for the month of May. They
will be recorded using the double-entry
system. To analyze each transaction, the
following shall be used to show the effect
on the accounts as follows: A (Assets), L
(Liabilities), OE (Owner's Equity.
INITIAL INVESTMENT

May 2 Gisel Ong loves to watch anime. She

draws posters of colorful anme characters.
Sometimes she displays them in her office. To her
surprise, many anime fans buy her drawings and
paintings and place special orders for Anime
characters of their choice. Thus, Gisel decided to
open Anime World Gallery. Gisel invested 300, 000
in this initial endeavor. Dr Cr
Cash (A) 300, 000
Ong, Capital (OE) 300, 000
To record initial investment
ISSUANCE OF NOTE FOR CASH

May 3 Gisel Ong issued a promissory note for a

100, 000 loan from Allay Bank. the note carries a
12% interest per annum. The interest and the
principal are payable after one year.
Dr Cr
Cash (A) 100,000
Notes Payable (L) 100, 000
To record the borrowed
money from the bank by
issuing a promissory note.
ACQUISITION OF OFFICE EQUIPMENT FOR CASH

May 5 Ms. Ong acquired office equipment to be

used for the office paying 180,000 in cash

Dr Cr
Office Equipment (A) 100,000
Cash (A) 100, 000
To record purchased office
equipment for cash.
ACQUISITION OF FURNITURE PAYING DOWN PAYMENT AND
THE BALANCE ON ACCOUNT

May 5 Ms. Ong acquired furniture from Bloom's costing

40, 000, paying 12, 000 and the balance at the end of the
month.

Dr Cr
Furniture (A) 40,000
Cash (A) 12, 000
Accounts Payable (L) 8,000
To record bought furniture by
paying cash and the balance
on account.
ADVANCE PAYMENT OF RENTAL

May 6 Gisel Ong rented office space and paid two months
rent in advance, all costing 18, 000.

Dr Cr
Prepaid Rent (A) 18,000
Cash (A) 18, 000
To record the payment of two
months rent in advance.
EVENTS NOT AFFECTING THE ACCOUNTING EQUATION

May 7 Hired a part-time student helper with 4,000 salary.

the student helper started working on the following day.

May 8 Called National Book Store and ordered art

supplies worth 7, 200.
PURCHASE OF ART SUPPLIES ON ACCOUNT

May 11 The 7,200 worth of art supplies ordered from

National Book Store were delivered on account.

Dr Cr
Supplies (A) 7,200
Accounts Payable (L) 7, 200
To record the purchased art
supplies on account
INCOME EARNED ON ACCOUNT

May 12 An oil painting of Naruto and an acrylic paint of L

was delivered to Mr. Ku. Gisel Ong billed Mr. Ku 120, 000
for the paintings delivered.

Dr Cr
Accounts Receivable (A) 120,000
Painting Revenue (OE) 120,000
To record the anime painting
on account
PARTIAL SETTLEMENT OF ACCOUNTS PAYABLE

May 13 Ms. Ong paid National Book Store 3,000 of the

amount owed.

Dr Cr
Accounts Payable (L) 3,000
Cash (A) 3,000
To record the partial payment
made to National Book Store
PARTIAL COLLECTION OF ACCOUNTS RECEIVABLE

May 21 Ms. Ong received 50,000 from Mr. Ku as partial

payment for the anime painting delivered.

Dr Cr
Cash (A) 50, 000
Accounts Receivable (OE) 50,000
To record the cash received as
partial collection from Mr. KU
CASH WITHDRAWAL BY OWNER FOR PERSONAL USE

May 23 Gisel Ong withdrew 18,000 for personal use.

Dr Cr
Ong, Drawing (OE) 18,000
Cash (A) 18,000
To record the cash withdrawal
made by Ong.
PAYMENT OF EXPENSES INCURRED

May 29 Ms. Ong paid water bill of 540 for the month

Dr Cr
Utilities Expense (OE) 540
Cash (A) 540
To record the water bill paid
for the month.
UNPAID EXPENSES ALREADY CONSUMED

May 30 Ms. Ong received bill from Meralco amounting to

4,500.
Dr Cr
Utilities Expense (OE) 4,500
Utilities Payable (L) 4,50
To record the received bill
from Meralco
Journalize the following transactions of Sierra Consultancy
for the month of January.
2016
Jan. 1 Mr. Sierra deposited ₱980,000 in the account of the company. He
also invested a computer valued at ₱67,000.
2 Consultancy services rendered to Mongolia Corp. on account, ₱75,
000.
3 Bought ₱700,000 worth of transportation equipment from Mitsubishi
on account
7 Consultancy services rendered to various client for cash, ₱190,000
15 Consultancy services rendered to Codak Co. on account, ₱32,000
16 Paid Mitsubishi Motors in full
18 Collected ₱15,000 from Codak Co.
20 Received water bill, ₱980
26 Paid electricity for the month, ₱2,540.
28 Borrowed money from the bank, ₱120,000
30 Withdrew money for personal use, ₱5,000
ACTIVITY
Benigno Leon, a dentist, established Leon Clinic.
The following transactions occurred during June
2018
2018
June 1 Leon invested ₱280,000 cash to establish the business
3 Bought 3-in-1 office equipment from Pitular Equipment for ₱4,950 by
paying ₱1,000 cash and the balance on account.
5 Bought chairs and a table, paying cash, ₱12,300
7 Bought office equipment on account from NE Office Equipment,
₱2,750
9 Paid the telephone bill, ₱1,080
10 Performed professional services on account, ₱12,490
13 Paid the salaries of the part-time receptionist, ₱3,500
17 Performed professional services for cash, ₱17,650
18 Partially settled accounts with NE Office Equipment, ₱1,000
20 Paid rent for the month, ₱8,400
23 Leon withdrew cash for personal use, ₱8,500.
 THE
LEDGER
THE LEDGER

• A grouping of the entity's accounts is referred to as a

ledger.

GENERAL LEDGER - it is used to classify and summarize

the transactions, and to prepare data for basic financial
statements.

GENERAL GROUPS OF GENERAL LEDGER:

• Permanent accounts - balance sheet
• Temporary accounts - income statement
 THE GENERAL JOURNAL POSTING
Transferring of
Office Equipment xxx amounts of each
Cash xxx account
Accounts Payable xxx

Cash
Office Equipment
LEDGER Accounts Payable
Used to prepare
data for basic
financial
statements.
 Cash
Office Equipment
Accounts Payable

TRIAL BALANCE
Assets
Listing of all the
Liabilities
ledger accounts (in
Owner's Equity
order)
Income
Expenses
CHART OF ACCOUNTS
• A listing of all the accounts and their account numbers in
the ledger.
Balance Sheet Accounts
Assets Liabilities
110 Cash 210 Accounts Payable
120 Accounts Receivable 220 Notes Payable
130 Art Supplies 230 Salaries Payable
140 Prepaid Rent 240 Utilities Payable
150 Prepaid Insurance 250 Interest Payable
160 Office Equipment 260 Unearned Painting Revenue
165 Accumulated Depreciation- Office Owner's Equity
Equipment
170 Furniture and Fixture 310 Ong, Capital
175 Accumulated Depreciation - 320 Ong, Drawing
Furniture and Fixture
330 Income Summary
CHART OF ACCOUNTS

Income Statement Accounts

Income Expenses
410 Painting Revenue 510 Salaries Expense
520 Art Supplies
530 Rent Expense
540 Insurance Expense
550 Utilities Expense
560 Depreciation Expense - Office
Equipment
570 Depreciation Expense - Furniture and
Fixture
POSTING

Transferring the amounts from journal to ledger.

Debits in the journal are posted as debits in the ledger

Credits in the journal are posted as credits in the ledger.
STEPS IN POSTING ACCOUNTS
page 1
Date Account Title and P.R. Debit Credit
Explanation
2016
May 2 Cash (A) 310
Ong, Capital (OE) 300, 000
To record initial investment

Account: Ong, Capital

Account No. 310
Date Account Title and J.R. Debit Credit
Explanation
2016
May 2 J-1 300,000
STEPS IN POSTING ACCOUNTS
page 1
Date Account Title and P.R. Debit Credit
Explanation
2016
May 2 Cash (A) 110 300, 000
Ong, Capital (OE) 300, 000
To record initial investment

Account: Ong, Capital

Account No. 110
Date Account Title and J.R. Debit Credit
Explanation
2016
May 2 J-1 300,000
 Debit Credit
Cash 400,000
Navarro, Capital 400,000
To record initial investment

Accounts Payable 120,000

Cash 120,000
To record borrowed money from the bank

Accounts Receivable 40,000

Service Revenue 40,000
To record rendered service on account

Cash 20,000
Service Revenue 20,000
To record rendered service for cash
Offi ce Supplies 32,000
Cash 32,000
To record purchased supplies through cash

Utilities Expense 10,000

Cash 10,000
To record paid utilities

Salaries Expense 12,000

Cash 12,000
To record paid salaries

Navarro, Drawing 10,000

Cash 10,000
To record withdrawn money from the bank
THE TRIAL
BALANCE
TRIAL BALANCE

• It is a listing of all account titles with their

respective debit or credit balances taken
from the ledger.
 Anime World Gallery
Trial Balance
May 31, 2016
Account Title De bit Cre dit
Cash ₱373,660
Accounts Receivable 70,000
Art Supplies 7,200
Prepaid Rent 18,000
Prepaid Insurance 10,800
Office Equipment 180,000
Furniture and Fixture 40,000
Accounts Payable ₱32,200
Notes Payable 100,000
Utilities Payable 4,500
Unearned Painting Revenue 80,000
Ong, Capital 300,000
Ong, Drawing 18,000
Painting Revenue 210,000
Salaries Expense 4,000
Utilities Expense 5,040
₱726,700 ₱726,700