Fundamentals 0f

Accountancy 1
Prepared by: Ms. Josephine v. Jose
 Our lesson for today:

We will tackle about the Types

of Major Accounts

• Assets
• Liabilities
• Capital
• Income
• Expenses
Before we learn about the types of major
accounts, lets review first our last topic.
Differentiate the
following:
What is the assets
Accounting liabilities
equation ?
equity
 Assets = Liabilities + Owner’s Equity

Assets is owned by the business,

.
Liabilities is debt owed by the business
while equity is the residual interest of the
owners.
 Types of Major Accounts

 Income – is the increase in economic

 Assets- are the resources owned and
benefits during the accounting period in
controlled by the firm the form of inflows of cash or other
 Liabilities – are obligations of the firm
assets or decreases of liabilities that
arising from past events which are to be results in increase in equity. Income
settled in the future includes revenue and gains.
 Equity – are the owner’s claims in the  Expenses- are decreases in economic
business. It is the residual interest in the benefits during the accounting period in
assets of the enterprise after deducting the form of outlaws of assets or
all its liabilities. incidences of liabilities that results in
decreases in equity.
Current vs. Non-current Assets, Tangible vs.
Intangible Assets

• Current assets- are assets that can be realized

(collected, sold, used up) one year after year-
end date.
• Non-current assets- are assets that cannot be
realized.
• Tangible assets- are physical assets such as
cash, supplies and furniture and fixtures
• Intangible assets- are non-physical assets
such as patents and trademark
 Non-current
Assets
Current Assets  Property, Plant and
 Cash Equipment
 Accounts receivable
 Notes receivable
 Long term
 Inventories investments
 Supplies
 Intangible Assets
 Prepaid Expenses
 Accrued Income
 Short term investments
Liabilities- are the debts and obligations of the company
Current Liabilities- liabilities that fall due
 Accounts Payable- are amounts due, or payable to
 Notes payable- are amounts due to third parties supported by
promissory notes
 Acrrued Expenses- are expenses that are incurred but not yet paid
 Unearned Income- is cash collected in advance

Non-current Liabilities- are liabilities that do not fall due

• Loans Payable
• Mortgage payable
Owner’s Equity- is the residual interest of the owner from
the business

• Capital- is the value of cash and

other assets invested in the
business
• Drawings- is an account debited for
assets withdrawn by the owner
Income- is the increase in resources resulting from
performance of service or selling of goods

Expenses - is the decrease in resources resulting from

the operation of the business.
Directions: Identify if the account is an assets,
liability, equity, income or expense.
1. Accounts receivable 16. Office Supplies
2. Accounts Depreciation 17. Prepaid Expense
3. Advertising Expenses 18. Rent Expense
4. Bond Payable 19. Salaries Expense
5. Building 20. Salaries payable
6. Cash 21. Service Fees Income
7. De Jesus, Capital 22. Supplies Expense
8. De Jesus, Drawings 23. Trading Securities
9. Delivery truck 24. Unearned Income
10.Interest payable 25. Utilities Expense
11.Inventories
12.Land
13.Mortgage Loans
14.Notes Payable
15.Notes Receivable
Thank you!
 ACCOUNTING PERIOD
AND ACCOUNTING
CYCLE
LESSON NO. 4a
 LEARNING OBJECTIVES:

By the end of the study, the student should be able to:

1. Define an accounting period;

2. Define an accounting cycle;
3. Understand the different steps in a one accounting cycle for a
Service industry.
ACCOUNTING PERIOD.
Accounting period or fiscal period is each segment of time, usually a
year, in which statements are prepared in order to know the results of the
business operation during that particular period of time. The length of
each accounting period depends on the nature of the business.
An accounting period may be annual, semi-annual, quarterly, or
monthly. The length of each accounting period depends on the nature of
the business. Usually, most firms use such period of time when the
business is slow as the end of their accounting period and the beginning of
the next period.
ACCOUNTING CYCLE.
Accounting cycle consists of successive steps starting with
the recording of transactions in the book of accounts and
ending with a post-closing trial balance.
The following successive steps consist one accounting
cycle which are as follows:
1. Journalizing
2. Posting
3. Preparation of the trial balance.
4. Adjusting the entries
5. Preparation of the worksheet
6. Preparation of the financial statements
7. Closing the entries
8. Reversing the entries
 A. JOURNALIZING

Journalizing is the first step in the accounting cycle. It is the process

of recording business transactions in a journal.
A journal is a book of accounts wherein business transactions are
recorded for the first time. It is also called the book of original entry.
There are two kinds of journal:
1. The general journal; and
2. The special journals
a. The Cash Receipts Journal
b. The Cash Payments Journal
c. The Sales Journal
d. The Purchases Journal
GENERAL JOURNAL.
General Journal is the simplest form of journal wherein the two-column form
may be used.

Illustration.
General Journal Page 1
Date Account Titles and Explanation F Debit Credit

A General Journal contains the following columns:

Date – the date of the transaction is entered in this column; transactions are
recorded in a systematic manner and in a chronological order.
Account Titles and Explanation – this column contains the debit and credit
accounts and a brief explanation of the entries.
Folio – this contains the post reference number or the ledger page in which
the accounts are transferred.
Debit – contains the amounts debited.
Credit – contains the amounts credited.
 Procedures in Journalizing.

A. Under the date column.

1. The year is written in small figures at the top of the first line after the
Date at the Date column.
2. The month of the transaction is written on the first line of the column.
The year and the month are not repeated except at the top of a new
page or when there is a change in the month.
3. The day of each transaction is written in the right sub-column of the
date column. The date of the transaction occurring on the same day
is repeated.

B. Under the account titles and explanation column.

1. The name of the account debited is written first at the left margin of the account
titles and explanation column.
2. The name of the account credited is written on the following line, indented
about one-half inch from left margin.
3. The explanation is placed on the next line, indented about one inch from the left margin.
The explanation should be short but sufficient enough to explain the entry.
. Under the debit column.
1. The debit amount is written on the debit column opposite the debit
account.

D. Under the credit column.

1. The credit amount is written on the credit column opposite

E. Under the folio column.

1. The folio or reference column is used to indicate the page number of the
ledger in which the entry is transferred.
There is no entry yet in the folio column when transactions are recorded in the
general journal. However, when the entries are copied from the journal to the ledger,
the account number of the ledger accounts in which the debits and credits are copied
are entered in the folio column.
2. A single-space should be left blank after each entry.
JOURNAL ENTRY.
A journal entry is a record of business transactions in the
journal. There are two types of journal entry:
1. The simple journal entry; and
2. Compound journal entry.
The simple journal entry which contains only one debit and
one credit accounts; and the compound journal entry which
contains either one debit and two or more credits; or two or more
debits and one credit; or two or more debits and two or more
credits.
 B. POSTING
Posting is the process of transferring the records from the journal to the
ledger. A ledger constitutes a group of accounts It is also called the Book of Final
Entry.

Illustration.
Name of the Item Account No. ______
Date Explanation F Debit Date Explanation F Credit

Figure 1. General Ledger

The illustration shown above is the most commonly used form of ledger. The two
vertical lines in the middle divine the left side or the debit side and the right side or
the credit side of the form. Each side has columns for date, explanation, cross-
reference number or folio, and amounts.

Need for a ledger.

1. Items of similar nature are grouped together.
2. It is easier to locate the item if an information about it is needed
3. Place the page number of the journal in which the information was taken
to the folio column of the ledger.
4. Place in the folio column of the journal the page number of the ledger in
which the information was posted.
Inserting the account number in the journal folio column serves two
purposes:
a. It serves as a cross-reference when it desired to trace the amount
from one record to another.
b. Writing the account number in the journal indicates that posting is
completed.
Procedure in Posting.
1. Locate the corresponding account title in the ledger.
2. Transfer to the ledger the following information from the journal:
a. Date
b. Explanation
c. Amount
Debit accounts from the journal are posted on the debit side of the
ledger and credit accounts are posted on the credit side of the
ledger.
C. PREPARATION OF THE TRIAL BALANCE

Footing the accounts.

Before the preparation of trial balance, the accounts should be
footed first. The following procedure is followed:
1. Foot or add the debit side of the account.
2. Foot or add the credit side of the account.
3. Take the difference between the totals of the debits and
credits. If the debit total is more than the credit total, the
difference is placed on the explanation of the column of the
debit side. If the difference is a credit, the amount is written on
the explanation column of the credit side.
THE TRIAL BALANCE

A trial balance is a list of accounts with open balances in the general ledger. It proves the
equality of the debits and the credits in the general ledger.
There are two types of trial balance:
1. The Trial Balance of Balances
2. The Trial Balance of Totals.

The trial balance of balances contains accounts with open balances. Accounts with open
balances either have a debit balance or a credit balance. An account is said to have a debit
balance if the debit total is more than the credit total and is said to have a credit balance if the
credit total is more than the debit total. If the debit side and credit side are equal, the account
is a zero balance or closed account.
The other form of trial balance is the trial balance of totals. In this form, the
total of the debits and the total of the credits of each account are listed.

Procedure in Trial Balance Preparation.

1. Write the heading of the trial balance. The heading of the trial balance
includes the following:
a. The name of the business or the owner
b. Title of the list or trial balance
c. Date of the trial balance
2. Provide a column for the accounts and two money columns – a debit and a credit.

3. The accounts should be written in just one column arranged in the following sequence.
a. Assets
b. Liabilities
c. Capital
d. Income
e. Expenses

4. Write the amounts opposite the corresponding accounts under the debit money column if the account
is a debit balance and under the credit money column if the account is a credit balance.

5. Foot the money columns. Double rule the totals.