Accounting Cycle

Prepared by: Atty. Marydith B. Boltiador-Orio, CPA

 The Accounting Cycle
1. Transactions 2. Journal 4. Unadjusted 5. Adjusting
3. Posting
Entries Trial Balance Journal Entries

10. Reversing 9. Post Closing 8. Closing 7. Financial

6. Worksheet
Journal Entries Trial Balance Journal Entries Statements
1. Identification and analysis of transactions

 Documents are analyzed whether it has financial impact

 Two conditions must exist
1. only financial transactions are recorded
2. amount can be measured
1. Identification and analysis of transactions

Steps:
1. Identify the transaction from 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. Using the rules of debit and credit, determine whether to debit
or credit the account to record its increase or decrease.
2. Recording transactions in the journal

• Double-Entry System
• Journal (Book of Original Entry)
 Assets = Liabilities + Equity
Accounts Ryd Hunter, Capital Notation
Cash Supplies Land Payable Capital
a. Ryd Hunter deposits P2,500,000 in a bank account
in the name of Hunter Solutions. a. +2,500,000 +2,500,000 Investment by Ryd Hunter
b. Bought land for 2,000,000. b. -2,000,000 +2,000,000
c. Bought supplies for 135,000 on account. c. +135,000 +135,000
d. Received 750,000 for services provided to customers. d. +750,000 +750,000 Fees earned
e. Expenses paid for the month are as follows: salaries, e. - 365,000 -212,500 Salaries expense
212,500; rent 80,000; utilities 45,000 and miscellaneous -80,000 Rent expense
27,500 -45,000 Utilities expense
-27,500 Miscellaneous expense
f. Paid 95,000 to creditors during the month. f. -95,000 -95,000
g. Cost of supplies on hand is 55,000. g. -80,000 -80,000 Supplies expense

h. Ryd Hunter withdraws 200,000 for personal use. h. -200,000 -200,000 Withdrawal

590,000 55,000 2,000,000 40,000 2,605,000

2,645,000 2,645,000

Note:
1. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements.
2. The two sides of the accounting equation are always equal.
3. The equity is increased by amounts invested by the owner and is decreased by withdrawals of the owner. In addition, the equity is increased by
revenues and is decreased by expenses.
2. Recording transactions in the journal

Dec.1 Hunter Solutions paid a premium of P240,000 for a

comprehensive insurance policy covering liability, theft and fire.
The policy covers a two-year period.

Dec.1 Prepaid Insurance 240,000

Cash 240,000
Paid premium on two-year policy.
2. Recording transactions in the journal

Dec.1 Hunter Solutions paid rent for December, P80,000.

Dec.1 Rent Expense 80,000

Cash 80,000
Paid rent for December
2. Recording transactions in the journal
Dec.1 Hunter Solutions received an offer from a local retailer to rent
the land purchased on November 5. The retailer plans to use the land
as a parking lot for its employees and customers. Hunter Solutions
agreed to rent the land to the retailer for three months, with the rent
payable in advance. Hunter Solutions received P36,000 for three
month’s rent beginning December 1.

Dec.1 Cash 36,000

Unearned Rent 36,000
Received advance payment for 3 month’s rent on
land.
2. Recording transactions in the journal

Dec.4 Hunter Solutions purchased office equipment on account

from Executive Supply Co. for P180,000.

Dec.4 Office Equipment 180,000

Accounts Payable 180,000
Purchased office equipment on account.
2. Recording transactions in the journal

Dec.6 Hunter Solutions paid P18,000 for a newspaper

advertisement.

Dec.6 Miscellaneous Expense 18,000

Cash 18,000
Paid for newspaper advertisement.
2. Recording transactions in the journal

Dec.11 Hunter Solutions paid creditors P40,000.

Dec.11 Accounts Payable 40,000

Cash 40,000
Paid creditors on account.
2. Recording transactions in the journal

Dec.13 Hunter Solutions paid a receptionist and a part time

assistant P95,000 for two week’s salary.

Dec.13 Salaries Expense 95,000

Cash 95,000
Paid two week’s salaries.
2. Recording transactions in the journal

Dec.16 Hunter Solutions received P310,000 from fees earned for

the first half of December.

Dec.16 Cash 310,000

Fees Earned 310,000
Received fees from customers.
2. Recording transactions in the journal

Dec.16 Fees earned on account total P175,000 for the first half of
December.

Dec.16 Accounts Receivable 175,000

Fees Earned 175,000
Recorded fees earned on account.
2. Recording transactions in the journal

Dec.16 Fees earned on account total P175,000 for the first half of
December.

Dec.16 Accounts Receivable 175,000

Fees Earned 175,000
Recorded fees earned on account.
2. Recording transactions in the journal

Dec.21 Hunter Solutions received P65,000 from customers in

payment of their accounts.

Dec.21 Cash 65,000

Accounts Receivable 65,000
Received cash from customers on account
2. Recording transactions in the journal

Dec.23 Hunter Solutions paid P145,000 for supplies.

Dec.23 Supplies 145,000

Cash 145,000
Purchased supplies.
2. Recording transactions in the journal

Dec.27 Hunter Solutions paid the receptionist and the part time
assistant P120,000 for two week’s wages.

Dec.27 Salaries Expense 120,000

Cash 120,000
Paid two week’s salaries.
2. Recording transactions in the journal

Dec.31 Hunter Solutions paid its P31,000 internet bill for the
month.

Dec.31 Utilities Expense 31,000

Cash 31,000
Paid internet bill.
2. Recording transactions in the journal

Dec.31 Hunter Solutions paid its P22,500 electric bill for the
month.

Dec.31 Utilities Expense 22,500

Cash 22,500
Paid electric bill.
2. Recording transactions in the journal

Dec.31 Hunter Solutions received P287,000 from fees earned for

the second half of December.

Dec.31 Cash 287,000

Fees Earned 287,000
Received fees from customers.
2. Recording transactions in the journal

Dec.31 Fees earned on account total P112,000 for the second

half of December.

Dec.31 Accounts Receivable 112,000

Fees Earned 112,000
Fees earned on account.
2. Recording transactions in the journal

Dec.31 Ryd Hunter withdrew P200,000 for personal use.

Dec.31 Ryd Hunter, Drawing 200,000

Cash 200,000
Withdrawal of cash for personal use.
 3. Posting JEs to the Ledger
• Posting
• Ledger (Book of Final Entry)
Chart of Accounts
 3. Posting JEs to the Ledger
• Posting
• Ledger (Book of Final Entry)
 General Journal Page: 2

Date
2021 1
Description
Prepaid Insurance
P.R. Debit Credit
cross-indexing
15 240,000
Dec Cash 11 240,000
Paid premium on 2 year policy.

General Ledger
ACCOUNT Prepaid Insurance Account No: 15 Prepaid Insurance

Date Item J.R. Debit Credit Balance 240,000

2021 1 J-2 240,000 240,000
Dec

ACCOUNT Cash Account No: 11 Cash

Date Item J.R. Debit Credit Balance 200,000

Nov 30 J-2 200,000 590,000 240,000
Dec 1 J-2 240,000 350,000

3. Posting JEs to the Ledger

2021 Cash Office Equipment Salaries Expense
Nov 1 Cash 2,500,000 11/30
11/1 2,500,000 2,000,000 11/5 212,500
Ryd Hunter, Capital 2,500,000
11/18 750,000 365,000 11/30
5 Land 2,000,0000 Accounts Payable
Cash 2,000,000 Rent Expense
135,000 11/10
10 Supplies 135,0000 11/30 80,000
Accounts Payable 135,000
18 Cash 750,000
Fees Earned 750,000 Utilities Expense
Unearned Rent
30 Salaries Expense 212,500 11/30 45,000
Rent Expense 80,000
Utilities Expense 45,000
Miscellaneous Exp 27,500 Ryd Hunter, Capital
Cash 365,000 2,500,000 11/1
Supplies Expense

Accounts Receivable Ryd Hunter, Drawing

Fees Earned
Supplies Miscellaneous Expense
11/10 135,000 750,000 11/18
11/30 27,500

Prepaid Insurance

Land
11/5 2,000,000
4. Preparing the Unadjusted Trial Balance
• Trial Balance
• Steps:
1. In their proper numerical order, make a listing of all account titles.
2. Get the account balance of each ledger account and write them under
their corresponding debit or credit column.
3. Foot or add the debit and the credit columns of the trial balance.
4. Check whether the debit totals and credit totals are equal. They must
be equal otherwise there is error in the trial balance.
Discovery of Errors
 Common Types of Errors
Transposition
• occurs when the order of the digits is changed mistakenly
• writing P542 as P452 or P524

Transplacement (Slide)
• the entire number is mistakenly moved one or more spaces to the right
or the left
• writing P542.00 as P54.20 or P5,420.00
END