ACCOUNTING CYCLE FOR SERVICE CONCERN BUSINESS – PRACTICE SET

Time Duration and Allotment: Week 9 to 12; 24 hours

Abstract:
This focuses on the application of the steps in the accounting cycle for service concern business in a practice-set based materials.

Lesson Objectives:
As a result of completing this learning module, students will be able to:
• Perform the steps in the accounting cycle.

Module Guide:

1. Answer the following practice set below. Use pencil for convenience. BE NEAT.

TOPIC CONTENT

• Steps in the accounting cycle:

1. Identifying and analyzing business documents or transactions – The accountant gathers information from source documents and determines the effect of
the transactions on the accounts. Examples of source documents are: sales invoices, official receipts, purchase orders, delivery receipts, bank deposit slips,
bank statements, checks, Statement of Account and the like.
2. Journalizing – the identified accountable events are recorded in the journals.
3. Posting – information from the journal are transferred to the ledger.
4. Unadjusted trial balance – the balances of the general ledger accounts are proved as to be equality of debits and credits. The unadjusted trial balance serves
as basis for adjusting entries.
5. Adjusting entries – the accounts are updated as of the reporting date on an accrual basis by recording accruals, expiration of deferrals, estimations, and
other events often not signaled by new source documents.
6. Adjusted trial balance (and/or worksheet) – the equality of debits and credits are rechecked after adjustments are made. The adjusted trial balance serves as
basis for the preparation of the financial statements.
7. Financial statements – these are the means by which the information processed is communicated to users.
8. Closing entries – this involves journalizing and posting closing entries and ruling the ledger. Temporary accounts (or nominal accounts) are closed and the
resulting profit or loss is transferred to an equity account.
9. Post-closing trial balance – the equality of debits and credits are again rechecked after the closing process.
 10. Reversing entries – are usually made at the beginning of the next accounting period and are made to simplify the recording of certain transactions in the
next accounting period.

PRACTICE SET

Shown below is the CHART OF ACCOUNTS of Davao Laundry Services.

DAVAO LAUNDRY SERVICES

Chart of Accounts

Statement of Financial Position Accounts Statement of Comprehensive Income Accounts

Page Account Page Account
No. No. No. No.
Assets Income
1 111 Cash in Bank 13 441 Laundry Income
2 112 Accounts Receivable
3 112-A Estimated Uncollectible Accounts Expenses
4 113 Laundry Supplies Inventory 14 551 Uncollectible Accounts
5 114 Laundry Equipment 15 552 Depreciation Expense
6 114-A Accumulated Depreciation 16 553 Salaries Expense
17 554 Rent Expense
Liabilities 18 555 Utilities Expense
7 221 Notes Payable 19 556 Laundry Supplies Expense
8 222 Accounts Payable 20 557 Taxes and Licenses
9 223 Accrued Advertising 21 558 Advertising Expense
22 559 Interest Expense
Owner’s Equity
10 331 S. Santos, Capital
11 332 S. Santos, Drawing
12 333 Income and Expense Summary

2. Analyze the transactions below whether or not they are accountable (recordable in the books of accounts), and proceed to Instruction # 3.
Below is the transactions for the month of March 20A.

Date of
Transaction
Transaction
March Mr. Severo Santos opens a current account with Allied Banking Corp. in the amount of P850,000 to start with his laundry shop
1 business under the trade name Davao Laundry Services.
2 Purchased laundry supplies inventory on account, P90,000 from the following suppliers:

SM City – Davao P 35,000

Gaisano Mall 25,000
NCCC Mall 30,000
Total Payable P 90,000

3 Purchase of laundry machine for cash, P150,000.

4 Rendered laundry services on account, P80,000 to the following customers:

Apo View Hotel P 5,000

Grand Men Seng Hotel 35,000
The Marco Polo Hotel 30,000
Royal Mandaya Hotel 10,000
Total Receivable P 80,000

10 Paid taxes and licenses due to government, P4,000

12 Mr. Santos withdrew P10,000 cash from the business for his personal use.
17 The business borrowed money from Land Bank of the Philippines, P100,000 by issuing a 15-day note. It was deposited to the account
of Davao Laundry Services by way of a Credit Memorandum issued by the bank.
The bank issued a debit memo, P1,000 for interest charges.
21 Received cash of P45,000 representing collection from the following customers’ account:

Grand Men Seng Hotel P 30,000

The Marco Polo Hotel 10,000
Royal Mandaya Hotel 5,000
Total Collection P 45,000

25 Partial payment of accounts, P60,000 to the following suppliers:

 SM City – Davao P 25,000
Gaisano Mall 20,000
NCCC Mall 15,000
Total payment P 60,000

30 Mr. Severo Santos hired an accountant/manager for his business as he has plenty of things to attend to at P10,000 salary per month
effective April 1, 20A.
The following expenses were paid by Davao Laundry Services for the month of March 20A:

Space rental P 5,000

Telephone, light and water 12,000
Salaries of employees (contractual) 10,000
Total expenses paid P 27,000

3. Journalize the transactions above using the journal sheet provided below. Fill-in appropriate the columns for Date (day), Particulars (debit item, credit item, and
brief explanation of the transaction – with proper indention), Debit amount and Credit Amount. Pages in the Journal Sheets are assumed purposely. Do not fill-in
yet the Folio Columns for this will be reserved for posting transactions, Instruction # 4. Do not forget to leave 1 space for every journal entry.

GENERAL JOURNAL

Page 1
Date
Particulars Folio Debit Credit
20A
 GENERAL JOURNAL

Page 2
Date
Particulars Folio Debit Credit
20A
(space for Adjusting Entries)
 GENERAL JOURNAL (for Closing Entries only)

Page 3
Date
Particulars Folio Debit Credit
20A
4. Posting the transactions previously journalized using the ledger sheets below. Fill-in appropriate the columns for Date (day), Particulars (for CASH IN BANK
ledger only), Debit amount and Credit Amount. Pages in the Journal Sheets are assumed purposely. This time, CAREFULLY fill-in the FOLIO Columns for
the ledger sheets AS WELL AS THAT OF THE JOURNAL SHEET FOLIO columns ABOVE.

GENERAL LEDGER
ASSETS

Cash in Bank Account No. 111

20A Particulars Folio Debit 20A Particulars Folio Credit

Accounts Receivable Account No. 112

20A Particulars Folio Debit 20A Particulars Folio Credit

Estimated Uncollectible Accounts Account No. 112-B

20A Particulars Folio Debit 20A Particulars Folio Credit
 Laundry Supplies Inventory Account No. 113
20A Particulars Folio Debit 20A Particulars Folio Credit

Laundry Equipment Account No. 114

20A Particulars Folio Debit 20A Particulars Folio Credit

Accumulated Depreciation - Laundry Equipment Account No. 114-B

20A Particulars Folio Debit 20A Particulars Folio Credit

LIABILITIES

Notes Payable Account No. 221

20A Particulars Folio Debit 20A Particulars Folio Credit

Accounts Payable Account No. 222

20A Particulars Folio Debit 20A Particulars Folio Credit
 Accrued Advertising Account No. 223
20A Particulars Folio Debit 20A Particulars Folio Credit

OWNER’S EQUITY

S. Santos, Capital Account No. 331

20A Particulars Folio Debit 20A Particulars Folio Credit

S. Santos,Drawing Account No. 332

20A Particulars Folio Debit 20A Particulars Folio Credit

Income and Expense Summary Account No. 333

20A Particulars Folio Debit 20A Particulars Folio Credit
INCOME

Laundry Income Account No. 441

20A Particulars Folio Debit 20A Particulars Folio Credit

EXPENSES

Uncollectible Accounts Account No. 551

20A Particulars Folio Debit 20A Particulars Folio Credit

Depreciation Expense Account No. 552

20A Particulars Folio Debit 20A Particulars Folio Credit

Salaries Expense Account No. 553

20A Particulars Folio Debit 20A Particulars Folio Credit
 Rent Expense Account No. 554
20A Particulars Folio Debit 20A Particulars Folio Credit

Utilities Expense Account No. 555

20A Particulars Folio Debit 20A Particulars Folio Credit

Laundry Supplies Expense Account No. 556

20A Particulars Folio Debit 20A Particulars Folio Credit

Taxes and Licenses Account No. 557

20A Particulars Folio Debit 20A Particulars Folio Credit

Advertising Expense Account No. 558

20A Particulars Folio Debit 20A Particulars Folio Credit
 Interest Expense Account No. 559
20A Particulars Folio Debit 20A Particulars Folio Credit

5. Meanwhile, perform the POSTING to SUBSIDIARY LEDGER.

What accounts are to be posted to the Subsidiary Ledger? Transactions that contain Receivable and Payable journal entries that necessitates
posting to another ledger which is called “Subsidiary Ledger”.

Based on the transactions occurring at dates March 2, 4, 21 and 25 above (Instruction # 2), accomplish the posting to subsidiary ledger using the Subsidiary
Ledger Sheets provided below. In addition, accomplish the respective Schedule of Accounts Receivable as of March 31, 20A and Schedule of Accounts Payable
as of March 31, 20A using the space provided thereafter.

* Brief explanation is already provided for you to be guided.

** Balance columns means the running balance every after transaction has occurred.

Do not forget to fill-in the date columns, debit amount and credit amount, and the running balance amount. NO NEED TO FILL IN THE FOLIO
ANYMORE.

SUBSIDIARY LEDGER – ACCOUNTS RECEIVABLE

Apo View Hotel

Camus Street, Davao City
20A Particulars Folio Debit Credit Balance**
Billings*
Grand Men Seng Hotel
Magallanes Street, Davao City
20A Particulars Folio Debit Credit Balance**
Billings*
Collection*

Royal Mandaya Hotel

Palma Gil Street, Davao City
20A Particulars Folio Debit Credit Balance**
Billings*
Collection*

The Marco Polo Hotel

C. M. Recto Street, Davao City
20A Particulars Folio Debit Credit Balance**
Billings*
Collection*

After postings to the subsidiary ledgers of accounts receivable have been done, prepare the Schedule of Accounts Receivable, using the space provided below.
Heading is already provided for convenience, as well as the list of customer accounts. You just need to fill in the amount of accounts receivable outstanding as of
March 31, 20A by filling in the space provided below. Do not forget to observe the single and double ruling.
 Davao Laundry Services
Schedule of Accounts Receivable
As of March 31, 20A

Amount
Apo View Hotel
Grand Men Seng Hotel
Royal Mandaya Hotel
The Marco Polo Hotel
Total

SUBSIDIARY LEDGER – ACCOUNTS PAYABLE

Gaisano Mall
J.P. Laurel Ave., Davao City
20A Particulars Folio Debit Credit Balance**
Account from supplier*
Payment*

NCCC Mall
Matina, Davao City
20A Particulars Folio Debit Credit Balance**
Account from supplier*
Payment*
SM City - Davao
Ecoland, Davao City
20A Particulars Folio Debit Credit Balance**
Account from supplier*
Payment*

After postings to the subsidiary ledgers of accounts payable have been done, prepare the Schedule of Accounts Payable, using the space provided below.
Heading is already provided for convenience, as well as the list of customer accounts. You just need to fill in the amount of accounts receivable outstanding as of
March 31, 20A by filling in the space provided below. Do not forget to observe the single and double ruling.

Davao Laundry Services

Schedule of Accounts Payable
As of March 31, 20A

Amount
Gaisano Mall
NCCC Mall
SM City - Davao
Total
6. Prepare Trial Balance using the sheet provided below by transferring open balances from the general ledger (Instruction # 4). Do not forget to provide for the
proper heading. Do not forget to perform single and double ruling.

Account Title Foli Debit Credit

o
7. Prepare the year-end adjusting entries using the journal sheet provided before. Make use of the journal sheet provided in Instruction # 3.
Base your answer from the information given below.
Do not fill-in yet the Folio Columns for this will be reserved for posting transactions, Instruction # 4.
Do not forget to leave 1 space for every journal entry.

The following are the given data for adjustments:

1. 1% of the outstanding receivable account is estimated to be doubtful of collection.

2. P20,000 cost of supplies inventory was actually consumed.

3. The laundry machine has an estimated life of 5 years without salvage value.

4. Advertising expense has been incurred already but still unpaid, P3,000.

8. Post the adjusting entries recorded in the journal sheets as per instruction # 7 to the respective general ledger sheets.

This time, CAREFULLY fill-in the FOLIO Columns for the ledger sheets AS WELL AS THAT OF THE JOURNAL SHEET FOLIO columns.

9. Prepare the worksheet using the sheet provided below. Do not forget to provide to the proper heading. Observe the single and double ruling of amounts.
 Unadjusted Trial Adjusted Trial
Adjustments Income Statement Balance Sheet
Accounts Balance Balance
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
10. Prepare Financial Statements using the sheets provided below. Heading is already provided for convenience.

Special instructions:
a. Prepare Income Statement using the single-step format.
b. Prepare Statement of Changes in Equity, as usual.
c. Prepare Balance Sheet using the report form.
d. Prepare Statement of Cash Flows using DIRECT METHOD for all cash flow activities: i.e., operating, investing and financing.

Davao Laundry Services Davao Laundry Services

Income Statement Statement of Changes in Owner’s Equity
For the month ended March 31, 20A For the month ended March 31, 20A
Davao Laundry Services Davao Laundry Services
Balance Sheet Statement of Cash Flows
As of March 31, 20A For the month ended March 31, 20A
11. Prepare the year-end closing entries using the journal sheet provided before. Make use of the journal sheet provided in Instruction # 3.
Do not fill-in yet the Folio Columns for this will be reserved for posting transactions, Instruction # 4.
Do not forget to leave 1 space for every journal entry.

12. Post the closing entries recorded in the journal sheets as per instruction # 11 to the respective general ledger sheets.

This time, CAREFULLY fill-in the FOLIO Columns for the ledger sheets AS WELL AS THAT OF THE JOURNAL SHEET FOLIO columns.

13. From the final results of the general ledger after posting all entries (starting from journal entry to closing entries), prepare Post-Closing Trial Balance using the
sheet provided below. Heading is already provided for convenience. Observe the single and double ruling.

Davao Laundry Services

Post-Closing Trial Balance
March 31, 20A
Account Title Foli Debit Credit
o
14. From the adjusting entries previously prepared, prepare the necessary reversing entry using the journal sheet provided below.

GENERAL JOURNAL

Page 1
Date
Particulars Folio Debit Credit
20B