Workbook in Basic Accounting
LESSON 3
STARTING THE ACCOUNTING CYCLE
OVERVIEW
A. The Accounting Cycle
B. The Concept of Debit and Credit
C. Journalizing
D. Posting
E. The Unadjusted Trial Balance
A. THE ACCOUNTING CYCLE
The accounting cycle is an eleven-step process for completing a company’s
fundamental financial reporting tasks. It provides a guide for analyzing,
recording, and reporting all valid business transactions of a business.
STEP 1 – Identification of Business Transactions
Identification of valid business transactions based on supporting documents,
e.g., official receipts, contracts, checks, disbursement vouchers, sales invoices,
payroll, among others.
STEP 2 – Journalizing
Record the business transactions in a Journal.
STEP 3 – Posting
Post the journal entries to General Ledger.
STEP 4 – Unadjusted Trial Balance
At the end of the accounting period, prepare the Unadjusted Trial Balance.
STEP 5 – Worksheet
Prepare the Worksheet and identify the adjusting entries to be made.
STEP 6 – Adjusting Journal Entries
Recognize adjustments and prepare the adjusting journal entries.
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Workbook in Basic Accounting
STEP 7 – Adjusted Trial Balance
Complete the adjustments in the worksheet and prepare the Adjusted Trial
Balance.
STEP 8 – Financial Statements
Complete the worksheet and use it to prepare the Financial Statements.
STEP 9 – Closing Entries
Record the closing entries in the Journal.
STEP 10 – Post-Closing Trial Balance
Post the closing entries in General Ledger and prepare the Post-Closing Trial
Balance.
STEP 11 – Reversing Entries
At the beginning of the next accounting period, record the reversing entries in
the Journal, if needed.
B. THE CONCEPT OF DEBIT AND CREDIT
Financial statements comprising of different type of accounts such as cash,
account receivable, supplies, accounts payable, service revenue, rent expense,
among others, represent the summary of all business transactions transpired
during a particular accounting period. An account like cash is either increased or
decreased whenever it is affected by a business transaction; for example, the
owner invests P100,000 cash in the business. The concept of recording the
increase or decrease in any account describes the concept of debit and credit.
Debit represents the left side of an account, while credit represents the right side.
As a rule, assets, owner’s withdrawals, and expenses are increased by debits and
decreased by credits. On the other hand, liabilities, owner’s capital, and
revenues are increased by credits and decreased by debits.
C. JOURNALIZING
Once a transaction is analyzed, considered a valid business transaction that
needs recording in the accounting process and affects at least two accounts in
the accounting equation, it has to be recorded using the Journal in the process
called journalizing.
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Workbook in Basic Accounting
Each journal entry should list the date of the transaction, the account/s to be
debited followed by the corresponding amount/s, and account/s to be credited,
also followed by the corresponding amount/s. Also, a brief explanation of the
transaction will be written after each journal entry.
D. POSTING
The next step in the accounting cycle is posting the journal entries to the general
ledger or simply “ledger.” A ledger refers to the collection of transactions
affecting the account that the ledger represents. For example, all journal entries
which affect the account “cash” are summarized in the “cash” ledger.
Before the end of the accounting period, all journal entries must be posted in the
general ledger. This part of the accounting cycle is known as the “classifying
phase of accounting.”
Each ledger represents an account. Therefore, it has an account name and a
designated account code. It is divided into half – the left side is the debit side,
and the right side is the credit side.
E. THE UNADJUSTED TRIAL BALANCE
At the end of the accounting period, each ledger is summarized. Compute for the
ending balance of each ledger. The ending balance represents the difference
between the total debit against the total credit of a ledger. If the total debit is
higher than that of the credit, the ledger is said to have a debit ending balance.
However, if the total credit is higher than that of the debit, the ledger is said to
have a credit ending balance.
Prepare the unadjusted trial balance by listing all the account names in the same
order as the chart of accounts wherein assets are listed first, followed by
liabilities, equity, revenues, and expenses. Prepare two columns next to them to
record the ending balances, one for debits and one for credits.
After copying all the ending balances, compute for the total debit and total
credit. Take note that the totals of debit and credit must balance.
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Workbook in Basic Accounting
Name Date
Course Score
PROBLEMS
PROBLEM 1. The chart of accounts for Violeta Danes Delivery Services is as
follows:
ASSETS INCOME
110 Cash 41 Delivery Revenue
120 Accounts Receivable 0
130 Prepaid Insurance EXPENSES
140 Office Supplies Salaries Expense
150 Service Vehicle 51 Gas and Oil Expense
160 Office Equipment 0 Repair Expense
52 Advertising Expense
LIABILITIES 0 Miscellaneous Expense
210 Accounts Payable 53
0
OWNER’S EQUITY 54
310 Danes, Capital 0
320 Danes, Withdrawal 59
0
The entity completed the following transactions in July 2015:
July 1 Violeta Danes invested ₱150,000 cash and a service vehicle valued
at ₱250,000.
3 Placed four-weekend advertisements in the Boac Daily Inquirer for
₱18,500; the amount is due in 30 days.
6 Bought supplies on account from Goodyear Supplier, Inc., ₱8,800.
7 Bought insurance for one year, ₱5,600.
15 Violeta Danes purchased office equipment for the business, paid
₱52,500.
17 Received ₱61,800 from customers for delivery services performed.
22 Paid Tanza Repair Shop for repair services performed to a service
vehicle, ₱8,500.
26 Paid Goodyear Supplier, Inc., ₱8,800 in full payment of account.
29 Paid salaries to employees, ₱21,000.
30 Received ₱39,000 for services performed.
31 Paid gasoline and oil from Sulit Petron relating to the service
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Workbook in Basic Accounting
vehicle, ₱12,500.
31 Billed Land Bank for delivery services performed, ₱45,000.
31 Violeta Danes withdrew cash for personal use, ₱14,500.
Instructions:
1. Prepare the journal entries using the General Journal for the above
transactions. Write a short explanation for each entry.
2. Post all the journal entries in General Ledger provided below. Write a short
explanation for each post. Use one row only for each explanation.
3. Prepare the Unadjusted Trial Balance. Do not forget to write the report
heading, which includes the name of the business, the title of the report, and
the report date.
CASH NO. 110
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
ACCOUNTS RECEIVABLE NO. 120
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
PREPAID INSURANCE NO. 130
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
OFFICE SUPPLIES NO. 140
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
SERVICE VEHICLE NO. 150
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Workbook in Basic Accounting
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
OFFICE EQUIPMENT NO. 160
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
ACCOUNTS PAYABLE NO. 210
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
DANES, CAPITAL NO. 310
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
DANES, WITHDRAWAL NO. 320
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
DELIVERY REVENUE NO. 410
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
SALARIES EXPENSE NO. 510
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
GAS AND OIL EXPENSE NO. 520
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
REPAIR EXPENSE NO. 530
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
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Workbook in Basic Accounting
ADVERTISING EXPENSE NO. 540
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
MISCELLANEOUS EXPENSE NO. 590
Date Explanation P.R Dr. Date Explanation P.R. Cr.
.
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Workbook in Basic Accounting
Name Date
Course Score
Problem 2. On October 1, 2013, Kevin Costner launched a computer services
company called Computer Solutions, which provides consulting services,
computer system installations, and custom program development. Costner
adopts the calendar year for reporting purposes and expects to prepare the
company’s first set of financial statements on December 31, 2013. The
company’s beginning chart of accounts is as follows:
Account No. Account No.
Cash 101 K. Costner, Capital 301
Accounts Receivable 106 K. Costner, Withdrawals 302
Computer Supplies 126 Computer Services Revenue 403
Prepaid Insurance 128 Wages Expense 623
Prepaid Rent 131 Advertising Expense 655
Office Equipment 163 Mileage Expense 676
Computer Equipment 167 Miscellaneous Expenses 677
Accounts Payable 211 Repairs Expense — Computer 685
Prepare journal entries to record the following transactions for Computer
Solutions.
Oct. 1 K. Costner invested P 500,000 cash, a P 350,000 computer system,
and P 120,000 of office equipment in the company.
2 The company paid P 40,000 cash for four months’ rent.
3 The company purchased P 56,800 of computer supplies on credit
from Harris Office Products.
5 The company paid P 88,000 cash for one year’s premium on a
property and liability insurance policy.
6 The company billed Easy Leasing P 150,000 for services performed
in installing a new Web server.
8 The company paid P 56,800 cash for the computer supplies
purchased from Harris Office Products on October 3.
10 The company hired Lyn Addie as a part-time assistant for P 500 per
day, as needed.
12 The company billed Easy Leasing another P 56,000 for services
performed.
15 The company received P 150,000 cash from Easy Leasing as partial
payment on its account.
17 The company paid P 32,000 cash to repair computer equipment that
was damaged when moving it.
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Workbook in Basic Accounting
20 The company paid P 28,000 cash for advertisements published in
the
local newspaper.
22 The company received P 56,000 cash from Easy Leasing on its
account.
28 The company billed IBM Company P 180,000 for services
performed.
31 The company paid P 3,500 cash for Lyn Addie’s wages for seven
days’ work.
31 K. Costner withdrew P 50,000 cash from the company for personal
use.
Nov. 1 The company reimbursed K. Costner in cash for a business
automobile mileage allowance (Costner logged 1,000 miles at P
12.80 per mile).
2 The company received P 185,000 cash from Liu Corporation for
computer services performed.
5 The company purchased computer supplies for P 45,000 cash from
Harris Office Products.
8 The company billed Gomez Co. P 220,000 for services performed.
13 The company received notification from Alexa’s Engineering Co.
that Computer Solutions’ bid of P 130,000 for an upcoming project
is accepted.
18 The company received P 80,000 cash from IBM Company as
partial
payment of the October 28 bill.
22 The company donated P 10,000 cash to the Red Cross in the
company’s name.
24 The company completed work for Alexa’s Engineering Co. and
sent
it a bill for P 130,000.
25 The company sent another bill to IBM Company for the past-due
amount of P 100,000.
28 The company reimbursed K. Costner in cash for business
automobile mileage (1,200 miles at P 12.80 per mile).
30 The company paid P 7,000 cash for Lyn Addie’s wages for 14
days’
work.
30 K. Costner withdrew P 80,000 cash from the company for personal
use.
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Workbook in Basic Accounting
Name Date
Course Score
Problem 3.
May 1 Kent invested P25,000 cash.
2 Hired a secretary-receptionist at a salary of P2,000 per month.
3 Purchased P2,500 of supplies on account from Read Supply
Company.
7 Paid office rent of P900 cash for the month.
11 Completed a tax assignment and billed client P2,100 for services
provided.
12 Received P3,500 advance on a management consulting
engagement.
17 Received cash of P1,200 for services completed for H. Arnold Co.
31 Paid secretary-receptionist P2,000 salary for the month.
31 Paid 40% of balance due Read Supply Company.
Jane uses the following chart of accounts: No. 101 Cash, No. 112 Accounts
Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 205 Unearned
Revenue, No. 301 Jane Kent, Capital; No. 400 Service Revenue, No. 726
Salaries Expense, and No. 729 Rent Expense.
Instructions
(a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on May 31, 2015.
General Ledger Acct #101
CASH
Date Explanation PR Debit Date Explanation PR Credit
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Workbook in Basic Accounting
ACCOUNTS RECEIVABLE Acct #112
Date Explanation PR Debit Date Explanation PR Credit
SERVICE REVENUE Acct #400
RENT EXPENSE Acct #729
Date Explanation PR Debit Date Explanation PR Credit
UNEARNED
JANE REVENUES
KENT,
SUPPLIES
ACCOUNTS CAPITAL
PAYABLE Acct #209
Acct #311
#126
#201
Date Explanation PR Debit Date Explanation
Explanation PR
PR Credit
Credit
SALARIES EXPENSE Acct #726
Date Explanation PR Debit Date Explanation PR Credit
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