Accounting for Service Business

History of Accounting Accounting has a continued history. Some advisers affirmation that autograph arose in adjustment to almanac information. Annual annal date aback to the age-old civilizations of China, Babylonia, Greece and Egypt. The rulers of these civilizations acclimated accounting to accumulate clue of the bulk of action and abstracts acclimated in architecture structures like the abundant pyramids. (Source: Horngren, Harrison and Robinson, 1995) Accounting developed as a aftereffect of the advice needs of merchants in the city-states of Italy during the 1400s. In that bartering altitude a monk, Luca Pacioli, a mathematician and acquaintance of Leonardo da Vinci, appear the aboriginal accustomed description of double-entry accounting advantaged Summa de Arithmetica, Geometria, Proportioni et Proportionalite, which bureau Everything about Arithmetic, Geometry, and Proportion appear in Venice in November 1494. This book absolute primarily attempt of mathematics and incidentally a set of accounting procedures. The clip of accounting development added during the Industrial Revolution as the economies of developed countries began to accomplish goods. Until that time, article was priced based on managers’ hunches about bulk but added antagonism adapted merchants to accept added adult accounting system. In the nineteenth century, the beforehand of corporations abnormally those in the railroad and animate industries, spurred the developed of accounting. Corporate owners were no best necessarily the managers of their business. Managers had to actualize accounting systems to address to the owners how able-bodied their businesses were doing. Government played a role in arch added development in the acreage of accounting aback it started application the assets tax. Accounting supplied the abstraction of income. Also, government at all levels has affected broadcast roles in health, education, action and bread-and-butter planning. To ensure that the advice that it uses to accomplish decisions is reliable, the government has adapted austere accountability in the business community. At the alpha of the third millennium, there would still be cogent developments in the acreage of accounting. The abundant claiming of globalization and the furnishings of new technologies (e.g. cool computers, robotics, inter and intra-net, etc.) affectation a about-face in the anatomy and pattern in this field. Added and bigger accounting advice are now actuality adapted and therefore, accounting, actuality the bureau acclimated in communicating business and banking information, allegation additionally beforehand into a added able level. Reference: Workbook in Introductory Accounting for Annual Business Accounting as “Language of Business” The primary objectives of the business are: 1. To accomplish profits 2. To appropriately administer bound and deficient resources With these objectives, a business allegation adapt banking letters and adapt these letters as an aid in decision-making. In authoritative decisions, accounting is acclimated as a apparatus for communication. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 5 Objective 2 Definition of Accounting 1. Accounting is a annual activity. a. Its action is to accommodate quantitative information, primarily banking in nature, about bread-and-butter entities that is advised to be advantageous in authoritative bread-and-butter decisions. 2. Accounting is the action of identifying, barometer and communicating bread-and-butter advice to admittance abreast judgments and decisions by users of the information. a. Anecdotic – this accounting action is the acceptance or nonrecognition of business activities as “accountable events” (Valix, 2005). There are 3 types of transactions: i. Business transaction – 1. affairs which are recorded in the banking books. Archetype is beforehand of the owner. ii. Claimed transaction – 1. affairs which are not recorded in the banking books. Archetype is acquirement of abode and lot of a business buyer application his claimed money. iii. Neither business nor claimed transaction – 1. Business contest that are not recorded in the banking books. Examples are hiring of employees, afterlife of the owner, entering into a arrangement etc. b. Barometer – this accounting action is the allotment of Peso amounts to the answerable bread-and-butter affairs and contest (Valix, 2005) c. Communicating – is the action of advancing banking statements and interpreting the after-effects thereof 3. Accounting is the art of recording, classifying and summarizing in a cogent address and in agreement of money, affairs and contest which are, in allotment at least, of a banking character, and interpreting the after-effects thereof. 4. Accounting is an advice arrangement that measures, processes, and communicates banking advice about an identifiable bread-and-butter entity. Objective 3 Difference amid Accounting and Accounting Bookkeeping Accounting ? Recording of transactions ? Recording of transactions ? Advancing banking reports ? Advancing banking reports ? Analyzing banking reports ? Decision-making Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 6 Objective 4 Branches of Accounting 1. Banking Accounting – is primarily anxious with the recording of business affairs and the closing alertness of banking statements (Valix, 2005). 2. Bulk Accounting – is primarily anxious with able accession of costs such as materials, action and overhead, able costing of inventories and abstraction of altered costing methods. 3. Administration Accounting – is the alertness of banking letters and administration analysis advised for administration use and estimation of these letters and researches. Examples of banking letters are Sales reports, Bulk of Production reports, Budgets etc. Archetype of administration analysis is appraisal of a business action and administration consulting. 4. Taxation – deals with the abstraction of accoutrement of the law with attention to Philippine taxation arrangement and able ciphering of taxes such as assets tax, value-added tax, denial tax and another taxes. 5. Auditing – basically deals with the assay of the banking statements by an absolute affair (auditor) to ascertain whether such banking statements are in acquiescence with Philippine Accounting Standards. Objective 5 Forms of Business Organizations 1. According to ownership a. Sole-proprietorship – endemic by alone one being alleged sole-proprietor b. Partnership – endemic by 2 or added bodies alleged ally c. Corporation – endemic by 5 or added bodies alleged shareholders 2. According to activity a. Annual – renders casework to the accessible such accounting firms, law firms, consulting firms, SPA, medical clinics, dental clinics, schools etc b. Merchandising – buys and sells article to the accessible c. Manufacturing – buys raw abstracts and converts them into accomplished appurtenances to be awash to the public Objective 6 Certified Accessible Accountant (CPA) - is an accounting able accomplishing accounting, audit, tax, administration consulting, apprenticeship and analysis work. - Types of Accountants o Clandestine Accountant / Administration Accountant ? is an accounting able active in a clandestine aggregation or organization Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 7 o o o Public Accountant / Auditor ? is an accounting able absolute from the clandestine organizations and is usually active in an auditing firm Government Accountant ? is an accounting able active in a government bureau Accounting Educator and Researcher ? is an accounting able active in a university, academy or analysis organization Objective 7 Government Agencies and Able Bodies 1. Bureau of Internal Acquirement (BIR) – bureau in allegation of able accumulating of taxes from the public 2. Antithesis and Barter Commission (SEC) – bureau in allegation of accumulating audited banking statements of organizations, acclimation companies arising antithesis such as stocks and bonds to the public, and ecology companies in the allowance industry. This bureau additionally facilitates the allotment of partnerships and corporations. 3. Bangko Sentral ng Pilipinas (BSP) / Central Coffer of the Philippines – bureau in allegation of acclimation Philippine coffer operations, ambience Philippine budgetary behavior etc. 4. Philippine Banal Barter (PSE) – bureau in allegation of ecology antithesis affairs of companies listed in the banal exchange. 5. Department of Trade and Industry (DTI) – bureau in allegation of facilitating allotment of sole-proprietorship businesses and acclimation customer article transactions. 6. Commission on Analysis (COA) – bureau in allegation of auditing government-related transactions 7. Lath of Accountancy (BOA) - is an accounting anatomy in allegation of administering licensure assay for accountants 8. Able Regulation Commission (PRC) - government bureau in allegation of arising licenses to acknowledged examinees in lath exams 9. Philippine Instititute of Certified Accessible Accountants (PICPA) - Able alignment of accountants in the Philippines 10. City Hall and Baranggay – these political subdivisions issues business permits and collects business taxes. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 8 Objective 8 Business Documents 1. 2. 3. 4. 5. 6. Purchase Adjustment – shows items to be ordered by the business Delivery Receipt – shows items to be delivered in the business Sales Invoice – shows items that were awash to the business Annual of Annual – shows the arbitrary of sales invoices Banknote Voucher – shows the accountability of the business to be paid in the approaching Official Receipt – shows the bulk accustomed by the business Objective 9 Financial Statements - Shows the after-effects of the recording of the business affairs and are bidding in agreement of assets, liabilities, equity, assets and expenses. - Six (6) Components o Antithesis Sheet / Annual of Banking Position ? Presents the banking action of the business through its assets, liabilities and basal / owner’s equity o Assets Statement ? Presents the banking achievement of the business through its assets and expenses o Annual of Changes in Owner’s Equity ? Presents the changes in basal such as added investments, withdrawals, net assets and/or net loss o Annual of Banknote Flows ? Presents the banknote inflows and outflows of the business through its operating, beforehand and costs activities o Annual of Comprehensive Income ? Presents assets and losses that were not presented in the Assets statement. Examples are Unrealized accretion on auction of trading securities, Foreign barter accretion on adaptation etc. o Addendum to the Banking Statements ? Presents the capacity of the band items in the Antithesis Sheet and Assets Statement Generally Accustomed Accounting Attempt (GAAP) - Refers to rules, procedures, convenance and standards followed in the alertness and presentation of banking statements (Valix, 2005). Financial Reporting and Standards Board (FRSC) - The board establishes and improves accounting standards that will be about accustomed in the Philippines (Valix, 2005) Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 9 Users of the Banking Statements Internal Users 1. Management 2. Employees External Users 1. Investors 2. Creditors / Lenders 3. Suppliers / Vendors 4. Government 5. Public Objective 10 Basic Accounting Concepts / Assumptions 1. Entity a. Beneath this concept, the business action is beheld as abstracted from the owners, managers, and advisers of the business (Valix, 2005) 2. Time period a. This abstraction requires that the broad activity of an action is subdivided into time periods which are usually of according breadth (Valix, 2005) b. Calendar year is a 12-month aeon that ends on December 31, contrarily it is alleged Natural business year or Fiscal year (Valix, 2005) 3. Budgetary unit a. This abstraction assumes that banking affairs be abstinent in agreement of money or bill of the Philippines 4. Cost a. This abstraction requires that assets should be recorded initially at aboriginal accretion bulk (Valix, 2005) 5. Adequate disclosure a. This abstraction requires that all cogent and accordant advice arch to the alertness of banking statements should be acutely appear (Valix, 2005) 6. Materiality a. This abstraction relates to the acceptation of an annual to the all-embracing presentation of the banking statements. Advice is actual if its blank could access the bread-and-butter accommodation of the users of the banking statements (Valix, 2005) 7. Accrual a. This abstraction requires the assets becoming allegation be accustomed in the financial statements whether banknote is accustomed or not. b. This abstraction additionally requires the costs incurred allegation be accustomed in the banking statements whether banknote is paid or not. c. Because of this concept, organizations are advancing adjusting annual entries to admit accrued assets and accrued expenses. d. Accrued assets refers to assets becoming but not yet received. e. Accrued amount refers to amount incurred but not yet paid. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 10 8. Consistency a. This abstraction requires that the accounting methods and practices should be activated on a compatible base from one time aeon to addition (Valix, 2005). 9. Comparability a. There are 2 kinds of comparability: Comparability aural an action and Comparability amid enterprises (Valix, 2005) b. Comparability aural an action is the affection of advice that allows comparisons aural a distinct action from one time aeon to the abutting (Valix, 2005) c. Comparability amid enterprises is the affection of advice that allows comparisons amid two or added enterprises affianced in the aforementioned industry (Valix, 2005) 10. Going Concern a. This abstraction assumes that business will accomplish indefinitely and there is no ambition of liquidating or closing bottomward the business 11. Acquirement recognition a. Aforementioned as accrued assets concept 12. Amount recognition a. Aforementioned as accrued amount concept 13. Matching a. This abstraction requires that costs and costs incurred in earning a acquirement should be appear in the aforementioned aeon aback the acquirement or assets is becoming (Valix, 2005) 14. Conservatism a. Beneath this concept, aback alternatives exist, the another which has the atomic aftereffect on net assets or owner’s disinterestedness should be alleged (Valix, 2005) b. Conservatism is alike with Prudence. Prudence is the admiration to exercise affliction and attention aback ambidextrous with the uncertainties in the altitude action such as assets or assets are not abstract and liabilities or costs are not chaste (Valix, 2005) 15. Objectivity a. This abstraction requires that banking affairs that were recorded be accurate by business documents Objective 11 Other Terms Liquidity Solvency - Refers to the adeptness of the organization - Refers to the adeptness of the organization to pay its concise (current) to pay its abiding (noncurrent) obligations obligations Stock Certificate – affirmation certifying the buying of shares of banal of a actor Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 11 Further Readings Kieso, D., Kimmel, P. and Weygandt, J. (2008). Accounting Principles, 8th edition. New Jersey: John Wiley and Sons, Inc. pages 2 – 11, 21, 25, 29 – 31, 92 – 94 Kimwell, Mercedes (2009). Fundamentals of Accounting, 2nd edition. Manila: GIC Enterprises & Co., Inc. Valencia, E., and Roxas, G. (2009). Basal Accounting, 3rd edition. Baguio City: Valencia Educational Supply. Cabrera, M.E.B, Ledesma, E.F., and Lupisan M.C.Y. (2007). Fundamentals of Accounting Vol. 1. Manila: GIC Enterprises & Co., Inc. Chalmers, K., Fyfe, M., Kieso, D., Kimmel, P., Mitrione, L., and Weygandt, J. (2007). Attempt of Banking Accounting. John Wiley and Sons Australia, Ltd. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 12 LESSON 2 TRANSACTION ANALYSIS Study Objectives After belief this lesson, you should be able to: Achievement of Objective (Put a Check mark) 1 Define the accounting blueprint and apperceive the furnishings of the banking affairs on the accounting equation 2 Familiarize with the types of accounts for assets, liabilities, capital, assets and expenses Objective 1 The Accounting Equation Assets = Liabilities + Capital The blueprint states that business assets are financed by two parties. They are the creditors or vendors (liabilities) and the buyer (capital). Income will access assets as able-bodied as basal and costs will abatement assets as able-bodied as capital. Business affairs will accept an aftereffect on the accounting equation. The afterward are the basal banking affairs and the furnishings on the accounting equation. Transaction ASSETS LIABILITIES CAPITAL Investment of the owner ? ? Investment Withdrawal of the owner ? ? Withdrawal ? Interest expense Borrowed money by issuing a promissory note Payment of the principal and interest of the promissory note ? ? ? ? Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 13 Purchase of short-term investment for cash Sale of short-term investment at a gain Sale of short-term investment at a loss Cash advance employee to an Purchase of food for cash Purchase of food on account Purchase of a anchored asset for cash Purchase of a anchored asset on account Partial / Full acquittal of accounts payable Sale of a anchored asset at a gain Sale of a anchored asset at a loss Rendered casework for cash Rendered account services on ?? ?? ? ?? ? Gain on sale of investment in trading securities Loss on sale of investment in trading securities ?? ?? ? ? ?? ? ? ? ? ?? ? Gain on sale of equipment ?? ? Loss on sale of equipment ? ? Service Income ? ? Service Income Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 14 Partial / Full accumulating of accounts receivable Received cash commission income for Payment of costs for cash ?? ? ? Commission Income ? ? Expense Objective 2 Types of Accounts CATEGORY DEFINITION ACCOUNT TITLE DEFINITION / EXAMPLES ASSETS CASH This includes bills and coins, bank check, bank accounts. Self-explanatory ACCOUNTS RECEIVABLE Amount collectible from audience or customers for services rendered or sale of goods This refers to shortterm, awful liquid investment in securities such as stocks and bonds. These accredit to amounts collectible from a being or a company Cash in the possession and custody of the business. CASH IN BANK TRADE AND OTHE RECEIVABLES Cash acclimated to pay petty or small amount of expenses. CASH ON HAND INVESTMENT IN TRADING SECURITIES PETTY CASH FUND Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 15 ALLOWANCE FOR DOUBTFUL ACCOUNTS Is a Contra-asset account that represents provision for estimated doubtful accounts NOTES RECEIVABLE Same with Accounts Receivable but is evidenced by a promissory note INTEREST RECEIVABLE Amount collectible in a accommodation transaction COMMISSION RECEIVABLE RENT RECEIVABLE ADVANCES TO EMPLOYEES PREPAID EXPENSES These accredit to expenses that are paid in advance Cash beforehand given to employees PREPAID RENT PREPAID INSURANCE PREPAID ADVERTISING PREPAID SUBSCRIPTIONS OFFICE SUPPLIES STORE SUPPLIES PROPERTY, PLANT AND EQUIPMENT These accredit to items that are advantageous for more than 1 year LAND OFFICE EQUIPMENT STORE EQUIPMENT Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. Computer, Fax machine Cash register machine 16 TRANSPORTATION EQUIPMENT Delivery Van, Motorcycle, Cars, Trucks FURNITURE AND FIXTURES Cabinets, Tables, Chairs MACHINERY BUILDING Office building, Factory plant ACCUMULATED DEPRECIATION Is a Contra-asset account that represents cumulative depreciation for depreciable fixed assets LIABILITIES TRADE AND OTHER PAYABLES These accredit to amounts payable to a being or a company ACCOUNTS PAYABLE Amount payable to supplier, creditor or vendor for money, supplies, appurtenances or property loaned NOTES PAYABLE Same with Accounts Payable but is apparent by a promissory note DISCOUNT ON NOTES PAYABLE Is a Contra-liability account that represents unamortized interest on the promissory note INTEREST PAYABLE Amount payable in a accommodation transaction TAXES AND LICENSES PAYABLE Unpaid taxes and licenses to be remitted / paid to the government Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 17 UTILITIES PAYABLE Unpaid communication, light and baptize bills SALARIES AND WAGES PAYABLE Unpaid salaries and wages of the employees UNEARNED INCOME This refers to cash received in advance but not yet earned UNEARNED RENT UNEARNED ADVERTISING UNEARNED SUBSCRIPTIONS UNEARNED COMMISSION MORTGAGE PAYABLE This refers to bank loan with assets such as abode and lot or agent as collaterals BONDS PAYABLE This refers to loan that is apparent by a band certificate or indenture CAPITAL / OWNER’S EQUITY OWNER, CAPITAL This accredit to claim or absorption of the owner OWNER, DRAWING This accredit to temporary withdrawal of the owner of cash, supplies, appurtenances or Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 18 property INCOME SERVICE INCOME Income derived from apprehension of services Primary assets for service business OTHER INCOME Secondary income for annual business INTEREST INCOME Income from loan transactions DIVIDEND INCOME Income from stock investments RENT INCOME GAIN ON SALE OF EQUIPMENT Excess of selling price over the net book amount of the fixed asset EXPENSES EMPLOYEE BENEFIT COST Expenses accompanying to employee benefits SALARIES AND WAGES EXPENSE Represents the total gross bacon or wages of the employees SSS PREMIUMS EXPENSE Represents total SSS (health benefit) contributions of the employer and the employees PHILHEALTH CONTRIBUTIONS EXPENSE Represents total Philhealth (health benefit) contributions of the employer and the employees Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 19 PAG-IBIG CONTRIBUTIONS EXPENSE RENT EXPENSE PROFESSIONAL FEES Expense accompanying to professional services of accountants, lawyers etc ADVERTISING EXPENSE COMMISSION EXPENSE Expense accompanying to payment of commission to agents REPAIR AND MAINTENANCE EXPENSE SUPPLIES EXPENSE INSURANCE EXPENSE REPRESENTATION AND ENTERTAINMENT EXPENSE Expense accompanying to cost of meetings with audience such as meals TRANSPORTATION EXPENSE Expense accompanying to commuting from the appointment to client’s office FUEL AND OIL EXPENSE UTILITIES EXPENSE Expense accompanying to communication such as telephone, Internet, electricity and water Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. Represents total Pag-IBIG (housing benefit) contributions of the employer and the employees 20 TAXES AND LICENSES EXPENSE Expense accompanying to business taxes and permits from the city hall CHARITABLE CONTRIBUTION EXPENSE Expense accompanying to donations DEPRECIATION EXPENSE Noncash expense that represents the total depreciation of the depreciable fixed assets for the year DOUBTFUL ACCOUNTS EXPENSE Noncash expense that represents the total estimated doubtful accounts for the year BAD DEBTS EXPENSE Noncash expense that represents the total accounts receivable that were written-off / removed from the financial books due to its proven uncollectibility MISCELLANEOUS EXPENSE OTHER EXPENSE LOSS ON SALE OF EQUIPMENT Excess of net book value over the selling amount of the fixed asset FINANCE COST INTEREST EXPENSE Expense from loan transactions Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 21 Further Readings Kieso, D., Kimmel, P. and Weygandt, J. (2008). Accounting Principles, 8th edition. New Jersey: John Wiley and Sons, Inc. pages 14 – 20, 26 – 27, 159 – 164 Kimwell, Mercedes (2009). Fundamentals of Accounting, 2nd edition. Manila: GIC Enterprises & Co., Inc. Valencia, E., and Roxas, G. (2009). Basal Accounting, 3rd edition. Baguio City: Valencia Educational Supply. Cabrera, M.E.B, Ledesma, E.F., and Lupisan M.C.Y. (2007). Fundamentals of Accounting Vol. 1. Manila: GIC Enterprises & Co., Inc. Chalmers, K., Fyfe, M., Kieso, D., Kimmel, P., Mitrione, L., and Weygandt, J. (2007). Attempt of Banking Accounting. John Wiley and Sons Australia, Ltd. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 22 LESSON 3 GENERAL JOURNAL, GENERAL LEDGER TRIAL BALANCE Study Objectives After belief this lesson, you should be able to: Achievement of Objective (Put a Check mark) 1 Know the abstraction of double-entry accounting and the appropriate accounting apparatus for banking transactions 2 Understand the abstraction of journalizing and prepare journal entries 3 Post annual entries to the accepted ledgers 4 Prepare the balloon balance Objective 1 Double-entry Bookkeeping This abstraction uses the accoutrement debit and acclaim to almanac banking transactions. Further, this abstraction dictates that “for every debit, there is at atomic one acclaim and vice-versa”. Adapted Accounting Tool The table shows the adapted accounting apparatus for the furnishings of the banking affairs on assets, liabilities, capital, assets and expenses. Increase Asset Liability Capital Income Expense Decrease Debit Credit Credit Credit Debit Credit Debit Debit Objective 2 Journalizing This refers to the action of recording the banking affairs in the Accepted Journal. Accepted Annual is additionally accustomed as “Book of Aboriginal Entry”. The afterward are examples of Annual Entries: Adapted from Exercise 6-8 of Workbook in Introductory Accounting for Annual Business Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 23 Journalize the afterward alleged affairs of MJ Dry Cleaning. The afterward transaction occurred during June 2010. 1 MJ Flores invested in the business the following: P 250,000 banknote and P 420,000 annual of dry charwoman accessories with fair amount of P 400,000 but with absolute accountability of P 100,000 which is to be affected by the business 2 Purchased dry charwoman food from Wilson Cleaners for P 22,100, payable afterwards 20 days 4 Bought banknote annals from Carter Equipment, P 45,800. Terms: 30% bottomward payment, antithesis on account 7 Dry charwoman casework rendered for the anniversary totaled P 25,250 cash GENERAL JOURNAL Date 2010 Jun 01 02 04 07 Particulars Page xx F Debit Cash Dry Charwoman Equipment Accounts Payable MJ Flores, Capital Investment of the owner 101 110 210 320 250 000 400 000 Dry Charwoman Supplies Accounts Payable Purchase of food on account 108 210 22 100 Office Equipment Cash Accounts Payable Purchase of banknote register 111 101 210 45 800 Cash Dry Charwoman Annual Income Rendered dry charwoman service for cash 101 410 Credit 25 250 100 000 550 000 22 100 13 470 32 060 25 250 Simple access and Compound entry Simple access is a annual with alone one debit and one credit. Compound access is a annual access with at atomic two debits or at atomic two credits. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 24 Objective 3 Posting This refers to the action of appointment the debit and acclaim amounts to the adapted antithesis accounts. Antithesis accounts are placed in a banking book alleged Accepted Ledger. This is additionally accustomed as “Book of Final Entry”. Afterwards the amounts accept been posted, one should column the antithesis annual cardinal aback to the accepted journal. This action is accustomed as “cross-referencing”. Blueprint of Accounts This blueprint lists the annual titles to be acclimated by the business and the accompanying annual numbers. The afterward is a archetypal archetype of blueprint of accounts. ASSETS 100 OWNER’S EQUITY 300 Cash Investment in Trading Securities Accounts Receivable Allowance for Doubtful Accounts Notes Receivable Advances to Employees Prepaid Rent Dry Charwoman Supplies Land Dry Charwoman Equipment Office Equipment Building Accumulated Depreciation – Dry Charwoman Equipment Accumulated Depreciation – Office Equipment Accumulated Depreciation – Building 101 102 103 104 105 106 107 108 109 110 111 120 130 MJ Flores, Drawing MJ Flores, Capital 310 320 INCOME 400 Dry Charwoman Annual Income Interest Income 410 420 EXPENSES 500 Salaries and Wages Expense 510 131 Rent Expense 520 140 LIABILITIES 200 Accounts Payable Notes Payable Discount on Addendum Payable Unearned Advertising Mortgage Payable 210 220 230 240 250 Advertising Expense Commission Expense Dry Charwoman Food Expense Insurance Expense Transportation Expense Utilities Expense Taxes and Licenses Expense Depreciation Expense Interest Expense 530 540 550 560 570 580 590 591 592 Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 25 General Antithesis Postings CASH Date 2010 Jun 01 07 Particulars F 101 Debit GJ1 GJ1 Totals Balance Date 2010 250 000 Jun 04 25 250 275 250 261 780 Particulars F GJ1 Particulars F Debit GJ1 Date 108 Particulars F Particulars F Debit GJ1 Date 110 Particulars F Particulars F Debit GJ1 Date 111 Particulars F Particulars F Credit 45 800 ACCOUNTS PAYABLE Date Credit 400 000 OFFICE EQUIPMENT Date 2010 Jun 04 Credit 22 100 DRY CLEANING EQUIPMENT Date 2010 Jun 01 13 470 13 470 DRY CLEANING SUPPLIES Date 2010 Jun 02 Credit Debit Date 2010 Jun 01 02 04 210 Particulars F Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. GJ1 GJ1 GJ1 Credit 100 000 22 100 32 060 26 MJ FLORES, CAPITAL Date Particulars F Debit Date 2010 Jun 01 320 Particulars F GJ1 DRY CLEANING SERVICE INCOME Date Particulars F Debit Date 2010 Jun 07 550 000 410 Particulars F GJ1 Normal Balances of the Accounts Assets Contra-assets Liabilities Contra-liabilities Capital Drawing Income Expenses Credit Debit Credit Credit Debit Credit Debit Credit Debit Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. Credit 25 250 27 Objective 4 Trial Balance This refers to the arbitrary of balances in the antithesis accounts. The accounts are abiding in the adjustment of assets, liabilities, equity, assets and expenses. PATRICE CONSULTING SERVICES Trial Balance July 31, 2010 Debit Cash Accounts Receivable Office Supplies Prepaid Insurance Office Equipment Accounts Payable Notes Payable Simone Patrice, Capital Simone Patrice, Drawing Consulting Fees Salaries and Wages Expense Rent Expense Transportation Expense Utilities Expense Advertising Expense Miscellaneous Expense Totals Credit P 56 300 77 500 2 100 2 200 120 000 P 23 020 15 000 172 880 2 000 253 000 168 200 11 000 7 800 8 200 5 500 3 100 _______ P 463 900 ======== P 463 900 ======== Adapted from Workbook in Introductory Accounting for Annual Business A counterbalanced balloon antithesis bureau that annual entries are appropriately acquaint and antithesis accounts are appropriately balanced. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to remove this message. 28 Further Readings Kieso, D., Kimmel, P. and Weygandt, J. (2008). Accounting Principles, 8th edition. New Jersey: John Wiley and Sons, Inc. pages 46 – 56, 57 – 73 Kimwell, Mercedes (2009). Fundamentals of Accounting, 2nd edition. Manila: GIC Enterprises & Co., Inc. Valencia, E., and Roxas, G. (2009). Basal Accounting, 3rd edition. Baguio City: Valencia Educational Supply. Cabrera, M.E.B, Ledesma, E.F., and Lupisan M.C.Y. (2007). Fundamentals of Accounting Vol. 1. Manila: GIC Enterprises & Co., Inc. Chalmers, K., Fyfe, M., Kieso, D., Kimmel, P., Mitrione, L., and Weygandt, J. (2007). Attempt of Banking Accounting. John Wiley and Sons Australia, Ltd. Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 29 LESSON 4 FINANCIAL STATEMENTS Study Objectives After belief this lesson, you should be able to: Achievement of Objective (Put a Check mark) 1 Understand the procedures in advancing the income statement 2 Understand the procedures in advancing the annual of changes in owner’s equity 3 Understand the procedures in advancing the antithesis sheet 4 Understand the procedures in advancing the addendum to the financial statements 5 Compute the missing amounts in affiliation to changes in capital Objective 1 Income Statement To recall, the Assets Annual presents the banking achievement of the business through its assets and expenses. Net Assets refers to the antithesis of assets over expenses, contrarily it is alleged Net Loss. There are two types of presentation for assets statement. 1. Natural form a. In this presentation, assets and amount accounts are aggregate according to nature. Secondary assets such as absorption income, allotment assets etc are aggregate beneath band annual “Other Income”. On the another hand, costs are abiding from accomplished to lowest, except for Miscellaneous Expense, Another Amount and Finance Cost. These band items are the aftermost 3 band items in the amount section. 2. Functional form a. In this presentation, costs are aggregate according to function. The 4 allocation of costs are: i. Administration cost ii. Accepted and authoritative expenses iii. Another operating expenses iv. Finance cost Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. Created with novaPDF Printer (www.novaPDF.com). Please annals to abolish this message. 30 Objective 2 Statement of Changes in Owner’s Equity To recall, this basic presents the changes in basal such as added investments, withdrawals, net assets and/or net loss. The afterward are the furnishings to the basal or equity: EFFECTS Investment Withdrawal Income Expense Net Income Net Loss Increase Decrease Increase Decrease Increase Decrease The Assets Annual is affiliated to this basic through Net Assets or Net Accident and this basic is affiliated to the Antithesis Sheet through the Catastrophe antithesis of the basal account. The blueprint for accretion Catastrophe Basal Antithesis is Owner, Basal – alpha + Added Investments + Net Assets – Withdrawals – Net Accident = Owner, Basal – ending Using the accounting equation, the blueprint for accretion Alpha Basal Antithesis is Assets, alpha – Liabilities, alpha = Owner, Basal (beginning) On the another hand, the another blueprint for Catastrophe Basal Antithesis is Assets, catastrophe – Liabilities, catastrophe = Owner, Basal (ending) Confidentiality Requirement This actual is banned for reproduction or administration afterwards above-mentioned accord from the author. 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