2019

JPIA TUTORIAL
BASIC ACCOUNTING
 DEFINITION OF ACCOUNTING
Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about
economic entities, that is intended to be useful in making
economic decision. (ASC)

Accounting is the art of recording, classifying and summarizing

in a significant manner and in terms of money, transactions and
events which are in part at least of a financial character and
interpreting the results thereof. (AICPA)
 DEFINITION OF ACCOUNTING
Accounting is the process of identifying, measuring
and communicating economic information to permit
informed judgment and decision by users of the
information. (AAA)
CLASSIFICATION AND DEFINITIONS OF ACCOUNTS
The classification of accounts in accounting are assets, liabilities, owner’s equity, revenues, and expenses. Though revenues
and expenses are under owner’s equity account, they are shown separately because they are the main income statement
accounts.

OWNER’S
ASSETS LIABILITIES
EQUITY
REVENUES EXPENSES

Resources Present obligations Residual interest; Earnings arising Costs incurred by

controlled by the of an entity arising Net difference from the main line the business in
business as a result from past between total of operation of the generating
of past transactions transactions and assets and total business. Revenues revenues. Cost in
and events and events, the liabilities; result from doing the main
from which future settlement of which represents the rendering of line of operation
economic benefits is expected to stake of the owner services or selling of of the business.
are expected to flow result in an outflow in the assets of the goods.
to the business. of resources . company.
CLASSIFICATION AND DEFINITIONS OF ACCOUNTS
The classification of accounts in accounting are assets, liabilities, owner’s equity, revenues, and expenses. Though revenues
and expenses are under owner’s equity account, they are shown separately because they are the main income statement
accounts.

OWNER’S
ASSETS LIABILITIES
EQUITY
REVENUES EXPENSES

 Cash
Resources
 Accounts Receivable – represents those owed by customers to the business
controlled by the
 Notes Receivable – those owed by the customer or debtor to the business evidenced by a promissory note
business as a result
 Inventories – assets held for sale in the ordinary course of business
of past transactions
 Supplies
and events and
 Prepaid rent – advance payment to cover future rental payments
from which future
 Equipment – machines used
economic benefits
 Furniture and Fixtures – tables, chairs, cabinets
are expected to flow
 Building
to the business.
 Land
CLASSIFICATION AND DEFINITIONS OF ACCOUNTS
The classification of accounts in accounting are assets, liabilities, owner’s equity, revenues, and expenses. Though revenues
and expenses are under owner’s equity account, they are shown separately because they are the main income statement
accounts.

OWNER’S
ASSETS LIABILITIES
EQUITY
REVENUES EXPENSES

Present obligations  Accounts Payable – those owed by the business

of an entity arising
 Notes Payable – those owed by the business evidenced by a promissory note
from past
transactions and
 Loan Payable – amount borrowed by the business from a financial institution
events, the
settlement of which  Mortgage Payable – amount borrowed by the business from a financial institution secured by a collateral
is expected to
 Advances from Customers/Unearned Revenues – represents cash collected by the business in advance that is yet
result in an outflow
of resources .
to be rendered or delivered
CLASSIFICATION AND DEFINITIONS OF ACCOUNTS
The classification of accounts in accounting are assets, liabilities, owner’s equity, revenues, and expenses. Though revenues
and expenses are under owner’s equity account, they are shown separately because they are the main income statement
accounts.

OWNER’S
ASSETS LIABILITIES
EQUITY
REVENUES EXPENSES

Residual interest;  Capital Account – increased by additional contribution of the owner and recognition of business’ net income
Net difference
between total and decreased by net loss and withdrawal
assets and total
liabilities;  Drawing Account – used when withdrawal is made by the owner; decreases owner’s equity
represents the
stake of the owner  Partner’s Capital – used in partnerships
in the assets of the
company.  Shareholder’s Equity – used in corporations
CLASSIFICATION AND DEFINITIONS OF ACCOUNTS
The classification of accounts in accounting are assets, liabilities, owner’s equity, revenues, and expenses. Though revenues
and expenses are under owner’s equity account, they are shown separately because they are the main income statement
accounts.

OWNER’S
ASSETS LIABILITIES
EQUITY
REVENUES EXPENSES

Earnings arising Service Revenue – earnings made through rendering services

from the main
line of operation Sales

of the business.
Professional Fees – earnings made by professionals or experts from rendering services to their
Revenues result
from rendering clients
of services or
selling of goods.
CLASSIFICATION AND DEFINITIONS OF ACCOUNTS
The classification of accounts in accounting are assets, liabilities, owner’s equity, revenues, and expenses. Though revenues
and expenses are under owner’s equity account, they are shown separately because they are the main income statement
accounts.

OWNER’S
ASSETS LIABILITIES
EQUITY
REVENUES EXPENSES

Costs incurred  Utilities Expense – costs associated with electricity, water, and communication

by the business  Salaries Expense

in generating  Taxes and Licenses – costs incurred to register the business, to acquire the right to operate and settle taxes
revenues. Cost in  Cost of Sales – refers to the cost of merchandise sold during a particular accounting period
doing the main
 Supplies Expense
line of operation
 Doubtful Accounts Expense – amount of accounts receivable estimated as uncollectible
of the business.
 Depreciation Expense – allocated portion of the cost of property, plant, and equipment charged to expense
THE ACCOUNTING EQUATION
ASSETS = LIABILITIES + OWNER’S EQUITY OR CAPITAL

This basic equation serves as the backbone of

the entire accounting cycle. All the steps that go
with the accounting cycle must abide by this
equation.
EXPANDED ACCOUNTING EQUATION
ASSETS = LIABILITIES + OWNER’S EQUITY

+ REVENUES

- EXPENSES

- WITHDRAWAL
 NORMAL BALANCES
The side of the “T” account that increases the account.

Normal Balance Increase Through Decrease Through

Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner’s Equity:
• Owner’s Capital Credit Credit Debit
• Owner’s Drawing Debit Debit Credit
Revenues Credit Credit Debit
Expenses Debit Debit Credit
Contra-valuation accounts:
• Allowance for Doubtful Accounts Credit Credit Debit
• Accumulated Depreciation Credit Credit Debit
DOUBLE-ENTRY BOOKKEEPING
Any entry to an account requires a corresponding
opposite entry to another account (s).

Supplies 5,000
Cash 5,000
THE ACCOUNTING CYCLE
 Identifying recordable transactions and events
 Recording the transactions ( journalizing)
 Classifying the transactions (posting to ledgers)
 Summarizing the transactions (trial balance)
 Journalize and post adjusting entries
 Prepare adjusted Trial Balance
 Communicate the summarized information (financial
statements preparation)
 Journalize closing entries
 Prepare Post-Closing Trial Balance
 The accounting cycle starts with analyzing business transactions from source documents.

1. Classify whether the transaction is a business or non-business transaction. If the transaction is non-business, then there is

no need to proceed.

2. Identify the account titles affected and whether they are increased or decreased.

3. Determine whether the movement would be a debit or a credit.

TRANSACTION 1.

Mr. Arcilla invested cash of Php 10,000 in his business to be known as AJ Photocopying Center.

COMMON SOURCE DOCUMENTS:

OFFICIAL RECEIPTS, SALES INVOICES, DEPOSIT AND WITHDRAWAL SLIPS, DEBIT MEMORANDA, AND CREDIT MEMORANDA
TRANSACTION 1.

Mr. Arcilla invested cash of Php 10,000 in his business to be known as AJ Photocopying Center.

1.The transaction is a business transaction.

2.The account titles affected are cash (increase) and owner’s equity (increase).

3. Debit Cash and Credit Capital.

ASSETS = LIABILITIES + OWNER’S EQUITY

10,000 = + 10,000
JOURNALIZING (Recording)

Process of recording a business transaction in the “book of original entry”, the JOURNAL.
A journal entry can be:
a. Simple Journal Entry – an entry with one debit account and one credit account
Cash 10,000
Arcilla, Capital 10,000
To record the owners cash investment.

b. Compound Journal Entry – involves three or more accounts

Cash 30,000
Photocopying Equipment 30,000
Arcilla, Capital 60,000
To record the owners cash and equipment investment.
JOURNALIZING (Recording)
Journal - a chronological record of the entity’s transactions. It shows all the effects of a
business transaction in terms of debits and credits.

GENERAL JOURNAL
LEDGER POSTING (Classifying)
Ledger - group of the entity’s accounts
General Ledger - “reference book” of the accounting system and is used to classify and summarize
transactions, and to prepare date for basic financial statements.
LEDGER POSTING (Classifying)
T – Account

CASH 101

10,000 9,800
2,500 32,000
16,000 3,000
5,250
14,000
32,480

80,230 44,800

35,430
TRIAL BALANCE (Summarizing)
From the ledger, accounts with balances will be summarized in a trial balance. A trial balance is a list
of accounts and their balances at a given time. It shows the equality of the debits and the credits.

AJ PHOTOCOPYING CENTER
Trial Balance
June 7, 2019

Account Title Debit Credit

Cash 13,500
Equipment 30,000
Accounts Payable 45,000
Arcilla, Capital 15,000
Arcilla, Drawing 5,500
Photocopying Revenues 20,000
Salaries Expense 13,000
Utilities Expense 18,000 _______
TOTAL 80,000 80,000
LOCATING ERRORS
 An equality in the totals of the debits and credits does not guarantee that there
were no errors in the accounting records. The following errors are not detected by
a trial balance:

1. Failure to record or post a transaction.

2. Recording the same transaction more than once.
3. Recording an entry but with the same erroneous debit and credit amounts.
4. Posting a part of a transaction correctly as a debit or credit but to the wrong
account.
LOCATING ERRORS
 An inequality in the totals of the debits and credits would automatically signal the presence of error. These
errors include:

 Error in posting a transaction to the ledger:

1. A debit entry was posted as a credit and vice versa
2. A debit or credit posting was omitted
3. An erroneous amount was posted to the account.
 Error in determining the account balances:
1. A balance was incorrectly computed.
2. A balance was entered in the wrong balance account.
 Error in preparing the trial balance:
1. One of the columns of the trial balance was incorrectly added.
2. The amount of an account balance was incorrectly recorded on the trial balance.
3. A debit balance was recorded on the trial balance as a credit or vice versa, or a balance was omitted
entirely.
ADJUSTING ENTRIES
 Accrual basis: effects of transactions and events are recognized when they occur and
not as cash is received or paid.
 Adjustments are needed to ensure that the recognition and derecognition principles are
followed.
 Adjusting entries involve changing account balances at the end of the period from the
current balance, to the correct balance for proper financial reporting.
 Each adjusting entry affects a balance sheet and an income statement account.
 2 General Types of Adjustments
 Deferral – expense paid but not incurred, revenue collected but not earned
 Accrual – expense already incurred but not paid, revenue earned but uncollected
ACCRUALS CASH DEFERRALS
Cash receipts or RECEIPT/PAYMENT Cash receipts or
payments are yet payments are
to be made made in advance
Adjustment for Deferrals
Record the initial entry and the year-end adjusting entry. Year-end is Dec. 31

a. On August 1, a P24,000 premium was paid on a one-year insurance policy.

b. During the year, P14,000 of Supplies were purchased. At year-end, only P5,000 of
these supplies remain on hand.

c. Office equipment was purchased on January 1 for P300,000. The expected life of
the equipment is five years and has a salvage value of 50,000.

d. On January 1, P36,000 was paid for the entity’s 2-year rent.

e. Received P10,000 from customer on March 1, 25% of which was completed in

December.
Adjusting Entries:
a.Insurance Expense 10,000
Prepaid Insurance 10,000

b. Supplies Expense 9,000

Supplies 9,000

c. Depreciation Expense 50,000

Accumulated Depreciation 50,000

d. Rent Expense 18,000

Prepaid Rent 18,000

e. Unearned Revenue 2,500

Service Revenue 2,500
Adjustment for Accruals
• ACCRUED EXPENSES – Expenses already incurred but not yet paid.
Adjusting Entry:
Expense xx
Liability xx

• ACCRUED REVENUES – Income already earned but not yet collected.

Adjusting Entry:
Receivable xx
Revenue xx
ACCRUAL OF INTEREST EXPENSE

Flora Aquino Forwarders borrowed P600,000 from the bank on Sept. 1, 2017. The note carried
an 8% annual rate of interest and was set to mature on Feb. 28, 2018. Principal and interest
were paid in cash on the maturity date?

1. What was the amount of interest expense paid on 2017?

2. What was the amount of interest expense recognized on the 2017 income statement?
3. What was the amount of liability shown on the 2017 balance sheet in relation to the
interest?
4. What was the total amount of cash paid on Feb. 28, 2018 for principal and interest?
1. Interest expense paid in 2017 = 0 (it is to be paid on Feb 28, 2018)
2. Interest expense in 2017: 600,000 x 8% x 4/12 = 16,000*
3. Accrued interest payable: 16,000*

*Adjusting Entry (Dec. 31, 2017)

Interest Expense 16,000
Accrued Interest Payable 16,000

4. 600,000 + (600,000 x 8% x 6/12) = 624,000

Entry on Feb. 28, 2018:
Interest Expense 8,000
Accrued Interest Payable 16,000
Note Payable 600,000
Cash 624,000
ACCRUAL ADJUSTMENTS

 Hehe Company rendered services for P6,000, which is earned but unpaid.

Accounts Receivable P6,000

Service Revenue P6,000

 Haha Company made credit sales of P1,000,000 in 2018, 5% of which is doubtful of

collection.

Doubtful Accounts Expense P50,000

Allowance for Doubtful Accounts P50,000