RECORDING BUSINESS TRANSACTION

ACCOUNTING CYCLE Trial Balance – Listing of all ledger accounts, in order, with
their respective debit or credit balances.
- refers to a series of sequential steps or
procedures performed to accomplish the TRANSACTIONANALYSIS (Step 1)
accounting process 1. Identify the transaction from source documents.
During the accounting period: 2. Indicate the accounts – either assets, liabilities,
Step 1 – Identification of Events to be Recorded equity, income or expenses – affected by the
Aim; To gather information about transactions or events transaction
generally through the source documents. 3. Ascertain whether each account is increased or
Step 2 – Transaction are Recorded in the Journal decreased by the transaction.
Aim: To record the economic impact of transactions on the 4. Using the rules of debit and credit, determine
firm in a journal, which is a form that facilitates transfer the whether to debit or credit the account to record its
accounts. increase or decrease.
Step 3 – Journal Entries are Posted to the Ledger
Aim: To transfer the information from the journal to the The journal
ledger for classification.
At the end of the accounting period: - chronological record of the entity’s transactions.
Step 4 – Preparation of a Trial Balance Journal entries shows all the effects of a
Aim: To provide a listing to verify the equality of debits and business transaction in terms of debits and
credits in the ledger. credits.
Step 5 – Preparation of the Worksheet including Adjusting - Each transaction is initially recorded in a
Entries journal rather than directly in the ledger.
Aim: To aid in the preparation of financial statements. - A journal is called the book of original entry
Step 6 – Preparation of the Financial Statements - Format: Date, Account titles and explanation,
Aim: To provide useful information to decision-makers. P.R.(posting reference), Debit, Credit
Step 7 – Adjusting Journal Entries are Journalized and
Posted Example: Initial Investment of P 50,000 for the business
Aim: To record the accruals, expiration of deferrals,
estimations and other events from the worksheet. Date Acct Titles P.R. Debit Credit
Step 8 – Closing Journal Entries are Journalized and Posted and
Aim: To close temporary accounts and transfer profit to Explanation
owner’s equity 1 2015
Step 9 – Preparation of a Post-
Post-Closing Trial Balance 2 May Cash 50,000
Aim: To check the equality of debits and credits after the 1
closing entries. 3 X, Capital 50,000
At the start of the next period: Initial
4
Step 10 – Reversing Journal
Journal Entries are Journalized and
investment
Posted
Aim: To simplify the recording of certain regular transaction
in the next accounting period. Simple and Compound Entry- In a simple entry, only two
accounts are affected. Compound entry uses two or more
The General Journal – shows all the effects of a transaction accounts.
in terms of debits and credits
RULES OF DEBITS AND CREDITS:
The Ledger – A grouping of accounts. Used to classify and
summarize transactions and to prepare data for basic 1. Two or more accounts are affected by each transaction.
financial statements.
2. The sum of debits and for every transaction equals the sum
Posting – Transferring the amounts from the general journal of the credits.
to appropriate accounts in the ledger.
3. The equality of the accounting equation is always
maintained.
TRANSACTIONS ARE JOURNALIZED (Step 2) May 30 – Received the Globe telephone bill, P1,400.

May 1- Corazon is a social entrepreneur from the South. She May 30 – Received P24,000 from two clients for services
is into a lot of interesting causes. Her fine taste is preeminent billed last May 19.
such that she is considered an authority in planning
May 31 – Settled the electricity bill of P3,000 for the month.
weddings. Upon the advice and prodding of an esteemed
colleague, Buena, Corazon decided to organize her wedding THE LEDGER
consultancy. She invested P250,000 into this entity.
Grouping of the entity’s account is referred to as a ledger. A
May 1- Rented office space and paid two months’ rent in “general ledger” is the reference book of the accounting
advance, P8,000. system and is used to classify and summarize transactions,
and to prepare data for basic financial statements. The
May 2- Corazon issued a promissory note for a P210,000 loan
accounts in the ledger are classified in to two general
from Metrobank. This availment will be used for the
groups:
acquisition of a service vehicle. The note carries a 20% per
annum. The arrangement with the bank is that both the 1. Balance sheet or permanent accounts
interest and the principal are payable in full in one year. 2. Income statement or temporary accounts
May 2 – Hired an assistant and an account executive with a THE CHART OF ACCOUNTS
P300 per day salary.
A listing of all the accounts and their account numbers in the
May 4 – Acquired service vehicle for P420,000. ledger. The chart is arranged in the financial statement
order.
May 4 – Paid Prudential Guarantee and Assurance, Inc.
P14,000 for a one-year comprehensive insurance coverage Wedding Us Company
on the service vehicle. Chart of Accounts
Balance Sheet Accounts Income Statement Accounts
May 5 – Acquired office equipment from Fair and Square Assets Income
Emporium for P60,000; paying P15,000 in cash and the 110 Cash 410 Consulting Revenues
120 Accounts Receivable 420 Referral Revenues
balance next month. 130 Supplies Expenses
140 Prepaid Rent 510 Salaries Expense
May 8 – Purchased supplies on credit for P18,000 from San
150 Prepaid Insurance 520 Supplies Expense
Jose Merchandising. 160 Service Vehicle 530 Rent Expense
165 Accumulated Depreciation 540 Insurance Expense
May 9 – Paid San Jose Merchandising P10,000 of the amount 170 Office Equipment 550 Utilities Expense
owned. 175 Accumulated Depreciation 560 Depreciation Expense-
Liabilities Service Vehicle
May 10 – Coordinated and finalized simple bridal 210 Notes Payable 570 Depreciation Expense-
arrangements for three couples and collected fees of P8,800 220 Accounts Payable Office Equipment
per couple. 230 Salaries Payable 580 Miscellaneous Expense
240 Utilities Payable 590 Interest Expense
May 13 – Paid salaries, P6,600. The entity pays salaries every 250 Interest Payable
260 Unearned Referral Revenues
two Saturdays.
Owner's Equity
May 15 – The entity is earning additional revenues by 310 Corazon, Capital
320 Corazon, Withdrawal
referring consulting clients to friendly hotels, caterers, 330 Income Summary
printers, and couturiers. Received P10,000 advance fees for
three clients referred.

May 19 – Coordinated and finalized elaborate bridal

arrangements for three couples and billed fees of P12,000
per couple.

May 25 – Corazon withdrew P14,000 for personal expenses,

May 27 – Paid salaries, P7,200.

POSTING (Step 3) 1. List the account titles in the numerical
order
- Means transferring the amounts from the
2. Obtain the account balance of each account
journal to the appropriate accounts in the
from the ledger and enter the debit
ledger
balances in the debit column and the credit
1. Transfer the date of the transaction from
balances in the credit column
the journal to the ledger
3. Add the debit and credit column
2. Transfer the page number from the journal
4. Compare the totals
to the journal reference (JR) column of the
ledger
3. Post the debit figure from the journal as a
debit figure in the ledger and the credit
figure from the journal as a credit figure in
the ledger
4. Enter the account number in the posting
reference column of the journal once the
figure has been posted to the ledger

The Journal:
Date Acct Titles and P.R. Debit Credit
Explanation
1 2015
2 May 1 Cash 110 50,000
3 X, Capital 310 50,000
4 Initial
investment
5

The Ledger:
Account: Cash Account No. 110
Date Explanation J.R. Debit Cr. Bal.
1 2015
2 May 1 Initial J-1 50,000 50,000
investment
3

Account: X, Capital Account No.. 310

Date Explanation J.R. Dr. Credit Bal.
1 2015
2 May 1 Initial J-1 50,000 50,000
investment
3

TRIAL BALANCE

- Is a list of all accounts with their respective

debit or credit balances
- It is prepared to verify the equality of debits and
credits in the ledger at the end of each
accounting period or at any time the postings
are updated