ACCOUNTIING PROCESS

 Write off Method- certain to be removed

I. ANALYZING
II. JOURNALIZING AE: Bad Debts Expense/ Doubtful Account
III. POSTING Accounts Receivable
IV. PREPARING THE UNADJUSTED
TRIAL BALANCE  Allowance Method- uncertain if removed
V. PREPARING ADJUSTING ENTRIES AE: Doubtful Account Expense xxx
VI. PREPARING FINANCIAL Allowance for Doubtful Account xxx
STATEMENTS
VII. PREPARING CLOSING ENTRIES Nominal Accounts or Temporary Accounts
VIII. PREPARING POSTCLOSING TRIAL BALANCE Income and Expense- Income Summary
IX. PREPARING REVERSING ENTRIES
Real or Permanent Accounts- carry over
ADJUSTING ENTRIES Asset and Liabilities

 Prepayments
PAS 1 - Financial Statements
Asset Method-record expired portion
OE: Prepaid Insurance xxx Components of Financial Statements
Cash xxx
AE: Insurance Expenses xxx 1. Statement of Financial Position
Prepaid Insurance xxx 2. Income Statement
3. Statement of Comprehensive Income
Expense Method- record unexpired portion 4. Statement of Changes in Equity
OE: Insurance Expense xxx 5. Statement of Cash flows
Cash xxx 6. Notes
AE: Prepaid Expenses xxx
Insurance Expense xxx Financial Position ----- A + L = E
 Accruals
ASSET- CURRENT OR NON-CURRENT
a. Controlled by the entity
Income Method- income but yet received
b. Result of past event
AE: Rent Receivable xxx
c. Provides future economic benefits
Rent Income xxx d. Measured reliably
Expense Method- incurred but not yet paid
PAS 1 PARAGRAPH 66- Current Asset
AE: Rent Expense xxx
a. Cash and cash Equivalents unless restricted
Rent Payable xxx b. Primarily for the purpose of trading
c. Expects to realize within 12 months after the
 Deferrals-involvement of cash
reporting period
d. Intends to consume or sell it within entity’s
Income Method normal operating cycle.
AE: Income xxx
Deferred Income xxx
Cash and Cash Equivalents
Liability Method Financial Assets at fair value such as trading
AE: Deferred Income xxx securities and other investments in quoted
Income xxx equity instruments.
Income Method-record income unearned Trade and other receivable
AE: Rent Income xxx Inventories
Unearned Rent Income xxx
Prepaid expense
Liability Method-record earned portion
AE: Unearned Rent Income xxx
Rent Income xxx
NON-CURRENT ASSET
Property, Plant and Equipment
Long-term Investment
Intangible Asset
Deferred Asset
Other non-current Asset
PROPERTY, PLANT AND EQUIPMENT
PAS 16 PARAGRAPH 6
-tangible assets use in production or supply of
goods and services, for rentals, for
administrative purposes and expected to be
used more than one period.
Note: Except LAND,
Cost – Accum. Dep’n = Carrying Amount
LONG-TERM INVESTMENTS
IASC –“Capital appreciation “
 Rentals
 Interest
 Royalties
 Dividends
INTAGIBLE ASSETS-identifiable nonmonetary
assets without physical substance.
Examples: patent, franchise, copyright, lease
right, trademark, and computer software.
Note: GOODWILL is unidentifiable intangible
asset
OTHER NON-CURRENT ASSET
Example: long-term advances to officers,
directors, shareholders and employees or
abandoned property and long-term refundable
deposit.
LIABILITY- CURRENT OR NON-CURRENT
a. Transfer economic resource as a result of a
past event
b. Obligation – can either be legal or
constructive
PAS 1 PARAGRAPH 69- Current Liabilities
a. Expects to settle liability within the normal
operating cycle
b. Purpose of trading
c. Due to be settled within 12 months after
the reporting period
d. DOES NOT have unconditional right to
defer settlement liability for at least 12
months
Trade and Other Payable
Current Provisions
Short-term Borrowing
Current Portion of Long-term Debt
Current Tax Liability
NON-CURRENT LIABILITIES
Noncurrent Portion of Long-term Debt
Finance Lease Liability
Deferred tax Liability
Long-term obligation to company officers
Long-term deferred Income
CURRENTLY MATURING LONG-TERM
DEBT
Current , even if:
a. Originally, period is longer than 12 months
b. Agreement to REFINANCE or to
reschedule is completed AFTER the
reporting period and BEFORE the financial
statements are ISSUED.
.
_____________ _______________
before Dec 31 after
Adjusting event
Noncurrent if completed on or before the end
of the reporting period.
Adjusting Events are those that provide
evidence of conditions that exist at the end of
the reporting period.
Example:
1. Resolution after the reporting period of a
court case because it confirms that the
entity already had a present obligation
2. Bankruptcy of a customer which occurs
after the reporting period
3. Sale of inventories after the reporting
period may give evidence about the net
realizable value at reporting date
4. The determination after the reporting
period of the cost asset purchased or the
proceeds from asset sold before the
operating date.
5. The determination after the reporting
period of the profit sharing or bonus
payment if the entity has the present
 obligation at the reporting date to make
such payment
6. The discovery of fraud or errors that
show the financial statements were
incorrect.

DISCRETION TO REFINANCE

Note: if the entity has the discretion or right to

choose to refinance after the reporting period ,
the obligation is classified as NON-CURRENT,
even if it would be otherwise due within a
shorter period. (UNCONDITIONAL RIGHT)

Note: the refinancing must be at the discretion

of entity, otherwise the obligation is classified
as CURRENT.

COVENANTS-restrictions on the borrower

(conditions)

PAS 1 PARAGRAPH 74- Effects of

Breached of Contract
Liability is current even if the lender has
agreed, after the reporting period and before
the statements are authorized to issue, not to
demand payment as a consequence of the
breach. ACCOUNT FORM- Horizontal sequences

_____________ . _______________
On or before Dec 31 after
Grace Period

PAS 1 PARAGRAPH 75
Classified as NON-CURRENT

EQUITY- net assets

PAS 1 PARAGRAPH 7 –holders of instruments
classified as equity are simply known as owners.

SHAREHOLDERS’ EQUITY- is the residual

interest of owners in the net assets of a corporation
measured by the excess of assets over liabilities,

Forms of Statement of FINANCIAL POSITION

REPORT FORM - Vertical or downward sequences

 LINE ITEMS IN STATEMENT OF FINANCIAL B. OCI that will NOT BE RECLASSIFIED
POSITION SUBSEQUENTLY to profit or loss but to
RETAINED EARNINGS.

a. Unrealized gain or loss on EQUITY

INVESTMENT measured at fair value
through other comprehensive income
b. Revaluation Surplus during the year
c. Remcasurements of defined benefit plan
including actuarial gain or loss
d. Change in fair value attributable to CREDIT
RISK of a financial liability designated at
fair value through profit or loss

COMPONENTS OF EXPENSE
A. Cost of Good Sold or Cost of Sales
B. Distribution Cost or Selling Expenses
C. Administrative Expenses
D. Other Expenses
E. Income Tax Expense

COST OF GOOD SOLD OF MERCHANDISING

CONCERN

Beginning inventory xxx

Add: Net Purchases xxx
INCOME STATEMENT- shows the financial
Goods Available for Sale xxx
performance of an entity for a given period of time
Less: Ending Inventory xxx
FINANCIAL PERFORMANCE-results of operations Cost of Good Sold xxx
of an entity.
Gross Purchases xxx
COMPREHENSIVE INCOME- changes in equity Add: Freight-In xxx
during a period resulting from transactions and Total xxx
other events. This includes PROFIT OR LOSS, Less: Purchase Returns, allowances and
OTHER COMPREHENSIVE INCOME. discounts
Net Purchases xxx
 PROFIT Or LOSS
Total income – expenses = NET INCOME OR NET COST OF GOOD SOLD OF MANUFACTURING
LOSS CONCERN

 OTHER COMPREHENSIVE INCOME Beginning raw materials xxx

Net purchases xxx
PAS 1 PARAGRAPH 82A, Raw materials available for use xxx
The line item for amounts of OCI shall be grouped Less: Ending Raw Materials xxx
as follows: Raw Materials for used xxx
A. OCI that will RECLASSIFIED Direct labor xxx
SUBSEQUENTLY to profit or loss when Factory Overhead xxx
specific conditions are met Total manufacturing cost xxx
Beginning goods in process xxx
a. Gain or loss from translation of the financial Total Cost of goods in process xxx
statements of a foreign operation Less: Ending goods in process xxx
b. Unrealized gain or loss from derivative Cost of Goods Manufactured xxx
contracts designated as cash flow hedge Beginning finished Goods xxx
c. Unrealized gain or loss on DEBT Goods Available for sale xxx
INVESTMENT measured of a foreign Less: Ending finished Goods xxx
operation. Cost of Goods Sold xxx
CLASSIFICATION OF EXPENSES
 DISTRIBUTION COSTS-constitute cost which
are directly related to selling, advertising and
delivery of goods to customers.
Salesmen’s salaries
Salesmen’s commissions
Traveling and marketing expenses
Advertising and Publicity
Freight Out
Depreciation of Delivery and Store Equipment
 ADMINISTRATIVE EXPENSES- operating
expenses NOT RELATED to selling and cost of
good sold.
Doubtful Accounts
Office Salaries
Expenses of General Executives
Office supplies Used
Certain taxes
Professional fees
Depreciation of office building
 OTHER EXPENSES- not directly related to the
selling and administrative expenses
ABC Company
Statement Comprehensive Income
For the Year Ended December 31, 2020
Net Income
Other Comprehensive income to be classified to
profit and loss:
Foreign Currency Translation gain
Less:Unrealized Loss on Derivatives
Comprehensive Income xxx
Statement of Retained Earnings
-shows the changes affecting directly the retained
earnings of an entity
a. Profit or loss for the period
b. Prior period errors
c. Dividends declared and paid to shareholders
d. Effect of change in accounting policy
e. Appropriation of retained Earnings
Statement of Changes In Equity
-shows the movement in the elements of changes
in shareholders’ equity
Statement of Cash Flows
-summarizes the operating investing and financing
activities of an entity

Loss on sale of trading investments

Loss on Disposal of Property, Plant and
Equipment
Loss on Sale of Non-Current Investment
Casualty Loss- Flood, Earthquake, Fire

ABC Company
Income Statement
For the Year Ended December 31, 2020

Net Sales: xxx

Less: COGS xxx
Gross Income xxx
Add: Other Income xxx
Investment Income xxx
Total Income xxx
Less: Expenses
Distribution Cost xxx
Administrative Expenses xxx
Other Expenses xxx
Finance Cost xxx xxx
Income before Tax xxx
Less: Tax Expense xxx
Net Income/ Net Loss xxx