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TO
LANGUAGE OF
BUSINESS

ACCOUNTING RECORDS &

SYSTEMS

FINANCIAL STATEMENTS
THE PREPARATION
OF F/S IS NOT THE
FIRST STEP IN THE
ACCOUNTING
PROCESS,

ACCOUNTING SPECTRUM

PROCESS
BJECTS

TASKS
IDENTIFY
COLLECT
MEASURE
ANALYZE
COMMUNICATE

OUTPUTS

FINANCIAL
INFORMATIO
N
BALANCE SHEET
INCOME STATEMENT
CASHFLOW
FUNDS FLOW

SUBJECTS

ECONOMIC
ENTITIES
CORPORATIONS
PARTNERSHIPS
PROPRIETORSHIP

ACTIVITIES
INVESTING
FINANCING
OPERATING

EXTERNAL

POTENTIAL INVESTORS
SUPPLIERS
CREDITORS
CUSTOMERS
COMPETITORS
GOVERNMENT
GENERAL PUBLIC

INTERNAL
STOCKHOLDERS
MANAGERS
EMPLOYEES

8. Closing
Books are prepared for
next cycle.

1. Transaction Occurs

2. Journalizing

7. Draft Financial
Statements

Transactions are
entered in a general
journal.

Balance sheet, income

statement and cash flow
are prepared.

6. Closing Entries

3. Posting

Clear and close revenue and

expense accounts, transfer to
statements.

Journal entries are

transferred to ledger
accounts.

5. Accounting Adjustments

4. Trial Balance

Adjustments are made in order to

prepare financial statements.

Accounts are verified,

totaled and balanced.

FINANCIAL STATEMENTS
ACCOUNTING CYCLE:
TRACKING THE
COMPANYS
LIFECYCLE

ACCOUNTING CYCLE
THE CHART OF ACCOUNTS: A
COLLECTION OF BUCKETS AS YOU GO
ALONG
THE GENERAL JOURNAL: THE HISTORY
BOOK
THE GENERAL LEDGER: TRACING THE
CHANGES (INCREASE OR DECREASE) IN
THE BUCKETS
TRIAL BALANCE: BALANCING THE
BUCKETS

TWO-SIDED EFFECTS OF A TRANSACTION TO

THE ACCOUNTING EQUATION
Transaction:
An activity or event;
An exchange of value between two parties and expressed in
monetary terms;
For every value received, there is a corresponding value parted
with.
a.) Increase in Assets= Increase in Equities
b.) Increase in Assets= increase in Liabilities
c.)Decrease in Assets= Decrease in Liabilities
d.)Decrease in One Asset= Increase in Other Asset
e.)Decrease in Assets= Decrease in Equities
f.) Increase in Liabilities= Decrease in Equities

ANALYSIS OF ACCOUNTING
TRANSACTIONS
ACCOUNT

Debit

Credit

ASSETS

Increases

Decreases

LIABILITIES

Decreases

Increases

EQUITIES

Decreases

Increases

REVENUES

Decreases

Increases

EXPENSES

Increases

Decreases

ACCOUNT
ASSETS

BALANCES
Debit

LIABILITIES

Credit

EQUITIES

Credit

JOURNALIZING
The process of recording the debits and
credits chronologically (day by day) in a book of
original entry called the journal is called journalizing. In
its simplest format, the journal is composed only of two
money columns placed side by side. It must be
registered with the Bureau of Internal Revenue before
the bookkeeper begins making entries into it.
A complete journal entry contains the following:
1. Date
2. The account title/s and the amount/s to be debited
3. The account title/s and the amount/s to be credited
4. Short explanation

GENERAL JOURNAL
A listing of all transactions in chronological order
= Book of original entry
A record of debits and credits entered in
columns,
the left column for recording debits
the right column for recording credits
Date

Account Title and Explanation

Ref Num
GENERAL JOURNAL

Debit

Credit

T-ACCOUNT
Account Title

Debit

Credit

Journal Entry
How transactions are entered into the accounting system.

 Assets
101 Cash
102 Reserves
103 Short Term
Investments

SAMPLE CHART OF
ACCOUNTS
Liabilities

201 Short-term
Borrowing
202 Client Savings
203 Long-term Debt
(comm.)

SAMPLE CHART OF
ACCOUNTS
Equity
301 Paid in Equity
302 Donated Equityprior
303 Long-term Debt
(comm.)

Revenue
401 Interest on
Current & Past due
loans
402 Interest
Restructured
Loans
403 Interest on
Investments

SAMPLE CHART OF
ACCOUNTS
Expenses
501 Interest Paid on Short-term borrowing
502 Interest Paid on Client Savings
503 Interest Paid on Long-term Debt

 Represents the accumulation of all

information about changes in an asset,
liability, equity, revenue or expense item
in one place.
Each ledger account is identified by its
account name and number as stated on
the Chart of Accounts.

LEDGER ACCOUNTS
Fixed Assets

Date

Explanation

Account No. 116

Debit

Credit

Balance
230,504

July 1
3

Purchased computer

4,000

234,504

Purchased motorcycles

15,000

249,504

POSTING

The journal provides a complete recording of the daily

transactions of a business. However, it does not show in
one place or in one glance all the changes (increases or
decreases) that took place for a particular account.

To make this possible, the debits and credits should be

rewritten from the general journal to the general ledger.
The process of rewriting is called posting.

The standard form of the ledger has two sides, the

debit side and the credit side. In its simplest format, it
is a T-account. Each side has a date column, explanation,
folio and amount column. Before posting, the ledger
accounts are opened based on a chart of accounts.

TRIAL BALANCE
After all transactions for the period have been
posted to the ledger accounts, the balance for each
account is determined which is either a debit or a
credit.
The trial balance is the list of all accounts and their
balances and checks whether total debits equal
total credits.

ADJUSTING ENTRIES
Entries required at the end of each
accounting period to update the accounts as
necessary and to fully recognize, on an
accrual basis, revenues and expenses for the
period.

Skousen, Stice, Stice

ADJUSTING ENTRIES
Prepayments
Deferred Income
Accrued Income
Accrued Expenses
Doubtful Accounts
Depreciation

CLOSING ENTRIES
are entries that reduce all revenue and
expense accounts to a zero balance at the end
of each accounting period, and transferring
the preclosed balances to the the retained
earnings account.