Accounting Cycle Hacks?

(Taglish)
PT. 1
Wrong Journal Entries? Trial "Un-Balanced"? Worksheet na nagiging piece of,
well, *bleep*? Adjusting entries na mahirap gawin gaya nung pag-adjust mo para
sa kanya? (char). Here are some of my own hacks and tips.
Journalizing Entries:
1. Learn the normal balances of each account para alam mo kung saan mo sila
ilalagay: debit o credit? Analyze mo din and remember what will happen to the
capital/equity account. Example, pag bumili ka ng equipment for cash, both
assets increase (acquisition of asset) and decrease (cash paid). Pag expense,
like salaries expense, madedecrease ang net income mo, thus decrease also in
owner's equity/capital. Always remember that ASSETS and EXPENSES are on the
Debit side while LIABILITIES, OWNER'S EQUITY/CAPITAL, AND INCOME are on
the Credit Side. Know these balances and you're good to go.
Tip: In adjusting entries, we can encounter prepayments, accrued
income/expense and deferrals. Entries can be: Dr. Prepaid expense and cr cash
on original entry and dr. expense and cr. prepaid expense on adjusting entries.
Para di kayo malito, you can use dr. Expense and cr. Payable for accrued
expenses and dr. Receivable and cr. Income on accrued income (you can use the
accrued income/expense as substitute for receivables/expenses).
2. Double (or even triple) check amounts and account titles. Not only that, check
mo normal balance nila. Ang pinaka-worst na enemy ng bawat student is
unbalanced na worksheet, trial balance, and other fin. statements, dahil mali ang
account titles and amount. Double check them, or else di talaga mababalance
yang trial balance mo, and other financial statements. Go over your transactions
and analyze ulitpara malaman mo if tama ba nagawa mo or hindi.
3. Analyze, analyze, analyze. Hindi yung kung ano na ang andoon, yun na. Baka
ang ginawa mo sa "Billed P10,000 to a customer for goods sold", nailagay mo na
Notes Receivable dahil sa "Billed". Or advanced payment received for services to
be rendered, ginawa mo na siyang accrual. Analyze mo ng maigi. If di kaya ng
powers mo, skip for the meantime, then balikan mo.
T-Account/Ledger:
1. Lagyan mo ng date. Alam kong sinasabi yan ng mga teachers, and it is a MUST
na lagyan mo ng date ang mga nilalagay mo na entries sa t-account/ledger. Para
di ka maconfuse, put a small tick mark on the left part of the journal para
maindicate mo na nailagay mo na doon yung account na yun sa T-
Account/Ledger.
2. Look at your balances. Baka ang salaries expense mo, mailagay mo sa credit.
See to it na tama ang amount at normal balance ng mga ito.
Trial Balance and Worksheet:
1. Make sure na tama ang amounts na nasa T-Account/Ledger mo. Pag tapos mo
nang nailagay sa TB/WS ang account na yun, again tick mark na maliit sa left ng
account title ng T-Account/Ledger para maindicate na nailagay na doon ang
account.
2. Look at your balances. Baka ang salaries expense mo, mailagay mo sa credit.
See to it na tama ang amount at normal balance ng mga ito.

Adjusting Entries

Before we proceed, I gave you guys the BETTER OPTION of adjustments. Though there are other options
available, it is not a sound and just way of accounting, as it may break some rules/principles. Well then,
VAMOS! Let’s start!

Know the types of adjusting entries. Don’t be afraid. Just because it’s adjusting entries doesn’t mean
it’s like a whole new species of accounts. The accounts are just like your accounting elements (asset,
liability, capital), as well as income and expenses. However, there is the contra-asset account. Don’t
fear, kasi ang contra asset is a negative asset used to offset an asset, thus changing it to a new value.
Here are the adjusting entries:
Accrued Income: Income you’ve generated, but no cash is received. In short, may utang pa sayo ang
mga customers. Under the accrual principle, we recognize transactions on the day they occur, rather
than recording them on the time we received cash. Kapag may di pa nacollect si owner na cash from
customers, pero may nagenerate na income from its operations, treat it na may income na
nagenerate, regardless of whether cash is received or not. This is a “de-kahon” (read it: fill-in-the-
blanks) entry, kasi it can be any receivable item, and make sure na matching sila. For example, rent
receivable and rent income, or interest receivable and interest income. The entry to this is:
Receivable xx

Income xx

To record _________income accrued

Accrued Expense: Expenses incurred but not yet paid. In short, ikaw ang may liability to pay the
creditor the expenses incurred. Also base it on accrual principle (shown above), similar explanation:
expenses incurred should be recorded on the day the transaction happened, not when cash has been
paid. This is a “de-kahon” (read it: fill-in-the-blanks) entry, kasi it can be any expense, and make sure
na matching sila. For example, rent expense and rent payable, or salaries expense and salaries
payable. Entry:
Expense xx

Payable xx

To record ________ expense unpaid

Bad Debts: This is the estimated amount of receivables na HINDI MO NA MAICOCOLLECT. Siguro si
customer, tinamad siya magbayad ng utang niya or pwede din na nakalimutan niya na may utang
siya. There are two ways: Direct Write-Off Method and Allowance Method.
Direct Write-Off Method: Sa method na ito, it was deemed that a portion of receivables is NO
LONGER COLLECTIBLE. Di na macocollect ni business yung receivable ni customer, in other words,
wala nang pag-asa. Thus, in this process, accounts receivable will be reduced to that amount. In
other words, parang trinatrato mo na wala nang pag-asang mababayaran ni owner ang utang mo sa
kanya. Entry would be like:

Bad Debts Expense xx

Accounts Receivable xx

To record uncollectible receivables

Allowance Method: Kapag allowance method, it provides for bad debts during the period the
sale/service is recorded. Pero, pag deemed uncollectible na talaga, iwri-write off na siya. The
Allowance for Bad Debts is a CONTRA-ASSET ACCOUNT that is deducted in Accounts Receivable.
There is a difference between bad debts expense and allowance for bad debts. Bad Debts Expense,
is, well, an EXPENSE ACCOUNT na mahahanap mo sa INCOME STATEMENT. Allowance for Bad Debts
is a CONTRA-ASSET ACCOUNT found in the Statement of Financial Position. Entry:
Bad Debts Expense xx

Allowance for Bad Debts xx

To record bad debts expense and set up of allowance of

bad debts

Suppose iwriwrite-off na natin ang Accounts Receivable:

Allowance for Bad Debts xx

Accounts Receivable xx

To write off uncollectible accounts receivable

Depreciation: there is a need for depreciation in non-current assets like property, plant, and
equipment. Why?
Wear and tear. In other words, as time passes, nadadamage yung asset. Engines and chassis of
vehicles can break down, hence the need for periodic maintenance. Damage to moving parts of
machinery, isa pang halimbawa. As time passes, nadadamage yung machine, thus needing repair.
And even if narepair ang mga assets na ito, it will never perform the way it was the time it was
bought and in brand new condition.
Obsolescence. In other words, nagiging luma na yung machine, and it can’t keep up with:
 Modern technology, wherein new designs and features equal better performance, capability, and
more output produced by the asset.
The straight-line depreciation is easy to implement. To compute for the annual
depreciation of an asset via this method, the formula would be:

For example, on May 01, 2019, XYZ Business purchased furniture for P85,000. The end
of the accounting period for the business would be every December 31. The furniture has a scrap value
of P5,000, and has a useful life of 8 years. To easily understand how to depreciate an asset easily,
consider these factors:

Date of Purchase. Kailan mo binili? What month? Did you purchase it at the start of the month? In
between? End of the month? You have to look at the date of purchase. The depreciation will start as
soon as you have the asset.
Accounting Period. Tignan mo kung kailan magtatapos ang accounting period niya. Di lahat ng
businesses sa December nagtatapos ang accounting period nila, so take that as a consideration.
Details. Cost of the asset, scrap value, useful life.

To solve the above problem, we will have a yearly depreciation of P10,000. The question:
Will we record P10,000 as depreciation expense? NO. Again, look at the accounting period
and the date of purchase. Wala pang 1 year yan, so it’s not P10,000. Now, let us compute
for depreciation. Since start of the month yan, ang method is to include also that month in
computing depreciation. From May to December, 7 months + 1 kasi start of the month niya
binili. If at the end of the month, then 7 lang, iexclude ang May. Computation would be
P10,000 x 8/12 = P6,666.67. From May 1-Dec. 31, yan ang amount ng iyong depreciation.
But, what if in between?

Let’s use the same amount, pero purchased on May 17. Ganito:

Count how many days ang month na yun. May has 31 days, so 31-17=14. But, wait! Isali din natin si
May 17, kasi at the time na napurchase mo na yung asset, magsisimula na siyang magdepreciate. So,
14+1=15 days.
Add it to the # of days per month up to end of account period. So, 15+30+31+31+30+31+30+31=229
days.
Multiply the yearly depreciation (P10,000) and number of days remaining up until the end of
accounting period. P10,000 x (229/365) = P6273.97.

To record depreciation:

Depreciation Expense-(Asset) xx

Accumulated Depreciation – (Asset) xx

To record depreciation of (asset)

 Deferred Income- cash collections received as advanced payment for services to be rendered.
Do not confuse it with accruals. Ito ang keywords:

Accruals Deferrals

Rendered, but no cash received (Income) Received cash

Incurred, but not yet paid (Expense) Advanced payment

To be rendered in a future date

Liability ang deferrals kasi, albeit may cash ka namang nareceive from the customer, the services
that you will render on a certain date should be performed exactly on that date. It is the owner’s
responsibility to render these services to the customer. The entries are:

Cash xx

Unearned Income xx

To record cash collected in advance for services to be rendered in the

future.

To record the income already generated:

Unearned Income xx

Service Income xx

To recognize income generated.

Prepayments. Assets that become expense over time, reason for it being that, based on one of the
definition of assets, it gives the business positive value/benefits arising from their operations. Example is
rent. For us commoners, ang rent sa atin is seemingly like an expense, gaya ng boarding house. May
binabayaran tayong rent every month, and we treat it as an expense. In business, kapag rent, it is an
asset. Kailangan ng rent so that the business can establish and conduct operations. Pwede rin siyang
maging expense, which I will discuss later. Later, as time passes, nagiging expense na siya. Other
examples are your office supplies, store supplies, and advertising. Over time, magagamit sila for the
benefit of the business, for without these things, hindi sila makakagenerate ng profits.

For prepayments, we treat them as part of CURRENT ASSETS, which are expected to be
converted to cash within a year. Journal entry:
 Prepaid (Expense) xx

Cash xx

To record…

For adjusting entries, we need to know how much of these assets are used up. If it pertains to an
asset involving advanced payment for services availed like rent and advertising, compute first how much
should be paid monthly. For example, on August 01, XYZ Business paid for 6 months advertising for
P18,000. Every month, he will pay P3,000. So, up until December 31 (the end of the accounting period
for XYZ), the advertising expense would total to P15,000, while the prepaid advertising remaining would
be P3,000. What if made in between start and end of the month? Let’s say that the transaction was
made in August 26. Applying the same rule as we had on depreciation, include the date the transaction
has been made. August has 31 days, so 31-7+1=25 days, plus the remaining months. Total would be
P14,380.43.

Expense xx

Prepaid (Expense) xx

To record…

Tips:

Computing bad debts can confuse you. For example, you have Accounts Receivable of P55,000 and
an Allowance for Bad Debts of P4,000.
Allowance for Bad Debts should be raised by 12% of Accounts Receivable. P55,000 x 12% = P6, 600.
This will be your bad debts expense.
Allowance for Bad Debts should be raised to 12% of Accounts Receivable. P55,000 x 12% = P6,600 –
existing Allowance of P4,000 = 2,600. Got it? Good.
Analyze the problem. If in doubt, try putting yourself into the shoes of the owner to better
understand what happened.
Know the difference between accruals and deferrals. Remember, accruals: may income generated
pero no cash received in the case of accrued income, or expense incurred but unpaid sa accrued
expense. Pag deferrals, advanced collection for services to be rendered.
Accounting Cycle Hacks (Pt. 3)

Adjusted Trial Balance

1. One of the mistakes on why our amounts in the adjusted trial balance and other financial statements
is because some accounts (especially adjusting entries)

are not listed in these financial statements, or even wrong amounts posted. May mga times na hindi mo
naipapasok ang mga amounts mo sa mga financial statements kasi

nagmamadali ka, or na-overlook mo yung mga accounts and amounts. See to it na naipost lahat ng mga
accounts mo doon (including adjusting entries).

TIP: The pencil tick mark. Are you done with your entries? Have you posted them to your T-
Accounts/Ledgers, and also your adjusted trial balance? Put a small, visible

(but also easily erasable) tick mark on the left of your entries to indicate that you have posted the
account to the ledger/t-account, and also, to the financial

statements. Burahin mo rin afterwards, ha? (Kapag balanced na ang entries and tama na yung mga
amounts sa financial statements mo).

2. Know where to place your entries. Know that some of these entries can be assets (like prepayments
and accrued income), or it can be a liability (like accrued

expenses and deferred income). Identify if they are part of assets, contra-assets, liabilities, or owner's
equity.

TIP: Do not confuse bad debts expense and allowance for bad debts expense, as well as depreciation
expense and accumulated depreciation. Tandaan mo, EXPENSE ang

bad debts expense at depreciation expense at dine-DEBIT po iyan. Ang allowance for bad debts at
accumulated depreciation ay contra assets, and binabawas niya ang

value ng mga assets.

Financial Statements

1) Income Statement

- Components ng income statements are your income, expenses, and profits/losses ng company
na nagenerate ng isang business during the reporting period. Remember

na temporary accounts lamang ang laman ng income statement, kasi hindi mo yan macacarry-over to
the next accounting period. Parang nirereport lang niya kung magkano

ang nagenerate na profit or loss ng company during that year, and the next year statements can be
different. Temporary lang siya in the sense na it only reports

the profit/loss during that certain year only.

- Always remember: INCOME-EXPENSES. If may additional gain, i-add mo. If may additional loss,
i-deduct mo.

- There are 2 ways on presenting an income statement: Functional Form and Natural Form. Now,
let us discuss the differences of the two:

a) Natural Form- it's simple: Revenue minus Expenses. Period. Yun lang. Net income less:
expenses, following a list of expenses, like this:

Income

Less: Expenses

Expenses

Expenses

Expenses

and so on and on...

_____________________________________________________________________________________
___________________________________

Net Income/Loss

b) Functional Form - it presents all the incomes and expenses by FUNCTION, kung ano
ang use ng mga expenses na iyon, at kung saan siya naka-categorize.

Sa Functional Form kasi, each of the expenses fall under a certain category of expense that needs to be
computed in order to know

how much expenditures have been placed on these expenses. Para madaling sabi, "Expenses under an
Expense". By "FUNCTION" ito. Ano ang mga pinaggastahan ng business for
its office/administrative department? How much ang nagastos for the purchase of goods and other
expenses needed to bring these goods to the business' doorsteps? Here

is an example of a functional form income statement supported by a schedule:

K-Mag's Bookstore

Income Statement

For the Year Ended, December

31, 2019

Sales

Less: Cost of Goods Sold (schedule 1)

Gross Profit

Less: Operating Expense

Selling Expenses (schedule 2)

Administrative Expenses (schedule 3)

_____________________________________________________________________________________
____________________________________

Net Income/Loss

Schedule 1: Cost of Goods Sold

Merchandise Inventory, Jan. 1 xx

Purchases xx

Add: Freight In xx

_______

Total Goods Available for Sale xx

Less: Merchandise Inventory, Dec. 31 xx

 _______

Cost of Goods Sold xx

Schedule 2: Selling Expenses

Store Rent Expense xx

Salesmen's Salaries xx

Depreciation - Delivery Truck xx

Advertising Expense xx

_______

Total Selling Expenses xx

Schedule 3: Administrative Expenses

Office Worker's Salaries xx

Depreciation Expense - Office Equipment xx

Office Supplies Expense xx

Insurance Expense xx

________

Total Administrative Expenses xx

What are schedules? It is a form of supporting document which shows evidence of the expenses under
that category of expenses. It is a detailed information list
that shows what expenses have been incurred under that category. Instead of placing all of these
expenses into the Income Statement, why not make a schedule? By the

way, here are some of the advantages of functional form over natural form and vice-versa(from my
POV):

1. The functional form categorizes each expenses according to their function and usage. Mas
organized itong gawin as compared to natural form. In a sense,

it's better to organize expenses according to their function/usage, rather than nakakalat sila kung saan-
saan. At least mas detalyado ito and more informative. But,

you have to know where you will place these accounts.

2. Ang natural form is simple to use: revenue - expenses, period. Di mo na kailangang i-classify
yung mga expenses na ito, basta ilagay mo nalang sa income or

expenses then compute right away.

COST OF GOODS SOLD (COGS)

- COGS are expenses used to indicate how much merchandise have you purchased, and the necessary
costs to deliver the goods to the business, like freight. Also,

icocompute mo rin dito ang mga goods na nareturn to the seller dahil defective, or maling goods ang
naibigay sa iyo. Irerecord din ang discount ng goods (deduction)

kasi ang discount is a deduction to the original price of the merchandise. Discounts happen within a
certain period, for example, nagpurchase ka ng goods for P90,000,

and ang terms is may 10% discount ka if nabayaran mo within 7 days. If babayaran mo in full within 7
days, may discount ka na P9,000, thus P81,000 ang babayaran mo sa

cash.

Remember: ang COGS are all expenditures related to the purchase of goods, beginning and ending
inventory, and any deductions in the merchandise purchases due to returns

and discounts. Basta related siya sa kung ano ang binebenta ng business na goods, yun ang purchases.
Hindi purchases ang pagbili ng office supplies if ang binebenta

ng isang business is tech devices and gadgets like phones, computers, computer hardware, computer
parts, etc.Purchases siya if gadgets and tech devices ang binebenta

niya.

Selling Expenses
- Expenditures related to the selling of goods and services, or expenditures incurred to aid in the selling
of goods, such as advertising expenses, salaries of

salesmen, and store rent expenses. These expenses are essential to the sense na, if wala ang mga ito,
hindi kikita ang business. These expenses are needed in order

for the business to continue selling products. Ang salesmen, kapag di mo binayaran, di na sila
magtratrabaho para sa iyo. Kapag ang store rent, di mo binayaran,

saan ka ngayon magbebenta ng goods? Sa kalsada? Kapag hindi ka nagbayad ng advertising, paano
malalaman ng mga potential customers ang business mo and your products?

Ask these questions para madali mong maanalyze at maintindihan ang selling expenses.

Administrative Expenses

- Expenditures related to administrative and office duties, like office worker's salaries, office rent
expense, office supplies expense, insurance expense, and

depreciation ng office equipment. These are some examples of expenses na kailangan para sa
administrative and office duties. Again, ask: if wala akong nagastang

office supplies, paano kaya nakapagtrabaho ang mga office workers? If di ko binayaran ang sahod ng
mga office workers, magtratrabaho pa ba kaya sila? If ang

office equipment, di nadepreciate, paano ko malalaman kung hanggang kailan magiging inoperable (or
no longer functioning) yung machine? Baka kapag di ko narecord

yun, siguro yung machine, later on, baka pumalya, tapos hindi na makakatrabaho yung mga workers ko.
Ask these questions to help you identify what expenses are to

be recorded.

BALANCE SHEET/STATEMENT OF FINANCIAL POSITION

1. Ang balance sheet accounts ay PERMANENT, and are carried over to the next reporting period.

2. Remember the accounting equation, A=L+OE? Well, ito ang karga nito. But, let us classify these
elements:

a) Assets - pag-aari ng business mo, one that will give you future economic inflows/benefits
because through the usage of these assets, may magegenerate kang

benefits.
 i) Current Assets- assets which can be converted into cash within 1 year. Examples: Cash
and Cash Equivalents, Trade and Other Receivables,

Prepayments.

ii) Non-Current Assets - assets which is not easily convertible to cash within 1 year and
can take a longer period of time before it can be

converted to cash, like Property, Plant and Equipment (Land, Equipment, Vehicles, Furniture).

b) Liabilities - sa Tagalog, mga "utang" mo. These represents your obligations to creditors for
various services rendered like purchase of an asset on account,

cash collections received in advance for services to be rendered in the future, and also, loans from
banks.

i) Current Liabilities - liabilities that are expected to be paid within a year, such as
accounts payable and notes payable supported by promissory

note.

ii) Non-Current Liabilites - liabilities that are expected to be paid for more than a year,
like notes payable with interest-bearing note. As long

as the obligation takes more than a year to be paid, it is a non-current liability.

c) Owner's Equity - ito yung mga ininvest ni business owner for the business, less any drawings
or withdrawals made by the owner. Ito yung share ni owner sa

assets ng business, parang nai-contribute niya for the business.

3. Remember na ang Balance Sheet ay parang nag-aadd ka at nagsusubtract gamit ang accounting
equation, pero yung balances niya dapat manggaling sa ledger/t-account.

There are 2 ways on presenting the Balance Sheet: Report and Account Form.

a) Report Form lists all of elements in a vertical sequence (pababa po siya)

b) Account Form lists the assets in the left side and the liabilities and owner's equity on the right
side, parang A=L+OE.

Tips:
1. Practice, practice, practice. If di mo pa kaya ang mahihirap na problems, try to settle muna sa easy
problems, then get progressive. Challenge yourself to harder

problems every day, yung tipong kung ano muna ang kaya mo, yun muna. If magkamali ka, it's okay. At
least you made a discovery (Eureka!)

2. Read, read, read. Also, learn and analyze. Hindi yung kung ano na ang meron, yun na. Analyze mo ng
maigi yung problem. Para di ka mahirapan, try fitting yourself

into the shoes of the owner to know what happened in the transactions.