Accounting 1 Module

PREFACE
This Fundamentals of Accounting module is not just a simple introductory module

in Accounting, but rather a comprehensive learning experience on the nature of
business ownership and operation. For students dreaming to have their business
in the near future it is the first step to consider on their ability to know the
importance of single centavo in the business. It will assist them in their
understanding and comprehension that focuses on the underlying accounting
principles.
This module provides a thorough and efficient explanation found in every lessons:
1. Accounting and its environment
2. Accounting equation and its double entry system

3. Recording business transactions
4. Adjusting the accounts

5. Worksheet and financial statements
6. Completing the Accounting Cycle
7. Merchandising Operations
At the start of each lesson a pretest is given to measure the student's prior
knowledge and to provide a snapshot of the topics to be discussed. Learning
activities immediately follows the discussion of every topic. At the end of each
lesson, the discussions are supplemented with mastery test to measure the
learning of the students. These exercises presented in a more realistic setting
thereby strengthen their undertaking of the matter and making it more relevant.
As a final note, all comments and suggestions for the betterment of this module
would be immensely appreciated.
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ACKNOWLEDGMENT
My heartfelt thanks go to the following persons who immeasurably share their

valuable contribution in the conduct and completion of this module:
- To JHCSC family, for their invaluable motivation and encouragement
during the development of this module;
- To my family, my brothers and sisters who always had my back and helps
me in encoding and editing this module;
- To my friend, Vernalyn who never fails to motivate me and believes in

me that I can pull this through;
- Above all, to the Almighty God, for His unending love, guidance, and
for giving me the knowledge, wisdom, patience and strength from the
preparation until completion.
Kristine Mae
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TABLE OF CONTENTS
Preface i
Acknowledgment ii
1 Accounting and Its Environment 1

1.1 Definitions of Accounting 2
1.2 Forms of Business Organizations 3
1.3 Purpose and phases of accounting 5
2 The Accounting Equation and the Double-entry System 12

2.1 Elements of Financial Statements 13
2.2 The Accounting Equation 14
2.3 Rules of Debit and Credit 14
2.4 Accounting for Business Transactions 16
3 Recording Business Transactions 37

3.1 Accounting Cycle: Sequential Steps and Aims 38
3.2 The Journal 40
3.3 Posting 48
3.4 Trial Balance 50
4 Adjusting the Accounts 65

4.1 The need for adjustments 66
4.2 Adjustments for Deferrals 67
4.3 Adjustments for Accruals 72
References 83
Appendices 84
Appendix A Rubrics 84
Appendix B Course Syllabus 86
About the Author
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Lesson 1
Accounting and its Environment
Learning Outcomes:
At the end of this lesson, you'll be able to:
• Make an essay about the accounting and its importance in business.

• Identify the different types and forms of business organizations.
• Create a graphic organizer about the purpose and phases of accounting.
Pretest
Directions: Answer briefly.
What do you think is the role of Accounting in our daily lives?

ANS:
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LANGUAGE OF BUSINESS
Accounting is relevant in all walks of life, and it is absolutely essential in the world of business.
Accounting is the system that measures business activities and processes that information into reports and
communicates the results to decision-makers. Accounting is said to quantify business communication and
for this reason, accounting is called the language of business. The task of learning accounting is very similar
to the task of learning a new language.
DEFINITIONS 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 decisions
(Statement of financial Accounting Standards No. 1, “Basic Concepts and Accounting Principles
Underlying Financial Statement of Business Enterprises” (Manila: Accounting Standards Council, 1983),
par. 1).
Accounting is an information system that measures, processes and communicates financial

information about an economic entity (Statement of Financial Accounting Concepts No.1, “Objectives of
Financial Reporting by Business Enterprises” (Norwalk, Conn.: Financial Accounting Standards Board,
1978), par.9).
Accounting is the process of identifying, measuring and communicating economic information to

permit informed judgments and decisions by users of information (American Accounting Association, “A
Statement of Basic Accounting Theory” (Evanston,III.: American Accounting Association, 1966), par. 1;
Accounting Principles Board, Statement No. 4 “Basic Concepts and Accounting principles Underlying
Financial Statements of Business Enterprises” (New York: AICPA,1970), par. 40).
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 (American Institute of Certified Public Accountants, “Review and Resume”, Accounting
Terminology Bulletin No. 1 (New York: AICPA, 1953, par. 9).
BUSINESS AND ACCOUNTING
The primary motive of a person engaged in business is profit. As a profit-oriented person, the
proprietor takes interest of knowing how the day-to-day transactions affects capital investment.
Accounting helps the proprietor know how much profit that the business makes. By simply putting
into records the income earned and the expenses being paid for, is already accounting itself. But risk is
inherent to every business activity that the results of operations may not always turn out to be as expected.
Business sometimes suffers set-backs and thereby incurs losses. However, a business may stand at a point
much better than incurring losses. That if the business cannot make profits, it cannot also incur losses. This
is an instance wherein the total costs and expenses incurred are equal to total sales or revenues for a
given period. This is “no profit”, “no loss” situation of the business as being referred to as “breakeven”
or “breakeven point” of sales.
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IMPORTANCE IN KEEPING OF BUSINESS RECORDS
Considering the volume of the day-to-day transactions of the business, it is very difficult to rely only on
our memory or even recall all the transactions that the business may have entered into. We should keep a
“diary” which will record all the activities for the day and even for a year. The records should be kept by
the business for that purpose are called “books of accounts”. What has been recorded in books of accounts
are data that are financial in character which are processed and transformed into a report form called
“financial statement”.
TYPES OF BUSINESS
Fundamental business model does not vary but there are infinite ways of applying it to provide the range
of products and services that make up the business. The following are the summarized products and services
that a business can create.
Type Activity Structure Examples
Services Selling peoples time Hiring skilled staff and Software development
selling their time Accounting
Legal
Trader Buying and selling Buying a range of raw Wholesaler

products materials and Retailer
manufactured goods and
consolidating them,
making them available
for sale in locations near
to their customers or
online for delivery.
Manufacturer Designing products, Taking raw materials
Vehicle Assembly
aggregating components and using equipment and
Construction
and assembling finished staff to convert them into
Engineering
products finished goods. Electricity, Water
Food and drink
Chemicals
Media
Pharmaceuticals
Raw materials Growing or extracting raw Buying blocks of land Farming
materials and using them to Mining
provide raw materials Oil
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Infrastructure Selling the utilization of Buying and operating Transport (airport
infrastructure assets (typically large operator, airlines, trains,
assets); selling ferries, buses)
occupancy often in Hotels
combination with Telecoms
services Sports facilities
Property management
Financial Receiving deposits, lending Accepting cash from Bank
and investing money depositors and paying Investment house
them interest; using the
money to provide loans
to borrowers, charging
them fees and higher rate
of interest than the
depositors receive
Insurance Pooling premiums of many Collecting cash from Insurance
to meet claims of a few many customers;
investing the money to
pay the losses
experienced by a few
customers. By
understanding the risk
accepted and the
likelihood of a claim,
more premium income
can be earned that claims
paid.
FORMS OF BUSINESS ORGANIZATIONS
A business generally assumes one of the three forms of organization and the accounting procedures
depend on which forms the organization takes.
Sole Proprietorship. This business organization has a single owner called the proprietor who generally is
also the manager. Sole proprietorships tend to be small service-type (e.g physicians, lawyers, and
Accountants) businesses and retail establishments. The owner receives all profits, absorbs all losses and
solely responsible for all debts of the business. From the accounting view point, the sole proprietorship is
distinct from its proprietor. Thus, the accounting records of the sole proprietorship do not include the
proprietor’s personal financial records.
Partnership. A partnership is a business owned and operated by two or more persons who bind themselves
to contribute money, property, or industry to a common fund, with the intention of dividing the profits
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among themselves. Each partner is personally liable for any debt incurred by partnership. Accounting
considers the partnership as a separate organization, distinct from personal affairs of each partner.
Corporation. A corporation is a business owned by stockholders. It is an artificial being created by

operation of law, having the rights of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence. The stockholders are not personally liable for the
corporation’s debts. The corporation is separate legal entity.
PURPOSE AND PHASES OF ACCOUNTING
Accounting provides management with information essential to the efficient conduct and
evaluation of its activities. Business transactions are economic activities of a business. One of the significant
functions of accounting is recording historical events and the informations being produced helps
management in planning, control and decision-making and even comply with regulations.
Not all business transactions are recorded because before the effects of its transactions can be
recorded, they must be measured. In order that accounting information can be useful, it must be expressed
in terms of common financial denominator which is money. Money serves as both a medium of exchange
and measure of value.
To measure a business transaction, the accountant must decide when transaction occurred (recognition
issue), what value to place on the transaction (valuation issue) and how components of the transaction
should be classified (classification issue).
By simply measuring and recording transactions, resulting information will be of limited use. To be useful
in making decisions, the recorded data must be classified and summarized. Classification reduces effects
of the numerous transaction into useful groups of categories. Summarization of financial data is achieved
through the preparation of financial statements. These summarize the effects of all business transactions
that occurred during some period.
After going through the preceding phases, the result of the summarization phase is interpreted or analysed
to evaluate liquidity, profitability and solvency of the business organization. Accounting provides decision-
makers with information to make reasons choices among alternative uses of scarce resources in the conduct
of business economic activities.
FUNDAMENTAL CONCEPTS
There are several fundamental concepts that underlie the accounting process. The following should
be considered in recording business transactions:
1. Entity Concept. An accounting entity is an organization or a section of an organization

that stands apart from other organization and individuals as a separate economic unit. In
other words, each entity should be evaluated separately.
2. Periodicity Concept. An entity’s life can be meaningfully subdivided into equal time
periods for reporting purposes. This concept allows the users to obtain timely information
to serve as a basis on making decisions about future activities. For the purpose of reporting
to outsiders, one year is the usual accounting period.
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3. Stable Monetary Unit Concept. The Philippine peso is a reasonable unit of measure and
that its purchasing power is relatively stable. This is the basis for ignoring the effects of
inflation in the accounting records.
4. Going Concern. Financial statements are normally prepared on the assumption that the
reporting entity is a going concern and will continue in operation for the foreseeable future.
CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING PRINCIPLE
Accounting practices follow certain guidelines. GAAP, which stands for generally accepted
accounting principles, encompass the conventions, rules, procedures necessary to define accepted
accounting practice at a particular time.
The general acceptance of an accounting principle usually depends on how well it meets three
criteria: relevance, objectivity and feasibility.
A principle has relevance to the extent that it results in information that is meaningful and useful
to those who need to know something about certain organization.
A principle has objectivity to the extent that the resulting information is not influenced by the
personal bias or judgement of those who furnish it. Objectivity connotes reliability and trustworthiness. It
also connotes verifiability, which means that there is some way of finding out whether the information is
correct.
A principle has feasibility to the extent that it can be implemented without undue complexity or
cost. These criteria often conflict with one another. In some case, the most relevant solution may be the
least objective and the least feasible.
BASIC PRINCIPLES
In order to generate information that is useful to the users of financial statements, accountants rely upon the
following principles:
• Objectivity Principle. Accounting records and statements are based on the most reliable
data available so that they will be as accurate and as useful as possible. Reliable data are
verifiable when they can be confirmed by independent observers. Ideally, accounting
records are based on information that flows from activities documented by objective
evidence. Without this principle, accounting records would be based on whims and opnions
and is therefore subject to disputes.
• Historical Cost. This principle states that acquired assets should be recorded at their actual
cost and not at what management thinks they are worth as at reporting date.
• Revenue Recognition Principle. Revenue is to be recognized in the accounting period
when goods are delivered or services are rendered or performed.
• Expense Recognition Principle. Expenses should be recognized in the accounting period
in which goods and services are used up to produce revenue and not when the entity pays
for those goods and services.
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• Adequate Disclosure. Requires that all relevant information that would affect the user’s
understanding and assessment of the accounting entity be disclosed in the financial
statements.
• Materiality. Financial reporting is only concerned with information that is significant
enough to affect evaluations and decisions. Materiality depends on the size and nature of
the item judged in the particular circumstances of its ommission. In deciding whether an
item or an aggregate of items is material, the nature and size of the item are evaluated
together. Depending on the circumstances, either the nature or the size of the item could be
the determing factor.
• Consistency Principle. The firms should use the same accounting method from period to
period to achieve comparabiltiy over time within a single enterprise. However, changes are
permitted if justifiable and disclosed in the financial statements.
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Learning Activities
Activity 1. Essay
Direction: Make an essay of 200 words about accounting and its importance in business.
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Activity 2. Matching Type.
Direction: Identify the different types and forms of business organizations. Choose your answers from
the box and write the letter of your choice on the space provided.
a. Sole proprietorship f. Manufacturing

b. Partnership g. Infrastructure
c. Corporation h. Financial
d. Service i. Insurance
e. Trading/Merchandising
1It is an enterprise composed of a professional or team of experts that deliver work or aid
in completing a task for the benefit of its customers. Landscaping, dental work, and getting your
taxes done are all service-based businesses.
2. The business’ structure is collecting cash from many customers and investing the
money to pay the losses experienced by a few customers. Its activity is pooling premiums of
many to meet claims of a few.
3. This organization has only one owner or proprietor.

4. The type of business wherein they use raw materials and use equipment to convert them
into finished goods.
5. It is composed of five but not more than 15 incorporators.
6. The business wherein they buy ready-made products and make them available for sale
in locations near to their customers or online for delivery.
7. This organization is composed of 2 or more persons.
8. A type of businsess wherein they accept cash from depositors and paying them interest.
9. Transportations, hotels, Telecoms and Sports facilities are some of the examples of this
type of business.
10. Some examples of this type of business are McDonalds, Jollibee and Chowking.
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Activity 3. Concept Map
Direction: Supply the concept map below with your own words the purpose and phases of
accounting.
ACCOUNTING
PURPOSE PHASES
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Mastery Test
True or False.
Direction: Write T if the statement is True and F if its False in the space provided before the number.
1. Accounting is often characterized as the “language of business”.

2. Accounting is a service activity whose function is to provide quantitative information,
about economic activities that is intended to be useful in making economic decisions.
3. A partnership is not a separate legal entity from the partners themselves.
4. A corporation is a business owned by its stockholders.
5. For accounting purposes, a business and its owner are considered one and the same.
6. Accounting is defined as the interconnected network of subsystems necessary to operate a
business.
7. Manufacturing companies buy raw materials, convert them into products and then sell the
products to other companies or to final consumers.
8. A corporation is an economic unit that is legally separate from its owners.
9. Materiality concept states that omitting or misstating a certain information could influence
users of the financial statements.
10. A service type of business is the one who buys a range of raw materials or manufactured
goods make them available for sale in locations near to their customers or online for
delivery.
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Lesson 2
The Accounting Equation and the Double-entry System
Learning Outcomes
• Define the elements of financial statements.

• Understand what is meant by the accounting equation, by solving problems
involving its concepts and transaction analysis.
• Summarize the rules of debit and credit as applied to balance sheet and
income statement accounts using a graphic organizer.
• Analyze the effects of business transactions on an entity’s assets, liabilities
and owner’s equity and record these effects using the financial transaction
worksheet.
Pretest
Directions: Write T if the statement is TRUE and F if the statement is FALSE.
____ 1. Capital represents the owner’s investment, or equity, in a business.

____ 2. Liabilities represent amounts owed to creditors.
____ 3. Business transactions are expressed in terms in money.
____ 4. In the fundamental accounting equation, assets are added to liabilities.
____ 5. Accounts Receivable is considered an asset.
6. A business transaction is the occurrence of an event or of a condition that must be
recorded.
7. Assets are things of value owned by a business entity.
8. Capital represents the owner’s investment, or equity, in a business.
9. The first step in analyzing a transaction is to determine what accounts are involved.
10. Liabilities represent amounts owed to creditors.
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ELEMENTS OF FINANCIAL STATEMENTS
The elements of financial statements are define as follows:
Element Definition or Description
Asset A present economic resource controlled by the entity as a result of

past events. An economic resource is a right that has the potential to
produce economic benefits.
Liability A present obligation of the entity to transfer an economic resource as

a result of past events.
Equity The residual interest in the assets of the entity after deducting all its
liabilities.
Income Increases in assets, or decreases in liabilities, that result in increases in

equity, other than those relating to contributions from holders of
equity claims.
Expenses Decreases in assets, or increases in liabilities, that result in decrease in

equity, other than those relating to distributions to holders of equity
claims.
THE ACCOUNT
The basic summary device of accounting is the account. A separate account is maintained for each
element that appears in the balance sheet (assets, liabilities and equity) and in the income statement (income
and expenses). Thus an account may be defined as a detailed record of the increases, decreases and balance
of each element that appears in an entity’s financial statements. The simplest form of the account is known
as the “T” account because of its similarity to the letter “T”. The account has three parts as follows:
Account Title
Left side or Right side or

Debit side Credit side
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THE ACCOUNTING EQUATION
Finacial statements tell us how a business is performing. They are the final products of the
accounting process. The most basic tool of accounting is the accounting equation. This equation presents
the resources controlled by the enterprise, the present obligations of the enterprise and the residual interest
in the assets. It states that assets must always equal liabilities and owner’s equity. The basic acounting
model is.
Assets = Liabilities + Owner’s Equity
Note that the assets are on the left side of the equation opposite the liabilities and owner’s equity and also
the equation explains why liabilities and owner’s equity follow the same rules of debit and credit.
DEBITS AND CREDITS – THE DOUBLE – ENTRY SYSTEM
Accounting is based on a doube – entry sytem which means that the dual effects of a business
transaction is recorded. A debit side entry must have a correspondening credit side entry.
An account is debited when an amount is entered on the left side of the account and credited when
an amount is entered on the right side. The abbreviations for debit and credit are Dr. (from the Latin debere)
and Cr. (from the Latin credere), respectively.
The account type determines how increases or decrease in it are recorded. Increases in assets are
recorded as debits while decreases in assets are recorded as credits. Conversely, increases in liabilites and
owner’s equity are recorded by credits and decreases are entered as debits.
The rules of debit and credit for income and expense accounts are based on the relationship of these
account to owner’s equity. Hence, increaes in income are recorded as credits and decreases as debits.
Increaces in expenses are recorded as debits and decreases as credits. These are the rules of debit and credit.
Balance sheet Accounts
Assets Liabilities and Owner’s Equity
Debit Credit Debit Credit
(+) (-) (-) (+)
Increases Decreases Decreases Increases
Normal Balance Normal Balance
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Income Statement Accounts
Debit for decreases in Credit for decreases in

owner’s equity owner’s equity
Expenses Income
(+) (-) (-) (+)
Increases Decreases Decreases Increases
Normal Balance Normal Balance
Accounts
Debit Credit
Increases in Increases in
Assets Liabilities
Expenses Owner’s Capital
Income
Decreases in
Liabilities Decreases in
Owner’s Capital Assets
Income Expenses
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NORMAL BALANCE OF AN ACCOUNT
The normal balance of any account refers to the side of the account—debit or credit—where
increases are recorded. Asset, owner’s withdrawal and expense accounts normally have debit balances;
liability, owner’s equity and income accounts normally have credit balances.
Increases Recorded by Normal Balance
Account Category Debit Credit Debit Credit
Assets ✓ ✓
Liabilities ✓ ✓
Owner’s Equity:
Owner’s Capital ✓ ✓
Withdrawals ✓ ✓
Income ✓ ✓
Expenses ✓ ✓
ACCOUNTING EVENTS AND TRANSACTIONS
An accounting event is an economic occurrence that causes changes in an enterprise’s assets, liabilites,
and/or equity. Events may be internal actions, such as the use of equipment for the production of goods or
services.
TYPES AND EFFECTS OF TRANSACTIONS
It will be beneficial in the long-term to be able to understand a classification approach that emphasizes the
effects of accounting events rather than the recording procedures involved.
1. Source of Assets (SA). An asset account increases and a corresponding claims (liabilities
or owner’s equity) account increases. Examples: (1) Purchase of supplies on account; (2)
Sold goods on cash on delivery basis.
2. Exchange of Assets (EA). One asset account increases and another asset account
decreases. Example: Acquired equipment for cash.
3. Use of Assets (UA). An asset account decreases and a corresponding claims (liabilities or
equity) account decreases. Example; (1) Settled accounts payable; (2) Paid salaries of
employees.
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4. Exchange of Claims (EC). One claims (liabilities or owner’s equity) account increases
and another claims (liabilities or owner’s equity) account decreases. Example: Received
utilities bill but did not pay.
Every accountable event has dual but self-balancing effect on the accounting equation. Recognizing these
events will not in any manner affect the equality of the basic accounting model. The four types of transaction
above may be further expandded into nine types of effects as follows:
1. Increase in Assets = Increase in Lianilities (SA)

2. Increase in Assets = Increase in Owner’s Equity (SA)
3. Increase in one Asset = Decrease in another Asset (EA)
4. Decrease in Assets = Decrease in Liabilities (UA)
5. Decrease in Assets = Decrease in Owner’s Equity (UA)
6. Increase in Liabilities = Decrease in Owner’s Equity (EC)
7. Increase in Owner’s Equity = Decrease in Liabilities (EC)
8. Increase in one Liability = Decrease in another Liability (EC)
9. Increase in one Owner’s Equity = Decrease in another Owner’s Equity (EC)
ACCOUNTING FOR BUSINESS TRANSACTIONS
Accountants observe many events that they identify and measure in financial terms. A business transaction
is the occurrence of an event or a condition that affects financial position and can be reliably recorded.
Financial Transaction Worksheet
Every financial transaction can be analyzed or expressed in terms of its effects on the accounting equation.
The financial transactions will be annalyzed by means of financial transaction worksheet which is a form
used to analyze increases and decreases in the assets, liabilities or owner’s equity of a business entity.
Illustration. Jimminn Park decided to establish a sole proprietorship business and named it as Kookie
Graphics Design. Jimminn Park discovered his talent in graphic designing through Youtube Academy while
on a lockdown in their province. He possesses the talent to visually communicate to a target audience with
the right combination of words, images and ideas that is why he pursued this new career.
Kookie Graphics Design can do the layout and production design of newpapers, magazines, corporate
reports, journals and other publications. The entity can create promotional displays; marketing brochures
for services and products; packaging design for products; and distinctive logos for businesses. He also
enters into agreements with clients for the progressive development and maintenance of their web sites. His
initial revenue stream comes form web designing.
The owner, Jimminn Park, makes the business decisions. The assets of the company belong to Jimminn
Park and all obligations of the business are his responsibility. Any income that the entity earns belongs
solely to Jimminn Park.
When a specific asset, liability or owner’s equity item is created by a financial transaction, it is listed in the
financial transaction worksheet using the appropriate accounts. The worksheet that follows shows the first
transaction of the Kookie Graphics Design. The dates are enclosed in parentheses.
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During March 2020, the first month of operations, various financial transactions took place. These
transactions are described and analyzed as follows:
Mar. 1 Jimminn Park started his new business by depositing P400,000 in a bank account in the
name of Kookie Graphics Design at BPI Poblacion Branch.
Kookie Graphics Design
Financial Transaction Worksheet
Month of March 2020
Cash = Jimminn Park, Capital
(1) P400,000 = P400,000
The financial transaction is analyzed as follows:
• An entry separate and distinct from Jimminn Park’s personal financial affairs is created.
• An economic resouce – cash of P400,000 is invested in the business entity. The source of
this asset is the contribution made by the owner, which represents owner’s equity. The
owner’s equity account is Jimminn Park, Capital.
• The dual nature of the transaction is that cash is invested and owner’s equity created. The
effects on the accounting equation are as follows: increase in asset-cash from zero to
P400,000 and increase in owner’s equity from zero to P400,000.
• At this point, the entity has no liabilities, and assets equal owner’s equity.
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Mar. 5 Computer equipment costing P150,000 is acquired on cash basis. The effect of the
transaction on the basic equation is:
Cash + Computer = Jimminn Park, Capital
Equipment
Bal. P400,000 = P400,000
(5) (150,000) P150,000 = _________
Bal. P250,000 + P150,000 = P400,000
P400,000 = P400,000
This transaction did not change the total assets but it did change the composition of the assets—It decreased
one asset—cash and increased an another asset – computer equipment by P150,000. Note that the sums of
the balances on both sides of the equation are equal. This equality must always exist.
Mar. 9 Computer supplies in the amount of P25,000 are purchased on the account.
Assets don’t have to be purchased in cash. It can be purchased in credit. Acquiring the computer supplies
with a promise to pay the ampunt due later is called buying on account. This transaction increases both the
assets and the liabilities of the business. The asset affected is computer supplies and the liabiltiy created is
an accounts payable.
Cash + Computer + Computer = Accounts + Jimminn Park,
Supplies Equipment Payable Capital
Bal. P250,00 P150,000 = P400,000
(9) P25,000 _________ = P25,000 _________
Bal. P250,000 + P25,000 + P150,000 = P25,000 P400,000
P425,000 = P425,000
Mar. 11 Kookie Graphics Design collected P90, 000 in cash for designing interactive web sites for two
experts.
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The entity earned service income by designing web sites for clients. Jimminn Park rendered his professional
services and collected revenues in cash. The effect on the accounting equation is an increase in the asset—
cash and increase in owner’s equity. Income increases owner’s equity. This transaction caused the business
to grow, as shown by the increase in total assets from P425,000 to P515,000.
Bal. P250,00 + P25,000 + P150,000 = P25,000 P400,000
(11) 90,000 _________ = 90,000
Bal. P340,000 + P25,000 + P150,000 = P25,000 P490,000
P515,000 = P515,000
Mar. 16 Jimminn Park paid P15,000 to BH Bills Express, a one-stop bills payment service company, for
the semi-monthly utilities.
Expenses are recorded when they are incurred. Expenses can be paid in cash when they occur, or they can
be paid later. The payment for utilities is an expense for the month of march. It represented an outflow of
resources and a reduction of owner’a equity. Expenses have the opposite effect of income; they cause the
business to shrink as shown by the smaller amount of total assets of P500,000.
Bal. P340,00 + P25,000 + P150,000 = P25,000 P490,000
(16) (15,000) _________ = (15,000)
Bal. P325,000 + P25,000 + P150,000 = P25,000 P475,000
P500,000 = P500,000
Mar. 17 The entity has service agreements with several Netpreneurs to maintain and update their web sites
weekly. Jimminn Park billed these clients P40,000 for services already renderd during the month.
The entity has performed services to clients so income should already be recognized. Jimminn Park is
entitled to receive payment for these but the clients did not pay immediately. Performing the services creates
an economic resource, the clients’ promise to pay the amount which is called accounts receivable. This
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transaction resulted to an increase in an asset—accounts receivable and an increase in owner’s equity
P40,000.
Cash + Accounts + Computer + Computer = Accounts + Jimminn Park
Receivables Supplies Equipment Payable Capital
Bal. P325,00 + + P25,000 + P150,000 = P25,000 P475,000
(17) 40,000 _________ = 40,000
Bal. P325,000 + P40,000 + P25,000 P150,000 = P25,000 P515,000
P540,000 = P540,000
Mar. 19 Jimminn Park made a partial payment of P17,000 for the Mar 9 purchase on account.
This transaction is a payment on account. The effect on the accounting equation is a decrease in the asset—
cash and decrease in the liabiltiy—accounts payable. The payment of cash on account has no effect on the
asset—computer supplies because the payment does not increase or decrease the supplies available to the
business.
Bal. P325,00 + P40,000 + P25,000 + P150,000 = P25,000 P515,000
(19) (17,000) _________ = (17,000)
Bal. P308,000 + P40,000 + P25,000 P150,000 = P8,000 P515,000
P523,000 = P523,000
21
Mar. 20 Checks totaling P25,000 were received from clients for billings dated Mar. 17.
Last Mar. 17, Jimminn Park billed clients for services already renderd. On Mar. 20, the entity was able to
collect P25,000 from them. The asset—cash increased by P25,000. The business should not record service
income on Mar. 20 since it has already recorded the income last Mar. 17. Total assets are unchanged. The
business merely reduced one asset—accounts receivable and increased another—cash.
Bal. P308,00 + P40,000 + P25,000 + P150,000 = P8,000 P515,000
(20) 25,000 (25,000) _________ =
Bal. P333,000 + P15,000 + P25,000 P150,000 = P8,000 P515,000
P523,000 = P523,000
Mar. 21 Jimminn Park withdrew P20,000 from the business for his personal use.
Withdrawal of cash or other assets for personal use is the way by which the owner of the entity receives
advance distribution of the profits. On Mar. 1, Jimminn Park invested P400,000; both cash and owner’s
equtiy increased. The transaction was an investment by the owner and not an income-generating activity.
Jimminn Park simply transferred funds from his personal account to the business. A cash withdrawal is
exactly the opposite. The P20,000 cash withdrawal transaction resulted to a reduction in both cash and
owner’s equity.
Cash + Accounts + Computer + Computer = Accounts + Jimminn Park,
Bal. P333,00 + P15,000 + P25,000 + P150,000 = P8,000 P515,000
(21) (20,000) _________ = (20,000)
Bal. P313,000 + P15,000 + P25,000 P150,000 = P8,000 P495,000
P503,000 = P503,000
22
Mar. 27 Magic Shop Publsihing submitted a bill to Jimminn Park for P10,000 worth of newspaper
advertisments for this month. Jimminn Park will pay this bill next month.
Magic Shop Publishing rendered services on account. Kookie Graphics Design has incurred an expense in
the amount of P10,000 by availing of Magic Shop Publishing’s services. There was no payment during the
month. This advertising expense resulted to a decrease in owner’s equity and an increase in the liability—
accounts payable.
Bal. P313,00 + P15,000 + P25,000 + P150,000 = P8,000 P495,000
(27) _________ = 10,000 (10,000)
Bal. P313,000 + P15,000 + P25,000 P150,000 = P18,000 P485,000
P503,000 = P503,000
Mar. 31 Jimminn Park paid his assistant designer salaries of P17,000 for the month.
Bal. P313,00 + P15,000 + P25,000 + P150,000 = P18,000 P485,000
(31) (17,000) _________ = (17,000)
Bal. P296,000 + P15,000 + P25,000 P150,000 = P18,000 P412,000
P486,000 = P486,000
This transaction resulted to a reduction in owner’s equity as well as a reduction in cash. By providing his
services to Jimminn Park for the month, the assistant designer has created for the business an expense—
salaries expense.
23
THE USE OF T-ACCOUNTS
Analyzing and recording transactions using the accounting equation is useful in conveying basic
understanding of how transactions affect the business. However, it is not an efficient approach once the
number of accounts involved increases. Double-entry system provides a formal system of classification and
recording business transactions.
Illustration. The rules of debit and credit will be applied to the Kookie Graphics Design illustration for
comparison. Three transactions will be added to the. Before being recorded, a transaction must be analyzed
to determine which accounts must be increased or decreased. After this has been determined, the rules of
debit and credit are applied to effect the approtiate increases and decreases to the accounts.
Mar.1 Jimminn Park started his new business by depositing P400,000 in a bank account in the name of
Kookie Graphics Design at BPI Poblacion Branch.
Assets (Increase) Owner’s Equity (Increase)

=
Cash Jimminn Park, Capital
(+) (-) (-) (+)
3-1 400,000 3-1 400,000
This transaction increased both the asset—cash and owner’s equity. According to the rules of debit and
credit, an increase in asset is recorded as debit while an increase in owner’s equity is recorded as credit;
thus, the entry is to debit cash and to credit Jimminn Park, capital. The transaction dates are placed on the
left side of the amounts for refernce.
Mar. 2 Computer equipment is acquired by issuing a P50,000 note payable to Anpanman Office Systems.
The note is due in six months.
Assets (Increase) Liabilities (Increase)

=
Computer Equipment Notes Payable
(+) (-) (-) (+)
3-2 50,000 3-2 50,000
24
The transaction increased by P50,000 the asset—computer equipment and the liability—notes payable.
Computer equipment must be debited and notes payable must be credited.
Mar. 3 Jimminn Park paid P15,000 to Crystal Snow Suites for rent on the office studio for the months of
March, April and May.
Assets (Decrease) Assets (Increase)

=
Cash Prepaid Rent
(+) (-) (+) (-)
3-1 400,000 3-3 15,000 3-3 15,000
The entity paid advance rent for three months. A resource having future economic benefit—prepaid rent, is
acquired for a cash payment of P15,000. Increases in assets are recorded by debits and decreases in assets
are recorded by credits. The transaction resulted to a debit to prepaid rent and a credit to cash for P15,000.
The prepaid rent is consumed based on the passage of time so that after one month, P5,000 of the prepaid
rent will be transferred to the rent expense account.
Mar. 4 Received advance payment of P18,000 from Dynamite Hotel for web site updating for the next
three months.

=
Cash Unearned Revenues
(+) (-) (-) (+)
3-1 400,000 3-3 15,000 3-4 18,000
3-4 18,000
The entity has an obligation to Dynamite Hotel for the next three months. This liabilty is called unearned
revenues. The asset—cash is increased by a debit of P18,000 and the liability—unearned revenues is
increased by a credit of P18,000. As it renders service, the entity discharges its obligation at a rate of P6,000
per month for the next three months.
25
Mar. 5 Computer equipment costing P150,000 is acquired on cash basis.
Assets (Decrease) Assets (Increase)

=
Cash Computer Equipment
(+) (-) (+) (-)
3-1 350,000 3-3 15,000 3-2 50,000
3-4 18,000 3-5 150,000 3-5 150,000
This transaction increased the asset—computer equipment and decreased the asset—cash. Assets are
increased by debits and decreased by credits; thus, computer equipment is debited and cash is credited for
P150,000.
Mar. 9 Computer supplies in the amount of P25,000 are purchased on account.

=
Computer Supplies Accounts Payable
(+) (-) (-) (+)
3-9 25,000 3-9 25,000
The asset—computer supplies is increased by a debit of P25,000 while the liability account—accounts
payable is increased by a credit for the same amount.
26
Mar. 11 Kookie Graphics Design collected P90,000 in cash for designing web sites.

=
Cash Design Revenues
(+) (-) (-) (+)
3-1 400,000 3-3 15,000 3-11 90,000
3-4 18,000 3-5 150,000
3-11 90,000
The transaction increased the asset—cash and increased the income account—design revenues. Assets are
increased by debits, income are increased by credits; hence, a debit of P90,000 to cash and a credit of
P90,000 to design revenues is made. Increases in income increase owner’s equity.
Mar. 16 Jimminn Park paid P15,000 to BH Bills Express for the semi-monthly utilities.
Assets (Increase) Owner’s Equity (Decrease)

=
Cash Utilities Expense
(+) (-) (+) (-)
3-1 400,000 3-3 15,000 3-16 15,000
3-4 18,000 3-5 150,000
3-11 90,000 3-16 15,000
Expenses are increased by debits and assets are decreased by credits; therefore, utilities expense is debited
and cash credited for P15,000. Increases in expenses decrease owner’s equity.
27
Mar. 17 Jimminn Park billed clients P40,000 for services already rendered during the month.

=
Accounts Receivable Design Revenues
(+) (-) (-) (+)
3-11 90,000
3-17 40,000 3-17 40,000
Assets are increased by debits, income are increased by credits. Increases in income increase in owner’s
equity. A debit of P40,000 to accounts receivable and a credit of P40,000 to the income account—design
revenues is needed.
Mar. 19 Jimminn Park partially paid P17,000 for the Mar. 9 purchase of computer supplies.
Assets (Decrease) Liabilities (Increase)

=
Cash Accounts Payable
(+) (-) (-) (+)
3-1 400,000 3-3 15,000 3-19 17,000 3-9 25,000
3-4 18,000 3-5 150,000
3-11 90,000 3-16 15,000
3-19 17,000
Assets are decreased by credits while liabilities are decreased by debits. The transaction is recorded by
debiting accounts payable and crediting cash for P17,000 each.
28
Mar. 20 Received checks totaling P25,000 from clients for billings dated Mar. 17.
Assets (Increase) Assets (Decrease)
Cash Accounts Receivable

=
(+) (-) (+) (-)
3-1 400,000 3-3 15,000 3-17 40,000 3-20 25,000
3-4 18,000 3-5 150,000
3-11 90,000 3-16 15,000
3-20 25,000 3-19 17,000
Collections on account reduced the asset—accounts receivable but increased the asset—cash. Assets are
increased by debits and decreased by credits; thus, a debit to cash for P25,000 and a credit to accounts
receivable for P25,000 is made.
Mar. 21 Jimminn Park withdrew P20,000 from the business for his personal use.
Assets (Decrease) Owner’s Equity (Decrease)
Cash Jimminn Park, Withdrawal

=
(+) (-) (+) (-)
3-1 400,000 3-3 15,000 3-21 20,000
3-4 18,000 3-5 150,000
3-11 90,000 3-16 15,000
3-20 25,000 3-19 17,000

Withdrawals are reductions of owner’s equity but are not expenses of the business entity. A withdrawal is
3-21of the 20,000
a personal transaction owner that is exactly the opposite of an investment.
This transaction increased the withdrawals account but reduced cash. Debits record increases in the
withdrawals account and credits record decreases in asset accounts, thus, a debit to withdrawals and a credit
to cash for P20,000 each is necessary.
29
Mar. 27 Magic Shop Publsihing billed Jimminn Park for P10,000 ads. Jimminn Park will pay next
month.
Liabilities (Increase) Owner’s Equity (Decrease)

=
Accounts Payable Advertising Expense
(-) (+) (-) (+)
3-19 17,000 3-9 25,000 3-27 10,000
3-27 10,000
This transaction increased the expense—advertising expense and increased the liabilty—accounts payable
P10,000. Expenses are increased by debits while liabilities are increased by credits; hence, an entry to debit
advertising expense and to credit accounts payable for P10,000 is needed.
Mar. 31 Jimminn Park paid his assistant designer salaries of P15,000 for the month.
Assets (Decrease) Owner’s Equity (Decrease)

=
Cash Salaries Expense
(+) (-) (+) (-)
3-1 400,000 3-3 15,000 3-31 17,000
3-4 18,000 3-5 150,000
3-11 90,000 3-16 15,000
3-20 25,000 3-19 17,000
3-21 20,000
3-31 17,000
Expenses are increased by debits and assets are decreased by credits. Hence, salaries expense is debited for
P17,000 and cash credited for the same amount. Increases in salaries expense decrease owner’s equity.
30
Learning Activities
Activity 1. Elements of Financial Statements
Directions: Write the letter from column B that matches the column A items on the space
provided before the number.
A. B.
1. Equity a. Decreases in assets, or increases in
2. Expenses liabilities, that result in decreases in equity,
3. Liability other than those relating to distributions to
4. Asset holders of equity claims.
5. Income b. Increases in assets, or decreases in
liabilities, that result in increases in equity,
other than those relating to contributions
from holders of equity claims.
c. The residual interest in the assets of the
entity after deducting all its liabilities.
d. A present obligation of the entity to
transfer an economic resource as a result of
past events.
e. A present economic resource controlled
by the entity as a result of past events.
f. A duty or responsibility that an entity has
no practical ability to avoid.
31
Activity 2. Accounting Equation
Directions: For each transaction, indicate whether the assets (A), liabilities (L), or owner’s equity
(OE) increased (+), decreased (-), or did not change (0) by placing the appropriate sign in the
appropriate column and prove whether Assets = Liabilities + Owner’ Equity after all the analysis.
During the month of May, Dela Cuesta Security Agency had the following transactions:
A L OE
Ex. Withdrew cash for personal use, P45, 000 - -
a. Acquired equipment on credit, P90, 000

b. Purchased supplies in cash, P3, 000
c. Additional investment by owner, P120,000
d. Received payment for services rendered, P18,000
e. Received payment from customers already
billed, P9,000

Ex. -45, 000 -45, 000
32
Activity 3. Rules of Debit and Credit
Directions: In the concept maps below, summarize the rules of debits and credits under given
accounts.
Balance Sheet
Accounts
Debit Credit
Income Statement
Accounts
Debit Credit
33
Activity 4. Financial Transaction Worksheet
Jose Ibarra Gonzales, Jr. is the owner of Gonzales Repairs Specialist. On August 1, 2020, the
assets, liabilities and proprietor’s capital of the business were: Cash, P27,500; Accounts
Receivable, P4,400; Supplies, P5,500; Equipment, P66,000; Accounts Payable, P9,900; Gonzales,
Capital, P93,500. The transactions for the month of August were as follows:
Accounts Accounts Gonzales,
Aug. 1 Cash + Receivable + Supplies + Equipment = Payable Capital

Balance 27,500 + 4,400 + 5,500 + 66,000 = 9,900 + 93,500
a.
b.
c.
d.
e.
f.
g.
h.
i.
a. Paid P4, 500 of the outstanding accounts payable.

b. Received P2, 500 on account from customers.
c. Purchased P3, 100 worth of supplies on account (on credit).
d. Returned a defective piece of equipment that was purchased last month and received a
cash refund of P14, 800.
e. Borrowed of P10, 000 from a supplier, to repay the loan in 30 days.
f. Paid creditor P2, 000 on account.
g. Purchased equipment for P15, 000, giving P2, 000 cash and promising to pay the balance
in 60 days.
h. Bought supplies, paying P2, 250 cash.
i. Received a P1, 900 check from customer on account.
Required: Record the transactions using a financial transaction worksheet.

34
Mastery Test
Directions: Encircle the letter of your best answer.
1. The entity purchases P20,000 office supplies for entity use, on credit. Which of the
following will be affected?
1. Assets
2. Liabilities
3. Capital
a. 1 and 2 only
b. 2 and 3 only
c. 1 and 3 only
d. 1, 2, and 3
2. Which of the following is incorrect if the sole proprietor of an entity borrows P50, 000 in
the name of the entity and deposits it into the entity’s bank account?
a. The assets of the entity increase by P50, 000.
b. The liabilities of the entity increase by P50, 000.
c. The drawings of the entity increase by P50, 000.
d. Assets and liabilities both increase by P50, 000.
3. Which of the following transaction affects the total value of liabilities of firm?
a. Goods purchased from suppliers by cash
b. Interest received from bank
c. Office equipment bought on credit
d. Goods sold to customers on credit
4. Which of the following accounting equations are incorrect?
1. Assets = Liabilities + Owner’s Equity
2. Assets – Liabilities = Capital + Revenue – Expenses
3. Assets + Liabilities = Capital – Revenue + Expenses
4. Non-current assets + Current Assets = Non-current Liabilities – Current Liabilities +
Capital
a. 1 and 2 only
b. 3 and 4 only
c. 1 and 3 only
d. 3 and 2 only
5. Suppose a customer pays his debt of P20, 000 by issuing a check. The effect of the
transaction on the accounting equation would be.
a. Both assets and liabilities increase by P20,000
b. Both assets and liabilities decrease by P20,000
c. Only assets decrease by P20,000
35
d. Assets and liabilities remain unchanged
6. Which of the following is not an example of additional capital?
a. A sole proprietor purchases a car through the bank account of the entity.
b. A sole proprietor brings a second-hand computer from his home to the office.
c. A sole proprietor transfers P1, 000 from his own bank account to the entity’s
account.
d. A sole proprietor uses his own building as an office without receiving any rent.
7. Which of the following is correct under the double-entry system?
a. Asset amount must be equal to liability amount.
b. The change in asset must be compensated by a change in liability.
c. The change in debit-side entry must be compensated by a change in credit-side
entry.
d. An increase in asset must be compensated by a decrease in asset.
8. Using the accounting equation, what is the value X if assets, current liabilities, non-
current liabilities and capital are X, P40, 000, P60, 000 and P350, 000 respectively?
a. P250, 000
b. P350, 000
c. P370, 000
d. P450, 000
9. Which of the following statements regarding the double-entry system is incorrect?
a. An increase in asset means a credit entry on assets account.
b. A decrease in liability means a debit entry in liabilities account.
c. An increase in drawings means a debit entry in capital account.
d. A decrease in non-current asset means a credit entry in assets account.
10. If J-HOPE Accessories has assets of P690, 000 and owner’s equity of P450, 000. What
is the value of its liabilities?
a. P450, 000
b. P690, 000
c. P204, 000
d. P240, 000
36
Lesson 3
Recording Business Transactions

Learning Outcomes
• Create a flow chart and explain in brief the sequential steps in accounting
cycle.
• Apply the rules of debits and credits in analyzing business transactions.
• Journalize transactions in proper form in general journal.
• Post entries from the general journal to “T” Accounts.
• Prepare and explain the use of a trial balance.
Pretest
Directions: Write T if the statement is TRUE and F if the statement is FALSE.
____1. A trial balance checks the equality of debits and credits.

____2. The left side is always the debit side.
____3. In any transaction, the total peso amount of debits must equal the total peso amount
of credits.
____4. Accounts receivable is and asset account whose normal balance is credit.
____5. The sequence of the account titles in a trial balance depends upon the size of the
account balances.
____6. The normal balance of any account refers to the side of the account—debit or
credit—where decreases are recorded.
____7. An expense may be recognized and recorded although cash outlay has been made.
____8. Accounts payable is not included in a trial balance.
____9. A trial balance may balance but may not be correct.
____10. A group of accounts in a ledger is called a chart of accounts.
37
TRANSACTION ANALYSIS (Step 1)
The analysis of transactions should follow these four basic steps:
1. Identify the transaction from source documents.

2. Indicate the accounts – either assets, liabilities, equity, income, or expenses – affected by
the transaction.
3. Ascertain whether each account is increased or decreased by the transaction.
4. Using the rules of debit and credit, determine whether to debit or credit the account to
record its increase or decrease.
ACCOUNTING CYCLE
The accounting cycle refers to a series of sequential steps or procedures performed to accomplish the
accounting process. The steps in the cycle and their aims follow:
Step 1 Identification of Events to be Recorded
Aim: To gather information about transactions or events generally

through the source documents.
During the Step 2 Transactions are Recorded in the Journal

accounting
Aim: To record the economic impact of transactions on the firm
period
in a journal, which is a form that facilitates transfer to accounts.
Step 3 Journal Entries are posted to the Ledger
Aim: To transfer the information from the journal to the ledger for
classification.
Step 4 Preparation of a Trial Balance
Aim: To provide a listing to verify the equality of debits and

credits in the ledger.
Step 5 Preparation of the Worksheet including Adjusting Entries
Aim: To aid in the preparation of financial statements.
Step 6 Preparation of the financial Statements

At the end of Aim: To provide useful information to decision – makers.
the
accounting Step 7 Adjusting Journal Entries are Journalized and Posted
period
Aim: To record the accruals, expiration of deferrals, estimations
and other events from the worksheet.
Step 8 Closing Journal Entries are Journalized and Posted
38
Aim: To close temporary accounts and transfer profit to owner’s
At the start of
the Next period equity.
Step 9 Preparation of a Post – Closing Trial Balance
Aim: To check the equality of debits and credits after the closing
entries.
Step 10 Reversing Journal Entries are Journalized and Posted
Aim: To simply the recording of certain regular transactions in the

next accounting period.
THE JOURNAL
The journal is a chronological record of the entity’s transactions. A journal entry shows all the effects of a
business transaction in terms of debits and credits. Each transaction is initially recorded in a journal rather
than directly in the ledger.
Format
The standard contents of the general journal are as follows:
1. Date. The year and month are not rewritten for every entry unless the year or month
changes or new page is needed.
2. Account Titles and Explanation. The account to be debited is entered at the extreme left
of the first line while the account to be credited is entered slightly indented on the next line.
A brief description of the transaction is usually made on the line below the credit.
Generally, skip a line after each entry.
3. P.R. (posting reference). This will be used when the entries are posted, that is, until the
amounts are transferred to the related ledger accounts. The posting process will be
described later.
4. Debit. The debit amount for each account is entered in this column.
5. Credit. The credit amount for each account is entered in this column.
Assume that Stellvester Cullen Santos established his own restaurant with an initial investment of P350,
000 on May 1.
The journal entry is shown below:
39
Date Account Titles and Explanation P.R. Debit Credit
1 2020
2 May 1 Cash 350,000.00
3 Santos, Capital 350,000.00
4 I nitial I nv estment.
5
Simple and Compound Entry
In a simple entry, only two accounts are affected—one account is debited and the other account is credited.
An example of this is the entry to record the initial investment of Stellvester Cullen Santos. However, some
transactions require the use of more than two accounts. When three or more accounts are required in a
journal entry, the entry is referred to as a compound entry.
Transactions are Journalized (Step 2)
After the transaction or event has been identified and measured, it is recorded in the journal. The process
of recording a transaction is called journalizing. The following are the transaction for Love Goes Resto
during the month of May. The double-entry system will be used.
To understand the nature of the affected accounts, the letter A (for asset), L (liability) or OE (owner’s
equity) is inserted after each entry. In addition, owner’s equity is further classified into OE: I (income) and
OE: E (expenses).
Note that the rules of double-entry system are observed in each transaction:
1. Two or more accounts are affected by each transaction.

2. The sum of debits for every transaction equals the sum of the credits.
3. The equality of the accounting equation is always maintained.
Initial Investment (Source of Assets)
May 1 Stellvester Cullen Santos has a lot of passion when it comes to food. After graduating from
the best culinary school in the whole world, he can’t wait to share his love for food to the
people and establish the Love Goes Resto. He invested P350, 000 into this entity.
Analysis Assets increased. Owner’s equity increased.
Rules Increases in assets are recorded by debits. Increases in owner’s equity are recorded by
credits.
Entry Increase in assets is recorded by a debit to cash. Increase in owner’s equity is recorded by
a credit to Santos, capital.
Dr. Cr.
40
Cash (A) 350,000
Santos, Capital (OE) 350,000
Rent Paid in Advance (Exchange of Assets)
May 1 Rented a building space and paid two month’s rent in advance P20, 000.
Analysis Assets increased. Assets decreased.
Rules Increases in assets are recorded by debits. Decreases in assets are recorded by credits.
Entry Increase in assets is recorded by a debit to prepaid rent. Decrease in assets is recorded by
a credit to cash.
Dr. Cr.
Prepaid Rent (A) 20,000
Cash (A) 20,000
Note Issued for Cash (Source of Assets)

May 2 Stellvester Cullen Santos issued a promissory note for P250,000 loan from Metrobank.
This availment will be used for the acquisition of a service vehicle. The note carries a 12%
interest per annum. The arrangement with the bank is that both the interest and the principal
are payable in full in one year.
Analysis Assets increased. Liabilities increased.
Rules Increases in assets are recorded by debits. Increases in liabilities are recorded by credits.
Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a

credit to Notes payable.
Dr. Cr.
Cash (A) 250,000
Notes Payable (A) 250,000
41
May 2 He hired a waiter and a cashier each with a P11, 700 monthly salary. Or, each is to receive
P450 per day for the 26-day work month. No entry is necessary at this point. They started
work immediately.
Service Vehicle Acquired for Cash (Exchange of Assets)
May 4 Acquired service vehicle for P420,000.
Analysis Assets increased. Assets decreased.
Rules Increases in assets are recorded by debits. Decreases by credits.
Entry Increase in assets is recorded by a debit to service vehicle. Decreases in assets is recorded
by credit to cash.
Dr. Cr.
Service Vehicle (A) 420,000
Cash (A) 420,000
Insurance Premiums Paid (Exchange of Assets)
May 4 Paid Prudential Guarantee and Assurance, Inc. P15,500 for a one-year comprehensive
insurance coverage on the service vehicle.
Analysis An asset increased. Another asset decreased.
Entry Increase in assets is recorded by a debit to prepaid insurance. Decrease in assets is

recorded by a credit to cash.
Dr. Cr.
Prepaid Insurance (A) 15,500
Cash (A) 15,500
Office Equipment Acquired on Account (Exchange and Source of Assets)
May 5 Acquired Furniture and Fixtures from Best Emporium for P90, 000; paying P15, 000 in
cash and the balance next month. Note: A compound entry is needed for this transaction.
Analysis Assets increased. Assets decreased. Liabilities increased.

42
Increases in liabilities are recorded by credits.
Entry Increase in assets is recorded by a debit to Furniture and Fixtures. Decrease in assets is
recorded by a credit to cash. Increase in liabilities is recorded by a credit to accounts
payable.
Dr. Cr.
Furniture and Fixtures (A) 90,000
Cash (A) 15,000
Accounts Payable (L) 75,000
Supplies Purchased on Account (Source of Assets)
May 8 Purchased supplies on credit for P18, 000 from San Jose Merchandising.
Entry Increase in assets is recorded by a debit to supplies. Increase in owner’s equity is recorded
by a credit to accounts payable.
Dr. Cr.
Supplies (A) 18,000
Accounts Payable Partially Settled (Use of Assets)
May 9 Paid San Jose Merchandising P10,000 of the amount owed.
Analysis Assets decreased. Liabilities decreased.
credits.
Entry Decreases in liabilities is recorded by a debit to accounts payable. Decrease in assets is

recorded by a credit to cash.
Dr. Cr.
43
Cash (A) 10,000
Revenues Earned and Cash Collected (Source of Assets)
May 10 The restaurant’s sales for its first week of operation is P32, 000.
credits.
Entry Increase in assets is recorded by a debit to cash. Increase in owner’s equity is recorded by
a credit to Service Revenues.
Dr. Cr.
Cash (A) 32,000
Service Revenues (OE: I) 32,000
Salaries Paid (Use of Assets)
May 13 Paid salaries, P9, 900. The entity pays salaries every two Saturdays.
Analysis Assets decreased. Owner’s equity decreased.
Rules Decreases in assets are recorded by credits. Decreases in owner’s equity are recorded by
debits.
Entry Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease in assets
is recorded by a credit to cash.
Dr. Cr.
Salaries Expense (OE: E) 9,900
Cash (A) 9,900
Unearned Revenues Collected (Source of Assets)
May 15 The entity is earning additional revenues by accepting bookings for catering services. Mr.
Namjoon Kim books Love Goes Resto for his engagement party and paid cash for P30,000.

44
Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a

credit to unearned referral revenues.
Dr. Cr.
Cash (A) 30,000
Unearned Revenues (L) 30,000
Revenues Earned on Account (Source of Assets)
May 19 The restaurant was reserved for a surprise birthday party of Justin De Dios his best friend
on account, P22,000.
credits.
Entry Increase in assets is recorded by a debit to accounts receivable. Increase in owner’s equity
is recorded by a credit to Service Revenues.
Dr. Cr.
Accounts Receivable (A) 22,000
Withdrawal of Cash by Owner (Use of Assets)
May 25 Stellvester Cullen Santos withdrew P18, 000 for personal expenses.
debits.
Entry Decrease in owner’s equity is recorded by a debit to Santos, Withdrawals. Decrease in

assets is recorded by a credit to cash.
Dr. Cr.
45
Santos, Withdrawal (OE) 18,000
Cash (A) 18,000
Salaries Paid (use of Assets)
May 27 Paid salaries, P10, 800.
debits.
Entry Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease in assets
Dr. Cr.
Salaries Expense (OE: E) 10,800
Cash (A) 10,800
Expenses Incurred but Unpaid (Exchange of Claims)
May 30 Received the ICC-BayanTel telephone bill, P1, 400.
Analysis Liabilities increased. Owner’s equity decreased.
Rules Increases in liabilities are recorded by credits. Decreases in owner’s equity are recorded
by debits.
Entry Decrease in owner’s equity is recorded by a debit to utilities expense. Increase in liabilities
is recorded by a credit to utilities payable.
Dr. Cr.
Utilities Expense (OE: E) 1,400
Utilities Payable (L) 1,400
46
Accounts Receivable Partially Collected (Exchange of Assets)
May 30 Received P22, 000 from services rendered last May 19.
Analysis An Asset increased. Another asset decreased.
Rules Increases in assets are recorded by debits. Decreases as credits.
Entry Increase in assets is recorded by a debit to cash. Decrease in assets is recorded by a credit
to accounts receivable.
Dr. Cr.
Cash (A) 22,000
Expenses Incurred and Paid (Use of Assets)
May 31 Settled the electricity bill of P6, 000 for the month.
debits.
Entry Decrease in owner’s equity is recorded by a debit to utilities expense. Decrease in assets
Dr. Cr.
Utilities Expense (OE: E) 6,000
Cash (A) 6,000
47
POSTING (Step 3)
Posting means transferring the amounts from the journal to the appropriate accounts in the ledger.
Debits in the journal are posted as debits in the ledger, and credits in the journal as credits in the ledger.
The steps are illustrated as follows:
1. Transfer the date of the transaction from the journal to the ledger.
2. Transfer the page number from the journal to the journal reference (J.R.) 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.
LEDGER ACCOUNTS AFTER POSTING
At the end of an accounting period, the debit or credit balance of each account must be determined to enable
us to come up with a trial balance.
• Each account balance is determined by footing (adding) all the debits and credits.
• If the sum of an account’s debits is greater than the sum of its credits, that account has a
debit balance.
• If the sum of its credits is greater, that account has a credit balance.
Illustration. The ledger accounts of Love Goes Resto after posting are shown below. The balance of each
account has been determined.
Cash
Notes Payable
May 1 350,000 May 1 20,000 May 2 250,000
2 250,000 4 420,000 Bal. 250,000
10 32,000 4 15,500
15 30,000 5 15,000
30 22,000 9 10,000
13 9,900
25 18,000
27 10,800 Accounts Payable
31 6,000 May 9 10,000 May 5 75,000
684,000 525,200 8 18,000
Bal. 158,800 10,000 88,000
Bal. 83,000
48
Accounts Receivable
Utilities Payable
May 19 22,000 May 30 22,000
May 30 1,400
Bal. 1,400
Bal. -0-
Supplies
May 8 18,000 Unearned Revenues
Bal. 18,000
May 15 30,000
Bal. 30,000
Prepaid Rent Santos, Capital

May 1 20,000 May 1 350,000
Bal. 350,000
Bal. 20,000
Prepaid Insurance Santos, Withdrawals

May 4 15,500 May 25 18,000
Bal. 15,500
Bal. 18,000
Service Vehicle
May 4 420,000 Service Revenues
Bal. 420,000 May 10 32,000
19 22,000
54,000
Furniture & Fixtures Bal. 54,000
May 5 90,000
Bal. 90,000 Salaries Expense
May 13 9,900
27 10,800
20,700
Bal. 20,700
Utilities Expense
May 30 1,400
31 6,000
Bal. 7,400
49
TRIAL BALANCE (Step 4)
The 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.
The procedures in the preparation of a trial balance follow:
1. List the account titles in numerical order.

2. Obtain the account balance of each account from the ledger and enter the debit balances in
the debit column and the credit balances in the credit column.
3. Add the debit and credit columns.
4. Compare the totals.
The trial balance is a control device that helps minimize accounting errors. When the totals are equal, the
trial balance is in balance. This equality provides an interim proof of the accuracy of the records but it does
not signify the absence of errors. For example, if the bookkeeper failed to record payment of rent, the trial
balance columns are equal but in reality, the accounts are incorrect since rent expense is understated and
cash overstated.
The trial balance for the illustration follows:
Love Goes Resto

Trial Balance
May 31, 2020
Account Titles Dr. Cr.
Cash P158,800
Supplies 18,000
Prepaid Rent 20,000
Prepaid Insurance 15,500
Service Vehicle 420,000
Furniture & Fixtures 90,000
Notes Payable P250,
000
Accounts Payable 83,000
Utilities Payable 1,400
Unearned Revenues 30,000
Santos, Capital 350,000
Santos, Withdrawals 18,000
Service Revenues 54,000
Salaries Expense 20,700
Utilities Expense 7,400
P768,400 P768,400
50
Learning Activities
Activity 1. Flow Chart
Directions: Create a flow chart and explain briefly in your own words the sequential steps of
accounting cycle.
51
Activity 2. Debits and Credits
Directions: Analyze each transaction and show the accounts affected by entering the
corresponding number in the appropriate debit or credit column. Indicate no entry, if appropriate.
The following accounts are used by Fabregas Maintenance Services:

1. Cash
2. Accounts Receivable
3. Supplies
4. Prepaid Insurance
5. Equipment
6. Notes Payable
7. Accounts Payable
8. Fabregas, Capital
9. Fabregas, Withdrawals
10. Service Revenues
11. Rent Expense
12. Repairs Expense
Fabregas Maintenance Services completed the following transactions:

Debit Credit
Ex. Paid for supplies purchased on account last month. 7 1
a. Billed customers for services performed.
b. Paid current month’s rent.
c. Purchased suppliers on credit.
d. Received cash from customers for services performed.
e. Acquired equipment on account.
f. Made cash withdrawals.
g. Paid for repairs with cash.
h. Booked an appointment for services.
Activity 3-5. Journalizing, Posting and Preparing a Trial Balance

52
On April 1, 2020, Rosie Park, a recent medical board topnocher, started his medical practice.
During the month of April, the following transactions were completed:
April 1 Rosie invested P70,500 personal funds in a new bank account in the name of Rosie
Park, M.D.
2 Acquired medical equipment costing P105, 000 from BP Medical Equipment,
paying P10,000 in cash, and financing the remainder by issuing a P95,000 note
payable.
3 Paid rent for the month of April, P8,000.
5 Acquired medical supplies from Boombayah Medical Supply on account, P17,500.
7 Received P18,450 in cash from patients for medical services rendered this week.
9 Paid Jiso Labs for preparing laboratory work on a patient, P2,200.
12 Paid salaries of medical technician and receptionist, P11,200.
15 Billed patients, P60,200 for services rendered.
17 Paid Boombayah Medical Supply P5,000 on account.
20 Paid telephone expense, P980.
21 Paid miscellaneous expense, P1,150.
22 Received P30,250 from patients billed on April 15.
23 Acquired additional medical supplies from Boombayah Medical Supply on
account, P9,100.
25 Paid salaries, P12,800.
26 Billed patients P48, 500 for services rendered.
27 Paid Boombayah Medical Supply, P7,500 on account.
28 Withdrew P20,000 from the medical practice.
53
Required:
1. Prepare the journal entries for the April transactions. Use the two-column General Journal
provided.
2. Post the entries to the “T” accounts provided. The following accounts will be needed: Cash;
Accounts Receivable; Medical Supplies; Medical Equipment; Notes Payable; Accounts
Payable; Rosie Park, Capital; Rosie Park, Withdrawals; Medical Revenues; Salaries
Expense; Rent Expense; Laboratory Expense; Telephone Expense; and Miscellaneous
Expense.
3. Prepare a trial balance.
54
General Journal

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Posting
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Trial Balance
62
Mastery Test
Multiple Choice.
Direction: Encircle the letter of correct answer.
1. It refers to the process of transferring the debit and credit amounts from journals to ledger
accounts.
a. Balancing off
b. Transferring
c. Posting
d. Closing
2. A sole proprietor contributes his own van with a value of P400, 000 to the business. The
journal entry should be:
Account to be debited Account to be credited
a. Asset Liability
b. Cash Capital
c. Capital Van
d. Van Capital
3. Suppose an entity pays P30, 000 to its creditors by check. The journal entry should be:
Account to be debited Account to be credited
a. Accounts Receivable Bank
b. Accounts Payable Bank
c. Accounts Payable Cash
d. Cash Accounts Payable
4. Which of the following accounts is classified differently from the others listed?
a. Prepaid Rent
b. Cash
c. Accounts Receivable
d. Owner’s Capital
5. When cash is debited, a typical credit is to
a. Withdrawals
b. Accounts payable
c. Accounts receivable
d. Expenses
6. The normal balance of an account is on the
a. Side represented by decrease in the account balance.
b. Debit side of the account.
c. Side represented by increases in the account balance.
d. Credit side of the account.
7. Entries recorded on the right side of any account are called
a. Debits
63
b. Increases
c. Credits
d. Decreases
8. Transactions are recorded chronologically in the
a. Ledger
b. T-account
c. Daybook
d. Journal
9. A simple journal entry
a. Consists of two debits and one credit
b. Consists of one debit and two credits
c. Is a memorandum entry
d. Consists of one debit and one credit
10. Which of the following transactions does not affect the balance sheet totals?
a. Purchasing P50, 000 supplies on account.
b. Collecting P40, 000 from customers on account.
c. Paying a P300, 000 note payable.
d. Withdrawal of P80, 000 by the firm’s owner.
64
Lesson 4
Adjusting the Accounts

Learning Outcomes
• Identify the types of adjustments and their purposes

• Prepare in good form the adjusting entries.
• Analyze and solve accounts that require adjustments using T-Accounts.
Pretest
Directions: Write the letter from the suggested answers below on the space provided before the
number.
a. Accrual Basis g. Book value of the asset

b. Cash basis h. Property and equipment
c. Adjusting entries i. Accrued expense
d. Deferral j. General ledger
e. Depreciation k. Worksheet
f. Contra-account l. Closing entries
1. A working paper often used by accountants to summarize adjusting entries.

2. An accounting method in which revenues are reported in the period in which they are earned, and
expenses are reported in the period in which they are incurred.
3. The allocation of the cost of property and equipment to expense over its useful life.
4. An expense that is unpaid and unrecorded.
5. An account which is “offset against” another account.
6. A postponement of the recognition of an expense already paid, or of revenues already received in
advance.
7. The difference between the accumulated depreciation account and the related property and
equipment account.
65
THE NEED FOR ADJUSTMENTS
Adjusting entries assign revenues to the period in which they are earned, and expenses to the period
in which they are incurred. These entries are needed to measure properly the profit for the period, and to
bring related asset and liability accounts to correct balances for the financial statements.
Adjusting entries involve changing account balances at the end of the period from what is the
current balance of the account to what is the correct balance for proper financial reporting. Without
adjusting entries, financial statements may not fairly show the solvency of the entity in the balance sheet
and the profitability in the income statement.
DEFERRALS AND ACCRUALS
There are two general types of adjustments made at the end of the accounting period—deferrals and
accruals.
Each adjusting entry affects a balance sheet account (an asset or a liability account) and an income
statement account (income or expense account).
Deferral is the postponement of the recognition of “an expense already paid but not yet incurred,” or of
“revenue already collected but not yet earned”. This adjustments deals with an amount already recorded in
a balance sheet account; the entry, in effect, decreases the balance sheet account and increase an income
statement account.
Deferrals would be needed in two cases:
1. Allocating assets to expense to reflect expenses incurred during the accounting period (e.g.
prepaid insurance, supplies and depreciation).
2. Allocating revenues received in advance to revenue to reflect revenues earned during the
accounting period (e.g. subscriptions).
Accrual is the recognition of “an expense already incurred but unpaid”, or “revenue earned but
uncollected”. This adjustment deals with an amount unrecorded in any account; the entry, in effect,
increases both a balance sheet and an income statement account.
Accruals would be required in two cases:
1. Accruing expenses to reflect expenses incurred during the accounting period that are
unpaid and unrecorded.
2. Accruing revenues to reflect revenues earned during the accounting period that are
uncollected and unrecorded.
The Love Goes Resto case is continued to illustrate the adjustment process. The letters A, L, OE, OE: I and
OE: E are still used to ensure a better understanding of the nature of the accounts affected.
66
ADJUSTMENTS FOR DEFERRALS (Step 5)
Allocating assets to Expenses
Entities often make expenditures that benefit more than one period. These expenditures are generally
debited to an asset account. At the end of each accounting period, the estimated amount that has expired
during or that has benefited the period is transferred from the asset account to an expense account. Two of
the more important kinds of adjustments are prepaid expenses, and depreciation of property and equipment.
Prepaid Expenses
Some expenses are customarily paid in advance. These expenditures (e.g. supplies, rent, and insurance) are
called prepaid expenses. Prepaid expenses are assets, not expenses. At the end of an accounting period, a
portion or all of these prepayments may have expired. The portion of an asset has expired becomes an
expenses. Prepaid expenses expire either with the passage of time or through use and consumption. The
flow of costs from the balance sheet to the income statement is illustrated below:
Cost of
insurance As insurance Income Statement
Balance Sheet policies expire and
policies and Revenues
Assets supplies used
supplies that
will benefit Expenses
Prepaid
future periods Insurance Expense
Insurance
Supplies Expense
Supplies
Prepaid Rent (adj. A). On May 1, Love Goes Resto paid P20, 000 for two months’ rent in advance. This
expenditure resulted to an asset consisting of the right to occupy the building for two months. A portion of
the asset expires and becomes an expense each day. By May 31, one – half of the asset had expired, and
should be as an expense. The analysis of this economic events is shown below:
Transaction Expiration of one month’s rent.
Analysis Asset decreased. Owner’s equity decreased.
Rules Decreases in assets are recorded by credits. Decreases in owner’s equity

are recorded by debits.
Entries Decrease in Owner’s equity is recorded by a debit to rent expense.

Decrease in assets is recorded by a credit to prepaid rent.
Dr. Cr.
Rent Expense (OE:E) 10, 000
Prepaid Rent (A) 10, 000
67
Prepaid Insurance (Adj. B). Love Goes Resto acquired a one – year comprehensive insurance coverage
on the service vehicle and paid P15, 500 premiums. In a manner similar to prepaid rent, prepaid insurance
offers protection that expires daily. The adjustment is analyzed and recorded as shown below:
Transaction Expiration of one month’s insurance.
Rules Decreases in assets are recorded by credits.
Decreases in owner’s equity are recorded by debits.
Entries Decrease in owner’s equity is recorded by a debit to insurance expense;

decrease in assets as a credit to prepaid insurance.
Dr. Cr.
Insurance Expense (OE:E) 1,291.67
Prepaid Insurance (A) 1,291.67
The prepaid insurance account has a balance of P14, 208.33 (May 4 prepayment of P15, 500 less P1,291.67)
and insurance expense reflects the expired cost of P1,291.67 for the month. As a matter of company policy,
the period May 4 to 31 is considered a month.
Supplies (Adjustment C). On May 8, Love Goes Resto purchased supplies, P18, 000. During the month,
the entity used supplies in the process of performing services for clients. There is no need to account for
these supplies every day since the financial statements will not be prepared until the end of the month. At
the end of the accounting period, Stellvester Cullen Santos makes a careful physical inventory of the
supplies. The inventory count showed that supplies costing P15,000 are still on hand. This transaction is
analyzed and recorded as follows:
Transaction Consumption of Supplies.
Entries Decrease in owner’s equity is recorded by a debit to supplies expense.

Decrease in assets is recorded by a credit to supplies.
Dr. Cr.
Supplies Expense (OE:E) 3,000
Supplies (A) 3,000
68
The asset account supplies now reflect the adjusted amount of P15, 000 (P18, 000 less P3, 000). In addition,
the amount of supplies expensed during the accounting period is reflected as P3, 000.
Depreciation of Property and Equipment
The estimated amount allocated to any one accounting period is called depreciation or depreciation
expense. Three factors are involved in computing depreciation expense:
1. Asset cost is the amount an entity paid to acquire the depreciable asset.
2. Estimated salvage value is the amount that the asset can probably be sold for the end of its
estimated useful life.
3. Estimated useful life is the estimated number of periods that an entity can make use of the
asset, useful life is an estimate, not an exact measurement.
As the asset’s Income Statement

Balance Sheet useful life expires
Cost of a
Revenues
depreciable Assets
asset Expenses
Service Vehicle
Office Equipment Depreciation
The simplest method in computing depreication is called the straight-line method. The formula for
determining the amount of depreication expenses for each period using this method is:
Asset Cost Pxx
Less: Estimated salvage value xx
Depricable Cost PXX
Divided by: Estimated useful life x
Depreciation Expense for each time period PXX
The asset account is not directly reduced when recording depreciation expense. Instead, the reduction is
recorded in a contra account called accumulated depreciation. A contra account is used to record reductions
in a related account and its normal balance is opposite that of the related account. Use of the contra
account—accumulated depreciation—allows the disclosure of the original cost of the related asset in the
balance sheet. The balance of the contra account is deducted from the cost to obtain the book value of the
property and equipment.
69
Service Vehicle and Office Equipemnt (Adjs. D and E). Suppose that Love Goes Resto estimated that
the service vehicle, which was bought on May 4. Will last for seven years (eighty-four months) and with a
salvages value of P84,000. The furniture and fixtures that was acquired on May 5 will have a useful life
of five years (sixty months) and will be worthless at that time. Substitution of the pertinent amounts into
the basic formula will yield depreication for service vehicle and furniture and fixtures for the moth as
P4,000 [(P420,000 – P84,000)/84 months] and P1,500 (P90,000/60 months), respectively. These amounts
represent the cost allocated to the month, thus reducing the asset accounts and increasing the expense
accounts. As a matter of company policy, the period may 4 to 31 is considered a month. The analysis
follows:
Transaction Recording depreciation expense.
Entries Owner’s Equity is decreased by debits to depreciation expense-service

vehicle and depreciation expense-office equipment. Assets are decreased
by credits to contra-asset accounts accumulated depreciation-service
vehicle and accumulated depreciation-office equipment.
Dr. Cr.
Depreciation Expense-Service Vehicle (OE:E) 4,000
Accumulated Depreciation-Service Vehicle (A) 4,000
Depreciation Expense-Furniture & Fixtures (OE:E) 1,500

Accumulated Depreciation-Furniture & Fixtures (A) 1,500
After adjustments, the property and equipment section of the balance sheet for Love Goes Resto will be:
Love Goes Resto

Partial Balance Sheet
May 31, 2020
Property and Equipment (Net):
Service Vehicle P420,000
Less: Accumulated Depreciation 4,000 P416,000
Furniture & Fixtures P90, 000
Less: Accumulated Depreciation 1,500 88, 500
P504, 500
70
Allocating Revenues Received in Advance to Revenues
There are times when an entity receives cash for services or goods even before service is rendered or goods
are delivered. When such is received in advance, the entity has an obligation to perform services or deliver
goods. The liability referred to is unearned revenues.
Value of
goods or As the goods or Income Statement
Balance Sheet services are
services to be
Liabilities provided Revenues
provided in
future periods Unearned Revenues from
Revenues
Unearned Revenues (Adj. f). On May 15, Love Goes Resto received P30,000 as an advance payment for
the catering service booked by Namjoon Kim. Assume that the engagement party happened by the end of
the month and Love Goes Resto rendered its service. This transaction is analyzed as follows:
Transaction Recognition of income where cash is received in advance.
Analysis Liabilities decreased. Owner’s equity increased.
Rules Decreases in liabilities are recorded by debits.
Increases in owner’s equity are recorded by credits.
Entries Decreases in liabilities is recorded by a debit to unearned referral

revenues. Increase in owner’s equity is recorded by a credit to referral
revenues.
Dr. Cr.
Unearned Revenues (L) 30,000
The liability account unearned revenues will now reflect a zero balance in its books since the entity already
rendered its services.
71
ADJUSTMENTS FOR ACCRUALS (Step 5)
Accrued Expenses
An entity often incurs expenses before paying for them. Cash payments are usually made at regular intervals
of time such as weekly, monthly, quarterly or annually. If the accounting period ends on a date that does
not coincide with the scheduled cash payment date, an adjusting entry is needed to reflect the expense
incurred since the last payment. This adjustment helps the entity avoid the impractical preparation of hourly
or daily journal entries just to accrue expenses. Salaries, interest, utilities (e.g., electricity,
telecommunications and water) and taxes are examples of expenses that are incurred before payment is
made.
Accrued Salaries (Adj. g). Entities pay their employees at regular intervals. It can be weekly, semi-
monthly or monthly. Weekly payrolls are usually made on Fridays (for a five-day workweek) or Saturdays
(for six-day workweek). Love Goes Resto pays salaries every two Saturdays. Assume that the calendar for
May appears as follows:
MAY
SUN MON TUE WED THURS FRI SAT
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31
The waiter and the cashier were paid salaries on May 13 and 27. At month-end, the employees have worked
for three days (may 29, 30 and 31) beyond the last pay period. The employees have earned the salary for
these days, but it is not due to be paid until the regular payday in April. The salary for these three days is
rightfully an expense for May, and the liabilities should reflect that entity owes the employees’ salaries for
those days.
Each of the employee’s salary rate is P11, 700 per month or P450 per day (P11, 700/26 working days). The
expense to be accrued is P2, 700 (P450 x 3 days x 2 employees). This accrued expense can be analyzed as
shown:
72
Transaction Accrual of unrecorded expense.
Rules Increases in liabilities are recorded by credits.
Entries Decrease in owner’s equity is recorded by a debit to salaries expense.

Increase in liabilities is recorded by a credit to salaries payable.
Dr. Cr.
Salaries Expense (OE:E) 2,700
Salaries Payable (L) 2,700
The liability of P2, 700 is now correctly reflected in the salaries payable account. The actual expense
incurred for salaries during the month is p23, 400.
Accrued Interest (Adj. h). On May 2, Stellvester Cullen Santos borrowed P250, 000 from Metrobank. She
issued a promissory note that carried a 12% interest per annum. Both the interest and principal will be
payable in one year. The note issued to the bank accrues interest at 12% annually. At the end of May, Mr.
Kim owed the bank P2, 500 for interest in addition to the P250, 000 loan. Interest is a charge for the use of
money over time. Interest expense is matched to a particular period during which the benefit—the use of
borrowed money—is received. The interest is fixed obligation and accrues regardless of the results of the
entity’s operations.
Note: interest rates are expressed at annual rates, so if interest is being calculated for less than a year, the
calculation must express time as a portion of a year.
The interest expense incurred on this note during the month is determined by the following formula:
Interest = Principal x Interest Rate x Length of Time
= P250,000 x 12% per year x 1/12 of a year
= P250,000 x .12 x 1/12
= P2,500
73
The adjusting entry to record the interest expense incurred in May is as follows:
Transaction Accrual of unrecorded expense.
Rules Increases in liabilities are recorded by credits.
Entries Decrease in owner’s equity is recorded by a debit to interest expense.

Increase in liabilities is recorded by a credit to interest payable.
Dr. Cr.
Interest Expense (OE:E) 2,500
Interest Payable (L) 2,500
ACCRUAL FOR UNCOLLECTIBLE ACCOUNTS
Entities often allow clients to purchase goods or avail of services on credit. Some of these accounts
will never be collected; hence, there is a need to reflect these as charges against income. An expense is
recognized for the estimated uncollectible accounts in the current period, rather than when specific accounts
actually become uncollectible. Estimates of uncollectible accounts may be based on credit sales for the
period or on the accounts receivable balance.
Illustration:
Assume that entity made credit sales of P1,100,000 in 2019 and prior experience indicates
an expected 1% average uncollectible accounts rate based on credit sales. The contra-
account—Allowance for Uncollectible Accounts has a normal credit balance and is
shown in the balance sheet as a deduction from Accounts Receivable. The allowance
account need to be increased by P11,000 (P1,100,000 x 1%) because accounts
receivable in that amount is doubtful of collection. The adjustment will be:
Dr. Cr.
Uncollectible Accounts (OE: E) 11,000
Allowance for Uncollectible Accounts (A) 11,000
74
Throughout the accounting period, when there is positive evidence that a specific account is definitely
uncollectible, the appropriate amount is written off against the contra account.
Illustration:
If a P1,500 receivables were considered uncollectible, that amount would be written off
as follows:
Dr. Cr.
Allowance for Uncollectible Accounts (A) 1,500
ANALYSIS USING T-ACCOUNTS
Each adjusting entry affects a balance sheet account (an asset or a liability account) and an income
statement account (an income or an expense account).
To analyze adjusting events using T-accounts, let’s consider the following illustrations.
Primo Photography that was established by Primo Alvarez reported the following related accounts and
account balances: Supplies, P36, 600 and Supplies Expense, P15, 400.
Primo wants to know how much cash was paid out to purchase supplies. To start analyzing, place the
relevant information in a T-account. Input the beginning balance on the normal balance of the account if
provided in the transaction. In this case, Supplies is debit. There is no beginning balance provided, therefore
our technique is to use the ending balance, P36, 600 and placed it to its opposite normal balance. In adjusting
for supplies expense, the entry made was debit Supplies expense, P15, 400 and credit Supplies, P15, 400.
Total both debit and credit sides. The cash paid out for supplies can now be derived; it’s P52, 000 (P52,
000 – zero). Let’s say that beginning balance was provided for P2, 000, then cash paid out would have been
P50, 000 (P52, 000 – P2, 000).
Supplies
Debit Credit
(+) (-)
Beginning Balance -0- 15, 400 Expense for the Month
Cash paid for Supplies 52, 000 36, 600 Ending Balance
Total 52, 000 52, 000 Total
75
Assume instead that the P36, 600 ending balance for Supplies and the P52, 000 cash paid for supplies
were given, using the T-account, supplies expense is P15, 400 (P52, 000 – P36, 600):
Supplies
Debit Credit
(+) (-)
Beginning Balance -0- 15, 400 Expense for the Month
Cash paid for Supplies 52, 000 36, 600 Ending Balance
Total 52, 000 52, 000 Total
To illustrate further, a company reported at month-end the following related accounts and account
balances: Prepaid Insurance, End, P67, 000; Insurance Expense, P12, 000 and Prepaid Insurance,
beginning, P48, 000. How much cash was used to pay for insurance this period? Answer: P31, 000.
Prepaid Insurance
Debit Credit
(+) (-)
Beginning Balance 48, 000 12, 000 Expense for the Month
Cash paid for Insurance 31, 000 67, 000 Ending Balance
Total 79, 000 79, 000 Total
To have an ending balance of P67, 000, there must have been a P31, 000 debit to the Prepaid Insurance
account. Since a debit to this account is normally offset by a credit to Cash, the analysis confirms that
cash outflows for insurance was P31, 000.
76
Learning Activities
Activity 1. Matching Type
Directions: Below are terms pertinent to adjusting entries. Match each definition with its related term.
There are two answers for each term.
Terms
1. Accrued Expense
2. Deferred Expense
3. Accrued Revenue
4. Deferred Revenue
Definitions
a. Revenue not yet earned; collected in advance.

b. Office supplies on hand; used next accounting period.
c. Rent revenue collected; not yet earned.
d. Rent not yet collected; already earned.
e. An expense incurred; not yet paid or recorded.
f. Revenue earned; not yet collected.
g. An expense not yet incurred; paid in advance.
h. Property taxes incurred; not yet paid.
77
Activity 2. Preparing Adjusting Entries
Directions: Record the adjusting entries for each of the situations listed below. The last day of the
accounting period is Dec. 31. Make your adjusting entries in the General Journal provided below.
a. Three-day salaries are unpaid as at Dec. 31. Salaries are P85, 000 for a five-day work
week.
b. On Aug. 1, a P18, 000 premium was paid on a one-year insurance policy. The amount of
the premium was debited to Prepaid Insurance.
c. Before adjustments, the Supplies account has a balance of P42, 300. The count of
supplies on hand amounted to 25, 700.
d. Office equipment was purchased on Mar. 3 for P350, 000. The expected life of the
equipment is eight years and a salvage value of P50, 000.
78
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
79
Activity 3. Analyzing Accounts
Directions: Compute the requirements below using T-accounts.
The income statement for Georgina Silva Medical Clinic included the following expenses for 2019:
Rent Expense P850, 000
Interest Expense 135, 000
Salaries Expense 1, 350, 000
Listed below are the related balance sheet account balances at year end for last year and this year.
Last Year This Year
Prepaid Rent -- P13, 500
Interest Payable P18, 000 --
Salaries Payable 75, 000 114, 000
Required:
1. Compute the cash paid for rent during the year.

2. Compute the cash paid for interest during the year.
3. Compute the cash paid for salaries during the year.
80
Mastery Test
Multiple Choice
Directions: Encircle of the correct answer.
1. At the beginning of the financial year, Justin De dios paid a 3-year insurance premium of
P600, 000. At the end of the financial year, .
a. P600, 000 should be treated as expenses
b. P600, 000 should be treated as prepaid expenses
c. P200, 000 should be treated as expenses
d. P200, 000 should be treated as prepaid expenses
2. Accrual concept states that revenues and expenses of the firm should be recorded on
instead of .
a. Accrual basis cash basis
b. Accrual basis credit basis
c. Cash basis accrual basis
d. Credit basis cash basis
3. Suppose the opening balance of machinery account is a debit balance of P100, 000. Within
this month, there is an acquisition of machinery by an equivalent settlement of P400, 000
debit amount. Also, there is a sale of machinery to the sole proprietor at the cost price of
P20, 000. What is the opening balance of the machinery account the next month?
a. Debit balance of P480, 000
b. Debit balance of P500, 000
c. Credit balance of P480, 000
d. Credit balance of P500, 000
4. Accrued revenues
a. Decrease assets
b. Decrease liabilities
c. Increase assets
d. Increase liabilities
5. Accrued expenses
a. Decrease assets
b. Decrease liabilities
c. Increase assets
d. Increase liabilities
6. The word “accrued” implies which of the following?
a. Money has been paid and service has been provided.
b. Money has been paid but no services have been provided.
c. Money has been paid for a service to be performed during the next period.
81
d. Money has not been paid or received but the service has already been performed or
rendered.
7. Which of the following transactions result in an increase in revenues?
a. Collection of cash on account
b. Receipt of cash from bank loan
c. Sale of land at cost for cash
d. Services rendered on credit
8. If an adjusting entry were not made at the end of a period to remove the earned revenue
from the Unearned Revenues account,
a. Assets would be understated
b. Liabilities would be overstated
c. Liabilities would be understated
d. Owner’s equity would be overstated
9. If a P2, 500 adjustments for depreciation is omitted, which of the following financial
statement errors will occur?
a. Assets will be understated
b. Expenses will be overstated
c. Owner’s equity will be overstated
d. Profit will be understated
10. A law firm began May with office supplies of P16, 000. During the month, the firm
purchased supplies of P29, 000. On May 31, supplies on hand totaled P21, 000. Supplies
expense for the period is
a. P24, 000
b. P29, 000
c. P45, 000
d. P21, 000
82
REFERENCES
Rafael M. Lopez, Jr. Fundamentals of Accounting (Simplified Procedural Approach),
Davao City: MS LOPEZ Printing & Publishing, 2011-2012 Edition
Win Ballada, CPA, CBE, MBA, Susan Ballada, CPA, Basic Financial Accounting and
Reporting, 2018 issue, 21st Edition
https://www.accountingcoach.com/accounting-principles/explanation
McGraw-Hill Education: www.mcgraw-hill.co.uk
83
APPENDIX A
RUBRICS
Rubrics for Assessment of Essay
Score
Criteria 4 3 2 1
1. The introduction effectively catches the attention of the reader
and leads into a strong statement.
2. Examples include quotes that are explained and clearly
illuminate the meaning of the term defined in the essay.
3. Body paragraphs are developed with enough detail to show

how they relate to the question.
4. Body paragraphs are arranged in a logical order that aids
understanding.
5. Essay adheres to basic rules of spelling and punctuation; there
is no use of contractions.
6. Essay displays advanced use of grammar.
7. Conclusion ends the essay without introducing new questions
or ideas and is an effective ending.
Total
Rubrics for Flow Chart Assessment
Criteria Exceeds Meets Expectations Needs Inadequate

Expectations (3) Improvement (1)
(5) (2)
Layout The flow chart has an The flow chart has an The flow chart has The flow chart is
exceptionally exceptionally a usable layout, cluttered looking
attractive and usable attractive and usable but may appear or confusing. It is
layout. It is easy to layout. It is easy to busy or boring. often difficult to
locate all important locate all important locate
elements. Alignment elements. important
is used effectively in elements.
organizing the
material.
Content The student has an The student has good The student has fair Student did not
exceptional understanding on understanding on appear to learn
84
understanding on each processes or each processes or much. Cannot
each processes or phases. Can easily phases. Can easily answer most
phases. Can easily answer questions answer questions questions about
answer questions about the content about the content the content and
about the content and procedures used and procedures the procedures
and procedures used to make the flow used to make the used to make
to make the flow chart. flow chart. the flow chart.
chart.
Spelling & No errors No more than a No more than 3 More than 3
Grammar encountered. couple spelling or spelling or spelling or
grammatical errors. grammatical grammatical
errors. errors.
Rubrics for Concept Map Assessment
Criteria Exceeds Expectations Meets Expectations Needs Improvement

(5) (3) (2)
Concepts Central idea is well Central idea and clarity of Insufficient concepts
developed and clarity of purpose are generally selected relating to topic.
purpose is exhibited. evident Arrangement of
Abundance of evidence Evidence of critical, concepts demonstrates a
of critical, careful thought careful thought and little understanding of
and analysis and/or insight analysis and/or insight relationship between
them.
Organization Extremely well organized. Organized. Structure allows Poorly organized. A clear
Order and structure of reader to move through sense of direction is not
information is compelling content without confusion. evident. Flow is frequently
and flows smoothly interrupted.
Ideas Insightful and well Ideas are considered; Ideas are unclear few
considered ideas making more than one thoughtful connections
multiple connections connection is made
85
REPUBLIC OF THE PHILIPPINES SCHOOL OF ARTS AND SCIENCES
J.H. CERILLES STATE COLLEGE Bachelor of Science in Hospitality Management
_Main Campus COURSE SYLLABUS
COURSE NUMBER Acctg COURSE TITLE Fundamentals of Accounting TERM 1st SEMESTER. A.Y. 2020-2021
1
COURSE CREDITS 3 units COURSE TYPE Lecture PRE-REQUISITE NONE
CONTACT HOURS PER WEEK 3 hrs per week PRE-REQUISITE/CO- NONE
REQUISITE TO
JHCSC VISION Leading higher education institution serving the ASEAN community with quality, innovative and culture-sensitive programs.
• Provide need-based tertiary and advanced programs in Agriculture, Education and allied ﬁelds;
JHCSC MISSION • Undertake applied research, extension and production services that yield workable and durable solutions to sector speciﬁc
challenges, thus improving the socio-economic well - being of identified communities.
The School of Arts and Sciences aims to develop desirable qualities of professionals by giving sufficient knowledge in various disciplines
that will contribute to the enrichment of existing national effort in the transformation process towards culture of peace and
development in the ASEAN region.
SAS GOAL
1. Develop highly skilled and competent prospective leaders and public servants by providing them with necessary knowledge
and skills in the field of discipline and the proper values and attributes towards their fellowmen.
2. Foster a culture of excellence upholding the highest level of professionals with integrity, competence, commitment and
SAS OBJECTIVES dedication in the service of its stakeholders.
3. Development of research capabilities of future professionals necessary in the quest of knowledge and truth.
4. Promote critical thinking, creativity, and responsibility for a more in-depth understanding of the changing society.
1. Produce food products and services complying with enterprise standards.
2. Apply management skills in F & B service operation.
3. Perform and provide full guest cycle services for front office.
4. Perform and maintain various housekeeping services for guest and facility operation.
5. Plan and implement a risk management program to provide a safe and secure workplace.
6. Provide food and beverage service and manage the operation seamlessly base on industry standards.
7. Demonstrate on tourism industry, local tourism products and services.
PROGRAM OUTCOMES 8. Interpret and apply relevant laws related to tourism industry.
9. Observe and perform risk mitigation activities.
10. Utilize information technology applicable to tourism and hospitality industry.
11. Manage and market a service-oriented business organization.
12. Demonstrate administrative and managerial skills in a service-oriented business organization.
13. Prepare and monitor industry specific financial transactions and reports.
14. Perform human capital development functions of a tourism oriented transaction.
15. Utilize various communication channels proficiently in dealing with guests and colleagues.
16. Provide information and engage technical know-how on the different mode of transportation as part of the rising scope of
tourism and hospitality industry.
COURSE DESCRIPTION This introductory course is based on the need for non-financial personnel to understand basic accounting techniques, financial statements
used in a business and accounting for service operations necessary to operate a successful business.
COURSE LEARNING 1. Understand the main concepts and principles of accounting.

OUTCOMES 2. Develop the capability to perform the basic accounting functions.
3. Create general-purpose financial statements from incomplete records.
4. Appreciate the importance of Accounting in today’s business world.
Course Requirements:
1. Quizzes and Class Participation
2. Worksheets
3. Periodic examinations
4. Outputs
5. Graded Oral Recitations
Evaluation Criteria:
For Face to Face Class: For Online Class: For Blended Classes
Quizzes/ Class Participation- 40% Formative assessments (quizzes, worksheets, etc.) 50% Quizzes/ Class Participation 40%
Assignment/Project- 20% Performance/Practical Assessment/Exam: , 50% Assignment/Projects 20%
Major Examination - 40% Major Examination 40%
Total 100% Total 100%
Total 100%
Teaching and Learning Modalities

(Activities and Assessments)
Intended Learning Outcomes (ILO) Topic
Face to Face Online Blended
1. Accounting and its Environment • Schedule per small group • Schedule (group • Schedule per small group
1.1 Definitions of Accounting (face-to-face) synchronous sessions) (face-to-face)
1.2 Forms of Business ➢ Lecture/Discussion • Open schedule (online ➢ Lecture/Discussion
1. Make an essay about the Organizations
➢ Assessment individual synchronous ➢ Assessment
accounting and its importance 1.3 Purpose and phases of
accounting • Performance-based sessions • Schedule (group
in business.
assessment • Power Point Presentations synchronous sessions)
2. Identify the different types and
• Project/task-based and
forms of business organizations.
assessment • Performance-based ➢ Performance-based
3. Create a graphic organizer
• Use of rubrics assessment (automated assessment (automated
about the purpose and phases
tests with pool/bank of tests with pool/bank of
of accounting.
questions, etc.) questions, etc.)
• Task-based assessment ➢ Task-based assessment
• Use of rubrics • Use of rubrics
1. Define the elements of financial 2. The Accounting Equation and • Schedule per small group • Schedule (group • Schedule per small
statements. the Double-entry System (face-to-face) synchronous sessions) group (face-to-face)
2. Understand what is meant by the 2.1 Elements of Financial ➢ Lecture/Discussion • Open schedule (online ➢ Lecture/Discussion
accounting equation, by solving Statements
➢ Assessment individual synchronous ➢ Assessment
problems involving its concepts 2.2 The Accounting Equation
and transaction analysis. 2.3 Rules of Debit and Credit • Performance-based sessions • Schedule (group
3. Summarize the rules of debit and 2.4 Accounting for Business assessment • Power Point Presentations synchronous sessions)
credit as applied to balance Transactions and ➢ Performance-based
sheet and income statement • Performance-based assessment (automated
accounts using a graphic assessment (automated tests with pool/bank of
organizer. tests with pool/bank of questions, etc.)
4. Analyze the effects of business
questions, etc.)
transactions on an entity’s assets,
liabilities and owner’s equity and
record these effects using the
financial transaction worksheet.
3. Recording Business Transactions • Schedule per small group • Schedule (group
1. Create a flow chart and 3.1 Accounting Cycle: (face-to-face) synchronous sessions) • Schedule per small group
explain in brief the sequential Sequential Steps and Aims ➢ Lecture/Discussion • Open schedule (online (face-to-face)
steps in accounting cycle. 3.2 The Journal ➢ Lecture/Discussion
➢ Group work individual synchronous
2. Apply the rules of debits and 3.3 Posting
➢ Assessment sessions ➢ Group work
credits in analyzing business 3.4 Trial Balance
• Performance-based • Power Point Presentations ➢ Assessment
transactions.
assessment and • Schedule (group
3. Journalize transactions in
proper form in general journal. • Project/task-based • Performance-based synchronous sessions)
4. Post entries from the general assessment assessment (automated ➢ Performance-based
journal to “T” Accounts. tests with pool/bank of assessment (automated
5. Prepare and explain the use of questions, etc.) tests with pool/bank of
a trial balance. • Task-based assessment questions, etc.)
➢ Task-based assessment
1. Identify the types of 4. Adjusting the Accounts • Schedule per small group • Schedule (group
adjustments and their 4.1 The need for adjustments (face-to-face) synchronous sessions) • Schedule per small group
purposes 4.2 Adjustments for Deferrals ➢ Lecture/Discussion • Open schedule (online (face-to-face)
2. Prepare in good form the 4.3 Adjustments for Accruals ➢ Lecture/Discussion
➢ Assessment individual synchronous
adjusting entries.
• Performance-based sessions ➢ Assessment
3. Analyze and solve accounts
assessment • Power Point Presentations • Schedule (group
that require adjustments
using T-Accounts. and synchronous sessions)
• Performance-based ➢ Performance-based
assessment (automated assessment (automated
Proctored non-conventional Performance-based assessment Scheduled face-to-face or

assessment (Automated exam with Automated exam with
Midterm Exam
pool/bank of questions, pool/bank of questions,
etc.) etc.
1. Prepare accurately and in 5. Worksheet and Financial • Schedule per small group • Schedule (group
good form a ten-column Statements (face-to-face) synchronous sessions) • Schedule per small group
worksheet. 5.1 Preparing the worksheet ➢ Lecture/Discussion • Open schedule (online (face-to-face)
2. Develop skills in the preparation 5.2 Complete set of Financial ➢ Lecture/Discussion
of financial statements. Statements
and synchronous sessions)
1. Prepare and post adjusting 6. Completing the Accounting • Schedule per small group • Schedule (group
entries, closing entries and Cycle (face-to-face) synchronous sessions) • Schedule per small group
reversing entries. ➢ Lecture/Discussion • Open schedule (online (face-to-face)
2. Prepare a post-closing trial ➢ Lecture/Discussion
balance.
and synchronous sessions)
1. Describe the nature of 7. Merchandising Operations • Schedule per small group • Schedule (group
merchandising business. 7.1 Nature of Merchandising (face-to-face) synchronous sessions) • Schedule per small group
2. Differentiate the periodic and Business ➢ Lecture/Discussion • Open schedule (online (face-to-face)
perpetual inventory system. 7.2 Inventory Systems ➢ Lecture/Discussion
➢ Group work individual synchronous
3. Summarize in own form the 7.3 Freight-in and Freight out
➢ Assessment sessions ➢ Group work
treatment of transportation 7.4 Merchandise Inventory and
• Performance-based • Power Point Presentations ➢ Assessment
costs. Cost of sales
4. Calculate the ending inventory, assessment and • Schedule (group
cost of sales, net sales and gross • Performance-based synchronous sessions)
profit. assessment (automated ➢ Performance-based
assessment (automated
1. Describe the nature of 8. Manufacturing Operations • Schedule per small group • Schedule (group • Schedule per small group
manufacturing business. 8.1 Manufacturing Concern (face-to-face) synchronous sessions) (face-to-face)
2. Identify the different elements (non-cost system) ➢ Lecture/Discussion • Open schedule (online ➢ Lecture/Discussion
of manufacturing cost. 8.2 Elements of Manufacturing
➢ Group work individual synchronous ➢ Group work
3. Prepare the different Cost
manufacturing statements. 8.3 The Manufacturing ➢ Assessment sessions ➢ Assessment
Statements • Performance-based • Power Point Presentations • Schedule (group
assessment and synchronous sessions)
Proctored non-conventional Performance-based assessment Scheduled face-to-face or

assessment (automated tests with Automated exam with
Final Exam
pool/bank of questions, pool/bank of questions,
etc.) etc.
References:
Required Readings (Textbook)
• Rafael M. Lopez, Jr. Fundamentals of Accounting (Simplified Procedural Approach), Davao City: MS LOPEZ Printing &
Publishing, 2011-2012 Edition
• Win Ballada, CPA, CBE, MBA, Susan Ballada, CPA, Basic Financial Accounting and Reporting, 2018 issue, 21st Edition
Suggested Readings and References

• https://www.accountingcoach.com/accounting-principles/explanation
• McGraw-Hill Education: www.mcgraw-hill.co.uk
• International Federation of Accountants on line: http://www.ifac.org
Date Revised: Prepared: Reviewed: Recommending Approval: Approved:
JUNE 30, 2020
KRISTINE MAE B. TARIPE MYRNA V. CEÑO, MBA JULIETA C. CEBRERO, Ph.D. LINA T. CODILLA, Ph.D.
Instructor Program In-Charge SAS Dean VPAA
Date Shown: Shown by: Shown to:
_____ 2020 _____________________ ----------------------------------------------- ----------------------------------------------- --------------------------------------

Position Student Student Student
ABOUT THE AUTHOR
Kristine Mae Barte Taripe dedicated her three years in

service being an Instructor in JH Cerilles State College
with competency and quality. She assures to provide
a good quality education to her students and
devotedly gave her time just to inculcate to students
the importance of learning inside the classroom.
Being the 4th child of the seven siblings, she accepts

any work related to accounting to practice her
chosen field. Aside from being an instructor, she
provides an assistance to the Accounting
Department in JH Cerilles State College.
She was a former associate in VR Integral Management Solutions, a bookkeeping

and consulting firm that provides Financial Statements audit, business consultancy
and bookkeeping services. She had rendered more than a year of service not
including the months, she spent for the on-the-job training.
In college, she graduated with the degree, Bachelor of Science in Accounting
Technology, in 2016 at Saint Columban College as one of the Youth Entrepreneur
Student Scholars, in which she was able to manage her time in studying while
working as an entrepreneur in school. As she was eager to continue her field, she
graduated with another degree, Bachelor of Science in Accountancy. at year
2017. To pursue excellence in teaching and business management, she enrolled
herself for Masters in Business Administration at Saint Columban College.

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What are the main topics covered in the module?

PREFACE

This Fundamentals of Accounting module is not just a simple introductory module

1. Accounting and its environment

2. Accounting equation and its double entry system

4. Adjusting the accounts

My heartfelt thanks go to the following persons who immeasurably share their

- To my friend, Vernalyn who never fails to motivate me and believes in

1 Accounting and Its Environment 1

2 The Accounting Equation and the Double-entry System 12

3 Recording Business Transactions 37

4 Adjusting the Accounts 65

About the Author

Accounting and its Environment

• Make an essay about the accounting and its importance in business.

What do you think is the role of Accounting in our daily lives?

Accounting is a service activity. Its function is to provide quantitative information, primarily

Accounting is an information system that measures, processes and communicates financial

Accounting is the process of identifying, measuring and communicating economic information to

BUSINESS AND ACCOUNTING

Type Activity Structure Examples

Trader Buying and selling Buying a range of raw Wholesaler

FORMS OF BUSINESS ORGANIZATIONS

Corporation. A corporation is a business owned by stockholders. It is an artificial being created by

PURPOSE AND PHASES OF ACCOUNTING

1. Entity Concept. An accounting entity is an organization or a section of an organization

CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING PRINCIPLE

a. Sole proprietorship f. Manufacturing

3. This organization has only one owner or proprietor.

1. Accounting is often characterized as the “language of business”.

The Accounting Equation and the Double-entry System

• Define the elements of financial statements.

Directions: Write T if the statement is TRUE and F if the statement is FALSE.

____ 1. Capital represents the owner’s investment, or equity, in a business.

The elements of financial statements are define as follows:

Element Definition or Description

Asset A present economic resource controlled by the entity as a result of

Liability A present obligation of the entity to transfer an economic resource as

Income Increases in assets, or decreases in liabilities, that result in increases in

Expenses Decreases in assets, or increases in liabilities, that result in decrease in

Left side or Right side or

Assets = Liabilities + Owner’s Equity

DEBITS AND CREDITS – THE DOUBLE – ENTRY SYSTEM

Balance sheet Accounts

Assets Liabilities and Owner’s Equity

Debit Credit Debit Credit

(+) (-) (-) (+)

Increases Decreases Decreases Increases

Normal Balance Normal Balance

Debit for decreases in Credit for decreases in

Debit Credit Debit Credit

(+) (-) (-) (+)

Increases Decreases Decreases Increases

Normal Balance Normal Balance

Increases Recorded by Normal Balance

Account Category Debit Credit Debit Credit

(9) P25,000 _ = P25,000 _