Accounting Phase

1. What are the steps included in the accounting process.
(3) Explain each briefly and

give examples.
 Recording Phase
- Recording Phase is the process of entering transactions that are evidenced
by source documents, in the journal (in the form of a journal entry). Once a
transaction is recorded as a journal entry, it should post to an account in the
general ledger which provides a breakdown of all accounting activities by
account.
Example: If a company deposits or invested in the bank, the accountant may

examine the passbook, deposit slip or checkbook to verify if the transaction
really happened before recording it as a journal entry and then posting to the
general ledger.
 Summarizing Phase
- The summarizing phase is the culminating stage where the recorded
transactions are summarized in the form of a final output known as the
financial statements. Adjusting entries and pre-closing trial balance is needed
in this phase to ensure that financial statements reflect accurate data at year
end.
Example: A revenue is recognized through an accrued revenue account and

a receivable account. When the cash is received at a later time, an adjusting
journal entry is made to record the payment for the receivable account.
 Preparatory Phase
- The preparatory phase includes the steps necessary to prepare the books of
accounts for the next accounting period. Closing entries and post-closing trial
balance should be prepared for this phase to ensure the arithmetical accuracy
and the correctness of the balances of accounts after closing entry has been
done and to facilitate the preparation of the next or new accounting period. At
the beginning of the next accounting period, a reversing entry is made.
Example: Only the nominal accounts are closed at the end of the accounting
period, while the real accounts are not closed and are held open. This means
that a nominal account which has an open balance will be reduced to “Zero”
balance. Thus, an income statement account with a debit balance (expenses)
will be credited in the closing entry by an amount equal to its debit.
Conversely, an income statement account with a credit balance (revenue) will
be debited in the closing entry by an amount equal to its credit.
2. Outline the accounting process and classify the same according to the steps above
(9)
Recording Phase
1. Document – identify business documents, which form the basis for
recording transactions
2. Recording – transactions are recorded chronologically in the journal

based on the original documents
3. Posting – Each of the entries in the journal is posted to their

appropriate accounts in the general ledger.
Summarizing Phase
4. Adjusting Entries – At the end of the year, adjusting entries are
prepared to correct and update the accounts to conform with the
accrual
concept.
5. Pre-closing Trial Balance – Balances of all the accounts in the

general ledger are then extracted and a trial balance is prepared. The
trial balance serves as a check on the accuracy of recording and
posting.
6. Financial Statements – Statements summarizing operations and

showing the financial condition of the business firm are prepared from
the information taken from the trial balance.
Clearing or Preparatory Phase

7. Closing Entries – Reset the balance of the temporary accounts (or
income statement account) to zero by debiting an account with a
normal credit balance and crediting an account with a normal debit
balance.
8. Post-closing Trial Balance – List all the balance sheet accounts

containing non-zero balances at the end of a reporting period
9. Reversing Entries – At the beginning of the next accounting period,

reverse or cancel out adjusting journal entries made at the end of the
previous accounting period.
3. What are the learning objectives in the Accounting Process? (5)
a. Determine the different phases and steps in the accounting process/cycle
b. Know the nature of recordable business transactions
c. Enumerate the accounting elements and the basic accounting equation
d. Recognize the usefulness and purpose of an account
e. Recognize the usefulness and purpose of chart of accounts
4. What is the basic accounting equation and explain its composition?

Assets = Liabilities + Equity
Assets – are the resources you control that have resulted from past events and can
provide you with future economic benefits. They can be tangible or intangible form and it
has a normal debit balance.
Liabilities – are obligations owing to creditors and represent an aliquot interest of
creditors in the total assets of the firm. It can require you to give up resources when
settling them. It has normal credit balance.
Equity – refers to the capital investment of the owner and represent the extent of the
owner’s interest in the total assets of the firm. The owner’s equity or capital increases as
a result of revenues generated by the firm and decreases due to expenses incurred by
the firm. It has a normal credit balance.

Accounting Phase

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1. What are the steps included in the accounting process.

(3) Explain each briefly and

Example: If a company deposits or invested in the bank, the accountant may

Example: A revenue is recognized through an accrued revenue account and

2. Recording – transactions are recorded chronologically in the journal

3. Posting – Each of the entries in the journal is posted to their

5. Pre-closing Trial Balance – Balances of all the accounts in the

6. Financial Statements – Statements summarizing operations and

Clearing or Preparatory Phase

8. Post-closing Trial Balance – List all the balance sheet accounts

9. Reversing Entries – At the beginning of the next accounting period,

b. Know the nature of recordable business transactions

c. Enumerate the accounting elements and the basic accounting equation

d. Recognize the usefulness and purpose of an account

e. Recognize the usefulness and purpose of chart of accounts

4. What is the basic accounting equation and explain its composition?

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