Fabm SG 11 Q3 0903

Unit 9: Analyzing Business Transactions: Service Type of Business
Lesson 9.3
Accounting Cycle for Service-Type Businesses:
Ledgers and T-Accounts
Contents
Introduction 1
Learning Objectives 2
Quick Look 3
Learn the Basics 6

General Ledger, Chart of Accounts, and T-accounts 7
Posting Transactions to the General Ledger 9
Posting Transactions to T-Accounts 17
Case Study 22
Keep in Mind 23
Try This 24
Practice Your Skills 25
Challenge Yourself 29
Bibliography 31
Lesson 9.3
Accounting Cycle for Service-Type
Businesses: Ledgers and T-Accounts
Introduction
Did you know that some businesses struggle to determine how much money they make or
lose? However, a business owner who is well-versed in management and accounting can
evaluate the current state of his business, allowing him to foresee potential problems and
assess opportunities that may arise in the future.
Learning how to post business transactions from the general journal to the general ledger
and knowing how to post transactions to a T-account is a few of the many steps in preparing
financial statements. Management can use these financial reports to evaluate its current
financial position and check its financial performance. The interpretation of financial reports
will help management make better business decisions that lead to higher profits.
9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 1

Learning Objectives DepEd Competency
At the end of this lesson, you should be able to

● Post transactions in the ledger.
do the following: (ABM_FABM11-IVa-d -31)
● Differentiate general ledger and

t-accounts.
● Post transactions to the general ledger.
● Analyze transactions and post them to

t-accounts.

Quick Look
Manual vs Computerized Accounting Systems

Financial statements provide information about a company's financial position,
performance, and cash flows. A company's plans and decisions are based on its financial
statements to achieve its objectives. To prepare a financial statement, we start by recording
transactions in a journal and posting transactions to the ledger.
A business may use a manual or a computerized accounting system to record its business
transactions. Companies using a manual accounting system record business transactions by
hand. Although manually keeping records takes time, some businesses prefer to use a
manual accounting system because it is simple and they are already familiar with the
process. In addition, businesses that prefer doing it manually have fewer transactions to
record.
On the other hand, companies that use a computerized accounting system keep financial
records using accounting software. By doing so, recording business transactions is done
automatically. However, the data may be exposed to viruses and may be targeted for
hacking, resulting in data loss.
Seth Fedel Business Management Services is a business that uses a manual accounting
system, and recently, the accountant of Seth Fedel Business Management Services resigned.
She was supposedly tasked with preparing the financial statements for the current year.
However, she was only able to journalize the company's transactions. The business hired a
new accountant, France Diaz, to continue the remaining tasks. France was handed the
Statement of Financial Position of the previous year and the general journal containing
entries of the current year, which is as follows:

Seth Fidel Business Management Services

Statement of Financial Position
December 31, 20x1
Assets
Current Assets
Cash ₱10,500
Accounts Receivable 20,800
Office Supplies 3,200
Prepaid Expenses 5,000
Total current assets ₱39,500
Fixed (Long-Term) Assets

Equipment 150,000
(Less accumulated depreciation) (46,500)
Total fixed assets 103,500
Total Assets 143,000
Liabilities and Owner’s Equity
Current Liabilities
Accounts Payable ₱7,600
Unearned Services 18,500
Income Taxes Payable 20,400
Total current liabilities ₱46,500
Long-Term Liabilities
Notes Payable ₱20,000
Total long-term liabilities 20,000
Owner’s Equity
Seth’s Capital ₱76,500
Total owner’s equity 76,500
Total Liabilities and Owner’s Equity ₱143,000
Figure 1. Seth’s Statement of Financial Position.

Seth Fidel Business Management Services
General Journal Page 1
Date Account Title and Description Ref Debit Credit
Jan 20x2
10 Cash 8,000
Consulting Fees 8,000
Received cash from consulting

fees provided to Pretty Company.
25 Utilities Expense 3,500
Cash 3,500
Paid utilities incurred for the

month of January.
26 Office Supplies 1,500
Accounts Payable 1,500
Purchased office supplies on

account from Gorgeous
Company.
Figure 2. Seth’s General Journal.
Questions to Ponder
1. How will France post the transactions from the general journal to the general ledger?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________

2. After posting the January transactions, how much is the Cash Balance?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
3. If the business only has the general ledger and financial statements, can France still
make the necessary journal entries? Explain.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
Learn the Basics
In the previous lesson, you learned how to record transactions of a service business in the
general journal. These recorded transactions are then posted later onto the general ledger.
This process is called posting.
Posting refers to transferring the recorded transactions from the general journal to the
general ledger. The ledger balances of a company’s accounts are updated through this
process. These balances will then be used to prepare a trial balance. The accountant can
prepare a 10-column worksheet and the financial statements from the trial balance.
Essential Question
Why do businesses still prefer to use a manual accounting system?

General Ledger, Chart of Accounts, and T-accounts

The General Ledger is a record of accounts that classifies and summarizes transactions
from the general journal. It is also known as the “book of final entry.” Accounts in the
general ledger can be grouped into two: Statement of Financial Position accounts, which
are composed of Assets, Liabilities, and Owner’s Equity Accounts; and Statement of
Comprehensive Income accounts, which is composed of Income and Expense Accounts.
If the General Journal organizes transactions in chronological order, based on the

transaction's date, the General Ledger organizes transactions by account.
A Chart of Accounts is a listing of all accounts with their corresponding account numbers.
The accounts are presented according to their order in the financial statements—assets are
listed first, followed by liabilities, owner’s equity, income, and then expenses.
The account numbers in a chart of accounts may be two-digit or three-digit numbers. The
general rule with the account numbers is that Assets should start their account number with
1, Liabilities with 2, Owner’s Equity with 3, Income with 4, and Expense with 5.
When analyzing and recording transactions, the accountant may refer to a company’s Chart
of Accounts. If an appropriate account is not listed in the Chart of Accounts, an account title
may be added.
Presented below is an example of a Chart of Accounts of a service business:
Alvin Consulting Services

Chart of Accounts
Account Number Account Name
101 Cash
102 Accounts Receivable
103 Supplies
104 Prepaid Insurance

105 Office Equipment
201 Salaries Payable
202 Income Tax Payable
301 Alvin, Capital
302 Alvin, Drawing
401 Consulting Fees
501 Rent Expense
502 Administrative Expense
503 Insurance Expense
504 Salaries Expense
505 Income Tax Expense
506 Taxes and Licenses
Figure 3. Chart of Accounts of a service business
The T-Account is the simplest form of an account. It is called T-Account because it looks like
the letter “T.” The T-account serves the same purpose as the General Ledger. It also
summarizes business transactions but with less information compared to the latter. In
addition, when transactions are complex, the accountant can use T-accounts to help
visualize the effect of double-entry accounting.
A T-account has four parts:

● the account title
● the debit (left) side
● the credit (right) side
● the balance of the account. The excess of the debits or credits is the balance of the
account

Cash
Beg. bal. xxx
Date xxx Date xxx

Date xxx
End bal. 𝑥𝑥𝑥
Figure 4. T-Account for cash.
In the Philippines, accounting records, including the General Ledger, are preserved for ten
years for filing to the tax authorities. In contrast, businesses need not to keep T-accounts
because it is an informal tool used by accountants to assist them in preparing financial
statements.
Check Your Progress
Distinguish between general ledgers and t-accounts.

_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
Posting Transactions to the General Ledger

Posting is a diligent task, and the accountant should make sure that all entries from the
general journal are transferred to the general ledger. The following are the steps in posting:
1. Write the column headings. The column heading of a General Ledger consists of the
following:
a. Account title and its account d. Post Reference
number e. Debit
b. Date f. Credit
c. Description g. Balance
2. Copy the beginning balances of the account from the previous period.

3. Copy the date from the General Journal to the General Ledger.
4. Write the journal entry number from the General Journal to the Post Reference
column of the ledger.
5. If the journal entry is a debit, copy its amount to the Debit column of the general
ledger. If the journal entry is a credit, copy its amount to the Credit column of the
general ledger.
6. Go back to the Post Reference column of the general journal and write the account
number of the account being posted.
7. Repeat steps 2–5 until all transactions have been posted.
8. Foot the debit amounts and credit amounts of each account.
9. Compute the ledger balances, and determine if it is a debit or a credit balance.
a. If the debit total is greater than the credit total, the account has a debit balance.
b. If the credit total is greater than the debit total, the account has a credit balance.
Examine the following pieces of information from Alvin Consulting Services which illustrate
the posting process:


Statement of Financial Position
December 31, 20x1
Assets
Current Assets
Cash 6,500
Accounts Receivable 10,000
Total current assets 16,500
Fixed (Long-Term) Assets

Equipment 90,000
(Less accumulated depreciation) (60,00)
Total fixed assets 30,000
Total Assets 46,500
Liabilities and Owner’s Equity

Current Liabilities
Unearned Consulting Fee 7,600
Total current liabilities 7,600
Long-Term Liabilities
Notes Payable 30,000
Total long-term liabilities 30,000
Owner’s Equity
Alvin’s Capital 8,900
Total owner’s equity 8,900
Total Liabilities and Owner’s Equity 46,500
Figure 5. Alvin Consulting Services’ Statement of Financial Position.

Jan 20x2
17 Cash JE-01 23,000
Consulting Fees JE-01 23,000
Performed consulting services to Chill

Company.
24 Administrative Fees JE-02 4,500
Cash JE-02 4,500
Paid administrative fees to Vissa

Accounting Office.
Figure 6. Alvin Consulting Services’ journal entries on page 1 for January.
31 Rent Expense JE-03 10,000
Cash JE-03 10,000
Paid monthly rent to Gorgeous Company.
Figure 7. Alvin Consulting Services’ journal entries on page 2 for January.


General Ledger Account No.
Cash 101
Date Description Ref Debit Credit Balance
2022
Jan 1 Beginning balance 6,500
Performed consulting services to

17 JE-01 23,000 29,500
Chill Company.

24 JE-02 4,500 25,000
Accounting Office.
Paid monthly rent to Gorgeous

31 JE-03 10,000 15, 000
Company.
Figure 8. Alvin Consulting Services’ general ledger of the cash account.

General Ledger
Account No.
Accounts Receivable 102
2022
Jan 1 Beginning balance 10, 000
Figure 9. Alvin Consulting Services’ general ledger of the accounts receivable account.

Equipment 161
2022
Figure 10. Alvin Consulting Services’ general ledger of the equipment account.


Accumulated Depreciation 162
2022
Figure 11. Alvin Consulting Services’ general ledger of the accumulated depreciation account.

Unearned Consulting Fees 201
2022
Figure 12. Alvin Consulting Services’ general ledger of the unearned consulting fees account.

Notes Payable 231
2022
Figure 13. Alvin Consulting Services’ general ledger of the notes payable account.


Alvin’s Capital 301
2022
Figure 14. Alvin Consulting Services’ general ledger of Alvin’s capital account.

Consulting Fees 401
2022
Performed consulting services to

Jan 17 JE-01 23,000 23, 000
Chill Company.
Figure 15. Alvin Consulting Services’ general ledger of the consulting fees account.

Administrative Expense 501
2022

Jan 24 JE-02 4,500 4, 500
Accounting Office.
Figure 16. Alvin Consulting Services’ general ledger of the administrative expense account.


Rent Expense 502
2022
Paid monthly rent to Gorgeous

Jan 31 JE-03 10,000 10, 000
Company.
Figure 17. Alvin Consulting Services’ general ledger of the rent expense account.
The beginning balance of an account in the General Ledger is based on the previous year's
amounts in the company's Statement of Financial Position. For example, in Alvin Consulting
Services' General Ledger (see Fig. 8, 9, and 10), the beginning balance of the Cash account is
₱6,500, the Accounts Receivable is ₱10,000, and the Equipment is ₱10,000. The beginning
balance is based on the amount of Cash, Accounts Receivable, and Equipment in Alvin's
Consulting Service Statement of Financial Position (see Fig. 5).
The order in which an accountant posts transactions is based on the order of the account in
the Chart of Accounts. For example, an accountant should post all entries involving Cash
first, followed by Accounts Receivable, and then the next account in the company's chart. In
doing so, the accountant ensures that no journal entries are overlooked.
On the other hand, the process of writing the journal entry number in the General Ledger
and the General Journal is called cross-referencing (see Fig. 8 and 15). The journal entry
number in the General Ledger may be written as JE-01, or J1 or GJ1, or the account number.
If it is JE-01, the entry can also be found in the journal with JE-01. Sometimes, the number in
the posting reference means the entry can be found on that specific page number.
Moreover, if the account number is used in the posting reference column in the General
Journal, you can find such transactions using that account number in the ledger.
Alternatively, the accountant may use a tick mark "^" to indicate that the entry has already
been posted.

There is no hard rule for writing the posting reference in actual practice, and any method is
acceptable. The critical rule for the accountant is to make sure that all transactions are
posted.
Lastly, no new information must be added when posting entries to the ledger; and posting
transactions on the debit side should always be equal to the credit side. At the end of the
posting process, the accountant will compute the balances of each account. These balances
will be used to prepare the trial balance, 10-column worksheet, and financial statements.
The accuracy of financial reports depends on the correctness of the journal entries and
ledger balances. This is why it is crucial to post transactions diligently.
Posting Transactions to T-Accounts

The process of posting transactions to T-accounts is similar to the process of posting entries
to the General Ledger, but with fewer steps:
1. Draw a large “T”.
2. Write the account title at the top of the T-account.
3. Copy the beginning balances of the account from the previous period.
4. Copy the date from the General Journal to the General Ledger.
5. If the journal entry is a debit, copy its amount to the Debit (left) side of the T-account.
If the journal entry is a credit, copy its amount to the Credit (right) side of the
T-account.
6. Repeat steps 2-4 until all transactions have been posted.
7. Foot the debit amounts and credit amounts of each account.
8. Compute the ledger balances, and determine if it is a debit or a credit balance.
a. If the debit total is greater than the credit total, the account has a debit balance.
b. If the credit total is greater than the debit total, the account has a credit balance.
Unearned Consulting Fees

Beg. Bal 80,000
End bal. 14, 000
Figure 18. T-account for Unearned Consulting Fees

An accountant can also use a T-account to prepare adjusting entries. For example, a
T-account for Unearned Consulting Fees shows a beginning credit balance of ₱80,000 and an
ending credit balance of ₱14,000 (see figure 18). Through the analysis of the T-account, the
accountant can deduce that an Unearned Consulting Fees worth ₱66,000 must be debited
and recorded as an adjusting entry (see figure 19).

Beg. Bal 80,000
66,000
End bal. 14, 000
Figure 19. T-account for Unearned Consulting Fees with an amount recorded on the debit
side of the T-account.
Closer Look
Funny Company
Lena is the accountant of Funny Company. She handles the Unearned
Consulting Fees account of the company, and she was tasked to prepare
its 2023 financial statements.
The beginning balance of the Unearned Consulting Fees account is

₱50,000. Of this amount, it earned ₱32,000. She also discovered that
Funny Company rendered consulting services of ₱24,000. Determine the
ending balance of the Unearned Consulting Fees account using a
T-account.
You are required to calculate the ending balance of the Funny Company’s
Unearned Consulting Fees account.
Given: The beginning balance of the Unearned Consulting Fees account,

the consulting fees already earned by the company, and the consulting

fees have not yet been rendered to the clients.
Draw a T-account to analyze the financial transaction. The beginning

balance of the Unearned Consulting Fees is a credit because liability
accounts normally have a credit balance. On the other hand, the
consulting fees earned by the company will be debited because this is a
decrease in liability.
Beginning balance
Consulting fees earned by the Consulting fees not yet

company rendered to clients
Ending Balance
Record the transactions on the correct side of the T-account.

Beg. bal 50,000
32,000 24,000
Calculate the balance of the unearned consulting fees account.

Beg. bal 50,000
32,000 24,000
End bal. 42, 000
The ending balance of the Unearned Consulting Fees account is ₱42,000.

Check Your Progress
The Office Equipment account of Cute Company at the beginning of the year
was ₱100,000. During the year, it disposed of office equipment costing
₱20,000. At year-end, the entity reported the office equipment account in its
Statement of Financial Position in the amount of ₱125,000. Calculate the
amount of office equipment acquired by the business during the year.
Closer Look
Angel Company
Lysa is a newly passed Certified Public Accountant hired by Vin Business Management
Services to prepare financial statements for its client, Angel Company. However, the
computerized accounting system of Angel Company is down, and Lysa cannot enter
journal entries into the accounting system.
Using the bank statements and the previous year's financial statements, Lysa was able
to journalize transactions to the general journal, and she was able to post transactions
to the ledger.
With the help of T-accounts, she can now prepare the trial balance and, accordingly, the
financial statements.

Below is a partial General Journal that Lysa created. In addition, assume that Angel's
Company has beginning Accounts Receivable of ₱22,000 for the year 20x2.
Vin Business Management Services
20x2
Jan 8 Accounts Receivable ^ 11,100
Consulting fees ^ 11,100
Performed accounting services on

account to Kind Company.
Figure 20. Angel’s partial general journal for January.
Account Receivable
Beg. Bal. 22,000
Jan 8 ^ 11,100
End bal. 33, 100 .
Figure 21. Angel’s T-account for accounts receivable account.

Consulting Fees
Jan 8 ^ 11,100
End bal. 11, 100
Figure 22. Angel’s T-account for consulting fees account.

Case Study
Ransomware Threats
Ransomware is a form of malware that blocks access to a company's
computerized system until the hacker is paid a sum of money.
Companies are adopting and investing in cybersecurity due to hybrid and

remote working environments because of the pandemic caused by
COVID-19. Lockdown and changing remote working conditions caused the
businesses to put their systems online, making them more vulnerable. In
effect, businesses with weak cybersecurity are the target of cyber-crime
criminals.
Bugcrowd, a platform used by websites and companies, rewards private

individuals who manage to find bugs in their web applications. In 2021,
the rewards given to individuals increased to at least 185%. According to
Bugcrowd, ransomware attacks have increased, and it is one of the most
critical vulnerabilities of the business supply chains. When business
supply chains are affected, it may lead to financial and operational
damages which cannot be removed or repaired. A company's invoicing
process production schedule payment, among others, is one of the areas
that can be affected by a ransomware attack.
Businesses adopting a computerized accounting system are more

vulnerable to data loss and file corruption. If a company's computerized
accounting system is down, it may affect the accounting operations of a
company, such as the preparation and access of financial statements and
reports. This is why despite the technological advances in accounting, an
accountant should remain knowledgeable about the manual accounting
system.

Cybersecurity industry trends from 2021 bound to shape this

year’s threat landscape
Help Net Security January 21, Help Net Security, & 21, J. (2022,
January 19). Cybersecurity industry trends from 2021 bound
to shape this year's threat landscape. Help Net Security.
Retrieved January 21, 2022, from
https://www.helpnetsecurity.com/2022/01/21/cybersecurity-t
rends-2021/
Keep in Mind
● Posting refers to transferring the transactions from the general journal to the
general ledger. A general ledger is a record of accounts that classifies and
summarizes transactions from the general journal.
● A Chart of Accounts lists all accounts with their corresponding account numbers.
● The T-account is the simplest form of account. It serves the same purpose as the
General Ledger but with less information compared to the latter. According to the
double-entry bookkeeping system, a T-account may help an accountant analyze a
business transaction.
● The critical rule in posting is to make sure that all transactions are posted accurately.
● It is essential to know how to post transactions and prepare financial records
manually because computerized accounting systems may be subject to data loss and
data corruption.

Try This
True or False. Write true if the statement is correct. Otherwise, write false.
________________ 1. The general ledger is a book of first entry.
________________ 2. The left side of the T-account refers to the credit side of the
account.
________________ 3. Large businesses usually use a manual accounting system

because it has many transactions during the period.
________________ 4. T- accounts resemble the letter "T."
________________ 5. Posting the financial transactions of an enterprise is the

process of recording them in a general journal.
________________ 6. After recording the information from the general journal to the
general ledger, the accountant should fill up the posting
reference column of both the general journal and the general
ledger.
________________ 7. The accountant may double the amount of the transaction

recorded in the general journal when posting to the general
ledger.
________________ 8. When posting the transaction, the standard rule in writing the
posting reference is to write the tick mark "^."
________________ 9. The accountant has the discretion not to post the transactions
to the general ledger if the company suffers a loss in a
transaction.
________________ 10. Both general journal and general ledger assist the accountant
in producing the company's financial statements.

________________ 11. The updated balance of the general ledger will be the basis of
preparing the company's financial statements.
________________ 12. The income and expense accounts are listed first in the general
ledger, then asset, liability, and equity accounts.
________________ 13. Financial statements and reports are accounting outputs that
provide a company's financial position, performance, and cash
flows.
________________ 14. After recording the transactions in a General Ledger, updating

the General Journal accounts will be next.
________________ 15. Accountants mostly use T-accounts to prepare an adjusting

entry because it can guide the accountant on what amount the
adjusting entry should be to get the balance of the account.
Practice Your Skills
Analyzing Transactions of Pretty Accounting O ce

Marie is the owner of Pretty Accounting Office, a business that offers bookkeeping services
to its clients. Marie is preparing the 20x2 financial statements, and she gathered the
following account balances as of December 31, 20x2.
Cash ₱25,000
Equipment 40,000
Unearned Service Revenue 20,000
Marie, Capital 45,000
During the year, the following transactions occurred:

January 3 Performed services on account to Ruth Company amounting to ₱3,000
25 Received cash from Fati Company for services rendered during January,
₱15,000
31 Paid rent for the month of January to Nicole Company, ₱5,000

Perform the following tasks:

1. Prepare the journal entries for the January transactions of the Pretty Accounting
Office.

2. Post the related transactions to T-accounts.

3. Determine the balance of Cash as of January 31, 20x2.
4. Determine the Accounts Receivable balance, if any, as of January 31, 20x2.
5. Suppose Marie determined that the amount of Unearned Revenue as of January 31,
20x2 is ₱3,000, determine the amount of earned service revenue for January 31,
20x2.

Challenge Yourself
Charly is applying for a position as an accountant at Marga Accounting Firm. Part of the
application process is to pass the accounting examination provided by the company. The
examination requires her to compute the ledger balances, analyze the ledger accounts, and
create journal entries. The T-accounts in the examination are as follows:
Cash
Jan 14 100,000 Jan 15 32,000

Jan 25 30,000 Jan 27 10,000
Accounts Receivable
Jan 4 20,000
Office Equipment
Jan 27 10,000
Marga, Capital
Jan 25 30,000

Consulting Fees
Jan 4 20,000
Jan 14 100,000
Salaries Expense
Jan 15 32,000
Answer the following questions:

1. How much are the ending balances of Cash, Accounts Receivable, Office Equipment,
Marga, Capital, Consulting Fees, and Salaries Expense?
a. Cash _______________________________________________________________________________
b. Accounts Receivable ______________________________________________________________
c. Office Equipment _________________________________________________________________
d. Marga, Capital_______________________________________________________________________
e. Consulting Fees ___________________________________________________________________
f. Salaries Expense __________________________________________________________________
2. By looking at the T-accounts, what is the journal entry made by the business on
January 4 and January 14?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
3. By looking at the T-accounts, what are the journal entries made by the business on
January 25 and 27?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________

Bibliography
Averkamp, H. (n.d.). What is a general ledger account?: Accountingcoach.
AccountingCoach.com. Retrieved January 21, 2022, from
https://www.accountingcoach.com/blog/what-is-a-general-ledger-account
Dili. “Difference between T Account and Ledger.” Compare the Difference Between Similar
Terms. Differencebetween.com, March 24, 2017.
https://www.differencebetween.com/difference-between-t-account-and-vs-ledger/.
Larson, Kermit D., John J. Wild, and Barbara Chiappetta. Fundamental Accounting Principles.
Boston: McGraw-Hill Irwin, 2002.
Shpak, S. (2019, January 28). Advantages & Disadvantages of Manual Accounting Systems.
Small Business - Chron.com. Retrieved January 21, 2022, from
https://smallbusiness.chron.com/advantages-disadvantages-manual-accounting-syst
ems-23862.html.
Stice, Earl K., Earl K. Stice, and James D. Stice. Financial Accounting Reporting & Analysis. New
Delhi: South Western, 2009.
Williams, J. R., Haka, S. F., & Bettner, M. S. (2017). Financial accounting. McGraw-Hill
Higher Education.

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Unit 9: Analyzing Business Transactions: Service Type of Business

Learn the Basics 6

Practice Your Skills 25

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 1

Learning Objectives DepEd Competency

At the end of this lesson, you should be able to

● Diﬀerentiate general ledger and

● Analyze transactions and post them to

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 2

Manual vs Computerized Accounting Systems

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 3

Seth Fidel Business Management Services

Total current assets ₱39,500

Fixed (Long-Term) Assets

Total ﬁxed assets 103,500

Total Assets 143,000

Liabilities and Owner’s Equity

Total current liabilities ₱46,500

Total long-term liabilities 20,000

Total Liabilities and Owner’s Equity ₱143,000

Figure 1. Seth’s Statement of Financial Position.

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 4

Seth Fidel Business Management Services

General Journal Page 1

Date Account Title and Description Ref Debit Credit

Consulting Fees 8,000

Received cash from consulting

25 Utilities Expense 3,500

Paid utilities incurred for the

26 Oﬃce Supplies 1,500

Accounts Payable 1,500

Purchased oﬃce supplies on

Figure 2. Seth’s General Journal.

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 5

Learn the Basics

Why do businesses still prefer to use a manual accounting system?

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 6

General Ledger, Chart of Accounts, and T-accounts

If the General Journal organizes transactions in chronological order, based on the

Presented below is an example of a Chart of Accounts of a service business:

Alvin Consulting Services

Account Number Account Name

102 Accounts Receivable

104 Prepaid Insurance

9.3. Accounting Cycle for Service-Type Businesses: Ledgers and T-Accounts 7

105 Oﬃce Equipment

201 Salaries Payable

202 Income Tax Payable

301 Alvin, Capital

302 Alvin, Drawing

401 Consulting Fees

501 Rent Expense

502 Administrative Expense

503 Insurance Expense

504 Salaries Expense

505 Income Tax Expense

506 Taxes and Licenses

Figure 3. Chart of Accounts of a service business

A T-account has four parts: