Pointers to Review: FABM 2 NORMAL BALANCE OF ACCOUNTS

1. Normal balance of accounts

2. Journal entry
3. Identification of accounts
4. Basic accounting equation
5. Adjusting entry
6. Financial statement
7. Closing entry

ACCOUNTING CYCLE

Recording Phase:
Answer Key:
1. Identify/Analyze business transaction.
2. Record/ Journalize the transaction 1. Accounts Payable; Increase: Credit;
3. Post the transaction in the general ledger. Decrease: Debit
2. Deferred Expense; Increase: Debit;
Reporting Phase:
Decrease: Credit
4. Trial Balance in general ledger is prepared. 3. Deferred Income; Increase: Credit;
Decrease: Debit
5. Adjusting Entry 4. Land; Increase: Debit; Decrease: Credit
5. Capital; Increase: Credit; Decrease: Debit
6. Adjusted Trial Balance 6. Salaries Expense; Increase: Debit; Decrease:
Credit
7. Financial Statement are prepared.
7. Cash; Increase: Debit; Decrease: Credit
8. Nominal accounts are closed. 8. Accounts Receivable; Increase: Debit;
Decrease: Credit
9. Post-closing trial balance may be recorded. 9. Withdrawals; Increase: Debit; Decrease:
Credit
Accrual Accounting 10. Fees Earned/Service Revenue; Increase:
Credit; Decrease: Debit
• Income is recognized when earned and
Expenses are recognized when incurred; Account Approach in Debit & Credit
In short, it bases on the occurrence of
the transaction.
 JOURNAL ENTRY Answer Key:
Definition: The book that contains every
single transaction that has occurred in a
business and is recorded in chronological
order is called a Journal Entry.

Illustration : (Journalize the given

transactions.)
 IDENTIFICATION OF ACCOUNTS Trademarks Intangible Asset

• Asset – resource controlled; past and Goodwill Intangible

future economic benefits are expected to
Organization Cost Intangible
flow the entity.
• Current Asset – within the ordinary Intellectual Property Intangible
course of business; span of 12 months. Rights
• Non-Current Asset – or long term assets
are those assets which will not get
converted into cash within one year.
• Liabilities – present obligations;
Asset Account Type of Account settlement of which is expected to result
in an outflow.
Cash Current Asset
• Current Liabilities – paid out by entity
Accounts/ Notes Current Asset within 12 months.
Receivable Liability Account Type of Account
Prepaid Expense Current Accounts/Notes Current
Payable
Inventories Current
Unearned Current
Supplies Current
Revenue/Deferred
Land Non-Current Income

Building Non-Current Accrued Expense Current

Office Equipment Non-Current Bonds Payable Non-Current

Furniture and Non-Current Loans Payable Non-Current

Fixtures
Mortgage Payabale Non-Current
Automobiles Non-Current

Machineries Non-Current
• Equity – residual interest in the assets of the
Allowance for Bad Contra Asset entity after deducting all of its liabilities.
Debts Owners Capital Owners Drawing
Allowance for Contra Asset Investment Loss
Doubtful Accounts
Profit
Franchise Intagible Asset

Copyright Intangible Asset

• Revenue – total amount of income
generated by the sale of goods or services.
• Income – total earnings or profit.
Sales Service Revenue

Professional Fees Rent Income

Interest Income Fees Earned

Subscription Commission
Revenue Earned

Expenses – gross outflows; decrease in

equity; cost incurred to produce revenue.

Salaries Expense Transportation

Expense

Taxes and License Insurance Expense

Bad Debts Expense Depreciation

Expense

EXPANDED ACCOUNTING
EQUATION
Answer Key: Allowance For Bad Debts Expense - AR
• It is a allowance set up for probability
1.195, 000
of customers to default their payment
2. 183, 600 or not able to pay the remaining
balance.
3. 170,000 D- Bad Debts Expense
C- Allowance for Bad Debts
4. 200,000
• If not adjusted:
5. 60,400 Accounts Receivable – Overstated
Expense – Understated
6. 1,500,000
✓ Allowance Method
7. 325,000 D- Bad Debts Expense
C- Allowance for Bad Debts
8.200,000 ➢ We need to record the allowance
method dahil baka ‘di na
9.No problem magbayad si customer at kapag di
10.287,500 nagbayad magiging expense mo
na sya.
✓ If beginning balance is given use T-
Account. To show the adjusted bad
ADJUSTING ENTRY debts expense
✓ Direct Write-off Method
Depreciation – Depreciable Assets D- Bad Debts Expense
(Long-term assets na naluluma; property, C- Allowance for Bad Debts
pland & equipment, land does not ✓ For Write off: (Bale 2 entries ito sa
depreciated.) Direct Write-off Method)
• Is the allocation of the cost of an asset D- Allowance for Bad Debts
to expense over its useful life in a C- Accounts Receivable
rational and systematic manner and ➢ Here, it will record bad debts
represents the future economic expense if it is sure/actual na
benefit that has been used in the uncollectible.
period.
D- Depreciation Expense Prepaid Expense
C- Accumulated Depreciation • Expenses that are paid but not yet
(nagpapatong-patong) incurred.
➢ We need to record depreciation Prepaid expense xx
expense because paglipas ng Cash xx
panahon naluluma ang assets ✓ Asset Method
• If not adjusted: D- Insurance Expense
Dep. Asset – Overstated C- Prepaid Insurance
Expense – Understated ➢ We need to record prepaid expense
in asset method because the portion
of asset is not yet incurred/nagamit,
 kaya asset mo pa. (Occurrence of ✓ Revenue Method
the transaction.) D- Rent Revenue
✓ Expense Method C- Unearned Revenue
D- Prepaid Insurance ➢ We need to adjust it dahil nalagay
C- Insurance Expense natin is revenue method lahat but
➢ We need to record prepaid expense the portion of that revenue ‘di pa
in expense method dahil the portion napagtrababuhan or liability ko
of that expense is still an asset; we pa. Kaya Debit Revenue Credit
increase the prepaid asset because Unearned, tatanggalin yung
that portion is not an expense yet. sobrang revenue dahil may
• If not adjusted: (Asset Method) portion dun na liability mo pa.
Prepaid Asset – Overstated • If not adjusted: (Liability Method)
Expense – Understated Liability – Overstated
• If not adjusted: (Expense Method) Revenue – Understated
Prepaid Asset – Understated • If not adjusted: (Revenue Method)
Expense – Overstated Liability – Understated
Revenue – Overstated
Accrued Revenue Accrued Expense
• Income earned but not yet received. • Expense incurred but not yet paid.
✓ Issued (Accrued Revenue) Interest
D- (Rent) Interest Receivable xx ➢ Why do we need to record this:
C- Interest Income xx Monthly nagkakaroon ng interest
➢ We need to adjust it because for pero dahil lumipas na ang oras at
on Dec. 31 but lumipas na ang kailangan mag-report to show the
oras, na-earn mon a kaya we need incurred portion of the interest
to record to show na merong even though ‘di pa nagbabayad ng
income from rent. cash. (Occurrence of the
• If not adjusted: transaction.)
Accrued Revenue – Understated ✓ Received (Accrued Expense)
Revenue - Understated D- Interest Expense
Unearned Revenue/ Deferred Revenue C- Interest Payable
• It is where cash is received but not yet • If not adjusted:
earned. Accrued Expense – Understated
Cash xx Expense – Understated
Unearned revenue xx Accrued Salaries
✓ Liability Method • Expense incurred but not yet paid.
D- Unearned Revenue D- Salaries Expense
C- Rent Revenue C- Salaries Payable
➢ We need to adjust the unearned ➢ Why do we need to record this:
revenue because the portion of Magbabayad ng salaries for next
that liability ay na - earned/ year pero dahil kailangan ng
napagtrabahuhan na. magreport ng salaries expense for
the period we need to record it as
 an expense dahil napaghirapan na
ng employees yun. Next term
babayaran that’s why Credit is
Payable.
• If not adjusted:
Salaries Payable – Understated
Expense – Understated

FINANCIAL STATEMENT

Income Statement/Statement of Financial

Performance
• An income statement is a financial
statement that shows you the
company's income and expenditures.
It also shows whether a company is
making profit or loss for a given
period.
Balance Sheet / Statement Of Financial
• Revenue and Expenses
Position
• A balance sheet is a financial
statement that reports a company's
assets, liabilities, and shareholders'
equity
• Asset, Liabilities and Equity
Statement Of Changes In Equity
• It is a financial statement which
summarizes the transactions
related to the shareholder's equity
over an accounting period.
• Capital, Additional Investment,
Income(Revenue – Expense) and
Withdrawal

CLOSING OF NOMINAL
ACCOUNTS
Statement Of Cash Flow
• A cash flow statement is a
financial statement that
summarizes the amount of cash
and cash equivalents entering and
leaving a company.

POST CLOSING TRIAL

BALANCE