10/01/2021

THE ACCOUNTING CYCLE

The accounting cycle

BOOKKEEPING NC-3

LECTURE 2

THE ACCOUNTING CYCLE

GENSAN COLLEGE OF TECHNOLOGY, INC.

BOOKKEEPING NC-3
In partnership with the
TECHNICAL EDUCATION AND
SKILLS DEVELOPMENT AUTHORITY

THE ACCOUNTING CYCLE THE ACCOUNTING CYCLE

The important activities in the accounting process… The Accounting Cycle is composed of the following steps

1. Identifying 1. Collection and Verification of Source Documents

2. Measuring 2. Analyze Each Transaction
3. Recording or journalizing 3. Journalize Each Transaction
4. Classifying 4. Post to Ledger
5. Summarizing 5. Prepare a Trial Balance
6. Communicating • Journalize Adjusting Entries
• Prepare Adjusted Trial Balance
6. Prepare a Work Sheet
7. Prepare Financial Statements
BOOKKEEPING NC-3
• Journalize and Post Closing Entries BOOKKEEPING NC-3

8. Prepare a Post-Closing Trial Balance

Transaction
Analyze &
THE ACCOUNTING EQUATION
Closing Classify The general accounting formula is
Entries
ASSETS = LIABILITIES + EQUITY

The Accounting Journalize

Financial
Statements Cycle

Post/
Adjusting Summarize
Entries Trial
Balance
BOOKKEEPING NC-3

1
 10/01/2021

THE ACCOUNTING EQUATION THE ACCOUNTING EQUATION

ACCOUNTS ACCOUNTS

ASSETS LIABILITIES + EQUITY ASSETS LIABILITIES + EQUITY

Left Side Right Side

BOOKKEEPING NC-3 BOOKKEEPING NC-3

THE ACCOUNTING EQUATION THE ACCOUNTING EQUATION

The general accounting formula is The general accounting formula is

ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES
The general net income formula is

INCOME – EXPENSES = NET INCOME

BOOKKEEPING NC-3 BOOKKEEPING NC-3

THE ACCOUNTING EQUATION THE ACCOUNTING EQUATION

The general accounting formula is ACCOUNTS

ASSETS + EXPENSES = LIABILITIES + EQUITY + INCOME ASSETS + EXPENSES = LIABILITIES + EQUITY + INCOME

Left Side Right Side

BOOKKEEPING NC-3 BOOKKEEPING NC-3

2
 10/01/2021

DOUBLE-ENTRY ACCOUNTING:
THE ACCOUNTING EQUATION
Double-entry accounting is a record keeping in which each business transactions
ACCOUNTS affects at least two accounts.
Left Side Right Side The double-entry system is used because you are entering the transaction amount
twice.

ASSETS LIABILITIES
EXPENSES EQUITY T - ACCOUNT

INCOME The T account, so called because of its T shape, is used to show the increase or
decrease in an account caused by a transaction.
Normal Side Normal Side
Top Account Title
Left side Right side Debit Credit
(debit) (credit)
BOOKKEEPING NC-3

BUSINESS TRANSACTIONS: RULES OF DEBIT AND CREDIT:

Business Transaction is an economic event or condition that directly changes an
entity’s financial condition or directly affects its results of operations.

Debit/s (left side) Credit/s (right side) Rules for Asset Accounts
Value/s received = Values given up Asset Accounts
1. Add (increase) on the same side (debit).
Debit Credit 2. Subtract (decrease) on the opposite side (credit).
Rules of Debit and Credit Increase + Decrease - 3.The normal balance for an asset is a debit balance.
Increase in assets are recorded in the left (debit) side of the account while Balance
decreases in assets are recorded in the right (credit) side of the account.
Conversely, increases in liabilities and owner’s equity are recorded by Credits
while decreases in liabilities and owner’s equity are recorded by Debits. Rules for Liability and Owner’s Equity Accounts
1. Add (increase) on the same side (credit).
Liability/Equity Accounts 2. Subtract (decrease) on the opposite side (debit).
Debit Credit 3.The normal balance for a liability or owner’s equity
Decrease - Increase + account is a credit balance.
Balance

RULES OF DEBIT AND CREDIT: RULES OF DEBIT AND CREDIT:

Rules illustrated…

Rules for Expense Accounts = Asset Accounts

Account Normal Side Debit (DR) Credit (CR)
Asset/Expense Accounts
1. Add (increase) on the same side (debit). ASSETS Debit INCREASE DECREASE
Debit Credit 2. Subtract (decrease) on the opposite side (credit).
Increase + Decrease - LIABILITIES Credit DECREASE INCREASE
3. The normal balance for an asset is a debit balance.
Balance
EQUITY Credit DECREASE INCREASE
INCOME Credit DECREASE INCREASE
EXPENSE Debit INCREASE DECREASE
Rules for Income Accounts = Liability and Owner’s Equity Accounts
1. Add (increase) on the same side (credit).
Liability/Equity/Income Accounts 2. Subtract (decrease) on the opposite side (debit).
Debit Credit 3. The normal balance for a liability or owner’s equity
Decrease - Increase + account is a credit balance.
Balance

3
 10/01/2021

JOURNAL ENTRY

JOURNALIZE

JOURNAL ENTRY STRUCTURE BUSINESS TRANSACTIONS Debit Credit

Left Right
TRANSACTIONS Value/s Received Value/s Given Up
1. J. Cruz, invests P200,000 to start an auto repair
business.

2. Cruz, buys repair equipment on credit, P100,000.

3. Cruz bought Shop Supplies for cash, P62,000.

4. Paid partial on equipment bought on account,

P60,000.

5. Cruz received a bank loan for business use,

P100,000.

ACTIVITY 1 – Indicate the proper account title on the debit and credit.

BUSINESS TRANSACTIONS Debit Credit BUSINESS TRANSACTIONS Debit Credit

Left Right Left Right
TRANSACTIONS Value/s Received Value/s Given Up TRANSACTIONS Value/s Received Value/s Given Up
6. Customers pay cash for auto repair rendered, 11. Billed a customer, P6,000; P2,000 was partially
P25,000. received.

7. Repair services rendered on account, P50,000. 12. Supplies purchased, P15,000 and P5,000 was
partially received.
8. Paid a month’s rent, P10,000
13. Shop Supplies used and paid, P18,000.
9. Cruz collects partial from customers’ account,
P30,000. 14. Cruz withdrew P20,000 for personal use.

10. Cruz pays the salaries and wages of laborers,

P15,000.

Take Home ACTIVITY 1 – Indicate the proper account title on the debit and credit. Take Home ACTIVITY 1 – Indicate the proper account title on the debit and credit.

4
 10/01/2021

LECTURER End of Lecture 2

ALONEY B. SOMIDO, JR.

Email: absomido.jr@gmail.com
Mobile: 0917-157-9347; 0933-861-3298
Landline: (083)302-25-69
FB Msgr: Al Bato Somido Jr.; m.me/aloneysomidojr

Under the guidance of

MS. ARIANE KRISTINE FORTINEZ
Bookkeeping NC-3 Trainor

Thank you!