What I Need to Know

Welcome to this module. In this module you will learn how to record business
transactions, prepare journal entries, post them to the general ledger, make some
adjustments if necessary and prepare trial balance report. This is your tool to keep
track of the operations of your business.

This module is divided into two lessons:

Lesson 1 – Performing Key Bookkeeping Tasks

Lesson 2 – Identifying where there is profit or loss for a business

After reading this module, you should be able to:

1. Understand the basic concepts of bookkeeping;

2. Apply the skills by performing key bookkeeping tasks; and
3. Identify whether the business is profitable or not.
To achieve the above objectives, it is suggested that you have to do the following:

 Read and understand the texts carefully.

 Follow the directions and/or instructions in the activities and exercises
diligently.
 Answer all the given test and activities.
 Lesson
1 Performing Key Bookkeeping
Tasks

What’s In

In the previous lessons, you learned how to prepare a business plan, operate the
business, sell the product, and understood the importance of keeping business
records. Also, you were able to define, understand and compare the organization’s
various departments such as Operation and Administration, Marketing, Production
and Logistics, Finance, etc.

In the succeeding lessons, you will be able to explore by learning the tasks of
a bookkeeper in recording and keeping financial records updated.

What’s New

Activity 1: Getting to know your community’s businesses

A. List down at least 3 businesses that are present in your community.
(ex. sari-sari store).
B. Interview a business or store owner listed in Item A using the
following guide questions:
1. When do you record your sales and expenses?
2. Where do you record your sales and expenses?
3. How do you record your sales and expenses?
4. When do you compute your income?
5. How do you compute your income?
6. Did you employ the services of a bookkeeper? Why not?
7. What are your bases when making business decision?
(decisions like buying more goods to sell and the likes).
 What Is It

Definition of Terms
TERM MEANING
The process of recording business transactions in
a
systematic and chronological manner. It is systematic
Bookkeeping because it follows procedures and principles. It is
chronological because the transactions are recorded in order
of the date of occurrence.
The person who is in-charge to record, maintain and update
business records from all sorts of financial transactions using
Bookkeeper
account title. The bookkeeper uses the Book of Accounts to
record the business transactions.
The book of accounts is composed of the Journal and
Book of Accounts
Ledger.
Journal Referred to as the book of original entry
Ledger Referred to as the book of final entry.
is the most basic journal which provides columns for date,
General Journal account titles and explanations, folio or references and a
separate column for debit and credit entries.
is a group of all accounts that can be found in the chart of
accounts. These accounts will be reflected in the trial balance
General Ledger
as a summary of all financial activities that have taken place as
recorded in the general journal and subsidiary ledgers.

Depicted in Figure 1 below is a sample format of a general journal:

 Figure 1 – General Journal

Sample General Journal Transaction and Entry:

On June 25, 2020, ABC Laundry Co. rendered laundry services to JJV Hotel in
Makati for P5,000. The customer paid in cash.

GENERAL JOURNAL PAGE 1

POST
.
REF. CREDI
DATE PARTICULARS DEBIT T
1 June 25 Cash 5,000
2 Service Income 5,000
3 To record the receipt of cash from JJV
Hotel for the services rendered

Depicted in Figure 2 below is a sample format of a general ledger:

Figure 2 – General Ledger

is a group of accounts directly associated with the general

ledger. This record is created to maintain individual
Subsidiary
accounts for customers and vendors whose cash is not
Ledger
being used as a medium of exchange when purchasing or
selling merchandise.
 Depicted in Figures 3 and 4 below are sample formats of a subsidiary ledger
showing Accounts Receivable and Accounts Payable respectively:

Accounts Receivable

Buyer/Customer: Veggies Trading 11

Figure 3 – Accounts Receivable Ledger

Figure 4 – Accounts Payable Ledger

The accounts receivable ledger is a sub-ledger which records

all credit sales made by a business. It is useful for
Account segregating into one location a record of all amounts
Receivable invoiced to customers. A typical transaction entered into the
accounts receivable ledger which records all account
Ledger
receivables, followed at a later date by a payment
transaction from a customer that eliminates the accounts
receivable. More importantly, it is a subsidiary ledger which
records a customer’s accounts in the business.
An accounts payable ledger contains the detail for all invoices
received from suppliers. This ledger is used as a subsidiary
ledger, from which summary-level information is periodically
Account Payable posted to the general ledger. Having a separate accounts
Ledger payable ledger keeps a large amount of detailed
payables transactions from cluttering up the general ledger.
The left-hand side entry also known in accounting as “Value
Received.” When cash or non-cash items are received, the
Debit said cash or non-cash items must be recorded in the debit
column. This means that the debit balance has increased.
The right-hand side entry also known in accounting as “Value
Parted With.” When cash or non-cash items are given, the said
Credit cash or non-cash items must be recorded in the credit column.
This means that the credit balance has increased.
The Rules of Debit and Credit

In the process of journalizing business transactions, the rules of Debit and Credit are
essential to ensure accurate recording and sound decision making. Debit is abbreviated
as DR while CR for Credit. Further, it is deemed a requirement that the bookkeeper
should be able to master the normal balance of each account title being used in the
process of recording.

The following steps will be undertaken in determining account balances for every
account title such as cash, account receivable, etc.:
1. Add all the debit side to generate total debit
2. Add all the credit side to generate total credit.
3. Subtract total debit to the total credit.
4. Determine the balance of each account.
The most convenient and fastest way of
posting journal entries to the ledger is by
way of using “T” Account. A T- Account
is divided into two sides. The left-hand
side is called the debit side and the
right-hand side is called the credit side.
T- Account
The left-hand or debit side shows the
value received while the right-hand side
shows the value parted with. This is
called T Account because it resembles
the capital letter “T.” An account title is
written above the T- account.

Depicted in figure 5 below is a T-account and its description:

ACCOUNT TITLE

Left-Hand Side Right-Hand Side

or Debit Side or Credit Side
is for is for
VALUE VALUE
RECEIVED PARTED WITH
 Figure 5: T - Account

Sample of General Journal entry and T- Account:

GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
1 Dec. 1 Cash 200,000
2 Service Income 200,000
To record the receipt of cash for the
3
services rendered
Posting the journal entry to the T – Account:

To strengthen your understanding about posting of journal entries to the general

ledger, it is suggested to create T– Account and label them with the account title and
group them according to Assets, Liabilities, Owner’s Equity, Revenue and Expense.

It is the first account of the five major accounts which refers to

resources with economic value that an individual, corporation,
or country owns or controls with the expectation that it will
provide a future benefit. An asset represents an economic
Asset resource for a company or represents access that other
individuals or firms do not have. An economic resource is
something that is scarce and has the ability to produce
economic benefit by generating cash inflows or decreasing
cash outflows.
 It is the second account of the five major accounts which refers
to something a person or company owes, usually a sum of
money. Liabilities are settled over time through the transfer of
economic benefits including money, goods, or services.
Liability
Liabilities include loans, accounts payable, mortgages, deferred
revenues, and accrued expenses. In general, a liability is an
obligation between one party and another not yet completed or
paid for. It is the third account of the five major accounts which
refers to as shareholders' equity (or owner’s equity for privately
held companies). Owner’s equity is a degree of residual

Owner’s Equity ownership in a firm or asset after subtracting all liabilities

associated with that asset.

It is the fourth account of the five major accounts which refers

to money brought into a company by its business activities.
Revenue is commonly known as service income or fees,
Revenue sales, and sales discount.
It is the fifth and last account of the five major accounts which
refers to the cost of operations that a company incurs to
generate revenue. Common expenses include payments to
suppliers, employee wages, factory leases, and equipment
Expense
depreciation.

Depicted in Figure 6 below is a matrix of normal debit and credit balances

of the Five Major Accounts:

ACCOUNT TYPE DEBIT CREDIT

Assets
Liabilities
Owner’s Equity
Revenue
Expenses

Figure 6 - Matrix of Normal Debit and Credit Balances

of Five Major Accounts
In order to fully understand the concept of debit and credit balances, depicted in
Figure 7 below is a matrix of normal debit and credit balances under each of the five
major accounts:

Figure 7 - Matrix of Normal Debit and Credit Balances

of Sub-Accounts

Now, let us go through the concept of bookkeeping by recording and posting

financial transactions using the books of accounts and T Accounts, respectively.
Illustration on Rules of Debit and Credit
Acquiring Equipment or Supply:

XYZ Company purchased ten (10) latest models of Samsung cellular phones
for the company’s staff to be given as Christmas giveaways, for a total amount of P
350,000.00.
Entry: Accounttitle Amount
Debit (Value Received) Samsung Cellphone P350,000.00
Credit (Value Parted With) Cash P350,000.00

Analysis: The debit side represents the item (Samsung Cellphone) with the amount
of P350,000.00 received in exchange of the item given up. The credit side represents
the item (Cash) with amount (P350,000.00) given up.
In the books of XYZ Company, the nature of acquisition of cellphones is for
Christmas giveaways. The entry debited to Christmas Giveaways must be charged to
an expense account. Thus, it will increase the Expense-Christmas Giveaways balance
because the latter’s normal balance is debit. Meanwhile, the Asset-cash will decrease
because in this transaction, Cash was credited.

Investing Capital in the Business:

Ms. Izabelle Neri, a new graduate in business management started a

merchandising business with trade name “The IN Store”. She put up a total cash
amounting to P500,000.00 to construct an office and acquire necessary equipment
and supplies.
Entry: Account Title Amount
Debit (Value Received) Cash P500,000.00
Credit (Value Parted With) Ms. Neri, Capital P500,000.00

Analysis: The debit side represents the item (Cash) with amount (P500,000.00)
received in exchange of the item given up. The credit side represents the purpose
(Capital) of the transaction with the amount (P500,000.00) given up.
In the books of XYZ Company, the entry debit to cash will increase the cash balance
because the cash itself has a normal debit balance. Consequently, the entry
credit to Capital Account – Neri, Capital will increase the capital balance because
the latter’s normal balance is credit.
Sales/ Service Income Transactions:
Goblin Computer Shop, rendered computer repair services to DN University
amounting to P10,000 for cash.
Entry: Account Title Amount
Debit (Value Received) Cash P10,000.00
Credit (Value Parted With) Service Income P10,000.00

Analysis: The debit side represents the item (Cash) with amount (P10,000.00)
received in exchange of the item given up. The credit side represents the purpose
(Sales/Service) of the transaction with amount (P10,000.00) given up.
In the books of Goblin Computer Shop, the entry debit to cash will increase the
cash balance because the cash itself has a normal debit balance. Consequently,
the entry credit to Revenue - Service Income will increase the revenue balance
because the latter’s normal balance is credit.

Purchase on Account Transaction:

Goblin Computer Shop purchased office supplies amounting to P5,000 from ABC
Corp. on account. The account will be paid next month.
Entry: Account Title Amount
Debit (Value Received) Office Supplies P5,000
Credit (Value Parted With) Accounts Payable 5,000

Analysis: The debit side represents the item (OS) with amount (P5,000) received in
exchange of the promise to pay. The credit side represents the nature (credit) of the
transaction given up.
In the books of Goblin Computer Shop, the entry debit to Office Supplies will
increase the Asset-Office Supplies balance because the office supplies itself has a
normal debit balance. Consequently, the entry credit to Liability-Accounts Payable
will increase the liability balance because the latter’s normal balance is credit.

Trial Balance
Trial balance is a list of all ledger accounts with closed or final balances on a
certain period arranged according to the assets, liabilities, capital, revenue and
expense. The debit and credit columns must be equal in total amount. This is the first
report prior to financial statement preparation.

Bookkeeping Practice Set 1: Identifying and recording a business

transaction using the General Journal

Directions: Below are business transactions of a service-type business. All

transactions were already recorded in the general journal. All you have to do is to follow
the process and study how the transactions are being recorded in the general journal
by means of journal entry applying the rules of debit and credit. The account titles used
in the journal entries are found in the chart of accounts below.
Depicted in Figure 8 below is the chart of accounts of Alpha Laundry Services.

Figure 8 – Chart of Accounts

Let’s Begin!

Mr. Denver Ambrose, a retired public school teacher, started his laundry business in
the beginning of June 2018. He used all of his savings to start a “coin- operated”
laundry business. He named it Alpha Laundry Services (ALS). The following are the
business transactions for the month of June 2018, the first month of business
operation:
1. June 1, 2018 - Mr. Ambrose invested P 200,000.00 cash in his newly opened Alpha
Laundry System business.

Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
1 June 1 Cash 200,000.00
2 Mr. A Capital 200,000.00
3 To record the initial Capital
investment of Mr. A.

2. June 2, 2018 - Mr. A hired his former classmate, Doree Dy, to be the Laundry
Operator of ALS for a fixed monthly salary of P10,000.00. The operator will be paid
every quencina.
EXPLANATION: No entry will be made in this transaction because there was neither
inflow or outflow of cash or an exchange of assets that have monetary value.

3. On June 5, 2018 – Alpha Laundry Systems purchased laundry equipment for cash,
P150,000.00
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
4 June 5 Laundry equipment 150,000.00
5 Cash 150,000.00
6 To record the acquisition of
Laundry equipment

4. On June 6, 2018 – Alpha Laundry Systems paid cash in advance for the 1-year
insurance coverage of laundry equipment amounting to P6,000.00. Monthly
insurance expense will be recognized for each month’s end report.
 Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
7 June 6 Prepaid Insurance 6,000.00
8 Cash 6,000.00
9 To record the prepaid Insurance for the
Laundry equipment

5. On June7, 2018–Alpha Laundry Systems bought supplies for laundry amounting to

P10,000.00. The supplies bought are laundry consumables such as detergent powder,
soap bar and fabric softener. Monthly inventory will be conducted to determine unused
supplies and will be recognized for each month end report.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
10 June 7 Laundry supplies 10,000.00
11 Cash 10,000.00
12 To record the acquisition of
laundry consumables

6. On June 15, 2018 – Alpha Laundry Systems paid P4,750 cash for salary of laundry
operator.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
13 June 15 Salaries and wages 4,750
14 Cash 4,750
15 To record the payment of Laundry
operator’s salary

7. On June 16, 2018 – Alpha Laundry Systems received P25,000.00 cash for laundry
services rendered to MZ Hotel.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
16 June 16 Cash 25,000.00
17 Laundry Income 25,000.00
18 To record the payment received from
MZ Hotel.

8. On June 17, 2018 – Alpha Laundry Systems rendered service to Argon Hotel
amounting to P45,000.00. Argon promised to pay on June 20 of the same year.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
19 June 17 Accounts Receivable 45,000.00
20 Laundry Income 45,000.00
21 To record the service rendered to Argon
Hotel

9. On June 18, 2018, Alpha Laundry Systems purchased office supplies from Ku
Enterprises amounting to P2,000.00 on account. ALS will pay it on June 25 of the
same year.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
22 June 18 Office supplies 2,000.00
23 Accounts Payable 2,000.00
24 To record the acquisition of Office
Supplies on account from Ku
Enterprises

10. On June 20, 2018, Alpha Laundry Systems collected payment from Argon Hotel.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
25 June 20 Cash 45,000.00
26 Accounts Receivable 45,000.00
27
To record the full payment from Argon
Hotel

11. On June 25, 2018, Alpha Laundry Systems paid in full the amount owed to Ku
Enterprises.

Journal Entry:
GENERALJOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
28 June 25 Accounts Payable 2,000.00
29 Cash 2,000.00
30 To record the full payment of account to
Ku Enterprises

12. On June 27, 2018, Alpha Laundry Systems paid electric bill for the month
amounting to P1,000.00 in cash. The payment is charged to Utility expense
account.

Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
31 June 27 Utilities expense 1,000.00
32 Cash 1,000.00
33 To record the payment Electricity for the
month

13. On June 30, 2018, Alpha Laundry Systems paid a month’s transportation expense
amounting to P1,300.00.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
34 June 30 Transportation expense 1,300.00
35 Cash 1,300.00
36 To record the payment of transportation
for the month.

14. On June 30, 2018, Alpha Laundry Systems paid P5,000 cash for salary of laundry
operator.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
37 June 30 Salaries and Wages 5,000.00
38 Cash 5,000.00
39 To record the payment Laundry
operator’s salary.

15. On June 30, 2018, Alpha Laundry Systems paid P7,500 cash for the month’s rent
for laundry space.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
40 June 30 Rent expense 7,500.00
41 Cash 7,500.00
42 To record the payment of rent for
Laundry space.

The total debit and credit columns of the general journal should always be equal.
Otherwise, the general journal balances will affect overall accuracy of the entire
financial report. The error should be properly corrected before the next step in the
recording process takes place.
 Bookkeeping Practice Set 2: Posting journal entries to the General Ledger using
T - accounts.

Directions: In this activity, you are supposed to do the posting of general journal
entries to the general ledger using the T-Accounts technique. The
following are suggested activities before posting journal entries to T-
Accounts:
1. Group account titles according to the Five Major Accounts.
2. Determine the normal balance of each account title by referring to the
normal balance matrix.
3. Record transactions in sequential order or apply the “First-entry, First-
record” system.
4. After all journal entries are recorded, compute the debit and credit
totals of all accounts. Compute for the running balance.
Example: 1) Cash account (normal balance is debit):
Total Cash-Debit P270,000.00
Less: Total Cash-Credit 187,550.00
Outstanding Cash Balance P 82,450.00
=========
2) Laundry Income/revenue (normal balance is credit):
Total Accounts Payable-Credit P 2,000 .00
Less: total Accounts Payable-Debit 2,000.00
Outstanding Accounts Payable Balance P 0
=========

After performing the T-Accounts, outstanding balances of each account under

Assets, Liabilities, Capital, Revenue/Income and Expenses can now be determined.
Given below are T–Accounts for all ledger accounts group according to the five major
accounts.

ASSETS
 LIABILITIES OWNER’S EQUITY

REVENUE EXPENSE

Bookkeeping Practice Set 3: Preparing Trial Balance

Directions: In this activity, you are tasked to prepare a trial balance for ALS. The
period covered is June 2018. Use the T–Account presented in Bookkeeping Practice
Set 2.
The following are suggested activities in preparing trial balance report:
1. Pick up all account balances of cash, accounts receivable up to the last
account.
2. Copy them in the designated account title in the trial balance report (un-
adjusted trial balance) following its account normal balances.
3. Compute for the total debit and credit balances. The debit amount should
be equal to the credit.
It should be noted that all transactions have already been recorded in the general
journal and general ledger. All you have to do is to follow the process and study how
the transactions are being recorded in the working paper to prepare the Trial Balance
report by applying the rules of debit and credit.
Depicted below is a trial balance report of Alpha Laundry Services for the period
ended, June 30, 2018.

Figure 7 – Trial Balance of ALS

As you can observe, the accounts reflected in Figure 7 above are arranged
according to the proper placement of the five major accounts. The Assets,
Liabilities, Owner’s Equity, Revenue and Expense accounts.
 What’s More

Having completed the Trial Balance report is not yet the end of a
bookkeeper’s responsibility. The bookkeeper’s responsibility will only end when the
business has closed its books of accounts. The books of accounts of a business will
be closed at the end of the business’s calendar or fiscal year. The calendar year
always begins in January 1 and ends on December 31 of the same year. While the
fiscal year begins at any month of the year and ends on the 12th month of the following
year. All business activities (financial in nature) should be recorded in the books of
accounts even when the financial reports have already been prepared. Business
activities or transactions that were not included in the financial reports will be recorded
to reflect necessary adjustments.

What is an Adjusting Entry?

Adjusting entry is an entry made to update the financial data already recorded. Making
an adjusting entry helps the bookkeeper capture all financial events that happened
over a period of time with in the accounting cycle. It is essential in keeping the financial
record updated. The bookkeeper is going to look or examine accounts that needs to be
updated. Outlined below are the five basic sources of adjusting entries:

1. Depreciation expense
2. Deferred expenses of prepaid expenses
3. Deferred income of unearned income
4. Accrued expenses of accrued liabilities
5. Accrued income or accrued assets

1. Depreciation
This is a method of allocating the cost of an asset to an expense over the
accounting periods that make up the asset’s useful life. Examples of assets
subject to depreciation are: Store, Office, Building, and Transportation
Equipment. These types of assets lose their ability to provide useful service as
time passes. Depreciation can also be referred to as the decrease in the
usefulness of these types of assets. Take note that Land is not subject to
depreciation because the value of land mostly increases as time passes.
There are several methods or formulas to compute the amount of depreciation.
The simplest is the straight-line method.

The formula:

Annual Depreciation = Acquisition Cost – Salvage or Residual Value

Useful Life
Where:

 Acquisition Cost – the actual cost of the asset acquired.

 Salvage Value – the selling price of the asset upon reaching the
useful life.
 Useful Life – is the economic or productive life of the asset written
in months or years.

2. Deferred expenses or prepaid expenses. These are items that have been
initially recorded as assets but are expected to become expenses over time
or through the operations of the business. In order to recognize the correct
amount of expenses, prepayments shall be amortized weekly, semi-monthly
or monthly, depending on its nature and purpose.
3. Deferred income or unearned income. These are items that have been
initially recorded as liabilities but are expected to become income over time or
through the operations of the business.
4. Accrued expenses or accrued liabilities. These are items of expenses that
have been incurred but have not been recorded and paid.
5. Accrued income or accrued assets. These are income items that have been
earned but have not been recorded and paid by the customer. In short, these
are receivables of the business.

Bookkeeping Practice Set 4: Record adjusting journal entries in the

General Journal.
Directions: Let’s take a look at Alpha Laundry Services’ transaction that transpired
after the Trial Balance have been prepared. In this activity, you are tasked to do the
following:
1. Identify accounts that need to be adjusted.
2. Prepare adjusting journal entries in the General Journal.
It should be noted that all transactions have already been recorded in the general
journal. All you have to do is to analyze and follow the process on how the transactions
are being recorded and forwarded using the T-Accounts applying the rules of debit and
credit.

1. Depreciation of Equipment
The laundry equipment, which was purchased by ALS on June 5, 2018 at
P150,000.00 has an estimated useful life of 5 years with a salvage value of
P10,000.00. Compute for the monthly depreciation to be charged as
depreciation expense and will be deducted against the cost to get the net book
value of the laundry equipment. Required: Compute for the monthly
depreciation using straight-line method.
Adjusting Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
43 June 30 Depreciation Expense 2,333.33
44 Accumulated Dep’n-Laundry Eqt. 2,333.33
45 To recognize the depreciation expense
for the month of June.

Formula: P150,000 –10,000 = 2,333.33

5 Years

2. Prepaid Insurance
The insurance paid for Laundry equipment is P6,000.00. An expired portion of the
insurance in the amount of P500.00 is determined by dividing the prepayments over
12 months (P6,000.00 / 12 months). The expired portion will be charged to
expense. This will reduce the value of prepaid insurance balance.
Required: Compute for the expired portion of the insurance.

To compute for the expired portion of the insurance:

Formula: Insurance Cost P6,000 = P 500

Term of Coverage = 12 months =====
(No. of Months)

Prepaid Insurance P 6,000

Less: Expired Portion (June) 500
Un-expired Portion P 5,500
 Note: The expired portion is charged to expense (insurance expense). The un-
expired portion will be reported in the balance sheet as the new prepaid
insurance account balance for the next month.
Adjusting Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
46 June 30 Insurance Expense 500.00
47 Prepaid Insurance 500.00
48 To recognize the expired portion of the
prepaid insurance.

3. Deferred expenses for supplies inventory. At the end of the month, unused
supplies were recorded to be P3,000.

Note: The used supplies are charged to expense (supplies expense). The unused
portion will be reported as the new supplies inventory balance for the next month.

Adjusting Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
49 June 30 Laundry Supplies Expense 7,000.00
50 Laundry Supplies 7,000.00
51 To recognize the used portion of the
Laundry supplies consumables

Formula to compute for the used supplies:

Supplies at Cost P10,000.00
Less: Unused Supplies 3,000.00
Used Supplies P 7,000.00

Bookkeeping Practice Set 5: Posting the adjusting entries in the General

Ledger by using T – Account.

Directions: In this activity, you are tasked to do the following:

1. Using the completed adjusting journal entries in the general journal, update
the General Ledger records by adding or subtracting the affected accounts.
It should be noted that all transactions have already been recorded in the general
ledger. All you have to do is to follow the process and study how the transactions are
being computed and posted by means of applying the rules of debit and credit.

ASSETS

LIABILITIES

OWNER’S EQUITY

REVENUE
 EXPENSE

Bookkeeping Practice Set 6: Preparing Adjusted Trial Balance.

Directions: In this activity, you are tasked to do the following:

1. Transfer the adjusting journal entries from the general journal to the
adjustments’ column in the working paper (highlighted in yellow color).
2. Update the balance of all ledger accounts and transfer the balance to form
adjusted trial balance (highlighted in blue color).
3. Compute for the total debit and credit balances (highlighted in green color).
It should be noted that all transactions have already been recorded in the general
journal. All you have to do is to follow the process and study how the transactions are
being recorded in the working paper by means of adjusting journal
entry applying the rules of debit and credit.
 Lesson Identifying Where There Is A
Profit Or Loss For A Business
2

What’s In

Profitability has always been the bottom line of a business. In reporting accurate
financial information, the bookkeeper and the bookkeeping systems take the significant
roles. Accurate financial reports will enable sound decision making.
In identifying the profit or loss of a business, the bookkeeper must record all transactions
that have monetary value. These records will then be converted into key financial reports.
Key financial reports are composed of statement of financial position (balance sheet),
statement of comprehensive income (income statement), statement of
cashflows, and statement of changes inequity. These reports are discussed in the ABM
specialized subject, Fundamentals of Accountancy, Business and Management 2.

What’s New

In computing for the Net Income or net earnings, a bookkeeper must consider the type
of business that his/her company is engaged. Below is a matrix of the type of business
organizations and the different types of revenues, cost and expenses to be considered.

Types of Business Revenue Type Cost / Expenses Type

-Service Income
Service-Concerned -Service Fee - General & Administrative
-Membership Fee Expense
- Sales Returns and Allowances
Merchandising-Concerned Sales - Cost of Sales
- General & Administrative
Expense
- Sales Returns and Allowances
- Cost of Good Manufactured
Manufacturing Sales
- Fixed or Variable Costs
- General & Administrative
Expense
 For simplicity purposes, this module will tackle the service-concerned business in
illustrating the process of computing net income.

Below is the basic equation for computing net income of a service-concerned

business:

Net Income/Loss = Service Income - Total Expenses

Activity 1 – Computing Net Income or Net Loss, Collectibles and Expenses

Directions: Apply the basic equation of income statement written above and answer
the questions bellow.
GIN Janitorial and General Services, Inc. is a company engaged in providing
janitorial services to different business establishments in the city. The following financial
data reveals the income and expenses records during the last quarter of 2018:
Revenue / Service Income:
Service rendered – on account (Deluxe Hotel) P 95,000.00
Service rendered – Cash (Maxandria Hotel) 145,000.00
Service rendered – on account (Pearlmont Inn) 25,000.00
Service rendered – Cash (Mallberry Suites) 105,000.00
Service rendered – Cash (VIP Hotel) 65,000.00
Service rendered – on account (Dynasty Court Hotel) 75,000.00
Service rendered – on account (Grand City Hotel) 60,000.00
P570,000.00
TOTAL

Salaries and Wages of Employees:

Janitor’s Salary– Total P 95,000.00 Management Staff
Salary – Total 45,000.00 General Manager’s salary–
Total 70,000.00

TOTAL P210,000.00

Operating and Administrative Expenses:

Utilities Expenses P 15,000.00
Rent Expense 15,000.00
Repairs and Maintenance 7,500.00
Transportation and Communications 4,500.00

TOTAL P 42,000.00
 The owner of the business wants to know the operations of the business. You
are tasked to compute for the following:
1. Total service income collected in cash
2. Total service income still collectible
3. Total expenses
4. Net income of GIN Janitorial and General Services, Inc.

What is It

Discussion of Activity 1

A wise businessman always monitors the operations of his business in order to render
timely and sound decisions. One of the many ways to track down the operations of the
business is to check the status of its income generating activities on a periodic basis. A
trend must be established so that when the profitability path deviates, a timely decision
would be made.
In Activity 1, the financial information reported is enough for a bookkeeper to
compute the net income, total expenses and the collectible amount. Cash and non-
cash service income should be split in order to have a proper recording of the cash
on
hand and the collectibles. In applying the basic equation of income statement, the
following re-grouping is suggested:

Service Income (Cash) P xxx

Less: Operating and Administrative Expense xxx
Add: Salaries and Wages xxx xxx
Net Income / Loss P xxx
======
 What’s More

ACTIVITY 2: Preparing Personal Income Statement

Directions:
 Write your monthly allowance (computed by daily allowance x number
of days in a month). Compute the total.
 Write the amount you spend on food, transportation, phone load, etc.
(make it monthly to match your allowance). Compute the total.
 Deduct the total amount you spend from the total amount of your
allowance.
 Associate allowance with revenue and spending with expense with the
net amount as net income.

Materials Needed:
 Pen
 1 whole sheet of paper (a long-sized bond paper is ok)
 Calculator

What I Have Learned

Essay: Answer the following questions in a separate sheet of paper or a long- sized
bond paper.
1. If you are engaged in business, illustrate how revenue or income are made.
2. If you are engaged in business, illustrate how an expense is made.
3. If you are the owner of the business, is payment of employee salaries an
expense? Why?
4. Compare revenue to income. Illustrate an example If necessary.
5. Explain the process of computing the Net Income or net loss.

Rubrics for Grading the Answers:

5- If the paragraph consists of 5 or more sentences with correct and complete Information.
4- If the paragraph consists of 3 to 4 sentences with correct information. 3- If the paragraph
consists of 2 to 3 sentences with correct information. 2- If the paragraph consists of 2
sentences with correct information. 1- if the paragraph consists of only one sentence with
correct in formation.