AC C OU N T I N G

CYCLE
 The accounting cycle is the
holistic process of recording and
processing all financial
transactions of a company, from
when the transaction occurs, to its
representation on the
financial statements, to closing
the accounts.
 One of the main duties of a
bookkeeper is to keep track of the
full accounting cycle from start to
finish. The cycle repeats itself
every fiscal year as long as a
company remains in business.
Steps in the
Accounting Cycle
Steps in the Accounting Cycle
1. Identify transactions
First, separate your business
transactions from all of the transactions
you made. You only want to include
transactions related to your company in
your financial records. For example, you
won’t record your grocery bill as a
business expense in your books.
Steps in the Accounting Cycle
1. Identify transactions
Use source documents to identify
business transactions, such as receipts
and invoices. Save these kinds of
financial documents to support your
records. As you identify business
transactions, decide which account they
fall under.
Steps in the Accounting Cycle
2. Record transactions in your
journal
The journal is where you initially
record business transactions. It is a
running list of financial activities, like a
checkbook. Track transactions in your
journal chronologically as they happen.
Steps in the Accounting Cycle
2. Record transactions in your
journal
If you use double-entry
bookkeeping, record two entries for each
transaction. Enter a debit for one
account and a credit for another. The
debit and credit should be equal.
Steps in the Accounting Cycle
3. Post entries to the general
ledger
The general ledger is also known as
the book of final entry. General ledger
entries are changes made to each
account in your books. Using your
journal, organize transactions into
different accounts.
Steps in the Accounting Cycle
3. Post entries to the general
ledger
For example, if a customer paid for
a product with cash, enter the
transaction under the cash account in
your books.
Steps in the Accounting Cycle
4. Unadjusted trial balance
For your books to be accurate, the
debit and credit entries must be equal.
Use an unadjusted trial balance to test if
your debits and credits match.
Steps in the Accounting Cycle
4. Unadjusted trial balance
Make a note of each account
balance. Add all the debit balances
together and all the credit balances
together. If the two totals are not the
same, you might have an error in your
books. Or you might need to make
adjusting entries.
Steps in the Accounting Cycle
5. Adjusting entries
At the end of an accounting period,
you might have incurred expenses but
not paid for them yet. And, you might
have earned income but not collected it
yet. Use adjusting entries to recognize
transactions that have occurred but not
been recorded.
Steps in the Accounting Cycle
5. Adjusting entries
For example, you earned interest on
a bank account balance. You have not
recorded the interest in your books, but it
appears on your bank statement. Use an
adjusted entry to recognize the interest
in your books.
Steps in the Accounting Cycle
6. Adjusted trial balance
Do an adjusted trial balance after
making adjusting entries and before
creating financial statements. This step
tests to see if the debits and credits
match after making adjusting entries.
Steps in the Accounting Cycle
7. Create financial statements
Once your accounts are up-to-date,
create statements. The following are
common financial statements for small
business:
Steps in the Accounting Cycle
1. Income Statement / Statement of
Comprehensive Income
2. Balance sheets / Statement of
Financial Position
3. Capital Statement / Statement of
Changes in Equity
4. Statement of Cash Flow
5. Notes
Steps in the Accounting Cycle
7. Create financial statements
Use your financial statements to
measure performance, make
improvements, and set goals. You can
also use statements to talk with lenders
and negotiate terms with vendors.
Steps in the Accounting Cycle
8. Close your books
The final step in the accounting
cycle is to close your accounting books.
Closing your books wraps up financial
activities for the period. Do tasks like
updating accounts payable, reconciling
accounts, reviewing your petty cash
fund, and counting inventory.
Steps in the Accounting Cycle
8. Close your books
When you close your books, you
should get your accounting set up for the
next period. Decide which processes are
moving your business forward. Create a
calendar for completing future tasks. File
any financial documents from the last period
and get rid of old documents that are no
longer useful.
I. JOURNALIZING
 The journal is the accountant’s
tool in recording the day-to-day
transactions. It is called the book
of original entry, where the
accountant records first the
business transactions that occurred
in the business. The recording of
business transactions is in
sequential form.
Format and Information in
Journal
1. Date.
Enter the date when the
transaction occurred. The year and
month may be omitted if the
transaction occurred in the same
year and month.
Format and Information in
Journal
2. Account Titles and
Explanation.
First, enter the account to be
debited. It must be located at the
extreme left of the first line, while the
account to be credited must be located
at the next line which is slightly
indented. A brief description of the
transaction is usually made on the line
below the credit. Generally, skip the line
Format and Information in
Journal
3. P.R. (Posting Reference).
The chart of accounts provides
account numbers for each account
title. The accountant will enter
those account numbers in this
column once the account titles are
used in a journal entry.
Format and Information in
Journal
4. Debit.
The amount to be debited is
entered in this column.
Format and Information in
Journal
5. Credit.
The amount to be credited is
entered in this column.
The example below shows a journal
entry.
GENERAL JOURNAL
Account Titles and
Date P.R. Debit Credit
Explanations
2019
Cash 101 P 100,000
Dec. 1

Padilla, Capital 301 P 100,000

To record initial
Investment.
Another example of a journal entry.

GENERAL JOURNAL
Account Titles and
Date P.R. Debit Credit
Explanations
2019
Cash 101 P 100,000
Dec. 1

Padilla, Capital 301 P 100,000

To record initial
Investment.
 A simple journal entry is a
journal entry which has one debit
account and one credit account.
The example below shows a simple
journal entry.
GENERAL JOURNAL
Account Titles and
Date P.R. Debit Credit
Explanations
2019
Accounts Payable 201 P 50,000
Dec. 1

Cash 101 P 50,000

To record
payment of loans.
 A compound journal entry
is a journal entry with more than
one debit account or more than
one credit account, or both.
The example below is a compound
journal entry.
GENERAL JOURNAL
Account Titles and
Date P.R. Debit Credit
Explanations

2019
Equipment 105 P 50,000
Dec. 1

Cash 101 P 25,000

Notes Payable 202 P 25,000

To record acquisition of
equipment, 50% cash, 50 %
notes payable.
 After the identification and
measurement of the transactions
or events, the next step is to
record them in a journal. The chart
of accounts will be provided for
reference in P.R. portion of the
journal. For you to better
understand the lesson, an analysis
is provided on the next slide.
 Always remember that for each
journal entry, two or more accounts
are always affected by each
transaction. The sum of the debits
must be equal to the sum of the
credits for each transaction and the
equality of the accounting equation
must always be maintained.
 For better understanding, look at
the examples on the next slides:

The transaction covered the month of

July 2019 of Pamilya Services, a
photocopying business by Mahal K.
Pamilya.
July 1 - Mr. Pamilya invested
P30,000 cash and service
equipment worth P30,000 in the
business.
Analysis:
Increase in Cash P 30,000 Debit
Asset:
Increase in Service P 30,000 Debit
Asset: Equipment
Increase in Pamilya, P 60,000 Credit
Owner’s Capital
Equity:
 GENERAL JOURNAL Page 1
Account Titles and
Date P.R. Debit Credit
Explanations

2019
Cash 101 P 30,000
July -1
Service Equipment 104 30,000

Pamilya, Capital 301 P 60,000

To record initial
Investment.
July 1 – The business obtained a
loan from RDS Bank worth
P50,000.
Analysis:

Increase in Cash P 50,000 Debit

Asset:
Increase in Loans Payable P 50,000 Credit
Liability:
 GENERAL JOURNAL Page 1
Account Titles and
Date P.R. Debit Credit
Explanations

2019
Cash 101 P 50,000
July -1
Loans Payable 202 P 50,000
To record loan
from RDS Bank.
July 2 – He bought office supplies
for P10,000 cash.
Analysis:

Increase in Supplies P 10,000 Debit

Asset:
Decrease in Cash P 10,000 Credit
Asset:
 GENERAL JOURNAL Page 1
Account Titles and
Date P.R. Debit Credit
Explanations

July - 2 Supplies 103 P 10,000

Cash 101 P 10,000

To record
purchased of supplies.
July 10 – Mr. Pamilya hired one personnel with
a weekly salary of P1,000 to look after the
business.

There is no need to journalize this transaction

since this is a non-business transaction. It
does not have an effect on assets, liabilities,
equity, revenues or on expenses.
July 10 – The business paid
P1,000 for the weekly salary of the
employee.
Analysis:

Decrease Salaries P 1,000 Debit

Owner’s Expense
Equity:
Decrease in Cash P 1,000 Credit
Asset:
 GENERAL JOURNAL Page 1
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 10 Salaries Expense 502 P 1,000

Cash 101 P 1,000

To record payment
of salary.
July 16 – He received P8,000
cash for services rendered.
Analysis:

Increase in Cash P 8,000 Debit

Asset:
Increase in Service P 8,000 Credit
Owner’s Revenue
Equity:
 GENERAL JOURNAL Page 2
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 16 Cash 101 P 8,000

Service Revenue 401 P 8,000

To record cash
received for services
rendered.
July 17 – The business paid
P1,000 for the weekly salary of the
employee.
Analysis:

Decrease in Salaries P 1,000 Debit

Owner’s Expense
Equity:
Decrease in Cash P 1,000 Credit
Asset:
 GENERAL JOURNAL Page 2
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 17 Salaries Expense 502 P 1,000

Cash 101 P 1,000

To record payment
of salary.
July 21 – He billed a customer
P2,000 for services rendered on
account.
Analysis:

Increase in Accounts P 2,000 Debit

Asset: Receivable
Increase in Service P 2,000 Credit
Owner’s Revenue
Equity:
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 21 Accounts Receivable 102 P 2,000

Service Revenue 401 P 2,000

To record
customers billed for
services rendered.
July 24 – The business paid
P1,000 for the weekly salary of an
employee.
Analysis:

Decrease in Salaries P 1,000 Debit

Owner’s Expense
Equity:
Decrease in Cash P 1,000 Credit
Asset:
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 24 Salaries Expense 502 P 1,000

Cash 101 P 1,000

To record payment
of salary.
July 27 – Mr. Pamilya withdrew
P500 from the business
Analysis:

Decrease in Pamilya, P 500 Debit

Owner’s Drawings
Equity:
Decrease in Cash P 500 Credit
Asset:
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 27 Pamilya, Drawings 302 P 500

Cash 101 P 500

To record owner’s
withdrawal.
July 28 – He collected P2,000
which is the amount billed to a
customer.
Analysis:

Increase in Cash P 2,000 Debit

Asset:
Decrease in Accounts P 2,000 Credit
Asset: Receivable
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 28 Cash 101 P 2,000

Accounts Receivable 102 P 2,000

To record
collection of customer’s
account.
July 29 – He paid P10,000 for the
monthly rent of the place.
Analysis:

Decrease in Rent Expense P 10,000 Debit

Owner’s
Equity:
Decrease in Cash P 10,000 Credit
Asset:
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 29 Rent Expense 504 P 10,000

Cash 101 P 10,000

To record payment
of rent.
July 30 – He had to pay P2,500
for the electric bill.
Analysis:

Decrease in Utilities P 2,500 Debit

Owner’s Expense
Equity:
Increase in Accounts P 2,500 Credit
Liability: Payable
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 30 Utilities Expense 503 P 2,500

Accounts Payable 201 P 2,500

To record receipt of
electricity bill
July 31 – The business paid
P1,000 for the weekly salary of the
employee.
Analysis:

Decrease in Salaries P 1,000 Debit

Owner’s Expense
Equity:
Decrease in Cash P 1,000 Credit
Asset:
 GENERAL JOURNAL Page 3
Account Titles and
Date P.R. Debit Credit
Explanations

Jul - 31 Salaries Expense 502 P 1,000

Cash 101 P 1,000

To record payment
of salary.
Here is the sample of a JGF
Company General Journal.