ACCOUNTIN

G CYCLE
 ACCOUNTING CYCLE
• Is a principle that dictates
dividing the life of the business
into accounting periods which
could be either be a calendar
year or fiscal year.
2
 STEPS OF ACCOUNTING CYCLE PROCESS
1.Analyzing business transactions from
source documents
2.Journalizing the business
transactions
3.Posting journal entries to the ledger
4.Preparing Trial Balance
5.Journalizing and Posting adjusting
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 STEPS OF ACCOUNTING CYCLE PROCESS

6. Preparing adjusted trial balance

7. Preparing financial statements.
8. Journalizing and posting closing
entries
9. Preparing post-closing trial balance
10. Journalizing and posting reversing
journal entries 4
 STEPS OF ACCOUNTING CYCLE PROCESS
1. Analyzing business transactions from source
documents (official receipts, sales invoice,
statement of account,billing statements, payroll
sheets)
Steps to analyze transactions:
a) Classify whether the transactions is a business or
non-business transactions.
b) Identify the major accounts and account titles
affected and movements with respect to its normal
balances.
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 STEPS OF ACCOUNTING CYCLE PROCESS

2. Journalizing the business

transactions.

• Is the process of entering a business

transaction in the form of an
accounting entry in the journal or so
called “book of original entry” 6
 STEPS OF ACCOUNTING CYCLE PROCESS
3. Posting journal entries to the
ledger

• If journalizing is being done in the

journal , posting is being done in the
ledger .
• A ledger contains all the account which
is ALORE maintained in the business 7
 GENERAL LEDGER
October 2024 REF. DEBIT CREDIT

1 Cash 101 50,000.00

Mr. Santos, Capital 301 50,000.00
To record business investment

2 Office Equipment 124 26,000.00

Mr. Santos, Capital 301 26,000.00
To record investment of 1 unit laptop

3 Loan Payable 215 10,000.00

Cash 101 10,000.00
To record payment of BDO loan 8
 STEPS OF ACCOUNTING CYCLE PROCESS
4. Preparing Trial Balance
• A trial balance is a list of accounts and
their balances at a given time.
• It shows the equality of the debits and
the credits.

9
 Trial Balance
MR. SANTOS SERVICE BUSINESS
UNADJUSTED TRIAL BALANCE
OCTOBER 31, 2024

ACCOUNT TITLE DEBIT CREDIT

CASH Ᵽ 28,000.00
ACCOUNTS RECEIVABLE 5,000.00
OFFICE EQUIPMENT 26,000.00
LOAN PAYABLE 10,000.00
MR. SANTOS , CAPITAL 76,000.00
SERVICE INCOME/ REVENUE 12,000.00
OFFICE SUPPLIES EXPENSE 15,000.00
TAXES AND LICENSES EXPENSE 8,000.00
SALARIES EXPENSE 6,000.00

TOTAL Ᵽ 93,000.00 Ᵽ 93,000.00

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 STEPS OF ACCOUNTING CYCLE PROCESS
5. Journalizing and Posting
Adjusting Journal entries

• Adjusting entries are journal entries

prepared at the end of the accounting
period to update accounts with
transactions spanning for more than
accounting period. 11
 4 basic kinds of adjusting
entries
1.Accruals
2.Deferrals
3.Bad Debts
4.Depreciation
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 2 consequences failure to provide
adjusting entries
1.Overstated account-when the
account’s unadjusted balance is more
than the true, adjusted amount.
2.Understated account-when the
account’s unadjusted balance is less
than the true , adjusted amount.

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 STEPS OF ACCOUNTING CYCLE PROCESS
6. Preparing adjusted trial balance
• After all the adjusting entries have been
journalized and posted , we can now
prepare adjusted trial balance.
• Accounts are arranged in the manner of
their appearance in the chart of accounts
and that only those accounts that have
been balances are presented.
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 Importance of Work Sheet
• Worksheet-is a common tool used by
accounts to gather all the information
needed to prepare financial statements and
the process after it.

• Its primary purpose is to check the

arithmetic accuracy of the work
preparation.
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 7 MAJOR PARTS OF
WORKSHEET
1. Heading-consist of the business name, the name of
working paper and the period.
2. Account Titles- This large column shows all the account
titles in order of the unadjusted trial balance followed by
the account titles used for the adjusting entry if haven’t
prepared yet.
3. Unadjusted Trial balance-the next 2 columns (debit and
credit) show the placement of amounts into the worksheet
from the adjusting entries.
4. Adjustments-the next 2 columns (debit and credit) show
the placement of amounts into the worksheet from the
adjusting entries. 16
 7 MAJOR PARTS OF
WORKSHEET
5. Adjusted Trial balance- next 2 columns (debit and
credit)combine the amounts of unadjusted trial balance and the
adjustments to form the new trial balance.

6. Income Statement- next 2 columns (debit and credit)show all

the revenues and expenses as well as the business ‘s net income or
net loss.

7.Balance Sheet-next 2 columns (debit and credit)show all assets,

liabilities, and owner’s equity as well as business net income or net
loss. 17
 MR. SANTOS SERVICE BUSINESS

WORKSHEET

OCTOBER 31, 2024

TRIAL BALANCE ADJUSTMENT ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET

ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

CASH Ᵽ 28,000.00 17,800.00 10,200.00 10,200.00 -

ACCOUNTS RECEIVABLE 5,000.00 23,000.00 18,000.00 18,000.00 -

OFFICE EQUIPMENT 26,000.00 26,000.00 - 26,000.00 -

LOAN PAYABLE 10,000.00 10,000.00 - 10,000.00 -

MR. SANTOS , CAPITAL 76,000.00 - 76,000.00 - 76,000.00

SERVICE INCOME/
REVENUE 12,000.00 24,800.00 - 36,800.00 - 36,800.00

OFFICE SUPPLIES
EXPENSE 15,000.00 15,000.00 - 15,000.00 -

TAXES AND LICENSES

EXPENSE 8,000.00 800.00 8,800.00 - 8,800.00 - 18
 STEPS OF ACCOUNTING CYCLE PROCESS

7. Preparing financial statements.

• Financial Statements-are prepared not

only for the use of the business but relayed
also to other users such as investors , the
government , and even financial institutions
or creditors.
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 4 basic Financial Statement
1.INCOME STATEMENT
2.STATEMENT OF CHANGES IN OWNERS
EQUITY
3.BALANCE SHEET
4.CASH FLOW STATEMENT
5.Notes, comprising a summary of
significant accounting policies and other
explanatory information. 20
 4 basic Financial Statement
1.INCOME STATEMENT-shows the
business result of operation for a
given period.
MR. SANTOS SERVICE BUSINESS
INCOME STATEMENT
FOR THE MONTH ENDED OCTOBER 31, 2024

REVENUE:
SERVICE INCOME Ᵽ 36,800.00

LESS:OPERATING EXPENSES
SUPPLIES 15,000.00
SALARIES EXPENSE 8,800.00
TAXES AND LICENSES 6,000.00 - 29,800.00
TOTAL NET INCOME Ᵽ 7,000.00
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 4 basic Financial Statement
2. STATEMENT OF CHANGES IN OWNER’S
EQUITY-to determine the owner’s capital account at
the end of the accounting period.
MR. SANTOS SERVICE BUSINESS
STATEMENT OF CHANGES IN OWNERS EQUITY
FOR THE MONTH ENDED OCTOBER 31, 2024

MR. SANTOS , CAPITAL Ᵽ 76,000.00

ADD: NET INCOME 7,000.00
TOTAL Ᵽ 83,000.00

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 4 basic Financial Statement
3.BALANCE SHEET-shows the business resources
and the sources as of that certain time.

• Assets, Liabilities, and Owner’s Equity

accounts are used in the balance sheets which
are called the permanent accounts or real
accounts.

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 2 forms of Balance Sheet or State ment of
Financial Position

• REPORT FORM (VERTICAL FORM)

• ACCOUNT FORM(HORIZONTAL
FORM)

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 REPORT FORM
MR. SANTOS SERVICE BUSINESS
BALANCE SHEET
AS OF OCTOBER 31, 2024

ASSETS
Current Assets:
CASH Ᵽ 10,200.00
ACCOUNTS RECEIVABLE 18,000.00
OFFICE EQUIPMENT 26,000.00
PREPAID RENT 20,000.00
TOTAL ASSETS Ᵽ 74,200.00

LIABILITIES AND OWNER'S EQUITY

LIABILITIES:
LOAN PAYABLE Ᵽ - 10,000.00
UNEARNED SERVICE INCOME 1,200.00
TOTAL LIABILITIES Ᵽ - 8,800.00

OWNER'S EQUITY:
Mr. Santos, Capital 83,000.00
TOTAL LIABILITIES AND OWNER'S EQUITY Ᵽ 74,200.00
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 ACCOUNT FORM
MR. SANTOS SERVICE BUSINESS
BALANCE SHEET
AS OF OCTOBER 31, 2024

ASSETS LIABILITIES AND OWNER'S EQUITY

Current Assets: LIABILITIES:
CASH 10,200.00 LOAN PAYABLE Ᵽ - 10,000.00
ACCOUNTS RECEIVABLE 18,000.00 UNEARNED SERVICE INCOME 1,200.00
OFFICE EQUIPMENT 26,000.00 TOTAL LIABILITIES - 8,800.00
PREPAID RENT 20,000.00
OWNER'S EQUITY:
Mr. Santos, Capital 83,000.00
TOTAL ASSETS 74,200.00 TOTAL LIABILITIES AND OWNER'S EQUITY Ᵽ 74,200.00
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 STEPS OF ACCOUNTING CYCLE PROCESS
8. Journalizing and posting closing
entries

a) Close the nominal accounts

b) Close the expense accounts
c) Close the Owner’s Drawing
d) Close the Net Income/Loss 27
 STEPS OF ACCOUNTING CYCLE PROCESS

9. Preparing post-closing trial

balance

• The balances of the accounts in the

post –closing trial balances are
brought forward as the beginning
balances of the same accounts in the
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 MR. SANTOS SERVICE BUSINESS
POST CLOSING TRIAL BALANCE
OCTOBER 31, 2024

ACCOUNT TITLE DEBIT CREDIT

CASH Ᵽ 10,200.00
ACCOUNTS RECEIVABLE 18,000.00
OFFICE EQUIPMENT 26,000.00
PREPAID RENT 20,000.00
LOAN PAYABLE 10,000.00
UNEARNED SERVICE INCOME 1,200.00
MR. SANTOS , CAPITAL 83,000.00

TOTAL Ᵽ 84,200.00 Ᵽ 84,200.00 29