Chapter 3: The 10-Steps in the Accounting Cycle

Step 1: Transaction Analysis

Step 2: Transactions are Recorded in the Journal

May 1 Maria Concepcion Perez-Manalo is a social entrepreneur from the South. Maria
decided to organize her wedding consultancy to be named “Weddings “R” Us”.
She invested P250,000 as the beginning capital into this entity.
May 1 Rented office space and paid two months’ rent in advance, P8,000.
May 2 Maria issued a promissory note for a P210,000 loan from Metrobank. This
availment will be used for the acquisition of a service vehicle. The note carries a
20% interest per annum. The arrangement with the bank is that both the interest
and the principal are payable in full in one year.
May 2 Hired an office assistant and an account executive each with a P7,800 monthly
salary. Or, each is to receive P300 per day for the 26-day work month. They started
work immediately.
May 4 Acquired a service vehicle for P420,000. Perez-Manalo estimated that the service
vehicle they bought will last for seven years and with a salvage value of P84,000.
May 4 Paid Prudential Guarantee and Assurance, Inc. P14,400 for a one-year
comprehensive insurance coverage on the service vehicle.
May 5 Acquired office equipment from Fair and Square Emporium for P60,000 paying
P15,000 in cash and the balance next month. Perez-Manalo estimated that this
office equipment they bought will have a useful life of five years and will be
worthless at that time.
May 8 Purchased supplies on credit for P18,000 from San Jose Merchandising.
May 9 Paid San Jose Merchandising P 10,000 of the amount owed.
May 10 Coordinated and finalized simple bridal arrangements for three couples and
collected fees of P 8,800 per couple. Services includes prospecting and selecting
the
church and reception locations, couturier, caterer, car service, flowers, souvenirs
and
invitations.
May 13 Paid salaries P 6,600. The entity pays salaries every two Saturdays.
May 15 The entity is earning additional revenues by referring consulting clients to friendly

hotels, caterers, printers, and couturiers. Received P10,000 advances fees for three

clients referred.
May 19 Coordinated and finalized elaborate bridal arrangements for three couples and
billed
fees of P 12,000 per couple. Additional services include documents preparation,
Consulting with a feng shui expert as to the ideal wedding rate for prosperity and
harmony, provision for limousine service and honeymoon trip.
May 25 Maria Concepcion withdrew P14,000 for personal expenses.
May 27 Paid salaries P 7,200.
May 30 Received the ICC-BayanTel telephone bill, P1,400.
May 30 Received P 24,000 from two clients for services billed last May 19.
May 31 Settled the electricity bill of P 3,000 for the month.
May 31 At the end of the accounting period, Perez-Manalo makes a careful physical
inventory of the supplies. The inventory count showed that supplies costing
P15,000
are still on hand.
May 31 One of the three couples referred has already taken their marriage vows and as a
result the amount of P4,000 pertaining to the referred event has been realized.
May 31 Wedding “R” Us agreed to arrange a rush but simple civil wedding for a madly-in-
love couple in the afternoon of May 31. The entity intended to charge fees of
P5,300
for the services which is earned but unbilled.

Date
Particulars Debit Credit
2018
May 1 Cash 250,000.00  
    Perez-Manalo, Capital   250,000.00
    To record initial investment.    
      #    
  1 Prepaid Rent 8,000.00  
    Cash   8,000.00
    To record rent paid in advance.    
      #    
  2 Cash 210,000.00  
    Notes Payable   210,000.00
    To record notes issued for cash.    
#
Date
Particulars Debit Credit
2018
4 Service Vehicle 420,000.00
Cash 420,000.00
To record service vehicle acquired for Cash.
#
4 Prepaid Insurance 14,000.00
Cash 14,000.00
To record insurance premiums paid.
#
5 Office Equipment 60,000.00
Cash 15,000.00
Accounts Payable 45,000.00
To record office equipment acquired on account.
#
8 Supplies 18,000.00
Accounts Payable 18,000.00
To record supplies purchased on account.
#
9 Accounts Payable 10,000.00
Cash 10,000.00
To record accounts payable partially settled.
#
10 Cash 26,400.00
Consulting Revenues 26,400.00
To record revenues earned and cash.
#
13 Salaries Expense 6,600.00
Cash 6,600.00
To records salaries paid.
#
15 Cash 10,000.00
Unearned Referral Revenues 10,000.00
To record unearned revenues.
Date
Particulars Debit Credit
2018
#
19 Accounts Receivable 36,000.00
Consulting Revenues 36,000.00
To record earned on accounts.
#
25 Perez-Manalo, Withdrawals 14,000.00
Cash 14,000.00
To record withdrawal of cash by owner.
#
27 Salaries Expense 7,200.00
Cash 7,200.00
To record salaries paid.
#
30 Utilities Expenses 1,400.00
Utilities Payable 1,400.00
To record expenses incurred but unpaid.
#
30 Cash 24,000.00
Accounts Receivable 24,000.00
To record accounts receivable partially collected.
#
31 Utilities Expense 3,000.00
Cash 3,000.00
To record expenses incurred and paid.
#
Step 3: Posting to the Ledger

Step 4: Preparing the Unadjusted Trial Balance

Date
Particulars Debit Credit
2018
May 31 Rent Expense 4,000.00  
    Prepaid Rent   4,000.00
    #    
 Date
Particulars Debit Credit
2018
   31 Insurance Expense  1,200.00  
  Prepaid Insurance 1,200.00
    #  
   31 Supplies Expense 3,000.00   
      Supplies    3,000.00
  #  
   31 Depreciation Expense-Service Vehicle  4,000.00
    Accumulated Depreciation-Serv. Vehicle    4,000.00
#
31 Depreciation Expense-Office Equipt. 4,000.00
Accumulated Depreciation-Off. Equipt. 4,000.00
#
31 Unearned Referral Revenues 4,000.00
Referral Revenues 4,000.00
#
31 Salaries Expense 1,800.00
Salaries Payable 1,800.00
#
31 Interest Expense 3,500.00
Interest Payable 3,500.00
#
31 Accounts Receivable 5,300.00
Consulting Revenues 5,300.00
#
Notes:

How to compute depreciation?

Asset Cost XX
Less: Estimated Salvage Value XX
Depreciable Cost XX
Divided by: Estimated Useful Life XX
Depreciation Expense for Each Time Period XX
How to compute the interest?

Interest = Principal X Interest Rate X Length of Time

Month of May in the Calendar

Step 6: Adjusted Trial Balance

Weddings “R” Us
Adjusted Trial Balance
For the Month Ended May 31,2018

Cash P22,200
Accounts Recievable 17,300
Supplies 15,000
Prepaid Rent 4,000
Prepaid Insurance 13,200
Service Vehicle 420,000
Accu. Depn.-Service Vehicle P4,000
Office Equipment 60,000
Accu, Depn.-Office Equipment 1,000
Notes Payable 210,000
Accounts Payable 53,000
Salaries Payable 1,800
Utilities Payable 1,400
Interest Payable 3,500
Unearned Referral Revenues 6,000
Perez-Manalo, Capital 250,000
Perez-Manalo, Withdrawals 14,000
Income Summary
Consulting Revenues 67,700
Referral Revenues 4,000
Salaries Expenses 15,600
Supplies Expenses 3,000
Rent Expense 4,000
Insurance Expense 1,200
Utilities Expense 4,400
Depreciation Exp.-Service Vhicle 4,000
Depreciation Exp.-Office Equipt. 1,000
Miscellaneous Expense
Interest Expense 3,500
P602,400 P602,400

Step 7: Financial Statements

Weddings “R” Us
Income Statement
For the Month Ended May 31,2018

Revenues
Consulting Revenues P 67,700
Referral Revenues 4,000
Total P71,700
Expenses
Salaries Expense P 15,600
Utilities Expense 4,400
Rent Expense 4,000
Depreciation Expense-Service Vehicle 4,000
Interest Expense 3,500
Supplies Expense 3.000
Insurance Expense 1,200
Depreciation Expense-Office Euipment 1,000
Total 36,700
Profit P35,000
Step 8: Closing Entries

Date
Particulars Debit Credit
2020
May 31 Consulting Revenues 67,700.00  
    Referral Revenues  4,000.00
    Income Summary   71,700.00 
 Date
Particulars Debit Credit
2020
    #    
  31 Income Summary 36,700.00
    Salaries Expense   15,600.00
    Supplies Expense  3,000.00
      Rent Expense    4,000.00
  Insurance Expense  1,200.00
    Utilities Expense   4,400.00
    Depreciation Expense-Serv. Vehicle   4,000.00
Depreciation Expense-Off. Equipt. 1,000.00
Interest Expense 3,500.00
# 4,000.00
31 Income Summary 35,000.00
Perez-Manalo, Capital 35,000.00
#
31 Perez-Manalo, Capital 14,000.00
Perez-Manalo Withdrawals 14,000.00
#

Step 9: Post-Closing Trial Balance

Date
Particulars Debit Credit
2020
May 31 Salaries Expense 1,800.00  
    Salaries Payable 1,800.00
    #  
   31 Salaries Payable  1,800.00  
  Salaries Expense 5,400.00
    Cash   7,200.00