Lecture IV Accounting Period and Accounting Cycle

IV.
ACCOUNTING PERIOD AND ACCOUNTING CYCLE

By the end of the study, the student should be able to:
1. Define an accounting period;
2. Define an accounting cycle;
3. Understand the different steps in a one accounting cycle for a
Service industry.
ACCOUNTING PERIOD.
Accounting period or fiscal period is each segment of time, usually a year,
in which statements are prepared in order to know the results of the business
operation during that particular period of time. The length of each accounting
period depends on the nature of the business.
An accounting period may be annual, semi-annual, quarterly, or monthly.
The length of each accounting period depends on the nature of the business.
Usually, most firms use such period of time when the business is slow as the end
of their accounting period and the beginning of the next period.
ACCOUNTING CYCLE.
Accounting cycle consists of successive steps starting with the recording
of transactions in the book of accounts and ending with a post-closing trial
balance.
The following successive steps consist one accounting cycle which are as
follows:
1. Journalizing
2. Posting
3. Preparation of the trial balance.
4. Adjusting the entries
5. Preparation of the worksheet
6. Preparation of the financial statements
7. Closing the entries
8. Reversing the entries
A. JOURNALIZING
Journalizing is the first step in the accounting cycle. It is the process of
recording business transactions in a journal.
A journal is a book of accounts wherein business transactions are
recorded for the first time. It is also called the book of original entry.
There are two kinds of journal:
1. The general journal; and
2. The special journals
a. The Cash Receipts Journal
b. The Cash Payments Journal
2
c. The Sales Journal

d. The Purchases Journal
GENERAL JOURNAL.
General Journal is the simplest form of journal wherein the two-column
form may be used.
Illustration.
General Journal Page 1
Date Account Titles and Explanation F Debit Credit
A General Journal contains the following columns:

Date – the date of the transaction is entered in this column; transactions
are recorded in a systematic manner and in a chronological order.
Account Titles and Explanation – this column contains the debit and credit
accounts and a brief explanation of the entries.
Folio – this contains the post reference number or the ledger page in which
the accounts are transferred.
Debit – contains the amounts debited.
Credit – contains the amounts credited.
Procedures in Journalizing.
A. Under the date column.
1. The year is written in small figures at the top of the first line after the
Date at the Date column.
2. The month of the transaction is written on the first line of the column.
The year and the month are not repeated except at the top of a new
page or when there is a change in the month.
3. The day of each transaction is written in the right sub-column of the
date column. The date of the transaction occurring on the same day
is repeated.
B. Under the account titles and explanation column.

1. The name of the account debited is written first at the left margin of the
account titles and explanation column.
2. The name of the account credited is written on the following line,
indented about one-half inch from left margin.
3. The explanation is placed on the next line, indented about one inch from
the left margin. The explanation should be short but sufficient enough
to explain the entry.
2|Page
3
C. Under the debit column.

1. The debit amount is written on the debit column opposite the debit
account.
D. Under the credit column.

1. The credit amount is written on the credit column opposite
E. Under the folio column.

1. The folio or reference column is used to indicate the page number of
the ledger in which the entry is transferred.
There is no entry yet in the folio column when transactions are
recorded in the general journal. However, when the entries are copied from the
journal to the ledger, the account number of the ledger accounts in
which the debits and credits are copied are entered in the folio column.
2. A single-space should be left blank after each entry.
JOURNAL ENTRY.
A journal entry is a record of business transactions in the journal. There
are two types of journal entry:
1. The simple journal entry; and
2. Compound journal entry.
The simple journal entry which contains only one debit and one credit
accounts; and the compound journal entry which contains either one debit and
two or more credits; or two or more debits and one credit; or two or more debits
and two or more credits.
Illustration.
Transaction.
On January 2, 2019, Mr. Daven Ho opened a tailoring shop which he named
“Ho’s Tailoring”. He invested cash, P25,000 and sewing equipment, P100,000 in
the business.
Simple Journal Entries.

2019
Jan 2 Cash 25,000
Daven Ho, Capital 25,000
To record owner’s investment.
#
2 Sewing Equipment 100,000
Daven Ho, Capital 100,000
To record owner’s investment
#
3|Page
4
Compound Journal Entry.

2019
Jan 2 Cash 25,000
Sewing Equipment 100,000
Daven Ho., Capital 125,000
#
JOURNAL ENTRIES ILLUSTRATION

JAYVEE YAO, LAWYER
Chart of Accounts
Assets No. Income No.
Cash 11 Professional Fees Income 41
Accounts Receivable – Nora Aunor 12
Office Supplies 13 Expenses
Prepaid Insurance 14 Salary Expense 51
Office Equipment 15 Interest Expense 52
Library 16 Utility Expense 53
Liabilities
Notes Payable 21
Accounts Payable – General Trading 22
Owner’s Equity
Jayvee Yao, Capital 31
Jayvee Yao, Drawings 32
TRANSACTIONS
Jayvee Yao, a young lawyer, completed the following transactions during

March 2019:
March 1 – Began the practice of law by investing P100,000 in cash and a law library
having a fair value of P100,000.
2019
Mar 1 Cash 11 100,000
Library 16 100,000
Jayvee Yao, Capital 31 200,000
#
Analysis: Debit (increase in assets)

Credit (increase in proprietorship)
4|Page
5
March 2 – Purchased P142,000 of office equipment, paying P20,000 down and giving a
promissory note for the balance.
2 Office equipment 15 142,000
Cash 11 20,000
Notes Payable 21 122,000
To record purchase of equipment
#

Credit (decrease in assets and increase in liability)
March 3 – Purchased P5,600 office supplies and, P52,000 office equipment from General
Trading on credit.
3 Office supplies 13 5,600
Office equipment 15 52,000
Accounts Payable – General Trading 22 57,600
To record purchase of office
supplies and equipment on credit.
#

Credit (increase in liabilities)
March 6 – Completed legal works for Vilma Santos and collected P12,000 in full payment.
6 Cash 11 12,000
Professional Fees Income 41 12,000
To record cash received from
client.
#

Credit (increase in income)
March 10 – Paid insurance premiums P5,000. (Asset method)

10 Prepaid insurance 14 5,000
Cash 11 5,000
To record payment of insurance
Premium.
#
Credit (decrease in assets)
5|Page
6
March 15 – Completed legal works for Ms. Nora Aunor on credit and billed her P27,000
for the work done.
15 Accounts receivable – Nora Aunor 12 27,000
Professional Fees Income 41 27,000
To record service rendered on
credit.
#
Credit (increase in income)
March 15 – Paid the salary of the secretary P12,000

15 Salary expense 51 12,000
Cash 11 12,000
To record payment of salaries.
#
Analysis: Debit (increase in expense)
March 18 – Paid General Trading for the items purchased on the 3 rd of the month.
18 Accounts payable – General Trading 22 57,600
Cash 11 57,600
To record full payment due to
General Trading.
#
Analysis: Debit (decrease in liabilities)
March 25 – Received a check from Ms. Nora Aunor as full payment of her account.
25 Cash 11 27,000
Accounts receivable – Nora Aunor 12 27,000
To record full payment of Ms.
Nora Aunor.
#
6|Page
7
March 28 – Jayvee Yao withdrew P12,000 from the business for his personal use.
28 Yayvee Yao, Drawings 32 12,000
Cash 11 12,000
To record owner’s drawings
#
Analysis: Debit (increase in drawings accounts)

30 Salary expense 51 12,000
Cash 11 12,000
#
March 31 – Paid P750 interest expense and P25,000 installment due on the notes payable.
31 Interest expense 52 750
Notes payable 21 25,000
Cash 11 25,750
To record partial payment of
the
note and interest due.
#
Analysis: Debit (increase in expense and decrease in liabilities)
March 31 – Paid the monthly utility bills, P9,000

31 Utility expense 53 9,000
Cash 11 9,000
To record payment of utilities.
#
7|Page
8
B. POSTING
Posting is the process of transferring the records from the journal to the
ledger. A ledger constitutes a group of accounts It is also called the Book of Final
Entry.
Illustration.
Name of the Item Account No. ______
Date Explanation F Debit Date Explanation F Credit
Figure 1. General Ledger
The illustration shown above is the most commonly used form of ledger.
The two vertical lines in the middle divine the left side or the debit side and the
right side or the credit side of the form. Each side has columns for date,
explanation, cross-reference number or folio, and amounts.
Need for a ledger.

1. Items of similar nature are grouped together.
2. It is easier to locate the item if an information about it is needed.
Procedure in Posting.
1. Locate the corresponding account title in the ledger.
2. Transfer to the ledger the following information from the journal:
a. Date
b. Explanation
c. Amount
Debit accounts from the journal are posted on the debit side of the
ledger and credit accounts are posted on the credit side of the
ledger.
3. Place the page number of the journal in which the information was taken
to the folio column of the ledger.
4. Place in the folio column of the journal the page number of the ledger in
which the information was posted.
Inserting the account number in the journal folio column serves two
purposes:
a. It serves as a cross-reference when it desired to trace the amount
from one record to another.
b. Writing the account number in the journal indicates that posting
is completed.
8|Page
9
Illustration.
March 1 – Jayvee Yao began the practice of law by investing P100,000 in cash and a
law library having a fair value of P100,000.

2019
Mar 1 Cash 11 100,000
Library 16 100,000
#
CASH Account No. 11

2019
Mar 1 Initial investment J-1 200,000
LIBRARY Account No. 16

2019
JAYVEE YAO, CAPITAL Account No. 31

2019
Mar Initial investment J-1 300,000
1
March 2 – Purchased P142,000 of office equipment, paying P20,000 down and giving a
promissory note for the balance.
2 Office equipment 142,000
Cash 20,000
Notes Payable 122,000
To record purchase of equipment
#
CASH Account No. 1

2019 2019
Mar 1 Initial investment J-1 200,000 Mar Partial payment J-1 20,000
2
OFFICE EQUIPMENT Account No. 15

2019
9|Page
10
NOTES PAYABLE Account No. 21

2019
2
March 3 – Purchased P5,600 office supplies and, P52,000 office equipment from General
Trading on credit.
3 Office supplies 5,600
Office equipment 52,000
Accounts Payable – General Trading 57,600
To record purchase of office
supplies and equipment on credit.
#
OFFICE SUPPLIES Account No. 13

2019
Mar 3 Purchase on credit J-1 5,600

2019
1 Purchase on credit J-1 52,000
3
ACCOUNTS PAYABLE – GENERAL TRADING Account No. 22

2019
March 6 – Completed legal works for Vilma Santos and collected P12,000 in full payment.
6 Cash 12,000
Professional Fees Income 12,000
To record cash received from
client.
#
CASH Account No. 1

2019 2019
6 Service rendered J-1 12,000 2
PROFESSIONAL FEES INCOME Account No. 41
10 | P a g e
11

2019
Mar Service rendered J-1 12,000
2
March 10 – Paid insurance premiums P5,000. (Asset method)

10 Prepaid insurance 5,000
Cash 5,000
To record payment of insurance
Premium.
#
PREPAID INSURANCE Account No. 14

2019
Mar 10 Insurance Premium J-1 5,000
CASH Account No. 1

2019 2019
6 Service rendered J-1 12,000 2 Insurance premium J-1 5,000
10
March 15 – Completed legal works for Ms. Nora Aunor on credit and billed it P27,000 for
the work done.
15 Accounts receivable – Nora Aunor 27,000
Professional Fees Income 27,000
To record service rendered on
credit.
#
ACCOUNTS RECEIVABLE – NORA AUNOR Account No. 12

2019
Mar 15 Service rendered J-1 27,000

2019
15 Service rendered J-1 27,000

11 | P a g e
12

15 Salary expense 12,000
Cash 12,000
#
CASH Account No. 1

2019 2019
10 Salaries J-2 12,000
15
SALARY EXPENSE Account No. 51

2019
Mar 15 Salaries J-2 12,000
March 18 – Paid General Trading for the items purchased on the 3 rd of the month.
18 Accounts payable – General Trading 57,600
Cash 57,600
To record full payment due to
General Trading.
#
CASH Account No. 1

2019 2019
15 Full payment – Gen. Trdg. J-2 57,600
18

2019 2019
Mar 18 Payment J-2 57,600 Mar 3 Purchase on credit J-1 57,600
March 25 – Received a check from Ms. Nora Aunor as full payment of her account.
25 Cash 27,000
Accounts receivable – Nora Aunor 27,000
To record full payment of Ms.
Nora Aunor.
#
CASH Account No. 1

12 | P a g e
13
2019 2019
25 Collection-N. Aunor J-2 27,000 10 Salaries J-2 12,000
18

2019 2019
Mar 15 Service rendered J-1 27,000 Mar 25 Collection J-2 27,000
March 28 – Jayvee Yao withdrew P12,000 from the business for his personal use.
28 Yayvee Yao, Drawings 12,000
Cash 12,000
To record owner’s drawings
#
CASH Account No. 1

2019 2019
18 Drawings J-2 12,000
28
JAYVEE YAO, DRAWINGS Account No. 32

2019
Mar 28 Withdrawal J-2 12,000

30 Salary expense 12,000
Cash 12,000
#
CASH Account No. 1

2019 2019
13 | P a g e
14
30

2019
March 31 – Paid P750 interest expense and P25,000 installment due on the notes payable.
31 Interest expense 750
Notes payable 25,000
Cash 25,750
To record partial payment of
the
note and interest due.
#
CASH Account No. 1

2019 2019
30 Notes Payable J-2 25,750
31

2019 2019
Mar 31 Payment J-2 25,000 Mar Initial investment J-1 122,000
2
INTEREST EXPENSE Account No. 52

2019
Mar 31 Payment J-2 750
March 31 – Paid the monthly utility bills, P9,000

31 Utility expense 9,000
Cash 9,000
To record payment of utilities.
#
CASH Account No. 1
2019 2019
14 | P a g e
15

31 Utilities J-2 9,000
31
UTILITY EXPENSE Account No. 53

2019 9,000
Mar 31 Payment J-2
C. PREPARATION OF THE TRIAL BALANCE

Footing the accounts.
Before the preparation of trial balance, the accounts should be footed first.
The following procedure is followed:
1. Foot or add the debit side of the account.
2. Foot or add the credit side of the account.
3. Take the difference between the totals of the debits and credits. If the
debit total is more than the credit total, the difference is placed on
the explanation of the column of the debit side. If the difference is a
credit, the amount is written on the explanation column of the credit
side.
CASH Account No. 11
2019 2019
25 Collection-N. Aunor J-2 __27,00 10 Salaries J-2 12,000
0 15 Full payment – Gen. Trdg. J-2 57,600
31 Utilities J-2 ___9,000
31 153,350
Balance 239,000
85,650

2019 2019
Mar 15 Service rendered J-1 27,000 Mar 25 Collection J-2 27,000
X
OFFICE SUPPLIES Account No. 13

2019
15 | P a g e
16
Balance 5,600
PREPAID INSURANCE Account No. 14

2019
Mar 10 Insurance Premium J-1 5,000
Balance 5,000

2019
1 Purchase on credit J-1 __52,00
3 Balance 0
194,000
LIBRARY Account No. 16

2019
Balance 100,000

2019 2019
Mar 31 Payment J-2 25,000 Mar Initial investment J-1 122,000
2 Balance 97,000

2019 2019
Mar 18 Payment J-2 57,600 Mar 3 Purchase on credit J-1 57,600
x
JAYVEE YAO, CAPITAL Account No. 31

2019
1
JAYVEE YAO, DRAWINGS Account No. 32

2019
Mar 28 Withdrawal J-2 12,000

2019
15 Service rendered J-1 27,000
Balance 39,000
16 | P a g e
17

2019
24,000
INTEREST EXPENSE Account No. 52

2019
Mar 31 Payment J-2 750
UTILITY EXPENSE Account No. 53

2019
Mar 31 Payment J-2 9,000
THE TRIAL BALANCE

A trial balance is a list of accounts with open balances in the general
ledger. It proves the equality of the debits and the credits in the general ledger.
There are two types of trial balance:
1. The Trial Balance of Balances
2. The Trial Balance of Totals.
The trial balance of balances contains accounts with open balances.

Accounts with open balances either have a debit balance or a credit balance. An
account is said to have a debit balance if the debit total is more than the credit
total and is said to have a credit balance if the credit total is more than the debit
total. If the debit side and credit side are equal, the account is a zero balance or
closed account.
The other form of trial balance is the trial balance of totals. In this form, the
total of the debits and the total of the credits of each account are listed.
Procedure in Trial Balance Preparation.

1. Write the heading of the trial balance. The heading of the trial balance
includes the following:
a. The name of the business or the owner
b. Title of the list or trial balance
c. Date of the trial balance
2. Provide a column for the accounts and two money columns – a debit and a
credit.
3. The accounts should be written in just one column arranged in the following
sequence.
a. Assets
17 | P a g e
18
b. Liabilities
c. Capital
d. Income
e. Expenses
4. Write the amounts opposite the corresponding accounts under the debit
money column if the account is a debit balance and under the credit money
column if the account is a credit balance.
5. Foot the money columns. Double rule the totals.
Illustration.
Trial Balance of Balances.
JAYVEE YAO, LAWYER

Trial Balance
March 31, 2019
Cash 11 85,650
Accounts receivable - Nora Aunor 12 -
Office supplies 13 5,600
Prepaid insurance 14 5,000
Office equipment 15 194,000
Library 16 100,000
Notes payable 21 97,000
Accounts payable – General trading 22 -
Jayvee Yao, Drawings 32 12,000
Professional fees income 41 39,000
Salary expense 51 24,000
Interest expense 52 750
Utility expense 53 9,000
436,000 436,000
Activity No. 1
1. What is a chart of accounts?
2. Name at least 10 asset accounts and define each.
3. What is the contra asset account of accounts receivable?
4. What is a valuation account? What is the valuation account of fixed assets?
5. What is an accounting period? What is the purpose of dividing the life of the
business in accounting periods?
6. What is an accounting cycle? What are the different steps in the accounting
cycle?
18 | P a g e
19
7. Discuss the first step in the accounting cycle.

8. Describe the accounting book used in recording business transactions for
The first time.
9. What the kinds of journal.
10. Discuss the procedure in journalizing.
11. What is a journal entry? What are the two kinds of journal entry?
Differentiate the two.
12. Describe the elements of a complete journal entry.
13. What is posting?
14. What is a ledger?
15. What is a trial balance.
16. Name the two types of trial balance.
17. Why is there a need to prepare a trial balance>
18. Discuss the steps in the preparation of a trial balance.
19. What is an open account? Close account?
20. When is an account said to be a debit account? a credit account?
Activity #2.
The following transactions of “Triple A Repair Shop” occurred in the month of
October, 2020”.
Oct. 2 Mr. Jose Manalo began the business by investing P800,000 cash.
2 Purchased service truck worth P250,000 on credit from Lilac Ent.
2 Paid rent for two months, P20,000.
2 Purchased repair supplies P22,500 on cash.
2 Bought table and chairs from Yao Furniture on credit, P40,000.
2 Paid newspaper ads for two months, P3,000.
2 Purchased repair tools from Lion’s Trading on credit, P85,000.
2. Paid an insurance premium for one year, P12,000.
5 Completed repair works for Mang Inasal and received P7,300 cash.
7 Purchased additional repair tools from Tala Ent. P35,000 on credit.
8 Received P45,000 for repair works rendered.
9 Billed Kris Aquino P5,000 for repair works rendered.
12 Paid Express repair shop for the repairs of repair tools, P5,500.
14 Rendered repair works to Azul SPA, P10,000.
17 Mr. Boy Abunda paid Kris Aquino’s bill.
18 Received P30,000 from various customers for repairs rendered.
19 Paid Lilac Ent. P100,000 cash, and issued promissory note for the
balance.
21 Mr. Jose Manalo withdrew P50,000 for personal use.
29. Paid Yao Furniture in full.
30. Paid P25,000 salaries.
30. Made a partial payment of P10,000 cash to Lilac Ent. for the note
issued.
30. Paid the monthly utility bills, P23,000
Required: Journal entries, posting and trial balance.
TRIPLE A REPAIR SHOP
CHART OF ACCOUNTS
19 | P a g e
20
ASSETS LIABILITIES
CASH 11 ACCOUNTS PAYABLE – LILAC ENT. 21a
ACCOUNTS RECEIVABLE – AZUL SPA 12a ACCOUNTS PAYABLE – LION’S
ACCOUNTS RECEIVABLE –KRIS TRADING 21b
AQUINO 12b ACCOUNTS PAYABLE – TALA ENT. 21c
PREPAID ADVERTISEMENT 13 ACCOUNTS PAYABLE – YAO
PREPAID INSURANCE 14 FURNITURE 21d
PREPAID RENT 15 NOTES PAYABLE 22
REPAIR SUPPLIES 16
OFFICE FURNITURE AND FIXTURES 17 PROPRIETORSHIP
REPAIR TOOLS 18 JOSE MANALO, CAPITAL 31
SERVICE VEHICLE 19 JOSE MANALO, DRAWINGS 32
INCOME EXPENSES
SERVICE INCOME 41 REPAIRS AND MAINTENANCE 51
SALARY EXPENSE 52
UTILITY EXPENSE 53
20 | P a g e

Lecture IV Accounting Period and Accounting Cycle

Uploaded by

Copyright:

Available Formats

Lecture IV Accounting Period and Accounting Cycle

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Lecture IV Accounting Period and Accounting Cycle

Uploaded by

Copyright:

Available Formats

IV.

ACCOUNTING PERIOD AND ACCOUNTING CYCLE

c. The Sales Journal

A General Journal contains the following columns:

B. Under the account titles and explanation column.

C. Under the debit column.

D. Under the credit column.

E. Under the folio column.

Simple Journal Entries.

Compound Journal Entry.

JOURNAL ENTRIES ILLUSTRATION

Jayvee Yao, a young lawyer, completed the following transactions during

Analysis: Debit (increase in assets)

Analysis: Debit (increase in assets)

Analysis: Debit (increase in assets)

Analysis: Debit (increase in assets)

March 10 – Paid insurance premiums P5,000. (Asset method)

March 15 – Paid the salary of the secretary P12,000

March 30 – Paid the salary of the secretary P12,000

March 31 – Paid the monthly utility bills, P9,000

Figure 1. General Ledger

Need for a ledger.

General Journal Page 1

CASH Account No. 11

LIBRARY Account No. 16

JAYVEE YAO, CAPITAL Account No. 31

CASH Account No. 1

OFFICE EQUIPMENT Account No. 15

NOTES PAYABLE Account No. 21

OFFICE SUPPLIES Account No. 13

OFFICE EQUIPMENT Account No. 15

ACCOUNTS PAYABLE – GENERAL TRADING Account No. 22

CASH Account No. 1

PROFESSIONAL FEES INCOME Account No. 41

Date Explanation F Debit Date Explanation F Credit

March 10 – Paid insurance premiums P5,000. (Asset method)

PREPAID INSURANCE Account No. 14

CASH Account No. 1

ACCOUNTS RECEIVABLE – NORA AUNOR Account No. 12

PROFESSIONAL FEES INCOME Account No. 41

March 15 – Paid the salary of the secretary P12,000

Date Account Titles and Explanation F Debit Credit

CASH Account No. 1

SALARY EXPENSE Account No. 51

CASH Account No. 1

ACCOUNTS PAYABLE – GENERAL TRADING Account No. 22

CASH Account No. 1

ACCOUNTS RECEIVABLE – NORA AUNOR Account No. 12

CASH Account No. 1

JAYVEE YAO, DRAWINGS Account No. 32

March 30 – Paid the salary of the secretary P12,000

CASH Account No. 1

SALARY EXPENSE Account No. 51

CASH Account No. 1

NOTES PAYABLE Account No. 21

INTEREST EXPENSE Account No. 52

March 31 – Paid the monthly utility bills, P9,000

6 Service rendered J-1 12,000 2 Insurance premium J-1 5,000

UTILITY EXPENSE Account No. 53