lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
ACCOUNTING PROCESS These are journals used in recording large numbers of
like transactions.
2. Accounting Cycle
It is a step-by-step process of recording, classification, Usual Examples of Special Journals
and summarization of economic transactions of a
business. 11. Sales Journal
It is a special journal where only sales of merchandise
3. Phases of the Accounting Cycle on account are recorded.
a. Recording (steps 1-3) 12. Cash Receipts Journal
b. Summarizing (steps 4-10) It is a special journal where all types of cash receipts are
recorded.
3. Steps in the Accounting Cycle
13. Purchases Journal
a. Analyzing the transaction
It is a special journal used to record all purchases on
b. Journalizing
account of merchandise, equipment, supplies, etc.
c. Posting
d. Unadjusted trial balance
14. Cash Disbursements Journal It is a special journal
e. Adjusting entries
where all payments of cash for any purpose are
f. Adjusted trial balance
recorded.
g. Financial statements
h. Closing entries
Types of Journal Entries According to Form
i. Post-closing trial balance
j. Reversing entries
16. Simple Journal Entry
4. Analyzing the Transaction It is a type of journal entry which contains a
This is where the accountant gathers single debit and a single credit element.
information from source documents and
determines the impact of the transaction on the 17. Compound Journal Entry
financial position. It is a type of journal entry which has two or
more elements in either or both debit and credit sides
5. Journalizing and often represents two or more
This is the process of recording the transactions transactions.
in the appropriate journals. ***
6. Journal 18. Accounts
It is a chronological record of transactions. These are the storage units of accounting information
It is also known as the book of original entry. and are used to summarize changes in assets, liabilities,
and equity including income and expenses.
Kinds of Journals
Common Account Types
8. General Journal
It is a journal where all transactions could be recorded. 20. Real Accounts
These are the statement of financial position accounts
9. Special Journals or so-called permanent accounts which are not closed
, lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
and are carried over to the next accounting period (i.e., 30. Subsidiary Ledger
assets, liabilities, and equity accounts). It affords additional detail in support of certain general
ledger accounts.
***
21. Nominal Accounts 31. Trial Balance
These are the income statement accounts or temporary It is a list of general ledger accounts with their
capital accounts which are closed at the end of the respective debit or credit balances.
accounting period (i.e., income and expense accounts).
32. Adjusting Entries
22. Mixed Account These are journal entries made at the end of an
While still unadjusted, it represents a accounting period to update certain revenue and
combination of real and nominal accounts (e.g., prepaid expense accounts and to make sure the entity complies
expenses). with the matching principle.
23. Control Account 33. Characteristics of Adjusting Entries
It is the general ledger account that summarizes
the detailed information in a subsidiary ledger. a. Usually refer to transactions that have
24. Suspense Account effects on more than one accounting period;
It is an account that holds temporarily certain b. Include at least one (1) nominal account and
information pending for disposition. one (1) real account; and
c. Are generally not based on source
25. Reciprocal Account documents.
It is an account that has a counterpart in another book
within the entity or in another ledger of another entity. 34. Classification of Adjusting Entries
***
a. Prepayments
26. Posting b. Deferred Income
It is the process of transferring data from the c. Accrued expenses
journal to the appropriate accounts in the general ledger d. Accrued income
and subsidiary ledger. This process e. Estimates
classifies all accounts that were recorded in the journals. f. Ending inventory
27. Ledger 35. Prepayments
It is a book containing accounts in which the classified These are expense items already paid for but not yet
and summarized information from the journals is posted incurred.
as debits and credits. It is also known as the book of final
entry. 36. Methods of Initially Recording Prepayments
Kinds of Ledgers a. Asset method – Dr. Prepaid expense; Cr.
Cash
b. Expense method – Dr. Expense; Cr. Cash
29. General Ledger
It includes all the accounts appearing on the financial
37. Pro-Forma Adjusting Entries for Prepayments
statements.
, lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
a. Asset method – Dr. Expense (expired
portion); Cr. Prepaid expense Common Types of Estimates
b. Expense method – Dr. Prepaid expense
(remaining portion); Cr. Expense 47. Provision for Doubtful Accounts It is the
estimated amount of bad debts that will arise from
accounts receivable that have been issued but not
yet collected.
38. Deferred Income
It refers to an income item that is already collected in 48. Depreciation
cash but not yet earned. It is the systematic allocation of the cost of a fixed asset
over its useful life.
39. Methods of Initially Recording Deferred Income ***
a. Liability method – Dr.
Cash; Cr. 49. Ending Inventory Adjustment
Unearned income It is an adjustment used to set up the yearend count of
b. Income method – Dr. Cash; Cr. Income the inventory. This is only applied in the periodic
inventory system.
40. Pro-Forma Adjusting Entries for Deferred
Income
50. Preparation of the Financial Statements
It is the most important part of the summarizing
a. Liability method – Dr. Unearned income
phase. This is where the processed information is
(earned portion); Cr. Income communicated to users.
b. Income method – Dr. Income (unearned
portion); Cr. Unearned income 51. Basic Financial Statements
41. Accrued Expense a. Statement of Financial Position (Balance
It occurs in a transaction where expense has already Sheet)
been incurred but not yet paid for in cash. b. Statement of Comprehensive Income
(Income Statement)
42. Pro-Forma Adjusting Entry for Accrued c. Statement of Changes in Equity
Expense d. Statement of Cash Flows
Dr. Expense; Cr. Liability (i.e., payable) e. Notes and Disclosures.
43. Accrued Income 52. Closing Entries
It occurs in a transaction where income has been These are recorded and posted for the purpose
already earned but not yet collected in cash. of closing all nominal or temporary accounts to the
income summary account and the resulting net income
44. Pro-Forma Adjusting Entry for Accrued or loss is afterwards closed to the capital or retained
Income earnings account.
Dr. Asset (i.e., receivable); Cr. Income
53. Reversing Entries
45. Estimates These are made at the beginning of the new accounting
These are items of adjusting entries that do not involve period to reverse certain adjusting entries from the
cash flows. preceding accounting period.
, lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
override the provisions of any standard.
54. Adjusting Entries Subject for Reversal
a. Prepayments under expense method 59. Objectives of Conceptual Framework
b. Deferred income under income method
c. Accrued expense a. To provide financial information about
d. Accrued income reporting entities; and
b. To help investors, lenders and other
55. Optional Steps in the Accounting Cycle creditors (primary users) in decision
making.
a. All trial balances
b. Reversing entries Chapter 1
61. Objective of General-Purpose
Financial
Reporting
a. To provide financial information about
reporting entities; and
b. Help investors, lenders and other creditors
REVISED CONCEPTUAL FRAMEWORK
(primary users) in decision making.
57. Missions of IASB in Developing Accounting
Standards 62. Financial Position
It refers to the financial condition of the reporting entity
a. Contribute to transparency – by enhancing represented by the economic resources it owns and
international comparability and quality of claims of other entities against these.
financial information.
b. Strengthen accountability – of the people
63. Accrual Accounting
entrusted with the entity.
It means that the events should be reflected in the
c. Contribute to economic efficiency – by
reports in the periods when the effects of transactions
helping investors identify opportunities and
occur, regardless the related cash flows.
risks across the world.
a. Income shall be recognized when earned,
58. Conceptual Framework
rather than when received in cash.
b. Expenses shall be recognized when incurred,
a. It aims to assist the IASB in developing
rather than when paid for in cash.
standards.
b. It helps financial statement preparers and 64. Past Cash Flows
users to better understand and interpret These are considered important information
the standards. used to assess the management’s ability to generate
c. It can be used as a reference by preparers future cash flows.
who are trying to develop accounting
policies but cannot find any applicable Chapter 2
standard currently in place.
d. It is not a standard by itself, and does not
Financial accounting and reporting VOL-1
ACCOUNTING PROCESS These are journals used in recording large numbers of
like transactions.
2. Accounting Cycle
It is a step-by-step process of recording, classification, Usual Examples of Special Journals
and summarization of economic transactions of a
business. 11. Sales Journal
It is a special journal where only sales of merchandise
3. Phases of the Accounting Cycle on account are recorded.
a. Recording (steps 1-3) 12. Cash Receipts Journal
b. Summarizing (steps 4-10) It is a special journal where all types of cash receipts are
recorded.
3. Steps in the Accounting Cycle
13. Purchases Journal
a. Analyzing the transaction
It is a special journal used to record all purchases on
b. Journalizing
account of merchandise, equipment, supplies, etc.
c. Posting
d. Unadjusted trial balance
14. Cash Disbursements Journal It is a special journal
e. Adjusting entries
where all payments of cash for any purpose are
f. Adjusted trial balance
recorded.
g. Financial statements
h. Closing entries
Types of Journal Entries According to Form
i. Post-closing trial balance
j. Reversing entries
16. Simple Journal Entry
4. Analyzing the Transaction It is a type of journal entry which contains a
This is where the accountant gathers single debit and a single credit element.
information from source documents and
determines the impact of the transaction on the 17. Compound Journal Entry
financial position. It is a type of journal entry which has two or
more elements in either or both debit and credit sides
5. Journalizing and often represents two or more
This is the process of recording the transactions transactions.
in the appropriate journals. ***
6. Journal 18. Accounts
It is a chronological record of transactions. These are the storage units of accounting information
It is also known as the book of original entry. and are used to summarize changes in assets, liabilities,
and equity including income and expenses.
Kinds of Journals
Common Account Types
8. General Journal
It is a journal where all transactions could be recorded. 20. Real Accounts
These are the statement of financial position accounts
9. Special Journals or so-called permanent accounts which are not closed
, lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
and are carried over to the next accounting period (i.e., 30. Subsidiary Ledger
assets, liabilities, and equity accounts). It affords additional detail in support of certain general
ledger accounts.
***
21. Nominal Accounts 31. Trial Balance
These are the income statement accounts or temporary It is a list of general ledger accounts with their
capital accounts which are closed at the end of the respective debit or credit balances.
accounting period (i.e., income and expense accounts).
32. Adjusting Entries
22. Mixed Account These are journal entries made at the end of an
While still unadjusted, it represents a accounting period to update certain revenue and
combination of real and nominal accounts (e.g., prepaid expense accounts and to make sure the entity complies
expenses). with the matching principle.
23. Control Account 33. Characteristics of Adjusting Entries
It is the general ledger account that summarizes
the detailed information in a subsidiary ledger. a. Usually refer to transactions that have
24. Suspense Account effects on more than one accounting period;
It is an account that holds temporarily certain b. Include at least one (1) nominal account and
information pending for disposition. one (1) real account; and
c. Are generally not based on source
25. Reciprocal Account documents.
It is an account that has a counterpart in another book
within the entity or in another ledger of another entity. 34. Classification of Adjusting Entries
***
a. Prepayments
26. Posting b. Deferred Income
It is the process of transferring data from the c. Accrued expenses
journal to the appropriate accounts in the general ledger d. Accrued income
and subsidiary ledger. This process e. Estimates
classifies all accounts that were recorded in the journals. f. Ending inventory
27. Ledger 35. Prepayments
It is a book containing accounts in which the classified These are expense items already paid for but not yet
and summarized information from the journals is posted incurred.
as debits and credits. It is also known as the book of final
entry. 36. Methods of Initially Recording Prepayments
Kinds of Ledgers a. Asset method – Dr. Prepaid expense; Cr.
Cash
b. Expense method – Dr. Expense; Cr. Cash
29. General Ledger
It includes all the accounts appearing on the financial
37. Pro-Forma Adjusting Entries for Prepayments
statements.
, lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
a. Asset method – Dr. Expense (expired
portion); Cr. Prepaid expense Common Types of Estimates
b. Expense method – Dr. Prepaid expense
(remaining portion); Cr. Expense 47. Provision for Doubtful Accounts It is the
estimated amount of bad debts that will arise from
accounts receivable that have been issued but not
yet collected.
38. Deferred Income
It refers to an income item that is already collected in 48. Depreciation
cash but not yet earned. It is the systematic allocation of the cost of a fixed asset
over its useful life.
39. Methods of Initially Recording Deferred Income ***
a. Liability method – Dr.
Cash; Cr. 49. Ending Inventory Adjustment
Unearned income It is an adjustment used to set up the yearend count of
b. Income method – Dr. Cash; Cr. Income the inventory. This is only applied in the periodic
inventory system.
40. Pro-Forma Adjusting Entries for Deferred
Income
50. Preparation of the Financial Statements
It is the most important part of the summarizing
a. Liability method – Dr. Unearned income
phase. This is where the processed information is
(earned portion); Cr. Income communicated to users.
b. Income method – Dr. Income (unearned
portion); Cr. Unearned income 51. Basic Financial Statements
41. Accrued Expense a. Statement of Financial Position (Balance
It occurs in a transaction where expense has already Sheet)
been incurred but not yet paid for in cash. b. Statement of Comprehensive Income
(Income Statement)
42. Pro-Forma Adjusting Entry for Accrued c. Statement of Changes in Equity
Expense d. Statement of Cash Flows
Dr. Expense; Cr. Liability (i.e., payable) e. Notes and Disclosures.
43. Accrued Income 52. Closing Entries
It occurs in a transaction where income has been These are recorded and posted for the purpose
already earned but not yet collected in cash. of closing all nominal or temporary accounts to the
income summary account and the resulting net income
44. Pro-Forma Adjusting Entry for Accrued or loss is afterwards closed to the capital or retained
Income earnings account.
Dr. Asset (i.e., receivable); Cr. Income
53. Reversing Entries
45. Estimates These are made at the beginning of the new accounting
These are items of adjusting entries that do not involve period to reverse certain adjusting entries from the
cash flows. preceding accounting period.
, lOMoARcPSD|18207238
Financial accounting and reporting VOL-1
override the provisions of any standard.
54. Adjusting Entries Subject for Reversal
a. Prepayments under expense method 59. Objectives of Conceptual Framework
b. Deferred income under income method
c. Accrued expense a. To provide financial information about
d. Accrued income reporting entities; and
b. To help investors, lenders and other
55. Optional Steps in the Accounting Cycle creditors (primary users) in decision
making.
a. All trial balances
b. Reversing entries Chapter 1
61. Objective of General-Purpose
Financial
Reporting
a. To provide financial information about
reporting entities; and
b. Help investors, lenders and other creditors
REVISED CONCEPTUAL FRAMEWORK
(primary users) in decision making.
57. Missions of IASB in Developing Accounting
Standards 62. Financial Position
It refers to the financial condition of the reporting entity
a. Contribute to transparency – by enhancing represented by the economic resources it owns and
international comparability and quality of claims of other entities against these.
financial information.
b. Strengthen accountability – of the people
63. Accrual Accounting
entrusted with the entity.
It means that the events should be reflected in the
c. Contribute to economic efficiency – by
reports in the periods when the effects of transactions
helping investors identify opportunities and
occur, regardless the related cash flows.
risks across the world.
a. Income shall be recognized when earned,
58. Conceptual Framework
rather than when received in cash.
b. Expenses shall be recognized when incurred,
a. It aims to assist the IASB in developing
rather than when paid for in cash.
standards.
b. It helps financial statement preparers and 64. Past Cash Flows
users to better understand and interpret These are considered important information
the standards. used to assess the management’s ability to generate
c. It can be used as a reference by preparers future cash flows.
who are trying to develop accounting
policies but cannot find any applicable Chapter 2
standard currently in place.
d. It is not a standard by itself, and does not
