FABM1 4th Qtr Week 1 to 4 Self Made Module PDF

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Accounting Cycle of a Service BusinessLearning Competency: 1. records transactions of a service business in the general journal 2. posts transactions in the ledger 3. prepares a trial balance 4. prepares adjusting entries 5. complete the accounting cycleThe accounting cycle is a series of recurring ...

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Week 1-

Fundamentals of Accountancy, Business and Management 1 4th Quarter Angilette S. Cenidoza

Accounting Cycle of a Service Business Learning Competency: 1. 2. 3. 4. 5.

records transactions of a service business in the general journal posts transactions in the ledger prepares a trial balance prepares adjusting entries complete the accounting cycle

The accounting cycle is a series of recurring accounting steps or processes within one span accounting period. The accounting cycle is composed of the following steps: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Analyzing business transactions from source documents Journalizing the business transactions Posting journal entries to the ledger Preparing trial balance Journalizing and posting adjusting journal entries Preparing adjusted trial balance Preparing financial statements 8. Journalizing and posting closing journal entries Preparing post-closing trial balance Journalizing and posting reversing journal entries

Transactions in a service business are usually straightforward. The business renders service to clients or customers to generate revenues. Just like any business, a service business begins with an investment by a sole proprietorship or proprietors. Transactions may be business or non-business transactions. A business transaction results in an accounting transactions that requires a journal entry, while non-business transactions do not require journal entries. Examples of business transactions include investment of the owner, purchase of office supplies, payment of liabilities, rendition of services, and withdrawal of the owner, among others. On the other hand, non-business transactions include hiring of office staff appointment of an office supervisor, and operating of the business on a weekend or during a holiday. Before we proceed with the first step of the accounting cycle, let us first establish the following chart of accounts for Cruz Repair Shop, which will be very helpful in identifying the affected accounts in our transaction analysis.

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Figure 1. Sample Chart of Accounts

Chart of Accounts Chart of Accounts is a coded or numbered listing of all the accounts used by a business entity. The chart is prepared by the owner or the accountant to be used in recording business transactions in books of account. The accounts are listed sequentially in the chart per the following arrangement: 1. Asset Accounts- which may be numbered from 101 to 199. 2. Liability Accounts- which may be numbered from 201 to 299. 3. Owner’s Equity Accounts – which may be numbered from 301 to 399. 4. Revenue Accounts – which may be numbered from 401 to 499. 5. Expense Accounts – which may be numbered 501 to 599.

STEP 1 ANALYZING BUSINESS TRANSACTIONS FROM SOURCE DOCUMENTS. (discussed in previous week)

STEP 2 JOURNALIZING BUSINESS TRANSACTIONS. Journalizing is the process of entering a business transaction in the form of an accounting entry in the "journal" or the so-called "book of original entry." A journal is where business transactions are initially recorded in chronological order. Moreover, a journal entry can take the form of a simple journal entry or a compound journal entry. A simple journal entry is a journal entry that has one debit account and one credit account. Examples of simple journal entries follow: 1. J. Cruz invests P200,000 to start an auto repair business.

On the other hand, a compound journal entry is a journal entry with more than one debit account or more than one credit account, or both. An example of a compound journal entry follows. 2 |Page

2. Cruz bought repair equipment worth P100,000 and paid P50,000 cash and P50,000 on account.

Journal entry has the following important components: 1. 2. 3. 4. 5. 6.

Date of transaction Particulars (account titles and explanation) Reference (for posting reference) Debit account title/s and debit amount/s Credit account title/s and credit amount/s An explanation

Notice all the indention that separates the debit account/s and amounts/s from the credit account/s and amount/s. Let us continue journalizing using the remaining transactions in Step 1 starting to third transactions. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

J. Cruz invests P200,000 to start an auto repair business. Cruz bought repair equipment on credit, P100,000. Bought shop supplies for cash, P62,000 Paid partial on equipment bought on account, P60,000. Cruz received a bank loan for business use, P100,000. Customers pay cash for auto repairs rendered, P25,000. Repair services rendered on account, P50,000. Paid a month’s rent, P10,000. Cruz collected partial on the customer’s account, P30,000 Cruz paid the salaries and wages of his employees, P15,000

3. Bought shop supplies for cash, P62,000

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4. Paid partial on equipment bought on account, P60,000.

5. Cruz received a bank loan for business use, P100,000.

6. Customers pay cash for auto repairs rendered, P25,000.

7. Repair services rendered on account, P50,000.

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8. Paid a month’s rent, P10,000.

9. Cruz collected partial on the customer’s account, P30,000

10. Cruz paid the salaries and wages of his employees, P15,000

ACTIVITY 1. Before we proceed with the next step, you may want to try journalizing the following transactions. Write your answer on your journal notebook. 1. Dr. Dy invested cash in the business, P250,000. 2. Bought furniture and fixtures on account, P70,000. 3. Bought medical supplies for cash, P54,000. 4. Withdrew cash for personal use, P20,000. 5. Borrowed money from the bank, P150,000. 6. Paid P2,600 utilities for the month. 7. Paid Furniture and fixtures purchased on account P70,000. 8. Received consultation fee from patients,P3,000 9. Made an additional investment, 100,000. 10. Paid salary of secretary and assistant, P7,500

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Figure 2. Dr. Dy Chart of Accounts (ACTIVITY 1)

STEP 3. POSTING TO THE LEDGER. • • • • • • • •

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After journalizing, the next step in the accounting cycle is posting. If journalizing is being done in the journal, posting is being done in the ledger. A ledger contains all the accounts (assets, liabilities, owner’s equity, revenues and expenses) maintained by the business. Posting refers to the procedure of transferring information in the journal to the ledger accounts. It is for this reason that a ledger is the so-called “book of final entry.” Each account title in the chart of accounts has its own ledger. The ledger captures all the movement (increases and decreases) in each account which were initially reflected in the journal as journal entries. To be more organized, the ledger should be arranged in the order in which accounts are presented in the financial statements beginning with the statement of financial position (assets’ liabilities, owner’s equity, (followed by income statements (revenues and expenses) In preparation for computerization, each account is usually coded or numbered for easier identification.

Posting involves four simple steps: In the ledger, enter in the appropriate columns of account/s debited the date, explanation, journal page, and debit amount shown in the journal. 2. In the folio (F, Ref., or posting reference) column of the journal, write the account number to which the debit amount was posted.

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3. In the ledger, enter in the appropriate columns of account/s credited the date, explanation, journal page, and debit amount shown in the journal. 4. In the folio (F, Ref., or posting reference) column of the journal, write the account number to which the credit amount was posted.

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Let us complete posting entries of Cruz Repair Shop. Transaction no. 3 1

Posting to ledger Transaction no. 3

Transaction no. 4 1

Posting to ledger Transaction no. 4

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Transaction no. 5 1

Posting to ledger Transaction no. 5

Transaction no. 6 1

Posting to ledger Transaction no. 5

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After all transaction is posted to the ledger here’s how the ledger will look like.

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Normal debit Balance- is the amount on the left side (debit side) of an account that is larger than the amount on its right side (credit side) ot the amount that increases the LEFT (DEBIT) of an account. Normal Credit Balance – is the amount on the right side (credit side) of an account that is larger than the amount on its left side (debit side) or the amount that increases the RIGHT side (CREDIT) of an account. Other important points to ponder when calculating an account’s balance in double-entry bookkeeping system: ➢ Debit amount are always added together. ➢ Likewise, Credit amounts are always added together. ➢ But when debit amounts and credit amounts are involved, they are subtracted from each other. How to compute for normal balances?

What is the normal balance for single entry?

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The difference between total debit and total credit will become the ending balance of an account depending on its normal balances. Accounts with zero balances are considered closed accounts and they will not be included in the trial balance.

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ACTIVITY 2. Posting to ledger. Post entries to the ledger from your previous ACTIVITY 1 (Dr. Dy Clinic). ACTIVITY 3. True or False. Write TRUE if the idea being expressed is correct and FALSE if otherwise. 1. All journal entries require an explanation. 2. In journalizing, total debits should always equal total credits. 3. If the net effect of the business transaction is zero for any asset, liability, and owner’s equity accounts, there is no need to journalize it. 4. Posting can also be done in a journal. 5. Posting refers to the procedure of transferring journal entries to the ledger accounts. 6. The ledger captures all the movements (increases and decreases) in each account which were initially reflected in the journal as journal entries. 7. It is only when posting is done that the folio column in the journal will have an entry. 8. It is only when posting is done that the folio column in the ledger will have an entry. 9. After posting, all entries in the folio column both the journal and the ledger become identical. 10. After posting, an account that has total debit less than total credits will have a credit balance.

STEP 4. PREPARING THE TRIAL BALANCE TRIAL BALANCE • • • •

Is a list of accounts and their balances at a given time. It shows the equality of the debits and credits. The accounts are listed in the same manner they appear in the ledger, with accounts having zero balances skipped. The accounts in the trial balance will have either a debit or a credit balance following their balances in the ledger. Steps in preparing trial balance. 1. Indicate in the heading (centered) the details of the trial balance (name of the business, the term “ Trial Balance,” and the date).

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2. List the open accounts and their balances.

3. Total the debit and credit columns.

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4. Double rule the total of the debit and credit columns.

Normal Balances When looking at an account in the general ledger, the following is the debit or credit balance you would normally find in the account:

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How to transfer ledger balances to trial balance.

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Notice: The accounts in the trial balance have debit balance following their balances in ledger.

Notice: The accounts in the trial balance have credit balance following their balances in ledger.

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Using the balances of open accounts from the ledger, let us now take a look at how the trial balance of CRUZ REPAIR SHOP will look like.

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Since the trial balance only proves the equality of the debits and the credits after posting, a “balanced” trial balance does not guarantee accuracy of journalizing and posting.Errors may still exist even in a “balanced” trial balance. Examples of errors in a “balanced” trial balance. 1. A transaction is completely omitted. For example, a cash purchase of supplies should have been recorded as a debit to Unused supplies and credit to Cash. If the transaction was omitted. Unused Supplies account would be understated and Cash Account would be overstated. However, since these two will just offset each other, the trial balance columns would still balance. 2. A correct journal entry is not posted. For example, payment of electricity initially recognized when billed was journalized correctly but not posted as a debit to Cash and Credit to Accounts Payable.

3. A journal entry was posted twice. Posting a journalized transaction twice will still result in a balanced debits and credits despite the double posting of amounts. 4. Incorrect account titles are used in journalizing or posting. For as long as the amounts debited and credited agree, the total debits and credits will not be affected despite the incorrect account titles used.

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5. Offsetting errors made in recording the amount of the transaction. For example, the transaction involving debit to Utilities Expense and a credit to Cash should have been recorder at P2,500 but was instead journalized at P5,200, then the debit and credit would still be equal. This error is referred to as a transposition error.

“Unbalanced” trial balance and ways on how to correct it. ❖ A Trial balance that is not “balanced” is NEVER CORRECT. As such, we have to do two important things which are to (1) locate the error and (2) correct the error. ❑ Errors of this kind usually emanate from mathematical mistakes (wrong addition or subtraction), incorrect postings (posting on the wrong side of the account, incomplete posting), and incorrect transcription (error in transferring the balance from the ledger)

Locating the error in an “unbalanced” trial balance begins with determining the amount of difference between the two column s. 1. A difference of ₱1, ₱10, ₱100, or ₱1000 could mean an error in addition or subtraction. As such, just re-add the trial balance columns and recalculate the account balances. 2. A difference that is divisible by 2 could mean an error in posting on the wrong side of the account.

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3. A difference that is divisible by 9 could mean transposition error. 4. A difference that is divisible by 2 or 9 could mean an account balance has been omitted from the trial balance. As such, scan the ledger, then the journal to check whether a posting or a journal entry has been omitted.

ACTIVITY 4. Preparation of Trial Balance. Prepare trial balance for Dr. Dy, Clinic (Activity 1 and 2 continuation). ACTIVITY 5. TRUE or FALSE. Write TRUE if the idea being expressed is correct and FALSE if otherwise. 1. Both journalizing and posting are done in chronological manner. 2. When posting entries from the general journal to general ledger, the folio column should contain the same entry. 3. Posting is always required to come up with a trial balance. 4. The moment an accountant is done posting the transactions in the ledger, it is always safe to say that recording, classifying, and summarizing have already been done. 5. All errors in the trial balance can be rectified by a correcting journal entry. 6. All adjusting entries make use of real account and nominal account. 7. The conservatism principle is the principle explaining why preparing adjusting journal entries is an integral step in the accounting cycle. 8. The equality of debit and credit totals in the trial balance ensures that posting has been performed correctly. 9. When the trial balance is unbalanced, errors can easily be located by checking the work from the journal entries to the trial balance. 10. Closing entries and reversing entries are both prepared at the end of the accounting period.

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ACTIVITY 6. Journalizing, Posting and Preparing Trial Balance. ACE Repair Shop Business Transactions for the month ended December 31, 2020.

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WEEKLY HOME LEARNING PLAN

Teacher

Angilette S. Cenidoza

Learning Area

Fundamentals of Accountancy, Business and Management 1

Modality

Modular

Quarter

4th

Week

1

Date

May 17-21, 2021

MONDAY LEARNING COMPETENCY

6.

TUESDAY

records transactions of a service business in the general journal

7.

records transactions of a service business in the general journal

WEDNESDAY 8.

records transactions of a service business in the general journal

THURSDAY 9.

records transactions of a service business in the general journal

LEARNING TASKS

Read accounting cycle of a service business on page 1 to 2

Read Step 2 of accounting cycle on page 2- 5 and analyze on how to journalize business transactions.

Answer activity 1 on page 5.

Continue to answer activity 1 on page 5.

MODALITY

Modular Learning

Modular Learning

Modular Learning

Modular Learning

Distance

Distance

Distance

REFLECTION (Practical application and remarks) Prepared by:

Checked by:

Inspected by:

ANGILETTE S. CEÑIDOZA

SHEILA D. LEE

REA H. TOPACIO

Teacher

Subject Group Head

Assistant Principal II

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Distance

WEEKLY HOME LEARNING PLAN

Teacher

Angilette S. Cenidoza

Learning Area

Fundamentals of Accountancy, Business and Management 1

Modality

Modular

Quarter

4th

Week

2

Date

May 24-28, 2021

MONDAY LEARNING COMPETENCY

1.

TUESDAY

posts transactions in the ledger.

1.

posts transactions in the ledger.

WEDNESDAY 1.

posts transactions in the ledger.

THURSDAY 1.

posts transactions in the ledger.

LEARNING TASKS

Read accounting cycle step 3 on page 6 to 11.

Continue to read accounting cycle step 3 on page 6 to 11.

Answer activity 2 on page 12.

Continue to answer activity 2 on page 12.

MODALITY

Modular Learning

Modular Learning

Modular Learning

Modular Learning

Distance

Distance

Distance

REFLECTION (Practical application and remarks) Prepared by:

Checked by:

Inspected by:

ANGILETTE S. CEÑIDOZA

SHEILA D. LEE

REA H. TOPACIO

Teacher

Subject Group Head

Assistant Principal II

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Distance

WEEKLY HOME LEARNING PLAN

Teacher

Angilette S. Cenidoza

Learning Area

Fundamentals of Accountancy, Business and Management 1

Modality

Modular

Quarter

4th

Week

3

Date

May 31-June 4, 2021

MONDAY LEARNING COMPETENCY

1.

TUESDAY

posts transactions in the ledger.

1.

prepares balance

a