FUNDAMENTALS OF ACCOUNTANCY AND BUSINESS MANAGEMENT.pptx

About the basic or fundamentals of accounting..

1. FUNDAMENTALS OF ACCOUNTANCY AND BUSINESS MANAGEMENT Prepared by: Alona A. Diciano (Subject TEACHER)

2. What is accounting? The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least of financial character, and interpreting the results thereof (American Institute of Certified Public Accountants (AICPA). The process of classifying, measuring and communicating economic information to permit informed judgement and decision by users of the information.(American Accounting Association) The collection, compilation and systematic recoding of business transactions in terms of money, the preparation of financial reports, the analysis and interpretation of these reports and the use of these reports for the information and guidance of management.(A.W. Johnson)

3. NATURE OF ACCOUNTING Process Art Means not an end Deals with financial information and transactions Information system

4. HISTORY OF ACCOUNTING Accounting made its beginning since the ancient period of time. But when, where and how the process of accounting practices exactly started is not very much clear. In the ancient period of time, when people happened to live in the forests, jungles and caves and hunted animals for livelihood, they used to inscribe the records of their daily hunting on the walls of the caves. With the passage of time, human beings gradually started their social lives and started keeping their accounts by marking ticks on walls, making rope-knots and using various symbols. With the gradual-increased demand of human needs and desires, the necessity of accounting was felt sharply. Luca Pacioli - the father of Accounting brought a revolutionary change in the field of accounting by writing a book on Mathematics-”Summa de Arithmetica Geometria Proportioniet Proportionlita ”- containing a chapter – “De Computes it Scriptures”- in which Double Entry System of bookkeeping was explained. The Double Entry System is a recognized and generally accepted system all over the word and till date, this system is being used widely with its basic principle unchanged.

5. BRANCHES OF ACCOUNTING 1. FINANCIAL ACCOUNTING involving recording and classifying business transactions, and preparing and presenting financial statements to be used by internal and external users such as the investors, lenders, suppliers, government agencies, customers. 2. MANAGEMENT OR MANAGERIAL ACCOUNTING focuses on providing information for use by internal users, the management to assist them in their various functions of planning, directing and controlling the affairs of the business. 3. GOVERNMENT ACCOUNTING deals with the administration or use of public or community funds to bring about service to the people. 4. AUDITING External Auditing- refers to the examination of financial statements by an independent part with the purpose of expressing an opinion as to fairness of presentation and compliance with GAAP. Internal Auditing- focuses on evaluating the adequacy of a company’s internal control structure by testing segregation of duties, policies and procedures, degrees of authorization, and other controls implemented by management.

6. 5. TAX ACCOUNTING helps clients follow rules set by tax authorities. It includes tax planning and preparation of tax returns. It also involves the determination of income tax and other taxes, tax advisory services such as ways to minimize taxes legally, evaluation of the consequences of tax decisions, and other tax-related matters. 6. COST ACCOUNTING is very useful in manufacturing business since manufacturing businesses have the most complicated costing process. 7. ACCOUNTING EDUCATION is a professional filed where the accountant assumes the role of a teacher or reviewer. 8. ACCOUNTING RESEARCH investigates and makes a study of creating, applying, relating or improving theories and business concepts that will suit the changes taking place in a particular business or industry sector. 9. ACCOUNTING INFORMATION SYSTEMS involve the development, installation, implementation, and monitoring of accounting procedures and systems used in the accounting process. 10. FIDUCIARY ACCOUNTING involves handling of accounts managed by a person entrusted with the custody and management of property of or for the benefit of another person. 11. FORENSIC ACCOUNTING involves court and litigation cases, fraud investigation, claims and dispute resolution, and other areas that involve legal matters.

7. USERS OF ACCOUNTING INFORMATION 2. EXTERNAL USERS Creditors Investors Government Consumers Researchers Financial institutions Regulatory agencies 1. INTERNAL USERS Owners management Employees

8. FORMS OF BUSINESS ORGANIZATION 1. PROPRIETORSHIP - owned by a single individual who has full control and authority in running this kind of business. 3. CORPORATION - owned by its shareholders. It is composed of juridical persons established under the Corporation Code nd regulated by the SEC with a personality separate and distinct from that of its stockholders. Stock Corporation -with capital stock divided into shares and authorized to distribute to the holders. Non-stock Corporation -organized principally for public purposes 2. PARTNERSHIP -business owned by two or more individuals or partners. 4. COOPERATIVE -is a duly registered association of persons with a common bon of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contribution to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

9. TYPES OF BUSINESS ACCORDING TO ACTIVITIES 1. Service Business -provides intangible goods or services to customers. It generated profit by charging for labor or other services rendered to customers, government or other companies. 2. Merchandising Business -This type of business purchases products from other businesses or manufacturers and sell them to customers. 3. Manufacturing Business -This type of business converts raw materials, labors, and overhead into finished products that are available for sale to customers. 4. Other Business -These include businesses that can’t be classified as service, merchandising or manufacturers.

10. ACCOUNTING CONCEPTS AND PRINCIPLES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) - Set of rules, concepts and principles that govern the application of the accounting BASIC ACCOUNTING PRINCIPLES AND CONCEPTS BUSINESS ENTITY- GOING CONCERN MONETARY UNIT HISTORICAL COST MATCHING ACCOUNTING PERIOD CONSERVATISIM CONSISTENCY MATERIALITY OBJECTIVITY REVENUE RECOGNITION PRINCIPLE

11. THE ACCOUNTING EQUATION ASSETS = LIABILITIES + EQUITY ASSET - is a resource that is owned or controlled by the company to be used for future benefits. LIABILITIES – is an amount of money owed to another person or organization. EQUITY - represents the portion of company assets that owner or in the case of a partnership and corporation, what the partners and shareholders own, respectively.

12. ACCOUNTING EQUATION FORMULA ASSETS = LIABILITIES + EQUITY CASH P 100,000.00 = NONE OWNER’S CAPITAL P 100,000.00 After the company formation Speakers, Inc. needs to buy some equipment for installing speakers, so it purchases P 20, 000.00 of installation equipment from a manufacturer for cash. ASSETS = LIABILITIES + EQUITY CASH P 80,000.00 = P 0.00 OWNER’S CAPITAL P 100,000.00 EQUIPMENT 20,000.00 = Total P 100, 000.00 = P 0.00 P 100, 000.00 Ted is an entrepreneur who wants to start a company selling speakers for car stereo systems. After saving up money for a year, Ted decides it is time to officially start his business. He forms Speakers, Inc. and contributes ₽ 100,000.00 to the company.

13. ACCOUNTING EQUATION FORMULA After six months, Speakers, Inc. is growing rapidly and needs to find a new place of business. Ted decides it makes the most financial sense for Speakers, Inc. to buy a building. Since Speakers, Inc. doesn’t have P 500, 000.00 in cash to pay for a building, it must take out a loan. Speakers, Inc. purchases a P500, 000.00 building by paying P50, 000.00 in cash and taking out a P 450, 000.00 mortgage. ASSETS = LIABILITIES + EQUITY CASH P 30, 000.00 = P 0.00 OWNER’S CAPITAL P 100,000.00 EQUIPMENT 20, 000.00 = MORTGAGE PAYABLE 450, 000.00 BUILDING 500, 000.00 = Total P 550, 000.00 = P 450, 000.00 P 100, 000.00

14. EXPANDED ACCOUNTING EQUATION ASSETS = LIABILITIES + COMMON STOCK – DIVIDENDS + PAID IN CAPITAL – TREASURY + REVENUES - EXPENSES CORPORATION: ASSETS = LIABILITIES + PARTNERS CAPITAL– DISTRIBUTIONS+ REVENUES - EXPENSES PARTNERSHIP: SOLE PROPRIETORSHIP: ASSETS = LIABILITIES + OWNER’S CAPITAL– WITHDRAWALS+ REVENUES - EXPENSES

15. TYPES OF MAJOR ACCOUNTS DEFINITION OF ACCOUNT ACCOUNT – is simply a record of all changes to as specific asset, liability, or equity item. ACCOUNT FORMAT T- ACCOUNT DEBIT CREDIT Totals Totals

16. ASSET ACCOUNTS Resource that is owned or controlled by a company that can be used to provide a future economic benefit Current Assets Cash Cash Equivalents Accounts Receivable Notes Receivable Prepaid Expenses Inventory Supplies Non-Current Assets or Long-Term Assets Fixed Assets Intangible Assets

17. LIABILITY ACCOUNTS Defined as debts owned to other companies. Current Liabilities Accounts Payable Accrued Expenses EQUITY ACCOUNTS Defined as the owner’s interest in the company assets. Often referred to as net assets or assets minus liabilities Non-Current Liabilities Bonds Payable Notes Payable Unearned Revenue

18. Partnership Equity Accounts Owner’s or Partner’s Capital- -used by the partnerships and sole proprietors that consists of contributed capital, invested capital, and profits left in the business. Owner’s or Partner’s Withdrawal- - Show the amount of money the owner’s have taken out of the business

19. Ordinary Share (Common Stock) - Is an equity account that records the amount of money investors initially contributed to the corporation for their ownership in the company. Corporation Equity Accounts Share Premium or Paid-In Capital in excess of par -is the excess amount above par value that shareholders contribute to the company.

20. Treasury Stock- - Shares that are purchased by the company. Dividends - Distributions of company profits to shareholders. Retained Earnings - Represents accumulated earnings of companies that are not distributed to shareholders in the form of dividends.

21. - Is an account with a balance opposite the normal accounts in the category. Contra Accounts -is an equity account with a credit balance Income Accounts

22. - Are generated from a company’s main business activities. Operating Revenues Non-Operating Revenues or Other Income -Incudes all revenues generated by a company outside of its normal operations.

23. Expenses Account - Are the costs incurred to generate revenues. Operating Expenses - Include all costs that are incurred to generate operating revenues like merchandise salaries Non-operating Expenses -Include costs that can’t be linked back to operating revenues.

24. Chart of Accounts -Is a list of every account in the general ledger of an accounting system. - It doesn’t include any other information about each account like balances, debits, and credits like a trial balance does. - This is like a index cards of accounts that the bookkeeper and the accounting software can use to record transactions, make reports, and prepare financial statements throughout the year. Each account is typically assigned a number based on the order it appears on the financial statements.

25. Number Description Account Type Financial Statements 101 Cash Asset Financial Position (Balance Sheet) 111 Accounts Receivable Asset Financial Position (Balance Sheet) 121 Prepaid Expense Asset Financial Position (Balance Sheet) 131 Inventory Asset Financial Position (Balance Sheet) 141 Fixed Assets Asset Financial Position (Balance Sheet) 151 Accumulated Depreciation Asset Financial Position (Balance Sheet) 161 Other Assets Asset Financial Position (Balance Sheet) 201 Accounts Payable Liability Financial Position (Balance Sheet) 211 Accrued Expenses Liability Financial Position (Balance Sheet) 221 Taxes Payable Liability Financial Position (Balance Sheet) 231 Notes Payable Liability Financial Position (Balance Sheet) 301 Capital Equity Financial Position (Balance Sheet) 302 Drawings Equity Financial Position (Balance Sheet) 401 Revenue Revenue Income Statement 411 Other Revenue/Income Revenue Income Statement 501 Salaries Expenses Expense Income Statement 511 Rent Expense Expense Income Statement 521 Supplies Expense Expense Income Statement 531 Utilities Expense Expense Income Statement 541 Other Expense Expense Income Statement

26. Things to be considered in creating a chart of accounts for any business: 1. NUMBERING - Don’t use all con-current numbers for each accounts. There will be a need later to add accounts in the future. If there will be no gaps in between each number, there will be difficulty in adding new accounts in the right order. 2. SIZE - Set up the chart to have enough accounts to record transactions properly, but without overboard. 3. CHANGES - It’s inevitable that there will be a need to add accounts to the chart in the future, without drastically changing the numbering structure and total number of accounts.

27. BOOK OF ACCOUNTS General Journal- is a collection of all journal entries in an accounting system. Format of General Journal Journal Entry Format Date Account Name Debit Credit January 1 Debited Account Credited Account xxx x xx Description of the Journal Entry

28. Accounting Ledger- is most often called the general ledger because it contains a listing of all general accounts in the accounting system’s chart of accounts. A general ledger or accounting ledger is a record or document that contains account summaries for accounts used by a company. FORMAT OF GENERAL LEDGER General Ledger Account Number Account Description Debits Credits 1 2 3 Assets Liabilities Equity 100 1 9 Totals 100 100 Subsidiary Ledgers - is a group of accounts/records of similar types

29. Relationship of General ledger and subsidiary ledger Accounts Receivable Subsidiary Ledgers Accounts Payable Subsidiary Ledgers Fixed Assets Subsidiary Ledgers

30. Special Journals Types of Special Journals Sales Journal -used to record sales transactions Sales Journal Format Date Customer Invoice # F Accounts Receivable(Debit) Sales (Credit)

31. 2. Purchase Journal- is used to record purchases of merchandise/inventory. Purchases Journal Format Date Supplier Invoice # F Purchases (Debit) Accounts Payable (Credit) 3. Cash Receipts Journal- is used to record cash transactions Cash Receipts Journal Format Date Received from F Explanation OR # Cash Sales Discount Accounts Receivable SUNDRY Debit Debit Credit Account F Debit Credit

32. 4. Cash Disbursement Journal- is used to record cash payments. Cash Disbursements Journal Format Date Paid to F Explanation Voucher # Cash Purchase Discount Accounts Payable SUNDRY Credit Credit Debit Account F Debit Credit

33. Accounts and their Balances Asset - All normal accounts have a debit balance 2. Liabilities – all normal liabilities have a credit balance 3. Equity Accounts- like capital has normally a credit balance 4. Revenue Accounts- represents amount received for services rendered or goods sold to customers 5. Expense Accounts- represents amount received for services rendered or goods sold to customers 6. Contra Accounts- are accounts that have an opposite debit or credit balance.

34. JOURNAL ENTRIES -are the first step to record all business transactions and events in the accounting system. 1. Identify Transactions 2. Analyze Transactions 3. Journalizing Transactions

35. Journal Entry Format -Simply record the changes to the accounting equation based on the business transactions. Journal Entry Format Date Account Name Debit Credit January 1 Debited Account Credited Account xxx x xx Description of the Journal Entry Example: Purchase of supplies for office use amounting to ₽100.00 and paid in cash. Journal Entry Format Date Account Name Debit Credit January 1 Supplies Cash 100.00 100.00 Purchase company supplies

36. Accounting Equation Asset = Liability Equity Cash Supply (₽100) ₽100 Double-Entry Accounting – is the accounting that requires every business transaction or event to be recorded in an at least two accounts. Accounting Equation Assets = Liabilities + Equity Debits increase Credits Decrease Debits Decrease Credits Increase Debits Decrease Credits Increase

37. Example Journal Entry Date Account Name Debit Credit July 1, 2017 Vehicle Cash To record purchase of new vehicle 500,000 00 5 00,000 EXAMPLE: Bob’s furniture company needs to buy a new delivery truck because the current truck is starting to fall apart. Bob purchases the new truck for ₽ 500,000, by writing a check to the car company after receiving the truck in exchange.

38. Example Journal Entry Date Account Name Debit Credit July 1, 2021 Vehicle Cash Accounts Payable To record purchase of new vehicle 500,000 00 25 0,000 2 50,000 Let’s take the same example as earlier except that let’s assume Bob furniture Company’s paid for the truck by paying a 50% down payment and balance on credit. Bob Furniture Company’s vehicle account would still increase by ₽ 500,000, but cash will decrease by ₽ 250,000 (50% down payment and accounts payable will increase due to the unpaid balance (50%).

39. Now let’s assume that Bob’s Furniture Company didn’t purchase the truck at all. It couldn’t afford to buy a new one, so Bob, the owner just contributed his personal truck (with market value also of ₽ 500,000 to the company. Example Journal Entry Date Account Name Debit Credit July 1, 2021 Vehicle Bob’s Capital To record the new vehicle as capital contribution 500,000 00 50 0,000

40. Business Transactions and Their Analysis as applied to the Accounting Cycle of a service business Service Business is an enterprise composed of a professional or team experts that deliver work or aid in completing a task for the benefit of its customers Service business transactions refers to activities and events that affect the financial position of a business and are capable of being assigned monetary values. These business transactions are recorded in the books of the business and summarized in financial reports.

41. Characteristics of a Service Business Transactions 1. It must be for a sum certain in money (i.e.., of a financial value) 2. It must be supported by a source document (i.e.., invoice, official receipt, disbursement voucher, etc.) 3. It must have a two-fold effect in the elements of accounting or dual accounting.

42. Examples of Service Business Transactions Investment of cash or other assets by the owners. Withdrawal of cash or other assets by the owners. Borrowing of cash from other entities for business use. Payment of borrowings. Rendering services for a fee (either for cash or on credit/account). Collection of receivables from customers and their entities. Consumption of assets (such as use of office supplies and expiration of insurance, expiration of rent, depreciation of equipment, etc ).

43. Two-Fold Effect on the Elements of Accounting * For every value received, there is an equal value given. Transactions Assets = Liabilities = Equity 1. Cash investment of owner Cash (+) N/A Owner’s Capital (+) 2. Borrowed cash from bank Cash (+) Loan Payable (+) N/A 3. Purchased equipment for cash Cash (-) Equipment (+) N/A N/A 4. Paid business licenses Cash (-) N/A Expenses (-) 5. Paid water electricity used Cash (-) N/A Expenses (-) 6. Purchased tables, 50% cash and 50% on account Furniture (+) Cash 50% (-) Accounts Payable (+) N/A 7. Received cash from services rendered Cash (+) N/A Revenues (+) 8. Rendered services on account Accounts Receivable (+) N/A N/A 9. Collected customer accounts Accounts Receivable (-) Cash (+) N/A N/A 10. Owner withdrew cash from business Cash (-) N/A Owner Withdrawal (-)

44. THE ACCOUNTING CYCLE The Accounting cycle is a set of steps that are repeated in the same order every period. Steps of the Accounting Cycle 1. Identify business events, whether these meet the criteria of business transactions that need to be recorded. 2. Analyze these transactions, and record them as journal entries in the General Journal and Subsidiary Ledgers; 3. Post journal entries to applicable T accounts or General Ledger; 4. Prepare an unadjusted trial balance from the general ledger;

45. Steps of the accounting cycle… 5. Analyze the trial balance and make end of period adjusting entries; 6. Post adjusting journal entries and prepare the adjusted trial balance; 7. Use the adjusted trial balance to prepare financial statements; 8. Close all temporary accounts or income statement accounts by preparing closing entries; 9. Prepare the post closing trial balance. 10. Prepare reversing entries (optional) for the next accounting period.

46. Recording of transactions of a Service Business in the General Journal An accounting journal, also called the book of first entry, is a record of business transactions and events for a specific account. Throughout this section, the business events and transactions that happen to Peter’s car wash, a car wash service provider, will be used over the course. The following transactions for the first month of the operation of Peter’s Car Wash business were identified through the business documents,

47. June 1- Peter invested cash amounting to ₽100,000 to the Peter’s Car Wash business 2- Paid ₽5,000 to Mr. Jose for all the business licenses requirements. 5- Purchased office supplies amounting to ₽2,500 from National Book Store. 6- The business paid rent for the month amounting ₽10,000 to Mrs. Cruz plus 2 months advance rent deposit amounting to ₽20,000. 7-Purchased car wash equipments amounting to ₽55,000 from ACNE Inc. and paid 25% down payment with the balance to be paid in 6 equal monthly installments subject to 5% interest. 9-Purchased car wash supplies from GEO ENTERPRISE AMOUNTING TO ₽7,500 15-Rendered services to various clients and per official receipts, the total amount received totaled to ₽18,000.00. 16-Paid the salary for the half month amounting to ₽9,000.00 22-Rendered car wash services on account amounting to ₽12,000. 24-Cash received for the services rendered for the week amounts to ₽15,000 27-Collected ₽6,000 from customer who availed of services on account 29-Peter withdrew ₽3,000 cash from the business 30-Paid the salary for the last half of the month amounting to ₽9,000 30-Office supplies used was only ₽500 while car wash supplies used amounts to ₽3,500 30- Paid ₽4,000 for water and electricity consumption for the month 2017

48. 1 –Peter invested cash amounting to ₽ 100,000 to the Peter’s Car Wash business GENERAL JOURNAL Date (2017) Description F Debit Credit June 01 Cash 100,000 00 Peter’s Capital 100,000 00 To record Peter’s initial investment 2- Paid ₽ 5,000 to Mr. Jose for all the business licenses requirements 02 Licenses Expense 5,000 00 Cash 5,000 00 To record payment of licenses 05 Office Supplies 2,500 00 Cash 2,500 00 To record purchase of office supplies 5-Purchased office supplies amounting to ₽ 2,500 from National Book Store 06 Rent Expense 30,000 00 Cash 30,000 00 To record payment of rent and rent deposit 6-The business paid rent for the month amounting to ₽20,000 June

49. GENERAL JOURNAL Date (2017) Description F Debit Credit June 07 Car Wash Equipment 55,000 00 Cash (25% of ₽55,000) 13,750 00 Accounts Payable 41,250 00 To record purchase of Car Wash equipment 7- Purchased car wash equipment’s amounting to ₽ 55,000 from ACNE Inc. and paid 25% down payment with the balance to be paid in 6 equal monthly installments subject to 5% interest 09 Car Wash Supplies 7,500 00 Cash 7,500 00 To record purchase of Car Wash Supplies 15 Cash 18,000 00 Car Wash Revenue 18,000 00 To record cash received from customers 9-Purchased car wash supplies from GEO Enterprise amounting to ₽7,500 15-Rendered services to various clients and per official receipts, the total amount received totaled to ₽18,000.00.

50. GENERAL JOURNAL Date (2017) Description F Debit Credit June 16 Salary Expense 9,000 00 Cash 9,000 00 To record payment of salary 16-Paid the salary for the half month amounting to ₽ 9, 000.00 22 Accounts Receivable 12,000 00 Car Wash Revenue 12,000 00 To record revenue on account 22-Rendered car wash services on account amounting to ₽ 12,000.00 24 Cash 15,000 00 Car Wash Revenue 15,000 00 To record cash received from customers 24-Cash received for the services rendered for the week amounts to ₽15,000.00 27 Cash 6,000 00 Accounts Receivable 6,000 00 To record collection of accounts receivable 27-Collected ₽6,000 from customer who availed of services on account

51. GENERAL JOURNAL Date (2017) Description F Debit Credit June 29 Peter Withdrawal 3,000 00 Cash 3,000 00 To record cash withdrawal by the owner 29-Peter withdrew ₽3,000 cash from the business 30 Salary Expense 9,000 00 Cash 9,000 00 To record payment of salary 30-Paid the salary for the last half of the month amounting to ₽9,000 30 Office Supplies Expense 500 00 Office Supplies 500 00 To record office supplies used 30-Office supplies used was only ₽500 while car wash supplies used amounts to ₽3,500 30 Car Wash Supplies Expense 3,500 00 Car Wash Supplies 3,500 00 To record Car Wash Supplies used

52. GENERAL JOURNAL Date (2017) Description F Debit Credit June 30 Utilities Expense 4,000 00 Cash 4,000 00 To record payment of water and electricity 30-Paid ₽4,000 for water and electricity consumption for the month GENERAL JOURNAL Date (2017) Description F Debit Credit June 30 Salary Expense 9,000 00 Office Supplies Expense 500 00 Car Wash Supplies Expense 3,500 00 Utilities Expense 4,000 00 Cash 13,000 00 Office Supplies 500 00 Car Wash Supplies 3,500 00 To record salary, office supplies, car wash supplies, and utilities expenses

53. T-ACCOUNT 6/1 100,000.00 6/15 18,000.00 6/24 5,000.00 6/27 6,000.00 6/2 5,000.00 6/5 2,500.00 6/6 30,000.00 6/7 13,750.00 6/9 7,500.00 6/16 9,000.00 6/29 3,000.00 6/16 9,000.00 6/30 4,000.00 129,000.00 83,750.00 45,250.00 Cash 101 6/7 55,000.00 Car Wash Equipment 151 6/6 30,000.00 Rent Expense 501 Peter’s Capital 301 6/1 100,000.00 6/16 9,000.00 6/30 9,000.00 Salary Expense 511 18,000.00 Accounts Receivable 111 6/22 12,000.00 6,000.00 Peter’s Withdrawal 311 Office Supplies Expense 521 6/29 3,000.00 6/30 500.00 6/27 6,000.00 Office Supplies 121 6/30 500.00 6/22 2,500.00 2,000.00 Car Wash Supplies 131 6/9 7,500.00 4,000.00 6/30 3,500.00 201 Accounts Payable 6/7 41,250.00 Car Wash Revenue 401 6/15 18,000.00 6/22 12,000.00 6/24 5,000.00 35,000.00 Car Wash Supplies Expense 531 6/30 3,500.00 Utilities Expense 541 Licenses Expense 551 6/30 4,000.00 6/30 5,000.00

54. Prepare the Trial Balance The trial balance sheet is a report that list the ending balances of each account in the chart of accounts in balance sheet order. It typically has four columns with the following descriptions: account number, name, debit balance, and credit balance. It’s always sorted by account number, so anyone can easily scan down the report to find an account balance. Not all accounts in the chart of accounts are included on the TB, however. Usually only active accounts with year-end balance are included in the TB because accounts with zero balances don’t make it on the financial statements. This step saves a lot time for accountants during the financial statement preparation process because they don’t have to worry about the balance sheet and income statement being off due to an out-of-balance error. Keep in mind, this does not ensure that all journal entries were recorded accurately. It just means that the credits and debits balance. A journal entry error an still exist.

55. Account Number Account Name Debit Credit 101 Cash 45,250.00 111 Accounts Receivable 6,000.00 121 Office Supplies 2,000.00 131 Car Wash Supplies 4,000.00 151 Car Wash Equipment 55,000.00 201 Accounts Payable 41,250.00 301 Peter’s Capital 100,000 .00 311 Peter’s Withdrawal 3,000 .00 401 Car Wash Revenue 501 Rent Expense 30,000.00 35,000.00 511 Salary Expense 18,000.00 521 Office Supplies Expenses 500.00 531 Car Wash Supplies Expense 3,500.00 541 Utilities Expense 4,000 .00 551 Licenses Expenses 5,000.00 176,250.00 176,250.00 Peter’s Car Wash Trial Balance For the month of June 2017

56. Business Transactions of Peter’s Car Wash Business for Adjustment 1. The rental payment for 3 months amounting ₽10,000 per month or totaling ₽30,000 should not all be charged for the month of June 2017 but only ₽10,000. The other ₽20,000 will be considered as prepaid rent or rent deposit which is an asset account. Adjusting Entry GENERAL JOURNAL DATE 2017 Description F Debit Credit 30 Prepaid Rent or Rent Deposit 20,000 00 Rent Expense 20,000 00 To record adjustment for Rent Expense

57. 2. The Accounts Payable for the purchased of the Equipment is subject to 5% interest. Hence, the interest expense (1 month only) will be recorded or accrued for the month of June 2017 and not only when the balance will be paid in full. This is based on the Accrual Principle and the Matching principle. Adjusting Entry GENERAL JOURNAL DATE 2017 Description F Debit Credit 30 Interest Expense ( ₽41,250 X 5% X 1/12) 171 88 Interest Payable 171 88 To record Interest expense for the unpaid balance of Equipment purchased

58. 3. The equipment was used in the operation of the business for one month. Hence a corresponding depreciation for its use will be allocated as expense. This is based on Depreciation Accounting where the cost was initially recorded as asset but it will be allocated over its useful life.For computational purpose, it will be estimated that the life of the equipment of Peter’s Car Wash will be for five (5) years. GENERAL JOURNAL DATE 2017 Description F Debit Credit 30 Depreciation Expense 916 67 Accumulated Depreciation 916 67 To record Depreciation Expense for the month of June Adjusting entry

59. The adjusting entries will then be posted in the General Ledger as follows: 6/30 916.67 Accumulated Depreciation 211 Prepaid rent 141 6/30 20,000.00 Depreciation Expense 561 6/30 916.67 Rent Expense 501 6/6 30,000.00 6/30 20,000.00 10,000.00 Interest Payable 161 6/30 171.88 Interest Expense 571 6/30 171.88

60. Preparation of Adjusted Trial Balance Account Number Account Name Debit Credit 101 Cash 45,250.00 111 Accounts Receivable 6,000.00 121 Office Supplies 2,000.00 131 Car Wash Supplies 4,000 .00 141 Prepaid Rent 20,000.00 151 Car Wash Equipment 55,000.00 161 Accumulated Depreciation 916.67 201 Accounts Payable 41,250.00 211 Interest Payable 171.88 301 Peter’s Capital 100,000.00 311 Peter’s Withdrawal 3,000.00 401 Car Wash Revenue 35,000.00 501 Rent Expense 10,000 .00 511 Salary Expense 18,000.00 521 Office Supplies Expense 500.00 531 Car Wash Supplies Expense 3,500.00 541 Utilities Expense 4,000.00 551 Licenses Expense 5,000.00 561 Depreciation Expense 916.67 571 Interest Expense 171.88 177,338.55 177,338.55 Peter’s Car Wash Adjusted Trial Balance For the month of June 2017

61. Preparation of the Financial Statements Preparing financial statements including the income statement, statement of changes in owner’s equity, statement of financial position (balance sheet), and statement of cash flows is the most important step in the accounting cycle because it represents the purpose of financial accounting. These statements are the end product if the accounting system in any company. Revenues Car Wash Revenues ₽ 35,000.00 Total Revenues ₽ 35,000.00 Less: Expenses Rent Expense ₽ 10,000.00 Salary Expense 18,000.00 Office Supplies Expense 500.00 Car Wash Supplies Expense 3,500.00 Utilities Expense 4,000.00 Licenses Expense 5,000.00 Depreciation Expense 916.67 Interest Expense 171.88 Total Expenses 42,088.55 Net Profit (Loss) ₽ (7,088.55) Peter’s Car Wash Income Statement For the Month of June 2017

62. Peter’s Car Wash Statement of Financial Position As of June 2017 Peter’s Capital-Beginning ₽ 100,000.00 Add: Additional Investment 0.00 Net Profit (Loss) (7,088.55) Total ₽ 92,911.45 Less: Withdrawal 3,000.00 Peter’s Capital End ₽ 89,911.45 Peter’s Car Wash Statement of Changes in Equity For the Month of June 2017 Assets Liabilities & Owner’s Equity Cash ₽ 45,250.00 Liabilities Accounts Receivable 6,000.00 Accounts Payable ₽ 41,250.00 Office Supplies 2,000.00 Interest Payable 171.88 Car Wash Supplies 4,000.00 Total Liabilities ₽ 41,421.88 Prepaid Rent 20,000.00 Car Wash Equipment 55,000.00 Owner’s Equity Accumulated Depreciation (916.67) Peter’s Capital ₽ 89,911.45 Total Assets ₽131,333.33 Total Liabilities & Owner’s Equity ₽131,333.33

63. Peter’s Car Wash Statement of Cash Flows For the month of June 2017 Cash flows from Operating Activities Cash Received from Customers ₽ 29,000.00 Cash Payment of Expenses (67,000.00) Net Cash Outflows from Operating Activities ₽ (38,000.00) Cash flows from Investing Activities Cash Payment for Purchased Equipment ₽( 13,750.00) Net Cash Outflows from Investing Activities (13,750.00) Cash Flows from Financing Activities Cash Investment from Owner ₽ 29,000.00 Cash Withdrawal of owner (67,000.00) Net Cash Inflow from Financing Activities 97,000.00 Net Increase in Cash ₽ 45,250.00 Cash Balance Beginning 0.00 Cash Balance End ₽ 45,250.00 Completion of the Accounting Cycle Closing Entries Are made at the end of the accounting period to prepare temporary accounts for the next period. Temporary or nominal accounts , (also called income statement accounts), are measured periodically. Four Steps in Preparing Closing Entries Close all income accounts to income summary Close all expense account to Income summary Close Income Summary to the appropriate capital account Close withdrawals to the capital account/s (for sole proprietorship only).

64. GENERAL JOURNAL Date (2017) Description F Debit Credit June 30 Car Wash Revenue 35,000 00 Income Summary 35,000 00 To close revenue account GENERAL JOURNAL Date (2017) Description F Debit Credit June 30 Income Summary 42,088 55 Rent Expense 10,000 00 Salary Expense 18,000 00 Office Supplies Expense 500 00 Car Wash Supplies Expense 3,500 00 Utilities Expense 4,000 00 Licenses Expense 5,000 00 Depreciation Expense 916 67 Interest Expense 171 88 To close all expenses account for the month of June 2017 Peter’s Capital 7,088 55 Income Summary 7,088 55 To close Net Loss for the month of June Peter’s Capital 3,000 00 Peter’s Withdrawal 3,000 00 To close Peter’s Withdrawal

65. Post Closing Trial Balance A post-closing trial balance is prepared after closing entries are made and posted to the ledger. It is the third (and last) trial balance prepared in the accounting cycle. Reversing Entries Reversing entries are journal entries made at the beginning of each accounting period. The sole purpose of a reversing entry is to cancel out a specific adjusting entry made at the end of the prior period, but they are optional and not every company uses them. The Reversing entries for Peter’s Car Wash General Journal Date (2017) Description F Debit Credit July 01 Rent Expense 20,000 00 Prepaid Rent or Rent Deposit 20,000 00 To record reversing entries for Rent Expense Interest Payable 171 88 Interest Expense 171 88 To record reversing entries for Interest Expense