FundAcc Midterms

What are the10 Steps of the Accounting Cycle?

1. identifying and collecting source documents

2. journalizing transactions

3. posting to the ledger

4. preparing unadjusted trial balance

5. creating adjusting entries

6. preparing adjusted trial balance

7. preparing financial statements

8. making closing entries

9. preparing post-closing trial balance

10. reversing entries (optional)

What are permanent assets?

Assets, Liabilities, Equity

found in the Balance sheet

don’t need to be reset to 0 every accounting cycle, their current balances are carried to the next cycle

What are temporary assets?

Revenues, Expenses

found in the income statement

need to make this = to 0 every accounting cycle: their balances aren’t carried to the next cycle

What is a Trial balance prove?

that debit and credit are balanced

Identifying and collecting source documents: What are source documents?

Source documents (aka business papers) - documents evidencing a all of business’s transactions

no. of transactions = no. of entries

What are the types of source documents?

sales invoice / purchase invoice

official receipt

cash voucher

check voucher

cheques

promissory note

deposit slip

debit note / credit note

statement of account

employee time card

What is a sales invoice / purchase invoice?

Given by the seller to prove a buyer’s purchase

No payment is made yet by the buyer (debt)

What is an official receipt?

most common type of source document (along w/ invoice)

used when payment is alr made by the buyer

also serves as proof of purchase

What are credit cards considered as?

considered cash transactions by sellers

considered debt for buyers

What is a cash voucher?

used when there’s no receipt or invoice (ex: jeepney drivers ata idk di ako nakinig sa part nato)

contains a description, amt paid, and a signature

what is the importance of a signature?

ALWAYS included in source documents to prove legitimacy

What is a check voucher?

explains the reason for payment (unlike cheques)

What are cheques?

direct deduction from the maker’s bank acc

used for big amts of payment

always ends in ONLY ; uses fractions instead of decimals / decimal points

expires (6 months max, then it is considered stale)

What happens to a stale cheque?

It is voided b4 the maker can issue a new one

What happens when a bouncing check is redeemed?

not enough money in the maker’s bank acc to fund the cheque

penalties are imposed on the maker (such as fines)

what is a promissory note?

promises to pay a certain amt in the future

handwritten, printed, or formatted

need to state currency

used for liability in the courts

what is a deposit slip?

allows you to deposit cash in the bank

what is a debit note / credit note?

debit note = seller’s pov

credit note = buyer’s pov

are the exact same document, just w/ different names based on the pov

what is a statement of account?

summary of all the total liabilities in a period; almost always made by the seller

negative means may utang yung seller

positive means may utang yung buyer

what are the types of statements of accounts?

bank statement

credit card statement

loan statement

what is a bank statement?

between the bank and account owner

money deposited in the bank = bank’s debt to you

what is a credit card statement?

summary of all credit card transactions

(+) - you’re in debt

(-) - the bank owes you

what is a loan statement?

break down of your debt

what ia an employee time card?

records the time in and time out of an employee which determines their salary

Journalizing Accounting Transactions: What are accounting transactions?

accounting transactions

• transaction - defined as an exchange of values between 2 parties expressed in monetary terms

• one person wins, the other one loses the same amt the other wins

• NEEDS: exchange of items, at least 2 parties, in terms of money

• doesn’t matter if an item isn’t received yet, it’s still a transaction as long as payment is already made

• ATLEAST 2 accounts are affected (debit and credit)

• must have dual effects (for every value received, there’s a value parted)

• Double Entry Bookkeeping or Venetian Model

• the 2 (or more) accts affected can be any combo of the 5 components

What is Double Entry Bookkeeping or the Venetian Model?

“every transaction entry must have a debit equal to a credit no matter how many accounts are affected”

Sum of debit = Sum of credit (They should be balanced/equal)

debit side is always first (left) and aligned w/ the date

credit side is always indented (right), the description is indented farther than the credit

General journal

Journalization

what is bartering?

merely the exchange of items (unlike a transaction which needs currency)

what is a donation?

has a donor and a donee

still considered a transaction bcs the donor expects clout/advertising

examples that aren’t transactions

• Soriano hires tourist guides for a salary of 10k pesos - nothing has been stated to be done or be paid

• An order was placed w/ Good Health Trading amounting to 10k pesos - no exchange of currency yet bcs only an order was placed, never assume an order is already paid unless stated otherwise

examples that are transactions

• Amiel borrows 1M pesos from the bank - bank almost always gives the money immediately, so it is received immediately

• Gomez made a 5k peso withdrawal for personal use - there’s an exchange of currency between Gomez and the bank

Can you combine journal entries?

yes, as long as they occured on the same day

what are the 4 parts of a journal entry?

• Date of transaction

• The account title and the amount of debit (debit side)

• The account title and the amount of credit (credit side)

• Explanation

what is a general journal?

book of original entry

chronological arrangement of business transaction entries

two-column general journal - simplest form of journal

Debit total > Credit total = DEBIT BALANCE

Debit total < Credit total = CREDIT BALANCE

Journalization

process of recording in the book

Every entry made is called a Journal Entry (which can be combined as long as they occurred on the same day)

source documents → journal entries (journalizing)

What are the 2 types of journal entry?

Single/Simple Journal Entry - 2 accts only (1 debit and 1 credit)

Compound Journal Entry - 3 or more accts (credit and debit must still be =)

what is The account?

device used to record or monitor the changes that happened within an accounting element

basic unit

what are examples of the account?

Cash, Inventory, Land, Income Tax Payable, Miscellaneous Expense, Sales

what is the chart of accounts?

listing of the account titles which guides the bookkeeper in the recording of the transactions.

combination of all accounts

made on the first day of the accounting cycle

Acct #s used to identify components

what are the acct #s used in the chart of accounts?

assets: 100-199

liabilities: 200-299

equity: 300-399

revenue/income: 400-499

expenses: 500-599

• adhere strictly, only loop back when all #s are full

what are the ELEMENTS OF FINANCIAL STATEMENTS?

Statement of Financial Position (Balance Sheet) – assets, liabilities, and equity

Statement of Financial Performance (Income Statement) – income and expense

Statement of Cash Flows – operating, investing, and financing

Statement of Changes in Owners’ Equity

what are ASSETS?

resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity, the cost of which can be measured reliably.

no limitations (controlled), given or bought (past events), future economic benefits, reliably measured (reciepts)

considered expenses when completely exhausted

what are examples of assets?

Cash and Cash Equivalents, Receivables, Inventory, Supplies, PPE, Patent, Buildings, Unused Supplies, everything classified as prepaid (prepaid insurance, prepaid rent, etc), accounts receivables

what are Current Assets?

Unrestricted cash and cash equivalents

For the purpose of trading

entity expects to realize the asset within twelve months after the reporting period, or within the normal operating cycle, whichever is longer.

what are Noncurrent Assets?

all other assets not classified as current assets.

realized after 12 months

what are real assets?

not movable physically (ex: buildings)

fixed to a place

what are personal assets?

can be moved (ex: car)

what are intangible assets?

can’t touch

ex: logos, software, patents

recievables

pautang

what are LIABILITIES?

present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits, the cost of which can be measured reliably.

need to know the exact value for this

what are examples of LIABILITIES?

Trade Payables, Loans Payable, Interest Payable, debts, credits, accrued salaries expense (accrued is unpaid + expense), unearned revenue(paid in advance, u need to do the service 1st), wages payable

what are Current Liabilities?

entity expects to settle the obligation within normal operating cycle, or within twelve months after the reporting period, whichever is longer.

For the purpose of trading

Does not have unconditional right to defer settlement for at least twelve months after the reporting period.

what are Noncurrent Liabilities?

all other assets not classified as current liabilities.

what is Owner’s Equity?

represents the residual interest of owners in the net assets of a business measured by the excess of assets over liabilities.

Increased by contribution (and revenue); Decreased by withdrawals (and expenses)

(-) equity signifies bankruptcy

what are Account titles used for equity?

Owner’s Equity, Partners’ Equity, Common Stock, Income Summary, Retained Earnings

what are examples of owner’s equity?

retained earnings, drawings, common stock

what is the ACCOUNTING EQUATION?

Assets – Liabilities = Equity

Assets = Liabilities + Equity

what is INCOME?

inflow of cash or other assets coming from a client or customer for service rendered or for merchandise sold.

gain

What is a gain?

income which may arise but not from the normal operation of the business

What are examples of income?

Service Revenue, Medical Income, Sales

What is the difference of revenue and sales?

Revenue - service

Sales - tangible item

What is the difference of revenue and profit and income?

Revenue - gross

Profit - tubo

Income - net

what are EXPENSES?

decrease in economic benefit during the accounting period which results in a decrease in equity.

can be exhausted assets or unpaid liabilities

loss

what is a loss?

expense which may arise but not from the normal operation of the business.

what are examples of expenses?

Salaries Expense, Transportation Expense, Fuel Expense, bad debts (loss, debts u can’t collect), depreciation, repairs and maintenance, representation(meeting expenses), bank service charge, delivery expense,

what is the Expanded Accounting Equation?

Assets = Liabilities + Contributions + Income – Withdrawals - Expenses

equity - made of the 4(Contributions, Income, Withdrawals, Expenses), always increases

assets and liabilities can increase or decrease

what is the relationship of income statement and balance sheet?

IS shows a company's profit and loss over a time span

BS gives a snapshot of its assets, debt, and equity at one specific date.

what is debere?

latin

What is owed to you

what is credere?

latin

what you owe

How can Assets, Expenses, Drawings be classified?

increase of these mean debit

decrease of these mean credit

How can Liabilities, Contributions, Revenue/Income be classified?

increase of these mean credit

decrease of these mean debit

what is the format for the account name for contributions?

Name, Capital

what is the format of the account name for drawings?

Name, Drawings

what are the classifications of transactions w/ an owner?

only 2 classifications: contributions (+) or drawings (-)

What is a Ledger?

summarizes all journal entries

aka book of final entry

aka a grp of accounts

What is a General Ledger?

group of controlling account

An account is a record of asset, liability, and proprietorship accounts.

Per account must have a ledger (journal entry)

What is a Subsidiary Ledger?

record showing the details of a general ledger account (your debt or others’ debt to you)

2 types

• Accounts Receivable Subsidiary Ledger - shows others’ debt to you

• Accounts Payable Subsidiary Ledger - shows your debt to others

What is Posting?

Journal entries → ledger

transferring the information from the journal to the ledger

done monthly/yearly bcs the journal entries need to be complete

What is a T-Account?

simplest tool used to analyze the effects of the transactions on each account

• Assets, Expenses, Drawings increases = debit

• Liabilities, Capital (Equity), Revenue increases = credit

account name, left side (debit), right side (credit)

Footing and Crossfooting

What is Footing and Crossfooting in a T-Account?

FOOTING – vertical addition of a money column

CROSSFOOTING – horizontal subtraction of money totals

What is the difference of a Three-Column Ledger and a Two-Column Ledger?

Three-column ledger - ledger w/ 3 money columns (debit, credit, balance)

Two-Column Ledger - ledger w/ only 2 money columns (debit posting and credit posting)

What are the Parts of a Ledger?

Account title at the center

Date column

Items/Particulars

Folio/F (Reference)

Debit side

Credit side

Making Unadjusted Trial Balance: What is a Trial Balance?

statement showing the open accounts in the ledger

shows the equality of the debit and the credit totals after posting to the ledger

2 types: TRIAL BALANCE OF BALANCES, TRIAL BALANCE OF TOTALS

What is a Trial Balance of Balances?

shows the accounts w/ open balances

accounts with open balances may either have a debit or a credit balance

accounts with zero balances are not included

commonly used by most businesses

What is a Trial Balance of Totals?

shows the debit totals and credit totals of all accounts in the general ledger

both open and closed accounts are shown in this trial balance

Why is a Trial Balance Significant?

It shows the balance of an account brought about by the business transactions

However, a trial balance does not guarantee its accuracy since only shows the equality of the debits and the credits.

There may be errors that cause imbalance, while there are errors that don’t affect the equality

What are errors that can cause an Imbalanced Trial Balance?

Wrong footing / addition

Wrong posting: (1) posting to the wrong side of the account; or (2) posting an item twice

Omission of posting

Error in transferring the account from the ledger to the trial balance

What are errors that Don’t Affect the equality of a Trial Balance?

Omission of a complete entry

Posting the same transaction twice

Posting the amount on the correct side to a wrong account

How can you locate errors in your trial balance?

difference of ten - probably an error in addition. Add the debit and credit columns again.

difference is divisible by two - error probably is in posting tot the wrong side.

error is divisible by 9 or a multiple of 9 - the error probably is in TRANSPOSITION(jumbled #s) or TRANSPLACEMENT (decimal error)