THE ACCOUNTING CYCLE
PHASE 1 - RECORDING AND CLASSIFYING PROCESS (During the Accounting Period)
PHASE 2 - SUMMARIZING AND REPORTING PROCESS (At the End of the Accounting Period)
PHASE 3 - CLOSING PROCESS ( At the end of the Accounting Period)
* If REVERSING ENTRIES are prepared, which is optional, it is done after the preparation of the
Post-Closing Trial Balance.
THE ACCOUNTING CYCLE
PHASE 1 - RECORDING AND CLASSIFYING PROCESS (During the Accounting Period)
1. Analyzing transactions using source documents
2. Journalizing using Special and General Journal
3. Posting to General and Subsidiary Ledgers
4. Preparing Trial Balance
PHASE 2 - SUMMARIZING AND REPORTING PROCESS (At the End of the Accounting Period)
5. Gather data for Adjustments
6. Prepare a Worksheet
7. Prepare the Financial Statements
8. Journalize and Post the Adjusting Entries
PHASE 3 - CLOSING PROCESS ( At the end of the Accounting Period)
9. Journalize and Post the Closing Entries
10. Rule and Balance the Ledger Accounts
11. Prepare a post closing Trial Balance
* If REVERSING ENTRIES are prepared, which is optional, it is done after the preparation of the
Post-Closing Trial Balance.
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Jupiter's Store
Worksheet
For the Year Ended December 31, 2020
Trial Balance Adjustments
Account Titles Debit Credit Debit
Cash 34,150.00
Accounts Receivable 62,750.00
Merchandise Inventory 81,700.00 a 89,200.00 a.2
Prepaid Insurance 7,125.00 b
Store Supplies 895.00 c
Office Supplies 575.00 c
Store Equipment 52,500.00
Accum. Depn. -Store Equipment 17,200.00 d
Office Equipment 18,300.00
Accum. Depn.- Office Equipment 7,800.00 d
Accounts Payable 41,650.00
Notes Payable 25,000.00
J. Perez, Capital 124,215.00
J. Perez, Drawing 20,000.00
Sales 577,800.00
Sales Returns and Allowance 3,300.00
Purchases 379,650.00
Purchase Discount 4,930.00
Sales Salaries Expense 61,150.00 f 1,525.00
Advertising Expense 16,400.00
Miscellaneous Selling Expense 1,960.00
Office Salaries Expense 31,500.00 f 1,200.00
Rent Expense - Selling 16,000.00
Rent Expense- General 8,000.00
Miscellaneous General Expense 1,440.00
Gain on Sale of Equipment 800.00
Interest Expense 2,000.00
Totals 799,395.00 799,395.00
Income Summary a.2 81,700.00 a
Insurance Expense Selling b 2,550.00
Insurance Expense General b 715.00
Store Supplies Expense c 660.00
Office Supplies Expense c 280.00
Depreciation - Store Equipment d 4,050.00
Depreciation - Office Equipment d 1,240.00
Bad Debts Expense e 2,750.00
Allowance for Bad Debts e
Salaries Payable f
Totals 185,870.00
Net Income
Totals
Adjusting Entries:
a. Merchandise Inventory (end) 89,200.00
Income Summary 89,200.00
Income Summary 81,700.00
Merchandise Inventory (beg) 81,700.00
b. Insurance Expense -selling 2,550.00
Insurance Expense - general 715.00 ASSET METHOD
Prepaid Insurance 3,265.00
c. Store Supplies Expense 660.00
Office Supplies Expense 280.00 ASSET METHOD
Store Supplies (895-235) 660.00
Offie Supplies (575-295) 280.00
d. Depreciation -store equipment 4,050.00
Depreciation - office equipment 1,240.00
Accumulated Depreciation - SE 4,050.00
Accumulated Depreciation - OE 1,240.00
E. Bad Debts Expense 2,750.00
Allowance for Bad Debts 2,750.00
F. Sales Salaries Expense 1,525.00
Office Salaries Expense 1,200.00 ACCRUED EXPENSE
Salaries Payable 2,725.00
Adjustments Adjusted Balance Income Statement Balance Sheet
Credit Debit Credit Debit Credit Debit
34,150.00 34,150.00
62,750.00 62,750.00
81,700.00 89,200.00 89,200.00
3,265.00 3,860.00 3,860.00
660.00 235.00 235.00
280.00 295.00 295.00
52,500.00 52,500.00
4,050.00 21,250.00
18,300.00 18,300.00
1,240.00 9,040.00
41,650.00
25,000.00
124,215.00
20,000.00 20,000.00
577,800.00 577,800.00
3,300.00 3,300.00
379,650.00 379,650.00
4,930.00 4,930.00
62,675.00 62,675.00
16,400.00 16,400.00
1,960.00 1,960.00
32,700.00 32,700.00
16,000.00 16,000.00
8,000.00 8,000.00
1,440.00 1,440.00
800.00 800.00
2,000.00 2,000.00
-
89,200.00 81,700.00 89,200.00 81,700.00 89,200.00
2,550.00 2,550.00
715.00 715.00
660.00 660.00
280.00 280.00
4,050.00 4,050.00
1,240.00 1,240.00
2,750.00 2,750.00
2,750.00 2,750.00
2,725.00 2,725.00
185,870.00 899,360.00 899,360.00 618,070.00 672,730.00 281,290.00
- 54,660.00
672,730.00 672,730.00 281,290.00
Income Statement Balance Sheet
Balance Sheet
Credit
21,250.00
9,040.00
41,650.00
25,000.00
124,215.00
2,750.00
2,725.00
226,630.00
54,660.00
281,290.00
ance Sheet
Jupiter's Store
Income Statement
For the Year Ended December 31, 2020
Sales P
Less: Sales returns and allowances
Net Sales P
Less: Cost of Goods Sold
Merchandise Inventory, beginnning P 81,700.00
Add:Purchases 379,650.00
Total P 461,350.00
Less: Purchase Discounts 4,930.00
Total Goods Avaiable for Sale P 456,420.00
Less: Merchandise Inventory, end 89,200.00
Gross Profit P
Add: Gain on Sale of Equipment
Total Revenue P
Less: Selling Expenses
Sales Salaries Expense P 62,675.00
Advertising Expense 16,400.00
Rent Expense- Selling 16,000.00
Depreciation - Store Equipment 4,050.00
Insurance Expense-Selling 2,550.00
Store Supplies Expense 660.00
Miscellaneous Selling Expense 1,960.00 P 104,295.00
General Expenses
Office Salaries Expense P 32,700.00
Rent Expense- General 8,000.00
Bad Debts Expense 2,750.00
Depreciation - Office Equipment 1,240.00
Insurance Expense-General 715.00
Office Supplies Expense 280.00
Miscellaneous General Expense 1,440.00 47,125.00
Income from Operations P
Less: Interest Expense
Net Income P
Jupiter's Store
Statement of Changes in Owner's Equity
For the Year Ended December 31, 2020
J. Perez, Capital, beginning P 124,215.00
Add: Net Income 54,660.00
Total P 178,875.00
Less; J. Perez, Drawing 20,000.00
J. Perez, Capital, end P 158,875.00
Jupiter's Store
Statement of Financial Position
December 31, 2020
ASSETS
Current Assets
Cash P 34,150.00
Accounts Receivable P 62,750.00
Less: Allowance for Bad Debts 2,750.00 60,000.00
Merchandise Inventory 89,200.00
Prepaid Insurance 3,860.00
Store Supplies 235.00
Office Supplies 295.00 P
Non-Current Assets
Store Equipment P 52,500.00
Less: Accumulated Depreciation 21,250.00 P 31,250.00
Office Equipment P 18,300.00
Less: Accumulated Depreciation 9,040.00 9,260.00
Total Assets P
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable P 41,650.00
Salaries Payable 2,725.00 P
Non-Current Liabilties
Notes Payable, due in 5 years
Total Liabilities P
J. Perez, Capital
Total Liabilities and Capital P
577,800.00
3,300.00
574,500.00
367,220.00
207,280.00
800.00
208,080.00
151,420.00
56,660.00
2,000.00
54,660.00
187,740.00
40,510.00
228,250.00
44,375.00
25,000.00
69,375.00
158,875.00
228,250.00
CLOSING ENTRIES = are entries prepared at the end of the accounting period to transfer temporary account balance
After posting these entries, all nominal accounts would have ZERO balance, thus, they are said to be closed and r
in the next accounting period.
* Only the balances of nominal or temporary accounts(Income Statement Accounts) need to be closed.
1. Close all revenue and related accounts ( contra-revenue accounts) to Income Summary.
Sales 577,800.00
Gain on sale of equipment 800.00
Sales Returns and allowances 3,300.00
Income Summary 575,300.00
2. Close all expense and related accounts (contra-expense accounts includes Purchase discounts, and Purchase retu
Income Summary 528,140.00
Purchase discounts 4,930.00
Purchases 379,650.00
Sales Salaries Expense 62,675.00
Advertising Expense 16,400.00
Rent Expense- Selling 16,000.00
Depreciation - Store Equipment 4,050.00
Insurance Expense-Selling 2,550.00
Store Supplies Expense 660.00
Miscellaneous Selling Expense 1,960.00
Office Salaries Expense 32,700.00
Rent Expense- General 8,000.00
Bad Debts Expense 2,750.00
Depreciation - Office Equipment 1,240.00
Insurance Expense-General 715.00
Office Supplies Expense 280.00
Miscellaneous General Expense 1,440.00
Interest Expense 2,000.00
3. Close Income Summary by transferring its balance, the net income/net loss, to the owner's capital account.
INCOME SUMMARY
Inventory, end 89,200.00 81,700.00 Inventory, beg.
Expenses (CE 2) 528,140.00 575,300.00 revenue (CE 1)
54,660.00 balance (represents Net Income
Income Summary 54,660.00
J. Perez, Capital 54,660.00
4. Close the drawing account by transferring its balance to the owner's capital.
J. Perez, Capital 20,000.00
J. Perez, Drawing 20,000.00
orary account balances to the capital account.
aid to be closed and ready to accumulate data
o be closed.
nts, and Purchase returns and allowances).
capital account.
epresents Net Income)
POST-CLOSING TRIAL BALANCE includes only the real accounts with remaining balances after posting the closing en
The accounts appearing in this trial balance are those accounts contained in the statement of financial position.
Jupiter's Store
Post-Closing Trial Balance
December 31, 2020
Debit Credit
Cash P 34,150.00
Accounts Receivable 62,750.00
Allowance for Bad Debts P 2,750.00
Merchandise Inventory 89,200.00
Prepaid Insurance 3,860.00
Store Supplies 235.00
Office Supplies 295.00
Store Equipment 52,500.00
Accum. Depn. -Store Equipment 21,250.00
Office Equipment 18,300.00
Accum. Depn.- Office Equipment 9,040.00
Accounts Payable 41,650.00
Notes Payable 25,000.00
Salaries Payable 2,725.00
J. Perez, Capital 158,875.00
Totals P 261,290.00 P 261,290.00
g balances after posting the closing entries for the nominal accounts.
e statement of financial position.
Reversing Entries:
For AJE letter F:
Salaries Payable 2,725.00
Sales Salaries Expense 1,525.00
Office Salaries Expense 1,200.00
REVERSING JOURNAL ENTRY is an entry with debit and credit accounts and amounts that are exactly the same as th
and amounts of an adjusting journal entry. The reversing entries are dated on the first day of the next accounting
Although the preparation of RE is OPTIONAL, their preparation will yield the following advantages:
a. The recordings of the future transactions that are closely related to the adjusted items are greatly simp
b. The preparation of the RE allows the use of consistent accounting methods (deferrals).
Not ALL AJEs are to be reversed. Only the following AJEs are usually reversed:
1. Accrued Income
2. Accrued Expenses
3. Unearned Income, if the income method is being used
4. Prepaid Expenses, if the expense method is being used
CASE 1: ACCRUED INCOME
On December 23, only P2,000 out of the agreed monthly rental of P5,000 was collected.
Dec. 23 Cash 2,000.00
Rent Income 2,000.00
An adjusting entry was made on December 31 for the uncollected rental of P3,000
Dec. 31 Rent Receivable/Accrued Rent Receivable 3,000.00
aje Rent Income 3,000.00
Closing Entry:
Dec. 31 Rent Income 5,000.00
Income Summary 5,000.00
Jan. 1, Year 2
RE Rent Income 3,000.00
Rent Receivable 3,000.00
To reverse uncollected Rent.
On January 5, the unpaid rent of P3,000 and the January rental was collected.
Jan. 5 Cash 8,000.00 SIMPLIFIED
Rent Income 8,000.00
IF A REVERSING ENTRY IS NOT PREPARED ON JAN. 1, THE ENTRY ON JAN. 5 IS AS FOLLOWS:
Jan. 5 Cash 8,000.00
Rent Receivable 3,000.00
Rent Income 5,000.00
CASE 2: ACCRUED EXPENSE
Salaries of P10,000 is paid every Friday for a daily salary of P2,000.
December 31 is a Wednesday.
Dec. 31 Salaries Expense 6,000.00
AJE Accrued Salaries Payable 6,000.00
Jan. 1 Accrued Salaries Payable 6,000.00
RE Salaries Expense 6,000.00
Jan. 2 - Friday. Payment of salaries of P10,000.
Salaries Expense 10,000.00
Cash 10,000.00
IF RE IS NOT PREPARED, THE ENTRY ON JAN. 2 IS AS FOLLOWS:
Jan. 2 Salaries Expense 4,000.00
Accrued Salaries Payable 6,000.00
Cash 10,000.00
re exactly the same as the credit and debit accounts
of the next accounting period.
d items are greatly simplified (accruals).
SIMPLIFIED