TOPIC: BUSINESS
TRANSACTIONS AND THEIR
TRANSACTIONS
ANALYSIS AS APPLIED TO THE
ANALYSIS
ACCOUNTING CYCLE OF A
ACCOUNTING
SERVICE BUSINESS.
1.1. GROUP 8
OUR TEAM
AIREZEL CAÑAS
LEON FLORIDA
ROYCE BUTALID
PRINCE MOCSIR
01
PROJECT OVERVIEW
This study focuses on the analysis of business
transactions and their impact on the accounting
cycle within a service business. Specifically, the
study examines the processes of making adjusting
entries, preparing the adjusted trial balance, and
the preparation of the income statement. The
purpose of this study is to understand the
systematic steps that accounting professionals
take to record, adjust, and report financial data,
ensuring accurate and meaningful financial
statements.
02
OBJECTIVES
3. Prepare the Income Statement: To explore
1. Understand the Importance of Adjusting Entries: how the adjusted trial balance is used to prepare
To examine how adjusting entries ensure the an income statement that reflects the
accuracy of financial records by addressing company’s profitability.
accruals and deferrals. 4. Analyze the Impact of Transactions on
2. Prepare an Adjusted Trial Balance: Financial Statements: To assess how different
To learn how to prepare an adjusted trial balance business transactions, including revenues and
after posting adjusting entries, ensuring the expenses, affect the final financial statements,
books are balanced. particularly the income statement.
04
SERVICE BUSINESS
Is one that offers services as
its main product rather than
physical goods. Examples:
It offers professional skills, Schools
expertise, advice, lending service, Professionals
(accounting firm, law firm, electrician, etc),
and similar services. Hospitals and clinics,
Banks and other financial
institutions
05
ACOUNTING
CYCLE OF A
SERVICE
BUSINESS
09
ADJUSTING ENTRIES
02
AKA "END-OF-PERIOD ADJUSTMENTS" are
journal entries that are made at the end of
an ACCOUNTING PERIOD to adjust the
ACCOUNTS to accurately reflect the
REVENUES and EXPENSES of the CURRENT
PERIOD.
-Adjusting entries is the SIXTH STEP of the
ACCOUNTING CYCLE.
06
ADJUSTING ENTRIES
02
Purpose:
-These adjusting entries are made to keep
the FINANCIAL STATEMENTS ACCURATE.
Without them, a company’s reports could
show INCORRECT PROFITS or LIABILITIES,
which can mislead owners, investors, or
anyone relying on the FINANCIAL
INFORMATION. These adjustments ensure
that INCOME and EXPENSES are RECORDED
in the RIGHT periods. 06
5 TYPES OF ADJUSTING
ENTRIES
1. PREPARED EXPENSES
When BUSINESSES PAY IN ADVANCE, it is first recorded an
ASSET because the company has a future service or benefit. OVER
TIME, as the BUSINESS USES the SERVICE, the PREPAID EXPENSE
gets "USED UP," and it becomes an EXPENSE.
Example:
Let’s say a business pays ₱12,000 for a 12-month insurance policy.
07
5 TYPES OF ADJUSTING
ENTRIES
2. UNEARNED REVENUE
This happens when a BUSINESS RECEIVES PAYMENT for a service
or product BEFORE delivering it. The money received is RECORDED
AS LIABILITY because the business still OWES THE CUSTOMER
the service or product. AFTER the service is delivered, the
LIABILITY becomes REVENUE.
Example:
Suppose a company is paid ₱15,000 in advance for a 3-month
consulting service. 07
5 TYPES OF ADJUSTING
ENTRIES
3. ACCRUED REVENUE
Sometimes, a BUSINESS PROVIDES A SERVICE BUT HASN'T
BILLED THE CUSTOMER YET. Even though the payment hasn’t been
made, the business still needs to RECORD THE INCOME because it’s
lbeen earned.
Example:
A law firm completes a case for a client worth ₱20,000 but hasn’t
sent the invoice yet. 07
5 TYPES OF ADJUSTING
ENTRIES
4. ACCRUED EXPENSES
This occurs when a BUSINESSS has USED GOODS or SERVICES, but
HASN'T PAID for them yet. These expenses need to be RECORDED
IN THE PERIOD when the service or goods were used, even though
payment will be made later.
Example:
An employee works for a week and earns ₱30,000, but payday is
the following month.
07
5 TYPES OF ADJUSTING
ENTRIES
5. DEPRECIATION
ASSETS such as equipment or buildings LOSE VALUE OVER TIME.
Businesses need to RECORD this DEPRECIATION each year to show
that their ASSETS AREN'T WORTH AS MUCH as they were when
they were first purchased.
Example:
A business buys equipment for ₱120,000, which will last for 10
years. 07
ADJUSTED TRIAL
BALANCE
ADJUSTED TRIAL BALANCE:
An adjusted trial balance is a financial statement that
lists all accounts and their balances after adjusting
entries have been made at the end of an accounting
period. It ensures that total debits equal total credits,
reflecting accurate financial information. This
document is essential for preparing financial
statements like the income statement and balance
sheet, and it helps identify any errors in the accounting
process. Essentially, it serves as a key step in the
accounting cycle to ensure accuracy and completeness
in reporting.
08
ADJUSTED TRIAL
BALANCE
Example:
Let's say a company has an account
called
"Rent Expense." During the month, they
paid $1,000 in rent. However, they only
used the office for half the month. An
adjusting entry would need to be made to
reflect the fact that only half of the
rent expense should be recorded in the
current period. This adjustment would be
reflected in the adjusted trial balance.
08
ADJUSTED TRIAL
BALANCE
Key Points:
* The adjusted trial balance is a
crucial step in the accounting
cycle.
* It is essential for preparing
accurate financial statements.
* It helps to ensure that the
accounting equation is balanced.
. 08
PREPARATION OF BASIC FINANCIAL
STATEMENT "INCOME STATEMENT"
The Income Statement is a
financial document that
summarizes a company's
financial performance over a
specific period. It provides key
insights into the company's
profitability by showing
revenues, expenses, and profits.
10
PREPARATION OF BASIC FINANCIAL
STATEMENT "INCOME STATEMENT"
For the period ending December 31, 2024, the company's
income statement is as follows:
Revenue (Sales): The company generated $500,000 in total
sales during the period.
Cost of Goods Sold (COGS): The direct costs associated with
producing the goods sold were $300,000, leaving a Gross
Profit of $200,000.
Operating Expenses: These expenses, including rent, salaries,
and marketing, totaled $80,000, leading to an Operating
Income of $120,000.
Other Income and Expenses: The company had $5,000 in
additional income and $10,000 in interest expenses, resulting
in a Net Income of $115,000.
In conclusion, the company achieved a solid profit of $115,000
for the period, indicating strong revenue performance,
efficient management of operating costs, and a healthy 10
bottom line.
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