Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
MODULE TEMPLATE
Subject: IT 225 - ACCOUNTING FOR IT PROFESSIONALS
1. Title of the Module
Chapter 4: Accounting Cycle
2. Introduction
This course demonstrates an understanding of the accounting cycle, and
the nature and importance of worksheet in the preparation of financial statements.
3. Learning Outcome
At the end of the chapter, the students should be able to:
Identify and explain the steps in accounting cycle.
Define and identify journal, ledger and trial balance.
Journalize business transactions, post entries in the general ledger and
prepare trial balance and appreciate the use of it.
ACCOUNTING CYCLE
The accounting cycle represents the steps of procedures used to record
transactions and prepare financial statements. The accounting cycle implements the
accounting processes of identifying, recording, and communicating economic
information.
Steps in the Accounting Cycle
1. Identifying and analyzing business documents, transactions or events.
2. Journalizing – is the process of recording the business transactions in the journal.
3. Posting to the ledger – the process of transferring the information from the journal
to the ledger.
4. Preparing a trial balance – is the process of taking the balance of open accounts
from the ledger.
5. Adjusting the books – are entries prepared at the end of the accounting period to
update the records.
6. Preparing the financial statements – refers to the preparation of accounting
reports, the Income Statement and the Balance Sheet.
7. Closing the books – refers to the preparation of closing entries at the end of the
accounting period to bring the income and expenses accounts to zero balance.
8. Preparing a post-closing trial balance – refers to the preparation of a trial balance
after closing the income and expense accounts. The post-closing trial balance
shows only assets, liabilities and owner’s equity.
9. Reversing entries – are prepared at the beginning of the next accounting period to
reverse certain adjustments that were made at the end of the accounting period.
Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
Identifying and analyzing transactions and events
This is the first step in accounting cycle, it involves identifying a business
transactions and analyzing whether or not that transaction affects the assets, liabilities,
equity, income or expenses of the business.
Types of Events:
a) External events – are transactions that involve the business and another external
party
b) Internal events – are events that do not involve an external party
The Books of Accounts
A business maintains two book of accounts namely:
1. Journal; and
2. Ledger
Journal
The journal, also called as the “book or original entries”, is the accounting record where
business transactions are first recorded. Business transactions are recorded in the journal
entries. This recording process is called journalizing.
Types of Journal:
1. Special Journal – is used to record transactions of a similar nature. Special
journals simplify the recording process, thus providing an efficient way of recording
and retrieving of information.
Common examples of Special Journals:
a) Sales Journal – is used to record sales on account
b) Purchase Journal – is used to record purchases of inventory on account
c) Cash Receipt Journal – is used to record all transactions involving receipt
of cash
d) Cash Disbursement Journal – is used to record all transactions involving
payment of cash
Any business may have other special journals to suit its needs. For example:
Purchase Returns Journal and Sales Return Journal
2. General Journal – all other transactions that cannot be recorded in the special
journals are recorded in the general journal.
If a business does not utilize special journals, all transactions are recorded in the
general journal.
Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
JOURNALIZING
It is the process of recording business transactions in terms of debit and credit in
a journal. The simplest form of a journal is the general journal.
How to Journalize a Transaction
1. Enter the date and the year in the date column.
2. The debit entry is placed in the “Explanation” column
3. The credit entry is placed immediately on the next line after the debit entry indented
about on-half inch.
4. A brief explanation is written on the third line which is also indented.
5. Leave the next line blank before entering the second journal entry.
6. A complete journal entry is composed of a debit and a credit entry plus a brief
explanation.
7. The amounts are entered in the debit and credit column in their proper money
column.
8. The “F” in the F – column stands for Reference.
GENERAL JOURNAL
DATE ACCOUNT TITLES F DEBIT CREDIT
Types of Journal Entry
1. Simple journal entry – when there is one debit and one credit entry
2. Compound journal entry – when the journal entry has two or more debits and/or
two or more credits. A compound entry may take any of the following:
a) One debit and two or more credits
b) Two or more debits and one credit
c) Two or more debits and two or more credits
Illustration P1: Journal Entries
A. Lopez opened a barbeque stand this year. The following were the business
transactions:
April 2 – A. Lopez invested P800.00 in a barbeque stand
Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
3 – The business obtained a loan of P1,200.00
3 – The business acquired the following for cash:
Barbeque grill P1,000.00
Cooking Accessories P120.00
Beach umbrella P400.00
4 – The business purchased inventory for P480.00
5 – The total cash sales of barbeque amounted to P700. The total costs of the
barbeque sold is P280.
6 – The business paid P20.00 for supplies expenses.
GENERAL JOURNAL
DATE Account Titles F DEBIT CREDIT
2022
April 2 Cash on hand 800.00
A. Lopez, Capital 800.00
To record A. Lopez investment
3 Cash on hand 1,200.00
Notes Payable 1,200.00
To record loan obtained
4 Equipment - Barbeque Grill 1,000.00
Equipment - Cooking Accessories 120.00
Equipment - Beach Umbrella 400.00
Cash on hand 1,520.00
To record acquisition of equipments
5 Inventory 480.00
Cash on hand 480.00
To record purchase of inventory
Cash on hand 700.00
Sales 700.00
To record total sales of barbeque
Cost of Goods Sold 280.00
Inventory 280.00
To record cost of barbeque sold as
expense
6 Supplies Expense 20.00
Cash on hand 20.00
To record supplies expenses
Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
Illustration Problem 2: Journal Entries
Zack Reyes organizes the “Reyes Repair Shop” on March 1, 2022. His transactions for the
month of March are as follows:
March 1 – Z. Reyes invested P250,000 in a repair business
2 – Paid taxes and licenses, P5,000
4 – Paid rent of 5,000
8 – Bought furniture on account, P25,000
9 – Bought a computer set of P35,000
12 – Rendered service for cash, P25,000
13 – Rendered service on account, P18,000
15 – Paid salaries March 1 - 15, P10,000
20 – The owner withdrew cash of P20,000
22 – Z. Reyes made an additional investment of P50,000
24 – Partial collection of account of March 13, P8,000
29 – Paid the account of March 8
31 – Paid salaries, March 16 – 31, P10,000
Required:
Prepare journal entries for the above transactions using the Chart of Accounts below:
Account Title Account Number
Cash on hand 101
Accounts Receivables 102
Office Equipment 103
ICT Equipment 104
Furniture and Fixtures 105
Accounts Payable 201
Reyes, Capital 301
Reyes, Drawing 302
Service Income 401
Taxes and Licenses 501
Rent Expenses 502
Salaries Expenses 503
Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
DATE Account Titles F DEBIT
2022
L-
March 1 Cash on Hand 101 250,000.00
Reyes, Capital
To record investment
2 Taxes and Licenses Expense 5,000.00
Cash on Hand
Payment of taxes and licenses
4 Rent Expense 5,000.00
Cash on Hand
Payment of rent
8 Furniture and Fixtures 25,000.00
Accounts Payable
Purchases of furniture
9 ICT Office Equipment 35,000.00
Cash on Hand
Purchase of computer set
12 Cash on Hand 25,000.00
Service Income
Service income rendered for cash
13 Accounts Receivable 18,000.00
Service Income
Service income rensered on account
15 Salaries Expense 10,000.00
Cash on Hand
Payment of salaries for March 1 - 15
Republic of the Philippines
ISABELA STATE UNIVERSITY
San Mariano Campus
DATE Account Titles F DEBIT CREDIT
2022
March 20 Reyes, Drawing 20,000.00
Cash on Hand 20,000.00
Withrawal of cash
22 Cash on Hand 50,000.00
Reyes, Capital 50,000.00
Additional investment
24 Cash on Hand 8,000.00
Accounts Receivable 8,000.00
Collection of March 13 account
29 Accounts Payable 25,000.00
Cash on Hand 25,000.00
Payment of March 8 account
31 Salaries Expense 10,000.00
Cash on Hand 10,000.00
Payment of salaries for March 16 - 31
References:
Books:
Millan Z. V (2021). Financial Accounting and Reporting (Fundamentals) Bandolin
Enterprice Baguio City, Pjilippines
Reyno, FZ/ Reyno, DW (2021). Financial Accounting and Reporting Part One
(Fundamentals of Accounting)
Macapilit C. (2009). Worktext in Basic Accounting (Revised Edition). Rex Bookstore, Inc.
Sampaloc, Manila, Philippines
Arganda & Herrera (2007). Accounting Principles 2 (4 th edition). National Book Store
Mandaluyong City, Manila, Philippines
Galanza, R. (2005). Basic Acconting for Non-Accountants. Rex Book Store, Inc.
Sampaloc, Manila, Philippines
Other internet sources:
Jonick C. (2017). Principles of Financial Accounting
[Link]
[Link]?t=1542408454385
Basic Accounting Principles and Concepts
[Link]
Concepts