Accounting Records
and Systems
(MBA 206)
Maria Arlene (Bam) T. Disimulacion
Consultant for Marketing, Communications
and M.I.C.E. Tourism
Email: bamd888@gmail.com; bamd888@yahoo.com
ACCOUNTING PROCESS
SAMPLE ACCOUNTS
Each account in the chart of accounts is typically
assigned a name and a unique number by which it
can be identified.
Assets
10200
10600
12100
17300
17800
18100
Cash
Petty Cash Fund
Accounts Receivable
Equipment
Vehicles
Accumulated Depreciation - Buildings
Liabilities
20200 Notes Payable
22100 Wages Payable
23100 Interest Payable
24500 Unearned Revenues
25600 Bonds Payable
CHART OF ACCOUNTS
Typically listed in this order:
Balance Sheet Accounts
Assets
Liabilities
Owner's (Stockholders') Equity
Income Statement Accounts
Operating Revenues
Operating Expenses
Non-operating Revenues and Gains
Non-operating Expenses and Losses
SAMPLE ACCOUNTS
Each account in the chart of accounts is typically
assigned a name and a unique number by which
it can be identified.
Stockholders' Equity
27100 Common Stock, No Par
27500 Retained Earnings
29500 Treasury Stock
Operating Revenues
31010 Sales - Division #1, Product Line 010
Expenses
50100 Marketing Dept. Salaries
59200 Payroll Dept. Supplies
SOURCE DOCUMENTS
Source documents are documents, such as cash
slips, invoices, etc. that form the source of (and
serve as proof for) a transaction.
Invoices, cash slips, receipts, check counterfoils,
bank deposit slips and even internet payment
confirmations are all source documents.
JOURNALS
These are chronological (date-order) records of
transactions entered into by a business.
Journals are that first basic entry of debit and
credit for each transaction.
Sample General Journal
LEDGER (T-ACCOUNTS)
The ledger is a collective term for the accounts
of a business.
The accounts are in the shape of a ‘T’ and thus
are often referred to as ‘T-accounts.’
Account Name
DEBIT
CREDIT
$ XXX
$ XXX
GENERAL RULES:
DOUBLE-ENTRY ACCOUNTING
1. Assets are always:
increased () by debits and decreased () by credits
2. Liability and Owner’s Equity accounts are always:
increased () credits and decreased () by debits
3. Owner’s Equity for a corporation includes:
Capital Stock and the Retained Earnings accounts
4. Revenues, expenses and dividends relate to Owner’s
Equity through the Retained Earnings account
GENERAL RULES:
DOUBLE-ENTRY ACCOUNTING
5. Expenses and dividends are
increased () by debits and decreased () by credits
6. Revenues are
increased () credits and decreased () by debits
7. The difference between Total Revenues and Total
Expenses for a period is Net Income or Net Loss which
increases () or decreases () Owner’s Equity
DEBIT-CREDIT RELATIONSHIPS of
ACCOUNTS
Assets
DR
CR
(+)
(–)
=
Liabilities
DR
CR
(–)
(+)
+
Capital Stock
DR
(–)
Owner’s Equity
DR
CR
(–)
(+)
Retained Earnings
CR
DR
CR
(+)
(–)
(+)
Expenses
DR
( +)
Revenues
CR
(–)
Dividends
DR
CR
(+)
(–)
DR
CR
(–)
(+)
TRIAL BALANCE
A sheet displaying all the accounts of a
business, drawn up as a trial (test) of whether
the total of all the debit balances equal the
total of all the credit balances
The trial balance is prepared as a final check
just before the financial statements are drawn
up.
Sample Trial Balance
ACCOUNTING PROCESS
ADJUSTING ENTRIES
Adjusting entries are accounting journal entries
that convert a company's accounting records to
the accrual basis of accounting.
An adjusting journal entry is typically made just
prior to issuing a company's financial statements.
.
ADJUSTING ENTRIES
There are two scenarios where adjusting journal entries
are needed before the financial statements are issued:
Scenario #1
Nothing has been entered in the accounting records for
certain expenses or revenues, but those expenses
and/or revenues did occur and must be included in
the current period's income statement and balance
sheet.
ADJUSTING ENTRIES
There are two scenarios where adjusting journal entries
are needed before the financial statements are issued:
Scenario #2
Something has already been entered in the accounting
records, but the amount needs to be divided up
between two or more accounting periods.
ADJUSTING ENTRIES
FINANCIAL STATEMENTS
Financial statements are the most important
reports of a business. These statements are
prepared from the information in the trial balance.
The purpose of these statements is to show the
user the financial position, financial performance
and cash flows of a business, as well as other
useful information concerning the business.
BALANCE SHEET
The balance sheet presents a company's financial
position at the end of a specified date.
Some describe the balance sheet as a "snapshot"
of the company's financial position at a point (a
moment or an instant) in time.
BALANCE SHEET
INCOME STATEMENT
The income statement is important because it
shows the profitability of a company during the
time interval specified in its heading.
The period of time that the statement covers is
chosen by the business and will vary.
INCOME STATEMENT
CLOSING ACCOUNTS
These journal entries are made after the financial
statements have been prepared at the end of the
accounting year.
Most of the closing entries involve the income
statement accounts (revenues, expenses, gains,
losses, and summary/clearing accounts) whose
balances will be transferred to the owner's capital
account or the corporation's retained earnings
account.
CLOSING ACCOUNTS
Two-fold purpose:
1. Closing is a mechanism to update the retained
earnings account in the ledger to equal the endof-period balance.
.
CLOSING ACCOUNTS
Two-fold purpose:
2. Revenue, expense, and dividend accounts
represent amounts for a period of time; one must
"zero out" these accounts at the end of each
period (as a result, revenue, expense, and
dividend accounts are called temporary or
nominal accounts). In essence, by zeroing out
these accounts, one has reset them to begin the
next accounting period.
In contrast, asset, liability, and equity accounts
are called real accounts, as their balances are
carried forward from period to period. For
example, one does not "start over" each period
accumulating assets like cash and so on -- their
balances carry forward.
FOUR-STEP PROCESS OF
CLOSING ACCOUNTS
1. Close revenue accounts (to a unique account
called Income Summary -- a non-financial
statement account used only to facilitate the
closing process)
2. Close expense accounts to Income Summary
3. Close the Income Summary account to
Retained Earnings
4. Close the Dividend account to Retained
Earnings
CLOSING ACCOUNTS
FOUR-STEP PROCESS OF
CLOSING ACCOUNTS
By doing this, all revenues and expenses are
"corralled" in Income Summary (the net of which
represents the income or loss for the period).
In turn, the income or loss is then swept to
Retained Earnings along with the dividends.
Recall that beginning retained earnings, plus
income, less dividends, equals ending retained
earnings; likewise, the closing process updates the
beginning retained earnings to move forward to
the end-of-period balance.
ACCOUNTING PROCESS
THANK YOU
Maria Arlene (Bam) T. Disimulacion