CHAPTER 1: Operating Expenses - amount an entity

expends to maintain and operate

INTRODUCTION TO (research and development, marketing,
ACCOUNTING etc)

*​Depreciation expense - expense on a

BASIC FINANCIAL STATEMENTS portion of the asset over a number of
- helps fulfill ​Stewardship Function Years
(businesses’ transparency and reports
on the performance and standing of the Operating Income - revenues minus
business to its stakeholders) cost of goods sold and operating
- Reports reflect financial standing and expenses (day-to-day profits or losses
economic activities ​(financial position, on operation)
financial performance, cash flow)
Other Income/Expenses ​- interest
SET OF FINANCIAL STATEMENTS: income and expense, income tax
expenses, etc
1. Statement of Financial Position
- Balance sheet Profits - revenue minus all expenses is
- Assesses the ​financial equal to net income (profit or loss)
soundness of an entity in terms
of liquidity, financial, credit and
business risk 3. Statement of Changes in Equity
- Assets, liabilities and equity - Change in owners’ equity over a
period of time by presenting the
Asset ​- resource with economic value movement in reserves
that can give future benefit (cash, comprising the shareholders’
investments, accounts receivable, equity
inventory, supplies, land, building) - Net profit or loss​, ​increase or
decrease in share capital
Liability - a company’s legal financial reserves, ​dividend payments
debt or obligations (loans, accounts to shareholders, ​gains or
payable, mortgage) losses​, effects of changes in
accounting policies, effects of
Equity ​- difference between asset and correction
liability - Helps users of financial
statement to identify ​factors
2. Income Statement that cause a change in
- Revenues, expenses, profit ​or owners’ equity
losses over a specified period of
time Opening Balance - balance of
- Description of the ​profitability shareholders’ equity reserves at the
over a period of time start of comparative period as reflected
- Purpose is to provide financial in prior period’s statement of financial
earnings performance over a position
specific period of time
Effect of Changes in Accounting
Cost of Goods Sold - direct cost of Policies ​- adjustment in stockholders’
producing the goods reserve due to accounting policies
applied
Gross Profit ​- difference between
revenue and cost of goods Effect of Correction of Prior Period
Error​ ​ - adjustment to opening reserves
 Restated Balance ​- equity attributable OBJECTIVES OF FINANCIAL STATEMENTS
to stockholders after adjustments - Provide information about the ​financial
position, financial performance, cash
Changes in Share Capital ​- further flows
share capital
BUSINESS TRANSACTIONS
Dividends - represent distribution of - Interactions between businesses and
wealth other stakeholders

Income/Loss - profit or loss attributable ACCOUNTING

to shareholders
AMERICAN ACCOUNTING ASSOCIATION
Changes in Revaluation Reserve -
- Process of ​identifying, measuring and
recognized during the period; due to
communicating economic
reversal of previous losses
information to permit informed
judgement and decisions by users of the
Closing Balance ​- balance of
information
shareholders’ equity reserve at the end
of reporting period
AMERICAN INSTITUTE OF CPAs
- Art of ​recording, classifying and
summarizing ​in a significant manner
4. Statement of Cash Flows
and ​in terms of money​, transactions
- Attain details on ​cash inflows
and events which are in part at least of
and outflows
financial character, and ​interpreting
- Shows where an entity’s cash is
results thereof
being generated (cash inflow)
and where it’s being spent
ACCOUNTING STANDARDS COUNCIL
(cash outflow) over a specific
- A ​service activity, where in its function
period of time
is to ​provide quantitative information​,
- Cash flow from ​operating
primarily ​financial in nature​, about
activities, ​Cash flow from
economic entities, that is intended to be
investing activities, ​Cash flow
useful in making economic decisions
from​ finance activities

Cash Flow from Operating Activities ​-

net amount of cash coming in or leaving NATURE OF ACCOUNTING
from day to day business operations
“Art”​ - ​design of how something can be
Cash Flow from Investing Activities ​- performed​; involves creativity and skill
outflow of cash for long term assets
such as land, equipment, buildings and “Process” - systematic ​series of actions
inflow from sales of assets, businesses, directed towards a particular ​outcome​; follows
securities logical steps in the accounting cycle

Cash Flow from Finance Activities ​- “Information System” - set of interrelated

cash outflow to entities investors and components​ that work together
shareholders and cash inflow from sales
of bonds and issuance of stock equity “Means and not an end” - ​although it has a
tangible output, users still have the ​liberty to
make economic decisions based on
management assertions in financial statements
 FUNCTIONS OF ACCOUNTING IN
BUSINESS

1. Fulfill stewardship function ​of

management
2. Help interested users come up with
informed decisions
3. Support daily operations​ of the
business

● Accounting is the ​language of

business​; it serves as a means of
communication between business and
interested users

BOOKKEEPING VS ACCOUNTING

Accounting​ - broader in scope

Bookkeeping ​- simply confined with recording
of monetary transactions

LUCA PACIOLI

- Summa de Arithmetica, Geometria,

Proportioni et Propotionalita ​(Everything
about Arithmetic, Geometry, Proportion
and Proportionality)
- 24-page treatise on Bookkeeping
- Father of Modern Accounting
 CHAPTER 2: FINANCIAL ACCOUNTING
- Provides economic and financial
BRANCHES OF ACCOUNTING information for investors, creditors
and other external users
PUBLIC ACCOUNTING - Uses a system of reporting designs to
meet information needs of external
- Accountant performs any activity that users
will result to the issuance of an attest
report ​that is in accordance with COST ACCOUNTING
professional standards - Accumulating manufacturing costs ​for
- Consulting services, Personal financial financial reporting and decision making
planning services, preparation of tax purposes
returns, advice on tax matters - Reporting of financial information
- Works in a ​firm offering its service to relevant to manufacturing operations
various clients - Determine inventory cost
- SGV & Co., Isla Lipana & Co., Reyes
Tacandong & Co. BUDGETING
- Detailed collection and reporting of
EXTERNAL AUDITING expenditures and revenues
- Examine financial statements to express
an ​opinion if the statements have been ACCOUNTING INFORMATION SYSTEM
fairly presented - Collects and processes transaction
data
TAX PREPARATION & PLANNING SERVICE - Disseminates information ​to interested
- Advise or help clients in ​tax planning parties
and preparing tax returns
- Accountant is a ​tax specialist​; TAX ACCOUNTING
represents client in any case filed by - Preparation of various ​tax returns and
BIR doing tax planning

MANAGEMENT ADVISORY SERVICES INTERNAL AUDITING

- Financial planning and control, - Reviews business operations to check
development of accounting and if they are complying to ​management
computer systems policies
- Evaluates ​efficiency of business
operations
PRIVATE ACCOUNTING
GOVERNMENT ACCOUNTING
- Setting up systems of recording
- System used in government offices to
business transactions that are
record and report financial transactions
aggregated into​ financial statements
- Systematic process of collecting,
- Development and interpretation of
recording, classifying, summarizing and
accounting information to ​assist
interpreting financial transactions of
management in operations
government offices
- A private accountant is a salaried
- Reveals ​how public funds have been
employee who deals with a company’s
generated
day to day accounting needs
 ACCOUNTING EDUCATION

- Responsible for ​training future

accountants

CHED Memorandum No 3 Series 2007

- a CPA in accounting education should
possess qualifications, experience and
teaching ability, computer literacy

CPAs IN SPECIALIZED AREAS

1. Forensic Accounting
Provide detective work needed to
investigate​ white-collar financial
crimes ​such as fraud/stealing

2. Information Technology Services

Design and implement​ customized
software system

3. Environmental Accounting
Determine how companies can both be
profitable and
environmentally-responsible

4. International Accounting
Knowledgeable in ​international trade
rules and regulations​, international
mergers, govt regulations, tax laws
 CHAPTER 3:
USERS OF ACCOUNTING
INFORMATION
3. CUSTOMERS ​- Assess the financial
position of suppliers which is
INTERNAL USERS necessary to maintain a stable source of
supply in long term; Interested to know
1. MANAGERS ​- ​plan, organize or run a whether the business will continue to
business honor its ​product warranties

a. Top-level management (CEO, 4. SUPPLIERS - determine ​whether

CFO, COO) - use info to debts will be paid when due or whether
oversee the performance and customer has enough funds
set its strategic direction
b. Middle-level management 5. TAX AUTHORITIES - determine
(Department heads, branch credibility of tax returns​; if the
managers, junior exec.) - ensure business paid the correct amount of
that their units are aligned with taxes
objectives
c. Lower-level management 6. REGULATORY BODIES - ensure the
(supervisors, team leaders) - disclosure of accounting info is in
oversee day to day operations accordance with rules and regs ​to
and direct employees protect the interest of stakeholders
(SEC, BSP)
2. EMPLOYEES/LABOR UNIONS ​- they
assess the company’s profitability and 7. PUBLIC - know how the business
stability and their consequence of affects the​ economy
future salary and job security

3. OWNERS ​- provide the ​capital​; need

info to decide whether to withdraw or
increase investments

*Accounting information can be in the form of

management reports, budgets and financial
statements

EXTERNAL USERS

1. POTENTIAL AND EXISTING

INVESTORS - need info to help them
decide ​whether to invest or not​;
Through past performances

2. CREDITORS AND POTENTIAL

CREDITORS - assess the ​credit
worthiness and capability of the
business to pay obligations
 CHAPTER 4: TYPES OF BUSINESS ORGANIZATIONS
ACCORDING TO ACTIVITY
FORMS OF BUSINESS
ORGANIZATION Sole Proprietorship
- owned by only one individual for the practice of
SERVICE BUSINESS trade or profession.

- focus on providing intangible products Advantages

such as professional skills, proposals, * Full control of operations
expertise (ex.accounting,law firms, hair * Easy to start and dissolve
salon etc.) * All profits go directly to the owner
* Less regulations
Advantages: no need for inventory, skills can * Government taxes the owner and not the
be improved thus better service business

Disadvantages: Services are harder to value,

Less demand during economic downturns Disadvantages
* Unlimited liability (owner is legally obliged to
pay all of business debts)
* Limited Life (business ceases to operate if the
MERCHANDISE BUSINESS owner dies, is physically or mentally
incapacitated or imprisoned)
- buy and sell, products are bought from * Difficulty in raising capital
manufacturers or other merchandisers
and are sold for a higher price (ex. Steps
grocery stores,hardware, department * 1. register name with DTI and renew every five
stores) years
* 2. Secure a barangay permit, renew every year
Advantages: good merchandising attracts mote * 3. Apply for a business permit in the
customers, flexible to changes municipality, renew every year
* 4. Register with BIR, pay registration fee every
Disadvantages: p ​ rofits dependent on the prices year
of the supplies, merchandise inventory maybe * 5. Register with SSS, PhilHealth, and HDMF or
perishable Pag-ibig

Partnership
MANUFACTURING BUSINESS - owned by 2 or more individuals pooling their
resources together as common fund
- materials are bought you create new - partners are involved in management and
product (ex. food factories, garment operations of the business
factories, car manufacturing companies) - Written agreement between partners is called
articles of co-partnership
Advantages: continuous demand on
manufactured goods, creation of manufactured - articles of co-partnership contain the ff:
product leads to higher job satisfaction. * name of partnership
manufacturer is satisfied knowing product is * name of partners
something people need and use * place of business
* partnership’s effectivity date
* nature of business
Disadvantages: more labor and more * investments of each partner and corresponding
expensive, dependent on the pricr and capital credit
availability of raw materials * rights, power, and duties of the partners
* accounting period
* profit and loss sharing
* compensation for services offered by partners, - ^^ board of directors are elected by the owners
and dissolution procedures themselves and take control of the corporation’s
activities
Main Types:
*​ general partnership​: each partner is a
general partner with unlimited liability
*​ limited partnership​: limited partners and at
least one general partner (who has unlimited Two Kinds:
liability to the extent only of their capital * ​profit corporation​ - issues to its owners or
contribution) shareholders shares of stocked which are
evidenced by stock certificates
*​ non-profit ​- does not issues shares of stocked
Advantages: and owners are called members
* increased potentials from two or more different - articles of incorporation - evidence that the
strengths corporation exists and by-laws are approved by
* easy to form proper agreements on its the SEC, details about the power and limitations
formation bestowed by the gov’t and contains:
* less regulations compared to corporations * name of corporation
* purpose of corporation
* location of principal office of business
Disadvantages * term of existence of the corporation
* unlimited liability for one or all owners * name
* limited life * nationalities
* high possibility of dispute * addresses of incorporators
* name of board of directors
* authorized share capital
Steps: * types of shares to be issues
* 1. Verify name with SEC * par value per share
* 2. File articles of co-partnership with SEC * subscription amounts
* 3. Register business name with DTI * subscribers’ names
* 4. Secure a barangay permit, renewable every * with corresponding subscriptions
year * total paid subscription of each subscriber
* 5. Apply a business permit in the municipality,
renewable every year By-laws​ - contain provisions for internal
* 6. Register with the BIR, requires annual administration of the corp and contains:
registration fee * date
* 7. Register with SSS, PhilHealth, and HDMF * place
* manner of calling the annual shareholders’
meeting
Corporation * manner of conducting meeting
- business requires to have five to fifteen * contains which may warrant a special meeting
incorporators * manner of electing board of directors and
- incorporators refers to those who originally number of directors
formed the corporation * term. office of directors
- Section 2 of the Corporation Code of the * manner of appointing officers
Philippines defines corporation as “an artificial * authority and responsibility to officers
being created by operation of law, having the * procedures to amend articles of incorporation
right of succession and the powers, attributes * procedure to amend by-laws
and properties expressly authorized by law or
incident to its existence”
- ^^ it has a legal personality that is separate
and distinct from the owners Advantages​:
- ^^ owners have limited liability and limited * more sources of funds
involvement from the operations * easy to transfer ownership
* liability is limited (owners) -Housing cooperative
* unlimited commercial life -Insurance cooperative
-Transport cooperative
-Water service cooperative
Disadvantages -Workers cooperative
* more regulations
* profit is taxed at the corporate tax rate Advantages:
* costly to incorporate - unlimited life
* stockholders are taxed again when profits are - democratic organization
distributed to them
Disadvantages:
Steps - "one member one vote" philosophy
* 1. Verify business name with SEC - Lack of membership and participation
* 2. Draft and execute the articles of
incorporation and by-laws by incorporators
* 3. file articles of incorporation and by-laws with Steps used in Registering Cooperative
SEC - general statement to measure cooperative's
* 4. Register the business name with DTI chance of success
* 5. Secure a barangay permit (renew every - draft cooperative by-laws
year) - draft articles of cooperation
* 6. apply for business permit in the municipality - secure bond for accountable officer(s)
(renewable every year) - Register with Cooperative Development
* register bus Authority (CDA)

Cooperative
- owned by a group of individuals who also serve
as benefactors
- at least 15 members
- board of directors manage the business
operation
- either incorporated or unincorporated - has
by-laws that contain rules and regulations
governing the operation of the cooperative
- articles of cooperation include the name,
purpose, term of existence, amount of share
capital, names and residences of contributors,
and type of cooperatives

Types of cooperatives:
-credit cooperative
-Consumers cooperative
-Producers cooperative
-Marketing cooperative
-Service cooperative
-Multi-purpose cooperative
-Advocacy cooperative
-Agrarian reform cooperative
-Cooperative bank
-Daily cooperative
-education cooperative
-Electric cooperative
-Financial service cooperative
-Fisherman cooperative
-Health services cooperative
 CHAPTER 5: - A company will continue to exist long
enough to carry out objectives and
ACCOUNTING CONCEPTS commitments
AND PRINCIPLES - Assets are recorded at original cost
rather than market value
GENERALLY ACCEPTED ACCOUNTING Monetary Unit Assumption
PRINCIPLES (GAAP) - Economic activities of a ​Philippine
entity must be measured and reported
- Set of rules, concepts and principles in ​Philippine Peso
that ​govern the application of - Only transactions expressed in ​money
accounting procedures can be recorded
- Guide preparers of financial statement - Any non-financial information that
in recording and reporting financial cannot be measured by money should
information not be included in accounting books
- We are able to assume there is
consistency ​in methods from year to Time-Period Assumption
year - The life of an economic entity can be
- Although variations may exist, we can divided into artificial time periods ​in
make reasonable conclusions when equal time intervals
comparing companies - Monthly, Quarterly or Annually
- Calendar year: ​12-month period ending
● Philippine Accounting Standards on Dec 31
(PAS) - Fiscal Year​: 12-month period not
● Philippine Financial Reporting ending on Dec 31 (for tax purposes)
Standards (PFRS) - A natural business year is a 12-month
- Adopted by the ​Financial Reporting period which ends on the month when
Standards Committee (FRSC) the sales activity is at its lowest

BASIC ACCOUNTING PRINCIPLES

UNDERLYING ACCOUNTING
ASSUMPTIONS Cost Principle
- All ​assets acquired should be valued
Economic Entity Assumption and recorded on ​actual cash
- All business transactions are ​separate equivalent​, not market value
from owner transactions
- Personal transactions shouldn’t be Full Disclosure Principle
recorded in the company’s accounting - The accountant should include
book sufficient information to permit
stakeholders to make informed
Accrual Basis Assumption judgement ​about the financial
- All business transactions and events condition
are recognized in ​accounting records - A company usually lists its significant
when they occur rather than when cash accounting policies as the first note to its
is received financial statement
- Revenue is recorded in the period it is
earned regardless of the time it is Matching Principle
collected; same for expense - Expenses be matched with revenues
- The revenue should have a
Going Concern Assumption corresponding expense recorded
- Business entity is assumed to ​remain in
existence for an indeterminate period
of time
 - Consistent information is prepared using
Revenue Recognition Principle same methods and it allows meaningful
- Revenue are recognized as soon as comparisons between periods and
goods have been ​sold (regardless of companies
when ​money is received)

Materiality Principle
- Allows an accountant to violate another
CHAPTER 6:
accounting principle ​if amount is THE ACCOUNTING EQUATION
insignificant
- If a puncher is bought for 300 and lasts Double-Entry Bookkeeping
for 5 years, this allows the company to - Biggest contribution of Italian scholars of
expense 300 in the year it is purchased the Renaissance period was the
rather than divide it and expense 60 per documentation of double-entry system
year employed by venetian merchants to
- Professional judgement is needed to record business transactions
decide whether an ​amount is - 36 chapters in Pacioli’s book were
significant​ to a business devoted to double-entry bookkeeping
- System ​in which atleast one debit
Conservatism or Prudence Principle entry (left) ​and atleast ​one credit entry
- Given two options in the valuation of (right) ​are entered for transaction
transactions, ​the amount recorded - For every credit entry, there will always
should be the lower rather than the be an equiavalent debit entry
higher value
- Leads accountants to anticipate losses Duality
rather than gain - Fundamental convention of accounting
that necessitates the ​recognition of all
Objectivity Principle aspects of an accounting transaction
- Requires transactions to have impartial
supporting evidence or
documentation
THE ACCOUNTING EQUATION
- Bookkeeping and financial recordings
must be performed with independence,
free of bias and prejudice ● Equal debit and credit effect is
- Invoice (approved by BIR, stating name fundamental to the universal acceptance
of supplier, description, quantity, etc) of basic accounting equation

OTHER CHARACTERISTICS OF ASSETS = LIABILITIES + OWNER’S EQUITY

ACCOUNTING INFORMATION
Extended:
- Financial information must be relevant,
A = L + C + R - (E+D)
reliable and prepared in a consistent
manner
Where:
- Internal users often need more detailed
Asset - debit
information (need more comprehensive
Expense - debit
examination of financial performance
Drawing - debit
and condition)
- External users may only be interested in
Revenue - credit
company’s value or ability to repay
Liability - credit
loans
Capital - credit
- Reliable information is verifiable and
objective
ACCOUNT
- Individual accounting ​record of 4. INVENTORIES
movements (increase/decrease) in - Assets held for sale in the ordinary
specific accounts course of business

Major Accounts​: 5. UNUSED SUPPLIES

assets, liabilities, owner’s equity - Supplies which remain unused at the
end of the accounting period

Preparation of Chart of Accounts 6. PREPAID RENT

- Listing of all the accounts and is - Advance payment made by the
usually tailored to the operations of a business to cover future rental
business payments
- Guide in ​ensuring uniformity and 7. EQUIPMENT
consistency in use of all accounts in - Manual or automated machines used in
recording the business
- At the earliest possible time, the
business should anticipate all specific 8. FURNITURE OR FIXTURES
accounts it may use in its lifetime - Assets such as tables, chairs, racks, etc

9. BUILDING
- Physical structure owned and used by
ASSETS the business to conduct operations

● Resources controlled by the

business as a result of past 10. LAND
transactions/events which future - Physical site
benefits are expected to flow to the - Not subject to depreciation
business
● Anything of value that is owned by the 11. ALLOWANCE FOR DOUBTFUL
business ACCOUNT
- Contra-asset which refers to the portion
Current Assets - ​expected within a year of accounts receivable that is expected
Non-current assets​ - exceeds a year to be uncollectible

Operating Cycle ​- average time it takes for a 12. ACCUMULATED DEPRECIATION

business to turn cash used into cash received - Contra-asset which refers to the
from selling goods/rendering services aggregation portion of the total cost of
property, plant and equipment that has
been charged to depreciation expense
1. CASH
- Includes cash on hand, cash in bank,
cash fund

2. ACCOUNTS RECEIVABLE
- Amount of money owed by customers to
the business
- Arises from selling or rendering services

3. NOTES RECEIVABLE
- Money owed by the customer evidenced
by a promissory note (promised to pay
on demand at a specific future date)
 LIABILITIES REVENUE

● Earnings arising from main line of

● Present obligations of an entity arising operations
from past transactions, the settlement
expected to result in outflow of 1. SERVICE REVENUE
resources - Earnings made by rendering services
● Claims against assets
2. INTEREST INCOME
- Interests credited by the bank to the
1. ACCOUNTS PAYABLE account
- Money owed by the business to - “Income” because it is not made from
creditors or suppliers main line of operations

2. NOTES PAYABLE 3. SALES

- Amount of money owed by the business - Earnings made by any business that is
evidenced by a promissory note into selling goods or merchandise

3. LOANS PAYABLE 4. PROFESSIONAL FEE

- Amount of money borrowed from third - Earnings made by professionals
party creditors - Can have professional fee
income/expense
4. MORTGAGE PAYABLE
- Money borrowed from a bank or lending
institution which is secured by collateral EXPENSES

5. UNEARNED REVENUES ● Costs being incurred by the business in

- Cash collected in advance for a service generating revenue
or good that is yet to be rendered or
delivered
1. UTILITIES EXPENSE
- Usage of electricity, water,
communication
OWNER’S EQUITY
2. SALARIES EXPENSE
● Net difference between total assets and - Costs incurred associated with services
total liabilities rendered by permanent and full-time
● Represents ownership and terminology employees, paid on a regular basis
changes (usually monthly)

Owner’s Drawing Account ​- used when 3. WAGES EXPENSE

withdrawal is made to determine total - Contractual and temporary employees
withdrawals - Hourly rate or based on output

4. TAXES AND LICENSE EXPENSE

- Cost incurred to register the business, to
acquire right to operate and settle taxes

5. COST OF SALES
- Cost of merchandise or goods that were
sold

6. SUPPLIES EXPENSE
 - Amount of supplies used 3. Provides adequate explanation of each
entry and presents necessary info about
7. DOUBTFUL ACCOUNT EXPENSE transactions
- Accounts receivable that is estimated to 4. Ensures that double entry bookkeeping
be uncollectible and is recognized as
system is observed
expense
5. Helps solving misunderstandings in
8. DEPRECIATION EXPENSE business (serves as legal proof)
- Allocated portion of cost of property
plant and equipment charged to TYPES
expense 1. Special Journal
- Record recurring transactions

ACCOUNTS AND Sales Journal

FINANCIAL STATEMENTS - record sales of
merchandise
Statement of Financial Position Accounts
- used by business with
- Assets, liabilities, equity
many credit sales
Income Statement Accounts transactions
- Revenues and expenses - Only transactions
involving debit to
accounts receivable and
credit to sales
CHAPTER 7:
Purchase Journal
BOOK OF ACCOUNTS
- record purchase
merchandise on
BOOKS OF ACCOUNTS account
● Required by law to pay internal revenue - Many credit purchases
tax, recorded in permanently-bound - Debit to purchase and
books of accounts for registration or credit to accounts pay
stamping
● Records in which all accounts and Cash Receipts Journal
transactions of a business are - Record receipts of cash
maintained on a regular basis. from whatever source
- All transactions that
JOURNAL include debit to cash
● Financial diary are recorded
● Record chronologically all transactions
of a business as they occur Cash Disbursement Journal
● First evidence of a formally-recorded - Cash payments journal
transaction (book of original entry) - Include credit to cash

Advantages:
1. Provides a systematic and chronological 2. General Journal
record of transactions - Two-column columnar notebook
2. Simplifies the ledger as some details on - Record all other business
journal are not needed on ledger transactions not in special
journal
 CHAPTER 8:
SPECIAL VS GENERAL JOURNAL
ACCOUNTING CYCLE
➔ Both provide evidence of the business
transactions and impact on financial Accounting Cycle
statement - Series of recurring accounting steps or
➔ Peso sign, commas and decimal points processes within one span accounting
are omitted period
➔ Special journals allow delegation and
division of labor, saving time in STEPS
journalizing and saving time in posting 1. Analyzing business transactions from
and also decision making source documents
2. Journalizing business transactions
3. Posting journal entries to ledger
LEDGER 4. Preparing trial balance
● Collective record of individual accounts
used by a business 5. Journalizing and posting adjusting
● Sort all entries in chronological order journal entries
and to group transactions that affect 6. Preparing adjusted trial balance
individual accounts 7. Preparing financial statements
● Book of final entry 8. Journalizing and posting closing journal
entries
Advantages: 9. Preparing post-closing trial balance
1. Provides detailed information about 10. Journalizing and posting reversing
revenue and expenses in one place journal entries
2. Provides detailed information about
assets liabilities and equity, financial
position can be known
3. Assists management in monitoring
performance thru info on ledger

TYPES
1. General Ledger
- Accumulate and classify
individual transactions from
journal
2. Subsidiary Ledger
- Detailed information about a
specific ledger account
- For accounts receivable and
accounts payable (control
accounts)