ACCOUNTING PERIOD AND ACCOUNTING CYCLE

Accounting period or fiscal period in each segment of time, usually a year, in which statements are prepared in order to know the results of the business operation during that particular period of time. The length of each accounting period depends on the nature of the business. An accounting period may be annual, semi-annual, quarterly, or monthly. Usually, most firms use such period of time when the business is slow as the end of their accounting period and the beginning of the next period. Accounting cycle consists of successive steps starting with the recording of transactions in the books of accounts and ending with a post-closing trial balance. The following successive steps consist one accounting cycle. 1. Journalizing 2. Posting 3. Preparing of the trial balance 4. Adjusting the entries 5. Preparation of the worksheet 6. Preparation of the financial statement 7. Closing the entries 8. Reversing the entries

JOURNALIZING
Journalizing is the first step in the accounting cycle. It is the process of recording business transactions in a journal. A journal is a book of accounts wherein business transactions are recorded for the first time. It is also called the Book of Original Entry. There are two kinds of journal the general journal and the special journals. Cash receipts journal, cash payments journal, sales journal, and some other forms of combination journals are special journals. General journal is the simplest form of journal wherein the two-column forms may be used.

GENERAL JOURNAL
Date Account Titles and Explanations F Debit

Page no. _______

Credit

A general journal contains the following columns: Date the date of the transaction is entered in this column; transactions are recorded in a systematic manner and in a chronological order. Account Titles and Explanations this column contains the debit and credit accounts and a brief explanation of the entries. Folio this contains the post reference number or the ledger page in which the accounts are transferred. Debit contains the amount debited. Credit contains the amount credited.

PROCEDURES IN JOURNALIZING A. Under the date column 1. The year is written in small figures at the top of the first column. 2. The month of the transaction is written on the first line of the column. The year and the month are not repeated except at the top of a new page or when there is a change in the month. 3. The day of each transaction is written in the right sub-column of the date column. The date of the transaction occurring on the same day is repeated. B. Under the account titles and explanation columns 1. The name of the account debited is written first at the left margin of the account titles and explanation column. 2. The name of the account credited is written on the following line, indented about one-half inch from the left margin. 3. The explanation is placed on the next line, indented about one inch from the left margin. The explanation should be short but sufficient enough to explain the entry. C. Under the debit column 1. The debit amount is written on the debit column opposite the debit account. D. Under the credit column 1. The credit amount is written on the credit column opposite the credit account. E. Under the folio column 1. The folio or reference column is used to indicate the page number of the ledger in which the entry is transferred. There is no entry yet in the folio column when transactions are recorded in the general journal. However, when the entries are copied from the journal to the ledger, the account number of the ledger accounts in which the debits and credits are copied are entered in the folio column. 2. A single-space should be left blank after each entry. A journal entry is a record of business transactions in the journal. There are two types of journal entry: the simple journal entry which contains only one debit and one credit accounts, and the compound journal entry which contains either one debit and two or more credits; or two or more debits and one credit; or two or more debits and two or more credits.

ILLUSTRATION Transaction On January 1 of the current year, Mr. Sastre Modesto opened a tailoring shop which be named Patahian Tailoring. He invested cash, P30,000.00 and sewing machines worth P150,000.00 in the business. Simple Journal Entries
Date 2013 Jan 1 Account Titles and Explanations Cash S. Modesto, Capital To record the initial investment of S. Modesto Sewing Machine S. Modesto, Capital To record the initial investment of S. Modesto F Debit P 30,000.00 P 30,000.00 Credit

P 150,000.00 P 150,000.00

Compound Journal Entry

Date 2013 Jan 1 Account Titles and Explanations Cash Sewing Machine S. Modesto, Capital To record the initial investment of S. Modesto F Debit P 30,000.00 P 150,000.00 P 180,000.00 Credit

Journal Entries Illustrated Atty. Magtanggol Law Firm CHART OF ACCOUNTS Assets Cash Library Materials Office Equipment Office Supplies Accounts Receivable, Ma. Catherine Notes Receivable, Ma. Catherine Accounts Receivable, Pasubi Bank Notes Receivable, Pasubi Bank Accounts Receivable, Manky Pyramiding Notes Receivable, Manky Pyramiding Liabilities Accounts Payable, Matic Trading Notes Payable, Matic Trading Proprietorship Atty. Magtanggol, Capital Atty. Magtanggol, Withdrawal Income Professional Income Expenses Rent Expense Salary Expense Telephone Expense

101 102 103 104 105a 105b 106a 106b 107a 107b

401

501 502 503

201a 201b

301 302

Situation Atty. M. Magtanggol started his own law firm in June 1, 2013 and established the following transactions on its first month of operation: June 1 Date 2013 Jun 1

Atty. M. Magtanggol began the practice of law by investing P40,000 in cash and law library materials worth P60,000.
Account Titles and Explanations Cash Library Materials Atty. Magtanggol, Capital Initial investment of Atty. Magtanggol F Debit P 40,000.00 P 60,000.00 P 100,000.00 Credit

June 2 Date 2013 Jun

Paid the monthly rental of the office space P4,000.00.

Account Titles and Explanations 2 Rent Expense Cash Monthly payment for the use of the office space F Debit P 4,000.00 P 4,000.00 Credit

June 3 Date 2013 Jun

Purchased office equipment from Royal Trading for cash, P10,000.

Account Titles and Explanations 3 Office Equipment Cash Purchase of office equipment for cash F Debit P 10,000.00 P 10,000.00 Credit

June 3 Date 2013 Jun

Bought office supplies from MaPapel Enterprises for cash, P2,000.

Account Titles and Explanations 3 Office Supplies Cash Purchase of office supplies for cash F Debit P 2,000.00 P 2,000.00 Credit

June 12 - Completed legal work for Manny An and collected P8,000 cash.
Date 2013 Jun 12 Account Titles and Explanations Cash Professional Income Receipt of cash payment for the legal work rendered F Debit P 8,000.00 P 8,000.00 Credit

June 13 - Purchased additional office equipment from Matic Trading on credit, P11,000.
Date 2013 Jun 13 Account Titles and Explanations Office Equipment Account Payable, Matic Trading To record the purchase of Office Equipment on credit from Matic Trading F Debit P 11,000.00 P 11,000.00 Credit

June 15 - Paid the semi-monthly salary of the office secretary, P6,500.

Date 2013 Jun 15 Account Titles and Explanations Salary Expense Cash Payment for the office secretarys salary for the first-half of the month F Debit P 6,500.00 P 6,500.00 Credit

June 17 - Completed legal work for Ma.Catherine on credit, P3,000.

Date 2013 Jun 17 Account Titles and Explanations Account Receivable, Ma. Catherine Professional Income To record the legal work rendered for Ma. Catherine on credit. F Debit P 3,000.00 P 3,000.00 Credit

June 18 - Paid one-half of the amount due to Matic Trading.

Date 2013 Jun 18 Account Titles and Explanations Account Payable, Matic Trading Cash Partial settlement on account payable due to Matic Trading F Debit P 5,500.00 P 5,500.00 Credit

June 20 - Ma. Catherine paid her account in full.

Date 2013 Jun 20 Account Titles and Explanations Cash Account Receivable, Ma. Catherine Receipt full payment from Ma. Catherine F Debit P 3,000.00 P 3,000.00 Credit

June 21 - Withdrew P2,000 from the practice for personal expenses.

Date 2013 Jun 21 Account Titles and Explanations Atty. Magtanggol, Withdrawal Cash To record Atty. Magtanggols drawing for personal use F Debit P 2,000.00 P 2,000.00 Credit

June 25- Completed legal work for Pasubi Bank on credit, P30,000.
Date 2013 Jun 25 Account Titles and Explanations Account Receivable, Pasubi Bank Professional Income To record the legal work rendered to Pasubi Bank on credit F Debit P 30,000.00 P 30,000.00 Credit

June 26- Paid in full the account due to Matic Trading.

Date 2013 Jun 26 Account Titles and Explanations Account Payable, Matic Trading Cash Full payment to account payable due Matic Trading F Debit P 5,500.00 P 5,500.00 Credit

June 26- Pasubi Bank paid its account in full.

Date 2013 Jun 26 Account Titles and Explanations Cash Account Receivable, Pasubi Bank Receipt full payment from Pasubi Bank F Debit P 30,000.00 P 30,000.00 Credit

June 26- Purchased additional office supplies from MaPapel for cash, P2,000.
Date 2013 Jun 26 Account Titles and Explanations Office Supplies Cash Receipt full payment from Pasubi Bank F Debit P 2,000.00 P 2,000.00 Credit

June 27- Collected P20,000 from Andy Lim for the legal work rendered.
Date 2013 Jun 27 Account Titles and Explanations Cash Professional Income Receipt of cash payment for the legal work rendered F Debit P 20,000.00 P 20,000.00 Credit

June 27- Billed Manky Pyramiding for the legal service rendered, P15,000.
Date 2013 Jun 27 Account Titles and Explanations Account Receivable, Manky Pyramiding Professional Income To record legal work rendered to Manky Pyramiding on credit F Debit P 15,000.00 P 15,000.00 Credit

June 30- Received promissory note from Manky Pyramiding in relation to its transaction in June 27
Date 2013 Jun 30 Account Titles and Explanations Note Receivable, Manky Pyramiding Account Receivable, Manky Pyramiding To record the receipt of promissory note from Manky Pyramiding for its outstanding account F Debit P 15,000.00 P 15,000.00 Credit

June 30- Paid the monthly telephone bill, P1,500.

Date 2013 Jun 30 Account Titles and Explanations Telephone Expense Cash To record payment for the telephone use F Debit P 1,500.00 P 1,500.00 Credit

June 30- Paid the semi-monthly salary of the office secretary, P6,500.
Date 2013 Jun 30 Account Titles and Explanations Salary Expense Cash Payment for the office secretarys salary for the second-half of the month F Debit P 6,500.00 P 6,500.00 Credit

Complete Illustration June 1 June 2 June 3 June 3 June 12 June 13 June 15 June 17 June 18 June 20 June 21 June 25June 26June 26June 26June 27June 27June 30June 30June 30Atty. M. Magtanggol began the practice of law by investing P40,000 in cash and law library materials worth P60,000. Paid the monthly rental of the office space P4,000.00. Purchased office equipment from Royal Trading for cash, P10,000. Bought office supplies from MaPapel Enterprises for cash, P2,000. Completed legal work for Manny An and collected P8,000 cash. Purchased additional office equipment from Matic Trading on credit, P11,000. Paid the semi-monthly salary of the office secretary, P6,500. Completed legal work for Ma.Catherine on credit, P3,000. Paid one-half of the amount due to Matic Trading. Ma.Catherine paid her account in full. Withdrew P2,000 from the practice for personal expenses. Completed legal work for Pasubi Bank on credit, P30,000. Paid in full the account due to Matic Trading. Pasubi Bank paid its account in full. Purchased additional office supplies from MaPapel for cash, P2,000. Collected P20,000 from Andy Lim for the legal work rendered. Billed Manky Pyramiding for the legal service rendered, P15,000. Received promissory note from Manky Pyramiding in relation to its transaction in June 27 Paid the monthly telephone bill, P1,500. Paid the semi-monthly salary of the office secretary, P6,500.

GENERAL JOURNAL
Date 2013 Jun 1 Account Titles and Explanations Cash Library Materials Atty. Magtanggol, Capital Initial investment of Atty. Magtanggol Rent Expense Cash Monthly payment for the use of the office space Office Equipment Cash Purchase of office equipment for cash Office Supplies Cash Purchase of office supplies for cash Cash Professional Income Receipt of cash payment for the legal work rendered Office Equipment Account Payable, Matic Trading To record the purchase of Office Equipment on credit from Matic Trading Salary Expense Cash Payment for the office secretarys salary for the first-half of the month Account Receivable, Ma. Catherine Professional Income To record the legal work rendered for Ma. Catherine on credit. Account Payable, Matic Trading Cash Partial settlement on account payable due to Matic Trading Cash Account Receivable, Ma. Catherine Receipt full payment from Ma. Catherine Atty. Magtanggol, Withdrawal Cash To record Atty. Magtanggols drawing for personal use Account Receivable, Pasubi Bank Professional Income To record the legal work rendered to Pasubi Bank on credit F Debit P 40,000.00 P 60,000.00

Page No. 1 Credit

P 100,000.00

P 4,000.00 P 4,000.00

P 10,000.00 P 10,000.00

P 2,000.00 P 2,000.00

12

P 8,000.00 P 8,000.00

13

P 11,000.00 P 11,000.00

15

P 6,500.00 P 6,500.00

17

P 3,000.00 P 3,000.00

18

P 5,500.00 P 5,500.00

20

P 3,000.00 P 3,000.00

21

P 2,000.00 P 2,000.00

25

P 30,000.00 P 30,000.00

GENERAL JOURNAL
Date 2013 Jun 26 Account Titles and Explanations Account Payable, Matic Trading Cash Full payment to account payable due Matic Trading Cash Account Receivable, Pasubi Bank Receipt full payment from Pasubi Bank Office Supplies Cash Receipt full payment from Pasubi Bank Cash Professional Income Receipt of cash payment for the legal work rendered Account Receivable, Manky Pyramiding Professional Income To record legal work rendered to Manky Pyramiding on credit Note Receivable, Manky Pyramiding Account Receivable, Manky Pyramiding To record the receipt of promissory note from Manky Pyramiding for its outstanding account Telephone Expense Cash To record payment for the telephone use Salary Expense Cash Payment for the office secretarys salary for the second-half of the month F Debit P 5,500.00

Page No. 2 Credit

P 5,500.00

26

P 30,000.00 P 30,000.00

26

P 2,000.00 P 2,000.00

27

P 20,000.00 P 20,000.00

27

P 15,000.00 P 15,000.00

30

P 15,000.00 P 15,000.00

30

P 1,500.00 P 1,500.00

30

P 6,500.00 P 6,500.00