ELEMENTS OF FINANCIAL STATEMENTS

A – Assets
L – Liabilities
P – Proprietorship (Capital or Equity)
- Drawing (Withdrawal)
I – Income
E – Expenses

ASSETS are the resources owned and controlled by the firm.

- Current Assets are assets that can be realized (collected, sold, used up) one year after year-
end date.
 Cash
 Petty Cash Fund
 Cash Equivalents
 Notes Receivable
 Accounts Receivable
 Estimated Uncollectible Accounts
 Accrued Income
 Advances to Employees
 Inventories
 Prepaid Expenses
 Unused Supplies

- Non-current Assets are assets that cannot be realized (collected, sold, used up) one year
after year-end date.
 Property, Plant and Equipment (PPE)
 Land
 Building
 Equipment
 Furniture and Fixtures
 Accumulated Depreciation
 Intangible Assets
- Tangible Assets are physical assets such as cash, supplies, and furniture and fixtures.
- Intangible Assets are non-physical assets such as patents and trademarks.
LIABILITIES are obligations of the firm arising from past events which are to be settled in the future.
- Current Liabilities are liabilities that fall due (paid, recognized as revenue) within one year
after year-end date
 Accounts Payable
 Notes Payable (short-term)
 Accrued Expenses
 Pre-collected or Unearned Income

- Non-current Liabilities are liabilities that do not fall due (paid, recognized as revenue)
within one year after year-end date.
 Notes Payable (long-term)
 Mortgage payable

PROPRIETORSHIP are the owner’s claims in the business. It is the residual interest in the assets of
the enterprise after deducting all its liabilities.
- Capital or Equity is the value of cash and other assets invested in the business by the owner
of the business.
- Drawings (Withdrawal) is an account debited for assets withdrawn by the owner for
personal use from the business.
- Income and Expense Summary
INCOME is the increase in economic benefits during the accounting period in the form of inflows of
cash or other assets or decreases of liabilities that result in increase in equity. Income includes revenue
and gains.
- Sales
- Service Income
 Professional Income
 Rental Income
 Interest Income
 Miscellaneous Income

EXPENSES are decreases in economic benefits during the accounting period in the form of
outflows of assets or incidences of liabilities that result in decreases in equity.
- Cost of Sales (COS) or Cost of Goods Sold (COGS)
- Interest Expense
- Rent Expense
- Repairs and Maintenance
- Stationary and Office Supplies Expense
- Salaries Expense
- Uncollectible Accounts
- Depreciation Expense
- Amortization Expense
- Taxes and Licenses
- Insurance Expense
- Utilities Expense
- Miscellaneous Expense

THE ACCOUNTING PROCESS

1. Analyzing
2. Journalizing
3. Posting
4. Unadjusted Trial Balance
5. Adjusting Entries
6. Financial Statement Preparation
7. Closing Entries
8. Post-Closing Entries
9. Reversing Entries
 Basic steps:
1. Transactions
2. Journal Entries
3. Posting
4. Trial Balance
5. Worksheet
6. Adjusting Journal Entries
7. Financial Statements
8. Closing the Books

FUNDAMENTALS OF BOOKKEEPING

Transaction means exchange of values.

Value received – DEBIT (DR) Value

parted with – CREDIT (CR)

DR = CR
ACCOUNTING EQUATION

ASSETS = LIABILITIES + PROPRIETORSHIP

Other formulas can be derived:

Liabilities = Assets – Proprietorship
Proprietorship = Assets – Liabilities

Assets = Liabilities + (Original capital + Additional Investment – Withdrawal + Income – Expenses)

Examples:

Case 1.
Mr. Batum Bakal invested P10,000 cash as initial capital for a vulcanizing business called Puti
Vulcanizing Shop. The business also took charge of the P2,000 payable of furniture and
equipment it is using.
Asset = Liabilities + Proprietorship
= P2,000 + P10,000
Asset = P12,000

Case 2.
Mr. Johnny Brave invested assets worth of P50,000 for handicraft business. However, actual
assets he invested is only P40,000.
Liabilities = Assets - Proprietorship
= P50,000 - P40,000
Liabilities = P10,000

A=L + P
P50,000 = P10,000 + P40,000
P50,000 = P50,000

Case 3.
Mr. Jack Tan gave cash and goods for a buy-and-sell business amounting to P60,000. However,
a P5,000 notes payable by him to Land Bank is assumed by the business.
Proprietorship = Assets - Liabilities
= P60,000 - P5,000
Proprietorship = P55,000
A = L+ P
P60,000 = P5,000 +P55,000
P60,000 = P60,000

Activity:
Case 1.
Mr. Joseph Andres started business by investing P7,500 cash. In addition, the business assume a
payable of Mr. Andres accounting to P1,500. Formulate the accounting equation.
A=L+P
= P1,500+P7,500
= P9,000

Case 2.
Mr. Eddie Smith invested assets worth P20,000. Capital of Mr. Smith is computed as
P15,000.
L=A–P
= P20,000 – P15,000 L
= P5,000
NORMAL BALANCES

Debit = debere = dr
Credit = credere =cr

NORMAL
ACCOUNTS
BALANCE
Assets Debit

Liabilities Credit

Proprietorship Credit

Income Credit

Expenses Debit

Drawing Debit
Accumulated
Credit
Depreciation
Allowance for
Doubtful Credit
Accounts

RULES OF DEBIT AND CREDIT (ALPIE RULE)

PARTICULAR IF DEBITED IF CREDITED

Assets Increase Decrease

Liabilities Decrease Increase

Proprietorship Decrease Increase

Income Decrease Increase

Expenses Increase Decrease

Contra Accounts are exception from the ALPIE Rule.

Contra Accounts are deducted from another account.

PARTICULAR IF DEBITED IF CREDITED

Drawing Increase Decrease

Accumulated
Decrease Increase
Depreciation
Allowance for
Doubtful Decrease Increase
Accounts

Normal balances reflect increases in the account.

CHART OF ACCOUNTS
• A chart of accounts is a listing of the accounts used by companies in their financial records.
• The chart of accounts helps to identify where the money is coming from and where it is going.
• The chart of accounts is the foundation of the financial statements.

JESSICA’S CAFÉ
Chart of Accounts
For the year ended December 31, 2020

Assets Income
01 Cash 41 Service Revenue
02 Notes Receivable 42 Sales
03 Accounts Receivable 43 Rent Income
04 Merchandise Inventory 44 Interest Income
05 Unused Supplies
06 Marketable Securities
07 Prepaid Insurance Expenses
08 Land 51 Cost of Sales
09 Building 52 Salaries Expense
10 Furniture and Fixtures 53 Commissions
11 Equipment 54 Travelling Expense
12 Machinery 55 Advertising Expense
13 Other Assets 56 Representation Expense
57 Utilities Expense
Liabilities 58 Supplies Expense
21 Notes Payable 59 Rent Expense
22 Accounts Payable
23 Taxes Payable
24 Accrued Salaries
25 Loans Payable
26 Bonds Payable

Proprietorship
31 Valdez, Capital
32 Valdez, Drawing
JOURNAL

General Journal or Journal – the book of original entry.

- the most basic journal.

The journal makes several significant contributions to the recording process:

• It discloses in one place the complete effects of a transaction.
• It provides a chronological record of transactions.
• It helps to prevent or locate errors because the debit and credit amounts for each entry can be easily
compared.

Reference = folio

Journalizing process

Entering transaction data in the journal is known as journalizing. Companies make separate journal
entries for each transaction. A complete entry consists of:

• The date of the transaction which is entered in the Date column.

• The debit account title (that is, the account to be debited) which is entered first at the extreme left
margin of the column headed “Account Titles and Explanation,” and the amount of the debit is recorded
in the Debit column.
• The credit account title (that is, the account to be credited) which is indented and entered on the next
line in the column headed “Account Titles and Explanation,” and the amount of the credit is recorded in
the Credit column.

• A brief explanation of the transaction which appears on the line below the credit account title. A space
is left between journal entries. The blank space separates individual journal entries and makes the entire
journal easier to read.

• The column titled Ref. (which stands for Reference)which is left blank when the journal entry is made.
This column is used later when the journal entries are transferred to the ledger accounts.

To illustrate the recording of transactions in the general journal, let us use the following transactions as
an example:

• September 1, 2015 Mr. Ben Mabait invested PHP500,000 in a restaurant business by opening an
account with SuperBank.

• September 5, 2015 purchased kitchen appliances for his business amounting to PHP100,000 by issuing
a check.
• September 6, 2015 started his operations a made a sales for that day amounting to
PHP20,000.
Some entries involve only two accounts, one debit and one credit. An entry like these is considered a
simple entry. Some transactions, however, require more than two accounts in journalizing. An entry
that requires three or more accounts is a compound entry. All of the transactions in the above
examples are simple entries. An example of a compound entry is the following:

On September 7, 2015, Mr. Mabait purchased a motorcycle costing PHP80,000. He pays PHP30,000 cash
and agrees to pay the remaining PHP50,000 on account (to be paid later). The compound entry is as
follows:

SPECIAL JOURNALS
• Cash Receipts Journal – used to record all cash that has been received
• The date of the transaction is entered in the date column.

• A brief explanation of the transaction is entered in the description column.

• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is
made. This column is used later when the journal entries are transferred to the ledger accounts.

• The Debit Cash column represents the amount of cash received for a particular transaction.

• Major categories of receipts, such as cash sales and collection of accounts receivable are provided with
separate columns. These transactions are frequent and repetitive items, therefore a separate column is
provided.

• The column sundry is used for various miscellaneous and less regular items, such as capital
investment, receipt of loan proceeds, among others.

The source document for this journal is the Official Receipts or Cash Receipts issued by the business.

• Cash Disbursements Journal – used to record all transactions involving cash payments

• The date of the transaction is entered in the date column.

• A brief explanation of the transaction is entered in the description column.

• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is
made. This column is used later when the journal entries are transferred to the ledger accounts.

• The Check or Voucher number represents the identifying number of the check issued for the related
cash payment. Most of the time, a check or cash voucher accompanies the disbursement. The voucher
number may be used as the alternative for this column.

• The Debit Cash column represents the amount of cash received for a particular transaction.
• Major categories of receipts, such cash sales and collection of accounts receivable are provided with
separate columns. These transactions are frequent and repetitive items, therefore a separate column is
provided.

• The column sundry is used for various miscellaneous and less regular items, such as capital investment,
receipt of loan proceeds, among others.

The source documents used to update this journal are the check voucher or cash voucher, cash receipts or
official receipts from suppliers or vendors.

• Sales Journal (Sales on Account Journal) – used to record all sales on credit (on account)

• The date of the transaction is entered in the date column.

• A brief explanation of the transaction is entered in the description column or the name of the
customer.

• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is
made. This column is used later when thejournal entries are transferred to the ledger accounts.

• The Charge Invoice Number or Sales Invoice Number represents the identifying number of the source
document issued to the customer when the sale was made.

• The Debit Accounts Receivable column represents the amount of the sale transactions
indicated in the charge invoice.
• The Credit Sales column represents the amount of the sale transactions indicated in the charge
invoice.

The source document for this journal is the Charge Invoice issued by the business.

• Purchase Journal (Purchase on Account Journal) – used to record all purchases of inventory
on credit (or on account)

• The date of the transaction is entered in the date column.

• A brief explanation of the transaction is entered in the description column or the name of the supplier

• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is
made. This column is used later when the journal entries are transferred to the ledger accounts.

• The Charge Invoice Number or Sales Invoice Number represents the identifying number of the source
document issued by the supplier when the items, goods or merchandise were delivered to the company
when the purchase was made.

• The Debit Purchases column represents the amount of the goods purchases as indicated in the charge
invoice from the supplier

• The Credit Accounts Payable column represents the amount of the goods or items purchased on credit
from the supplier. The amount is indicated in the charge invoice issued by the supplier.

The source document for this journal is the charge invoice from the supplier or vendor.
LEDGER
the book of final entry

2 kinds:
 General Ledger (commonly referred by accounting professionals as GL) is a grouping of all
accounts used in the preparation of financial statements. The GL is a controlling account
because it summarizes all the activities that have taken place as recorded in its subsidiary ledger.

The format of a general ledger is shown below:

• The account portion refers to the account title for example: cash, accounts receivable.

• The account number is an assigned number for each account title to facilitate ease in recording and
cross-referencing.

• The Date column identifies when the transaction happened.

• The item represents the source journal and the nature of the transactions

• The Reference identifies the page number of the general our special journal from which the
information was taken.

• The Debit and Credit columns are used in recording the amount of transactions from the general journal
or special journal.

• The Balance Column represents the running balance of the Account after considering the debit and
credit amounts. If the running balance amount is positive, the account has a debit balance whereas if it has
a negative running balance, the accounts has a credit balance.
  Subsidiary Ledger is a group of like accounts that contains the independent data of a
specific general ledger. A subsidiary ledger is created or maintained if individualized data is
needed for a specific general ledger account. An example of a subsidiary ledger is the individual
record of various payables to suppliers. The total amount of these subsidiary ledgers should equal
the balance in the Accounts Payable general ledger.

An example of a subsidiary ledgers are shown below:

• The upper portion indicates the name and address of the vendor or supplier.

• The vendor number is an assigned number for each vendor as reference in keeping the records
of a supplier.

• The Date column identifies when the transaction happened.

• The description column describes the nature of transaction.

• The Reference identifies the page number of the general our special journal from which the
information was taken.

• The Debit and Credit columns reflect the various effects of every transaction to the record of the
supplier or vendor.

• The Balance column provides the running balance of every supplier.

Take note that the total running balance for all subsidiary ledgers should equal the Accounts payable
general ledger.
ANALYSIS OF BUSINESS TRANSACTIONS

Business transactions are analyzed from the view point of the business.

If the transaction is “PURCHASED” or “BOUGHT”, it is the business that is buying.

If the transaction is “SOLD”, it is the business that is selling.

If the transaction is “PAID”, it is the business that is paying.

If the transaction is “COLLECTED”, it is the business that is collecting.

If the transaction is “RENDERED SERVICES”, it is the business that is rendering services

Don’t forget this, “ALWAYS CONSIDER YOURSELF AS THE BUSINESS” when

making the analysis

The value received or DEBIT should first be determined before the value parted with or
CREDIT
To test your analytical ability on transaction analysis,

If I’ll give you an eraser and you will give me a piece of chalk in return as an exchange, can you
determine the value received and the value parted with?

Eraser
Piece of chalk

If I’ll give a ballpen and you will give me a piece of paper in return as an exchange, can you
determine the value received and the value parted with?

Ballpen
Piece of paper

Let us have this illustration,

Bought a car for cash, P850,000.

1. Identifying – Who bought the car? BUSINESS
2. Analyzing – What is the value received? CAR
3. Analyzing – What is the value parted with? CASH
4. Measuring – What is the peso equivalent of these exchanges? P850,000
5. Journalizing –
Debit ---------> CAR P850,000
Credit---------> CASH P850,000
Another illustration,
Sold a car for cash, P600,000.
1. Identifying – Who sold the car? BUSINESS
2. Analyzing – What is the value received? CASH
3. Analyzing – What is the value parted with? CAR
4. Measuring – What is the peso equivalent of these exchanges? P600,000
5. Journalizing –
Debit ---------> CASH P600,000
Credit --------> CAR P600,000

Sample transactions:

JOHN’S CAFÉ
Chart of Accounts
For the year ended December 31, 2020

Assets Income
01 Cash 41 Service Revenue
02 Notes Receivable 42 Sales
03 Accounts Receivable 43 Rent Income
04 Merchandise Inventory 44 Interest Income
05 Unused Supplies
06 Marketable Securities
07 Prepaid Insurance Expenses
08 Land 51 Cost of Sales
09 Building 52 Salaries Expense
10 Furniture and Fixtures 53 Commissions
11 Equipment 54 Travelling Expense
12 Machinery 55 Advertising Expense
13 Other Assets 56 Representation Expense
57 Utilities Expense
Liabilities 58 Supplies Expense
21 Notes Payable 59 Rent Expense
22 Accounts Payable
23 Taxes Payable
24 Accrued Salaries
25 Loans Payable
26 Bonds Payable
 Proprietorship
31 Valdez, Capital
32 Valdez, Drawing

Transaction (1) Investment by owner

John Valdez decides to open an internet café. On September 2, 2020, he invests
P300,000 cash in the business, which he names John’s Café.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

Transaction (2) Purchase of Equipment for cash

On September 4, 2020, John’s Café purchases computer equipment for P140,000 cash.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash
Transaction (3) Purchase of Supplies on Credit
On September 5, 2008, John’s Café purchases computer paper and other supplies expected to
last several months from Crown Bookstore for P32,000. Crowns Bookstore agrees to allow
John’s Café to pay this bill on October, a month later.

GENERAL JOURNAL GJ-1

Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit
Transaction (4) Services Rendered for cash
On September 17, 2020, John’s Café receives P24,000 cash from customers for typing services it
has provided.

GENERAL JOURNAL GJ-1

Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash
Transaction (5) Purchase of Advertising on credit
John’s Café receives a bill for P5,000 from Sunstar Newspaper on September 19, 2020 for
advertising the opening of its business but postpones payment of the bill until a later due.

GENERAL JOURNAL GJ-1

Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash

19 Advertising Expense 55 P5,000

Accounts Payable 22 P5,000
Purchase of Advertising on credit
Transaction (6) Services Rendered for cash and credit
John’s Café provides printing and online services of P70,000 for customers on September 20,
2020. Cash amounting to P30,000 is received from customers, and the balance of P40,000 is
billed to customers on account.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash

19 Advertising Expense 55 P5,000

Accounts Payable 22 P5,000
Purchase of Advertising on credit

20 Cash 01 P30,000
Accounts Receivable 03 40,000
Service Revenue 41 P70,000
Services rendered for cash and credit
Transaction (7) Payment of expenses
Expenses paid in cash for September 28, 2020 are store rent, P12,000, salaries of employees,
P18,000, and utilities, P4,000.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash

19 Advertising Expense 55 P5,000

Accounts Payable 22 P5,000
Purchase of Advertising on credit

20 Cash 01 P30,000
Accounts Receivable 03 40,000
Service Revenue 41 P70,000
Services rendered for cash and credit

28 Rent expense 59 P12,000

Salaries expense 52 18,000
Utilities expense 57 4,000
Cash 01 P34,000
Payment of expenses
Transaction (8) Payment of accounts payable
On September 28, 2020, John’s Café pays its Sunstar Newspaper advertising bill of P5,000 in
cash.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash

19 Advertising Expense 55 P5,000

Accounts Payable 22 P5,000
Purchase of Advertising on credit

20 Cash 01 P30,000
Accounts Receivable 03 40,000
Service Revenue 41 P70,000
Services rendered for cash and credit

28 Rent expense 59 P12,000

Salaries expense 52 18,000
Utilities expense 57 4,000
Cash 01 P34,000
Payment of expenses

28 Accounts Payable 22 P5,000

Cash 01 P5,000
Payment of accounts payable
Transaction (9) Payment of cash on account
The sum of P12,000 in cash is received on September 29, 2020 from customers who have
previously been billed for services on September 20,2020.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash

19 Advertising Expense 55 P5,000

Accounts Payable 22 P5,000
Purchase of Advertising on credit

20 Cash 01 P30,000
Accounts Receivable 03 40,000
Service Revenue 41 P70,000
Services rendered for cash and credit

28 Rent expense 59 P12,000

Salaries expense 52 18,000
Utilities expense 57 4,000
Cash 01 P34,000
Payment of expenses

28 Accounts Payable 22 P5,000

Cash 01 P5,000
Payment of accounts payable

29 Cash 01 P12,000
Accounts Receivable 03 P12,000
Payment of cash in account
Transaction (10) Withdrawal of cash by owner
On September 30, 2020, John Valdez withdraws P26,000 in cash from the business for his
personal use.
GENERAL JOURNAL GJ-1
Date Particulars F Debit Credit
2020
Sep. 2 Cash 01 P300,000
Valdez, Capital 31 P300,000
Investment by owner

4 Equipment 11 P140,000
Cash 01 P140,000
Purchase of Equipment for cash

5 Unused Supplies 05 P32,000

Accounts Payable 22 P32,000
Purchase of supplies on credit

17 Cash 01 P24,000
Service Revenue 41 P24,000
Services rendered for cash

19 Advertising Expense 55 P5,000

Accounts Payable 22 P5,000
Purchase of Advertising on credit

20 Cash 01 P30,000
Accounts Receivable 03 40,000
Service Revenue 41 P70,000
Services rendered for cash and credit

28 Rent expense 59 P12,000

Salaries expense 52 18,000
Utilities expense 57 4,000
Cash 01 P34,000
Payment of expenses

28 Accounts Payable 22 P5,000

Cash 01 P5,000
Payment of accounts payable

29 Cash 01 P12,000
Accounts Receivable 03 P12,000
Payment of cash in account
 30 Valdez, drawing 32 P26,000
Cash 01 P26,000
Withdrawal of cash by owner

POSTING (GENERAL LEDGER AND T-ACCOUNT)

GENERAL LEDGER

Account Title Code #

Date Particulars Ref Debit Credit Balance
2020

T-A CCOUNT

CASH
DRCR
300,000140,000
24,00034,000
30,0005,000

12,000 26,000
366,000 205,000
P161,000

Accounts Receivable
DRCR
 Cash 01
Date Particulars Ref Debit Credit Balance
2020
Sep. 2 Investment by owner GJ1 P300,000 P300,000
4 Purchase of equipment GJ1 P140,000 160,000
17 Services rendered GJ1 24,000 184,000
20 Services rendered GJ1 30,000 214,000
28 Payment of expenses GJ1 34,000 180,000
28 Payment of payables GJ1 5,000 175,000
Payment of cash in
29 account GJ1 12,000 187,000
30 Withdrawal by owner GJ1 26,000 161,000

Accounts Receivable 03
Date Particulars Ref Debit Credit Balance
2020
Sep. 20 Services rendered GJ1 P40,000 P40,000
29 Payment of cash in account GJ1 P12,000 P28,000

Unused Supplies 05
Date Particulars Ref Debit Credit Balance
2020
Sep. 5 Purchase of supplies GJ1 P32,000 P32,000

Equipment 11
Date Particulars Ref Debit Credit Balance
2020
Sep. 4 Purchase of equipment GJ1 P140,000 P140,000

Accounts Payable 22
Date Particulars Ref Debit Credit Balance
2020
Sep. 5 Purchase of supplies on credit GJ1 P32,000 P32,000
19 Purchase of advertising GJ1 5,000 37,000
28 Payment of payables GJ1 P5,000 32,000
 Valdez, Capital 31
Date Particulars Ref Debit Credit Balance
2020
Sep. 2 Investment by owner GJ1 P300,000 P300,000
30 Closing GJ2 55,000 355,000
30 Closing GJ2 P26,000 329,000

Valdez, Drawing 32
Date Particulars Ref Debit Credit Balance
2020
Sep. 30 Withdrawal by owner GJ1 P26,000 P26,000
30 Closing GJ2 P26,000 0

Service Revenue 41
Date Particulars Ref Debit Credit Balance
2020
Sep. 17 Services rendered GJ1 P24,000 P24,000
20 Services rendered GJ1 70,000 94,000
30 Closing GJ2 P94,000 0

Advertising Expense 55
Date Particulars Ref Debit Credit Balance
2020
Sep. 19 Purchase of Avertising GJ1 P5,000 P5,000
30 Closing GJ2 P5,000 0

Rent Expense 59
Date Particulars Ref Debit Credit Balance
2020
Sep. 28 Payment of expenses GJ1 P12,000 P12,000
30 Closing GJ2 P12,00 0
 Salaries Expense 52
Date Particulars Ref Debit Credit Balance
2020
Sep. 28 Payment of expenses GJ1 P18,000 P18,000
30 Closing GJ2 P18,000 0

Utilities Expense 57
Date Particulars Ref Debit Credit Balance
2020
Sep. 28 Payment of expenses GJ1 P4,000 P4,000
30 Closing GJ2 P4,000 0

Income and Expense Summary

Date Particulars Ref Debit Credit Balance
2020
Sep. 30 Closing the income GJ2 P94,000 P94,000
30 Closing the expenses GJ2 P39,000 55,000
30 Closing the profit GJ2 P55,000 0
 JOHN’S CAFÉ
Trial Balance
For the Period December 31, 2020

Account Titles Debit Credit

Cash P 161,000
Accounts Receivable 28,000
Unused Supplies 32,000
Equipment 140,000
Accounts Payable P 32,000
Valdez, Capital 300,000
Valdez, Drawing 26,000
Service Revenue 94,000
Advertising Expense 5,000
Rent Expense 12,000
Salaries Expense 18,000
Utilities Expense 4,000

TOTAL P 426,000 P 426,000

FS PREPARATION

JOHN’S CAFÉ
Income Statement
For the Period December 31, 2020

Service Revenue P 94,000

Less : Expenses
Advertising Expense P 5,000
Rent Expense 12,000
Salaries Expense 18,000
Utilities Expense 4,000 39,000
Profit P 55,000

JOHN’S CAFÉ
Statement of Changes in Equity For
the Period December 31, 2020

J. Valdez, Capital, beg. P–0–

Add:
Additional Investment P300,000
Profit 55,000 355,000
Total 355,000
Less: Withdrawal ( 26,000)
J. Valdez, Capital, end. P 329,000
 JOHN’S CAFÉ
Statement of Cash flows
For the Period December 31, 2020

Cash flow from Operating Activities:

Services rendered P 54,000
Payment of expenses (34,000)
Payment of payables ( 5,000)
Payment of cash in account 12,000
Net cash provided by operating activities P 27,000
Cash flow from Investing Activities:
Purchase of equipment (140,000)
Net cash used in investing activities (140,000)
Cash flow from Financing Activites:
Investment by owner 300,000
Withdrawal by owner (26,000)
Net cash provided by financing activities 274,000
Net Increase in Cash P 161,000
Add: Cash balance at the beginning of the period -0-
Cash Balance at the end of the period P161,000
 JOHN’S CAFÉ
Balance Sheet
For the Period December 31, 2020

ASSETS
Cash P 161,000
Accounts Receivable 28,000
Unused Supplies 32,000
Equipment 140,000
TOTAL ASSETS P 361,000

LIABILITIES AND PROPRIETORSHIP

Accounts Payable P 32,000

Total Liabilities P32,000

J. Valdez, Capital, end. 329,000

TOTAL LIABILITIES AND PROPRIETORSHIP P 361,000

CLOSING THE NOMINAL ACCOUNTS

1. Close the INCOME account. Since Income has a balance of a credit, to close is to debit
the said account.
2020
Sep 30 Service Revenue P94,000 Income
and Expense Summary P94,000
To close Income to the Income and Expense Summary
 2. Close all Expense Accounts.
2020
Sep 30 Income and Expense Summary P39,000
Advertising Expense P5,000
Rent Expense 12,000
Salaries Expense 18,000
Utilities Expense 4,000
To close Expenses to the Income and Expense Summary

3. Represents profit.

2020
Sep 30 Income and Expense Summary P55,000
J. Valdez, Capital P55,000
To close the Profit to Capital Account

4. Finally, close the Drawing to Capital account.

2020
Sep 30 J. Valdez, Capital P26,000
J. Valdez, Drawing P26,000
To close Drawing to Capital Account
 JOHN’S CAFÉ
Post-Closing Trial Balance
For the Period December 31, 2020

Account Titles Debit Credit

Cash P 161,000
Accounts Receivable 28,000
Unused Supplies 32,000
Equipment 140,000
Accounts Payable P 32,000
Valdez, Capital 329,000
TOTAL P 361,000 P 361,000