1.1 Review of the Accounting Cycle 1.1.

1 Journalizing Transactions in the

General Journal
1st Phase

Step 10 (Optional)-Reversing Entry

The two phases of the Accounting Cycle:  

1. Recording Phase - steps 1-3 (accomplished during the 1.Analyze the business document - Official Receipts, Invoices,
accounting period) Billing Statements etc.
2. Summarizing Phase - steps 4-9 (accomplished at the  
end of the accounting period)
3. Step 10 (optional) - accomplished at the beginning of 2. Journalize the business transaction in the General Journal
the next accounting period.
 Guide in journalizing transaction

 
 Asset   DR DR CR
basic accounting equation
Liabilities CR CR DR
Assets = Liabilities + Owner's Equity
Revenue
CR CR DR
500,000 = 100,000 + 400,000 s

Expense
DR DR CR
Let us have an example:     s

Capital CR CR DR
Let us expand this equation: Drawing DR DR CR
expanded accounting equation
 
Assets = Liabilities +  +Capital – Drawing + Revenues-
Expenses

 Always remember that both sides of the equation should

always be equal.
 Please take note that in the accounting equation, the
elements of financial performance “revenues and
expenses” are under the Equity account.

Traditionally, the left side of the accounting equation is called the

DEBIT (DR), and the right is called the CREDIT (DR).
So as not to be confused in analyzing transactions, your point of
reference is always the normal balance of the account.

Guide

    
Account      Decrease the accou
Increase the
Normal Balance nt
account
Sample Journal Entries:
1.1.2 Posting of Journal Entries in the
General Ledger
1st Phase

3. Posting of Journal Entries in the General Ledger

 The journal entries are then transferred to their

corresponding accounts in terms of DR. and CR. in
the General Ledger or the “book of final entry”. This
procedure is what we call “posting”.
 The simplified General ledger is what we call the “T-
Account”, for the simple reason that it looks like the
letter T.

 
 The General Ledger (GL) is where the transactions of each
account are accumulated and the balance is extracted at the end
of the accounting period. Each GL account is assigned an account
no. for easy referencing.
     

For example:
    
How to post the journal entry above:

 In the General Ledger (GL) below, Post the Debit and

Credit entries in their appropriate accounts (Cash and
Cruz, Capital), including the date of the transaction and
the General Journal (GJ) page no.  in the Reference
  (Ref) Column.
   After posting in the GL, go back to the General Journal
and fill-up the Ref. Column with the Account no. of the
                                                                 General GL, to indicate that the entry had been posted.
Journal                                                              page 1       
 
Date Particulars   Ref  Debit Credit
The General Ledgers
2020
                                                                              
    P Cash 101
Jan.      1 Cash  101
100,000
Date Particulars   Ref Debit  Credit Balance
          A. Cruz,     P
    301
Capital 100,000 2020

               To Jan.      Investment of P 

GJ1     P100,000
record the 1 Mr. Cruz 100,000
investment
           
      
               

      
                                                                                             is a list of accounts and their balances at a time
 The primary purpose of a trial balance is to prove
Capital 301 the mathematical equality of debits and credits after
Date Particulars Ref Debit Credit Balance posting.
 A trial balance also uncovers errors in journalizing
2020 and posting.
 The procedures for preparing a trial balance consist of
GJ P o listing the account titles and their balances,
Jan.     1 Investment P 100,000
1 100,000 o totaling the debit and credit columns, and
o proving the equality of the two columns.

 
The T-Account can also be used for posting (for illustrative Gallardo Accounting Service
purposes)
Trial Balance
Note: Always check for the equality of the balances by applying the
accounting equation                 December 31, 2019
Warning: Journalize first before posting, and not the other way
Acc
around.
oun Accou Debi
Credit
  t nt Title t
No.
1.1.3 The Trial Balance 100 Cash P 100,
 

After all the transactions have been posted to the General 000
ledger and the balances for each account determined. Accoun
ts 50,0
110
 The account balances are transferred to the Trial receiva 00
Balance. ble
 The Trial Balance is prepared to prove the equality of Supplie 10,0
the DR. and the CR. 120
s 00
Prepai
  d 10,0
130
The First step in the Summarizing Phase Insuran 00
ce
Trial Balance Equipm 50,0
140
ent 00
 750, s
150 Land
000 expens 00
5 e
Accoun 0 Utilities
50,00
ts , 540 expens
200 0
payabl 0 e
e 0                1,10
0  1,100
   P 0,00 P
,000
1 Totals 0
5
Notes 0  
210 payabl ,
e 0          The equality of the DR and the CR provides a check on the
0 accuracy of the recording and postings. This initial trial balance is
0 referred to as the “Preliminary or Unadjusted Trial Balance. But If
Taxes the Trial Balance is out of balance errors might have been
50,00 committed during the journalizing or posting of transactions.
220 payabl
0
e          However, the equality of the debit and the credit in the trial
F. balance does not necessarily mean that no errors have
Gallard 500,0 been committed. There are errors that cannot be detected by the
300
o, 00 trial balance and might need some adjustments.
Capital
There are three (3) types of Trial Balance:
F.
Gallard
 Preliminary Trial balance - Unadjusted Trial balance
310 o,
(before adjustments)
Drawin
 Pre-Closing Trial Balance - Trial Balance after the
g
adjusting entries had been posted.
Service 300,0  Post -Closing Trial Balance - Trial balance after the
400  
Income 00 closing entries had been posted.
Licens
es 30,0  
510  
expens 00
e This is all for now, we will take -up the other steps when the need
arises so that you will not be overwhelmed.
Rent
50,0
520 expens  
e
00 1.2 Partnership Basic Concepts
530 Salarie 50,0  
  Limited life - it can be dissolved through the following
ways:
o Admission of a new partner
o Death of a partner
o Insolvency of a partner
o Incapacity of a partner
o Withdrawal of a partner
o Expiration of the term specified in the
partnership agreement
 Unlimited liability – all partners (except limited
partners) including industrial partners are personally
liable for all debts incurred by the partnership.
 Partnerships are subject to income tax, except Gen.
Professional Partnerships
 Partner’s equity accounts – accounting for partnership
is much like accounting for sole proprietorships wherein
  each partner has a:
(According to Title IX Article 1767 of the Civil Code of the o  capital account and
Philippines) o withdrawal account.

A Partnership is a contract wherein two (2) or more persons  

bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among Partnership VS Corporation
themselves.
Partnership VS Corporation
 
Comparison Partnership Corporation
Characteristics of a Partnership
mere agreement of the
partners -verbal or written
 Mutual contribution - of money, property or industry to manner of creation
(Articles of Co-
Articles of Incorporation
a common fund. Partnership)
 Division of profits or losses- each partner must share 5 or more but not more
in the profits or losses of the venture than 15 (except for
 Co-ownership of contributed assets –all assets number of organizers
 2 or more but not more Corporate Sole) ;  and 1
contributed to the partnership is owned by all of the than 5 incorporator is allowed
partners. under the Revised
Corporation Code.
 Mutual agency –any partner can bind the other partner
to a contract issuance of the
start of juridical execution of the
Certificate of
personality partnership contract
Incorporation
 every partner is a Kinds of Partnerships 
manager if the partners
management Board of Directors 1. According to object
did not appoint a
manager
stockholders are liable  Universal partnership of all present property -All
liable to the extent of his
only up to the extent of contributions become part of the partnership fund
extent of liability for debts personal assets except
the limited partner
his interest or investment  Universal partnership of profits - All that the partners
in the corporation may acquire during the existence of the partnership and
yes-has the capacity of the use of whatever the partners contributed at the time
right of succession none
continuous existence of the institution of the contract belongs to the
Unlimited Life (Perpetual partnership.
Existence) unless Articles  Particular partnership -The object of the partnership is
any period of time
term of existence of Incorporation provides determinate – its use or fruit, specific undertaking, or the
stipulated by the partners
a specific period of
existence) exercise of a profession or vocation.
maybe dissolved anytime maybe dissolved with the
dissolution
by the partners consent of the state
2. According to liability
yes, even without
transfer of interest
yes, but only with the
consent of the  General partnership -all partners are liable to the extent
consent of the partners of their separate property.
stockholders
 Limited partnership -Limited partners are liable only to
  the extent of their personal contributions. The law states
that there shall be at least one general partner.

3. According to duration

 Partnership with a fixed term or a particular undertaking

 Partnership at will -one in which no term is specified and
is not formed for any undertaking. Maybe terminated
anytime by mutual agreement

4. According to activities or purpose

 Commercial or trading partnership -one formed for the

transaction of business.
 Professional or non-trading partnership -one formed for
the exercise of a profession

5. According to legality of existence

1.2.1 Kinds of Partnership

  De jure partnership- has complied with all the legal  Secret partner -one who takes active part in the
requirements for its existence business but is not known as a partner.
 De facto partnership -with incomplete legal requirements
for its establishment. 4. Other kinds


1.2.2 Kinds of Partners Liquidating partner -one who is designated to wind up or
settle the affairs of the partnership after dissolution
 Continuing partner- one who continues the business of
Kinds of Partners  the partnership after it has been dissolved by reason of
1. As to Contribution admission of a new partner, retirement, death, or
expulsion of one of the partners.
 Capitalist partner-one who contributes money or  Surviving partner-one who remains after a partnership
property to the common fund. has been dissolved by the death of a partner
 Sub-Partner-One who is not a partner but an associate
of a partner in his share
 Industrial partner -one who contributes his knowledge or
personal service to the partnership  Nominal partner or partner by estoppel-One who is
really not a partner but represent himself as one
 Capitalist-Industrial partner -contributes cash /other
assets and services
Basic Rights of a Partner
2. As to Liability
 Right to share in the profits
 General partner- liable to the extent of his separate  right to participate in the management of the business
property after all the assets of the partnership are  in the event of liquidation, the right to share in the assets
exhausted of the business after satisfying the claims of creditors.

 Limited partner -liable only to the extent of his capital

contribution
1.2.3 Articles of Co-Partnership and
Registration Requirements
3. As to Participation in Management
Articles of Co-Partnership
 Managing partner -a partner who has been appointed as
manager of the partnership       A partnership may be formed merely by oral or verbal
 Ostensible partner-one who takes active part in the agreement, but it is also best to put the contract in writing
business and is also known to the public as a partner especially if a big sum of capital is invested by the partners.
 Dormant partner -one who does not take active part in The partnership contract is called the "Articles of Co-Partnership."
the business and is not known as a partner The contents of the partnership contract are the following:
 Silent partner- one who does not take active part in the
business though maybe known as a partner 1. Name of the Partnership
 2. Nature of the business
3. Place of business 1.3 Summary: Nature and Formation
4. Effectivity date of the partnership and its duration if there
is a fixed term
of a Partnership
5. Names and addresses of the partners and the agreed
capital contribution of each The Nature formation of a partnership
6. Rights, duties, and powers of each partner including the
limitations 1.1. Review of the Accounting Cycle
7. The profit and loss sharing ratio
8. Other compensation the partners may be entitled to  Recording phase: Analysis, Journalizing, and Posting of
9. Partner's investments and withdrawals subsequent to Transactions
the partnership formation  Summarizing Phase: Preparation of the Trial Balance
10. provision for the arbitration of disputes and the manner
of partnership liquidation.
 
  1.2 Partnership Basic Concepts
Registration Requirements
 A partnership is a contract between two (2) or more
persons, who bind themselves to contribute money,
 the partnership contract is to be registered with the property, and industry to a common fund, with the
Securities and Exchange Commission (SEC) which will intention of dividing the profits among themselves".
issue a certificate of registration (if the capital is more
 A partnership for the exercise of a profession is called a
than P3,000)
"General Professional Partnership".
 the partnership business name is to be registered with
 Characteristics of a partnership
the Department of Trade and Industry which will issue a
o mutual agency
"Certificate of Registration" of business name
o separate legal personality
 a mayor's permit will be secured from the
city/municipality where the business will operate o limited life
 the partnership must register with the Bureau of Internal o unlimited liability
Revenue (BIR) to secure a tax identification number. o voluntary association
 the books of accounts, invoices and official receipts will o co-ownership of partnership property
also be registered o participation in partnership profits
 the partnership will also register with the Social Security  Kinds of partnership can be classified according to :
System (SSS) to secure a certificate of membership and o activities
employer ID number, after which, all the employees of o liability of the partners
the partnership will also be registered. o duration of the partnership
o legality to its existence
o contribution of the partners
o liability to outsiders
o participation in management
 Basic rights of a partner
o right to share in the profits
o right to participate in the management of the
business
o right to share in the assets of the business, in
the event of liquidation.
 Articles of Co-Partnership is the written agreement
between the partners that must be registered with the
SEC is the capital of the partnership is P 3,000 and
above.