6 types of adjusting entries

1. Prepaid expenses - expenses paid but not yet incurred

2. Unearned revenues - revenues collected but not yet earned

3. Depreciation - is the allocation of the cost of the asset over its useful life
4. Accrued Expenses - are expenses incurred but not yet paid

5. Accrued Revenues - are revenues earned but not yet collected

6. Bad Debts - are the receivables which are unlikely to be collected

CLOSING ENTRY - close or zero out all the nominal accounts

NOMINAL VS REAL

Nominal:

Income

Expense

Withdrawal

Real:

Assets

Liabilities

Capital

Nominal - accounts which cannot be carried over to the next accounting period

Real - accounts which are carried over to the next accounting period

ACCRUAL

All revenues earned and expenses incurred this year must only be recorded this year

Post Closing trial balance

Beginning unadjusted trial bal. will be next year

Ending bal. will be the beginning next year

Asset

- Are resources within our control from which benefits are expected
- Pwede ka maging asset kahit hidi ikaw yung may ari
- Economic benefits

Liabilities

- Claims of the creditors

 - OWED

Owner’s equity

- Claims of the owner

- OWNED

ON ACCOUNT means di pa bayad

ACCOUNTS PAYABLE utang

Credit

- Expense right

Debit

- Mga pumapasok left

T account is not a ledger on;y represent of eldger

Double rule

- Significe the amount is already your final answer

Double entry system of book keeping

- A value received should be equal to the value [arted with

Luca Pacioli

- Father or modern accounting

- Starter in 1494 summade arithmetica
- He put systemized in accounting
- He was a mathematician and also a priest and philosopher educator

Unadjusted trial balance

- Listing of all the ledger accounts and their balances

Peso sign

- 1st in debit
- 1st in credit
- And the final answer

PPE in accounting

- Plant Properly Equipment

1. Prepaid Expense
- Expenses paid but not yet incurred
2. Unearned Revenues
 - Liability
- Revenues collected but not yet earned
3. Depreciation
- Is the allocation of the cost of the asset over its useful life
- Pagbaba ng PPE
- Formula ; cost – salvage value all over useful life

Salvage Value

- Tira tira na value

- To save
- Scrap value – kahit na basura na may value pa rin
4. Accrued Expense
- Are expenses incurred but not yet paid
5. Accrued Revenues
- Are revenues earned but not yet collected
6. Bad Debts
- Are the receivables which are unlikely to be collected

3 types of business activities

1. Manufacturing
2. Investing
3. Finance

Merchandising Business

- Typically a buy and sell business, wherein the owner will purchase finished products for the
purpose or reselling.
- Finished product na ang binibili ibebenta na alng
- Purchased of finished goods inventory from supplier
- FOB shipping point or FOB destination ( terms or delivery ) FOB terms
- Receiving the finished goods inventory ordered
- Storage of the inventory and displayed in the store
- Sale of merchandise to customers

Manufacturing

- They are not purchasing finish product they are purchasing raw materials
- They will create product
 - Buy process and sell

TAYO LAGI YUNG MERCHANDISER

3 types of merchandise ( parties involved )

- Supplier, merchandiser or reselle r (interchangeably), customer

FOB MEANS free on board

Types of merchandise
1. Wholesalers – buy to sell to sellers
- They buy directly to manufacturers
2. Retailers – buy to sell end consumers

Additional Account Title & Terms

1. Inventory
- The cost of unsold merchandise owned and bought for reselling
- Inventory base on cost not on price
- Inventory is an asset account which has a normal balance of debit
- Also known as merchandise inventory
- Cost is different from price
- Cost in the context of merchandising business is the total expenses incurred in the purchase of
inventory
- Price is the amount offered to a customer
- Inventory pa rin natn hanggat di pa natin nabebenta

2. Sales
- Account used in recording the sale of merchandise ( nakabenta tayo ng merchandise ) to
customers
- Kapag nakabenta ka nag rerecord ka ng sales
- Sales is an income account which has a normal balance of credit
- Base on price
- Equipment is not a merchandise

3. Sales returns and allowances

- Account used to record the returned defective merchandise from our customers
- Record sales returns and allowances kapag natanggap natin yung defective item irerecord natin
sya ad SRA from the customer returned to the merchandiser
- Contra-sales or contra-income account
- Normal balance debit

4. Sales discounts
- Amounts deducted from the total sales price offered to the customer
- Discount na binigay ni merchandiser kay customer
- Binabawas sa marercieve na payment hindi sa sales na binenta mo
- Contra-sales or contra-income account
- Normal balance debit

5. Purchases
- Account used for acquiring / purchasing merchandise
- Every time na bibili ka ng merchandise or ng inventory kay supplier ire-record natin siya as
purchase
- Purchase is an expense account normal balance of debit
- Pagbumili ka ng merchandise ang ide debit is purchases

6. Purchase returns and allowances

- Account used to record the returned defective merchandise to the supplier
- Pagbinalikk ntin kay supplier record na purchase retuns and allowance
- Defective merchande coming from the customer to the merchandiser
- Contra expense or contra purchase acct normal balance credit

7. Purchase discount
- Decrease the total amount of our purchases given by the supplier because of our prompt
payment
- Credit terms ( hindi pa bayad ) ito yung agreement between supplier and merchandiser or the
payment of the inventory
- Discount given the supplier to us
- On account ang transaction or credit transactions
- Contra purchases or contra expense normal balance credit
-
8. Freight-in
- Delivery charge or sf
- Papasok sa atin yung item matatanggap natin yung item
- Supplier to merchandiser
- An account used to record the delivery charges incurred in purchasing inventory
- Normal balance debit
- Expense

9. Freight-out ( delivery o transportation expense )

- An account used to record delivery charge incurred in selling merchandise
- Also known as delivery or transportation expense
- Normal balance debit
- Expense

10. Cost of goods sold

- The total cost of merchandise inventory sold to customers
- Expense account or inventory
- Normal balance debit
- Base on cost
- Also known as cost of sales
 11. Gross profit
- The difference between the net sales and cost of goods sold
- Binenta mo 2k calcu
- Cogs mo is 1500
- 500 ang gross profit mo
- Not an account titled ginagamit sa journal entry kaya walang normal balance
- Profit before expenses

Nung bumili kay supplier ng item sf ire-record as freight in

Pagnagbenta ang produkto kay customer at ikaw o merchandiser magbabayad ng sf ire-record is freight
out kasi papalabas

CONTUNUES OF MERCHANDISING

INVENTORY SYSTEM

- Used for monitoring / tracking the inventory balances

- Nababawasan pag nakabenta
2 types of inventory syhtem
1. Periodic inventory system
- Cost of unsold merchandise
- Uses an occasional physical count to measure the level of inventory and the cost of goods sold.
Merchandise purchases are recorded in the purchases account. The inventory account and the
cost of good sold account are updated at the end of a set period- this could be a once a month a
quarter, or once a year.
- Manual counting / done / occasional
- It is required
- Updating inventory balance occasionally
- 4x a yr
- 12x a yr
- Masmaliliit na businesses

Pros
- Relatively simple
- Low set up cost

Cons
- Delayed results
- Less control

2. Perpetual inventory system

- By contrast perpetual system keeps the track of inventory balances continuously, with updates
made automatically whenever a product is received or sold. Purchases and returns are
 immediately recorded in the inventory account. As long as there is no theft or damage, the
inventory account balance should be accurate.
- Every after a purchase inuupdate , every sales binabawasan ang inventory bal.
- Maslalalaki na businesses

Pros:
- Realtime
- Inventory tracking

Cons
- high set up cost
- not always reliable

Discounts
1. Trade discounts
- the amount which is deducted from the price list of the goods sold
- Is not accounted for.

2. Cash Discounts
- Is a discount to the debtor for the realization of the outstanding sales within the term period of
sales
- Is accounted for.
 FOB TERMS
- Free on board

1. FOB shipping point

- Customer takes ownership at the point of departure
- Seller records the sale as soon as the merchandise leaves the company
- Buyer pays for the freight in

2. FOB Destination
- Customer takes ownership is once the merchandise is received by him/her
- Seller only records the sale when the merchandise is already delivered to the customer.
- Seller pays for the freight out

Merchandising (periodic inventory system)

Journal entries:

POV: BUYER

1. Purchase of merchandise by paying cash

- Nung bumili ng merchandise nagbayad agad kay supplier
- Increase purchase, decrease cash
- Expense account normal balance debit
- Cash asset account credit

2. Returned merchandise purchase in cash

- Meron binili na merchandise na defective binalik kay supplier
- Purchase returns and allowances record
- Increase cash , increase purchase returns and allowances
- Cash asset pag nag increase debit, credit pra

3. Purchase of merchanise on account

- Incresepurchase, increase account payable
- Purchese expence increase
 4. Paid for freight
- credit cash freight in,
- increase frieng in, decrease cash
- freight in expence acct, cash asset accouint

5. returned merhcnadise purchased on account

- debit accounts payable decrease, increased credit pra

6. full payment

+Purch, -Cash
+Cash, +PRA
+Purch, +A/P
+FI, -Cash
-A/P, +PRA
Accts payable 10,000
Cash 10,000
Accts payable 10,000
PD 200
Cash 9,800
+cash, +sales
+SRA, -Cash
+AR, +sales
+SRA, -AR
+Cash, -AR
Cash 9,800

SD 200

AR 10,000

Statement of comprehensive income (single – step)

- formerly known as the income statement

- reports the results of the operation/performance of the business
1. net income: income > expense
2. net loss: income < expense
3. breakeven: income = expense
- is a financial statement that gives information on the INCOME EARNED and EXPENSES INCURRED
by the business for a CERTAIN PERIOD OF TIME ( ACCOUTING PERIOD OR OPERATING CUCLE)
- 2 accounts in SCI INCOME AND EXPENSES
- OCI components other comprehensive income components ( unrealized gains and losses)
- Walng oci ang income statement
2 FORMS OF PRESENTING THE SCI

Single – step

- Income – expenses = net income / net loss

- Also called the natural form or nature of expense (deduction to income )
- Only two section are presented in the SCi: the income and the expenses group all your income
together and expenses and deduct your income in expense
- Usually used in the small service-type businesses

Multi step

- Also called the functional form or function of expense

- Expenses are grouped according to their function
- Multiple subtotals
- Operating expense the expense incurred during the operation (salary expense, rent expense)
- Usually used in businesses with more complex operations

5 OCI components

1. Changes in revaluation surplus

2. Gains/losses in foreign currency translation
- Nire-record sa OCI components
3. Actuarial gains/losses on defined benefit plans
4. Gains/losses available for sale re-measurement
5. Effective portion of gains/losses in the cash flow hedge
- Hedge ina-apply sa insurance I helps the company to reduce the risk

5 major financial statement

1. Statement of Comprehensive Income

2. Statement of Changes in Equity
3. Statement of Cash flows
4. Statement of Financial Position
5. Notes to Financial Statements

Accrual: income and expenses

Accrual

- Is recording income when earned and recording expenses when incurres

income

- Is defined as fees earned form providing services and selling goods

- Revenue MUST be recorded when earned even when payment is not yet collected
- Revenue is earned upon the delivery of the goods or services
EXPENSE

- IS THE COST OF DOING BUSINESS

- Expenses MUST be recorded when INCURRED even when not yet paid
- Expense is uncured upon the consumption or use of an asset/service

Preparation of single step of comprehensive income

Title

1st line Company name

2nd line Statement of comprehensive income

3rd line For the year month, period, ended (date)

Income

Expenses

Statement of the comprehensive income (multi-step)

- Expenses are grouped according to their function

- Has multiple subtotals

Two kinds of income

1. Revenues is income but income is not revenue co’z revenue is a kind of income
- Are income generated from the primary course or activities of the business
- Normal course or normal operation of the business
- Primary source of income
- Sales is classifies as revenue account
2. Gains
- Are income derived from other activities of the business
- Gains on sales of equipment It is an income but is not revenue
- Normal to sell merchandise inventory recording sales co’z its revenue account
Two kinds of expenses

1. Expense
- Expenses that are related to the primary operations of the business

2. Losses
- Expenses from other activities of the business

Notes to financial statement (note1, note2, note4)

- Breakdown of each element of the financial statement

Selling expenses - are expenses incurred during the selling, distributing, and marketing of the
merchandise.

Admin expense - non-selling expense