Financial Accounting and Reporting Batch 96

Accounting Process

• The first step in the accounting process is recording adjusting entries, followed by preparing financial statements, closing nominal accounts, and finally preparing a post-closing trial balance.
• Debits increase assets and expenses, while they decrease liabilities, revenue, and equity.
• A general journal chronologically records transactions and events, detailing the associated debit and credit amounts.
• Valid combinations of journal entries include an increase in asset with an increase in liability, while a decrease in both liability and asset is also possible.
• Posting involves transferring data from the journal to the general ledger.
• A general ledger is defined as the entire group of accounts, encompassing all assets, liabilities, and equity.
• A trial balance confirms that debits and credits are equal, although it may not detect errors like incorrect account entries, duplicate transactions, or omitted entries.
• Adjusting entries typically affect one nominal account alongside one real account or can involve two nominal accounts.

Adjusting Entries

• The adjusting entry for ending inventory requires debiting the ending inventory and crediting the income summary.
• For doubtful accounts, the entry involves debiting doubtful accounts and crediting the allowance for doubtful accounts.
• Depreciation requires an adjusting entry of debiting depreciation and crediting accumulated depreciation.
• Accrued expenses adjusting entry is made by debiting expenses and crediting accrued expenses.
• For prepaid expenses using the expense method, the entry is to debit expenses and credit prepaid expenses.
• Under the asset method for prepaid expenses, debit prepaid expenses and credit expenses.
• Accrued income adjustments involve debiting accrued income and crediting income.
• Unearned income adjustments differ based on method: debit unearned income and credit income for the income method; and debit income and credit unearned income for the liability method.

Closing Entries and Reversing Entries

• Closing entries occur at the end of the accounting period to reset nominal accounts to zero, following the preparation of adjusting entries and financial statements.
• Reversing entries specifically apply to accrued income and accrued expenses, while deferrals and accrual adjustments may also have reversing entries.
• A reversing entry should not be made for adjusting entries that accrue unrecorded revenue or expenses, or those that adjust costs from an asset account to an expense account.

Test your knowledge of the accounting process with this quiz designed for Batch 96 of the CPA Review School of the Philippines. Cover essential topics such as financial statements, closing accounts, and adjusting entries that are critical for understanding financial accounting.