Accounting Principles

Module 2 – The Accounting Equation and Analyzing Business Transactions

ACTIVITIES AND ASSESSMENT

EXERCISE 2-1. INSTRUCTIONS: On the space provided, indicate whether the normal balance
of each of the given account is DEBIT or CREDIT:

1. Building DEBIT 11. Interest Payable CREDIT

2. Supplies DEBIT 12. Land DEBIT
3. Accounts Payable CREDIT 13. Drawing DEBIT
4. Allow. for doubtful accts. CREDIT 14. Rent Expense DEBIT
5. Notes Receivable DEBIT 15. Prepaid Insurance DEBIT
6. Mortgage Payable CREDIT 16. Equipment DEBIT
7. Commission Income CREDIT 17. Furniture & Fixtures DEBIT
8. Cash DEBIT 18. Professional Fees CREDIT
9. Accumulated Depreciation CREDIT 19. Sales Salary DEBIT
10. Capital CREDIT 20. Unearned Income CREDIT

EXERCISE 2-2. INSTRUCTIONS: Write “T” if the statement is true and “F” if the statement is
false.

1. T The fundamental accounting equation is Assets = Liabilities + Capital

2. T Revenue increases owner’s equity.
3. F Payment of an expense increases asset.
4. T Expenses decreases owner’s equity.
5. F Receipt of cash decreases asset.

EXERCISE 2-3. INSTRUCTIONS: Show the effects on the accounting equation. Write + for
increase, - for decrease, and NC for No Change.

Asset Liability Capital

1. Owner invested cash in the business + NC +
2. Owner borrowed money from the bank + + NC
3. Purchased filing cabinets for cash +/- NC NC
4. Owner purchased a printer on account + + NC
5. Bought truck paying 10% down and balance +/- + NC
on account
6. Paid account to creditors - - NC
7. Charged customer for the service rendered. + NC +
8. Collected an account receivable +/- NC NC
9. Purchased reams of bond paper in cash +/- NC NC
10. Paid utilities for the month - NC -
11. Owner withdrew cash for personal use - NC -

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 12. Rendered service for cash + NC +

EXERCISE 2-4

A medical practitioner Dr. Nikolai opened his clinic with the following initial transactions:

1. Dr. Niko opened a medical clinic by investing P300,000 pesos.

2. Issued a promissory note for the P100,000 he borrowed from Banco De Uno.
3. Purchased a medical bed and its accessories worth ₱100,000
4. Bought from A Co. a table and cabinet worth ₱70,000.
5. Purchased medical supplies in the amount of ₱25,000 cash.
6. Withdrew ₱20,00 for personal use
7. Purchased chairs on account for ₱15,000.
8. Paid 50% of account to A co.
9. Bought from SM Furniture cabinet shelves worth of ₱20,000. Paid ₱5,000 cash and
the balance on account.
10. Received P75,000 from the group of patients as medical fees.
11. Paid power and water bills for the month, P8,000.
12. Paid medical assistant salary, P20,000.
13. Charged the patients for attending the medical care, P50,000.
14. Paid the balance in full to SM Furniture.
15. Collected 70% of medical fees charged to patients in no.13.
16. Paid communication bills, P3,500.
17. Paid P6,000 to Petron Station for the gasoline of Dr. Nikolai’s service vehicle.
18. Settled a partial payment of P70,000 to Banco De Uno (refer to item no. 2)
19. Purchased additional medical equipment, P50,000. Terms: Paid P30,000 and the
balance after 30 days.
20. Returned defective medical supplies purchased in no. 5, worth P5,000.
21. By taking inventory at the end of the period, medical supplies consumed amounted to
P18,000.

Required:

1) Analyze and record the transaction using the given tabulation below:

ASSETS LIABILITIES CAPITAL

Acct. Fur. & Accounts Notes Nikolai,
No. Cash Rec’ble Supplies Fixture Equipt. Payable Payable Capital Notations
1 300,000 300,000 Initial
investment
2 100,000 100,000
3 (100,00) 100,000

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 4 70,000 70,000
5 (25,000) 25,000
6 (20,000) (20,000) Dr. Nikolai
withdrawals
7 15,000 15,000
8 (35,000) (35,000)
9 (5,000) 20,000 15,000
10 75,000 75,000 Service
revenue
11 (8,000) (8,000) Utilities
expense
12 (20,000) (20,000) Salary
expense
13 50,000 50,000 Service
Revenue
14 (15,000) (15,000)
15 35,000 (35,000)
16 (3,500) (3,500) Utilities
expense
17 (6,000) (6,000) Fuel
expense
18 (70,000) (70,000)
19 (30,000) 50,000 20,000
20 5,000 (5,000)
21 (18,000) (18,000) Medical
Supplies
expense
Bal. 177,500 15,000 2,000 205,000 50,000 70,000 30,000 349,500

2) Prepare the following financial reports for the month of January 2020:

a) Income Statement

Dr. Nikolai Medical Clinic

Statement of Income and Expenses
For the Month Ended January 31, 2020

Service Revenue P125,000

Less: Operating Expenses
Salaries P20,000
Utilities 11,500
Medical Supplies 18,000
Transportation 6,000
Total Operating Expenses 55,500

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 Net Income P69,500

b) Statement of Owner’s Equity

Dr. Nikolai Medical Clinic

Statement of Owner’s Equity
For the Month Ended January 31, 2020

Nikolai Capital, January 1, 2020 P300,000

Add: Net Income 69,500
Total 369,500
Less: Withdrawals 20,000
Nikolai Capital, January 31, 2020 P349,500

c) Statement of Financial Position

Dr. Nikolai Medical Clinic

Statement of Financial Position
For the Month Ended January 31, 2020

Assets Liabilities and Capital

Cash P177,500 Accounts Payable P70,000
Accounts Receivable 15,000 Notes Payable 30,000
Supplies 2,000 Nikolai, Capital 349,500
Furniture and Fixtures 205,000
Equipment 50,000 Total Liabilities and Capital P449,500
Total Assets P449,500

d) Statement of Cash Flow

Dr. Nikolai Medical Clinic

Statement of Cash Financial Position
For the Month Ended January 31, 2020

Cash Flows from Operations:

Service Revenues P110,000
Collection of Receivables 35,000
Purchased of Supplies (25,000)
Payments of Expenses:
Utilities 11,500
Salaries 20,000
Transportation 6,000 (37,500) P82,500

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 Cash Flows from Investment Activities:
Purchased of Equipment P(30,000)
Purchased of Furniture & Fixtures (155,000) (185,000)

Cash Flows from Financing Activities:

Investment of the Proprietor P300,000
Withdrawals of the Proprietor (20,000) 280,000

Cash Balance, January 31, 2020 P177,500

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