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FINANCIAL MANAGEMENT ACCOUNTING

TOPIC 1: CORRELATION AND RECONSTRUCTION OF ACCOUNTS

ACCRUAL AND CASH BASIS OF ACCOUNTING

REFERENCES: CONSTRUCTIVE ACCOUNTING 6TH Ed., by Mercedes Bartolome –Kimwell

INTERMEDIATE ACCOUNTING 9TH Ed., by Donald E. Kieso & Jerry J. Weygandt
MANAGERIAL ACCOUNTING 8TH Ed., by Geraldine F. Dominiak & Joseph G. Louderback III

No. of Lecture Hours: 4 hours

1.BOOK ENTRIES:
a. Journal Entries
b. Adjusting Entries include the following
b.1 Doubtful accounts
b.2 Depreciation
b.3 Accrued Expenses
b.4 Prepaid Expenses
b.5 Accrued Income
b.6 Precollected Income
b.7 Ending Inventory
b.8 Probable loss due to a past event
b.9 Estimated liability for Tax
c. Closing Journal Entries
c.1 Income summary
d. Reversing Entries
d.1 Accrued Expenses
d.2.Prepaid Expense, if expense method is used
d.3 Accrued Income
d.4 Unearned income, if income method is used
d.5 Estimated sales returns, sales allowances and sales discount
e. Correcting Adjusting Journal Entries

2. TYPICAL INCREASES AND DECREASES OF SELECTED LEDGER ACCOUNTS

CASH
BEGINNING BALANCE + COLLECTIONS – DISBURSEMENTS = ENDING BALANCE

ACCOUNTS RECEIVABLE
Beginning Balance + Credit Sales – Collections – Sales Discount – Sales Returns & Allowances –
Write Off – Receipt of Notes as Temporary Settlement = Ending Balance

NOTES RECEIVABLE
Beginning Balance + Additional Notes Receivable Received – Collection of Notes – Notes
dishonoured = Notes Receivable, end

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Allowance for Doubtful accounts, beginning + Doubtful Accounts + Recoveries of Accounts
previously written off – Accounts Written off = Allowance for Doubtful Accounts, end

Prepaid Expenses
Prepaid Expense, beginning + Additional prepaid expenses – Expense for the Period = Prepaid
Expense, end
Accrued Income
Accrued Income, beginning + Income earned – Collection = Accrued Income, end

LAND, BUILDING AND EQUIPMENT

PPE, beginning + New Acquisition – Original cost of PPE sold = PPE, end
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ACCUMULATED DEPRECIATION
Accumulated Depreciation, end = Accumulated Depreciation, beginning + Depreciation for the
period – Accumulated Depreciation of Sold PPE

ACCOUNTS PAYABLE
Accounts Payable, beginning + Purchases (merchandise or fixed assets) - Payment – Purchase
discounts – Purchase Returns & Allowances – Issuance of Notes to creditors = Accounts Payable, end

NOTES PAYABLE
Notes Payable beginning, + Purchases of Merchandise, fixed assets & notes to creditors +
Notes issued for loans – Payments to note payees= Notes Payable, end

ACCRUED EXPENSE
Accrued Expense, beginning + Additional Expense – Paid = Accrued Expense. End

UNEARNED INCOME
Unearned Income beginning = Advance Collection – Earned for the Period = Unearned income
end

CAPITAL STOCK
Captial Stock, beginning + Issuance of Certificate of Stock for fully paid
subscriptions – Dividends = Capital Stock, end

ADDITIONAL PAID IN CAPITAL

Additional paid in Capital, beginning + Excess of issued price of capital stock + credits from
certain capital transactions + donated capital – debits from certain capital stock
transactions = Additional paid in capital, end

RETAINED EARNINGS
Retained Earnings, beginning + Net Income – Dividends Declared
–Appropriations for the period = Retained Earnings, end

SALES
Gross Sales = Cash sales + Credit Sales

COST OF SALES
Cost of Sales = Beginning Inventory + Purchases + Freight In – Ending Inventory

PURCHASES
Gross Purchases = Cash Purchases + Credit Purchases

OPERATING EXPENSES
Operating Expenses = General Expenses + Administrative Expenses + Selling Expenses

CASH TRANSACTION TO ACCRUAL ACCOUNTING SYSTEM

OPERATING EXPENSES
Cash operating expenses + prepaid operating expense, beginning + Accrued expense, end –
prepaid expense, end – accrued expense, end = Operating Expense incurred for the period

OTHER INCOME
Cash Other Income + Unearned other income, beginning + Accrued other income, end –
Unearned other income, end – Accrued other income, beginning = Other Income earned on accrual
basis

GAIN/LOSS ON SALE OF PPE

Book Value of PPE = Original cost of PPE – accumulated Depreciation
Gain/loss of PPE = Market Value of PPE – Book Value of PPE
NET INCOME
Net Income = Sales – Cost of Sales – Operating Expenses
NET INCOME :
NET INCOME = Capital Balance, end + withdrawal – additional investment – Capital Balance
beginning
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NET INCOME = Retained Earnings, end + Appropriation for the period + Dividends declared –
Appropriation reversed – Retained Earnings, beginning

EXERCISES:
1. Certain information related to the operations of year 2023 of the Oslo Company
follows:
Accounts Receivable, 1/1/2023 P80,000
Accounts Receivable, collection in 2023 260,000
Cash sales durin 2023 50,000
Inventory, 1/1/2023 120,000
Inventory 12/31/2023 110,000
Purchases during 2023 200,000
Gross Margin on sales 90,000

Compute for the December 31, 2023 balance of accounts receivable, gross sales & cost of sales.

2. The following information pertains to Angels Company for the year 2023.

Cash Sales P64,000

Cash collected and accounts reeivable 440,000
Accounts Receivable, 1/1/2023 110,000
Accounts Receivable, 12/31/2023 95.000
Bad debts written off 6,500
Purchases, net 350,200
Inventory, 12/31/2023 84,000
Gross Margin on sales 35%

Compute for the merchandise inventory in 1/31/2023

3. The following information is made available from the records of BA Company for 2023.
Beginning Inventory P80,000
Freight In 25,000
Purchase returns 40,000
Ending Inventory 100,000
Selling Expenses 250,000
Sales Discounts 15,000

The cost of sales is 6 times the selling expenses.

Required: a. Cost of goods available for sale

b. Total Purchases

4.Interest Expenses paid in 2022 amounted to P12,000. Analysis shows.

December 31 2021 December 31, 2022
Prepaid Interest Expense P 1,000 P500
Accrued Interest Expense 4,000 5,000

5.Interest Income reported in the income statement to 2023 amounted to P7,000.

Analysis shows:
December 31, 2022 December 31, 2023
Unearned Interest Income P 500 P800
Accrued Interest Income 3,000 2,000

How much interest income was actually in cash during 2023.

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6. Crumble Company has these entries in its Trucks account and the related accumulated depreciation
accounts:
Trucks:
1/1/2023 beginning balance P100,000
3/4/2023 Acquisition of new Truck P25,000

Accumulated Depreciation – Trucks

1/1/2023` Beginning balance P40,000
12/31/2023 depreciation 30,000
12/31/2023 Ending Balance P60,000

Required: If a truck was sold on June 6, 2023 for P13,000, creating an P8,000 gain om the
sale, what is the ending balance in the Truck account?

7. The 2023 operations of Lagalag Company resulted in the following information:

The cost of goods sold amounts to P350,000.
The beginning inventory is P50,000 higher than the ending inventory, the latter being
equivalent to 20% of purchases during the year,
Gross Profit margin of the company is 30% of net sales
Total operating expenses amounted to 60% of the gross profit while sales returns
were 2% of net ssales
The company is subject to an income tax rate of 35%.
Required : a. Net income after tax b. net sales of the period c. Total purchases of
the period
8. The records of Andes Corporation were lost during a fire before the statements of 2023 were
prepared. The data reconstructed immediately after the fire are:
Stockholders’ equity, 1/1/2023 P1,700,000
Dividends declared during 2023 100,000
Additional shares of stock sold for cash in 2023 200,000
Stockholders’ equity, 12/31/2023 2,000,000

How much net income was earned by the corporation in 2023?

9. An analysis of the available records of France Enterprises shows the following balances as of
January 1 and December 31, 2023.
December 31 January 1
Cash P40,000 P30,000
Accounts Receivable 120,000 110,000
Merchandise Invty. 130,000 100,000
Accounts Payable 100,000 80,000

During the year, the owner made additional investments of P30,000 and withdrawals of P40,000

Based on the above information, compute for the following.

a. Owner’s equity as of 1/12023
b. Owner’s equity as of 12/31/2023
c. Net Income during 2023.

10. From the following trial balance of totals of the Grizzie Company reconstruct the jopurnal
entries, in summary form, posted to the general ledger during the first quarter of operations
ended March 31, 2023.
Debit record Credit record
Cash in bank P4,308,100 P3,960,000
Petty cash fund 1,000
Accounts Receivable 1,252,000 873,000
Subscription Receivable 1,040,000 700,000
Prepaid Insurance 2,400
Land 200,000
Building 1,800,000
Furniture & Fixtures 120,000
Office Equipment 80,000
Store Equipment 100,000
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Accounts Payable 618,000 834,000

Authorized Capital Stock 5,000,000
Unissued Capital Stock 5,000.000 2,600,000
Subscribed Capital Stock 600,000 1,000,000
Premium on Capital stock 120,000
Sales 1,800 1,895,000
Sales Returns and allowances 3,000
Purchases 1,257,000
Freight In 18,300
Purchases returns & 2,400
allowances
Purchase discounts 4,500
Marketing Expense 296,000
General & Administrative Exp. 304,000
Commission Income 12,700
TOTAL P17,001,600 P17,001,600

11.The following balances were gathered from the ledger of Excell Corporation.

As of January 1, 2023 As of December 31, 2023

Cash P33,000 P314,800
Accounts receivable 204,000 226,000
Allow. for Doubtful accounts 4,000 6,400
Notes receivable (trade) 70,000 60,000
Merchandise Inventory 354,000 338,000
Accrued interest Income 1,000 500
Prepaid Operating expense 21,000 17,000
Investment in stock 40,000 30,000
Furniture and Fixtures 280,000 300,000
Accum. Depreciation – F/F 116,000 144,000
Equipment 390,000 410,000
Accum. Depreciation - EQPMT 130,000 152,000
Accounts Payable 187,000 193,000
Loans Payable 100,000 50,000
Accrued operating Exp. 7,600 9,300
Accrued internet Exp. 900 700
Unearned rent income 500 1,500
Capital Stock 700,000 1,000,000
Subscribed Capital Stock 100,000
Subscription receivable 60,000
Premium on Capital Stock 20,000 23,000
Retained Earnings, Dec. 1 67,000 86,400
20,000 30,000

A detailed analysis of the cash account shows the following debits and credits
CASH
Beginning P33,000
balance
Capital stock 203,000 Accounts payable P1,106,000
Accounts Receivable 1,507,000 Loans Payable 50,000
Notes Receivable 40,000 Interest Expense 9,800
Interest Income 2,100 Operating Expense 287,000
Rent Income 13,000 Equipment 80,000
Equipment (see note) 48,500 Furniture & fixtures 20,000
Subscription receivable 60,000 Dividends 50,000
Investment in Stock 11,000 Ending Balance P314,800
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Note: Equipment disposed off has an original cost of P60,000 and corresponding accumulated
depreciation of P10,000 as of that time

REQUIRED:

a., Reversing entries as of January 1, 2024.

b. Journal entries to record the transaction completed during the year.

c. Adjusting entries as of December 31, 2023

d. Net income before tax as of December 31, 2023

12.We were given the following information which were obtained from the single entry records by Joel
Pelausa, proprietor of a small hardware of a small hardware supply store.

ASSETS MARCH 31, 2024 APRIL 1, 2023

Cash P 88,600 P76,000
Accounts Receivable 223,000 148,000
Notes Receivable (trade) 24,000 15,000
Accrued Interest Receivable 3,400 2,600
Merchandise Inventory 138,000 103,000
Supplies on Hand 1,700 800
Prepaid Interest Expense 1,200 -
Furniture and Equipment 88,000 64,000
Accum. Depreciation –Furniture (28,000) (20,000)
& Equipment

LIABILITIES
Notes Payable P50,000 P-
Accounts Payable 72,500 45,000
Accrued Salary Expense 1,900 1,600
Deferred rent Income 3,200 2,700

An analysis of the store’s business papers showed the following supplementary data:
a. Sales returns and allowances amounting to P3,700 were credited to customers
accounts.
b. Purchase discounts of P4,600 were received from trade creditors.
c. An old equipment was sold for P4,000, as recorded in cash receipts.
d. The cash receipts include the proceeds of bank loans for which notes of P80,000 were
issued. The interest of P3,500 had been deducted by the bank in advance.
e. Partial payment of P30,000 was made on the notes payable.

The cash records show the following:

Cash Balance April 1,2023 P76,000

Receipts:
Cash Sales P39,000
On accounts and notes receivable 325,000
arising from sales
From rental of office space 27.000
From interest income 800
From sale of equipment 4,000
From discounting own notes at bank 76,500
From additional investment 20,000 4 92,300

Total P568,300
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Payments:
On accounts payable for purchases P303,000
For salaries 64,000
For Supplies 3,200
For acquisition of new equipment 36,000
For miscellaneous expenses 8,500
To bank on notes payable 30,000
Proprietor’s withdrawals 35,000 479.700
Balance, March 31, 2024 P 88.600

REQUIRED: Prepare an income statement for the year accompanied by schedules in support of income
and expense items.

13. The Big Metal Industries, Inc. was organized on January 1, 2022. Based on the given information,
prepare

13.1 Statement of cost of goods manufactured for the year ended December 31, 2022.

13.2 Income statement for the year ended December 31, 2022.

13.3 Balance Sheet as of December 31, 2022

The following data are made available to you:

a. Material purchases during the period amounted to P282,500, P2,500 of which were
returned to the creditors.
b. 10% of the net purchases remained unused as of December 31.
c. 80% of the net purchases were paid during the period.
d. Direct Labor cost during the period amounted to 50% of the amount of net purchases,
P3,000 of which were unpaid as of December 31.
e. Manufacturing overhead were 150% of the direct labor cost. All were paid in cash
except for the depreciation of the factory equipment of P20,000
f. 90% of the goods placed in process were completed during the period.
g. ¾ of the goods completed were sold
h. Gross Profit margin was 40% of cost of sales.
i. 4/5 of the sales were collected in cash during the period.
j. Marketing expenses amounted to ¼ of net purchases. All were paid in cash except for
the depreciation of marketing equipment of P7,000.
k. Administrative expenses amounted to 80% of the marketing expenses. All were paid
in cash except for the depreciation of the office equipment of P4,000
l. Paid up capital was P600,000
m. All fixed assets were purchased for cash on Jan. 2, 2022.
n. The aanual depreciation rates used during 2022 were
Factory equipment 8%
Marketing equipment 10%
Office equipment 10%
o. Income before income tax was P36,540
p. Income tax provision was 30% of income before income tax.