Saint Theresa College of Tandag, Inc.

COLLEGE OF ACCOUNTANCY
Tandag City, Surigao del Sur

FINANCIAL

ACCOUNTING and

REPORTING

Module 104
Topics

Chapter 6 The Working Paper

Intended Learning Outcomes: At the end of the unit the students must have:
1. Prepared a working paper, closing entries, financial statements and reversing entries.
Topic 1 | The Working Paper
INTRODUCTION
Let us have a recount of what we have learned so far:
Steps I the accounting cycle:

1. Identifying and analyzing 

2. Journalizing 
3. Posting 
4. Unadjusted trial balance 
5. Adjusting entries 
6. Adjusted trial balance (and/or Worksheet)
7. Financial statements
8. Closing entries NOW
9. Post-closing trial balance
10. Reversing entries

The Working Paper

The Working Paper or the worksheet is a device used as a convenient and orderly way of organizing
the accounting data to facilitate the preparation of adjusting entries, financial statements and closing
entries. It is not part of the formal accounting records, but it is an accounting device used to accumulate
and organize data thus facilitating the checking, handling and keeping of the accounting records.
 The basic form of the working paper could be presented as shown below: The heading of the worksheet
states the following:
(1) Name of the business;
(2) Title of the report; and
(3) Date covered by the report.

Ogawa Servicing
Worksheet
For the period ended December 31, 20x1

ACCOUNTS UNADJUSTED ADJUSTMENTS ADJUSTED TRIAL INCOME BALANCE SHEET

TRIAL BALANCE BALANCE STATEMENT
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

The general The account The amount of The new The adjusted The adjusted
ledger open balances are adjustment for account values amounts of amounts of
accounts are recorded here the affected of the affected the revenue the assets,
listed here in as they are accounts are accounts are and expenses liabilities and
the same presented in written here. written here accounts are owner’s equity
order as they the trial after extended are extended
are presented balance. combining any here. here.
in the trial adjustments
balance. with the
unadjusted
account value.

By means of the working paper, the accountant is able to assemble on one sheet of paper all
data necessary in adjusting and closing the books of accounts including the preliminary preparation of
financial statements. As a result, the working paper helps accountants in determining the arithmetical
accuracy of the accounts before adjusting and closing entries in the books of accounts and preparing the
formal financial statements.

Procedures in the Preparation of Working Paper

The following steps are recommended in the preparation of the working paper:

Step 1: Heading and Unadjusted Trial Balance

Write the heading at the center of the topmost part of the working paper: the business name,
the title “Working Paper,” and the date of the working paper.

Copy the trial in the first pair of the columns with the heading “Unadjusted Trial Balance.”
Step 2: Adjustments

Adjustments are entered in the pair of columns with the heading “Adjustments.”

Step 3: Adjusted Trial Balance

“Adjusted Trial Balance” columns is an optional pair of columns, which means that the adjusted
trial balance can be done away with in the working paper. The adjusted trial balance columns are used
especially when there are numerous adjustments. The inclusion of the adjusted trial balance columns in
the working paper is intended to minimize possible rechecking or re-computation should there be an
unbalanced balance sheet or income statement.

Step 4: Adjusted Accounts to Financial Statements’ Columns

The adjusted account balances are extended to the corresponding financial statements’
columns.

Nominal accounts, which include the revenue and expense accounts are extended to the
income statement columns. Whereas, Real accounts, which include the assets, liabilities and capital
account and any contra asset valuation accounts (such as allowance for bad debts and accumulated
depreciation) are extended to the balance sheet columns.

Step 5: Determination of Net Income or Net Loss

Total the financial statements’ columns. The income statement and balance sheet columns are
totaled to arrive at sub-totals.

The difference of the sub-totals of the income statement columns would represent either
income of loss:

Total Credits > Total Debits = Net Income or vice versa

Total Debits > Total Credits = Net Loss or vice versa

If the difference is an income, such amount is extended to the credit column of the balance
sheet. It is because income increases the capital account, which has a normal credit balance in the
balance sheet. If the difference is loss, it is extended to the debit column of the balance sheet because
losses decrease the capital account.
 ILLUSTRATION 101

The unadjusted trial balance for the year ended December 31, 2019 of Ogawa Delivery Services
is presented below, together with the information for adjustments.

OGAWA DELIVERY SERVICE

UNADJUSTED TRIAL BALANCE
December 31, 2019
ACCOUNT ACCOUNT TITLE DEBIT CREDIT
NO.
110 Cash P 63 400 00
120 Accounts Receivable 36 100 00
125 Allowance for Doubtful Accounts P 2 000 00
130 Supplies 8 900 00
140 Prepaid Insurance 19 000 00
150 Land 460 000 00
160 Building 820 000 00
165 Accumulated Depreciation-Building 189 600 00
170 Equipment 530 000 00
175 Accumulated Depreciation- 168 000 00
Equipment
210 Accounts Payable 21 600 00
220 Accrued Salaries Payable
230 Accrued Interest Payable
240 Unearned Delivery Fees 21 000 00
250 Mortgage Payable 580 000 00
310 Ogawa, Capital 723 200 00
320 Ogawa, Withdrawals 6 900 00
410 Delivery Fees Earned 334 600 00
510 Salaries Expense 86 700 00
520 Utilities Expense 4 700 00
530 Supplies Expense
540 Insurance Expense
550 Doubtful Account Expense
560 Depreciation Expense-Building
570 Depreciation Expense-Equipment
580 Repair Expense 4 300 00
590 Interest Expense
TOTAL P 2 040 000 00 P 2 040 000 00
Adjustment data:

a) Supplies used, P 2,700.

b) Expired insurance, P 6,000.
c) Depreciation of building and equipment, P 5,000 and P 9,000, respectively.
d) Unearned delivery fees earned this month, P 13,000.
e) Salaries incurred but not yet paid, P 1,800.
f) Interest on mortgage, P 2,100.
g) Additional allowance on accounts receivables at 2% of the adjusted delivery fees earned should
be made.

Requirements:

1. Prepare the adjusting entries.

2. Prepare the working papers.

REQUIREMENT NUMBER 1

1. Prepare the adjusting entries.

GENERAL JOURNAL
Page No.___0X_____
DATE ACCOUNT TITLES/DESCRIPTIONS P.R. DEBIT CREDIT
2019
a. Supplies Expense P 2 700 00
Supplies P 2 700 00

b. Insurance Expense 6 000 00

Prepaid Insurance 6 000 00

c. Depreciation Expense-Building 5 000 00

Depreciation Expense-Equipment 9 000 00
Accumulated Depreciation-Building 5 000 00
Accumulated Depreciation-Equipment 9 000 00

d. Unearned Delivery Fees 13 000 00

Delivery Fees Earned 13 000 00

e. Salaries Expense 1 800 00

Accrued Salaries Payable 1 800 00

f. Interest Expense 2 100 00

Accrued Interest Payable 2 100 00

g. Doubtful Accounts Expense 6 952 00

Allowance for Doubtful Accounts 6 952 00
Requirement Number 2: OGAWA DELIVERY SERVICES
WORKSHEET
For the year ended December 31, 2019
No. ACCOUNT TITLE UNADJUSTED TRIAL BALANCE ADJUSTMENTS ADJUSTED TRIAL INCOME STATEMENT BALANCE SHEET
BALANCE
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
110 Cash 63,400 63,400 63,400
120 Accounts Receivable 36,100 36,100 36,100
125 Allowance for Doubtful Accounts 2,000 (g) 6,952 8,952 8,952
130 Supplies 8,900 (a) 2,700 6,200 6,200
140 Prepaid Insurance 19,000 (b) 6,000 13,000 13,000
150 Land 460,000 460,000 460,000
160 Building 820,000 820,000 820,000
165 Accumulated Depreciation-Building 189,600 (c) 5,000 194,600 194,600
170 Equipment 530,000 530,000 530,000
175 Accumulated Depreciation- Equipment 168,000 (c) 9,000 177,000 177,000
210 Accounts Payable 21,600 21,600 21,600
220 Accrued Salaries Payable (e) 1,800 1,800 1,800
230 Accrued Interest Payable (f) 2,100 2,100 2,100
240 Unearned Delivery Fees 21,000 (d)13,000 8,000 8,000
250 Mortgage Payable 580,000 580,000 580,000
310 Ogawa, Capital 723,200 723,200 723,200
320 Ogawa, Withdrawals 6,900 6,900 6,900
330 Income Summary
410 Delivery Fees Earned 334,600 (d)13,000 347,600 347,600
510 Salaries Expense 86,700 (e) 1,800 88,500 88,500
520 Utilities Expense 4,700 4,700 4,700
530 Supplies Expense (a) 2,700 2,700 2,700
540 Insurance Expense (b) 6,000 6,000 6,000
550 Doubtful Account Expense (g) 6,952 6,952 6,952
560 Depreciation Expense-Building (c) 5,000 5,000 5,000
570 Depreciation Expense-Equipment (c) 9,000 9,000 9,000
580 Repair Expense 4,300 4,300 4,300
590 Interest Expense (f) 2,100 2,100 2,100
TOTAL 2,040,000 2,040,000 46,552 46,552 2,064,852 2,064,852 129,252 347,600 1,935,600 1,717,252
Net Income 218,348 218,348
- 218,348 347,600 1,935,600 1,935,600
 PREPARATION OF THE FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

Financial statements are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users. Financial statements are the end products of
accounting process.

COMPLETE SET OF FINANCIAL STATEMENTS

COMPONENTS OF FINANCIAL STATEMENT FUNCTIONS/DEFINITIONS

Statement of Financial Position (SFC) A formal statement showing the three elements
comprising financial position, namely asset, liabilities and
equity.
Income Statement (IS) A formal statement showing the financial performance or
profit or loss of an entity for a period of time.
Statement of Comprehensive Income (SIC) A formal statement showing the financial performance or
profit or loss of an entity for a period of time plus or
minus the components of other comprehensive income.
Statement of Changes in Equity (SCE) A formal statement showing the movements in the
elements or components of the equity.
Statement of Cash Flow (SCF) A component financial statements that summarizes the
operating, investing and financing activities of an entity.
Notes to Financial Statements, comprising a summary of This statement provides narrative description or
significant accounting policies and other explanatory disaggregation of items presented in the financial
information (NTF) statements and information about items do not qualify
for recognition but enhances the understandability of the
users.

Heading of the Financial Statements

The heading of the financial statements shows the following:

a) Name of the reporting entity

b) Title of the financial statement
c) Reporting period

The statement of financial position is dated as at the end of the reporting period. The statement of
profit or loss and comprehensive income, changes in equity and cash flows are dated covering the
reporting period. In practice, notes to financial statements are simply dated by the end of the reporting
period.

Type of Financial Statement Date

Statement of Financial Position (SFC) As of or As at December 31, 20x1
Income Statement (IS) For the year ended December 31, 20x1
Statement of Comprehensive Income (SIC) For the year ended December 31, 20x1
Statement of Changes in Equity (SCE) For the year ended December 31, 20x1
Statement of Cash Flow (SCF) For the year ended December 31, 20x1
Notes to Financial Statements December 31, 20x1
ILLUSTRATION 102: PREPARATION OF FINANCIAL STATEMENTS

Let us continue illustration 101

OGAWA DELIVERY SERVICES

INCOME STATEMENT
For the year ended December 31, 2019
No. ACCOUNT TITLE
410 Delivery Fees Earned 347,600
510 Less: Salaries Expense 88,500
520 Utilities Expense 4,700
530 Supplies Expense 2,700
540 Insurance Expense 6,000
550 Doubtful Account Expense 6,952
560 Depreciation Expense-Building 5,000
570 Depreciation Expense-Equipment 9,000
580 Repair Expense 4,300
590 Interest Expense 2,100 129,252
NET INCOME 218,348

OGAWA DELIVERY SERVICES

STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 2019
No. ACCOUNT TITLE
Beginning Balance-Ogawa, Capital *723,200
Add: Additional Investment -
Net Income 218,348 218,348
TOTAL 941,548
Less: Ogawa, Withdrawals 6,900
Ending Balance-Ending Balance 934,648

*NOTE: IN this Problem let us assume that this amount was the beginning balance and no
additional investment happened for this year.
 OGAWA DELIVERY SERVICES
STATEMENT OF FINANCIAL POSITION
As of December 31, 2019
No. ACCOUNT TITLE
ASSETS
CURRENT ASSETS
110 Cash 63,400
120 Accounts Receivable 36,100
125 Less: Allowance for Doubtful Accounts 8,952 27,148
130 Supplies 6,200
140 Prepaid Insurance 13,000
TOTAL CURRENT ASSETS P 109,748
NON-CURRENT ASSETS
150 Land 460,000
160 Building 820,000
165 Less: Accumulated Depreciation-Building 194,600 625,400
170 Equipment 530,000
175 Less: Accumulated Depreciation- 177,000 353,000
Equipment
TOTAL NON-CURRENT ASSETS P 1,438,400
TOTAL ASSETS P 1,548,148

LIABILITIES
CURRENT LIABILITIES
210 Accounts Payable P 21,600
220 Accrued Salaries Payable 1,800
230 Accrued Interest Payable 2,100
240 Unearned Delivery Fees 8,000
TOTAL CURRENT LIABILITIES 33,500
NON-CURRENT LIABILITY
250 Mortgage Payable 580,000
TOTAL NON-CURRENT LIABILITY 580,000
OWNER’S EQUITY
310 Ogawa, Capital 934,648
TOTAL LIABILITIES AND OWNER’S EQUTIY P 1,548,148

NOTES:

1. Since there was no additional informational information about cash, then preparation for the
Statement of Cash Flows is impossible.
2. Notes to Financial Statements will be discussed in higher accounting subjects.
3. Since there were other income transactions, then Income Statement is already enough.
STATEMENT OF CASH FLOWS

The cash flows of a business are reported using the statement of cash flows. There are two variations on
the template for this report, which are the direct method and the indirect method. The indirect method
is used by nearly all organizations, since it is much easier to derive from the existing accounts.

Cash Flow Statement Classifications

In the statement of cash flows, cash flow information is reported within three separate classifications.
The use of classifications is intended to improve the quality of the information presented. These
classifications are:

Operating activities. These are an entity’s primary revenue-producing activities. Operating activities is
the default classification, so if a cash flow does not belong in either of the following two classifications, it
belongs in this classification. Operating cash flows are generally associated with revenues and expenses.
Examples of cash inflows from operating activities are cash receipts from the sale of goods or services,
collection of accounts receivable, lawsuit settlements, normal insurance settlements, and supplier
refunds. Examples of cash outflows for operating activities are for payments to employees and suppliers,
fees and fines, lawsuit settlements, cash payments to lenders for interest, contributions to charity, cash
refunds to customers, and the settlement of asset retirement obligations. U

Investing activities. These are investments in productive assets, as well as in the debt and equity
securities issued by other entities. These cash flows are generally associated with the purchase or sale of
assets. Examples are cash receipts from the sale or collection of loans, the sale of securities issued by
other entities, the sale of long-term assets, and the proceeds from insurance settlements related to
damaged property. Examples of cash outflows from investing activities are cash payments for loans
made to other entities, the purchase of the debt or equity of other entities, and the purchase of fixed
assets (including capitalized interest).

Financing activities. These are the activities resulting in alterations to the amount of contributed equity
and an entity’s borrowings. These cash flows are generally associated with liabilities or equity, and
involve transactions between the reporting entity and its providers of capital. Examples are cash
receipts from the sale of an entity’s own equity instruments or from issuing debt, and proceeds from
derivative instruments. Examples of cash outflows from financing activities are cash outlays for
dividends, share repurchases, payments for debt issuance costs, and the paydown of outstanding debt.

Example of a Cash Flow Statement

The format of the indirect method appears in the following example. Note that the indirect method
does not include cash inflows and outflows in the cash flows from operating activities section, but rather
a derivation of cash flows based on adjustments to net income.
 OGAWA DELIVERY SERVICES
INCOME STATEMENT
For the year ended December 31, 2019

Cash flows from operating activities

Net income P 3,000,000
Adjustments for:
Depreciation and amortization P 125,000
Provision for losses on accounts receivable 20,000
Gain on sale of facility (65,000) 80,000

Increase in trade receivables (250,000)

Decrease in inventories 325,000
Decrease in trade payables (50,000) 25,000
Cash generated from operations 3,105,000

Cash flows from investing activities

Purchase of fixed assets (500,000)
Proceeds from sale of equipment 35,000
Net cash used in investing activities (465,000)

Cash flows from financing activities

Proceeds from issuance of common stock 150,000
Proceeds from issuance of long-term debt 175,000
Dividends paid (45,000)
Net cash used in financing activities 280,000

Net increase in cash and cash equivalents 2,920,000

Cash and cash equivalents at beginning of period 2,080,000
Cash and cash equivalents at end of period P 5,000,000
NOTE: All amounts were just assumed.

CLOSING ENTRIES

After adjustments are recorded in the general journal and posted in the general ledger, the
open accounts of the revenue and expense accounts should be closed to the capital account at the end
of accounting period.

Nature of closing entries: The life of the business is divided into accounting periods at the end of which
financial statements are to be prepared. The income or loss for each period is computed in a non-
cumulative manner. Therefore, the income and expense accounts must be kept in such a way that their
balances do not mix with the revenue and expense of the succeeding periods. This is accomplished
through journal entries known as closing entries.
 IMPORTANT NOTES TO REMEMBER

1. To close the nominal accounts is to bring the revenue-expense account balances to zero.
Accordingly, to bring the revenue accounts to zero, their balances should be debited because
they have a normal credit balance. On the other hand, balances of expenses accounts should be
credited because they have normal debit balances.
2. The “Income Summary” or “Revenue and Expense Summary” account will be used as a
temporary account to close the income statement accounts. The ledger balances of the income
summary accounts will represent income or loss for the period. As a temporary account, the
income summary account is ultimately close to the capital account.
3. Owner’s withdrawals or owner’s drawing is another temporary or nominal account which should
be closed to the capital account. Drawing account is not closed to income summary account but
instead closed directly to capital account and would not be reported in the income statement.

Using the same data in the previous illustrations, the working paper is used to facilitate the closing of
temporary accounts. The illustration in the next page shows the making of the closing entries.

OGAWA DELIVERY SERVICES

WORKSHEET
For the year ended December 31, 2019
No. ACCOUNT TITLE ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET

DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

110 Cash 63,400 63,400
120 Accounts Receivable 36,100 36,100
125 Allowance for Doubtful Accounts 8,952 8,952
130 Supplies 6,200 6,200
140 Prepaid Insurance 13,000 13,000
150 Land 460,000 460,000
160 Building 820,000 820,000
165 Accumulated Depreciation-Building 194,600 194,600
170 Equipment 530,000 530,000
175 Accumulated Depreciation- 177,000 177,000
Equipment
210 Accounts Payable 21,600 21,600
220 Accrued Salaries Payable 1,800 1,800
230 Accrued Interest Payable 2,100 2,100
240 Unearned Delivery Fees 8,000 8,000
250 Mortgage Payable 580,000 580,000
310 Ogawa, Capital 723,200 723,200
320 Ogawa, Withdrawals 6,900 6,900
330 Income Summary
410 Delivery Fees Earned 347,600 347,600
510 Salaries Expense 88,500 88,500
520 Utilities Expense 4,700 4,700
530 Supplies Expense 2,700 2,700
540 Insurance Expense 6,000 6,000
550 Doubtful Account Expense 6,952 6,952
560 Depreciation Expense-Building 5,000 5,000
570 Depreciation Expense-Equipment 9,000 9,000
580 Repair Expense 4,300 4,300
590 Interest Expense 2,100 2,100
TOTAL 2,064,852 2,064,852 129,252 347,600 1,935,600 1,717,25
2
Net Income 218,348 218,348
218,348 347,600 1,935,600 1,935,60
0
NOTES:

1. The accounts with light blue highlights are subject for closing entries. All of them are called
“Temporary or Nominal Account” while the other accounts with no highlights are called
“Permanent or Real Accounts”.
2. Revenue and Expense Accounts are closed first in the Income Summary then to the Capital
Accounts while Withdrawal is closed directly to the Capital Account.
3. The Closing entries shall be posted individually to the general ledger accounts to make the
balances of all nominal accounts and drawing account become zero.

ILLUSTRATION 103: PREPARATION OF CLOSING ENTRIES

GENERAL JOURNAL
Page No.___0X_____
DATE ACCOUNT TITLES/DESCRIPTIONS P.R. DEBIT CREDIT
2019
(a) Delivery Fees Earned P 347,600 00
Income Summary P 347,600 00
To close the revenue account

(b) Income Summary 129,252 00

Salaries Expense 88,500 00
Utilities Expense 4,700 00
Supplies Expense 2,700 00
Insurance Expense 6,000 00
Doubtful Account Expense 6,952 00
Depreciation Expense-Building 5,000 00
Depreciation Expense-Equipment 9,000 00
Repair Expense 4,300 00
Interest Expense 2,100 00
The close expense accounts

(c) Income Summary 218,348 00

Ogawa, Capital 218,348 00
To close the net income to the capital account

(d) Ogawa, Capital 6,900 00

 Ogawa, Withdrawals 6,900 00
To close the withdrawal account
An example of closing the ledger nominal account is as follows:

GENERAL LEDGER
DELIVERY FEES EARNED - 410
DATE EXPLANATIONS JOURNAL DEBIT CREDIT BALANCE
2020 REFERENC
E
Balance-12/31/2019 GL-410 347 00
600
Closing GL 347 00 0 00
600

THE POST CLOSING TRIAL BALANCE

After the posting of the closing entries to all nominal accounts and the capital account to the
ledger, the remaining ledger accounts would only be the open accounts of the balance sheet. These
accounts can now be used to prepare the post-closing trial balance, as shown below.

ILLUSTRATION 104

The accounts in the

OGAWA DELIVERY SERVICE post-closing trial
POST-CLOSING TRIAL BALANCE
balance are usually
January 1, 2020
exactly the same as
ACCOUNT ACCOUNT TITLE DEBIT CREDIT
the open accounts
NO.
110 Cash 63,400 available at the
beginning of the
120 Accounts Receivable 36,100
subsequent
125 Allowance for Doubtful Accounts 8,952
accounting year.
130 Supplies 6,200
These accounts
140 Prepaid Insurance 13,000
comprise the
150 Land 460,000 beginning balances
160 Building 820,000 of the balance
165 Accumulated Depreciation-Building 194,600 sheet accounts.
170 Equipment 530,000
175 Accumulated Depreciation- 177,000
Equipment
210 Accounts Payable 21,600
220 Accrued Salaries Payable 1,800
230 Accrued Interest Payable 2,100
240 Unearned Delivery Fees 8,000
250 Mortgage Payable 580,000
310 Ogawa, Capital 934,648
TOTAL P 0 P 1,928,700 0
1,928,700 0 0

REVERSING ENTRIES AT THE START OF THE NEXT ACCOUNTING PERIOD

Reversing entries are journal entries made at the beginning of the next accounting period and
are exactly the reverse of adjusting entries. Therefore, reversing entries are made after the
preparation of financial statements and closing of the books of accounts, but before the recording of
the regular transactions of the next accounting period.

The purpose of reversing is not to correct the adjusting entries but to simplify the recording of
the recurring transaction of the next period.

The use of reversing entries is optional in the accounting cycle because it does not change the
amount reported I the financial statement.

RULES IN REVERSING

As a general rule, a reversing entry is made if an adjustment previously entered increases the
balance sheet totals. Hence, not all adjustments are to be reversed at the beginning of the next
period. Specifically, the following adjustments normally require reversal:

2. Accruals, whether accrued expenses or income.

3. Prepayments under the expense method of recording.
4. Pre-collections under income method of recording.

ILLUSTRATION 105
Since the post-closing trial balance is already available, we will prepare reversing entries at the
beginning of the next accounting period. Let us assume also that the company is using the following
accounting policies:
Asset Method – Prepaid Rent
Asset Method – Supplies
Income Method for Delivery Fees Earned
GENERAL JOURNAL
Page No.___0X_____
DATE ACCOUNT TITLES/DESCRIPTIONS P.R. DEBIT CREDIT
2019
(a) Insurance Expense 13 000 00
Prepaid Insurance 13 000 00

(b) Supplies Expense 6 200 00

Supplies 6 200 00

(c) Unearned Delivery Fees 8 000 00

Delivery Fees Earned 8 000 00
 (d) Accrued Salaries Payable 1 800 00
Accrued Interest Payable 2 100 00
Salaries Expense 1 800 00
Interest Expense 2 100 00
-DONE-

COMPREHENSIVE PROBLEM

The unadjusted trial balance for the year ended December 31, 2019 of Littefinger Professional Services
is presented below, together with the information for adjustments.

OGAWA LITTLEFINGER PROFESSIONAL SERVICES

UNADJUSTED TRIAL BALANCE
December 31, 2019
ACCOUNT NO. ACCOUNT TITLE DEBIT CREDIT
110 Cash P 24 600 00
120 Accounts Receivable 260 000 00
125 Allowance for Doubtful Accounts P 1 000 00
140 Prepaid Insurance 14 400 00
170 Office Equipment 60 000 00
175 Accumulated Depreciation- Office Equipment
210 Accounts Payable 150 000 00
220 Notes Payable 20 000 00
230 Accrued Salaries Payable
240 Unearned Rent Income 18 000 00
310 Ogawa, Capital 245 000 00
320 Ogawa, Withdrawals 10 000 00
410 Professional Fees 105 000 00
420 Rent Income
510 Salaries Expense 100 00 00
520 Utilities Expense 20 000 00
530 Supplies Expense 20 000 00
540 Insurance Expense
550 Doubtful Account Expense
570 Depreciation Expense-Office Equipment
580 Repair Expense 20 000 00
590 Miscellaneous Expense 10 000 00
TOTAL P 539 000 00 P 539 000 00
The following are related information to prepare the adjusting entries:

a. The allowance for bad debt is 1% of accounts receivable.

b. The prepaid insurance is applicable for one-year coverage starting March 31, 2019.
 c. The office equipment is estimated to serve the business for 5 years. At the end of the 5th year, it
is estimated to have a scrap value of P 10,000. This equipment was acquired last October 1,
2019.
d. The unearned rent is for the rent income for the period starting for the period October 1, 2019
to March 31, 2020.
e. Salaries of P 20,000 are unrecorded and remain unpaid at the end of the year.
f. The actual supplies consumed for the period is P 17,000.

Requirements:

1. Complete the Worksheet.

2. Prepare adjusting entries, financial statements (BS, IS and SCE), closing entries, post-closing trial
balance and reversing entries.

-DONE-