Activities for the development of competencies

Reflection themes
Formulate your comments about the following statements:
1. A company did not make the adjusting entries last month; however, its financial statements
Financials did not vary at all.
If the company did not make the adjusting entries, the profit for the period would appear over or
underestimated, and the account balances on the balance sheet and other financial statements are
they would present on the undervalued.

2. Permanent accounts must be closed at the end of each accounting period in order to
determine the profit or loss of the economic entity.
These accounts cannot be closed and persist over different periods, the accounts that are owed
closing are the temporary accounts.

3. Despite not making the closing entries, the income statement is not affected; only the
items in the balance sheet undergo some modifications.
The closing entries are intended to leave the income statement accounts in
zero. These accounts, also known as temporary accounts, must be closed at the end of the
accounting period, in order to start the new period with a balance equal to zero.

4. The adjusted trial balance is a financial statement and, therefore, must be part of the
reports submitted by the company at the end of the accounting period.
At the end of the accounting period, once all adjusting entries have been made and before
to prepare the financial statements, it is customary to present a trial balance, known
as an adjusted trial balance. Its purpose, like any trial balance, is
verify the equality of total debits and credits. This trial balance shows the
balances of the income statement and the balance sheet duly adjusted.

5. The worksheet must be registered with the local chamber of commerce, as it replaces
the accounting books.
The worksheet has become a support tool for accounting, as
allows, before making the adjusting and closing entries in the books, to prepare them in the form of
draft, which avoids errors and saves time

6. Prepaid expenses do not require monthly adjustments, since their amount is

you can consider it an expense of the period.

7. The expenses incurred during a period must be recognized as such only in the period in
that the cash disbursement is made.
Reading assessment of the chapter
1. List the steps of the accounting cycle from the moment the entries are recorded
ordinary until the financial statements are prepared.
Initial balance sheet.
Opening of the accounting.
Record of the operations of the financial year.
Periodization.
Adjustments prior to the determination of the profit - or loss - generated in the period.
Trial balance of sums and balances.
Calculation of the result.
Closing of the accounting.
Annual accounts.
Distribution of the result.

2. What purpose does the association of revenues for an accounting period pursue?
respective costs and expenses?
Costs and expenses must be matched with the revenues earned in each period.
incurred to produce such income, recording both simultaneously in the
income statement. When an item cannot be associated with an income, cost, or
expense, correlating and concluding that it will not generate benefits or economic sacrifices in
other periods must be recorded in the income statements in the current period.

3. Briefly explain the difference between accrual accounting and cash accounting.
Box. Which of the two systems is accepted by current legislation?
Accrual accounting stipulates that economic events
they must be recognized in the period in which they are made and not just when they are received or paid
cash or its equivalent and cash accounting only considers as income of the
period of sales and services provided for cash, and as costs and expenses, the
disbursements actually made by the company during that period. Currently
cash accounting is not accepted; accounting is only allowed to be maintained by the
causation system.

4. In accounting terms, why are adjusting entries considered important? If for

If a certain month is omitted, what would be its effect on the basic financial statements?
These adjustments and corrections are necessary in order to issue financial statements.
adjusted to the economic and financial reality of the company, in addition to complying with the
accounting principles. If the accounting is not adjusted at the end of the year, it is impossible
detect errors in accounting and even economic and financial shortcomings of the
company, which can lead the company's management to make decisions
misguided.

5. In case of not recognizing an incurred expense but not paid, how would it affect the
income statement and the balance sheet?
 In the event that this type of adjustment is not made, the operational results will
they present increases, which produces higher profits. Consequently, they would pay
higher income taxes and, what is more serious, a profit would be distributed not
generated.

6. What is the effect produced on the basic financial statements when recording in the books a
adjusting entry for accumulated expenses?
Its effect on the financial statements is as follows:
An expense is recognized; therefore, the amount of the same is increased.
decreasing operating profit, if it is an operational expense, and/or the
profit before taxes, if it is a non-operating expense. The above brings
as a consequence the decrease in income taxes and, consequently,
of the respective estimated liability.
Liabilities increase as the accounts Costs and expenses payable are recognized.
Labor obligations or financial obligations, depending on whether it is about
an operational and/or non-operational expense.

7. What effects does a depreciation adjustment have on historical cost and book value?
of properties, plant, and equipment?
Depreciation should be determined systematically through recognized methods.
technical value, such as the straight line, sum of the digits of the years, units of
production or hours of work. Periodic depreciation should be treated as an expense, which
generate an adjusting entry, which affects the company's operational results and
its financial situation. In the income statement, operating expenses of
administration and sales, as well as production costs, increase as
consequence of this adjustment; this reduces the profit of the period and the taxes of
rent. For its part, when recognizing the depreciation expense, it increases the
accumulated depreciation, which decreases the book value of the asset

What is the purpose of adjusted and unadjusted trial balances?

Its purpose, like any trial balance, is to verify the equality of the total.
of debits and credits. This trial balance shows the balances of the income statement
and the duly adjusted balance sheet. Therefore, based on the information
presented in this trial balance, inferences can be drawn very closely to the
reality the results obtained by the economic entity during an accounting period, thus
as their financial situation at the end of it.

9. Why should temporary accounts be closed at the end of each accounting period?
Why aren't the permanent accounts closed as well?
They must be closed at the end of the accounting period, in order to start the new period with a
balance equal to zero. Permanent accounts are not closed at the end of each month. In
In reality, permanent accounts receive information from temporary accounts during the
closing process. This allows the company to report the amount of profits.
accumulated that increased through the benefits obtained by the company.
10. Through a numerical example, explain the process of closing the temporary accounts and
determine the operating profit or loss. Include in the example some income and
expenses.
Expense accounts that show a debit balance are credited for the amount of the balance and the
the corresponding debit is recorded in a temporary account called results. on its part,
the income accounts, which show a credit balance, are debited for the value of the balance and the
the corresponding credit is recorded in the profit and loss account. in this way, the
income and expense accounts show a zero balance and it is time to determine the balance
from the new income statement. If revenues exceed expenses, the account will have
credit balance that represents a profit. On the contrary, if expenses exceed the
income, the account will have a debit balance, which translates into a loss. due to being
a temporary account, its balance must be closed against the profit or loss of the period, account
that belongs to the heritage.

11. From an accounting perspective, is it important to fill out the work sheet? What are
What are the columns that constitute it?
In order to have complete information on the operational results of
economic entity and its financial situation before the adjustment and closure process, at the end of the
During the accounting period, a format called a work sheet is prepared.
The worksheet contains the following information, Account name, Adjustments,
Adjusted trial balance, Results, and Balance sheet

12. Briefly explain how to complete the worksheet, particularly the balance of the
columns of the income statement. Why should all columns be balanced?
debt with credit?
Account name. This column lists the names of all
the accounts that constitute the financial statements of the organization.
Pre-adjusted trial balance. In this column, the debit balances are presented.
credit of the accounts at the beginning of the period, whose sums must be equal.
Adjustments. It is the column intended to prepare the adjusting entries that the company must
carry out at the end of the accounting period. In case new ones arise from these last ones
accounts, these must be opened and placed in the Account Name column. When adding the
debit and credit balances in this column the result must be the same.
Adjusted trial balance. As its name indicates, this column is reserved
to locate the debit and credit balances of the accounts in the financial statements, but
properly adjusted. The balances present in this column correspond to the result
to add or subtract horizontally the two previous columns: Preliminary trial balance
adjusted and Adjustments. Like the previous ones, the sum of debits and credits must
to coincide.
Results. This column should present the figures corresponding to the status of
results. Operational and non-operational income will appear in the credit
generated by the company during the period, and in the debit, the operational expenses and the
not operational. When adding the debits and credits, they do not match; the difference represents the
 profit or loss of the company in the period. If the sum of the Credit column is greater
that the sum of the Debit column is because the company generated profits; in case
on the contrary, it incurred losses. The difference between these two columns must be placed in the
smaller side and add up, so that in this way the sum of both columns is equal.
Balance sheet. In this last column, the debit and credit balances must be presented.
the accounts of the balance sheet. The sum of the Debit column must equal that of the
Credit column automatically. It is pertinent to remember that, as in the balance of
test, the value of accumulated depreciation must be presented on the credit side of this
column. In case the sums of the debit and credit sides do not match
Column, the entire process must be reviewed before starting the records in the books of
accounting.
Exercises for skill development
1. Determine the effect that the following adjusting entries have on each of the accounts
active, passive or equity. Write A if it is an increase, D if it is a decrease and N if not
there is some effect.

ACTIVE PASSIVE EQUITY

Accumulated expenses N D N
Accumulated income A A
Amortization of income received in advance A
Amortization of prepaid expenses

On July 15 of last year, Mr. Alfonso Barragán, partner at Barragán Hermanos, lent to the
the company the sum of $4,500,000 for three months and with a simple annual interest of 26% to be paid together
with the principal. In the company's books, record, in diary form:
A. the economic event of July 15
B. the adjustment entries as of July 31, August 31, and September 30
C. the payment of the debt and the interest as of October 15

JULY 15 Accounts receivable - partners $4,500,000

Banks $4,500,000

July 31 Accounts receivable - Interest $ 48.750

Non-operational Financial Income $ 48.750

AUGUST 31 Accounts receivable - Interest $ 97.500

Non-operating income - Financial $ 97,500

SEPTEMBER 30 Accounts Receivable - Interest $ 97.500

Non-operational income - Financial $ 97.500
 OCTOBER 15 Banks $4,792,500
Receivables - Interest $ 243.750
Accounts receivable - Partners $4,500,000
Non-operational income - Financial $ 48.750

3. Nacional de Arrendamientos S. A. has leased a premises to Calisistemas, for which the latter
pays a monthly amount of $1,200,000. As of January 31 of the current year, Calisistemas had not
still covered the corresponding value for the lease for the month of January. According to this
information
A. In the books of both companies, record, in the form of a diary, the adjustment as of January 31 for
recognize the rent for the month.
B. In the books of both companies, make the corresponding entry if it is assumed that
Calisistemas disburses the sum of $2,400,000 on February 5, in order to cover the
lease for the months of January and February.

Calisystems
January 31 Operating expenses - Leases $1,200,000
Costs and expenses payable 1,200,000

February 5 $2,400,000
bank $2,400,000

National Leasing S. A
31st of January Accounts receivable $1,200,000

5 OF FEBRUARY banks $2,400,000

On March 15, Financiera La Virginia S. A. lent the sum to Comercial El Guajiro Ltda.
$21,000,000 for six months with an annual simple interest of 26%, prepaid quarterly. Register in
journal entry format, for both organizations, the following economic facts:
A. The loan granted on March 15
B. The adjustments as of March 31, April 30, and May 31
C. The debit note sent on June 15 to the trading company, by the finance company, for
the interests of the next quarter
D. The cancellation of the debt on September 15
 March 15 Banks $21,000,000
Financial obligations $21,000,000

March 31 Non-operational expenses - Financial $2,641,935

Costs and expenses payable $2,641,935

April 30 Non-operational expenses - Financial $2,730,000

Costs and expenses payable 2,730,000

May 31 Non-operational expenses - Financial $2.641.935

Costs and expenses payable $2,641,935

June 15 Non-operational expenses - Financial $8,013,871

Costs and expenses payable $8,013,871

September 15 Banks $39,669,677

Costs and expenses payable $16,027,742
Financial obligations $21,000,000
Non-operational expenses - Financial $2,641,935

5. Comercializadora Santa Fe S. C. A. acquired a truck on January 15 of last year.

distribution under the following terms:
Initial fee $16,000,000.
Fifteen promissory notes of $1,400,000 each to be collected monthly.
Monthly interest of 2% on balances, to be paid along with capital repayments.
The selling company required insurance while the debt lasted. The premium amounted to
$900,000 and was paid in full by Comercializadora Santa Fe. This premium protects the vehicle.
during the fifteen months of the debt's validity.
A. Record in the form of a diary the economic event of January 15.
B. Record the required adjusting entries as of January 31 and February 28.
C. Record in diary form the capital contributions on February 15 and March 15.

Note: Record the transactions chronologically.

6. The following data was provided by the accountant of Inmobiliaria Andina Ltda. and
correspond to the operations carried out by the economic entity during the last year:
 Operational income
Real estate, business, and rental activities 49,500,000
Non-operational income
Financial 1,250,000
Utility in the sale of properties, plant, and equipment 2,435,000
Total income 53,185,000
Administrative operational expenses
Personnel expenses 16,500,000
Leases 1,220,000
Services 95.200
Maintenance and repairs 840,000
Depreciations 1,360,000
Various 35.750
20,050,950
Sales operating expenses
Personnel expenses 12,850,000
Fees 1,750,000
Leases 1,850,000
Insurances 655,000
Travel expenses 2,125,000
19,230,000
Non-operational expenses
Financial 1,520,000
Loss in sale and withdrawal of goods 645.500
2,165,500
Total expenses 41,446,450
Utility 11,738,550

Prepare the respective closing entries and prepare an income statement for the year.
7. The following is the unadjusted trial balance of Opita de Servicios S. A. as of December 31 of the
last year.

SERVICES S. A.
Pre-adjusted trial balance as of December 31
Account name Debit Credit
Banks 2,000,000
Investments 10,000,000
Clients 2,500,000
Materials, spare parts and accessories 3,000,000
Land 25,000,000
Financial obligations 5,000,000
Accounts payable 2,000,000
Subscribed and paid-up capital 18,000,000
Mandatory reserves 4,500,000
Accrued utilities 7,000,000
 Operational income 30,000,000
Non-operational income - Leases 6,500,000
Personnel expenses 17,500,000
Professional fees 5,000,000
Insurance expenses 5,250,000
Service expenses 3,000,000
Miscellaneous expenses 500,000
Non-operational income - Financial 750,000
Equal sums $73,750,000 $73.750.000

Data for adjustments as of December 31:

Investments earn a monthly simple interest of 2%. As of December 31, they are pending.
to collect and recognize those of the last quarter of the year.

As of December 31, the salaries for the last week remain unpaid in the amount of
$335,000.
As of December 31, a physical count of materials, spare parts, and accessories was conducted, which yielded
inventory worth $1,000,000.
Out of the $5,250,000 in insurance expenses, one fifth must be deferred to next year.
• Non-operational income - Leases, $500,000 correspond to the next period.
A. Complete the worksheet.
B. Record in diary form the adjusting and closing entries, and post to T accounts.
C. Prepare the income statement for the year and the balance sheet as of December 31.
8. The accountant of Viajes Curramba Ltda. provided the following information, which corresponds to
second semester of year 2. Based on this data, complete the accounting cycle for the semester and
prepare the income statement and the balance sheet.

CURRAMBA TRAVELS LTD.

Pre-adjusted trial balance as of December 31 of year 2
(figures in thousands)
Account name Debit Credit
Banks 115.350
Clients 22.860
Materials, spare parts, and accessories 11.700
Prepaid expenses 14,400
Accounts receivable from directors 150,000
Investments in bonds 600,000
Lease expenses 18,000
Personnel expenses 42.000
Service expenses 7.800
Accounts payable 31.260
Tourism tax payable 9,000
 Operating income 144,000
Non-operational income - Financial 6,000
Revenue received in advance 24,000
Social contributions 750,000
Accumulated utilities 17.850
Equal sums $982.11 $982.11

Information for the adjustment seats:

On December 31, a physical inventory of materials, spare parts, and accessories was conducted. This count
threw inventories worth $7,500,000.
Prepaid expenses represent the balance of a fire insurance policy.
taken on July 1st of the year 1, with a validity of two years. The initially paid amount for the
the premium was $28,800,000.

Accounts receivable from directors are represented by a promissory note dated October 1st of the
year 2, with a simple interest of 26% per year payable at maturity. The promissory note has a term
from a year.
As of now, the interests for the last quarter on bond investments have not been recognized.
The interest rate is 6% simple quarterly.
The social benefits accrued for the semester, not recognized to date, amount to
$10.500.000.
The balance of Deferred Revenue corresponds to an advance for the concept of
leasing of an apartment that the company subleased on November 1 of the year 2, for which it received
$24,000,000. The advance is valid for four months.
Selection questions

Indicate with a✗ the correct answer

1. By recognizing earned income as revenue for the period, regardless of when it is received.
your payment, the basic accounting norm is observed

a. Continuity.
b. Association.
c. Prudence.
d. Maintenance of heritage.
2. An expense incurred during a period should only be recognized as such in the period in which it
make the cash disbursement. The above statement is true under:
a. Cash accounting.
b. Accrual accounting.
c. Accrual accounting.
d. Managerial accounting.
3. The objective of the adjusting entries is:
a. Correct errors made in entries made previously.
b. Register the payment of debts and the collection of accounts receivable.
c. Register financial expenses and social benefits, as well as omissions.
d. Bring the accounts up to date so that financial statements can be prepared that reflect the
reality of the company.
4. The rent received in advance is an account of:
a. Active.
b. Revenues.
c. Passive.
d. Temporal.
5. The adjustment of a prepaid expense gives rise to
An increase in an income account and a decrease in a liability account.
b. An increase in a liability account and a decrease in an income account.
c. An increase in an income account and an increase in an asset account.
d. An increase in an expense account and a decrease in an asset account
By December 31 of last year, the accountant remembered to adjust the accrued expenses, but
forgot the adjustment of accumulated income. How does this omission affect the different sections of
balance sheet?
a. Increases liabilities and decreases equity.
b. Decreases the asset and increases the equity.
c. Decreases assets and equity.
d. Increases assets and equity.
7. The assets of a company are valued at historical cost, but through the process of
depreciation is achieved that

a. Decrease its market value.

b. Decrease its book value.
c. Decrease the profit of the period and increase the income tax.
d. Decrease the accumulated depreciation.
8. Which of the following statements do you believe is the most acceptable? Why?
a. Adjusting entries affect the accounts of the balance sheet.
b. The adjusting entries affect only the income statement accounts.
c. The adjusting entries affect both balance sheet accounts and the income statement.
results.
d. The adjusting entries affect both trial balance accounts and the income statement.
results.
9. Which of the following groups of accounts is known in accounting as temporary accounts?
 a. Salaries payable, Sales tax payable
b. Office equipment, Accumulated depreciation
c. Patents, Trademarks
Purchases of goods
10. The purpose of closing entries is to balance the temporary accounts, that is to say
a. Transfer your balance to the general ledger.
b. Reduce the balance of the income statement accounts to zero.
c. Reduce only the expense accounts to zero.
d. Close the asset accounts.
11. The adjusted trial balance of a company shows, among others, the following balances of
cuenta al final del año anterior: Edificio, $31.600.000; Gasto depreciación edificio, $1.580.000;
Accumulated depreciation building, $11,060.00. If the company uses the straight-line method and
depreciate this asset over 10 years, how long ago did the company acquire the building?
4 years
3 years and 6 months
approximately 3 years and 4 months

d. 3 years
12. The basic purpose of the worksheet as a support tool for accounting is:
a. Replace the preparation of financial statements and formalities.
b. Show the equal sums in the debit and credit balances.
c. Facilitate the preparation of the adjusting and closing entries and the financial statements.
d. Allow to know the financial situation of the company.