EXERCISES

A. IDENTIFY THE USER OF THE FINANCIAL INFORMATION

1. Interested in information about the stability and profitability of employers

and information which enables them to assess the ability of the enterprise to
provide remuneration, retirement benefits and employment opportunities.

2. Interested in information about the continuance of an enterprise especially

when they have a long-term involvement with, or are dependent on, the
enterprise.

3. Need information to help them determine whether they should buy, hold or
sell their investments.
4. Interested in the allocation of resources and, therefore, the activities of the
enterprise. Require information in order to regulate the activities of the
enterprise, determine taxation policies, and as the basis for national income
and similar statistics.

6. Need information about the trends and recent developments in the

5.
Interested
in information
enables
them
determine whether their loans
prosperity
of the
enterprise that
and the
range
of itstoactivities.
and
related
interest
will
be
paid
when
due.
Need information about the trends and recent developments in the prosperity
of the enterprise and the range of its activities.

B. IDENTIFY WHICH BASIC ACCOUNTING PRINCIPLES OR CONCEPTS ARE VIOLATED IN THE

FOLLOWING SITUATIONS
1. The owner of the business bought a car for personal use. The invoice was
given to the accountant who recorded it as the asset of the business.

2. Purchased an equipment at a cost of P100,000 which was immediately

recognized as an expense even if the equipment's useful life is 5 years.

3. The company ordered raw materials for its production. Upon order, the raw
materials were listed as one of the assets of the business.

4. No financial statements were prepared by Sonia Santos for her business. She
explained that she will prepare the financial statements when she closes the
business which she predicted to take place after thirty years.

5. The company included an equipment purchased from Europe. It was

reported in the statement of financial position at 2,500 Euros. All other assets
were reported in Philippine Pesos.

C. DETERMINE THE EFFECT OF THE FOLLOWING TRANSACTIONS ON THE ACCOUNTING ELEMENTS OF

ASSETS, LIABILITIES, CAPITAL, WITHDRAWAL, REVENUE, AND EXPENSES.
Date
Transactions
Effe
Jun 2 Cruz opened a repair shop business by investing cash of P200,000.
3 Paid P2,500 for monthly rent.
4 Purchased equipment on account from AVENSON, P25,000.
7 Rendered repair services for cash, P7,000.
10 Purchased repair supplies on account from Aze Hardware, P2,000.
12 Returned defective supplies, P500.
Hired an assistant for a monthly salary of P5,000. The assistant will
13 start reporting for duty on June 15,2012.
Rendered repair services on account: Bartolome - P3,000; Stefano 15 P5,000; and Mateo, P2,000.
Paid in full the account with Aze Hardware and paid P12,500 of the
18 AVENSON account.
Collected customers' account: Bartolome - P3,000; and Stefano 22 P2,500.
28 Cruz withdrew cash for personal use, P3,000.
30 Received and paid MERALCO bill, P2,800.
30 Paid the assistant's salary, P2,500.

+ Asset

D. USING THE TRANSACTIONS GIVEN IN EXERCISE C AND THE CHART OF ACCOUNTS

GIVEN BELOW, COMPLETE THE ACCOUNTING CYCLE.
CRUZ REPAIR SHOP
CHART OF ACCOUNTS
ASSETS
101 Cash
102 Accounts Receivable
103 Allowance for Bad Debts
104 Supplies
105 Equipment
106 Accumulated Depreciation

Increase
(+)
Dr

Decrease Nominal
(-)
or Real?
Cr

Real

LIABILITIES
201 Accounts Payable
202 Utilities Payable
EQUITY
301 Cruz, Capital
302 Cruz, Drawing
303 Income and Expense Summary
REVENUE
401 Repairs Revenue
EXPENSES
501 Rent Expense
502 Salaries Expense
503 Supplies Expense
504 Utilities Expense
505 Bad Debts Expense
506 Depreciation Expense

Nominal

ADDITIONAL INFORMATION FOR ADJUSTMENT:

1 The equipment acquired on June 4, 2012 has an estimated useful life
of 5 years with an estimated residual value of P1,000. It is the company's
policy to depreciate the asset for full month on the month of acquisition
and no depreciation is recognized on the month of disposal.
Annual Depreciation = (25,000 - 1,000)/ 5 years
4800
For June 30, 2012, the equipment was used for just 1 month.
Depreciation Expense (4800/12)
400
2 It is estimated that P300 of accounts receivable will prove to be
uncollectible.
Bad Debts
300

3 Unpaid PLDT and Maynilad bills for the month of June are P270 and P130,
respectively.
Utilities Payable
400

4 Supplies used up, P700.

Supplies Expense

700

E. ADJUSTING JOURNAL ENTRIES

Prepare the adjusting journal entries and determine the adjusted balances of the
accounts based on the information given below:
1. Depreciation
The company purchased an equipment for P250,000 on July 1, 2011.
The company estimated that the equipment will have a useful life of 5 years and a salvage value of
P5,000. It is the company's policy to depreciate the equipment on a straight-line basis.

Equipment
Accumulated Depc'n
Carrying value

BEFORE
250,000
0
250,000

ADJUSTMENT
0
24,500

AFTER
250,000
24,500
225,500

Depreciation Expense

24,500

24,500

Adjusting Journal Entry:

Dr

Cr

24,500

Depreciation Expense

Accumulated Depreciation

24,500

2. Bad Debts
The company estimates that 2% of accounts receivable will prove to be uncollectible.

Accounts Receivable
Allowance for Bad Debts

Net Realizable Value

BEFORE
300,000
4,500
295,500

ADJUSTMENT
0
1,500

AFTER
300,000
6,000
294,000

1,500

1,500

Bad Debts Expense

Dr
1,500

Adjusting Journal Entry:

Bad Debts Expense

Allowance for Bad Debts

Cr
1,500

3. Accrued Expenses
***Accrued expenses are expenses already incurred but not yet paid.
Received a bill from Meralco on January 3, 2012 for the December 2011 energy consumption,
P3,000.
BEFORE
ADJUSTMENT
AFTER
Utilities Payable
0
3,000
3,000
29,700
3,000
32,700
Utilities Expense
Dr
3,000

Adjusting Journal Entry:

Utilities Expense

Utilities Payable

Cr
3,000

4. Accrued Revenues
***Accrued revenues are revenues already earned but not yet received.
The company sublet its office for a P2,500 monthly rental to be paid on the 5th day of the following
month.

BEFORE
0
27,500

Rent Receivable
Rent Income

ADJUSTMENT
2,500
2,500

AFTER
2,500
30,000
Dr
2,500

Adjusting Journal Entry:

Rent Receivable

Rent Income

Cr
2,500

5. Prepaid Expenses
***Prepaid Expenses are expenses already paid but not yet incurred.

asset method

The company paid a 1-year insurance of P12,000 on May 1, 2011.

Prepaid Insurance
Insurance Expense

BEFORE
12,000
0

ADJUSTMENT
8,000
8,000

AFTER
4,000
8,000

asset method

Dr
8,000

Adjusting Journal Entry:

Insurance Expense

Cr

Prepaid Insurance

8,000

expense method

What if?
Prepaid Insurance
Insurance Expense

BEFORE
0
12,000

ADJUSTMENT
4,000
4,000

AFTER
4,000
8,000

Dr
4,000

Adjusting Journal Entry:

Prepaid Insurance

Cr

Insurance Expense

4,000

6. Unearned Revenues
***Unearned revenues are revenues already received but not yet earned.

liability method

The company received advance rental payment for 6 months of P36,000 on September 1, 2011.
Unearned Rent Income
Rent Income

BEFORE
36,000
0

ADJUSTMENT
24,000
24,000
Dr
24,000

Adjusting Journal Entry:

Unearned Rent Income

Rent Income

AFTER
12,000
24,000
Cr
24,000

revenue method

What if?
Unearned Rent Income
Rent Income

BEFORE
0
36,000

ADJUSTMENT
12,000
12,000

Adjusting Journal Entry:

Rent Income

Unearned Rent Income

Dr
12,000

AFTER
12,000
24,000
Cr
12,000

7. Accrued Interest on Notes Receivable

The company received a 90-day, 10%, P100,000 promissory note dated November
25, 2011.
How many days have been accrued?
November
(30days- 25)
5
December
31
Total # of days accrued
36
Interest = Principal x rate x time (accrued number of days)
Interest = 100,000 x 10% x 36/360
Interest
1,000.00

31-Dec Interest Receivable

Interest Income

1,000.00
1000

8. Accrued Interest on Notes Payable

The company issued a 120-day, 12%, P300,000 note to a bank in exchange for
a loan on September 22, 2011.
# of days accrued:
Sep
(30-22)
8
Oct
31
Nov
30
Dec
31
100
Interest = Principal x rate x time
Interest = P300,000 x 12% x 100/360
Interest
10,000.00

ability of employers
of the enterprise to
opportunities.

nterprise especially
dependent on, the
should buy, hold or

the activities of the

he activities of the
for national income

velopments in the
whether their loans

nts in the prosperity

D IN THE

e. The invoice was

business.

h was immediately
e is 5 years.

Upon order, the raw

or her business. She

when she closes the
s.

om Europe. It was
os. All other assets

NTING ELEMENTS OF
Effects
Dr
Cash

+ Capital

Cr
Cruz , Capital

SFP
or SI
SFP

AFTER
4,000
8,000

AFTER
4,000
8,000

AFTER
12,000
24,000

AFTER
12,000
24,000

d November

Depcn
Exp
Cost
2011
24,500
2012
49000
2013
49000
2014
49000
2015
49000
2016
24,500

Carrying
Acc Dep Amount
250,000
24,500
225,500
250,000
73,500
176,500
250,000 122,500
127,500
250,000 171,500
78,500
250,000 220,500
29,500
250,000 245,000
5,000

Bad Debts:
Aging of Accounts Receivable
Age

Amount

Required
% uncollectible Balance

Not yet
due

200,000

0%

1-30 days
past due

100,000

1%

1000

31-60
days past
due

50,000

2%

1000

61-90
days past
due

70,000

3%

2100

91-120
days past
due

60,000

5%

3000

20,000
500,000

10%

over 120
days past
due

2000
9,100 Required balance of Allowance Bad Debts

a. % of
Sales
Sales
% uncollectible
Bad Debts Expense
Adjusting Journal Entry:
Dec 31
Bad Debts Expense
Allowance for Bad Debts
b. % of Accounts Receivable
A/R
% uncollectible
Required Balance of Allowa

700,000
5%
35000

35,000
35,000

500,000
2%
10000

Credit Balance of Allowanc

Bad Debts Expense

-2,000
8000

Bad Debts Expense

Allowance for Bad Debts

8,000
8,000

c. % of A/R; Allowance has a debit balance

A/R
500,000
% uncollectible
2%
Required Balance of Allowa
10000
Add: Debit balance of Allo
2,000
Bad Debts Expense
12000
Bad Debts Expense
Allowance for Bad Debts

12,000
12,000

wance Bad Debts

General Journal - books of original entry

Date

Particulars

f
101
301

Dr
P200,000

501
101

2,500

105
/201

25,000

101
401

7,000

10 Supplies
Accounts Payable - Aze Hardware
Purchased supplies on account.

104
/201

2,000

12 Accounts Payable - Aze Hardware

Supplies
Returned defective supplies.

/201
104

500

15 Accounts Receivable - Bartolome

Accounts Receivable - Stefano
Accounts Receivable - Mateo
Repairs Revenue
Rendered services on account.

/102
/102
/102
401

3,000
5,000
2,000

18 Accounts Payable - Aze Hardware

Cash
Paid the account in full.

/201
101

1,500

Cash
Cruz, Capital
Initial investment.
3 Rent Expense
Cash
Paid monthly rent.
4 Equipment
Accounts Payable - Avenson
Purchased equipment on account.
7 Cash
Repairs Revenue
Rendered services for cash.

13 Hired an assistant for a monthly salary of P5,000

starting on June 15, 2012.

General Journal
Date
Particulars
Jun 18 Accounts Payable - Avenson
Cash
Paid the account partially.

f
/201
101

Dr
P12,500

101
/102
/102

5,500

28 Cruz, Drawing
Cash
Withdrew cash for personal use.

302
101

3,000

30 Utilities Expense
Cash
Received and paid MERALCO bill.

504
101

2,800

Salaries Expense
Cash
Paid employee's salaries.

502
101

2,500

Depreciation Expense
Accumulated Depreciation.
Depreciation for June.

506
106

400

Bad Debts Expense

Allowance for Bad Debts
Estimated bad debts for June.

505
103

300

Utilities Expense
Utilities Payable
Unpaid PLDT and Maynilad bills.

504
202

400

Supplies Expense
Supplies
Supplies used up.

503
104

700

22 Cash
Accounts Receivable - Bartolome
Accounts Receivable - Stefano
Collected customers' accounts.

General Journal
Date
Jun 30

Particulars

f
401
303

Dr
17,000

Income and Expense Summary

Rent Expense
Salaries Expense
Supplies Expense
Utilities Expense
Bad Debts Expense
Depreciation Expense
To close expense accounts.

303
501
502
503
504
505
506

9,600

Income and Expense Summary

Cruz, Capital
To close income summary account.

303
301

7,400

Cruz, Capital
Cruz, Drawing
To closing drawing account.

301
302

3,000

Repairs Revenue
Income and Expense Summary
To close revenue account.

Page 1
Cr
P200,000

2,500

25,000

7,000

2,000

500

10,000

1,500

Page 2
Cr
P12,500

3,000
2,500

3,000

2,800

2,500

400

300

400

700

Page 3
Cr
17,000

2,500
2,500
700
3,200
300
400

7,400

3,000

GENERAL LEDGER - books of final entry

CASH
Date

Particulars

1-Jun
Jun 2 initial investment
7 cash services

GJ1

collection of customers'

22 accounts

Dr
P

GJ2

200,000
7,000

Date

Particulars

Jun 3 rent for June

18 payment of acct - supplies

5,500

payment of acct - equipment

28 withdrawal
30 Meralco bill
Salaries for June
212,500
187,700

Balance

ACCOUNTS RECEIVABLE
Date
Jun 15

Particulars
Account services
Account services
Account services

f
GJ1

Balance

Dr
Date
3,000 Jun 22
5,000
2,000
10,000
4,500

Particulars
Collection of account
Collection of account

ALLOWANCE FOR BAD DEBTS

Date

Particulars

Dr

Date
Jun 30

Particulars
Bad Debts

SUPPLIES
Date
Jun 10

Particulars
purchase of supplies
Balance
Adjusted Balance

f
GJ1

Dr
Date
Particulars
2,000 Jun 12
returned supplies
1,500
30 used up supplies
800

EQUIPMENT

Date
Jun 4

Particulars
acquisition

f
GJ1

Dr
25,000

Date

Particulars

ACCUMULATED DEPRECIATION
Date

Particulars

Dr

Date
Jun 30

Particulars
June depreciation

ACCOUNTS PAYABLE
Date

Particulars

Jun 12 returned supplies

Dr

GJ1

18 payment of account
payment of account

GJ2

Date
500

Jun 4

1,500

10

Particulars
acquisition of equipment
acquisition of supplies

12,500
14500
Balance

UTILITIES PAYABLE
Date

Particulars

Dr

Date
Jun 30

Particulars
PLDT and Maynilad

CRUZ, CAPITAL
Date

Jun 30

Particulars

drawing account

Dr

GJ3

Date

Particulars

Jun 2

initial investment

3,000

income summary / Net

Income

3,000

CRUZ, DRAWING
Date
Jun 28

Particulars
personal use

f
GJ1

Dr
Date
3,000 Jun 30
0

Particulars
closing

INCOME AND EXPENSE SUMMARY

Date
Jun 30

Particulars
closing of expenses

f
GJ3

closing of income summary

Dr
Date
9,600 Jun 30
7,400
0

Particulars
closing of revenues

REPAIRS REVENUE
Date

Jun 30

Particulars

Closing

Dr

GJ3

Date
Particulars
Jun 7 cash services
15 account services
Balance

17,000
0

RENT EXPENSE
Date
Jun 3

Particulars
rent for June

f
GJ1

Dr
Date
2,500 Jun 30
0

Particulars
closing

SALARIES EXPENSE
Date
Jun 30

Particulars
June salaries

f
GJ1

Dr
Date
2,500 Jun 30
0

Particulars
closing

SUPPLIES EXPENSE
Date
Jun 30

Particulars
Supplies used

f
GJ2

Dr
P

Date
700 Jun 30
0

Particulars
closing

UTILITIES EXPENSE
Date
Jun 30

Particulars
Meralco bill for June
PLDT and Maynilad

f
GJ2

Dr
2,800
400

Date

Particulars

Adjusted Balance

3,200
Jun 30

closing

BAD DEBTS EXPENSE

Date
Jun 30

Particulars
Bad debts

f
GJ2

Dr
P

Date
300 Jun 30
0

Particulars
closing

DEPRECIATION EXPENSE
Date
Jun 30

Particulars
June depreciation

f
GJ2

Dr
P

Date
400 Jun 30
0

Particulars
closing

try
101
f
GJ1

Cr
P

GJ2

2,500
1,500
12,500
3,000
2,800
2,500
24,800

102
f
GJ2

Cr
3,000
2,500
5,500

103
f
GJ2

Cr
P

300

104
f
GJ1
GJ2

Cr
P

500
700

105

Cr

106
f
GJ2

Cr
P

400

201
f
GJ1

Cr
P

25,000
2,000
27,000
12,500

202
f
GJ2

Cr
P

400

301
f
GJ1

Cr
P

GJ3

200,000
7,400
207,400
204,400

302
f
GJ3

Cr
3,000

303
f
GJ3

Cr
17,000
7,400 Net Income

401
f
GJ1

Cr
7,000
10,000
17,000

501
f
GJ3

Cr
2,500

502
f
GJ3

Cr
2,500

503
f
GJ3

Cr
P

700

504
f

Cr

GJ3

3,200

505
f
GJ3

Cr
P

300

506
f
GJ3

Cr
P

400

CRUZ REPAIR SHOP

STATEMENT OF INCOME
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso

PAS 1

Philippine Accounting Standar

Repairs Revenue

17,000

Less: Expenses
Rent Expense

2,500

Salaries Expense

2,500

Supplies Expense

700

Utilities Expense

3,200

Bad Debts Expense

300

Depreciation Expense

400

Net Income (Net Loss)

9,600
7,400

CRUZ REPAIR SHOP

STATEMENT OF CHANGES IN EQUITY
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso
Cruz, Capital - June 1
Investment during the month
Net Income (Net Loss)
Withdrawals
Cruz, Capital - June 30

200,000.00
7,400.00
(3,000.00)
204,400.00

CRUZ REPAIR SHOP

STATEMENT OF FINANCIAL POSITION
JUNE 30, 2012
Amounts in Philippine Peso
ASSETS
CURRENT ASSETS
Cash

187,700.00

Accounts Receivable
Allowance for Bad Debts
Supplies

4,500.00
(300.00)
800.00

192,700.00

NON-CURRENT ASSETS
Equipment
Accumulated Depreciation
TOTAL ASSETS
LIABILITIES AND EQUITY

25,000.00
(400.00)

24,600.00
217,300.00

CURRENT LIABILITIES
Accounts Payable

12,500.00

Utilities Payable

400.00

12,900.00

EQUITY
Cruz, Capital

204,400.00

TOTAL LIABILITIES AND EQUITY

217,300.00
A=L+E

CRUZ REPAIR SHOP

STATEMENT OF CASH FLOWS
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso
Cash flows from Operating Activities
Collection from customers

12,500.00

Payment of expenses

(9,300.00)

Net cash flows provided (used) by operating activities

3,200.00

Cash flows from Investing Activities

Payment for acquisition of equipment

(12,500.00)

Net cash flows provided (used) by investing activities

(12,500.00)

Cash flows from Financing Activities

Investment by the owner
Withdrawals for personal use
Net cash flows provided (used) by financing activities
Net Increase (Decrease) in Cash
Cash Balance - June 1
Cash Balance - June 30

200,000.00
(3,000.00)
197,000.00
187,700.00
187,700.00

Steps in Preparing Indirect Method for Operating Activities

1. Start with Net Income for the Period
2. Adjust Net Income for Non-Cash Expenses, Gains and Losses
Depreciation
Add back to Net Income
Loss on Sale of PPE Add back to Net Income
already accounted for In Inves
Gain on Sale of PPE Deduct from Net Income
already accounted for In Inves
3. Adjust Net Income for Increases/Decreases in Current Assets (except for Cash and Short - Term Inve
Increases/Decreases in Current Liabilities (except short-term borrowings)
Accounts Receivable, Net
Increase Deduct
Decrease Add
Prepaid Expenses
Increase Deduct
Decrease Add
Summary: Current Assets
Increase Deduct
Decrease Add

Accounts Payable (Supplies)

Utilities Payable
Unearned Revenue
Summary: Current Assets

Statement of Cash Flows

Operating Activities
under indirect Method

Increase
Decrease
Increase
Decrease
Increase
Decrease
Increase
Decrease

Add
Deduct
Add
Deduct
Add
Deduct
Add
Deduct

*Working Capital = Current Assets - Current Lia

Net Income
Add: Depreciation Expense
Operating Income before Working Capital Changes
Add (Deduct) Decreases (Increases) in Current Assets:
Increase in Net Accounts Receivable
Increase in Supplies
Add (Deduct) Increases (Decreases) in Current Liabilities:
Increase in Utilities Payable
Cash Flows Provided (Used) by Operating Activities

7,400.00
400.00
7,800.00
(4,200.00)
(800.00)
400.00
3,200.00

ne Accounting Standard 1

by magnitude
highest to lowest with
miscellaneous or other
expenses listed as
the last item
net income from worksheet

General Ledger for Capital

Statement of Income
Worksheet

Current Assets
/

Cash

receivables, inventorItems that can be converted into cash

supplies, insurance Items that can be consumed within 1 year
or normal operating cycle whichever is longer
all items that are not current, non-current
land
property and equipment
intangibles

current assets are listed in accordance with their liquidity

most liquid asset

cash

liquidity means nearness to cash

Ending Capital from
Statement of Changes
in Equity

provided

inflows

used

outflows

provided

same with the GL,

SFP

accounted for In Investing Activities

accounted for In Investing Activities
and Short - Term Investments)

nt Assets - Current Liabilities

CRUZ REPAIR SHOP

POST-CLOSING TRIAL BALANCE
JUNE 30, 2012
Amounts in Philippine Peso

General Ledger

Dr
Cash
Accounts Receivable
Allowance for Bad Debts
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Cruz, Capital
Total

Cr

CRUZ REPAIR SHOP

TRIAL BALANCE
JUNE 30, 2012
Amounts in Philippine Peso
Cash
Accounts Receivable
Supplies
Equipment
Accounts Payable
Cruz, Capital
Cruz, Drawing
Repairs Revenue
Rent Expense
Salaries Expense
Utilities Expense
Total

Dr
187,700
4,500
1,500
25,000

Cr

12,500
200,000
3,000
17,000
2,500
2,500
2,800
229,500

229,500

CRUZ REPAIR SHOP

ACCOUNTS RECEIVABLE SCHEDULE
JUNE 30, 2012
Amounts in Philippine Peso
Stefano
Mateo

2,500
2,000

Total

4,500

CRUZ REPAIR SHOP

ACCOUNTS PAYABLE SCHEDULE
JUNE 30, 2012
Avenson

12,500

Total

12,500

SUBSIDIARY LEDGERS
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER OR CUSTOMERS' CARD
CUSTOMER'S NAME: BARTOLOME
Date
Particulars
Jun 15 Account services
22 Collection

f
GJ1
GJ2

CUSTOMER'S NAME: STEFANO

Date
Particulars
Jun 15 Account services
22 Collection

f
GJ1
GJ2

CUSTOMER'S NAME: MATEO

Date
Particulars
Jun 15
Account services

f
GJ1

Dr
P

3,000
P

Dr
P

5,000
P

Dr
P

2,000

ACCOUNTS PAYABLE SUBSIDIARY LEDGER OR SUPPLIERS' CARD

SUPPLIER'S NAME: AVENSON
Date
Particulars
Jun 4 Acquisition of equipment
18 Partial payment of account

SUPPLIER'S NAME: AZE HARDWARE

Date
Particulars
Jun 10 Acquisition of supplies
12 Return of defective supplies
18 Full payment of account

f
GJ1
GJ2

Dr
P
P

f
GJ1

12,500

Dr
P
P

500
1,500

Y LEDGERS

TOMERS' CARD
Cr
P
3,000

Balance
3,000
0

P
2,500

Balance
5,000
2,500

Cr

Cr
P

Balance
2,000

RS' CARD
Cr
25,000 P

Balance
25,000
12,500

Cr

Balance
2,000
1,500
0

2,000 P

CRUZ REPAIR SHOP

WORKSHEET
FOR THE MONTH ENDED JUNE 30, 2012
A, L, C
Amounts in Philippine Peso
Adjusted Trial Balance
Revenues and Expenses All other other accounts
Statement of Income
Dr
Cr
Cash

Statement of Financial
Position
Dr
Cr
187,700

Accounts Receivable

4,500

Allowance for Bad Debts

300

Supplies

800

Equipment

25,000

Accumulated Depreciation

400

Accounts Payable

12,500

Utilities Payable

400

Cruz, Capital

200,000

Cruz, Drawing

3,000

Repairs Revenue

17,000

Rent Expense

2,500

Salaries Expense

2,500

Supplies Expense

700

Utilities Expense

3,200

Bad Debts

300

Depreciation Expense

400

Total

9,600

Net Income/Net Profit

7,400

Total

17,000

17,000

221,000

213,600
7,400

17,000

221,000

221,000

Expenses
Revenues
Revenues > Expenses
Revenues < Expenses
Revenues = Expenses

Debit
For every debit there must be
a corresponding credit
Net Income increases equity or capital
To record increase in capital - Credit

REVERSING ENTRIES
WHAT?
entries made at the end of the accounting period to:
(1) go back to the original method of recording prepaid expenses (expense method)
and unearned revenues (revenue method)
(2) for convenience of recording future transactions
selected adjusting journal entries

reverse?
Yes
No
Never

Reversing Entry

a.

depreciation expense
accumulated depreciation

b.

bad debts expense

allowance for bad debts

c.

receivable
revenue

Yes

revenue
receivable

d.

expenses
payable

Yes

payable
expenses

e.

asset method
expense
prepaid expense
expense method
prepaid expense
expense

f.

g.

Never

No

Yes

liability method
unearned revenue
revenue

No

revenue method
revenue
unearned revenue

Yes

interest on notes payable

interest expense
interest payable

Yes

h.

interest on notes receivable

interest receivable
interest income

WHEN?

at the beginning of the accounting period

expense
prepaid expense

Yes

unearned revenue
revenue

1-Jan
WHERE?

General Journal

Sample Situation for Reason #1: go back to the original method of recording Prepaid Expense
Accounting period ends December 31
May 1, 2016, paid P12,000 1-year insurance policy expiring on May 1, 2017.
The company is using expense method.
2016
May 1
Insurance Expense
12,000
Cash
12,000
Dec 31

May 1

Jan 1

Dec 31

Prepaid Insurance
Insurance Expense
Insurance Expense
12,000 Dec 31
8,000 Dec 31
0
4,000
4,000

4,000
4,000

4,000
8,000
asset method

Dec 31

Prepaid Insurance
4,000
4,000
Jan 1

expense method

Income and Expense Summary

Insurance Expense

8,000

Insurance Expense
Prepaid Insurance

4,000

8,000

2017
Jan 1

4,000

Sample Situation: Reason # 2 for convenience of recording future transactions

On November 5, 2016, the company issued a 90-day, 12%, 100,000 note in exchange for an
equipment.
A. No Reversing Entry is Made
2016
Nov 5
Equipment
100,000
Notes Payable
100,000
Dec 31

Interest Expense
Interest Payable
(100,000 x 12% x 56/360)
Nov
(30-5)
Dec

1866.667

25
31
56

Jan
Feb

1866.667
56
31
3
90

Income and Expense Summary

Interest Expense

1866.667

Notes Payable
Interest Payable
Interest Expense
Cash

100,000
1866.667
1133.333

1866.667

2017
Feb 3

If Reversing Entry is Made

2017
Jan 1
Interest Expense
Interest Payable
Feb 3

Notes Payable
Interest Expense
Cash

103,000

1866.667
1866.667
100,000
3000
103,000

expense method)

Reversing Entry

convenience
receivable
convenience
expenses

prepaid expense

nearned revenue
revenue

convenience

convenience

Prepaid Expense

surance

4,000

xchange for an