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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.
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.
+ Asset
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
3 Unpaid PLDT and Maynilad bills for the month of June are P270 and P130,
respectively.
Utilities Payable
400
700
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
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
BEFORE
300,000
4,500
295,500
ADJUSTMENT
0
1,500
AFTER
300,000
6,000
294,000
1,500
1,500
Dr
1,500
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
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
Rent Income
Cr
2,500
5. Prepaid Expenses
***Prepaid Expenses are expenses already paid but not yet incurred.
asset method
Prepaid Insurance
Insurance Expense
BEFORE
12,000
0
ADJUSTMENT
8,000
8,000
AFTER
4,000
8,000
asset method
Dr
8,000
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
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
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
Dr
12,000
AFTER
12,000
24,000
Cr
12,000
1,000.00
1000
ability of employers
of the enterprise to
opportunities.
nterprise especially
dependent on, the
should buy, hold or
velopments in the
whether their loans
D IN THE
h was immediately
e is 5 years.
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
-2,000
8000
8,000
8,000
12,000
12,000
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
/201
104
500
/102
/102
/102
401
3,000
5,000
2,000
/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.
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
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
303
501
502
503
504
505
506
9,600
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
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
5,500
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
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
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
3,000
CRUZ, DRAWING
Date
Jun 28
Particulars
personal use
f
GJ1
Dr
Date
3,000 Jun 30
0
Particulars
closing
Particulars
closing of expenses
f
GJ3
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
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
PAS 1
Repairs Revenue
17,000
Less: Expenses
Rent Expense
2,500
Salaries Expense
2,500
Supplies Expense
700
Utilities Expense
3,200
300
Depreciation Expense
400
9,600
7,400
200,000.00
7,400.00
(3,000.00)
204,400.00
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
217,300.00
A=L+E
12,500.00
Payment of expenses
(9,300.00)
3,200.00
(12,500.00)
(12,500.00)
200,000.00
(3,000.00)
197,000.00
187,700.00
187,700.00
Increase
Decrease
Increase
Decrease
Increase
Decrease
Increase
Decrease
Add
Deduct
Add
Deduct
Add
Deduct
Add
Deduct
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
Current Assets
/
Cash
cash
provided
inflows
used
outflows
provided
General Ledger
Dr
Cash
Accounts Receivable
Allowance for Bad Debts
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Cruz, Capital
Total
Cr
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
2,500
2,000
Total
4,500
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
f
GJ1
GJ2
f
GJ1
Dr
P
3,000
P
Dr
P
5,000
P
Dr
P
2,000
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
Statement of Financial
Position
Dr
Cr
187,700
Accounts Receivable
4,500
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
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.
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
Yes
h.
WHEN?
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
8,000
Insurance Expense
Prepaid Insurance
4,000
8,000
2017
Jan 1
4,000
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
1866.667
Notes Payable
Interest Payable
Interest Expense
Cash
100,000
1866.667
1133.333
1866.667
2017
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