EXERCISES

A. IDENTIFY THE USER OF THE FINANCIAL INFORMATION

1. Interested in information about the stability and profitability

and information which enables them to assess the ability of th
provide remuneration, retirement benefits and employment oppo

2. Interested in information about the continuance of an enterp

when they have a long-term involvement with, or are depe
enterprise.

3. Need information to help them determine whether they shou

sell their investments.
4. Interested in the allocation of resources and, therefore, the a
enterprise. Require information in order to regulate the ac
enterprise, determine taxation policies, and as the basis for n
and similar statistics.

6. Need information about the trends and recent develop

5.
Interested
in information
enables
them
determine whe
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
of the enterprise and the range of its activities.

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

1. The owner of the business bought a car for personal use. T

given to the accountant who recorded it as the asset of the busin

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

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

3. The company ordered raw materials for its production. Upon

materials were listed as one of the assets of the business.

4. No financial statements were prepared by Sonia Santos for he

explained that she will prepare the financial statements when
business which she predicted to take place after thirty years.

5. The company included an equipment purchased from E

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

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

LIABILITIES, CAPITAL, WITHDRAWAL, REVENUE, AND EXPENSES.
Date
Transactions
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 start reporting
13 for duty on June 15,2012.
Rendered repair services on account: Bartolome - P3,000; Stefano - P5,000; and
15 Mateo, P2,000.
Paid in full the account with Aze Hardware and paid P12,500 of the AVENSON
18 account.
22 Collected customers' account: Bartolome - P3,000; and Stefano - 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.

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
Increase
(+)

ASSETS
101 Cash
102 Accounts Receivable
103 Allowance for Bad Debts
104 Supplies
105 Equipment
106 Accumulated Depreciation

Dr
CR
Dr
Dr
CR

LIABILITIES
201 Accounts Payable
202 Utilities Payable

CR
cr

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

Dr

Cr
Dr

Cr

Dr

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.

2 It is estimated that P300 of accounts receivable will prove to be

uncollectible.

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

4 Supplies used up, P700.

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
company's policy to depreciate the equipment on a straight-line basis.

ADJUSTMENT

Equipment
Accumulated Depc'n
Carrying value

BEFORE
250,000
0
250,000

Depreciation Expense

24,500

Adjusting Journal Entry:

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

Bad Debts Expense

BEFORE
300,000
4,500
295,500

ADJUSTMENT

1,500

1,500

Adjusting Journal Entry:

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
Utilities Payable
0
3,000
29,700
3,000
Utilities Expense
Adjusting Journal Entry:

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.

Rent Receivable
Rent Income

BEFORE
0
27,500

ADJUSTMENT
2,500
2,500

Adjusting Journal Entry:

Rent Receivable

Rent Income
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

asset method

Adjusting Journal Entry:

Insurance Expense

Prepaid Insurance

expense method

What if?
BEFORE
0
12,000

Prepaid Insurance
Insurance Expense

ADJUSTMENT
4,000
4,000

Adjusting Journal Entry:

Prepaid Insurance

Insurance Expense

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

BEFORE
0
36,000

ADJUSTMENT

Adjusting Journal Entry:

Unearned Rent Income

Rent Income

revenue method

What if?
Unearned Rent Income
Rent Income

Adjusting Journal Entry:

Rent Income

Unearned Ren

7. Accrued Interest on Notes Receivable

The company received a 90-day, 10%, P100,000 promissory note dated November
25, 2011.
BEFORE
Interest Receivable
Interest Income

Principal:
Interest Rate:
Term:
Interest Earned:

ADJUSTMENT

AFTER

0
0

100000
10%
90 Days
November

Interes=

Principal x Rae x Time

100000 x 10% x 36/90

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.

e stability and profitability of employers

to assess the ability of the enterprise to
efits and employment opportunities.

e continuance of an enterprise especially

ement with, or are dependent on, the

ermine whether they should buy, hold or

urces and, therefore, the activities of the

order to regulate the activities of the
es, and as the basis for national income

ends and recent developments in the

es them
determine whether their loans
ange
of itstoactivities.
due.
nd recent developments in the prosperity
activities.

OLATED IN THE FOLLOWING SITUATIONS

a car for personal use. The invoice was
it as the asset of the business.

ost of P100,000 which was immediately

equipment's useful life is 5 years.

s for its production. Upon order, the raw

sets of the business.

red by Sonia Santos for her business. She

financial statements when she closes the
place after thirty years.

pment purchased from Europe. It was

position at 2,500 Euros. All other assets

HE ACCOUNTING ELEMENTS OF ASSETS,

00.

0.

t will start reporting

fano - P5,000; and

00 of the AVENSON

- P2,500.

Effects
+ Asset

Dr
Cash

+ Capital

Cr
Cruz , Capital

Decrease Nominal
(-)
or Real?
Cr

Real

Cr
DR
Cr
Cr
Dr

DR
DR

Dr
Cr
Nominal

Dr

Cr

SFP
or SI
SFP

ompany's

nd P130,

nd a salvage value of P5,000. It is the

AFTER

Dr

Cr

le.

AFTER
300,000
6,000
294,000
1,500
Dr
1,500

Cr
1,500

rgy consumption, P3,000.

AFTER
3,000
32,700
Dr
3,000

Cr
3,000

of the following month.

AFTER
2,500
30,000
Dr
2,500

Cr
2,500

ADJUSTMENT
8,000
8,000

AFTER
4,000
8,000

Dr
8,000

Cr
8,000

ADJUSTMENT
4,000
4,000
Dr
4,000

AFTER
4,000
8,000
Cr
4,000

but not yet earned.

ber 1, 2011.

ADJUSTMENT
24,000
24,000
Dr
24,000

AFTER
12,000
24,000
Cr
24,000

ADJUSTMENT

Dr

e dated November

rincipal x Rae x Time

00000 x 10% x 36/90

AFTER

Cr

n exchange for

General Journal
Date

Particulars

Dr

General Journal
Date

Particulars

Dr

General Journal
Date

Particulars

Dr

Page 1
Cr

Page 2
Cr

Page 3
Cr

GENERAL LEDGER
CASH
Date

Particulars

Dr

Date

Particulars

ACCOUNTS RECEIVABLE
Date

Particulars

Dr

Date

Particulars

ALLOWANCE FOR BAD DEBTS

Date

Particulars

Dr

Date

Particulars

Date

Particulars

Date

Particulars

SUPPLIES
Date

Particulars

Dr

EQUIPMENT
Date

Particulars

Dr

ACCUMULATED DEPRECIATION
Date

Particulars

Dr

Date

Particulars

ACCOUNTS PAYABLE
Date

Particulars

Dr

Date

Particulars

UTILITIES PAYABLE
Date

Particulars

Dr

Date

Particulars

Date

Particulars

CRUZ, CAPITAL
Date

Particulars

Dr

CRUZ, DRAWING
Date

Particulars

Dr

Date

INCOME AND EXPENSE SUMMARY

Particulars

Date

Particulars

Dr

Date

Particulars

REPAIRS REVENUE
Date

Particulars

Dr

Date

Particulars

Date

Particulars

RENT EXPENSE
Date

Particulars

Dr

SALARIES EXPENSE
Date

Particulars

Dr

Date

Particulars

SUPPLIES EXPENSE
Date

Particulars

Dr

Date

Particulars

UTILITIES EXPENSE
Date

Particulars

Dr

Date

Particulars

BAD DEBTS EXPENSE

Date

Particulars

Dr

Date

Particulars

DEPRECIATION EXPENSE
Date

Particulars

Dr

Date

Particulars

101
f

Cr

102
f

Cr

103
f

Cr

104
f

Cr

105
f

Cr

106
f

Cr

201
f

Cr

202
f

Cr

301
f

Cr

302
f

Cr

303

Cr

401
f

Cr

501
f

Cr

502
f

Cr

503
f

Cr

504
f

Cr

505
f

Cr

506
f

Cr

CRUZ REPAIR SHOP

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

CRUZ REPAIR SHOP

ACCOUNTS RECEIVABLE SCHEDULE
JUNE 30, 2012
Amounts in Philippine Peso

CRUZ REPAIR SHOP

ACCOUNTS PAYABLE SCHEDULE
JUNE 30, 2012

Cr

SUBSIDIARY LEDGERS
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER OR CUSTOMERS' CARD
CUSTOMER'S NAME:
Date

BARTOLOME

CUSTOMER'S NAME:
Date

STEFANO

CUSTOMER'S NAME:
Date

MATEO

Particulars

Particulars

Particulars

Dr

Dr

Dr

ACCOUNTS PAYABLE SUBSIDIARY LEDGER OR SUPPLIERS' CARD

SUPPLIER'S NAME:
Date

AVENSON

SUPPLIER'S NAME:
Date

AZE HARDWARE

Particulars

Particulars

Dr

Dr

Y LEDGERS

TOMERS' CARD
Cr

Balance

Cr

Balance

Cr

Balance

Cr

Balance

Cr

Balance

RS' CARD

CRUZ REPAIR SHOP

WORKSHEET
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso

Unadjusted Trial Balance

Dr
Cr
Cash
Accounts Receivable
Allowance for Bad Debts
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Cruz, Capital
Cruz, Drawing
Repairs Revenue
Rent Expense
Salaries Expense
Supplies Expense
Utilities Expense
Bad Debts
Depreciation Expense
Total
Total

Adjustments
Dr
Cr

Adjusted Trial Balance

Dr
Cr

Statement of Inc
Dr

ment of Income
Cr

Statement of Financial
Position
Dr
Cr

CRUZ REPAIR SHOP

STATEMENT OF INCOME
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso
Repairs Revenue
Less: Expenses
Rent Expense
Salaries Expense
Supplies Expense
Utilities Expense
Bad Debts Expense
Depreciation Expense
Net Income (Net Loss)

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

CRUZ REPAIR SHOP

STATEMENT OF FINANCIAL POSITION
JUNE 30, 2012
Amounts in Philippine Peso
ASSETS
CURRENT ASSETS
Cash
Accounts Receivable
Allowance for Bad Debts
Supplies
NON-CURRENT ASSETS
Equipment
Accumulated Depreciation
TOTAL ASSETS
LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts Payable
Utilities Payable
EQUITY
Cruz, Capital
TOTAL LIABILITIES AND EQUITY

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
Payment of expenses
Net cash flows provided (used) by operating activities
Cash flows from Investing Activities
Payment for acquisition of equipment
Net cash flows provided (used) by investing activities
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

Adjustment
June 30 Supplies
Supplies

700
700

Bad Debts expense

Allowance t

300

Depreciaion expense
Accumated

400

300

400