TRADES AND OTHER CURRENT PAYABLE
TRADES A/P
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Liabilities arising from purchase of inventory
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To solve:
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If the given is beg. balance - use T Account
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If the given is ending balance - apply the adjustment to the given
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If unadjusted the problem must be adjusted… Therefore, below are the different types of
unadjusted balances.
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UNRELEASE CHECK
Check was drawn, it is assumed that the journal entry for the payment was made
Since the check is still undelivered, the creditor has no control over the cash - the creditor is
still unpaid
Reversal of entry is necessary
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POST DATED CHECK
The check was drawn, it is assumed that journal entry for payment is made.
Since the check at Dec 31 is still not yet available for withdrawal to the creditor - creditor is
still unpaid.
Reversal of entry is necessary
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SUPPLIERS DEBIT BALANCE
Represents account payable for each supplier - normal balance is credit
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A subsidiary ledger
If the suppliers account turned out to have a debit balance - this resulted from overpayment
from to supplier by the company
Overpayment by the company to supplier should be represented as receivable (advances to
supplier)
Receivable from one supplier should not be offset to payable from other supplier (liabilities
shouldn’t be offset with asset)
REVERSAL OF DISCOUNT
If the company is using a net method - purchases are added to accounts payable net of
discounts.
If the discount term lapses and it is impossible for the company to take advantage of the
discount, the discount should be added back to A/P
GOODS IN TRANSIT
Applicable only to the goods you bought
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WHOLE FORMULA:
ACCRUED EXPENSES
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Expenses already incurred but not yet paid
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To solve:
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BONUS PAYABLE
Additional compensation for employees to motivate them
Based on profit with variations
Legends:
B = Bonus Amount
BR = Bonus Rate
T = Tax Amount
TR = Tax Rate
P = Profit before Bonus and Tax
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To solve:
a. Bonus based on profit before bonus and before taxes:
FORMULA: B = BR (P)
b. Bonus based on profit after bonus and before taxes:
FORMULA: B = BR (P-B)
or;
c. Bonus based on profit before bonus and after taxes:
FORMULA: B = BR (P - T)
FORMULA OF TAX: T = TR (P - B)
Or;
d. Bonus based on profit after bonus and after taxes:
FORMULA: B = BR (P - T - B)
FORMULA OF TAX: T = TR (P - B)
UNEARNED INCOME (UNEARNEAD REVENUE)
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Advance cash payment made by customer for goods or services that will be delivered in the
future.
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To solve:
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UNEARNED INCOME FROM SERVICES
Advanced payment from customers for services to be rendered in the future is recorded as
unearned income.
The unearned income is earned when the services is delivered. Services may be a one-time
service or the service is for a period of time.
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GIFT CERTIFICATES
CG is not the goods or services sold. It is just a document that signifies that the company
received payment in advance from customers.
CG will give the customer the right to collect form the company, while it gives company
(issuer) an obligation to deliver goods in the future.
Cash receipt from sale of CG is recorded as unearned income since the goods or services is not
yet delivered.
When redeemed (use) the company will deliver the goods or services and the unearned
income now is earned and the liability is extinguished.
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When the CG expires, the obligation will be extinguished without any consideration in return.
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To solve:
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ESCROW LIABILITY
Liability Arising from the cash received from real estate customers. The company will serve as
the trustee of the cash that will be used for the payment of its real estate taxes (tax fund)
The tax fund that was entrusted to the company will be remitted to the local government unit
as a real estate tax payment in behalf of customer. Upon remission the escrow liability is
extinguished.
To solve:
CLASSIFICATION OF LIABILITY AS TO CURRENT AND NON-CURRENT
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CURRENT LIABILITIES (PAS 1)
The entity expects to settle the liability within the entity’s operating cycle.
The entity holds the liability primarily for the purpose of trading.
The liability is due to be settled within 12 mo. After the reporting period.
The entity does not have an unconditional right to defer settlement at last 12 mo.
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CURRENTLY MATURING LONG-TERM DEBT
Debt that are originally long term but turned into short term due to passage of time
DISTRACTIONS (NON-CURRENT LIABILITY)
NON-CURRENT LIABILITIES