INTRODUCTION ON BASIC ACCOUNTING
What is Accounting?
Accounting is the process of identifying, measuring and communicating economic information to
permit informed judgment and decisions by users of information. Accounting is vital to any
business organization. It is equally essential to the successful operation of non-profit organization,
governments units or agencies and to non-government organization.
Accounting according to American Institute of Certified Accountants, is the art of recoding,
classifying and summarizing in a significant manner and in terms of money, transactions and
events which are in part or at least of financial character and interpreting the results thereof.
Accounting is a service activity. Its function is to provide quantitative information, primarily
financial in nature about economic entity that is intended to be useful in making economic
decisions.
Phases of Accounting
Recording means putting into writings business transactions in chronological order, thru the
double entry bookkeeping method, in the journal and ledger books
Classifying is the sorting or grouping of similar transactions or items. Classification reduces the
effects of numerous transactions into useful groups or categories.
Summarizing is done at the end of the accounting period thru the preparation of Financial
Statements or financial reports
Interpreting. Is the analytical portion of accounting. Financial Statement will be meaningful and
beneficial to management if duly analyzed and interpreted.
Career Opportunities
1.
2.
3.
4.
PUBLIC PRACTICE
COMMERCE AND INDUSTRY
EDUCATION/ACADEME
GOVERNMENT
Branches of Accounting
1. BOOKKEEPING
2. FINANCIAL ACCOUNTING
3. MANAGEMENT ACCOUNTING
4. COST ACCOUNTING
5. FINANCIAL MANAGEMENT
6. GOVERNMENT ACCOUNTING
7. AUDITING
8. TAXATION
9. ACCOUNTANCY RESEARCH
10. FORENSIC ACCOUNTING
11. INTERNATIONAL ACCOUNTING
Forms of Business Organization
Sole Proprietorship. This business organization is owned by one person called the
proprietor who generally is the manager. The owner receives all profits and absorbs all
losses and is solely responsible for the debt of the firm.
Partnership. Partnership is owned by two or more persons who bind themselves to
contribute money, property or services to the common fund, with the intention of dividing
the profits among themselves. Each partner is personally liable for any debts of the firm .
It is easily formed and dissolved.
Corporation. Corporation is an artificial being created by operation of law, having the
rights of succession and the powers, attributes and properties expressly authorized by law
or incident to its existence. It is owned by the stockholders and managed by the Board of
Directors. Stockholders are not personally liable for the corporation’s debt. The
accumulated profit of a corporation is called “Retained Earnings”. Stockholders receive
their share in the profits of the corporation in the form of “Dividends”.
Cooperatives. Cooperatives is a duly registered association of persons, with common
bond of interest, who have voluntarily joined together to achieve a lawful common social
or economic end, making equitable contributions to the capital required and accepting a
fair share of the risks and benefits of undertakings in accordance with universally accepted
cooperative principles.
Types of Business Activities.
A Service Companies perform services for a fee. Law firm, accounting firm, hotels, parlor
shops, hospitals, transportations & communications services and the like are typical
examples of service concern.
A Merchandising Company sells goods in substantially the same physical form it was
acquired. It is better known as “trading concern” or “buy and sell”. Hardware, bookstore,
drugstore, department store, supermarkets, sari-sari store and the like are good example
of a merchandising concern.
A Manufacturing Company converts raw materials into finished product and sell them to
other companies or to end consumers. Multinational companies such as Dole,
Pharmaceuticals, Cements, Flours, Toyota Companies are engaged in producing their
respective products.
An Agribusiness is engaged in the operation that are associated with farming like that of
planting of crops and sells its product for a profit.
Basic Accounting Concept/ Assumptions
1. Accounting Entity Concept. This assumes that business has a separate and distinct
personality from that of the owner.
2. Going-Concern Assumption. This assumes that the business has continuous life of
existence unless there is specific evidence to the contrary.
3. Periodicity Concept. This assumes that life of a business entity is meaningfully divided
into equal period such that financial statement is prepared every end of accounting period.
An Accounting period can be period of: 1- month (monthly basis); 3- months (quarterly
basis); 6- months (semi-annual basis) or 12- months (annual basis of yearly basis).
4. Unit of Measure Assumption- This assume that peso is our unit of measure and the
purchasing power will not fluctuate and therefore, is stable.
5. Accrual Basis Assumption- This assumes that recording of income and expense follow
the accrual basis of accounting, where income is recognized when earned regardless of
when received, and expense is recognized when incurred regardless on when paid.
Basic Accounting Principles
The following are among the basic accounting principles that guides accountant in the
accumulation of financial information:
1. Objectivity Principle. This principle states that accounting record and statements
should be based on the most reliable data available so that they will be as accurate
and as useful as possible. All records should be supported by evidences such as
official receipts, bill of payments, vouchers, payrolls and the like.
2. Historical Cost. This principle states that acquired assets should be recorded at their
actual cost not at what management think they are worth at reporting period.
3. Revenue Recognition Principle. Revenue is to be recognized in the accounting
period when foods are delivered or services are rendered or performed.
4. Matching Principle. Expenses should be recognized in the accounting period in
which the goods and services are used that produce revenue and not when the entity
pays for those goods and services.
5. Consistency Principle. The firm should use the same accounting method from period
to achieve comparability over time. However, changes are permitted if justifiable and
is disclosed in the financial statements.
6. Materiality. Financial reporting is only concerned with information that is significant
enough to affect evaluation and decision.
7. Conservatism. Frequently, assets and liabilities are measured in a context of major
uncertainties. Accountants generally choose a method or procedure that yield the
lesser amount of income and asset value. This attitude is often expressed in the
statement “anticipate no profits and provide for all losses”
8. Timeliness. Accounting information is communicated early enough to be used for the
economic decision that it might influence
9. Adequate Disclosure. This requires that all relevant information that would affect the
users’ understanding and assessment of the accounting entity be disclosed in the
financial statements.
The Financial Statements
The financial statements are the means by which the information accumulated and
processed in financial accounting are periodically communicated to the users. The objectives of
financial statements is to provide information about the financial position, performance and cash
flows of the enterprise that is vital in making a sound economic decision. There are five (5) basic:
1. Balance Sheet. It shows the financial position of an enterprise as of particular date. It
shows the Assets, Liabilities & Owner’s Equity thru which the enterprise’ liquidity,
solvency, financial structure and capacity for adaptation could be measured and
evaluated.
2.
Income Statement .It shows the performance of the enterprise for a given period of
time. This statement present the result of operation of an enterprise, which would
either be an net income , net loss or break-even .
3.
Statement of Changes in Equity. It summarizes the changes in equity for a given
period of time. The beginning equity of the owner is increased by the additional
investment and net income. Correspondingly, it is decrease by withdrawals and not
loss.
4.
Statement of Cash Flow. This provides information about cash inflows (receipts) and
cash outflows (payments) of an entity for a given period of time which are being
classified into : a) Operating Activities ; b) Investing Activities ; and c) Financing
Activities.
5.
Accounting Policies and Notes to Financial Statements. This is an additional
statement and considered also as basic statement. This presents significant
accounting policies that affected the financial statements and other disclosures
necessary to make the financial statements more useful.
Users of Financial Statements:
EXTERNAL USERS:
1. Investors. They need information to help them determine whether they should add
more or withdraw their capital investment. Stockholders are interested on information
which enables them to assess the ability of the enterprise to pay dividend.
2.
Employees. They are interested on information about the stability and profitability of
the enterprise. They are interested on information which enables them to assess the
ability of the enterprise to provide remuneration, retirement benefits and employment
opportunities.
3.
Lenders/ Creditors. Are interested on information which enables them to determine
whether their loans and interest thereon will be collected when due.
4.
Suppliers. They are interested on information which enables them to determine
whether amounts owing to them will be paid on maturity.
5.
Customers. They have an interest on information about the continuance of an
enterprise especially when they have a long-term involvement with or are dependent
on the enterprise.
6.
Government and their agencies. These users require information to regulate the
activities of an enterprise, determine taxation policies and as a basis for national
income and similar statistics.
7.
Public. Enterprises affect members of the public in a variety of ways. For example,
enterprises make substantial contributions to the local economy in many ways
including the number of people they employ and their patronage of local suppliers.
Financial statements may assist the public by providing information about the trends
and recent developments in the prosperity of the enterprise and the range of its
activities.
INTERNAL USER
8.
Management. They utilize information to set goals for their organization, to evaluate
results of past economic decision and to control activities of the entity. Managers use
financial information for planning, controlling and for decision-making purposes.
ANALYSIS OF BUSINESS TRANSACTION, ACCOUNTING EQUATION
AND THE RULE OF DEBIT AND CREDIT
Business Transaction
Business transactions are the economic activities of a business which can be measured
and expressed in terms of money. Business transactions are exchanges of equal monetary values
, meaning for every value received, another value is given away as an exchange. This is the “give
and take” process of accounting as expressed in an equation “Value Received = Value Parted”.
Account Titles
Account Titles are identifications or brief descriptions of items that fall to some kind , class
or nature. In recording business transactions, the elements of financial statements are to be
assigned with their individual names called “account titles”
Classification of Account Titles:
a) Balance Sheet Accounts- (financial position), referred to as real accounts
b) Income Statement Accounts- (performance), referred to as nominal or temporary
Accounts
BALANCE SHEETS ACCOUNTS
ASSETS-are classified only into two, namely current assets and non-current assets.
Current Assets- refer to all assets that are expected to be realized, sold or consumed within the
enterprise’s normal operating cycle. Operating cycle is the interval of time from the date of
acquisition of merchandise inventory; sell inventory to customers and the ultimate collection of
cash from the sale.
Cash- the account title used to describe money, either in paper or in coins and money substitutes
like checks, postal money orders, bank drafts and treasury warrant. “Cash on Hand” is the account
title used when cash is within the premise of the business and “Cash in Bank” if deposited in the
bank.
Notes Receivable- this is a promissory note that is received by the business from the customer
arising from rendering of services, sale of merchandise, etc.
Accounts Receivable- the account title for amounts collectible arising from services rendered to
a customer or client on credit, or sale of goods to customers on accounts.
Allowance for Bad Debts- this is an “asset offset” or a “contra-asset” account. It provides for
possible losses from uncollected accounts. Though this is not actually an asset, it is classified as
such because it is shown as a deduction from the Accounts Receivable which is a Current Asset
Account.
Accrued Interest Income- the amount of interest earned on a Notes Receivable which is not yet
collected. (If the note is interest-bearing)
Advances to Employees- the account title for amounts collectible from employees for allowing
them to make cash advances which are deductible against their salaries or wages.
Inventories- are assets which are: held for sale in the ordinary course of business; in the process
of production for such sale; or in the form of materials or supplies to be consumed in the
production process or in the rendering of services.
Prepaid Expenses- account title for expenses that are paid in advance but are not yet incurred
or have not yet expired such as Prepaid Rental, Prepaid Insurance.
Unused Supplies- an account title for cost of stationery and other supplies purchased for use
but are left on hand and still unused.
Non-Current Assets. - are all other assets not classified as current assets.
Land- an account title for the site where the building used as office or store is constructed.
Building- account title for a finished construction owned by the business where operations and
transactions took place.
Equipment- includes calculators, typewriters, adding machine, computers, steel filing cabinets
and the like. If these are used in the office, the account title is “Office Equipment” and if used in
the store, “Store Equipment”. Trucks, jeeps, vans, automobiles and other kinds of motor vehicles
bear the account title as “Transportation Equipment” and if some vehicles are used exclusively
for delivering goods, the account title is “Delivery Equipment”
Furniture & Fixtures- includes chairs, tables, counters, display cases and the like.
Accumulated Depreciation- this is an “asset offset” or “contra-asset” account. This is called a
“Valuation Account” which is shown as a deduction from property and equipment or cost of the
fixed assets.
LIABILITIES- are classified only into two, namely: current liabilities and non-current liabilities.
Current Liabilities- are financial obligations of the enterprise which are (a) expected to be settled
in the normal course of the operating cycle, (b) due to be settled within one year from the balance
sheet date.
Accounts Payable- an account title for a financial obligation of an enterprise that constitutes an
oral or verbal promise to pay.
Notes Payable (short -term) - same as Accounts Payable in nature but only the obligation is
evidenced by a promissory note. The enterprise is the one who issued the note.
Accrued Expenses- these are expenses incurred by the enterprise but are not yet paid. This
normally occurs when the accounting period ended such as rent, salaries, interest, taxes payable,
etc.
Pre-collected or Unearned Income- this is an account title for an income collected or received
in advance and are not yet considered as “earned”
Non-current liabilities- are financial long term obligations of an enterprise which are due and
payable for more than one year. This usually occurs in a corporate form of business organization.
Notes Payable (long term)- same nature with that of Notes Payable 9short-term) but only, this
requires payment for more than a year.
Mortgage Payable- a financial obligation of the enterprise which requires a fixed or tangible
property to be pledged as a collateral to ensure payments.
OWNER’S EQUITY
Capital- this is the center of the owner’s concern because this may increase or decrease at
anytime as a result of business operations. In the normal course of operation, owner’s equity will
be increased by “income” and decrease by “ expenses”.
Withdrawal (Drawing or Personal)- refers to the amount or cash value of the property that the
owner has invested in the enterprise but later withdrawn for personal use.
Income & Expense summary- this is a temporary account created at the end of the accounting
period where Income and Expenses are temporarily closed to this account.
INCOME STATEMENT ACCOUNTS
INCOME or REVENUE
Sales- in general, this represent revenue derived from the sale of merchandise.
Service Income- in general , this is the account title used for all types of income derived from
rendering of services. Sometimes the account title used is “Service Revenue”. Other specific
income account titles used are:
Professional Income- the account title generally used by professionals for income earned from
the practice of their profession or may be specified as “Accounting or Auditing Fees Income” for
accountants, Legal Fees Income” for Lawyers, “Dental Fees Income” for Dentists, “Medical Fees
Income” for doctors, etc.
Rental Income- for income earned on buildings, space or other properties owned and rented out
by the business as the main line of its activity.
Interest Income- for income received by the business arising from an amount of money borrowed
by a customer and is usually covered by a promissory note. This is typical in a lending institution.
Miscellaneous Income- for income earned by the business which is not the main line of its
activity and could not be clearly classified.
EXPENSES
Cost of Sales or Cost of Goods Sold - cost to produce and sell the goods.
Rent Expense- for the amount paid or incurred for use of property or premises.
Repairs and Maintenance- for expenses incurred in repairing or servicing the buildings,
machineries, vehicles, equipment, etc., which are owned/used by the business.
Office Supplies Expense- the stationery, envelopes, clips, fastener, etc, used in the office will
bear the account title as “Office supplies”; if use in the store “Store supplies”.
Salary Expense- for compensation given to employees of a business. It may be specified as
“Office Salaries”, Salesman’s Salaries”, etc.
Bad Debts- for the anticipated loss that the business may incur arising from uncollectible
accounts.
Depreciation Expense- the allocated expired portion of the cost of property and equipment or
fixed assets.
Taxes and Licenses- for the amount paid for business permits, licenses and other government
dues except the
Income Tax paid which is not allowable by law as a deduction.
Insurance Expense-account title for the expired portion of the insurance premium paid.
Utilities Expense- the account title for telephone, light and water bills. Also included is gasoline,
lubricants & oil.
Miscellaneous Expense - Any amount paid as expense which is not significant enough to
warrant a particular classification.
ACCOUNT TITLE
Left-Hand Side
or
Debit side
Is for
Value Received
Right –Hand Side
or
Credit Side
is for
Value Parted With
Account Balance
The difference between the total debit and total credit of an account is called an “Account
Balance”. If the total of the debit side exceeds the total of the credit side, the account is said to
be in a “Debit Balance”. Conversely, if the total of the credit side exceeds the total of the debit
side, the account is said to be in a “Credit Balance”. If the debit total equals with that of the credit
total, the account is said to be “In-Balance” or “Closed Account”.
Accounting Equation
The accounting equation is the most basic tool of accounting. This equation presents the
resources controlled by the enterprise, the present obligations of the enterprise and the residual
interest in the assets. It states that the assets must always equal liabilities and owners’ equity
which also implies that the Assets of the business was provided by the creditors and the owners.
The basic accounting model is:
ASSETS= LIABILITIES + OWNER’S EQUITY
Rules of Debit and Credit
Additions and subtractions in the recording process are done by “side positioning”.
Account with normal balance of debit, such as Asset, is increased by entering the amount on the
debit side and is decreased by entering the amount on the credit side. Account with normal
balances of credit such as Liabilities & Owner’s Equity are increased by entering the amount on
the credit side, while it is being decreased if entered on the debit side . Thus the rule of debit and
credit is stated as follows:
ACCOUNT
NORMAL BALANCE
ASSETS
LIABILITIES
OWNER’S EQUITY
REVENUE
EXPENSES
DRAWINGS
DEBIT
CREDIT
CREDIT
CREDIT
DEBIT
DEBIT
TO INCREASE
DEBIT
CREDIT
CREDIT
CREDIT
DEBIT
DEBIT
TO DECREASE
CREDIT
DEBIT
DEBIT
DEBIT
CREDIT
CREDIT
Effects of Transactions
A business transaction has a dual but self-balancing effect on the accounting equation . The
effect of a transaction to the equation may be grouped into nine types as follows:
1)
2)
3)
4)
5)
6)
7)
8)
9)
Increase in Assets= Increase in Liabilities
Increase in Assets= Increase in Owner’s Equity
Increase in One Asset= Decrease in another Asset
Decrease in Assets = Decrease in Liabilities
Decrease in Assets = Decrease in Owner’s Equity
Increase in Liabilities = Decrease in Owner’s Equity
Increase in One Liability = Decrease in another Liability
Increase in Owner’s Equity = Decrease in Liabilities
Increase in One Owner’s Equity = Decrease in another Owner’s
EXERCISES
1. Set up “T” accounts for each of the following : Cash on Hand, Accounts Receivable,
Photographic Supplies Inventory, Photographic Equipment, accounts Payable, Siena Go Capital,
Siena Go, Drawing, Service Income, Utilities Expense, Rent Expense and salary expense.
June
1- The owner, Siena invests P160,000 cash and photographic Equipment P
100,000.
3- Rendered photographic services on account, P20,000.
4- Purchase photographic supplies on account P 30,000.
9- Collected P 16,000 cash from a customers ‘ account.
10- Paid light and water P 7,000.
14- Withdrew P 10,000 for personal use.
18- Rendered photographic services for cash P 30,000.
20- Paid P 12,000 cash on the June 4 account.
23- Paid rental fee for the month , P 6,000.
30- Paid salaries to employees, P 16,000.
Required: Prepare journal entries and post it to the “T” account.
2. On the space provided, indicate a checkmark as to the effect on the balances of the following
accounts.
Increased
Sample: Rent Expense account was debited
___/_____
1. Accounts Payable account was debited.
2. Notes Receivable account was debited.
3. Cash in Bank account was credited
4. Prepaid Insurance account was credited
5. Truce , Drawing account was debited
6. Petty Cash Fund account was debited.
7. Professional Income account was credited
8. Utilities Expense account was debited.
9. Truce , Capital account was credited
10. Accounts Receivable was credited.
________
________
________
________
________
________
________
________
________
________
Decreased
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
3. The formation of an Accounting equation is presented below: Fill in the amounts in each of the
Accounting Value affected by the given transactions. For your guide, the “Balances” of each value
is already given and transaction. No. 1 is answered. Use a parenthesis sign for the decrease.
TRANSACTIONS
ASSETS
1. Pamela invested cash of P 300,000
P300,000
2. Bought supplies on account P20,000.
3. Bought computer on account, P 50,000
4. Rendered services on account P 40,000
5. Borrowed money from Bank and issued note P 100,00
=LIABILITIES
+ CAPITAL
P300,000
6. Partial payment of account (computer) P 30,000.
7. Paid office rental for the month, P10,000.
8. Partial collection of account P 25,000
9. Paid utilities expense, P 5,000
10.Received cash for services rendered, P35,000
11.Pamela invested delivery equipment,120,000
12.Full payment of account (supplies)
13. Pamela withdrew cash P8,000 .
Balances…………………………………
3. Using the guide presented below, analyze every transaction by indicating the change(+or-)
before each amount. Business transaction a was done as an example . Show the totals after the
last transaction. Judy Santamaria opened a ladies dormitory which she named Judy House.
During the first month of operations, she had the following transactions:
a.
b.
c.
d.
e.
f.
g.
h.
Judy invested P 150,000 to start her business venture.
She paid P 70,000 to cover one year rental of two big rooms
She purchased beds and cabinets on accounts, P 38,000
She received advance rental deposits of P 30,000
She received proceeds of bank loan intended for room improvements P 30,000.
She paid cash for utilities expense P2,000.
She withdrew cash of P 4,000 for personal use.
She paid half of bank loan.
Required: Prepare journal entries and post it to the “T” account.
4. Arief Aerobics Studio conducts aerobics classes. Presented below are transactions during its
first month of operations:
January
2234567814182324-
Made initial investment of cash . P100,000.
Bought aerobics equipment, P 70,000.
Received loan proceeds from Bank, 150,000.
Paid rent for 3 months , P15,000 (Prepaid Rent)
Paid suppliers of complimentary T-shirts given to early enrollees as
an advertising promotion, P 6,000.
Received cash from- walk-in clients, P 10,000.
Billed clients for January class program, P 25,000
Collected P 15,000 from clients on account.
Paid salaries of aerobics aides, P 5,000
Paid P 38,000 for sound system equipment.
Paid P 2,000 interest on Bank loan availed of on January 3
Received P 3,000 invoice for January utilities.
Required: Record the above transaction in the T- account
5. Joe’s Car Repair started operating on June 1. The following transactions occurred during June:
June 1 Joe invested $10,000 cash and invested equipment valued at $20,000
June 2 Paid rent on a small downtown garage for $2,500 (cash) to cover the month of June.
June 3 Purchased equipment on account. $8,000 is due to be paid on July 3.
June 6 Paid $100 to sponsor a local sports team.
June 10 Paid $250 cash dividend to shareholders.
June 14 Paid employees’ salaries of $2,000.
June 15 Performed car repair work for the first two weeks of June. Billed and received $7,000.
June 16 Performed car repair work for customer #233 - $1,000. The customer did not pay but
agreed to pay within 30 days.
June 22 Paid for the equipment purchase from June 3.
June 26 Received one half of the amount owed from the June 16 transaction.
June 30 Paid employees’ salaries of $2,000.
June 30 Received a telephone bill for $125 for June. Not yet paid.
Required: Record all necessary journal entries based on the transactions above.
6. Fred McCarthy started his company, Cheapo Tours to take customers to the Grand Canyon
from Las Vegas. The company began operations in March. The following transactions occurred
during the company’s first month:
March 1 Fred invested $10,000 cash and a van valued at $7,500
March 3 Paid $1,000 cash to advertise online.
March 5 Purchased equipment on account: $3,000.
March 6 Purchased a second van for $8,000. Paid $2,000 and took the rest as a car loan.
March 15 Took first tour group to see the Grand Canyon. The trip was a success. Customers paid
$1,000 each for their tour. In total, thirteen customers on the tour paid $12,000. One
customer was not able to pay, but promised to pay his $1,000 by the end of the month.
March 16 Joe paid his employees’ salaries of $3,000.
March 17 Purchased fuel for the vehicles: $500
March 19 Paid $800 to repair a broken window on one of the vans.
March 20 Paid for the March 5 equipment purchase.
March 22 Received a utilities bill: $200. Did not pay yet.
March 25 Received the last $1,000 from the March 15 tour.
March 31 Took a second tour group of 15 people. Each paid $1,000.
March 31 Paid employees’ salaries of $3,000.
March 31 Shareholders took a cash dividend of $5,000.
Required: Record all necessary journal entries based on the transactions above.
7. In August, Maria Chen started her new taxidermy business: The Right Stuff Inc. The business
focused on preserving family pets after they passed away. The following transactions occurred
during August:
August 1 Maria invested $1,000 cash in exchange for 250 common shares.
August 1 Rented work space. Paid $600 for the month of August.
August 2 The company borrowed $5,000 in the form of a long-term bank loan. The money was
planned to purchase much of the equipment that would be needed.
August 5 Purchased equipment: $4,000. Paid $1,000 with the rest payable at the end of August.
August 10 Received and completed first taxidermy job – a poodle named Rex. Received $400
cash.
August 12 Purchased supplies on account: $200.
August 13 Completed second taxidermy job: A chocolate Labrador retriever named KitKat: $600
on account.
August 14 Maria took a cash dividend of $500 to pay for personal expenses.
August 19 Received and paid the utilities bill, $200.
August 20 Paid for the August 5 equipment purchase.
August 21 Received a telephone bill: $200. Did not pay yet.
August 24 Received payment for the August 13th job.
August 27 Completed third taxidermy job: A calico cat named Spot: $250. Received payment.
August 31 Paid salaries of $1,000.
Required:
a.) Record all necessary journal entries based on the transactions above.
b.) Post the transactions to T-Accounts.
8. Lucky Carpet Cleaner had been operating for several years. On March 1, the company had the
following account balances: Cash $5,000; Accounts Receivable $300; Equipment (net) $3,000;
Accounts Payable $500; Bank Loan $2,000; Lucky, Capital.
The following transactions occurred during the month of March.
March 1 Purchased (and used) cleaning supplies for cash: $600.
March 2 Paid off the $500 that was owed from February.
March 4 Completed a major cleaning job. Billed $3,000 but did not collect.
March 9 Purchased a new Super Sucker brand vacuum for $6,000 on account. Payment is due
in 30 days.
March 11 Collected amount owed to us from February.
March 15 Completed a cleaning job. Billed $1,000, collected half.
March 16 Paid employees’ salaries of $2,500.
March 19 Paid $500 to repair a broken vacuum.
March 22 Received and paid a heating bill: $100.
March 24 Received a telephone bill: $50, did not pay.
March 28 Collected money from the March 4 cleaning job.
March 29 Completed major cleaning job. Billed $7,000, payment is due on April 29.
March 31 Paid employees’ salaries of $2,500.
March 31 Paid interest of $75 on the bank loan.
Required:
a.) Record all necessary journal entries based on the transactions above.
b.) Post the transactions to T-Accounts
9. Freida’s Ferns is a Landscaping Business. The company had the following account balances
entering February: Cash $1,000; Accounts Receivable $500; Supplies $1,500; Equipment
$12,000; Accumulated Depreciation – Equipment $7,000; Accounts Payable $400; Bank Loan
$2,600; Freida, Capital.
The following transactions occurred during February:
February 1 Purchased supplies on account: $500.
February 3 Collected the amount receivable from January.
February 5 Borrowed $5,000 from the bank.
February 7 Purchased new lawn mower for $3,000 cash.
February 8 Paid off accounts payable from January.
February 14 Performed lawn mowing work for the first two weeks. Charge a flat rate of $20 per
lawn, the company mowed 150 lawns. Collected from all but 5 customers.
February 15 Paid employee’s salary of $2,000.
February 17 Collected from 4 of the 5 unpaid customers from the first two weeks of February.
February 20 Issued 1,000 common shares for $2,000 cash.
February 21 Purchased fuel for the mowers: $1,200 cash.
February 28 Performed lawn mowing work for the first two weeks. Charge $20 per lawn, the
company mowed 180 lawns. Collected from all but 8 customers.
February 28 Paid employee’s salary of $2,000.
February 28 Paid income tax installment of $500.
February 28 Paid interest on the loan: $200.
Required:
a.) Record all necessary journal entries based on the transactions above.
b.) Post the transactions to T-Accounts
10. Check (/) the appropriate column to determine whether the statement is TRUE or FALSE.
___________1. The general journal is a form of ledger.
___________2. Journalizing and posting process are bookkeeping in nature.
___________3. Posting reference (PR) facilitates cross-referencing between the journal and the ledger.
___
______4. A complete record of information about a particular business transaction is initially recorded
in the ledger.
___________5. The accounting record used in journalizing is called journal.
___________6. Posting refers to the process of transferring data from the ledger to the journal.
___________7. Business transaction should be recorded chronologically.
___________8. The journal is otherwise known as the book of original entry.
___________9. The ledger is otherwise known as the book of final entry.
___________10. The chart of accounts shows the account titles a particular company uses.
___________11. The business transactions are initially recorded in the ledger
___________12. The journal is said to be complete without an “explanation”
___________13. An erroneous journal entry cannot be corrected anymore.
___________14. Recording is the first phase of accounting.
___________15. There is no indention for the accounts debited and credited in a journal entry.