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Chapter 3 WIN BALLADA LECTURE ACCOUNTING
Accountancy (STI College)
Studocu is not sponsored or endorsed by any college or university
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BASIC ACCOUNTING
3
The Accounting Equation and the Double-Entry System
At the end of this module, I can:
a. Discuss the accounting information system.
b. Identify the types of accounting information systems.
c. Explain the elements of financial statements.
d. Identify the normal balance of an account.
e. Discuss the accounting events and transactions.
Companies like Microsoft, the software giant and Deloitte & Touche, the big US accounting firm,
use Vervex‘s EnGage 2.0 to manage the large projects that involve employees, subcontractors and
consultants worldwide. The software allows team members to report on their progress via the
corporate intranet, as well as generate invoices and timesheets that can be easily accessed by
corporate headquarters. Intranet is a version of the internet internal to a specific company and is
privately controlled.
Vervex Technologies established in 1994 is owned by Price Givens. This Irvine, California-based
company develops database and corporate intranet applications that help project managers keep
track of offsite workers` projects.
Givens and his team of software developers started by producing project management
applications for accountants. But with Givens in Irvine and the company‘s software developers in
Bellevue, Washington, geographic distance interfered with efficient collaboration. Givens knew
an intranet could be the ultimate solution.
Vervex‘s newest timekeeping software program, FSBTime, was designed specifically for
accountants, architects and others who bill clients for their time. However, 27-year old Givens
was surprised to find out that most visitors to Vervex‘s Web site were actually other software
companies. ‗‘One of our biggest customers has all their software developers in India and all their
managers in California‘‘, Givens said. Givens was able to create a niche by addressing specific
needs such that sales in 1998 was US$1.2 million. 1999 projections in US$2.5 million. Adapted
from: Business Start-Ups, April 1999.
Givens is helping business entities generate timely accounting information regarding activities or
events which are important to the continued existence of the business. His software products
ensure that his clients have the accurate and relevant data needed by the system to be able to
accumulate the information necessary for timely accounting reports.
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PARTS OF AN INFORMATION SYSTEM
An information system is a collection of people, procedures, software, hardware and data which
works together to provide information essential to running an organization.
People
People are competent end users working to increase their productivity. End users use hardware
and software to solve information-related or decision-making problems.
Procedures
Procedures are manuals and guidelines that instruct end users on how to use the software and
hardware.
Software
Software is another name for programs—instructions that tell the computer how to process data.
There are basically two kinds of software.
System Software
System software is background software that helps a computer manage its internal resources. An
example is the operating system. Windows (XP, Vista and 7) and Linux are popular operating
systems.
Application Software
Application software performs useful work on general purpose problems. The two types of
applications software are basic applications and advanced applications.
Basic applications include:





Browsers—navigate, explore, find information on the Internet.
Word processor—prepare written documents.
Spreadsheet—analyze and summarize numerical data.
Database management system—organize and manage data and information.
Presentation graphics—communicate a message or persuade other people.
Advanced applications include:






Multimedia—integrate video, music, voice, and graphics to create interactive
presentations.
Web publishers—create interactive multi-media Web pages.
Graphics programs—create professional publications, draw, edit, and modify images.
Virtual reality—create realistic three-dimensional virtual or simulated environments.
Artificial intelligence—simulated human thought processes and actions.
Project managers—plan projects, schedule, people, and control resources.
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Hardware
Hardware consists of input devices, the system unit, secondary storage, output devices, and
communication devices.
Input Devices
Input devices translate data and programs that humans can understand into a form the computer
can process. The more common are the keyboard and the mouse.
The System Unit
The system unit consists of electronic circuitry with two parts:


Central processing unit (CPU)—controls and manipulates data to produce information.
Memory (primary storage)—temporarily holds data, program instructions, and processed
data.
Secondary Storage
Secondary storage stores data and programs. Three most common storage media are:



Flash Drive
Hard disk—non-removable; internal disk drive.
Optical disk—removals; CD and DVD are common.
Output Devices
Output devices output processed information from the CPU. Two important output devices are:


Monitor—TV screen-like device to display results.
Printer—device that prints out images on paper.
Communications Devices
These send and receive data and programs from one computer to another. A device that connects
a microcomputer to a telephone is a modern.
Data
Data is the raw material for data processing. Data consists of numbers, letters and symbols and
relates to facts, events and transactions. Data describes something and is typically stored
electronically in a file. A file is a collection of characters organized as a single unit. Common
types of files are:



Document—letters, research papers. And memoranda.
Worksheet—budget analyses, sales projections.
Database—structured and organized data.
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ACCOUNTING INFORMATION SYSTEM
Every business organization must have an accounting information system which was generate
reliable financial information needed by the decision-makers in a timely manner. The design and
operation of a system must consider the anticipated users of the information and the types of
decisions they are expected to make. The design of the system to meet the entity‘s information
requirement depends on the firm‘s size, nature of operations, volume of transaction data,
organizational structure, form of business and extent of government regulation. These will
influence the way in which information is accumulated and reported in the financial statements.
An accounting information system is the combination of personnel, records and procedures that a
business uses to meet its need for financial information. Most firms have an accounting manual
that specifies the policies and procedures to be followed in accumulating information within the
accounting information system. This manual details what events are to be recorded in the
accounts, and when and how the information is to be classified and accumulated.
An effective accounting information system should achieve the following objectives:




To process the information efficiently at the least cost (cost-benefit principle).
To protect entity‘s assets, to ensure that data are reliable, and to minimize wastes and the
possibility of theft or fraud (control principle).
To be in harmony with the entity‘s organizational and human factors (compatibility
principle).
To be able to accommodate growth in the volume of transaction and for organizational
changes (flexibility principle).
The
Accounting
Process
Accounting
Information
Economic
Activities
Actions
(Decisions)
Decision
Makers
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The diagram illustrates how economic activities flow into the accounting process, which produces
accounting information. This information is then used by decision makers in making economic
decisions and taking specific actions; thus, resulting in economic activities. The cycle goes on.
TYPES OF ACCOUNTING INFORMATION SYSTEMS
In general terms, companies use three types of accounting information systems to record the
results of transactions: manual systems, computer-based transaction systems and database
systems. All of these systems are designed to capture information regarding accounting events to
prepare financial statements.
In a nutshell, manual systems utilize paper-based journals (general and special) and ledgers
(general and subsidiary). Computer-based transaction systems replace paper records with
computer records. Database systems embed accounting data within the business event data on
which they are based.
Computer-Based Transaction Systems
Manual systems rely on human processing so they are labor intensive and may be inefficient in
today‘s complex business environment. Because manual systems rely on human processing, they
may be prone to error. To overcome these deficiencies, many companies have computerized their
accounting processes.
A computer-based transaction system maintains accounting data separately from other operating
data. That is, the accounting records are kept separately from the records required for the
expenditure, revenue and conversion processes. Suffice it to say, at this point, that there is a
greater degree of compartmentalization of work to preserve the integrity of the accounting
information system but not as ideal as the database system.
This system treats information in the same manner as a manual system. The user is simply filling
in a computer screen that looks and oftentimes acts like a source document. Some of the
advantages of this system are as follows:




Transactions can be quickly posted to the appropriate accounts, bypassing the journalizing
process.
Detailed listings of transactions can be printed for review at any time.
Internal controls and edit checks can be used to prevent and detect errors.
A wide variety of reports can be prepared.
Accounting packages consists of several modules. A module is a program which deals with one
particular part of a business accounting system. A simple accounting package might consist of
only one module, in which case it is called a stand-alone module. But more often it will consist of
several modules, in which case, it will then be called a suite. Examples include QuickBooks and
Peachtree.
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Database Systems
Relational database systems such as enterprise resource planning (ERP) depart from the
―accounting equation‖ method of organizing data. These ERP systems such as SAP, Oracle and
PeopleSoft capture data, both financial and non-financial, and store than information in a data
warehouse. Database systems reduce inefficiencies and redundancies that often exist in
transaction-based systems.
For example, in transaction-based systems, customer information (like name, address, phone,
credit limit) is often maintained separately from customer account information. Thus, a
salesperson who does not know a customer‘s balance might inadvertently encourage a customer
to purchase items that exceed that credit limit. Also, separate departments have special
information needs such that when a database system is not used then the same customer
information may be recorded several times. Advantages of database systems include:



The system recognizes business rather than just accounting events.
The system supports reduction in operating inefficiencies.
The system eliminates redundant data.
STAGES OF DATA PROCESSING
Processing of raw data into useful accounting information then finally into summarized reports
follows the usual input-processing-output progression. Each transaction entered into the
accounting system should be supported by source documents like customer invoices, vendor
invoices, deposit slips, checks, time cards and memos. These documents serve as evidence that a
particular transaction occurred. They also provide the necessary details and supports. The
computer, with the use of the accounting software, then processes the inputs. As will be discussed
later, the manual system of journalizing, posting, preparing the trial balance and updating the
accounts are done almost instantaneously. When required, the financial statements and other
accounting reports can be viewed on the screen or printed as output documents.
In many situations, manual systems are inferior to computerized systems in terms of productivity,
speed, accessibility, quality of output, incidence of errors and bulk.
ELEMENTS OF FINANCIAL STATEMENTS
Financial Position
In simple terms, assets are valuable resources owned by the entity. Per Framework, asset is a
resource controlled by the enterprise as a result of past events and from which future economic
benefits are expected to flow to the enterprise in a number of ways. The parts of the definition of
an asset can be explained further:
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“Controlled by the enterprise’’ – Control is the ability to obtain the economic benefits and to
restrict the access of others (e.g. an entity being the sole user of its plant and equipment, or by
selling idle assets).
“Past events” – The event must be past before an asset can arise. For example, equipment will
only become an asset when there is the right to demand delivery or access to the asset‘s potential.
Dependent on the terms of the contract, this may be on acceptance of the order or on delivery.
“Future economic benefits” – These are evidenced by the prospective receipt or cash. This could
be cash itself, an account receivable or any item which may be sold. Although, for example, a
factory may not be sold (on a going concern basis) for it houses the manufacturing facility for the
goods. When these goods are sold, the economic benefit resulting from the use of the factory is
realized as cash.
For example, an asset may be:




Used singly or in combination with other assets in the production of goods or services to
be sold by the enterprise;
Exchanged for other assets;
Used to settle a liability; or
Distributed to the owners of the enterprise.
Assets include cash, cash equivalents, notes receivable, accounts receivable, inventories, prepaid
expenses, property, plant and equipment, investments, intangible assets and other assets.
Liabilities are obligations of the entity to outside parties who have furnished resources. Per
Framework, liability is a present obligation of the enterprise of resources embodying economic
benefits. The parts of the definition of a liability can be explained further:
•
•
•
•
“Obligations” – These may be legal or not. For example, the year end tax liability relates
to the year‘s (i.e. past) events but in law this liability does not arise until it is assessed
some time later.
“Transfer economic benefits” – This could be a transfer of cash, or other property, the
provision of a service or the refraining from activities which would otherwise be
profitable.
“Past transactions or events” – refer to discussion in assets.
“Complementary nature of assets and liabilities” – As should be evident from the
above, assets and liabilities are seen as mirror images of each other.
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Settlement of a present obligation may occur in a number of ways, for example, by:





Payment of cash;
Transfer of other assets;
Provision of services;
Replacement of that obligation with another obligation; or
Conversion of the obligation to equity.
Liabilities include notes payable, accounts payable, accrued liabilities, unearned revenues,
mortgage payable, bonds payable and other debts of the enterprise.
Equity is the residual interest in the assets of the enterprise after deducting all the liabilities.
Equity may pertain to any of the following depending on the form of business organization:




In a sole proprietorship, there is only one owner‘s equity account because there is only
one owner.
In a partnership, an owner‘s equity account exists for each partner.
In a corporation, owners‘ equity or stockholders‘ equity consists of share
Capital, retained earnings and reserves representing appropriations of retained earnings
among others.
Performance
Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result an increases in equity, other than
those relating to contributions from equity participants.
The definition of income encompasses both revenue and gains. Revenue arises in the course of
the ordinary activities of an enterprise and is referred to by a variety of different names including
sales, fees, interest, dividends, royalties, and rent.
Gains represent other items that meet the definition of income and may, or may not arise in the
course of the ordinary activities of an enterprise. Gains represent increases in economic benefits
and as such as are no different in nature from revenue. Hence, they are not regarded as
constituting a separate element.
Expenses are decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other
than those relating to distributions to equity participants.
The definition of expenses encompasses losses as well as those expenses that arise in the course
of the ordinary activities of the enterprise. There are various classes of expenses but they are
generally classified as cost of services rendered or goods sold, distribution or selling expenses,
administrative expenses or other operating expenses.
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Losses represent other items that meet the definition of expense and may or may not, arise in the
course of the ordinary activities of an enterprise. Losses represent decreases in economic benefits
and as such are no different in nature from other expenses. Hence, they are not regarded as a
separate element in this framework.
THE ACCOUNT
The basic summary device of accounting is the account. A separate account is maintained for
each element that appears in the balance sheet (assets, liabilities and equity) and in the income
statement (income and expenses). Thus, an account may be defined as a detailed record of the
increases, decreases and balance of each element that appears in an entity‘s financial statements.
The simplest form of the account is known as the ―T‖ account because of its similarity to the
letter ―T‖. The account has three parts as shown below:
Account Title
Left side or
Rigth side or
Debit side
Credit side
THE ACCOUNTING EQUATION
Financial statements tell us how a business is performing. They are the final products of the
accounting process. But how do we arrive at the items and amounts that make up the financial
statements? The most basic tool of accounting is the accounting equation. This equation presents
the resources controlled by the enterprise, the present obligations of the enterprise and the residual
in the assets. It states that assets must always equal liabilities and owner‘s equity. The basic
accounting model is:
Assets = Liabilities + Owner’s Equity
Note that the assets are on the left side of the equation opposite the liabilities and owner‘s equity.
This explains why increases and decreases in assets are recorded in the opposite manner (―mirror
image‖) as liabilities and owner‘s equity follow the same rules of debit and credit.
The logic of debiting and crediting is related to the accounting equation. Transactions may require
additions to both sides (left and right sides), subtractions from both sides (left and right sides), or
an addition and subtraction on the same side (left or right side), but in all cases the equality must
be maintained as shown on the next page:
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Assets
Owner’s Equity
Liabilities
=
+
DEBITS AND CREDITS—THE DOUBLE-ENTRY SYSTEM
Accounting is based on a double-entry system which means that the dual effects of a business
transaction is recorded. A debit side entry must have a corresponding credit side entry. For every
transaction, there must be one or more accounts debited and one or more accounts credited. Each
transaction affects at least two accounts. The total debits for a transaction must always equal the
total credits.
An account is debited when an amount is entered on the left side of the account and credited
when an amount is entered on the right side. The abbreviations for debit and credit are Dr. (from
the Latin debere) and Cr. (from the Latin credere), respectively.
The account type determines how increases or decreases in it are recorded. Increases in assets are
recorded as debits (on the left side of the account) while decreases in assets are recorded as credits
(on the right side). Conversely, increases in liabilities and owner’s equity are recorded by credits
and decreases are entered as debits.
The rules of debit and credit for income and expense accounts are based on the relationships of
these accounts to owner‘s equity. Income increases owner‘s equity and expense decreases
owner‘s equity. Hence, increases in income are recorded as credits and decreases as debits.
Increases in expenses as debits and decreases as credits. These are the rules of debit and credit.
The following summarizes the rules:
Balance Sheet Accounts
Assets
Debit
Credit
(+)
(-)
Increase
Decrease
Liabilities and Owner’s Equity
Debit
Credit
(-)
Decreases
(+)
Increase
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Normal Balance
Normal Balance
Income Statement Accounts
Debit for
Credit for
Decreases in owner’s equity
increases in owner’s equity
Expenses
Income
Debit
Credit
Debit
Credit
(+)
(-)
(-)
(+)
Decreases
Increase
Increase
Decrease
Normal Balance
Normal Balance
NORMAL BALANCE OF AN ACCOUNT
The normal balance of any account refers to the side of the account — debit or credit — where
increases are recorded. Asset, owner‘s withdrawal and expense accounts normally have debit
balances; liability, owner‘s equity and income accounts normally have credit balances. This result
occurs because increases in an account are usually greater than or equal to decreases.
Account Category
Asset
Liabilities
Owner’s Equity:
Owner’s Capital
Withdrawals
Income
Expenses
Increases Recorded
Debit
Credit
√
√
√
√
√
√
Normal Balance
Debit
Credit
√
√
√
√
√
√
ACCOUNTING EVENTS AND TRANSACTIONS
An accounting event is an economic occurrence that causes changes in an enterprise‘s assets,
liabilities, and/or equity. Events may be internal actions, such as the use of equipment for the
production of goods and services. It can also be an external event, such as the purchase of raw
materials from a supplier.
A transaction is a particular kind of event that involves the transfer of something of value between
two entities. Examples of transactions include acquiring assets from owner(s), borrowing funds
from creditors, and purchasing or selling goods and services.
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TYPES AND EFFECTS OF TRANSACTIONS
It will be beneficial in the long-term to be able to understand a classification approach that
emphasizes the effects of accounting events rather than the recording procedure involved. This
approach is quite pioneering. Although business entities engage in numerous transactions, all
transactions can be classified into one of four types, namely:
1. Source of Assets (SA). An asset account increases and a corresponding claims (liabilities
or owner‘s equity) account increases. Examples: (1) Purchase of supplies on account; (2)
Sold goods on cash on delivery basis.
2. Exchange of Assets (EA). One asset account increases and another asset account
decreases. Example: Acquired equipment for cash.
3. Use of Assets (UA). An asset account decreases and a corresponding claims (liabilities or
equity) account decreases. Example: (1) Settled accounts payable; (2) Paid salaries of
employees.
4. Exchange of Claims (EC). One claims (liabilities or owner‘s equity) account decreases.
Example: Received utilities bill but did not pay.
Every accountable event has a dual but self-balancing effect on the accounting equation.
Recognizing these events will not in any manner affect the equality of the basic accounting model.
The four types off transactions above may be further expanded into nine types of effects as
follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Increase in Assets = Increase in Liabilities(SA)
Increase in Assets = Increase in Owner‘s Equity(SA)
Increase in one Asset = Decrease in another Asset(EA)
Decrease in Assets = Decrease in Liabilities(UA)
Decrease in Assets = Decrease in Owner‘s Equity(UA)
Increase in Liabilities = Decrease in Owner‘s Equity(EC)
Increase in Owner‘s Equity = Decrease in Liabilities(EC)
Increase in one Liability = Decrease in another Liability(EC)
Increase in one Owner‘s Equity = Decrease in another Owners Equity(EC)
TYPICAL ACCOUNT TITLES USED
STATEMENT OF FINANCIAL POSITION
Assets
Assets are should be classified only into two: current assets and non-current assets. Per revised
Philippine Accounting Standards (PAS) No. 1, an entity shall classify assets a current when:
a. it expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle;
b. it holds the asset primarily for the purpose of trading;
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c. it expects to realize the asset within twelve months after the reporting period; or
d. the asset is cash or a cash equivalent (as defined in PAS No. 7) unless the asset is
restricted from being exchanged or used to settle a liability for at least twelve
months after the reporting period.
All other assets should be classified as non-current assets. Operating cycle is the time between the
acquisition of assets for processing and their realization in cash or cash equivalents. When the
entity‘s normal operating cycle is not clearly identifiable, it is assumed to be twelve months.
Current Assets
Cash. Cash is any medium of exchange that a bank will accept for deposit at face value. It
includes coins, currency, checks, money orders, bank deposits and drafts.
Cash Equivalents. Per PAS No. 7, these are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value.
Notes Receivable. A note receivable is a written pledge that the customer will pay the business a
fixed amount of money on a certain date.
Accounts Receivable. These are claims against customers arising from sale of services or goods
on credit. This type of receivable offers less security than a promissory note.
Inventories. Per PAS No. 2, these are assets which are(a) held for sale in the ordinary course of
business;(b) in the process of production for such sale; or (c) in the form of materials or supplies
to be consumed in the production process or in the rendering of services.
Prepaid Expenses. These are expenses paid for by the business in advance. It is an asset because
the business avoids having to pay cash in the future for a specific expense. These include
insurance and rent. These prepaid items represent future economic benefits—assets—until the
time these start to contribute to the earning process; these, then, become expenses.
Non-current Assets
Property, Plant and Equipment. Per PAS No. 16, these are tangible assets that are held by an
enterprise for use in the production or supply of goods or services, or for rental to others, or for
administrative purposes and which are expected to be used during more than one period. Included
are such items as land, building, machinery and equipment, furniture and fixtures, motor vehicles
and equipment.
Accumulated Depreciation. It is a contra account that contains the sum of the periodic
depreciation charges. The balance in this account is deducted from the cost of the related asset—
equipment or buildings—to obtain book value.
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Intangible Assets. Per PAS No. 38, these are identifiable, nonmonetary assets without physical
substance held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes. These include goodwill, patents, copyrights, licenses, franchises,
trademarks, brand names, secret processes, subscription lists and non-competition agreements.
Liabilities
Per revised Philippine Accounting Standards (PAS) No. 1, an entity shall classify a liability as
current when:
a. it expects to settle the liability in its normal operating cycle;
b. it holds the liability primarily for the purpose of trading;
c. the liability is due to be settled within twelve months after the reporting period; or
d. the entity does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period.
All other liabilities should be classified as non-current liabilities.
Current Liabilities
Accounts Payable. This account represents the reverse relationship of the accounts receivable.
By accepting the goods or services, the buyer agrees to pay for them in the near future.
Notes Payable. A note payable likes a note receivable but in a reverse sense. In the case of a note
of a note payable, the business entity is the maker of the note; that is, the business entity is the
party who promises to pay the other party a specified amount of money on a specified future date.
Accrued Liabilities. Amounts owed to others for unpaid expenses. This account includes salaries
payable, utilities payable, interest payable and taxes payable.
Unearned Revenues. When the business entity receives payment before providing its customers
with goods or services, the amounts received are recorded in the unearned revenue account
(liability method). When the goods or services are provided to the customer, the unearned revenue
is reduced and income is recognized.
Current Portion of Long-Term Debt. These are portions of mortgage notes, bonds and longterm indebtedness which are to be paid within one year from the balance sheet date.
Non-current Liabilities
Mortgage payable. This account records long-term debt of the business entity for which the
business entity has pledged certain assets as security to the creditor. In the event that the debt
payments are not made, the creditor can foreclose or cause the mortgage asset to be sold to enable
the entity to settle the claim.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Bonds Payable. Business organizations often obtain substantial sums of money from lenders to
finance the acquisition of equipment and other needed assets. They obtain these funds by issuing
bonds. The bond is contract between the issuer and the lender specifying the terms of repayment
and the interest to be charged.
Owner’s Equity
Capital. (from the Latin capitalis, meaning ―property‖). This account is used to record the
original and additional investment of the owner of the business entity. It is increased by the
amount of profit earned during the year or is decrease by loss. Cash or other assets that the owner
may withdraw from the business ultimately reduce it. This account title bears the name of the
owner.
Withdrawals. When the owner of a business entity withdrawals cash or other assets such as
recorded in the drawing or withdrawal account rather than directly reducing the owner‘s equity
account.
Income Summary. It is a temporary account used at the end of the accounting period to close and
income and expenses. This account shows the profit or loss for the period before closing to the
capital account.
INCOME STATEMENT
Income
Service Income. Revenues earned by performing services for a customer or client; for example,
accounting services by a CPA firm, laundry services by a laundry shop.
Sales. Revenues earned as a result of sale of merchandise; for example, sale of building materials
by construction supplies firm.
Expenses
Cost of Sales. The cost incurred to purchase or to produce the products sold to customers during
the period; also called cost of goods sold.
Salaries or Wages Expense. Includes all payments as a result of an employer-employee
relationship such as salaries of wages, 13th month pay, cost of living allowances and other related
benefits.
Telecommunications, Electricity, Fuel and Water Expenses. Expenses related to use of
telecommunication facilities, consumption of electricity, fuel and water.
Rent Expense. Expense for space, equipment or other asset rentals.
Supplies Expense. Expense of using supplies (e.g. office supplies) in the conduct of daily
business.
Insurance Expense. Portion of premiums paid on insurance coverage (e.g. on motor vehicle,
health, life, fire, typhoon or flood) which has expired.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Depreciation Expense. The portion of the cost of a tangible asset (e.g. building and equipment)
allocated or change as expense during an accounting period.
Uncollectible Account Expense. The amount of receivables estimated to be doubtful of
collection and chance as expense during an accounting period.
Interest Expense. An expense related to use of borrowed funds.
ACCOUNTING FOR BUSINESS TRANSACTIONS
Accountants observe many events that they identify and measure in financial terms. A business
transaction is the occurrence of an event or a condition that affects financial position and can be
reliably recorded.
Financial Transaction Worksheet
Every financial transaction can be analyzed or expressed in terms of its effects on the accounting
equation. The financial transactions will be analyzed by means of a financial transaction
worksheet which is a form used to analyzed increase and decrease in the assets, liabilities or
owner‘s equity of a business entity.
Illustration. Leopoldo Medina decided to establish a sole proprietorship business and named it is
Medina Graphics Design. Medina is a graphic designer who has extensive experience in drawing,
layout typography, lettering, diagraming and photography. He possesses the talent to visually
communicate to a target audience with the right combination of words, image and ideas.
Medina Graphic Design can do the layout and production design of newspapers, magazines,
corporate reports, journal and other publications. The entity can create promotional displays,
marketing brochures for services and products; packaging design for products; and distinctive
logos for business. He also enters into agreements with clients for the aggressive development and
maintenance of their web sites. His initial revenue steam comes from web designing.
The owner, Leopoldo Medina, makes the business decisions. The assets of the company belong to
medina and all obligations of the business are his responsibility. Any income that the entity earns
belongs sole to medina.
When a specific asset, liability or owner‘s equity items is created by a financial transaction, it is
listed in the financial transaction worksheet using the appropriate accounts. The worksheet that
follows shows the first transaction of the Medina Graphic Design. The dates are enclosed in
parenthesis. During March 2010, the first month of operations, various financial transactions took
place. These transactions are described and analyzed as follows:
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Mar.1 Medina started his new business by depositing P350, 000 in bank account in the name of
Medina Graphics Design at BPI Poblacion Branch.
Media Graphics Design
Financial Transaction Worksheet
Month of March 2010
(1)
Assets
Cash
P350,000
=
=
=
Liabilities
+
Owner‘s Equity
Medina, Capital
P350,000
The financial transaction is analyzed as follows:




An entity separate and distinct from Medina‘s personal financial affairs is credited.
An economic resource-cash of P350, 000 is invested in the business entity. The source of
asset is the contribution made by the owner, which represents owner‘s equity. The owner‘s
equity account is Medina, Capital.
The dual nature of the transaction is that cash is invested and owner‘s equity credited. The
effects on the accounting equation are as follows: increase in asset-cash from zero to
P350, 000 and increase in owner‘s equity from zero to P350, 000.
At this point, the entity has no liabilities, and assets equal owner‘s equity.
Mar.5 Computer equipment costing P145, 000 is acquired on cash basis. The effect of the
transaction on the basis equation is:
Assets +
Cash
+
Computer
= Liabilities +
Owner’s Equity
=
Medina,
Capital
Equipment
Bal.
(5)
Bal.
P350,000
(145,000)
P205,000
+
P145,000
P145,000
P350,000
=
=
=
=
P350,000
P350,000
P350,000
This transaction did not change the total assets but it did change the composition of the assets - it
decreased one asset - cash and increase another asset - computer equipment by P145, 000. Note
that the sums of the balances on both sides of the equation are equal. This equality must always
exist.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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lOMoARcPSD|29458329
Mar.9 Computer supplies in the amount of P25, 000 are purchased on account.
Assets
+
Computer + Computer
Supplies
Equipment
P205,000
P145,000
P25,000
P205,000 +
P25,000 +
P145,000
P375,000
Cash
Bal.
(9)
Bal.
=
=
=
=
=
=
Liabilities
Accounts
Payable
+
+
Owner’s Equity
Medina, Capital
P350,000
P 25,000
P25,000
P375,000
+
P350,000
Assets don‘t have to be purchased in cash. It can also be purchased on credit. Acquiring the
computer supplies with a promise to pay the amount due later is called buying on account. This
transaction increases both the assets and the liabilities of the business. The asset affected is
computer supplies and the liability created is an accounts payable.
Mar.11 Medina Graphics Design collected P88, 000 in cash for designing interactive web sites
for two exporters based inside the Davao Ecozone.
Cash
Assets
Computer + Computer
Supplies
Equipment
+
Bal. P205,000
(11)
88,000
Bal. P293,000
P25,000
P145,000
P25, 000
+ P145, 000
P463, 000
=
=
=
Liabilities
Accounts
Payable
=
=
=
=
P25,000
P25, 000
P463, 000
+
+
Owner’s Equity
Medina, Capital
+
P350, 000
88,000
P438, 000
The entity earned service income by the designing web sites for clients. Medina rendered his
professional services and collected revenues in cash. The effect on the accounting equation is an
increased in the asset-cash and an increase in owner‘s equity. Income increases owner‘s equity.
This transaction caused the business to grow, as shown by the increase on total assets from P375,
000 to from P375, 000 to P463, 000.
Mar.16
Medina paid P18, 000 to bills express, a one-stop bills payment service company, for
the semi-Monthly utilities.
Cash
+
Bal. P293, 000
(16)
(18,000)
Bal. P275, 000 +
Assets
Computer + Computer
Supplies
Equipment
P25, 000
P25, 000 +
P145, 000
P145, 000
P445, 000
=
=
Liabilities
Accounts
Payable
=
=
=
=
P25, 000
P25, 000
P445, 000
+
+
Owner’s Equity
Medina, Capital
+
P438, 000
(18,000)
P420, 000
Expenses are recorded when they are incurred. The expenses can be paid in cash when they occur,
or they can paid later. The payment for the utilities is an expense for the month of March it
represented of an outflow of resources and reduction of owner‘s equity. Expenses have the
opposite effect of income; they cause the business to shrink as shown by the smaller amount of
total assets of P445, 000.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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Mar.17 The entity has service agreements with several Netpreneurs to maintain and update
their web sites weekly. Medina build his clients P35, 000 for services only rendered during the
month.
A
Cash
+ Accounts
=
+ Computer +
Receivable
Bal.
(17)
Bal.
P275,000
P35,000
P275,000 + P35,000
+
Computer
Supplies
Equipment
P25,000
P145, 000
P25,000
+ P145, 000
P480, 000
L
= Accounts
+
OE
+
Medina,
Payable
= P25, 000
=
= P25, 000
= P480, 000
Capital
P420,000
P35, 000
P455, 000
+
The entity has performed services to clients so income should already be recognized. Medina is
entitled to receive payment for these but the clients did not pay immediately. Performing the
services creates an economic resources, the clients promise to pay the amount which is called
accounts receivable. This transaction resulted to an increase in asset-accounts receivable and an
increased in owner‘s equity to P35, 000.
Mar.19 Medina paid a partial payment of P17, 000 for the Mar. 9 purchase on account.
A
Cash
+ Accounts
=
+ Computer
Receivable
Bal. P275,000
(19) (17,000)
Bal. P258,000 +
P455,000
Supplies
P35,000
P35,000
+
+
Computer
= Accounts
Equipment
P25,000
P145,000
P25,000
+ P145,000
P463,000
L
=
=
=
+
+
OE
Medina,
Payable
Capital
P25,000
(17,000)
P8,000
P455,000
+
= P463,000
The transaction of payment on account. The effect on the accounting equation is a decrease in the
asset-cash and a decrease in the liability-accounts payable. The payment of cash on account has
no effect on the asset-computer supplies because the payment does not increase or decrease the
supplies available to the business.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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Mar.20 Checks totaling P25, 000 were received from clients for billing dated Mar. 17.
A
+ Account + Computer
Receivable
Supplies
Cash
Bal.
(20)
Bal.
P258,000
25,000
P283,000 +
P35,000
P25,000
(25,000)
P10,000 + P25,000
=
=
L
Accounts
Payable
P145,000
=
P8,000
P145,000
P463,000
=
=
P8,000
P463,000
+ Computer
Equipment
+
+
+
OE
Medina,
Capital
P455,000
+
P455,000
Last Mar. 17, Medina billed clients for services already rendered. On Mar. 20, the entity was able
to collect P25, 000 from them. The asset-cash is increased by P25, 000. The business should not
record service income on Mar. 20 since it has already recorded the income last Mar. 17 Total
assets are unchanged. The business merely reduced one asset-accounts receivable and increased
another-cash.
Mar.21 Medina withdraw P20, 000 from the business for his personal use.
Cash
+
Bal. P283 000
(21) (20,000)
Bal. P263,000
+
A
Account + Computer
Receivable
Supplies
P10,000
P25,000
P10,000
P25,000
+
+
=
=
L
Accounts
Payable
P145,000
=
=
P8,000
P455,000
(P20,000)
P145,000
=
P8,000
P435, 000
=
P443,000
Computer
Equipment
P443,000
+
+
OE
Medina,
Capital
Withdrawal of cash and other assets for personal use is the way by which of the owner of the
entity receives advance distribution of the profits. On Mar. 1, Medina invested P350, 000 both
cash and owners‘ equity increased. The transaction was an investment by the owner and not an
income-generating activity. Medina simply transferred funds from his personal account to the
business. A cash withdrawal is exactly the opposite. The P20, 000 cash withdrawal transaction
resulted to a reduction in both cash and owner‘s equity.
Mar.27 Loqueloque Publishing submitted a bill to medina for P8, 000 worth of newspaper
advertisements for this month. Medina will pay this bill next month.
Cash
Bal.
P263, 000
A
+ Account + Computer
Receivable
Supplies
P10, 000
=
=
L
Accounts
Payable
=
P8, 000
P435, 000
=
P8, 000
(8,000)
P145, 000
=
P16, 000
P443, 000
=
P443, 000
+ Computer
Equipment
P25, 000
P145, 000
(27)
Bal. P263, 000
+ P10, 000 +
P25, 000
+
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
+
+
+
OE
Medina,
Capital
P427, 000
Page 20 of 70
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Loqueloque rendered services on account. Medina Graphics design has incurred an expense in the
amount of P8, 000 by availing of Loqueloque services. There was no payment during the month.
This advertising expense resulted to a decrease in owner‘s equity and an increase in the liabilityaccounts payable.
Mar.31
Medina paid his assistant designer salaries of P15, 000 for the month.
A
+ Account + Computer
Receivable
Supplies
Cash
Bal. P263,000
(28) (15,000)
P10,000
P25,000
Bal.
P10 000 +
P25,000
P248,000 +
=
=
L
Accounts
Payable
P145,000
=
=
P16,000
P145,000
=
P16,000
+ Computer
Equipment
+
P428,000
=
+
+
OE
Medina,
Capital
P427,000
(15,000)
+
P412,000
P428,000
This transaction resulted to a reduction in owner‘s equity as well as a reduction in cash. By
providing his services to Medina for the month, the assistant designer has created for the business
an expense-salaries expense.
Use of T-Accounts
Analyzing and recording transactions using the accounting equation is useful in conveying a basic
understanding of how transactions affects the business. However, it is not an efficient approach
once the number of accounts involve increases. Double entry system provides a formal system of
classification and recording business transactions.
Illustration. The rules of debit and credit will be applied to the medina Graphics Design
illustration for comparison. Three transactions will be added to the example. Before being
recorded, a transaction must be analyzed to determine which accounts must be increased or
decreased. After this has been determined, the rules of debit and credit are applied to effect the
appropriate increases and decreases to the accounts.
Mar.1
Medina started his new business by depositing P350, 000 in bank account in the name
of Medina Graphics Design at BPI Poblacion Branch.
Assets (Increase)
Cash
=
Owner’s Equity (Increase)
Medina, Capital
Debit
Credit
Debit
Credit
(+)
(-)
(-)
(+)
3-1
350,000
350,000
3-1
This transaction increased both asset-cash and owner‘s equity. According to the rules of debit and
credit, an increased in asset is recorded as debit while an increased in owner‘s equity is recorded
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
Page 21 of 70
lOMoARcPSD|29458329
as credit; thus the entity is to debit cash and to credit Medina, Capital. The transaction dates are
placed on the left side of the amounts for reference.
Mar.2
Computer equipment is required by using a P50, 000 note payable to Microsoft Office
System. The note is due in six months.
Assets (Increase)
=
Liabilities (Increase)
Computer Equipment
Debit
(+)
3-2
Notes Payable
Credit
(-)
Debit
(-)
Credit
(+)
3-2
50,000
50,000
The transaction increased by P50, 000 the asset-computer equipment and the liability-notes
payable. Computer equipment must be debited on notes payable must be credited.
Mar. 3
Months paid P20, 000 to Grande Suites for rent on the office studio for the months on
March, April and May.
Liabilities (Increase)
Cash
Debit
(+)
3-1
=
Assets (increase)
Prepaid Rent
Credit
(-)
350,000 3-3
Debit
(+)
15,000
3-3
Credit
(-)
15,000
The entity paid advance rent for three months. A resource having future economic benefit-prepaid
rent, is acquired for a cash payment of P15, 000. Increases in assets are recorded by debits and
decreases in assets are recorded by credits. The transaction resulted to a debit to prepaid rent and a
credit to cash for P15, 000. The prepaid rent is consumed based on the passage of time so that
after one month, P5, 000 of the prepaid rent will be transferred to the rent expense account.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Mar. 4
Received advance payment of P18, 000 from Roa Leisure Hotel for web site updating
for the next three months.
Assets (Increase)
Liabilities (Increase)
Cash
Debit
(+)
3-1
3-4
Unearned Revenues
Credit
(-)
350,000
18,000
3-3
Debit
(-)
15,000
Credit
(+)
3-4
18,000
The entity has an obligation to Roa Leisure Hotel for the next three months. This liability is called
unearned revenues. The asset-cash is increased by a debit of P18, 000 and the liability-unearned
revenues is increased by a credit of P18, 000. As it render service, the entity discharges its
obligation at a rate of P6, 000 per month for the next three months.Mar. 5 Computer Equipment
costing P145, 000 is acquired on cash basis.
Assets (Increase)
Assets (Increase)
Cash
Debit
(+)
3-1
3-4
350,000
18, 000
Computer Equipment
Credit
(-)
3-3
3-5
Debit
(+)
15,000
145,000
3-2
3-5
Credit
(-)
50,000
145, 000
This transaction increased the asset-computer equipment and decreased the asset-cash. Assets are
increased by debits, and decreased by credits; thus, computer equipment is debited and cash is
credited for P145, 000.
Mar. 9
Computer Supplies in the amount of P25, 000 are purchased on account.
Assets (Increase)
Liabilities (Increase)
Computer Supplies
Accounts Payable
Debit
(+)
3-9
Credit
(-)
Debit
(-)
Credit
(+)
3-9
25,000
25,000
The asset-computer supplies is increased by a debit of P25, 000 while the liability accountaccounts payable is increased by a credit for the same amount.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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Mar. 11
Medina Graphics Design collected P88, 000 in cash for designing web sites.
Owner’s Equity (Increase)
Assets (Increase)
Cash
3-1
3-4
3-11
Debit
(+)
350,000
18, 000
88, 000
Design Revenues
Credit
(-)
3-3
15,000
3-5
145,000
Debit
(-)
Credit
(+)
3-11
88,000
The transaction increased the asset-cash and increased the income account-design revenues.
Assets are increased by debits, income are increased by credits; hence, a debit of P88, 000 to cash
and a credit of P88, 000 to design revenues is made. Increases in income increase in owner‘s
equity.
Mar. 16 Medina paid P18, 000 to Bills expense for the semi-monthly utilities.
Owner’s Equity (Increase)
Assets (Increase)
Cash
Debit
(+)
3-1
3-4
3-11
350,000
18, 000
88, 000
Utilities Expense
Credit
(-)
3-3
3-5
3-16
Debit
(+)
15,000
145,000
18,000
3-11
Credit
(-)
88,000
Expenses are increased by debits and asses are decreased by credits; therefore, utilities expense is
debited and cash credited for P18, 000. Increases in expenses decrease owner‘s equity.
Mar. 17
Medina billed clients P35, 000 for services already rendered during the month.
Assets (Increase)
Accounts Receivable
Debit
(+)
3-17
Credit
(-)
Owner’s Equity (Increase)
Design Revenues
Debit
(+)
Credit
(-)
3-11
3-17
35,000
88,000
35,000
Assets are increased by debits, income are increased by credits. Increases in income increase
owner‘s equity. A debit of P35, 000 to accounts receivable and a credit of P35, 000 to the income
account-design revenues is needed.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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Mar. 19
Medina partially paid P17, 000 for the Mar. 9 purchase of computer supplies.
Assets (Decrease)
Liabilities (Decrease)
Cash
Debit
(+)
3-1
3-4
3-11
Utilities Expense
Credit
(-)
350,000
18, 000
88, 000
3-3
3-5
3-16
3-19
Debit
(-)
15,000
145,000
18,000
17, 000
3-19
Credit
(+)
17,000 3-9
25,000
Assets are decreased by credits while liabilities are decreased by debits. The transaction is
recorded by debiting accounts payable and crediting cash for P17, 000 each.
Mar. 20
Received checks totaling P25, 000 from clients for billings dated Mar. 17.
Assets (Increase)
Assets (Decrease)
Cash
Debit
(+)
3-1
3-4
3-11
3-20
Utilities Expense
Credit
(-)
350,000
18, 000
88, 000
25,000
3-3
3-5
3-16
3-19
Debit
(+)
15,000
145,000
18,000
17, 000
3-17
Credit
(-)
35,000 3-20
25,000
Collections on account reduced the asset-accounts receivable but increased the asset-cash. Assets
are increased by debits and decreased by credits; thus, a debit to cash for P25, 000 and a credit to
accounts receivable for P25, 000 is made.
Mar. 21
Medina withdrew P20, 000 from the business for his personal use.
Owner’s Equity (Decrease)
Assets (Decrease)
Cash
Debit
(+)
3-1
3-4
3-11
3-20
350,000
18, 000
88, 000
25,000
Medina, Withdrawals
Credit
(-)
3-3
3-5
3-16
3-19
3-21
Debit
(+)
15,000
145,000
18,000
17, 000
20, 000
3-21
Credit
(-)
20,000
Withdrawals are reductions of owner‘s equity but are not expenses of the business entity. A
withdrawal is a personal transaction of the owner that is exactly the opposite of an investment.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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lOMoARcPSD|29458329
This transaction increased the withdrawals account and credits record decreases in asset account;
thus, a debit to withdrawals and credit to cash for P20, 000 each is necessary.
Mar. 27
Loqueloque billed Medina for P8, 000 ads. Medina will pay next month.
Liabilities (Increase)
Owner’s Equity (Decrease)
Accounts Payable
Medina, Withdrawals
Debit
(-)
3-19
Credit
(+)
17,000
3-9
3-27
Debit
(+)
25,000
8,000
3-27
Credit
(-)
8,000
This transaction increased the expense-advertising expense and increased the liability-accounts
payable by P8, 000. Expenses are increased by debits while liabilities are increased by credits;
hence an entry to debit advertising expense and to credit accounts payable for P8, 000 is needed.
Mar. 31 Medina paid his assistant designer salaries of P15, 000 for the month.
Owner’s Equity (Decrease)
Assets (Decrease)
Cash
Debit
(+)
3-1
3-4
3-11
3-20
350,000
18, 000
88, 000
25, 000
Salaries Expense
Credit
(-)
3-3
3-5
3-16
3-19
3-21
3-31
Debit
(+)
15,000
145,000
18,000
17, 000
20, 000
15,000
3-31
Credit
(-)
15,000
Expenses already are increased by debits and assets are decreased by credits. Hence, salaries
expense is debited for P15, 000 and cash credited for the same amount. Increases in salaries
expense decrease owner‘s equity.
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DISTINCTION BETWEEN REVENUES AND RECEIPTS
At this point, it will be useful to learn the distinction between revenues and receipt as illustrated
in the following table. The table shows various types of sales transactions and classifies the effect
of each on cash receipts and sales revenues for ―this year‖:
This Year
Transaction
Amount
Cash
Sales
Receipts
Revenues
1. Cash sales made this year.
2. Credit sales made last year;
P200,000
300,000
P200,000
300,000
P200,000
0
400,000
400,000
400,000
100,000
0
100,000
cash receive this year.
3. Credit sales made this year;
cash receive this year.
4. Credit sales made this year;
cash to be received next year.
Total
P900,000
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P700,000
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REVIEW QUESTIONS
1.
What is an accounting information system? What must be considered before its setup?
2.
Enumerate the elements of financial statements. Define each briefly.
3.
What is the basic summary device of accounting? What does it contain?
4.
How do sole proprietorships, partnership and corporation differ?
5.
How can the owner‘s equity be increased or decreased?
6.
What is the basic accounting model?
7.
Discuss briefly the theory of the double-entry system.
8.
State the rules of debit and credit.
9.
Differentiate source of assets transactions from exchange of assets transactions.
10. What criteria must an asset meet to be classified as current?
11. Explain the concept of prepaid expenses.
12. Give the nature of accumulated depreciation account.
13. What is an intangible asset? Give at least three examples.
14. Liability accounts are classified as either current or non-current. What are the criteria used?
15. Income and expenses comprise the income statement. Give at least two examples for income
and five for expense.
16. Cite a transaction that will decrease an asset and decrease in liability.
17. A transaction was recorded increasing a liability and decreasing another liability. What
transaction may have occurred?
18. How does the use of cash acquire another asset affect the accounting equation? How cash to
settle a liability?
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19. Illustrate the distinction between revenues and receipts.
Name:
Section:
Score:
Professor:
True or False
1. Expenses caused decreases in owner‘s equity and are recorded by credits?
2. Not all financial transactions can be analyzed in terms of the basic accounting model.
3. An accounting information system is the combination of personnel, records and procedures that a
business uses to meet its need for financial information.
4. Expenses represent the cash paid for goods sold or services rendered in process of generating
revenue.
5. Owner‘s equity is the excess capital over its liabilities.
6. Asset is a resources controlled by the enterprise as result of past events and from which future
economic benefits are expected to flow to the enterprise.
7. Liabilities represent amounts owed to the creditors.
8. Equipment is listed as an asset because it is used up in a relatively long period of time.
9. Income is increases in economic benefits during the accounting period that increases equity which
may have resulted from the sale of goods or rendering of services by the business.
10. Income increase owner‘s equity and is recorded by a debit.
11. Accounts receivable is considered as an asset.
12. A debit entry always decreases the balance of an account.
13. A cash acquisition of a laptop computer will caused total asset to increase.
14. According to the balance sheet equation, the assets of the business entity must always equal the
liabilities and owner‘s equity.
15. Accounts that appear on the left side of the accounting equation usually have credit balances.
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16. For every transaction, there is at least one account affected.
17. Business transactions are expressed in terms of money.
18. An owner can invest cash or other assets of value in the business.
19. Both sides of the fundamental accounting equation must always be equal.
20. The first step in analyzing a transaction is to determine what accounts are involved.
21. Asset are things of value owed by a business entity.
22. The owner‘s withdrawals account is listed with the other expenses of business.
23. A withdrawal by the owner is recorded as a reduction from assets and an increase in
expenses.
24. Payment of a liability will not affect total assets but will caused total liabilities to
decrease.
25. When a business receives cash, it is always recorded as an increase to Cash and a decrease
to an Expense.
26. If the fundamental accounting equation, assets are added to liabilities.
27. The liability created when supplies are bought on accounts is called an account payable.
28. Capital represents the owner‘s investment, or equity, in a business.
29. Every transaction is recorded in terms of increases and/or decreases in two or more
accounts.
30. In a partnership, an owner‘s equity account exists for each partner.
31. The basic summary device of accounting is the accounting equation.
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Name:
Section:
Score:
Professor:
Fill in the Blanks
a.
The four phases of accounting are
(3)
(1)
, and
,
(4)
.
b.
Increases in the capital account
(5)
c.
Increase in income accounts are
(6)
d.
Increases in expense accounts are
(7)
e.
The difference between assets and liabilities is
(8)
f.
Financial events that occur in a business termed
(9)
g.
An investment (by the owner) in the business increases
(11)
(2)
.
.
.
.
.
(10)
and
.
h.
To acquire something ―on account‖ is to create a
i.
The transaction description ―paid on account‖ means a reduction of the asset
(13)
(12)
and reduction of the liability
(14)
j.
Income increases net assets and also
k.
A withdrawal of cash for owner‘s personal use reduces cash and
(16)
l.
(15)
.
.
.
The left side of the accounts is known as the
right side is the
.
(18)
m.
Increases in asset accounts are
n.
Increases in liability accounts are
(17)
, whereas the
.
(19)
(20)
.
.
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Name:
Section:
Score:
Professor:
Multiple Choice
1. The insurance of a note by entity for services received should be recorded as
a. an unearned revenue.
b. a notes payable.
c. a prepaid expenses.
d. an accounting Receivable.
2. Which of the following is an intangible asset?
a. Trademarks
b. Copyrights
c. patents
d. All of the above
3. The expectation of a future payment for a customer for goods sold is
a. a prepaid expense.
b. a notes receivable.
c. an accounts receivable.
d. all of the above.
4. When an entity receives cash for service performed,
a. an asset is decreased.
b. the owner‘s equality is increased.
c. the owner‘s equality is decrease.
d. Total assets remain unchanged
e. none of the above.
5. The accounting equation
a. is used to determine the amount of liabilities owed.
b. is used to determine the amount of income earned during the period.
c. shows the claims on the entity‘s assets by both the creditors and owner.
d. shows the claims on the owner‘s equity by the creditors.
6. When an entity pays employees for their services, the effect is an increase in
a. expense.
b. assets.
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c. income.
d. liabilities.
7. A current asset which includes coins, currencies and bank deposits is called
a. cash equivalents.
b. notes receivable.
c. accounts receivable
d. cash
8. All of the following affect the owner‘s equity account except
a. original investment.
b. payment of the liability.
c. additional investment.
d. investments, withdrawal profit.
9. The components of the balance sheet equation are
a. assets, income and owner‘s equity.
b. income, expenses and profit.
c. assets, liabilities and owner‘s equity.
d. investments, withdrawals and profit.
10. In accounting equation, an increase in asset can be associated with
a. an increased in liability.
b. a decrease in owner‘s equity.
c. decreased in liability.
d. an increased in another asset.
11. Decreased and asset may
a. decreased another asset.
b. decreased liability.
c. income capital.
d. increase liabilities.
12. When a business entity receives payment before delivering goods, the unearned revenues
is
a. debited.
b. debited and credited.
c. credited.
d. not affected.
13. This account records long-term debt of the business entity for which is has pledged certain
assets as security.
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a.
b.
c.
d.
mortgage payable
bonds payable
notes payable
accounts payable
14. If an owner invests her laptop computer and printer in the business, there is an increase to
a.
b.
c.
d.
Cash and Capital.
Computer Equipment and Withdrawals.
Cash and Withdrawals.
Computer Equipment and Capital.
15. Which of the following is correct?
a.
b.
c.
d.
Assets
liabilities
Capital
P7,850
P8,200
P9,550
P5,420
P1,250
P2,800
P1150
P6,540
P6,600
P11,000
P8,200
P1,120
16. Which is false concerning the rules of debit and credit?
a. The life side of an account is always the debit side and the right side is always the credit
side.
b. The word ―debit‖ means to increase and the word ―credit‖ means to decrease.
c. Increases in assets and expenses are debit entries, and increase the liabilities; equality and
revenue are credit entries.
d. The normal balance of any account appears on the side for recording increases.
17. The following can be found in an income statement except
a.
b.
c.
d.
income.
assets.
expenses.
profit or loss.
18. Withdrawals by the proprietor has all of the following effects except
a.
b.
c.
d.
reduction of total assets.
reduction of owner‘s equity.
reduction of profit for the period.
reduction of cash balance.
19. Which of the following is not subject to depreciation?
a. building
b. land
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c. equipment
d. machinery
20. Which of the following statement is correct?
a.
b.
c.
d.
To record an increase in any given asset account, that account must be debited.
To record a decrease in capital, the capital account must be credited.
To record an increase in any given liability account that account must be debited.
To record a decrease in any given liability account that account must be credited.
21. Recording a single transaction in the double-entry accounting records may
a. Increase the balance on an asset account by a given amount and decrease the balance on a
liability account by the same amount.
b. Decrease the balance on a liability account by a given amount and decrease the balance on
an asset account by the same amount.
c. Increase the balance on an asset account by a given amount and increase the balance on
another asset account by the same amount.
d. Decrease the balance on an asset account by a given amount and increase the balance on a
liability account by the same amount.
22. The purchase of an asset on account will
a.
b.
c.
d.
e.
increase total liabilities and decrease total assets.
have no effect on total assets or total liabilities.
increase total assets and increase total liabilities.
increase total assets and increase owner‘s equity.
increase total assets and decrease owner‘s equity.
23. Amounts owed by a business are referred to as
a.
b.
c.
d.
e.
assets.
equities.
liabilities.
capital.
expenses.
24. Expenses can be defined as
a. increases in owner‘s equity.
b. decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrences of liabilities that result in decreases in equity.
c. decreases in owner‘s equity.
d. inflows of asset from delivering or producing goods or rendering services.
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25. Inventories are assets which are
a. held for sale in the ordinary course of business.
b. in the process of production for such sale.
c. in the form of materials or supplies to be consumed in the production process or in the
rendering of services.
d. all of the above
26. Obligations which are expected to be liquidated through the use of existing current assets or
the creation of other current liabilities are called
a.
b.
c.
d.
current assets.
current liabilities.
long-term liabilities.
unearned revenue.
27. The future economic benefits embodied in an asset may flow to the enterprise in a number of
ways. Which is the exception?
a. An asset may be used singly or in combination with other assets in the production of
goods or services to be sold by the enterprise.
b. An asset may be exchanged for other assets.
c. An asset may be distributed to the owners of the enterprise.
d. An asset may be used to convert an obligation to equity.
28. The owner of a business invested P50,000 in the business. What are the effects on the
fundamental accounting equation?
a.
b.
c.
d.
e.
Assets increase P50,000; liabilities, no effect; owner‘s equity increases P50,000
Assets increase P50,000; liabilities decrease P50,000; owner‘s equity increases P50,000
Assets increase P50,000; liabilities increase P50,000; owner‘s equity no effect
Assets increase P50,000; liabilities, no effect; owner‘s equity decreases P50,000
Assets decrease P50,000; liabilities, no effect; owner‘s equity increases P50,000
29. The purchase of an asset for cash will
a.
b.
c.
d.
e.
increase total assets and decrease total liabilities.
have no effect on total assets or total liabilities.
increase total assets and increase total liabilities.
increase total assets and increase owner‘s equity.
increase total assets and decrease owner‘s equity.
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30. When the proprietor withdraws cash or other assets, the withdrawal account is
a.
b.
c.
d.
debited.
credited.
debited and credited.
no effect.
31. Which of the following is a liability of a firm?
a.
b.
c.
d.
A building owned by the firm.
Cash in the firm‘s safe.
Money which the firm has borrowed and has not yet repaid.
Money owed to the firm bi its debtors.
32. In recording transactions,
a.
b.
c.
d.
Assets, expenses, and drawing accounts are debited for increases.
The word ―debit‖ means increase and the word ―credit‖ means decrease.
Liabilities, revenue, and drawing accounts are debited for increases.
Assets, expenses, and capital accounts are debited for increases.
33. The company collected in full an account receivable. Considering this transaction alone,
a.
b.
c.
d.
Total assets will remain the same.
Total assets will increase.
Total assets will decrease.
Equity will increase.
34. Debits
a.
b.
c.
d.
Increase assets and decrease expenses, liabilities, revenue and owner‘s equity.
Increase assets and owner‘s equity and decrease liabilities, expenses, and revenue.
Increase assets and expenses and decrease liabilities, revenue and owner‘s equity.
Decrease assets and expenses and increase liabilities, revenue and owner‘s equity.
35. A business received P6,000 cash from charge customers to apply on account. The effect of the
transaction is
a.
b.
c.
d.
e.
an increase in an asset and an increase in revenue.
an increase in an asset and a decrease in capital.
an increase in an asset and a decrease in a liability.
an increase in an asset and a decrease in an asset.
an increase in an asset and an increase in capital.
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36. Which of the following is a form of Revenue?
a.
b.
c.
d.
e.
A check paying mortgage
A credit purchase invoice
Credit sales to charge customers
A cash purchase invoice
A check paying utilities
37. Settlement of a present obligation may occur in a number of ways, for example, by:
a.
b.
c.
d.
e.
f.
Payment of cash.
Transfer to the other assets.
Provision of services.
Replacement of that obligation with other obligation.
Conversion of the obligation to equity.
All of the above.
38. Which of the following transactions does not include an increase to expenses?
a.
b.
c.
d.
e.
Received and paid the phone bill.
Bought office supplies on account.
Received cash for services performed.
Paid the week‘s salaries.
Bought medical supplies for cash.
39. Over a period of time, if total assets increase by P270,000 and total liabilities increase by
P70,000, then owner‘s equity will be increased by
a.
b.
c.
d.
P70,000.
P340,000.
P270,000.
P200,000.
40. When the rent for the business is paid with a check,
a.
b.
c.
d.
e.
Cash is decreased and Rent Expense is decreased.
Cash is decreased and Rent income is increased.
Cash is decreased and Rent Expense is increased.
Cash is decreased and Accounts Payable is decreased.
Cash is increased and Rent Expense is decreased.
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Name:
Section:
Score:
Professor:
Problem #1A
Elements of Financial Statements
a.
b.
c.
d.
e.
Asset
Liabilities
Owner‘s Equity
760,000
860,000
?
626,600
?
360,000
?
108,000
376,240
800,000
?
529,000
760,000
?
(100,000)
Required: Fill in the amount of the missing element of financial position.
Problem #1B
a.
b.
c.
d.
e.
Jimmy Delgado Pest Control has assets P600, 000 and owner‘s equity of P450, 000.
Margie Clavano Realtors has liabilities of P350, 000 and owner‘s equity of P410, 000.
Marko Fuentes Plumbing Contractor has assets of P473, 000 and liabilities of P153, 700.
Ryan Morales Acting studio has liabilities of P147, 000 and owner‘s equity of P236, 500.
Fely Monarca Dance has assets of P624, 000 and liabilities of P237, 000.
Required: Compute the amount of the missing element of financial position.
Problem #1C
a. At the beginning of the year, the assets of Cleofe Arib Services where P360, 000 and its
owner‘s equity was P200, 000. During the year, assets increased by P120, 000 and
liabilities increased by P20, 000. What was the owner‘s equity at the end of the year?
b. At the beginning of the year, Cora Gabayan calling station had liabilities of P100, 000 and
owner‘s equity of P96, 000. If assets increased by P40, 000 and liabilities decreased by
P30, 000, what was the owner‘s equity at the end of the year?
c. The liabilities of Lenore Loqueloque Company equal Company one third of the total
assets, and the owner‘s equity is P240, 000. What is the amount of the liabilities?
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Name:
Section:
Score:
Professor:
Problem#2A
Income and Expenses
Income
a.
b.
c.
d.
e.
840,000
2,400,000
1,300,000
?
?
Expense
Profit
(Loss)
?
?
860,000
2,000,000
1,800,000
360,000
540,000
?
720,000
(400,000)
Required: Supply the missing element of performance.
Problem #2B
a.
b.
c.
d.
e.
A small accounting firm has income of P325, 000 and expenses of P237, 000.
An advertising agency has expenses of P163, 000 and profit of P42, 000.
A computer-training outfit has expenses of P156, 000 and loss of P27, 500.
A medical practitioner has income of P737, 000 and profit of P168, 000.
An environment consultant has income of P362, 000 and loss of P20, 000.
Required: In cash of the preceding five situation, determine the amount of the missing element of
performance.
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Section:
Professor:
Problem #3
Transaction Effects on the Basic Accounting Model
The following are some transaction of Juanita Pineda Laundry Service:
A
L
OW
a. Received cash as additional investment.
b. Purchased supplies on account.
c. Charge customers for services made on account.
d. Rendered services to cash customers.
e. Paid cash for event on building.
f. Collected on account receivable in full.
g. Paid cash for supplies.
h. Returned supplies purchased on account.
i. Paid cash to settle accounts.
j. Paid cash to owner for personal use.
Required:
For each transaction, indicate whether the assets (A), liabilities (L) or owner‘s equity (OE)
increased (+), decreased (-) or did not change (0) by placing the appropriate sign in the
appropriate column.
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Name:
Section:
Score:
Professor:
Problem #4
Transaction Effects on the Basic Accounting Model
Transaction
A
a.
Bought equipment, paying cash.
b.
Paid the monthly rent expense.
c.
Purchased supplies on credit.
d.
Made an additional investment in the company.
e.
Changed customers for services provided on account.
f.
Paid creditor on account.
g.
Received payment from customers on account
h.
Received cash for services rendered today.
i.
Permanently reduced his investment in the business by taking
out cash.
j.
Paid salaries for the week.
k.
Acquired equipment, paying 50 % down, the balance due in
30 days.
L
OE
Required:
For each transaction, indicate whether the assets (A), liabilities (L) or owner‘s equity (OE)
increased (+), decreased (-) or did not change (0) by placing the appropriate sign in the
appropriate column.
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Name:
Section:
Score:
Professor:
Problem #5
Transaction in a Completed Worksheet
Asuncion Alcala, to be able to guide the accountancy students in their pursuits for CPA glory,
established the AA Tutorial Services. On May 1, 2010, she contributed P70,000 as investment to
start the business. During the month, she entered into several transactions. Note that she made no
withdrawals during the month. The following is the transaction worksheet prepared by her
student-assistant:
Cash
1.
2.
3.
4.
5.
6.
7.
8.
9.
+
Accounts
Receivable
+70,000
-45,000
Office
+ Equipment
=
Accounts
Payable
+
Notes
Payable
Alcala,
Capital
+70,000
+45,000
+30,000
+10,000
+20,000
+18,000
-5,000
+7,000
-10,000
+15,000
-7,000
+
+18,000
-5,000
+7,000
-10,000
-15,000
-7,000
Required:
1.
Describe each of the above transactions.
2.
If the transactions represent the operations of AA Tutorial Services during the month of
May, what was the amount of profit or loss before depreciation?
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Problem # 6
Owner’s Equity Transactions
a. Received cash for rendering services.
b. Withdrew cash for personal expenses.
c. Received cash from a customer who have been rendered service on account.
d. Transferred personal assets to the business.
e. Paid a service station for a gasoline for a business service vehicle.
f. Performed a service and received a promise of payment.
g. Paid cash to acquire equipment.
h. Paid cash to an employee for service rendered.
Required:
Identify the foregoing transactions by identifying each as either one of the following: owner‘s
investment (OL), owner‘s withdrawal (OW), income (I), expense (E) or not an owner‘s equity
transaction (NO).
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Name:
Section:
Score:
Professor:
Problem #7
Classification Event
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Received cash investment from the owner.
Paid cash on accounts payable.
Collected the cash from accounts receivable.
Made cash distribution to the owner.
Paid cash for rent expense.
Invested cash in time deposit.
Purchased land with cash.
Performed services for clients on account.
Incurred operating expense on account.
Performed service for cash.
Required:
Indicate whether each of the above transaction is a source of assets (SA), used of assets (UA),
exchange of assets (EA), or exchange of claims (EC) transaction.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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Name:
Section:
Score:
Professor:
Problem #8
Classification of Events as to Source, Use or Exchange of Assets
Selected transitions:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
Set-up a salon business with cash investments from owner.
Hired an experienced salon general manager and five all-around salons staff.
Paid rent deposit and advance rent on the Dasmarinas, Cavite Salon space.
Received cash proceeds of clean loan from the bank of the Philippines Islands.
Finalized plans with the architect for the salon physical set-up and renovations.
Paid for 50% of the renovation costs.
Bought salon equipment with cash.
Renovations completed. Balance payable within 30 days from actual completion.
Purchased salon supplies with cash.
Provided services for cash.
Owner withdraw cash for personal use.
Paid for operating expenses.
Bought a commercial condominium near Paseo de Sta. Rosa for future expansion; 30% cash
down, balance on bank loan.
n. Received cash for services that have been performed.
o. Paid part of the clean loan.
Required:
Identify each of the above unrelated events as a source, use or exchange of asset transaction.
Some events may not be recordable under current accounting practice. In this case, classify as not
applicable (n/a). Also for each event. Indicate whether total assets increase, decrease or remain
unchanged.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Type of Event
Effect on Total Assets
Source of Assets
Increase
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
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m.
n.
o.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem # 9
Classification of Events as to Source, Use or Exchange of Assets
Transactions:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
Established a CPA firm with cash contribution from owner.
Received cash proceeds of loan from the ABN Amro bank.
Purchased supplies with cash.
Made plans to purchase office equipment.
Traded a used car for a computer system. Both assets had identical values.
Used supplies in the process of rendering services to customers.
Agreed to represent a client in a BIR audit.
Received cash from customers who had received services.
Paid employees‘ salaries with cash.
Repaid a bank loan with cash.
Transferred cash from its current account to a money market amount.
Sold land for P600, 000 cash. The land originally cost P600, 000.
Distributed cash to the owner.
Required:
Identify each of the above unrelated events as a source, use or exchange of assets transaction.
Some events may not be recordable under current accounting practice. In this case, classify the
events as not applicable (n/a). Also for each event, indicate whether total assets will increase,
decrease or remain unchanged. The first event has been recorded in the table as an example.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Type of Event
Source of Assets
Effect on Total Assets
Increase
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Name:
Section:
Score:
Professor:
m.
Problem # 10
Transactions that Affect the Elements of Financial Statements
a.
Decrease an asset and decrease owner‘s equity (use of assets event).
b.
Increase a liability and decrease owner‘s equity (exchange of claims event).
c.
Increase an asset and increase owner‘s equity (source of assets event).
d.
Decrease a liability and increase owner‘s equity (exchange of claims event).
e.
Increase an asset and decrease another asset (exchange of assets event).
f.
Increase an asset and increase a liability (source of assets event).
g.
Decrease an asset and decreased a liability (use of assets event).
Required:
Be able to give an example of a transaction for each of the above:
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #11
Financial Transaction Worksheet
The assetgs, liabilities and owner‘s equity of Deogracia Corpuz cooperates a repair shop are
expressed in equation form below. Corpuz completed the following transactions:
Assets
Cash + Supplies
Liabilities
=
Accounts Payable
OE
+ Corpuz,
Capital
1. Organized a repair shop and deposited
P500,000 cash in the bankfor use by
(1)
the business.
Bal.
2. Purchased P20,000 of supplies on
(2)
account.
Bal.
3. Purchased land for future
(3)
Repair site for P140,000 cash.
Bal.
4. Paid P28,000 to creditors.
(4)
Bal.
5. Withdraw P25,000 for personal use.
(5)
Bal.
6. Paid P28,000 for site and equipment
(6)
rent for the month.
Bal.
7. During the month, P10,000 expenses
(7)
Were incurred on account by the business.
Bal.
8. During the month, Corpuz invested
another P100,000 of personal funds
(8)
in the business.
Bal.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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9. Received P5,000 for a cash service call.
(9)
Bal.
10. Corpuz used P6,000 worth of supplies.
(10)
Bal.
Required:
On each of the numbered lines, show by addition or subtraction the effect of each of the
transactions on the equation. For each transaction, identify the changes in owner‘s equity by
placing the letter I (Income), E (Expense), W (Withdrawal), or INV (Investment) at the right of
each increase or decrease in owner‘s equity. On the lines labeled ‖Bal.‖ (i.e. Balance) show the
new equation resulting from the transaction.
Problem #12
Transactions in a Completed worksheet
Nine transactions a reflected in the October transaction worksheet of the Teresita Galang
Company presented below:
Teresita Galang Company
Financial Transaction Worksheet
Month of October 2010
A
Cash
+
Accounts
=
+
Receivable
Bal.
P15,000
P17,000
1
7,000
(17,000)
2
(5,000)
Supplies
+ Office
Accounts
Equipment
P4,500
P153,000
=
P
+
OE
Galang,
Capital
60,000
P130,000
=
5,000
=
25,000
4
+
Payable
3
24,500
=
25,000
=
5
6
=
L
(6,500)
7
3,700
24,500
=
16,000
=
(6,500)
=
(3,700)
(16,000)
8
(2,500)
=
(2,500)
9
(5,000)
=
(5,000)
P3,000
+
35,000
+
13,000
+
P178,000 =
P98,200
P229,200 =
P229,200
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
+ P131,000
Page 50 of 70
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Required:
1.
Describe each of the above transactions. The last transaction is the only transaction
affecting the capital account that does not affect profit.
2.
What was the change in the Cash account for the month? In Galang, Capital?
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #13
Recording Transactions in a Financial Transaction Worksheet
Design your own financial transaction worksheet and indicate the effect of each transaction
bellow using the balance sheet equation. After each transaction is properly recorded, compute
new subtotals for the Assets, Liabilties and Owner‘s Equity.
Owner‘s
Transaction
Assets
Example (below)
Subtotal
Example:
=
Liabilities
P+5,000,000 =
5,000,000
=
Equity
P+5,000,000
5,000,000
owner invested P5,000,000 cash in a new business.
a. Acquired for P4,000,000 cash a commercial area to be used as business space.
b. Received P100,000 for services still to be rendered next month.
c. Paid P7,500 to an advertising agency for a newspaper ad.
d. Purchased P30,000 for supplies inventory on account.
e. Paid P12,000 to the supplier for inventory purchased in (d) and gave a note for the remaining
P18,000.
f. Loaned P35,000 to the owner and accepted his 45-day note.
g. Bought P5,000 of supplies for cash.
i. Then company agreed to buy two services vehicles six months from now for P600,000.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #14
Recording Transaction in a Financial Transaction Worksheet
Rochelle Ramirez is the owner of the Olongapo Repairs Specialist. On Jan, 1, 2010, the assets,
liabilities and proprietors capital of the business were: Cash, P25,000; Accounts Receivable,
P4,000; Supplies, P5,000; Equipment, P60,000; Accounts Payable, P90,000; Ramirez, Capital,
P85,000. The transaction for the month of January were as follows:
Accounts
Cash
+
Receivable
+
Supplies
+
P25,000
+
P4,000
+
P5,000
+
Accounts
Ramirez,
=
Payable
Capital
P60,000 =
P9,000
Equipment
Jan.1
Balance
+
P85,000
a.
b.
c.
d.
e.
f.
g.
h.
i.
a. Paid P3,000 of the outsatanding accounts payable.
b. Received P1,000 on accoumt (part payment) for customers.
c. Purchased P2,500 worth of supplies on account.
d. Returned detctive piece of equipment that was purchased last mont and received a cash refund
of P12,000.
e. Barrowed P10,000 from supplier, to repay the loan in 30 days.
f. Paid creditor P2,000 on account (part payment).
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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g. Purchased equipment for P10,000, giving P2,000 cash and promissing to pay the balance in 60
days.
h. Bought supplies, paying P1,650 cash.
i. Received a P2,500 check from customer on account
Required:
Record the transactions using a financial transaction worksheet.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #15
Recording Trasaction in a Financial Transaction Worksheet
Emerita Modesto established her own business called Modesto‘s Self-Storage. The account
headings are presented below. Transaction completed during the month following.
Assets
=
Cash + Accounts Received + Prepaid Insurace + Office Equiment
Liabilities
Accounts Payable
+
Owner‘s Equity
=
Modesto, Capital + Revenio - Expenses
a. Deposited P120,000 in a bank account in the name of the business.
b. Bought office equipment on account from PHINMA Company, P31,000.
c. Paid rent for the month, P24,000.
d. Bought supplies for cash, P4,500.
e. Paid salaries, P9,800.
f. Received cash for storage services, P36,000.
g. Received and paid the utility bill, P2,520.
h. Paid Errol Umerez Graphics for advertising, P4,280. (The bii was not previously recorded.)
i. Paid for a one-year liability insurance policy, P8,350.
j. Billed customers for storage services on account, P33,700.
k. Received cash for storage services, P23,000.
l. Paid salaries, P9,000.
m. Paid PHINMA Company P11,000 as part payment on the office equipment bought in
transaction b.
n. Modesto withdrew P12,000 for parsonal use.
Required:
1.
Recorded the transactions in columnar form, write plus and minus signs, and show the
balance after each tansaction to be sure the equation remains in balance.
2.
Write the proof of totals at the bottom to show that one side of the equation equals to other
side.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #16
Recording Transactions in a Financial Transaction Worksheet
Nelson Daganta formed the Liceo Sign Company on Oct. 1, 2010. He deposited P250,000 in GE
Money Bank under the name of the new business entity. During the month of October 2010, the
following transactions occurred.
Oct. 2 Acquired a service vehicle in the amount of P195,000 on account.
3 Acquired supplies for cash, P57,000.
10 Paid the month‘s rate, P25,000.
11 Painted signs for Cagayan Company on account, P170,000.
12 Paid P55,000 on account from Oct. 2.
16 Withdrew P25,000 for personal use.
23 Collected P35,000 from Cagayan Company.
27 Paid salaries of P57,000 for the month.
30 Paid BayanTel P7,500 for communicate services for the month.
31 Paid a bill from AdAsia for P5,500 of advertising for the month.
Required:
Establish the following accounts in a financial transaction worksheet: Cash; Accounts Receivable;
Supplies; Service Vehicle; Accounts Payable; and Daganta, Capital. Record in the worksheet the
transactions listed above.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #17
Recording transactions in a Financial Transaction Worksheet
On Dec. 1, 2010, Lovell Abello ventured into a billiards recreation business, Balls and Sticks.
During the month, the following transactions occurred:
Dec. 1 Abello began the business by depositing P200,000 cash in a bank account in the
name of the business.
3 Purchased an existing billiard hall at a price of P210,000 for the land and P300,000
for the building. Abello paid the former owner P100,000 in a cash and issued a
short-term notes payable for the balance of the purchase price.
10 Bought a billiard tables for P10,000 each, paying P60,000 cash and agreeing to pay
the balance in 30 days.
14 Sold a billiard table to the owner for P10,000. The entity was paid P5,000 cash and
the balance within 30 days.
20 Paid P20,000 of the amount owed on the billiard boards.
24 Collected P2,000 on the billiard table sold.
30 Purchased one use of billiard table from another billiard hall, paying P6,000 cash.
Required:
Record transactions for the month of Dec. 2010 using a financial transaction worksheet. Indicate
the new account balances after each transaction. Use the following accounts: Cash; Accounts
Receivable; Land; Building; Billiard Tables; Notes Payable; Accounts Payable; and Abelo,
Capital.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #18
Recording Transactions in a Financial Transaction Worksheet
On June 1, 2010 Christine Charity Resultay, Optometrist, established the Resultay Eye Clinic.
Transactions completed during the month are as follows.
a.. Resultary deposited P200,000 in a bank account in the name of the business.
b.. Paid office rent for the month, P8,400.
c.. Bought supplies for cash, P7,750.
d.. Bought office equipment on account from Dagupan Equipment, P91,800.
e.. Bought a computer from Del Rosario Office Outfitters, P18,400, paying P6,000 in cash and the
balance on account.
f.. Performed professional services for cash, P24,210.
g.. Paid accounts to Del Rosario Office Outfitters, P9,000.
h.. Received and paid the bill for utilities, P2,430.
i.. Paid salaries of the part-time assistants, P9,000.
j.. Performed professional services for cash, P25,150.
k.. Resultary withdrew cash for personal use, P12,500.
Required:
Record the transactions for the month of June 2010 using a financial transaction worksheet. Use
the following accounts: Cash; Accounts Receivable; Office Equipment; Accounts Payable; and
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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Resultary, Capital. If the owner‘s equity account is affected by atransaction. Identify it as revenue,
investment or withdrawal.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #19
Recording Transactions in a Financial Transaction Worksheet
Alevir Pido, a veteran photographer, opened a studio for her professional practice on July 1.
Transactions completed during the month follow.
a.. Deposited P146,200 in a bank account in the name of the business , Pido PhotoProfiles.
b.. Bought a new photography equipment on account from Canon Equipment P71,210.
c.. Invested personal photography equipment into the business, P51,620.
d.. Paid office rent for the month, P5,500.
e.. Bought photography supplies for cash , P7,960.
f.. Paid premium for insurance cover on photography equipment, P1,240.
g.. Received P8,960 as professional fees for services rendered.
h.. Paid salary of part-time assistant, P6,000.
i.. Receive d and paid bill for a telephone service, P640.
j.. Paid Canon Equipment part of the amount owed on the purchase of photography equipment
P4,200.
k.. Receives P15,480 as a professional fees for services rendered.
l. Paid for mirror repairs to photography equipment, P760.
m. Pido withdrew cash for Personal use, P9,6000
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
Page 57 of 70
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Required:
Record the transaction for the month of July 2010using a financial transaction worksheet. Use the
following account; Cash; Accounts Receivable; Supplies; Prepaid Insurance; Photography
Equipment; Accounts Payable ; and Pido, Capital. If the owner‘s equity account is affected by a
transactions, identify it as revenue, expenses, investment withdrawal.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #20
Recording Transaction in a Financial Transaction Worksheet
On July 1, 2010, Marbelt Del Rosario established the Del Rosario Rehab Clinic. Transactions
completed during the month of July follow:
a. Del Rosario deposited P150,000 in a bank account in the name of the business.
b. Paid office rent for the month, P11,000.
c. Bought supplies for cash, P2,750.
d. Bought professional equipment on account from Pitular Equipment Company, P142,000.
e. Bought office equipment from Alfonso Computers, P18,700, paying P8,700 in cash and the
balance on account.
f. Performed professional services for cash, P32,800.
g. Paid accounts to Alfonso Computer, P5,000.
h. Received and paid the bill for utilities P2,830.
i. Paid salaries of the part-time assistants, P10,000.
j. Performed professional service for cash, P37,250.
k. Del Rosario withdrew cash for personal use, P16,000.
Required:
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
Page 58 of 70
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Record the transactions for the month of July 2010 using a financial transaction worksheet. Use
the following accounts; Cash; Accounts Receivable; Professional Equipment; Accounts Payable;
and Del Rosario, Capital. If the owner‘s equity account is affected by a transaction, identify it as
revenue, expense, investment or withdrawal.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #21
Recording Transactions in a Financial Worksheet
Felipe Opiso started Opiso Industrial Spray Service on Apr. 1, 2010. During April, Opiso
completed the following transactions.
a. Invested cash in the business, P60,000.
b. Bought a service vehicle from Lacson Motors for P112,500, paying P22,500 in cash, with the
remainder due in thirty days.
c. Bought spray equipment on account from Giron Company, P18,000.
d. Paid rent for the month, P5,600.
e. Paid cash for insurance on service vehicle for the, P5,760.
f. Receive cash for spray service done on a building, P21,750.
g. Bought supplies for cash, P5,730.
h. Billed customers on account for services performed, P4,440.
i. Paid cash for utilities, P960.
j. Received bill for gasoline used b the service vehicle during the month, P3,270.
k. Receipts from cash customers, P16,420.
l. Opiso withdrew cash for personal use, P10,500.
m. Paid salaries to employees, P20,400.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
Page 59 of 70
lOMoARcPSD|29458329
Required:
Record the transactions for the month of April 2010 using a financial transaction worksheet. Use
the following accounts: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Spray
Equipment; Service Vehicle; Accounts Payable; and Opirso Capital. If the owner‘s equity account
is affected by a transaction, identify it as revenue, expense, investment or withdrawal.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #22
Recording Transactions in a financial Transaction Worksheet
Elizabeth Salvador, a graphic artist, opened a studio for her professional practice on Aug. 1, 2010.
Transactions completed during the month follow:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
Salvador deposited P155,000 in a bank account in the name of the business.
Bought office equipment on account from Mandaluyong Equipment Company, P41,200.
Salvador invested personal photographic equipment, P62,600.
Paid rent for the month, P5,000.
Bought supplies for cash, P3,450.
Acquired insurance for two years, P8,200.
Received cash P29,850 for graphic services rendered.
Paid salaries of the part-time assistants, P5,000.
Received and paid the bill for the telephone service, P730.
Paid cash for minor repairs to graphics equipment, P860.
Performed graphic services for cash, P29,360.
Paid accounts to Mandaluyong Equipment Company, P5,200.
Salvador withdrew cash for personal use, P10,000.
Required:
Record the transaction for the month of August 2010 using a financial transaction worksheet. Use
the following accounts: Cash; Accounts Receivable; Prepaid Insurance; Photo Equipment; Office
Equipment; Accounts Payable; and Salvador, Capital. If the owner‘s equity account is affected by
a transaction, identify it as revenue, expense, investment or withdrawal.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #23
Recording Transactions in a financial Transaction Worksheet
On Mar. 1, 2010, Carolina Baloran established Baloran Catering Service. Transactions completed
during the month are as follows:
a. Baloran deposited P165,000 in a bank account in the name of the business.
b. Bought a service vehicle from A. Go Motors for P194,900, paying P25,000 in cash and
placing the balance on account.
c. Bought catering equipment on account from Liboro Company, P28,500.
d. Paid rent for the month, P6,200.
e. Rendered catering services for cash for the first half of the month, P24,200.
f. Bought supplies for cash, P1,800.
g. Bought insurance for the service vehicle for one year, P4,000.
h. Received and paid the utilities bill, P6,040.
i. Received a bill from Puerto Gas for gas and oil used by the service vehicle for the month,
P6,080.
j. Rendered catering services on account, P28,240.
k. Performed catering services for cash for the remainder of the month, P25,200.
l. Paid salaries of the part-time assistants, P11,200.
m. Baloran withdrew cash for personal use, P15,500.
Required:
Record the transactions for the month of March 2010 using a financial transaction worksheet. Use
the following accounts: Cash; Accounts Receivable; Prepaid Insurance; Service Vehicle;
Equipment; Accounts Payable; and Baloran, Capital. If the owner‘s equity account is affected by
a transaction, identify it as revenue, expense, investment or withdrawal.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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lOMoARcPSD|29458329
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #24
Effect of Transactions on the Accounting Equation
Liwayway Ables, after receiving her degree in computer science, started her own business, Bicol
Technology. She completed the following transactions during the month:
May 2 Deposited P90,000 in the bank and contributed a systems library
valued at P39,000 to start the business.
3 Paid office rent for the month of, P3,600.
9 Acquired computer equipment for cash, P70,000.
10 Purchased computer supplies on credit, P6,000.
11 Received payment from client for programming done, P28,000.
12 Billed a client on completion of a programming project, P7,100.
16 Paid salaries, P8,000.
23 Received a partial payment from the client billed on May 12, P6,100.
27 Withdrew P2,500 for personal expenses.
30 Made a partial payment on the supplies purchased, P3,000.
Required:
1.
Establish the following accounts in a financial transaction worksheet: Cash; Accounts
Receivable; Computer Supplies: Computer Equipment; Systems Library; Accounts
Payable; and Ables, Capital.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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2.
Record in the worksheet the transactions listed above. Be able to identify each owner‘s
equity transaction by type.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #25
Entering Initial Balances and Recording Transactions.
Presented below is the balance sheet for the Leopoldo Medina Nursing Home:
Leopoldo Medina Nursing Home
Balance Sheet
Dec. 31, 2010
Assets
Cash
Accounts Receivable
Supplies
Land
Nursing Home
Nursing Equipment
Total Assets
Liabilities and Owner‘s Equity
Liabilities
Notes Payable
Accounts Payable
Total Liabilities
Owner‘s Equity
Medina, Capital
Total Liabilities and Owner‘s
P16,000
165,000
21,000
90,000
350,000
160,000
P802, 000
P350,000
47,000
P397,000
405,000
P802,000
During the month of January 2011, the following transactions took place:
Jan. 2 Acquired supplies on account, P17,500.
6 Collected P82,000 from patients for services provided in 2010.
10 Acquired nursing equipment on account, P35,000.
11 Billed patients P167,000 for nursing fees.
12 Paid P31,000 on accounts payable.
17 Paid nursing salaries, P24,000.
20 Paid utilities expense, P9,000.
25 Medina withdrew P10,000 from the business.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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27 Received a bill from the Ryan Morales Ad Company for P12,500 for adverting expense
incurred during the month.
31 Paid P15,000 of the notes payable.
Required:
1.
Enter the Dec. 31, 2010 balances in a financial transaction worksheet.
2.
Record the transactions for the month of January 2011.
NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #26
Recording Transactions in a Financial Transaction Worksheet
Joel Feliciano has started his own business, Property Appraisals. He inspects property for buyers
and sellers of real estate. Feliciano rents office space and has a part-time assistant to answer the
phone and to help with inspections. The transactions for the month of September are as follows:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
Feliciano invested cash by making a deposit in a bank account for the business, P150,000.
Paid rent for the month, P3,000.
Bought a second-hand service vehicle for cash, P80,000.
Bought service tools on account, P30,000.
Paid electricity bill, P500.
Paid a one-year insurance premium on the service vehicle, P6,000.
Received cash from clients for service performed, P20,000.
Paid salaries to assistant for first half of the month, P2,000.
Performed appraisal services for clients on account, P10,000.
Paid water bill, P350.
Bought office supplies for cash, P1,000.
Received cash from clients for inspections performed on account in (i), P3,000.
Paid salaries to assistant for last half of the month, P2,500.
Made partial payment on service tools bought in (d), P10,000.
Additional revenues earned amounted to P20,000: P14,000 for cash and P6,000 on
account.
p. Feliciano withdrew cash for personal expenses, P5,000.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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Required:
1.
Establish the following accounts in a financial transaction worksheet:
Cash
Accounts
Office Supplies
Prepaid Insurance
Service tools
Service Vehicle
2.
Compute the ending balances for all accounts.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #27
Transactions Analysis
Transactions:
a.
b.
c.
d.
e.
f.
g.
Received P260,000 cash from clients for services rendered.
Paid P480,000 of salaries to employees..
Collected P120,000 from clients on account.
The owner, Winston Apalisoc, withdrew P80,000 cash for personal use.
Purchased P140,000 of supplies on account.
Billed clients P180,000 for services rendered.
Paid P100,000 to suppliers on account.
For each of the transactions for Winston Apalisoc Company, a sole proprietorship, fill in the
spaces to answer the following questions:
1. What are the two accounts affected by the transaction?
2. What type of account is affected-asset, liability, owner‘s capital, owner‘s withdrawal,
income or expense account?
3. Should the account be increased or decreased?
4. Should the account be debited or credited?
5.
Accounts
Type of
Increase or
Debit or
Affected
Account
Decrease
Credit
a. 1.
2.
__________
__________
__________
__________
__________
__________
__________
__________
b. 1.
__________
__________
__________
__________
2.
__________
__________
__________
__________
c. 1.
__________
__________
__________
__________
2.
__________
__________
__________
__________
d. 1.
__________
__________
__________
__________
2.
__________
__________
__________
__________
e. 1.
__________
__________
__________
__________
2.
__________
__________
__________
__________
f. 1.
__________
__________
__________
__________
Trans.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
Downloaded by Keirstein Faith Remetir (remetirkeirstein@gmail.com)
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #28
Recording Transactions in T-Accounts
The accounts and transaction of Rosenda Huerto, Systems Consultant, are shown below:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
Invested P150,000 in cash to star the business.
Paid P7,500 for one month‘s rent.
Bought office furniture for P26,000 in cash.
Performed services for P10,500 in cash.
Performed services for P12,750 on credit.
Bought a desktop computer for P55,000; paid 50% down, balance in 30 days.
Acquired a personal copier for P39,500 on credit; paid P9,500 cash, balance due in 30
days.
Received P7,000 from credit clients.
Bought additional office chairs for P8,000 on credit.
Issued a check for P32,500 to pay for salaries.
Performed services for P10,250 in cash.
Performed services for P11,500 on credit.
Collected P6,000 on accounts receivable.
Issued s check for P4,000 in partial payment of the amount owed for office chairs.
Paid P2,250 for the monthly telephone bill.
Paid P2,250 for the monthly electric bill.
Huerto withdrew P10,000 in cash for personal expenses.
Required:
1.
With the aid of T-accounts, record the transactions listed above. Use the following
accounts: Cash; Accounts Receivable; Office Furniture; Office Equipment; Accounts
Payable; Huerto, Capital; Huerto, Withdrawals; Consulting Revenues, Salaries Expense;
Utilities Expense and Miscellaneous Expense.
2.
Determine the balance of the T-accounts.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #29
Recording Transactions in T-Accounts
Haydee Dabucol is an experienced events planner. The transactions and accounts for the business
are as follows:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
Invested P100,000 in cash to start her own business.
Paid P5,000 for one month‘s rent.
Bought office furniture for P15,000 in cash.
Received delivery of laptop computer, P54,000. Paid 50% down, balance due in 30 days.
Performed services for P12,000 in cash.
Performed services for P10,800 on credit.
Acquired a fax machine for P7,500; paid P3,000 in cash balance due in 10days.
Received P5,400 from clients on account.
Paid P10,000 for salaries.
Settled in full the P4,500 balance for the fax machine.
Received P7,000 in cash for services performed.
Performed services for P12, on credit.
Paid P1,350 for the monthly telephone bill.
Paid P2,400 for the electric and water bills.
Collected P2,400 from the clients on account.
Dabucol withdrew P7,000 in cash for personal expense.
Required:
1.
2.
With the aid of T-accounts, record the transactions listed above. Use the following accounts:
Cash; Accounts Receivable; Office Furniture; Office Equipment; Accounts Payable;
Dabucol, Capital; Dabucol, Withdrawals; Consulting Revenues; Salaries Expense; Rent
Expense; Utilities Expense and Miscellaneous Expense.
Determine the balances of the T-accounts.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #30
Recording Transactions in T-Accounts
Rebecca Miranda established a proprietorship, The Professional shoppers. The business charges a
fee based on the amount of research done to support a cost-effective purchase decision and the
actual shopping time required. Miranda with the help of her ―professional shoppers‖ will shop for
almost anything from corporate giveaways, computers to office and home furnishings.
Business is particularly heavy around Christmas and in early summer. The business operates from
a rented office condominium unit. The shoppers receive a commission based on the revenues they
produce and a transportation allowance for the use of their personal vehicles for shopping trips.
The following transactions are for December 2010:
a. Miranda invested P300,000 in the business.
b. Acquired office equipment for P100,000. Miranda paid P20,000 in cash and promised to
pay the balance equally every end of the month.
c. Paid rent for December, P5,000.
d. Provided shopping services for corporate accounts, P52,000.
e. Paid telephone bill, P9,000.
f. Borrowed cash from the bank by signing a note payable, P50,000.
g. Bought a computer for office use, P48,000 cash.
h. Collected cash from clients for services performed on account, P40,000.
i. Paid commissions to shoppers for revenues generated during the first half of the month,
P18,200.
j. Paid electricity bill, P6,000.
k. Earned shopping revenues of P132,000: P60,000 cash, P72,000 on account.
l. Paid shoppers‘ commissions for last half of month, P46,200.
m. Paid transportation allowances for the month, P15,000.
n. Paid P10,000 on note payable to bank.
o. Paid cash on account for the office equipment purchased in transportation (b), P20,000.
p. Miranda withdrew P20,000 for personal use.
Required:
1.
Record the transactions using T-accounts. Use the accounting equation as a guide for
setting up the T-accounts. The following accounts will be needed: Cash; Accounts
Receivable; Office Equipment; Notes Payable; Accounts Payable; Miranda, Capital;
Miranda, Withdrawals; Shopping Revenues; Commissions Expense; Transportation
Expense; Rent Expense and Utilities expense.
2.
Determine the balance of the T-accounts.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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NAME:
SECTION:
SCORE:
PROFESSOR:
Problem #31
Identification of errors
On Sept, 1, 2010, Helenita Ruiz established Ruiz Delivery Service. During the month, the
company had the following transactions:
a. Helenita Ruiz invested P240,000 in the business (increase Cash; increase Ruiz, Capital).
b. Bought two used delivery vans from The Van lot for P200,000 and paid P50,000 as a
down payment (increase Delivery Equipment, P200,000; decrease Cash, P50,000; increase
Accounts payable, 150,000).
c. Received P25,000 in cash for delivery services (increase Cash; increase Delivery
Revenues).
d. Received bill from Bicol News for advertising, P3,500 (increase Advertising Expense;
decrease Cash).
e. Billed Naga Surgical Supply for delivery services provided, P6,200 (increase Accounts
Receivable; increase Delivery Revenues).
f. Received and paid telephone bill, P1,000 (decrease Cash; decrease Telephone Expense).
g. Ruiz invested in his business office equipment having a fair market value of P9,600
(increase Office Equipment; decrease Cash).
h. Received and paid bill for gas and oil, P1,500 (decrease Cash; increase Maintenance
Expense).
i. Paid P3,500 to Bicol News to pay account in full (increase Advertising Expense; increase
Cash).
j. Received P29,000 cash for delivery services performed (increase Cash; increase Delivery
Revenues).
k. Ruiz withdrew P11,000 for personal use (decrease Cash; increase Salaries Expense).
l. Received P4,000 from Naga Surgical Supply to apply on account (increase Cash; increase
Delivery Revenues).
m. Paid salaries to part-time employee, P8,000 (increase Salaries Expense; decrease Cash).
Required:
Find six errors that were made in recording the transactions, and state how they should have
been recorded.
Source: Win Ballada and Susan Ballada CPA`s Suite 203KB Arizona Tower, Padre Campa St., Sampaloc Manila
Compiled by: Jason G. Ramirez
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