Acctg Midterm Exam PDF

MIDTERM EXAM Which of the following transactions does not include an Multiple Choice - 50% increase to expenses? Receive cash for services - situational per...

MIDTERM EXAM Which of the following transactions does not include an Multiple Choice - 50% increase to expenses? Receive cash for services - situational performed Computation - 50% When the rent for the business is paid with a check? Cash - actual amount of accounting titles is decreased and rent expense is increased - COLUMNAR SHEET Over a period of time, if total assets increase by 270,000 Which of the following is an asset of a firm? Computer and total liabilities increase by 70,000, then owner's equipment owned by the firm equity will be increased by? 200,000 Which of the following statements is correct? To record a When an owner deposits cash in an account in the name decrease in any given liability account that account of the business, it is an increase to? Cash and capital must be credited. Account owned by a business referred to as? Asset Which of the following equations is correct? Capital=Assets-Liabilities The following can be found in an income statement except? Asset Which of the following is a liability of a firm? Money which the firm has borrowed and has not yet prepaid Not subject to depreciation? Land Recording a single transaction in the double-entry Intangible assets? All accounting records may? Recording a single transaction in the double-entry accounting records In an accounting equation, an increase in assets can be may associated with? An increase in liability Which is false concerning the rules of debit and credit? A current asset which includes coins, currencies and bank The word "debit" means to increase and the word deposits is called? Cash "credit" means to decrease. The expectation of a future payment from a customer for The purchase of a service vehicle on account? Will goods sold? An accounts receivable increase assets and increase liabilities Inventories are assets which are? All In recording transactions? Asset, expenses, and drawings accounts are debited for increases When an entity pays employees for their services, the effect is an increase in? expenses The company collected in full an account receivable. Considering this transaction alone? Total assets will When the proprietor withdraws cash or other assets, the remain the same withdrawal accounts is? Debited The purchase of supplies for cash will? Increase supplies A credit entry decreases the balance of? Asset and decrease cash Computation: Which of the following equations is the fundamental accounting equation? Assets=Liabilities+Owner's Equity Assets 760,000; Liabilities 360,000; Owners Equity? 400000 If an owner invests her laptop computer and printer in Assets 860,000; Liabilities ?; Owners Equity 592,000 the business, there is an increase to? Computer 268000 Equipment and capital Assets ?; Liabilities 108,000; Owners Equity 760,000 868000 The purchase of an asset on account will? Increase total Assets 626,600; Liabilities 376,240; Owners Equity ? asset and increase total liabilities 250360 Assets ?; Liabilities 800,000; Owners Equity (100,000) A business received 6,000 cash from charge customers to 700000 apply on-account. The effect of the transaction is? An Income 840,000; Expenses?; Profit/(Loss) 360,000 increase in an asset and decrease in an asset. 480000 Income 2,400,000; Expenses?; Profit/(Loss) 540,000 The owner of a business invested 50,000 in the business. 1860000 What are the effects on the fundamental accounting Income 1,300,000; Expenses 860,000; Profit/(Loss) ? equation? Assets increase 50,000; liabilities, no effect; 440000 owner's equity increase 50,000. Income ?; Expenses 2,000,000; Profit/(Loss) 720,000 credit. This type of receivable offers less security than a 2720000 promissory note. Income ?; Expenses 1,800,000; Profit/(Loss) -400,000 1400000 Inventories. Per PAS No. 2, these are assets which are (a) held for sale in the ordinary course of business; (b) in the Real Accounts also called Balance Sheet Accounts or process of production for such sale; or (c) in the form of Permanent Accounts since they carry on to the next materials or supplies to be consumed in the production accounting Period. process or in the rendering of services. - Also called Statement of Financial Position or Financial Prepaid Expenses. These are expenses paid for by the Statements business in advance. It is an asset because the business avoids having to pay cash in the future for a specific - These accounts show the financial position of the expense. These include insurance and rent. These prepaid business which includes the Assets, Liabilities, and items represent future economic benefits-assets-until the Owner’s Equity or Capital. time these start to contribute to the earning process; - Total summary of accounting transactions these, then, become expenses. Nominal Accounts also called Income Statement Non-current Assets Accounts or Temporary accounts since they are only Property, Plant and Equipment. Per PAS No. 16, these applicable in their accounting period. are tangible assets that are held by an enterprise for use - These accounts show the financial performance of the in the production or supply of goods or services, or for business in the accounting year and include income, rental to others, or for administrative purposes and which expenses, and withdrawals of the business. are expected to be used during more than one period. Included are such items as land, building, machinery and - Statement of changes in owner’s equity equipment, furniture and fixtures, motor vehicles and equipment. - Profit and Loss Accumulated Depreciation. It is a contra account that Assets should be classified only into two: current assets contains the sum of the periodic depreciation charges. and noncurrent assets. Per Philippine Accounting The balance in this account is deducted from the cost of Standards (PAS) No. 1, assets are classified as current the related asset-equipment or buildings-to obtain book assets when it: value. a. is expected to be realized in, or is held for sale or Intangible Assets. Per PAS No. 38, these are identifiable, consumption in, the normal course of the enterprise's nonmonetary assets without physical substance held for operating cycle; or use in the production or supply of goods or services, for b. is held primarily for trading purposes or for the rental to others, or for administrative purposes. These short-term and expected to be realized within twelve include goodwill, patents, copyrights, licenses, franchises, months of the balance sheet date; or trademarks, brand names, secret processes, subscription lists and non-competition agreements. c. is cash or a cash equivalent asset which is not restricted in its use. Liabilities Current Assets Per PAS No. 1, a liability should be classified as a current liability when it: Cash is any medium of exchange that a bank will accept for deposit at face value. It includes coins, currency, - is expected to be settled in the normal course of the checks, money orders, bank deposits and drafts. enterprise's operating cycle; or Cash Equivalents. Per PAS No. 7, these are short-term, - b. is due to be settled within twelve months of the highly liquid investments that are readily convertible to balance sheet date. known amounts of cash and which are subject to an All other liabilities should be classified as non-current insignificant risk of changes in value. liabilities. Notes Receivable. A note receivable is a written pledge Current Liabilities that the customer will pay the business a fixed amount of money on a certain date. Accounts Payable. This account represents the reverse relationship of the accounts receivable. By accepting the Accounts Receivable. These are claims against customers arising from sale of services or goods on goods or services, the buyer agrees to pay for them in expenses. This account shows the profit or loss for the the near future. period before closing to the capital account. Notes Payable. A note payable is like a note receivable Income is the net increase in assets in a given but in a reverse sense. In the case of a note payable, the accounting period. It may be due to increases in assets business entity is the maker of the note; that is, the or decreases in liabilities. business entity is the party who promises to pay the Service Income. Revenues earned by performing other party a specified amount of money on a specified services for a customer or client; for example, accounting future date. services by a CPA firm, laundry services by a laundry Accrued Liabilities. Amounts owed to others for unpaid shop. expenses. This account includes salaries payable, utilities Sales. Revenues earned as a result of sale of payable, interest payable and taxes payable. merchandise; for example, sale of building materials by a Unearned Revenues. When the business entity receives construction supplies firm. payment before providing its customers with goods or Expenses on the other hand, are the costs of businesses services, the amounts received are recorded in the during their operations. These are decreases in assets or unearned revenue account (liability method). When the increases in liabilities. goods or services are provided to the customer, the unearned revenue is reduced and income is recognized. Cost of Sales. The cost incurred to purchase or to produce the products sold to customers during the Current Portion of Long-Term Debt. These are portions period; also called cost of goods sold. of mortgage notes, bonds and other long-term indebtedness which are to be paid within one year from Salaries or Wages Expense. Includes all payments as a the balance sheet date. result of an employer-employee relationship such as salaries or wages, 13th month pay, cost of living Non-current Liabilities allowances and other related benefits. Mortgage Payable. This account records long-term debt Telecommunications, Electricity, Fuel and Water of the business entity for which the business entity has Expenses. Expenses related to use of telecommunications pledged certain assets as security to the creditor. In the facilities, consumption of electricity, fuel and water. event that the debt payments are not made, the creditor can foreclose or cause the mortgaged asset to be sold to Rent Expense. Expense for space, equipment or other enable the entity to settle the claim. asset rentals. Bonds Payable. Business organizations often obtain Supplies Expense. Expense of using supplies (e.g. office substantial sums of money from lenders to finance the supplies) in the conduct of daily business. acquisition of equipment and other needed assets. They obtain these funds by issuing bonds. The bond is a Insurance Expense. Portion of premiums paid on contract between the issuer and the lender specifying the insurance coverage (e.g. on motor vehicle, health, life, terms of repayment and the interest to be charged. fire, typhoon or flood) which has expired. Owner’s Equity represents the residual interest of the Depreciation Expense. The portion of the cost of a owner in the entity’s assets. tangible asset (e.g. buildings and equipment) allocated or charged as expense during an accounting period. Capital. This account is used to record the original and additional investments of the owner of the business Uncollectible Accounts Expense. The amount of entity. It is increased by the amount of profit earned receivables estimated to be doubtful of collection and during the year or is decreased by a loss. Cash or other charged as expense during an accounting period. assets that the owner may withdraw from the business Interest Expense. An expense related to use of borrowed ultimately reduce it. This account title bears the name of funds. the owner. Accounting Equation Withdrawals. When the owner of a business entity withdraws cash or other assets, such are recorded in the The most basic tool of accounting is the accounting drawing or withdrawal account rather than directly equation. reducing the owner's equity account. This equation presents the resources controlled by the Income Summary. It is a temporary account used at the enterprise, the present obligations of the enterprise and end of the accounting period to close income and the residual interest in the assets. It states that assets must always equal liabilities and - DON’T FORGET TO DOUBLE ENTRY THE TOTAL ASSETS owner's equity. AND TOTAL OF LIAB+O.E 2. Journal Entries Note: Note that the assets are on the left side of the INCLUDES: equation opposite the liabilities and owner's equity. This - DATE explains why increases and decreases in assets are recorded in the opposite manner ("mirror image") as - ACCOUNT TITLES AND EXPLANATION liabilities and owner's equity are recorded. The equation also explains why liabilities and owner's equity follow the - “F” same rules of debit and credit. - DEBIT The Journal Entry - CREDIT The journal is a chronological record of the entity's 3. Statement of Financial Position transactions. EXAMPLE: A journal entry shows all the effects of a business transaction in terms of debits and credits. The general journal is the simplest journal. - ALWAYS SUBTRACT THE WITHDRAWALS FROM CAPITAL Format - ALWAYS SUBTRACT THE EXPENSE FROM REVENUE The standard contents of the general journal are as follows: Part 1. Multiple-choice (Situational) 1. Date. The year and month are not rewritten for every 5 accounting elements entry unless the year or month changes or a new page is Assets needed. Liabilities 2. Account Titles and Explanation. The account to be debited is entered at the extreme left of the first line Owners Equity while the account to be credited is entered slightly indented on the next line. A brief description of the Revenue transaction is usually made on the line below the credit. Expenses Generally, skip a line after each entry. Accounting Equation Formula 3. P. R. (posting reference). This will be used when the entries are posted, that is, until the amounts are Assets = Liabilities + Owners Equity transferred to the related ledger accounts. The posting Ruling: process will be described later. If Drawings, Expenses, and Assets increase / 4. Debit. The debit amount for each account is entered in nadadagdagan (Debit), if decrease / nababawasan this column. (Credit). 5. Credit. The credit amount for each account is entered If Liabilities, Equity(Capital), Revenue(Income) increase in this column. / nadadagdagan (Credit), if decrease/nababawasan Debit and Credit (Debit). Charts of Accounts is simply a listing of all account titles Note in Journal Entries: to guide the bookkeeper in recording transactions. If you read the words invested, deposited in the accounting transactions automatically, may ASSETS ka na papasok sa business either Cash, property, or Part 2. Computation anything that is invested by the owner, and Owners 1. Worksheet Equity (Capital). - DATE AND ASSET (LEFT SIDE) In Sales perspective or rendered services, nagbigay ka ng serbisyo sa customers or clients mo, 2 concepts lang - ASSET, LIAB, O.E, EXPENSE palagi yan either binayaran ka ng CASH or wala kang na received na pera (Accounts Receivable).  *Billed clients, on credit ( Accounts Receivable yan) R –evenue Received Cash, deposited directly to the bank account, DEA LER checks, etc.. Cash po yan if Collected naman, ibig Drawings sabihin niyan- may nagbayad ng utang, mababawasan ang Accounts Receivable mo. Expense Sa Purchases naman na perspective, 2 concepts ulit yan Asset either naglabas ka ng pera/nagbayad ka ng cash (bawas sa Cash mo yan), if wala kang ibinigay na pera/ Liabilities hindi ka naglabas ng pambayad na cash pero may Equity nakuha kang property, materials or supplies or services na gagamitin mo sa business mo, Utang yan (Accounts Revenue Payable yan). Paid - meaning nagbayad ka ng utang or nagbayad ka ACCOUNTING TUTORIAL (PART 1) sa mga binili or nagamit mong mga serbisyo ( Bawas sa Cash mo yan), expenses yan. "BASIC" ACCOUNTING EQUATION" : A = L + OE Nagbayad ka in-advance, Prepaid yan under assets. Assets = Liabilities + Owner's Equity (P100 = P60 + P40) ACCOUNTING TUTORIAL (PART 1) "CHARACTERS" "BASIC" ACCOUNTING EQUATION" a. BUSINESS = "Ikaw" A = L + OE b. ASSET = Pag-aari "ng business" Assets = Liabilities + Owner's Equity c. LIABILITY = Utang "ng business" sa iba (Ex. Bank) P100 = P60 + P40 d. OWNER'S EQUITY = "Utang" "ng business" sa may-ari (owner) Normal Balances: Common Mistake : Ang "Business" at ang "Owner" ay DEBIT (DEAL) IISA.. *MALI po yan. Para maintindihan natin ang D-ividends (Drawings) Accounting Equation (A=L+OE), ang una dapat nating isipin ay magkaiba ang "BUSINESS" at ang "OWNER" E-xpenses #HALIMBAWA A-sset BUSINESS(Ikaw) = Buy & Sell ng damit L-osses ~kung ikaw si BUSINESS, kailangan mo ng "pera" pambili CREDIT (GIRLS) ng damit. G-ains #QUESTION I-ncome Saan manggagaling ang pera? R-evenues Answer: L-iabilities a. Mangungutang sa iba (Ex. Bank) P60 S-tockholder's (or Owner's) Equity b. "Mangungutang" sa may-ari or owner P40 (Normal Balance) - ADE & LOR DEBIT (ADE) P60 + P40 = P100 A - sset Ang pera na ngayon ni "Business" ay P100 D -rawings Business: E - xpense A = P100 (Pera/Asset) CREDIT (LOR) L = P60 (Utang sa Bank) L - iabilities OE = P40 ("Utang" sa Owner) O - wner's equity In simple words, ang Pera ng Business na P100 (ASSET):.............................................. ~ay galing sa utang sa Bank P60 (LIABILITY), at galing 3. Binayaran mo na ang utang.. sa "utang" sa Owner P40 (OWNER'S EQUITY) DEBIT: Accounts Payable 50000 A = L + OE CREDIT: Cash 50000 P100 = P60 + P40 Nawala na ang utang (Accounts Payable), kaya DEBIT. #REMINDER Nawalan ka din ng Cash, kaya CREDIT. Wala nang utang. ~In Form, parang ISA lang ang "Business" at "Owner".............................................. ~Pero in Substance, IKAW lang si " BUSINESS" (at 4. Ginamit mo yung Laptop sa business mong Accounting "parang" pinautang ka lang ng sarili mo) Tutorial. Kumita ka ng P20,000 pero "pautang". ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DEBIT Accounts Receivable 20,000 "DEBIT AND CREDIT" CREDIT Service Income 20,000 1. Bumili ka ng Laptop at nagbayad ka ng P50000 Nagkaroon ka ng "pautang"(Asset siya kasi makokolekta DEBIT: Laptop 50000 mo siya), kaya DEBIT CREDIT: Cash 50000 Nagkaroon ka din ng kita o income, kaya CREDIT. Nagkaroon ka ng Laptop, kaya DEBIT NOTE: (INCOME or KITA) Nawalan ka naman ng Cash, kaya CREDIT Pag "nagkakaroon" ka ng income = CREDIT NOTE: (ASSET).............................................. Pag "nagkakaroon" ka ng Asset(or bagay) = DEBIT 5. Nakolekta mo na yung pautang mo sa tinuruan mong estudyante P20,000. Pag "nawawalan" ka ng Asset (or bagay) = CREDIT DEBIT Cash 20000.............................................. CREDIT Accounts Receivable 20000 2. Bumili ka ng Laptop pero utang, P50,000 Nagkaroon ka ng Cash, kaya DEBIT DEBIT: Laptop 50000 Nawalan ka ng pautang(Accounts Receivable), kaya CREDIT: Accounts Payable 50000 CREDIT Nagkaroon ka ng Laptop, kaya DEBIT............................................... Nagkaroon ka ng utang(Accounts Payable), kaya CREDIT 6. Nagbayad ka ng P10,000 sa inuupahan mong lugar NOTE: (LIABILITY or UTANG) para sa tutorial. Pag "nagkakaroon" ka ng utang = CREDIT DEBIT Expense 10000 Pag "nawawalan" ka ng utang = DEBIT CREDIT Cash 10000 #IMPORTANT Nagkaroon ka ng gastos(expense), kaya DEBIT Baliktad ang ASSET at LIABILITY Nawalan ka din ng cash, kaya CREDIT. (ASSET) NOTE: (EXPENSE or GASTOS) DEBIT: pag "nagkakaroon" ka ng Asset(or bagay) Pag "nagkakaroon" ka ng gastusin = DEBIT CREDIT: pag "nawawalan" ka ng Asset (or bagay) ~~~~~~~~~~~~~~~~~~~~~~~~~ (LIABILITY) Point of view of the BUSINESS: CREDIT: pag "nagkakaroon" ka ng utang Increase in Asset DEBIT: pag "nawawalan" ka ng utang Nagkakaroon ng asset ang business kasi pwedeng -nanggaling sa inutang niya (ito ang pautang or statement of changes in owner's equity investment ng creditors) income, less expenses, less withdrawals = NET EQUITY -nanggaling sa owner (ito ang initial or additional investment ng owner) ASSETS -galing sa serbisyo/benta - owned na may value Decrease in Asset - money / controlled by the business Nawawalan naman ng asset ang business kasi pwedeng - supplies - considered as asset because may value -nagbayad siya ng utang - Current Assets: 1 buong transactions, cash -ibinalik na yung capital sa owner (withdrawal by the owner) - Non-current Assets: helping operation of a business, Accumulated Depreciation: pagbaba ng asset -may mga gastusin o expenses Equity/Capital = Investment + Revenue - Expenses - Drawings(Withdrawal) LIABILITIES Increase in Equity - utang/payable -Tumataas ang Equity pag mas malaki ang kita(revenue) - narecieve na pera in advance kaysa sa gastos(expenses). Ang tawag dito ay "Net Income". - services render & supplies: hindi naglabas ng pera -Pwede rin tumaas ang Equity pag nadadagdagan ang - CURRENT LIABILITIES: normal operating cycle, capital(pera o gamit) ng business. nababayaran ng tamang TERMS Decrease in Equity - BAD DEBTS - hindi nabayaran/nakapagbayad na utang -Bumababa ang Equity pag mas malaki ang gastos(expenses) kaysa sa revenue or kita. Ang tawag OWNER'S EQUITY dito ay "Net Loss". - Net Worth -Pwede rin bumaba ang Equity pag ibinalik na ang - interest of the owner capital(pera o gamit) sa may-ari. (Withdrawal by the owner) - representation of percentage of Asset ACCOUNTING LESSON 2 - 1/Single (Owner's Equity) A = L+OE - 2/Partners ( Partner's Equity) L+OE - composition ng isang asset - 3orMore (Shareholders Equity) Assets - claimed by creditors and investors - CAPITAL: Elements of Statement of Financial (2 reports) - WITHDRAWAL: portion of money, babawas sa capital Real Accounts - Income Summary STATEMENT OF FINANCIAL POSITION INCOME Asset, Liabilities, Owner Equity - kabuuang kita ng company (Net Income) LIBRO/ SUMMARY NG BUONG BUSINESSES EXPENSES Trial Balance - previous transactions of a business - total gastos; (SUPPLIES EXPENSE) Nominal Accounts - ASSET - PAG DI PA GINAGAMIT presentation of performance of a business - EXPENSE - PAG GINAMIT/NAGAMIT NA PROFIT AND LOSS Wala sa balance sheet; Equity/ Capital DEALER - secondarily from creditors (from a bank for money and from suppliers for goods and supplies bought and D- drawings services received). E - expense Example of assets: cash, machinery, Services, Supplies A - assets 2 types or classification of assets L - Liabilities *Current assets - assets that can be exchanged into E - equity cash within a fiscal year or one operating cycle. Example: cash, account receivable, inventory, prepaid expenses, R - revenue and other current assets(supplies). *Non-current assets - sometimes called "Long term assets" In DEA when the debits increased the credits decreased and in LER when the credits increased the debits - Example: plant, accumulated depreciation, property, decreased. investment, intangible assets, and other non-curren Assets = liabilities + owner's equity SAMPLE QUESTIONS (MULTIPLE CHOICE) Assets are claimable by the creditors and investors the 1. Which of the following is a business event that is not three should always be equal considered a recordable transaction? Creditors - represented by liabilities a. A company receives a product previously ordered. Investors - represented by owners equity\ b. A company pays an employee for work performed. Three values or elements called - assets, liabilities, and c.. A customer inquires about the availability of a service. owners equity. d. A customer purchases a service. In a financial structure assets show on the left side and liabilities and owner's equity shows on the right side. ELEMENTS OF STATEMENT OF FINANCIAL POSITION 2. Which of the following is a business event that is also considered a recordable transaction? Real account also called a. A company hires a new employee. - Balance sheets account b. A customer purchases merchandise. - Financial statements c. A company orders a product from a supplier. - Permanent account d. An employee sends a purchase requisition to the - is a general ledger account or book of a business purchasing department. Nominal account - Income statement account or temporary Account. 3. Typically, the chart of accounts begins with - only applicable in their accounting period a. asset accounts. Ex: monthly, yearly or every 6 months b. liability accounts. - It shows the financial performance of a business in c. revenue accounts. the accounting year and includes income, expenses, and withdrawals of a business. d. expense accounts. Assets 4. The purpose of the ledger is to - things of value owned by the business. a. record chronologically the day's transactions. - being used in operating the business b. keep a record of documentation to support each transaction. - assets or business resources will come from investors (sole proprietor, partner, or shareholder). c. maintain a separate account for each balance sheet and income statement accounts. d. make sure that all balance sheet and income 10. The Owner's Withdrawals account appears in statement accounts have normal balances at all times. a. the statement of changes in equity only. b. the income 5. Which of the following accounts probably would be statement only. listed before the others in a chart of accounts? c. the balance sheet only. a. Accumulated Depreciation-Buildings d. both the income statement and the balance sheet. b. Insurance Expense c.Owner's Withdrawals 11. For which of the following accounts would a related d. Notes Payable Accumulated Depreciation account be recorded? a. Office Equipment 6. A purchase is recognized in the accounting records b. Land when c. Office Supplies a. payment is made for the item purchased. d. Prepaid Rent b. The purchase requisition is sent to the purchasing department. 12. A withdrawal will directly or indirectly reduce which of c.the buyer receives the seller's bill. the following accounts? d. title transfers from the seller to the buyer. a. Accounts Payable b. Revenues 7. The chart of accounts is a table of contents for a c. Owner's Withdrawals a. journal. d. Owner's Capital b. ledger. c. trial balance. 13. Which of the following does not directly or indirectly d. financial statement. affect the owner's Capital account? a. Paying an accounts payable 8. The Art Supplies account is classified as a(n) b. Withdrawals by the owner a. asset. c. Earning of revenues b. liability, if the supplies have not yet been paid for. d. Incurring of expenses c. expense. d. owner's equity account. 14. Which of the following accounts is classified differently from the others listed? a. Prepaid Rent 9. Which of the following accounts will not affect owner's equity? b. Cash a.Owner's Withdrawals c. Accounts Receivable b. Land d. Owner's Capital c. Advertising Expense d. Revenues 15. Which of the following accounts is classified differently from the others listed? a. Notes Payable b. Unearned Revenue c. Mortgage Payable 21. Unearned Revenues are recorded by companies that d. Art Revenues a. pay money in advance of the performance of a service. b. pay money at the time the performance of a service is complete.c. receive money in advance of the 16. If Accounts Payable has debit postings of P85,000, performance of a service. credit postings of P70,000, and a normal ending balance of P30,000, what was its beginning balance? d. receive money at the time the performance of a service is complete. a. P45,000 Cr. b. P15,000 Cr. 22. Which of the following is not considered a type of c. P45,000 Dr. equipment? d. P15,000 Dr. a.Fax machine b. Office supplies 17. Which of the following accounts probably would be c.Cash register listed after the others in a chart of accounts? d. Drill press a. Unearned Art Fees b. Prepaid Rent 23. The accounting equation C. Owner's Capital a. is used to determine the amount of liabilities owed. d. Art Revenues b. is used to determine the amount of income earned during the period. 18. The Unearned Art Fees account is classified as a(n) c. shows the claims on the entity's assets by both the a. asset. creditors and owner. b. liability. d. shows the claims on the owner's equity by the creditors. C. revenue. d. Expense 24. Another way of stating the accounting equation is a. Assets Liabilities Owner's Equity 19. Which of the following accounts is an asset? = a. Revenues b. Assets Liabilities - Owner's Equity b. Notes Payable c. Assets Liabilities = Owner's Equity c. Supplies Expense d. Assets Owner's Equity - Liabilities d. Prepaid Rent e. Owner's Equity + Assets Liabilities 20. Which of the following accounts is not a liability 25. In the accounting equation, an increase in asset can account? be associated with a. Accounts Payable a. an increase in a liability. b. Owner's Withdrawals b. a decrease in owner's equity. c. Unearned Revenue c. a decrease in a liability. d. Notes Payable d. an increase in another asset.  c. one asset is increased and another is also increased. 26. The components of the balance sheet equation are d. one asset is increased while another is decreased. a. assets, income and owner's equity. b. income, expenses and profit. 31. When an entity receives cash for services performed, c. assets, liabilities and owner's equity. a. an asset is decreased. d. investments, withdrawals and profit. b. the owner's equity is increased. c. the owner's equity is decreased. 27. The future economic benefits embodied in an asset d. total assets remain unchanged. may flow to the enterprise in a number of ways. Which is e. none of the above the exception? a. An asset may be used singly or in combination with other assets in the production of goods or services to be 32. When an entity pays employees for their services, the sold by the enterprise. effect is an increase in b. An asset may be exchanged for other assets. a. expenses. c. An asset may be distributed to the owners of the b. assets. enterprise. c. income. d. An asset may be used to convert an obligation to equity. d. Liabilities. 33. When the proprietor withdraws cash or other assets, the withdrawal account is 28. This account records long-term debt of the business entity for which it has pledged certain assets as security. a. debited. a. mortgage payable b. credited. b. bonds payable c. debited and credited. c. notes payable d. not affected. d. accounts payable 34. When a business entity receives payment before delivering goods, the unearned 29. Expenses can be defined as revenue account is a. increases in owner's equity. a. debited. b. decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or b. debited and credited. incurrences of liabilities that result in decreases in equity. c. credited. c. decreases in owner's equity. d. not affected. d. inflows of assets from delivering or producing goods or rendering services. 35. The issuance of a note by an entity for services received should be recorded as 30. When an entity acquires computer equipment for a. an unearned revenue. cash, b. a notes payable. a. assets and owner's equity are increased. c. a prepaid expense. b. an asset is increased and a liability is decreased. d. an accounts receivable. 40. When an asset is purchased on account, the credit is to 36. All of the following affect the owner's equity account except a. a capital account. a. original investment. b. a liability account. b. payment of a liability. c. an income account. c. additional investment. d. an expense account. d. withdrawal by the owner. 41. When a payment is made to a supplier for goods previously purchased on account, the debit is to 37. Withdrawals by the proprietor has all of the following effects except a.an asset account. a. reduction of total assets. b. a liability account. b. reduction of owner's equity. c. a capital account. c. reduction of profit for the period. d. an expense account. d. reduction of cash balance. 42. When a customer buys services on credit, the contract is regarded as complete when 38. Which of the following transactions correctly maintains the equality in the a. the services are rendered. accounting equation? b. the bill is presented. a. To record collections on account, cash and accounts c. the cash payment is received. receivable are increased by d. the date specified in the contract is at hand. P160,000. b. To record the purchase of computer equipment, 43. A P1,000 debit item is accidentally posted as a credit. computer equipment is increased The trial balance column totals therefore will differ by and cash decreased by P46,000. a. PO. c. To record payment of notes, notes payable is b. P1,000. decreased and cash is increased by c. P2,000. P70,000. d. P500. d. To record payment of rent, rent expense and cash are increased by P8,000. 44. A P 800 credit item is accidentally posted as a debit. The trial balance column totals will therefore differ by 39. When rent is prepaid for several months in advance, the debit is to a. P O. a. an expense account. b. P400. b. an asset account. c. P800. c. a capital account. d. P1,600. d. a liability account. 45. When a company has performed a service but has not yet received payment, it a. debits Accounts Receivable and credits Service Revenues. b. debits Service Revenues and credits Accounts Payable. c. debits Service Revenues and credits Accounts Receivable. d. makes no entry until the cash is received. 46. When a company receives an electric bill but will not be paying it right away, it should a. debit Utilities Expense and credit Accounts Receivable. b. debit Utilities Expense and credit Accounts Payable. c. debit Accounts Payable and credit Utilities Expense. d. make no entry until the bill is paid. 47. When a magazine company receives an advance payment for a subscription, it a. debits Cash and credits Subscriptions Revenue. b. debits Prepaid Subscriptions and credits Cash. c. debits Cash and credits Unearned Subscriptions Revenues. d. debits Unearned Subscriptions Revenues and credits Cash. LESSON 2: ANALYZING TRANSACTIONS IN STARTING A 0. Liabilities refer to amounts owed to lenders and suppliers. BUSINESS Liabilities often have the word "payable" in the account title. Liabilities also include amounts received in advance for a future sale or for FINANCIAL STRUCTURE OF A BUSINESS ORGANIZATION future service to be performed. An entity shall classify a liability as Current when: It expects to settle the liability in its normal operating cycle; It holds liability primarily for the purpose of trading; The liability is due to be settled within twelve months after the reporting period; or The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after The figure above shows how accounting views the financial structure the reporting period. of a business entity. The structure should contain three values or basic All other liabilities should be classified as non-current liabilities. elements called assets, liabilities, and owner’s equity. The structure shows the assets on one side (left) and the liabilities and owner’s Examples of Current Liabilities: Accounts Payable, Notes equity on the other side (right). The financial structure also shows the Payable, Accrued Liabilities, Unearned Revenues, Income Tax relationship among these three accounting values – that the assets Payable, and the Current portion of long-term debt. are claimable by the creditors (represented by liabilities) and Examples of Non-Current Liabilities: Loans Payable, Mortgage investors (represented by owner’s equity) and therefore should Payable, Long Term Notes Payable, Bonds Payable, and Other always be equal. Noncurrent Liabilities. ELEMENTS OF STATEMENT OF FINANCIAL POSITION 0. Owner’s Equity or Net Worth represents the residual interest of the owner in the entity’s assets. In a partnership since there are more owners, the appropriate title is the partner’s equity. In a Real Accounts are also called Balance Sheet Accounts or corporation since there are many investors, it is called shareholder’s Permanent Accounts since they carry on to the next accounting equity. Period. These accounts show the financial position of the business Capital- (from the Latin word capitalis, meaning “property”). which includes the Assets, Liabilities, and Owner’s Equity or Capital. This is used to record the original and additional investments of the owner of the business entity. It is Nominal Accounts, on the other hand, are also called Income increased by the amount of profit earned during the year Statement Accounts or Temporary accounts since they are only or is decreased by a loss. applicable in their accounting period. These accounts show the Withdrawals- When the owner of a business entity financial performance of the business in the accounting year and withdraws cash or other assets, such are recorded include income, expenses, and withdrawals of the business. in the drawing or withdrawal account rather than directly reducing the owner’s equity account. 1. Assets refer to things of value owned by the business. Income Summary- It is a temporary account used They benefit the business, are being used in operating the at the end of the accounting period to close income business, and are expected to have a long life. Initially, and expenses. This account shows the profit or loss assets or business resources will come from investors for the period before closing the capital account. (sole proprietor, partner, or shareholder) and secondarily from creditors (from a bank for money and from 0. Income- is the net increase in assets in a given accounting suppliers for goods and supplies bought and services period. It may be due to increases in assets or decreases in received). Therefore, assets are claimable by two parties – liabilities. This results in an increase in equity except those creditors and investors. When the entity’s normal operating related to contributions by investors. It is usually the result of cycle is not clearly identifiable, it is assumed to be twelve providing goods and services or from investment income. months. 0. Expenses- on the other hand, are the costs of businesses For example, an asset may be: during their operations. These are decreases in assets or increases in liabilities. This results in a decrease in equity except for those Used singly or in combination with other assets in the related to distributions to holders of equity claims. production of goods or services to be sold by the enterprise; THE ACCOUNTING EQUATION Exchanged for other Assets; An accounting equation would always have an equal left Used to settle a liability; or side and right side. There are no transactions where the left side is Distributed to the Owners of the enterprise. higher than the right side and vice versa. Always keep in mind to preserve the balance on both sides in order not to make any errors Classification of Assets in accounting and recording transactions. Say all assets are invested solely by the owner, the accounting equation is simply: Current assets are assets that can be converted into cash within one fiscal year or one operating cycle. Current assets are used to facilitate day-to-day operational expenses and investments. Assets = Owner’s Equity Examples of current assets: are cash, accounts receivable, inventory, Prepaid Expenses, and Other Current Assets If the assets came from a mixture of investors and creditors, (Supplies). the equation will look like this: Assets = Liabilities + Owner’s Non-Current Assets- these are sometimes called long-term Equity assets since they would not be completely consumed in the current operation cycle. Examples of non-current assets: Property, ILLUSTRATIVE PROBLEM: Plant, and Equipment, Accumulated Depreciation, Investment Properties, Investments, Intangible Assets, and Other Non-Current Assets. The following transactions pertaining to the travel business owned by used for borrowings where a promissory note is given by the Mr. N show how the transactions in the formation of his business can borrower. affect the accounting equation: Jan 18, 2020 Mr. N made a cash withdrawal of P5,000 for Mr. N opened a tour and travel agency by investing cash P50,000. He personal use has three cars worth P1,000,000 but decided to invest only two of these cars worth P750,000. Analysis: The assets of the business will decrease in the form of cash P5,000 with a corresponding Analysis: The assets of the business will increase in decrease in the owner’s equity since the owner the form of cash P50,000 and cars P750,000 with a recovered his investment by withdrawing cash. corresponding increase in owner’s equity. Decrease in ASSETS = LIABILITIES + Increase in ASSETS = LIABILITIES + Decrease in Owner’s Equity Increase in Owner’s Equity Cash P5,000 Cash P50,000 *Mr. N, Drawing P5,000 Mr. N, capital P800,000 Cars 750,000 *The “Mr. N, Drawing” account is considered as a deduction to the total owner’s equity section. This account is the opposite of the capital account which we recorded as “Mr. N, Jan 3, 3030 Mr. N borrowed P100,000 cash from a bank for use capital” which represents the total investments made by the in his business. owner whereas the drawing account represents the total deductions to the investments made by the owner. Analysis: The assets of the business will increase again in cash by P100,000 with a corresponding Jan 20, 2020 The account due to National Winners was paid in increase in liability. cash. Increase in ASSETS = Increase in LIABILITIES + Analysis: Assets of the business will decrease in the Owner’s Equity form of cash with a corresponding decrease in Cash P100,000 *Loans Payable liabilities. P100,000 Decrease in ASSETS = Decrease in LIABILITIES + *Loans Payable is an account used for borrowings made in Owner’s Equity a bank. Other accounts in the liabilities section include Cash P55,000 Accounts Payable Accounts Payable, Note Payable, and Income Tax Payable, P55,000 among others. The following table summarizes the effect of these transactions on the Jan 7, 2020 Mr. N bought tables and chairs from a local supplier accounting equation with balances given after each transaction to and paid cash of P45,000. prove the accounting equation: Analysis: The assets of the business will increase in the form of furniture and decrease in the form of cash. Total assets will remain unchanged since both accounts in part of the assets. Note that even if there is no change in the right side of the equation (liabilities and owner’s equity), the accounting equation will remain its balance since the transaction involves increasing and decreasing the asset by the same amount. Increase and Decrease in ASSETS = Liabilities + Owner’s Equity Cash (-) P45,000 *Getting the totals, the total assets will be P895,000, total liabilities at Furniture (+) 45,000 P100,000, and total owner’s equity at P795,000. The total of the right side of the equation (Assets) will be P895,000 and the left side Jan 15, 2020 Various equipment was purchased on account from (Liabilities & Owner’s equity) will have the same total. The accounting National Winners for P55,000. equation retained its balance after accounting for several accounting transactions. Analysis: The assets of the business will increase in the form of equipment with a corresponding PRESENTATION OF STATEMENT OF FINANCIAL POSITION increase in liabilities. The first three basic elements: assets, liabilities, and owner’s Increase in ASSETS = Increase in equity are presented in a report called the Statement of Financial LIABILITIES + Owner’s Equity Position where a user will be able to determine the following Equipment P55,000 *Accounts information: Payable P55,000 1. Wealth accumulated by the business, 2. Its net worth 3. Its liquidity and solvency *The account “Accounts Payable” is used for short-term borrowings not evidenced by a promissory note usually from a known supplier. The account ‘Notes Payable” is the one  It was previously called Balance Sheet before PAS 1 was revised in 2007 because it shows the balances of each account and The general-purpose financial statements are those the grand total shows a balance between the assets (business resources) on one hand and the liabilities and owner’s equity (claim that are made available to users outside the company. These over the assets) on the other. consist mainly of the income statement, statement of changes in owner’s equity, statement of financial position, and statement The Statement of Financial Position often called the of cash flows. Balance Sheet, is a financial statement that reports the assets, liabilities, and equity of a company on a given date. In other words, it lists the resources, obligations, and ownership details of a company on a specific day. You can think of this as a snapshot of what the company looked like at a certain time in history. Presented below is the interim statement showing the financial position of the previous illustration for Mr. N’s Travel and Tours business. Note that this statement is not prepared every time there is a transaction or a change in the accounting equation. This statement is usually prepared every accounting year-end and interim statements are prepared as needed by the statement users. *The capital account is already presented net of drawings (P800,000 – P5,000), P795,000. SUMMARY OF THE LESSON The three basic accounting elements are assets, liabilities, and owner’s equity. In a business transaction, there must be an: a. EXCHANGE OF VALUES; b. between TWO PARTIES; c. in terms of Shown in our illustration above are the financial statements MONEY. derived from our illustrative problems in the travel and tours An account is a brief description of items representing each business of Mr. N as of January 31, 2020. The illustration of the accounting elements. shows the relationship of the revenues and expenses The accounting equation is Assets = Owner’s Equity OR appearing in the income statement to the assets, liabilities and Assets = Liabilities + Owner’s Equity. owner’s equity appearing in the statement of financial position. The Statement of Financial Position contains the assets The arrows point to the amounts computed in one financial accumulated by the business, liabilities it owed, and its net statement that is carried forward to another financial statement worth. From this information, you will be able to determine if the business is liquid or solvent. to be used in its computation. LESSON 3 : INTERRELATIONSHIP OF FINANCIAL Statement of Comprehensive Income/ Income Statement is STATEMENTS also known as the statement of operations, profit and loss statement, and statement of earnings. It is one of a company's main financial statements. The purpose of the Lesson Objectives: At the end of the lesson, students are income statement is to report a summary of a company's expected to: revenues, expenses, gains, losses, and the resulting net income that occurred during a year, quarter, or other 1. Define and know the importance of the financial period of time. statements. 2. Understand how the financial statements are Examples of Items Appearing in the Income Statement interrelated. 1. Revenues, which are the amounts earned through the DISCUSSION OF CONTENT / APPLICATION sale of goods and/or the providing of services 2. Expenses, which include the cost of goods sold, FINANCIAL STATEMENTS SG&A expenses, and interest expense Generally, the term financial statement could be referring to: 3. Gains and losses, such as the sale of a noncurrent General-purpose, external financial reports that are asset for an amount that is different from its book value distributed by a company to people outside of the 4. Net income, which is the result of subtracting the company company's expenses and losses from the company's A more-detailed, internal financial report that revenues and gains. Corporations with shares of remains inside of the company for use by the common stock that are publicly traded often refer to net company's management.  income as earnings and their income statements must because of the owner’s personal drawings. The effect is a net include the earnings per share of common stock. cash inflow of P145,000 or net cash provided by financing The income statement for Mr. N’s business shows total activities. revenues earned of P51,000 and total expenses incurred of P21,000 resulting in a net income of P30,000 which is carried Comparing the net income of P30,000 against the net forward to the capital statement or the statement of cash inflow from operation of P12,000, gives us a comprehensive income. difference of P18,000 representing customer’s uncollected account, again a proof that information found in one financial Statement of Changes in Owner's Equity shows the statement is related to another financial statement. changes in the capital account due to contributions, withdrawals, and net income or net loss. SUMMARY OF THE LESSON The Capital Statement shows the starting capital of Mr. N of P800,000 which increased by P30,000 because of net income The accrual concept recognizes revenues and and decreased by P5,000 because of owner’s personal expenses based on their occurrence regardless of drawings. The ending capital became P825,000 which is whether cash is collected or paid. The cash concept carried forward to the statement of financial position as recognizes revenues and expenses only at the time of claim over the net assets. collection or payment. Revenues are cash INFLOWS resulting from the The Statement of Financial Position shows the assets owned services rendered or merchandise sold. by the business of P925,000 of which P100,000 represented Expenses are cash OUTFLOWS resulting from the as claim of the creditors and P825,000 as claim of the owner. use of asset or service in generating income. Note that the cash balance is supported by the cash balance Revenues > Expenses = Net Profit/Income end in the statement of cash flows. Revenues < Expenses = Net Loss Revenues = Expense = Breakeven Statement of Cash Flows shows the changes (cash flows) in Fundamentally related financial statements show the the business activities: starting with the operating activities effect of revenues and expenses in the Income appearing in the income statement, and the investing and Statement to the assets, liabilities and owner’s equity financing activities appearing in the statement of financial in the Statement of Financial Position. position. Like the income statement, this is prepared for a The four basic financial statements are: a. certain period of time. Statement of Financial Position; b. Income Statement; c. Statement of Cash Flows; d. Statement of Changes Of what use is this statement? in Owner’s Equity 1. To evaluate cash stewardship of the finance officer, Assets are classified according to liquidity or nearness 2. To guide the planning of future cash flows, and to cash while liabilities are classified according to 3. To assess ability of the business in generating cash from length of maturity. operation Accounting period, which usually is one year, is the time basis used in the preparation of financial statements. In practice, companies present interim financial statements after a month or a quarter, as needed by the users. LESSON 4: THE CHART OF ACCOUNTS, THE JOURNAL, THE LEDGER AND POSTING PROCEDURES, AND THE TRIAL BALANCE Lesson Objectives: At the end of the lesson, the students are expected to: The company obtained cash from three sources: contribution of the owner (March 1), loan from bank (March 3), and collection Analyze transactions using the debit and credit in from clients (March 21, 27, and 30). The business becomes T-accounts. financially strong and stable when more cash comes from its Journalize many sets of transactions in the general operation rather than from loans borrowed (risky) and from journal. contribution of the owner (safe but very conservative). The Post the journal entries in the general ledger. business must grow on its own. Prepare the trial balance. The cash flows from investing activities represent GETTING STARTED payments from acquisition of assets. The effect is a decrease Knowledge in accounting is important even for professionals in cash of P100,000 or a net cash outflow for investing outside the accounting profession as understanding on how to activities for furniture and equipment purchased and paid for. process financial data through Accounting Information System or other orderly way of processing accounting transactions Cash flows from financing activities represent increase are considered as an advantage and it is important in assisting in cash coming from the owner’s contribution and from the the accounting department of businesses in order to avoid amount borrowed from the bank against a cash decrease waste of time and effort and to ensure the integrity and accuracy of financial reporting. Cash DISCUSSION OF CONTENT / APPLICATION Left side or debit side Right side or credit side THE CHART OF ACCOUNTS DEBITS AND CREDITS A Chart of Accounts is simply a listing of all account When an amount is to be recorded on the left side, we titles to guide the bookkeeper in recording transactions. The simply say debit the account, and when it is to be recorded on accounts are properly arranged with the assets listed first, the right side, we say credit the account. What happens when followed by the liabilities and lastly by the owner’s equity. the amount placed on the left side or on the right side of an Account numbers are assigned for each account for easy account? Assets, Expenses and Drawings increase on the reference. Please see illustration below: debit side while the Liabilities, Owner’s Equity and Revenues increase on the credit side based on their position HAPPY TOUR AND TRAVEL in the accounting equation. CHART OF ACCOUNTS Assets = Liabilities + Owner’s Equity Current Assets – 101 to 104 101 Cash 102 Accounts Receivable Or 102.1 Allowance for Bad Accounts 103 Notes Receivable 104 Office Supplies Assets + Expenses + Drawings = Liabilities + Owner’s Equity + Revenues Plan and Equipment – 201 to 203 201 Cars For easier reference, remember the T Accounts below: 201.1 Accumulated Depreciation – Cars 202 Equipment Assets/Expenses/Drawings 202.1 Accumulated Depreciation – Debit Credit Equipment + - 203 Furniture & Fixtures 203.1 Accumulated Depreciation – Furniture & Fixtures Liabilities/Owner’s Equity/Revenues Debit Credit Current Liabilities – 301 to 303 - + 301 Accounts Payable 302 Loans Payable 303 Utilities Payable Demonstration Problems Long Term Liabilities – 401 to 402 401 Notes Payable Teddy Gomez opened a tour and travel service business by 402 Mortgage Payable investing cash of P50,000 and two cars worth P750,000. Analysis: Increase in assets – cash P50,000 Equity – 501 to 502 and cars P750,000 and increase in owner’s 501 Gomez, Capital equity – Gomez, Capital P800,000. 502 Gomez, Drawings Entry: Debit Cash P50,000, Debit Cars P750,000 and Credit Gomez, Capital Revenues – 601 601 Service Income P800,000. Gomez, Capital Expenses – 701 to 706 March 1 800,000 701 Gas & Oil 702 Rent Expense 703 Repair Expense 704 Salaries Expense 705 Supplies Expense Cash 706 Utilities Expense March 1 50,000 ANALYZING TRANSACTIONS USING T ACCOUNTS The T-Account gives you a way of analyzing transactions with each account separately analyzed for Cars increases and decreases. It got its name because it resembles March 1 750,000 the letter “T” and is convenient to use as it has two sides – the left side and the right side where the increases and decreases are separately placed. At the center of the T Account is the name or title of the account. In accounting, the left side is March 3 Borrowed P100,000 from Calambank for called the debit side while the right side is the credit side. To business use. illustrate:  Analysis: Increase in assets – cash and increase in liabilities – loans payable by P100,000. Take note that as you go on, data are accumulated on their Entry: Debit Cash P100,000 and Credit Loans respective T accounts either on the debit side or credit side. Payable P100,000. Loans Payable March 20 Paid the account due to Zace Hardware. March 3 100,000 Analysis: Decrease in assets – cash and decrease in liabilities – accounts payable by P55,000. Entry: Debit Accounts Payable P55,000 and Cash Credit Cash P55,000. March 1 50,000 Accounts Payable 3 100,000 March 20 55,000 March 10 55,000 Note that the Cash T account has now two entries. Cash March 1 50,000 March 7 45,000 March 7 Bought tables and chairs from Muebles. Paid 3 100,000 18 5,000 cash P45,000. 20 55,000 Analysis: Increase in assets – furniture and decrease in assets – cash by P45,000. March 21 P15,000 was received from a tourist for a tour Entry: Debit Furniture & Fixtures P45,000 and in Baguio. Credit Cash P45,000. Analysis: Increase in assets – cash and Furniture & Fixtures increase in owner’s equity – service income by March 7 45,000 P15,000. Entry: Debit Cash P15,000 and Credit Service Income P15,000. Cash Cash March 1 50,000 March 7 45,000 March 1 50,000 March 7 45,000 3 100,000 3 100,000 18 5,000 21 15,000 20 55,000 Service Income March 10 Purchased from Zace Hardware electric fan March 21 15,000 and typewriter worth P55,000 on account. Analysis: Increase in assets – equipment and increase in liabilities – accounts payable by P55,000. March 22 Paid for gas and oil P500 and repair of car Entry: Debit Equipment P55,000 and Credit P1,000. Accounts Payable P55,000. Analysis: Decrease in assets – cash P1,500 and decrease in owner’s equity – gas & oil Equipment expense P500 and repair expense P1,000. March 10 55,000 Entry: Debit Gas & Oil Expense P500, Debit Repair Expense P1,000 and Credit Cash Accounts Payable P1,500. March 10 55,000 Gas & Oil Expense March 22 500 March 18 Gomez made a cash withdrawal of P5,000 for Cash personal use. March 1 50,000 March 7 45,000 Analysis: Decrease in assets – cash and 3 100,000 18 5,000 decrease in owner’s equity – Gomez, drawings 21 15,000 20 55,000 by P5,000. 22 1,500 Entry: Debit Gomez, Drawings P5,000 and Repair Expense Credit Cash P5,000. Note that the entry always March 22 1,000 mentions the debit side first. Cash March 24 Mr. Gray hired the services of the agency and promised to pay P16,000 on March 31. March 1 50,000 March 7 45,000 Analysis: Increase in assets – accounts 3 100,000 18 5,000 receivable and increase in owner’s equity – service income by P16,000. Gomez, Drawings Entry: Debit Accounts Receivable P16,000 and March 18 5,000 Credit Service Income P16,000.  Accounts Receivable March 24 16,000 March 31 Paid for office rent P10,000 and salaries of workers P9,000. Analysis: Decrease in assets – cash P19,000 Service Income and decrease in owner’s equity – rent expense March 21 15,000 P10,000 and salaries expense P9,000. 24 16,000 Entry: Debit Rent Expense P10,000, Debit Salaries Expense P9,000 and Credit Cash P19,000. Rent Expense March 31 10,000 March 25 Paid PLDT for telephone service P500. Utilities Expense Salaries Expense March 25 500 March 31 9,000 Analysis: Decrease in assets – cash and decrease in owner’s equity – utilities expense by P500. Cash Entry: Debit Utilities Expense P500 and Credit March 1 50,000 March 7 45,000 Cash P500. 3 100,000 18 5,000 21 15,000 20 55,000 Cash 30 8,000 22 1,500 March 1 50,000 March 7 45,000 25 500 3 100,000 18 5,000 31 19,000 21 15,000 20 55,000 22 1,500 THE JOURNAL 25 500 In using the T-account device discussed earlier, a part March 27 Billed Faculty Club of Angelicum P20,000 for a of the transaction is recorded in one account and the other tour of Metro Manila. part of the transaction in another account. For example, an Analysis: Increase in assets – accounts initial transaction was recorded as debit in cash ledger 101 and receivable and increase in owner’s equity – in the car ledger 201 and credit in the capital ledger 501. service income by P20,000. Considering the huge volume of transactions that occur in a Entry: Debit Accounts Receivable P20,000 and day, it would be very difficult to see the effect of the transaction Credit Service Income P20,000. at a glance because of the separate ledgers of accounts Service Income maintained. Likewise, it would be very difficult to remember a March 21 15,000 month or so why a particular account was debited or credited 24 16,000 unless you trace this from one account to another account. 27 20,000 There is therefore a need to record the transactions initially in one place by using a journal which is also called the book of Accounts Receivable original entry. The debits and credits of each account are March 24 16,000 recorded chronologically by day. The simplest form of journal is 27 20,000 the two-column general journal and the process of recording in this book is called journalizing. Each entry made is called a journal entry. A journal entry contains the following items: 1. Date March 30 Collected P8,000 from customer, Mr. Gray. 2. The account title and the amount debited Analysis: Increase in assets – cash and 3. The account title and the amount credited decrease in assets – accounts receivable by P8,000. Explanation Entry: Debit Cash P8,000 and Credit Accounts Receivable P8,000. To illustrate how to record transactions in the general journal, we will use the transactions of Happy Tour and Travel. Cash March 1 50,000 March 7 45,000 3 100,000 18 5,000 The following rules should be observed on each page of a 21 15,000 20 55,000 General Journal: 30 8,000 22 1,500 25 500 1. Enter the column headings; date, accounts and explanation, Accounts Receivable F, debit and credit. March 24 16,000 March 30 8,000 2. Enter on the date column the year and the month. The March 2720,000 month is written only once until you move to the next month. Enter the date in a smaller margin beside the month.  to Zace