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CHAPTER 9: RECORDING -a book of original entry that records only TRANSACTIONS IN SPECIAL one kind of transaction. JOURNALS -this transaction is repetitive or occurs Journal...

CHAPTER 9: RECORDING -a book of original entry that records only TRANSACTIONS IN SPECIAL one kind of transaction. JOURNALS -this transaction is repetitive or occurs Journal several times during the course of business -where business transactions are recorded. operations. Types of Journal -are used to record specific transactions only, and in tabular form. General Journal -a book of original entry wherein all kinds of Advantages of using the Special Journals business transactions are recorded. ​ Permits division of labor ​ Reduces recording time -it contains a chronological record of all ​ Posting of entries from the journal to transactions and events that compose the the ledger is minimal. financial listing of the economic entity. ​ Information needed can easily be obtained. -it records transactions that could not be ​ More economical since the time recorded in the special journals such as; spent is reduced. ​ Tracing of transactions is faster and ​ sales returns easier. ​ purchase returns ​ Easy to analyze ​ adjusting entries ​ correcting entries Journals and their uses ​ amortizations ​ investments other than cash Journals Transactions Supporting Documents Disadvantages of not using special journals: ​ Only one person can use the books at Sales Sales on account Sales invoice a time Journal ​ There are numerous postings from Purchase Purchases on Sales the journal to the general ledgers of s Journal account invoice/delivery similar transactions. receipt/purchase ​ Information needed is difficult to order obtain. Cash All cash receipts Official Receipts ​ More works to be done compared Receipt or collections with the use of special journals. Journal including cash sales Special Journal Cash All cash Cash Voucher/ Payment payments Check Voucher Journal including cash -they are evidenced by a Purchase Order, purchases Charge Invoice, etc. General Investments other Journal Voucher General Journal Journal than cash, -transactions that cannot be entered in any Adjusting special journals. Entries, Closing Entries, Reversing -Examples are sales returns and allowances, Entries, purchase returns and allowances, correcting Returning of journal entries, closing and reversing journal Goods purchased entries. and sold CHAPTER 11: ADJUSTING THE Sales Journal ACCOUNTS, AND PREPARATION OF -a special journal designated to record sales WORKSHEET AND FINANCIAL on account. STATEMENTS. - Most of the companies at present are CHAPTER 10: ACCOUNTING FOR extending credit to the customers to increase RECEIVABLES sales. Receivables -A sales invoice is issued to the customer as -are financial assets that represents a an evidence of the transaction. contractual right to receive cash or asset from another entity. Cash Receipts Journal -a special journal wherein all collections Types of Receivables including cash are recorded. Trade Receivables -An Official Receipt is issued every time the -receivables from the sale of goods and business firm receives cash. services in the ordinary course of business. Cash Payments Journal Accounts Receivables -special journal designed to record all types -receivables not supported by promissory of cash disbursements. notes. -The source document used for cash Notes Receivables payment is the cash voucher. -receivables supported by promissory notes. Purchases Journal -interest receivables, advance to employees, -a special journal where purchases journal loans to employees and companies, receivable from insurance companies, -Total sales / Net sales is multiplied with the governments, overpayments. experience rate of uncollectible. Uncollectible Accounts or Bad Debts -The allowance for bad debts per book is not -A certain percentage of receivables may not considered in the computation. be college due to several factors. Example: -It is estimated based on companies past Apple Company experienced a 1% experience. uncollectibility of its sales on account. Sales on account amounted to P3,000,000, Causes of uncollectibility of accounts: Accounts Receivable 1,190,000 -Bankruptcy of the debtor Amount Debit Credit -Disappearance of the debtor Bad Debts Expense 30,000 -Death, insanity, disability of the debtor Allowance for 30,000 Doubtful Accounts -Discontinuance of the business of the debtor. (3,000,000 x 1%) Accounting for Bad Debts Percentage of Accounts Receivable -Used Accounts Receivable for allocating Allowance Method vs Direct write off doubtful accounts multiplying it with the method experience rate of uncollectible. Example: Amount Debit Credit Bad Debts Expense 20,700 Allowance for 20,700 Doubtful Accounts Methods of Estimating Doubtful Required Accounts / Bad Debts Allowance - Per Books = Adjustment Percentage of Net Credit Sales -Using Sales for computing bad debts. (35,700 - 15,000 = Companies used total sales or net sales 20,700) Aging of accounts receivable Notes Receivable & Notes Payable -The most commonly practiced in estimating -are evidenced by a promissory note the uncollectible accounts. Promissory Note -Are classified as current or not due and past -a written unconditional promise to pay the due or overdue. lender or someone else who acquires the note, a sum of money, on demand or definite Example: time, signed by the maker. Outstand Company’s Required ing experience Allowanc -it can either be interest bearing or Balance rate e non-interest bearing note. It is dependent upon the arrangement or agreement of both parties. 1-30 P600,00 2% P12,000 days 0 overdue Notes may arise from the following transactions: 31-60 200,000 3% 6,000 -Loans involving a bank or an individual or lending institutions. 61-90 150,000 5% 7,500 -Purchases on account 91-120 100,000 10% 10,000 -Services rendered -Settlement of existing accounts with notes 121-180 75,000 15% 11,250 181-360 50,000 25% 12,500 Two parties involved in a promissory note: 1 year 10,000 50% 5,000 Maker up -the one who made and signed the note and makes payment upon due date. Statement of Financial Position Presentation -Also known as borrower or debtor. Payee Accounts 1,190,000 -the one whose order the note is payable and Receivable receives payment upon due date. Allowance for bad (39,500) -also known as lender or creditor debts Net Realizable 1,150,000 Value  C.One hundred twenty days after date, I promise to pay” -The exact number of days must be counted to determine the maturity date. Example: Maturity Date: February 19, 2023 February 9 March 31 Determination of Maturity or Due Date April 30 On demand May 31 -”On demand, I promise to pay” June 19 -The maturity date cannot be determined Total 120 days because it is dependent on the will of the payee. Honored and Dishonored Note On stated date -”on February 19, 2023, I promise to pay” Honored -when the maker pays it at the due date. -The maturity date is stated Dishonored At the end of a stated period -when the maker failed to pay the note at the maturity date. A.”one year after date, I promise to pay” Honored and Dishonored Entry’s -The maturity date is on the same day and month of the following year. B.”One month after date, I promise to pay” -The maturity date is the next month Discounting of notes without recourse Entry of Discounting of Note -This happens when the holder of the note needs additional capital to finance his Loss N/R Discounting business operations. Instead of holding the Cash xxx note he/she then transfers the note to the bank. Loss on xxx N/R -The bank will then compute the discount Discounting and deduct it from the maturity value. Notes xxx Receivable The discount and cash proceeds are computed as follows: Interest xxx Income 1.Compute for the Maturity Value Maturity Value/ MV = Principal + Interest (Principal x Rate x time (x/360) Gain N/R Discounting Cash xxx 2.Compute for the discount Discount = Maturity Value x Discount Rate Gain on xxx x Discount Period. N/R Discounting 3.Discount Period Notes xxx Date of Discounting - Maturity Date Receivable (Difference of Former and Latter) Interest xxx Income 4.Net Proceeds Net of Proceeds = Maturity Value - Discount Terminologies 5.Carrying Amount Principal + Carrying Amount (Principal x Principal - refers to the face value of the 12% x Maturity Date - Date of note or the amount borrowed Discount/360). Interest - refers to the rental for the use of money or charges for borrowed money. It is 6.Gain or Loss on note receivable computed by multiplying the principal discounting amount by interest rate multiplied by time. -the difference between the net proceeds I= PxRx T from discounting of the note and the carrying amount of the note receivable. Interest Rate - refers to the percentage or factor imposed as charges for the borrowed Net Proceeds - Carrying Amount of N/R money. It is the rate appearing on the face of the Time - refers to the period from the date of note. the note up to the maturity date. It may be expressed in days, months, or years. Interest Expense - refers to the interest that a debtor is obliged to pay to the creditor. Discounting Notes - refers to the act of transferring a note with recourse to a bank. Interest Income - refers to the interest that a With recourse means that the bank can creditor is entitled to receive from the collect from the entity or person who debtor. transferred the note to the bank incase the maker failed to pay the note at maturity date. Maturity Value - refers to the amount that is due at the maturity date. It is equal to Proceeds - refers to the amount received by Principal the endorser from the endorsee. It is equal to + interest earned. Maturity Value less discount. Maturity Date - refers to the date when the Discount - refers to the amount deducted note becomes due for payment or collection. from the maturity value. D = MV x DR x It is also known as the due date. DP. Date of the Note - refers to the date when D - Discount; MV - Maturity Value; DR - the note was made and signed. Discount Rate; DP - Discount Period Term of the note - refers to life of the note. Discount Rate - refers to the rate charged It may be expressed in days, months or by the bank upon discounting. years. Discount Period - refers to number of days Maturity Value of a Non Interest Bearing from the date of discounting up to the Note - it is equal to the face amount of the maturity date of the note. note. CHAPTER 11: ADJUSTING THE Maturity Value of and Interest Bearing ACCOUNTS AND PREPARATION OF Note - it is equal to face amount of the note WORKSHEET AND FINANCIAL + interest. STATEMENTS Interest Bearing Note - refers to the note Adjusting Inventory Account that provides for the payment of interest for the period from the issuance date to the Perpetual Inventory System maturity date. -all purchases during the period are debited to the Inventory account. -the balance of the Inventory account can be -Accrued Income determined even without physical count. -Amortization of cost of fixed assets -Provisions for the allowance for bad debts -Sale of inventory is credited to the same or uncollectible amounts. account. Notes Periodic Inventory System -all purchases are debited to the Purchases Net Sales(Note 4) account. Sales Pxxx -ending Inventory can be determined by actual or physical count of inventories on Sales Ret & xxx hand. Allow Sales xxx (xxx) The Inventory in the unadjusted trial balance Discounts represents the beginning Inventory. Net Sales Pxxx Adjusting Entries for Merchandising/Manufacturing Concern​ Cost of Sales (Note 5) 1.Adjust or close the beginning Inventory Inventory Beg Pxxx account to Income Summary account Purchases (xxx) Purchases Ret (xxx) Income xxx & Allow Summary Purchases (xxx) (xxx) Inventory xxx Discount Net xxx 2.Setup Ending Inventory Freight In xxx Inventory xxx Net Purchases xxx Income xxx Total Goods xxx Summary Available for Sale 3.Activities that have not been previously Inventory, end (xxx) recorded. Cost of Goods Pxxx / -Accrued Expenses Sold (Pxxx) Selling Expenses (Note 6) A.voucher register B.check register Salaries Pxxx Procedures in Voucher system to insure Freight Out xxx internal control over cash disbursements; Advertising xxx -a voucher must be prepared first for every Store Supplies xxx transaction that involved payment. Total Operating Expense Pxxx -A voucher must be recorded in the voucher register Administrative Expenses (Note 7) -A check will be issued upon payment Salaries Pxxx -A check must be recorded in the check Insurance xxx register. Office Supplies xxx Depr. Expense - Bldg xxx Voucher -refers to any document that serves as Total Administrative Pxxx evidence of authority to pay cash. Expense -a special form use din recording data Fixed Assets (Note 8) pertaining liability and the purpose of its payment. Land Pxxx -are customarily prepared by the accounting Building xxx department on the basis of an invoice or a Office Equipment xxx memorandum or a contract. Depr. Expenses (xxx) -should be approved by the authorized officers. Net Fixed Assets Pxxx Voucher VS Check CHAPTER 12: VOUCHER SYSTEM Voucher Voucher System -must be prepared for each payment. -is composed of records, methods, and procedures employed in verifying and Check recording liabilities and in paying and recording payments. -may be issued or paid at a later date Drawee depending upon circumstances and the -the bank on which the check is drawn credit terms. Payee Steps that must be done prior to the -the one whose order the check is drawn preparations of vouchers. Check Register -Verification of supporting documents. -a modified form of the cash payments journal. -Comparison of the invoice with the receiving report to assure that the items -a special journal containing chronological billed were received. and serial record of all checks issued. -Verification of the arithmetical accuracy of CHAPTER13: MANUFACTURING the invoice. OPERATIONS -In cases of other payments such as rentals, Manufacturing business security services and other, verify the -engaged in transforming of raw materials contract and other pertinent supporting into new products called finished goods. documents. Transactions Related to the Vouchers Payable Manufacturing Process -Vouchers Payable is used instead of -Investment by the owner Accounts Payable under the voucher system. -Procurement of factory equipment But in financial statements the Account -Constructing or renting of factory plant Payable is preferable. -Procurement of raw materials -Handling of raw materials Voucher Register -Payroll -a journal similar to purchase journal. It is -Incurrence of other factory costs where the voucher is recorded. -Incurrence of operating expenses -Selling of finished goods Check -Collection of receivables due to sales on A written instrument signed by the depositor account. ordering the bank to pay a specified sum of money. Elements of Manufacturing Costs Three parties involved in a check: Prime Costs -Direct Materials & Direct Labor Drawer -the one who signs the check Conversion Costs -Direct Labor & Factory Overhead Allocated costs -costs that are not traceable as to which Direct Materials product will be charged. -are all materials that form an integral part of the finished goods. -Examples are thread used in textile, textile used in dresses, etc. Direct Labor -the labor cost that incurred in converting direct materials into finished product. -Example are wages of carpenter in making furniture, salary of sewer in making dresses. Factory Overhead -known as manufacturing overhead or factory burden. -Cost which are not classified as direct materials nor direct labor. Example: Indirect materials -materials used in production which may form an integral part of the product but the cost and quantity is insignificant. Indirect labor -salary of persons necessary in the production but not directly the one who performed and made the product. Depreciation -factory plan, factory machineries Electricity -electric consumption in the factory plant