ACCT 1A&B: Fundamentals of Accounting

BCSV

Fundamentals of Accounting Part I

The Double-Entry Bookkeeping System
ACCOUNTING CYCLE: Journalizing – Preparation of Trial balance

I. CONCEPTUAL SKILLS

Multiple Choice
Choose the letter of the best answer.

1. The first step in the accounting cycle is to

A. Record transactions in a journal.
B. Analyze transactions from source documents.
C. Post journal entries to general ledger accounts.
D. Adjust the general ledger accounts.

2. Which is not among the first five steps in the accounting cycle?
A. Record transactions in a journal.
B. Analyze transactions from source documents.
C. Post journal entries to general ledger accounts.
D. Financial statements are prepared.

3. The manner in which the accounting record are organized and employed within a business is
referred to as
A. Accounting system
B. Business document
C. Voucher system
D. Special journals

4. In recording transactions
A. The word debit means increase and the word credit means decrease.
B. Assets, expenses, and drawing accounts are debited for increases.
C. Liabilities, revenue, and drawing accounts are debited for increases.
D. Assets, expenses, and capital accounts are debited for increases.

5. Which is not true concerning the rules of debit and credit?

A. The left side of an account is always the debit side and the right side is always the credit side.
B. Increases in assets and expenses are debit entries and increases in liabilities, equity and
revenue are credit entries.
C. The normal balance of any account appears on the side for recording increases.
D. The word debit means to increase and the word credit means to decrease.

6. Debits
A. Increase assets and decrease expenses, liabilities, revenue and equity.
B. Increase assets and expenses and decrease liabilities, revenue and equity.
C. Increase assets and equity and decrease liabilities, expenses and revenue.
D. Decrease assets and expenses and increase liabilities, revenue and equity.

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7. In an accrual accounting system

A. All accounts have normal debit balances.
B. A debit entry is recorded on the left-hand side of an account.
C. Liability, capital, and withdrawal all have normal credit balances.
D. Revenue is recorded only when cash is received.

8. A simple journal entry

A. Consists of one debit and one credit.
B. Consists of two debits and one credit.
C. Consists of one debit and two credits.
D. Is a memorandum entry.

9. A journal entry that contains more than two accounts is called

A. A posted journal entry
B. An adjusting journal entry
C. A compound journal entry
D. An erroneous journal entry

10. What function do accounting journals serve in the accounting process?

A. Recording
B. Classifying
C. Summarizing
D. Reporting

11. The debit and credit analysis of a transaction normally takes place
A. Before an entry is recorded in a journal.
B. When the entry is posted to the ledger.
C. When the trial balance is prepared.
D. At some other point in the accounting cycle.

12. Which of the following is not a possible combination of a journal entry?

A. Increase in asset and increase in liability.
B. Decrease in equity and increase in liability.
C. Decrease in liability and decrease in asset.
D. Increase in asset and decrease in equity.

13. The normal balance of an account is on the

A. Debit side of the account.
B. Credit side of the account.
C. Side represented by increases in the account balance.
D. Side represented by decreases in the account balance.

14. The purchase of equipment on account

A. Increases asset and decreases liability.
B. Increases asset and liability.
C. Decreases equity.
D. Decreases asset and liability.

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15. What is the effect if an entity collected in full an account receivable?

A. Assets increase
B. Assets decrease
C. Assets are not be affected
D. Equity increases

16. A common business transaction that would not affect the amount of equity is
A. Signing a note payable to purchase machinery.
B. Incurrence and payment of water bill.
C. Billing of customers for services rendered.
D. Withdrawal of the owner.

17. The double entry accounting system means

A. Each transaction is recorded with two journal entries.
B. Each item is recorded in a journal entry and then in a general ledger account.
C. The dual effect of each transaction is recorded with a debit and credit.
D. All of these describe the double entry system.

18. The accounting equation must remain in balance

A. Throughout each step in the accounting cycle.
B. Only when journal entries are recorded.
C. Only at the time the trial balance is prepared.
D. Only when formal financial statements are prepared.

19. The book of original entry is also known as

A. Subsidiary ledger
B. Trial balance
C. General ledger
D. Journal

20. A general journal

A. Chronologically lists transactions and other events expressed in terms of debit and credit.
B. Contains one record for each of the asset, liability, equity, revenue, expense.
C. Lists all the increases and decreases in each account in one place.
D. Contains only adjusting entries.

21. Posting is to the process of transferring information from

A. Journal to the general ledger.
B. General ledger to the journal.
C. Source document to the journal.
D. Journal to the source document.

22. What function do general ledgers serve in the accounting process?

A. Reporting
B. Summarizing
C. Classifying

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D. Recording

23. A chart of accounts is

A. A flowchart of all transactions.
B. An accounting procedure manual
C. A journal
D. A list of all account titles in the general ledger

24. The trial balance

A. Proves that debits are greater than credits when the entity has net income.
B. Uncovers any errors in journalizing and posting prior to preparation of financial statements.
C. Is useful in preparing the financial statements.
D. All of the choices are correct.

25. Which of the following is not a principal purpose of an unadjusted trial balance?
A. It proves that debits and credits of equal amounts are in the ledger.
B. It is the basis for any adjustments to the account balances.
C. It supplies a listing of open accounts and their balances.
D. It proves that debits and credits were properly entered in the ledger accounts.

26. Which of the following statements is true regarding the trial balance?
A. Preparation of the trial balance ensures that all amounts have been posted to the correct
accounts.
B. Preparation of the trial balance is a step in the recording process.
C. Preparation of the trial balance determines that total debits equal total credits.
D. Preparation of the trial balance determines that total debits equal total credits and that all
amounts have been posted to the correct accounts.

27. Which of the following statements regarding a trial balance is false? A trial balance…
A. Is a test of the equality of the debit and credit balances in the ledger.
B. Is a list of all of the open accounts in the ledger with their balances.
C. Proves that no errors of any kind have been made in the accounts during the accounting
period.
D. Helps to localize errors within an identifiable time period.

28. Numerous errors may exist even though the trial balance columns agree. Which of the following
is not one of these errors?
A. A transaction is not journalized.
B. Transposition error
C. A journal entry is posted twice.
D. A transaction is recorded and posted at an incorrect amount.

29. A trial balance may prove that debits and credits are equal but
A. An amount could be entered in the wrong account.
B. A transaction could have been entered twice.
C. A transaction could have been omitted.
D. All of these.

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30. Which of the following errors will cause an imbalance in the trial balance?
A. Omission of a transaction in the journal.
B. Posting an entire journal entry twice to the ledger.
C. Posting a credit to accounts payable as a credit to accounts receivable.
D. Listing the balance of an account with a debit balance in the credit column of the trial
balance.

II. COMPUTATIONAL AND ANALYTICAL SKILLS

Supply the answer.

Problem 1: On April 5, Bag Ong Bookas established an interior decorating business, Bag Ong Deko
Rasyon. During the remainder of the month, Bag Ong completed the following transactions related to the
business:

Apr. 5 Bag Ong transferred cash from a personal bank account to an account to be used for the
business, P18,000
6 Paid rent for the period of April 6 to end of month, P2,000 (an expense account was debited)
7 Purchased office equipment on account, P10,500
8 Purchased a used truck by paying P10,000 cash, which represents 125% of the amount on
credit.
10 Purchased supplies for cash, P1,315 (an asset account was debited)
12 Received cash for job completed, P7,300
20 Paid annual premiums on property insurance, P1,200 (an asset account was debited)
23 Recorded jobs completed on account and sent invoices to customers, P4,950
24 Received an invoice for truck expenses, to be paid next month, P450
29 Paid utilities expense, P750
Paid miscellaneous expenses, P210
30 Received cash from customers who owe, P2,200
Paid salaries of employees, P3,000
Paid creditor a portion of the amount owed for equipment purchased on April 7, P1,800.
Withdrew cash for personal use, P3,500

1. How much is the total assets as of Apr. 30, 2013?

2. How much is the profit (loss) for the month ended Apr. 30, 2013?
3. How much is the business’ equity as of Apr. 30, 2013?
4. What is the trial balance debit column total?

Problem 2: Transactions of Chris’ Computer Repair Shop are as follows:

Jun 1 Chris invested P 210,000 in Chris’ Computer Repair Shop.
e
3 Purchased repair equipment from XYZ equipment for P 30,000. A check was issued in the
amount equal to ¼ of the said amount, with the balance being placed on account.
6 Repaired a customer’s computer, billing him P 5,250 on billing #500.
8 Repaired a customer’s computer, received 80% of the total amount due and P 1,760 of
which was placed on account. The billing slip was #501
11 Received and paid the telephone bill by issuing check in the amount of P 3,300.

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15 Purchased repair supplies by issuing check in the amount of P 1,900.

17 Collected the amount due from the customer of billing slip #500.
18 Issued check in the amount equal to ¾ of the remaining amount to XYZ equipment as
payment for the equipment purchased on May 3.
21 Repaired a customer’s computer and collected P 7,000.
24 Received electric bill for the month of May in the amount of P 1,990.

Determine the correct amount of the following for the month of May:
5. Total cash collections.
6. Total cash available.
7. Total Assets.
8. Profit (loss).
9. Owner’s equity.

Problem 3: Ms. Bartolome established an enterprise to be known as Kakaibabe Designs, on April of the
current year. During the year, she completed the following business transactions:

Apri 1 Ms. Bartolome transferred cash from her personal bank account to an account to be used
l for the business, P 500,000.
3 Purchased supplies for cash, P 25,000. (An asset account was used)
7 Purchased equipment on account, P 50,000.
1 Purchased a truck for P 175,000, paying P 80,000 cash and giving a note payable for the
0 remainder.
1 Received cash for job completed, P 200,000.
1
1 Purchased supplies on account, P 40,000. (An asset account was used)
2
1 Paid wages of workers, P 60,000.
4
1 Paid premiums of property and casualty insurance, P 2,000 (an asset account was debited).
6
1 Paid half to creditor for equipment purchased on April 7.
7
1 Recorded services to customers on account and sent invoices to customers, P 250,000.
9
2 Received cash for job completed, P 90,000. The amount had not been recorded previously.
1
2 Received an invoice for truck repairs, P 4,000.
4
2 Paid utilities expense, P 1,500.
5
2 Paid miscellaneous expense, P 500.
7
2 Received cash from customers on account, P 100,000.
8
3 Paid wages of workers, P 80,000
0 Withdrew cash for personal use, P 20,000.

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Determine the following:

10. Cash balance as of April 30.
11. Service Revenue earned during April.
12. Net income for the month of April.
13. Total Assets as of April 30.
14. Owner’s Equity as of April 30.
15. Trial balance credit column total.

Problem 4: On December 1, 2015, the existing accounts and balances of Julia Oliveros, attorney-at-law,
show the following:

ACCOUNT TITLE: AMOUNT:

Cash P 678,232
Accounts Receivable 1,781,400
Office supplies 229,200
Account payable 875,300
Oliveros, Capital 1,655,228
Oliveros, Drawings 1,300,000
Civil legal fees earned 2,433,000
Criminal legal fees earned 2,510,000
Office rental expense 1,500,000
Office furniture rental expense 900,000
Office equipment rental expense 450,000
Telephone expense 368,778
Electricity expense 265,918

Transactions during December 2015:

Dec 5 Issued check in the amount of P 100,000 in payment of an account payable.
.
1 Issued check in the amount of P 23,689 for the purchase of office supplies.
1
1 Recorded the week’s cash receipts from customers on account, P 151,500.
3
2 Issued check in the amount of P 170,000 to Julia Oliveros to pay personal expenses.
0
2 Provided civil legal services in the amount of P 17,500 issuing billing slip #1333.
2
2 Recorded the week’s cash receipts from clients on account, P 99,000
5
2 Issued check in the amount of P 42,500 in payment of an account payable.
7
2 Provided criminal legal services to a client in the amount of P 312,000. The billing slip was
9 #952.
3 Received the electric and telephone bill for the month of December in the amount of P
0 18,954 and P 35,712, respectively.

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Determine the following:

16. Total Assets as of December 31, 2015.
17. Total Revenues earned during 2015.
18. Oliveros, Capital as of December 31, 2015.
19. Trial balance debit column total.

Problem 5: Selected information for Storm Spirit Company for the year 2013 follows:
December 31, 2013 December 31, 2012
Cash 11,200 P51,250
Accounts Receivable –trade P302,450 287,600
Collections from customers on
credit P595,500

20. How much was the cash payments during 2013?

21. How much revenue on credit was earned during 2013?

Problem 6: Selected information for Necrolyte Company for the year 2013 follows:
December 31, 2012 December 31, 2013
Cash P45,550 P32,400
Cash payments during the year P234,700

22. How much was collected from customers during 2013?

Problem 7: Some information that was taken from the books of Earth Spirit Corporation are as follows:

Beginning End
Cash P131,250 204,340
Accounts receivable 93,000 234,500
Service income for the year (all are on credit) P312,000
Kaolin, Capital ? 312,500
Liabilities 42,520 ?

Assuming there were no additional investments nor withdrawal during the year.
23. How much was collected from customers during the year?
24. What is the total amount of cash disbursements during the year?
25. Assuming total assets, beginning and end is P451,200 and P502,300 respectively, How
much is the net income (loss) during the year?
26. Based on #25, How much is the net increase / decrease in liabilities during the year?

Problem 8: Below is a trial balance of Butcher, Inc. as of December 31. It was full of errors:

Butcher Inc.
Trial Balance
December 31, 2013

Cash 75,350
Accounts Receivables 23,600

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Prepaid insurance 3,300

Equipment 86,000
Accounts payable 9,450
Unearned rent 2,570
Pudge, capital 91,615
Pudge, drawing 10,000
Service revenue 64,940
Salaries expense 33,400
Advertising expense 5,200
Miscellaneous expense 1,380
291,765 115,040

When the ledger and other records are reviewed, you discover the following: (a) the debits and credits in
the cash account total P75,350 and P53,975, respectively. (b) a billing of P1,000 to a customer on account
was not posted to the accounts receivable account. (c) a payment of P1,500 made to a creditor on
account was not posted to the accounts payable account. (d) the balance of the unearned rent account is
P2,750. (e) the correct balance of the equipment account is P68,000. (f) some accounts were placed in the
wrong side of the trial balance.

27. How much is adjusted total assets as of December 31, 2013?

28. How much is the net income (loss) for the year ended December 31, 2013?
29. What is the adjusted trial balance debit column total?

Problem 9: Given is a trial balance of Mortred Corporation as of October 31, 2013:

Mortred Corporation
Trial balance
October 31, 2013
Cash 8,010
Accounts receivable 16,400
Prepaid insurance 2,400
Equipment 52,000
Accounts payable 1,850
Salaries payable 750
Mortred, capital 39,600
Drawing 5,000
Service revenue 78,700
Salaries expense 28,400
Advertising expense 7,200
Miscellaneous expense 1,490
94,150 94,150

30. What is the adjusted trial balance total?

Problem 10: Enigma Co. has the following trial balance as of March 31:

Cash 7,315

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Accounts Receivable 5,545

Supplies 1,010
Prepaid insurance 250
Equipment 25,000
Bank loan 20,000
Accounts payable 4,960
Capital 18,800
Drawing 5,500
Fees earned 54,790
Salaries expense 31,100
Rent expense 7,455
Advertising expense 320
Miscellaneous expense 1,505
85,000 98,550

The debit and credit totals are not equal as a result of the following errors:
a. The balance of cash was understated by P900
b. A cash receipt of P1,750 was posted as a debit to cash of P7,150
c. A debit of P2,500 for a withdrawal by the owner was posted as a credit to capital
d. The balance of P3,200 in advertising expense was entered as P320 in the trial balance
e. A debit of P580 to accounts receivable was not posted.
f. A return of P125 of defective supplies was erroneously posted as a P215 credit to supplies
g. The balance of bank loan was overstated by P5,000
h. An insurance policy acquired at a cost of P150 was posted as a credit to prepaid insurance.
i. Utilities expense, with a balance of P3,150. Was omitted from the trial balance
j. A debit of P1,050 in accounts payable was overlooked when determining the balance of the
account.

31. How much is the correct owner’s equity as of March 31?

32. How much is the adjusted prepaid insurance account?
33. What is the correct trial balance total?

Problem 11: The trial balance of Armada Corporation as of November 30 is presented below:

Cash 19,500
Accounts receivable 28,600
Prepaid insurance ?
Office supplies 625
Accounts payable 3,250
Sarah, capital 12,625
Sarah, drawing ?
Fees earned 158,725
Salaries expense 83,075
Rent expense 16,000
Advertising expense 10,500
Miscellaneous expense 4,550

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Prepaid insurance is equal to 17.5% of the drawing account balance. The trial balance columns agree on
November 30.

The following business transactions were completed by Armada during December:

Dec. 1 Purchased office supplies on credit, P1,100

2 Paid rent on office for the month, P1,600 (An expense account was debited)
3 Received cash from clients on credit, P24,200
8 Paid annual insurance premiums, P1,925
14 Paid advertising expense, P2,150
23 Paid creditors, 1,650
29 Paid miscellaneous expense, P1,065
31 Paid salaries for the month, P10,850.
Recorded revenue earned and billed to clients during the month, P26,200
Purchased land for a future building site for P50,000, paying P10,000 in cash and the balance
is payable on January.
Withdrew cash for personal use, P2,500.

34. What is the balance of the prepaid insurance as of Nov. 30?

35. How much is the total assets as of December 31?
36. How much is the net increase / decrease in total liabilities?
37. What is the December 31 trial balance credit column total?

Problem 12: Selected information for Masterpiece Company for the year follows:
Collections from customers 2,100,000*
Increase (decrease) in cash account during the year 30,000
Owner’s Equity, Jan. 1 50 2/3% of assets
Increase (decrease) in Accounts receivable account during the year 170,000
*including P340,000 cash income from customers.

Additional information:
 On January 1, the amount of liabilities is P 10,000 lower than owner’s equity.
 Assets increased by 17 1/3 % throughout the year.
 On December 31, the amount of owner’s equity is P 100,000 higher than its liabilities.
 There were no additional investments or withdrawal by the owner during the year.

38. What is the Net profit for the current year?

39. What is the amount of expenses incurred for the current year?
40. What is the amount of cash disbursement for the current year?

Compute the following balances on January 1.

41. Total assets
42. Total liabilities
43. Owner’s equity
Compute the following balances on December 31.
44. Total assets
45. Total liabilities

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46. Owner’s equity

Problem 13: the following trial balance of ABC Services as of December 31 of the current year does not
balance because of a number of errors:

Cash P 13,000
Accounts receivable 30,840
Supplies 8,700
Prepaid insurance 2,140
Equipment 69,400
Notes payable 14,000
Accounts payable 5,650
ABC, Capital 31,200
ABC, Drawing 2,000
Service income 147,500
Wages expense 46,500
Rent expense 6,000
Advertising expense 510
Utility expense 1,920
P 181,010 P 198,350

In the process of comparing the amounts in the trial balance with the ledger, re-computing the balances
of the accounts, and comparing the postings with the journal entries, the errors described below were
discovered:
(a) The balance of cash was understated by P 5,000.
(b) The cash receipt of P 1,200 was posted as debit to cash of P 2,100.
(c) A credit of P 600 to accounts receivable was not posted.
(d) A return of P 750 of defective supplies was erroneously posted as P 570 credit to supplies.
(e) An insurance policy acquired at cost of P 1,480 was posted as a credit to prepaid insurance.
(f) A debit of P 2,250 in accounts payable was overlooked when determining the balance of the
account.
(g) The balance of notes payable was overstated by P 1,000.
(h) A debit of P 5,100 in advertising expense was entered as P 510 in the trial balance.
(i) Miscellaneous expense with a balance of P 3,220 was omitted from the trial balance.

Determine the following:

47. Adjustments made to total assets to bring it to its correct balance.
48. Adjusted net income (loss) for the current year.
49. Adjusted liabilities.
50. Adjusted owner’s equity.
51. Adjusted total assets.
52. Adjusted trial balance total.

“Always do your best. What you plant now, you will harvest later.”
~Og Mandino

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Suggested Key
I. CONCEPTUAL SKILLS
1. B 16. A
2. D 17. C
3. A 18. A
4. B 19. D
5. D 20. A
6. B 21. A
7. B 22. C
8. A 23. D
9. C 24. C
10. A 25. D
11. A 26. C
12. D 27. C
13. C 28. B
14. B 29. D
15. C 30. D

II. COMPUTATIONAL AND ANALYTICAL SKILLS

1. P37,490 27. P117,275
2. P5,840 28. P24,960
3. P20,340 29. P167,255
4. 47,400 30. P120,900
5. P 19,290 31. P16,680
6. P 199,715 32. P550
7. P 233,375 33. P90,000
8. P 15,760 34. P1,750
9. P 225,760 35. P97,960
10. 596,000 36. P39,450
11. P 540,000 37. P240,250
12. P 394,000 38. P110,000

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13. P 1,038,000 39. P2,160,000

14. P 874,000 40. P 2,070,000
15. P 1,204,000 41. 750,000
16. P 2,705,832 42. 370,000
17. P 5,272,500 43. 380,000
18. P 1,918,366 44. 880,000
19. P 7,715,194 45. 390,000
20. P635,550 46. 490,000
21. P610,350 47. P 6,280 increase
22. P221,550 48. P 84,760
23. P170,500 49. P 16,400
24. P97,410 50. P 113,960
25. (P96,180) 51. P 130,360
26. P147,280 increase 52. P 195,100

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