CASH/ACCRUAL BASIS

COMPUTATION OF SALES:
Cash sales xx
Add: Sales on account
Trade accounts & notes receivable, end xx
Collection of accounts & notes receivable xx
Sales returns and allowances xx
Sales discounts xx
Accounts written off xx
Notes receivable discounted xx
Total xx
Accounts & Notes receivable, beg (xx)
Recovery of accounts written off (xx) xx
Total Sales xx

COMPUTATION OF PURCHASES
Cash purchases xx

Add: Purchases on account

Trade accounts & notes payable, end xx
Payment of accounts & notes payable xx
Purchase returns & allowances xx
Total xx
Trade accounts & notes payable, beg (xx) xx
Total Purchases xx

COMPUTATION OF INCOME OTHER THAN SALE

Income collected xx
Add. Unearned income, beg xx
Accrued income, end xx xx
Total xx
Less: Unearned income, end xx
Accrued income, beg xx xx
Income for the period xx

COMPUTATON OF EXPENSES EXCLUDING DEP’N & BAD DEBTS

Expenses paid xx
Add: Prepaid expense, beg xx
Accrued expense, end xx xx
Total xx
Less Prepaid expense, end xx
Accrued expense, beg xx xx
Expenses for the period xx

COMPUTATION OF DEPRECIATION
PPE, beg xx
Add: Cost of PPE acquired xx
Total xx
Less: PPE, end xx
book value of PPE sold xx xx
Depreciation xx

Accumulated depreciation, end xx

Add: Accumulated dep’s of PPE sold xx
Total xx
Less: Accumulated depreciation, beg xx
Depreciation xx
COMPUTATION OF BAD DEBTS
Allowance for bad debts, end xx
Add Accounts written off xx
Total xx
Less: Allowance for bad debts, beg xx
Recoveries of accounts written off xx xx
Bad debts expense xx

COMPUTATION OF NET INCOME (LOSS)

SOLE PROPRIETORSHIP
Capital, end xx
Add Withdrawal xx
Total xx
Less: Capital, beg xx
Additional investment xx xx
Net income/1oss) xx

CORPORATION
Retained earnings, end xx
Add: Dividends declared xx
Total xx
Less Retained earnings, beg xx
Net income/(loss) xx

Shareholder’s equity, end xx

Add: Dividends declared xx
Total xx
Less: Additional issuance of shares xx
Net income/(loss) xx

PROBLEM 1
The following are data of JACKIE Corporation for 2013:
Average merchandise inventory 510,000
Merchandise Inventory. Dec 31 495,000
Freight in 75,000
Purchase returns and allowances 105,000
Cost of sales 2.865,000
Required: Net cost of purchases for the year 2013

PROBLEM 2
These are some of the records of KYLE Corporation for the year 2013:
Accounts receivable, Jan. 1 630,000
Accounts receivable, Dec. 31 540,000
Cash rev on accounts receivable 9,600,000
Accounts receivable written off 21,000
Gross sales in 2013 1,650,000
Required Cash sales in 2013

PROBLEM 3

The following data were extracted from the books of MELVIN Corporation for 2013:
Accounts receivable, beg 84,000
Accounts receivable, end 210,000
Receivables found worthless 9,000
Accounts receivable collected 360,000
Cash sales 90,000
Sales discounts granted on collections 15,030
Required: 1. Sales under accrual basis for 2013
2. Sales under pure cash basis for 2013

PROBLEM 4
Certain account balances for 2013 of the JAM Corporation are presented below:
Increases
Assets 3,702,000
Liabilities 1,728,000
Share Capital 1,035,000
Share premium 702,000
Dividends paid 213,000
Required: Net income for 2013

PROBLEM 5
The following are found in the accounting records of HENRY Corporation:
Average merchandise inventory 795,000
Accounts receivable, Jan. 1 1,126,500
Merchandise inventory, Dec. 31 960,000
Accounts receivable, Dec. 31 1,036,500
Freight in 120,000
Cash sales 1.950,000
Purchase returns and allowances 150,000
Cash collected on accounts receivable 4,050,000
Cost of sales 4,590,000
Required Gross sales ¡n 2013
Net cost of purchases in 2013

PROBLEM 6

The following data were taken from the books of JAMES Company or the year 2013
From cash records
Cash sales 120,000
Collections on accounts receivable 917,000
From financial position:
Accounts receivable, Jan. 1, 2013 150,800
Accounts receivable, Dec. 31, 2013 124,200
Allowance for bad debts, Jan. 1, 2013 21 630
From other records:
Provision for estimated bad debts 24,000
Customers’ accounts written off during the year 19,000
Sales returns and allowances 21,200
Required: 1 Net sales for 2013 - Accrual basis
2. Gross sales - Cash basis
3. Allowance for bad debts, Dec. 31, 2013

PROBLEM 7
The following data were taken from the books of HUGSY Company for the year 2013:
From cash records:
Cash purchases 60.0001
Payment to trade creditors for credit purchases 605,200
From financial position:
Accounts payable, Jan, 1, 2013 75,000
Accounts payable, Dec, 31, 2013 86,600
Merchandise inventory, Jan. 1, 2013 25,600
From other records
Purchase returns and allowances 15,000
Cost of goods sold for the year 670,000
Required: 1. Gross purchases - Accrual basis
 2. Gross purchases - Cash basis
3. Merchandise inventory, Dec. 31, 2013

PROBLEM 8

Collection of rental income during 2013 totaled P60,000 Further detai1s follow

1-Jan 31-De:

Rent collected 6,000 8,400

Accrued rent income 3,600 4,800
Required: Rent income - accrual basis

PROBLEM 9

GEORGE runs a small business of her on. Her capital at December 31, 2012 was P72,000; and at
December 31, 2013, P86,000

During 2013, he withdrew the business for his personal use, P3,000. He borrowed 10,000 from
PNB and issued a 12% 120 day note. Interest was deducted in advance. The proceeds from this
loan was turned over to the business but the loan was paidj from his personal funds. This loan
considered an additional investment of George.

Required: Net income for 2013

PROBLEM 10

THEODORE invested in a small service business P20, 000 of his own money and borrowed
another P10,000 from a bank, also for business use.

At the end of its first year of operations he found there was P34, 000 in the business bank
account.
The business owed the suppliers P6,000 and had not repaid the P 10,000 bank loan. The other
business assets were negligible. During the year THEODORE had withdrawn P 12,000 in the
form of salary

Required: Net income for 2013

PROBLEM 11
BRANDON Company provides the following information with respect to its equipment for 2013:
Equipmtflt1 net - January 1 350,000
Equipment acquired 300,000
Equipment sold at cost (accumulated depreciation P75, 000) 125.000
Equipment, net - December 31 450,000
Required: Depreciation for 2013

PROBLEM 12
On January 1, 2013, the capital of MIKE Store was P680,000 and on December 31, the capital
was P960,000. During the year MIKE withdraw merchandise costing P40,000 and with sales
value of P180,000 and paid a P400,000 note payable of the business with interest of 12% for six
months with a check drawn on a personal checking account

Required: Net income for 2013

PROBLEM 13
In its accrual basis income statement for the year ended December 31, 2013, Dennis Corp
reported revenue of P1, 200,000. Additional information follows:
Accounts receivable - January 1 160,000
Accounts written off 8,000
Accounts receivables - December 31 200.000
Required: Revenue under cash basis

PROBLEM 14
PATRICK Corporation reported cash basis sales revenue of P920.000 for the year ended
December 3, 2013. Additional information were as follow:
December 31
2012 2013

Accounts receivable 200,000 260,000

Notes receivable 60,000 60,000

During 2013, uncollectible accounts of P4,000 were written off and note receivable of P40,000
was discounted of P36,000 and credited directly to notes receivable.

Required Sales tinder accrual basis

PROBLEM 15
KENNY Corporation provides the following data for the year 2013:
Cash sales 200,000 -
Collection from customers 1.580,000
Increase ¡n accounts receivable bL 100,000
Decrease in notes receivable b , 20,000
Accounts written off 40,000
Sales discount 80,000
Sales returns and allowances (P8000
Refunded to customers) 28,000
Required: Gross sales for 2013

CORRECTION:

PAS 8 of the Accounting Standards Council requires that errors in the financial statements of a
prior period be reported as prior period errors and reflected as adjustment to the opening
balance of retained earnings.

BALANCE SHEET ERRORS -- Errors that affect balance sheet or real accounts only. It Involves the
Improper classification of an asset, liability and capital account. To correct error of this kind, a
reclassification of account is prepared.

INCOME STATEMENT ERRORS -- Errors that affect the income statement or nominal accounts
only. It involved the improper classification of Income or expense accounts. If discovered in the
same year, a reclassification entry is prepared. If discovered in a subsequent year, reclassifying
entry is no longer necessary.

COMBINED BALANCE SHEET & INCOME STATEMENT ERRORS -- Errors that affect a real and a
nominal account. It can be classified into counterbalancing and non-counterbalancing error.

COUNTER BALANCING ERRORS — Errors which, if not detected area automatically corrected in
the next accounting period, Also called self-correcting error since these errors will be offset or
corrected over two periods.
Examples are:
1. Accrued Expenses 4. Unearned! Deferred Income
2. Accrued income 5. Inventory, including purchases and sales
3. Prepaid Expenses

NONCOUNTERBALANCING ERRORS — Errors which, if not detected are not automatically

corrected in the next period. The best examples are over/under statement of depreciation.

PROBLEM 1
DICKY Company reported net income as follows
2013 1,400.000
2012 1.600,000
2011 1,200,000
As per your audit, you discovered the following:
1 Depreciation for 2012 understated by P72,000
2. Depreciation for 2013 overstated by P12,000.
3. Accrued Interest Expense amounting to P16,000 was not recorded in 2011
4. Overstatement of accrued interest expense amounting to P36, 000 in 2013.
5. 2011 ending inventory was overstated by P48, 000.
6. 2013 ending inventory was understated by P84, 000.

Required: Prepare a worksheet to determine correct net income.

Prepare the necessary correcting entries on December 31, 2014, (Assume the hooks have not
been closed).

PROBLEM 2
MITEI Company reported net income as follows:
2013 1120,000
2012 800.000
2011 800,000
As per year audit, you discovered the following:
1. Accrued salaries not recorded:
2011 12,000
2013 24,000
2. Rental for two years received in 2012 was entirely credited to income. P4,000.
3. Accounts Receivable instead of Notes Receivable was debited In 2013, P8,000
4. Accrued interest income not recorded
2012 4,000
2013 10,000
5. Purchases was debited in 2013 instead of office supplies P2,000.
6. lnsurance Premium for three years paid in 2011 was debited entirely to expense in 2011,
P6000.
7. On January 1, 2012, an equipment costing P16, 000 was sold for P8,000. At the date of sale,
the equipment had an accumulated depreciation of P10, 000, The cash was recorded as other
income in 2012.
8. The ending inventory in 2011, was overstated by P4,000
9. Advances from customers recorded as Sales but the goods were delivered in the following
year:
2011 10, 000
2012 20, 000
10. The ending inventory in 2010 was understated by P6.000
11. Improvements on building amounting to P40,000 had been charged to expense on January
1, 2012. Improvements have a life of 5 years.
12 Advances to Suppliers were recorded as purchases but the merchandise was received in
subsequent year.
2011 12,000
2012 16,000
Required: Prepare a worksheet to determine correct net income
Prepare the necessary correcting entries on December 31, 2013 (Assume the books have not
yet been closed)

Problem 3
CHUMMMY Company reported net Income for two-year period as follows:
2012 7,500.000
2013 10,000,000
In an audit of the statement for the year ended December 31, 2013, the following errors are
discovered:
December 31, inventory understated 50,000
December 31, 2Q, Inventory overstated 45,000
Depreciation for 2012 Understated 10,000
Insurance premium for a three-year period was charged
to expense on January 1, 2012 No payment was recorded 37,000
A fully depreciated machinery was sold on December 31 2013
but the sale was not recorded until 2014. The cost of the
machinery is P500,000 the proceeds from sale amounted to 80,000
Required: a. Worksheet for correction of net income for 2012 and 2013
b. Adjusting entries on December 31, 2013

PROBLEM 4
MINDY Company is a calendar-year company. Its financial statements for 2012 and 2013
contained errors as follows:
December 31, 2012 inventory overstated 87,500
December 31, 2013 inventory understated 25 000
Depreciation for 2012 overstated 62,500
Depreciation for 2013 understated 20,000
December 31, 2012 prepaid insurance Understated 12.500
December 31, 2013 ur1earrd rent overstated 10000
December 31, 2013 accrued salaries 50.000
Required: 1. What is the effect of the errors on the following:
a. Net Income for 2013
b Retained earnings on December 31 2013
c. Working capital on December 31, 2013

PROBLEM 5- BALANCE SHEET ERRORS

In your examination of the financial statements of YONEX Company for the year ended
December 31, 2013, you discovered the following errors. Prepare the necessary adjusting
entries
1. A check for P16,000 from a customer to apply to his account was erroneously credited
Accounts Payable when received on Dec 24, 2013.
2. A check was cleared by the bank as P15,000 on December 5, 2013 but was recorded by the
book keeper as P11.400 This was in payment of an employee cash advance
3. Trade accounts receivable includes P22,500 advances to Officers and Employees

PROBLEM 6 - INCOME STATEMENT ERRORS

1. Cash payments on Oct. 10, 2013 for advertising expenses in the amount of P35,000 was
erroneously charged to Legal expense.

2. lnterest collection from a notes receivable amounting to P5.000 which was received on
December 30, 2013 was deposited and recorded on the same day by a credit to sales.
3 An examination of cash transactions revealed that Check voucher 512 for P5,000 dated
December 2013 for commission expense was debited to Salaries Expense.
CORRELATION AND RECONSTRUCTION

PROBLEM 1:
From the following trial balance of totals of the CLOUD-9 Corporation, reconstruct the journal
entries (in Summary form) posted to the general ledger during the first quarter of operations
ended March 31, 2008:
Debit Credit

Cash in bank 861,620 792,000

Petty cash fund 200
Accounts receivable 250,400 174,600
Subscriptions receivable 208,000 140,000
Prepaid insurance 480
Land 40,000
Building 360,000
Furniture and fixtures 24000
Office equipment 16000
Store equipment 20000
Accounts payable 123600 166,800
Authorized share capital 1,000,000
Unissued share capital 1.000,000 520,000
Subscribed share capital 120,000 200,000
Share premium 24,000
Sales 379000
Sales returns and allowances 360
Sales dscount5 600
Purchases 251,400
Freight in 3,660
Purchase returns and allowances 480
Purchase discounts 900
Marketing expenses 59200
General and administrative expenses 60,300
Commission income 2540
3,400,320 3,400,320
PROBLEM 2

Cash In bank balance of Brandy Corporation on January 1, 2008 was P14,000 representing 35%
paid-Up capital, of its authorized P40,000. During the year, you ascertained the following
postings to some accounts, as follows:
Debit Credit

Petty cash fund 400 ?

Accounts receivable trade 90,000 58,000
Subscriptions receivable 12,000 10,000
Delivery equipment 10,000
Accounts payable-trade 56,000 86,000
Bank loan 7,000 16,000
Accrued expenses 300
Unissued share capital 26,000
Authorized share capital 40,000
Subscribed share capital 12,000
Sales 90,000
Purchases 86,000
Expenses (including depreciation of P1,000 and accrued
Expenses of P300) 18,000

Required: Cash in bank balance on December 31, 2008

PROBLEM 3
2008
January 1 December 31

Accounts receivable 25,600 16,000

Unpaid merchandise invoices 10,484
Accrued wages 340 500
Advertising supplies inventory 140 300
Accrued advertising 57 160
Prepaid insurances 100
Unexpired insurance 164
During the year:
Amount collected from customers 40,000
Total payments to suppliers of merchandise 54,472
Total payments to suppler of merchandise of prior years 18,528
Wages paid 12,200
Advertising paid which includes P160 applicable next
Year 2009 1,200
Insurance premium paid 500

Required: 1. Net sales

2. Net purchases
3. Wages expense
4. Advertising expense
5. Insurance expense

PROBLEM 4:
Gino Apparel maintains a markup of 60% based on cost. The company’s selling and
administrative expenses average 30% of sales. For 2008, sales amounted to P192.000.

Required: 1. Cost of goods sold

2. Operating profit

PROBLEM 5:
The following Information is made available from the records of McJo Corporation for 2008:
Beginning inventory 400,000
Freight In 125,000
Purchase returns 400,000
Ending Inventory 500,000
Selling expenses 1,250,000
Sales discount 75,000
The cost of goods sold is six times the selling expense.
RequIred: 1. Cost of goods available for sale
2. Total purchases

PROBLEM 6:
The 2008 operations of SWAN LAKE Corporation resulted in the following information:
The cost of goods sold amounts to P1,750,000. The beginning inventory is 250,000 higher than
the ending inventory, the latter being equivalent to 20% of purchases during the year. Gross
profit margin of the company is 30% of sales. Total operating expenses amounted 60% of the
gross profit while sales returns were 2% of net sales. The company is subject to an income tax
rate of 35%

Required: 1 Net income after income tax

2. Net sales for the period
3, Total purchases for the period
PROBLEM 7:
Certain information relative to the 2008 operation of the BUSTER BUNNY Corporation follows:
Accounts receivable, January 1 400,000
Accounts receiv3ble collected during the year 1,300,000
Cash sales during the year 250,000
Inventory, January 1 600,000
Inventory, December 31 550,000
Purchases during the year 1,000,000
Gross profit on sales (gross margin) 450000
Required: Accounts receivable balance at December 31, 2008

PROBLEM 8
You are given the following data for Knights Corporation:
Cash Credit Total
Cost of sales 250,000 2,250,000 2,500,000
Cash received from customers 325,000 2,825,000 3,250,000

Assuming merchandise was marked to sell as follows: Cash sales at 30% above cost and credit
sales at 40% above cost, all of which are collectible.

Required: Accounts receivable at the end of the year.

PROBLEM 9
The net income of JERRI Corporation for the year ended December31, 2008 was
P240,000. Percentage dIstribution of some of the items in the income statement was as follows:
Selling expenses 10% of sales
Adfrilhitriyenss, excluding bad debts 15% of sales
Bad debts expense 3% of sales
You have also ascertained that administrative expenses are 25% of cost of sales.

Required: Sales during the year

PROBLEM 10:
The following date of Rodrick Corporation pertain to the year 2008:
Net income for the year was P140,000. Selling expenses were equal to 18% of sales and 30% of
the cost of sales. All other expenses were 12% of sales.

Required: Cost of sales for the year