Exercise 1: Discussion Question

1. Explain the definition and nature of accounting.

2. Enumerate and give at least three (3) examples of accounting information users.

3. Enumerate and discuss in order the steps in the accounting process.

4. Explain the rationale for preparing adjusting and closing entries at the end of accounting period.

5. Enumerate adjusting entries that may be reversed and explain the advantage of preparing them.

Exercise 2: XYZ Trading

Requirements: Journalize the following transactions of XYZ’s Trading.

March 1 XYZ established the business by investing the following

Cash Php 200,000

Merchandise inventory 300,000

2 Purchased a cash register on cash, Php 30,000 from G Industrial.

2 Bought merchandise on cash from U Ent., Php 20,000 less 5% discount.

3 Purchased goods from T Co. Php 50,000. Terms: 30% down, balance, 2/10, n/30.

6 Sold merchandise to V, P15,000. Terms: 50% down, balance 2/7, n/15.

10 Sold merchandise on cash, P20,000, less 10% discount.

11 Paid the account to T Co.

12 Collected the account from V.

30 Paid the salaries of staff amounting to Php 8,500.

31 Incurred the following unpaid expenses:

Light and water Php 1,800

Rent expense 3,000

Exercise 2: ABC Company

In analyzing the accounts of ABC Company, the information listed below are determined on December
31, 2020, the end of the first year of operations of the company:

a. The Insurance Expense account shows a total of Php72,000 representing the cost of three-year
insurance policy dated September 1, 2020.
b. On October 1, Unearned Rent was credited for Php135,000 representing rental for nine months
beginning on that date.

c. Supplies of Php24,000 were purchased during the year and were debited to Supplies account.
On December 31, supplies of 5,000 are on hand.

d. The company acquired furniture on March 31, costing 150,000. The assets have estimated useful
life of ten (10) years without any residual value.

e. Accounts receivable balance on December 31 amounted to P2,500,000. Of this amount, Php

8,500 are estimated to become uncollectible.

f. The notes receivable balance on December 31 amounted to P150,000 representing a 90-day,

10% note received on December 1. The interest on the note is collectible upon maturity.

g. Unpaid salaries as of December 31 amounted to 25,000.

h. Inventory on December 31 is P220,000.

Requirements:

a. Prepare the necessary adjusting entries as of December 31, 2020.

b. Prepare the appropriate reversing entries as of January 1, 2021.