Module 4 – Complete Accounting Cycle

Discussion Questions

1. Differentiate cash basis accounting from the accrual basis of accounting.

 cash basis of accounting, revenue is recognized in the period when cash is received and
recognizes expenses when paid while accrual basis of accounting, revenues are
recognized when services had been rendered or when goods had been delivered
regardless when cash is received.

2. What are adjusting entries? Give the accounts that needs to be adjusted at the end of the
accounting period.

 adjusting entries are made to bring the accounts up-to-date. By doing so, a more
accurate information on financial reports may be the result for a better basis for a
conclusion on business operations.

3. After the trial balance is completed, why are financial statements not prepared yet?

 The reason is, there are still transactions of the business that are not yet recorded,
hence there is a need some adjustments.

4. What are fixed assets? Give examples.

 Fixed assets is the physical resources that are owned and used by a business which are
relatively fixed or permanent in nature that have a long useful life are called property,
plant and equipment.
- Ex. land, building, equipment, furniture, fixtures and transportation vehicles.

5. What is depreciation? Are all fixed assets subject to depreciation?

 depreciation is the decrease in value of a fixed asset due to usage, wear and tear,
obsolescence and mere passage of time. No, because it will lose its value over the time.

6. What are the factors to be considered in computing depreciation?

 Asset Cost - includes its purchase price plus other direct costs incurred in acquiring and
bringing the assets to its intended use.
 Estimated Residual Value - the ficied asset can be sold at the end of uts useful life.
 Estimated Useful Life - expressed in years or number of units, or hours that the asset
can be used.

7. What are the effects on the financial statements of failure to record depreciation?

 Overstatement of Assets on the balance sheet.

 Overstatement of net income and equity.
 Overstatement of Net Profits
 Understatement to expenses.

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8. What is a work sheet? Why is it a valuable accounting tool?

 It is a columnar accounting form that is used to assemble account balances from the trial
balance, the planned adjustments to bring the accounts up-to-date and segregate
accounts as to which financial statements they are to be presented. Because it is used in
the accounting cycle process to draft an unadjusted trial balance, adjusting journal
entries, adjusted trial balance, and financial statements.

9. Why do adjusting entries necessary to be journalized and posted even if they have been
entered already in the work sheet?

 Any changes in account balances recorded on the worksheet are not shown in the
general journal and the general ledger until the adjusting entries have been journalized
and posted.

10. In what order are assets listed on the statement of financial position?

 Current Assets
- Cash
- Account Receivable
- Supplies
- Equipment

11. What are closing entries? Which types of accounts are closed?

 Journal entries used to close temporary accounts to zero balance and prepare for the
new fiscal period are called closing entries.

- Need to close revenue accounts or temporary accounts with credit balances.

- Need to close expense accounts or temporary accounts with debit balances.
- Need to close Income Summary. Income Summary does not have normal balance.
- Need to close the owner's drawing account. Withdrawals are assets that owners
take out of the business for personal use.

12. What is a post-closing trial balance? What purpose does it serve?

 A post-closing trial balance is a listing of all balance sheet accounts containing non-zero
balances at the end of a reporting period. The post-closing trial balance is
used to verify that the total of all debit balances equals the total of all credit balances,
which should net to zero.
Problem Solving in application of the completion of the accounting process

Given below is the Chart of Accounts of Unifast Delivery Service which you will use in answering
the requirements of this problem.
Account Account
No. Account Title No. Account Title
ASSETS CAPITAL
111 Cash 311 Ron Paspas, Capital
112 Accounts Receivable 312 Ron Paspas, Drawing
113 Notes Receivable 313 Income Summary
114 Interest Receivable REVENUE
115 Supplies 411 Delivery Service Revenue
116 Prepaid Insurance 412 Interest Revenue
117 Prepaid Rent EXPENSES
121 Building 511 Supplies Expense
122 Accumulated Depreciation - Building 512 Insurance Expense
123 Trucks 513 Rent Expense
124 Accumulated Depreciation – Trucks 514 Depreciation Expense – Bldg.
LIABILITIES 515 Depreciation Expense – Trucks
211 Accounts Payable 516 Salaries Expense
212 Salaries Payable 517 Utilities Expense
213 Notes Payable 518 Interest Expense
214 Mortgage Payable 519 Miscellaneous Expense
215
Presented is the Trial Balance of Unifast Delivery Service as of August 31, 2019

Unifast Delivery Service

Trial Balance
August 31, 2019
Account No. Account Title Debit Credit
111 Cash 24,100.-
112 Accounts Receivable 72,000.-
113 Notes Receivable 10,000.-
115 Supplies 27,000.-
116 Prepaid Insurance 7,200.-
117 Prepaid Rent 81,000.-
121 Building 680.000.-
122 Accumulated Depreciation - Building 54,000.-
123 Trucks 820,000.-
124 Accumulated Depreciation – Trucks 45,000.-
211 Accounts Payable 318,000.-
213 Notes Payable 470,000.-
214 Mortgage Payable 200,000.-
311 Ron Paspas, Capital 586,200.-
312 Ron Paspas, Drawing 15,000.-
411 Delivery Service Revenue 118,000.-
516 Salaries Expense 42,000.-
517 Utilities Expense 12,000.-
519 Miscellaneous Expense 900.-
1,791,200.- 1,791,200.-

Additional information for adjustments:

a. The supplies on hand on August 31, 2019 amounts to P15,000.-

b. The prepaid insurance balance of P7,200.- applies to two-year period beginning
August 1, 2019.
c. The prepaid rent of P81,000.- applies to a one-year policy beginning August 1,
2019.
d. The depreciation on the building for the month of August is P10,000.
e. The depreciation on the trucks for the month of August is P5,000.
f. Salaries incurred but unpaid as of August 31 is P7,000.-
g. The company rendered delivery services to customers as of August 31 in
the amount of P15,000 that will not be billed until September.
h. Interest on notes receivable and notes payable is 10%per annum.
 Module 4 – Complete Accounting Cycle

Requirements:
1. Prepare a worksheet.
2. Prepare the following financial statements:
a. Income Statement
b. Statement of Owner’s Equity
c. Statement of Financial Position(Balance Sheet)
3. Journalize the adjusting entries and closing entries
4. Prepare the Post Closing Trial Balance

Note: For your answers please see the forms to be used on succeeding pages.

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 1. Worksheet

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 2. Financial Statements

a. Income Statements

b. Statement of Owner’s
Equity

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 c. Statement of Financial
Position

3. Journalizing of adjusting and closing entries

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 4. Post-Closing Trial Balance

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