Accrual Basis

Revenue Recognition Principle

Revenue is recognized when earned regardless of when received/collected
service business - when services are performed
merchandising/manufacturing - when ownership to the goods is transferred
by the seller to the buyer
Case 1:
On August 1, 2019, the company received P12,000 for one-year repair service
contract from a client. The repair services is to be conducted on a monthly basis.
As of December 31, 2019:
Cash Collection Service Income Difference
12,000 5,000 7,000 Unearned Service Income
Liability
Unearned Revenue
revenues already RECEIVED but not yet EARNED
Case 2:
On August 1, 2019 the company entered into a service contract which provides
that monthly repair services rendered is priced at P5,000 and that payment will be
made before the last day of the month. Contract commenced on August 1, 2019.
As of December 31, 2019:
Cash Collection Service Income Difference
25,000 25,000 0

Case 3:
On August 1, 2019 the company entered into a service contract which provides
that monthly repair services rendered is priced at P5,000 and that payment will be
made on the 10th day of the following month . Contract commenced on August 1, 2019.
As of December 31, 2019:
Cash Collection Service Income Difference
20,000 25,000 5,000 Accrued Revenue
Rent Receivable
Asset
Revenues already earned but not yet received

Expense Recognition Principle

Expenses are recognized when incurred regardless of when they are paid.

Case 1:
On May 1, 2019, the company paid one-year insurance premium of P24,000.
As of December 31, 2019:
Cash Payment Insurance Expense Difference
24,000 16,000 8,000 Prepaid Expenses
Assets
Expenses already paid but not yet incurred
Case 2:
On July 1, 2019, the company entered into a lease agreement stating that the
monthly rent for the company's office amounts to P10,000 and should be paid
by the end of the month. As of December 31, 2019, all required rental payments
have been made.
As of December 31, 2019:
Cash Payment Rent Expense Difference
60,000 60,000 0

Case 3:
On July 1, 2019, the company entered into a lease agreement stating that the
monthly rent for the company's office amounts to P10,000 and should be paid
on the 15th day of the following month.
As of December 31, 2019:
Cash Payment Rent Expense Difference
50,000 60,000 10,000 Accrued Expense
Liability
Rent Payable
Accrued Rent Expense
Expenses already incurred but not yet paid

Additional Exercises on ACCRUAL BASIS OF ACCOUNTING:

Page 81, #1
PAL has provided the following information regarding ticket sales and
collections from September to November.
Using accrual rule, determine how much revenue should be reported for October
Cash received in September for October flights 5,500,000
Cash received in October for October flights 3,000,000
Cash received in October for November flights 4,000,000
Cash received in November for October flights 4,500,000
Accrual basis 13,000,000 /
Cash basis 7,000,000 x

Page 81, #2
Bentong Consultancy has provided the following information regarding cash
payments to employees from May to July:
Salary payments in May for work performed by employees in April 28,000
Salary payments in June for work performed by employees in May 20,000
Salary payments in June for work performed by employees in June 25,000
Salary payments in July for work performed by employees in June 10,000
How much is the salary expense for June:
Accrual Basis 35,000 /
Cash Basis 45,000 x
GAAP - Generally Accepted Accounting Principles

Page 86, #1 assignment: for submission Tuesday, 1030-1330 class

a. Rent Expense = rent incurred
20,000 monthly rent x # of months from June to Dec
20,000 x 7 months
 140,000 rent expense 100,000
cash 100,000
b. Cost 1,500,000
Divided by EUL in yrs 10 rent expense 40,000
Annual Depreciation 150000 rent payable 40,000
x # of mos. Used 6
divided by # of mos in 12
75000

c. utilities expense = total amount incurred

42,000

d.
1st semester
tuition fees collected 1,250,000
bills for 1st sem not yet collected 250,000
1,500,000

2nd semester
tuition fees collected 1,500,000
bills for 1st sem collected in 2nd s -250,000
bills for 2nd sem not yet collected 150,000
1,400,000

e.
in 2010

f. Entity Concept

g. Withdrawal
t yet EARNED
Exercises:
Page 56, # 1
Company Assets = Liabilities + Equity
Coca Cola 87.27 64.05 23.22
PepsiCo 74.13 62.93 11.2
Dr. Pepper 9.79 7.66 2.13
Carlsberg 18.86 57.74% 7.97

Page 56, #4

Page 61, #1

Page 61, #2

Additional Exercises:
1. If the economic obligations of a business amount to P120,000 and its
residual interest amouonts to P195,000, what is the amount of the
economic resources of the business?
2. If the economic resources of a business amount to P1,120,000 and its
economic obligations amount to P880,000, what would be the residual
interest?
3. If the economic resources of a business amount to P500,000 and its
residual interest amounts to P199,000, what is the amount of its economic
obligations?

4. If total liabilities amount to P2,196,000 which is 60% of the total assets,

what is the amount of the total assets of the business?
5. If owner's equity is thrice the total liabilities which is 25% of total assets,
what would be the owner's equity of the business? The amount of total
assets is P720,000.

6. If the total owner's equity of Grand Services is P180,000 which is 2/3 of

the total assets, what would be the amount of its liabilities?
7. If the economic obligations of a business amount to P696,000 and its
residual interest amounts to P385,000, what is the amount of the
economic resources of the business?
8. The economic resources of a business amount to P920,000 and its
economic obligations amount to P476,000, what would be its residual
interest?
9. If the economic resources of a business amount to P1,500,000 and its
residual interest amounts to P998,000, what is the amount of its economic
obligations?

10. If owner's equity is P333,000 which is 1/3 of the total assets, how
much is the total liabilities of the business?

11. The company has owner's equity of P1,280,000 at December 31, 2018.
The December 31, 2019 balance of owner's equity is P1,520,000. During
the year, the owner withdrew P210,000 for personal use. What is the net
income or net loss for the year 2019?

12. The capital account showed a beginning balance of P301,000. At the

end of the year, the results of operations showed a net income of
P96,000. During the year, the owner withdrew P18,900 for personal use.
The liabilities at the end of the year is P102,000. How much is the total
assets at the end of the year.

13. The capital account showed a beginning balance of P301,000. At the

end of the year, the results of operations showed a net loss of P28,000.
During the year, the owner made an additional investment of P30,000.
The liabilities at the end of the year is P102,000 which increased by
P50,000. How much is the total assets at the beginning of the year.

14. At the beginning of the year, assets and liabilities amount to P200,000
and P80,000, respectively. At the end of the year, assets amount to
P300,000 while liabilities increased by P40,000. The owner made and
additional investment of P40,000 during the year. Revenues and expenses
during the year amounted to P180,000 and P80,000, respectively. How
much is the amount of withdrawals during the year?
15. During the company earned Professional Fees of P900,000 and
incurred the following expenses: Salaries Expense, P75,000; Utilities
Expense, P90,000; and Rent Expense, P120,000. The owner made an
additional investment of P100,000 but made a cash withdrawal of
P220,000. How much is the net increase (decrease) in the owner's capital
for the current year?
16. Compute for the missing figure in each of the following independent
cases:
A B C D
Owner's Equity, Jan 1 50,000 200,000 30,000 80,000
Additional Investment 25,000 120,000 15,000 40,000
Withdrawal -5,000 60,000 3,000 8,000
Revenue 20,000 140,000 12,000 32,000
Expenses 10,000 100,000 6,000 16,000
Owner's Equity, Dec 31 80,000 300,000 48,000 128,000
17. Compute for the missing figure in each of the following dependent
cases:
2018 2019 2020
Owner's Equity, Jan 1 75,000 120,000 300,000
Additional Investment 37,500 125,000 15,000
Withdrawal 7,500 20,000 3,000
Revenue 30,000 100,000 94,000
Expenses 15,000 25,000 6,000
Owner's Equity, Dec 31 120,000 300,000 400,000
solution to #13
Beginning Capital 301,000
+ Investment 0
+ Net Income 96,000
- Withdrawal 18,900
=Ending Capital 378,100

Assets = Liabilities + Capital

Assets = 102,000 + 378,100
Assets = 480,100
Answer to Short Quiz on Accounting Equation (PSQ2)
Liab of P180,000 Liab of P190,000 Liab of P200,000
Beg End Beg End Beg End
Assets 180,000 240,000 Assets 190,000 270,000 Assets 200,000 290,000
Liab 70,000 40,000 Liab 100,000 70,000 Liab 120,000 90,000
Capital 110,000 200,000 Capital 90,000 200,000 Capital 80,000 200,000

Cap, Beg 110,000 Cap, Beg 90,000 Cap, Beg 80,000

Investment 20,000 Investment 20,000 Investment 20,000
Withdrawal 0 Withdrawal 0 Withdrawal 0
Net Income 70,000 Net Income 90,000 Net Income 100,000
Cap, End 200,000 Cap, End 200,000 Cap, End 200,000

Revenues 100,000 Revenues 120,000 Revenues 130,000

Expenses 30,000 Expenses 30,000 Expenses 30,000
Net Income 70,000 Net Income 90,000 Net Income 100,000

Assets 450,000 Assets 540,000 Assets 440,000

Equity 300,000 Equity 300,000 Equity 300,000
Liabilities 150,000 Liabilities 240,000 Liabilities 140,000
C. DETERMINE THE EFFECT OF THE FOLLOWING TRANSACTIONS ON THE ACCOUNTING
ELEMENTS OF ASSETS, LIABILITIES, CAPITAL, WITHDRAWAL, REVENUE, AND EXPENSES.
Date Transactions Effects
Cruz opened a repair shop business by investing cash
Dr
Jun 2 of P200,000. + Asset Cash + Capital

3 Paid P2,500 for monthly rent.

Purchased equipment on account from AVENSON,
4 P25,000.

7 Rendered repair services for cash, P7,000.

Purchased repair supplies on account from Aze
10 Hardware, P2,000.

12 Returned defective supplies because of defect, P500.

Hired an assistant for a monthly salary of P5,000.
The assistant will start reporting for duty on June
13 15,2012.
Rendered repair services on account: Bartolome -
15 P3,000; Stefano - P5,000; and Mateo, P2,000.
Paid in full the account with Aze Hardware and paid
18 P12,500 of the AVENSON account.
Collected customers' account: Bartolome - P3,000;
22 and Stefano - P2,500.

28 Cruz withdrew cash for personal use, P3,000.

30 Received and paid MERALCO bill, P2,800.

30 Paid the assistant's salary, P2,500.

D. USING THE TRANSACTIONS GIVEN IN EXERCISE C AND THE CHART OF ACCOUNTS
GIVEN BELOW, COMPLETE THE ACCOUNTING CYCLE.

CRUZ REPAIR SHOP

CHART OF ACCOUNTS
IncreaseDecreaseNominal SFP
ASSETS (+) (-) or Real? or SI
101 Cash Dr Cr Real SFP
102 Accounts Receivable
103 Allowance for Bad Debts
104 Supplies
105 Equipment
106 Accumulated Depreciation

LIABILITIES
201 Accounts Payable
202 Utilities Payable

EQUITY
301 Cruz, Capital
302 Cruz, Drawing
303 Income and Expense Summary Nominal

REVENUE
401 Repairs Revenue

EXPENSES
501 Rent Expense
502 Salaries Expense
503 Supplies Expense
 504 Utilities Expense
505 Bad Debts Expense
506 Depreciation Expense

ADDITIONAL INFORMATION FOR ADJUSTMENT:

1 The equipment acquired on June 4, 2012 has an estimated useful life
of 5 years with an estimated residual value of P1,000. It is the company's
policy to depreciate the asset for full month on the month of acquisition
and no depreciation is recognized on the month of disposal.

2 It is estimated that P300 of accounts receivable will prove to be

uncollectible.

3 Unpaid PLDT and Maynilad bills for the month of June are P270 and P130,
respectively.

4 Supplies used up, P700.

E. ADJUSTING JOURNAL ENTRIES

Prepare the adjusting journal entries and determine the adjusted balances of the
accounts based on the information given below:
1. Depreciation
The company purchased an equipment for P250,000 on July 1, 2011.
The company estimated that the equipment will have a useful life of 5
years and a salvage value of P5,000. It is the company's policy to
depreciate the equipment on a straight-line basis.
BEFORE ADJUSTMENT AFTER
Equipment 250,000
Accumulated D 0
Carrying value 250,000

Depreciation E 0

Adjusting Journal Entry: Dr Cr

2. Bad Debts
The company estimates that 2% of accounts receivable will prove to be
uncollectible.
BEFORE ADJUSTMENT AFTER
Accounts Recei 300,000
Allowance for 4,500
Net Realizable 295,500

Bad Debts Exp 0

Adjusting Journal Entry: Dr Cr

3. Accrued Expenses
***Accrued expenses are expenses already incurred but not yet paid.
Received a bill from Meralco on January 3, 2012 for the
December 2011 energy consumption, P3,000.
BEFORE ADJUSTMENT AFTER
Utilities Payabl 0
Utilities Expen 29,700

Adjusting Journal Entry: Dr Cr

4. Accrued Revenues
***Accrued revenues are revenues already earned but not yet received.
The company sublet its office for a P2,500 monthly rental to be paid on
the 5th day of the following month.
BEFORE ADJUSTMENT AFTER
Rent Receivabl 0
Rent Income 27,500

Adjusting Journal Entry: Dr Cr

5. Prepaid Expenses
***Prepaid Expenses are expenses already paid but not yet incurred.
The company paid a 1-year insurance of P12,000 on May 1, 2011.
BEFORE ADJUSTMENT AFTER
 asset method Prepaid Insurance 12,000
Insurance Expens 0

Adjusting Journal Entry: Dr Cr

What if?
BEFORE ADJUSTMENT AFTER
Prepaid Insurance 0
expense method

Insurance Expens 12,000

Adjusting Journal Entry: Dr Cr

6. Unearned Revenues
***Unearned revenues are revenues already received but not yet earned.
The company received advance rental payment for 6 months of P36,000
on September 1, 2011.
BEFORE ADJUSTMENT AFTER
Unearned Rent In 36,000
liability method

Rent Income 0

Adjusting Journal Entry: Dr Cr

What if?
BEFORE ADJUSTMENT AFTER
Unearned Rent In 0
revenue method

Rent Income 36,000

Adjusting Journal Entry: Dr Cr

F. FINANCIAL STATEMENT ANALYSIS

Refer to the Financial Statements of ABC Corporation and perform (1) Vertical Analysis,
(2) Horizontal Analysis and (3) Ratio Analysis.
G. INTERNAL CONTROL
Indicate the internal control weakness and the internal control principle that is
violated in the following internal control procedures for cash.
1. Two cashiers register all over-the-counter payments. They use only one
cash register.

2. All cashiers are experienced; thus they are not bonded.

3. To minimize the risk of theft, cash in excess of P5,000 is stored in an

unlocked brief case in the stock room until it is deposited in the bank.
4. At the end of each day, the accountant counts the cash in the brief case;
he is also responsible for depositing the amounts in the bank.

5. The owner gives the store manager twenty blank but signed checks
weekly.
6. The store manager approves all payments before signing. He also releases
the checks to payees.
7. The accountant prepares the monthly bank reconciliation. He is required
to report any discrepancy to the owner.

H. Refer to the cash records and bank statement of XYZ, Inc. Based on the information given,
prepare a bank reconciliation.
ects

Cr
Cruz , Capital
y 1, 2011.
cal Analysis,
nformation given,
 ANALYSIS OF BUSINESS TRANSACTIONS
Date Transactions
Jun 2 Cruz opened a repair shop business by investing cash of P200,000.

Received Increase in Asset, Debit, Cash, P200,000

Business Owner

Given up Increase in Equity, Credit , Cruz, Capital, P200,000

3 Paid P2,500 for monthly rent.

Received Increase in Expense, Debit, Rent Expense, P2,500

Business Lessor

Given up Decrease in Asset, Credit, Cash, P2,500

4 Purchased equipment on account from AVENSON, P25,000.

Received Increase in Asset, Debit, Equipment, P25,000

Business AVENSON

Given up Increase in Liabilities, Credit, Accounts Payable - AVENSON, P25,000

7 Rendered repair services for cash, P7,000.

Received Increase in Assets, Debit, Cash, P7,000

Business Customers

Given up Increase in Revenue, Credit, Repairs Revenue, P7,000

10 Purchased repair supplies on account from Aze Hardware, P2,000.

Received Increase in Asset, Debit, Supplies, P2,000

Business Aze Hardware

Given up Increase in Liabilities, Credit, Accounts Payable - Aze Hardware, P2,000

12 Returned defective supplies because of defect, P500.

Since the supplies is purchased on account, returns will decrease the account.
Received Decrease in Liabilities, Debit, Accounts Payable - Aze Hardware, P500
Business Aze Hardware
Given up Decrease in Assets, Credit, Supplies, P500
Hired an assistant for a monthly salary of P5,000. The assistant will start
13 reporting for duty on June 15,2012.
 Received None since the employee has not yet started the service
Business Employee

Given up None since nothing is given to the employee on this date

Rendered repair services on account: Bartolome - P3,000; Stefano - P5,000;

15 and Mateo, P2,000.

Increase in Assets, Debit, Accounts Receivable - Bartolome, P3,000; Accounts

Received Receivable - Stefano, P5,000; and Accounts Receivable - Mateo, P2,000.
Business Customers

Increase in Revenues, Credit, Repairs Revenue, P10,000 (which is the total of

Given up P3,000, P5,000 and P2,000)

Paid in full the account with Aze Hardware and paid P12,500 of the AVENSON
18 account.

Decrease in Liabilities, Debit, Accounts Payable - Aze Hardware, P1,500

(P2,000 purchase less returns of P500); Accounts Payable - AVENSON,
Received P12,500

Suppliers: Aze
Business
Hardware & AVENSON

Given up Decrease in Assets, Credit, Cash, P14,000 (total of P1,500 and P12,500)

22 Collected customers' account: Bartolome - P3,000; and Stefano - P2,500.

Received Increase in Assets, Debit, Cash, P5,500 (total of P3,000 and P2,500)
Business Customers

Decrease in Assets, Credit, Accounts Receivable - Bartolome, P3,000;

Given up Accounts Receivable - Stefano, P2,500

28 Cruz withdrew cash for personal use, P3,000.

Received Increase in Drawing, Debit, Cruz, Drawing, P3,000

Business Owner

Given up Decrease in Assets, Cash, Credit, P3,000

30 Received and paid MERALCO bill, P2,800.

 Received Increase in Expenses, Debit, Utilities Expense, P2,800
Business MERALCO

Given up Decrease in Assets, Credit, Cash, P2,800

30 Paid the assistant's salary, P2,500.

Received Increase in Expense, Debit, Salaries Expense, P2,500

Business Employee

Given up Decrease in Assets, Credit, Cash, P2,500

Transaction Analysis:
#11, page 84
May 2Cash Increased Asset Debit 45,000
Processing Fees Increased Revenue Cr 45,000

Cash increase asset debit 28,000

Comm Inc increase revenue credit 28,000

5 24-month Note Due to BDO or Notes Payable decrease liability debit 10,000
Cash decrease asset credit 10,000

8 Supplies increase asset debit 7,250

Cash decrease asset credit 7,250

10 Cash increase asset debit 8,000

Com Inc increase revenue credit 8,000

11 Equipment increase asset debit 15,000

Cash decrease asset credit 7500
Accounts
Payable increase liability credit 7,500

14 Cash increase asset debit 5,000

Processing
Fee increase revenue credit 5,000

Salaries
15 Expense increase expense debit 15,000
Cash decrease asset credit 15,000

Due from
Customers
18 (A/R) increase asset debit 12,000
Processing
Fee increase revenue credit 12,000

20 Cash increase asset debit 1,000

Processing
Fee increase revenue credit 1,000

Account due
24 to Ros (A/P) decrease liability debit 5,000
Cash decrease asset credit 5,000
 25 Cash increase asset debit 6,000

Due from
Customers
(A/R) decrease asset credit 6,000

Due from
Customers
27 (A/R) increase asset debit 3,500

Commission
Income increase revenue credit 3,500

Utilities
28 Expense increase expenses debit 9,000
Utilities
Payable increase liability credit 9,000

29 Cash increase asset debit 12,000

Commission
Income increase revenue credit 7,500
Processing
Fee increase revenue credit 4,500

Rent
30 Expense increase expense debit 7,500
Salaries
Expense increase expense debit 15,000
Cash decrease asset credit 22,500

Supplies
31 Expense increase expense debit 3,500
Supplies decrease asset credit 3,500

#14; page 85
Wong, Inc.
Chart of Accounts

Assets
101 Cash
102 Accounts Receivable
103 Office Supplies
111 Equipment
112 Furniture and Fixtures
Liabilities
201 Accounts Payable
 202 Notes Payable
203 Utilities Payable
Equity
301 Wong, Capital
302 Wong, Personal
Revenues
401 Professional Fees

Expenses
501 Rent Expense
502 Utilities Expense
503 Salaries Expense
504 Supplies Expense

Jul 1 Cash Dr 50,000 recognition

Furniture
and Fixtures Dr 10,000 measurement
Wong,
Capital Cr 60,000

Rent
2 Expense Dr 24,500
Utilities
Expense Dr 500
Cash Cr 25,000

4 Equipment Dr 120,000 divide by 30 installment = 4,000.00

Accounts
Payable Cr 120,000

Office
6 Supplies Dr 2,500
Cash Cr 2,500

8 Cash Dr 32,000
Professional
Fees Cr 32,000

Accounts
10 Receivable Dr 27,000
Professional
Fees Cr 27,000

Salaries
15 Expense Dr 6,200
 Cash Cr 6,200

18 Cash Dr 15,000
Accounts
Receivable Cr 15,000

25 Cash Dr 40,000
Accounts
Receivable Dr 60,000
Professional
Fees Cr 100,000

Wong,
28 Personal Dr 5,000
Cash Cr 5,000

Accounts
28 Payable Dr 4,000
Cash Cr 4,000

Salaries
30 Expense Dr 6,200
Cash Cr 6,200

Utilities
31 Expense Dr 5600
Utilities
Payable Cr 5600 Accrued Utilities Expense

Supplies
Expense Dr 2,000
Office
Supplies Cr 2,000

Assignment:
Requirement 1: Create the Chart of Accounts
Requirement 2: Transaction Analysis

Problems: #6 page 114

#7 page 114
#8 page 115
Due Date: Friday, August 23

Bring your 2 column columnar paper