Chapter 9

Accounting Cycle of a Service Business

NAME: Date:
Professor: Section: Score:

QUIZ 1: MULTIPLE CHOICE

1. This refers to the process of transferring the amounts of debits and credits in a
recorded journal entry to the ledger accounts.
a. Analyzing
b. Journalizing
c. Posting
d. Trial balancing

2. The primary purpose of posting is to

a. record transactions.
b. classify transactions.
c. summarize transactions in a report form.
d. all of these

3. The balance of an accounts receivable from a certain customer at any given point of
time can be determined by referring to the
a. general journal.
b. general ledger.
c. subsidiary ledger.
d. financial statements.

4. The primary purpose of preparing a trial balance is to

a. record transactions as they occur.
b. classify the effects of the transactions on the accounts.
c. check the equality of total debits and total credits in the ledger.
d. report the processed information to interested users.

5. After posting, the next step in the accounting cycle is

a. preparation of closing entries.
b. preparation of an adjusted trial balance.
c. journalizing.
d. preparation of an unadjusted trial balance.

“So do not fear, for I am with you; do not be dismayed, for I am your God. I will
strengthen you and help you; I will uphold you with my righteous right hand.”
(Isaiah 41:10)

- END -
NAME: Date:
Professor: Section: Score:

QUIZ 2: JOURNALIZING AND POSTING

The following were the transactions of Entity A during the period:

1
Date Transactions
Jan. Services worth ₱150,000 were rendered for cash.
8
Jan. Services worth ₱200,000 were rendered on account.
9
Jan. Cash amounting to ₱25,000 was disbursed for advertising
10 expense.
Jan. Accounts receivable of ₱180,000 was collected.
11
Jan. The owner made a temporary withdrawal of ₱10,000 cash from
12 the business.

Requirements:
a. Provide the journal entries.
b. Post the journal entries to the ledger then determine the ending balances of the
accounts. Use T-accounts for this purpose. Arrange your T-accounts in this order:
Assets, Liabilities, Equity, Income and Expenses.

“There is no end to education. It is not that you read a book, pass an

examination, and finish with education. The whole of life, from the moment
you are born to the moment you die, is a process of learning.” - Jiddu Krishnamurti
- END -
SOLUTIONS TO QUIZ 2:

Requirement (a): Journal entries

JOURNAL
Date Account titles Debit Credit
Jan. 8 Cash 150,000
Service fees 150,000
to record service fees

2
 Jan. 9 Accounts receivable 200,000
Service fees 200,000
to record service fees
Jan. 10 Advertising expense 25,000
Cash 25,000
to record the payment for advertising expense
Jan. 11 Cash 180,000
Accounts receivable 180,000
to record the collection of accounts receivable
Jan. 12 Owner’s drawings 10,000
Cash 10,000
to record the drawings of the owner

Requirement (b): Posting

ASSETS
Accounts
Cash receivable
1/
1/8 150,000 9 200,000

1/11 180,000 25,000 1/10 180,000 1/11

10,000 1/12

295,00
0 end. 20,000 end.

EQUITY
Owner's
drawings

1/12 10,000

10,000 end.

INCOME
Service fees

150,000 1/8

200,000 1/9

350,00
end. 0

EXPENS
ES
Advertising
expense
1/10

3
25,000

25,000 end.

4
NAME: Date:
Professor: Section: Score:

QUIZ 3: TRUE OR FALSE

1. A worksheet is prepared primarily to facilitate the preparation of the

financial statements.

2. In the income statement columns of the worksheet, if total debits

exceed total credits, there is profit.

3. Closing entries are prepared at the end of the accounting period to

“zero out” the balances of all nominal accounts in the ledger.

4. The amounts in the “post-closing trial balance” represent the

beginning balances of accounts in the next accounting period.

5. All adjusting entries can be reversed.

6. The trial balance is the end product of the accounting process.

7. Accounts receivable is an example of a real account.

8. Worksheets are prepared only in the classroom. They are not

prepared in real life.

9. The financial statements are prepared only after adjusting entries are
made.

10. The unexpired portion of an item of expense that was paid in

advanced is recognized as expense.

“Education is not just about going to school and getting a degree.

It's about widening your knowledge and absorbing the truth about
life.” - Shakuntala Devi
- END -
KEY ANSWERS TO QUIZ 3:
1. TRUE
2. FALSE
3. TRUE
4. TRUE

5
5. FALSE
6. FALSE (financial statements)
7. TRUE
8. FALSE
9. TRUE
10. FALSE

NAME: Date:
Professor: Section: Score:

QUIZ 4: JOURNALIZING, POSTING AND UNADJUSTED TRIAL BALANCE

Entity A started operations on January 1, 20x1. The following were the transactions
during the first week of operations:

Jan. Transactions
1 The owner provided ₱600,000 cash as initial investment to the business.
2 The business acquired a building for ₱400,000 cash.

6
 3 The business acquired office equipment for ₱100,000 cash.
4 The business purchased supplies for ₱20,000 cash. The business uses a
prepaid asset account.
5 The business rendered services worth ₱150,000 on cash basis.
6 The business rendered services worth ₱100,000 on account.
7 The business paid ₱25,000 salaries expense.

Requirements:
a. Provide the journal entries.
b. Post the journal entries to the ledger. Use T-accounts for this purpose. Arrange your
T-accounts in this order: Assets, Liabilities, Equity, Income and Expenses.
c. Prepare the unadjusted trial balance.

“You have to stay in school. You have to. You have to go to college. You have to get
your degree. Because that's the one thing people can't take away from you is your
education. And it is worth the investment.” - Michelle Obama

- END -
SOLUTIONS TO QUIZ 4:

Requirement (a): Journal entries

Jan. 1 Cash 600,000

Owner’s, Capital 600,000
to record the owner’s investment to the business
2 Building 400,000
Cash 400,000
to record the acquisition of building for cash
3 Office equipment 100,000
Cash 100,000
to record the acquisition of equipment for cash
4 Prepaid supplies 20,000
Cash 20,000
to record the purchase of supplies
5 Cash 150,000
Service fees 150,000
to record service fees

7
 6 Accounts receivable 100,000
Service fees 100,000
to record service fees
7 Salaries expense 25,000
Cash 25,000
to record salaries expense

Requirement (b): Posting

ASSETS
Cash Accounts receivable
1 600,000 6 100,000
400,000 2
100,000 3
5 150,000 20,000 4
25,000 7
Bal. 205,000 Bal. 100,000

Prepaid supplies
4 20,000
Bal. 20,000

Building Office equipment

2 400,000 3 100,000
Bal. 400,000 Bal. 100,000

EQUITY
Owner‘s capital
600,000 1
600,000 Bal.

INCOME EXPENSES
Service fees Salaries expense
150,000 5 7 25,000
100,000 6
250,000 Bal. Bal. 25,000

Requirement (c): Unadjusted trial balance

Entity A
Unadjusted Trial Balance
January 7, 20x1

Accounts Debit Credit

₱205,00
Cash
0
100,00
Accounts receivable
0

8
 Prepaid supplies 20,000
Building 400,000
Office equipment 100,000
₱600,0
Owner’s capital 00
250,00
Service fees 0
Salaries expense 25,000
₱850,0 ₱850,0
00 00

NAME: Date:
Professor: Section: Score:

QUIZ 5: MULTIPLE CHOICE

1. Which of the following statements regarding the trial balance is most likely to be
invalid?
a. The purpose of preparing a trial balance is to determine whether the total debits
and total credits in the ledger are equal.
b. If total debits and credits are not equal, an error surely exists in the accounts.
c. The trial balance is a prerequisite in preparing financial statements.
d. The preparation of the trial balance creates a starting point for the preparation
of the financial statements.

2. This trial balance is prepared before adjusting entries are made.

a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Pre-closing trial balance

3. The heading of a trial balance does not include which of the following?
a. Name of the business
b. Title of the report
c. Type of activity that the business is engaged with
d. Date of the report

4. Accounts are listed in the trial balance in this sequence.

a. Asset, Liabilities, Equity, Expense, and Income

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 b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income

5. The purpose of adjusting entries is

I. to take up unrecorded income and expense of the period.
II. to split mixed accounts into their real and nominal elements.
III. to transfer financial data from the journal to the ledger.
a. I only
b. I, II, and III
c. I and II
d. II and III

“Formal education will make you a living; self-education

will make you a fortune.” - Jim Rohn
- END -
NAME: Date:
Professor: Section: Score:

QUIZ 6: UNADJUSTED TRIAL BALANCE

The ledger accounts of Entity A have the following balances on December 31, 20x1:

Balanc
Accounts
es
600,00
Accounts payable
0
200,00
Accounts receivable
0
Accumulated depreciation – 1,200,0
Building 00
Accumulated depreciation – 400,00
Equipment 0
Advertising expense 70,000
Allowance for bad debts 40,000
Bad debt expense 20,000
4,000,0
Building
00
560,00
Cash
0
200,00
Depreciation expense
0
3,600,0
Equipment
00
2,000,0
Land
00
Miscellaneous expense 4,000
Owner’s capital 4,000,0

10
 00
Owner’s drawings 80,000
Prepaid supplies 40,000
1,260,0
Salaries expense
00
120,00
Salaries payable
0
6,000,0
Service fees
00
Supplies expense 60,000
120,00
Taxes and licenses
0
140,00
Transportation and travel expense
0
Utilities expense 46,000
Utilities payable 40,000

Requirement: Prepare the unadjusted trial balance. Be sure to provide a proper

heading for the report and arrange the accounts in the correct sequence.

“In some parts of the world, students are going to school every
day. It's their normal life. But in other part of the world, we are
starving for education... it's like a precious gift. It's like a
diamond.” – Malala Yousafzai

- END -
SOLUTION TO QUIZ 6:

Entity A
Unadjusted Trial Balance
December 31, 20x1

Account titles Debit Credit

₱
Cash
560,000
200,00
Accounts receivable
0
₱
Allowance for bad debts
40,000
40,00
Prepaid supplies
0
2,000,00
Land
0
4,000,00
Building
0
Accumulated depreciation - 1,200,00
Bldg. 0
3,600,00
Equipment
0
Accumulated depreciation - 400,000

11
 Equipt.
600,00
Accounts payable
0
Salaries payable 120,000
Utilities payable 40,000
Owner’s capital 4,000,000
80,00
Owner’s drawings
0
Service fees 6,000,000
1,260,00
Salaries expense
0
46,00
Utilities expense
0
60,00
Supplies expense
0
20,00
Bad debt expense
0
200,00
Depreciation expense
0
70,00
Advertising expense
0
120,00
Taxes and licenses
0
Transportation and travel 140,00
expense 0
4,00
Miscellaneous expense
0
₱12,400,0 ₱12,400,0
Totals 00 00

NAME: Date:
Professor: Section: Score:

QUIZ 7: ADJUSTING ENTRIES

1. Entity A received a 12%, ₱200,000, one-year, note receivable on October 1, 20x1.

Entity A uses a calendar year period. The principal and interest on the note are due
on October 1, 20x2. What is the adjusting entry to take up accrued interest income
on December 31, 20x1?

12
2. Entity A is renting out its building to a tenant for a monthly rent of ₱30,000. As of
December 31, 20x1, the tenant has not yet paid the rent for the months of
November and December. What is the adjusting entry to take up accrued rent
income on December 31, 20x1?

3. Entity A issued a 12%, ₱500,000, one-year, note payable on July 1, 20x1. The
principal and interest are due on July 1, 20x2. What is the adjusting entry to take
up accrued interest expense on December 31, 20x1?

4. Entity A has equipment with a historical cost of ₱1,000,000. The equipment was
estimated to have a 10-year useful life when it was acquired four years ago. What is
the adjusting entry to take up the annual depreciation expense on December 31,
20x1?

5. Entity A has total accounts receivable of ₱640,000 on December 31, 20x1. Of that
amount, ₱70,000 is doubtful of collection. What is the adjusting entry to take up the
uncollectible accounts expense on December 31, 20x1?

“There is no greater education than one that is self-

driven.” - Neil deGrasse Tyson
- END -

13
SOLUTIONS TO QUIZ 7:

1.
Dec. Interest receivable (200,000 x 12% x 3/12) 6,000
31, Interest income 6,000
20x1 to accrue interest income earned but not yet
collected

2.
Dec. Rent receivable (30,000 x 2 months) 60,000
31, Rent income 60,000
20x1 to accrue rent income

3.
Dec. Interest expense (500,000 x 12% x 6/12) 30,000
31, Interest payable 30,000
20x1 to accrue interest expense incurred but not yet paid

4.
Dec. Depreciation expense (1M ÷ 10 yrs.) 100,000
31, Accumulated depreciation 100,000
20x1 to record the depreciation expense for the period

5.
Dec. Bad debts expense 70,000
31, Allowance for bad debts 70,000
20x1 to record the bad debts expense for the period

NAME: Date:
Professor: Section: Score:

QUIZ 8: METHODS OF INITIAL RECORDING OF INCOME AND EXPENSE

Use the following information for the next two items:

14
Entity A provides bookkeeping services to Entity B for a monthly retainer fee (fixed
monthly fee) of ₱100,000. On December 1, 20x1, Entity A receives advanced fees of
₱300,000 covering the months of December 20x1 and January and February of 20x2.

1. Provide the journal entry to record the receipt of the advanced fee on December 1,
20x1 under each of the following methods: (a) Liability method and (b) Income
method.

2. Provide the adjusting entry on December 31, 20x1 under each of the following
methods: (a) Liability method and (b) Income method.

Use the following information for the next two items:

Entity A prepays one-year insurance for ₱240,000 on September 1, 20x1.

3. Provide the journal entry to record the prepayment of the insurance on September
1, 20x1 under each of the following methods: (a) Asset method and (b) Expense
method.

4. Provide the adjusting entry on December 31, 20x1 under each of the following
methods: (a) Asset method and (b) Expense method.

“He that loves reading has everything within his reach.” - William Godwin

SOLUTIONS TO QUIZ 8:

1.
Liability method Income method
Dec. 1, 20x1 Dec. 1, 20x1
Cash 300,000 Cash 300,000
Unearned income 300,000 Service fee 300,000
to record the receipt of 3months advance fees to record the receipt of 3months advance fees

2.
Liability method Income method
Dec. 31, 20x1 Dec. 31, 20x1

15
Unearned income 100,000 Service fee 200,000
Service fee Unearned income 200,000
100,000 to recognize the unearned portion of the
to recognize the earned portion of the advance advance fees
fees

3.
Asset method Expense method
Sept. 1, 20x1 Sept. 1, 20x1
Prepaid insurance 240,000 Insurance expense 240,000
Cash Cash
240,000 240,000
to record the prepayment of 1-year insurance to record the prepayment of 1-year insurance

4.
Asset method Expense method
Dec. 31, 20x1 Dec. 31, 20x1
Insurance expense 80,000 Prepaid insurance 160,000
Prepaid insurance Insurance expense
80,000 160,000
to recognize the expired portion of the 1-year to recognize the unexpired portion of the 1-
insurance year insurance

NAME: Date:
Professor: Section: Score:

QUIZ 9: WORKSHEET AND FINANCIAL STATEMENTS

Entity A started operations on January 1, 20x1. A summary of the transactions during

the year is provided below:

1. The owner invested ₱2,000,000 to the business.

2. Acquired equipment for ₱1,000,000 cash.
3. Obtained a 12%, one-year, bank loan of ₱500,000.
4. Paid one-year insurance amounting to ₱160,000 on September 30, 20x1. Entity A
uses the “asset method” in recording prepayments.
5. Total service fees earned amounted to ₱6,000,000, one-third of which was on cash
basis.

16
6. Collected ₱1,800,000 accounts receivable.
7. Total salaries expense paid amounted to ₱1,200,000.
8. Total utilities expense paid amounted ₱500,000.
9. Total supplies purchased on cash basis amounted to ₱120,000.
10. Total owner’s drawings amounted to ₱1,400,000.

Requirements:
a. Provide the journal entries for the transactions.
b. Post the entries to the ledger using T-accounts.
c. Prepare the unadjusted trial balance using a worksheet.
d. Prepare the adjusting entries (see additional information below).

Information for adjusting entries:

i. The equipment was acquired on January 1, 20x1 and was estimated to have a
useful life of 10 years.
ii. The loan was obtained on July 1, 20x1. Principal and interest are due at maturity
date.
iii. The one-year insurance covers the period October 1, 20x1 to September 30,
20x2.
iv. Unused supplies at the end of the year amounted to ₱40,000.

e. Complete the worksheet.

f. Prepare the closing entries.
g. Prepare the balance sheet and income statement.

“Again, I tell you that if two of you on earth agree about anything you ask for, it will be
done for you by my Father in heaven. For where two or three come together in my
name, there am I with them.”
(Matthew 18:19-20)

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SOLUTIONS TO QUIZ 9:

Requirement (a):

1 Cash 2,000,000
Owner’s, Capital 2,000,000
to record the owner’s investment to the business
2 Equipment 1,000,000
Cash 1,000,000
to record the acquisition of equipment for cash
3 Cash 500,000
Notes payable 500,000
to record the bank loan
4 Prepaid insurance 160,000
Cash 160,000
to record the prepayment of insurance
5 Cash (6M x 1/3) 2,000,000
Accounts receivable (6M x 2/3) 4,000,000
Service fees 6,000,000
to record service fees

17
 6 Cash 1,800,000
Accounts receivable 1,800,000
to record collection of accounts receivable
7 Salaries expense 1,200,000
Cash 1,200,000
to record salaries expense
8 Utilities expense 500,000
Cash 500,000
to record utilities expense
9 Prepaid supplies 120,000
Cash 120,000
to record purchase of supplies
10 Owner’s drawings 1,400,000
Cash 1,400,000
to record owner’s drawings

Requirement (b): Posting

ASSETS

18
LIABILITIES

EQUITY

INCOME

19
EXPENSE

Requirement (c): Unadjusted trial balance

Entity A
Unadjusted Trial Balance
December 31, 20x1

Accounts Debits Credits

1,920,
Cash
000

2,200,00
Accounts receivable 0

Prepaid insurance 160,000

Prepaid supplies 120,000

1,000,
Equipment
000
500,
Notes payable
000
2,000,
Owner's capital
000
1,400,
Owner's drawings
000
6,000,
Service fees
000

1,200,00
Salaries expense 0

Utilities expense 500,000

Totals 8,500,00 8,500,00

0 0

20
Requirement (d): Adjusting entries

(i) Depreciation expense (1M ÷ 10 yrs.) 100,000

Accumulated depreciation 100,000
to record the depreciation expense for the year
(ii) Interest expense (500K x 12% x 6/12) 30,000
Interest payable 30,000
to accrue interest expense
(iii) Insurance expense (160K x 3/12) 40,000
Prepaid insurance 40,000
to recognize insurance expense
(iv) Supplies expense (120K – 40K) 80,000
Prepaid supplies 80,000
to recognize supplies expense

21
Requirement (e): Worksheet

22
Requirement (f): Closing entries

Dec. Service fees 6,000,000

31, Salaries expense 1,200,000
20x1
Utilities expense 500,000
Depreciation expense 100,000
Interest expense 30,000
Insurance expense 40,000
Supplies expense 80,000
Income summary (‘squeeze’) 4,050,000
to close income and expense accounts to income
summary
Dec. Income summary 4,050,000
31, Owner’s equity 4,050,000
20x1 to close the income summary to equity
Dec. Owner’s equity 1,400,000
31, Owner’s drawings 1,400,000
20x1 to close the drawings account

Requirement (g): Balance sheet and Income statement

Entity A
Balance Sheet
As of December 31, 20x1
ASSETS
₱1,920,0
Cash 00
Accounts receivable 2,200,00

23
 0
Prepaid insurance 120,000
Prepaid supplies 40,000
1,000,00
Equipment 0
(100,000
Accumulated depreciation )
₱5,180,
TOTAL ASSETS 000
LIABILITIES
₱500,00
Notes payable 0
Interest payable 30,000
TOTAL LIABILITIES 530,000
EQUITY
4,650,00
Owner's equity 0
4,650,00
TOTAL EQUITY 0
TOTAL LIABILITIES & ₱5,180,
EQUITY 000

Entity A
Income Statement
For the month ended December
31, 20x1

INCOME
₱6,000,0
Service Fees 00

EXPENSES
(1,200,0
Salaries expense 00)
(500,000
Utilities expense )
(100,000
Depreciation expense )
Interest expense (30,000)
Insurance expense (40,000)
Supplies expense (80,000)
(1,950,0
TOTAL EXPENSES 00)

PROFIT FOR THE ₱4,050,

PERIOD 000

24
NAME: Date:
Professor: Section: Score:

QUIZ 10: REVERSING ENTRIES

1. Which of the following adjustments cannot be reversed in the next accounting

period?
a. Accruals for income or expense
b. Prepayments initially recorded using the expense method
c. Advanced collections initially recorded using the income method
d. Prepayments initially recorded using the asset method

2. Which of the following adjustments can be reversed in the next accounting period?
a. Adjusting entry to take up depreciation expense
b. Adjusting entry to record bad debts expense
c. Adjusting entry to record accrued interest income
d. All of these

Use the following information for the next three questions:

Entity A paid one-year insurance amounting to ₱160,000 on September 30, 20x1.
Entity A uses the “expense method” in recording prepayments.

3. What is the entry to record the prepayment on September 30, 20x1?

4. What is the adjusting entry on December 31, 20x1?

25
5. What is the reversing entry in the next accounting period (i.e., 20x2)?

“Praise be to the God and Father of our Lord Jesus Christ, the Father of compassion and
the God of all comfort, who comforts us in all our troubles, so that we can comfort those
in any trouble with the comfort we ourselves have received from God.” (2 Corinthians 1:3-4)
- END -
SOLUTIONS TO QUIZ 10:

1. D
2. C

3.
Sept. Insurance expense 160,000
30, Cash 160,000
20x1 to record the prepayment of insurance

4.
Dec. Prepaid insurance (160,000 x 9/12) 120,000
31, Insurance expense 120,000
20x1 to recognize prepaid insurance

5.
Jan. 1, Insurance expense 120,000
20x2 Prepaid insurance 120,000
to reverse the adjusting entry for prepaid insurance

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