Chapter 5 – Elements of Financial Statements

APPLICATION PROBLEMS

Case 1: Identification of element

Indicate whether the following transactions result in an INCOME, EXPENSE, LIABILITY or EQUITY.
Indicate N/A if the transaction doesn’t give rise to an income, expense, liability or equity.
1. Receipt of cash for services rendered to clients _____ INCOME___ _
2. Receipt of cash from collection of receivables _____ N/A ____
3. Collection of rental from lessees ______INCOME____
4. Receipt of electric bill for the previous month _____ EXPENSE___
5. Purchase of goods for cash _____EXPENSE____
6. Purchase of supplies on credit _____LIABILITY___
7. Payment of cash to owner ______EQUITY_____
8. Investment of additional funds by owner EQUTIY_____

Case 2: Identification of an asset, expense or withdrawal For

each of the following transactions, indicate the following:
ASSET – if the transaction results to an asset
EXPENSE – if the transaction results to an expense
WITHDRAWAL – if the transaction results to capital withdrawal by the owner
N/A – if the transaction does not result to an asset or expense

__EXPENSE_1 Payment for loans payable.

.
__ASSET _2. Payment for the purchase of building.
__N/A 3. Collection of interest income.
__N/A Payment for fund withdrawal of the business
4. owner.
EXPENSE_ Payment for rent of the office building.
5.
____ASSET___ Payment for rental for the next three months.
6.
EXPENSE Payment for accrued interest liability.
7.
____ N/A____ Accrued and unpaid salaries of employee.
8.
___ ASSET Exchange of land asset for a machinery asset.
9.
WITHDRAWAL 10. The owner took goods from the business for his personal consumption.
____ASSET 11. Newly born animal offspring
____ASSET___ 12. Accrued and unpaid interest on borrowings of clients
____ N/A_____ 13. Accrued and unpaid interest on borrowings of the business
___EXPENSE 14. Theft of several goods in the business premises
__EXPENSE__15. Sale of ₱10,000 goods for ₱7,000 cash
____ASSET___ 16. Rendering of services to a client on account

Case 3: Identification of a liability, income or equity infusion For

each of the following transactions, indicate the following:
LIABILITY – if the transaction results to a liability
INCOME – if the transaction results to an income

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Chapter 5 – Elements of Financial Statements

EQUITY – if the transaction results to capital infusion from the owner

N/A – if the transaction does not result to a liability, income or equity.

__INCOME Receipt of rentals for the next twelve months

_1.
_ N/A 2. Receipt of interest on loans receivable for the last six months.
_INCOME Collection of receivables previously billed to clients.
3.
___EQUITY Receipt of cash from owner as additional capital
4.
___ Contribution of land and building from the owner to be used as the new business
EQUITY_5. office.
_ N/A Receipt of goods from a supplier with a billing invoice
_6.
____ N/A Temporary borrowing of a certain machinery from the friend of the business owner
____7.
__- Sale of building costing ₱1,000,000 for ₱1,400,000
INCOME__8.
___N/A _9. Billed a client for services already done
__ N/A _10. Receipt of cash from clients for services to be provided in the future

Case 4: Duality Principle and Identification of Elements

Identify which element is affected by the foregoing transaction by checking the box that corresponds
with the elements affected and indicate the amount for the element.

1. The owner of the business invested a building worth ₱500,000 to the business.
ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱500,000 ₱500,000

2. Receipt of ₱100,000 cash from a client whom the business provided services.
ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱100,000 ₱100,000

3. Sale of supplies costing ₱50,000 for ₱40,000 cash.

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱50,000 ₱10,000

4. Receipt of ₱100,000 merchandise from a supplier on credit.

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Chapter 5 – Elements of Financial Statements

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱100,000 ₱100,000

5. Purchase of equipment for ₱100,000.

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱100,000 ₱100,000

6. Payment for ₱10,000 rental of the office space of the business.

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱10,000 ₱10,000

7. Receipt of ₱5,000 interest from a debtor of the business.

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱5,000 ₱5,000

8. Sale of supplies costing ₱50,000 for goods worth ₱70,000.

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱50,000 ₱20,000

9. Accrual of ₱5,000 unpaid salaries of employees.

ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱5,000 ₱5,000

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Chapter 5 – Elements of Financial Statements

10. Accrual of ₱8,000 unpaid interest due from debtor of the business.
ASSET LIABILITY EQUITY INCOME EXPENSE

Element created

Amount ₱8,000 ₱8,000

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