KASHATO SHIRTS

Presented by Section Vv
Introduction
Therese Ballada pursued a business
administration degree from a
prestigious university in Manila. In two
summers during college, she had the
chance to work part-time for a
successful shirt manufacturing and
sales company operating in Cebu
City. Their ready-to-wear products
cater to college students. Their T-shirts
are affordable, vibrant and
fashionable.
Introduction
In October 2014, after borrowing
some seed capital from her ever-
supportive parents and fulfilling the
business requirements, Therese
Ballada opened her version of the
successful Cebu T-shirt sales
company. The sole proprietorship is
named Kashato Shirts. The retail
outlet is situated at Suite 203 KB
Arizona Tower in 838 Padre Campa
St., Espana, Sampaloc, Manila. The
establishment exudes the cool and
personalized aura of the T-shirts
available for the hard-to-please
and price-conscious college
students of the University Belt area
in Metro Manila.
Organizational and Internal
Control Structures
Kashato Shirts is managed and owned
by Theresa Ballada. Ballada approves
payment of the vouchers; she also
prepares, signs and releases the
checks. All purchases and sales on
account are pre-approved by
Ballada.

Esterlina Gevera, the cashier, is tasked

with the receipts of cash; she issues the
cash invoice (for cash sales) and
official receipts (for collections on
accounts) but she has no access to
accounting records.
Organizational and Internal
Control Structures
Edgar Detoya is the senior accountant and
Rey Fernan Refozar, the junior accountant.

Both personnel do not handle actual cash.

Being the more experienced of the two,
Detoya certifies the correctness of the
voucher including the supports prepared
by Refozar before final approval by the
owner.

Detoya records the transactions in the

voucher register after approval and later,
in the check register. He is in charge of the
postings to the general ledger and
generates monthly reports.
Organizational and Internal
Control Structures
Rey Fernan Refozar takes care of the sales and
cash receipts journal after receiving the
pertinent source documents. He is also
maintaining the accounts receivable subsidiary
ledger.

Renante Balocating, Ruth Russell and Winston

Apalisoc, the sales representatives, prepare the
sales invoice for their respective store sales
area. At the close of business every end of the
month, the three staff perform the inventory
count, which is supervised by the owner. In
addition, Balocating performs the monthly bank
reconciliation while Russel deposits the cash
receipts daily. Apalisoc disburses cash from the
petty cash fund.
Accounting Policies and
Practice
The accounting policies and practice observed
in this practice set are as follows:
• The entity’s fiscal year ends on March 31
• The books are closed at the end of each
month to facilitate periodic preparation of
reports. In effect, the balances in temporary
or nominal accounts are for the current
month only. No year-to-date figures for
income statement accounts are given.
• Cash receipts are deposited intact within
the first hour of the next banking day.
Payments are made by checks except for
incidental amounts that are paid out of
petty cash.
 Accounting Policies and
Practice
• Accounts receivable are valued at their
estimated realizable value. The accounts
receivable method is used to estimate the
amount of uncollectible accounts.
• The standard selling price per shirt is P112.00 (12%
value-added tax inclusive). Terms of 2/10, n/30 are
offered to all credit customers.
• Cash sales are recorded covering a certain
period for simplification and illustration purposes
only. In actual practice, cash sales are recorded
on a daily basis.
• Purchases are recorded at gross amounts.
• The entity uses the periodic inventory system to
account for its merchandise inventory. The
inventory quantity is determined on a monthly
basis by physical count. The quantity as
determined by count is then priced using the FIFO
method of inventory valuation.
 Accounting Policies and
Practice
• The closing entry method is used to record the
end-of-period inventory entries.
• Supplies and other prepayments are debited
initially to asset accounts.
• Property and equipment are recorded at cost.
Depreciation on property and equipment is
provided using the straight-line method over the
estimated useful lives of the assets. Full month’s
depreciation is applied on the month of
acquisition and none on the month of disposal.
• Only the withholding of taxes on salaries is made
for simplicity.
• The effects of value-added tax on sales and
purchases of goods or services are illustrated. And
there’s no sales to senior citizens and PWDs for the
month.
 Accounting Policies and
Practice
• It is assumed that the receipt of the lessor of the
property do not exceed the amount of
P1,919,500. in effect, Kashato Shirts (the lessee)
can not claim input tax on rentals because the
lessor is not covered by the value-added tax.
• The purchaser of services claims input tax credit
during the month when payments were made.
Input tax on depreciable goods can be pro-rated
over the estimated useful life (maximum of 60
months) if the aggregate acquisition cost of the
depreciable assets (exclusive of VAT) in a
calendar month exceeds P1.00 million (per
Revenue Regulations No. 16-2005.)
• Contributions to SSS, Philhealth, EC and Pag-IBIG
Fund are the same for the previous and current
months. In addition, the contributions schedule
and withholding tax table used are effective as at
publication date.
Chronology of Transactions