CHAPTER 1 REVIEW OF BASIC ACCOUNTING ‘A student who has taken up Basic Accounting should realize by now how important this course is on one’s personal life and more so in business enterprise, Basic Accounting Of Bookkeeping is not only record-keeping and report-n It facilitates. pl financing, using and controlling of resources and helps stakeholders (investor, financial planner, creditor, government official, supplier) make sound fin judgment regarding Economic problems in order to come up with good economic decisions. ‘This chapter should help you remember the important topics in Basic Accounting: specially the accounting cycle which involves the processing of financial transactions for a service business and merchandising business owned by a sole proprie Lor. n Accounting, @ This book will focus on Partnership Accounting and Corporat course which will describe how financial ttansactions are analyzed, measured and recorded for a service business or a merchandising business but this time owned by two or more persons called partners or by an investor or group of investors called corporat Fetanional topics such as Accounting for a Manufacturing Business, Cash and Cash Control Managing the Cash Flows and Financial Statement Analysis are also included. OUTCOME BASED EDUCATION The thrust in education is to equip the student with the required knowledge and skills to prepare him for work immediately after graduation. The classroom should bring out the best peer ne leamer, discover his ability, improve this and make him ready for the big job in the workplace. At the end of the day the bi as the leaner developed the competencies to explain, interpret, analyze :? Is the learner well prepared to face the differing situations in the workplace sstions al mn judgemet THE PRESENT DAY ACCOUNTANT In this time and age of high information technology and global competition, much is expected of the accountant. He has to wear many hats as the firm's planner, economic ancial analyst, and systems analyst aside from the traditional practice as smal auditor. To develop accountants with specialized skills and with more practical experience the Board of Accountancy has made salient revisions to the Philippine ‘Act of 2004, Three of the 25 revisions (filed in Congress last 2016) are in tion process, professional accreditation requirements. forecaster, company controller, external or inte and mind, Accountancy accounting education, licensure examina ill have more options to choose from, Aside from the B.S. Accountancy, three more programs are being offered by schools, namely: BS Internal Auditing, Bi Management Accounting and BS Accounting Information System, The graduates of these programs are required t0 take the Level | Examination which will be called Certified Kecountant (CA) Examination, As a CA one can work in the government or in private sectors or do public practice. However, auditing and signing of audit certificates and teaching accounting can only be performed by passers of the Certified Public Accoun Examination (CPALE) where one becomes a Certified Public Accountant (CPA), Passing the Certified Management Accounting Board exam makes one a Certified Management ‘Accountant (CMA} and the Certified Internal Auditing Board Exam makes one a Certified Internal Auditor (CIA). The students wiThe accountant before renewing the professional license and be re-accredited for the public practice is required by the BoA to retool in the following competency areas: technical competence, professional skills and values, ethics and attitudes. To be globally ‘competitive, one must tect the demands of an ever changing environment By devoting oneself to a pee ae ee To maintain ones competitiveness, profess anals must have the following skills and (2) right attitude, jalues and per traits: 1) effective communication skills, pals Personality, (3 raits: 11) effective communication F raind, (5) flexibility and adaptability, (6) crits competence (4) creative and innovativ ay eae ‘ mind. (7), good. interpersonal skills, and (8) updated technical skills and knowledge (7) gs Husiness knowledge, information technology 1 knowledges Tow ledge if you are an accountancy Major). (classified into four:: genet knowledge and accountane xercise I Sn the left hand column to the appropriate he right hand column: 1 how business works A Information technology Match the description given knowledge base/skill given on 1. This knowledge will help you understand "and what strategies are needed to solve business pr roblems. 2. This skill will make you open to id sten to B_ Creative skills others opinions, respect others viewpoints. 3. This skill will enable you to clearly define information and form alternative courses of actions. 4, This knowledge will enable you to interact with people, and D_ Business ikes you appreciate their, behavior, and their social and. Knowledge Direction, leas, be inquisitive, a problem, gather C_ Critical skills ma cultural beliefs. 5. This skill requires you to be read technological change and the par and communication. This skill will enable you to express yourself clearly, explain F Accounting 'y to adapt to the fast pace of E Interpersonal ‘adigm shift to globalization skill well so others will understand you. Knowledge 7. This knowledge helps you understand and analyze financial G Communication “8. reports ee Skills This skill, known as “people’s skill” helps you motivate, H General influence and get along with other Knowledge LADDERIZED ACCOUNTING If you are planning to major in BS Accountancy, realize that you go up the account ladder one step at a time starting with Basic Financial Accounting and Reporting which covers the concepts and procedures for a sole-proprietor owned bus ness operating either as & service provider cies merchandiser. This will prepare you for a bookkeeping job. Armed withthe basic ils aa procedures, next you take up Intermediate Accounting which will Bre be cone ive eoversge of the standards in financial reporting which includes Broperpresenaton of finan a email Special topics inf ra accounting are covert led Advanced Financial Accounting. Only thet ou be ready (0 take up Cost Accounting which covers cost det ivinalioe analy eet oI as and manufacturing firms. A higher accounting course related to cost accounting is called Management Accounting and Management Services, This course will give you the new accounting pois and techniques to assist management in its planning, controlling am n making functions. The second to the last step requires you to cover up Audit oF Assurance which is a course tha ich is a course that gives you the concepts and procedures in reviewing the ce he auditor has complied with the required auditing standards. eded idA final requirement is the Internshi e P which will give you a hands-on or working experience with an audit firm or acco give you a hy 1 vunting firm> FOUR MAJOR FIELDS OF ACCOUNTING PRAC There are fo : anagement accounting or “ork fields open for accountancy graduate and graduates of aonate accounting we ttemal auditing and information technology: public accounting, priva ng. education accounting and government accounting, In Public Accounting, the various accounting, tax, auditing, ICE professional services they can offer to the public are: cl System, management consultancy and system and design. They can open their own offices as individual practitioners or as partners. Some of the popular CPA and Consultancy firms are the following: Sycip, Gorres, Velayo & Co., Isla Lipana & Co, and Punongbayan Araullo & Co, Reyes, Tacondong & Co. Most of these firms have partnered with foreign audit firms such as the Deloitte & Touche, Emst & Young, KPMG Marwick and Pricewaterhouse Coopers. Every engagement or service is headed by a senior partner who acts as the engagement partner, and his staff from top to bottom is made up of managers, supervisors, senior clerks and junior clerks, ‘The global market and the practice of business outsourcing have ensured a steady stream of clients, both local and foreign. As private accounting practitione . they are employed in firms as head of the following departments: general accounting, cost, budgeting, internal audit, managerial accounting, and tax, Information System, among others. They hold company positions as Chief F Officer or Controller, Senior Accountant, Cost Accountant, Budget Officer, Internal Auditor, EDP Head, Financial Analyst, and Tax Officer, among others. ance There are also accounting educators who are accounting, auditing, finance, or tax professors. They greatly influence students to pursue accounting careers. Culled by so many years of accounting field work and teaching experience, others share what they have learned by publishing accounting textbooks and workbooks or are invited by Accounting Review Centers as review coaches helping the candidates prepare for and pass the CPALE and CMA and CIA board examinations. And lastly, in the interest of public service, CPAs hold government positions as forensic examiners, auditors, analysts, accountants, finance officers, budget officers, BIR commissioner, and planners in such offices as the Bureau of Internal Revenue, Commission on Audit, Philippine Commission on Good Government, Bureau of Customs, Bangko Sentral ng Pilipinas and Securities and Exchange Commission, among others iereased overtime. Thr The professional work of the accountant has counting areas have been added: Social Accounting, Environment Accounting and Forensie Accounting. Social Accounting measures the impact business policies have put on society such as salary and promotion scheme, health and educational benefits, How do these affect the employees and the people living around the community, Environmental Accounting Provides data which highlights economic benefits provided by natural resources on one hand and the costs invelved in preventing or correcting pollution and resource degradation on the dther hand. Forensic Accounting also called investigative aecounting lends support to lawyers and law enforcement agencies as it involves i appa n of concepts and techniques involving fraud, embezzlement and any Financial wrongdoing,Estimates of losses and damages involving product liability, shareholders 4 ket manipulations and price fixing are just a few cases tackled in forensie sec Ps ounting Stock n Exercise 2 Direction: \dentify each item in Column 2 by selecting one of the terms in Column |: Column 1 A. Social Accounting G Government Accounting M_ Budget Officer B_ Financial Accounting H Tax Accounting N. Finance Officer Cost Accounting I Information Systems Design © BIR Commissioner D_ Management Account J Controllership E Audit and Assurance K Advanced Accounting F Environmental Accounting L Forensic Accounting Column 2 1. Emphasizes the preparation of financial statements. It is concerned with providing financial information to external users. mmarizing of costs and ‘An area where there is detailed recording, classifying and ary to produce and sell a product or service. Nn expenses nec 3. This accounting area places emphasis on economic transactions and its impact on people, places and the environment. 4. The function of providing consulting services to improve client's use of the firm’s capabilities and resources to ensure the achievement of its goals and objectives. ‘An accounting area which deals with an examination of the financial statemer's prepared by an independent accountant for the purpose of giving an opinion as to the fairness of is presentation 6. It deals with the preparation of tax returns, planning and structuring transactions and reports in compliance with tax laws and with a view of helping management choose an alternative way to save on tax liabilities, rent political branches of 7. Also known as fund accounting, it is applied to the dif s proper allocation departments with a view of recording the different sources of funds, and utilization. imates losses and 8. An accounting area where an investigative accountant is hired to ¢: damages involving product liability, stock market manipulations and price fixing, ete 9. Deals with the development ofa set of procedures, processes, and record Canure operational and financial information necessary to make it possible for the uusiness to run smoothly, make financial forecast and estimate its future outcome. 10, ee power to decide assessment disputes, refunds of internal revenue taxeS+ er charges, impose penalties and other matters regarding the revenue code. 11. A higher financial a ai her 7 neial accounting subject covering special topics such as ventures, mergers ‘olidations, corporate liquidation, foreign transactions and foreign operations.}2, Focuses on natural resources and its contribution to economic well-being through preventive and control measures involving process emissions, pollution and resources degradation, 13, Encompasses the areas of responsibility for accounting and finance and deals with preparation of financial reports designed to assist management in converting their plans quantitatively, and in controlling its financial resources. 14. Coordinates with the various branches to execute the financial plans of the government, gives advice to the budget committee, design and recommend forms, schedules and reports. ACCOUNTING AND THE BUSINESS ORGANIZATION A business is a commercial activity intended for the development and distribution of goods and services. The primary objective of any business is to optimize the use of the resources, ensure its profitability and maintain its solvency and stability for the protection of all stakeholders. How does one know if the business is profitable, liquid or stable? The answer lies in the analysis and evaluation of its financial reports. Accounting is a service activity. Its primary objective is providing financial information through financial reports. Financial information assists a statement user in making sound financial decision. It helps investors and creditors evaluate the financial strengths and weaknesses of an enterprise vis-a-vis profitability, liquidity and solvency. It is also useful in assessing the amounts, uncertainties and risks as well as the proper timing of expected cash flows to meet the firm’s cash requirements. ‘A business takes any of the thvee legal forms (sole proprietorship, partnership, and corporation) depending on the number of owners or investors. Likewise, a business may operate as a service provider, merchandiser or manufacturer. Some businesses, such as a school, are multi-operators providing not only services (education) but also selling goods (books and supplies) or manufacturing their own products (uniforms). Exercise 3 Direction: From the following list of possible answers, identify what is being referred to in each of the statements given below: Business Entity Management Accounting Business Documents Profitability Corporation Creditor Single Proprietorship Transactions Net Income Service Business Manufacturing Business Partnership Liquidity Social Responsibility Financial Statements Merchandi Government .¢ Business Simplest form of business organization which is owned by one person. Derives its income mainly from the sale of service to liens. Buvs raw material, processes it and sells it as a finished product. Communicates significant information about the business to the interested partis,anization jointly owned and managed by two or more persons, Business org: An artificial being created by operation of law where interest over its assets is expr by the number of shares. 1. This interested party would like to know whether the business is solvent before j extends financial help ; 8. An economic unit, regarded as separate from its owner or owners that enters inty business transactions f Events or happenings which can be measured in terms of money and entered in the for profit 9 accounting records. 10. Reports which summarizes the financial condition of the business and its operating result 11. The excess of revenues over costs and expenses. 12. Ethical behavior of a person or entity towards society- doing good for the well being of people. 13. Ability of the business to meet its current obligations. 14. This type of business buys goods which are ready for sale. 15. Original evidences of transactions which bring changes in the business values. ACCOUNTING STANDARDS Accounting is used in every kind of business from a local store to a large multi-national company, from a sole-proprietorship to a corporation. It covers up a large range of activities vices provided by professionals to manufacturing of cars, appliances, jal statements are published, stakeholders from the simple s wines, chemicals and the like. When finan (investors, suppliers, customers, government, and creditors) want to be sure that these can be trusted, that the measures used to compute for assets, liabilities, equity, revenues and expenditures are reliable. Thus, general principles have to be laid down to guide the accountants in the recognition, measurement and preparation of financial reports. Each country has its own Accounting Standard Council or Board whose responsibility is to set up accounting rules and regulations subject to the approval of the professional body of CPAs, the Security and Exchange Commission and even the Monetary Board. With the emergence of one global business world, the divergence of the accounting standards brought about by culture, place and people, has been resolved when in 2001 the International Accounting Standard Board was created, Its members are made up of auditors, financial statement preparers, financial statement users, academicians, representing a broad geographical spread from Europe, Asia, America, Africa and the other parts of the world. The inno a Board was to harmonize the standards set up by the various national standard THE FRAMEWORK The framework is a set 10 of concepts and e: Set Presentation of financial statements and is eee ee nae a divided into seven sections: 1. Objectives of financial statementsUnderlying assumptions Qualitative characteristics Elements of f ments mand meas of financial statemer Financial Statermenna titements and its recognition and measureme 6. Concepts of Capita bw and Capital Maintenance THE OBJECTIVE, The objective of the f design of the accounting st financial statements. ramework is to provide a guide in the preparation, review and fandards which are the basis for the proper presentation of the UNDERLYING ASSUMPTIONS To meet this objective, financial st accounting principles and jements must be prepared based on general : assumptions which came about from long time practice. A business is assumed to be a separate entity from other business entities and from the owner based on the Business Entity assumption. The Going Concern assumption assumes that the business will operate for an indefinite period of time while the Time Period assumption states that the life of the business may be divided into uniform periods of time. All transactions and events must be measured in terms of money based on the Monetary assumption. QUALITATIVE CHARACTERISTICS The Framework for the preparation and presentation of financial statements des among others, the attributes or characteristics that financial information must possess to make them trustworthy and useful in making informed judgment and decision. ‘The framework identifies four principal attributes: understandability, relevance, reliability, and comparability Understandability requires that 1) terminologies must be clear, 2) form and presentation orderly and 3) users have a reasonable knowledge of finance, economics and accounting to be able to make a good assessment and sound judgment. Relevance refers to the quality of information which must give the past performance of the business (feedback value) and enable one to project what might take place in the future (predictive value). The information is also aftected by materiality which means that the information has a large bearing or influence on the user, the absence of which will adversely affect his judgment. There must be prompt or timely reporting of information else it becomes inrelevant. For information to be reliable it must be objective and free from material errors or It must faithfully represent wha it purports to be and not mislead the users, e vat the information should be useful to all users and not show bias to a felability which requires the accountant to exercise caution when using estimates or information that is marked by uncertainty. against another period or of one company against anothes etare enhanees also the quahty of information as it leads to etter jugment by company © y e user sntiny y ormity which requires consistency in the plementing comparability is uniformity $ avn i tof i oa ples for accounting methods when comparing one period against ication of rules s ce x two companies. another period or when comparing © P Comparing data of one period Exercise 4 list of possible answers, idemify what is being referred to in Direction: From the follow given below: each of the statements given belahs d ‘A. Business Entity E, Objectivity 1. Prudence B. Going Concern F. Timeliness J. Faithful R C.Understandability G. Comparability K. Neutrality mation H. Consistency L- Time Period D, Relevance This supports Reliability and requites that information be supported by unbiased eviden y We, Only transactions belonging to the firm are recorded in the books of the business. aeons reliability isthe practice of Feporting expenses as assets to boost the prof it ene of the firm. Ae are ioh of relevance isthe omission ofa liability which would have greatly affected the financial position of the firm. 5. Monthly, quarterly and annual fi 6. People will always put up a busir ndefinitely, Accountants ust To determine competitiveness o! To facilitate comparison, the metho be the same from one period to anotl 10. Uncertain of how to measure the property, market value volunteered by a friend. ncial reports are usually prepared for a firm. ness with the expectation that it will succeed and operate ally prepare only general purpose financial statements forall external users * Goldilocks, benchmarking against Red Ribbon is needed. ad of measuring depreciation or bad debts or revenue should er period or from one company to another company it was deliberately overstated based on the een ACCOUNTING PRINCIPLES ing the objectives of accounting, must follow certain basic and processes the financial data based on oles set certain limitations in the preparation i of transactions on the basis of when g of The accountant, in fulfill concepts and principles. The accountant analyze th anting principles. Likewise, these pri of the reports. Exchange Price Principle requires the cost price or equal-to-cash price. Revenue Recognition principle records revenue turned without regard to cash collected while the Matching principle requires recodin expenses incurred to generate revenues it reported. Full disclosure principle requires reporting sre gorails behind the financial statements that would influence users decisions. 1 be derived from business practice, opinions of accouriat pronouncements of professional bodies like the Philippine Financial Reporting Standards and the International Accounting Standards, regulations passed by the Securities and Exchange Commission, Bureau of Internal Revenue and Bangko Sentral Ng Pilipinas Exercise 5 Direction: Identify (by using letters) the basic concept "A. Exchange Price Business Entity G B Matching E Objectivity H Accrual C. Feedback Value F Predictive Value 1 Disclosure 2021 for P300,000. fas recorded for P250,000. wedding that will take a down easuret ‘Accounting principles ma that best describes each situation: Realization Concepts: and issued a three year note due 1. Joshua bought land for his busin This was higher than the cash price of P250,000. The land w 2, Bernie Flower Shop issued a bill to a customer for floral service on & place in the first month of 2020. On October 2, 2019 Bernie Flower Shop received payment and recorded it as an unearned revenue. 3, Merchandise sold for P500,000 was recorded as sales revenue accountant also recognized P300,000 cost of sales for this in the same year 4, The company was confronted by a lawsuit in 2019 for breach of contract in the amount of 500,000. No final judgment has been rendered as at Dec, 31, 2019 and the firm has by MORE Company. THEsome doubts abor e i e me douhts {bout the outcome of the case. Nevertheless, accountant added this information to the financial report for the benefit of all readers ‘ompany accountant prepared a re f E 5. Comp quid ae ant prepared a report analyzing the financial statements of the business as to its liquidity, profitability and solvency for the past three years. sing no. 5 as a guide, ma y 6. Using no 025 a Buide, management was able to foresee the future direction of the saan a naster budget was prepared to improve is financial performance, Stationerics and supplies were purchased on several separate occasions and some of them were usable fora period longer than a year. This was expensed as incurred 8 Refer to no. 1. “The land was appraised in 2020 for P3S0,000, The accountant still Freee Lane at P250,000 iin its current statement of financial position but with a supporting note ofits appraised value. (Give three principles supporting this procedure). The owner of Bernie Flower Shop took home some flowers. The accountant recorded this as personal drawing of the owner. 10. Sales revenue of P1,000,000 was recorded in 2020, Related to this was the recording of salesmen commission based on 10% of sales, THE FINANCIAL STRUCTURE OF A BUSINESS. Based on the Framework of Accounting, the financial position or structure of a business comprise of three elements - assets. liabilities, and owner's equity while its financial performance comprises of two elements called revenues and expenses. Assets are economic resources owned and used in the operation of the business and are expected to benefit the business over a number of years. Financing is always the first activity of a business. The first assets or business resources are contributed by the business owner, secondarily by creditors such as banks for cash loans and suppliers for appliances, furniture, equipment, and goods. Assets are therefore claimable by two parties - creditors and owner(s) and from which came the next two elements = liabilities and equity, Liabitities as defined in the framework is a present obligation arising from a past event, the settlement of which is expected to result in an outflow of resources from the enterprise. A | y is usually paid in cash but may also be paid in the form of property or service. Net assets or net worth of the business is determined by deducting the {otal liabilities from the total assets. The net assets claimable by the owner is called owner's quity. Equity is defined by the framework as the residual right or interest of the owner(s) in the entity's net assets. As ihere are numerous owners in a partnership and in a corporation, equity is called Partners’ Equity and Shareholders’ Equity, respectively The financial structure of a business shows a relationship of balance of the three elements and is expressed in an accounting equation: Assets = Liabilities + Owner's Equity To illustrate, Bert Oliver contributed P200,000 cash to put up a travel agency and borrowed from the bank P300,000 more to put up a travel agency. The accounting equation will show: Assets Cash P500,000 = Loan Payable P300,000 + Oliver Capital P200,000 Another major activity of the busi operating activity. Once business is oper: iV customers. The ingilow of cash and other assets represents income. A busin revenue without consuming some assets of using up services of other businesses 9 The conunption of asset or using up of service fo Benerate revenue is called an Expens Oliver paud for Laity Expense of P1,000 and received cash of P10,000 from his elien, net income is P9,000 which will increase his capital, the above accounting equation will change: Assets in cash P509,000= yyable P300,000 + Oliver Capital P209,000. ‘The thied major activity of the business is the investing activity. Oliver's business cannot ee ‘e noothly with just ‘one asset, cash. It has to purchase furniture and fixtures, supplies, equipment, among others. Cash will decrease, with a corresponding increase in any of the aforementioned assel ness which will cause the Capital to change is its ating, it will receive cash and other assets trom its $ cannot earn eS OF persons, Loan PaFINANCIAL STATEMENTS The four financial statements and their purposes are Statement of Comprehensive Income summarizes the company’ SRperves along with the other comprehensive income resulting in a y's fevenues a pror a period of time, Net income occurs when revenues exceed ex INCOME OF logy aoe ecm expenses exceed revenues. The income statement may penkes. Net logy seare of expense form or a function of expense form as re omen unde Fanart seal Accounting Standards. The income statement shows a series Cd by the tiainming with the most important section and ending with the least important 5 beginning Me net income of net loss. Itmay also show only two sections, one fora gt re sanues and another for all the costs and expenses ~-ome for all the eens at of Owner's Equity explains changes in equity from net income (or I Fram owner investment (withdrawals) over a period of time Joss) and Ho daternent of Financial Position or balance sheet describes the financial str of the business at a given date by listing its assets, liabilities and owner’s equity cture Starcinent of Cash Flows shows how the cash was generated and used by the business based on three major activities: operating, investing and financing. Exercise 6 Identify the following definitions with the terms given below: The relationship between a company's assets, liabilities, and equity. This represents an exchange of value between two parties. ‘A financial statement that reports the changes in the equity of the owner or investor, ‘A financial statement that lists cash receipts and payments over a period of time, arranged according to the major activities of the company. e. Creditors’ claims on assets. f. Sourcing of funds is one of the major activities of the company. ‘A decrease in economic benefit during the accounting period that results in a decrease in equity, other than those relating to distributions to equity participants (in the form of personal drawings made by the owner), as defined in PAS 1. h. As defined in the Framework, these are resources obtained and controlled by the enterprise as a result of a past event and from which probable future econome benefits are expected to flow to the enterprise. PAS | defines this as an inerease in economic benefits during t in increase in equity, other than those resulting from contributions 0! participants (investors). he period that results yf the equity 1, Business Transactions 6. Expenses 11. Finaneing Activity 2. Accounting equation 7. Investing Activity 12. Economic Benefit 3. Liabilities 8. Assets 13, Statement of Cash Flows 4, Statement of Owner's Equity 9. Revenues 5. Statement of Financial Position 10. Statement of Comprehensive Income qT a Exercise 7 4 he accounts of Greenfield Company with the increases or decreases that occurre during the year 2019 are as follows ; Increase Decrease Cash P250,000 Accounts Receivable P 50,000 Accounts Payable 110,000 Notes Payable 160,000Except for net income, Investment of P30,000 by the owner, and a withdrawal of p1i.000 by the owner, : no other items affected the owner's capital account. Using the accounting equation, compute net income for 2019 Exercise 8 From the following adjusted trial bal })_ Net income earned by the agen 2) Owner's equity at the e ance, determine: y dof 2919. 3) Total assets of the company cl 4) Total liabilities of the lassified into current assets and properties. Company classified into current and long term. GO NA Travel Agency Trial Balance December 31, 2019 Cash On Hand and in bank Notes Receivable Accounts Receivable Allowance for Bad Debts Prepaid Insurance Supplies inventory P_ 99,550.00 6,000.00 26,400.00 ,640.00 1,800.00 1,500.00 Land 300,000.00 Building 1,350,000 00 Accumulated Depreciation — Building 135,000.00 Furniture & Equipment 81,000.00 Accumulated Depreciation — Furniture & Equipment 15,000.00 Accounts Payable 78,000.00 Mortgage Payable due 2025 450,000.00 Go, Capital 700,000.00 Go, Drawing 1,800.00 Service Fee 550,000.00 Commission Income 231,760.00 Interest Income 11,100.00 Rent Income 24,000.00, Insurance Expense 600.00 Depreciation Expense — Furniture & Equipment 5,000.00 Bad Debits, 1800.00 Taxes Expense 14,000.00 Utility Expense 2.20.00 Salaries Expense 195,000.00 Advertising Expense 40,500.00 Depreciation Expense — Building 67,500.00 Interest Expense 1,350.00 Supplies Expense 00.00. P2.197,500.00__P2,197,50 Exercise 9 You are pro fed with the following transactions that took place during the year. Identify by Placing the amounts (with a + or ~ sign) in the appropriate columns whether the transactionsare operating, financing or investing activities. Determine the cash balance. Owner invested P50,000 cash and merchandise P500,000. Borrowed P250,000 from Metro and issued a long term note. Recorded cash sales P80,000 and credit sales P200,000 Purchased inventory for P15,000 cash and on account P160,000 Issued a short term note for the new equipment purchased for P10,000. Paid P20,000 cash for personal use of the owner. Acquired a building for P750,000. Paid P 50,000 cash and a note for the balance. Only a fourth of total operating expenses was acerued for 25,000. remeeaeces j,. Half of customers’ accounts coming from ¢ above were collected k. Paid half of suppliers” account coming from d) above. Use the following format: Operating Financing, Investing | a.__ Owner's cash investment + 50,000 | Exercise 10 Selected transaction data of a business for the month of January are summarized below. Determine the amount of revenue, expense and net income for the month of January. | Service sales charged to customers on account for January 350,000 Cash received from cash customers for the month of January 300,000 Cash received from account customers during January Service sales charged to customers prior to January 150,000 Service sales charged to customers during January 200,000 Expenses incurred prior to January and paid during January 80,500 Expenses incurred and paid in January 38,500 Expenses incurred in January but paid in February 70,000 THE RECOGNITION PROCESS Transactions are the daily activities of a business supported by documents and from which accounting records are based. These transactions cause the business elements (assets, liabilities, equity, revenues, and expenses) to change. The change, which is either an increase or decrease, is best analyzed in an accounting tool called Debit and Credit. Following the accounting equation (Assets ~ Liabilities = Equity) assets and expenses are increased on the debit side while the liabilities, capital and revenue are increased on the credit side. Exe e LL cag testers) of the appropriate clement either on the debit column or on the credit 10 show the effect of the listed transaction data on the accounting elements.[7iy_The owner contributed cash to the business, >) Purchased equipment on account, PS0,000. 3) Received and immediately paid advertising bill of P10,000._ 7) Purchased supplies for cash, P5,000 $) Borrowed money from BDO. Issued a 90-day 12% S00. 000 1 note. (©) Billed customer for goods sold, P25.000.____ (7) Made partial payment of the P20,000 ac (8) Paid employee's PI Received a bill from Manila Waters for December, P5,000. A. Assets C. Liability E, Owner’s Capital B. Owner’s Drawing D. Revenue F. Expense BUSINESS PAPERS, All business transactions are supported by business documents, The following are the usual business documents prepared: invoice (sale of merchandise or service), official receipt (cash collection), cash/check voucher (cash or check payment), statement of account (outstanding account of customer). Without a business document, a transaction cannot be recorded by the accountant. Exercise 12 Direction: From the following business papers of Alfresco Marketing, describe the transactions th took place. EVER BRIGHT CANDLES 480 Pasong Tamo, Makati Head Office Tel. No. 524-8677 to 79 TIN # 420-110-414-788 VAT CUSTOMER'S COPY INVOICE NO. 81075 Date June25, 2019 TERMS 2/10,n/30 Deliver to: ALFRESCO Marketing SONO, 0048 SODate 6/24/19 3190 Gil Puyat Ave., Makati [STOCK# | DESCRIPTION Qry__[ UNIT PRICE ok of TO packs PI20 Candles cere ors 10packs Piso 1800.00 opacks p40 240000 (big) Vatable Sates | 4821.83 | DVAT. 857 TOTAL PS5,400 WORTANT Nocomplant wilde ACKNOWLEDGE RECEIPT OF Sataned inten sekrentess bY ABOVE IN GOOD CONDITION sesso narencin al MMabuhay Peter Dy 625/16 ‘Date Delivered — 13ALFRESCO 3190 Gil Puyat Ave., Makati In settlement of the following Mktg. TIN 230-000-041290 vaT eee “ Tel No 2022244 INVOICE NO. Amount g _ OFFICIAL RECEIPT No. 0034 a Date June 15, 2019 Received from __ Phil Christian Bookstore a the amount of __five ey TOTAL _P. (P_5,000_) in full/partial payment of account due us. Cash_—_—| 5,000 [Check MO. By: Rolando Mallari [Total Payment Cashier ALFRESCO CHECK VOUCHER Mktg. No. 07 Payee__Phil Long Distance Tel Co Date _June 18,2019 PARTICULARS AMOUNT Telephone bill for May. P 4,500 | TOTAL P_ 4,500 Distribution of account: Account Title Debit Credit Bank _BPI Check No,_887724 Payment received by: Oscar Cruz Alfredo Fresco Benita Figueroa May Mabuhay. Prepared By: ~ a Certified Correct By: ‘Approved By:Natures Best Philippines inc 2842 Gil P. uyat, Makati INV /OFFICIAL RECEIPT NO. Tel No. 81 163711 to 15 81023 RECEIVED ae io” oie P8800 iil Puyat, Makati x achat DistRIcT —: A220 Leas c se Payment | Description Amount 5,850.00 fal jon-cash Payment: Date: 6/1019 al a |__Bank/Branch = | Check no. | Acct. no. Lie 668868 | ost98.3 Po ee Le ee | Payment Acces Payment accepted by: Emy Ong 6107 | amount in words Five thousand eight hundred fifty a 0440184 Signature/Printed Name | JOURNALIZATION AND THE BOOK OF ORIGINAL ENTRY onologically business transactions in the Journalization is the process of recording cl book of original entry called the Journal. Recording all the transactions in a single journal is possible but it is seldom used in actual practice unless the business is a wholesaler with few transactions, Where a business organization is quite large and the transactions are numerous, special journals may be designed to be able to record the transactions conveniently. Special journals include the following: sales journal, purchases journal, cash receipts journal and cash disbursements journal. All other transactions as well as the adjusting, closing and reversing entries are recorded in the general journal. If the company is using the voucher system, the check register and voucher register are used instead of the cash disbursements journal and purchases journal. The use of special journals facilitates specialization and division of work thus minimizing recording and posting time. Exereise 13 Refer to exercise 11, prepare journal entries, make postings and prepare atrial balance Exercise 141 Direction: Below are the selected transactions of Casey's Bookstore, Indicate by means of letters the journals to be used: A. sales journal B. cash disbursements journal C, sh receipts journal E general journal where each of the ould be recorded, Give the journal entries in each book 0,000 and furniture worth P15,000. | Purchases journal D. following transactions | investments: cash of ased on account, P10,000. Mr. Casey made additior 1 122 o as purchi 3 Nie arias amounted to P15,000. Terms: P5,000 down, balance 2/10, » P12,000. ' Sales on account amounted to P12,0 pent rene: 15 Account purchases in No. 3 was paid within the‘A credit memo for P1,000 was issued to a customer in No. 4. Cash sales amounted to P5,000 Operating expenses paid P3,000. 9. Borrowed P10,000 from the bank and issued a promissory note. 10. P10,000 was collected from the account sales in No. 4. 11, Sold to a customer who gave a promissory note, P2,500. 12. Purchased office supplies on account, P150. 13. Received a telephone bill for P300. 14, Note of customer in No. 11 was dishonored. 15. Cash purchases amounted to P15,000. wea POSTING TO THE GE Transactions recorded in the journal in terms of debits and credits are transferred to their accounts in the general ledger. The transfer is called posting, and-this is done to accumulate in one place all the information concerning the changes (debit or credit) affecting a specific asset, liability or proprietorship account. After accumulating the data, a balance is extracted for each of the specific accounts in the ledger. Assets and expenses usually have debit balances, while liabilities, capital and income have credit balances. The real or balance sheet accounts are brought forward to the next accounting period while the nominal or income statement accounts are closed to the capital account. RAL LEDGER ts TRIAL BALANCE After all the transactions have been posted to their ledger accounts and the balances for each of the accounts determined, a trial balance is prepared, A trial balance is a list of accounts with balances. It provides a check on how accurate the recordings and postings are. If the trial balance is out of balance, errors that may have been committed are the following: Posting a debit entry on the credit side of the ledger and vice versa; error in adding or subtracting to get the balance of an account; copying of wrong amount in the ledger from the journal, or in the trial balance from the ledger; copying a debit balance in the credit column of the trial balance or vice versa; wrong addition of the debit column or credit column of the trial balance, error of transposition or transplacement, Even if the debit and credit totals are equal, there may still be errors committed that are not transparent such as: wrong computation, wrong use of account title, omission of an entry or recording of an entry twice. Exercise 14 Direction: The following accounts show the beginning balances and the transactions for the first half of January. Post the remaining transactions for January and extract the balances for each of the accounts and prepare a trial balance. Cash Santos, Capital Jan. 1 12,000] Jan 15 2,000 Jan. 1 254500 14 11,500 1,000Accounts Receivable Sales jan 1 20,000 | Jan. 14 17,500 Jan. 9 17,000 9 19,040 Merchandise Inventory Output Tax, jan 1 5,000 Jan. 9 2,040 Furniture & Equipment Purchases Jan. 1 3,500 Jan. 7 18,500 16 5,000 Accounts Payable Input Tax Jan, 1 15,000 ~~ Jan. 7 2,220 7% ¥ 20,720 16 600 16 5,600 Withholding Tax Payable Salaries & Wages Jan. 15 500 Jan. 15 2,500 Utility Expense Jan. 16 1,000 Jan, 17 Santos paid P20,000 of the business liabilities out of his personal cash. 20 Cash sales amounted to P4,480 inclusive of 12% VAT. 22 Collected the account of a customer, P5,000 less a P100 discount and a P12 adjustment for VAT 25 Paid for utility expenses, P1,500. 30 Paid for semi-monthly salaries less withholding tax. Purchased equipment, P7,840 inclusive of 12% VAT. Terms: P5,000 down, balance 2/10, n/30. 31 Paid the liability on the equipment purchased on the 16th less a 2% decrease on equipment for the discount and adjustment for the VAT. Exercise 15 An inexperienced bookkeeper prepared the following trial balance: Cheng Company Trial Balance December 31, 2019 Cash Prepaid Insurance Accounts Payable Unearned Revenue Common Stock Dividends Service Revenue Salaries Expenses Rent Expense Prepare a correct trial balance. Debit Credit P16,800 P3,500 3,000 4,200 13,000 4,500 25,600 18,600 2.400 P52,000COMPILATION OF DATA FOR ADJUSTMENT From the trial balance at the end of the accounting period, some accounts need to be adjusted before the financial statements can be prepared. Exercise 16 ‘The following are the items that need adjustments at the end of the accounting period 1. Accrued income 5. Bad Debts 2. Accrued expense 6. Merchandise Inventory 3. Prepaid expense 7. Depreciation 4. Deferred income Direction. \dentify the adjustment to be made and the pro-forma entry. Assume the company is using the liability method in no. 5 and the asset method in no. 6. 1, The adjustment related to fixed asset which attempts to spread the cost of the fixed asset over its useful life, Debit Credit 2. The adjustment for accounts receivable to bring it to its realizable value. Debit __ a Credit = | 3. The adjustment to set up the unsold goods remaining on hand at the end of the period Debit ___ Credit 4. Expense already used up or incurred but not yet paid. Debit _ Credit 5. Uncarned Income collected but a portion of it is already earned. Debit Credit 6. Unused Supplies already paid but a portion of it is already used up. Debit Credit 7. Income already earned but not yet collected. Debit Creditry Pees Exercise 17 you are given the following working paper which you are required to complete: SHOPWISE MART. SIX-COLUMN WORKSHEET DECEMBER 31, 2019 Trial Balance] Adjustments | Adjusted Trial Balance Debit [ Credit | Debit_ [ Credit te i 2 24 12 4 1 7 3 4 3 26 | Sani 3 [Sales a [Sales Returns 2 a 3 Rent z aT. Sales Salaries | Totals 78 78 Prepaid Rent 2 | Salaries Payable i Cost of Sales 12 [Bad Debts Depreciation Supplies Used Totals The company is using the perpetual method of recording inventory. Exercise 18 The following are selected balances taken from the adjusted trial balance of Fernan Corporation as of December 31, 2018: Debit Credit Accounts Receivable P 120,000 ie A a for Doubifiul Accounts elite & Allowances 1,500 Sales Returns 500 Sales Discountlowing transactions took place the year 2019, the foll ished of which 60% is on credit, with terms of 2/10, n/30, a) Sales amounted to 1,500,000 from account customers amounted t0 800,000 out of which P388,400 wore jons frot discount period ances amounted to P1,800 out of which P900 cash refunds were b) Collectis collected outside the Sales returns and allow given to customers. Compute for the balance of the acco Use T Account. 5) ‘The policy ofthe company is to maintain the allowance for doubtful account hosel on a certain percentage of accounts receivable outstanding, What i the required allowance for doubtful accounts? «) Give the adjusting entry. Support with an Allowance for Doubtful Account T-account, ) Dire ) unts receivable as of December 31, 2019 rection: a) Exercise 19 On September 1, 2019, ABC Company and MNO Company signed a contract with the Daily Bulletin for an ad of their products to be printed every Sunday and to run for 4 months ata rate of P10,000 per month. ABC Company immediately issued a check for this contract while MNO did not because the owner of the Daily Bulletin was a close friend a) Give the adjusting entry of the ABC Company +f the accounting period is yearly ending October 31 and the company is using the asset method, b) Give the adjusting entry of MNO Company if its accounting period is yearly ending December 31 and a statement of account was received from Daily Bulletin som Exercise 20 1s, Incorporated was in need of cash. A short-term loan z applied for P100,000 was Baten by BPI Family Bank at 24% for 90 days. A check was issued on November 2, 2019. was discounted in advance and Ramos, Incorporated used the expense method. Give the ent : ° maturig daae SMES o” November 2, December 31 end of the accounting period, and on Exercise 21 Jsing the data in No. s 9 9 esting bearing note 20 but assume a ’ ; ; sume that a 90 day 12% interesting bearing note was Give the entries on November 2 ee December 31 end of the accounting period and omExercise 22 Records of the equipment purchased by Sinta Company showed: Useful life Items Qty Dat Scrap Value in years Computer Q) P29,000 Sept. 1, 2018 P5,000 4 Aircon a 10,000 Mar. 1, 2018 3,000 6 Airfan @) 1,500 Feb. 1, 2017 300 6 Direction: a) Adjusting entries on December 31, 2018 b)_ Financial position presentation as of December 31, 2018. Exercise 23 Using the data in No. 22 above, give the adjusting entries and the financial position presentation if the accounting period ends on December 31, 2019. Exercise 24 The accounts a 31, 2019 are as follows: balances in the ledger of May Vera Novelty Store on December Cash on Hand P 4,400 Cash In Bank 84,500 Accounts Receivable 30,200 Merchandise Inventory : 38,400 Supplies On Hand 2,170 Prepaid Insurance 2,500 Store Equipment 17,000 Accumulated Depreciation ~ Store Equipment 4,500 Office Equipment 5,200 Accumulated Depreciation ~ Office Equipment 1,600 Accounts Payable 30,900 Withholding Taxes Payable 5,500 Mortgage Payable (due 2021) 60,000 Sales Returns and Allowance 3,000 Sales Discount 3,40037,300 Output Tax Purchases 230,300 Purchase Returns & Allowances 5,000 Purchase Discount 7,960 Input Tax 26,800 Freight In 2,000 Sales Salaries 24,600 Delivery Expense 6,800 Rent Expense 6,000 Miscellaneous Selling Expense 1,250 Office Salaries 13,600 Telephone and Telegraph 1,360 Gain on Sale of Land 7,720 Interest Expense 300 Vera, Capital 44,700 Vera, Personal 12,000 Sales 310,600 The data for the year end adjustments on December 31, are as follows: 1. Merchandise inventory on hand, P41,600. v Supplies unused, P1,120. Allowance for bad debts to be set up at 5% of accounts receivable. Prepaid insurance is for one year dated April 1. Depreciation for store equipment, 10% and for office equipment, 5%. Accrued sales salaries, P460 and office salaries, P210. Set up VAT Payable by closing Input Tax against Output Tax. AX w ew Direction: 1. In an eight-column worksheet, prepare the trial balance on the first two money columns. 2. Prepare the adjusting entries on the next two money columns.3. Extend to the ne lext two money columns the adjusted account balances represe! , ae Hominal or income statement accounts. end to the las the a Enel st two money columns, the adjusted account balance a real or financial position accounts a ‘pare the financial statements. Exercise 25, A partial adjusted trial balance of 7 A paral nce of Zaylo Company at December 31, 2019, shows the Zaylo Company Trial Balance December 31, 2019 Supplies Date ing Prepaid Insurance 2,400 Salaries Payable : P800 Unearned Revenue 750 Supplies Expense 950 Insurance Expense 600 Salaries Expense 1,800 2,000 Service Revenue Instructions: “Answer the following questions, assuming the year starts January | oplies Expense is the result of an adjusting entry and P500 of ‘March. What was the balance in Supplies on January 1? noe Expense came from the December 31 adjusting ‘emium was for one year. What was the total premium a) The amount of P950 in Sup supplies were purchased in b) The amount of P600 in Insural entry. The original insurance pr and when was the policy purchased? ©) P3,500 of salaries was paid in2019. December 31, 2018? 2019 for services performed in d) P1,600 was received in 5 balance in Unearned Revenue on December 31, 2018? What was the balance in Salaries Payable at December. What was the CLOSING ENTRIES After preparing the financial served its purpose for the current accOf make the ledgers ready for the nomi ment as a guid nd expense accounts would have closed to | statements, the revenue inting period. The L accounts for the next a je, are as follows: accounts should now be iccounting period. Pro-forma for closing, using the income staten a) Close net sales - ; x a nces- x Sales Returns and Allows s xx Sales Discount Pacome and Expense Surnmary 23b) Close cost of sales - Merchandise Inventory, End xx Purchase Returns and Allowances xx Purchase Discount Xx Income and Expense Summary xx Merchandise Inventory, Beg Purchases x Freight In xx Xx, ©) Close operating expenses Income and Expense Summary xXx Operating Expenses (in detail) xx 4) Close other income and expenses Other Income (in detail) XX Other Expenses (in detail) Xx Income and Expense Summary xx At this point, in T account, the Income and Expense Summary will show: Inci xx | d) netother income xx If the balance at this point is on the credit side, then it represents net income. To close - Income and Expense Summary xx Owner's Capital XX If the drawing account has a debit balance it means that the owner's personal withdrawals is greater than the net profit earned. To close - Owner’s Capital xx Owner’s Drawing xx POST-CLOSING TRIAL BALANCE After preparing the closing entries, another trial balance is prepared for the accounts still open. Again, the reason for this is to prove the equality of the debits and credits REVERSING ENTRIES These entries are prepared first day of the next accounting period to “reverse” some adjusting entries. The purpose of reversing entries are: . oe ch 1. To close out accounts that were only created when adjusting, entries were prepared. 5 as the accrued income and expenses, the prepaid expense under the expense method & the unearned income under the income method. For consistency in the accounting procedure of recording income and expenses. 3. To simplify the bookkeeping entries in the following accounting period.Exercise 26 gam Manor gave vou the following adjusted ral balance KIMMIE MEISSNER COMPANY __ Adjusted Trial Balanee For the Month Ended June 30, 2019 Adjusted Trial Balance Account Titles Debit Credit Cash P4650 ‘Accounts Receivables 5,200 ‘Supplies 640 Accounts Payable 2,500 Unearned Revenue 200 Minerva, Capital 7,280 Minerva, Drawing 400 Service Revenue 5,360 Salaries Expense 1,650 Miscellaneous Expense 350 Supplies Expense 3,050 Salaries Payable aa P15,940 Direction: a) Prepare the clo: 0,2019. sat June 30. b) Prepare a post closing trial balane ©) Reversing entries at the start of anot under the income method and prepayments her fiscal period assuming that advances are under the expense method MERCHANDISING BUSINESS goods or articles, which it sells at a profit, without A trader or merchandiser buys les, The following are the account titles peculiar to a changing the form of the goods or artic merchandising business: Purchases Purchase Returns & Allowances Purchase Discount Freight In Sales Sales Returns & Allowances Sales Discount for goods purchased - for sales made - Exercise 27 Cebu Bookstore bought cabinets and ‘glass shelves for its store from Manila Furniture Company, paid P6,000 plus freight of P750 under the term FOB Shipping Point. Direction: Give the journal entries in the books of the seller and buyer 25Exercise 28 On June 10, Good Grocery was granted an allowance of P150 for an office lable that Purchased on account two days ago from Restwell Furniture Store, Ly Direction: Give the journal entries in the books of both the seller and the buyer, Exercise 29 ABAKADA Bookstore makes purchases at least twice a year. Sales price is usual 200% of cost. The company uses perpetual method. You are given the following information 4) 2,000 copies of books were in the bookstore as of December 31, 2018. The unit coy averaged P87 including freight. ») May invoice showed 5,000 copies ordered from Jasmine Printing Press at a unit cost of P90. Freight amounted to P5,000. ©) 3,000 books were sold on account coming from the May purchase 4) October invoice showed 3,000 copies were purchased on account from Pauline Printers a a unit cost of P85. Freight amounted to P7,500. €) Sold for cash 1,000 of the books in stock as at Jan 1, 2019. Direction: a) Give the entries and compute for the gross profit. b) Prepare a stock card and determine inventory balance at the end of the year. Exercise 30 For cach of the following purchases of Friends Company, assume that credit terms are 2/10, n/30 and that any credit memorandum was issued and known before Friends Company made the payments. ] Prepaid Freight Credit] Amount Shipping Terms (by seller) _| Memorandum P 20,000 | F.O.B. shipping point P1,500 poe ly B 60,000 | F.0.B. shipping point 3,000 8,500 120,000 F.O.B. destination 7,200 10,000 | Direction: In each case, determine (a) the appropriate cash discount available and (b) the cash remitted if the payment is made in the discount period. Exercise 31 In each of the following independent cases, prepare the entries and the subsidiary ea if necessary, from the viewpoint of the buyer and seller a) Silver Company sold merchandise to Universal Corporation on September 15 a P90,000, terms 2/10, n/30, FOB Shipping Point. It prepaid delivery expense 26September 16, P4,000 a the remaining ba goods amountir nd on Se tember 20 it received Ot Septem er Company ack W distributor, bo, INCE 3% e. O.m, FOI A partial paymeni uly 20 for 4 defect in the eX the month was not paid. ote was paid on m, a check for P40,000. On Sept. 25 er 30, Universal returned spoiled nowledged ight equipment from A\ B destin; twas m, ») Gold Company, an RT Terms: 50% down, bala the freight for P2509, memo Was received on J was due at the end of promissory note, The benson for P100,000. ‘ation, dated July $. Abenson prepaid lade on July 15, P30,000 and a credit ‘quipment, P5000. The balance which Gold issued, instead, a 15-day, 18% " laturity date. Dee ne ere anEE company, bought printer for office use from Flectroworld for P15,000. Terms: 2% and 1% trade discount, balance 2/10, VIS, n/30. Date: February 1, Payments were made on February 10 for P5,000 and the balance on February 15. but assume this time that the business is VAT registered. d) Use situation a) Exercise 32 A company’s operating figures for four consecutive periods are given below o) Q) @) cc) Beginning Inventory P 250,000 P 200,000 P150,000 +P 230,000 Net Cost of Purchases 50,000 50,000 500,000 450,000 Cost of Goods Available for Sale P 700,000 P-750,000 — P650,000 — P 680,000 Ending Inventory 200,000 150.000 230,000 160,000 Cost of Goods Soid P 500,000 —-P-600,000--P- 420,000 P 520,000 Direction: Assuming that the following errors were made, compute the correct cost of goods sold for each period: Period Error in Ending Inventory 1 Overstated P20,000 2 Understated P30,000 a Overstated P10,000 CODE OF PROFESSIONAL CONDUCT cs ¢ performance of their es to all professionals in the performance o The Code provides guidance and ru the mance of thei ti es, engineers, lawyers, architects and the like n : they accountants, nurses, engin ; values faa a ily the attitude of peers, public opinion and vigilan eof prfessonal beet occoueae id [ 10 v' wir own set of code and i Associations to ‘ehich they belong. These te ew have their 2 smbers who vio Necessary sanctions or disciplines members w elves in practicing sensitive professional Commi fessional must commit themselves in practicing sensitive profession to and moral vadgments inal ther undertakings, Ad rear drofexion maintain the publics cooper Judgments in a near ard gy liars sit} poPerate with cach other to IMPFOVE CT cial responsibilities Sonfidence, and carry out the ae client’s will 1s committing oneself to ce ina way \cepting engagements a ae set stand by their trust and reliance in you, demonstrate will protect stakeholders’ interest. 27 te the rules.Jism at all times. Professionals who encounter conflicting pressures must act with sionalism at all times ss ; crest to serve the stakeholder mea “objectivity, duc professional care and a genuine interest (0 " dere c equires one to be hones Integrity Principle. Integrity is an clement of character which requires one to be honest ang me i: fessional does not entertain dee not subordinate chent’s confidence for personal Bait Ota deceit or sbordnation at in . a vvofeesional should be foe ofall confit of ners wh ee a gr rac mnablifes, Objectivity is @ slate of rind which imposes. hones, discharaing professional sone of ones: responsibilities. Independence foqures “one to avon a ie yo mt Py Teruputoutm the application of judgment and candid un their dealing D 1 Care, The essence of due professional care is to render execton Seenel crv Due ¢ requires one to discharge professional responsibilities with rrtectonae and diligence. Competence rquires one 1 have a good educational backareund an cpr fo mn soipasace seyret comune ProKsioal st and improvement throughout the fe of a professional be ma mained ; ee sta be diligent in fulfilling its commitment. Diligence imposes och spi esibity to render services promptly and carefully, to be thorough, work the plans, and sup to ensure the success of the plans sct up. Vities Exercise 33 A code of professional ethics guides professionals in their professional practice. Idencify what are described in A with the ethical conduct given in B: SETA 1) A company accountant must know whether a disbursement should be treated as capital expenditure or as revenue expenditure, or else financial statements will not be able 10 give the correct information regarding company’s financial operation and position 2) This is akin to good behavior where a professional practitioner refrains from en: activites that will destroy or discredit the profession such as maniput reports, accepting bribes, gifts or favors lating records and 3) Security measures in locking files and documents may eliminate this threat to an ethical conduct 4) Avoid being bias, disclose all relevant 5) This involves quality of servi diligence in rendering the 6) Ben Logan, a family meml chent firm. Ace Logan info ormation and exercise fair judgment mastery of knowledge, adequate experience, and ervice. ber of the company Auditor ormed the board about this 7) Mr Calvin is a board member of RAM Ci 4S consulted by a prospective Investor as to the attractiveness of Ram shares which is rumored to as b eae of an Impending strike. Mr. Calvin denied the Fumor although he knows it istrye ae Sis true Ace Logay is the treasurer of the and offered to withdraw as auditor orporation He w; a) Objectivity ©) Integrity b) Confidentiality ©) Due professio 4d) Independence HC paces aaJAX REFORM PACKAGE wo th lat are sure , i a that - Gre im pits World are: taxes and death, Taxes, for instance, are bound 0 cha Be, Wa rt Package was approved into law and took effect on January is Z os i Ive was for a majority of the carers to take home more pay which would thon be able to buy more food on the table. Pay utility bills, and make life more comfortable. The Tax Reform for Ace drastically brought down perso pefore at P250,000 per year. It eleration and Inclusion Law (TRAIN) 1, which is now a law nal income taxes. The exemption level is much higher than means that a worker or employee caning P20,833 a month or sag Ying taxes effective January 1, 2018 up to December 31 sed premium contributions as follows $$ Contribution. ‘The contribution rate is now 11% of the monthly salary credit not exceeding 716,000 and this is being shared by the employer (7 366%) ang te employee (3.634%). In excess of P16,000, the monthly premium is P58] 30 per employee. . HDMF/Pag-Ibig. The monthly Contribution shall be 1% (employer) and 2% for employee based ana monthly slaty of P1500 or less, Over PI,500 to PS.000. 2% each for employer and cmploves ‘The maximum is P100 for each, the minimum at P1,500 is P15 for the employer and P30 for the employee. Assume monthly pay of three employees: Fajardo P20,000, Alberto 22,000, Cecille P45,000. Fajardo Alberto Cecille Monthly Salary 20,000.00 22,000 45,000.00 SS Premiums PS81.30 P581.30 P581.30 PH 2.75%x 4x monthly pay 275.00 302.50 618.75 HDMF 100.00 100.00 100.00 Total deductions 956.30 983.80 1,300.05 Taxable income P19,043.70 P21,016.20 43,699.95 Tax Due a)- (21,016.2-20,833) x 20% b)P 365.74 2500+ 25 (43,699,95-33,333) ©)P 5,091.66 a) Those earning a monthly pay of P20,833 or lesser are tax exempt. b) Those eaming in excess of P20,833 but not exceeding 33,333 pay a tax of 20% ©) Those caring in excess of P33,333 but not exceeding 66,667 pay a tax of P2,500 + 25% of the excess To offset the drain in the government's coffer brought by this cutback on personal Meome tax some of the day-to-day commodities have been taxed higher (cars, tobacco, sugar- SWectened beverages, and fuel) which contributed to the country’s inflation oF rising prices Oil Tetailers, supermarkets, convenience stores, food stores and even sidewalk vendors have begun upgrading their price lists. It seems TRAIN did not provide a significant impact to an erage wage earner. Higher basic needs tipped the scale of the higher take home payBUSINESS TANES. Value Added Tas or VAT and Percentaze Tay are also included inthe reform packase His required effective January 2018 that a 12% VAT be paid. aside from the ireeSehe akc te Tantei ealca of tgrios receipts nis Wie) EOD On PuSsnale applies to sellers of goods and service providers, as well, for as long as their annual gran, sales of receipts is P3,0000,000 or more. ; ods merchandiser cars more than To illustrate: Assume RG Trading, a dry w* e ean forthe first quarter of 2018 cash sales 3,000,000 gross sales annually. RG Trading oe ee He 560,000. VAT inclusive of P1,092,000, VAT inclusive. This was purchased on January entry Purchases 500,000 Input Tax 60,000 nrCast 560,000 ash 092,000 January to March Cash 1 ee Output Tax 117,000 if you will prepare a quarterly statement of financial postion, adjusting entry on March 31 should be: 117,000 rutput Te opal Tax 60,000 VAT Payable 57,000 VAT and percentage tax are payable within 25 days at the end of a quarter If you will pay on April 10, entry will be Vat Payable Cash In Bank A percentage tax, instead of a 12% VAT, is levied if annual gross revenue does not hit 3,000,000. A service provider or retailer records a tax expense account for this. Assume RG Retailer has a gross revenue of P120,000 reported for the first quarter of 2018: 3,600 57,000 57,000 March 31 Taxes Expense Taxes Payable TRAIN 2 or TRABAHO (Tax Reform for Attracting Better and Higher Quality Opportunities) is a second tax reform package still on the floor of Congress. It focuses on two things: 1) Reducing the 30% corporate tax gradually by 2% a year starting 2021 eventually bringing down the rate to 20% by 2029. 2) Reducing various tax exemptions and tax holidays to minimize the “special treatment” enjoyed by a minority of corporations numbering around 5% that currently are only paying 6 percent to 13 percent tax. EXERCISE 4 A. RG Trading employs three clerks and pay them monthly salary as follows: 1) Clark, cashier, P24,000 2). Bess, sales clerk, P15,000 3) Alex, manager, P30,000 3,600. Compute for their taxable income and the tax due from each one B._RG Trading purchased goods in April for P728,000 VAT inclusive and for the seco Quarter reported sales of P1,274,000 inclusive of VAT. Give the tax payable on June 30. 30