PRINCIPLES OF ACCOUNTING:

=ACCOUNTING=

● The language of business

● It was defined before as the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events which are in
part at least of financial characters and interpreting the results thereof.
● In ACCOUNTING STANDARDS COUNCIL OF THE PHILIPPINES (ASCP) has
defined as follows: accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions.

=BOOKKEEPING=

● is the recording phase of accounting.

● This refers to the processing of the recorded accounting data to make them
more useful to their users.
● It is defined as the recording of business transactions in a systematic manner.

=USERS OF FINANCIAL STATEMENTS=

● Management
● Owners
● Creditors
● Government Agencies
● Prospective Investors

=FINANCIAL STATEMENTS=

● Income Statement
● Balance sheet
● Change in owners’ equity

=BASIC ELEMENTS OF ACCOUNTING= (USE OF ACCOUNT TITLES)

● Assets (merchandise inventory-goods acquired for sale and are still unsold)
● Liabilities
● Owner’s Equity
● Expenses
● Revenue/Net Income/Net loss

Seatwork: (20 minutes)

 I- Determined the account titles whether an ASSET, LIABILITY, OWNER’S
EQUITY, REVENUE or EXPENSES account of the business.

1. Cost of placing advertisement in newpapers.

2. Rentals incurred for spaces being used.
3. Amount earned by employees for services rendered to the business.
4. Small handy metallic objects used in performing specific functions.
5. Initial and additional investment by the sole proprietorship.
6. Revenue earned by professionals for services rendered to clients.
7. Sanitation and health inspection fees.
8. Insurance premiums pertaining to current period.
9. Receivables covered by promissory notes.
10.Revenue earned by a lawyer.
11.Earnings by a repair shop for services rendered.
12.Supplies used.
13.Amount due from customers and clients for goods sold or services rendered to
them.
14.Withdrawals by the sole proprietor.
15.Obligations to suppliers for goods and services received.
16.Obligations covered by promissory notes.
17.Typewriters, computers, and accounting machines.
18.Land acquired for use by the business.
19.Portion of cost property and equipment allocated to current period.
20.Billing from meralco and water consumption.

II- Determined the account titles whether an ASSET, LIABILITY, EWNER’S

EQUITY, REVENUE or EXPENSES point of view a business.

1. Notes Payable
2. Building
3. Service Income
4. Cash
5. Office Equipment
6. Loans payable
7. Expenses payable
8. Merchandise inventory
9. Unused office supplies
10.Prepaid expense
11.Dental Services
12.Cost of constructing the warehouse
13.Taxes due to the government
14.Supplies used
15.Salaries and wages earned by employees
16.Accounts Receivables
17.Furniture
18.Cost of light and power used
19.Cost of Advertising in newspapers, radio and televisions
20.Bad debts

Seatwork: (20 minutes)

III- Determined the account titles whether an ASSET, LIABILITY, EWNER’S

EQUITY, REVENUE or EXPENSES account of the business.

21.Cost of placing advertisement in newpapers. Exp.

22.Rentals incurred for spaces being used. Exp/rev.
23.Amount earned by employees for services rendered to the business. Exp./salary
24.Small handy metallic objects used in performing specific functions. Asset
25.Initial and additional investment by the sole proprietorship. asset
26.Revenue earned by professionals for services rendered to clients. Rev.
27.Sanitation and health inspection fees. Exp
28.Insurance premiums pertaining to current period. exp
29.Receivables covered by promissory notes. Asset
30.Revenue earned by a lawyer. Rev
 31.Earnings by a repair shop for services rendered. Rev
32.Supplies used. Exp
33.Amount due from customers and clients for goods sold or services rendered to
them. Rev
34.Withdrawals by the sole proprietor. exp
35.Obligations to suppliers for goods and services received. Lia
36.Obligations covered by promissory notes. Lia
37.Typewriters, computers, and accounting machines. Asset
38.Land acquired for use by the business. Asset
39.Portion of cost property and equipment allocated to current period. Asset
40.Billing from meralco and water consumption. lia

IV- Determined the account titles whether an ASSET, LIABILITY, EWNER’S

EQUITY, REVENUE or EXPENSES point of view a business.

21.Notes Payable
22.Building
23.Service Income
24.Cash
25.Office Equipment
26.Loans payable
27.Expenses payable
28.Merchandise inventory
29.Unused office supplies
30.Prepaid expense
31.Dental Services
32.Cost of constructing the warehouse
33.Taxes due to the government
34.Supplies used
35.Salaries and wages earned by employees
36.Accounts Receivables
37.Furniture
38.Cost of light and power used
39.Cost of Advertising in newspapers, radio and televisions
40.Bad debts

=ANALYZING TRANSACTIONS AFFECTING BALANCE SHEET AND INCOME

STATEMENT ITEMS=

1. Prince Amara invest cash of Php 30,000 in an automotive repair shop on

January 02, 2013.
2. Mayor’s permit and health inspection fees are paid Php 150.00
3. Prince amara buys machinery and equipment costing php 15,000.00 by paying
php 10,000.00 from the business funds and issuing a promissory note for the
balance.
4. Tools are bought for php 7,000.00 cash
5. Prince amara authorizes the payment of rentals for the space occupied by his
shop for two years in advance at the rate of php 6,000.00 per annum.
Accordingly the cashiers pay the amount to the lessor.
6. Prince amara buys shop supplies for php 2,000.00 cash
7. The business pays php 500.00 for the cost of billboard.
8. Customers are billed for php 70,000.00 for service rendered.
9. Customers billed for php 50,000.00 in No. 8 above pay their accounts
10.The company collects on one half of the remaining accounts per billing in no. 8
above.
11.Prince amara pays the php 500.00 meralco bill of the business from his own
funds.
12.Salaries and wages mounting to php 30,500 are paid.
13.At the end of 2012, salaries and wages of php 5,000.00 are still unpaid.
14.Depreciation of php 3,000.00 is provided on machinery and equipment.
15.A provision for bad debts of php 800.00 is made.
 Journal Entry Assets Liabilities Owmer’s
equity
1.Cash P + 30,000.00
Prince Amara, Capital P +30,000.00
To record the Initial investment
of the business
2. Taxes and Licenses -150.00
Cash - 150.00

3.Machinery & Equipment +15,000.00

Cash -10,000.00
Notes payable + 5,000.00
4.Tools +7,000.00
Cash -7,000.00
5.Prepaid rent +6,000.00
Cash -6,000.00
6. Shop supplies expense -2,000.00
Cash -2,000.00
7. Advertising expense -500.00
Cash -500.00
8.Accounts Receivable +70,000.00
Service Income +70,000.00
9.Cash +50,000.00
Accounts Receivable -50,000.00
10. Cash +10,000.00
Accounts Receivable -10,000.00
11. L&P expense -500.00
Amara, capital -500.00
12.Salaries and Wages -30,500.00
Cash -30,500.00
13. Salaries and wages -5,000.00
Sal& Wages Payable +5,000.00
14. Depreciation expense +3,000.00
Accumulated Depreciation -3,000.00
15.Bad debts -800.00
Allow. For Bad debts -800.00
P68,050.00 10,000.00 P58,050.00

Seatwork:

Tabulate the following effects of the given transactions on Assets, Liabilities and
Owner’s Equity.

The following transactions are given:

Prepare a journal entry:
1. Mr. Kho invest cash of php 100,000.00 in an advertising firm.
2. Municipal permits and other licenses amounting to php 1,500.00 are paid
3. Mr. Kho buys office furniture’s for php 15,000.00 cash
4. He transfers to the business his family typewriter valued at php 25,000.00
5. He buys advertising supplies for php 12,000.00 0n account
6. The annual rental for the office space occupied is paid php 24,000.00
7. The business bills clients for advertising services rendered php 55,000.00
8. Collects php 30,000.00 from some of the clients billed in no. 7 above.
9. The employees’ salaries and wages amounting to php 25,000.00 are paid.
10.Mr. kho withdraws php 8,000.00 cash from the business.
Part II – Problem Set

Problem 1

The Trial Balance of Prince Amara Laundry Shoppe on June 30, 2007 is shown below:

Prince Amara Laundry Shoppe

Trial Balance
June 30, 2007
Acct. No Particulars Dr. Cr.
101 Cash 8750.00
112 Account Receivable 2320.00
126 Supplies 1900.00
157 Equipment 9000.00
201 Account Payable 5500.00
206 Unearned Revenue 800.00
301 Amara, Capital 15670.00
Total 21970.00 21970 .00

July Transaction:

05 – Received php 850.00 cash from customers on account.

10 – Billed customers for Services performed php 6300.00
15 – Paid employee salaries php 1400.00
16 – Performed php 600.00 of service for customers who paid in advance in June.
20 – Paid php 2000.00 to creditors on account.
21 – Received php 250.00 for service rendered on a cash basis.
26 – Purchased supplies on account at a cost php 350.00
29 – Withdrew php 600.00 for personal use
30 – Paid utilities php 900.00

Requirements:

a) Chart of Accounts
b) Journal entries
c) General Ledger
d) Trial Balance
e) Income Statement
f) Balance Sheet
g) Statement of Changes in Equity
h) Post – Closing Trial balance
i) Cash Flow Statement
j) Closing Entries
Problem Exercise 1:

You are given the following charts of accounts Lady of Rose Academy School:

Cash 100 Tuition Fees 500

Account Receivable 101 Salaries and Wages 501
Furniture and Fixture 102 Rent Expense 502
Accounts Payable 103 Supplies Expense 503
Mahal Qou, Capital 104 Advertising Expense 504
Mahal Qou, Drawing 105 Tax and Licenses 505

The following are the following of Lady of Rose Academy School for May 31, 2012

May 03 – Mr. Qou invest php. 200,000.00 cash in the Lady of Rose Academy School.
May 04 – Pays the mayor’s permit and other licenses, php 2,500.00
May 06 – Buys chairs, desks, electric fans, tables and playhouse for php 150,000.00
paying php 30,000.00 with the balance on account.
May 06 – Pays the monthly rental for the space occupied by the nursery school php
15,000.00.
May 10 – Buys chalk, pencils, paper, stapler, puncher, erasers, Crayons and other
school and office supplies php 6800.00 cash.
May 21 – Collects fees php 90,000.00
May 21 – Pays a personal expense of php 12,000.00 from business funds
May 28 – Pays the account balance arising from purchases of May 06.
May 28 – Buys additional furniture for php 65,000.00 cash
May 30 – Collect fees of php 56,000.00
- Pays salaries and wages for the second half php 25,000.00
- Mr. Qou withdraws php 30,000.00 cash from the business.
- Bills a total of php 22,000.00 for uncollected fees
- Paid for billboard advertisement php 15,000.00

Requirements:

a) Chart of Accounts
b) Journal entries
c) General Ledger
d) Trial Balance
e) Income Statement
f) Balance Sheet
g) Statement of Changes in Equity
h) Post – Closing Trial balance
i) Closing Entries
Problem Exercise 2:

Analyze the following transactions as the effects on the accounting elements and
state whether the corresponding amount is to be debited or credited. The account
titles to be used are:

100-Cash 200-Service Income

101-Accounts Receivable 201-Salaries and Wages
102-Furniture and Fixture 202-Supplies Expense
103-Equipment 203-Rent Expense
104-Accounts Payable 204-Taxes and Licenses
105-Pode, Drawing
106-Pode, Capital

a) Pode, invest the following in a janitorial services business:

Cash………………………………… php 50,000.00
Furniture & Fixtures …………… php 10,000.00
b) Business permits amounting php 2,000.00 are paid
c) He buys a vacuum cleaner for php 25,000.00 on account
d) The annual rental for office space being occupied is paid php 24,000.00
e) Supplies such as brooms, rags, wax, room deodorants, cleanser and soap are
bought for cash php 5,000.00
f) The business bill clients for service rendered php 40,000.00
g) Pode, collects php 22,000.00 from some of clients billed in (f) above.
h) A client billed in (f) was over-billed for php 800.00. The corresponding
adjustment is made.
i) Pode, withdraws php 10,000.00.

Requirements:

a) Chart of Accounts
b) Journal entries
c) General Ledger
d) Trial Balance
e) Income Statement
f) Balance Sheet
g) Statement of Changes in Equity
h) Post – Closing Trial balance
i) Closing Entries
Problem Exercise 3:

Analyze the following transactions into debits and credits and summarizing their
effects.

1) Bee Qoh, invest php 50,000.00 in laundry shop.

2) Pays the mayor’s permit and other licenses amounting to php 2,000.00
3) Buys books of accounts, invoices and other forms for php 500.00 cash. The
books of accounts are registered with the BIR.
4) Buys detergents, stains remover, dry-cleaning fluid, brooms, brushes, and
rags for php 8,000.00 cash.
5) Buys washing machines from ABC Appliances for php 25,000.00 paying php
10,000.00 with the balance on account.. Estimated useful life of the
machines is five (5) years.
6) Service rendered on cash basis amount php 42,000.00
7) Pays salaries and wages for php 30,000.00
8) Pays light and power bills for php 7,000.00
9) Service rendered on charge basis amounted to php 45,000.00
10) Collect php 20,000.00 from customers billed in no. (9) aboved.
11) Bee Qoh withdraws cash php 10,000.00 from the business.
12) Water bills amounting to php 8,000.00

Use the following account titles:

300-Cash 400-Service Income

301-Accounts Receivable
302-Washing machines
303-Accounts payable
304-Bee Qoh, Capital
305-Bee Qoh, Personal
401-Salaries and Wages
402-Light, power, and Water
403-Taxes and Licenses
404-Office supplies expense
405-Shop supplies expense

Requirements:

a) Chart of Accounts
b) Journal entries
c) General Ledger
d) Trial Balance
e) Income Statement
f) Balance Sheet
g) Statement of Changes in Equity
h) Post – Closing Trial balance
i) Closing Entries

Part I – Written Test

Read the question properly:

1. What is cost of goods sold?

Freight – out is added to net purchases

2. What is the gross profit, if the sales revenue are Php
400,000.00, cost of goods is Php 310,000.00 and Owners
Equity are Php 60,000.00?

Php 90,000.00

3. Which items is NOT shown in a multiple-step income statement.

Investing activity section

4. Which sales accounts have normally a debit balance?

Sales Discount
Sales return and allowances
 Both (a) & (b)
Gross profit

5. Which of the following should not be included in the physical inventory of the
company?

Goods held on consignment from another company

6. When are special journals used?

all cash disbursement are recorded in the cash payment journals

7. Which statement is incorrect regarding the general journal?

dual posting are always required in the general journals

8. Which of the following statement is correct?

The sales discount column is included in the cash receipt journal

9. Which of the following is incorrect concerning subsidiary ledger?

The purchases ledge r is a common subsidiary ledger for creditors account.

10.Which of the following is representative of vertical analysis?

Vertical analysis in the balance sheet causes all accounts to be related as a

percentage of total assets

11. What is the financial statement that shows both peso & percentage in the
report?

A common – size statement

12.Which is NOT included as part of Trend Analysis?

It is simple to identify trends by looking at the raw data alone

13. Which of the following represent techniques used by the financial analyst?

Ratios
Common size statement
Peso & percentage change
All of the above

14.What is Depreciation?

Cost allocation

15.What is the primary criterion by which accounting

information can be judged?

Decision – usefulness

16.What is full disclosure?

Financial statement should disclose all events and circumstances that would
matter to users of the financial statement.

17.What body issues the Philippines Accounting standards?

Financial Reporting Standards Council

18.What is Retained Earning?

Net income retained in the corporation
 19.Which of the following is NOT reported under additional paid-
up capital?
Common stock

20.What principle of Internal Control is used when an entity

permits only designated personnel to handle cash receipts?
Establishment of Responsibility
21.What principle of Internal control is used when pre-numbered
checks are used whenever cash is disbursed?
Document procedure
22.Which of the following items in a cash drawer of Nov. 30 is
NOT considered cash?
Checks from a customer dated December 1
23. What is NOT included as part of physical control?
Independent Bank Reconciliation
24.How are current assets listed on the balance sheet?
By liquidity
25.How assets are usually considered in a balance sheet?
Current Assets and non-current assets
26.What is the financial statement that reports assets, liabilities,
and owner’s equity?
Balance Sheets

27.On the last day of the period Prince Amara Company buys a
Php 9,000.00 machine on credit. What financial statement
will be affected by this transaction?
Balance sheet only
28.Which of the following statement is TRUE regarding net
income?
Revenues exceed expenses
29.What is an adjusted Trial Balance?
Trial balance after adjusting entries are journalize and posted
30. What types of account will appear in the post closing Trial
balance?
Permanent (real) accounts
31. Which of the following statement is incorrect?
The work sheet distributed to management and other interested parties
32. What is the Trial balance NOT in balance?
Trial balance will not balance if a Php 450 payment on account is debited to
Accounts payable for php 45 and credited to cash php 45.00

31.What is Trial balance?

Trial balance is a list of accounts with their balance at a given time.
32.When are posting from the purchases journal to the
subsidiary ledger made?
Daily
33.What SALES accounts have a normal debit balance?

Sales discount
Sales return and allowances
Both (a) & (b)
34.What account will have a zero balance after closing entries
have been journalized and posted?
Service Revenue
35.What is posting?
Posting is transfers journal entries to ledger accounts
36.What is Ledger?
Ledger is a collection of the entire group of accounts maintained by an entity

37.Which of the following statement about journal is FALSE?

It is not a book of original entry
38.What is the nature of revenue account?
Revenue account is increased by credits
39.What are debits?
Debits increase assets and decrease liabilities
 40.Which of the following statement about an account is TRUE?
An account is an individual accounting record of increase and decreases in
specific assets, liability and owner equity items.
41. What is the effect of performing services on account on the
basic accounting equation?
Increase assets and increase owner’s equity