FINALS

Reviewer For Integrated Accounting: Terms for solving Discount Problems:

Periodic – Uses the Purchase and - List Price

freight-in term for accounts. - Cash Discount

- Invoice Price
- Purchase = Expense Account
- Discount Period
Perpetual – Uses the Merchandise
- Invoice Period
Inventory term for accounts, and
List Price – The base price of a
counts what is usually a Freight-in
product.
account as Merchandise Inventory.

This method does not separate Cash Discount – The discount that is

discounts from the invoice price added onto a product.

when presented in the general

Invoice Price – The price of a
journal.
product when already affected by

- Merchandise Inventory = Asset the cash discount.

Two Kinds of Discounts: Discount Period – Contains two

numbers that is illustrated like a

- Trade Discount (Volume-
fraction. The one at the top being
Oriented)
the added discount on top of the
- Cash Discount (Prompt
cash discount, the one below being
Payment)
the amount of time that it is
Note: Sales and Purchase Discount
available.
fall under Cash Discount.
Invoice Period – Illustrated with the Finance – This involves interest

letter n, the amount of time to settle expense and income.

the balance if not paid within the

Take note that these two accounts
discount period.
are meant to offset each other.

Three Types of Functions to be used

Gross Income – is the difference of
in Income Statements
the net sales and the cost of goods

- Selling sold (COGS).

- Gen. & Admin.

Operating Income – is the value of
- Finance
when the expenses, except for tax

Selling – This involves all types of expense, is subtracted from the gross

expenses that are related to the income.

store. Such as commissions,

Net Income - is the value that we
deliveries, advertising, etc.
get when the tax expenses of a

Gen. & Admin. – This involves the merchandising company is

types of expenses that are related to subtracted from the operating

the office and building. Such as rent income.

expense, insurance, office salaries,

etc.
To solve for Net Sales: To solve for Cost of Goods Sold

(COGS):
Gross Sales

Merch. Inventory, beg.

Less: Sales R&A

Add: Net Cost of Purchase

Less: Sales Disc.

Total Goods Available for Sale

Net Sales
(TGAS)

Less: Merch. Inventory, end.

To solve for Net Cost of Purchase:
Cost of Goods Sold
Purchases

Less: Purchase R&A

Less: Purchase Disc.

Net Purchase

Add: Freight-in

Net Cost of Purchase

Manufacturing – involves conversion Goods in Production is Completed:

of raw materials into finished goods.

Finished Goods Inv. xxxxx

Inventories under manufacturing:

Work-in-Process Inv. xxxxx

- Raw Materials Inventory

Recording of Labor:
- Work-in-Process Inventory
Work-in-Process Inv. xxxxx
- Finished Goods Inventory

Payroll Payable xxxxx

Acquisition of Raw Materials:

Application of Factory Overhead:

Periodic

Work-in-Process Inv. xxxxx

Purchase xxxxx

Factory Overhead-Applied xxx

Cash/A/P xxxxx

Actual Factory Overhead:

Or

Various Expenses xxxxx

Perpetual

Cash/A/P xxxxx
Raw Materials Inv. xxxxx

Cash/A/P xxxxx

Acquisition of Raw Materials to

Manufacturing:

Work-in-Process Inv. xxxxx

Raw Materials Inv. xxxxx

 MEMORIZE

Raw Materials, beg. xxxxx

Net Cost of Purchase xxxxx

Goods Available for Production xxxxx

Raw Materials, end. (xxxxx)

Raw Materials Used/Direct Materials xxxxx

Direct Labor xxxxx

Factory Overhead-Applied (FOH) xxxxx

Total Mftd. Cost xxxxx

Work-in-Process Inv., beg. xxxxx

Cost of Goods Placed in Prod. xxxxx

Work-in-Process Inv., end. (xxxxx)

Cost of Goods Mftd. xxxxx

Finished Goods Inv., beg. xxxxx

Cost of Goods Available for Sale xxxxx

Finished Goods Inv., end. (xxxxx)

Cost of Goods Sold

Notes:

Prime Cost = Direct Materials + Direct Labor

Conversion Cost = DL + FOH

Cash and Cash Equivalents insignificant risk of changes in value
because of changes in interest rates.

Cash - simply means money is the

standard medium of exchange in - Only includes highly liquid
business transactions. investments that are acquired
three months before maturity.

Includes:
Examples:
A. Checks
B. Bank Drafts 1. Three-month BSP treasury bill
C. Money Orders
2. Three-year BSP treasury bill
D. Cash on Hand, in bank and
acquired three months before
Cash Fund
date of maturity

3. Three-month time deposit

Philippine Accounting Standard 1,
4. Three-month money market
par 66 - “an entity shall classify an
instrument or commercial
asset as current when the asset is
paper
cash or cash equivalent unless it is
5. Preference shares with
restricted to settle a liability for more
redemption date and
than 12 months after the end of the
acquired three months before
reporting period.”
redemption date

Cash Equivalents – A short term and

Classifications of cash investments
highly liquid investments that are
readily convertible in to cash and so 1. Three months or less- Cash and
near their maturity that they present Cash Equivalents
 2. More than three months to
one year- short term financial
assets (current assets)
3. More than one year- non-
current or long-term
investments
Bank overdraft – cash in bank
account that has a credit balance.
This is classified as current liability
Bank overdraft can be offset against
another cash in bank account,
provided that it is another account
within the same bank.
Compensating balance – minimum
checking or demand deposit
account balance that must be
maintained in connection with a
borrowing arrangement with a
bank.
Classifications:
A. Legally Restricted – short term
or long term depending on the
term of the loan
B. Not legally Restricted – there is
an informal compensating
balance agreement; this is
part of cash
Undelivered/Unreleased Check –
Merely drawn but not given to the
payee before end of the reporting
period
Postdated check – the check is
drawn, recorded and might already
be given to the payee but it bears a
date subsequent to the end of
reporting period
Stale Check – check is not encashed
by the payee for a long period of
time (over six months from date of
issuance)
Imprest System – a system of cash
control which requires that all cash
receipts should be deposited intact
and all cash disbursements should
be made by means of check.

Petty Cash Fund – a money fund set
aside to pay small expenses which
cannot be paid by issuing checks.
Methods:
1. Imprest Fund System – the
checks drawn to replenish the
fund is equal to the petty cash
disbursements
2. Fluctuating Fund System – the
checks drawn to replenish is
not necessarily equal to the
petty cash disbursement. The
replenishment check is simply
drawn upon the request of the
petty cash custodian.
Bank Reconciliation
Bank Deposits:
1. Demand Deposit
(current/checking account) –
non-interest bearing
2. Savings Deposit (interest
bearing)
3. Time deposit (interest bearing)
– evidenced by a Certificate
of Deposit
Bank reconciliation – is a statement
which brings into agreement the
cash per book and cash per bank.
The reconciliation is prepared
monthly.
Bank Statement is a monthly report
of the bank to the depositor
showing:
A. Cash balance per bank at the
beginning
B. The deposits made by the
depositor and acknowledged
by the bank
C. Checks drawn by the
depositor and paid by the
bank
D. Daily cash balance per bank
during the month
Reconciling items:
1. Book Reconciling Items:
A. Credit Memos
• Notes collected by the bank in
favor of the depositor and
credited to the account of the
depositor.
• Proceeds of bank loan
credited to the account of the
depositor
• Matured time deposit
transferred by the bank to the
current account of the
depositor
B. Debit Memos
• No Sufficient Fund (NSF) /
Drawn Agains Insufficient Fund
(DAIF) checks
• Technically defective check
• Bank service charge
• Reduction of loan
C. Errors committed in the book
2. Bank Reconciling items:
A. Deposit in Transit
B. Outstanding checks
C. Errors committed by the bank
Forms of bank reconciliation:
A. Adjusted Balance Method
B. Book to bank Method
C. Bank to book Method
Financial Statements and Financial
Analysis
Presentation of Financial Statements
a. Income Statements
i. Nature of Expense – Ex.
Depreciation, Advertising,
Transportation Expenses.
ii. Function of Expenses – Ex. Cost of
Sales, Distribution Expenses,
Administrative Expenses, Financial Financial Analysis
Expenses, Etc.

a. Profitability – Ability of the

b. Balance Sheet company to enhance owner’s
equity through profit
i. Classified – Showing distinctions
between current and non – current
assets and
i. Profit Margin = Net Income ÷
liabilities Revenues

ii. Unclassified (Based on liquidity) –

Showing no distinctions between
ii. Return on Total Assets = Net
current and non –current assets and
Income ÷ Average Total Assets
liabilities
Average Total Assets = (Y1 Total
Asset + Y2 Total Assets / 2)
Comparative Financial Statements –
It assists users in making economic
iii. Return on Equity = Net Income ÷
decisions relevant to an
Average Owners Equity
understanding of the current period
financial statements. Accountants Average Owners Equity = (Y1 Owners
usually prepare comparative Equity + Y2 Owners Equity / 2)
financial statements by presenting
side by side the data for two periods
(Intracomparability). b. Liquidity – Ability of the business to
pay for its short-term obligations.

Comparison may also be made

between two companies. This is i. Working Capital = Current Assets –

called Inter-comparability. Current Liabilities

ii. Current Ratio = Current Asset ÷
Current Liabilities

iii. Quick Ratio or Acid Test Ratio =

Quick Assets (Cash and Receivables)
÷ Current Liabilities

c. Solvency – Ability of the business

to pay for its long – term obligations
when they fall due.

i. Debt Ratio = Total Liabilities ÷ Total

Assets

ii. Equity Ratio = Total Equity ÷ Total

Assets.