EXERCISE 2-1.

INSTRUCTIONS: On the space provided, indicate whether the normal balance of each of
the given account is DEBIT or CREDIT:

1. Building - DEBIT
2. Supplies - DEBIT
3. Accounts Payable - CREDIT
4. Allow. for doubtful accts. - CREDIT
5. Notes Receivable - CREDIT
6. Mortgage Payable - CREDIT
7. Commission Income - CREDIT
8. Cash - DEBIT
9. Accumulated Depreciation - CREDIT
10. Capital - CREDIT
11. Interest Payable - CREDIT
12. Land - DEBIT
13. Drawing - CREDIT
14. Rent Expense - DEBIT
15. Prepaid Insurance - DEBIT
16. Equipment - DEBIT
17. Furniture & Fixtures - DEBIT
18. Professional Fees - DEBIT
19. Sales Salary - CREDIT
20. Unearned Income - CREDIT

EXERCISE 2-2.
Write “T” if the statement is true and “F” if the statement is false.
T 1. The fundamental accounting equation is Assets = Liabilities + Capital
T 2. Revenue increases owner’s equity.
F 3. Payment of an expense increases assets.
T 4. Expenses decrease the owner’s equity.
F 5. Receipt of cash decreases assets.

EXERCISE 2-3. Show the effects on the accounting equation. Write + for increase, - for
decrease, and NC for No Change

Asset Liability Capital

1. Owner invested cash in business + NC +

2. Owner borrowed money from the + + NC
bank

3. Purchased filing cabinets for cash + NC -

4. Owner purchased a printer on + + NC
account

5. Bought truck paying 10% down and + + -

balance on account

6. Paid account to creditors + - -

7. Charged customer for the service - NC +
rendered

8. Collected an account receivable + NC +

 9. Purchased reams of bond paper in - NC -
cash

10. Paid utilities for the month - NC –

11. Owner withdrew cash for personal - NC -
use

12. Rendered service for cash + NC +

Exercise 2-4

A medical practitioner Dr. Nikolai opened his clinic with the following initial transactions:
1. Dr. Niko opened a medical clinic by investing P300,000 pesos.
2. Issued a promissory note for the P100,000 he borrowed from Banco De Uno.
3. Purchased a medical bed and its accessories worth ₱100,000
4. Bought from A Co. a table and cabinet worth ₱70,000.
5. Purchased medical supplies in the amount of ₱25,000 cash.
6. Withdrew ₱20,00 for personal use
7. Purchased chairs on account for ₱15,000.
8. Paid 50% of account to A co.
9. Bought from SM Furniture cabinet shelves worth ₱20,000. Paid ₱5,000 cash and the
balance on account.
10. Received P75,000 from the group of patients as medical fees.
11. Paid power and water bills for the month, P8,000.
12. Paid medical assistant salary, P20,000.
13. Charged the patients for attending the medical care, P50,000.
14. Paid the balance in full to SM Furniture.
15. Collected 70% of medical fees charged to patients in no.13.
16. Paid communication bills, P3,500.
17. Paid P6,000 to Petron Station for the gasoline of Dr. Nokolai’s service vehicle.
18. Settled a partial payment of P70,000 to Banco De Uno ( refer to item no. 2)
19. Purchased additional medical equipment, P50,000. Terms: Paid P30,000 and the
balance after 30 days.
20. Returned defective medical supplies purchased in no. 5, worth P5,000. 21. By taking
inventory at the end of the period, medical supplies consumed amounted to P18,000
Required:
1) Analyze and record the transaction using the given tabulation below:
2) Prepare the following financial reports for the month of January 2020:
a) Income Statement
b) Statement of Owner’s Equity
c) Statement of Financial Position
d) Statement of Cash Flows