Accounting Process

True or False: Indicate your answer on the space before the number. Erasure of any kind is
strictly prohibited.
FALSE 1. The first step in the accounting cycle is the preparation of the journal entries.
FALSE 2. A sale in exchange for a note receivable can be recorded in the special journal called Sales
Journal.
TRUE 3. An entry that has a single debit and a single credit is called a simple entry.
FALSE 4. To determine the account balance of a specific customer, you would most likely refer to
the general ledger.
FALSE 5. A P10 erroneous debit to Advertising Expense, which should have been debited to
Transportation Expense, would make the trial balance imbalance.

Skill-building Activities
PART I. MULTIPLE CHOICE.
1. The basic sequence in the accounting process can best be described as
a. Transaction, journal entry, source document, ledger account, trial balance
b. Source document, transaction, ledger account, journal entry, trial balance
c. Transaction, source document, journal entry, trial balance, ledger account
d. Transaction, source document, journal entry, ledger account, trial balance
2. Which of the following is not optional?
a. Use of an Income Summary account
b. Preparation of the Worksheet
c. Making adjusting entries
d. Preparation of Post-Closing Trial Balance
3. Which of the following statements correctly relate to the double- and single-entry systems of
recording?
I. Profit or loss under single entry bookkeeping is computed using an approach that directly
matches income and expenses
II. Both general and special journals are used under the double-entry system, while only
special journals are used under the single-entry system
III. Double-entry system is sometimes known as the “transaction approach” of accounting for
assets, liabilities, equity, income and expense
IV. Double-entry system is the generally acceptable method of bookkeeping because it offers
a more accurate and more complete profit or loss measurement compared to the single-
entry system

a. I, III, IV
b. IV
c. III, IV
d. II, IV
4. The best interpretation of the word credit is the
a. Increase side of an account
b. decrease side of an account
c. left side of an account
d. right side of an account
5. Which of the following best expresses the primary purpose of the general journal?
a. The general journal provides an organized summary of transactions classified by type of
account
b. The general journal directly provides the data for a trial balance
c. The general journal eliminates the need for control accounts in the ledger
d. The general journal provides a continuing balance of the amount to date in each of the
temporary accounts
e. The general journal provides a chronological listing of transactions in debit-credit form
6. The journal is not directly useful
a. For closing, in one place, the net effect of transactions
b. In preparing financial statements
c. For providing a record of transactions’
d. In locating and preventing errors
7. The trial balance
a. Is a formal financial statement
b. Is used to prove that there are no errors in the journal or ledger
c. Provides a listing of all the accounts used by the entity
d. Provides a listing of the balance of each account in active use
8. The premium on a three-year insurance policy was paid in total on January 1m 20x1. Upon
payment, Prepaid Asset Account was debited. The appropriate journal entry has been recorded
on December 31; therefore the balance of Prepaid Asset Account should be
a. Higher, if the original payment has been debited initially to an expense account
b. The same as the original payment
c. The same even if the original payment had been debited initially to an expense account
d. Zero
9. A prepaid expense can be best described as an amount that is
a. Paid and currently matched with revenues
b. Paid and not currently matched with revenues
c. Not paid and currently matched with revenues
d. Not paid and not currently matched with revenues
10. Which of the following may be reversed in the next financial reporting period?
a. An adjusting entry to decrease the unearned income for the eared portion of advance
collections during the year
b. An adjusting entry to record bad debt expense on accounts receivable
c. An adjusting entry to record depreciation expense
d. An adjusting entry to take up the unexpired portion of prepayments during the year

PART II. PROVIDE WHAT IS ASKED IN EACH ITEM. ERASURE IF ANY KIND IS STRICTLY PROHIBITED.
1. An entity’s unadjusted trial balance does not equal. The following information was determined:
 Cash balance of P45,000 was erroneously extended to the trial balance as P54,000.
 The debit posting for a P5,000 sale on account was omitted.
 The prepaid rent with a balance of P34,000 was extended to the credit column of the trial
balance.
  Depreciation expense of P16,000 was erroneously recorded as Rent Expense.
 Interest payable with a balance of P4,000 was extended to the debit column of the trial
balance.
 How much is the difference between the total debits and total credits in the trial balance?
56,000

2. An entity’s trial balance has a total debits of P15,100 and total credits of P14,500. In investigating the
cause of the difference, the following errors were determined:

a. a debit to accounts receivable of P2,100 was not posted

b. a P10,500 credit to be made to the Purchases account was credited to Accounts payable
instead
c. a P26,000 credit to be made to the Sales account was credited to the Accounts receivable
account instead
d. the prepaid rent account balance of P15,800 was included in the trial balance as P18,500
The correct debit and credit totals of the trial balance is 30,000.

3. The total debits in the statement of financial position columns of a worksheet are P1,440,800, while

 the total credits in the income statement columns are P1,234,000. The total credits in the
adjusted
 trial balance are P2,376,000. How much is the profit/(loss) for the period? 298,800.

4. An entity received cash of P24,000 on August 1 for one-year’s rent in advance and recorded the

 transaction on that day as a credit to unearned rent revenue for the full amount. The
December
 31 adjusting entry is:
Unearned rent revenue 10,000
Rent revenue 10,000

5. At the beginning of the year, Entity A has a balance of P20,000 in its prepaid asset account. Entity

 A uses the expense method of recording prepayments and does not make reversing entries.
 During the year, Entity A made total prepayments of P80,000. If the adjusted expenses for
the
 year are P45,000, the year-end adjusting entry must be

Prepaid asset 35,000

Expense 35,000

6. An entity has made all necessary adjusting entries and is now closing its accounts for the period.

 Dividends of P30,000 were declared and distributed during the year. The entry to close the
 dividends account would be
Retained earnings 30,000
Dividends 30,000
7. Wednesday Co.’s Oct. 31 trial balance is as follows:

Accounts receivable 8,060 Equipment 42,120

Accounts payable 6,370 Other expense 4,940

Accumulated depreciation 21,060 Owner's drawings 5,460

Advertising expense 390 Owner's equity 28,600

Cash 7,540 Sales 12,480

Depreciation expense of P702 is not yet recorded. In the after closing trial balance prepared on Oct. 31,

the total credits are 57,720.

8. Robert Co. recorded accrued salaries of P2,500 on Dec. 31, 20x1. During 20x2, Robert paid salaries of
P87,200. Unpaid salaries at Dec. 31, 20x2 amounted to P3,400. Robert prepared adjustments only at
Dec. 31 and also reversing entries on Jan. 1. The balance of the salaries expense account that would
appear in the post-closing trial balance at Dec. 31, 20x2 is 0.

9. – 10. The trial balance of Sunray Co. is shown below. The following are the year-end adjustments:

a. 2% of the total accounts receivable is doubtful of collection

b. Depreciation for the year is not yet recognized. The equipment has a 10-year useful life.

Sunray Co. uses the straight line method.

c. The notes payable was issued on September 30, 20x1. Interest of 10% is due annually.

d. Sunray rents its office space. Monthly rental of P2,000 is due at the end of each month.

Sunray Co. has not yet paid its rent for the month of December 31, 20x1.

Prepare the year-end adjusting entries.

1. Bad debts expense 1,000

Allowance for bad debts 1,000

2. Depreciation expense (100K ÷ 10) 10,000

Accumulated depreciation 10,000

3. Interest expense (24K x 10% x 3/12) 600

Interest payable 600

4. Rent expense 2,000

Rent payable 2,000

Check for Understanding (Graded Quiz)

PROBLEM SOLVING. PROVIDE WHAT IS ASKED IN EACH ITEM.

1.The total debits and total credits of a trial balance are not equal. The following information was
determined:
The debit posting for Accounts receivable was omitted 6,000
The balance of Cash was listed as a credit 36,000
The balance of Utilities expense was listed as transportation expense 9,000
Accounts payable was listed as a debit 15,000
How much is the difference between the total debits and total credits in the trial balance? 48,000
TRIAL BALANCE
6,000 6,000
36,000 36,000
36,000
15,000
15,000
30,000 78,000
48,000

3.An entity receives P30,000 advance rent covering 1 year starting May 1, 20x1. Provide the journal
entries on May 1, 20x1 and Dec. 31, 20x1 under each of the following: (a) liability method (b) income
method

a. Liability Method
May 1, 20x1 Cash 30,000
Unearned rent 30,000
Dec. 31, 20x1 Unearned rent 30,000
Rent income 30,000

b. Income method
May 1, 20x1 Cash 30,000
Rent income 30,000
Dec. 31, 20x1 Unearned rent 30,000
Rent income 30,000

4. An entity prepays one-year insurance for P90,000 on September 1, 20x1. Provide the journal entries
on Sept. 1, 20x1 and Dec. 31, 20x1 under each of the following: (a) asset method (b) expense method

a. Asset method b. Expense method

 Sept. 1, 20x1 Sept. 1, 20x1

Prepaid Insurance 90,000 Income Expense 90,000

Cash 90,000 Cash 90,000
To record pre-payment of 1 year insurance To record expense of 1 year insurance

71,850