Chapter 1: Cash and Cash Equivalents

Accounting for cash shortage

Cash is less than balance per book

Cash short or over xxx

Cash xxx

Cashier is held responsible

Due from cashier xxx

Cash short or over xxx

Fail to disclose

Loss from cash shortage xxx

Cash short or over xxx

Accounting for cash overage

Cash is more than the balance per book

Cash xxx

Cash short or over xxx

Cash overage is treated as miscellaneous

Cash short or over xxx

Miscellaneous income xxx

Cash is found to be the money of cashier

Cash short or over xxx

Payable to cashier xxx

Accounting procedures

A check is drawn to established the fund

Petty cash fund xxx

Cash in bank xxx

 Payment of expenses out of the fund

No formal journal entries are made.

Replenishment of petty cash payments

Expenses xxx

Cash in bank xxx

Adjust the unreplenished expenses to state a correct petty cash balance

Expenses xxx

Petty cash fund xxx

Increase in the fund

Petty cash fund xxx

Cash in bank xxx

Decrease in the fund

Cash in bank xxx

Petty cash fund xxx

Fluctuating fund system

Establishment of the fund

Petty cash fund xxx

Cash in bank xxx

Payment of expenses out of fund

Expenses xxx

Petty cash fund xxx

Replenishment or increase of the fund

Petty cash fund xxx

Cash in bank xxx

Note that at the end of the reporting period, no adjustment is necessary because

expenses are recorded outright.

 Decrease of the fund is reverted to the general cash

Cash in bank xxx

Petty cash fund xxx

Chapter 2: Bank Reconciliation

Entry to record the collection and the subsequent deposit

Cash or cash in bank xxx

Accounts receivable xxx

Entry in the book of the bank

Cash xxx

Company X xxx

Company subsequently issued a check in payment of an account payable

Accounts payable xxx

Cash xxx

Entry in the book of the bank

Company X xxx

Cash xxx

Book to Bank Method

Book balance

Add: Credit memos

Outstanding checks

Total

Less: Debit memos

Deposit in transit

Bank balance
 Bank to Book Method

Bank balance

Add: Deposit in transit

Debit memos

Total

Less: Outstanding checks

Credit memos

Book balance

Correction of errors

Understatement or cash receipt. The error added to the book balance

Cash in bank xxx

Accounts receivable xxx

Understatement of cash disbursement. The error is deducted to the

book balance.

Accounts payable xxx

Cash in bank xxx

The error is a deduction from the bank balance because it erroneously

increased the account of the depositor

No adjustment necessary on the book of the depositor

The error is an addition from the bank balance because it erroneously

decreased the account of the depositor

No adjustment necessary on the book of the depositor

 Chapter 3: Proof of Cash
Computation of book balance

Balance per book - Beg.

Add: Book debits during the month

Total

Less: Book credits during the month

Balance per book - End

T- Accounts

Cash in bank

Balance - Beginning Book credits

Balance - Ending
Book debits

Computation of bank balance

Balance per bank - Beg.

Add: Bank credits during the month

Total

Less: Bank debits during the month

Balance per bank - End.

T- Accounts

Company X

Bank debits Balance - Beg.

Balance - ending Bank Credits
Computation of deposits in transit

Deposit in transit - Beg.

Add: Cash receipts

Total deposits to be acknowledge by the bank

Less: deposits acknowledged by the bank

Deposit in transit - End

Computation of outstanding checks

Outstanding checks - Beg.

Add: Checks drawn by depositor during the month

Total checks to be paid by the bank

Less: Checks paid by the bank during the month

Outstanding checks - End

Proof of cash - Adjusted balance method

Proof of cash - Book to bank method

Proof of cash - Bank to book method

Chapter 4: Trade and Non-Trade Receivables

Presentation of total trade and other receivables

Accounts receivable

Allowance for doubtful accounts

Notes receivables

Accrued interest on note receivable

Advances to officers and employees

Dividends receivables

Total trade and other receivables

Customer’s credit balances

Customer A xxx

Customer B xxx

Customer C (xx)

Accounts receivable control xxx

The credit balance of C results from overpayment. This amount is classified as current

liability and not an offset against the debit balances in the accounts of A and B. There is
no adjustment necessary to formally recognize the credit balances. But, an adjustment is

made only in worksheets and not posted on the ledger.

Accounts receivable xxx

Customer credit balance xxx

Accounting for freight charge

To record sale

Accounts receivable xxx

Freight out xxx

Sales xxx

Allowance for freight charge xxx

To record the collection with discount

Cash xxx

Sales discount xxx

Allowance for freight charge xxx

Accounts receivable xxx

Allowance for sales returns

Sales return xxx

Allowance for sales return xxx

Allowance for sales discounts

Sales discount xxx

Allowance for sales discounts xxx

Gross method

Sale of merchandise

Accounts receivable xxx

Sales xxx
 Collection with discount

Cash xxx

Sales discount xxx

Accounts receivable xxx

Collection without discount

Cash xxx

Accounts receivable xxx

Net method

Sale of merchandise

Accounts receivable xxx

Sales xxx

Collection with discount

Cash xxx

Accounts receivable xxx

Collection without discount

Cash xxx

Accounts receivable xxx

Sales discount forfeited xxx

Accounting for bad debts - Allowance method

Doubtful collection

Doubtful accounts xxx

Allowance for doubtful accounts xxx

Doubtful accounts are found to be worthless

Allowance for doubtful accounts xxx

Accounts Receivable xxx

 Written off are recovered

Accounts receivable xxx

Allowance for D.A xxx

Cash xxx

Accounts receivable xxx

Accounting for bad debts - Direct write off method

Doubtful of collection

No entry

Accounts are proved to be worthless

Bad debts xxx

Accounts receivable xxx

Written off are recovered

Accounts receivable xxx

Bad debts xxx

Cash xxx

Accounts receivable xxx

Chapter 5: Estimation of doubtful accounts

Aging of accounts receivable - entry

Required allowance

Less: Allowance balance before adjustment

Total - Doubtful account expense

Doubtful accounts xxx

Allowance for doubtful accounts xxx

Percent of accounts receivable

Doubtful accounts xxx

Allowance for doubtful accounts xxx

Required allowance (rate x a/r)

Less: Credit balance in allowance

Total - Doubtful account expense

Correction in allowance for doubtful accounts

Adjustment of inadequate allowance

Doubtful accounts xxx

Allowance for doubtful accounts xxx

Adjustment for excessive allowance

Allowance for doubtful accounts xxx

Doubtful accounts xxx

Debit balance in allowance account

Before adjustment

Allowance for doubtful accounts xxx

Accounts receivable xxx

After adjustment

Doubtful accounts xxx

Allowance for D.A xxx

Required allowance

Add: Debit balance in allowance

Total - Doubtful accounts expense

 Chapter 6: Notes receivable

Non-Interest and Interest Bearing Illustrations

Formulas:

Interest income = present value x rate

Principal payment = annual collection - interest income

Unearned interest income = interest income - preceding balance

Present value = preceding balance - annual principal payment

 Chapter 7: Loan receivable
Entries

To record loan

Loan receivable xxx

Cash xxx

To record origination fees received

Cash xxx

Unearned interest income xxx

To record direct origination cost

Unearned interest income xxx

Cash xxx

Effective interest method

Interest received = principal x nominal rate

Interest income = Carrying amount x effective rate

Present value of cash flows

Date (amount x present value

Computation of impairment loss

Carrying amount xxx

Less: Present value of cash flow (xx)

Impairment loss xxx

Entry to impairment loss

Loan impairment xxx

Accrued interest receivable xxx

Allowance for loan impairment xxx

Statement presentation at the end of year

Loan receivable xxx

Allowance for loan impairment (xx)

Carrying amount xxx

Entries

To record cash collection

Cash xxx

Loan receivable xxx

To record interest income using effective interest rate method

Allowance for loan impairment xxx

Interest income xxx

Illustration - Schedule of payment

Illustration - Improvement on credit risk

 Chapter 8: Receivable Financing
Non-notification basis

To separate assigned accounts

Accounts receivable - assigned xxx

Accounts receivable xxx

To record loan

Cash xxx

Service charge xxx

Note payable - bank xxx

To record sales return

Sales return xxx

Accounts receivable - assigned xxx

Collected the assigned accounts less discounts

Cash xxx

Sales discount xxx

Accounts receivable - assigned xxx

Remitted total collection to the bank plus interest

Note payable - bank xxx

Interest expense xxx

Cash xxx

Assigned accounts proved worthless

Allowance for doubtful accounts xxx

Accounts receivable - assigned xxx

Collected the assigned accounts

Cash xxx

Accounts receivable - assigned xxx

 Remitted the total amount due the bank to pay off

Note payable - bank xxx

Interest expense xxx

Cash xxx

To transfer remaining balance of assigned accounts to accounts receivable

Accounts receivable xxx

Accounts receivable - assigned xxx

Total accounts receivable - assigned

Less: Collections

Sales discounts

Sales return

Worthless account

Balance

Notification basis

To record loan

Accounts receivable - assigned xxx

Accounts receivable xxx

Cash xxx

Service charge xxx

Note payable-bank xxx

Collected the assigned accounts less discounts

Note payable - bank xxx

Sales discount xxx

Accounts receivable - assigned xxx

Interest expense xxx

Cash xxx
 Assigned accounts were collected

Cash xxx

Interest expense xxx

Note payable-bank xxx

Accounts receivable - assigned xxx

Accounts receivable xxx

Accounts receivable - assigned xxx

Computation

Loan from bank xxx

Less: Collection by bank xxx

Balance due the bank xxx

Collection by bank xxx

Less: Loan balance xxx

Excess collection xxx

Less: Interest xxx

Remittance from bank xxx

Statement presentation

Accounts receivable - unassigned

Accounts receivable - assigned

Allowance for doubtful accounts

Note payable - bank

Computation

Accounts receivable - unassigned xxx

Accounts receivable - assigned xxx

Total

Allowance for doubtful accounts (xx)

Net realizable value xxx

Equity in assigned accounts

Accounts receivable - assigned xxx

Note payable - bank (xx)

Equity in assigned accounts xxx

Casual Factoring - Entry

To record sale

Cash xxx

Allowance for doubtful accounts xxx

Loss on factoring xxx

Accounts receivable xxx

Factoring as a continuing agreement

Entry to record factoring

Cash xxx

Sales discount xxx

Commission xxx

Receivable from factor xxx

Accounts receivable xxx

Computation

Gross amount xxx

Less: Sales discount xxx

Commission xxx

Factors holdback xxx (xx)

Cash received from factoring xxx

 If the customer allowed credit

Sales return and allowance xxx

Sales discount xxx

Receivable from factor xxx

All receivables were collected by the factor without returns and allowances

Cash xxx

Receivable from factor xxx

With recourse for non-payment

Computation

Accounts receivable xxx

Factors holdback (xx)

Factoring fee (xx)

Interest (xx)

Cash initially received from factoring xxx

● If the interest is computed on a weighted average, the denominator is 365 days

● In the absence of any statement, the denominator is 360 days

Loss on factoring

Factoring fee xxx

Interest xxx

Recourse obligation xxx

Total loss on factoring initially recognized xxx

Entry to record factoring

Cash xxx

Due from factor xxx

Factoring fee xxx

 Interest expense xxx

Loss on recourse obligation xxx

Accounts receivable xxx

Recourse liability xxx

Reverse recourse liability assuming accounts are fully collected by the factor

Recourse liability xxx

Loss on recourse liability xxx

To collect factor's holdback

Cash xxx

Due from factor xxx

Assuming the accounts are not collected by the factor

To settle recourse obligation to the factor

Recourse liability xxx

Cash xxx

To collect factor's holdback

Cash xxx

Due from factor xxx

Two entries can be compounded

Cash xxx

Recourse liability xxx

Due from factor xxx

Credit card

To record sales

Accounts receivable - master card

Sales
 To record payment from mastercard

Cash xxx

Credit card service charge xxx

Accounts receivable - master card xxx

Chapter 9: Receivable Financing

Terms related to discounting of note

1. Net proceeds - discounted value of note received by endorser from the endorsee

2. Maturity value - the amount due on the note at the date of maturity.

3. Maturity date - the date on which the note should be paid.

4. Principal or face value - amount appearing on the face of note.

5. Interest - amount of interest in the full term of the note

6. Interest rate - the rate appearing on the face of note

7. Time - the entire period or full term of the note

8. Discount - amount of interest deducted

9. Discount rate - rate used to compute the discount

10. Discount period - period of time from date of discounting to maturity date

Formulas:

Net proceeds = Maturity value - discount

Maturity value = principal + interest

Interest = principal x rate x time

Discount = maturity value x discount rate x discount period

Discount period = term of the note - expired portion of discounting

Note that if there is no discount rate given, the interest rate is assumed to be the

discount rate.
Carrying amount of note receivable computation

Principal xxx

Accrued interest receivable xxx

Carrying amount xxx

Gain or loss on note discounting

Net proceeds from discounting xxx

Carrying amount of notes receivable (xx)

Loss/Gain on note discounting xxx

Accounting for notes receivable discounting - without recourse

Entry

Cash xxx

Loss on note receivable discounting xxx

Note receivable xxx

Interest income xxx

● The note receivable is credited because the sale is without recourse

● Interest income is credit for the actual interest earned on the date of discounting

Illustration - discounting with recourse

If the discounting is without recourse, the transaction is accounted on either:

1. Conditional sale of note receivable recognizing a contingent liability

2. Secured borrowing

Conditional sale - entry of discounting

Cash xxx

Loss on note receivable discounting xxx

Note receivable discounted xxx

Interest income xxx

Note is paid by maker on maturity date

Note receivable discounted xxx

Note receivable xxx

Note dishonored by maker - Total payment is charged to accounts receivable

To record payment to first bank

Accounts receivable xxx

Cash xxx

To cancel the contingent liability

Note receivable discounted xxx

Note receivable xxx

Secured borrowing - Note receivable is not derecognized but instead recorded on

accounting liability.

Entry

Cash xxx

Interest expense xxx

Liability for note receivable discounted xxx

Interest income xxx

Note that there is no gain or loss on discounting if it is a secured borrowing.

Note is paid by maker on maturity

Liability for note receivable discounted xxx

Note receivable xxx

Note is dishonored by maker

To record payment to first bank

Accounts receivable xxx

Cash xxx

To derecognized liability for note receivable discounted and note receivable

Liability for note receivable discounted xxx

Note receivable xxx

PFRS 9, paragraph 3.2.6. The guidelines for derecognition based on transfer of risks

and rewards.

1. If the entity transferred substantially all risk and rewards, the financial asset

shall be derecognized.

2. If the entity retained substantially all risk and rewards, the financial asset shall

not be derecognized.

3. If the entity is neither transferred or retained substantially all risk and rewards,

derecognition depends on whether the entity has retained control of the asset.

● If the entity has lost control of the asset, the financial asset is

derecognized.

● If the entity has retained a control of the asset, the financial asset is not

derecognized.
 Chapter 10: Inventories
Illustration - Periodic system

To record purchase of merchandise account

Purchases xxx

Accounts payable xxx

Payment of freight in

Freight in xxx

Cash xxx

Return of merchandise purchase

Accounts payable xxx

Purchase return xxx

Sale of merchandise account

Accounts receivable xxx

Sale xxx

Return of merchandise sold

Sales return xxx

Accounts receivable xxx

Adjustment of ending inventory

Merchandise inventory - end xxx

Income summary xxx

Illustration - Perpetual system

To record purchase of merchandise account

Merchandise inventory xxx

Accounts payable xxx

Payment of freight in

Merchandise inventory xxx

Cash xxx

Return of merchandise purchase

Accounts payable xxx

Merchandise inventory xxx

Sale of merchandise account

Accounts receivable xxx

Sale xxx

Cost of goods sold xxx

Merchandise inventory xxx

Return of merchandise sold

Sales return xxx

Accounts receivable xxx

Merchandise inventory xxx

Cost of goods sold xxx

Adjustment of ending inventory

* The balance of the merchandise account represents the ending inventory.

* There is no adjusting unless there is an inventory shortage.

Inventory shortage or overage

Inventory shortage xxx

Merchandise inventory xxx

Methods of recording purchases - Gross method

Purchase on account

Purchases xxx

Accounts payable xxx

Payment within discount

Accounts payable xxx

Cash xxx

Purchase discount xxx

Payment beyond discount

Accounts payable xxx

Cash xxx

Methods of recording purchases - Net method

Purchase on account

Purchases xxx

Accounts payable xxx

Payment within discount

Accounts payable xxx

Cash xxx

Payment beyond discount

Accounts payable xxx

Purchase discount lost xxx

Cash xxx

Assume it is the end of the period and no payment was made and the discount

has expired.

Purchase discount lost xxx

Accounts payable xxx

 Chapter 11: Inventory cost flow
FIFO - Periodic

Cost of goods sold

Inventory - 1 xxx

Purchases xxx

Goods available for sale xxx

Inventory - 31 (xx)

Cost of goods sold xxx

FIFO - Perpetual

Cost of goods sold from stock card

Add sales to get the total of cost of goods sold - the same with nota bene

Weighted average - Periodic

Weighted average per unit = Total cost / Total units

Inventory cost = Purchases x Weighted average per unit

Cost of goods sold

Inventory - 1 xxx

Purchases xxx

Goods available for sale xxx

Inventory - 31 (xx)

Cost of goods sold xxx

Weighted average - Perpetual

FIFO - wether periodic or perpetual

Moving average - Perpetual

Computation of cost of each product

 Chapter 12: Lower cost and net realizable value
Formulas:

NRV = estimated sales price - cost of sell

Inventory value = Units x Unit cost

LCNRV = Lowest between cost and nrv

LCNRV computations

Direct method

Entry on inventory at LCNRV

Inventory, End xxx

Income summary xxx

● The loss on inventory writedown is is not accounted separately

● The entry will have an effect of increasing cost of goods sold because NRV is lower

than cost
Allowance method

The inventory is recorded at cost

Inventory, End xxx

Income summary xxx

● The loss on inventory writedown is accounted separately

Loss on inventory writedown xxx

Allowance for inventory writedown xxx

● The loss on inventory writedown is included in the computation of cost of goods sold

● The allowance for inventory writedown is presented as deduction from the

inventory

Entry

Inventory, End xxx

Allowance for inventory writedown (xx)

Net realizable value xxx

Allowance method - Decrease in allowance computation

Inventory, End xxx

Income summary xxx

Cost, End xxx

Net realizable value (xx)

Required allowance, End xxx

Allowance balance, End (xx)

Decrease in allowance xxx

● The decrease in allowance is a reversal of the previous inventory writedown and

recorded as gain on reversal writedown

Allowance for inventory writedown xxx

Gain on reversal of inventory writedown xxx

Cost of goods sold after reversal

Purchase commitments

Loss on purchase commitment

Loss on purchase commitment xxx

Estimated liability for purchase commitment xxx

● The loss is classified as other expense while the estimated liability is classified as

current liability.

When the current replacement cost drops

Purchases xxx

Loss on purchase commitment xxx

Estimated liability xxx

Accounts payable xxx

LCNRV Adaptation

When the actual purchases is made

Purchases xxx

Estimated liability xxx

Accounts payable xxx

Gain on purchase commitment xxx

 Chapter 13: Gross profit method
Basic formula under gross profit method

For ending inventory

Goods available for sale xx

Less: cost of goods sold (x)

Ending inventory xx

Goods available for sale

Beginning inventory xx

Purchases xx

Add: freight in xx

Total xx

Less: purchase return (x)

Allowance & discount (x)

Goods available for sale xx

Cost of goods sold based on sales - Net sales x cost ratio

Beginning inventory xx

Net purchases xx

Net sales xx

Gross profit based on sales xx

Cost of goods sold based on cost - Net sales / sales ratio

Beginning inventory xx

Net purchases xx

Net sales xx

Gross profit based on cost xx

Computation of gross profit rate on cost to sales

Net sales xx

Cost of goods sold (x)

Gross profit on cost xx

 Gross profit on sales (Gross profit on cost / net sales)

Computation of gross profit rate on sales to cost

Net sales xx

Cost of goods sold (x)

Gross profit on sales xx

Gross profit on cost (Gross profit on sales / cost of goods sold)

● Note that net sales is 100% because it is based on gross profit

Sales allowance and discounts

Goods available for sale xxx

Less: Cost of goods sold

Sales xxx

Sales return xxx

Sales allowance xxx

Sales discount xxx xxx

Net sales xxx

Cost of goods sold (rate x net sales) xxx

Ending inventory xxx

Corollary illustration

Sales xxx

Cost of goods sold (xx)

Gross profit xxx

Goods available for sale xxx

Cost of goods sold xxx

Ending inventory —

● Ending inventory is zero using the basic formula

Sales allowance deducted

Goods available for sale xxx

Cost of goods sold (net sales x rate) (xx)

Ending inventory xxx

● In sales allowance, there is no physical transfer of goods from the customer but a

mere reduction in the sales price.

Chapter 14: Retail inventory method

Treatment of items

1. Purchase discount - deducted from purchases at cost only

2. Purchase return - deducted from purchases at cost and at retail

3. Purchase allowance - deducted from purchases at cost only

4. Freight in - addition to purchases at cost only

5. Departmental transfer in or debit - addition to purchases at cost and at retail

6. Departmental transfer out or credit - deduction from purchases at cost and retail

7. Sales discount and sales allowance - not deducted from sales

8. Sales return - deducted from sales

9. Employee discounts - added to sales

10. Normal shortage, shrinkage, spoilage, breakage - deducted from goods available

for sale at retail

11. Abnormal shortage, shrinkage, spoilage, breakage - deducted from goods

available for sale at both cost and retail

● Any abnormal amount is reported as loss