BEACCTG: ACCOUNTING CYCLE OF A SERVICE BUSINESS - Amounts in the “Unadjusted Trial Balance” and
“Adjustments” column are combined to come up with the
• SERVICE BUSINESS is one that offers services as its main
product rather than physical goods.
• STEPS IN ACCOUNTING CYCLE
1. Identifying and Analyzing
2. Journalizing
3. Posting
4. Unadjusted Trial Balance
5. Adjusting Entries
6. Adjusted Trial Balance (and/or Worksheet)
7. Financial Statements
8. Closing Entries
9. Post-closing Trial Balance
10. Reversing Entries
• WORKSHEET
- an analytical device used to facilitate the gathering of data for
adjustment, the preparation of financial statements and closing
entries
- optional and not part of the formal accounting records;
worksheets are usually prepared because they greatly facilitate
the orderly preparation of the financial statements
> Heading of the Worksheet - (1) name of the business; (2) title
of the report; (3) date covered by the report
> Accounts - list of the accounts in the ledger
> Unadjusted Trial Balance - ending balances of the accounts in
the general ledger
> Adjustment - debits and credits of the adjusting entries
> Adjusted Trial Balance - adjusted balances (combining
amounts in the unadjusted trial balance and adjusting entries)
> Income Statement - adjusted amounts of income and
expense accounts are extended here
> Balance Sheet - adjusted amounts of assets, liabilities, and
equity accounts are extended here
• Common Adjusting Entries
1. Accruals of Income and Expenses - already used but not yet
paid must be accrued as expense
2. Recognition of Depreciation Expense and Bad Debts
Expense
3. Deferrals of Income and Expenses - splitting of mixed
accounts; used portion shall be recognized as expense, the
remainder as asset
• Notes: Preparing the Worksheet
- Account titles used in the adjusting entries but were not
previously included in the unadjusted trial balance are placed at
the bottom part of the “Accounts” column.
- The debits and credits of the adjusting entries are then placed
on the “Adjustments” column.
adjusted balances of the accounts. The adjusted balances are
placed on the “Adjusted Trial Balance” columns.
a. Debit and Debit = add
b. Credit and Credit = add
c. Debit and Credit or vice versa = subtract
- Total debits and credits in the columns of the WS are equal
* Cross-footing - procedure to compute for the adjusted
balances of accounts in the adjusted trial balance; adding or
subtracting amounts horizontally
* Footing - procedure to compute for the total of the columns;
adding or subtracting amounts vertically
* Double Rule - two lines underneath an amount; used to
connote a total or the end of the computation
• FINANCIAL STATEMENTS
- end product of the accounting process
- information from the journal and the ledger are meaningless
to most users unless they are summarized and communicated
through the financial statements
• MAJOR PROCESSES IN ACCOUNTING
A. Journalizing > Recording
B. Posting > Classifying
C. Financial Statements > Summarizing & Communicating
1. Statement of Financial Position (Balance Sheet) - shows
information on assets, liabilities, and equity
2. Statement of Profit or Loss (Income Statement) - shows
information on income and expense, and consequently, the
profit or loss for the period
*both is greatly facilitated by the worksheet
*adjusted income and expenses accounts are extended to
the income statement columns, while adjusted asset,
liability, and equity accounts are extended to the balance
sheet columns.
> After amounts are extended to the income statement and
balance sheet columns, the balancing figure is the profit or loss
Concept: Income — Expenses = Profit or Loss
- Income exceeds expenses = profit
- Income is less than expenses = loss
IN THE INCOME STATEMENT COLUMNS
credits pertain to income; debits pertain to expenses
> Credits exceed Debits = PROFIT
* if total credits exceed total debits, balancing figure is on
the debit side; this balancing figure is the profit
> Debits exceed Credits = LOSS
* income is less than expenses; balancing figure is the loss
and is placed on the credit side
Concept: Profit or Loss is closed to the “Owner’s Capital”
account at the end of each period. Profit increases equity; Loss
decreases equity
IN THE BALANCE SHEET COLUMNS
> Debits exceed Credits = PROFIT
* balancing figure is on the credit side and will be added
to equity when closing entries are made
> Credits exceed Debits = LOSS
* debits are less than credits; balancing figure is on the
debit side and will be deducted from equity when closing
Notes:
- After closing entries are posted, nominal accounts (income,
expense, drawings) have zero balances; closed accounts
> Closed Account - has no balance
> Open Account - has a balance
- Post-closing trial balance contains only real accounts (asset,
liability, equity); similar to balance sheet except that the
balance of the Owner’s Capital in the post-closing trial balance
is the updated amount after closing profit or loss and drawings

• CLOSING ENTRIES
- entries prepared at the end of accounting period to zero out
all nominal accounts in the ledger (income, expenses, drawings)
- this is done so that the transactions during the period will not
commingle with the transactions in the next period
- also referred to as “closing the books” ; application of the time
period concept
1. All income accounts are debited and all expense accounts
are credited. The resulting balance is recorded in a clearing
account called “Income Summary”
2. Balance of Income Summary is closed to the Owner’s Capital
account
3. Any balance in Owner’s Drawings account is closed to the
Owner’s Capital account
Closing Entry #1: Income Summary
- Income and Expense accounts are closed to the Income
Summary account
- The amount in the Income Summary account is the balancing
figure in the closing entry. This represents the profit or loss
(same amount of balancing figure in the worksheet)
- Income Statement is usually prepared first before the balance
> Income Summary has credit balance = profit sheet because balance sheet cannot be finalized until after
> Income Summary has debit balance = loss profit or loss is determined and closed to equity. Thus in the
Closing Entry #2: Income Summary Closed to Equity worksheet, income statement precede the balance sheet and
- Income Summary is closed to the Owner’s Capital post-closing trial balance.
> Income Summary is debited when closing to equity = profit - Headings of the Financial Statements: (1) name of the
> Income Summary is credited when closing to equity = loss business; (2) title of the FS; (3) Reporting period
*reason: profit increases equity; loss decreases equity - Balance sheet is dated as of the end of the reporting period
(balance sheet date) because it contains only real accounts.
Closing Entry #3: Drawings Account Closed to Equity These accounts are not closed at the end of each reporting
- Owner’s Drawings is closed to Owner’s Equity period but rather carried over to the next period. Balances of
*Drawings is closed directly to equity rather than through these accounts represent cumulative amounts.
income summary because drawings is neither an income nore - Income statement is dated covering the reporting period (For
expense but rather a contra equity account. Drawings do not the period ended…) because it contains only nominal accounts
enter in the computation of profit or loss (except drawings). These accounts are closed at the end of
each reporting period and are not carried over to the next
• POST-CLOSING TRIAL BALANCE period. Balances pertain only to the current period.
- amounts in the adjusted trial balance (or income statement &
balance sheet) are cross-footed with the amounts in the closing • REVERSING ENTRIES
entries - entries usually made on the first day of the next accounting
- amounts in the post-closing trial balance will be the beginning period to reverse certain adjusting entried in the immediately
balances of accounts in the next accounting period preceeding period
- optional; not required in the preparation of FS; However,
*Columns in the Worksheet can be extended by adding columns businesses often use reversing entries to simplify the recording
for Closing entries and Post-closing Trial Balance process in the next accounting period.
*No income summary in worksheet!
 1. To facilitate the recording of cash receipts and
disbursements in the next accounting period;
2. To promote convenience in recording the next period's
year end adjustments for accruals; and
3. To promote consistency of accounting procedure.
• Adjusting Entries that may be Reversed
1. Accrual for income or expense
2. Prepayments initially recorded using the expense method
3. Advance collections initially recorded using the income
method
*AJE’s involving receivable and payables are normally reversible
*AJE’s involving depreciation and bad debts are not reversible
> Reversing entries are the exact opposites of the adjusting
entries
- Businesses customarily record disbursements for items of
expense by debiting an expense account (expense method) and
collections of items of income by crediting an income account
(income method).
- Reversing entry simplifies the recording in the next accounting
period by permitting the business to record the cash payments
for the certain account/payable in the customary way.
Otherwise, bookkeeper needs to go back to the records to
identify the balance of the account. This can be cumbersome
when there are many transactions to be recorded in the period.
- Balances of the accounts should be equal whether or not
reversing entries are made.
• Summary:
- A worksheet is an analytical device used to facilitate the
gathering of data for adjustments, the preparation of financial
statements, and closing entries.
- The financial statements are the means by which information
accumulated and processed in financial accounting is
periodically communicated to the users. The financial
statements are the end products of the accounting process.
- The balance sheet shows the assets, liabilities and equity of a
business.
- The income statement shows the income and expenses, and
consequently, the profit or loss, of a business.
- Closing entries are entries prepared at the end of the
accounting period to "zero out" all nominal accounts in the
ledger.
- The post-closing trial balance is prepared to check the equality
of debits and credits in the general ledger after closing entries
are made. The post-closing trial balance contains only real
accounts. These accounts and their balances appear on the
balance sheet.
- Reversing entries are entries usually made on the first day of
the next accounting period to reverse certain adjusting entries
in the immediately preceding period.
- Only the adjusting entries made for the following may be
reversed: (1) Accruals for income or expense; (2) Prepayments
recorded using the expense method; (3) Advance collections
recorded using the income method.
ACCOUNTING CYCLE OF A MERCHANDISING BUSINESS
• MERCHANDISING BUSINESS is one that buys and sells goods
without changing their physical form.
• INVENTORY
- goods that a merchandising business has purchased and
primarily intended for a resale, normally in their original form
and without any further processing.
- the main difference between a merchandising business and a
service business is that a merchandising business necessarily
holds inventory of physical goods for sale.
• INVENTORY SYSTEMS
1. Perpetual Inventory System
- In layman's terms, the word "perpetual" means continuing
forever (or tuloy tuloy or walang hanggan in Filipino).
- The perpetual inventory system is called as such because
under this system, the Inventory account (or Merchandise
inventory account) is updated each time a purchase or sale is
made. Thus, the Inventory account shows a continuing or
running balance of the goods on hand.
- Records called stock cards and stock ledger cards are
maintained under this system, from which the quantities and
balances of goods on hand and goods sold can be determined
at any given point of time without the need of performing a
physical count of inventories.
- All increases and decreases in inventory, such as purchases,
freight-in, purchase returns, purchase discounts, cost of goods
sold, and sales returns are recorded in the Inventory (or
Merchandise inventory) account. Cost of goods sold is also
updated each time a sale or sale return is made.
- Commonly used for Inventories that are specifically
identifiable and are relatively high valued, such as cars,
machineries, furniture and heavy equipment.
2. Periodic Inventory System
- In layman's terms, the word "periodic" means occurring or
recurring at regular intervals (or pana-panahon in Filipino).
- The periodic inventory system is called as such because under
this system, the Inventory account (or Merchandise inventory
account) is updated only when a physical count of inventory is
performed. Thus, the amounts of inventory and cost of goods
sold are determined only periodically.
- Under this system, the business does not maintain records
that show the running balances of inventory on hand and cost
of goods sold as at any given point of time. To determine this
information, a physical count of the quantity of goods on hand
must be performed periodically (e.g., on a daily, weekly,
monthly, or annual basis). The quantity counted is then
multiplied by the unit cost to get the balance of the Inventory
account. This amount is then used to compute for the Cost of
Goods Sold which is the residual amount in the formula below.
Beginning Inventory
Add: Net Purchases*
Total Goods Available for Sale
Less: Ending Inventory (physical count)
Cost of Goods Sold
 Purchases
Add: Freight-in
Less: Purchase Returns
Purchase Discounts
Net Purchases

*Freight-in is an adjunct account (addition)

*Purchase returns & discounts are contra accounts (deductions)
> Purchases - account used to record purchases of inventory > Under the perpetual inventory system, all increases and
under the periodic system decreases in the goods on hand are recorded through the
> Freight-in (Transportation-in) - used to record the shipping Inventory account. Also, cost of goods sold is debited when
cost incurred on purchases of inventory under periodic system inventory is sold and credited when there is a sales return.
> Purchase Returns - account used to record returns of > Under the periodic inventory system, the increases and
purchased goods to the supplier decreases in the goods on hand are recorded through the
> Purchase Discounts - account used to record cash discounts purchases, freight-in, purchase returns, and purchase
availed of on the purchased goods discounts accounts. Cost of goods sold is not recorded.
> Under the perpetual inventory system, the balances of
> Under the Periodic Inventory System
inventory on hand and cost of goods sold are readily
- Purchases of inventory are debited to the Purchases account
determinable from the ledger.
- Shipping cost are debited to the Freight-in account
> Under the periodic inventory system, the balances of
- Purchase returns are credited to the Purchase Returs account
inventory on hand and cost of goods sold are not readily
- Purchase discounts are credited to the Purchase Discounts
determinable without performing first a physical count of the
- No entry is made to recognize Cost of Goods Sold when
quantity of goods on hand.
inventory is sold
- Because the "Inventory" account is updated only after a
physical count, prior to the count, the balance of the inventory
account represents the beginning balance or the balance from
the last physical count. Consequently, the balance of Cost of
goods sold prior to a physical count is zero.
The periodic inventory system is commonly used for
inventories that are normally interchangeable, relatively low
valued, and have a fast turnover rate, such as grocery items,
medicines, electrical parts, and office supplies.
• GROSS PROFIT *Shortage - cost of shortage is charged either as a receivable (if
- gross income, gross margin, or sales profit it is due to the fault of an employee or a customer) or a loss (if
- simply net sales minus cost of goods sold it is nobody’s fault)
- represents the profit a business earns after deducting the cost
of the goods sold or services rendered, but before deducting
other expenses

Net Sales
Less: Cost of Goods Sold
Gross Profit

> Profit or Net Profit is different from Gross Profit. Profit is the
amount derived after deducting all other expenses from the • T-ACCOUNT ANALYSIS
gross profit. - Most accounting problems can be solved much easier using
T-account analysis than formulas.
Sales
Less: Sales Returns
Less: Sales Discounts
Net Sales

Net Sales*
Less: Cost of Goods Sold
Gross Profit
Less: Rent Expense
Less: Depreciation Expense
Less: Salaries Expense, etc.
Profit (Net Profit)

> Sales Returns and Sales Discounts are contra accounts

(deductions) to Sales when computing for Net Sales.
> Sales - both cash sales and credit sales
> Sales Returns - used to record goods returned by customers
> Sales Discounts - used to record cash discounts given to
customers
*Cost of Goods Sold formula under the Periodic Inventory
System is commonly used by bars and restaurants whose
inventories have a fast turnover rate.
*A Statement of Cost of Goods Sold and Gross Profit is not a
formal accounting report that is prepared for external reporting
Nonetheless, this report can be prepared for internal reporting
purposes.
*The Statement of Cost of Goods Sold and Gross Profit is similar
to the Income Statement. It is actually a part of an income
statement. However, the Statement of Cost of Goods Sold and
Gross Profit ends with the gross profit, meaning it does not
show information about the other expenses.
COGS per records (entry made)
COGS per physical count (should be)
(shortage) / overage
Ending Inventory per physical count
Ending Inventory per computations
(shortage) / overage
Cash Balance per count
Cash Balance per computation
(shortage) / overage
*Sum of the amounts on the debit side is equal to the sum of
the amounts on the credit side
• RECORDING IN THE GENERAL AND SPECIAL JOURNALS
1. Special Journal - used to record transactions of a similar
nature
A. Sales Journal - record sales on account
B. Purchase Journal - record purchases of inventory on
account
C. Cash Receipts Journal - record all transactions
involving receipts of cash
D. Cash Disbursements Journal - record all transactions
involving payments of cash
2. General Journal - all other transactions that cannot be
recorded in the special journals
• POSTING TO THE GENERAL AND SUBSIDIARY LEDGERS
A. General Ledger - contails all the accounts appearing in the
trial balance
B. Subsidiary Ledger - provides a breakdown of the balances
of controlling accounts
 ACCOUNTING CYCLE OF A MERCHANDISING BUSINESS
• PERIODIC INVENTORY SYSTEM
- Balance of the Inventory account represents the beginning
balance because purchases, freight-in, and purchase returns
and discounts during the period are not recorded in the
Inventory account.
- After the physical count, this account will be updated through
an adjusting entry.
- Changes in goods on hand during the period are recorded in
the Purchases, Freight-in, Purchases Returns and Purchases
Discounts accounts, as appropiate. These are nominal accounts
that are closed at the end of the period.
- At the end of the period, a physical count is conducted to
determine any unsold goods which are recognized as asset
through an adjusting entry.
> Adjusting Entry: ENDING INVENTORY
- The account Inventory, end. is debited in order to segregate
the ending inventory from the beginning inventory. The credit is
recorded in the Income summary account.
- In the worksheet, we will label the beginning inventory as
Inventory, beg. This will be closed later in the closing entries,
also to the Income summary account.
- This manner of recording simplifies the adjusting and closing
entries for the ending inventory and beginning inventory.
*Worksheet includes Inventory, beg., Inventory, end., and
Income Summary
- Inventory, beg. and Income Summary are extended to the
Income Statement. This is necessary so that the amount of cost
of goods sold is properly reflected in the Income Statement.
- Inventory, end. is extended to the Balance Sheet.
> Closing Entry: Beginning Inventory (only in Periodic)
- Beginning Inventory (dr) is closed to Income Summary (cr)
> Closing Entry: Income Summary
- Purchases, Freight-in, Purchases Returns and Purchases
Discounts are also closed in the Income Summary.
PARTNERSHIP FORMATION
• PARTNERSHIP
- is an unincorporated association of two or more individuals to
carry on, as co-owners, a business, with the intention of
dividing the profits among themselves.
Characteristics of a Partnership
A. Ease of Formation - as compared to corporations, the
formation of a partnership requires less formality.
B. Separate Legal Personality - the partnership has a judicial
personality separate and distinct from the partners. The
partnership can transact and acquire properties in its name.
C. Mutual Agency - the partners are agents of the partnership
for the purpose of its business. As such, a partner may legally
bind the partnership to a contract or agreement that is in line
with the partnership's operations.
D. Co-ownership of Property - each partner is a co-owner of
the properties invested in the partnership and each has an
equal right with his partners to possess specific partnership
property for partnership purposes. However, a partner has no
right to possess a partnership property for any other purpose
without the consent of his partners.
E. Co-ownership of Profits - a partnership is created as a
business (a profit-oriented entity), as such, each partner is
entitled to his share in the partnership profit. A stipulation
which excludes one or more partners from any share in the
profits or losses is void. (Art. 1799 of the Civil Code of the PH)
F. Limited Life - the creation of a partnership is basically
consensual. As such, a partnership may be dissolved:
i. by the express will of any partner
ii. by the termination of a definite term stipulated in the
contract
iii. by any event that makes it unlawful to carry out the
partnership
iv. when a specific thing which a partner had promised to
contribute to the partnership perishes before the delivery
v. expulsion, death, insolvency or civil interdiction of a
partner
G. Transfer of Ownership - in case of dissolution, the transfer
of ownership, whether to a new or existing partner, requires
the approval of the remaining partners.
H. Unlimited Liability - each partner, including industrial ones,
may be held personally liable for partnership debt after all
partnership assets have been exhausted. If a partner is
personally insolvent, his share in the partnership debt shall be
assumed by the other solvent partners.
> A partnership in which all partners are individually liable
is called a general partnership.
> A partnership in which at least one partner is personally
liable is called a limited partnership. A limited partnership
includes at least one general partner who maintains
unlimited liability. The others, called limited partners,
may limit their liability up to extent of their contributions
to the partnership. A limited liability partnership usually
has “LLP” in its name.
 Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date.
> When measuring the contributions of partners, the following
additional guidance from the PFRSs shall be observed:

• ACCOUNTING FOR PARTNERSHIPS

- The accounting for assets and liabilities remains the same - Each partner's capital account is credited for the fair value of
regardless of the form of a business organization. What his net contribution (i.e., fair value of contribution less any
changes is the accounting for equity. liability assumed by the partnership). No contribution shall be
valued at an amount greater than its fair value.
> Balance Sheet of Different Forms of Business Organization - A partner's subsequent share in profits (losses) shall also be
1. Sole Proprietorship 2. Partnership credited (debited) to his capital account. Likewise, permanent
Equity Equity withdrawals of capital are debited to the partner's capital
Mr. A’s, Capital Mr. A’s, Capital account. Temporary withdrawals may be debited to the
Mr. B’s, Capital partner's drawings account. The sum of the balances in the
partners' individual capital accounts represents the total equity
3. Corporation 4. Cooperative of the partnership.
Equity Equity
Share Capital Share Capital Partners' Ledger Accounts
Retained Earnings Donations & Grants The partners' ledger accounts are:
Other components of E Statutory Funds a. Capital accounts
b. Drawings accounts
- The equity of a partnership is similar to the equity of a sole c. Receivable from/ Payable to a partner
proprietorship except that the former is subdivided into the
partners' capital balances. Capital and Drawings accounts
- The equity of a corporation is similar to the equity of a Each partner has his or her own capital and drawings account,
cooperative, in the sense that both have Share Capital. (Juan dela Cruz, Capital / Juan dela Cruz, Drawings). These
However, a peculiar characteristic of the equity of cooperative accounts are equity accounts and are used to record the
is that it includes Statutory Funds. Cooperative is required by following transactions:
law to appropriate a portion of its annual profit to some funds.
These funds are referred to as Statutory Funds.
Major considerations in the accounting for the equity of a
partnership:
a. Formation - accounting for initial investments to the
partnership
b. Operations - division of profits or losses
c. Dissolution - admission of a new partner and withdrawal
retirement or death of a partner - The partner’s capital account is a real account and has a
d. Liquidation - winding-up of affairs normal credit balance.
Formation
A contract of partnership is consensual. It is created by the
agreement of the partners which may be constituted in any
form, such as oral or written. A partnership's legal existence
begins from the moment the contract is executed, unless
otherwise stipulated.
Valuation of contributions of partners
- Capital contributions of partners to the partnership are
initially measured at fair value.
- The drawings account is a nominal account that is closed to capital balance is credited for an amount greater than or less
the related capital account at the end of the period. A contra than the fair value of his net contribution, there is bonus.
equity account & has a normal debit balance. - Under the bonus method, any increase (or decrease) in the
capital credit of a partner is deducted from (or added to) the
Receivable from/ Payable to a Partner
capital credits of the other partners. The total partnership
The partnership may enter into a loan transaction with a
capital remains equal to the fair value of the partners' not
partner. A loan extended by the partnership to a partner is
contributions to the partnership.
recorded as a receivable from the partner, while a loan
obtained by the partnership from a partner is recorded as a
payable to a partner.
MODULE 4: CAO 09-2020
Bonus on Initial Investments Examination of Goods
- An accounting problem exists when a partner's capital account shall refer to the physical, documentary, or non-intrusive
is credited for an amount greater than the fair value of his inspection of goods to ensure that the nature, origin, condition,
contributions. quantity, value, and tariff classification of the goods are in
- For instance, a partnership agreement may allow a certain accordance with the particulars furnished in the goods
partner who is bringing in expertise or special skill to the declaration and other supporting documents.
partnership to have a capital credit greater than the fair value
Physical Examination in the Absence of the Declarant or His
of his contributions. In such case, the additional credit to the
Duly Authorized Representative
partner's capital (i.e., the 'bonus') is accounted for as a
- In exceptional circumstances, physical examination of goods
deduction from the capital of the other partners. This
in the absence of the declarant or authorized representative
accounting method is called the bonus method.
may be allowed under the following valid and justifiable
- Although, the credit to the partner's capital may vary due to a
grounds:
'bonus,' the corresponding debit to the asset account must still
a. Despite due notice, the declarant or his authorized
be equal to the fair value of the contribution. The difference
representative fails to be physically present;
between the amounts credited and debited is treated as
b. Unknown or fictitious consignee; or
adjustment to the capital accounts of the other partners.
c. Conduct of controlled delivery, subject to the approval
*The bonus given to A is treated as a reduction to the capital of the Commissioner.
credit of B. After applying the bonus method, the total capital
- The conduct of physical examination shall be under the
of the partnership is still equal to the fair value of the partners’
authority of the Collector of Customs. The Office of the
contributions. Only the amounts credited to the partners’
Commissioner and concerned offices must be informed of the
capital accounts have varied.
date, time, and place of the scheduled examination to witness
Variations to the Bonus Method the said examination.
A partnership agreement may stipulate a certain ratio to be - In all cases of physical examination under this section, the
maintained by the partners representing their specific interests Bureau shall take necessary steps to ensure that the entire
in the equity of the partnership. This stipulation may give rise to proceeding is captured on video for documentation and
adjustments to the initial contributions of the partners. Since record-keeping purposes.
technically there is no "bonus" being given to a certain partner,
Request for Examination by the Importer or Declarant
any increase or decrease to the capital credit of a partner is not
- The importer or declarant may request the physical
deducted from his co-partners' capital accounts. Instead, the
examination of the goods in the following instances:
capital adjustment is accounted for as either:
a. Prior to lodgement of goods declaration, upon
a Cash settlement among the partners; or
justifiable grounds, as may be determined by the
b. Additional investment or withdrawal of investment of a
Commissioner; or
partner
b. After the lodgement of goods declaration, when there
*Cash settlement among the partners is not recorded in the are issues and controversies surrounding the goods
partnership’s books because this is not a transaction of the declaration and import clearance process, unless the
partnership but rather a transaction among the partners shipment is selected for physical examination or is
themselves. The partnership’s capital remains the same after subject of an Alert Order.
cash settlement. What varied are only the credits to the - The request for examination shall be made in good faith and
partner’s capital accounts. the expenses thereof shall be borne by the importer. In case
the request is made to cover up any violations of the CMTA or
Summary
other rules and regulations implemented by the Bureau, the
- The major considerations in the accounting for the equity of
importer shall be subject to penalties and/or seizure and
partnerships are: (a) Formation; (b) Operations; (c) Dissolution
forfeiture as provided under the CMTA.
and (d) Liquidation.
- The contributions of the partners to the partnership an
measured at fair value.
- A partner's capital balance is normally credited for the fair
value of his net contribution to the partnership. If a partner’s