CHAPTER 1 – CASH AND CASH EQUIVALENTS

Ano yung mga kasama sa Cash and Cash Equivalents?

 Cash on Hand – undeposited cash collections.

 Cash in Bank – cash in bank that are unrestricted to withdrawal.
 Cash Funds – included sa CCE as long as naka set aside for current purposes (within twelve
months).
 Cash Equivalents (Cash Investments) – 3-month rule (acquisition date – maturity date).
 Equity Securities – hindi kasama sa cash equivalent since wala silang maturity date, pwera sa
Preference Shares na may redemption date (3 months from acquisition – redemption).
 Foreign currency - as long as hindi restricted to exchange, kasama sa CCE. Pag restricted, long-
term asset.
 Compensating Balance – if legally restricted as withdrawal ang compensation balance, hindi
siya kasama sa CCE, if not legally restricted as to withdrawal, part siya ng CCE.

Accounting for Cash Shortage/Overage

Una, isetup yung temporary account:
if shortage: DR. Cash Short/Over, CR. Cash
if overage: DR. Cash, CR. Cash Short/Over
after nun, I close yung temporary account gamit yung appropriate na account base on scenarios. For
example, if fault ng cashier ang shortage, then may due/receivable from cashier tayo, if hindi alam ang
reason, then meron tayong loss if cash shortage. If naman cash overage and kay cashier ang pera, may
payable tayo to cashier. If hindi alam ang reason, mapupunta siya sa miscellaneous income.

PETTY CASH FUND

1. Imprest Fund System – pag imprest fund system, walang entries everytime na may babayaran
na expense. Nagkakaroon lang ng entries kapag I rereplenish na. May mga instances na umaabot
sa end ng accounting period bago pa mag replenish ng funds, in this case, kailangan nating I
adjust yung petty cash fund, tapos I rereverse din right away sa next period. Ginagalaw lang ang
Petty Cash Fund account tuwing adjustments, increase in the fund, and decrease in the fund.
2. Fluctuating Fund System – laging may entries everytime na magbabayad tayo ng expense.
Kumbaga, laging ginagamit ang Petty Cash Fund account dito, and di need ng adjusting entries
ng system na to since lagi naman updated yung true balance ng petty cash.
CHAPTER 2 – BANK RECONCILIATION
Ano ba yung bank recon?
Bank Reconciliation ay yung pagbabalance ng total ng cash sa books dun sa bank statement.
So ano ba yung mga Reconciling items?
BOOK RECONCILING ITEMS:
A. CREDIT MEMOS – ito yung mga bagay na kinredit ni bank sa account natin na hindi pa
nakarecord sa books natin. (Notes Receivable collected by bank, Proceeds of Bank Loan,
Matured Time Deposits)
B. DEBIT MEMOS – ito yung mga bagay na naless sa account natin by the bank na hindi pa
nakarecord sa ating books.
 NSF o no sufficient fund checks (or DAIF drawn against insufficient fund) ay mga check na
tumalbog dahil hindi sapat yung laman nung bank account nung issuer ng check na balak natin
ipaencash.
 Technically defective checks
 Bank Service Charge
 Reduction of Loan which the depositor owes to the bank and already matured and collected by
the bank.
C. ERRORS – MGA PAGKAKALAMI NG DEPOSITOR, HINDI BANK.

BANK RECONCILING ITEMS:

A. DIT (DEPOSIT IN TRANSIT) – ito yung mga cash collections ng depositor na hindi pa naka
record sa bank statement.
B. OUTSTANDING CHECKS – yung mga cash disbursements na narecord na ng depositor pero
hindi pa nagrereflect sa bank. Nileless sa mga outstanding checks yung mga “certified checks”
since hindi na sila outstanding pero included sila sa count kaya nileless.
C. ERRORS – MGA PAGKAKAMALI NG BANK, HINDI DEPOSITOR.
FORMS OF BANK RECONCILIATION
a. ADJUSTED BALANCE METHOD – ito yung method na ibabalance both book and bank para
mag come up sa SAME adjusted balance.
b. BOOK TO BANK METHOD – ito yung method na kukunin yung adjusted book balance by
applying the appropriate reconciling items and then reversing the BANK reconciling items para
mag come up sa Balance per Bank.
c. BANK TO BOOK METHOD – ito yung kabaliktaran ng book to bank method.
CHAPTER 3 – PROOF OF CASH
2 DATE BANK RECONCILIATION
COMPUTATION OF BOOK BALANCE
Balance per Book – beginning of the month xxx – ending balance (book) ng prev month
Add: Book Debits during the month xxx – lahat ng na add sa books
Less: Book Credits during the month (xxx) – lahat ng naless sa books
Balance per Book – end of the month xxx – balance per book current month

COMPUTATION OF BANK BALANCE

Balance per Bank – beginning of the month xxx – ending balance (bank) prev month
Add: Bank Credits during the month xxx – lahat ng na add sa bank
Less: Bank Debits during the month (xxx) – lahat ng naless sa bank
Balance per Bank – end of the month xxx – balance per bank current month

COMPUTATION OF DEPOSITS IN TRANSIT

Deposits in Transit – beginning of the month xxx – ending balance (DIT) prev month
Add: Cash Receipts deposited xxx – lahat ng dineposit natin
Total deposits to be acknowledged by the bank xxx
Less: Deposits acknowledged by the bank (xxx) – lahat ng na acknowledge na ng bank
Deposits in Transit – end of the month xxx

COMPUTATION OF OUTSTANDING CHECKS

Outstanding Checks – beginning of the month xxx – ending balance (OC) prev month
Add: Checks drawn by depositor xxx – lahat ng inissue nating checks
Total checks to be paid by the bank xxx
Less: Checks paid by bank (xxx) – lahat ng na acknowledge na ng bank
Outstanding Checks – end of the month xxx

LAHAT NG YAN KAILANGAN AY PRESENT MUNA BAGO MAKAPAG PROCEED SA PAG

BABANK RECONCILIATION. PARA SA PREV MONTH AND SUBSEQUENT MONTH. IF LAGING
ENDING BALANCE ANG HANAP, TAMA LANG YUNG FORMULA, IBA YUNG HANAP SA
FORMULA, JUST WORKBACK.

CHAPTER 4 – ACCOUNTS RECEIVABLE

TRADE RECEIVABLES – ito yung mga claims na nag aarise from sale of merchandise or services in
the ordinary course of business. Yung mga trade receivables na convertible into cash within the ordinary
course of business or within one year, whichever is longer, ay classified as current assets. Otherwise, they
are classified as noncurrent assets.
 Accounts Receivable – mga claims from customer not supporting promissory notes.
 Notes Receivables – claims from customers supported by promissory notes.
NONTRADE RECEIVABLES – mga claims arising from sources other than sale of merchandise or
services. If collectible within one year or during the current length of operating cycle, they are classified
as current assets. If collectible beyond one year they are classified as noncurrent assets.

Pag pinapahanap ay Trade Receivables lang, focus lang sa accounts and notes receivables.
- Pagdating Sa Accounts Receivable, make sure na nileless yung allowance for doubtful accounts.
Pag pinapahanap ay Trade and Other Receivables, kasama na dun pati yung mga non trade receivables.
Examples ng mga Nontrade Receivables:
Current: Advances/Receivable from employees/shareholders/directors/officers (within 1 year)
Advances from Supplier
Creditors Account na may DEBIT BALANCE
Dividend Receivables/Accrued Rent Receivable/Accrued Royalties Receivable
Accrued Interest Receivables
Claims Receivables
Noncurrent: Advances to Affiliates

Net Realizable Value – initial amount recognized less adjustments (allowances).

Estimating the Net Realizable Value of Trade Accounts Receivable:

a. Allowance for freight charge (if the freight terms are FOB Destination, Freight Collect)
Example:
1. To record the sale:
Accounts Receivable xxx
Freight Out xxx
Sales xxx
Allowance for freight charge xxx
2. To record the collection within the discount period:
Cash xxx
 Sales Discount xxx
Allowance for freight charge xxx
Accounts Receivable xxx

b. Allowance for sales returns – dito magbibigay yung problem ng estimation, tapos I cocompare
mo yon sa actual na returns, yung difference nilang dalawa, yun yung mapupunta sa allowance
for sales return.
Journal Entry to recognize probable return:
Sales Return xxx
Allowance for sales return xxx

SALES DISCOUNT
METHODS OF RECORDING CREDIT SALES
GROSS METHOD
Example:
Sale of merchandise for 100,000, terms 5/10, n/30
Accounts Receivable 100,000
Sales 100,000
Assume collection is made within the discount period
Cash 95.000
Sales Discount 5,000
Accounts Receivable 100,000
Assume collection is made beyond the discount period
Cash 100,000
Accounts Receivable 100,000

NET METHOD
Example:
Sale of merchandise for 100,000, terms 5/10, n/30
Accounts Receivable 95,000
Sales 95,000
Assume collection is made within the discount period
Cash 95.000
Accounts Receivable 95,000
Assume collection is made beyond the discount period
Cash 100,000
Accounts Receivable 95,000
Sales discount forfeited 5,000
Note: sales discount forfeited account is classified as other income.

c. Allowance for sales discount – nangyayari to pag umabot na sa ending period therefore nag
eexpect tayo or nag estimate tayo ng allowance for sales discount which will be reversed din
naman sa beginning ng next accounting period.
To record the expected sales discount:
Sales Discount xxx
Allowance for sales discount xxx

METHODS FOR ACCOUNTING BAD DEBTS

d. ALLOWANCE METHOD
Example:
To recognize the doubtful account:
Doubtful Account xxx
Allowance for doubtful account xxx
If the doubtful accounts are subsequently found to be worthless:
Allowance for doubtful accounts xxx
Accounts Receivable xxx

DIRECT WRITEOFF METHOD

Example:
Accounts of 300,000 are considered doubtful of collection
No entry is necessary.
The accounts are proved to be worthless.
Bad Debts xxx
Accounts Receivable xxx

The same accounts that are previously written off as worthless are recovered or collected.
Accounts Receivable xxx
 Bad Debts xxx
Cash xxx
Accounts Receivable xxx

CHAPTER 5 – ESTIMATION OF DOUBTFUL ACCOUNTS

There are 3 ways of determining the estimated value of doubtful accounts

Aging Method – kapag aging method, imumultiply mo lang yung mga receivables na past due doon sa
corresponding rate nila. After nun, itototal mo yung estimated uncollectible and then pag inadd, yun yung
REQUIRED ALLOWANCE. So if may beginning balance yung allowance for doubtful accounts, ileless
mo sa required allowance para makuha yung allowance for doubtful account sa current period.

Percent of Accounts Receivable – kukunin sa accounts receivable yung required allowance gamit yung
rate. If missing yung rate, pwede icompute by dividing allowance for doubtful accounts/accounts
receivable.

Percent of Sales – yung nakuha dito is matic na actual allowance for doubtful accounts for the current
year.

CHAPTER 6 – NOTES RECEIVABLE

NOTES RECEIVABLE – ito yung mga claims from customers arising from sale in the ordinary course
of business supported by PROMISSORY NOTES. Maker, is yung nag promise at nagsulat nung notes
receivable. Payee naman yung pinag-utangan.

DISHONORED NOTES – ito yung mga notes na hindi tinupad ng maker, therefore na didishonor sila.
Yung mga dishonored notes ay tinatanggal sa notes receivable and then binabalik sa accounts receivable
account plus yung loss incurred and interest.

INTEREST BEARING NOTES RECEIVABLE

Lump Sum – kapag lump sum, simple lang, yung face ng note is imultiply sa interest rate and then
multiply kung ilan years yung term.

Compounded annually – ito yung nag eearn ng interest yung interest. Kumbaga padagdag ng padagdag
yearly yung interest mo.

NON-INTEREST-BEARING NOTES RECEIVABLE

Step 1 – kuhanin muna yung unearned interest income by subtracting the FACE OF THE NOTE AND
CASH SALE PRICE or PRESENT VALUE. Pagdating sa present value (ordinary annuity) simply
multiply yearly payment / lumpsum sa pv of annuity to get the present value.
Step 2 – if yung problem is talking about sales (ordinary course of business), NO NEED mag record ng
gain on sale. Pero if yung problem is talking about a sale of an asset, there is a need of recording of gain
on sale.
Formula: Cash Sale Price/Present Value xxx
Down Payment (if meron) xxx
Cost (xxx)
Gain on Sale xxx
Step 3 – icheck yung problem kung installment ba ito or lump sum

Case 1 – Installment & Cash Sale Price

Pag ganito yung case, gumamit ng FRACTION METHOD.

Case 2 – Installment & PV of Ordinary Annuity

Pag ganito naman, gumamit ng EFFECTIVE INTEREST METHOD
Date Annual Collection Interest Income Principal Present Value
XXX (yung PV)
XXX (annual payment) (pv * Effective Interest) (column 1 less 2)

KAPAG NASA LAST NA, BRING DOWN NALANG YUNG PRESENT VALUE SA
PRINCIPAL AND THEN WORKBACK.

Case 3 – Lump Sum & PV of Ordinary Annuity

 Pag ganito naman, EFFECTIVE INTEREST METHOD parin naman ang gamit, kaso yung
gagamitin is yung for lump sum table:

Date Interest Income Unearned Interest Present Value

XXX (step 1) (step 1)
XXX (pv * effective Interest) (U.I. – E.I.) (pv + Interest Inc.)

KAPAG LAST NA, I BRING DOWN NALANG YUNG LAST SA UNEARNED INTEREST PAPUNTA
DUN SA INTEREST INCOME, AND THEN MABUBUO NA SA LAST COLUMN DAPAT YUNG
FACE OF THE NOTE.

CHAPTER 7 – LOANS RECEIVABLE

CHAPTER 8 – PLEDGE, ASSIGNMENT, FACTORING
CHAPTER 9 – DISCOUNTING OF NOTES RECEIVABLE

CHAPTER 10 – INVENTORIES
Pag nagsosolve ng mga problem sa inventories, tinitignan jan lagi kung sino yung owner ng goods, in
short nagsasagawa muna tayo ng tinatawag na legal test.

Consigned goods ay kasama sa inventory ng consignor, so kung tayo ang consignor, included dapat ang
inventory sa atin. Freight and Handling Charges sa goods out on consignment ay kasama sa cost of goods
consigned.
Kapag nabenta na yung mga goods on out consignment, mag rerecord ka rin ng commission expense and
advertising expense (if existing).
Cash xxx
Commission Exp xxx
Advertising Exp xxx
Sales xxx

Perpetual vs Periodic
Perpetual - sa perpetual, hindi tayo gumagamit ng account na purchases, lahat ng related sa purchases ay
ma rereplace ng account na tinatawag na “Merchandise Inventory”. Sa perpetual, nagrerecord din tayo ng
entries for Cost of Goods Sold. Pag perpetual ang gamit mo meron ka na agad ending inventory base sa
stock cards. Dito sa perpetual method nalalaman din kung may inventory shortage or overage.

Inventory Shortage xxx Merchandise Inventory xxx

Merchandise Inventory xxx Miscellaneous Income xxx

Periodic - sa periodic, hindi tayo gumagamit ng account na merchandise inventory. Ang gamit na
account sa acquisition ng inventory ay purchases and may purchase return/discount din if applicable.
Hindi rin tayo nag rerecord dito ng cost of goods sold. Nagbibilang tayo ng ending inventory once lang
every end ng accounting period.

TRADE DISCOUNT AND CASH DISCOUNT

Pag Trade discount, hindi yan recorded, nileless yung nakukuhang value (base sa percentage) doon sa
LIST PRICE para makuha yung INVOICE PRICE.

Pagdating naman sa cash discount, may dalawang methods sa pag rerecord, yun ay yung Gross Method
and Net Method.
Gross Method - hindi tayo nag aassume na macclaim natin yung cash discount given.
Net Method – nag aassume tayo na macclaim natin yung discount and naka less na agad yung cash
discount kahit na hindi pa man talaga tayo nagbabayad. Kapag hindi na claim yung discount under net
method, ganito yung entry:

Accounts Payable xxx Purchase Discount Lost xxx

Purchase Discount lost xxx Accounts Payable xxx
Cash xxx
If payment is made beyond discount period ganito naman yung gagawin if beyond discount and need na ng adjustment

Cost of Purchase – purchase price + import duties + irrecoverable taxes +freight in + handling and other
costs directly attributable to the acquisition of finished goods, materials, and services.

CHAPTER 11 – INVENTORY COST FLOW

FIFO METHOD – sa FIFO METHOD, Madali lang, basta mapa perpetual man o periodic yan, susundin
lang natin ang FIFO.
WEIGHTED AVERAGE – ginagamit to kapag periodic ang inventory system. Sa huli mag ccompute ng
unit cost by dividing total cost to total units.
MOVING AVERAGE – ginagamit to kapag perpetual naman ang inventory system. Nagkakaroon ng
changes sa unit cost everytime na nagkakaroon ng purchase or purchase return.
RELATIVE SALES PRICE METHOD – ginagamit naman to pag bumili tayo ng materials by lump sum
in short sama sama. Kkuhanin mo lang yung mga sales price per item and kuhanin yung fraction para
gawing basis sa paghahati ng bawat materials sa basket price or lump sum amount.

CHAPTER 12 – LOWER OF COST AND NET REALIZABLE VALUE (LCNRV)

So dito, basic lang, basta always lang kukuhanin yung kung alin yung mas mababang value, its either cost
or nrv. Ngayon, initially kase, yung mga inventories lagi naman silang naka record by cost so kung mas
mababa na yung cost sa nrv, wala ng need irecord na inventory writedown. On the other hand, pag
mababa yung nrv sa cost, need natin yun sundan so mag rerecord tayo ng inventory writedown para yung
cost natin is mag match sa nrv. May tatlong ways sa pag cocompare, yun yung item by item, by
category, by grand total.
DIRECT METHOD
Kapag direct method, yung makukuha nating ending inventory ay yun na agad agad yung gagamitin natin
sa entries.
Inventory, End xxx No entry xxx
Income Summary xxx No entry xxx
ALLOWANCE METHOD
Kapag allowance method, naka account separately yung inventory writedown. If mababa ang nrv sa cost,
ipag leless lang ang cost sa nrv para makuha yung required allowance for inventory writedown. Pinag
cocompare ang allowance for inventory writedown yearly so if tumaas siya next year, madadagdagan
yung loss and allowance for inventory writedown. If naman bumaba siya next year mababawasan yung
allowance for inventory writedown and then magkakaroon naman tayo ng gain on reversal of inventory
writedown.
LOSS (nag increase yung required allowance) Gain (nag decrease yung required allowance)
Inventory, End (Gross) xxx Inventory, End (Gross) xxx
Income Summary xxx Income Summary xxx
Loss on Inventory Writedown xxx Allow. for Inv. Writedown xxx
Allowance for Inventory Writedown xxx Gain on Reversal of Inv. Writedown xxx

PURCHASE COMMITMENTS
Ito yung mga purchase commitments by contract in the future with a fixed price and fixed quantity.
Kailangan non-cancellable yung mga to bago mag recognize ng loss on purchase commitment. On the
other hand, hindi tayo nagrerecord ng gain na lalagpas dun sa pinagusapang fixed price.
Entries;
Pag magrerecord ng loss:
Loss on purchase commitment xxx
Estimated Liability for purchase commitment xxx
Pag dumating na yung date ng actual purchase date:
Purchases xxx
Estimated Liability xxx
Accounts Payable xxx
Pag dumating na yung date ng actual purchase date pero may extra loss:
Purchases xxx
Estimated Liability for purchase commitment xxx
Loss on purchase commitment xxx
Accounts Payable xxx
Pag dumating na yung date ng actual purchase date pero previously may loss, tapos tumaas ulit ng
mas sobra sa agreed cost:
Purchases (units x agreed cost @ actual purchase date) xxx
Estimated Liability for Purchase Commitment (cancel lang yung previous loss) xxx
Accounts Payable (purchase commitment @ agreed cost) xxx
Gain on Purchase Commitment (kung magkano lang max na tinaas from previous loss) xxx

Pag dumating na yung date ng actual purchase date pero previously may loss, tapos tumaas ulit:
Purchases (units x actual cost @ actual purchase date) xxx
Estimated Liability for Purchase Commitment (cancel lang yung previous loss) xxx
Accounts Payable (original purchase commitment cost) xxx
Gain on Purchase Commitment (kung magkano lang yung tinaas from previous loss) xxx

CHAPTER 13 – GROSS PROFIT METHOD

1st Step – compute muna yung goods available for sale
Beginning Inventory xxx
Add: Net Purchases
Purchases xxx
Freight in xxx
Purchases Return (xxx)
Purchase Discount (xxx)
Purchase Allowance (xxx) xxx
Goods Available for Sale (GAS) xxx
2nd Step – compute for the Cost of Goods Sold two ways (base on cost/base on sales)
Assume that the gross profit ratio is 60%, net sales 400,000, get the COGS.

Sa pagkuha ng net sales, ang dinededuct lang ay yung sales return since yun lang yung may relevance sa
inventory, sales allowances and sales discount ay disregarded. If may given na sales return and
allowances, the same is deducted sa sales.

Base on Cost: Base on Sale

Cost 100% 250,000 (400k/1.6) Cost 40% 160,000 (400k * .4)
Profit 60% 150,000 (250k * .6) Profit 60% 240,000 (400k * .6)
Net Sales 160% 400,000 Net Sales 100% 400,000
3 Step – we can now compute for the ending inventory
rd

Goods Available for Sale xxx

Less: Cost of Goods Sold (xxx)
Estimated Ending Inventory xxx

Computation for Gross Profit Rate:

Base on Sales Base on Cost
Net Sales xxx Net Sales xxx
Cost of Goods Sold (xxx) Cost of Goods Sold (xxx)
Gross Profit xxx Gross Profit xxx
 Gross Profit / Net Sales - Gross Profit / Cost of Goods Sold

Conversion of Rates
Sales to Cost Cost to Sales
Sales Rate / Cost of Goods Sold Rate Cost Rate / Net Sales Rate