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FAR TRINIDAD
Basic Accounting Review OCTOBER 2022

LECTURE NOTES

STEPS IN THE ACCOUNTING PROCESS (CYCLE)

1. Analyze business documents
2. Journalize transactions
3. Post to ledger accounts
4. Prepare a trial balance
5. Prepare adjusting entries
6. Prepare financial statements (using a work sheet or from the adjusted individual accounts)
7. Close the nominal accounts
8. Prepare a post-closing trial balance (optional)
9. Prepare reversing entries (optional)

The accounting process can be described as a set of procedures used in identifying, recording, classifying, and
interpreting information related to the transactions and other events of a business enterprise.

Summary of the typical adjusting entries and the effect on profit, assets, liabilities and equity of the failure to prepare the
necessary adjusting entry:
Effect on
Nature of adjustment Adjusting journal entry Profit Assets Liabilities Equity
1. Accrued expense Expense xx Over NE Under Over
Payable xx
2. Accrued income Receivable xx Under Under NE Under
Income xx
3. Prepaid expense Prepaid expense xx Under Under NE Under
(expense method) Expense xx
4. Prepaid expense Expense xx Over Over NE Over
(asset method) Prepaid expense xx
5. Unearned income Income xx Over NE Under Over
(income method) Unearned income xx
6. Unearned income Unearned income xx Under NE Over Under
(liability method) Income xx

7. Depreciation Depreciation expense xx Over Over NE Over

Accumulated Dep. xx
8. Doubtful accounts Doubtful accounts exp. xx Over Over NE Over
Allow. For D/A xx

DISCUSSION PROBLEMS
1. The double-entry accounting system means
a. Each transaction is recorded with two journal entries.
b. Each item is recorded in a journal entry, then in a general ledger account.
c. The dual effect of each transaction is recorded with a debit and a credit.
d. All of the above.

2. The debit and credit analysis of a transaction normally takes place when the
a. Entry is posted to a subsidiary ledger.
b. Entry is recorded in a journal.
c. Trial balance is prepared.
d. Financial statements are prepared.

3. Comparison of the balance sheet of OUTREACH at the end of 2022 with its balance sheet at the end of 2021 showed
a decrease in total assets of P69,000 and owners’ equity by P15,000. The change in liabilities during the year was
a. Increase of P84,000 c. Decrease of P54,000
b. Decrease of P84,000 d. Increase of P54,000

4. Tung Company had total assets of P20,000,000 and shareholders’ equity of P15,000,000 on January 1. During the
year, assets increased by P3,000,000 and liabilities decreased by P1,000,000. Tung Company should report what
amount of shareholders’ equity on December 31?
a. P18,000,000 c. P19,000,000
b. P17,000,000 d. P16,000,000

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EXCEL PROFESSIONAL SERVICES, INC.

5. Which of the following is not a principal purpose of an unadjusted trial balance?

a. It proves that debits and credits of equal amounts are in the ledger.
b. It is the basis for any adjustments to the account balances.
c. It supplies a listing of open accounts and their balances.
d. It proves that debits and credits were properly entered in the ledger accounts.

6. A trial balance may prove that debits and credits are equal, but
a. An amount could be entered in the wrong account.
b. A transaction could have been entered twice.
c. A transaction could have been omitted.
d. All of these.

7. The trial balance of Mistake Company shown below does not balance. Your review of the ledger reveals the
following: (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable,
and Property Tax Expense were each understated by P100. (c) A transposition error was made in Accounts
Receivable; the correct balances for Accounts Receivable and Service Revenue are P2,750 and P6,690, respectively.
(d) A debit posting to Advertising Expense of P300 was omitted. (e) A P1,500 cash drawing by the owner was
debited to Mistake Capital, and credited to Cash.
Mistake Company
Trial Balance
December 31
Debit Credit
Cash P 4,800
Accounts Receivable 2,570
Prepaid Insurance 700
Equipment P 8,000
Accounts Payable 4,500
Property Tax Payable 560
Mistake, Capital 11,200
Service Revenue 6,960
Salaries Expense 4,200
Advertising Expense 1,100
Property Tax Expense ______ 800
P20,890 P24,500
The corrected trial balance of the company should show total debits of
a. P24,350 c. P22,850
b. P23,070 d. P21,570

8. Adjusting entries
a. Reduce the balances of temporary accounts to zero so that they may be used to accumulate the revenues,
expenses and dividends of the next period.
b. Are made at the beginning of the next accounting period.
c. May include a debit or a credit to Cash.
d. Normally involve real and nominal accounts.

9. A company must make adjusting entries

a. To ensure that the revenue recognition and expense recognition principles are followed.
b. Each time it prepares an income statement and a statement of financial position.
c. To account for accruals or deferrals.
d. All of the choices are correct regarding adjusting entries.

Use the following information for the next five questions.

For each situation, reconstruct the adjusting entry that was made to arrive at the ending balance. Assume that the
entity prepares statements and adjusting entries only once each year.

10. Prepaid Insurance:

Balance beginning of year P5,600
Balance end of year 6,400
During the year, an additional business insurance policy was purchased. A 2-year premium of P2,500 was paid and
charged to Prepaid Insurance.
a. Debit Insurance Expense and credit Prepaid Insurance, P1,700.
b. Debit Prepaid Insurance and credit Insurance Expense, P1,700.
c. Debit Prepaid Insurance and credit Insurance Expense, P800.
d. Debit Prepaid Insurance and credit Insurance Expense, P6,400.

11. Unearned Rent:

Balance beginning of year P11,000
Balance end of year 15,000

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EXCEL PROFESSIONAL SERVICES, INC.

Warehouse quarterly rent received in advance is P18,000. During the year, equipment was rented to another
company at an annual rent of P9,000. The quarterly rent payments were credited to Rent Income; the annual
equipment rental was credited to Unearned Rent.
a. Debit Rent Income and credit Unearned Rent, P4,000
b. Debit Unearned Rent and credit Rent Income, P4,000
c. Debit Rent Income and credit Unearned Rent, P5,000
d. Debit Unearned Rent and credit Rent Income, P5,000

12. The accountant of Review Company made the following adjusting entry on December 31.
Prepaid Rent P1,800
Rent Expense P1,800
If annual rent is paid in advance every October 1, the original transaction entry made was
a. Debit Prepaid Rent and credit Cash, P1,800.
b. Debit Rent Expense and credit Cash, P1,800.
c. Debit Rent Expense and credit Cash, P2,400.
d. Debit Rent Expense and credit Cash, P7,200.

13. The accountant of Mutya Company made the following adjusting entry on December 31.
Rent Income P 900
Unearned Rent Income P 900
If annual rent is received in advance every March 1, the original transaction entry made was
a. Debit Cash and credit Unearned Rent Income, P900.
b. Debit Cash and credit Rent Income, P1,080.
c. Debit Cash and credit Rent Income, P5,400.
d. Debit Rent Income and credit Cash, P5,400.

14. Caddis Co. had these unadjusted account balances on December 31:
Inventory, January 1 P188,250
Purchases 142,700
Freight-In 12,880
Purchase Discounts 2,140
Purchase Returns 26,710
Assuming that the ending inventory is P97,900, the entry to adjust the inventory accounts would include
a. A debit to Inventory of P90,350.
b. A debit to Cost of Goods Sold of P217,080.
c. A credit to Purchase Discounts of P2,140.
d. A credit to Purchases Returns of P26,710.

15. The worksheet for an entity consisted of five pairs of debit and credit columns. The peso amount of which of the
following will appear in both the credit column of the income statement section and the debit column of the balance
sheet section?
a. Ending inventory. c. Both a and b.
b. Net loss for the period. d. Neither a nor b.

16. Reversing entries

a. Are necessary to achieve a proper matching of revenue and expense.
b. Impact the income statement only.
c. Are desirable to exercise consistency and establish standardized procedures.
d. All of the above.

17. Adjusting entries that may be reversed include

a. All accrued revenues.
b. All accrued expenses.
c. Those that debit an asset or credit a liability.
d. All of these.

18. A company receives interest on a P30,000, 8%, 5-year note receivable each April 1. At December 31, 2022, the
proper adjusting entry was made to accrue interest receivable. Assuming that the company does not use reversing
entries, what entry should be made on April 1, 2023 when the annual interest payment is received?
a. Cash P 600
Interest Income P 600
b. Cash P1,800
Interest Receivable P1,800
c. Cash P2,400
Interest Receivable P1,800
Interest Income 600
d. Cash P2,400
Interest Income P2,400

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EXCEL PROFESSIONAL SERVICES, INC.

19. Why are the adjusting entries necessary?

a. Transactions take place over more than one accounting period
b. To make debits equal credits
c. To close nominal accounts at year-end
d. To correct erroneous balances in accounts

20. When special journals are used, which of the following statements is true?
a. A general journal is not used.
b. All sales transactions should be recorded in the sales journal.
c. All cash receipts should be recorded in the cash receipts journal.
d. All purchase transactions should be recorded in the purchase journal.

21. The premium on a 3-year insurance policy expiring on December 31, 2024 was paid in total on January 1, 2022. The
original payment was initially debited to a prepaid asset account. The appropriate journal entry had been recorded on
December 31, 2022. The balance in the prepaid asset account on December 31, 2022 should be
a. Zero.
b. The same as it would have been if the original payment had been debited initially to an expense account.
c. The same as the original payment.
d. Higher than if the original payment had been debited initially to an expense account.

Use the following information to answer the next 3 questions:

A company has the following transactions: (a) the owner invested P20,000 cash. (b) P4,000 worth of supplies were
purchased for cash, (c) P8,400 was received for services rendered to customers, (d) P2,800 of the salaries was paid to
employees, (e) a customer was billed for P6,000 for services rendered, (f) P10,000 was borrowed from the bank and (g)
the owner withdrew P7,000 for personal use. After completing this transactions:

22. Total assets would be

a. P28,600
b. P31,600
c. P34,600
d. P41,600

23. Total liabilities would be

a. P0
b. P10,000
c. P15,000
d. P2,800

24. Total owner’s equity would be

a. P18,600
b. P21,000
c. P24,600
d. P31,600

Use the following information to answer the next 10 questions:

You are given the completed worksheet of Maximus Oliveros for the year ended December 31, 20x1. Carefully analyze
each items and answer the questions that follows:

Maximus Oliveros
Worksheet
December 31, 20x1

Accounts Trial Balance Adjustments Income statement Balance sheet

DR CR DR CR DR CR DR CR
Cash P14,200 P14,200
Accounts
Receivables 6,500 6,500
Inventory 38,100 a) 42,500 b) 38,100 42,500
Supplies 4,200 c) 200 4,000
Prepaid
Insurance 8,000 d) 2,000 6,000
Equipment 15,100 15,100
Accumulated
depreciation P3,400 e) 800 P4,200
Accounts
Payable 11,200 11,200
Oliveros,
Capital 37,200 37,200
Oliveros,
Drawing 2,400 2,400
Sales 98,200 P98,200
Purchases 42,100 P42,100

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EXCEL PROFESSIONAL SERVICES, INC.

Purchas
returns 300 300
Salaries
expense 11,200 f) 400 11,600
Freight in 4,500 4,500
Misc.
expense 4,000 4,000
Total P150,300 P150,300
Income
summary b) 38,100 a) 42,500 38,100 42,500
Supplies
expense c)200 200
Insurance
expense d) 2,000 2,000
Depreciation
expense e) 800 800
Salaries
payable f) 400 400
Totals P103,300 P141,000 P90,700 P53,000
Profit 37,700 37,700
Totals P141,000 P141,000 P90,700 P90,700

QUESTIONS:

25. What transaction affected adjusting entry (a)?

a. Setting up ending inventory
b. Purchase of merchandise
c. Sales of merchandise
d. Close inventory to cost of sales
26. What transaction affected adjustment (b)?
a. Sales of merchandise
b. Purchase
c. Setting of inventory end
d. To close beginning inventory

27. What transaction necessitated for adjusting (c)?

a. Purchase of merchandise
b. Used supplies
c. Recognition of supplies on hand
d. Payment of insurance

28. What transaction affected adjusting entry (d)?

a. Expiration of insurance coverage
b. Payment of insurance coverage
c. Recognition of unexpired portion
d. Purchase of insurance coverage

29. What transaction affected adjustment (e)?

a. Annual depreciation charge
b. Disposal of asset
c. Purchase of equipment
d. Gain on sale of asset

30. What transaction effected adjustment (f)?

a. Accrual of salaries
b. Deferral of salaries
c. Payment of salaries
d. Advances to employees

31. How much is Oliveros, Capital at December 31, 20x1?

a. P73,000
b. P72,500
c. P37,200
d. P35,300

32. How much is Total current assets at December 31, 20x1?

a. P14,200
b. P6,500
c. P73,200
d. P68,800

33. What is the book value of equipment at December 31, 20x1?

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EXCEL PROFESSIONAL SERVICES, INC.

a. P15,100
b. P10,900
c. P11,700
d. P4,200

34. What is the amount of total liabilities as of year-end?

a. P11,200
b. P10,800
c. P11,600
d. P12,000

35. VIPER, a merchandiser of bags for women, started her operations in 2013. The following shows the records related to
her merchandise inventory on her first two years of operations:
2013 2014
Purchases P80,000 P70,000
Purchase returns 5,000 3,500
Purchase discounts 1,500 2,200
Ending inventory 25,000 15,000

How much should VIPER report as cost of merchandise inventory sold in 2014?
A. P48,500
B. P74,300
C. P64,300
D. Not enough information given

36. On June 1, 2010, Penny Corp. sold merchandise with a list price of P20,000 to Linn on account. Penny allowed trade
discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping point. Penny prepaid
P400 of delivery costs for Linn as an accommodation. On June 12, 2010, Penny received from Linn a remittance in
full payment amounting to
a. P10,976.
b. P11,368.
c. P11,376.
d. P11,196.

37. Westcoe’s goods in transit at December 31 include:

sales made purchases made
(1) FOB destination (3) FOB destination
(2) FOB delivery point (4) FOB delivery point
Which items should be included in Westcoe's inventory at December 31?
a. (2) and (3)
b. (1) and (4)
c. (1) and (3)
d. (2) and (4)

38. Wiley’s records indicate the following information for the year:
Inventory 1/1 440,000
Purchases 1,800,000
Net Sales 2,400,000
On December 31 a physical inventory determined that ending inventory of 480,000 was in the warehouse. Wiley’s
gross profit on sales has remained constant at 30%. Wiley suspects some of the inventory may have been taken by a
new employee. At December 31 what is the estimated cost of missing inventory?
a. 80,000.
b. 160,000.
c. 240,000.
d. 560,000.

39. The aging of a firm's accounts receivable indicates that 8,000 is estimated to be uncollectible. If Allowance for
Doubtful Accounts has a 1,100 credit balance, the adjustment to record estimated bad debts for the period will
require a
a. debit to Bad Debts Expense for 8,000.
b. debit to Allowance for doubtful accounts for 6,900.
c. debit to Bad Debts Expense for 6,900.
d. credit to Allowance for doubtful accounts for 8,000.

40. Chen Company's account balances at December 31, 2010 for Accounts Receivable and the Allowance for Doubtful
Accounts are P320,000 debit and P600 credit. Sales during 2010 were P900,000. It is estimated that 1% of sales will
be uncollectible. The adjusting entry would include a credit to the allowance account for
a. 9,600.
b. 9,000.
c. 8,400.
d. 3,200.

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 SELF-ASSESSMENT TEST

1. Moon Company purchased equipment on November 1, 2022, by giving its supplier a 12-month, 9 percent note with a
face value of P48,000. The December 31, 2022, adjusting entry is
a. debit Interest Expense and credit Cash, P720.
b. debit Interest Expense and credit Interest
Payable, P720.
c. debit Interest Expense and credit Interest
Payable, P1,080.
d. debit Interest Expense and credit Interest
Payable, P4,320.

2. Rice Corporation loaned P60,000 to another corporation on December 1, 2022 and received a 3-month, 8% interest-
bearing note with a face value of P60,000. What adjusting entry should Rice make on December 31, 2022?
a. Debit Interest Receivable and credit Interest Income, P1,200.
b. Debit Cash and credit Interest Income, P400.
c. Debit Interest Receivable and credit Interest Income, P400.
d. Debit Cash and credit Interest Receivable, P1,200.

3. Gehrig Corporation renewed an insurance policy for 3 years beginning July 1, 2022 and recorded the P81,000
premium in the prepaid insurance account. The P81,000 premium represents an increase of P23,400 from the
P57,600 premium charged 3 years ago. Assuming Gehrig’s records its insurance adjustments only at the end of the
calendar year, the adjusting entry required to reflect the proper balances in the insurance accounts at December 31,
2022, Gehrig’s year-end is to
a. Debit insurance expense for P13,500 and credit prepaid insurance for P13,500.
b. Debit prepaid insurance for P13,500 and credit insurance expense for P13,500
c. Debit insurance expense for P67,500 and credit prepaid insurance for P67,500.
d. Debit insurance expense for P23,100 and credit prepaid insurance for P23,100.

Use the following information for the next five questions.

For each situation, reconstruct the adjusting entry that was made to arrive at the ending balance. Assume that your
client, Excel Company, prepares statements and adjusting entries only once a year.

4. Salaries payable:

Balance beginning of the year P42,860

Balance end of the year 34,760

Salaries are paid biweekly. All salary payments during the year were debited to Salaries expense.
a. Debit Salaries Expense and credit Salaries payable, P8,100.
b. Debit Salaries Payable and credit Salaries Expense, P8,100.
c. Debit Salaries Expense and credit Salaries Payable, P34,760.
d. Debit Salaries Expense and credit Salaries Payable, P42,860.

5. Prepaid insurance:

Balance beginning of the year P5,600

Balance end of the year 6,400

During the year, an additional business insurance policy was purchased. A 2-year premium of P2,500 was paid and
charged to Prepaid Insurance.
a. Debit Insurance Expense and credit Prepaid Insurance, P1,700.
b. Debit Prepaid Insurance and credit Insurance Expense, P1,700.
c. Debit Prepaid Insurance and credit Insurance Expense, P800.
d. Debit Prepaid Insurance and credit Insurance Expense, P6,400.

6. Unearned Rent

Balance beginning of the year P11,000

Balance end of the year 15,000

Warehouse quarterly rent received in advance is P18,000. During the year, equipment was rented to another
company at an annual rent of P9,000. The quarterly rent payments were credited to Rent income, the annual
equipment rental was credited to Unearned Rent.
a. Debit Rent Income and credit Unearned Rent, P4,000.
b. Debit Unearned Rent and credit Rent Income, P4,000.
c. Debit Rent Income and credit Unearned Rent, P5,000.
d. Debit Unearned Rent and credit Rent Income, P5,000.

7. Accumulated depreciation

Balance beginning of the year P85,200

Balance end of the year 88,700

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EXCEL PROFESSIONAL SERVICES, INC.

During the year, a depreciable asset that cost P7,500 and had carrying amount of P1,600 was sold for P2,400. The
disposal of the asset was recorded correctly.
a. Debit Depreciation Expense and credit Accumulated Depreciation, P3,500.
b. Debit Depreciation Expense and credit Accumulated Depreciation, P11,000.
c. Debit Depreciation Expense and credit Accumulated Depreciation, P9,400.
d. Debit Depreciation Expense and credit Accumulated Depreciation, P5,100.

8. Allowance for doubtful accounts at the beginning of the year was P50,000. The balance in the allowance account at
the end of the year after making the annual adjusting entry was P60,000 and during the year bad debts written off
amounted to P30,000.
a. Debit Doubtful accounts Expense and credit Allowance for Doubtful Accounts, P40,000.
b. Debit Doubtful accounts Expense and credit Allowance for Doubtful Accounts, P30,000.
c. Debit Doubtful accounts Expense and credit Allowance for Doubtful Accounts, P10,000.
d. Debit Doubtful accounts Expense and credit Allowance for Doubtful Accounts, P60,000.

Use the following information for the next five questions.

The accountant of Tiwala Lang Company made the following adjusting entries at the end of the current period.

a. Prepaid Rent 36,000

Rent Expense 36,000

b. Advertising Materials 49,000

Advertising Expense 49,000

c. Rent Income 18,000

Unearned Rent Income 18,000

d. Office supplies 20,000

Office Supplies Expense 20,000

e. Prepaid Insurance 21,000

Insurance Expense 21,000

Further information is provided as follows:

• Annual rent is paid in advance every October 1.
• Advertising materials are paid at one time (June 1) and are used evenly during the year.
• Annual rent is received in advance every March 1.
• Office supplies are purchased every June 30 and used evenly throughout the year.
• Yearly insurance premium is payable each August 1.
Questions:

For each adjusting entry, indicate the original transaction entry that was recorded.

9. Prepaid Rent
a. Debit Rent Expense and credit Cash, P48,000.
b. Debit Rent Expense and credit Cash, P108,000.
c. Debit Prepaid Rent and credit Cash, P108,000.
d. Debit Prepaid Rent and credit Cash, P48,000.

10. Advertising materials

a. Debit Advertising Expense and credit Cash, P98,000.
b. Debit Advertising Expense and credit Cash, P117,600.
c. Debit Advertising Expense and credit Cash, P84,000.
d. Debit Advertising Materials and credit Cash, P98,000.

11. Unearned rent income

a. Debit Cash and credit Rent Income, P108,000
b. Debit Cash and credit Rent Income, P21,600
c. Debit Cash and credit Ret Income, P72,000.
d. Debit Cash and credit Unearned Rent Income, P72,000.

12. Office Supplies

a. Debit Office Supplies Expense and Credit Cash, P40,000.
b. Debit Office Supplies and credit Cash, P40,000.
c. Debit Office Supplies Expense and credit Cash, P48,000.
d. Debit Office Supplies and credit Cash, P48,000.

13. Prepaid insurance

a. Debit Prepaid Insurance and credit Cash, P36,000.
b. Debit Prepaid Insurance and credit Cash, P50,400.
c. Debit Insurance Expense and credit Cash, P36,000.
d. Debit Insurance Expense and credit Cash, P50,400.

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EXCEL PROFESSIONAL SERVICES, INC.

Use the following information to answer next 2 questions.

From the ledger balances of RYLAI BOOKKEEPING AGENCY as of December 31, 2014, the following information was
compiled in preparation of generating RYLAI’s trial balance:

RYLAI, Capital P222,700

Utilities Expense 9,600
Accounts Payable 26,400
Bookkeeping revenue 258,000
Cash 87,000
Vehicle 21,000
Salaries Expense 75,000
Building 375,000
Furniture and fixtures 15,000
RYLAI, Drawings 18,000
Transportation Expense 12,000
Depreciation Expense 18,000
Notes Receivable 28,500
Loans Payable 135,000
Supplies Expense 15,000
Accumulated depreciation 32,000

14. What should be the total debits and credits of the trial balance of RYLAI?
A. 692,100
B. 674,100
C. 706,100
D. Answer is not given

15. What is the profit of RYLAI in 2014 based on the trial balance given?
A. 258,000
B. 110,400
C. 143,400
D. 128,400

16. ULFSAAR has bought a delivery vehicle for P500,000 on October 1, 2020. ULFSAAR expects to sell this delivery
equipment for P20,000 at the end of its useful life of six years. ULFSAAR uses straight line method as part of his
accounting policy in depreciating his property, plant and equipment. ULFSAAR shall report the book value of such
delivery vehicle as of December 31, 2022 at the amount of?
A. P320,000
B. P300,000
C. P380,000
D. P400,000

17. The adjusted ending balance of SLARK’s receivables as of December 31, 2022 is P1,500,000. The beginning balance
of SLARK’s allowance for doubtful accounts is P60,000 credit. During the year, SLARK has written off P50,000 worth
of receivables and recovered P10,000 from accounts previously written off. If SLARK recognizes allowance for
doubtful accounts at five percent of ending receivables, what amount of doubtful accounts expense should SLARK
record in 2012?
A. P75,000
B. P55,000
C. P65,000
D. P54,500

☺ - end - ☺

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