Junel A.

Montemayor BSHM – 1
B1 MW (9:00 – 10:30 AM)

Fundamentals of Accounting

Pretest

Multiple Choice. Encircle the letter of your choice.

1. Accounting is a service activity. Its function is to provide __________________

a. Quantitative information b. Qualitative information
v
c. Quantitative and qualitative information d. None of the above

2. The basic purpose of accounting is ________________________

a. To provide the information that the managers of an economic entity need to control its
operations.
b. To provide information that the creditors of an economic entity can use in deciding whether to
make additional loans to the entity.
c. To measure the periodic income of the economic entity.
d. To provide quantitative financial information about a business enterprise that is useful in
v
making rational economic decision.
3. Which of the following best describes the attributes of a partnership?
a. Limited ability to raise capital; unlimited personal liability of owners.
b. Limited ability to raise capital; limited personal liability of owners.
c. Ability to raise large capital; unlimited personal liability of owners.
v
d. Ability to raise large amounts of capital; limited personal liability of owners.
4. Which of the following is true?
a. Stockholders are personally liable for the liabilities of the corporation if the company is unable
to pay.
b. Normally, stockholders can only sell their ownership interests when the corporation
terminates.
c. Partners are personally liable for the liabilities of the partnership if the partnership is unable to
v
pay.
d. Partners can normally transfer their partnership interests with ease.
5. Which accounting process is the recognition or non-recognition of business activities as
accountable events?
a. Identifying b. Communicating c. Recording d. Measuring
v
6. The concept of the accounting entity is applicable ______________________.
a. Only to the legal aspects of business organizations
b.v Only to the economic aspects of business organizations
c. Only to business organizations
 d. Whenever accounting is involved
7. The entity concept means that ______________________________.
a. Because a firm is separate and distinct from its owners, those owners cannot have access to its
assets unless the firm ceases to trade. b. Accounts must be prepared for every firm.
c. The financial affairs of a firm and its owner are always kept separate for the purpose of
v
preparing accounts.
d. None of the above
8. Accountants do not recognize that the value of the peso changes over the time. This concept is
called the _______________________.
a.v Stable money unit concept b. Going concern concept
c. Cost principle d. Entity concept

9. The principle of objectivity includes the concept of _______________________.

a. Summarization b. Verifiability
v
c. Classification d. Conservatism

10. Which of the following is not a user of internal accounting information?

a. Store Manager b. Chief executive officer
c. Creditor d. Chief financial officer
v
Learning Activities

Discussion!

1. What is accounting entity?

An accounting entity is an organization or a section of an organization that stands apart from

other organizations and individuals as a separate economic unit.

__________________________________________________________________

______________________________________________________________________

______________________________________________________________________

2. Explain why is accounting a ‘language of businesses.

Accounting is also called “language of business” it is because the language that managers use to
communicate the firm`s financial and economic information about the business. Nobody working
in business can afford financial illiteracy.
_________________________________________________________________

______________________________________________________________________

______________________________________________________________________
 3. Corporation is a legal person. What does legal person mean?

Legal person mean a body of persons or an entity (as a corporation) considered as having many
of the rights and responsibilities of a natural person and especially the capacity to sue and be sued.
______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

4. Sole Proprietorship and Partnership have a disadvantage of unlimited liability. What does this mean?

Unlimited liability refers to the full legal responsibility that business owners and partners
assume for all business debts. This liability is not capped, and obligations can be paid through
the seizure and sale of owners' personal assets.
,____________________________________________________________________

______________________________________________________________________

______________________________________________________________________

Assessment

Multiple Choice. Encircle the letter of the best answer.

1. An event that affects financial position of an organization and requires recording is called _______.

a.Vtransaction b. event c. business documents d. operating activities

2. All of the following are external users of accounting information except:

a. creditors, lenders and suppliers b. present and potential investors
c. government regulatory bodies c. managers and employees
V
3. It is the simplest of business organization.
a. Service entity b. Merchandising entity
c. Partnership d.VSole Proprietorship

4. The following are examples of service business except:

a. Supermarket b. Amana Hotel and Resorts
V
c. Cebu Pacific d. Barber Shop

5. The following are examples of manufacturing business, except:

 a. Toyota Motors, Inc. b. Sony Philippines
c. Red Ribbon Bakeshop d.V Vulcanizing Shop

6. All of the following are qualitative characteristics of financial statements, except:

a. Understandability b. Materiality c. Relevance d.VGoing Concern

7. Financial Information must possess this characteristic in order for the user to easily understand the
contents of the financial statements.

a. Reliability b. Completeness c. Relevance d.V Understandability

8. The communication phase of accounting is accomplished by _______________ .

a. Storing data b. reporting to decision makers

c.VRecording data d. Processing data

9. The measurement phase of accounting is accomplished by ___________.
a. Storing data b.VReporting to decision makers
c. Recording data d. Processing data

10. A professional accountant should be straightforward and honest in all professional and business
relationships. This is in consonance to the principle of _________________.
a.V Integrity b. Objectivity c. Confidentiality d. Professional Care
11. Financial statements should be fairly presented and must be free from bias at all times
a. understandability b.V neutrality c. completeness d. disclosure
12. The principle requires that financial statements should be free from any material misstatement
a. cost b. feasibility c. adequate disclosure d. accrual basis
V
13. This is an artificial being created by law, and is legal and separate from its owner
a. partnership b. cooperative c. Corporation d. proprietorship
V
14. It is the biggest and complicated form of business organization. It is organized but at least five but
not more than fifteen persons

a. partnership b. cooperative c. Corporation d. proprietorship

V
15. Revenue should be recognized when _______ and corresponding expense should be recognized
when ________.

a. incurred: earned b.V earned: incurred c. acquired: cost d. earned: get

PRETEST t

True or False. Tell whether the following statement are true or false. Write T if the statement is
true, and write F it is not.

_F__1. Neutrality is the result of adequate disclosure.

_T_ _2. Financial information has predictive value if it can be used as an input to process employed
by users to predict the future outcome.
_T__3. Consistency helps to achieve the goal of identifying and understanding similarities in, and
differences among, items.
_F__4. The elements for financial position are Income and Expenses.
_F_ 5. The period covered by the financial statement shall be specified.
_F__6. Income statement provides information of firm’s financial structure, liquidity, solvency and
capacity for adaptation.
_T__7. Cost of Sales is an account under Expenses.
_F__8. The accounting equation is Liabilities + Assets = Equity.
_T_9. A business transaction is the occurrence of an event or a condition that affects financial
position and can be reliably recorded.
_T__10. Double-entry system provides a formal system of classification and recording business
transactions.

Learning Activities

Practice this!
A. Indicate on the space provided: (1) (X) on the element where the account belongs; (2) BS if the
account is for Balance Sheet account and IS if the account is for income statement account; (3) Dr
(debit) or Cr (credit) to identify the normal balance of the account.
BS or Dr or
Accounts ASSET LIABILITES EQUITY
IS Cr
1. Repairs and
Maintenance Expense X BS Dr
 2. Salaries and Wages
X IS Cr
Expense
3. Notes Payable X BS Dr
4. Notes Receivable X BS Dr
5. Mortgage Payable X BS Dr
6. Utilities Expense IS Cr
7. Furniture and
X BS Cr
Fixtures
8. Communication Expense X IS Cr
9. Office Equipment X IS Cr
10. Prepaid Insurance X BS Dr
11. Owner’s Withdrawal X BS Dr
12. Professional fees
X IS Dr
earned
13. Accounts Receivable X BS Cr
14. Representation
X IS Dr
Expense
15. Juan, Capital X BS Cr

B. Fill in the accounts of debit and credit in each of the following accounting values affected in the
transaction. Show the balance. Feb. 2 was done for you. (Use parenthesis on the values that decrease.)
ASSET = LIABILITIES + OE
Date
Cash Accounts Supplies Office Accounts Notes Owner,
Receivable Inventory Equipment Payable Payable Capital
Feb. 1 P860, 000 P70, 000 P10, 000 P100, 000 P80, 000 P75, 000 P885, 000
2 60, 000 60, 000
4 25,000 25,000
6 (50,000) (50,000)
8 (8,000) (8,000)
15 30,000 30,000
20 40,000 (40,000)
22 (10,000) (10,000)
23 5,000 5,000
24 (75,000) (75,000)
Total P847,000 P55,000 P15,000 P100,000 P27,000 0 P990,000

P1,017,000 P1,017,000
 Presented below are the transaction done by Owner:

Feb. 2 -Owner made an additional investment of P60, 000

4 - Rendered repair services to customer on account, P25, 000

6 - Partial payment to a supplier P50, 000

8 - Payment of rental expense for the month, P8, 000

15 - Rendered services for cash, P30, 000

20 - Collected from a customer’s account, P40, 000

22 - Owner made cash withdrawal of P10, 000
23 - Bought office supplies inventory on account, P5, 000
24 - Full payment of a note, P75, 000

Assessment

Recording Transaction in the Financial Work Sheet

Emerita Modesto established her own business called Modesto’s Self-storage. The account
leadings are presented below. Transactions completed during the month follow:

a. Deposited P120,000 in a bank account in the name of the business.

b. Bought office equipment on account from PHINMA Company, P31,000.
c. Paid rent for the month, P24,000.
d. Bought supplies for cash, P4,500.
e. Paid salaries, P9,800.
f. Received cash for storage services, P36,000.
g. Received and paid the utility bill, P2,520.
h. Paid Errol Umerez Graphics for advertising, P4,280. (The bill was not previously recorded.)
i. Paid for a one-year liability insurance policy, P8,350.
j. Billed customers for storage services on account, P33,700.
k. Received cash for storage services, P23,000.
l. Paid salaries, P9,900.
m. Paid PHINMA Company P11,000 as part payment on the office equipment bought in
transaction b.
n. Modesto withdrew P12,000 for personal use.

Required:

1. Record the transactions in columnar form given on the next page, write plus and minus
signs, and show the balance after each transaction to be sure the equation remains in
balance.
 2. Write the proof of totals at the bottom to show that one side of the equations equals the
other side. Use the space below the give columnar form.

Assets = Liability + Owner's Equity

Accounts Prepaid Office Accounts Modesto,

Cash Receivable Insurance Equipment = Payable Capital Revenue Expenses

a P120, 000 P120, 000

b +31,000 +31,000

c -24,000 -24,000

d -4,500 +4,500

e -9,800 +9,800

f +36,000 +36,000

g -2,520 +2,520

h -4,280 +4,280

i -8,350 +8,350

j +33,700 +33,700

k +23,000 +23,000

l -9,900 +9,900

m -11,000 -11,000

n -12,000 -12,000

Total +92,650 +33,700 +8,350 +31,000 +20,000 +108,000 +92,700 -55,000

Balance =
165,700 165,700
Module 3. Accounting Cycle- Journalizing, Posting, Preparing Trial Balance, and Worksheets

Pretest
Identification. Identify the word(s) describe by each statement. Choose your answer from the given pool of
words.

General Journal Business Transaction Trial Balance Ledger Journal

Journalizing Footing Chart of Account Worksheet
General Ledger

Business Transaction 1. Any event that affects the financial position of the business and can be recorded
reliably.
__ Journalizing __ 2. Recording business transactions in the journal to have chronological records of
economic activities.
_ General Journal 3. The simplest journal.
___ Trial Balance _____4. A control device that helps minimize accounting errors.
_____ Footing _______5. Each account balance is determined by _______ (adding) all the debits and
credits.
_General Ledger 6. The reference book of the accounting system and is used to classify and summarize
transactions, and to prepare data for basic financial statements
_____ Ledger _____7. A grouping of the entity’s account.
____ Journal _______8. A chronological record of the entity’s transactions.
Chart of Account 9. A list of Assets, Liabilities, Revenue, Expense and Capital Accounts applicable to the
business enterprise
___ Worksheet _____10. Prepared to facilitate the preparation of financial statements.
Learning Activities
Practice this!
El Granado established the EG Data Encoders on May 2019. The following transactions occurred during the month.

May 4 -El Granado invested P157,000 cash to establish the business

5- Bought office desks and filing cabinet for cash, P15,150.
6- El Granado invested in the business her personal computer with a fair value of P57,500.
9- Bought computer software for use in the business from Dela Torre Computer Center for P39,000 paying
P15,000 down; the balance is due in thirty days.
11- Paid rent for the month, P5,300.
13- Received cash for services rendered, P5,160.
14- Ordered a panaflex sign for P9,000 from Royal Bright Enterprises, with P5,000 as down payment and the
balance due when installed.
15- Received bill for advertising from Buy and Sell newspaper, P3,320.
16- Bought print paper and stationary on account, P2,290.
18- Received and paid electric bill, P1,240.
23-Paid bill for advertising recorded previously in transaction May 15.
26- Received cash for services rendered, P10,900.
29- Paid salaries to employees, P8,400.
30- El Granado withdrew cash for personal use, P4,500.

Required:
1. Journalize each transactions
2. Establish the following T-accounts:
Cash
 Accounts Receivable Service Revenues
 Supplies Salaries Expense
 Office Equipment Advertising Expense
 Compute Software Rent Expenses
 Signage Utilities Expense
 Accounts Payable Miscellaneous Expense
 El Granado, Capital
 El Granado, withdrawals
3. Prepare Trial Balance
1. Journalizing each transactions

Date Account Titles and Explanation Debit Credit

2019

May 4 Cash 157, 000

El Granado, Capital 157, 000
(Initial Investment of the owner)

5 Office Equipment 15,150

Cash 15,150
(Office equipment purchase on cash)

6 Office Equipment 57, 500

El Granado, Capital 57, 500
(Business Investments)

9 Computer Software 39, 000

Cash 15, 000
Accounts Payable 24, 000
(Credited on Account)

11 Rent Expense 5, 300

Cash 5, 300
(Paying rent on cash)

13 Cash 5, 160
Service Revenue 5, 160
(Service revenue rendered)

14 Signage 9, 000
Cash 5, 000
Accounts Payable 4, 000
(Downpayment on Account)

15 Advertising Expense 3, 320

Accounts Payable 3, 320
(Advertising bill)
16 Supplies 2, 290
Accounts Payable 2, 290
(Bough supplies on account)

18 Utility Expenses 1, 240

Cash 1, 240
(Pays Electric bill)

23 Accounts Payable 3, 320

Cash 3, 320
(Full payment on account)

26 Cash 10, 900

Service Revenue 10, 900
(Service revenue rendered)

29 Salaries Expense 8, 400

Cash 8, 400
(Paid salaries to employee)

30 Owner`s Equity 4, 500

Cash 4, 500
(El Granado`s cash withdrawals)
Assessment
Correcting a Trial Balance
Below is the trial balance of Matilde Gascon Service, which does not balanced?

The following information is obtained from a review of the record keeping process:

a. An account receivable for P19,600 was incorrectly added as P 16,900 when computing the balance of
the Accounts Receivable account.
b. A debit posting from the journal for P5,200 is missing from the Advertising Expense account.
c. A credit posting of P15,000 to Notes Payable should have been made to Accounts payable.
d. A debit posting of P34,000 to Supplies was incorrectly posted as P3,400.
e. Credits to the ledger Accounts Payable account were under-footed by P60,000.
f. Revenues are overstated in the ledger account by P40,000.
g. A credit posting for Repair Revenues from the journal in the amount of P63,600 is missing.
h. Supplies acquired in the amount of P17,400 have been incorrectly posted to the Office Equipment
account.
Required:

a) Prepare a corrected trial balance;

b) Prepare initial Income statement, Balance sheet, Changes of Owner’s Equity and Cash Flow
Correcting Trial Balance
A. Prepare a corrected trial balance;

Gascon Repair Service

Trial Balance
January 31, 2014

Cash P 110, 400

Account Receivable 287, 300
Supplies 114, 400
Prepaid Insurance 40, 000
Office Equipment 509, 400
Notes Payable P 115, 000
Accounts Payable 270, 400
Gascon, Capital 297, 200
Gascon, Withdrawal 100, 000
Repair Revenues 845, 000
Salaries Expensse 348, 700
Advertising Expense 17, 400

P 1, 527, 600 P 1, 527, 600

B. Prepare initial Income Statement, Balance Sheet, Changers of Owner`s Equity, and Cash Flow.

Gascon Repair Service

Income Statement
For the month ended Jan. 31, 2014

Service Revenue P 845, 000

Less: expenses
Salaries Expense P 348, 700
Advertising Expense P 17, 400 (366, 100)
Net Profit P 478, 900

Gascon Repair
Statement of Changes in Capital
For the month ended Jan. 31, 2014

Gascon, Capital Beg. P 297, 200

Add: Net Profit 478, 900
Total 776, 100
Less: Gascon, Withdrawal (100, 000)
Gascon, Capital End. P 676, 000
 Gascon Repair Service
Balance Sheet
As of Jan. 31, 2014

Assets

Current Assets
Cash P 110, 400
Account Receivable 287, 300
Supplies 114, 400
Prepaid Insurance 40, 000
Total Current Assets P 552, 100
Non – Current Assets
Office Equipments P 509, 400
Total Assets P 1, 061, 500

Liabilities and Owner`s Equity

Current Liabilities
Accounts Payable P 270, 400
Notes Payable 115, 000
Total Liabilitis P 385, 400
Capital
Gascon, Capital End. 676, 100
Total Liabilities and Owner`s Equity P 1, 061, 500
 Gascon Repair Service
Statement of Cash Flow
For the monthly ended Jan. 31, 2014

Cash flows provided from operating activities

Net income P 478, 900
Increase in Accounts Receivable (287,300)
Increase in Supplies (114, 400)
Increase in Prepaid Insurance (40, 000)
Increase in Accounts Payable 270, 400 (171, 300)
Net cash provided by operating activities P 307, 600

Cash flows provided from investing activities

Purchase of Office Equipment (509, 400)
Net cash provided by investing activities P (509, 400)

Cash flow provided from financing activities

Withdrawal by owner 100, 000
Notes Payable 115, 000
Net cash provided by financing activities P 215, 000
Net increase (decrease) in cash 13, 500
Cash at the beginning of the year 407, 600
Cash at the end of the year P 421 , 100
Module 4. Accounting Cycle-Adjusting Entries and Preparation of Financial Statements

Pretest
True or False. Identify whether the following statement is true or not. Write T if the statement is
true, and write F if the statement is false.

__T____1. Fiscal year is an accounting year of 12 consecutive months that may or may not coincide
with the calendar year.

__T____2. Adjusting Entries are entries made at the end of the period to assign revenues to the
period in which they are earned and expenses to the period in which they are incurred.

___T___3. The need for proper timing is the reason why accountants thought of a convenient
assumption of dividing the economic life of a business into artificial time periods known as reporting
or accounting period.

__F____4. Prepaid Expenses are expenditures paid for goods that are consumed like supplies,
insurance and rent.

__F____5. Accrued Expenses are items already recorded as expenses that are paid.

__F____6. Collected accounts are accounts of customers who do not pay what they have promised
to pay.

__T____7. Depreciation is the systematic means of allocating the cost of long lived asset over its
estimated economic life.

___T___8. Accumulated Depreciation is a contra account, which is reported as a deduction from the
related asset account.

__T____9. Cash-basis Accounting requires that all revenue is recognized only when cash is received
while expenses are recognized only when cash is paid.

__T____10. Calendar year is the normal year which ends December 31 of each year.
Learning Activities
Practice This. Prepare Adjusting Entries required on December 31, and post the adjusting
entries using T-Account for each.
a. On March 1, 2013, XYZ Company paid P54, 000 for 2 year insurance premium on property.
The bookkeeper debited Prepaid Insurance account at the time of payment
b. On December 1, 2013, ABC Company received P120, 000 as advance payment for
professional services to be rendered starting 1st quarter of 2014. Unearned revenue account
was credited at the time of deposit.
c. Miscellaneous office supplies were purchased in the last quarter of 2014 amounting to P6,
500. On December 31, inventories showed that P3, 200 were on hand. The purchase was
debited to Office Supplies account.
d. The company’s office equipment costing P100, 000 is expected to have 10 years economic
life with no salvage value. This was purchased by the company on Aug. 1, 2013.
e. ZTE company owes a bank a 10%, 90-day note for P 150,000 dated Nov. 1, 2013.
 T- Accounts

a. On March 1, 2013, XYZ Company paid P54, 000 for 2 year insurance premium on
property. The bookkeeper debited Prepair Insurance account at the time of
payment.

Prepaid Insurance Cash

12/31 54, 000 54, 000 12/31

Insurance Expense Prepaid Insurance

12/31 22, 500 12/31 54, 000 22, 500 12/31

b. On December 1, 2013, ABC Company received P120, 000 as advance payment

for professional services to be rendered starting 1 st quarter of 2014. Unearned
revenue account was creditd at the time of deposit.

Cash Service Revenue

12/31 180, 000 54, 000 12/31 120, 000 12/31

Service Revenue Unearned Service Revenue

12/31 110, 000 120, 000 110, 000 12/31

12/31
 c. Miscellaneous office supplies were purchased in the last quarter of 2014
amounting to P6, 500. On December 31, inventories showed that P3, 200 were on
hand. The purchase was debited to Office Supplies account

Office Supplies Cash

12/31 6, 500 12/31 120, 000 54, 000 12/31

12/31 6, 500

Office Supplies Office Supplies

12/31 3, 300 12/31 6, 500 3, 300 12/31

d. The company’s office equipment costing P100, 000 is expected to have 10 years
economic life with no salvage value. This was purchased by the company on Aug.
1, 2013.

Office equipment Cash

12/31 100, 000 12/31 120, 000 54, 000 12/31
12/31 6, 500 100, 000 12/31

Depreciation Expense Accumulated Depreciation

12/31 10, 000 10, 000 12/31
 e. ZTE Company owes a bank a 10%, 90-day note for P 150,000 dated Nov. 1, 2013.

Depreciation Expense Notes Payable

12/31 120, 000 54, 000 12/31 150, 000 12/31
12/31 6, 500 100, 000 12/31
12/31 150, 000

Accrued Intereset Expense

1, 250 12/31

Assessment
Test Your Learning.
DBS Accounting firm, started operation only on April 1, 2014 and it provides accounting and tax
services to big establishments in Metro Manila. Its accounting period ends Dec. 31, and on this date,
adjusting entries are prepared. The trial balance of DBS Accounting Firm at Dec. 31, 2014 follows:

Additional Information

1. An inventory of office supplies on December 31, 2014 showed supplies on hand totaled P 38,000.
2. The prepaid insurance represents a one-year insurance policy on the building purchased on May 1,
2013.
3. The Office Equipment is estimated to have a 5-year life with salvage value of P 40,000 starting from
April 1, 2013.
4. The furniture and fixtures is estimated to last for 10 years with no salvage value.
5. The estimated useful life of the building is 20 yrs. with estimated salvage value of P100, 000.
6. The Professional fees include P 40,000 of advances made by one client for services still be rendered in
the last week of December amounting to P 5,000 is schedule for payment on the first week of January
2015.
7. The company’s estimate as allowance for uncollectible accounts is very minimal because it has not
experienced defaulted accounts yet. The estimate for uncollectible accounts is 2% of Accounts Receivable.
REQUIRED: Prepare the following a. Adjusting Entries b. Adjusted Trial Balance c. Income Statement,
Statement of Changes in Equity and Balance Sheet.
Adjusting Entries
 DBS Accounting Firm
Adjusted Trial Balance
December 31, 2014

Cash 126, 000

Accounts Receivable 65, 000
Office Supplies 88, 000
Prepaid Insurance 40, 000
Office Equipment 200, 000
Furniture and Fixtures 36, 000
Land 800, 000
Building 1, 240, 000
Accounts Payable 169, 000
Loans Payable 500, 000
DBS, Capital 1, 800, 000
Professional Fees 500, 000
Salaries Expense 250, 000
Advertising Expense 36, 000
Transportation Expense 10, 000
Utilities Expense 70, 000
Miscelaneous Expense 8, 000

Total: 2, 969, 000 2, 969, 000

DBS Accounting Firm

Income Statement
December 31, 2014

Professional Fees P500, 000

Less. Expenses
Salaries Expense P250, 000
Advertising Expense 36, 000
Transportation Expense 10, 000
Utilities Expense 70, 000
Miscellanaeous Expense 8, 000 (374, 000)
Net Income: P126, 000
 DBS Accounting Firm
Statement of Changes in Equity
December 31, 2014

DBS, Capital, Dec. 1 1, 800, 000

Net Income 126, 000

DBS, Capital, Dec. 31 1, 926, 000

DBS Accounting Firm

Balance Sheet
December 31, 2014

Assets
Current Assets
Cash P126, 000
Account Receivable 65, 000
Office Supplies 88, 000
Prepaid Insurance 40, 000

Total Current Assets P319, 000

Non – Current Assets

Office Equipment 200, 000
Furniture and Fixture 36,000
Land 800, 000
Building 1, 240, 000 2, 266, 000
P2, 595, 000

Lialibilities and Owners Equity

Current Liabilities
Account Payables P169, 000
Loans Payable 500, 000
Total Current Liabilities P669, 000
Capital 1, 926, 000
DBS, Capital P2, 595, 000
Module 5. Completing the Accounting Cycle – Closing entries
Pretest
Multiple Choice. Choose the letter of your best choice. Write you the letter before the number.

__b___1. The term __________ simply refers to setting the balances of the income and expense
accounts back to zero.
a. opening the book b. closing the book c. reversing the book
__b___2. In step 7 of the accounting cycle, the income and expense accounts are closed to a
temporary account called _________________.
a. Asset Summary b. Income Summary c. Expense Summary
__c___3. The ___________ lists all the real accounts’ balances as of the end of the accounting
period covered and would be a final check on the equality of total debits and credits of all existing
accounts with balances in the general ledger.
a. trial balance b. adjusting entries c. post-closing trial balance
__a___4. ____________ are special entries recorded at the beginning of every accounting period
to reverse some of the adjusting entries made on the prior period.
a. reversing entries b. closing entries c. post-closing entries
__c___5. The ___________ is the exact opposite of an adjusting entry recorded on a prior year.
a. journal entry b. close entry c. reversing entry
Learning Activities

Practice this! Do the closing entries of the following:

1. Close the Income Account

Service Revenue 36, 500

Interest Revenue 600
Income Summary 37, 100
2. Close the Expense Accounts

Salaries Expense 18, 360

Rent Expense 1, 200
Utilities Expense 500
Insurance Expense 200
Supplies Expense 7, 000
Depreciation Expense 750
Income Summary 28, 010
3. Close the Income Summary Account

Income Summary (37, 100 – 28, 010)

Retained Earnings 9, 090
4. Close the Withdrawal Accounts

Retained Earnings
Dividends

Answers:
1. Close the Income Account

Debit Credit
Service income 36, 500
Interest Revenue 600
Income Summary 37, 100
2. Close the Expense Accounts

Debit Credit

Income Summary 28, 010

Salaries Expense 18, 360
Rent Expense 1, 200
Utilities Expense 500
Insurance Expense 200
Supplies Expense 7, 000
Depreciation Expense 750

3. Close the Income Summary Account

Debit Credit

Income Summary 37,100 – 28, 010

Retained Earnings 9, 090

4. Close the Withdrawal Accounts

Debit Credit

Retained Earnings 9, 090

Divedends 0
Assessment
Prepare post-closing trial balance. The accounts and their respective values are given.

MicroTrains Company
Post-Trial Balance
December 31, 2020

Accounts Debit Credit

Cash 10, 000

Account Receivable 25, 000
Interest Receivable 600
Supplies 1, 500
Prepaid Insurance 2, 200
Trucks 40, 000
Accum. Depreciation Truck 750
Accounts Payable 25, 000
Unearned Revenue 3, 000
Salaries Payable 360
Common stock 35, 000
Retained Earnings 15, 190

Total: P79, 300 P79, 300