1

Fundamentals of Accountancy, Business and Management

The Accounting Cycle: Service Business
EXERCISES AND PROBLEMS

I. Journalize the following transactions using the chart of accounts given below:

101 Cash 201 Accounts payable

102 Accounts receivable 202 Notes payable
103 Notes receivable 203 Mortgage payable
104 Office supplies 301 M. Reyes, capital
105 Land 302 M. Reyes, drawing
106 Building 401 Service income
107 Office furniture & fixtures 501 Salaries expense
108 Office equipment 502 Rent expense
503 Telephone expense
504 Repair expense
505 Miscellaneous expense

June 1 Mandy Reyes invested P80,000 cash and land and building worth P1,000,000. Land is valued at
P200,000 and the building is mortgaged for P500,000. The business is to assume the responsibility of
paying for the mortgage.

2 Paid rent for the month, P8,500.

3 Acquired office tables and chairs worth P44,600 on account from Europa Furniture.

5 Billed customers for services rendered, P26,000.

7 Purchased office supplies from National Bookstore on account, P12,000.

10 Received cash for services rendered P38,400.

11 Purchased a brand new computer machine for office use paying cash, P50,000.

15 Paid semi-monthly salaries, P9,200.

17 Collected P15,000 from customer in payment of account.

18 Paid telephone bill for P610.

19 Charged P9,800 to a customer for services rendered and received a down payment of P2,800.

21 Billed a customer for services rendered in the amount of P25,000 for which a promissory note was
received.

23 Paid P4,500 for repair of broken windows in the building.

24 Paid National Bookstore in full.

26 Paid P10,000 as monthly amortization on the mortgage of the building plus P2,000 interest.

28 Paid salaries for the second half of June, P6,000.

30 The owner withdrew P12,000 for personal use.

II. Mr. Roberto Alcaraz owns a printing company. The accounts in his ledger on August 31, 2022 are as follows:

101 Cash 15,100 201 Accounts payable 43,800

102 Accounts receivable 26,500 202 Notes payable 64,400
103 Printing supplies 9,700 301 R. Alcaraz, Capital 750,800
104 Office supplies 7,300 401 Printing income
105 Prepaid insurance 7,900 501 Salaries expense
106 Printing equipment 144,500 502 Rent expense
 2

107 Delivery van 555,500 503 Heat, light & water

108 Office equipment 87,500 504 Gas & oil expenses
505 Miscellaneous expenses

The following transactions were completed during the month of September:

September 1 Purchased office supplies for cash, P4,200

3 Paid rental for the month, P5,000
4 Cash receipts for printing services rendered, P24,800
6 Paid premium for a one year insurance policy, P12,900
7 Paid creditors on account, P20,000
10 Paid water and electric bills, P2,100
11 Billed a customer P9,900 for printing wedding invitations
14 Paid salaries of employees for the first half of the month, P18,200
15 Cash received from various customers on printing services, P56,400
18 Acquired a lithograph machine for P75,000 giving P5,000 down payment and the balance is
covered by a promissory note
19 Collected P16,200 from various customers in settlement of accounts
22 Received a bill form Petron, P860, for gas and oil used in the delivery van
25 Purchased office supplies, P12,500
28 Billed a customer, P9,800 for services rendered
29 The owner invested additional cash of P25,000 in the business
30 Paid salaries of employees for the second half of the month, P15,900
30 Paid a non-interest bearing note that has matured, P10,000
30 Cash receipts for printing services rendered, P25,700

Required: 1. Open an account in the ledger for each of the items given and post the beginning balances.
2. Journalize the transactions.
3. Post the journal entries to the General Ledger.
4. Prepare a trial balance as of September 30, 2022.

III. Asia Clean Janitorial Services started business on December 1, 2022 by Ruth Castro. During the month of
December, the following transactions were completed:

December 1 Invested cash of P150,000 and a second-hand van worth P120,000 into the business.
2 Purchased cleaning supplies worth P26,800 in cash.
3 Purchased various cleaning equipment in the amount of P40,000 from EZ Equipment on account.
4 Paid rent for the month, P13,500.
5 Paid municipal license tax, P950, and mayor’s permit fee, P550.
7 Cash receipts for services rendered P43,000.
8 Billed Intercontinental Hotel for services rendered, P27,500.
10 Paid for the repair of van, P6,800.
11 Issued a check to EZ Equipment, P10,000, in payment of account.
14 Paid salaries of employees, P18,800.
15 Cash receipts from various customers on services rendered, P29,820.
17 Ms. Castro withdrew P6,200 worth of cleaning supplies for personal use.
18 Received cash from customers in the amount of P12,000 in settlement of account.
20 Purchased a brand new heavy duty floor polisher, P25,000 paying cash.
23 Paid for the following expenses:
Repair of printing machines P2,600
PLDT bill 720
Meralco bill 1,440
26 Billed Bayview Hotel, P24,600, for services rendered, receiving cash of P14,600 and the balance
is covered by a 15-day non-interest promissory note.
29 Paid salaries for the second half of the month, P18,200.
30 Sold an unused equipment for P4,200 cash.

Required: Journal entries of the above transactions.

IV. Narrate the transactions that resulted in the following entries:

1. Cash 100,000
J. Nakpil, Capital 100,000

2. Supplies 3,000
 3

Accounts payable 3,000

3. Cash 5,000
Accounts receivable 5,000

4. Office equipment 10,000

Cash 2,000
Accounts payable 8,000

5. Rent expense 4,000

Cash 4,000

6. J. Nakpil, Drawing 10,000

Cash 10,000

7. Cash 50,000
Notes payable 50,000

8. Cash 2,000
Service income 2,000

9. Accounts receivable 6,500

Service income 6,500

10. Equipment 20,000

J. Nakpil, Capital 20,000

V. The balance of R&R Photo Studio shows the following balances on February 28, 2023:

Cash P16,298
Accounts receivable 18,400
Notes receivable 10,000
Supplies 8,600
Prepaid insurance 2,620
Photo equipment 87,500
Office furniture and fixtures 16,000
Accounts payable 63,945
R. Ramirez, Capital 68,505
Photo-lab income 56,800
Interest income
Salaries 15,900
Rent 6,000
Light and water 1,822
Taxes and licenses 1,460
Advertising expense 2,200
Traveling expense 1,488
Miscellaneous expense 962

Transactions for the month of March are given below:

March 2 Acquired a new light powered camera worth P42,000 paying P20,000 cash and the balance
payable in equal monthly installment for one year.

3 Cash collected from walk-in customers amounted to P23,000.

5 Charged a customer P15,600 for wedding coverage.

10 Paid P9,020 for additional supplies acquired.

15 Paid the following: Salaries of employees P18,000

Light and water 1,400

18 Billed a customer for a party video coverage, P8,000, receiving a 50% down payment.
 4

21 Cash received from customers on account, P14,920.

21 Sold a used equipment for cash, P12,000.

29 Paid the following: Repair of equipment P820

Travelling expense 520
Subscription to journal 760

30 Paid salaries of employees for the second half, P12,500.

31 Collected P5,200 as partial payment of a note. The principal amount is P5,000 and P200 is the
interest earned on the note.

Required: 1. Open t-accounts showing the beginning balances.

2. Journalize the transactions.
3. Post to the general ledger.
4. Prepare a trial balance as for March 31, 2023.

VI. Mendoza Repair Services show the following balances on June 30, 2023:

R. Mendoza, capital ?
R. Mendoza, drawing 10,000
Salaries and wages 28,400
Cash 82,060
Furniture and fixtures 40,000
Rent 8,900
Light and water 2,500
Repair equipment 16,200
Accounts payable 25,720
Notes payable 10,000
Delivery equipment 75,000
Accounts receivable 88,620
Repair income 114,800
Advertising expenses 2,600
Taxes and licenses 1,420
Supplies 4,400
Miscellaneous income 1,280
Gas and oil expense 2,540
Miscellaneous expense 800

Required: Prepare a trial balance in good form.

VII. Write YES or NO in answer to the following questions:

Will the following journal entry and posting errors be visible in the trial balance?

a) A debit of P5,000 to Accounts Receivable was posted to Notes receivable.

b) A debit of P1,200 to Advertising expense was posted on the credit side.
c) A credit to Accounts Receivable of P2,000 was posted as P200.
d) A debit to Cash of P5,600 was recorded as P6,500.
e) A credit to Fees Income of P6,600 was credited to Notes Receivable.
f) A debit to X, Drawing P1,000 was debited to X, Capital.
g) A debit to Taxes of P250 was posted twice.
h) A debit to Notes Receivable of P4,000 was posted to debit side of Accounts Receivable.
i) A debit to Y, Drawing of P1,000 was posted to the credit side of X, Capital.
j) A credit to cash of P480 was posted as a debit to Cash.

VIII. What is the normal balance of each of the following account? Check the appropriate column:
Debit Credit
1. Insurance expense _____ _____
2. Accounts receivable _____ _____
3. Equipment _____ _____
4. M. Ronato, capital _____ _____
5. Prepaid insurance _____ _____
6. Mortgage payable _____ _____
 5

7. Cash _____ _____

8. Interest income _____ _____
9. M. Ronato, drawing _____ _____
10. Delivery expense _____ _____

IX. A trial balance had been prepared for M & M Company on January 31, 2023 as shown below:

Debit Credit
Cash 76,000
Accounts receivable 115,000
Notes receivable 75,000
Supplies inventory 10,000
Equipment 150,000
Land 200,000
Building 500,000
Accounts payable 98,000
Notes payable 50,000
Mortgage payable 150,000
M. Morales, capital 754,600
M. Morales, drawing 5,000
Service income 122,000
Salaries 16,200
Rent 5,000
Gas & oil 2,500
Insurance expense 3,500
Advertising expense 3,200
Light and water expense 1,500
Taxes and licenses 1,200
Repair expense 500
Miscellaneous expense 2,100 ______
1,166,700 1,174,600

While analyzing the above accounts, you discovered the following:

1. A debit to Accounts Receivable of P10,000 in one journal entry was not posted to the ledger.
2. A credit to Supplies Inventory account of P2,000 in one journal entry was also not posted to the ledger.
3. Miscellaneous Expense accounts’ correct balance was P1,200.
4. A debit to Advertising Expense of P200 was posted twice in the ledger.
5. A withdrawal of P5,000 was entered as debit to Capital account instead of Drawing.
6. Interest Expense account with a debit balance of P1,000 was inadvertently omitted in the trial balance.

Required: Prepare a corrected trial balance.

X. Julia Arnaiz, CPA began her public practice in May 2023. Her transactions during the first month of operations are
as follows:

May 1 Ms. Arnaiz opened a bank account in the name of J. Arnaiz, CPA in the amount of P450,000.

2 A unit in a condominium, P2,100,000, was acquired as office space by paying P300,000

down and issuing 24 postdated checks for P75,000 each for the remaining balance. The
postdated checks are dated every month-end beginning August 31, 2023.

3 Acquired two computers and other office equipment, P120,000, from AZE Merchandise
payable in 15 days.

4 Purchased office furniture, P36,000 and office supplies, P12,000 for cash.

5 Received P18,000 from clients for tax services rendered.

9 Paid P6,000 for a one-year insurance.

10 Billed clients for audit services, P34,000.

11 Paid P5,000 to PICPA for attending a continuing professional education seminar.

 6

15 Paid salaries to staff assistants, P20,000.

18 Paid AZE Merchandise in full.

19 J. Arnaiz withdrew P10,000 cash for personal use.

20 Collected P20,000 from clients on account.

21 Paid condominium dues, P3,400.

25 Collected P28,000 from clients for professional services rendered.

28 Paid P2,500 for repair of computer.

29 Sold a small piece of unused equipment to a friend at cost, P4,000.

30 Paid salaries to office staff, P18,500.

31 Paid Globe Telecom and Norsamelco, P1,650.

Required:

1. Journalize and post the above transactions.

2. Prepare a trial balance on a worksheet and enter the following adjustments on the worksheet.

a. The insurance for one month has expired.

b. Office supplies on hand at month-end is P8,000.
c. Depreciation on the building is 5% per annum; office equipment and office furniture, 20%.
d. Unpaid salaries, P2,500.

3. Complete the worksheet and prepare an statement of profit or loss and a statement of financial position.
4. Record the adjusting and closing entries in the journal and post them to the ledger.
5. Prepare a post-closing trial balance.
6. Prepare the reversing journal entries.
 7

FABM

Cleene Janitorial Services started business on December 1, 2022 by Zeus Lopez. During the month of December, the
following transactions were completed:

December 1 Invested cash of P250,000 and a multicab worth P200,000 into the business.
1 Obtained a loan from the bank, P240,000. This loan is payable in 12 monthly installments plus
interest on outstanding balance. Annual interest is 10%.
2 Purchased cleaning supplies worth P27,000 in cash.
3 Purchased various cleaning equipment in the amount of P40,000 from Atlanta on account.
4 Paid rent for the month, P12,000.
5 Paid municipal license tax, P950, and mayor’s permit fee, P500.
7 Cash receipts for services rendered P43,000.
8 Billed Intercontinental Hotel for services rendered, P30,000.
10 Paid for minor repair of van, P6,800.
10 Purchased 2 parcels of land worth P60,000 for cash and P120,000 on account. Cleene Janitorial
issued a promissory note to the seller to cover the unpaid amount.
11 Issued a check to Atlanta, P10,000, in payment of account.
14 Paid salaries of employees, P18,800.
15 Cash receipts from various customers on services rendered, P29,800.
17 Mr. Lopez withdrew P16,000 worth of cash for personal use.
18 Received cash from customers in the amount of P12,000 in settlement of account.
20 Purchased a brand new heavy duty floor polisher, P25,000 paying cash.
23 Paid for the following expenses for the month:
Repair of printing machines P3,000
Meralco bill 1,400
26 Billed Seaside Hotel, P25,500, for services rendered, receiving cash of P14,600 and the balance
is covered by a 15-day non-interest promissory note.
30 Sold the parcel of land costing P60,000 for P85,000 cash.
31 Paid salaries for the second half of the month, P18,200.
31 Paid the first installment on the loan including the interest.

The business uses the following chart of accounts:

101 Cash 301 Lopez, capital
102 Accounts receivable 302 Lopez, drawing
103 Notes receivable 401 Service revenue
104 Cleaning supplies 402 Gains
105 Cleaning equipment 501 Salaries expense
106 Vehicle 502 Rent expense
107 Land 503 Utilities expense
201 Accounts payable 504 Repairs expense
202 Notes payable 505 Taxes and licenses
203 Accrued expenses 506 Interest expense
204 Loans payable 507 Losses
205 Interest payable

Required: Journal entries of the above transactions

Post the above journal entries into the ledger
Prepare a trial balance.
 8

B. A trial balance had been prepared for ABC Company on January 31, 2023 as shown below:

Debit Credit
Cash 76,000
Accounts receivable 115,000
Notes receivable 75,000
Supplies inventory 10,000
Equipment 150,000
Land 200,000
Building 500,000
Accounts payable 98,000
Notes payable 50,000
Mortgage payable 150,000
M. Morales, capital 754,600
M. Morales, drawing 5,000
Service income 122,000
Salaries 16,200
Rent 5,000
Gas & oil 2,500
Insurance expense 3,500
Advertising expense 3,200
Light and water expense 1,500
Taxes and licenses 1,200
Repair expense 500
Miscellaneous expense 2,100 ______
1,166,700 1,174,600

While analyzing the above accounts, you discovered the following:

a. A debit to Accounts Receivable of P10,000 in one journal entry was not posted to the ledger.
b. A journal entry to record a credit sale was erroneously recorded as P21,000. The correct amount was
P12,000.
c. A credit to Supplies Inventory account of P2,000 in one journal entry was also not posted to the ledger.
d. Miscellaneous Expense accounts’ correct balance was P1,200.
e. A debit to Advertising Expense of P200 was posted twice in the ledger.
f. A withdrawal of P5,000 was entered as debit to Capital account instead of Drawing.
g. Interest Expense account with a debit balance of P1,000 was inadvertently omitted in the trial balance.
h. The company failed to record a collection from a customer on account of P5,000.

Required: Prepare a corrected trial balance.

C. Write YES or NO in answer to the following questions:

Will the following journal entry and posting errors be discovered by when preparing the trial balance?

_________1. A debit of P5,000 to Accounts Receivable was posted to Notes receivable

_________2. A debit of P1,200 to Advertising expense was posted on the credit side.
_________3. A credit to Accounts Receivable of P2,000 was posted as P200.
_________4. A debit to Cash of P5,600 was recorded as P6,500.
_________5. A credit to Fees Income of P6,600 was credited to Notes Receivable.
_________6. A debit to X, Drawing P1,000 was debited to X, Capital.
_________7. A debit to Taxes of P250 was posted twice.
_________8. A debit to Notes Receivable of P4,000 was posted to debit side of Accounts Receivable.
_________9. A debit to Y, Drawing of P1,000 was posted to the credit side of X, Capital.
_________10. A credit to cash of P480 was posted as a debit to Cash.
 9

Journal Entries
Ruth Russell started Russell Industrial Spray Service on April 1, 2017. During April, Russell completed the following
transactions:

April 1 - Invested cash in the business, P160,000 cash

April 1 - Paid rent for the month, P5,600.
April 2 - Bought a service vehicle from CDO Motors for P112,500, paying P22,500 in cash, with the remainder
due in thirty days.
April 2 - Paid cash for insurance on service vehicle for the year, P5,760.
April 5 - Bought spray equipment on account from Misamis Company, P18,000.
April 7 - Received cash for spray services done on the building, P21,750.
April 15 - Bought supplies for cash, P5,730.
April 17 - Billed customers on account for services performed, P4,440.
April 18 - Paid cash for utilities, P960.
April 24 - Paid for gasoline used by the service vehicle during the month, P3,270.
April 26 - Receipts from cash customers, P16,420.
April 27 - Russell withdrew cash for personal use, P10,500.
April 29 - Received bill for electricity used during the month, P2,100.
April 30 - Paid salaries to employees, P20,400.

Use the following Chart of Accounts:

Cash Service revenue
Accounts Receivable Salaries expense
Supplies Rent expense
Prepaid insurance Insurance expense
Spray equipment Supplies expense
Service vehicle Utilities expense
Accounts payable Gasoline and transportation expense
Accrued expenses Depreciation expense
Russell, capital Miscellaneous expense
Russell, drawing

Required:
Journal entries
T-accounts
Trial balance