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Far Theories
Far Theories
- The records used for the initial recording of business transactions are journals.
- The rules for debit and credit and the normal balance of liabilities are the same as for
capital.
- The preparation of worksheet eliminates the need to journalize and post adjusting entries.
- The accounting process consists of the recording phase and the reporting phase.
- The purpose of trial balance is to reconcile subsidiary ledger balances with general ledger
balances.
- The general ledger includes all accounts appearing in the financial statements, while
- Entering a debit balance in an account as a credit will cause the trial balance to be out of balance by an
amount that is divisible by two (2).
- Adjusting entries are made to correct errors made in the recording phase.
- It is sometimes correct for a compound entry's debit totals and credit totals to be unequal.
- The trial balance is used to prepare the statement of comprehensive income while the
- The balances of all accounts in the general ledger must be closed at the end of the
accounting period.
- The adjusted trial balance is prepared after the financial statements are prepared.
- The balance sheet shows the financial position of a company at a given date.
- The difference between the debit total and the credit total in the statement of financial
position section of the work sheet represents the profit or loss during the period.
- Recording the expiration of a prepaid asset results in the reduction of the asset account
- Since new and revenue accounts will be opened in the subsequent accounting period, it is
no longer necessary for an entity to post the closing entries to the accounts in the ledger.
EXERCISES:
Classify the following items as (a) prepaid expense. (b) unearned revenue, (c) accrued revenue,
- Supplies on hand.
- Cash received for use of land within the next six months.
- Insurance paid.
Debit Credit
2. Prepaid Rent
4. Salary Expense
5. Insurance Expense
6. Interest Receivable
7. Interest Expense
8. Rent Income
9. Depreciation Expense
Exercise 3 (Adjusting and Reversing Entries - Prepaid Expenses and Unearned Revenues)
The following are selected transactions of the ABC Trading during the year 2020:
a. On December I, 2020, the company received P300,000 representing rental payments for
b. On March I, 2020, an insurance premium of P90,000 was paid covering a period of one
Instructions: Provide the necessary adjusting entries as of December 31, 2020 and appropriate
DEF Merchandising follows the policy of recording prepayments in revenue and expense
accounts and reverses appropriate adjusting entries at the beginning of the new accounting
a. On September I, 2020, DEF borrowed P2,000,000 cash from the Bank of the Philippines by
issuing a 6% note payable in one year. The interest is payable upon maturity of the note.
b. On February I, 2020, DEF paid insurance premium of P72,000 covering a period of three
c. On December I, 2020, DEF paid P360,000 representing rental for one year starting on this
date.
d. DEF reports accounts receivable of Pl ,500,000 and allowance for uncollectible accounts of
e. DEF pays all employees every Friday. The total payroll for the five-day workweek ending
2020, the office equipment account has a balance of P480,000. All equipment have estimated
g. Office supplies on hand on January I, 2020 amounted to P5,000. During the year, office
supplies of P 12,500 were purchased. On December 31, 20 20, there are unused supplies of
P4,500.
h. DEF subleases part of its office space for P30.000 per month. On November I 2020, it
respectively.
Instructions:
The following balances are found in the general ledger of GHI Sales after recording the
Instructions:
I. Prepare the required adjusting entries for inventory under the two approaches.
2. Prepare the required closing entries as of December 31, 2014 using the approach in which
no separate cost of goods sold account is set up in adjusting the inventory balance.
The accountant of JKL Enterprises had just completed posting all the adjusting entries to the
appropriate ledger accounts and now wishes to close the ledger balances in preparation for the
For each of the accounts listed below, indicate whether the following should be: (a) carried
forward to the next accounting period, (b) closed by crediting the account, or (c) closed by