ACGA 504/ HCGA 507 General Accounting - Part 2

ACGA 504/ HCGA 507
GENERAL ACCOUNTING
- PART 2
College of Business and Accountancy

College of Hospitality Management
Holy Trinity University
2nd Sem.,AY 2021-2022
MEASURING BUSINESS
INCOME
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TOPICS
• Measuring Business Income
• Accrual vs. Cash Accounting
• Adjusting Process
• Basic Adjusting Entries
• Accruals
• Prepayments
• Pre-collections
• Depreciation
• Amortization
• Estimated Uncollectible Accounts
• Ending Inventory
• Bank Reconciliation
• Journalizing Adjusting Entries
• Posting of Adjustments
• Preparation of Adjusted Trial Balance
• Preparation of Financial Statements
BASIC ADJUSTING ENTRIES
• Accruals
• Prepayments
• Pre-collections
• Depreciation and amortizations
• Estimated uncollectible accounts
• Ending inventory
• Bank reconciliation
BANK RECONCILIATION
• Internal control for cash includes:
• - using an imprest system
• - cash collections are deposited to the bank and payments are made through checks. An
amount is set up petty cash fund or revolving fund to be used for small expenses.
• Generally, the record of the bank should be equal to the record of the depositor.
However, due to timing difference and clerical errors, discrepancy on the two records
may occur. Hence, there is a need to reconcile the bank balance and the book balance
of cash.
BANK RECONCILIATION
Common reconciling items are:
Deposit in transit – these are collections deposited in the bank but not reflected yet on the
bank statement particularly if these are deposited after the cut-off period of the day or month.
Outstanding check – these are checks written but not reported yet to the bank. Either it was
not issued yet to the payee or that the payee has not presented it yet to the bank for
encashment.
Bank Credit note – this is a written advise from the bank that the amount of depositor’s cash
increased due to interest earned or collections made by the bank in favor of the depositor.
Bank debit note – written advise by the bank that the amount of the depositor’s cash
decreased due to bank charges.
Clerical error - this is either committed in the bank records or in the depositor’s books.
ILLUSTRATION:
At the end of the month, the bank statement shows the following information:
Withdrawals Deposits Balance
Beg. Balance 50,000
Deposits 210,000 260,000
Checks issued to suppliers 255,000 5,000
Bank charges 200 4,800
On the other hand, the general ledger posting in the Cash in Bank account are as follows:
Date Item PR Dr Date Item PR Cr.
2022 2022
1/1 Beg. Bal 50,000 1/31 Check payments 290,000
1/17 Collections 250,000
Total debits 300,000 Total credits 290,000
1/31 Dr. balance 10,000
-Valencia & Roxas (2014)

ILLUSTRATION:
Differences:
BOOK BANK Analysis
Deposit 250,000 210,000 Book is > than bank, deposit in

transit
Withdrawal/ 290,000 255,000 Book is > than bank,
disbursement outstanding checks
Bank charges - 200 Taken up in bank but not in the
books, debit memo
ILLUSTRATION:
Bank Reconciliation
Per Bank Per Book

Unadjusted balances 4,500 10,000
Deposit in transit 40,000
Outstanding checks (35,000)
Debit Memo – bank charges (200)
Adjusted Balance 9,800 9,800
Entries:
Bank Charges…………………….. 200

Cash in Bank………………………200
COMPREHENSIVE ILLUSTRATION
Pony Tail
Unadjusted Trial Balance
For the period ended December 31, 2021
Account Title Debit Credit

cash 45,000.00
account receivable 15,000.00
Prepaid Insurance 12,000.00
office equipment 90,000.00
accounts payable 6,000.00
Pony Tail Capital 127,000.00
Service Fees 75,000.00
Salaries and wages 25,000.00
Supplies Expense 15,000.00
Utilities Expense 6,000.00
208,000.00 208,000.00
The following adjustments were determined at the end of the period:
1. Telephone bill amounting to P250 is not recorded yet.

2. Bad debts of P1,000 was identified.
3. The cost f equipment is to be allocated over a useful life of 10 years
4. Remaining supplies is P1,200
5. Insurance was paid in July 2021.
6. Cash balances in the books and in Bank were both P5,000 at the beginning of the
year. Per bank statements, the total deposits amounted to P70,000 while withdrawals
were P30,000. there was a bank charge of P300. On the other hand, the books
showed total receipts of P86,000, checks issued amounting to P46,000
Required: prepare the adjusting entries and the adjusted trial balance
Adjusting entries:
Utilities 250
Accounts Payable 250
Bad Debts Expense 1000

Allowance for Bad Debts 1000
Depreciation
Accumulated Depreciation
Depreciation = (90,000/10 years) = 9,000
Supplies 1200
Supplies Expense 1200
Insurance Expense 6000

Prepaid Insurance 6000
(12,000/ 12 months x 6)
Bank Charges 300

Cash 300
Pony Tail
Adjusted Trial Balance
For the period ended December 31, 2021
Account Title Debit Credit Debit Credit Debit Credit
cash 45,000.00 300.00 4,700.00
account receivable 15,000.00 15,000.00
Allowance for Bad Debts 1,000.00 1,000.00
Prepaid Insurance 12,000.00 6,000.00 6,000.00
Supplies 1,200.00 1,200.00
office equipment 90,000.00 90,000.00
Accumulated depreciation 9,000.00 9,000.00
accounts payable 6,000.00 250.00 6,250.00
Pony Tail Capital 127,000.00 127,000.00
Service Fees 75,000.00 75,000.00
Salaries and wages 25,000.00 25,000.00
Supplies Expense 15,000.00 1,200.00 13,800.00
Utilities Expense 6,000.00 250.00 6,250.00
Bad Debts 1,000.00 1,000.00
Insurance Expense 6,000.00 6,000.00
Depreciation 9,000.00 9,000.00
Bank Charges 300.00 300.00
208,000.00 208,000.00 17,750.00 17,750.00 218,250.00 218,250.00

EXERCISES (EMAIL SOLUTION):
1. Given below are adjustments made in December 31, 2021. Provide the original
entries.
a. Prepaid rent 18,000
Rent Expense 18,000
b. Rent Income 9000
Unearned Rent Income 9000
c. Prepaid advertising 17000
Advertising Expense 17000
d. Prepaid Insurance 1500
Insurance Expense 1500
e. Office Supplies 5000
Office supplies Expense 5000
f. Salaries Expense 6000
Advances to employees 6000
Additional information:
Annual rent expense is paid in advance every august 31;

Annual rent income is received in advance every October 31
Monthly advertising expense is paid at one time for a year starting March 31
Yearly insurance is payable on June 30
Office supplies purchased, P6,500; unused, PP1,500
Worker’s actual work was offset against employee salary advances.

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ACGA 504/ HCGA 507

College of Business and Accountancy

1/31 Dr. balance 10,000

-Valencia & Roxas (2014)

BOOK BANK Analysis

Deposit 250,000 210,000 Book is > than bank, deposit in

Per Bank Per Book

Bank Charges…………………….. 200

Account Title Debit Credit

The following adjustments were determined at the end of the period:

1. Telephone bill amounting to P250 is not recorded yet.

Bad Debts Expense 1000

Depreciation = (90,000/10 years) = 9,000

Insurance Expense 6000

Bank Charges 300

208,000.00 208,000.00 17,750.00 17,750.00 218,250.00 218,250.00

Annual rent expense is paid in advance every august 31;

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