INTERMEDIATE

ACCOUNTING
4
Ivan C. Ricaña,CPA,CrFA,LPT,CTT,MPA(COP)
SINGLE-ENTRY
METHOD OF
ACCOUNTING
CONTENT
 Definition and characteristics
 Financial records

 Conversion from cash basis to accrual basis

 Financial statements preparation

DEFINITION AND CHARACTERISTICS
 System of recordkeeping wherein the two-
fold effects of the activities are not taken up
all the time
1. only the value received or to be
received is recorded
2. both the value received and the value
given are simultaneously recorded but
not all the time
DEFINITION AND CHARACTERISTICS
 Under this system, there are incomplete
records
 In a typical single-entry system, records are
kept only for activities related to:
1. cash

2. receivables

3. payables

4. proprietorship
DEFINITION AND CHARACTERISTICS
 Not all activities are taken up in the financial
records thus:
1. most of the time, only one effect of the
transaction is recognized
2. a trial balance prepared from a ledger
under a single-entry system would not
balance because of the incomplete
entries and postings
DEFINITION AND CHARACTERISTICS
 Preparation of financial statements from the
records kept under the single-entry system
requires considerable reconstruction and
analytical work
FINANCIAL RECORDS
 Ledger
 Cashbook – to keep track of all cash
transactions
 Daybook or Memorandum Book – to narrate
important non-cash events and transactions
like:
1. sales and purchases on account

2. investments and withdrawals by the

owner of assets other than cash
FINANCIAL RECORDS
3. acquisitions of fixed assets on account
4. returns and allowances not involving
cash refunds
5. commitments entered into, and orders
made or accepted
6. settlements of receivables and
payables in the form of assets other
than cash
FINANCIAL STATEMENTS PREPARATION
 In single-entry system, there is no trial balance
that will serve as a basis for the preparation
of the financial statements
 Since the records are incomplete, a
Statement of Assets and Liabilities is prepared
with the use of information drawn from
various sources and records
FINANCIAL STATEMENTS PREPARATION
 The basic steps in the preparation of the
Statement of Assets and Liabilities are:
1. draw up a list of all assets of the
business as of the statement date
2. draw up a list of all liabilities as of the
statement date
3. determine the owner’s equity as of the
statement date
FINANCIAL STATEMENTS PREPARATION
 To determine the results of operations (net
income/loss):
Capital balance at the end of the year XXX
Add: Withdrawals during the year (cash or
non-cash) XXX
Total XXX
Less: Capital balance at the beginning of the
period (XXX)
Additional investments during the period
(cash or non-cash) (XXX)
Net income (loss) for the period XXX
FINANCIAL STATEMENTS PREPARATION
 To determine the results of operations (net
income/loss):
Retained Earnings, ending balance XXX
Add: Appropriations created/set-up during the
period XXX
Dividends declared during the period XXX
Total XXX
Less: Appropriations reversed during the period (XXX)
Retained Earning, beginning balance (XXX)
Net income (loss) for the period XXX
FINANCIAL STATEMENTS PREPARATION
 The basic steps in the preparation of the
Income Statement :
1. all cash receipts during the period are
classified and broken down according
to their sources, such as:
▪ cash sales

▪ collections of other income

▪ collections of trade receivables

FINANCIAL STATEMENTS PREPARATION
▪ proceeds of loan taken
▪ additional investments by the
owner or owners in the form of cash
▪ other sources of cash
FINANCIAL STATEMENTS PREPARATION
2. all cash payments during the period
are classified and broken down
according to their nature, such as:
▪ cash purchases

▪ payments of expenses (operating

and non-operating)
▪ payments of liabilities

▪ acquisition of assets other than

merchandise
FINANCIAL STATEMENTS PREPARATION
▪ liquidation of loans taken
▪ withdrawals by the owner or
owners in the form of cash
▪ other uses of cash

3. the analysis in steps 1 and 2 will yield

income and expenses on a cash basis
method of accounting only.
4. convert the cash basis amounts to
accrual basis amounts
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS - SALES
 Sales is the sum of:
1. Cash sales

2. Sales on account

▪ Accounts Receivable

▪ Notes Receivable
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS - SALES
Notes Receivable
Beginning Balance XXX XXX Ending Balance

Sales on Account -
XXX XXX Collections
Notes Receivable

Sales Returns,
XXX Allowances and
Discounts

Dishonored Notes
XXX
Receivable

Discounted Notes
XXX
Receivable

Total XXX XXX Total

CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS - SALES
Accounts Receivable
Beginning Balance XXX XXX Ending Balance

Dishonored Notes
XXX XXX Collections
Receivable

Sales on Account - Sales Returns,

Accounts XXX XXX Allowances and
Receivable Discounts
XXX Write-off
Total XXX XXX Total
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – PURCHASES
 Purchases is the sum of:
1. Cash purchases

2. Purchases on account

▪ Accounts Payable

▪ Notes Payable
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – PURCHASES
Notes Payable
Ending Balance XXX XXX Beginning Balance

Purchases on
Payments XXX XXX Account - Notes
Payable
Purchase Returns,
Allowances and XXX
Discounts
Dishonored Notes
XXX
Payable
Total XXX XXX Total
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – PURCHASES
Accounts Payable
Ending Balance XXX XXX Beginning Balance

Purchases on
Payments XXX XXX Account - Accounts
Payable

Purchase Returns,
Allowances and XXX
Discounts
Total XXX XXX Total
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – OTHER INCOME
 Involves analysis of:
1. Deferred Income

2. Accrued Income
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – OTHER INCOME
Deferred and Accrued Income
Accrued Income, Accrued Income,
XXX XXX
Beginning Balance Ending Balance

Deferred Income, Deferred Income,

XXX XXX
Ending Balance Beginning Balance

Income - Accrual
XXX XXX Cash Received
Basis
Total XXX XXX Total
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – OTHER EXPENSES
 Involves analysis of:
1. Prepaid Expenses

2. Accrued Expenses
CONVERSION FROM CASH BASIS TO
ACCRUAL BASIS – OTHER EXPENSES
Prepaid and Accrued Expenses

Prepaid Expenses, Prepaid Expenses,

XXX XXX
Beginning Balance Ending Balance

Accrued Expenses, Accrued Expenses,

XXX XXX
Ending Balance Beginning Balance

Expenses – Accrual
Payments XXX XXX
Basis
Total XXX XXX Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 1
The capital balance A Company as of January
1, 2020 is ₱410,000, and as of December 31,
2020 is ₱445,000. On May 27, 2020, the owner
made an additional investment of ₱200,000.
The withdrawals for personal use during the
year amounted to ₱120,000.

Requirement: Compute for the net income

(loss) for the year ended December 31, 2020.
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 1
Solution:
Net Income (Loss)
Capital balance at the end of the year ₱445,000
Add: Withdrawals during the year 120,000
Total ₱565,000
Less: Capital balance at the beginning of the
period (410,000)
Additional investments during the period (200,000)
Net income (loss) for the period (₱45,000)
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 2
The total of the shareholder’s equity of B
Corporation as of January 1, 2020 is ₱268,000
and as of December 31, 2020 is ₱315,000. On
June 30, 2020, additional 40,000 shares were
sold for ₱44,000, which is ₱4,000 above the par
value. On December 1, 2020, a cash dividend
of ₱20,000 was paid.
Requirement: Compute for the net income
(loss) for the year ended December 31, 2020.
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 2
Solution:
Net Income (Loss)
Shareholders’ equity, ending balance ₱315,000
Add: Dividends paid 20,000
Total ₱335,000
Less: Shareholders’ equity, beginning balance (268,000)
Additional shares sold on June 30, 2020 (44,000)
Net income (loss) for the period ₱23,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
C Company prepared the following
comparative Statements of Financial Position
as of December 31, 2020 and 2019:
December 31, December 31,
Assets
2020 2019
Cash ₱750,000 ₱330,000
Notes Receivable 210,000 200,000
Accounts Receivable 950,000 740,000
Inventory 1,500,000 1,600,000
Prepaid Expenses 100,000 120,000
Investment, at cost 100,000 400,000
Equipment, net 1,200,000 1,000,000
₱4,810,000 ₱4,390,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
C Company prepared the following
comparative Statements of Financial Position
as of December 31, 2020 and 2019:
December 31, December 31,
Liabilities
2020 2019
Notes Payable ₱580,000 ₱750,000
Accounts Payable 750,000 600,000
Interest Payable 30,000 -
Accrued Expenses 50,000 40,000
Bonds Payable - 500,000
Share Capital, ₱100 par 1,300,000 1,000,000
Share Premium 1,500,000 1,000,000
Retained Earnings 600,000 500,000
₱4,810,000 ₱4,390,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
C Company prepared the following
comparative Statements of Financial Position
as of December 31, 2020 and 2019:
Cash Receipts Amount
Issuance of share capital ₱800,000
Trade debtors - notes and accounts 2,950,000
Notes Receivable discounted (face value, ₱200,000) 190,000
12% one-year note issued to bank on March 1, 2020 300,000
Sale of investment 250,000
₱4,490,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
C Company prepared the following
comparative Statements of Financial Position
as of December 31, 2020 and 2019:
Cash Disbursements Amount
Trade creditors - notes and accounts ₱2,100,000
Expenses 790,000
Dividends 400,000
Equipment 280,000
Bonds 500,000
₱4,070,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Requirement: Prepare the Income Statement
for the Year Ended December 31, 2020.
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Net Income – Analysis of Retained Earnings
Retained Earnings
December 31, 2020 ₱600,000 ₱500,000 January 1, 2020
Balance Balance
Dividends 400,000 500,000 Net Income
Total ₱1,000,000 ₱1,000,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Sales – Analysis of Trade Receivables
Trade Accounts and Notes Receivable
January 1, 2020 ₱940,000 ₱1,160,000 December 31, 2020
Balance Balance
Sales on account 3,370,000 2,950,000 Collections
200,000 NR discounted
Total ₱4,310,000 ₱4,310,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Purchases – Analysis of Trade Payables
Notes Payable - Ending Balance ₱580,000
Less: Non-trade Notes Payable 300,000
Trade Notes Payable ₱280,000
Trade Accounts Payable 750,000
Trade Accounts and Notes Payable ₱1,030,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Purchases – Analysis of Trade Payables
Trade Accounts and Notes Receivable
December 1, 2020 ₱1,030,000 ₱1,350,000 January 1, 2020
Balance Balance
Payments 2,100,000 1,780,000 Purchases on
account
Total ₱3,130,000 ₱3,130,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Cost of Sales – Analysis of Inventory
Inventories
January 1, 2020 ₱1,600,000 ₱1,500,000 December 31, 2020
Balance Balance
Purchases on 1,780,000 1,880,000 Cost of Sales
account
Total ₱3,380,000 ₱3,380,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Cost of Sales Computation
Inventory, January 1, 2020 ₱1,600,000
Purchases 1,780,000
Total Goods Available for Sale ₱3,380,000
Inventory, December 31, 2020 (1,500,000)
₱1,880,000
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Expenses (in General)
Prepaid and Accrued Expenses
Prepaid Expenses - ₱120,000 ₱100,000 Prepaid Expenses -
January 1, 2020 December 31, 2020
Balance Balance
Accrued Expenses - 50,000 40,000 Accrued Expenses -
December 31, 2020 January 1, 2020
Balance Balance
Payments 790,000 820,000 Expenses
Total ₱960,000 ₱960,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Loss on Discounting of Notes Receivable
Proceeds from discounting ₱190,000
Carrying amount of Notes Receivable (200,000)
(₱10,000)
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Loss on Sale of Investments
Investment, At Cost
January 1, 2020 ₱400,000 ₱100,000 December 31, 2020
Balance Balance
300,000 Disposal
Total ₱400,000 ₱400,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Loss on Sale of Investments
Proceeds from sale ₱250,000
Cost of investment (300,000)
(₱50,000)
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3
Solution:
Depreciation Expense
Equipment, Net
January 1, 2020 ₱1,000,000 ₱1,200,000 December 31, 2020
Balance Balance
Acquisition 280,000 80,000 Depreciation
Total ₱1,280,000 ₱1,280,000 Total
FINANCIAL STATEMENTS PREPARATION –
PROBLEM 3 C Company
Income Statement
For the Year Ended December 31, 2020
Solution:
Sales
₱3,370,000
Cost of Sales:
Inventory, January 1, 2020 ₱1,600,000
Purchases 1,780,000
Total Goods Available for Sale ₱3,380,000
Inventory, December 31, 2020 1,500,000
₱1,880,000
Gross Profit ₱1,490,000
Less: Operating Expenses:
Expenses (in General) ₱820,000
Depreciation 80,000
Loss on Sale of Investment 50,000
Interest Expense 30,000
Loss on Note Discounting 10,000
₱990,000
Net Income ₱500,000
 INTERMEDIATE
ACCOUNTING
4
Ivan C. Ricaña,CPA,CrFA,LPT,CTT,MPA(COP)