PRINCIPLES OF ACCOUNTING

Chapter 1
3 activities of accounting: • identify economic events
• record by systematic, chronological diary of events (bookkeeping)
• communicate in accounting reports (financial statements)

Accounting: the language of business to communicate with decision-makers ≠ Bookkeeping: involves

only the record of the economic events

Finance
Investors (shark)
Marketing Managerial accounting Financial accounting
><
HR for internal users for external users
Creditors (bank)
Management

Note:

GAAP (Generally Accepted Accounting Principles) Who sets?

In the US Financial Accounting Standard FASB

Internationally IFRS (International Financial Reporting Standard) IASB

SEC Securities and Exchange Commission

Principles
● Historical cost: record assets at their cost at the time it was purchased: giá gốc
● Fair value: report assets and liabilities at their fair value (price at the time sell assets and settle
liabilities): giá thị trường

⇒ These 2 only equal (the same value) on the date of acquisition (or purchased)
Assumptions
● Monetary unit (giả định đơn vị tiền tệ): record only transactions data can be expressed in money
term ⇒ prevent the inclusion of some relevant in4 (owner’s health,..) / applying historical cost
● Economic entity (tổ chức kte giả định): activities of entity separate and distinct from activities of
owner and economic entities
3 types of business entities

Proprietorships: 1 owner Partnerships: 2 or Corporations: a business

more owners

● Need small money to start business *về cơ bản giống ● Need to invest money in ⇒
proprietorship divided into shares of stock
● Owner receive profits and suffer losses ● Separate legal entity organized
⇒ personally liable for all debts under state corporation law
● Not taxed separate → recognize as PIT ● Separate taxes ⇒ CT and PIT
● Unlimited personal liability_limited life ● Unlimited personal ● Limited liability_unlimited life
liability

Basic Accounting Equation

Assets Liabilities Owner’s Equity

- Resources a business own - Creditorship claims on total - The ownership claim on total
(PPE,..) assets assets
- Provide future benefits or - Debts and obligations - Investment by owners and
services - Creditors revenues (+)
- Record as historical cost value A/P, Notes Payable, Salaries and - Drawings and expenses (-)
Cash, A/R, Supplies, Inventory, Wages Payable, Unearned Owner’s Capital, Owner’s
Property, plant and equipment revenue Drawing, Revenue, Expense,
(PPE), Accumulated depreciation, Income Summary
Prepaid expense

- If a business is liquidated (shut down), claims of creditors must be paid before ownership claims
The expanded accounting equation is:

Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues - Expenses

● Owner's Capital is assets the owner puts into the business.

● Owner's drawings are the Assets the owner withdraws for personal use.
● Revenues are increases in assets resulting from income-earning activities.
● Expenses are the costs of assets consumed of services used in the process of earning revenue.

Financial Statements

Income Statement (IS)

Present the REVENUE and EXPENSE ⇒ resulting NET INCOME (rev > exp) or LOSS (rev < exp)
<<specific period of time>>
E.g. of single-step IS
 Balance Sheet (BS)

Report ASSETS, LIABILITIES and OWNER’S EQUITY <<at specific date>>

E.g.
 Owner’s Equity Statement

Summarize the change in OWNER’S EQUITY <<specific period of time>>

E.g.

Statement of Cash Flow

Information of CASH inflow (receipts) and outflow (payments) <<specific period of time>>
E.g.
Chapter 2
Accounting Cycles (Chapter 4)

1) Analyze each transactions

↓

recording 2) Enter transactions in a journal (journalize) in chronological order

process ↓

3) Posting in ledger accounts in BS order

↓

4) (Unadjusted) Trial Balance (order: A, L, OE, Rev, Exp)

↓

5) Journalize + Post adjusting entries (Adjust deferrals and accruals)

↓

6) Adjusted Trial Balance

↓

7) Financial Statements
↓

8) Journalize + Post closing entries

↓

9) Post-closing Trial Balance

○ Steps 1–3: may occur daily during the accounting period

○ Steps 4–7: on a periodic basis, such as monthly, quarterly, or annually.
○ Steps 8 and 9: usually take place only at the end of a company’s annual accounting period.

The Account
*Account: individual record of increase and decrease in specific Assets, Liabilities and Owner’s Equity
<<always Dr. left, Cr. right in an account and total Dr. = Cr.>>

Double-entry system: Each transaction must affect 2 or more accounts and has dual effect on the
accounting equation to keep the equation balance
 ↗ Debit balance Credit balance

increase D E A L E R
(Expense) (Assets) (Liabilities) (Equity) (Revenue)

Dr. Cr. Dr. Cr. Dr. Cr. Cr. Dr. Cr. Dr. Cr. Dr.

The Journal
Journalize in chronological order.

Simple entries Compound entries

1 transaction affect 1 debit and 1 credit account 1 transaction affect more than 1 debit, credit
accounts, list all debit before credit
E.g. E.g.

Account titles Debit Credit Account titles Debit Credit

Equipment 1,000 Equipment 1,000

Cash 1,000 Cash 200
Accounts Payable 800

The Ledger
General Ledger contains all asset, liability and owner’s equity accounts.
- Posting according to Balance Sheet order.
- The chart of accounts (COA) is a listing of the titles and numbers of all the accounts in the ledger.
E.g. This journal entry will affect 2 accounts Equipment (Dr.) and Cash (Cr.) illustrate below:

Account titles Debit Credit

Equipment 1,000
Cash 1,000

Cash No. 101 Equipment No. 157

Debit Credit Debit Credit

1,000 1,000
A typical full General Ledger look like this:

The Trial Balance

● On Trial Balance make sure all Debit (Dr.) accounts equal to all Credit (Cr.) accounts.
● Dollar sign ($) just typically appear in Trial Balance and Financial Statments (not Journal or
Ledger) and show for first item in each column only
● Use double-line for total amount.
Chapter 3
About Accrual-Basis Accounting
Time Period Assumption (Periodicity assumption): divide the economic life of a business into artificial
time periods
● Interim: monthly, quarterly, semi-annual
● Annual: fiscal year (1 year length) and calender year (1st Jan - 31st Dec)

Accrual-Basis Accounting Cash-Basis Accounting

- Record when the events happen - Record when cash actually change
- Recognize REV when they performed - Recognize REV when cash is received
EXP when it incurred EXP when cash is paid
- Generally accepted accounting principles - ✖ GAAP
(GAAP) ⇒ ❌ record depreciation exp, unearned rev,
(expires) prepaid exp

+
Matching principle

Recognize Revenue Recognize Expense

When performance obligation or services are Effort (expense) recognize together with result
satisfied (revenue) in the same period.

⇒ Nên dùng Accrual-Basis Accounting vì thỏa mãn được Matching principle

Adjusting entries
Vì Accrual-Basis Accounting record when the events happen ⇒ Trial Balance maybe lack of updated in4
⇒ Cần 1 cái adjusting entries to
+ ensure record complete data
+ ensure balance sheet and income statement accounts have correct balances at the end of an
accounting period
Types of adjusting entries:
Deferrals (unearned) REV and (prepaid) EXP may exchange during time, turn into REV and EXP ⇒ need
adjusting entries to update in4

Deferrals Accruals

before before
Unearned Revenue adjust Accrual Revenue adjust

Cash received before service performed L over Service performed but not receive A under
*nhận tiền rồi nhưng chưa làm thì là trách Rev under cash yet → A/R Rev under
nhiệm của mình
→ Liability acc

Adjust: Adjust:
Unearned Revenue DR. A/R DR.
Revenue CR. Revenue CR.

Prepaid Expense Accrual Expense

Cash paid before used A over Expense incurred but not pay yet → Exp under
*Trả tiền rồi nên là tài sản của mình Exp under A/P L under
→ Asset acc

Adjust: Adjust:
Expense DR. Exp DR.
Prepaid Expense CR. A/P CR.

*A_Asset, L_Liability, OE_Owner’s Equity, Rev_Revenue, Exp_Expense, over_overstate, under_understate

E.g. of accrual exp

26/10 → 31/10 (hết tháng) nợ nhân viên 3 ngày lương (29,30,31)

⇒ ngày 31/10 làm adjusting entries phải thêm vào khoản nợ lương này: $ 400 x 3 = $ 1,200
Journal entry
Salaries and Wages Expense DR. 1,200
Salaries and Wages Payable CR. 1,200

Depreciation (Chapter 10)

Depreciation (khấu hao) is the process of allocating the cost of an asset to expense over its useful life.
Called contra asset account (Cr.): offset against Assets on Balance Sheet
Note: Depreciation chỉ là 1 khoản khấu hao giả định và công ty không thật sự phải trả tiền cho khoản
khấu hao đó

Book value ($ 4,960) is the difference between the cost of any depreciable asset ($ 5,000) and its
accumulated depreciation ($ 40).
Chapter 4
Prepare a Worksheet
● A worksheet is a multiple-column form used in the adjustment process and in preparing financial
statements ( working tool not a financial statement )
● Steps:
○ Prepare a trial balance on the worksheet:
○ Enter adjustment data:
○ Enter adjusted balances:
○ Extend adjusted balances to appropriate statement columns
○ Total the statement columns, compute net income (or net loss), and complete worksheet
Correcting Entries:
compare incorrect entry with the correct entry, and fix it, must be posted before closing entries.
E.g. A payment for supplies of $400 was debited to Salaries Expense and credited to cash.
The correcting entry would be:

Titles Debit Credit

Supplies Expense 400

Salaries Expense 400

Prepare Closing Entries and a Post-closing Trial Balance

● Temporary Account: Only open for a period, then closed to zero (expense, revenue and drawings)
● Permanent Account: Not closed (cash, equipment)
● Income Summary: Temporary account, only open for closing process
 ● Closing Entries: formally recognize in the ledger the transfer of net income ( or net loss ) and
owner’s drawing to owner’s capital
○ Produce a zero balance in each temporary account (revenue and expense)
○ Record in general journal.
○ Journalize and post closing entries only at the end of the annual accounting period
○ Four entries:
- Debit revenue, credit Income Summary (amount of rev bal)
- Debit Income Summary, credit expenses (amount of exp bal)
- Debit Owner’s Capital, credit Owner’s Drawings
- Debit Income Summary, credit Owner’s Capital (amount of net income)
Debit Owner’s Capital, credit Income Summary (amount of net loss)
● Post-closing Trial Balance: is to prove the equality of the permanent account balances carried
forward into the next accounting period

Classified balance sheet

 Asset Current Asset Assets that expect to be converted Cash, short-term investment,
to cash or use up within 1 year or note/account/interest receivable,
its operating cycles inventories, prepaid expenses

Long-term investment Investment in bonds or stocks that Stocks and bonds; land, buildings
the company intends to hold longer not currently use; long-term notes
than a year. receivable

Property, plant & Assets with relatively long useful Land, building, machinery,
equipment lives that currently in use equipment, furniture
(Less: Accumulated Depreciation)

Intangible Asset Long-lived, valuable asset that do Good will, patent,copyrights,

not have substance trademarks (exclusive right)

Liabilities Current Liabilities Obligation to pay within the Account/wages/note/interest/income

coming year or its operating cycle taxes payable

Long-term Liabilities Obligation expected to pay after Bonds/mortgages/long-term

one year notes/lease/pension payable

Owner’s Equity Common Stock Debit assets, credit Common stocks

Retained Earnings
Chapter 5
Accounting for Merchandising Operations
● Retailers: purchase and sell directly to customers
● Wholesalers: sell to retailers
e.g. Alibaba (wholesalers) sell large quantities of products to buyers (retailers)
or General Mills (wholesalers) produces cereal and then distributes it to grocery stores (retailers)
that sell goods to the end-user
● Sale of merchandise (sales revenue) - primary source of revenue
● 2 types of expenses:
○ Cost of goods sold: total cost of goods sold during period
○ Operating expenses

Note: cost of goods sold & gross profit are not used by service company
Operating Cycles (of merchandising is longer than of service company)
Flow of Costs
Beginning Inventory + Purchased = Cost of goods available for sale - ending inventory = COGS

PERPETUAL SYSTEM (*) - continuously

● Detailed records of the cost of each inventory purchase and sale (each time a sale occurs)
e.g. grocery stores uses codes and optical reader to daily record every products that it buys and sells
● Advantages
○ Better control over inventories
○ Immediately investigate when shortages are uncovered - continuously record quantities =>
easily count the goods at any time to compare whether the amount of goods on hand
equals the inventory records

RECORD PURCHASES
○ Record purchases of merchandise for sale => Inventory account (DR Inventory & CR
Accounts Payable).
○ Inventory doesn’t include supplies or equipment (specific assets not for resale)
 ● Freight costs - FOB (free on board)

The product is owned by the buyer at the time The product is still owned by the seller until the
start to deliver. product came to the shipping destination.

○ Incurred by buyers - include freight costs in the cost of purchasing inventory

e.g. if Sauk Stereo (the buyer) pays Public Carrier Co. $150 for freight charges on May 6, the entry on Sauk
Stereo’s books is:

○ Incurred by sellers - include freight costs in operating expense to the sellers

e.g. if the freight terms on the invoice had required PW Audio Supply (the seller) to pay the freight
charges, the entry by PW Audio Supply would be:

● Purchase Returns and Allowances

○ defective & damaged goods => purchase return => deduct purchase price (purchase
allowance)
e.g. Sauk Stereo returned goods costing $300 to PW Audio Supply on May 8

● Purchase Discounts
○ Credit terms: permit buyer to claim cash discount to remind payment.
○ Advantage:
■ Purchaser saves money.
■ Seller shortens the operating cycle by converting the accounts receivable into cash
earlier.
RECORD SALES (*)
Journal entries to record a sale

Sales Returns and Allowances

● “Flip side” of purchase returns and allowances.
● Seller accepts goods back from buyers (return) OR ready to deduct purchase price (allowance) so
buyers still keep goods with lower price.
● Contra-revenue account to Sales Revenue (debit).
● Sales not reduced (debited) because:
○ Would ↓ the importance of sales returns and allowances as % sales.
○ Could distort (bóp méo) comparisons in total sales in different periods
Sales Discount
● Offered to customers to promote prompt payment of the balance due.
● Contra-revenue account (debit) to Sales Revenue.

APPLY ACCOUNTING CYCLE in merchandising company

* Adjusting Entries
* Closing Entries
* Classified Balance Sheet (Inventory in Current Assets)
Note: Compare a multiple-step with a single-step income statement.

A multiple-step income statement shows A single-step income statement classifies all data
numerous steps in determining net income, under two categories, revenues or expenses, and
including non-operating activities sections. determines net income in one step.
* Nonoperating activities
- REV & EXP unrelated to main line of operations
- Income from operations = Operating Income
Chapter 6
Inventories

Merchandising company Manufacturing company

Inventory - Finished goods inventory: complete and ready to be sold

- Work in process: place in to production process but not yet finished
- Raw materials: basic good to use in production process

* just-in-time (JIT) inventory methods: manufacture or purchase goods only when needed for use
* 2 steps in determining inventory quantities (perpetual system)
1. Take physical inventory
● Reasons:
○ Check accuracy of inventory records
○ Determine the amount of inventory lost due to wasted raw materials, shoplifting, or
employee theft.
● Involve counting, weighing, measuring kind of inventory on hand.
● Taking inventory when close business/ business is slow and end of accounting period.
2. Determine ownership of goods
● Goods in transit (hàng hóa quá cảnh)
○ Hàng đã đặt nhưng chưa nhận được và đã bán nhưng chưa được vận chuyển.
○ Include in inventory w legal tittle - determined by terms of sale (FOB shipping point/
destination)
● Consigned goods (hàng gửi bán): goods held on consignment are never owned by the consignee.
e.g. if you have an used car that you want to sell. You bring this to dealer, then they will be on
behalf to sell this car and you’ll receive commission (tien hoa hong) if it’s sold.
=> you own this car, not the dealer => this car is your inventory.

Cost Flow Assumptions

● no accounting requirement that the cost flow assumption be stable with the physical
movement of the goods (production → sales).
● use an assumed cost (standard cost) → record COGS at the time of sale.

Specific Identification:
● The company can identify specifically which item was sold
E.g. Classic Autos uses the specific identification method of determining ending inventory and cost of
goods sold. Item 507K was sold for $90,000. Classic purchased the sports car for $51,000 and paid $1,300
for freight in and $1,400 for freight out (tính operating expense). What is the cost of goods sold?
COGS = purchase price + freight in = 51,000 + 1,300 = $ 52,300
FIRST-IN, FIRST-OUT (FIFO): nhập trước xuất trước - first sold earliest goods
purchased
● parallels actual physical flow of merchandise.
LAST-IN, FIRST-OUT (LIFO): nhập sau xuất trước - first sold lasted goods purchased
(thực tế ít dùng LIFO)

MOVING AVERAGE-COST (tính giá dựa trên chi phí bình quân)
● allocates the cost of goods available for sale on the basis of the weighted-average unit cost
incurred.
● assumes that goods are similar in nature.
Income Statement Effects

Balance Sheet Effects

Inventory turnover
 Chapter 7
Accounting Information System
● collect, process, communicate financial information → decision-makers.
● include each step in the accounting cycle, documents, records, trial balances, worksheets and
financial statements.
● efficient & effectiveness AIS
○ cost effectiveness - benefits > costs (is it worthy to spend?)
○ useful output - what do u want to get from the owner?/ are data reliable & accurate?/ must
be relevant.
○ flexibility - adapt, updated (whether legal or illegal)
● 2 concepts: computerized & manual

COMPUTERIZED (used by most comp) - just scan, enter & the rest process made by computer
- general ledger accounting systems - software programs (functions: sales, purchases, receivables, payables, cash
receipts, disbursements, & payroll).
- generate financial statements.
- advantages:
+ enter data only once
+ eliminate human errors
+ timely info → make better decisions
* Larger comp use custom-made software packages - include all aspects of org.
* Smaller comp use entry-level software (rev. + # employees)
* Enterprise resource planning (ERP) systems:
+ manufacturing comp w > 500 employees & sales $500.
+ implementation takes 3 years & costs 5 times price purchase.

MANUAL
- perform each step in accounting cycle by hand.
- low volume transactions
- must understand manual → computerized

SUBSIDIARY LEDGER
● nature & purpose:
○ groups of accounts with common characteristics
○ made recording process become more simple by splitting general ledger into individual
balances
● 2 common types: A. Receivables (customer’s) & A. Payables (creditor’s)
 ● advantages:
○ show in a single account transactions
○ excessive details
○ locate errors
○ possible division of labor

SPECIAL JOURNAL

TYPES of transactions Advantages

Sales Journal - only record credit sales - one-line entry → save time
- sales of merchandise on - only totals (not individual) posted → general ledger
account - division labor results
Dr. Accounts Receivable & Cr. Sales Revenue
Dr. Cost of goods sold & Cr. Inventory

Cash Receipts Journal - cash received (+ cash sales) Dr. Cash

- cash sales of merchandise Sales Discounts
Cr. Accounts Receivable
Sales Revenue
Other accounts
Dr. COGS & Cr. Inventory

Purchases Journal only record credit purchases Dr. Inventory

Cr. Accounts Payable

Cash Payments Journal cash paid (+ cash purchases) Dr. Accounts Payable
(cash disbursements) Other Accounts
Cr. Cash
Inventory

* General Journal
- can’t enter in special journal
- correct, adjust, closing entries
 Chapter 9 (hailey)
Type of Receivable
- Receivable represents one of the most liquid asset
- To reflect the importance among receivable -> người ta chia ra:
+ Account receivable: customers owe us from buying goods/service (within 30-60 days)
+ Notes receivable: a written promise for số tiền mà mình sẽ receive - thườngx sẽ là
collection of interest (within 60-90 days)
+ Trade receivables: sale transactions từ notes và account receivable
+ Other receivable: là non-trade receivables (không nằm trong operation của business) như:
interest receivable, loans to company officers, income taxes refundable.
Assumption: A bán cho B với giá 300$ on account. quá hạn thì charge thêm phí interest (gọi là interest
revenue)

june 1 Accounts Receivable 300

Sales revenue 300

Jun 30, (bị quá Accounts Receivable 4.50

hạn nên A Interest Revenue 4.50
charge thêm
tiền)

Valuing Acc Receivable

- khi người ta quỵt nợ thì sẽ có khoản: Bad debt expense
- 2 các để record việc người ta quỵt nợ: Direct và Indirect

Direct Write Off

record bad debt expense when accounts will be worthless (vd: thằng B bị bankrrupt nên tui bad debt)

Bad Debt Expense (Debit) 200

Accounts Receivable (Credit) 200
(To record write-off of thằng account)

Problem with this method:

- only show actual losses
- not acceptable for financial reporting purpose
- Vd: muốn tăng revenue bằng cách bán mà cho người ta nợ (mình nhiều account receivable thì
asset của cao) bùng 1 cái nó quỵt nợ rồi hỏi sao xui
 Allowance method
Do estimating entry for uncollectible accounts at the end of period, and then write them off
Benefit with method:
- Bad debt expense is recorded by the adjusting entry
- Allowance for doubtful account: contra asset of receivable
- GAAP accepted
- better matching on the income statement

1. Recording estimated uncollectibles: nó sẽ ở phần adjusting entry nên sẽ happen at the end of
period - explain: vì nếu thằng B mua đồ của mình trong 2020 thì mình sẽ để bad debt expense của
thằng B trong 2020, không đeer sang năm 2021

Lin bán cho Shin: 1,200 credit sale. On 31/12, Shin còn nợ 200. Lin estimated Shin sẽ không trả được 12

Dec 31 Bad Debt Expense 12

Allowance for Doubtful Accounts 12
(to record estimate of uncollectible accounts)

Ở phần balance sheet, tạo nên khoảng cash realizable value (vì đã trừ cái estimate tiền mà người ta nợ
nên realizable nha) từ 188,000. Company don’t close Allowance for Doubtful Accounts at the end of the
fiscal year

Current assets
Cash 14
AC 200
Less: Allowance for doubtful accounts 12 188
Inventory 310
Supplies 25
537,8

2. Recording Write-off an uncollectible account

Sang năm, Shin chính thức quỵt nợ -> Lin xóa nợ, authorize a write-of the 5$ (giảm allowance mà Lin đã
estimate trước đó) => We will write off against the Allowance for Doubtful Account

Jan 1 Allowance for Doubtful Accounts 5

Account Receivable 5
(Write-off Shin account)
=> Khi write-off sẽ không affect on income statement (vì nó không dính với Bad Debt Expense mà dùng ở
tài khoản Allowance) mà chỉ effect with balance sheet (Allowance là contra asset sẽ xuất hiện trên
balance sheet)

3. Recovery of an uncollectible account Shin trả được 5$

Sau khi record on Jan 1, Shin trả lin 5$ on March 1
(1) Record lại cái mình đã write-off

March 1 Account Receivable - Shin 5

Allowances for Doubtful Accounts 5
(Reverse write-off Shin account)

(2) Record Shin đã trả Lin 5$

March 1 Cash 5
Account Receivable - Shin 5
(Record collection from Shin)

？A basic difference between the direct write-off and the allowance method of recording bad Debts?

Direct Write-Off: Allowance Method

• Theoretically undesirable: • Losses are estimated:
• No matching. • Better matching.
• Receivable not stated at cash realizable value. • Receivable stated at cash realizable value.
• Not acceptable for financial reporting. • Required by GAAP.

Estimating the allowance

Percentage of sales
- bad debt expense được estimate dựa trên revenue -> better matching of expense with revenue ->
income statement relationship
- assume based on the past experience and anticipated credit policy
- No impact the Allowance account

Lin bán cho Shin 100$ credit sale. Lin assume 1% of that will be bad debt expense
Credit sales = total sale - cash sale

Dec 31 Bad debt expense 1

Allowance for doubtful accounts 1
(record estimated bad debts for year)
 Percentage of receivable
- better matching with accounts receivable and allowance -> balance sheet relationship
- thời gian càng lâu thì người ta % quỵt nợ càng nhiều -> company prepare aging schedule

- the amount of the bad debt adjusting entry is the difference between the required balance and the
existing balance in the allowance account
- impact on Allowance Account
- cách recording: assume that allowance for doubtful đang có credit balance là 528 -> company làm
adjusting với 1,700 (2,228 - 528)
-

Dec 31 Bad debt expense 1,700

Allowance for Doubtful accounts 1,700
(Adjust allowance to total estimated
uncollectibles)

Disposing of AR
- When the company want to disposing AR -> có 2 lý do:
+ they need money
+ bling and collection are time consuming and costly
Sale of Receivable
Lin đòi Shin không được nữa thì Lin bán nợ 600$ của Shin cho Hailey, Lin, sẽ bị charge tiền % service
charge vào ngày 2/4

Apr 2 Cash 588

Service charge expense (2% x 600) 12
Accounts Receivable 600
(Record the sale of account receivable)
Credit card sale
Shin mua hàng và trả qua credit card. Bên credit card issuer sẽ trả tiền cho Lin và sẽ charge Lin 2% for
service.

Mar 22 Cash 588

Service charge expense (2% x 600) 12
Sales revenue 600
(Record Visa credit card sales)

Note receivable
Companies also grant credit in exchange for a formal credit instrument là Promissory note (note
receivable): this is a written promise to pay a specified money on demand at a specific time và có interest.
- Determine the Maturity Date (ngày đáo hạn)

- Computing Interest

tính theo ngày thì 1 năm = 360: vd 120 days = 120/360 => dùng 360 cho dễ tính
- Recording Note Receivable
Lin ghi note receivable cho Shin: 1000$, 2 tháng, 12% promissory note dated May 1. Chỉ record ở face
value, không tính interest revenue vì chưa có revenue recognition (chỉ recognize revenue until
performance obligation is statisfied)

May 1 Notes receivable 1,000

Accounts Receivable - Shin 1,000
(Record acceptance of Shin note)

Disposing of Note Receivable giống account receivable - report cash realizable value
- Honor of note receivable: 31 Jan Shin nợ liên $1000 và Shin trả Lin theo đúng ngày đáo hạn với
note payable: five-month, 9%a interest note. Lin nhận được tiền on June 1 - Interest: (1000 x 9% x
5/12)
 June 1 Cash 1,037.5
Note Receivable 1,000
Interest Revenue (1000 x 9% x 5/12) 37.5
(Record collection of Shin not and
interest)

Accrual of interest receivable: cũng là note receivable 5 tháng của Shin. But if prepare financial
statement on May 1 (4 tháng kể từ người có note receivable)

May 1 Interest Receivable (1000 x 9% x 4/12) 30

Interest Revenue 30
(Accrue 4 months’ interest on Shin note)

Vào June 1, Lin nhận được đúng 1,037.5 từ Shin - hoàn thành nghĩa vụ 5 tháng

June 1 Cash 1,037.5

Note receivables 1,000
Interest Revenue (1000 x 9% x 1/12) 7.5
Interest Receivable 30

Dishonor of note receivable: là note that is not paid in full at maturity. Lin sẽ transfer not payable sang
account payable.

June 1 Accounts Receivable 1,037.5

Note receivables 1,000
Interest Revenue 37.5

Sale of notes receivable: y như sale of sale receivables

Statement presentation:
Balance sheet: theo thứ tự này nha
Income statement:

Sales Revenue
Sales Revenue $500
Cost of goods sold 20
Gross profit: 480

Operating Expense
Salaries and Wages Expense $1
Depreciation Expense 1
Bad debt expense 1
Service charge expense 1
Supplies Expense 1
Interest Expense 1
total operating expense 6

Other revenue and gains

Interest revenue 5

Measure the account receivable turn-over: ratio how much company collect account receivable during
the period.

Credit sale = Total sales - cash sales (doanh thu mà người ta còn nợ tiền)
Net Credit sale = credit sale - sales return - sales allowance (số tiền mình nhận được sau khi thằng khác
trả nợ cho mình)

Account receivable turnover càng cao thì độ liquid (thanh khoản) của công ty càng tốt (công ty đòi nợ giỏi
đó, ít bị quỵt nợ nè)

Có thể tính Average collection period để xem on average thì mất bao lâu để khách hàng trả nợ
 Chapter 10 (hailey)
Plant assets:
- have 3 characteristic: physical substance, được used in the operation, not intended for sale to
customer
- được gọi là Property, plant and equipment - fixed assets
- Cost của plant assets bao gồm: purchase price, freight out, installation cost - consist all the
expenditure to acquire the asset và make it ready to use

Land
- All necessary costs incurred in making the land ready for its intended use increase (debit) the
Land account.
- Cost của land: purchase price, attorney's fee, brokers commision, property taxed
- Land Improvement: structural additions make the land ready to use (e.g fencing, parking lots,
lighting.
- Limited useful lives.
- Expense (depreciate) the cost of land improvements over their useful lives.

Building:
- Cost: bao gồm purchase (purchase, commision, tiền sửa plumbing, electricity) và construction
(tiền architect, excavation, building permit) + interest cost cho labor materials

Equipment:
- Cost: (purchase/taxes/ freight charge/insurance) + (testing/insurance/assembling)

- nhưng không bao gồm: motor vehicle license or accident insurance vì nó xảy ra hằng năm và no
benefit future -> sẽ biến thành expense
Expenditures during useful life: sẽ có 2 loại phí xảy ra sau khi mua ppe
- Ordinary Repair: maintain the operating efficiency and productive life of the unit
+ debit Maintenance and repairs expense
+ vì nó là expense nên nó ảnh hưởng đến revenue -> refer to revenue expenditure
- Additions and improvements: to increase the operating efficiency, useful life of plant asset (ví dụ
đi mua đồ độ máy lên cho xịn)
+ debit plant asset effected
+ vì nó ảnh hưởng đến ban đầu nên -> refer to capital expenditures
Depreciation
- Depreciation is the assigning or allocating of a plant asset's cost to expense over the accounting
periods that the asset is likely to be used.
- Book value (cái ghi trên sổ sách) may different from the fair value
- Land is not a depreciable asset -> theo năm tháng giá bđs chỉ có tăng
- The going concern assumption: company will continue use ppe for the foreseeable future
- Factor in computing depreciation:
+ Cost
+ Useful life: estimate of the expected productive life
+ Salvage value: estimate the value of asset at the end of useful life
Methods
Straight-line
Depreciated same amount of each year:
Nếu record cả năm: mua từ 1/1/2017 (5 năm)

Nếu record partial year: mua từ 1/4/2017 (5 năm) -> 31/3/2022

Unit of activity method

chia cho số lượng unit mà món đó chạy được (vd mile/km/hours in use)
Record cả năm: dựa trên số miles của mỗi năm khác nhau chứ không dựa trên time period - suit with
factory machinery. phù hợp cho partial/cả năm vì người ta estimate unit

Declining balance sheet

Nếu record partial: năm cuối cùng luôn tính bằng cách depreciable cost - current yearr expense trước đó
để ra được annual depreciation expense

Tùy company sẽ dùng method khác nhau, expense càng cao thì khi viết trong income statement lợi nhuận
càng thấp -> đỡ trả thuế cho năm

Disposal cho Plant Asset

Retirement: zero book value và fully accumulated depreciation

Accumulated Depreciation - Equipment debit

Equipment CREDIT
(Record retirement of fully depreciated
equipment

Nếu equipment vẫn còn dùng được mặc dù fully accumulated -> vẫn dùng bình thường và không record

Nếu equipment bị retirement trước thời hạn - equipment worth 18,000 nhưng mới depreciated 14,000 mà
hư hết xài
 Accumulated Depreciation - Equipment 14,000
Loss on disposal of plant asset 4,000
Equipment 18,000

Sale of plant asset

Gain on sale: nếu bán ra mà được nhiều hơn book value
Lin mua máy tính 60,000. It had accumulated depreciation of 41,000 on 1/1/2022 (đã record). 7 tháng sau,
Lin bán cho Shih lại với with 16,000 for cash. The depreciation for first 7 months of 2022 is 8,000

Depreciation Expense 8,000

Accumulated Depreciation - Laptop 8,000
(to record the depreciation expense for
the first 7 months of 2022)

Sau khi update depreciation account, mình sẽ tính gain or loss

Cost of furnitủe $60,000

Less: Accumulated Depreciation (41,000+8,000) 49,000
Book value at date of disposal 11,000
Proceeds from sale 16,000
Gain on disposal of plant asset 5,000

Record sale of plant asset

July 1 Cash 16,000

Accumulated Depreciation 49,000
Equipment 60,000
Gain on sale of laptop 5,00
(to record sale of laptop as a gain)

Loss on sale: nếu bán thấp hơn book value

Lin mua máy tính 60,000. It had accumulated depreciation of 41,000 on 1/1/2022 (đã record). 7 tháng sau,
Lin bán cho Shih lại với with 9,000 for cash. The depreciation for first 7 months of 2022 is 8,000
- Record cái depreciation in 7 months
- Gain or loss

Cost of furnitủe $60,000

Less: Accumulated Depreciation (41,000+8,000) 49,000
Book value at date of disposal 11,000
Proceeds from sale 9,000
Loss on disposal of plant asset 2,000
 July 1 Cash 9,000
Accumulated Depreciation 49,000
Loss on sale of laptop 5,000
Equipment 60,000
(to record sale of laptop as a loss)

Natural resource and intangible asset

- đối với natural resources thì company thường dùng units of activity method to compute depletion
Ex: Lin mua máy khoan dầu 5 million $ để khoan 1 million tons dầu and no salvage value

Nếu Lin extract 250,000 tons in the first years -> depletion = 5 x 250,000

Intangible Asset
- nếu mà intangible có limited life thì sẽ tính nó vào amortization expense (không có accumulated
depreciation)

Patent: cost là cost to acquire the patent (legal protection for 20 years)
Copyright: cost của cái này là cost of acquiring and defending it (70 years)
Trademark: no amortization bc have indefinite lives
Franchise: nếu cs limited life thì amortized
Goodwill: only record if mua hết cả business

Asset turnover: measure productivity of asset

each dollar invested in asset produced 0,62$

 Chapter 17
Usefulness of Statement of Cash Flow
1. Entity’s ability to generate future cash flow
2. Entity’s ability to pay dividends and meet obligations (credit: borrow money → pay debt)
3. Show the different between NET INCOME and NET CASH provided (+) or used (-) by
operating activities
Explain: có sự chênh lệch giữa net cash và net income do không phải lúc nào REV và EXP cũng
record in cash (follow the accrual-basis)
⇒ SOCF phải trừ ra những khoản không liên quan tới cash flow)
4. Cash investing and financing transactions during the period
3 types of Cash in-out flow
Format of SOCF: Operating → Investing → Financing → significant noncash activities
O + I + F = Net change in cash
⇒ Beginning cash flow + net change in cash = Ending cash flow
Operating activities
INCOME STATEMENT ITEMS (Activities happen everyday)
Cash inflow (REV):
- Cash receive from customers for selling goods and services.
- Interest and dividends received from investing in other business (non-operating REV)
Cash outflow (EXP):
- Expense incurred: salaries and wages, taxes, pay interest for lender, others
- Pay for inventory (vì trong IS có inventory amount để tính COGS)

INCOME STATEMENT

Sales Revenue $ 17,000

Less: Beginning Inventory $ 1,000

Purchases 6,000

Ending Inventory (500)

COGS 6,500 10,500

Operating Expense 4,500

Net income $ 6, 000

E.g. Paid employees $12,000 for salaries and wages. ⇒ Operating cash outflow
Collected $20,000 cash for services performed. ⇒ Operating cash inflow
 Investing activities
Change in INVESTMENTS and LONG-TERM ASSETS (Balance sheet items)
Cash inflow:
- Sale of PPE
- Sale share, stocks which we invest in other entities
- Collect the principal on loans to other companies
Explain:

We Lend money Loans

(have money) ⟶
Cash outflow

Principal amount Interest amount

(giá trị gốc) (lãi)

Pay back ⇒ Investing cash inflow ↓ pay

back

⇒ Operating cash
inflow

Cash outflow:
- Purchase PPE
- Purchase share, stocks to invest in other entities
- Make loans other companies
E.g. Purchased two semi-trailer trucks for $170,000 cash. ⇒ Investing cash outflow for PPE

Financing activities
Change in LONG-TERM LIABILITIES and STOCKHOLDERS’ EQUITY
Cash inflow:
- Sale of share, stock
- Issuance of debt (bonds and notes): phát hành nợ, trái phiếu
Cash outflow:
- Pay dividends to shareholders
- Redeem or reacquire capital stock: mua lại stock từ stockholders
E.g. Issued 100,000 shares of $5 par value common stock for $800,000 cash. ⇒ Financing cash inflow
Borrowed $200,000 from Castle Bank, signing a 5-year note bearing 8% interest.⇒ Financing cash
inflow
Note:
● About Significant noncash Activities: investing and financing act no related to cash flow
1. Direct issuance of stock to purchase assets (phát hành/trả bằng cổ phiếu thay vì tiền để mua
PPE ⇒ investing activity with no cash
2. Conversion of bonds into common stock (chuyển từ trái phiếu qua cổ phiếu)
3. Direct issuance of debt to purchase assets
4. Exchange of plant assets (các cty đổi cho nhau nhma hiếm thấy)
⇒ This part has to be in a separate schedule
● SOCF easy to control more than INCOME STATEMENT
Vì IS just prediction but SOCF base on real transactions
● Cash deposit into bank (gửi ngân hàng) ⇒ NO FLOW of cash

3 sources of in4:
- Comparative balance sheet
 - Current income statement

- Additional in4 (optional)

Indirect method _ SOCF

Why indirect method?
● Indirect method: adjust net income from items that do not affect cash. Mostly companies favor
this due to its advantages:
○ Easier and less costly to prepare
○ Focus on the difference between net income and cash flow from operating activities
● Direct method: show operating cash receipts and payments, adjusting each item in the income
statement from the accrual basis to the cash basis
 Step 1: Operating activities
Tính net cash bằng cách convert net income from accrual basis —> cash basis
？Explain why cash flows from operating activities are important to users of a statement of cash flow.
Cash flows from operating activities are important to users of cash flow statements because they
represent cash flows generated by the entity’s business operations. A high and constant stream of
these cash flows would generally indicate an entity’s capacity to generate cash to carry on as a
going concern, and its flexibility to change the nature of its activities. The amount of cash flows
from operating activities is a key indicator of the extent to which the operations of the entity have
generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay
dividends and make new investments without recourse to external sources of finance.

Non cash expense Gains and Losses Non cash Current Assets and
Liabilities

Depreciation Loss on disposal of plant assets —> Add (+) CA: tỉ lệ nghịch CF
Amortization —> Add (+) Gain on disposal of plant assets —> Deduct Increase ⇒ Deduct (-)
Depletion (-) Decrease ⇒ Add (+)

CL: tỉ lệ thuận CF
Increase ⇒ Add (+)
Decrease ⇒ Deduct (-)

Net income (accrual basis) Gain/Loss amount = price (fair value) - book CA:
= REV - Operating EXP value (cost - accumulated depreciation)
(wages, interest,
E.g. Computer _ Historical cost:
depreciation) Balance of A/R decrease 10,000
$10,000/5yrs
mà depreciation là khoản add 10,000 in CF
2 years later…
A/R ↘ vì ngta trả cash cho mình rồi
cty assume sẽ mất >< thực Price (fair value): $ 7,000
⇒ phải (+) thêm zô CF
tế không mất tiền Book value: $ 10,000 - 2 * 2,000 = 6,000
CL:
⇒ Net cash (cash basis) Gain: $ 1,000
A/P ↘ vì mình trả cash cho ngta rồi
phải add thêm vô ⇒ Compute net cash have to deduct (-)
⇒ phải (-) vì mình ít tiền lại
$1,000
 Step 2: Investing and Financing

Investing Financing

- Purchase PPE ⇒ deduct - Issuance bond/stock ⇒ add

- Sales PPE ⇒ add - Payment of dividend to
- Exchange bond ⇔ PPE ⇒ noncash shareholders ⇒ deduct
- Make loans, lending ⇒ deduct
- Purchase other companies’ bond/stock ⇒
deduct

⇒ Inflow thì add (+) >< Outflow thì deduct (-)

Step 3: Net change in cash

Net change in cash in SOCF (1) = Net cash change in cash reported in balance sheet (2) = Increase
$ 22,000
(1)

(2)
 Free cash flow

↓
typically money
for PPE
E.g.

Cash provided by operating activities $ 21,863

Less: Additions to property and equipment 4,257
Cash paid for dividends 7,455
Free cash flow $ 10,151
 APPENDIX
TT01
Jamie Wellington opens a consulting service for new ventures called Wellington Consultancy, Inc. An
analysis of the transactions made by Wellington Consultancy for the month of December 20X3 as follows.
In transactions 7, 9 and 10, the expenses are for ‘rent’, for ‘salaries and wages’, and for ‘utilities’
respectively.

Required
a. Describe each transaction that occurred for the month.

Transaction 1: Jamie Wellington, owner of Wellington Consultancy, invested $20,000 cash which is his
own money, in this new venture in December 20X3.

Transaction 2: Wellington Consultancy bought equipment which cost $5,000. This venture first paid
$2,000, and the remaining cost will be assumed as a debt which will be paid later.

Transaction 3: Wellington Consultancy purchased for $750 market data

Transaction 4: In December 20X3, Wellington Consultancy gained revenue from customers for
consulting services which was $8,300. This company receives cash of $5,600 from customers, and it bills
the balance of $2,700 on accounts receivable.

Transaction 5: Wellington Consultancy paid $1,500 cash on accounts payable (No more postponing)

Transaction 6: Jamie Wellington withdrawed $2,000 in cash from the business for personal use.

Transaction 7: Wellington Consultancy paid the expenses $820 in cash for rent.

Transaction 8: Wellington Consultancy received $450 in cash from customers for service bills.

Transaction 9: Wellington Consultancy paid $5,400 cash for salaries and wages expense in December.

Transaction 10: Wellington Consultancy incurred $500 for utilities on credit.

 b. Prepare an income statement and an owner’s equity statement for December and a
balance sheet at December 31, 20X3

Wellington Consultancy
Income Statement
For the Month Ended December 31, 20X3

Revenues
Service revenue $8,300

Expenses
Rent $820
Salaries and wages 5,400
Utilities 500
Total expenses 6, 750

Net Income $1, 580

Wellington Consultancy, Inc.

Owner’s Equity Statement
For the Month Ended December 31, 20X3

Owner's Capital, December 1 $0

Add : Investments $20,000

Net income 1,580 21,580
21,580

Less : Drawings 2,000

Owner's Capital, December 31 $19, 580

 Wellington Consultancy
Balance sheet
For the Month Ended December 20X3

Asset

Cash $13,580
Accounts receivable 2,250
Supplies 750
Equipment 5,000

Total assets $21, 580

Liabilities and Owner's Equity

Liabilities
Accounts payable $ 2,000

Owner’s equity 19,580

Total assets $21, 580

TT02
Aby Bazil owns and manages a computer repair service called Bazil Operation Ltd. During the first

month of operations of her business, the following events and transactions occurred.

June 1

Bazil invested 20,000 cash in her business.

2 Hired a secretary-receptionist at a salary of $2,000 per month.

3 Purchased $2,500 of supplies on account from Frontier Park Company.

7 Paid office rent of $900 cash for the month.

11 Completed a repair service and billed client $3,200 for services performed.

12 Received $3,500 advance on a management consulting engagement.

17 Received cash of $1,200 for services performed for Sean Devine Company

30 Paid secretary-receptionist $2,000 salary for the month.

30 Paid 60% of balance due Frontier Park Company.

Aby uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies,

No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 301 Owner’s Capital, No. 400 Service

Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
a. Journalize the transactions, use J1 as reference for the general journal.

Bazil Operation Ltd J1

General Journal
June 30, 20X3

Date Account Title Ref. Debit Credit

June-1 Cash 101 20,000

Owner’s Capital 301 20,000

2 No entry

3 Supplies 126 2,500

Accounts Payable 201 2,500

7 Rent Expense 729 900

Cash 101 900

11 Accounts Receivable 112 3,200

Service Revenue 400 3,200

12 Cash 101 3,500

Unearned Service Revenue 209 3,500

17 Cash 101 1,200

Service Revenue 400 1,200

30 Salaries and Wages Expense 726 2,000

Cash 101 2,000

30 Accounts Payable 201 1,500

Cash 101 1,500
 b. Post to the ledger accounts

Bazil Operation Ltd

General Ledger
June 30, 20X3

Cash No. 101

Date Explanation Ref. Debit Credit Balance

June-1 J1 20,000 20,000

7 J1 900 19,100

12 J1 3,500 22,600

17 J1 1,200 23,800

30 J1 2,000 21,800

30 J1 1,500 20,300

Accounts Receivable No. 112

June-11 J1 3,200 3,200

Supplies No. 126

June-3 J1 2,500 2,500

Accounts Payable No. 201

June-3 J1 2,500 2,500

30 J1 1,500 1,000

Unearned Service Revenue No. 209

June-12 J1 3,500 3,500

Owner’s Capital No. 301

June -1 J1 20,000 20,000

Service Revenue No. 400

June-11 J1 3,200 3,200

June-17 J1 1,200 4,400

 Salaries and Wages Expense No. 726

June-31 J1 2,000 2,000

Rent Expense No. 729

June-7 J1 900 900

c. Prepare a trial balance on June 30, 20X3

Bazil Operation Ltd

Trial Balance
June 30, 20X3

Account Titles Debit Credit

Cash $20,300

Accounts Receivable 3,200

Supplies 2,500

Accounts Payable $1,000

Unearned Service Revenue 3,500

Owner’s Capital 20,000

Service Revenue 4,400

Salaries and Wages Expense 2,000

Rent Expense 900

$28, 900 $28, 900

TT03
Han Riverside Resort opened for business on October 1 with eight air-conditioned condos. Its trial
balance before adjustment on December 31 is as follows.
HAN RIVERSIDE RESORT
Trial Balance
December 31, 20X3

In addition to those accounts listed above, Han Riverside Resort also has the following accounts and
account numbers:
Account Number Account title
112 Accounts Receivable
144 Accumulated Depreciation - Buildings
150 Accumulated Depreciation - Equipment
212 Salaries and Wages Payable
230 Interest Payable
620 Depreciation Expense
631 Supplies Expense
718 Interest Expense
722 Insurance Expense
Additional Information:
1. Insurance expires at the rate of $300 per month.
2. A count on December 31 shows $800 of supplies on hand.
3. Annual depreciation is $6,000 on buildings and $2,400 on equipment.
4. Unearned rent revenue of $4,800 was earned prior to December 31.
5. Salaries of $400 were unpaid on December 31.
6. Rentals of $4,000 were due from tenants on December 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 9% per year. (The mortgage was taken out on December 1.)
 a. Journalize the adjusting entries on December 31 for the 3-month period October
1–December 31.

Han Riverside Resort J1

General Journal
December 31, 20X3

Date Account Title Ref. Debit Credit

Dec. 31 Insurance Expense 722 900

Prepaid Insurance 130 900
($300x3)

Supplies Expense 631 2,500

Supplies 126 2,500
(To record supplies used)

Depreciation Expense 620 1,500

Accumulated Depreciation - Buildings 144 1,500
($6,000x1/4)

Depreciation Expense 620 600

Accumulated Depreciation - Equipment 150 600
($2,400x1/4)

Unearned Rent Revenue 208 4,800

Rent Revenue 429 4,800
(To record revenue for rent revenue)

Salaries and Wages Expense 726 400

Salaries and Wages Payable 212 400
(To record accrued salaries and wages)

Accounts Receivable 112 4,000

Rent Revenue 429 4,000
(To record revenue for rent service)

Interest Expense 718 600

Interest Payable 230 600
(To record interest on mortgage - $80,000 x 9% x 1/12)
 b. Prepare a ledger using the three-column form of account*. Enter the trial balance
amounts and post the adjusting entries. (Use J1 as the posting reference.)

Han Riverside Resort

General Ledger
December 31, 20X3

Cash No. Account Payable No.

101 201

Date Explanation Ref. Debit Credit Balance Date Explanation Ref. Debit Credit Balance

Dec. 31 Balance 19,600 19,600 Dec. 31 Balance 6,500 6,500

Accounts Receivable No. Unearned Rent Revenue No.

112 208

Date Explanation Ref. Debit Credit Balance Date Explanation Ref. Debit Credit Balance

Dec. 31 Adjusting J1 4,000 4,000 Dec. 31 Balance 7,400 7,400

Supplies No. Dec. 31 Adjusting J1 4,800 2,600

126

Date Explanation Ref. Debit Credit Balance Salaries and Wages Payable No.
212

Dec. 31 Balance 3,300 3,300 Date Explanation Ref. Debit Credit Balance

Dec. 31 Adjusting J1 2,500 800 Dec. 31 Adjusting J1 400 400

Prepaid Insurance No. Interest Payable No.

130 230

Date Explanation Ref. Debit Credit Balance Date Explanation Ref. Debit Credit Balance

Dec. 31 Balance 6,000 6,000 Dec. 31 Adjusting J1 600 600

Dec. 31 Adjusting J1 900 5,100 Mortgage Payable No.

275

Land No. Date Explanation Ref. Debit Credit Balance

140

Date Explanation Ref. Debit Credit Balance Dec. 31 Balance 80,000 80,000

Dec. 31 Balance 25,000 25,000 Owner’s Capital No.

301
 Buildings No. Date Explanation Ref. Debit Credit Balance
143

Date Explanation Ref. Debit Credit Balance Dec. 31 Balance 100,000 100,000

Dec. 31 Balance 125,000 125,000 Owner’s Drawings No.

306

Accumulated Deprecation - Buildings No. Date Explanation Ref. Debit Credit Balance
144

Date Explanation Ref. Debit Credit Balance Dec. 31 Balance 5,000 5,000

Dec. 31 Adjusting J1 1,500 1,500 Rent Revenue No.

429

Equipment No. Date Explanation Ref. Debit Credit Balance

149

Date Explanation Ref. Debit Credit Balance Dec. 31 Balance 80,000 80,000

Dec. 31 Balance 26,000 26,000 Dec. 31 Adjusting J1 4,800 84,800

Accumulated Depreciation - Equipment No. Dec. 31 Adjusting J1 4,000 88,800

150

Date Explanation Ref. Debit Credit Balance Depreciation Expense No.

620

Dec. 31 Adjusting J1 600 600 Date Explanation Ref. Debit Credit Balance

Dec. 31 Adjusting J1 1,500 1,500

Dec. 31 Adjusting J1 600 2,100

Maintenance and Repairs Expense No.

622

Date Explanation Ref. Debit Credit Balance

Dec. 31 Balance 3,600 3,600

Supplies Expense No.

631

Date Explanation Ref. Debit Credit Balance

Dec. 31 Adjusting J1 2,500 2,500

 Interest Expense No.
718

Date Explanation Ref. Debit Credit Balance

Dec. 31 Adjusting J1 600 600

Insurance Expense No.

722

Date Explanation Ref. Debit Credit Balance

Dec. 31 Adjusting J1 900 900

Salaries and Wages Expense No.

726

Date Explanation Ref. Debit Credit Balance

Dec. 31 Balance 51,000 51,000

Dec. 31 Adjusting J1 400 51,400

Utilities Expense No.

732

Date Explanation Ref. Debit Credit Balance

Dec. 31 Balance 9,400 9,400

c. Prepare an adjusted trial balance on December 31.

Han Riverside Resort

Adjusted trial balance
December 31, 20X3

Account Titles Debit Credit

Cash $ 19,600

Accounts Receivable 4,000

Supplies 800

Prepaid Insurance 5,100

Land 25,000
Buildings 125,000

Equipment 26,000

Accumulated Depreciation-Equipment $ 600

Accumulated Depreciation-Buildings 1,500

Accounts Payable 6,500

Unearned Rent Revenue 2,600

Mortgage Payable 80,000

Interest Payable 600

Salaries and Wages Payable 400

Owner’s Capital 100,000

Owner’s Drawings 5,000

Rent Revenue 88,800

Maintenance and Repairs Expense 3,600

Salaries and Wages Expense 51,400

Supplies Expense 2,500

Insurance Expense 900

Interest Expense 600

Depreciation Expense 2,100

Utilities Expense 9, 400

$ 281, 000 $ 281, 000

 d. Prepare an Income Statement and Owner’s Equity Statement for the 3 months ending
December 31 and a Balance Sheet as of December 31.

Han Riverside Resort

Income Statement
December 31, 20X3

Revenue
Rent Revenue $ 88,800

Expenses
Maintenance and Repairs Expense $ 3,600
Salaries and Wages Expense 51,400
Supplies Expense 2,500
Insurance Expense 900
Interest Expense 600
Depreciation Expense 2,100
Utilities Expense 9,400

Total Expense 70,500

Net income $ 18, 300

Han Riverside Resort

Owner’s Equity Statement
December 31, 20X3

Owner’s Capital, October 1 $ –0–

Add: Investments 100,000

100,000
Net income 18,300
118,300
Less: Drawings 5,000

Owner’s Capital, December 31 $ 113, 300

 Han Riverside Resort
Balance Sheet
December 31, 20X3

Assets

Cash $ 19,600
Accounts Receivable 4,000
Supplies 800
Prepaid Insurance 5,100
Land 25,000
Equipment $26,000
Buildings 125,000
Less: Accumulated Depreciation-Equipment 600
Accumulated Depreciation-Buildings 1,500 148,900

Total Asset $ 203, 400

Liabilities and Owner’s Equity

Liabilities
Accounts Payable $ 6,500
Unearned Rent Revenue 2,600
Mortgage Payable 80,000
Interest Payable 600
Salaries and Wages Payable 400
Total Liabilities 90,100
Owner’s Equity
Owner’s Capital 113,300

Total liabilities and owner’s equity $ 203, 400

TT04
The completed financial statement columns of the worksheet for Greenwood Company are shown below.
GREENWOOD COMPANY
Worksheet
For the Year Ended December 31, 20X3
 a. Prepare an income statement, owner’s equity statement, and a classified balance
sheet.

GREENWOOD COMPANY
Income Statement
December 31, 20X3

Revenue
Service Revenue $ 46,000

Expenses
Maintenance and Repairs Expense $ 4,400
Depreciation Expense 2,800
Insurance Expense 1,200
Salaries and Wages Expense 35,200
Utilities Expense 4, 000

Total Expense 47, 600

Net loss $ 1, 600

GREENWOOD COMPANY
Owner’s Equity Statement
December 31, 20X3

Owner’s Capital, December 1 $ -0-

Add: Investments $ 34,000

Net loss 1,600 32,400
32,400
Less: Drawings
7,200

Owner’s Capital, December 31 $ 25, 200

 GREENWOOD COMPANY
Balance Sheet
December 31, 20X3

Assets

Current Assets
Cash $ 6,200
Accounts Receivable 7,500
Prepaid Insurance 1, 800
Total current Assets $ 15,500
Property, plant and equipment
Equipment $ 33,000
Less: Accumulated 8, 600 24, 400 24, 400
Depreciation-Equipment
Total Assets $ 39, 900

Liabilities and Owner’s Equity

Current liabilities
Accounts Payable $ 11,700
Salaries and Wages Payable 3, 000
Total current Liabilities Total 14, 700
Liabilities 14,700
Owner’s Equity
Owner’s Capital 25, 200
Total Liabilities and Equity $ 39, 900
 b. Prepare the closing entries. Use J14 for the journal page. Income Summary is account
No. 350.

GREENWOOD COMPANY J14

General Journal
December 31, 20X3

Date Account Title and Explanation Ref. Debit Credit

Closing entries
20X3 (1)
Dec. 31 Service Revenue 400 46,000
Income Summary 350 46,000
(To close revenue account)

Dec. 31 (2)
Income Summary 350 47,600
Maintenance and Repairs Expense 622 4,400
Depreciation Expense 711 2,800
Insurance Expense 722 1,200
Salaries and Wages Expense 726 35,200
Utilities Expense 732 4,000
(To close expense accounts
4,400+2,800+1,200+35,200+4,000=47,600)

Dec. 31 (3)
Owner’s Capital 301 1,600
Income Summary 350 1,600
(To close net loss to capital
46,000-47,600=1,600)

Dec. 31 (4)
Owner’s Capital 301 7,200
Owner’s Drawing 306 7,200
(To close drawing to capital)
Post-closing Entries
Owner’s Capital
No. 301

(1) 1,600 34,000

(2) 7,200

Bal. 25,200

Owner’s Drawings
No. 306

7,200 (4) 7,200

Income Summary
No. 350

(3) 47,600 46,000

1,600

47,600 47,600

Service Revenue
No. 400

(4) 46,000 46,000

Maintenance and Repairs Expense

No. 622

4,400 (2) 4,400

Depreciation Expense
No.711

2,800 (2) 2,800

 Insurance Expense
No.722

1,200 (2) 1,200

Salaries and Wages Expense

No.726

35,200 (2) 35,200

Utilities Expense
No.732

4,000 (2) 4,000

c. Prepare a post-closing trial balance.

GREENWOOD COMPANY
Post-Closing Trial Balance
December 31, 20X3

Debit Credit
Cash $ 6,200
Account Receivable 7,500
Prepaid Insurance 1,800
Equipment 33,000
Accumulated Depreciation – Equipment $ 8,600
Accounts Payable 11,700
Salaries and Wages Payable 3,000
Owner’s Capital 25, 200

$ 48, 500 $ 48, 500

TT05
Urdan Co. distributes suitcases to retail stores at the Hostad Resort. The following transactions were
completed during August.
August 4 Purchased suitcases from Marx Co. $840, FOB shipping point, terms 2/10, n/30.
6 Paid freight on purchase from Marx Co. $40.
8 Sold merchandise to members $1,150, terms n/30. The merchandise sold had a cost
of $790
10 Received credit of $40 from Marx Co. for a suitcase that was returned.
11 Purchased suitcase accessories from Rupp Sports for cash, $420.
13 Paid Marx Co. in full.
14 Purchased suitcases from Hayley’s Travels $900, FOB shipping point, terms 3/10,
n/60.
15 Received cash refund of $50 from Rupp Sports for damaged merchandise that was
returned
17 Paid freight on Hayley’s Travels purchase $30.
18 Sold merchandise to members $900, terms n/30. The cost of the merchandise sold
was $540
20 Received $600 in cash from customers in settlement of their accounts.
21 Paid Hayley’s Travels in full.
27 Granted an allowance of $40 to members for suitcase accessories that did not fit
properly
30 Received cash payments on account from customers, $710

The chart of accounts for the suitcase shop includes the following: No. 101 Cash, No. 112 Accounts
Receivable, No. 120 Inventory, No. 201 Accounts Payable, No. 301 Owner’s Capital, No. 401 Sales
Revenue, No. 412 Sales Returns and Allowances, and No. 505 Cost of Goods Sold.
Journalize the August transactions using a perpetual inventory system (Use J1 for the journal
reference)

HOSTAD RESORT J1
General Journal

Date Accounts and Explanation Ref. Debit Credit

August 4 Inventory 120 840

Accounts Payable 201 840
(To record suitcases purchased on accounts
from Marx Co.)

6 Inventory 120 40
Cash 101 40
(To record payment of freight on purchase from
Marx Co.)

8 Accounts Receivable 112 1,150

Sales Revenue 401 1,150
(To record credit sales from Marx Co.)

Cost of Goods Sold 505 790

Inventory 120 790
(To record cost of sold merchandise to
members)

10 Accounts Payable 201 40

Inventory 120 40
(To record the reduction of debt on account)

11 Inventory 120 420

Cash 101 420
(To record suitcase accessories in cash)

13 Accounts Payable 201 800

Cash ($840-$40=$800) 101 784
Inventory (Discount: $800 x 2%=$16) 120 16
(To record payment within the discount period
for Marx Co.)

14 Inventory 120 900

Accounts Payable 201 900
(To record suitcases purchased on accounts
from Hayley’s Travels)
15 Cash 101 50
Inventory 120 50
(To record the cash refund from Rupp Sports)

17 Inventory 120 30
Cash 101 30
(To record the payment of freight from Haley’s
Travel)

18 Accounts Receivable 112 900

Sales Revenue 401 900
(To record sales revenues on account)

Cost of Goods Sold 505 540

Inventory 120 540
(To record the of goods when selling goods)

20 Cash 101 600

Account Receivable 401 600
(To record the payments from the customers)

21 Accounts Payable 201 900

Cash ($900-$27=$873) 101 873
Inventory (Discount: $900x3%=$27) 120 27
(To record payment within discount period for
Hayley's Travels)

27 Sales Returns and Allowances 412 40

Accounts Receivable 112 40
(To record credit granted to members for
returned goods)

30 Cash 101 710

Accounts Receivable 112 710
(To record cash payment on account from
customers)
TT06

Seattle Furnitures Co. uses a perpetual inventory system for recording the sales of its lamps. The
company’s book has shown the following transactions related to inventory for July as follows.

Date Activities Units Cost/Units Sold

Jul. 1 Beginning Inventory 150 units @ $11.50 per unit

Jul. 9 Purchase 300 units @ $12.30 per unit

Jul. 12 Sales 320 units @ $20 per unit

Jul. 18 Purchase 400 units @ $13.40 per unit

Jul. 24 Purchase 110 units @ $14.20 per unit

Jul. 30 Sales 550 units @ $25 per unit

 1. Compute cost of goods available for sale and the number of units available for sale

Seattle Furniture Co.

Lamps

COST OF GOODS AVAILABLE FOR SALE

Date Explanation Units Unit Cost Total

Cost

Jul. 1 Beginning Inventory 150 $ 11.50 $ 1,725

Jul. 9 Purchase 300 12.30 3,690

Jul. 18 Purchase 400 13.40 5,360

Jul. 24 Purchase 110 14.20 1, 562

Total Units Available for Sale 960 $ 12, 337

1. Compute the number of units in ending inventory

Units Ending Inventory = (Beginning Inventory + Purchases ) - Sales

= (150 + 300 + 400 + 110) - (320 + 550)
= 90
 2. Compute the cost assigned to ending inventory using

FIFO

Date Purchases Cost of Goods sold Balance

(in units and cost)

Jul 1 (150 @ $11.50) $1,725

Jul 9 (300 @ $12.30) (150 @ $11.50)

$3,690 (300 @ $12.30) } $5,415
Jul 12 (150 @ $11.50)
(170 @ $12.30)
$3,816 (130 @ $12.30) $1,599

Jul 18 (400 @ $13.40) (130 @ $12.30)

$5,360 (400 @ $13.40) } $6,959
Jul 24 (110 @ $14.20) (130 @ $12.30)
$1,562 (400 @ $13.40) } $8,521
(110 @ $14.20)

Jul 30 (130 @ $12.30)

(400 @ $13.40)
( 20 @ $14.20) (90 @ $14.20) $1,278
$7,243

COST OF GOODS SOLD

Cost of goods available for sale $ 12,337

Less: Ending Inventory 1, 278

Cost Of Goods Sold $ 11, 059

LIFO

Date Purchases Cost of Goods sold Balance

(in units and cost)

Jul 1 (150 @ $11.50) $1,725

Jul 9 (300 @ $12.30) (150 @ $11.50)

$3,690 (300 @ $12.30) } $5,415

Jul 12 (300 @ $12.30)

( 20 @ $11.50)
$3,920 (130 @ $11,50) $1,495

Jul 18 (400 @ $13.40) (130 @ $11.50)

$5,360 (400 @ $13.40) } $6,855
Jul 24 (110 @ $14.20) (130 @ $11.50)
$1,562 (400 @ $13.40)
(110 @ $14.20)
} $8,417

Jul 30 (110 @ $14.20)

(400 @ $13.40)
( 40 @ $11.50) ( 90 @ $11.50) $1,035
$7,382

COST OF GOODS SOLD

Cost of goods available for sale $ 12,337

Less: Ending Inventory 1, 035

Cost Of Goods Sold $ 11, 302

Moving average

Date Purchases Cost of Goods sold Balance

(in units and cost)

Jul 1 (150 @ $11.50) $1,725.00

Jul 9 (300 @ $12.30) $3,690.00 (450 @ 12.03) $5,415.00

Jul 12 (320 @ $12.03) $3,850.67 (130 @ $12.03) $1,564.33

Jul 18 (400 @ $13.40) $5,360.00 (530 @ $13.06 ) $6,924.33

Jul 24 (110 @ $14.20) $1,562.00 (640 @ $13.26) $8,486.33

Jul 30 (550 @ $13.26) $7,292.94 ( 90 @ $13.26) $1,193.39

COST OF GOODS SOLD

Cost of goods available for sale $ 12,337

Less: Ending Inventory 1, 193. 39

Cost Of Goods Sold $ 11, 143. 61

 TT07
Gason Co. uses special journals and a general journal. The following transactions occurred during March
20X3.

Mar. 1 Matt Gason invested $40,000 cash in the business.

2 Sold merchandise to Fernetti for $3,800 cash. The cost of the merchandise
sold was $2,500.

3 Purchased merchandise for $4,300 from Gedeno Ltd. using check no. 101.

14 Paid salary to Miranda $650 by issuing check no. 102.

16 Sold merchandise on account to Fanestil for $550, terms n/30. The cost of the
merchandise sold was $350.

22 A check of $5,400 is received from Kline Co. in full for invoice 101; no
discount given

Record the transaction(s) for March into multiple-column cash receipts journal and cash
payments journal (Use page 1 for each journal.)

CASH RECEIPTS JOURNAL CRI

Date Account Ref. Cash Sales Accounts Sales Other Cost of Goods
Credited Dr. Discounts Receivable Revenue Accounts Sold Dr.
Dr. Cr. Cr. Cr. Inventory Cr.

20X3

March 1 Owner’s Capital 301 40,000 40,000

2 3,800 3,800 2,500

22 Kline Co. ✔ 5, 400 5, 400

49, 200 9, 200 40, 000 2, 500

(101) (401) (x) (505)/(120)

 CASH PAYMENTS JOURNAL CPI

Date Ck. Account Debited Ref. Other Accounts Inventory Cash

No. Accounts Payable Cr. Cr.
Dr. Dr.

20X3

March 3 101 Inventory 120 4,300 4,300

14 102 Salaries and Wages Expense 726 650 650

4, 950 4, 950

(x) (101)
 TT08

On August 31, 20X8, Bouquet Floral Supply had a $140,000 debit balance in Accounts Receivable and a
$5,600 credit balance in Allowance for Bad Debts. During September, Bouquet made:

• Sales on account, $550,000. Ignore Cost of Goods Sold.

• Collections on account, $584,000.

• Write-offs of uncollectible receivables, $4,000.

1. Journalize all September entries using the allowance method. Bad debts expense was estimated at
2% of credit sales. Show the balance of all September activity in Accounts Receivable, Allowance
for Bad Debts, and Bad Debts Expense ledgers at September 30, 20X8.

Bouquet Floral Supply

General Journal
September 30, 20X8 J1

Date Account Titles Debit Credit

20X8 Accounts Receivable 550,000

Sep. 30 Sales Revenue 550,000
(To record sales revenue on account)

Cash 584,000
Accounts Receivable 584,000
(To record collections on account)

Allowance For Bad Debts 4,000

Accounts Receivable 4,000
(To record write-offs of uncollectible receivable)

Bad Debts Expense 11,000

Allowance For Bad Debts 11,000
(550,000 x 2% = 11,000)
 Bouquet Floral Supply
General Ledgers
September 30, 20X8

Accounts Receivable Allowance For Bad Debts

Debit Credit Debit Credit

Beg. 140,000 Coll. 584,000 W/O 4,000 Beg. 5,600

Sale 550,000 W/O 4,000 Est. 11,000

End. 102,000 End. 12,600

Bad Debts Expense

Debit Credit

Est. 11,000

End. 11,000
2. Using the same facts, assume that Bouquet used the direct write-off method to account for
uncollectible receivables. Journalize all September entries using the direct write-off method. Post to
Accounts Receivable and Bad Debts Expense, and show their balances on September 30, 20X8.

Bouquet Floral Supply

General Journal
September 30, 20X8 J2

Date Account Titles Debit Credit

20X8 Accounts Receivable 550,000

Sep. 30 Sales Revenue 550,000
(To record sales revenue on account)

Cash 584,000
Account Receivable 584,000
(To record cash receipt)

Bad Debts Expense 4,000

Accounts Receivable 4,000
(To record write-offs of Bouquet on account)

Bouquet Floral Supply

General Ledgers
September 30, 20x8

Accounts Receivable Bad Debts Expense

Debit Credit Debit Credit

Beg. 140,000 Cash 584,000 W/O 4,000

Sale 550,000 W/O 4,000

End. 102,000 End. 4,000

3. What amount of Bad Debts Expense would Bouquet report on its September income statement under
each of the two methods? Which amount better matches expense with revenue? Give your reason.

Allowance method Direct write-off method

Bad Debts Expense $ 11,000 $ 4,000

The allowance method best matches expenses with revenue. Because the allowance method records the
bad debt expense in the same period of time with sale, which means that bad debt expenses are estimated
and recorded before bad debts arise.
 TT09

Toledo Deli is in the process of closing its operations and sold its three-year-old restaurant equipment to
Stan's Steakhouse for $80,000. The equipment originally cost $220,000 and had an estimated service life of
five years and an estimated residual value of $20,000. Toledo Deli uses straight-line depreciation for all
equipment.

Calculation:

● Depreciation Expense per year = (Cost - Salvage Value ) / Useful Life of Asset

= ($220,000 - $20,000) / 5 years

= $40,000

● Straight-line Rate = 100% / Useful Life of Asset = 100% / 5 = 20%

Toledo Deli

Straight-line Balance

Computation End of Year

Annual
Year Depreciable x Rate Accumulated Book Value
= Depreciation
Cost Depreciation
Expense

1 $220,000 20% $40,000 $40,000 $180,000

2 220,000 20 40,000 80,000 140,000

3 220,000 20 40,000 120,000 100,000

a. Calculate the balance in the accumulated depreciation account at the end of the third year.
● Accumulated Depreciation at the end of 3rd year = Annual Depreciation Expense x 3 years

= $40,000 * 3 = $120,000

b. Calculate the book value of the equipment at the end of the third year.
● Book Value at the end of 3rd year = Cost - Accumulated Depreciation

= $220,000 - $120,000 = $100,000

c. What is the gain or loss on the sale of the equipment at the end of the third year?

Toledo Deli
Loss Of Sale
Year 3

Cost of equipment $220,000

Less: Accumulated depreciation 120, 000
Book value at the date of disposal 100,000
Proceeds from sale 80, 000

Loss on disposal of plant asset $20, 000

d. Record the sale of the equipment at the end of the third year.

Toledo Deli
Sale Of The Equipment
Year 3

Date Account titles Debit Credit

Dec 31 Cash 80,000

Accumulated Depreciation - Equipment 120,000
Loss on Disposal of Plant Assets 20,000
220,000
Equipement
(To record the sale of the equipment at a loss)
TT10
The income statement of Rannier Inc. is presented below.
Additional information:
1. Accounts receivable decreased $230,000 during the year, and inventory increased $120,000.
2. Prepaid expenses increased $125,000 during the year.
3. Accounts payable to merchandise suppliers increased $50,000 during the year.
4. Accrued expenses payable increased $155,000 during the year.

RANNIER INC.

Income Statement
For the Year Ended December 31, 20X3
 Prepare the operating activities section of the statement of cash flows for the year ended
December 31, 20X3, for Rannier Inc., using the indirect method.

RANNIER INC.
Statement Of Cash Flows - Indirect Method
For The Year Ended December 31, 20X3

Cash flows from operating activities:

Net Income $ 880,000
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation expense $ 95,000
Amortization expense 20,000
Decrease in accounts receivable 230,000
Increase in inventory (120,000)
Increase in prepaid expenses (125,000)
Increase in accounts payable 50,000
Increase in accrued expenses payable 155,000 305,000
Net cash provided by operating activities $1, 185, 000
Group Assignment
PART A
ABC Company monthly ledger includes the following accounts: Supplies, Supplies expense, Prepaid
Insurance, Insurance Expense, Service Revenue, Unearned Service Revenue, Allowance for Doubtful
Account, Bad debts expense.
The following transactions occurred during the fiscal year:

Supplies:
- On January 1, 2021, the company’s Supplies account reported a cost of $12,000.
- On April 1, the business purchased additional supplies at a cost of $140,000 and recorded these
in the account Supplies Expense. At the end of the year, a physical count indicated that the
supplies on hand had a cost of $15,000.

Insurance:
- On January 1, 2021. The company’s Prepaid Insurance account had a debit balance of $12,340
for a policy that ends on 31 August.
- On August 1, a company obtained its first insurance policy covering its property. The policy is
for one year and it begins immediately on August 1. The insurance premium for this 12-month
period is $2,400 and it was paid on August 1.

Service Revenue:
- On January 1, 2021, the company’s Unearned Service Revenue account had a credit balance of
$128,000. Of this balance, $57,000 is for the services expiring at the end of March and $71,000
is for the services expiring at the end of November.
- On April 1, 2021. The company received $33,000 for the service lasting 11 months.
- On May 1, 2021. The company received $60,000 for the service lasting 3 months.
- On December 1, 2021. The company received $24,000 for the service lasting 12 months.

Allowance for bad debts:

- On January 1, 2021, the company’s Allowance for Doubtful Account has a credit balance of $900
and its aging of Accounts Receivable indicated that $3,000 is not likely to be collected.
 1) Prepare the necessary adjusting entries at December 31, 2021.

ABC Company
General Journal
December 31, 2021

Date Account Title Debit Credit

Dec. 31 Supplies 3,000

Supplies Expense 3,000
(To record supplies have not been used)

Insurance Expense 13,340

Prepaid Insurance 13,340
(To record expired insurance)
[12,340 + (2400 x 5/12) = 13,340]

Unearned Service Revenue 217,000

Service Revenue 217,000
(To record revenue earned)
[57,000 + 71,000 + (33,000 x 9/11) + 60,000 + (24,000 x 1/12) =
217,000

Bad Debts Expense 2,100

Allowance For Bad Debts 2,100
(To record estimated allowance)
(3,000 - 900 = 2,100)
2) Open T-accounts and post the transactions directly to the account listed

Supplies Supplies Expense

Jan. 1 12,000 Apr. 1 140,000 Adj. 3,000

Adj. 3,000

Bal. 15,000 Bal. 137,000

Insurance expense Prepaid Insurance

Adj. 13,340 Jan. 1 12,340 Adj. 13,340

Aug. 1 2,400

Bal. 13,340 Bal. 1,400

Unearned Service Revenue Service Revenue

Jan. 1 128,000 Adj. 217,000

Apr. 1 33,000
May 1 60,000
Adj. 217,000 Dec. 1 24,000

Bal. 28,000 Bal. 217,000

Bad debts expense Allowance for Doubtful account

Adj. 2,100 Jan. 1 900

Adj. 2,100

Bal. 2,100 Bal. 3,000

PART B
Crazy Snowy sells a snowboard, WhiteOut, that is popular with snowboard enthusiasts. Presented below
is information relating to Crazy Snowy’s purchases and sales of WhiteOut snowboards during July.
During the same month, 121 WhiteOut snowboards were sold at $170 each. Crazy Snowy uses a
perpetual inventory system.

Units Cost

Beginning Inventory, Jul 1 10 $120.00

Purchase, Jul 9 40 $125.00

Sale, Jul 12 20

Purchase, Jul 18 50 $130.00

Sale, Jul 19 20

Sale, Jul 21 30

Purchase, Jul 24 40 $132.00

Sale, Jul 30 20
 (a) Compute the ending inventory at July 31 and cost of goods sold using the FIFO, LIFO and
moving average costing methods

FIFO Method

Date Purchases Cost of Goods Sold Balance

(in units and cost)

Jul 1 (10 @ $120.00) $1,200

Jul 9 (40 @ $125.00) $5,000 (10 @ $120.00)

(40 @ $125.00)
} $6,200

Jul 12 (10 @ $120.00)

(10 @ $125.00)
$2,450 (30 @ $125.00) $3,750

Jul 18 (50 @ $130.00) $6,500 (30 @ $125.00)

(50 @ $130.00)
} $10,250

Jul 19 (20 @ $125.00) $2,500 (10 @ $125.00)

(50 @ $130.00)
} $7,750

Jul 21 (10 @ $125.00)

(20 @ $130.00) (30 @ $130.00) $3,900
$3,850

Jul 24 (40 @ $132.00) $5,280 (30 @ $130.00)

(40 @ $132.00)
} $9,180

Jul 30 (20 @ $130.00) (10 @ $130.00)

$2,600 (40 @ $132.00)
} $6,580

COST OF GOODS SOLD

Cost of goods available for sale $17,980

Less: Ending Inventory 6,580
Cost Of Goods Sold $11, 400
 LIFO Method

Date Purchases Cost of Goods Sold Balance

(in units and cost

Jul 1 (10 @ $120.00) $1,200

Jul 9 (40 @ $125.00) $5,000 (10 @ $120.00)

(40 @ $125.00)
} $6,200
Jul 12 (20 @ $125.00) (10 @ $120.00)
$2,500 (20 @ $125.00)
} $3,700
Jul 18 (50 @ $130.00) $6,500 (10 @ $120.00)
(20 @ $125.00) } $10,200
(50 @ $130.00)

Jul 19 (20 @ $130.00) (10 @ $120.00)

$2,600 (20 @ $125.00) } $7,600
(30 @ $130.00)

Jul 21 (30 @ $130.00) (10 @ $120.00)

$3,900 (20 @ $125.00)
} $3,700
Jul 24 (40 @ $132.00) $5,280 (10 @ $120.00)
(20 @ $125.00) } $8,980
(40 @ $132.00)

Jul 30 (20 @ $132.00) (10 @ $120.00)

$2,640 (20 @ $125.00) } $6,340
(20 @ $132.00)

COST OF GOODS SOLD

Cost of goods available for sale $17,980

Less: Ending Inventory 6,340
Cost Of Goods Sold $11, 640
 Moving Average Method

Date Purchases Cost of Goods Sold Balance

(in units and cost

Jul 1 (10 @ $120) $1,200

Jul 9 (40 @ $125) $5,000 (50 @ $124) $6,200

Jul 12 (20 @ $124) $2,480 (30 @ $124) $3,720

Jul 18 (50 @ $130) $6,500 (80 @ $127.75) $10,220

Jul 19 (20 @ $127.75) $2,555 (60 @ $127.75) $7,665

Jul 21 (30 @ $127.75) $3,832.5 (30 @ $127.75) $3,832.5

Jul 24 (40 @ $132) $5,280 (70 @ $130.18) $9,112.5

Jul 30 (20 @ $130.18) $2,603.5 (50 @ $130.18) $6,509

COST OF GOODS SOLD

Cost of goods available for sale $17,980

Less: Ending Inventory 6,509
Cost Of Goods Sold $11, 471
(b) Compare the effects of LIFO, FIFO, and moving average inventory costing methods on
the financial statements in periods of
i. rising inventory costs AND

Period of Rising Inventory Costs

Financial Statement LIFO FIFO Moving Average

Element

Income Statement:

Cost of Goods Sold Highest Lowest Middle

Net Income Lowest Highest Middle

Balance Sheet:

Ending Inventory Lowest Highest Middle

ii. declining inventory costs

Period of Declining Inventory Costs

Financial Statement LIFO FIFO Moving Average

Element

Income Statement:

Cost of Goods Sold Lowest Highest Middle

Net Income Highest Lowest Middle

Balance Sheet:

Ending Inventory Highest Lowest Middle

(c) Crazy Snowy is considering which inventory costing method it should use given that the
owner wants to maximize gross profit during this period of inflation. Which inventory
method should Crazy Snowy select? Discuss your selection.

Crazy Snowy should consider the FIFO Method

FIFO is the most extensively utilized technique of inventory valuation globally. It has the ability to
increase the value of remaining inventory and result in better net income. It is also the most precise
means of matching the predicted cost flow to the actual flow of products, providing firms with a more
accurate view of inventory costs.
PART C
On May 1st, 2020, Design Factory Co. purchased a new machine at $128,000 with credit term of 2/10,
n/30. The company was given 10% trade discount for being a loyalty customer. Design Factory Co. also
paid for the following cost: delivery charge from seller’s allocation $1,600, sales tax $8,100, cost of test
run $2,900, training cost for workers who will operate the machine $1,800, normal repair $950 for the
machine in May 2020, insurance cost $4,500, extended warranty taken out on the machine $5,700. The
company made their payment within a discounted period. The machine has a useful life of 6 years and a
salvage value of $4,400. Assuming the fiscal year ended at December 31st.

1) Compute the cost of the machine. Prepare journal entry to record the purchase.

Cost of the machine

Purchase price $ 128,000

Trade discount 10% (12,800)
(128,000 x 10% = 12,8000)
115,200
Cash discount 2% (2,304)
(115,200 x 2% = 2,304)
Net purchase 112,896
Freight cost 1,600
Sales tax 8,100
Cost of test run 2,900
Training cost 1,800
127, 296
Journal Entry Debit Credit

Purchase date Machine 115,200

Accounts Payable 115,200

Paid date Machine 14,400

Accounts Payable 115,200
Machine 2,304
Cash 127,296

Machine Cash

Price 128,000 Trade dis. 12,800 Net purchase 112,896

Credit term 2,304 Additional 14,400
Additional 14,400

Bal. 127,296 Bal. 127,296

 2) Prepare the depreciation schedule to record depreciation expense during 6 years under:
a. Straight-line method

Depreciable cost = cost - salvage value

= 127,296 - 4,400
= 122,896

Annual depreciation expense = Depreciable cost : useful life year

= 122,896 : 6
= 20,483

Design Factory Co.

Straight-line Balance

Annual Current Year End of Year

Depreciation Partial Year Expense
Year Accumulated
Expense
Depreciation

2020 $20,483 x 8/12 = $13,655 $13,655

2021 20,483 = 20,483 34,138

2022 20,483 = 20,483 54,621

2023 20,483 = 20,483 75,103

2024 20,483 = 20,483 95,586

2025 20,483 = 20,483 115,068

2026 20,483 x 4/12 = 6,828 122,896

122, 896
 b. Double declining balance method

Design Factory Co.

Double Declining Balance

Computation Current Year End of Year

Annual Partial Year Expense
Year Beginning x Declining Accumulated
= Depreciation
Book Value Rate Expense Depreciation

2020 $127,296 33.33% $42,428 x 8/12 = $28,285 $28,285

2021 99,010 33.33 33,000 = 33,000 61,285

2022 66,009 33.33 22,001 = 22,001 83,286

2023 44,007 33.33 14,668 = 14,668 97,954

2024 29,339 33.33 9,780 = 9,778 107,732

2025 19,560 33.33 6,520 = 6,519 114,251

2026 13,041 33.33 4,346 = 8,645 122,896

122, 896
3) Prepare journal entry for the below transaction, using straight-line method:
a. Assuming Design Factory sold the machine on October 31,2024 for $30,050.

2024 Partial year depreciation = (127,296 - 4,400)/6 May 1st, 2020 - Apr. 30th, 2024 = 4 years
x 10/12 = $ 17,069 2024: May 1st - Oct. 31 = 6/12 year
Accumulated Depreciation of machine from May ⇒ Accumulated Depreciation of machine from
May 1st, 2020 - Oct 31st, 2024:
1st, 2020 - Oct 31st, 2024:
(127,296 - 4,400)/6 x (4 + 6/12) = $ 92,172
$ 75,103 + $ 17,069 = $ 92,172

Book Value at Oc 31st, 2024: $ 127,296 - $ 92,172 = $ 35,124

Sold $ 30,050 < Book value (35,124)

Journal entry Debit Credit

Oct 31st, 2024

Cash 30,050
Accumulated Depreciation - machine 92,172
Loss on sale asset 5,074
Machine 127,296

b. After 6 years, the company received $8,000 book value on the retirement of the machine.

Journal entry Debit Credit

April 30th, 2026

Cash 8,000
Accumulated Depreciation - machine 122,896
Gain on disposal asset 3,600
Machine 127,296