yr POSTING PROCEDURE ILLUSTRATED GENERAL JOURNAL peBH Accounts & Explanation (D) CASH ACCOUNT No, 10) Date Explanations: Ref Debit Credit Balance March 1 Investment by Gomez Tf 2078 50,005 Based on the first debit entry in the journal, look for the account in the general ledger, On the debit side date column, copy the date. column extend the balance in the last column. Copy the amount in the de Insert the journal page number in the folio column or posting reference column of the ledge, FOOSE Insert the ledger account number in the folio column or posting reference of the journal F. The next account to be posted is the Cars account. Repeat steps A to E. The third accounttobe posted is the capital account and so on until all the accounts have been posted or transferred from the journal to the ledger. Steps D and E, called eross reference, facilitates the tracing of an entry to and from the journal and ledger. Also, if the F columns of the journal and the ledger are both filled up, t signifies that an entry has already been posted. The folio column in the journal will be gradually filled up as the postings are made, | 104Ee ‘The general ledger of Happy Tour will completely appear as follows: CASH ACCOUNT NO. 101 Date Explanations Ref | Debit Credit Balance Hach | Investment by Gomez | 31 | 80000] 1 3 000 00 3 Loan from CitiBank J 00 150 000 00 7 | Payment to Blim 41 | 10000000} 45 00000] 105 000 00 1g | Personal drawing of Gomez | J1 5000.00 | 100.000 00 20 | Payment for liability J 5500000] 45.000 00. 21 | Collection from customer | Ji 60 000 00 22 | Payment for expenses Ji | 1500000} 1 so000| 58 s00.00 25 | Payment for expenses 2 50000} 58.000.00 30 | Collection from customers | 32 66.000 00 31 | Payment for expenses 800000) i 90000| 4700000 ACCOUNTS RECEIVABLE ACCT NO 102 Date Explanation Ref. Debit Credi Balance. jj "| | 2011 Mar 24 Ji | 16000 00 16 000 00 a J2 | 2000000 36.000 00 30 W2 800000 | 2800000 CARS. ACCT NO 201 Date Explanation Ref | Debit Credit | Balance 2011 Mar 1 Ji | 750.000 00 750.000 00 EQUIPMENT ACCT NO 202 Date Explanation Ref | Debit Credit | Balance 2011 Mar 10 Jt | 55.000 00 55.000 00 105FURNITURE & FIXTURES ACCH ng Oy % Date Explanation Ret pebit__ | Credit Ee - = et | Balan) | 2011 | —~ Mar 7 ut 45 000 00 _ 45 009, % ACCOUNTS PAYABLE ACCT No Pe Date Explanation Ref Debit cost [ta 2011 ji ~ Jl 5500000 | 55.090 Marlo ai | 5500000 pe 20 —~! LOANS PAYABLE ACCT NOX Date Ref Debit Credit Balance Mar 3 Jt 100 000 00 | 100 000.0) GOMEZ, CAPITAL ACCT NOS0) Explanation Ref Debit | Credit Balance 1 | dw 800 000.00 | 800 000 00 | GOMEZ DRAWINGS ACCT NOStt Date Explanation Ref | Debit Credit | Balance 2011 Mar 18 si} 5.00000 5.00000 SERVICE INCOME ACCT NOS Date Explanat Ref | Debit Credit. | Balance Jt 15.000.00 | 15000 “ 24 u 1600000} 3! 0 7 2 20 00000 | 5! 902 i 106GAS & OIL EXPENSE = ACCT NO 701 a Explanation Ref el “ [ed | Debit | Credit Balanes 2011 Mar 22 —_ iN 500.00 00.00 RENT EXPENSE ACCT NO 702 Dae Explanation Ref Debit Credit | Balance 2011 Mar 3! oa 12 | 1000000 10.000 00 REPAIR EXPENSE ACCT NO 703 Date Ref | Debit Credit | Balance P3017 | [ Mar 22 J 1.000 00 1000.00 SALARIES EXPENSE ‘ACCT NO 704 Date Explanation ~ Ref. Debit Credit | Balance 2011 Mar 31 32 | 9.00000 9000 00 UTILITIES EXPENSE. ACCT NO 705, Date Explanation Ref | Debit Credit Balance 2011 Mar 25 i 500 00 Note: Trace each entry from the journal to the ledger to better appreciate the posting procedure. Postings may be done daily. weekly or monthly depending on the business needs, kinds of journals and equipment used. Balance of each account is determined after every posting made. TRIAL BALANCE Atthis point we should establish again the equality ofthe debts and credits by using another ‘ool ealled the trial balance, Figure 5.6. The double entry bookkeeping rule extends to the trial balance - ensure that the debit is the same as the credit total. A trial balance is a list of accounts with ledger balances, Assets; owner’s drawing and expenses have normal balances on the debit side while liabilities, owner’s capital and revenue have normal balances on the credit side. The tial balance of Happy Tour will appear as follows: 107[TY TOUR TRAV TRIAL BALANCE arch 31.2011 _ ie ——_bebit__ [rei P 47 000 00 a 28 000 00 a peeebails 750 000 00 Equipment ig i Furniture & Fixtures 45 ovo Accounts Payable 100 000 00 Loans Payable ie Gomez, Capital ; : Gomez, Drawing 5 000 00 _ Service Income 605 Gas & Oil Expenses 500. 00 Rent Expense 10 000 00 Repair Expense 1 000 00 Salaries Expense 9 000 00 Utilities Expense 500 00 Psst 00 oo] p9s1_o00 oo Figure 5.6 Trial Balance Observe the following rules in preparing the trial balance: 2. Posting a wrong amount (cash debit P40,000 3. 4. Heading consists of three lines: Name of the business Title of the report Date Account titles are arranged in the following order: Assets, Liabiliti Expenses. » Capital, Revenue and Note that even the accounts payable, although itis zero, still appears in the trial balance, Ins) be omitted but the readers may wonder what happened to this account. ‘The peso sign is placed only on the frst debit amount, fist credit amount and on the tot The foals are ruled (one horizontal line drawn under the last amounts of the debit and cdi columns) and double ruled (two horizontal lines are drawn under the total figures). Ifthe total debit do not equal the total eredit, then error should be located before ruling and double rulin, following errors may have been committed: (S) must have been committed whith 16 the totals. It is possible that any of tt Ledger footing (debit or credit side) is wrong, ‘Wrong balances were copied from the general ledger,| LOCATING ERRORS Ihe total debit ammount does not tally with the total eredi ‘amount, the difference usually gives a clue to the kind of error committed. 1. A difference of ten would indicate columns of the trial balance again, credit columns of the ledgers. probably an error in Addition. Add the debit and credit Ifthe error is not the Te, go further and re-add the debit and 2. Ifthe difference is divisible by two, a debit balance in the ledger is copie: the journal was posted to the eredit side of the ledger. 3. Ihe difference is divisible by 9 ora multiple of that is the order of the digits are interchanged, For errors 2 and 3, trace all side and the amount. I. Failure to record a transaction. 2. A transaction is journatized but not posted. 3: Anerroneous amount is debited and credited foran entry, is debited to rent expense and credited to cash as P2,000 |. A recorded transaction is posted twice, - An amount is posted to the correct side but to the ws surance expense was posted to the debit side of salary expense. Wrong aecount title in recording the transaction. For example, a purchase on account was credited to notes payable instead of accounts payable. for example a P2,500 rental payment ong account. For example, a debit to You must therefore exercise care in recordin, There is a waste of time and effort when you trace 8 transactions and posting them to the ledger, back what you have done to locate the error, 109% UBSIDIARY LEDGERS AND € ‘ONTROL ACCOUNTS ‘ain A business has a number of account cugtomers and creditors. Ian account i my h. the general ledger would be very crowded, more postings will be made, the trial balay be longer, and it will be more difficult to locate errors. In the Happy Tour and Travel Re although there are two account customers only on accounts receivable is maintained jn ye, ledger. The same rule is applicable for accounts payable, You may have five or ten ered tort only one accounts payable is maintained in the general ledger. The accounts reg ivab te accounts payable in the general ledger are called control accounts. How do you keep track gf of your customer’: ount or of each of your supplier's account? An individual record js ke a each one of them called subsidiary ledger or customer’s card and creditor's card, wh of their accounts are entered Mined here the de Ve debi collection from the cusomet Post this on the credit side of the customers card. In other words, posing done twice: 1) from the business paper to the journal then to the general ledger and 2) then again from the business piper to the subsidiary ledzer. The same rules are applicable for the account of aereditor/supplier, except that since thisisg Nability, using the supplier's invoice this will be posted on the credit side of the suppliers car and then when payment is made, using the check voucher this will be posted on the debit side The folio column the journal is divided into tvo parts. The upper part of the stant isfy the account number to indicate that it has been posted to the general ledger. The lower part ofthe slant is checked to indicate that it has been. posted to the subsidiary ledger. From the balances coming from the cards, a schedule of accounts receivable or accounis payable will be prepared, the total of which should reconcile with the balance of the contra account found in the general ledger . Using the Happy Tour illustration, postings to the general ledger and subsidiary ledgers as well as the schedule of accounts receivable will appear as in Figure 5.8 below JOURNAL SUBSIDIARY LEDGERS | Dae [rscomsa Ewivaion] F [Debt | CM | sane Gay var | Address 1234 Win St So du 24 | Accounts Receivable | 192/V | 4600000 — | Dane Terms. i it |e Serves econ 16000 ie = me 27 | Aecoums Recewabte | ren [2009000 2 | sane ~~ [3~# ie 00000 Series Income 90000] 0 for nes fie |e seo so | casn sways fo000 Se aot "Accounts Reece sco _— ae 1, nt So Jan 4 GENERAL LifoGE Tea ST [oe] Gee ACCOUNTS RedrAVAhLE, ~ 2 Das erm Fe Twat fe] 27 | sanor | 22000000 | 0 | 200 ‘March a 11 | seo 1600000 | n 2 | sa00! 26.00 09 | a 2 socaoo | 2807000 | Figure 5.7. Postings from the Journal to the Ledger 110HAPPY TOUR & TRAY FL SCHEDULE OF ACCOUNTS Rie S RECI Maret 31,2011 YABLE Ador Gray Faculty Club of Angelicum ; rane Total 230m P 28,000 qhe total should be the same amount as the bal Receivable general ledger on page 105. ‘ee of the control account in the Accounts GUIDE QUESTIONS 1, What is the simplest form of analytical tool used to n the accounts representing the accounting values? 2, What is a chart of accounts? 3, The term debit means increase and ere Explain why or why not, State the rules of debit and credit for assets, revenue and expense, 5. Explain what is double entry bookkeeping. 6. Identify the business papers supporting the following traisactions: a. cash collected from client b. cash paid for rent ¢. rendered service on account d. received service from PLDT 7. What is a journal and what is its use in business? 8. With the journal there is no need for the ledger. Do you agree? Why or why not? 9. What are the items contained in a journal entry? : Z 10. What order is usually followed in arranging the accounts in the general ledger? HI, Assuming tuition income is account no. 401, discuss how the credit entry (recorded in general Journal page 2) will be posted to the general ledger: jecord changes taking place in the each of means decrease. Do you agree with this statement? Hiabilities, owner's capital, owner's drawing, Date Accounts and Explanation F Debit Credit] July 12 | Accounts Receivable 2750 000 Tuition Income 2.750000 12. What isa cross reference? Discuss the procedure. 13. What is a trial balance? What is its purpose? '4. What is the relevance of a subsidiary ledger? 5. Ifaccounts receivable were maintained for each customer in the general ledger, will theres bea need for subsidiary ledgers? Explain why the use of the combination journal, compared to the general journal, would make the ‘ork of the accountant lighter.EXERCISE: 1. Complete the m, atrix by entering either debit or eredit in each cell: [Increases |_ Decreases. Items . | Reo | Accounts Receivable | | Advances from Cli | 2. State whether the following accounts have debit balane it a) interest income i) oftice supplies b) accounts payable 4) rent expense | ¢) salary expense k) rent income } 4) notes receivable 1) rent payable . ©) Nava, Capital m) building f) cash n) accumulated depreciation g) Nava, Drawing ©) depreciation expense h) supplies expense p) bad debts 3. Selected transactions for T. Carter, an interior decorator, forthe first month of business, aes follows: Jan, 2 Invested P50,000 cash to start the business, 3. Paid P3.000 cash for advertising and P1,000 for rent. 9 Purchased equipment for P7,000 cash M1 Billed customers P2.300 for services performed : 16 Purchased supplies on account for P70. 20 Received P1,100 cash ftom customers billed on Jan, 11 23 Paid creditor P400 cash on balanced owed | 28 Withdrew P1.200 for food spent in entertaining friends, } 30 Used up F200 of the supplies purchased Instructions: Analyze the transactions usin and elements affected, the effect and whet given to facilitate your analysis: '¢ double entry bookkeeping, indicate the aesou ther they should be debited or credited, A tables a! Account Debited = Basie] Specie Ts “Yom Det | me [as | Ete | Aci cae Jan. 2) Asset [Cash increase | 930,000" | Owner's ~~ Cre Pe et bs Equity 50.00 1124, Alice Huerto opened hcr business called Arrow Janitorial the transactions decrease and whether the secoun and Maintenance Services. Analyze d. whether the effect is an increase oF 1 ould be debited or credited. See to it that there should at least be two accounts involved fol the Venetian Model villustrate Oct 1 Oct. 1 Asset inerease, debit cash 200,000. Owner's Equity increase what values are affected For example it Huerto, Capital P200,000 (You should analyze for the debit side first) Oct. 1 Miss Huerto made a cash investment of P200,000 2 Purchased furniture and fixtures from Bless on account, 30,000. 8 Purchased from Avesco olfice equipment and was required to pay $0% for P15,000, the balance on account. 2 Borrowed P100,000 from Philippine Bank and signed a 90-day note 15 Paid for salaries of clerks and janitors, P80,000 in cash - 18 Received a bill for printing of leaflets to promote het business. P5,000 20 Received P30,000 in eash as payment for maintenance contracts 21 Paid Avesco in full of account. 24 Billings for janitorial services, to date: M. Y. San for PS0,000 25 __ Billings for janitorial services, to date: SPUM 50,000 of which 50% was collected. 26 Paid P17,500 for utilities. laries of elerks and janitors 31 SPUM paid 50% of the balance owing to Huerto Use the following accounts: Cash, Accounts Receivable, Furniture & Fixtures, O: Equipment, Accounts Payable, Notes Payable, Huerto, Capital, Huerto, Drawing, Janitorial and Maintenance, Service Fees, Advertising Expense, Salaries and Wages, Utilities Expense. 5. The Ignacio Professional Care Center is a home for the elderly. ‘The following are the transactions during the month of March 2011 1 Miss Ignacio made a cash investment of P100,000. 2 Furniture and fixtures for the living room were purchased on account, 50,000, 5 Purchased wood P20,000 and hired carpenters to make beds, P2,000, 10 Purchased supplies for cash, P17,850. 12 Bought office equipment from Delta Equipment and paid P15,000 in cash. 15. Professional Care. Fees of P65,000 represented total fees but only P50,000 were collected from the families for the first half of the month 15. Salaries of two nurses and a doctor-consultant were paid, P18,000. 19 The outstanding accounts were collected in full. 20 Utility expenses paid, P8,500. . 25 Supplies used, P1350. 28 50% of the account due from the furniture were paid in cash, 29. Paid for rent, P15,000 (P5,000 was for the canteen of the owner) and advertising P5,000 30. Professional care fees collected for the second half of March amounted to P45,000 only. Salaries were paid in cash. 9) Analyze the above transactions for the Center using T accounts for the following: Cash, Accounts Receivable, Supplies, Equipment, Furniture and Fixtures, Accounts Payable, 'gnacio, Capital, Ignacio Drawings, Professional Care Fees Income, Advertising Expense, 13Fe 6 i 114 a nse and Supplies E» Rent Expense, Utilities Expense, Salaries Expense end Fe fi are b) Extract the balances, verify if fundamental identity 1s still ina PFepaing balance. * m as opened by Marcie Castll Marcie’s Computer and Celfon Repair Center was opene iy we addtional OMY Lay + with a cash investment of P150,000 and furniture worth F FaMsactons | the month follow . 3. Signed a contract of lease and made a deposit of Pt 5,000. 4 Paid for the construction of display counters, P25,000. 3 Bought repair supplies for cash, P7,500. 6 Bought and paid for furniture and fixtures, P45,000. ; 8 Bought repair equipment worth P15,000 from XYO Co. for use in the store Paid 50% in cash with the balance on credit for 30 days. 9 Collected P1,500 for cell phone repair services. 10. Billed Madison Corp. P3,500 for computer repair services rendered, 13 Paid for salaries of clerks, P5,000. 14 Summary of cash received P4,000 and a promissory note for P2,000 for compuyy repair services. 15 Signed a contract with Telecom System for the repair work to be done on th, computers, P15,000. 16 Paid for telephone, light and water, P3,800. 18 Senta bill to Telecom System for repair work done, 22 Total cell phone repair work collected in cash, P8,500. 25 Repair supplies used amounted to P2,200. 30 Payments for: Salaries, P5,000; Rent, P5,000. 31 Marcie Castillo‘made a cash withdrawal of P2,500. Instruction: a) Analyze the above transactions and record using T accounts for the following 1 Cash 41 Castillo, Capital 2 Accounts Receivable 42. Castillo, Personal 3 Notes Receivable 51 Repair Fees Revenue 4 Repair Supplies 61° Repair Supplies Used 1 Office Furniture 62. Rent Expense 12 Repair Equipment 63 Salaries Expense 21 Deposit for Rent 64 Utilities Expense 31 Accounts Payable ) Extract the balances and prepare a trial balance. The T accounts below summarize the led Of its first month of operations. Cash za U e _ 430,000] 4713. 3,000° ae 421.200} 425 1600 429 900 430 1,400 iger of Rachel’s Landscaping Company at the end_ —stse — ree Accounts Receivable __Lee, Capital a ooo | 429 900 [a1 .000 Supplies Service Reven wa 1,900 2,900 | an 1,200 Accounts Payable 1.600 | 44 1.900 4/15 5.000 | Required: a). Prepare the complete general journal entries (including explanation) from which the cash postings were made b) Prepare a trial balance at April 30, 2012 based on the above postings. 8, The following are the transactions of Joy Davila Consullaney Office for January for its first month of operation 1 Joy invested P100,000 cash and P75,000 office equipment. 2. Signed a contract of lease for a monthly rental of P15,000. 2 Bought furniture and fixtures for P10,000 and paid in cash. 3. Bought office supplies trom Goodwill Bookstore for cash, PS.000. 7 Received P50,000 cash for the cost system installed for a manufacturing company. 14. Paid salary of secretary and two clerks for the first half of January, P12,500. 16 Billed a client, Megaball, for audit work rendered P40,000. 17. Dolly's Modeling Schoo! was billed P15,000 for accounting services rendered. 20 Megaball paid one-half of its account. 21 Bought a second hand car for business use, P230,000. Gave a down payment of P75,000 and issued a note for the balance. 24 Dolly's Modeling School paid PS.000. 24 Joy took P6,000 cash for personal use. 25. Paid for rent and salary. 30 Received utility bills for P3,750. 31 4,500 supplies were used up. Required: Identify the business papers supporting each transaction, b. Analyze the above transactions and record in a two-column general journal. Use the following accounts: Cash, Accounts Receivable, Office Supplies, Furniture and Fixtures, Office Equipment, Automobile, Notes Payable, Utilities Payable, Joy Davila , Capital, Joy Davila, Drawings, Professional Fees, Rent Expense, Salaries Expense, Supplies Expense, Utilities Expense. ©. Make simultaneous postings to the accounts receivable subsidiary ledgers. 4. Open a Chart of Accounts. Use account nos. | to 10 for current assets, 11 to 20 for non- current assets, 2| to 30 for current liabilities, 31 to 40 for non-current liabilities, 41 and 42 forthe owner's capital and drawing accounts, 43 for the revenue account, 44 to 50 for the expense aecounts. Open the weneral ledger and post the journal entries. Prepare a trial balance. Prepare a schedule of accounts receivable and compare this to the balance of the control. account found in the general ledger. 1srF 9. Dr. Tom Cruz opened the Makati Diagnostic Center. a laboratory where the overce, workers of Cruz Manpower S examination as well as the appli He made the following . land of P250,000, and building of P2,500,000, The lotlowing for October: Requir Go over the transactions first and create your own chart of accounts. Start with account no.101 for current assets, 2 a) review of the general ledger reveals discovered the following errors. a b, 18 19 20 23 25 27 28 29 30 31 ; Te (owned also by Dr. Tom Cruz) go for 6 ntemational and ne ory equipment of pps Wong are the additional trang and employees of Ho ash of P| 50,000. labor nt Westments: Purchased furniture and fixtures for cash, P15,000 Purchased office equipment worth P75.500 on account from Olympia whose Wn friend of Dr. Cruz. Bought office supplies and paid cash of pis cab on Bought laboratory supplies and paid cash of P30,000. Received cash of P14-500 fiom various patients for laboratory work done, Placed an ad in the Philippine Star to rum for three Sundays starting onthe 14% p. | one third for P18,000. ‘ | Billed the following establishments for laboratory examinations done: Hog International P16,000 and New World, P18,000. Paid for semi-monthly salaries, P25,750. Paid Olympia P50,000. Collected P10,000 from Hotel International and P14,000 from New World Billed Cruz Manpower Services for laboratory examinations of contract workers, P15 gy) Received bills from - PLDT, P3,000 and Meralco, P2,500. Returned defective equipment to Olympia and received a reduction of P1,500 fom outstanding account. Paid half of the balance owing to Philippine Star. Paid for semi-monthly salaries. Received cash from various patients for laboratory examinations, P7,500. Collected in full from Cruz Manpower Services. Used up half of the laboratory supplies and P5,000 of the office supplies. 01 for non-current assets, 301 for cure liabilities, 401 for capital, 501 for revenue, and 601 for expenses, Journali: using a 2 column general journal, post simultaneously to the accous receivable and accounts payable subsidiary ledgers, Post to the general ledger, Prepare a schedule of accounts receivable and ace control accounts found in the general ledger (or i The totals of the debit sides extract the balances and prepare a trial balance. *ounts payable and reconcile againstie in the trial balance) of Rent Deposit, A counts P. sent Expense were each understated P1,000, s Payable, and RepresSterling Investigative Services Trial Balance May 31, 2012 Debit Cash P55,800 Accounts Receivable Rent Deposit 7,000 Equipment 80,000 Accounts Payable Taxes Pa Silver, Capital Professional Fees 66,900 Salaries Expense "42,000 Advertising Expense Representation Expense 8,000 259,700 Required: Prepare a correct trial balance. Credit 27,500 45,000 10,300 117,000 11,000 210,800 1], The trial balance as of July 31, 201 Iwas prepared by the secretary of Bayanihan Modeling | Agency. The following errors were discovered a) The cash footing in the general ledger was overstated on the credit side by P4,500. b) A payment of a note for P5,000 was joumalized but the debit to notes payable was not posted. ©) A debit to utility expense for P1.S00 was posted as P'1,000. d)_ Salary expense of P3,000 was posted to transportation expense. °) Moreno, Capital. : {Interest Expense was overlooked in the ledger, P740. 8) Particulars Debit Cash P 43,000 { ‘Accounts Receivable 18,400 | Supplies Unused 5,084 Prepaid Insurance 3,000 Equipment 58,786 Accumulated Depreciation Notes Payable ‘Accounts Payable Pitoy Moreno, Capital Pitoy Moreno, Drawing 2,000 Talent Fees Salaries Expense 46,500 Rent Expense 6,000 Advertising Expenses 12,100 Utilities Expenses 5,920 Depreciation Expense 5,000 Insurance Expense ‘joo Transportation Expenses oan ‘Totals Required: Prepare a correct trial balance. ‘A debit of P500 for the drawing account of Moreno was posted to the credit ‘A debit entry for accounts receivable. was posted to the credit side, P6,000. Credit 15,000 14,000 5,650 73,000 145,280 P252,930 it side of 117rF 49, Dr. Tom Cruz opened the Makati Diagnostic Cen 27. yom Cruz) go for i workers of Cruz Manpower Services owned 2h 721 intanational and Ne ser exariation as well 8 the aps 2 oso equipment of Wat He made the following investments: cash 0 Jand of P250,000, and building 10. 116 ataboratory Where the overse Soy, are the additional trans ay, AM 25 The Follow of P2,500.000. ig, for October: - 3. Purchased furniture and fixtures fo" co 4. Purchased office equipment worth P75.900 ° friend of Dr. Cruz. 5. Bought office supplies and paid cash of iF 50 on 7 Bought laboratory supplies and pai 5 for laboratory work done, Received cash of P1500 from various patients fo" Pera 0 Placed an ad in the Philippine Star to run for three Bag cone third for P18,000. . 14 Billed. the following establishments for laboratory ¢x2 International P16,000 and New World, P18,000. 18 Paid for semi-monthly salaries, P25,750. 19 Paid Olympia PS0,000. 20 Collected P 10,000 from Hotel International and 14,000 from New World. 23 Billed Cruz Manpower Services for laboratory examinations of contract workers, PIS oq, 25 Received bills from - PLDT, P3,000 and Meralco, P2,500. 27 Returned defective equipment to Olympia and received a reduction of P1500 from outstanding account. 28. Paid half of the balance owing to Phi 29. Paid for semi-monthly salaries. s 30. Received cash from various patients for laboratory examinations, P7,500. 31 Collected in full from Cruz Manpower Services. Used up half of the laboratory supplies and P5,000 of the office supplies. Required: a) Go over the transactions first and create your own chart of accounts, Start wi account no.101 for current assets, 201 for non-current assets, 301 for cureat liabilities, 401 for capital, 501 for revenue, and 601 for expenses. b) Journalize using a 2 column general journal, post simultaneously to the accouns receivable and accounts payable subsidiary ledgers. ©) Post to the general ledger, extract the balances and prepare a trial balance. 1 4). Prepare a schedule of accounts receivable and accounts payable and reconcile against: control accounts found in the general ledger (or in the trial balance) ations done: Hag ne Star. The trial balance of the Sterling Investigative Services shown next page does not balance. You review of the general ledger reveals that each account has a normal balance. You al) discovered the following errors. a. The totals of the debit sides of Rent Deposit, Expense were each understated P1,000. b. Transposition errors were made in Accounts Receivable and Service Revenue. Based on Postings made, the correct balances ©. Check payment for P9,400 was properly roma baltic and P69,600, respected the accountant failed to post to the debit eer 4 The tral balance shows some accounts are not on their proper sides Accounts Payable, and RepresentaitSterling Invest ive Services ‘Trial Balance May 31. 2012 Debit Credit Cash P55,800 Accounts Receivable P27,500 Rent Deposit 7,000 Equipment 80,000 Accounts Payable 45,000 Taxes Payable 10,300 Silver, Capital 117,000 Professional Fees 66,900 Salaries Expense “42,000 Advertising Expense 11,000 Representation Expense 8,000 : 259,700 P210,800 Required: Prepare a correct trial balance, U1. The trial balance as of July 31, 201 1was prepared by the secretary of Bayanihan Modeling Agency. The following errors were discovered: 2) The cash footing in the general ledger was overstated on the credit side by P4,500. b) A payment ofa note for P5.000 was jouralize but the debit to notes payable was not posted. ©) A debit to utility expense for P1,500 was posted as P1,000. 4) Salary expense of P3,000 was posted to transportation expense, €) A debit of P500 for the drawing account of Moreno was posted to the credit side of Moreno, Capital. 1) Interest Expense was overlooked in the ledger; P740. 8) A debit entry for accounts receivable. was posted to the credit side, P6,000. Particulars Debit Credit Cash P 43,000 Accounts Receivable 18,400 Supplies Unused 5,086 Prepaid Insurance 3,000 Equipment 58,786 Accumulated Depreciation P15,000 Notes Payable 14,000 Accounts Payable 5,650 Pitoy Moreno, Capital 73,000 Pitoy Moreno, Drawing, 2,000 Talent Fees 145,280, Salaries Expense 46,500 Rent Expense 6,000 Advertising Expenses 12,100 Utilities Expenses 5,920 Depreciation Expense 5,000 Insuranee Expense 7,000 Transportation Expenses _16.400 ce Totals P229,190 252,930 Required: Prepare a correet trial balance. 17PROBLEMS 1. Eagle Travel Service, owned by Benjo Pascual, che ed in the following transaction, ory, month of July: J famniture of P22,500. 1 Benjo invested cash of P100,000 and fant nd made a cash dey 3 Signed a contract of lease with Robinson's Realty a di marde a cash Beposit fr py 730,000. iarte Paid P5,000 for business brochures and eal ard Bought office equipment on setoutl a oo 8 Bought office supplies and paid cash of PI. eceisiigottiare 10 Collected P3,000 from Mr, and Mrs. aa pe processing \eir travel} Paper, 11 Paid P1.200 for passport and other document fees, Nae. 12. Arranged a Palin ip for Mr. and Mrs. Bryan Adams. Collected a commissig,.- 5,000 in cash from the airline and hotel en ned an agreement with Golden Talent Ageney for the processing ofthe travel paps, of their talents “ Billed DLSU professors P15,000 for the processing of their tenval pap 15 Arranged a pilgrim trip for the DLSU professors. Billed Philippine Airlines P| 0,099 , commission, 16 Paid for the salaries of employees. P12,500. . 18 Paid P1500 as transportation expenses for the processing of papers to and from DFA, National Census and the airline companies. 19 Benjo withdrew P1,300 in anticipation of profits to be earned. 20 Paid for passports and other document fees, P7,500. 24 Collected P5,000 from Philippine Air Lines. 27 Billed Golden Talent Agency fot processing of papers, P10,000. 30 Paid P3,000 to PLDT and P4,500 to Meralco. Paid P12,500 for salaries. Required: Journalize the above transactions using a two-column general journal 2, The April 2011 transactions of Budget Driving Institute owned and managed by Criia ri Rosales are listed below: 2 Rosales invested P250,000 cash and P15,000 furniture and fixtures. 4 Two second hand cars were purchased and a 50% down payment of P150,000 ws made. Issued a promissory note forthe balance. 5 Bought office equipment for cash, P12,000 6 Two student drivers filled up an application form stating, among others, that they wee willing to pay P2,000 cach for a one-week lesson, 7. Paid P2,000 for gas and ol 8 Paid P10,000 for an advertisement that was posted along the his busines 11 The two student drivers paid in fil ne Ne hishway to promote he 14 Another two student drivers were billed for P4,000 b ! 4 000 but ont ch 15. Salaries were paid forthe first half of April amounting to P4300 19 Ms Rosales made acashwithraval of P,500, i Driving Fees of P7,000 were billed to various cle D 1 ted. 27. Utility bills paid in cash, P4,500, eee 30 Salaries were paid for the second half of April 118wired: a) Open a chart of account. R it . Required pen ‘evenue Title should be Driving F it 101 for current assets, 201 for non current assets, Soe ne oes: Start with 101 for non-current liabilities, 301 for eamiaa expenses b) Record the above transactions in a two-column ger ia fliwing account tes: Cash, Accounts Receivable Fumiee a: Me Office Equipment, Cars, Accounts Payable, Rent Payable. Note, Fre? Rosales, Capital, Rosales, Drawings, Driving Fees Revenue, Auvener Expense, Gas and Oil Expense, Salaries Expense, Rent Expence Urine Expense. c) Open the general ledger, make posti and prepare a trial balance. 3. The following are the transactions of Budget Driving Institute forts second month of operation 2 Paid for the rent bill, 3 _ Received a bill from Cifra Motors for P3,500 repair work done on the car 4 The owner invested two taxi units costing P500.000, 5 Paid for insurance P1,500 and for taxes and licenses P2,500. 6 Hired two drivers for the taxi units 7 Total revenues collected, P8,100 of which P3,600 came from the boundary fees of the taxi units 8 Paid P4,500 for gas and oil. 9 Installed an aircon unit in the office for P12,500 payable after three months, 2 The account customers paid in ful 8 0 Paid for the semi-monthly salaries, A summary of revenues showed a total of P7,500 for the driving lessons but P1,000 is still uncollected : 21 Paid Cifta Motors in full of account. 27 Total boundary fees collected amounted to P 12,000. 28 Paid P4,500 for gas and oil and repair of taxi units for P2,500. 31 Paid for rental and salaries. Required: ) Continue recording the above transactions. Use an additional revenue account for Boundary Fees and additional expense accounts for Repairs, Insurance and Taxes and Licenses, 6)’ Make postings to the general ledger and prepare a cumulative trial balance for two months ending May 31, 2011 4. Alice Vergel opened the Mega Theatre by investing cash of PS00,000 on December 1. The following transactions took place during December: 3 Purchased the equipment used by Cine Theatre which was closed down by the government. Terms; P200,000 down, balance covered by one year promissory note for P300,000, 4. Signed a contract of lease with Alabang Realty. Gave a deposit of P100,000 for rent. 5 Paid cash of P15,000 for advertising the theatre and for the purchase of billboards. 6 Furniture and fixtures worth P| 50,000 were constructed by Engineer Gonzales. Gave a 30% down payment, balance to be paid within 90 days. ; 8 Opened the theater with a gala premiere that brought in cash receipts of P20,000. 'l Additional cash receipts for the week, P14,500. '2 Received a bill for P15,000 from LVM Productions for the rental of film, 16 Leased out part of the lobby for the operation of a canteen at a monthly rental of P7,500. 18. Cash receipts for the week, P15,000. 19. Paid P1,500 for taxes and licenses. 23. Paid P10,000 to LVM Productions. 19EF 25. Cash receipts for the week, PIA, sominu to En 26 Made a partial payment of P1S.000 forthe acount owing 27 Bills paid: Meralco, P8,000 and Manila Waters. P1.50 29. Vergel made a cash withdrawal of P5.850. Films. P25.000. 30 Received a bill rom Viva Production for renal of fils, a - 31 Received the amount due from the canteen operator. P3.73 Leech, Paid P12,000 tor salaries and wages. Required: eral journal, a. Journal entries using a two-column general journal, b. Post the accounts payable to the subsidiary ledgers and extract the balances, Pr. schedule of accounts payable. abe ©. Prepare a chart of accounts, open the general ledger and make the necessary Posing Extract the balances and prepare a trial balance. 4. Reconcile the schedule of aecounts payable and the balance ofthe 2°counts payable ing general ledger. ea 5. The Royal Laundry Services was opened along the university belt by Pauline De Jay October | with a cash investment of 50,000 and furniture and fixtures worth, Ps,000, The following additional transactions occurred during the month: 2 Purchased four washing machines worth P24,000 from Automatic Centre using iy Citibank personal creditcard. Applied fora one-year creit term, the lability tobepay by the business starting at the end of the month, | Rented a store space for a monthly fee of P5,000 to be paid in advance atthe stator every month, Hired a clerk and two workers at a monthly salary of P4,000 each, Bought washing supplies and paid cash of P4,500. Rendered services to the boarders of Laredo's Dormitory and received P2,500 inca Bought office equipment worth P6,000 using Citibank credit card. Applied foratermet six months, the liability to be paid by the business. 10 Billed the following clients for washing services rendered: San Lorenzo boarders: Mich Eulogio P1,000 and Helen Narvasa, P500: Holy Spirit boarders- Kristy Gatdula, PI st0 and Myrna Tan, P750. 11 Cash receipts for washing services, P2.500. 13 Paid P1,500 for taxes and licenses, 14 Collected in full the account of Mitch Eulogio. 15 Paid P6,000 for salaries of the clerk and workers. 16 Collected P500 each from the following account customers: Helen Narvasa, Kris) Gatdula and Myrna Tan, 17. Collected P1,500 cash for washin; 25 Received bills from: PLDT, P1,8 26 Paid the Meraleo bill 29. Paid 6,000 for salaries, and the first monthly installment to Automatic Centre. 31 Washing supplies used up amounted to P2.000. Required: a) Journalize the above transactions using a two- b) Post to the accounts recei ©) Prepare a schedule of ac weaus g Services rendered by the business. 75; Meraleo, P4.550 and Manila Waters, P750. column general journal. vable and accounts payable subsidiary ledgers Counts receivable and accounts payable. 6 a) Fond on your pus; in Problem 5, prepare a Chart of Accounts for Royal Laut? Services, using Account No.101 for Assets, 20} fo as sey Aol Te Income. 501 for Expenses O1 for Liabilities, 301 for Capital, 40| vy the Chart of Accounts, open the general ledger and post the journal entries. the account balances and prepare a trial balance. balances of the accounts receivable and accounts payable ledgers against the b) Base ) Extract Fympare the 2) Comat accounts receivable and accounts payable that you prepared in problem 5 sched py Anabel Dominguez opened Weigh Loss, a slimming salon, on January 1,201, The ledger teas of December 31, 2011 found below contains the following errors: balances 4 debit of P7,500 to Slimming Equipment was posted twice. BA credit to cash of P2,000 was posted as P200. 1) debit of P1000 to Utilities Expense was posted to Salaries Expense. $) Acredit of P4000 to Accounts Payable was posted on the debit side, {A journal entry for cash received of P2.250 on treatment fees earned was not posted. f)_ Medical Consultant's Fees Expense of P5,000 was posted twice. ¢) Footings for cash on the debit side was understated by 4,500. fi) Supplies Used was copied in the trial balance on the wrong side. a) Particulars Debit Credit Depreciation Expense P 18,000 Slimming Equipment 75,000. ‘Accounts Payable P 9,250 ‘Accounts Receivable 62,600 Cash 52,700 Treatment Fees Earned 134,400 Supplies Used 2,400 ‘Accumulated Depreciation-Slimming 8,000 Equipment e Utilities Expense 87,000 Miscellaneous Expense 15,400 Rent Expense 93,680 Salaries Expense 34,800 Medical Consultant's Fees Expense 24,240 Furniture & Fixtures 70,700 Dominguez, Capital 349,620 Dominguez, Personal 8,450 Notes Payable 15,900 Accumulated Depreciation -Furniture & 10,000 Fixtures . Totals 542,570 529,570 Instruction: a) Prepare a correct trial balance. b) Which of the above errors could not be detected from the trial balance that is not out of balance’?yr CASE STUDY The following accounting procedures were made by the bookkeepers of Bayantel: Bookkeeper A- using the service invoice issued to ert De Leon. @ customer, he py, liting service income Trea a Tedger for accounts egg Me entry debiting accounts receivable ar posted this to the debit side of the Bookkeeper B - Using the service invoice, he posted the correct amount to De Legy. (subsidiary ledger) on the credit side. Sing Questions: a) Who among the bookkeepers committed an error? What will be the effect of the error b) Will the trial balance be out of balance? Why or why not? ©) Will the accounts receivable balance in the general ledger reconcile with the Scheduy accounts receivable prepared by Bookkeeper B? Explain. eatCHAPTER 6 PROCESSING SELECTED BUSINESS TRANSACTIONS LEARNING OBJ) “TIVES, Afier studying this chapter, you should be able a. analyze and record transaction, than for cash. ‘affecting the owner's investment and owner's withdrawal, other analyze and record transactions affecting acquisit record cash using two account titles: Cash On | prepare a payroll sheet a analyze n, use and disposal of assets. nd and Cash In Bank, record transactions affecting payroll and payroll liabilities. and ree erest i int {ecord interest bearing notes from the viewpoints of both maker and payee. compute and record business taxes, licenses and permit This chapter discusses addtional transactions other than those needed to start business or to operate a business on a regular basis. It includes other forms of investments, additional expenditures incurred in acquiring properties, payroll accounting, accounting for interest and non- interest bearing Promissory notes, and taxes imposed by the government. The accounting concepts and process for these transactions are applicable forall types of business: service, merchandising or manufacturing. INVESTMENT OF OWNER Other than cash, the owner may also contribute property or buy an already existing business, Ifthe contribution is in the form of property, it must be recorded at its fair market value. Market value represents the amount for which the asset could be sold ot bought in its present condition. Investment in Property. To illustrate, assume that on May | of the current year Ambeth Ocampo invested land which he bought for P200,000 in 2003 but which current market value at investment date was P500,000. The asset acquired by the entity from the owner's investment should be recorded at the actual price established on the date the investment was made notwithstanding that it was purchased at a cost of P200,000. This is still based on the Exchange Price or Cost Concept. The analysis and entry will be: ANALYSIS DATE PARTICULARS DEBIT | CREDIT Increase in asset land 2012. | Land ; with a corresponding May! | Ocampo, Capital increase in owner's Initial investment of the equity, owner. Note tha, instead of Accounts and Explanations column, a Particulars column is used which is also acceptable, In actual practice, accountants may use their own account titles or headings other than what are regularly used or recommended as long as they properly convey the intended ‘meaning and do not confuse the statement users or decision makers. This is in line with the Qualitative characteristic of Understandability.Investm werty with Existing Liability. If the owner inve ane wig existing liability to be assumed by the business, the liability recopnized inti books oft thing! will decrease the amount of eapital to he credited. Uo illustrat. assume that Marvin Agyin of cash, the land was mon, property that was acquired in 2005 for PLOO.000. In ee lund for business eed ¢ Metrobank in 2008 for P200,000, fn 2012, Marvin invested is 00 and this at which time ity market value way P500,000. It still uses the bank ability wig assumed by the business. ‘The analysis and entry will be * ANALYSIS DAIL PARTICULARS Incrase the asset land, May 8 | Land 500 G00 increase the fiability Mortgage Payable and increase the Aquino, Capital ' owner's equily al net Aquino's investment ne of mortgage. | The land was bought for P100,000 in 2005 but was recorded at ieearent i OF P50 94 Aquino was credited only for P450,000 instead of 500,000. The Mortgage Payable creditgy fy P50,000 decreased the capital of the owner to P450,000. Investment of an Already Existi practically the same if an iny Purchases an already existing business. The assets and liabilities of the new business must a recorded at the current market values of the old business. To illustrate, assume that Fred Verson has a business called Fred's Store which Mark Roces wanted to buy. On May 12, Fred offered ig sell it for P208,000 after agreeing to decrease the value ofthe merchandise inventory and the ff furniture and equipment. The assets and liabilities of the store are listed as follows: ness, The rule is practi sto, Iso be Cost/Book Value Market Value Accounts Receivable P100,000 100,000 Merchandise Inventory 240,000 138,000 Office Furniture & Equipment 250,000 120,000 Total 590,000 358,000 Less: Accounts Payable 150,000 150,000 Net Assets 440,000 P208,000 ANALYSIS PARTICULARS May 12} Accounts Receivable Merchandise Inventory Furniture & Equipment Accounts Payable Roces, Capital To record owner's investments, Increase assets by P358,000, increase liabilities by P150,000 and increase owner's equity by P208,000 which was paid by Roces to Versoza, 100 000, 138.000 120 000 124| wnen’s DRAWIN srt reas, the OEE may also make Othe jul be recorded at its original cost (if no ore ys accumulated depreciation) if the Personal withdrawals in the form of property t subject to depreciation) orat its book value whic asset is subject to depreciation. This time it is not ost le a " worded « market ae do assume that on May 12 the owner Karen Gil took hhome a Fema: which 4 Pusiness Property and has a market value of P25,000. It was bought for puo,goo and its accumu lated depreciation at the time it was taken by Karen was P6,000. Analysis aodentty Will De ANALYSIS ___ PARTICULARS DEBIT | CREDIT peerease asset based on cost P40,000 less P6,000 secumulated depreciation and decrease owner's aquity based on book value of P34,000. May 12] Gil, Drawing Accumulated Depreciation - Equipment To record the computer withdrawn by the owner. Book Value represents the unexpired cost or remaining utility value of the asset. CASH ON HAND AND IN BANK Anentity usually deposits its cash in a bank account either as a current account or a savings secount, Deposit are recorded as increase in asset Cash In Bank. Cash withdrawal from the current ‘ecounti facilitated by issuing a check while a withdrawal from a savings account is done through ‘ withdrawal slip. Anything withdrawn from deposits made is credited to Cash in Bank. On the ‘ther hand, Cash On Hand represents all monies found in the vault or safe deposit box within the premises of the business entity Cash isnot always in the form of paper money and coins. Negotiable instruments like a bank check, government's treasury warrant and the postal money order are accepted as medium of exchange and also considered as cash. To illustrate, assume that: June | For service rendered, the company received cash of P50,000 and a check for P100,000. June 2. Opened a current account with PNB and deposited the check received. July 1 Issued a check for P15,000 in payment of an account. Jaly 15 Paid the salary of the secretary, P5,000 in cash ENTRIES ANALYSIS. DATE PARTICULARS beBIT_| CREDIT h [Tune 1 [ Cash On Hand 150 000 oo Service Income 150 000 on hand and increase Received cash for owners emus. services rendered. Increase in asset cash Tune 2 | Cash In Bank 700 000 'nbank, and decrease Cash On Hand 100 000 Masset cash on hand. Cash deposits made. I 125DEBIT ANALYSIS DATE PARTICULARS, Decrease in liability July 1 | Accounts Payable 15.000 | and decrease in asset | Cash In Bank 15 cash in bank, | payment of account * Decrease in owner's | July 15. | Salary Expense | a equity and decrease in | Cash On Hand | | Sty asset cash on hand, | 1 Payment for salary | | i Note that the check received from the customer on June | is debited fo cash on hand, oy, upon deposit will it be debited to Cash In Bank. The check issued on July 1 is credited 19 cay! bank because it will decrease the cash deposit of the business. ® VALUE OF PROPERTY Acquisition Price. The Revised Philippine Accounting Standards No. | states that acquired prope plant and equipment should be recorded at its cst (the price established in an exchange transacting based on the Cast or Exchange Price Principle. Aside from the purchase price, the following es, must also be capitalized (added to the cost of the asset): 1). Incidental expenses incurred in transporting the asset to the place of the buyer such as tae, import duties, storage. insurance while in transit and freight are capitalized. These capit expenditures are added to the cost of the asset. 2) Additional expenditures needed to set up and test the property to make it ready for use areal Capitalized such as installation cost, test runs, gas and oil used, salary of hired expert to make thetsy run or installation. Salaries of entity’s own maintenance or engineers atthe time they are makin th {est or set-up ae still considered expenses since they are regular employees of the entity. 3) Trade discounts, rebates, returns and allowances are deducted from the purchase price of th acquired property. A rebate is a discount granted for paying an account promptly while ar allowance is a reduction on the price given to the buyer to cover up for defects or spoilage on the asset purchased. A discount may also be granted when large quantities are purchased ur when the buyer is a regular customer. To illustrate, assume that a machine was purchased for P150,000 less a 5% trade discount ‘Additional expenditures were incurred to bring in the machine: taxes of P7,250, freight of P5.000 ‘and insurance of P15,000. A check was issued for all the payments made. Upon receipt of he machine additional costs were incurred for assembly, installation and test runs P20,000 whivh were all paid in cash. Analysis and entry will be: ENTRY ANALYSIS DATE Increase in asset Machinery machine and decrease Cash Ih Bank in asset cash To record the purchase of ‘machine plus incidental expenses. Machinery Cash on Hand Cash paid for test run.ry sv of the asset purchased was returned because of a defeet or b efect or be swrpere easel pre Spit specication be vs ie Of the property purchased will decree aaah eee onthe eg in cose eas ia ash refine received or a corresponding decrease in tabi rie ia elses viinally on ret, Aemative instead of retuming the ass Eales ite jestask ora silowance or adjustment on the cost price. An allowance willalse deco ims a wortesponding asset inereae i eash refund iy received ee aes cre ithe property Ws purchase on account, To illustrate *Sarespondling juge 1 oul tables and cats fom Alpha Furniture Store and pad cash, P15,000, Je A dofetive table was retummed and a eash refund for P2,500 was secehued: ie7 Hout an Aeer computer on account, P70,300. Jum Complains of @ sight defect in the Ager computer pure er adjustment of P1500. puter purchased and was given a price ENTRIES ANALYSIS DATE PARTICULARS DEBIT | CREDIT Increase in assets Furniture & Fixtures Cash On Hand Cash purchase of furniture Cash On Hand Furniture & Fixtures Cash refund for returns furniture and decrease in assets cash Decrease in assets furniture and increase in assets cash made. Equipment Increase in assets equipment and Accounts Payable increase in liabilities Equipment bought on account. Accounts Payable Equipment Allowance received for defect in purchase made. .ce on June 8 have the same effect: decrease on be physically transferred back to the seller. Decrease in assets equipment and decrease in liabilities. Note that a return on June 4 and an allowan | the asset although a return requires that the assets It In buying assets, the important value is the cost or purchase price. But “prudence” tells you | thatas you use the asset, its cost depreciates and the statement of financial position must now show | this at book value (cost less accumulated depreciation). Ths is explained further in the next chapter. Ban A few years after, the historical cost of an asset (and its book value) becomes unrealistic | Gsinee prices keep on changing) when combined with the other newly acquired assets in presenting the financial report of the business entity. One way 10 show the current 0 real worth of the ously at what it will cost today. The new cost is business would be to revalue assets acquired prev’ __ clledcurrent market value. There are three ways of classifying ‘current market value: replacement | SM, realizable cost and economic value If'we value the asset at what it will cost if we buy oda, this ig called replacement cost. If we value the asset al the amount it could be sold for 127| a today, this is walled the realizable value. Ife think in yerms 0! the firture eash flow, to be enjoyed by the business when it uses the asvet. it is called the ecanoy valu es values have one disadvantage. Recall that we iry #0 provide information that-is eles relevant. But current market value need juienignt and estnnation. it 8 Subjective ang gt ay subject to error. Again, prudence dictates its hetier to use the historical cost sinew itis f ‘hens objective. Measurement of eost on these three values are diseussed in higher accounting MM Sale of Assets. Assets of the business may be sold if they want to replace it With g sophisticated one or if it has become obsolete or inadequate. Obsolescence Occurs when 3 te model is invented or produced than what was originally aequired. Inadlequacy resulls ype? asset can no longer meet the demands of the business, like when the production eapacy he machine is only 50,000 units whereas the sales volume needed by the business is 199 illustrate, assume the following transactions: " June 30, 2008 Bought an equipment and a check was issued for P15.000. Useful ite July 1.2012 The equipment had to be replaced and so it was sold for cash P5009, one date, the accumulated depreciation was P 12,000. s July 5.2012 Asimilartype of equipment but with a larger produetion capacity was acquind ‘a check was issued for P50,000. In addition, P5,000 was paid for ining ance and tax vol, 00. expenses incurred such as freight in ENTRIES ANALYSIS DATE. PARTICULARS DEBIT Creo] a) Increase in asset June 30 | Equipment 15 000 | equipment decrease Cash in Bank 15000 in asset cash Cash purchase of equipment. by Increase the asset cash. ] July! | Cash On Hand ; 5 000 occa pauinment st ‘Accumulated Depreciation* | 12.000 value, increase Eavipment 130 owner's equity for gain Gain on Sale of Equipment 200 | ©) Increase the asset hea equipment, decrease uy: Equipment 55,000 the asset cash. Cash In Bank soo | “The following rules should be observed: 1. Close the asset at its cost price (what was recorded in the books at acqui > Close the related accumulated depreciation, Since plant assets are used in the operations 8 is matched against revenue over the years that it will be in use. Using an allocation metho! which is discussed in chapter 7, every year part of the cost is deducted from the equipment al recorded as expense.” Hence accumulated depreciation represents the cumulative expired of using the equipment. Once the asset is sold, the equipment account is closed on the related accumulated depreciation on the debit side. ion date.) See arrow. side so with 3. Compare the cash proceeds (cash received of P5,000) against the book value of the asset le. There is a gain on sale of asset it the ot (P3,000) to determine the gain or loss from the proceeds is higher than the book value. There isa loss on Jesser than the book value. The computation to determine the gain or los owen Hows le of the asset if the P will appear asf 128P 15,000 lited Depreciation 12, O00 Book Value ‘Sono 00, P 2,000 Cash Proceeds ; Gain from Sale of Equipment igecall that Chapter 4 mentions two kinds of income: serview revenue and stich as sale of property. nd ain trom caer somes purchase of imported equipment, Sonetines the euipment needed (ch asthe Heielbery peal printing equipment) can only be ordered abroad, This will require pyinent in fore, Mik suet as US collars, oF English pound, or the Kuno, His necessary to determine te Refange rate oF the local curreney against the foreign currency, Example: equipment wie purchased Irom Heidelberg Press, to be delivered once the payment is received by the Miplic's bank. Our company purchased 20,000 curas when the foreign exchanpe rate wns pasioa curo, Fhe entey for this iss Debit the equipment and credit the eash for PI. 30),000) Suppose the equipment was delivered on terms of 30 days? ‘The company received the equipment on tay when the Forex was PS Ga ura and pa when the peso depreciated hy PS. Entries will be: 7 ENTRIES ANALYSIS PARTICULARS DEBIT REL Increase in asset Equipment 1300 000 equipment and ‘Accounts Payable 1309 000 inerease in liability | Equipment purchased for | aecounts payable | 20.000 euro. 1300 000" 100 000 Decrease in liability | | Accounts Payable and decrease in | | Loss on Foreign Exchange ae | Cash in Bank 1 400 000 Cash paid for account | due to Heidelberg, J ice at acquisition date, but since payment is days after, a loss was recognized: liability P1,300,000 required payment P1,400,000. Note that equipment is valued at cost or purchase higher thir PAYROLL IL is not surprising for bi companies to hire workers and employees numbering to a thousand, And because of this, one of the biggest expense account of a company is compensation expense orsalary expense. Related to compensation are the payroll liabilities a company is required 10 pay such as Soeial Security, Philippine Health Insurance (formerly Medicare), Employee Compensation Insurance and Home Development Mutual Fund (or Pag-ibig), to name a few. You can see why payroll accounting and payroll control are very important. The term “payroll” represents compensation paid to employees and workers, Regular employees are paid monthly or semi-monthly salaries while workers are paid wages based on an hour rate or, piece rate, Payroll accounting involves. more than a listing of the names of employees and workers Firms are required by law to maintain employees’ and pay taxes to the Bureau of Internal Revenue and and the : With their corresponding cords and ay eolleetion agents, 10 qputibutions to the Social Security System, Philippine Health Insurance Corporation ome Development Mutual Fund for and in behalf of the employees.- * pay toll sheet is prepared to facilitate the computation of safaries and wages, i, important columns: employees’ names, gross pay, deductions from the gross pay, the ney take home pay and the signature signifying that the salary or wage has been recgiyag Py employee. The gross pay represents the {otal compensation earned by an employee or Work certain period of time. Most businesses pay their employees semi-monthly salaries Which pct that an employee is paid for 1wo payroll periods. If the employee’s salary for the MON of jy 8,000 an she is pid wie, P40 i pi on or before June 15 fo the Payroll peti je 15 and the other P4,000 is paid on or before June 30 for the payroll period June 161030, Wag? are usually paid weekly based on the number of hours worked of pieces of product fini, ® DEDU S FROM GROSS PAY The gross pay or salary is not the actual amount to be received by an employee or yo, because ofthe deductions required by law including membership dues ifemployeeisamenpae, a labor union or association, Income Tax. Based on earnings made, every employee or worker is required to pay taxes iy government. The amount to be withheld for income tax purposes as well as the Amounts of exemptions are based on a tax table and schedule of exemptions provided by the Bureau of nny Revenue (BIR), The tax table and exemptions are reproduced on page 133 ‘SS and Phil Health. {t is also required that an employee or worker be a member of the Social Security System (SSS) and the National Health Insurance Program (Phil Health) and as such mug make monthly contributions. In exchange for the monthly contributions, these agencies prove services and benefits in the form of educational loan, salary loan, sickness benefit, css benefit, pension pay. and retirement pay. ‘The contributions, like the tax, are to be withheld fm their pay based on an SS table provided by the SSS and the Philhealth table provided by te Philippine Health Insurance Corporation which are reproduced on page 134. HDMF (Pag-ibig). Republic Act 9679 otherwise known as the HDMF Law of 2009 reauns mandatory coverage of all employees including those caring less than P2,500 a month effectves of date oftheir employment. If monthly compensation is P2,500 or less, P25 is deducted from te {gross pay of the employee while the employer contributes P50 for and in behalf of the employe A rate 2% based on gross pay is deducted for those earning more than P2,500 up toa maximumot P15,000. The employer contributes also another 2%. Eamings over P15,000 requires a fd contribution of P300 each from the employee and employer. This took effect January 2010. ‘Some employers are still using the old rate which is a contribution employer based on gross earnings less than P5,000. The maximum P100 each based on P5,000, which means thi contribution will of 2% each from employcean) monthly contribution was st at even if the earning is more than P5,000. ie be P100, Author uses the old rate for illustration purposes. How are these payroll liabilities paid? ‘An employee or worker need not pay directly all to these agencies. It is required by law th? these amounts be deducted from their compensa e Iti required by deduetions become obligations of the von, on & “pay as you eam” basis. TI i r business-employer who must make monthly remittanks* the various agencies, Lolan Dut. An employee or worker may be a member of'a labor union and as such * HY required to make contributions tothe union, Instead af the Union collecting from each of the” may also request the employer to make the deductions from the pay of the employees! worse" Boqd over 10 the union. pe turned fn case of emergency or necessity employees or ane against their compensation, From t swith a corresponding increase workers are 0 Sometimes allowed to he viewpoint of the NewPoint of the business the asset cash in another asset a advances resp tccount orkers. This is prepaid expense account where eash ws been pa fe Wvance for nice toe received from the employee or worker, Recall hatarightieccie from the custome jgaboan asset called Accounts Receivable. Similarly, an advance Tepresents a right ‘ocolec fom the employee but this Lime’ it sin the form of service. Instead of collecting from the enploye worker ris is usually deducted from the employee's workers compen’ on payroll date ET ILLUSTRATED A Payroll Sheet is a salary computation sheet showin, sitions. corresponding gross salaries, deductions and the n assume that the following are employees of Speedy Delivery Dimatulac: PAYROLL SHE 1g the names of the workers, their el pay to be received. To illustrate, Service owned and operated by John Employees Position Tax Status y Beverly Cruz Clerk-Typist Single ee 1 ‘an Enrica Fajardo Secretary Married with 1 dependent 7,600 ‘Abraham Lim Messenger Married with no dependent 7,000 David Manahan Messenger Single 7,000 Charito Perez Cashier Married with 1 dependent 8,000 Assuime that Enrica Fajardo requested for a cash advance on July 17 to be deducted against her salary a the end of July. The entry of the business on July 17: Particulars July 17” | Advances to Employees Cash On hand The payroll sheet applicable from July 16 contribution table, Philhealth contribution table and 134 Note that SS contribution depends on the range of compensation the employee's salary falls within, For example, since Beverly Cruz’ salary is P7.000, in the SS table her range of fompensation is between P6,750 and P7,249.99 and her SS contribution is P233.30. Her Phil {Heath contribution is P87.50 since her monthly salary range is from P7,000 to P7,999,99 which i inline with monthly salary bracket 4. Her Pag-ibig or HDMF contribution is P100 based on the maximum rule of 2% of P5,000. The law re to July 31 is illustrated on page 133. $S Withholding Tax tables are shown on page quires that withholding tax be withheld every payroll date, all the other rbutionsare withheld only once from the payroll nearest the end ofthe month, And since these are deducted only once a month, then the basis of computation is the monthly gross compensation. the omPanies. however, deduct all contributions semi-monthly so thatthe take home pay will be re te amount. This way, the employee will find it easy to prepare a budget of daily theres. Author will use the procedure of deducting withholding tax semi-monthly andthe We conbutions only a the end ofthe month. The iustaed Payroll Sheet from July 16 to 31 pre 33 shows all the deductions. The Payroll Sheet from July 1 to 15 carries only the Hhoing tax deduction. BIFr Computations for the withholding head ofthe fan employees and their tay status sueh as sine Withholding taxes of the employees. 1. Beverly Cniz (in Row A 2. S/Mb. Col 2) Pp plus 10% of P789,60 (93,289.60 ~ P2500) : 2. Fnriea Fajardo (in Row B MEW/SEI- Col 3) pP plus 10% of P39.25 (P3.581.25 ~ P3.542.00) 5 3, Abraham Lim (in Row A 2 SME, Col. 3) F ~ p2.500) Plus 10% of P789.60 (P3.289.60 4. David Manahan (in Row A 2 plus 10% of P789.60 (P3,289.60 ~ P2. Charito Perez (in Row B 3 MEU/SI, Col. 3) Ss plus 10% of P224.65 (3,766.65 — 3.542) Explanation: got the taxable monthly earnings. This re contributions of the employee which ar earnings all the 2 to get the sem monthly taxable earnings, divide this by Beverly Cruz Gross monthly earnings P7,000.00 Less SS 233.30 P250.00 PH 87.50 87.50 HDMF 1.00.00 __420,80 100.00 Net Monthly Taxable Pay 76,579.20 /2 Semi-monthly Taxable Pay 3,289.60 ng over th Next, compute for the tax liability by 2 sheet, Since Beverly Cruz's tax status iss 1 to 8 look for a figure that is not more column 3: P2,500, Her basic tax liability is of P3,289.60 over P2,500. Aull payroll sheet. monthly taxable eay y or married. The fallow computed by deducting from go, ed in the payroll sheet. From , j-monthly taxable earnings. Example .¢ withholding tax table found below the payt gle, go to Row A Bracket 2 S/ME. Then from colums than the taxable earnings of P3,289.64 20.83 plus 10% more of P789.60 which is the exess hor highlighted the data in the tax table found next page below May 20.83 78.96 99,79 20.83 3.93 24.76 20.83 jardo 7,600.00 a 437.50 7,162.50 2 3,581.25 0 and that si< a 19991 esoer ioe M9 U0 Sjuo pamoys sony oz 7999 T Er SCS ZOU str s29$ c sch Eee ‘oon-o1 ea eas c ‘or E B68 er9 Tse T st oorer__| 216 ‘ons wee ‘wrt ziror | tees “16% ‘ose uP or WIN *elE=] NIAO Mase WIAG%0e+ | HAA sl |HAAO VeOL TTR ’ £ alorees a |arest a | crt a | cour a Ti < ’ 5 * € z (600c “1 Mtenuef eAncaga) ATAVL XV ONIGIOHHLIM CaSIASY XTHINOW IWS = - = Lo‘soc'tla | eorreo'ra] os'td | o0sa | oo'sta ereocd | o0€'sid : 7 oorosr's | ovis 00) | ooo | oL99¢ | oer 000" Aaiyse | zaraq o1sey =| Ir6Lee oor | oses | ovesc | 666 o0s‘e sa8uassay | ueyeueyy praeg a IroLez oot | oses | osesz | 6r'66 oos'e teBuassow | wr] weyeiqy re Les 00s‘Id | 001 oss o0'0sz ara oos*e Aaeyounag | opuefey eouy A eal Ir eL6%d Gol | Ose8d | Oretcd | 6466.4 | ons'ea | wsIdKy-yajy | zip arog = a - { = 1 i eH XBL Red aumeutig pv | AIWaH Nd SS | Supjoyguay | ssoup wonsod SOUNEN = 5 \ { 2\'x x ‘LOOT “1E 01.91 AIP poriad 4 : P Sou annsadsar mo aysoddo patsoads wns aut jo 10901 AGI‘ MONMOV Attar cm LAIHS TIOWAVE IAWAS AVTAIIIG AGaadS:The Social Security and Phillealth monthly contributions are based On the fot effective January 1, 2007 Ye TABLE FOR SS, EC CONTRIBUTION pm aR B MONTHLY CONTRIBUTION SALARY RANGE OF y owrany BRACKET | —__COMPLNSATION jo asivovee or] 7 Co) ae Ww [0 eo 11000 $5 O nirw | 1000] — 176.0 10,00 im T1900} 00) 7 i000 Tosi Saf s.000 eo [93999 “6.0 24.00 10.00 Sra soo | aa Saxo [Foon [90 | 10.00 F999, Fa | __330.00 70.00" 32199) [A000 seea0 [1000 8749.9, 8.500 600.70 10.00, ce sico0 | 1000 TaT998 cn ee Too Toa 0670 | wat —38350 pa “wT T0500 7300} Toor 3e00 hae T3998 Ta Fara [Toon | 34670 T7999 110 41270[ Too | 3530s D399 T2000 taso0 [toon | —vundo [ia PHILHEALTH MONTHLY CONTRIBUTION TABLE ” MONTHLY] MONTHLY SALARY — | SALARY Toul Employee Share| Enpnerstc Fe SALARY RANGE ast Mant (es) cs ' TROW 70 138)__|_Conibuion | es=03 eTMO)_| 115-05 10 7 TBoHH_[ and ow | 400000_|[ To ao i z Samo — soo. 99 [sooo [13500 oF re A Sea | sam.on_| 15800 no i uanoo [7.99999 | 700.00 | 195.00, ae = 0050 [E955 —| — Rann. o0_| U0 ‘ae [eo é anno | 9.99099 | 900800 | 22500 1250 7 70,060.60 | W999 99 | T0000 [280 00 125.00 x iT.90000 | 44,9999] 1106900 [275 00 1750 9 .60000—| —1a8899 | — iano [0 00 150.0 10, 13.000.00 | —1a9WR99 | 3.00000 [2s 00 162.50 T Teo06.00 | — 149099 [— gona [sso 00 iP ‘5,500.00 | 1599890 [800000 [378.50 147.90 1 7.00000 —| 16,999.99 [Tecan [aon 00 = 3000 Tram ad T7998 99 | — TF 0 | — 80 312 i006 | — 1499999 [xno > [aston 134she payroll jownal entries will appear as follows Particulars Date - al Credit 5 | Salary Expense 3 sabe Withholding Taxes P T8500 0h 3 Cash in Bank nine Fo record payroll tor the first halfof July — uly 31 | Salary Expense 18 300.00 Withholding Tases Payable 36743 SS Premiums Payable 121660 Philhealth Premiums Payable 450.00 HDMF Premiums Pay 500 00 Advaiices to Employees : 1 500 00 Cash In Bank 14.265 97 ‘Yo record the payroll for the second half of July Anal For the first entry use the payroll she t bul deduction should only be the withholding tax. Based on the payroll sheet, total 1 gross pay represents total services rendered by the employees which isa decrease in owner's equity (salary expense): Withholding Tax, Phithealth and HOME deductions represent increases in liability. The advan and the net pay which is the take home pay of the employees are decreases in assets, EMPLOYER'S CONTRIBUTIONS The law requires the employer (business) to make corresponding contributions for SS, Philhealth. HOMF or Pag-ibig and EC premiums for and in behalfof their employees and workers, ‘The EC or employees’ compensation insurance is a requirement contribution of an employer as mandated by law which entitles employees to additional benefits with regard work connected: sickness or injury resulting disability or death of an employee. A schedule of total employer's contributions, based on the above illustration, will appear thus: SS Philhealth | _ EC HD} TOTAL Beverly Cruz__[“P_494.70_[P 87.50 | Pi0.00 | Pi00.00 | p692.20 a Enrica Fajardo 530.00 87.50 | 10.00 | 100.00 72750 (Ux Abraham Lim 494.70 87.50 | 10.00 | 100.00 6220 | DavidManahan | __494.70 87.50 | 10.00 [100.00 692.20 | 4 Charito Perez 100.00 10.00 100.00 775.30 P2,579,40 | 450,00 | P50,00 | P500.00 | P3,579.40rF Based on this, an added entry will be prepared as Follows ANALYSIS. Decrease in owner's equity since these represent contribution expense of the business, and increase in liabilities Assume further that the bu for the taxes withheld and the would be the entries? ANALYSIS Decrease in liabilities and decrease in assets, Note that the withholding taxes paid is for two payroll periods withheld from the employes: while the SS, Phil Health and HDMF premiums represent both the shares ofthe employees andi FNIRY DATE PARTICULARS 8S Premium Pxpense AWAD Preminuan Lypense EC Premium Expense HDMI: Premium Expense SS Premium Payable NIP Premium Payable EC Premium Payable HME Premium Payable ness remitted to the BIR. SS. Philh premium contributions of bot ENTRIES th employ. | ean Tor BW | Crug asa) 350.00 5000 | so 00 | 2579 45) 4509, 50.045 | 500 th Insurance and jy, cer and employees, we he PARTICULARS DATE Withholding Taxes Payable Cash in Bank Paid withholding taxes. ‘85 Premiums Payable EC Premiums Payable Cash In Bank Paid for SS and EC contributions. Phil Health Premiums Payable Cash In Bank Paid for Philhealth premiums. HDMF Premiums Payable Cash In Bank Paid for HOME premiums, 734 86 T3486 3796 00 50.00 3.846 00 900 00 900 00 1 000 00 1000 00 employer: TTT) Enployer | Employes | Employer Employer | Employer] brnios 494.70 233.30 87.50 P10.00 P100,00 Fajardo 530.00 230.00 87.50 10.00, 100.00 Lim 494.70 233.30 87.50. 100.00 Manahan 494.70 233.30 87,50 100.00. 565.30 100.00 ) 01 136yaly a Hability of the employer. For the other liabilities, ec ison contributions itis the sum total of the employer’s yd employee i _—|___Employer__ Employee $3 ah 5! |__P1.216.60_ | “Phil Health 450.00 HDMF_ proMISSORY NOTES Business operations which are carried on a large seale are usually handled on credit. Credit nay be granted on open account or on the basis ofa written promise called a promissory note. A promissory note is a written prom 1 creditor a sum cert payer 0 *¢ made by the maker or debtor promising to pay the money at a fixed or determinable future time. It may be interest ing. A promissory note has some advantages over an open account. For one.it isan acknowledgement ofone's liability which could be a strong claim of evidence against the debtor in the event the debtor or maker fails to pay. And for this alone, a written promise is more certain of collection than an oral promise, pearing or non-interest be NON-INTEREST BEARING NOTE A non-interest bearing note is one which face value is the same as its maturity value, It smeans that ifthe note is for P6,000, the amount to be paid on the die date is also P6,000. Figure 7.1 shows an example of a non-interest bearing note which contains five important information: May 31, 2012 is the date the note was drawn by the maker. 6,000 is the face value or principal amount to be paid. June 30, 2012 is the maturity date or due date. Mike Santos is the payee to whom payment is to be made. Susan Co is the maker or the debtor who is to make payment on the note. Manila, Philippines 6,000 May 31, 2012 For value received, I promise to pay Mike Santos, the sum of six thousand Pesos on or before June 30. 2012. Figure 7.1 Non-Interest Bearing NoteFrom the viewpoint ofthe maker lebtor, Susan Coy there sam iNTe2Se in Fait jor, Mike Notes Payable, while from the viewpoint of payee-creditor, Mik ca assets debit to Notes Receivable - © 10 promissory notes: The following are the transactions giving tise 10 pr "0 Services rendered or received. Assets acquired or sold, Accounts due but debtor cannot pay Money borrowed or lent suNe |. Mike Santos owns a medical clinic. Ie received a 30 day= note for P6,000 from Susan owner of Susie Doll, for medical services wiven to her employees ENTRY (MEDICAL CLINIC) ANALYSIS. bate PARTICULARS FY DEBI | crim +. Increase in assets and increase. May 31 in owner's equity. Notes Receivable 6 000 Medical Income Received note for service rendered. 6.000 ENTRY (SUSIE’S DOLLS) — ANALYSIS DATE PARTICULARS — | F] DEBIT | CREDIT Decrease in owner's equity May 31 | Medical Expense 6.000 and inerease in liabilities, Notes Payable 6.000 Issued note for medical services of employees. 2. Mike Santos rendered medical services to Co's employees on account, P6,000, After 15 days Co issued a note for the account, : ENTRIES (MEDICAL CLINIC) ANALYSIS DATE | PARTICULAR: DEBIT eS [peeaes in aaeesandlnereiee, May 16: | Acooxes sabe 6.000 in owner's equity Medical incom 6.000 Rendered service fon account Increase in assets notes May 31 | Notes Receivable receivable and decrease in n ree eeiable 6000 : Accounts Receiy assets accounts receivable, 's Receivable Received note account due, 6 000 for 138 ‘ANALYSIS. se in owner's equity to expense and increase in Change in the form of liabilities. 3, Mike Santos lent Susan Co P6,000 cash 3. ANALYSIS Increase in assets notes receivable and decrease in assets cash, ANALYSIS Increase in assets cash and increase in liabilities. 4, Susan Co paid on maturity date by issuing a check ANALYSIS Increase in assets cash and decrease in assets notes receivable. There is only a ‘change in the form of assets. ANALYSIS Decrease in liabilities and decrease in assets, ENTRIES (SUSIE’S DOLLS) DATE parvicucars — |r] peit | cr: May 16 | Medical Expense 6000 ‘Account Payable 6000 Received medical services. May 31 | Accounts Payable 6000 Notes Payable 6.000 Issued note for account due and Susan issued a note for this. ENTRY (MEDICAL CLINIC) DATE PARTICULARS — | F| DEBIT | CREDIT May 31 6000 Cash On Hand 6000 Note received for loan extended. ENTRY (SUSIE’S DOLLS) Date | PARTICULARS | F} DEBIT | CREDIT May 31 | Cash On Hand 6000 Notes Payable 6000 Issued note for cash loan, ENTRY (MEDICAL CLINIC) DATE PARTICULARS | F| DEBIT | CREDIT June 30 | Cash On Hand 6000 Notes Receivable 6.000 Collected note. ENTRY (SUSIE'S DOLLS) DATE PARTICULARS — | F| DEBIT } CREDIT June 30} Notes Payable 6 000 Cash In bank: 6000 Paid for note,re Fake note ofthe eash title used by both parties in no. 4. From the viewpoint of clinic, unless deposited, the tile to be used should sil be Cash On Hand. On the ot Susan Co used the title Cash In Bank since a check issued account of the business. : her jot a 3 er hy sents a desrease ing, hy INTEREST BEARD OTE An interest bearing note is one where the maturity value (amount (0 be paid on the dye, is higher than its face value or principal the amount sated in the promissory Note) because y interest charge. Figure 7.2 below is an example of an interest bearing note. It has the say important information as a non- interest bearing note except that this time there is a stateg Mere rate or nominal rate. , Manila, Philippines P5,000 May 31, 2012 FOR VALUE RECEIVED, | promise to pay Eddie Manalo the sum of five thousand pesos (P5,000) thirty days from date with interest at 18% per annum. ‘SGD Dave Mendiola Figure 7.2 Interest Bearing Note “The accounting for an interest bearing note differs from a non-interest bearing note only on ‘maturity date since payment is higher than the face of the note because of the interest. The intrest and maturity value are computed as follows: ‘ Interest Principal x Interest Rate x Time = P5,000 x 18% x 30/360 P75.00 Maturity Value = Principal + interest = 5,000 + P75.00 P5,075.00 Entries on maturity date will appear, thus: ENTRY (EDDIE MANALO) PARTICULARS ANALYSIS, Increase in assets cash, June 30. | Cash On Hand Notes receivable Interest Income Collected note plus interes. decrease in assets notes receivable and increase in ‘owner's equity for the interest 140ENTRY (DAVE MENDIOLA) ANALYSIS PARTICULARS abilities. June 30 equity for Notes Payable Interest Expense Cash On Hand Paid for note. Manalo received additional cash of P75, th sqyo with the ttle Interest Income. On the other hand, Mend 1 sents additional expense by Mendiola, hence an interest isto be recognized as additional iola paid an additional P75 which expense is recognized decreasing peTERMINING THE DUE DATE A promissory note has a term or period of time within which subtract the issue date from the total number of days of said issue umber of days. From this, add the number of days of the succeedin, the dve date or maturity date. a debtor is required to pay. month to get the remaining 1g months until you arrive at To illustrate, assume the note is for a period of 60 days dated November 2: No, of days for November 30 Less issue date 2 Remaining days for November 28 No. of days for December 31 No. of days needed in January ail To make it a total of - 60 ‘The due date is January 1. Another illustration, assume the note is for a period of 75 days dated March 17: No. of days for March 31 Less issue date Wn Remaining days for March 4 No. of days for April 30 No. of days needed in May 2 To make ita total of B The due date is May 31 BORROWING FROM A BANK OR FINANCING COMPANY . rom the bank: To supplement the business resources, the business may ee oe : ‘nancial institutions. The borrower usually issues an interest bearing note. orother To illustrate, assume that: ‘ vice, borrowed P50,000 for wedy Delivery Se et promissory note, John Dj -manager of Sp imalanta, owner-manag: ued a 60- day 18% business use from Manila Bank and iss 141ae oe ve July 30 John Dimalanta issued a check to Manila Bank in payment of the note, ENTRIES (SPEEDY) ANALYSIS, DATE PARTICULARS — | F| DEBIT Increase in assets cash and | Cash On hand 50.000 increase in liabilities. Notes Payable Borrowed cash from Makati Bank Decrease in liabilities, July 30. | Notes Payable 50.000 decrease in owner's equity Interest expense 1500 "rest expense and decrease ‘Cash In Bank in assets cash, aid for note with interest. Comput Face Value (representing Notes Payable) 50,000 Interest (50,000 x 18% x 60/360) 1.500 Maturity Value (representing cash paid) P351.500 ENTRIES (MANILA BANK) ANALYSIS. PARTICULARS CREDIT ‘Change in the form of assets, May 31. | Notes Receivable increase in notes receivable Cash and decrease in cash Cash loan to J. Dimatanta Increase in assets cash, July 30 decrease in assets notes receivable and increase in owner's equity for interest income. Cash Notes Receivable Interest Income Collected note and interest. DISCOUNTING THE NOTE. Most often, when cash is borrowed from banks or financing companies, the note i discounted which means that interests immediately deducted 80 that the cash received is lower than the face of the note. Onn ‘maturity date, the borrower pays ai face Value. ~ To illustrate, assume that on July | Precy 20,000 discounted with Makati Finance Se (Cruz of Precy Electronic Mart had its own note! vices for 45 days at 18%, 142