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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Learning Objectives1. Define and identify the basic elements of accounting-assets, liabilities, and owner’s
equity.2. Determine the net income through operation3. Define and identify revenue, expense, net income, and net loss4. Define and know the components of financial statements5. Prepare properly classified financial statements
Types of Financial Statements
1. Balance Sheet- shows the financial condition/position of a business as of a given period. It consists of the Assets, Liabilities, and Capital.
2. Income Statement- shows the result of operations for a given period. It consists of the Revenue, Cost, and Expenses.
3. Owner’s Equity Statement- shows the changes in the Capital or Owner’s Equity as a result of additional investment or withdrawals by the owner, plus or minus the net income or net loss for the year.
4. Cash Flow Statement- summarizes the cash receipts and cash disbursements for the accounting period ( to be fully discussed in higher accounting).
Typical Account Titles Used
Balance Sheet
Assets- these are economic resources owned by the business expected for future gain. They are property and rights of value owned by the business.
Liabilities- these include debts, obligations to pay, and claims of the creditors on the assets of the business.
Owner’s Equity or Capital- this includes the interest of the owners on the business; claims of the owners on the assets of the business; and the investment of the owner plus or minus the results of operations. Owner’s equity or capital comes from two main sources- investment of owner’s and earnings of the business.
The Fundamental Accounting Equation
Assets= Liabilities + Owner’s EquityIllustration:
1. Assets = Liabilities + Owner’s EquityP? = P 40,000 + P 60,000
Answer: P 100,000
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Simply add liabilities of P 40,000 and owner’s equity of P 60,000 to get assets of P 100,000.
2. Assets = Liabilities +Owner’s EquityP 150,000 = P? + P 70,000
Answer: P 80,000Simply deduct owner’s equity of P70,000 from the assets of P150,000 to get liabilities of P80,000.
3. Assets = Liabilities + Owner’s EquityP200,000 = P 110,000 + P?
Answer: P90,000Simply deduct liabilities of P110,000 from the assets of P200,000 to get owner’s equity P90,000.
DEBITS AND CREDITS- THE DOUBLE-ENTRY SYSTEM
Accounting is based on a double-entry system which means that the dual effects of a business transaction is recorded. A debit side entry must have a corresponding credit side entry. For every transaction, there must be one or more accounts debited and one or more accounts credited. Each transaction affects at least two accounts. The total debits for a transaction must always equal the total credits.
An account is debited when an amount is entered on the left side of the account and credited when an amount is entered on the right side. The abbreviations for debit and credit are Dr. and Cr., respectively.
The account type determines how increases or decreases in it are recorded. Increases in assets are recorded as debits (on the left side of the account) while decreases in assets are recorded as credits (on the right side). Conversely, increase in liabilities and owner’s equity are recorded by credits and decreases are entered as debits.
The rules of debit and credit for income and expense accounts are based on the relationship of theses accounts to owner’s equity. Income increase owner’s equity and expense decreases owner’s equity. Hence, increase in income are recorded as credits and decreases as debits. Increases in expenses are recorded as debits and decreases as credits. These are the rules of debit and credit.
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
The following summarizes the rules:
Balance Sheet Accounts
Assets Liabilities and Owner’s Equity
Debit Credit Debit Credit (+) (-) (-) (+)
Increases Decreases Decreases Increases
Income Statement Accounts
Debit for Credit fordecreases in owner’s equity increases in owner’s equity
Expenses Income
Debit Credit Debit Credit (+) (-) (-) (+)
Increases Decreases Decreases Increases
TYPES AND EFFECTS OF TRANSACTIONS
1. Increase in Assets = Increase in Liabilitiesa) Purchase of equipment on account
Dr Machinery and Equipment xxxxCr Accounts Payable xxxx
b) Advance payment received for services to be rendered next yearDr Cash xxxx
Cr Unearned Income xxxx
2. Increase in Assets = Increase in Owner’s Equity a) Cash contribution of an owner or of a partner
Dr Cash xxxxCr A, Capital xxxx
b) Property contribution an owner or of a partner Dr Property and Equipment xxxx
Cr A, Capital xxxx
3. Increase in one Asset = Decrease in another Asset a) Cash purchase of company equipment
Dr Property and Equipment xxxxCr Cash xxxx
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
4. Decrease in Assets = Decrease in Liabilities a) Payment of accounts payable
Dr Accounts Payable xxxxCr Cash xxxx
5. Decrease in Assets = Decrease in Owner’s Equity a) Capital drawings
Dr A, Capital xxxxCr Cash xxxx
6. Increase in Liabilities = Decrease in Owner’s Equity a) Dividends payable
Dr Retained Earnings xxxxCr Dividends Payable xxxx
7. Increase in Owner’s Equity = Decrease in Liabilities a) Capitalization of dividends payable
Dr Dividends Payable xxxxCr A, Capital xxxx
8. Increase in one Liability = Decrease in another Liability a) From long term liability to short term liability
(reclassification based on due dates of liabilities)
9. Increase in one Owner’s Equity = Decrease in another Owner’s Equity b) Capitalization of net income
Dr Net Income xxxxCr A, Capital xxxx
AssetsClassification of Assets
1. Current Assets
Improvements to International Accounting Standards 1 (December 2003) classifies assets as current assets when it is:
a) Expected to be realized in, or is intended for sale or consumption in, the entity’s normal operating cycle;
b) Held primarily for the purpose of being traded;c) Expected to be realized within twelve months of the balance sheet date; or d) Cash or a cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the balance sheet date.
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Classification of Current Assets
Cash includes coins, currencies, checks, bank deposits, and other cash items readily available for use in the operations of the business.
Cash Equivalents are short-term investments that are readily convertible to known amounts of cash which are subject to an insignificant risk to changes in value
Marketable Securities are stocks and bonds purchased by the enterprise and are to be held for only a short span of time or short duration. They are usually purchased when a business has excess cash.
Accounts Receivable is the amount collectible from the customer to whom sales have been made or services have been rendered on account or credit.
Notes Receivable is a promissory note issued by the client or the customer in exchange for services or goods received as evidence of his/her obligation to pay.
Inventories represent the unsold goods at the end of the accounting period. This is applicable only to merchandising business.
Prepaid Expenses are items that will be used in the operations of the business that have been paid in advance.
Classification of Non-Current Assets
Long-Term Investments are assets held by an enterprise for the accretion of wealth through capital distribution such as interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing enterprise such as those obtained through trading relationships. Investments are classified as long-term when they are intended to be held for an extended period of time.
Property, Plant, and Equipment are tangible assets that are held by an enterprise for use in the production or supply of goods or services, or for administrative purposes and which are expected to be used for more than one period.
Examples of Plant, Property, and Equipment
Land is a piece of lot or real estate owned by the enterprise on which a building can be constructed for business purposes.
Building is an edifice or structure used to accommodate the office, store or factory of a business enterprise in the conduct of its operations.
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Equipment includes typewriter, air-conditioner, calculator, filing cabinet, computer, electric fan, trucks, cars used by the business in its office, store or factory. Specific account titles may be used such as Office Equipment, Store Equipment, Delivery Equipment, Transportation Equipment, Machinery and Equipment.
Furniture and Fixtures includes tables, chairs, carpets, curtains, lamp and lighting fixtures, and wall decors. Specific account titles maybe used such as Office Furniture and Fixtures and Store Furniture and Fixtures.
Accumulated Depreciation is a contra-asset account representing expired cost of plant, property and equipment as a result of usage and passage of time. This is deducted from the cost of the related asset account.
Intangible Assets are identifiable, non-monetary assets without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. These include goodwill, patents, copyrights, licenses, franchises, trademarks, brand names, secret processes, subscription lists and non-competition agreements.
Liabilities
Improvements to International Accounting Standards (December 2003) classifies a liability as current liability when it is:
a) Expected to be settle in the entity’s normal operating cycle;b) Held primarily for the purpose of being traded;c) Due to be settle within twelve months after the balance sheet date; or the entity
does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
Classification of Current Liabilities
Accounts Payable includes debts arising from purchase of an asset or acquisition of services on account.
Notes Payable includes debts arising from purchase of an asset or acquisition of services on account evidenced by a promissory note.
Loan Payable is a liability to pay the bank or other financing institution arising from funds borrowed by the business from these institutions.
Utilities Payable is an obligation to pay utility companies for services received from them. Examples of this are telephone services to PLDT, electricity to Meralco, and water services to Maynilad.
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Unearned Revenues represent obligations of the business arising from advance payments received before goods or services are provided to the customer. This will be settled when certain goods or services are delivered or rendered.
Accrued Liabilities include amounts owed to others for expenses already incurred but not yet paid. Examples of these are salaries payable, utilities payable, taxes payable, and interest payable.
Classification of Non-Current Liabilities
Non-Current Liabilities are long term liabilities or obligations which are payable for a period longer than one year. Examples of Non-Current Liabilities are as follows:
Mortgage Payable is a long-term debt of the business with security or collateral in the form of real properties. In case the business fails to pay the obligation, the creditor can foreclose or cause the mortgaged asset to be sold and the proceeds of the sale be used to settle the obligation.
Bonds Payable is s certificate of indebtedness under the seal of a corporation, specifying the terms of repayment and the rate of interest to be charged.
Owner’s Equity
Capital is an account bearing the name of the owner representing the original and additional investment of the owner of the business increased by the amount of net income earned during the year. It is decreased by the cash or other assets withdrawn by the owner as well as the net loss incurred during the year.
Drawing represents the withdrawals made by the owner of the business either in cash or other assets.
Income Summary is a temporary account used at the end of the accounting period to close income and expense accounts. The balance of this account shows the net income or net loss for the period before it is closed to the capital account.
Income Statement
Service Income includes revenues earned or generated by the business in performing services for a customer or client.
Examples: Laundry Services by a laundry shopMedical Services by a doctorDental Services by a dentist
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Sales revenues earned as a result of sale of merchandise; for example, sale of building materials by a construction supplies firm.
Cost of Sales the cost incurred to purchase or to produce the products sold to customers during the period; also called cost of good sold.
Salaries or Wages Expense includes all payments made to employees or workers for rendering services to the company. Examples are salaries or wages, 13th month pay, cost of living allowances, and other related benefits given to them.
Utilities Expense is an expense related to the use of electricity, fuel, water, and telecommunications facilities.
Supplies Expense covers office supplies used by the business in the conduct of its daily operations.
Insurance Expense is the expired portion of premiums paid on insurance coverage such as premiums paid for health or life insurance, motor vehicles or other properties.
Depreciation Expense is the annual portion of the cost of a tangible asset such as buildings, machineries, and equipment charged as expense for the year.
Uncollectible Account Expense/Doubtful Accounts Expense/Bad Debts Expense means the amount of receivables charged as expense for the period because they are estimated to be doubtful of collection.
Interest Expense is the amount of money charged to the borrower for the use of borrowed funds.
Forms of Balance Sheet
1. Account Form follows the accounting equation where assets are listed on the left-hand column of the report with the liabilities and owner’s equity listed on the right-hand column.
2. Report Form shows in one straight column the assets, followed by the liabilities and owner’s equity.
Classification
Items in the balance sheet are classified, with assets and liabilities separated into two or more categories. Subclassification is as follows:
1. Assets are subclassified as current assets and non-current assets.
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
2. Liabilities are either current liabilities or non-current liabilities.
Current assets are classified and presented according to liquidity with the most liquid first followed by those with lesser liquidity. Since cash is the most liquid, it is always listed first followed by other current assets according to their proximity to cash.
Liabilities are classified and presented based on their maturity. Obligations presently due for payment are listed first.
Examples of the four statement, namely 1) Balance Sheet (Report Form); 2) Balance Sheet (Account Form); 3) Income Statement; and 4) Statement of Owner’s Equity
REPORT FORM BALANCE SHEET
ABC Fresh Laundry ServicesBalance Sheet
December 31, 2010
Current Assets Assets
Cash P450,000Accounts Receivable 31,000Supplies 27,000Prepaid Insurance 37,000
Total Current Assets P545,000
Non-Current Assets Plan, Property, and Equipment
Land P200,000Equipment P560,000Less: Accumulated Depreciation 67,000 493,000 Total Non-Current Assets 693,000
Total Assets P1,238,000
Liabilities
Current LiabilitiesAccounts Payable P75,000Notes Payable 190,000Unearned Laundry Revenue 39,000
Total Current Liabilities P304,000
Owner’s Equity
A, Capital 934,000Total Liabilities and Capital P1,238,000
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
ACCOUNT FORM BALANCE SHEET
ABC Fresh Laundry Services Balance Sheet
December 31, 2010
Assets Liabilities
Current Assets Current LiabilitiesCash P450,000 Accounts Payable P 75,000Accounts Receivable 31,000 Notes payable 190,000Supplies 27,000 Unearned Laundry Revenue 39,000Prepaid Insurance 37,000 Total Current Assets P545,000 Total Current Liabilities P304,000
Non-Current AssetsPlant, Property, and Equipment Owner’s EquityLand P200,000Equipment P560,000 A, Capital 934,000Less: Accumulated 67,000 493,000 Depreciation Total Non-Current Assets 693,000 _______
Total Assets P1,238,000 Total Liabilities and Capital P1,238,000
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
ABC Fresh Laundry ServicesIncome Statement
For Year Ended December 31, 2010
Service Revenue P312,000Less: Operating Expenses
Salaries Expense P125,000
Depreciation Expense 13,000Supplies Expense 10,000Rent Expense 7,000Insurance Expense 2,000
Total Operating Expenses 157,000Net Income P155,000
ABC Fresh Laundry ServicesStatement of Owner’s Equity
For Year Ended December 31, 2010
A, Capital P759,000Add: Additional Investment P50,000
Net Income 155,000 205,000Total P964,000
Less: Drawings 30,000Total Owner’s Equity P934,000
Exercise 1
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Write the letter of the correct answer on the blank
A. Balance SheetB. Income StatementC. Owner’s Equity StatementD. AssetsE. LiabilitiesF. Owner’s Equity
________1. Shows the results of operations for a given period________2. Economic resources owned by the business expected for future gain________3. Shows the financial condition/position of a business as of a given period ________4. Interest of the owners on the business________5. Shows the changes in the Capital or Owner’s Equity as a result of additional investment, withdrawals, net income or net loss for the year.________6. Debts, obligations to pay, claims of the creditors on the assets of the business
Exercise 2
Write the letter of the correct answer on the blank.
A. Cash E. Notes ReceivableB. Cash Equivalents F. InventoriesC. Marketable Securities G. Prepaid ExpensesD. Accounts Receivable
________1. Promissory note issued by the client for goods received.________2. Items that will be used in the operations of the business that have been paid in advance.________3. Stocks purchased by the business to be held for a short time________4. Unsold goods at the end of the accounting period.________5. Amount collectible from customer to whom sales have been made or services have been rendered on account or credit.________6. Includes coins, currencies, checks, and bank deposits________7. Shot-term investments readily convertible to known amounts of cash subject to an insignificant risk to changes in value
Exercise 3
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Write the letter of the correct answer on the blank.
A. Land C. Equipment F. Accumulated DepreciationB. Building E. Furniture and Fixtures G. Intangible Assets
________1. Contra-asset account representing expired cost of plant, property, and equipment as a result of usage and passage of time________2. Lot used by the business on which a building can be constructed________3. Non-monetary assets without physical substance held for use in the production or supply of goods, for rental to others, or for administrative purposes e.g., goodwill, patents, copyrights________4.tables, chairs, curtains, lighting fixtures, and wall decors________5. Edifice, structure used to house the office, store or factory________6. Typewriter, air-conditioner, calculator, filing cabinet, computer, electric fan, trucks, cars used in business
Exercise 4
Write the letter of the correct answer on the blank
A. Accounts Payable D. Utilities Payable G. Interest ExpenseB. Notes Payable E. Unearned RevenuesC. Loan Payable F. Accrued Liabilities
________1. Debts arising from purchase of an asset on account evidenced by a promissory note________2. An obligation to pay utility companies for services received from them________3. Amounts owed to others for expenses already incurred but not yet paid________4. Liability arising from amount of money borrowed by the business________5. Debts arising from acquisition of services on account________6. Obligations of the business arising from advance payments received before services are provided to the customer
Exercise 5
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Write the letter of the correct answer on the blank
A. Mortgage Payable C. DrawingB. Bonds Payable D. Income Summary
________1. Temporary account used at the end of the accounting period to close income and expense accounts________2. Certificate of indebtedness under the seal of a corporation________3. Long-term debt of the business with security or collateral in the form of real properties________4. Represents the withdrawals made by the owner of the business either in cash or other assets
Exercise 6
Write the letter of the correct answer on the blank
A. Service Income D. Rent ExpensesB. Salaries Expense E. Supplies ExpenseC. Utilities Expense F. Insurance Expense
________1. Amount paid for the used of space, equipment or other rentals________2. Amount of supplies used in the conduct of daily business________3. Revenues earned by performing services for a customer________4. Expired portion of premiums paid on insurance coverage________5. Payments made to employees for rendering services to the company________6. Expenses related to the use of electricity, fuel, water, and telecommunications facilities
Exercise 7
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Find the missing amounts.
ASSETS LIABILITIES OWNER’S EQUITY
A. P4,902,400 P__________ P2,153,800
B. _________ 9,656,000 987,200
C. 1,141,000 646,000 _________
D. 8,200,000 ___________ 3,250,000
E. 25,000,000 14,600,000 _________
Exercise 8
Find the missing amounts.
ASSETS LIABILITIES OWNER’S EQUITY
A. P___________ P 3,932,100 P5,100,000
B. ____________ 2,246,000 1,777,200
C. 1,141,000 __________ 646,000
D. 6,500,000 3,250,000 _________
E. 10,000,000 __________ 4,900,000
Exercise 9
For each of the following, write I if it is an income statement item and B if it is a balance sheet item.
_______1. Interest Expense _______9. Equipment_______2. Interest Receivable _______10. Building_______3. Mortgage Payable _______11. Salaries Expense_______4. Interest Income _______12. Accounts Payable_______5. Miscellaneous Expense _______13. Prepaid Rent_______6. Drawing Account _______14. Insurance Expense_______7. Supplies Expense _______15. Cash_______8. Supplies
Exercise 10
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Below are the classifications commonly found on a classified balance sheet. On the blank provided before each number, write the classification to where it belongs.
A. Current AssetsB. Plant, Property and EquipmentC. Current LiabilitiesD. Non-Current LiabilitiesE. Owner’s EquityF. Not a Balance Sheet Item
________1. Land _______9. Accounts Payable________2. Rent Expense _______10. Notes Payable________3. L, Capital _______11. Mortgage Payable________4. Accounts Receivable _______12. Taxes Payable________5. Unearned Rent _______13. Truck________6. Supplies Used _______14. Equipment________7. Supplies on Hand _______15. Commissions Earned________8. Prepaid Insurance
Exercise 11
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Presented below are the income statement accounts for Willie’s Auto Repair Shop for the year ended December 31, 2010. Prepare a Single Step Income Statement for Willie’s Auto Repair Shop for year ended December 31, 2010 by completing the Income Statement.
Supplies Expense P 400Bad Debts Expense 4,900Taxes & Licenses 7,250Depreciation Expense 9,750Insurance Expense 10,000Salaries Expense 45,000Utilities Expense 46,750Rent Expense 55,000Repair Income 275,000
Willie’s Auto Repair ShopIncome Statement
For Year Ended December 31, 2010
Repair Income PLess: Operating Expenses P
Rent expenseUtilities expenseSalaries expenseInsurance expenseDepreciation expenseTaxes & LicensesBad Debts expenseSupplies expense 400
Total Operating Expenses __________Net Income P 95,950
Exercise 12
Presented below are the income statement accounts for Carl’s Psychiatric Clinic. Prepare a Single Step Income Statement for Carl’s Psychiatric Clinic for year ended December 31, 2010 by completing the income statement.
Insurance Expense P 20,000Salaries Expense 90,000Utilities Expense 92,000Rent Expense 110,000
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Professional Fees 600,000Supplies Expense 800Bad Debts Expense 9,800Taxes & Licenses 15,000Depreciation Expense 18,500
Carl’s Psychiatric ClinicIncome Statement
For Year Ended December 31, 2010
Professional Fees PLess: Operating Expenses
Rent Expense P110,000Utilities Expense 92,000Salaries ExpenseInsurance Expense 20,000Depreciation ExpenseTaxes & LicensesBad Debts Expense 9,800Supplies Expense 800
Total Operating Expenses ________ 356,100Net Income P________
Exercise 13
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Presented below are the balance sheet accounts of Galvez Consultancy Firm. Prepare a report form balance sheet for the year December 31, 2010 by completing the balance sheet.
Land P 68,000Building 350,000Furniture & Fixtures 4,500Accumulated Depreciation- Building 50,000Allowance for Bad Debts 6,000Cash 101,000Supplies 700Accounts Receivable 46,500Galvez, Capital 469,200Accounts Payable 5,000Loans Payable 50,000Utilities Payable 500Prepaid Insurance 10,000
Galvez Consultancy FirmBalance Sheet
December 31, 2010
AssetsCurrent Assets
Cash PAccounts Receivable P 46,500Less: Allowance for Bad Debts 6,000Supplies 700Prepaid Insurance 10,000
Total Current Assets PNon-Current Assets
Plant, Property and EquipmentLand PEquipment P350,000Less: Accumulated Depreciation 50,000 300,000Furniture & Fixtures 4,500
Total Non-Current Assets _________Total Assets P 524,700
LiabilitiesCurrent Liabilities
Accounts Payable PLoans PayableUtilities Payable 500
Total Current Liabilities P 55,500
Owner’s EquityGalvez, Capital 469,200Total Liabilities and Capital P524,700Exercise 14
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Presented below are the balance sheet accounts of Forever Bridal Consultancy. Prepare an account form balance sheet for the year December 31, 2010 by completing the balance sheet.
Supplies P 1,000 Notes Receivable P 35,000Equipment 20,000 F, Capital 421,000Building 384,000 Accounts Payable 5,000Furniture & Fixtures 4,500 Loan Payable 39,000Accumulated Notes Payable 45,000Depreciation-Building 50,000 Prepaid Rent 4,000Cash 111,500
Forever Bridal ConsultancyBalance Sheet
December 31, 2010
AssetsCurrent Assets
Cash PNotes ReceivableSuppliesPrepaid Rent 4,000
Total Current Assets PNon-Current Assets
Plant, Property and EquipmentBuilding PLess: Accumulated Depreciation 50,000 P 334,000EquipmentFurniture & Fixtures 4,500
Total Non-Current Assets 358,500Total Assets P 510,000
Liabilities
Current LiabilitiesAccounts Payable P 5,000Notes PayableLoan Payable 39,000
Total Current Liabilities P 89,000Owner’s Equity
F, Capital ________Total Liabilities and Capital P 510,000
Exercise 15
20
BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
From the information given from the records of Gracia’s Consultancy Services, prepare a statement of owner’s equity for year ended December 31, 2010.
G, Capital P400,000G, Drawing 40,000
The company generated a P150,000 net income. Gracia made an additional investment of P80,000.
Exercise 16
Using the same information from exercise 13, except that, instead of a net income, the company incurred a net loss of P 55,000. Complete the statement of owner’s equity of Gracias Consultancy Services.
Gracias Consultancy ServicesStatement of Owner’s Equity
For Year Ended December 31, 2010
G, Capital PAdd: Additional Investment P
Net Income 150,000 ___________Total P630,000Less: Drawings ___________Total Owner’s Equity P590,000___
Gracias Consultancy ServicesStatement of Owner’s Equity
For Year Ended December 31, 2010
G, Capital P400,000Add: Additional Investment 80,000TotalLess: Drawings P 40,000
Net Loss ________ __95,000Total Owner’s Equity P_________
Exercise 17- Comprehensive Problem
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Presented is the trial balance of Niko Ong Art Gallery. From the information given, prepare the following by completing the incomplete statements:
1. Income Statement 2. Balance Sheet 3. Statement of Owner’s Equity
Niko Ong Art GalleryTrial BalanceDec. 31, 2010
Cash P 840,500Accounts Receivable 50,000Art Supplies 12,000Prepaid Rent 30,000Prepaid Insurance 18,000Transportation Equipment 300,000Office Equipment 50,000Accounts Payable P 37,000Notes Payable 200,000Utilities Payable 900Unearned Painting Revenue 250,000Ong, Capital 500,000Ong, Drawing 30,000Painting Revenue 350,000Salaries Expense 2,500Utilities Expense 4,900 _________
Total P1,337,900 P1,337,900
Niko’s Ong Art GalleryIncome Statement
For Year Ended December 31, 2010
Painting Revenue PLess: Operating Expense
Utilities Expense PSalaries Expense __2,500
Total Operating Expenses __________Net Income P 342,600__
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BOOKKEEPING NC IIIFINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION
Niko Ong Art GalleryBalance Sheet
December 31, 2010
Assets
Current AssetsCash P 840,500Accounts ReceivableArt SuppliesPrepaid RentPrepaid Insurance 18,000
Total Current Assets PNon-Current Assets
Plant, Property, and EquipmentTransportation Equipment POffice Equipment 50,000Total Non-Current Assets 350,000
Total Assets P 1,300,500
Liabilities
Current LiabilitiesAccounts Payable P 37,000Notes PayableUtilities PayableUnearned Painting Revenue 250,000
Total Current Liabilities P
Owner’s Equity
Ong, Capital _812,600Total Liabilities and Capital P________
Niko Ong Art GalleryStatement of Owner’s Equity
For Year Ended December 31, 2010
Ong, Capital PAdd: Net Income _342,600Total P 842,600Less: Drawings ________Total Owner’s Equity P_______
23