ACC 1 – FINANCIAL ACCOUNTING AND REPORTING

DRILL NO. 7 – Accounting Cycle of a Service Business

“Integrity is doing the right thing, even when no one is watching.” – C.S. Lewis

On December 2018, the first month of operation of Princess Dress Shop, the following transactions
occurred:
Dec. 1 Invested the following:
Cash in bank ₱450,000
Shop equipment ₱300,000
Accounts payable ₱200,000
2 Bought shop furniture on account, ₱120,000.
3 Bought shop supplies on account, ₱30,000.
5 Paid the following:
Rent for three months, ₱18,000
Advertising for five months, ₱20,000
Taxes and licenses, ₱5,000
8 Billed various customers for services rendered, ₱180,000.
10 Received cash for services rendered, ₱60,000.
112 Paid 60% of accounts on December 1.
1414 Received ₱60,000 as pre-collected income from ABC Co.
15 Paid the salaries of the worker, ₱18,000 representing 50% of the monthly salary.
Received a 10%, 30-day note from customer on December 8 billing, ₱50,000.
20 Received cash for services rendered, ₱45,000.
25 Withdrew ₱15,000 for personal use.
28 Paid 20% of the account on furniture.
30 Received cash as payment of account on December 8 billing, ₱60,000.
31 Rendered service on account, ₱15,000.
Additional information:
 The business uses asset method for prepayment, and liability method for pre-collection.
 Unpaid salaries equal to 50% of the salary for the month.
 Shop equipment and shop furniture have five years estimated useful life with ₱5,000 salvage value
each.
 Supplies expense for December, ₱26,000
 Forty percent of unearned revenue have been realized already.

Required:
1. Record the transactions in a two-column journal and post to the ledger.
2. Prepare the unadjusted trial balance.
3. Journalize and post the adjusting entries.
4. Prepare the 10-column worksheet.
5. Prepare the statement of income and statement of changes in equity for December, and statement
of financial position as of December 31.
6. Journalize and post the closing entries.
7. Prepare the post-closing trial balance.
8. Journalize and post the reversing entries.
---END OF DRILL NO.7---
“When mediocrity becomes the accepted norm, excellence dies a painful death.” -- Rashida Rowe

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