PROBLEM 1: TRUE OR FALSE

1. The accounting cycle represents the steps followed by the accountant in recording,
classifying, summarizing and communicating financial information. TRUE

2. External events are those that involve the entity and an external party. TRUE

3. Losses from natural disasters are considered external events. FALSE

4. The sale of goods is usually evidenced by a source document called ‘sales invoice’. TRUE

5. To signify your intention to acquire goods from a supplier, you would prepare a source
document called ‘sale order’. FALSE

6. All journal entries affect at least two accounts and are recorded in both debit and credit
format. TRUE

7. In some instances, a journal entry can be recorded only through a debit and no credit, or vice-
versa. FALSE

8. A compound journal entry is one that contains two or more debits or two or more credits.
TRUE

9. A business owner contributes cash to the business. This transaction increases only the
‘owner’s equity’ account of the business. FALSE

10. Entity A makes a sale. Entity A will most likely record the sale in two journal entries – one to
record sales revenue and one to record cost of sales. TRUE
PROBLEM 2: FOR CLASSROOM DISCUSSION

The Accounting Cycle

1. The first step in the accounting cycle is

a. identifying accountable events and analyzing their effects on the accounts.

b. recording a business transaction in debit/credit format.
c. classifying the effects of the business transaction on the accounts.
d. preparation of the unadjusted trial balance.

Identifying and analyzing transactions and events

2. Business transactions are normally identified from

a. source documents.
b. journals.
c. the social media.
d. the accountant’s imagination.

3. This source document evidences the buyer’s acknowledgment of his/her receipt of the goods
he/she has purchased. This is usually used when goods are shipped by the seller directly to the
buyer’s premises.

a. Sales invoice
b. Purchase order
c. Official receipt
d. Delivery receipt

4. Business transactions and other events can be broadly classified into external and internal
events. Which of the following is an internal event?

a. obtaining a bank loan

b. paying an account payable
c. purchasing inventories
d. production of goods

Journalizing

5. Transactions are recorded in the journal

a. chromatically.
b. chronologically.
c. alphabetically.
d. numerically.
6. A business had the following transactions during the month of October
20X1.

Oct. 1 The owner contributed ₱800,000 cash to the business.

Oct. 1, Cash 800,000
20x1 Owner’s equity 800,000
to record the owner’s investment to the business

Oct. 3 The business purchased inventory worth ₱100,000 on cash basis.

Oct. 3 Inventory 100,000
Cash 100,000
to record purchase of inventory for cash

Oct. 4 The business purchased inventory worth ₱400,000 on account.

Oct. 4 Inventory 400,000
Accounts payable 400,000
to record purchase of inventory on account

Oct. 8 The business sold goods for ₱300,000 cash. The cost of the goods sold is ₱120,000.
Oct. 8 Cash 300,000
Sales 300,000
to record cash sale
Cost of sales 120,000
Inventory 120,000
to charge the cost of the goods sold as expense

Oct. 12 The business sold goods for ₱700,000 on account. The cost of the goods sold is ₱280,000.
Oct. 12 Accounts receivable 700,000
Sales 700,000
to record sale on account

Cost of sales 280,000

Inventory 280,000
to record the cost of the goods sold as expense

Oct. 15 The business paid ₱400,000 accounts payable.

Oct. 15 Accounts payable 400,000
Cash 400,000
to record payment of accounts payable

Oct. 17 The business collected ₱700,000 accounts receivable.

Oct. 17 Cash 700,000
Accounts receivable 700,000
to record collection of accounts receivable
Oct. 18 The business purchased equipment worth ₱280,000 for cash.
Oct. 18 Equipment 280,000
Cash 280,000
to record the purchase of equipment

Oct. 22 The owner withdrew ₱20,000 from the business.

Oct. 22 Owner’s drawings 20,000
Cash 20,000
to record the owner’s drawings from the business

Oct. 31 The business paid salaries expense of ₱50,000.

Oct. 31 Salaries expense 50,000
Cash 50,000
to record payment of salaries

PROBLEM 3: IDENTIFYING THE ACCOUNTS AFFECTED

TRANSACTIONS ACCOUNT TITLES AFFECTED

1. Owner’s investment to the business Cash Owner’s equity

2. Purchase of equipment on cash basis Equipment Cash

3. Sale of goods on cash basis (disregard cost of sales) Cash Sales

4. Charging the cost of the goods sold in #3 above as Cost of sales/ Cost of Inventory
expense goods sold

5. Purchase of inventory for cash Inventory Cash

6. Payment of utilities expense Utilities expense Cash

7. Purchase of inventory on cash basis Inventory Cash

8. Payment of various small expenses that do not Miscellaneous expense Cash

warrant separate presentation

9. Payment of local taxes Taxes and licenses Cash

10. Payment of taxi fare of employees working night Transportation expense/ Cash
shift Transportation and
travel expense
PROBLEM 4: IDENTIFYING THE ACCOUNTS AFFECTED

TRANSACTIONS ACCOUNT TITLES AFFECTED

1. Sale of inventory on account (disregard cost of sales) Accounts Sales

receivable
2. Charging of the cost of the inventory sold in #1 above as Cost of sales/ Cost Inventory
expense of goods sold

3. Collection of accounts receivable Cash Accounts receivable

4. Purchase of inventory on account Inventory Accounts payable

5. Obtaining a loan Cash Notes payable

6. Payment of accounts payable Accounts payable Cash

7. Provision of additional capital to the business by the owner Cash Owner’s equity/
Owner’s capital
8. Payment of the loan obtained in #5 above Notes payable Cash

9. Payment of interest expense Interest expense Cash

10. Drawings of the owner from the business Owner’s drawings Cash

PROBLEM 5: IDENTIFYING THE EFFECTS ON ACCOUNTS

ACCOUNTS EFFECTS
Example: Payment of advertising expense Advertising expense INCREASE
Cash DECREASE
1. Owner’s contribution to the business Cash INCREASE
Owner’s equity INCREASE

2. Purchase of inventory for cash Inventory INCREASE

Cash DECREASE
3. Sale on cash basis and the charging of the cost of the Cash INCREASE
goods sold as expense Sales INCREASE
Cost of sales/ Cost of INCREASE
goods sold

Inventory DECREASE
4. Purchase of equipment for cash Equipment INCREASE
Cash DECREASE
5. Payment of interest expense Interest expense INCREASE
Cash DECREASE
PROBLEM 6: IDENTIFYING THE ACCOUNTS AFFECTED

ACCOUNTS EFFECTS
1. Owner’s withdrawals from the business Owner’s drawings INCREASE

Cash DECREASE
2. Sale on account and the charging of the cost of the Accounts receivable INCREASE
goods sold as expense
Sales INCREASE
Cost of sales INCREASE
Inventory DECREASE
3. Collection of accounts receivable Cash INCREASE
Accounts receivable DECREASE

4. Obtaining a loan Cash INCREASE

Notes payable INCREASE
5. Payment of the loan in #4 above Notes payable DECREASE
Cash DECREASE
6. Payment of salaries expense Salaries expense INCREASE

Cash DECREASE
7. Purchase of inventory on account Inventory INCREASE
Accounts payable INCREASE

8. Payment of accounts payable Accounts payable DECREASE

Cash DECREASE
9. Payments of various small expenditures which do not Miscellaneous expense INCREASE
warrant separate presentation
Cash DECREASE
10. The dog of the business owner won 1 prize in an
st NONE NONE
accounting quiz bee. NONE NONE
PROBLEM 7: JOURNAL ENTRIES

Instruction: Provide the journal entries to record the transactions described below.

1. The business owner contributes ₱100,000 cash to the business.

Cash 100,000
Owner’s equity 100,000
2. The business obtains a loan of ₱800,000.
Cash 800,000
Notes payable 800,000
3. The business purchases equipment for ₱200,000 cash.
Equipment 200,000
Cash 200,000
4. The business purchases goods worth ₱500,000 on cash basis.
Inventory 500,000
Cash 500,000
5. The business sells goods costing ₱50,000 for ₱120,000 on cash basis.
Cash 120,000
Sales 120,000
Cost of sales 50,000
Inventory 50,000

6. The business pays advanced rent amounting to ₱60,000.

Prepaid rent 60,000
Cash 60,000

7. The business pays half of the loan in #2 above.

Notes payable 400,000
Cash 400,000
8. The business pays interest expense of ₱80,000.
Interest expense 80,000
Cash 80,000
9. The business pays utilities expense of ₱10,000.
Utilities expense 10,000
Cash 10,000
10. The business pays salaries expense of ₱32,000.
Salaries expense 32,000
Cash 32,000
PROBLEM 8: JOURNAL ENTRIES

1. Owner invests of ₱1,000,000 cash to the business.

Cash 1,000,000
Owner’s equity 1,000,000
2. Payment of ₱30,000 for business permit.
Taxes and licenses 30,000
Cash 30,000
3. Payment of ₱200,000 for a TV commercial to promote the business’ products.
Advertising expense 200,000
Cash 200,000
4. Purchase of inventory worth ₱600,000 on account.
Inventory 600,000
Accounts payable 600,000
5. Sale of goods for ₱800,000, on account. The cost of the goods sold is ₱500,000.
Accounts receivable 800,000
Sales 800,000
Cost of sales 500,000
Inventory 500,000
6. Collection of ₱700,000 on accounts receivable.
Cash 700,000
Accounts receivable 700,000
7. Payment of ₱300,000 accounts payable.
Accounts payable 300,000
Cash 300,000
8. Payment of ₱70,000 for rent expense.
Rent expense 70,000
Cash 70,000
9. Payment of ₱8,000 for utilities expense.
Utilities expense 8,000
Cash 8,000
10. Owner withdraws ₱20,000 cash from the business.
Owner’s drawings 20,000
Cash 20,000
PROBLEM 9: JOURNAL ENTRIES & ACCTG. EQUATION

1. The owner invests ₱100,000 cash to the business.

Cash 100,000
Owner’s equity 100,000
2. Payment of Mayor’s Permit costing ₱10,000.
Taxes and licenses 10,000
Cash 10,000
3. Payment of tarpaulin, pamphlets, and other marketing and promotional activities totaling
₱20,000.
Advertising expense 20,000
Cash 20,000
4. Purchase of office supplies worth ₱1,000. The business uses a prepaid account.
Prepaid supplies 1,000
Cash 1,000
5. Purchase of goods worth ₱40,000 on cash basis.
Inventory 40,000
Cash 40,000
6. Sale of goods costing ₱30,000 for ₱70,000 on account.
Accounts receivable 70,000
Sales 70,000
Cost of sales 30,000
Inventory 30,000

7. Payment of ₱10,000 delivery expense for the goods sold in #6.

Freight-out 10,000
Cash 10,000
8. Collection of ₱50,000 accounts receivable.
Cash 50,000
Accounts receivable 50,000
9. Payment of ₱8,000 salaries expense.
Salaries expense 8,000
Cash 8,000
10. Payment of electricity, water, internet, and mobile charges totaling ₱12,000. The business
uses a single account to record these types of expense.
Utilities expense 12,000
Cash 12,000
2nd requirement: Journal entries

ASSETS LIABILITIES EQUITY

1. Cash 100,000 Owner's equity 100,000
Taxes and
2. Cash (10,000)
licenses (10,000)
Advertising
3. Cash (20,000)
expense (20,000)
4. Prepaid supplies 1,000
Cash (1,000)
5. Inventory 40,000
Cash (40,000)
6. Accounts
receivable 70,000 Sales 70,000
Inventory (30,000) Cost of sales (30,000)
7. Cash (10,000) Freight-out (10,000)
8. Cash 50,000
Accounts
(50,000)
receivable
9. Cash (8,000) Salaries expense (8,000)
10. Cash (12,000) Utilities expense (12,000)

TOTALS 0 80,000
80,000

PROBLEM 12: MULTIPLE CHOICE

1. Which of the following is not one of the important parts of a journal entry?

a. Date
b. Account titles and amounts to be debited and credited
c. A detailed narrative of the reason why management entered into the transaction
d. Short description of the transaction

2. Which of the following is not an external event?

a. Rendering services to clients

b. Production of goods for sale
c. Purchase of raw materials for processing
d. Payment of notes payable
3. It is a report that a business sends to its customer listing the transactions with the customer
during a period, the payments made by the customer and any remaining balance due from the
customer. It also serves as a notice of billing.

a. Check
b. Bank statement
c. Delivery receipt
d. Statement of account

4. Which of the following accounts are affected when a business owner invests cash to the
business?

a. Cash and Accounts receivable

b. Cash and Owner’s equity
c. Cash and Sales
d. Accounts receivable and Owner’s equity

5. The accountant recorded a transaction as a debit to Cash and a credit to Accounts receivable.
The transaction was a

a. sale on account.
b. sale on cash basis.
c. collection of accounts payable.
d. collection of accounts receivable.

6. Which of the following transactions increases total assets?

a. Purchase of inventory through cash

b. Collection of accounts receivable
c. Payment of accounts payable
d. Provision of capital by the owner

7. The business owner’s contributions to, and withdrawals from, the business are recorded as

a. income and expense, respectively.

b. gains and losses, respectively.
c. direct additions to, and deductions from, equity.
d. Not recorded.
8. A sale on account increases which of the following accounts?

a. Accounts receivable
b. Sales
c. Cost of sales
d. All of these

9. Which of the following accounts is decreased when a business settles accounts payable?

a. Cash
b. Accounts payable
c. Owner’s capital
d. a and b

10. Which of the following statements is correct?

a. The “cost of sales” or “cost of goods sold” account is an

asset account.
b. A cash purchase of equipment increases the total assets of an
entity.
c. Income decreases equity, while expenses increase equity.
d. The collection of accounts receivable does not affect the total assets of a business.