ACC 311

Accrual and Cash Basis Accounting

Problem 1
Kathryn Company reported sales at P15,000,000 for the year ended December 31, 2019 under accrual basis. The
balances on January 1, 2019 of accounts receivable, accounts payable and advances from customers,
respectively, were P2,000,000, P3,000,000 and P1,000,000. The balances on December 31, 2019 of accounts
receivable, accounts payable and advances from customers, respectively, were P4,000,000, P1,000,000 and
P2,500,000.
Q: How much should be reported as sales under the cash basis?

Problem 2
The following information pertains to Renan Company’s 2019 sales:
Cash sales
Gross 15,000,000
Returns and allowances 1,000,000
Credit sales
Gross 40,000,000
Discounts 2,000,000
On January 1, 2019, customers owed Renan P4,000,000. On December 31, 2019, customers owed Renan
P6,000,000. Renan uses the direct write-off method for bad debts. No bad debts were recorded in 2019.
Q: Under the cash basis of accounting, what revenue should Renan report for 2019?

Problem 3
Data below came from the comparative trial balance of Ester Company. The books are kept on the accrual basis.
Included in the operating expenses are depreciation of P35,000 and amortization of P15,000.
2019 2018
Accounts receivable 2,200,000 2,450,000
Interest receivable 8,000 17,000
Inventories 4,200,000 4,050,000
Prepaid insurance 50,000 20,000
Accounts payable 3,640,000 3,450,000
Other operating expenses payable 250,000 150,000
Net sales 12,000,000
Interest revenue 65,000
Cost of goods sold 8,000,000
Insurance expense 500,000
Other operating expense 950,000
Q: Cash paid for operating expenses during the year 2019 amounted to?
A. 1,330,000 C. 1,400,000
B. 1,380,000 D. 800,000

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Problem 4
On January 2, 2019, Leah Hernan purchased the net assets of Kleen Laundry, a sole proprietorship, for P6,000,000,
and commenced operations of Hernan Laundry, a sole proprietorship. The net assets had a carrying amount of
P7,500,000 and market value of P6,500,000. In Hernan’s cash basis financial statements for the year ended
December 31, 2019, Hernan Laundry reported revenues in excess of expenses of P1,500,000. Leah Hernan
drawings during 2019 were P300,000.
Q: In Leah Hernan’s financial statements, what amount should be reported as Capital Leah Hernan?

Problem 5
Bouvier Company had the following transactions in 2019, first year of operations:
Sales (90% collected in first year) 7,500,000
Bad debt writeoff 300,000
Disbursements for costs and expenses 6,000,000
Disbursements for income taxes 450,000
Purchase of property, plant and equipment for cash 2,000,000
Depreciation of property 400,000
Proceeds from issuance of common stock 2,500,000
Proceeds from borrowings 500,000
Payments on borrowings 250,000
Q: What is the cash balance on December 31, 2019?
A. 1,050,000 C. 750,000
B. 1,400,000 D. 850,000

Problem 6
The cash balance of Hazel Company on January 1, 2019 was P2,500,000. During 2019, the changes in certain
accounts were:
Accounts receivable 500,000 increase
Inventory 400,000 decrease
Accounts payable 300,000 decrease
Total sales and cost of goods sold were P3,000,000 and P5,500,000 respectively. All sales and purchases, were
made on credit. Various operating expenses of P2,000,000 were paid in cash. There was no other pertinent
transactions.
Q: What is the cash balance on December 31, 2019?

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