PROBLEMS

PROBLEM 1: TRUE OR FALSE

1. The accounting cycle represents the steps followed by the accountant

in recording, classifying, summarizing and communicating financial

information.

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

party.

3. Losses from natural disasters are considered external events.

4. The sale of goods is usually evidenced by a source document called

‘sales invoice’.

5. To signify your intention to acquire goods from a supplier, you

would prepare a source document called ‘sale order’.

6. All journal entries affect at least two accounts and are recorded

in both debit and credit format.

7. In some instances, a journal entry can be recorded only through a

debit and no credit, or vice-versa.

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

two or more credits.

9. A business owner contributes cash to the business. This transaction

increases only the ‘owner’s equity’ account of the business.

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.

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 owner contributed ₱800,000 cash to the business.

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

cash basis.

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

account.

of the goods Oct. 8 The business sold goods for ₱300,000 cash. The cost

sold is ₱120,000.

Oct. 12 The business sold goods for ₱700,000 on account. The

cost of the goods sold is ₱280,000.

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

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

Oct. 18 The business purchased equipment worth ₱280,000 for

cash.

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

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

Requirement: Provide the journal entries to record the transactions.

PROBLEM 3: IDENTIFYING THE ACCOUNTS AFFECTED

Instruction: Identify the ACCOUNT TITLES that are affected by the

transactions described below. The first item is given as an example.

TRANSACTIONS ACCOUNT TITLES AFFECTED

Example: Payment of advertising

expense

Advertising

expense

Cash

1. Owner’s cash investment to the

business

2. Purchase of equipment on cash

basis

3. Sale of goods on cash basis

(disregard cost of sales)

4. Charging the cost of the goods

sold in #3 above as expense

5. Purchase of inventory for cash

6. Payment of utilities expense

7. Purchase of inventory on cash

basis

8. Payment of various small

expenses that do not warrant

separate presentation
9. Payment of local taxes

10. Payment of taxi fare of

employees working night shif

PROBLEM 4: IDENTIFYING THE ACCOUNTS AFFECTED

Instruction: Same as PROBLEM 3 above.

TRANSACTIONS ACCOUNT TITLES AFFECTED

1. Sale of inventory on account

(disregard cost of sales)

2. Charging of the cost of the

inventory sold in #1 above as

expense

3. Collection of accounts receivable

4. Purchase of inventory on account

5. Obtaining a loan

6. Payment of accounts payable

7. Provision of additional capital to

the business by the owner

8. Payment of the loan obtained in #5

above

9. Payment of interest expense

10. Drawings of the owner from the

business

PROBLEM 5: IDENTIFYING THE EFFECTS ON ACCOUNTS

Instruction: Identify the ACCOUNTS that are affected by the

transactions described below and the EFFECTS ON THE ACCOUNTS.

ACCOUNTS EFFECTS

Example: Payment of advertising

expense

Advertising

expense

INCREASE

Cash DECREASE

1. Owner’s contribution to the

business

2. Purchase of inventory for cash

3. Sale on cash basis and the

charging of the cost of the

goods sold as expense

4. Purchase of equipment for cash

5. Payment of interest expense

PROBLEM 6: IDENTIFYING THE EFFECTS ON ACCOUNTS

Instruction: Same as PROBLEM 5 above.

ACCOUNTS EFFECTS

1. Owner’s withdrawals from the

business

2. Sale on account and the

charging of the cost of the

goods sold as expense

3. Collection of accounts

receivable
4. Obtaining a loan

5. Payment of the loan in #4

above

6. Payment of salaries expense

7. Purchase of inventory on

account

8. Payment of accounts payable

9. Payment of various small

expenses that do not warrant

separate presentation

10. The dog of the business owner

won 1st prize in an accounting

quiz bee.

PROBLEM 7: JOURNAL ENTRIES

Instruction: Provide the journal entries to record the transactions

described below.

Example: Payment of supplies expense worth ₱20,000.

Answer: Supplies expense 20,000

Cash 20,000

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

2. The business obtains a loan of ₱800,000.

3. The business purchases equipment for ₱200,000 cash.

4. The business purchases goods worth ₱500,000 on cash basis.

5. The business sells goods costing ₱50,000 for ₱120,000 on cash basis.

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

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

8. The business pays interest expense of ₱80,000.

9. The business pays utilities expense of ₱10,000.

10. The business pays salaries expense of ₱32,000.

PROBLEM 8: JOURNAL ENTRIES

Instruction: Provide the journal entries to record the transactions

described below.

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

2. Payment of ₱30,000 for business permit.

3. Payment of ₱200,000 for a TV commercial to promote the business’

products.

4. Purchase of inventory worth ₱600,000 on account.

5. Sale of goods for ₱800,000, on account. The cost of the goods sold

is ₱500,000.

6. Collection of ₱700,000 on accounts receivable.

7. Payment of ₱300,000 accounts payable.

8. Payment of ₱70,000 for rent expense.

9. Payment of ₱8,000 for utilities expense.

10. Owner withdraws ₱20,000 cash from the business.

PROBLEM 9: JOURNAL ENTRIES & ACCTG. EQUATION

Instructions: Provide the journal entries to record the transactions

described below and identify their effects on the basic accounting

equation. Afer recording all the transactions, get the totals of the

effects and check whether the equation is balanced (exclude the

effects of the given example).

Example: Purchase of equipment for ₱100,000 cash.

a. Journal entry

Equipment 100,000

Cash 100,000

b. Effect on basic accounting equation

ASSETS = LIABILITIES + EQUITY

Equipment 100,000

Cash (100,000) 0 0

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

2. Payment of Mayor’s Permit costing ₱10,000.

3. Payment of tarpaulin, pamphlets, and other marketing and promotional

activities totaling ₱20,000.

4. Purchase of office supplies worth ₱1,000. The business uses a prepaid

account.

5. Purchase of goods worth ₱40,000 on cash basis.

6. Sale of goods costing ₱30,000 for ₱70,000 on account.

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

8. Collection of ₱50,000 accounts receivable.

9. Payment of ₱8,000 salaries expense.

10. Payment of electricity, water, internet, and mobile charges totaling

₱12,000. The business uses a single account to record these types

of expense.

(Hint: Recall that income increases, while expense decreases, equity.)

PROBLEM 10: JOURNAL ENTRIES & ACCTG. EQUATION

Instructions: Same as PROBLEM 9 above.

1. The business owner invests ₱200,000 cash to the business.

2. The business obtains a loan of ₱600,000.

3. The business purchases equipment worth ₱450,000 for cash.

4. The business pays advanced rent of ₱20,000.

5. The business purchases inventory worth ₱500,000 on account.

6. The business sells goods costing ₱80,000 for ₱200,000 on cash

basis.

7. The business sells goods costing ₱400,000 for ₱900,000, on

account.

8. The business pays accounts payable of ₱400,000.

9. The business owner withdraws ₱10,000 from the business.

10. The business pays interest expense of ₱15,000.

PROBLEM 11: JOURNAL ENTRIES

You are an owner of a service business. The following were the

business transactions during the period:

1. Provided ₱35,000 cash as capital of the business.

2. Paid supplies expense amounting to ₱15,000.

3. Paid an overdue rent of ₱5,000.

4. Paid billings for utilities used amounting to ₱2,000.

5. Issued a promissory note to a lending company in exchange for

₱10,000 cash.

6. Billed customers on account for services rendered amounting to

₱75,000.

7. Paid interest expense of ₱500 to the lending company.

8. Collected cash of ₱50,000 from credit customers.

9. Withdrew cash of ₱20,000 from the business.

10. Paid employee salaries of ₱10,000.

Requirement: Provide the journal entries.

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.

PROBLEM 1:
Entity A, a consulting firm, started operations on February 1, 20X1.
The following were the transactions during the month:
Feb. 1
The sole proprietor of Entity A invested ₱200,000 cash and new equipment worth
₱100,000 to the business.
12
Entity A rendered services worth ₱70,000 on account.
17
Entity A rendered services worth ₱20,000 on cash basis.
23
Entity A collected accounts receivable of ₱12,000.
27
The sole proprietor of Entity A withdrew ₱4,000 cash from the business.
28
Entity A paid salaries expense of ₱10,000, supplies expense of ₱3,000 and rent
expense of ₱18,000 for the month of February 20X1.
Requirements:
a. Provide the journal entries.
b. Post the entries to the ledger (use T-accounts).
c. Prepare the unadjusted trial balance as of February 28, 20X1.
PROBLEM 2: POSTING
Entity B had the following transactions during the period:
1. The sole owner provided ₱800,000 capital to the business.
2. Entity B rendered services worth ₱300,000, on account.
3. Entity B rendered services worth ₱40,000 on cash basis.
4. Entity B collected ₱120,000 accounts receivable.
5. Entity B paid utilities expense of ₱10,000.
Requirements
a. Provide the journal entries.
b. Post the entries to the ledger. Use T-accounts for this purpose.
Arrange your T-accounts in this order: Assets, Liabilities, Equity, Income and
Expenses.
c. Answer the questions below:
1) How much are the total service fees earned during the period?
2) How much are the total collections from clients during the period?
3) How much are the total disbursements during the period?
4) How much cash does the business have at the end of the period?
5) How much are the outstanding accounts receivable from clients at the end of the
period?
PROBLEM 3: POSTING
Entity C had the following transactions during the period:
1. Owner invested ₱1,000,000 cash to the business.
2. Purchased equipment worth ₱58,000 for cash.
3. Purchased office supplies worth ₱300,000 on account (use an asset account).
4. Paid ₱100,000 accounts payable.
5. Rendered services worth ₱500,000, on cash basis.
6. Rendered services worth ₱800,000, on account.
7. Collected ₱700,000 accounts receivable.
8. Paid salaries expense of ₱70,000.
9. Paid interest expense of ₱5,000.
10. Owner withdrew of ₱10,000 cash from the business.
Requirements:
a. Provide the journal entries.
b. Post the entries to the ledger (use T-accounts).
PROBLEM 4: UNADJUSTED TRIAL BALANCE
George Handyman Services had the following account balances as of December 31,
20X1:
Accounts payable
32,000
Accounts receivable
320,000
Accumulated depreciation
400,000
Building
500,000
Cash
970,000
Interest expense
96,000
Land
700,000
Notes payable
800,000
Owner’s equity
920,000
Prepaid rent
50,000
Salaries expense
240,000
Service fees
796,000
Utilities expense
72,000
Requirement: Prepare the unadjusted trial balance. Make sure you provide a proper
heading for the report and present the accounts in their correct sequence.
PROBLEM 5: UNADJUSTED TRIAL BALANCE
Entity A’s accounts have the following balances as of December 31, 20X1:
Accounts payable
100,000
Accounts receivable
400,000
Accumulated depreciation
400,000
Allowance for bad debts
16,000
Bad debt expense
2,000
Cash
890,000
Depreciation expense
200,000
Office equipment
1,000,000
Owner’s drawings
10,000
Owner’s equity
291,000
Prepaid insurance
30,000
Prepaid supplies
50,000
Salaries expense
420,000
Salaries payable
60,000
Service fees
2,200,000
Supplies expense
5,000
Taxes and licenses
60,000
Requirement: Prepare the unadjusted trial balance. Make sure you provide a proper
heading for the report and present the accounts in their correct sequence.
PROBLEM 6: POSTING & UNADJUSTED TRIAL BALANCE
The following were Entity D’s transactions during the first week of its operations:
Feb.
Transactions
1 The owner contributed ₱400,000 cash to the business.
2 Acquired computer equipment for ₱180,000 cash.
3 Purchased office supplies for ₱20,000 cash.
4 Rendered services worth ₱40,000 on cash basis.
5 Paid ₱8,000 salaries of employees.
Requirements
a. Provide the journal entries.
b. Post the entries to the ledger (use T-accounts).
c. Prepare the unadjusted trial balance on February 7, 20x1.
PROBLEM 7: POSTING & UNADJUSTED TRIAL BALANCE
You opened a servicing business on January 1, 20x1. Your business DTI-registered
name is “Mind Your Own Business” (MYOB). MYOB’s transactions during the year are
summarized below:
1. You invested ₱400,000 cash to the business.
2. MYOB obtained a ₱500,000 loan.
3. MYOB placed a newspaper and worth ₱35,000.
4. MYOB purchased equipment worth ₱380,000 for cash.
5. MYOB rendered services worth ₱200,000, on cash basis.
6. MYOB rendered services worth ₱420,000, on account.
7. MYOB collected ₱300,000 accounts receivable.
8. MYOB paid half of the loan in #2 above plus interest expense of ₱60,000.
9. MYOB paid supplies expense of ₱16,000.
10. MYOB paid utilities expense of ₱72,000.
11. MYOB paid salaries expense of ₱120,000.
12. You withdrew ₱90,000 cash from the business.
Requirements:
a. Provide the journal entries.
b. Post the entries to the ledger (use T-accounts).
c. Prepare the unadjusted trial balance.
PROBLEM 8: POSTING & UNADJUSTED TRIAL BALANCE
Entity A started operations on January 1, 20x1. The following were the transactions
during the first week of operations:
Jan.
Transactions
1 The owner provided ₱600,000 cash as initial investment to the business.
2 The business acquired a building for ₱400,000 cash.
3 The business acquired office equipment for ₱100,000 cash.
4 The business purchased supplies for ₱20,000 cash. The business uses a prepaid
asset account.
5 The business rendered services worth ₱150,000 on cash basis.
6 The business rendered services worth ₱100,000 on account.
7 The business paid ₱25,000 salaries expense.
Requirements
a. Provide the journal entries.
b. Post the journal entries to the ledger.
c. Prepare the unadjusted trial balance.
PROBLEM 9: POSTING & UNADJUSTED TRIAL BALANCE
Mr. Uhtred opened a business called Bebbanburg Merchandising. The following were
the transactions for the year ended December 31, 20x1:
1. Mr. Uhtred contributed ₱600,000 to the business.
2. Bebbanburg obtained a loan of ₱400,000.
3. Bebbanburg purchased inventory worth ₱200,000 on cash basis.
4. Bebbanburg purchase inventory worth ₱500,000 on account.
5. Bebbanburg sold goods for ₱900,000, on account. The cost of the goods sold is
₱400,000.
6. Bebbanburg paid ₱400,000 accounts payable.
7. Bebbanburg collected ₱500,000 accounts receivable.
8. Bebbanburg purchased equipment for ₱480,000 cash.
9. Bebbanburg distributed ₱10,000 cash to Mr. Uhtred.
10. Bebbanburg paid interest expense of ₱5,000.
Requirements:
a. Provide the journal entries.
b. Post the entries to the ledger (use T-accounts).
c. Prepare the unadjusted trial balance.
PROBLEM 10: MULTIPLE CHOICE
1. After identifying an accountable event and recording it in a debit-credit format,
the next step is to
a. prepare the unadjusted trial balance.
b. classify the effect of the transaction on the accounts.
c. prepare the adjusting entries.
d. post the transaction online and wait for friends to like.
2. Transferring the debit and credit amounts of a journal entry to the ledger is called
a. recording.
b. posting.
c. tweeting.
d. liking.
3. In accounting, to post means
a. to record a transaction in debit-credit format.
b. to transfer the debits and credits of a recorded transaction to the affected
accounts.
c. to determine whether total debits equal total credits.
d. to update your status.
4. Mr. A, the owner of Alpha Co., invests ₱600,000 cash to the business. Posting this
transaction to the ledger involves which of the following?
a. Debit to “A, Capital”
b. Credit to “A, Drawings”
c. Credit to “Cash”
d. Debit to “Cash”
5. The heading of a trial balance will least likely show
a. the name of the business/
b. the date covered by the report/
c. the title of the report.
d. the name of the business owner.
6. What is the usual sequence of accounts in the trial balance?
a. Chronologically or according to the dates of transactions
b. All debits first, then all credits
c. Assets, Expenses, Liabilities, Equity, and Income
d. Assets, Liabilities, Equity, Income and Expenses
7. The accounts, and their balances, shown in the trial balance are derived directly
from the
a. Journal.
b. General ledger.
c. Subsidiary ledger.
d. Accountant’s mind.
8. Which of the following accounts is presented on the credit column of the
unadjusted trial balance?
a. Cash
b. Accounts receivable
c. Owner’s drawings
d. Service fees
9. Entity A recorded a ₱16,830 amount as ₱16,380. This error is called
a. Transportation error.
b. Transplacement error.
c. Transposition error.
d. Translation error.
10. Which of the following errors can be revealed by a trial balance?
a. A sale transaction was recorded but not posted.
b. The payment of utilities expense was posted as a debit to salaries expense and
credit to cash.
c. The debit posting of service fees earned from services rendered on account was
posted to “Cash” rather than “Accounts receivable.” The credit posting was correct.
d. Service fees of ₱81,000 were posted as debit to cash for ₱81,000 and credit to
service fees of ₱18,000.