Ateneo de Naga University ACCM131 – Elementary Accounting 2

Review of the Accounting Process

Name: SHANA VILLAMOR Section: AC11Am

I. Accounting Cycle
Arrange the 10 steps in the accounting cycle in their correct order by writing the letter on the
space provided in the first column.

1. E A. Preparation of a Trial Balance

2. H B. Preparation of a Post-Closing Trial Balance
3. F C. Preparation of the Worksheet including Adjusting Entries
4. A D. Adjusting Journal Entries are Journalized and Posted
5. C E. Identification of Events to be Recorded
6. I F. Journal Entries are Posted to the Ledger
7. D G. Reversing Journal Entries are Journalized and Posted
8. J H. Transactions are Recorded in the Journal
9. B I. Preparation of the Financial Statements
10. G J. Closing Entries are Journalized and Posted

II. Adjusting and Reversing Entries

ABC Merchandising follows the policy of recording prepayments in revenue and expense
accounts and reverses appropriate adjusting entries at the beginning of the new accounting
period. The records of the business show the following:

a. On March 1, 2009, ABC borrowed P2,000,000 cash form the Bank of the Philippine
Island (BPI) by issuing a 6% note payable in one year. The interest is payable upon
maturity of the note.
b. On July 1, 2009, ABC paid insurance premium of P72,000 covering a period of three
years beginning on this date.
c. On September 1, 2009, ABC paid P360,000 representing rental for one year starting on
this date.
d. ABC reports accounts receivable of P500,000 and allowance for uncollectible accounts of
P1,000 (debit balance); P5,000 of the receivables are uncollectible.
e. ABC pays all employees every Friday. The total payroll for the five-day workweek ending
January 3, 2010 is P150,000.
f. ABC purchased office equipment on April 1, 2008 amounting to P120,000. On January
1, 2009, the office equipment account has a balance of P480,000. All equipment have
estimated useful life of 5 years with no residual value.
g. Office supplies on hand on January 1, 2009 amounted to P5,000. During the year, office
supplies of P12,500 were purchased. On December 31, 2009, there are unused supplies
of P3,500.
h. ABC subleases part of its office space for P10,000 per month. On November 1, 2009, it
received rental payments for six months starting on this date.
i. Merchandise inventory on January 1 and December 31 amounted to P100,000 and
P120,000, respectively.

Instructions:
1. Prepare the necessary adjusting entries on December 31, 2009.
2. Prepare appropriate reversing entries as of January 1, 2010.

1. Adjusting entries on Dec. 31, 2009

a. Interest Expense 100,000
Interest Payable 100,000
b. Insurance Expense 12,000
Interest Payable 12,000
c. Rent Expense 120,000
Prepaid Rent 120,000
d. Uncollectible Accounts Expense 6,000
Allowance for Doubtful Accounts 6,000
e. Salaries Expense 60,000
Salaries Payable 60,000
f. Depreciation Expense – Office 96,000
Equipment
Accumulated Depreciation 96,000
g. Supplies Expense 14,000
Supplies 14,000
Ateneo de Naga University ACCM131 – Elementary Accounting 2
Review of the Accounting Process

h.Unearned Rent Revenue 10,000

Rent Revenue 10,000
i. Income Summary 100,000
Merchandise Inventory, Jan 1 100,000
Merchandise Inventory, Dec 31 120,000
Income Summary 120,000
3. Reversing entries as of January 1, 2010
Interest Payable 100,000
Interest Expense 100,000
Insurance Payable 12,000
Insurance Expense 12,000
Prepaid Rent 120,000
Rent Expense 120,000
Salaries Payable 60,000
Salaries Expense 60,000
Rent Revenue 10,000
Unearned Rent 10,000
Revenue

III. Adjusting and Reversing Entries

The following are selected transactions of the DEF Trading during the year 2009:

a. On July 1, 2009, the company received P270,000 representing rental payments for the
period July 1, 2000 to December 31, 2010.
b. On October 1, 2009, an insurance premium of P90,000 was paid covering a period of two
years beginning on this date.

Instructions: Provide the necessary adjusting entries as of December 31, 2009 and
appropriate reversing entries as of January 1, 2010 assuming:
1. Transactions were originally recorded in asset and liability accounts.
2. Transactions were originally recorded in expenses and revenue accounts.

Adjusting Entries:
a.
Liability:
Unearned Revenue 180,000
Rent Revenue 180,000
Revenue:
Insurance 90,000
Unearned Rent Revenue 90,000
b.
Asset:
Insurance Expense 11,250
Prepaid Insurance 11,250
Expense:
Prepaid Insurance 78,750
Insurance Expense 78,750

Reversing Entries:
Unearned Rent Revenue 90,000
Rent Revenue 90,000
Prepaid Insurance 78,750
Insurance Expense 78,750

IV. Adjusting and Reversing Entries

Give the account/s to be credited to complete the adjusting entries below:

Debit Credit
Ateneo de Naga University ACCM131 – Elementary Accounting 2
Review of the Accounting Process

1. Uncollectible Accounts Expense Allowance for Doubtful Accounts

2. Prepaid Rent Rent Expense
3. Office Supplies on Hand Supplies
4. Salary Expense Salaries Payable
5. Insurance Expense Prepaid Insurance
6. Interest Receivable Interest Revenue
7. Interest Expense Interest Payable
8. Rent Income Unearned Rent Income
9. Depreciation Expense Accumulated Depreciation
10. Inventory, end Income Summary

V. Adjusting Entries

The XYZ Realty operates with an annual accounting period that ends on December 31. The trial
balance of the company at the end of the current year follows:

Debit Credit
Cash 1,300,000
Accounts Receivable 550,000
Prepaid Insurance 50,000
Office Equipment 750,000
Acc. Depreciation-Off. Eqpt. 150,000
Automobile 1,300,000
Acc. Depreciation-Automobile 260,000
Accounts Payable 110,000
Unearned Management Fees 120,000
Primo, Capital 840,000
Primo, Drawing 350,000
Management Fees Earned 3,600,000
Office Salaries Expense 450,000
Advertising Expense 100,000
Rent Expense 150,000
Telephone Expense 30,000
Utility Expense 50,000
------------------------- --------------------------
5,080,000 5,080,000
============== ===============

Data for adjustment:

1. Expired insurance during the year amounted to P30,000.
2. Depreciation expense for the year: office equipment – P75,000; automobile – P260,000.
3. The balance of unearned management fees represents advance payments for six months
starting September 1, 2009.
4. Advertising expense represents a five-month advertising beginning October 1, 2009.

Instructions: Prepare the necessary adjusting entries as of December 31, 2009.

Adjusting entries as of December 31, 2009

1. Insurance Expense 30,000
Prepaid Insurance 30,000
2. Depreciation Expense – Office Equipment 75,000
Accumulated Depreciation – Office 75,000
Equipment
Depreciation Expense – Automobile 260,000
Accumulated Depreciation – 260,000
Automobile
3. Unearned Rent Revenue 80,000
Rent Revenue 80,000
4. Advertising Expense 60,000
Prepaid Advertising 60,000
Ateneo de Naga University ACCM131 – Elementary Accounting 2
Review of the Accounting Process