CHAPTER 38

CASH BASIS
Problem 38-1
Spree Company provided following information for the current year:
Cash Sales
Gross 2,000,000
Returns and allowances 100,000
Credit sales
Gross 3,000,000
Discounts 150,000

Customers owed P1,000,000 on January 1 and P750,000 on December 31. The entity used the direct write-off
method for bad debts. No bad debts were recorded in the current year.
1. Under cash basis of accounting, what amount of sales revenue should be reported for the current year?
Answer: Refer to Problem 38-1 (page 494)
Problem 38-2
Zeta Company reported sales revenue of P4,600,000 in the income statement for the current year.
January 1 December 31
Accounts receivable 1,000,000 1,300,000
Allowance for uncollectible accounts 60,000 110,000
Advances from customers 200,000 300,000
The entity wrote off uncollectible accounts of P50,000 during the current year.
1. Under cash basis of accounting, what amount should be reported as sales revenue for the current year?
Answer: Refer to Problem 38-2 (page 495)

Problem 38-3
Jacqueline Company began the current year with the following:
Accounts receivable 1,000,000
Allowance for doubtful accounts 50,000
During the current year, the following events occurred:
Accounts written off 100,000
Cash sales 500,000
Sales on account of 3,000,000
Bad debt expense recognized 200,000
At the end of the current year, the entity showed a balance in accounts receivable of P1,700,000 before the
allowance for doubtful accounts.
1. Under cash basis, what amount should be reported as sales for the current year?
Answer: Refer to Problem 38-3 (page 496)
Problem 38-4
Royal Company provided the following data for the current year:
Sales 10,000,000
Cost of goods sold 5,300,000
Operating Expenses 3,800,000

December 31 January 1
Prepaid operating expenses 1,000,000 700,000
Accounts payable 1,350,000 1,200,000
Inventory 2,500,000 2,100,000
Account receivable 1,400,000 1,375,000

1. Under cash basis, what amount should be reported as purchases for the current year?
Answer: Refer to Problem 38-4 (page 497)
Problem 38-5
Gerber Company reported that all insurance premiums paid are debited to prepaid insurance.
For interim financial statements, the entity made monthly estimated charges to insurance expense with an offset
to prepaid insurance.
Prepaid insurance - January 1 150,000
Charges to insurance expense during the current year
Including a year-end adjustment of P25,000 625,000
Prepaid insurance – December 31 175,000

1. What amount should be reported as insurance premium paid during the current year?
Answer: Refer to Problem 38-5 (page 498)

Problem 38-6
Marimar Company used the accrual basis of accounting.
December 31 January 1
Inventory 8,000,000 9,000,000
Prepaid expenses 100,000 50,000
Accounts payable 7,500,000 7,000,000
Accrued expenses 500,000 300,000
Cost of goods sold 15,000,000
Expenses 3,000,000

The expenses for the current year included depreciation of P200,000 and amortization of P100,000.

1. What amount was paid for expenses during the current year?
Answer: Refer to Problem 38-6 (page 499)

Problem 38-7
Seaside Company provided the following data for the current year:
Operating expenses:
Depreciation 1,000,000
Insurance 700,000
Salaries 1,500,000
Total operating expenses 3,200,000

December 31 January 1
Prepaid insurance 200,000 150,000
Accrued salaries payable 100,000 120,000

1. What amount was paid for operating expenses?

Answer: Refer to Problem 38-7 (page 500)

Problem 38-8
Under accrual basis, Hamtikan Company reported rental income for the current year at P600,000.
The entity provided the following additional information regarding rental income:
Unearned rental income, January 1 50,000
Unearned rental income, December 31 75,000
Accrued rental income, January 1 30,000
Accrued rental income, December 31 40,000
1. What total amount of cash was received from rental in the current year?
Answer: Refer to Problem 38-8 (page 501)

Problem 38-9
During 2024, Kew Company had P200,000 in cash sales and P3,000,000 in credit sales. The accounts receivable
balances were P400,000 and P485,000 on December 31,2023 and 2024, respectively.
 1. Under cash basis, what amount should be reported as sales for 2024?
Answer: Refer to Problem 38-9 (page 502)

Problem 38-10
On February 1, 2023, Tory began a service proprietorship with an initial investment of P200,000. The
proprietorship provided P500,000 of service in February and received full payment in March.
The proprietorship incurred expenses of P300,000 in February which were paid in April. Tory drew P100,000
during March.
1. For the two months ended March 31, 2023, prepared under the cash basis, what amount should be
reported as capital?
Answer: Refer to Problem 38-10 (page 502)