Foa p1 Module 2 For Bsa & Bsais Students

Republic of the Philippines
MARINDUQUE STATE C
OLLEGE
School of Business and Management
Bachelor of Science in Accountancy
MODULE 2
RECORDING BUSINESS TRANSACTIONS
LEARNING OBJECTIVES:
After studying this module, you should be able to:
1. list and explain in brief the sequential steps in the accounting cycle.
2. identify the general journal as the book of original entry.
3. detail the standard contents of the general journal.
4. outline the steps in analyzing transactions and state the role of source documents.
5. analyze the impact of transactions on the elements and the specific accounts. 6.
apply the rules of debits and credits in analyzing business transactions.
7. journalize transactions in proper form.
8. describe a general ledger and understand what purpose it serves.
9. post entries from the general journal to the general ledger.
10. distinguish between permanent and temporary accounts.
11. develop a chart of accounts.
12. prepare and explain the use of a trial balance.
13. perform steps in locating and correcting errors.
TRANSACTION ANALYSIS (Step 1)

The analysis of transactions should follow these four basic steps:
1. Identify the transaction from source documents.
2. Indicate the accounts– either assets, liabilities, equity, income or expenses–affected by the
transaction.
3. Ascertain whether each account is increased o r decreased b
y the transaction. 4. Using the rules
of debit and credit, determine whether to debit or credit the account to record its increase or
decrease.
SOURCE DOCUMENTS
Transaction and events are the starting points in the accounting cycle. By relying on source
documents, transactions and events can be analyzed as to how they will affect performance and
financial position. Source documents identify and describe transactions and events entering the
accounting process. These original written evidences contain information about the nature and the
amounts of the transactions. These are the bases for the journal entries; some of the more common
source documents are sales invoices, cash register tapes, official receipts, bank deposit slips, bank
statements, checks, purchase orders, time cards and statements of account. Specimens and
discussions on some of these documents will be in Module 6.
Fundamentals of Accounting, Part I Mark Rey U. Tan, CPA, MSA Page 1 of 39

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ACCOUNTING CYCLE
The accounting cycle refers to a series of sequential steps or procedures performed to accomplish the
accounting process. The steps in the cycle and their aims follow:
Step 1 Identification of Events to be Recorded
Aim: To gather information about transactions or events
generally through the source documents.
Step 3 Journal Entries are Posted to the
During the Ledger
accounting Aim: To transfer the information from the
period journal to the ledger for classification.
Step 4 Preparation of a Trial Balance
Aim: To provide a listing to verify the equality
of debits and credits in the ledger.
Step 5 Preparation of the Worksheet
including Adjusting Entries Aim: To aid in the
preparation of financial statements.
Step 6 Preparation of the Financial
Statements
Aim: To provide useful information to
decision-makers. Step 7 Adjusting Journal
Entries are Journalized and Posted Aim: To
At the end of the accounting period
record the accruals, expiration of deferrals,
estimations and other events from the
worksheet.
Step 8 Closing Journal Entries are
Journalized and Posted Aim: To close
temporary accounts and transfer profit to
owner’s equity.
At the start of the next period Step 9 Preparation of a Post-Closing Trial
Balance
Aim: To check
the equality of
debits and
credits after the
closing entries.
Step 10
Reversing
Journal Entries
are Journalized
and Posted Aim:
To simplify the
recording of
certain regular
transactions in
the next
accounting
period.
Step 2 Transactions are Recorded in the

Journal
Aim: To record the economic impact of
transactions on the firm in a journal, which is
a form that facilitates transfer to the
accounts.
This cycle is repeated each accounting period. The first three steps in the accounting cycle are
accomplished during the period. The fourth to the ninth steps generally occur at the end of the period.
The last step is optional and occurs at the beginning of the next period.

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The discussion in this module will focus in the first four steps. The fifth and sixth steps in Module 3 and
4 while the rest will be taken up in Module 5. Refer to the following diagram for steps 2, 3 and 4.
The General Journal

(the book of original entry)
Office Equipment xx Cash xx Accounts Payable xx
The Ledger
A grouping of accounts.
Used to classify and summarize transactions and to
prepare data for basic financial statements
Transferring the amounts from
the general journal to
appropriate accounts in the
ledger
Cash
Office
Equipment
Accounts
Payable
Trial Balance
Shows all the effects of a transaction in

terms of debits and credits.
Posting
Listing of all ledger accounts, in order, Liabilities
with their respective debit or credit Owner’s Equity Revenues
balances. Expenses
Assets
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THE JOURNAL
The journal is a chronological record of the entity’s transactions. A journal entry shows all the effects
of a business transaction in terms of debits and credits. Each transaction is initially recorded in a
journal rather than directly in the ledger. A journal is called the book of original entry. The nature and
volume of transactions of the business determine the number and type of journals needed. The
general journal is the simplest journal.
Forma
t
The standard contents of the general journal are as follows:
1. Date. The year and month are not rewritten for every entry unless the year or month changes or
a new page is needed.
2. Account Titles and Explanation. The account to be debited is entered at the extreme left of the
first line while the account to be credited is entered slightly indented on the next line. A brief
description of the transaction is usually made on the line below the credit. Generally, skip a line
after each entry.
3. P.R. (posting reference). This will be used when the entries are posted, that is, until the amounts
are transferred to the related ledger accounts. The posting process will be described later.
4. Debit. The debit amount for each account is entered in this column.
5. Credit. The credit amount for each account is entered in this column.
Assume that Elisa Diaz established her own wedding consultancy with an initial investment of
P250,000 on May 1.
The journal entry is shown below:
Journal
page 1
Date Account Titles and Explanation P.R. Debit Credit 1 2015
2 May 1 Cash 250,000 3 Diaz, Capital 250,000 4 Initial Investment.
5
Simple and Compound Entry

In a simple entry, only two accounts are affected–one account is debited and the other account
credited. An example of this is the entry to record the initial investment of Diaz. However, some
transactions require the use of more than two accounts. When three or more accounts are required in
a journal entry, the entry is referred to as a compound entry.
TRANSACTIONS ARE JOURNALIZED (Step

2)
After the transaction or event has been identified and measured, it is recorded in the journal. The
process of recording in a transaction is called journalizing. The following are the transactions for
Weddings “R” Us during the month of May. The double-entry system will be used.

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To understand the nature of the affected accounts, the letter A (for asset), L (liability) or OE (owner’s
equity) is inserted after each entry. In addition, owner’s equity is further classified into OE:I (income)
and OE:E (expenses).
Note that the rules of double-entry system are observed in each transaction:
1. Two or more accounts are affected by each transaction
2. The sum of the debits for every transaction equals the sum of the credits.
3. The equality of the accounting equation is always maintained.
Initial Investment (Source of Assets)

May 1 Elisa Diaz is a social entrepreneur from the South. She is into a lot of interesting causes.
Her fine taste is preeminent such that she is considered an authority in
planning weddings. Upon the advice and prodding of an esteemed colleague,
Maria Concepcion Manalo, Diaz decided to organize her wedding
consultancy. She invested P250,000 into this entity.
Increases in owner’s equity are recorded by
Analysis Rules credits.
Assets increased. Owner’s equity increased.
Increases in assets are recorded by debits.
Entry
Increase in
assets is
recorded
by a debit
to cash.
Increase in
owner’s
equity is
recorded
by a credit
to Diaz, Capital.
Dr. Cr.
Cash (A) 250,000
Diaz, Capital (OE) 250,000
Rent Paid in Advance (Exchange of Assets)

May 1 Rented office space and paid two month’s rent in advance, P8,000.
Analysis Rules Decreases in assets are recorded by credits.
Assets increased. Assets decreased.
Entry Increase in assets is recorded by a debit to prepaid rent. Decrease in assets is recorded by
a credit to cash.
Dr. Cr.
Prepaid Rent (A) 8,000
Cash (A)
8,000
Note Issued for Cash (Source

of Assets)
May 2 Elisa
Diaz issued a
promissory
note for a
P210,000 loan from Metrobank. This availment will be used for the
acquisition of a service vehicle. The note carries a 20% interest per annum.
The arrangement with the bank is that

MARINDUQUE STATE C
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in full in one year.
Assets increased. Liabilities increased.

Increases in liabilities are recorded by credits.
Analysis Rules
both the interest and the principal are payable
Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a
credit to
notes
payable.
Dr. Cr.
Cash (A) 210,000
Notes Payable
(L) 210,000
May 2
Hired an
office
assistant
and an
account
executive
each with a
P7,800
monthly
salary. Or,
each is to
receive
P300 per
day for the
26-day work month. No entry is necessary at this point. They started work
immediately.
Service Vehicle Acquired for Cash (Exchange of Assets)

May 4 Acquired service vehicle for P420,000.
Increases in assets are recorded by
Analysis Rules debits. Decreases by credits.
Assets increased. Assets decreased.
Entry Increase in assets is recorded by a debit to service vehicle. Decrease in assets is recorded
by a credit to cash.
Dr. Cr.
Service Vehicle (A) 420,000
Cash (A) 420,000
Insurance Premiums Paid (Exchange of Assets)

May 4 Paid Prudential Guarantee and Assurance, Inc. P14,000 for a one-year comprehensive
insurance coverage on the service vehicle.
An asset increased. Another asset decreased.
Entry Increase in assets is recorded by a debit to prepaid insurance. Decrease in assets is
recorded by a credit to cash.
Dr. Cr.
Prepaid Insurance (A) 14,400
Cash (A) 14,400

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Office Equipment Acquired on Account (Exchange and Source of Assets) May 5 Acquired office
equipment from Fair and Square Emporium for P60,000; paying P15,000 in cash and the
balance next month.
Note: A compound entry is needed for this transaction.
increased.
Assets increased. Asset decreased. Liabilities Increases in liabilities are recorded by credits.
Entry Increase in assets is
recorded by a debit to office
equipment. Decrease in
assets is recorded by a credit
to cash. Increase in liabilities
is recorded by a credit to
accounts payable.
Dr. Cr.
Office Equipment (A) 60,000
Cash (A) 15,000
Accounts Payable (L)
45,000
Supplies Purchased on Account (Source of

Assets)
May 8 Purchased supplies on credit for
P18,000 from San Jose Merchandising.
Increases in assets are
recorded by debits. Increases
Analysis Rules in liabilities are recorded by
Assets increased. Liabilities increased. credits.
Entry Increase in assets is recorded by a debit to supplies. Increase in liabilities is recorded by a
credit to accounts payable.
Dr. Cr.
Supplies (A) 18,000
Accounts Payable (L) 18,000
Accounts Payable Partially Settled (Use of Assets)

May 9 Paid San Jose Merchandising P10,000 of the amount owned.
Decreases in assets are recorded by credits.
Analysis Rules Decreases in liabilities are recorded by debits.
Assets decreased. Liabilities decreased.
Entry Decrease in liabilities is recorded by a debit to accounts payable. Decrease in assets is

recorded by a credit to cash.
Dr. Cr.
Accounts Payable (L) 10,000
Cash (A) 10,000

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Revenues Earned and Cash Collected (Source of Assets)

May 10 Coordinated and finalized simple bridal arrangement for three couples and collected
fees of P8,000 per couple. Services include prospecting and selecting the
church and reception location, couturier, car service, flowers, souvenirs and
invitations.
Increases in owner’s equity are recorded by
Analysis Rules credits.
Entry
Increase in
assets is
recorded
by a debit
to cash.
increase in
owner’s
equity is
recorded
by a credit
to a
consulting
revenues.
Dr. Cr.
Cash (A) 26,400
Consulting
Revenues (OE:I)
26,400
Salaries Paid (Use of Assets)

May 13 Paid salaries, P6,600. The entity pays salaries every two Saturdays (refer to the calendar
in Module 3).
Analysis Rules Decreases in owner’s equity are recorded by
Assets decreased. Owner’s equity decreased.
debits.
Entry Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease in assets
is recorded by a credit to cash.
Dr. Cr.
Salaries Expense (OE:E) 6,600
Cash (A) 6,600
Unearned Revenue Collected (Source of Assets)

May 15 The entity is earning additional revenues by referring consulting clients to friendly
hotels, caterers, printers, and couturiers.
Received P10,000 advance fees for three clients referred.
Analysis Rules Increases in liabilities are recorded by credits.
Assets increased. Liabilities increased.
Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a

credit to unearned revenues.
Dr. Cr.

MARINDUQUE STATE C
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Cash (A) 10,000

Unearned Referral Revenues (L) 10,000
Revenues Earned on Account (Source of Assets)

May 19 Coordinated and finalized elaborate bridal arrangements for three couples and billed
fees of P12,000 per couple. Additional services include documents
preparation, consultation with a feng shui expert as to the ideal wedding
date for prosperity and harmony, provision for limousine service and
honeymoon trip.
Analysis Rules Increases in assets are recorded by debits.
Increases in owner’s equity are recorded by credits.
Entry
Increase in
assets is
recorded
by a debit
to accounts
receivable.
Increase in
owner’s
equity is
recorded
by a credit
to
consulting
revenues.
Dr. Cr.
Accounts Receivable (A) 36,000
Consulting Revenues (OE:I) 36,000
Withdrawal of Cash by Owner (Use of Assets)

May 25 Diaz withdrew P14,000 for personal expenses.
Decreases in owner’s equity are recorded by
Analysis Rules debits.
Entry Decrease in owner’s equity is recorded by a debit to Diaz, Withdrawals. Decrease in
assets is recorded by a credit to cash.
Dr. Cr.
Diaz, Withdrawals (OE) 14,000
Cash (A) 14,000
Salaries Paid (Use of Assets)

May 27 Paid salaries, P7,200.
Entry Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease in assets
Dr. Cr.
MARINDUQUE STATE C
OLLEGE
Salaries Expense (OE:E) 7,200

Cash (A) 7,200
Expenses Incurred but Unpaid (Exchange of Claims)

May 30 Received the ICC-BayanTel telephone bill, P1,400.
Liabilities increased. Owner’s equity decreased.
Increases in liabilities are recorded by credits.
Entry
Decrease in
owner’s
equity is
recorded
by a debit
to utilities
expense.
Increase in
liabilities is
recorded
by a credit
to utilities
payable.
Dr. Cr.
Utilities Expense (OE:E)
1,400
Utilities
Payable (L) 1,400
Accounts Receivable Partially Collected (Exchange of Assets)

May 30 Received P24,000 from two clients for services billed last May 19.
decreased.
Analysis Rules Increases in assets are recorded by
An asset increased. Another asset debits. Decreases as credits.
Entry Increase in assets is recorded by a debit to cash. Decrease in assets is recorded by a credit
to accounts receivable.
Dr. Cr.
Cash (A) 24,000
Accounts Receivable (A) 24,000
Expenses Incurred and Paid (Use of Assets)

May 31 Settled the electricity bull of P3,000 for the month.
Entry Decrease in owner’s equity is recorded by a debit to utilities expense. Decrease in assets
Dr. Cr.
Utilities Expense (OE:E) 3,000
Cash (A) 3,000

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OLLEGE
THE LEDGER
A grouping of the entity’s accounts is referred to as a ledger. Although some firms may use various
ledgers to accumulate certain detailed information, all firms have a general ledger. A general ledger is
the “reference book” of the accounting system and is used to classify and summarize transactions, and
to prepare data for basic financial statements.
The accounts in the general ledger are classified into two general groups:
1. balance sheet or
permanent accounts
(assets, liabilities and
owner’s equity). 2.
income statement or
temporary accounts
(income and
expenses). Temporary
or nominal accounts
are used to gather
information for a
particular accounting period. At the end of the period, the balances of these accounts are
transferred to a permanent owner’s equity account.
Each account has its own record in the ledger. Every account in the ledger maintains the basic format
of the T-account but offers more information (e.g. the account number at the upper right corner and
the journal reference column). Compared to a journal, a ledger organizes information by account.
CHARTS OF ACCOUNTS
A listing of all accounts and their account numbers in the ledger is known as the chart of accounts. The
chart is arranged in the financial statement order, that is, assets first, followed by liabilities, owner’s
equity, income and expenses. The accounts should be numbered in a flexible manner to permit
indexing and cross-referencing.
When analyzing transactions, the accountant refers to the chart of accounts to identify the pertinent
accounts to be increased or decreased. If an appropriate title is not listed in the chart, an additional
account may be added. Presented below is the chart of accounts for the illustration:
Weddings “R” Us
Chart of Accounts
Balance Sheet Accounts Income statement Account
Assets Income
110 Cash 410 Consulting Revenues 120 Accounts Receivable 420 Referral
Revenues
130 Supplies
140 Prepaid Rent
150 Prepaid Insurance Expenses
160 Service Vehicle 510 Salaries Expense
165 Accumulated Depreciation 520 Supplies Expense
170 Office Equipment 530 Rent Expense
175 Accumulated Depreciation 540 Insurance Expense Liabilities 550

Utilities
Expense
210 Notes Payable 560 Depreciation Expense 220 Accounts Payable Service
Vehicle
230 Salaries Payable 570 Depreciation Expense 240 Utilities Payable Office
Equipment
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250 Interest Payable 580 Miscellaneous Expense 260 Unearned Referral Revenues
590 Interest Expense
Owner’s Equity
310 Diaz, Capital
320 Diaz, Withdrawals
330 Income Summary
POSTING (Step 3)
Posting means transferring the amounts from the journal to the appropriate accounts in the ledger.
Debits in the journal are posted as debits in the ledger, and credits in the journal as credits in the
ledger. The steps are illustrated as follows:
1. Transfer the date of the transaction form the journal to the ledger.
2. Transfer the page number from the journal to the journal reference (J.R.) column of the ledger.
3. Post the debit figure from the journal as a debit figure in the ledger and the credit figure from
the journal as a credit figure in the ledger.
4. Enter the account number in the posting reference column of the journal once the figure has
been posted to the ledger.
The Journal
Date Account Titles and Explanation P.R. Debit Credit 1 2015
2 May 1 Cash 110 250,000 3 Diaz, Capital 310 250,000 4 Initial Investment.
The Ledger
Account: Cash Account No. 110
Date Explanation J.R. Debit Credit Balance 1 2015
2 May 1 J-1 250,000 250,000
Account: Diaz, Capital Account No. 310

Date Explanation J.R. Debit Credit Balance 1 2015
2 May 1 J-1 250,000 250,000
LEDGER ACCOUNTS AFTER

POSTING
At the end of an accounting period, the debit or credit balance of each account must be determined to
enable us to come up with a trial balance.
∙ Each account balance is determined by footing (adding) all the debits and credits. ∙ If the sum of
an account’s debits is greater than the sum of its credits, that account has a debit balance.

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∙ If the sum of its credits is greater, that account has a credit balance.
Illustration. The ledger accounts of Weddings “R” Us after posting are shown below. The account
numbers and journal reference columns are purposely omitted. The balance of each account has been
determined.
Cash Notes
Payable
May 1 250,000 May 1 8,000 May 2 210,000 2 210,000 4 420,000 Balance 210,000 10
26,400 4 14,400
15 10,000 5 15,000 Accounts Payable
30 24,000 9 10,000 May 9 10,000 May 5 45,000 13 6,600 8 18,000
25 14,000 10,000 63,000
27 7,200 Balance 53,000
31 3,000
520,400 498,200
Balance 22,200 Utilities Payable
May 30 1,400
Balance 1,400
Accounts Receivable Unearned Referral Revenues

May 19 36,000 May 31 24,000 May 15 10,000 Balance 12,000 Balance 10,000
Supplies Diaz, Capital

May 8 18,000 May 1 250,000 Balance 18,000 Balance 250,000
Prepaid Rent Diaz, Withdrawals

May 1 8,000 May 25 14,000
Balance 8,000 Balance 14,000
Prepaid Insurance Costing Revenues

May 4 14,400 May 10 26,400 Balance 14,400 19 36,000 62,400
Balance 62,400
Service Vehicle Salaries Expense

May 4 420,000 May 13 6,600
Balance 420,000 27 7,200
13,800
Balance 13,800

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Office Equipment Utilities Expense
May 5 60,000 May 30 1,400
Balance 60,000 31 3,000
Balance 4,400
TRIAL BALANCE (Step 4)
The trial balance
is a list of all
accounts with
their respective
debit or credit
cash balances. It is
prepared to verify
the equality o f
debits and credits
in the ledger at
the end of each
accounting period
or at any time the
postings are
updated.
The procedures in the
preparation of a trial
balance follow:
1. List the account titles in
numerical order.
2. Obtain the
account balance
of each account
from the ledger and enter the debit balances in the debit column and the credit balances in the
credit column.
3. Add the debit and credit columns.
4. Compare the totals.
The trial balance is a control device that helps minimize accounting errors. When the totals are equal,
the trial balance is in balance. This equality provides an interim proof of the accuracy of the records
but it does not signify the absence of errors. For example, if the bookkeeper failed to record payment
of rent, the trial balance columns are equal but in reality, the accounts are incorrect since rent
expense is understated and cash overstated.
The trial balance for the illustration follows:
Weddings “R” Us
Trial Balance
May 31, 2015
Cash P22,200
Accounts Receivable 12,000
Supplies 18,000
Prepaid Rent 8,000
Prepaid Insurance 14,400
Service Vehicle 420,000
Office Equipment 60,000
Notes Payable P210,000
Accounts Payable 53,000
Utilities Payable 1,400
Unearned Referral Revenues 10,000
Diaz, Capital 250,000

Diaz, Withdrawals 14,000
Consulting Revenues 62,400
Salaries Expense 13,800
Utilities Expense 4,400
P586,800 P586,800

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LOCATING ERRORS
An inequality in the totals of the debits and credits would automatically signal the presence of an
error. These errors include:
1. Error in posting a transaction to the ledger:
o an erroneous amount was posted to the account.
o a debit entry was posted as a credit or vice versa.
o a debit or credit posting was omitted.
2. Error in determining the account balances:
o a balance was incorrectly computed.
o a balance was entered in the wrong balance column.
3. Error in preparing the trial balance:
o one of the columns of the trial balance was incorrectly added.
o the amount of an account balance was incorrectly recorded on the trial balance. o a debit
balance was recorded on the trial balance as a credit or vice versa, or a balance was omitted
entirely.
What is the most efficient approach in locating an error? The following procedures when done on
sequence may save considerable time and effort in locating errors:
1. Prove t he addition of the trial balance columns by adding these columns in the opposite
direction.
2. If the error does not lie in addition, determine the exact amount by which the trial balance is out
of balance. The amount of the discrepancy is often a clue to the source of the error. If the
discrepancy is divisible b y 9, this suggests either a transposition (reversing the order of
numbers) error or a slide (moving of the decimal point). For example, assume that the cash
account balance is P21,750, but in copying the balance into the trial balance the figures are
transposed and written as P21,750. The resulting error amounted P180 and is divisible by 9.
Another common error is the slide, or incorrect placement of the decimal point, as when
P21,750.00 is copied as P2,175.00. The resulting discrepancy in the trial balance will also be an
amount divisible by 9.
Assume that the office equipment account has a debit balance of P42,000 but it is erroneously
listed in the credit column of the trial balance. This will cause a discrepancy of two times
P42,000 or P84,000 in the trial balance totals. Since such errors as recording a debit in a credit
column are common, it is advisable, after determining the discrepancy in the trial balance
totals, to scan the columns for an amount equal to exactly one-half o f the discrepancy.
It is also advisable to look over the transactions for an item of the exact amount of the
discrepancy. An error may have been made by recording the debit side of the transaction and
forgetting to enter the credit slide.
3. Compare t he accounts and amounts in the trial balance with that in the ledger. Be certain that
no
account
is
omitted.
4. Recompute
the balance of
each ledger
account.
5. Trace
all
postings from the journal to the ledger accounts. As this Is done, place a check mark in the
journal and in the ledger after each figure is verified. When the operation is completed, look
through the journal and the ledger for unchecked amounts. In tracing postings, be alert not
only for errors in amount but also for debits entered as credits, or vice versa.

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Note that even when a trial balance is in balance, the accounting records may still contain errors. A
balanced trial balance simply proves that, as recorded, debits equal credits. The following errors
are not detected by a trial balance:
1. Failure to record or post a transaction.
2. Recording the same transaction more than once.
3. Recording an entry but with the same erroneous debit and credit amounts. 4. Posting
a part of a
transaction
correctly
as a debit
or credit
but to the
wrong
account.
KNOWLEDGE CHECK
GENERAL DIRECTION: Write your answer for the following activities in a bond paper. For the
uniformity of the format, in your bond paper, write your name (SURNAME, FIRST NAME, MIDDLE
INITIAL e.g. TAN, MARK REY U.) on the upper left of the bond paper; section and year under your name
(e.g. BSA-1 or BSAIS-1); MODULE #2 ACTIVITIES on the upper right; and date submitted under MODULE
#2 ACTIVITIES.
NOTE: Activities for this module accounts for the 30% of your midterm grade.
Activity #1 Modified True or False. (Estimated time required – 30 minutes)

Direction. Write “True” if the statement is correct and write “False” if the statement is incorrect. If it is
incorrect, change the incorrect word or group of words to make the statement true.
1. The sequence of an account titles in a trial balance depends upon the size of the account balances.
2. An expense may be recognized and recorded although no cash outlay has been made. 3. A recording
error caused by the erroneous rearrangement of digits, such as writing P627 as P672, is called a
transposition.
4. A trial balance may balance but may not be correct.
5. A trial balance with equal debit and credit totals proves that all transactions have been correctly
journalized and posted to the proper ledger accounts.
6. Double posting of a transaction causes the debits and credits not to balance. 7. A journal entry may
include debits to more than one account and credits to more than one account, but the total of the
debits must always equal the total of the credits.
8. The double-entry system means that transactions are recorded both in the journal and in the
ledger.
9. Every business transaction affects a minimum of two accounts.
10. A credit entry to an expense account will increase it.
11. Normally, income accounts have debit balances.
12. An account titled Unearned Revenues is a liability account.
13. In some transactions, the accounting equation may not be maintained.
14. Income statement accounts are also known as temporary accounts.
15. When payment is received for services not yet rendered, no entry is recorded until that service has
been rendered.
16. When revenue has been earned, no entry is recorded until the related cash has been
collected. 17. The journal is a chronological record of all transactions.
18. In a proper journal entry, the Post. Ref. OR P.R. column is left blank until the entry has been
posted.
19. If equipment is bought by paying P20,000 as a down payment and the remaining P40,000 in 30
days, total liabilities are increased by P20,000.
20. An account balance is the difference between total debits and total credits in an account.
MARINDUQUE STATE C
OLLEGE
Activity #2 Debits and Credits (Estimated time required – 15 minutes)

Innovative Designs, owned by Edman Flores has been operating for two years. Below is a series of
transactions. For each transaction, indicate the accounts that should be debited and credited. If no
journal entry is required, write “n/a” in the columns. Use the following account titles: Cash; Accounts
Receivable; Supplies; Prepaid Expenses; Equipment; Patents; Accounts Payable; Notes Payable;
Salaries Payable; Flores, Capital; Flores, Withdrawals; Service Revenues and Operating Expenses.
Transactions Debits Credits
a. Purchased equipment for use in the business; paid
one-third
cash and gave a note payable for the balance.
b. Paid cash for salaries.
c. Collected cash for services performed this period.
d. Collected cash for services performed last period.
e. Performed services this period on credit.
f. Paid operating expenses incurred this period.
g. Paid cash for operating expenses incurred last period.
h. Incurred operating expenses this period to be paid
next period.
i. Purchased supplies for inventory to be used later; paid
cash.
j. Used some of the supplies from inventory for
operations.
k. Purchased a patent (an intangible): paid cash.
l. Made a payment on the equipment note in (a); the
payment
was part principal and part interest expense.
m. Collected cash on accounts receivable for services
previously
performed.
n. Paid cash on accounts payable for expenses previously
incurred.
o. On the last day of current period, paid cash for an
insurance
policy covering the next twelve months.
Activity #3 (Developing a Chart of Accounts – 30 minutes)

Rodrigo Lucena organized a new business and named it Lucena Business Consultancy. Listed below are
the accounts that will be needed in the ledger:
Consulting Revenues Lucena, Withdrawals
Accounts Receivable Income Summary
Building Office Supplies Expense
Cash Lucena, Capital
Rent Expense Notes Payable
Furniture And Fixtures Prepaid Rent
Land Interest Expense
Miscellaneous Expense Salaries Expense
Referral Revenues Unearned Consulting Revenues
Accu. Depreciation – Building Office Supplies
Accu. Depreciation – F/F Interest Payable

Depreciation Expense - Building Insurance Expense
Depreciation Expense – F/F Accounts Payable
Required: Arrange these accounts in the order in which they would appear in the ledger. Assign each
account a number, using a three-digit numbering scheme: the 100 series for assets, the 200 series for
liabilities, etc. Use the second digit to indicate specific accounts within a major category; for example,
Cash would be account number 110.

MARINDUQUE STATE C
OLLEGE
Activity #4 (Recording Transactions in T-Accounts and Preparing a Trial Balance – 60 minutes)

On May 1, 2015, Myra Dilig opened Self-Service Laundry. During May, the following transactions were
completed:
a. Dilig deposited P250,000 in a bank account in the name of the business.

b. Bought chairs and a table paying cash, P6,700.
c.
Bought laundry supplies on account from Subic Supply Inc,. P3,250.
d. Paid rent for the month, P5,750.
e. Bought washing machines and dryers from Bataan Equipment Corp., P115,000, paying
P35,000 in cash and the balance on account.
f. Revenues earned on cash basis for the first half of the month, P19,250.
g. Bought insurance for one year, P5,600.
h. Paid accounts to Bataan Equipment Corp., P7,000.
i. Received and paid electric bill, P2,080.
j. Revenues earned on cash basis for the second half of the month, P12,350. k.
Paid salaries of the part-time assistant, P7,400.
l. Dilig withdrew cash for personal use, P5,000.
m. Paid accounts to Subic Supply Inc,. P2,750.
n. Paid the city government for sidewalk repair assessment, P2,800.
Required:
1. Establish the following T-accounts: Cash; Accounts Receivable; Prepaid Insurance; Equipment;
Furniture and Fixtures; Accounts Payable; Dilig, Capital; Dilig, Withdrawals; Laundry Revenues;
Salaries Expense; Supplies Expense; Rent Expense; Utilities Expense and Miscellaneous Expense.
2. Record the transactions directly into the T-accounts using the alphabets to identify each
transaction.
3. Prepare a trial balance.
Activity #5 (Estimated time required – 30 minutes)

Preparing a Trial Balance
The accounts of Aristotle Go Advertising follow with their normal balances as at Dec. 31, 2015:
Go, Capital 254,700
Insurance Expense 9,600
Service Revenues 258,000
Land 87,000
Cash 21,000
Building 375,000
Equipment Rentals Expense 15,000
Withdrawals 18,000
Notes Payable 135,000
Supplies Expense 15,000
Required: Prepare a trial balance.
MARINDUQUE STATE C
OLLEGE
Activity #6 (Estimated time required – 90 minutes)

Correcting a Trial Balance
The June 2016 trial balance for Davao Duplicators, owned by Allan Brillantes is presented below. The
regular bookkeeper has resigned and left the following trial balance. It did not balance.
Davao
Duplicators
Trial Balance
June 30, 2016
Cash P 44,800
Supplies 70,800
Equipment 560,000
Accounts Payable P 72,600
Brillantes, Capital 513,000
Brillantes, Withdrawals 50,000
Revenues 371,600
Rent Expense 10,000
Totals P916,000 P1,017,200
Upon reviewing the trial balance and the process of

transferring the amounts in the ledger accounts to the trial balance, two errors were discovered:
a. The debit column in the trial balance was footed incorrectly.
b. The balance in the accounts payable ledger account of P62,700 was transferred as P72,600.
When the balances of the ledger accounts were recomputed, two more errors
discovered: c. The Utilities Expense account balance was overstated by P1,800.
d. The total debits in the cash account amounted to P184,600 and the credits totaled P149,800.
Discovered four more errors when postings were retraced from the journal to the ledger: e. A
debit posting to Accounts Receivable in the amount of P52,000 should have been P5,200. f. A
debit posting to Accounts Payable for P46,000 was missing.
g. A credit posting to Revenues in the amount of P7,600 was missing.
h. A credit of P31,000 was posted to Accounts Payable rather than P30,100.
Required: Prepare a corrected trial balance.

MARINDUQUE STATE C
OLLEGE
Activity #7 Multiple Choice #1 (Estimated time required – 5 minutes)

Direction: Choose the correct answer. Write the letter of your choice.
1. Which sequence correctly summarizes the accounting process?

a. Journalize transactions, post to the accounts, prepare a trial balance
b. Post to the accounts, journalize transactions, prepare a trial balance
c. Prepare a trial balance, journalize transactions, post to the accounts
d. Journalize transactions, prepare a trial balance, post to the accounts
2. Your business purchased supplies of P1,000 on account. The journal entry to record this
transaction is:
a. Inventory 1,000
b. Accounts Payable 1,000

Supplies 1,000
c. Supplies 1,000
d. Supplies 1,000
3. Which journal entry records your payment for the supplies purchased in transaction 2?
a. Accounts Payable 1,000
b. Supplies 1,000
Cash 1,000
c. Cash 1,000
d. Accounts Payable 1,000

Cash 1,000
4. Posting a P1,000 purchase of supplies on account appears as follows:
a. Supplies Accounts Payable 1,000 1,000
b. Supplies Accounts Receivable 1,000 1,000
MARINDUQUE STATE C
OLLEGE
c. Supplies Accounts Payable 1,000 1,000
d. Cash Supplies 1,000 1,000

1. Which of the following classifications of accounts has/have a normal credit balance?

a. Withdrawals
b. Revenues
c. Liabilities
d. Revenues and liabilities
e. All of these
2. A purchase is recognized in the accounting records when

a. title transfers from the seller to the buyer.
b. payment is made for the item purchased.
c. the purchase requisition is sent to the purchasing department.
d. the buyer receives the seller’s bill.
3. The primary purpose of the trial balance is to test the

a. equality of debit and credit entries in the journal.
b. recording of transactions.
c. equality of debit and credit balances in the ledger.
d. analysis of transactions.
4. The general journal does not have a column titled

a. Date.
b. Description
c. Posting Reference
d. Account Balance
5. To find an explanation for a transaction one should look at the

a. chart of accounts.
b. ledger.
c. journal.
d. trial balance.
6. Which of the following errors will cause a trial balance to be out of balance
a. A journal entry was accidentally posted twice.
b. A credit was posted to an account as a debit.

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OLLEGE
c. The bookkeeper forgot to journalize a transaction.

d. The bookkeeper forgot to post a journal entry to the ledger.
7. A P800 credit item is accidentally posted as a debit. The trial balance column totals will therefore
differ by
a. P0.
b. P400.
c. P800.
d. P1,600.
8. Which of the following entries records the withdrawal of cash for personal use by Catherine Viesca,
the owner of a business?
a. Debit Cash and credit Viesca, Withdrawals
b. Debit Cash and credit Salary Expense
c. Debit Salary Expense and credit Cash
d. Debit Viesca, Withdrawals and credit Cash
9. The trial balance will no expose which of the following problems?

a. Recording half an entry
b. Leaving out an entire entry
c. Recording both halves of an entry on the same side
d. Recording half an entry and leaving out an entire entry
e. Recording half an entry and recording both halves of an entry on the same side
10. Which of the following describes the classification and normal balance of Doringer Cabrera,
Capital?
a. Asset, debit
b. Revenue, credit
c. Owner’s equity, debit
d. Expense, debit
e. None of these
11. Which of the following describes the classification and normal balance of the Service Revenue,
Capital?
a. Capital, debit
b. Revenue, credit
c. Asset, credit
d. Asset, debit
e. Expense, debit
12. Which of the following is an asset account?

a. Insurance Expense
b. Supplies Expense
c. Office Equipment
d. Sales

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OLLEGE
13. If a P4,700 cash purchase of supplies is recorded as a P5,700 debit to Supplies Expense and a
P5,700 credit to Cash, the result will be that
a. the trial balance will be out of the balance.
b. the Supplies Expense account will be understated.
c. the Cash Account will be overstated.
d. Supplies Expense will be overstated and Cash will be understated.
14. Which of the following gives the correct sequence of accounting
procedures? a. Ledger, trial balance, journal, financial statements
b. Journal, ledger, trial balance, financial statements
c. Financial statements, trial balance, ledger, journal
d. Financial statements, journal, ledger, trial balance
15. Which of the following errors will not cause the debit and credit columns of the trial balance to be
unequal?
a. A debit entry was recorded in the wrong account,
b. The balance of an account was incorrectly computed.
c. The account balance was carried to the wrong column of the trial balance.
d. A debit was entered un an account as a credit.
16. An entry with more than one debit or credit is called a

a. multiple entry
b. double entry
c. compound entry
d. dual entry
17. Which of the following accounts will not affect owner’s equity?
a. Owner’s Withdrawals
b. Advertising Expense
c. Revenues
d. Land
18. Which of the following accounts has a normal debit balance?

a. Owner’s Capital
b. Owner’s Withdrawals
c. Unearned Revenues
d. Salaries Payable
19. A purchased of supplies on account should be recorded
as
a. a debit to Supplies Expense and a credit to Cash.
b. a debit to Accounts Payable and a credit to Supplies.
c. a debit to Supplies Expense and a credit to Accounts Payable
d. a debit to Supplies Expense and a credit to Accounts Receivable

MARINDUQUE STATE C
OLLEGE
20. The Owner’s Withdrawals account appears in

a. the income statement only.
b. the balance sheet only.
c. the statement of changes in equity only.
d. both the income statement and balance sheet.
21. Which pair of accounts follows the rules of debit and credit in the same
manner? a. Owner’s Capital and Rent Expense
b. Prepaid Rent and Advertising Expense
c. Repair Expense and Notes Payable
d. Service Revenues and Equipment Rentals Revenues
22. Which of the following accounts has a normal debit balance?

a. Unearned Art Revenues
b. Art Revenues
c. Mortgage Payable
d. Unexpired Insurance
23. Which of the following errors will cause a trial balance to be out of balance? a. Incorrectly
recording the purchase of land for cash as a debit to Cash and a credit to Land b. Forgetting
to enter an entire transaction into the journal
c. Posting a debit to Land as a debit to Machinery
d. Placing a debit balance amount into the credit balance column of the ledger
24. A credit may result in

a. an increase in an asset account.
b. a decrease in the capital account.
c. an increase in a liability account.
d. a decrease in a liability account.
25. The Posting Reference column in the general journal is show that an account has been posted to
the ledger when which of the following is placed in it?
a. An X
b. Journal page number
c. Account number
d. Journal number
26. The principal purpose of posting is to

a. enter transactions directly into the ledger.
b. help identify errors made in the journal.

c. obtain updated account balances.
d. help determine if the financial statements are ready to be prepared.
27. Which of the following statement is true about a proper journal entry?
a. A line is skipped between each debit and each credit.
b. Assets are entered before liabilities.
MARINDUQUE STATE C
OLLEGE
c. Decreases in liabilities are indented.

d. The Posting Reference column is left blank until the entries are posted.
28. Which of the following events does not require an entry in journal
form? a. Payment of a service performed previously.
b. Purchase of a one-year insurance policy.
c. Agreement to perform a service at a future date.

d. Performance of a service agreed to at a past date.
29. When a magazine entity receives an advance payment for a subscription,

it a. debits Cash and credits Unearned Subscriptions Revenues.
b. debits Cash and credits Subscriptions Revenues.
c. debits Prepaid Subscriptions and credits Cash.
d. debits Unearned Subscriptions Revenues and credits Cash
30. Which of the following transactions decreases both assets and owner’s
equity? a. Payment of a liability
b. Owner withdrawal of cash
c. Receipt of a phone bill, to be paid at a later time
d. Advance payment made for insurance
31. Which of the following transactions increases both assets and owner’s
equity? a. Payment received from a credit customer
b. Received a bank loan
c. Rendered services; payment not yet received
d. Owner withdrawal of cash
32. Which of the following errors will cause the trial balance to be out of
balance? a. A debit entry was entered in the wrong debit account.
b. The entire transaction was entered in the general journal as P53 instead of P35.
c. The balance of an account was incorrectly computed.
d. An entire transaction was omitted from the general journal.
33. Which of the following accounts might be placed first in a proper journal
entry? a. Cash, when it has been decreased
b. Interest Income, when it has been increased
c. Unearned Revenues, when it has been increased
d. Bond Payable, when it has been decreased
34. Which pair of accounts follows the rules of debit and credit in the opposite
manner? a. Prepaid Insurance and Owner’s Withdrawals
b. Owner’s Withdrawals and Medical Revenues
c. Advertising Expense and Land
d. Interest Payable and Owner’s Capital

MARINDUQUE STATE C
OLLEGE
35. Which of the following accounts would be credited in a proper journal

entry? a. Owner’s Withdrawals, when it has been increased
b. Accounts Receivable, when it has been decreased
c. Salaries Expense, when it has been increased
d. Salaries Payable, when it has been decreased
36. For which

of the
following
accounts
would a
related
Accumulated
Depreciation
account be
recorded?
a. Land
b. Office Equipment
c. Office Supplies
d. Prepaid Rent
37. The
process of
transferring
journal entry
information
from the
journal to the
ledger is
called a. footing.
b. journalizing.
c. posting.
d. analyzing.
38. Debits to expense account signify

a. increases in capital.
b. increases in assets.
c. increases in liabilities.
d. decreases in capital.
39. Which of the following accounts is decreased with a credit?

a. Advertising Revenues
b. Owner’s Capital
c. Unearned Art Revenues
d. Rent Expense
40. If Account Payable has debit posting of P170,000, credit postings of P140,000, and a normal ending
balance of P60,000, which of the following was its beginning balance?
a. P30,000 Cr.
b. P30,000 Dr.
c. P90,000 Dr.
d. P90,000 Cr.
41. When collections are made on Accounts Receivable.
a. owner’s equity increases
b. total assets increase.
c. total assets decrease.
d. total assets remain the same.

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OLLEGE
42. Which of the following accounts has a normal credit balance?

a. Service Vehicle
b. Owner’s Withdrawals
c. Advertising Revenues
d. Interest Expense
43. When an entity has performed a service but has not yet received payment, it
a. debits Service Revenues and credits Accounts Payable.
b. debits Service Revenues and credits Accounts Receivables.
c. debits Accounts Receivables and credits Service Revenues
d. makes no entry until the cash is received.
44. When a T-account has several items on both sides, the balance of the account is written
a. On the side with the greatest number of items.
b. On the side with the least number of items.
c. On the side with the larger total.
d. On the side with the smaller total.
45. A debit may signify a decrease in

a. a liability account.
b. an asset account.
c. a revenue account.
d. a liability and revenue account.
e. an asset and a revenue account.
46. A P1,000 debit item is accidentally posted as a credit. The trial balance column totals therefore will
differ by
a. P0.
b. P500.
c. P1,000.
d. P2,000.
47. Which of the following errors will not cause the debit and credit columns of a trial balance to be
unequal?
a. Only part of a journal entry was posted.
b. The trial balance was incorrectly summed.
c. A debit was posted to an account as credit.
d. A journal entry was accidentally posted twice.
48.
If
Accounts Receivable has debit postings of P580,000, credit postings of P440,000, and the normal
ending balance of P480,000, which of the following was its beginning balance? a. P620,000 Cr.
b. P340,000 Cr.
c. P620,000 Cr.
d. P340,000 Dr.

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OLLEGE
49. A P200,000 machine is purchased by paying P50,000 cash and issuing a promissory note for the
remainder. The journal entry should include a
a. debit to Cash.
b. credit to Notes Payable.
c. credit to Notes Receivable.
d. credit to Machinery.
50. The chart of accounts is a table of contents for
a
a. financial statement.
b. journal.
c. ledger.
d. trial balance.

1. The first financial statement that is prepared from the trial balance is the
a. statement of cash flows.
b. statement of changes in equity.
c. income statement.
d. balance sheet.
2. The amount of cash received or paid during a period is not an adequate measure of the economic
consequences of an organization’s activities because
a. Many activities may not involve the use of cash.
b. Cash inflows may represent the result of activities completed in a previous period.
c. Cash outflows may precede or follow the activities with which they are associated.
d. All of the above reasons are correct.
3. At the end of an accounting period, the equation Assets = Liabilities + Owner’s Equity does not
necessarily balance. Which of the following actions balances the equation?
a. Subtract revenues and add expenses to owner’s equity.
b. Subtract revenues from owner’s equity and add expenses to assets.
c. Add the difference between revenues and expenses to owner’s equity.
d. Add revenues and subtract expenses from assets.
4. Which of the following steps in the accounting cycle are listed in logical order? a. Prepare the
income statement, prepare the statement of financial position and then prepare a worksheet.
b. Post the journal entries to the ledger accounts, prepare worksheet, and then take a trial
balance.
c. Journalize the closing entries, post the closing entries, and then take a post-closing trial
balance,
d. Post the closing entries take a post-closing trial balance, then journalize the closing entries.

MARINDUQUE STATE C
OLLEGE
5. The purpose of the ledger is to

a. record chronologically the day’s transactions.
b. keep a record of documentation to support each transaction.
c. maintain a separate account for each balance sheet and income statement accounts. d. make
sure that all balance sheet and income statement accounts have normal balances at all times.
6. Which
of the
following
does not
directly or
indirectly
affect the
owner’s
capital
account?
a. Paying
an
account
payable
b. Withdrawals by the owner
c. Earning of revenues
d. Incurring of expenses
7. Which of the
following
transactions
correctly maintains
the equality in the accounting equation? a. To record collections on account, cash and accounts
receivables are increased by P160,000. b. To record the purchase of computer equipment,
computer equipment is increased and cash is decreased by P46,000.
c. To record payment of notes, notes payable is decreased and cash is increased by P70,000.
d. To record payment of rent, rent expense and cash are increased by P8,000.
8. Which of the following combinations of trial balance totals suggest the presence of either a
transposition error or a number slide?
a. P65,470 debit and P68,170 credit
b. P33,220 debit and P35,420 credit
c. P25,670 debit and P26,670 credit
d. P14,517 debit and P15,477 credit
Use the following information to answer the questions below. The following is the trial balance for
Nora Bisana Ads:
Nora Bisana Ads

Trial Balance
Jan. 31, 2015
Cash P30,000
Art Supplies 30,000
Office Supplies 50,000
Prepaid Rent 70,000

Prepaid Insurance 50,000
Art Equipment 50,000
Office Equipment 30,000
Accounts Payable P50,000
Bisana, Capital 100,000

MARINDUQUE STATE C
OLLEGE
Bisana, Withdrawals ?
Advertising Revenues ?
Salaries Expense ?
Telephone Expense 30,000
PAPB
9. If the
balance of the
Bisana,
Withdrawals
account were
P120,000 and
the balance of
Salaries
Expense
account were
P50,000, what
would be the
amount of B?
a. P180,000
b. P580,000
c. P370,000
d. P380,000
10. If the trial balance

showed a balance of
P70,000 in the Bisana,
Withdrawals account
and a balance of P50,000 in the Salaries Expense account, what would be the amount of
Advertising Revenues for the period?
a. P330,000
b. P480,000
c. P180,000
d. P430,000
11. In the trial balance, the total assets equal

a. P330,000
b. P230,000
c. P430,000
d. P410,000
12. If the trial balance showed a balance of P80,000 in the Salaries Expense account and a balance of
P350,000 in the advertising Revenues account, what would be the amount of the Bisana,
Withdrawals account?
a. P500,000
b. P550,000
c. P450,000
d. P600,000
13. If the trial balance showed a balance of P40,000 in the Salaries Expense account and a balance of
P300,000 in the Advertising Revenues account, what would be the amount of the Bisana,
Withdrawal account?
a. P250,000
b. P190,000
c. P140,000
d. P50,000

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OLLEGE
14. The first step in the recording a transaction in a journal is to

a. record the debit.
b. record the date.
c. record the credit.
d. write an explanation.
15. Which of the following accounts is classified differently from the others
listed? a. Notes Payable
b. Unearned Revenues
c. Mortgage Payable
d. Art Revenues
16. Which of the following accounting steps in accomplished after the others
listed? a. Post the entry.
b. Prepare the trial balance.
c. Apply the rules of double entry.
d. Record the entry.
17. Which of the following is a business event that is not considered a recordable
transaction? a. An entity receives a product previously ordered.
b. An entity pays an employee for the work performed.
c. A customer inquires about the availability of a service.
d. A customer purchases a service.
18. Which of the following is a business event that is also considered a recordable
transaction? a. An entity hires a new employee.
b. A customer purchases merchandise,
c. An entity orders a product from a supplier.
d. An employee sends a purchase requisition to the purchasing department.
19. The term footing refers to the

a. Process of obtaining the top number in an account.
b. Process of obtaining the bottom number in an account.
c. Process of posting.
d. Addition of a column of figures.
20. What function do general ledgers serve in the accounting process?

a. Summarizing
b. Recording
c. Classifying
d. Reporting
21. A chart of account is a (an)

a. journal.
b. flowchart of all transactions.
MARINDUQUE STATE C
OLLEGE
c. list of names of all account titles.

d. accounting procedure manual.
22. Balance sheet accounts are

a. permanent accounts.
b. temporary accounts.
c. accounts with debit balances only.

d. adjusting accounts.
23. A journal entry that contains more than two accounts is called
a. A posted journal entry.
b. A compound journal entry.
c. An adjusting journal entry.
d. An erroneous journal entry.
24. When accounting information is accumulated in individual accounts, a chart of accounts

is a. limited to those accounts that will appear in the balance sheet.
b. changed each year by an entity depending on the results of operations.
c. a listing of each account that will be used to accumulate information.
d. used to determine whether a debit or credit balance will appear in each of the accounts at the
end of accounting period.
25. Which of the following events would not be considered an accounting

transaction? a. A payment of fees to a tax consultant.
b. Purchase of print advertising space for a new service.
c. Sales of a new product during the first month of operations.
d. Tabulation of the results of a customer satisfaction survey.
26. The primary function of an account in the accounting system is to

a. store accounting transactions until they are classified.
b. identify the type of organization.
c. accumulate accounting information.
d. determine at what point a transaction should be recorded.
27. When a customer buys services on credit, the contract is regarded as complete
when a. the services are rendered.
b. the bill is presented.
c. the cash payment is received.
d. the date specified in the contract is at hand.
28. Most companies use a chart of accounts prepared by the

a. Accounting Standards Council.
b. Securities and Exchange Commission.
c. Bureau of Internal Revenue.
d. entity’s accounting department.

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29. Which of the following accounts is classified differently from the others
listed? a. Prepaid Rent
b. Cash
c. Accounts Receivable
d. Owner’s Capital
30. When owner’s equity decreases, one of the following must

occur:
a. withdrawals decreases
b. an asset increases
c. an income increases
d. a liability increases
31. What function do accounting journals serve in the accounting

process? a. Classifying
b. Summarizing
c. Reporting
d. Recording
32. The normal balance of an account is on the

a. Side represented by decrease in the account balance.
b. Debit side of the account.
c. Side represented by increases in the account balance.
d. Credit side of the account.
33. When cash is debited, a typical credit is to

a. withdrawals.
b. accounts payable.
c. accounts receivable.
d. expenses.
34. Payment of insurance premiums in advance gives rise to

a. prepaid expense.
b. unearned income.
c. accrued income.
d. accrued expense.
35. The manner in which the accounting records are organized and employed within a business is
referred to as
a. business document.
b. voucher system.
c. special journal.
d. accounting information system.

MARINDUQUE STATE C
OLLEGE
36. The accounting cycle is

a. the length of time it takes to complete a set of financial statement after the books are closed.
b. a process that begins with adjusting entries and ends with the preparation of the financial
statements.
c. applicable only to manual systems, not to computerized systems.
d. the sequence of procedures used by a business to process economic information and to
produce financial
statements.
37. A ledger is defined as a

collection of
a. all statement of financial
position accounts.
b. all income statement accounts.
c. account titles – asset, liability, equity, income and expense accounts.
d. transactions.
38. The equality of debits and credits in the ledger should be verified at the end of each accounting
period by preparing
a. an accounting statement.
b. an account verification report.
c. a trial balance.
d. a balance report.
39. Of the following errors, the one that will cause an inequality in the trial balance total
is a. failure to record a transaction.
b. recording the same transaction more than once.
c. posting a transaction to the wrong account.
d. incorrectly computing an account balance.
40. Office supplies are expensed

a. At no time, since they are assets.
b. When they are paid for.
c. When they are purchased.
d. When they are consumed (used up).
41. Which of the following statements is false about a proper journal

entry? a. It may have more than one debit or credit entry.
b. A space should be skipped between journal entries.
c. Credits are always indented.
d. Accounts that are increased are always listed first.
42. Transactions are recorded chronologically in

the
a. ledger.
b. T-account
c. daybook.
d. journal.

MARINDUQUE STATE C
OLLEGE
43. When an entity pays for goods or services before actual receipt, the payment should be recorded
as a decrease in Cash and an increase in
a. an asset.
b. an expense.
c. an owner’s equity account.
d. a liability.
44. Entries recorded in the right side of any account are

called
a. debits.
b. increases.
c. credits.
d. decreases.
45. Which of the following accounts probably would be listed after the others in a chart of
accounts? a. Unearned Art Fees
b. Prepaid Rent
c. Owner’s Capital
d. Art Revenues
46. Unearned Revenues are recorded by companies that

a. pay money in advance of the performance of a service.
b. pay money at the time of the performance of a service is complete.
c. receive money in advance of the performance of a service.
d. receive money at the time the performance of a service is complete.
47. Which of the following statements regarding a trial balance is incorrect?
a. A trial balance helps to localize errors within an identifiable time period.
b. A trial balance is a test of the equality of the debit and credit balances in the ledger. c. A trial
balance is a list of all of the open accounts in the ledger with their balances as of a given date.
d. A trial balance proves that no errors of any kind have been made in the accounts during the
accounting period.
48. A simple journal entry

a. consists of two debits and one credit.
b. consists of one debit and two credits.
c. is a memorandum entry.
d. consist of one debit and one credit.
49. The Posting Reference column in the ledger shows that an item has been posted when which of
the following is placed in it?
a. An “X”
b. The account number
c. The journal page number
d. A check mark

MARINDUQUE STATE C
OLLEGE
50. Which of the following transactions does not affect the balance sheet
totals? a. Purchasing P50,000 supplies on account
b. Collecting P40,000 from the customers on account
c. Paying a P300,000 note payable
d. Withdrawal of P80,000 by the firm’s owner.
51. The accrual basis of accounting
recognizes
a. revenues when cash is received.
b. expenses when cash is paid.
c. revenue when products are produced as part of operating activities.
d. expenses when resources are consumed as part of operating activities.
52. An error of original entry occurs when

a. either the debit entry or the credit entry for a particular transaction is recorded in the wrong
class of account.
b. a correct figure is entered in the double-entry accounting records, once in the correct ledger
account and once in the wrong person’s account.
c. an incorrect figure is entered on the correct sides of the correct ledger accounts.
d. None of the above.
53. Which of the following statements is true about a proper journal entry?
a. An explanation must follow each debit and each credit.
b. The name of the month should be repeated for each entry.
c. The Posting Reference column is filled in prior to posting.
d. All debits are listed before any credits.

1. An entity receives rent for subletting part of its office block. The rent, receivable quarterly in
advance, follows:
Date of Receipt Period Covered Amount
Oct. 1, 2014 3 months to Dec. 31, 2014 P 75,000 Dec. 30, 2014 3 months to Mar. 31, 2015
75,000 Apr. 4, 2015 3 months to June 30, 2015 90,000 July 1, 2015 3 months to Sept. 30,
2015 90,000 Oct. 1, 2015 3 months to Dec. 31, 2015 90,000
What figures, based on these receipts, should appear in the entity’s financial statements for the
year ended Nov. 30, 2015?
Income Statement Statement of Financial Position
a. P340,000 Debit Rent in Arrear (Dr.) P30,000
b. P345,000 Credit Unearned Rent Revenue (Cr.) P60,000

MARINDUQUE STATE C
OLLEGE
c. P340,000 Credit Unearned Rent Revenue (Cr.) P30,000

d. P340,000 Credit Rent in Arrears (Dr.) P30,000
2. An entity pays rent quarterly in arrears on Jan. 1, Apr.1, July 1 and Oct. 1 each year. The rent was
increased from P900,000 per year to P1,200,000 per year starting Oct. 1, 2014. What rent expense
and rent payable
amounts should be
included in the
entity’s financial
statements for the
year ended Jan. 31,
2015?
Rent Expense Rent Payable

a. P1,000,000 P200,000
b. P1,000,000 P100,000
c. P975,000 P100,00
d. P975,000 P200,000
3. At Mar. 31,
2014, an entity had
oil on hand to be
used for heating
costing P82,000 and unpaid heating oil bill for P36,000. At Mar. 31, 2015, the heating oil on
hand was P93,000 and there was an outstanding heating oil bill of P32,000. Payments made for
heating oil during the year ended Mar. 31, 2015 totaled P346,000.
What is the amount of the heating oil that would appear on the entity’s 2015 income
statement? a. P239,000
b. P361,000
c. P453,000
d. P331,000
4. An entity has sublet part of its offices and in the year ended Nov. 30, 2015 the rent receivable was:
Until June 30, 2015 P84,000 per year
From July 1, 2015 P120,000 per year
Rent was collected quarterly in advance on Jan. 1, Apr. 1, July 1 and Oct. 1 each year. What amount
should appear in the entity’s financial statements for the year ended Nov. 30, 2015?
Rent Receivable Statement of Financial Position

a. P99,000 P20,000 in Unearned Rent Revenues
b. P99,000 P10,000 in Unearned Rent Revenues
c. P102,000 P10,000 in Unearned Rent Revenues
d. P99,000 P20,000 in Prepaid Rent
5.
A
business compiling its financial statements for the year to July 31, each year pays rent quarterly
in advance on Jan. 1, Apr. 1, July 1 and Oct. 1 each year. The annual rent was increased from
P600,000 per year to P720,000 per year starting Oct. 1, 2014. What figure should appear for rent
expense in the entity’s income statement for the year ended July 31, 2015?
a. P690,000
b. P620,000
c. P700,000
d. P630,000

MARINDUQUE STATE C
OLLEGE
6. Diesel fuel in inventory at Nov. 1, 2014 was P12,500, and there were invoices awaited for P1700.
During the year to Oct. 31, 2015, diesel fuel bills of P85,400 were paid, and a delivery worth P1,300
had yet to be invoiced. At Oct. 31, 2015, the inventory of diesel fuel was valued at P9,800. What is
the value of diesel fuel to be charged to the income statement for the year ended Oct. 31, 2015? a.
P87,700
b. P89,400
c. P88,500
d. P91,100
7. During 2014, an entity paid a total of P600,000 for rent, covering the period from Oct. 1, 2013 to
Mar. 31, 2015. What figures should appear in the entity’s financial statements for the year ended
Dec. 31, 2014?
Income Statement Statement of Financial Position
a. P400,000 P100,000 Prepayment
b. P400,000 P150,000 Prepayment
c. P500,000 P100,000 Accrual
d. P500,000 P150,000 Accrual
8. What are the correct journal entries to record an accrual in the accounts?
Dr. Cr.
a. Asset Expenses
b. Expenses Liability
c. Liability Expenses
d. Expenses Asset
9. The trainee accountant has forgotten to make an accrual for December rent in the financial
statements for the year ended Dec. 31, 2015. Rent is charged in arrears at the end of Feb., May,
Aug. and Nov. each year. The bill payable in Feb. is expected to be P300,000. Draft income
statement shows a profit of P250,000 and draft statement of financial position shows net assets of
P2,750,000.
What is the profit or loss for the year and what is the net asset position after the accrual has been
included in the financial statements?
Profit for the Year Net Asset

a. P150,000 P2,650,000
b. P150,000 P2,850,000
c. P350,000 P2,650,000
d. P350,000 P2,850,000

MARINDUQUE STATE C
OLLEGE
10. Draft accounts for the year ended Oct. 31m 2015 report a loss of P148,600. The entity did not
include an accrual of P162,500 and a prepayment of P83,400.
What is the profit or loss for the year ended Oct. 31 2015 following the inclusion of the accrual and
prepayment?
a. A loss of P69,500
b. A loss of P227,700
c. A loss of P394,500
d. A profit of P180,700
CONGRATULATIONS! YOU HAVE COMPLETED MODULE 2.

CHILLAX KA MUNA WHILE WAITING FOR MODULE 3.
Reference:
Ballada, W. and S. Ballada (2015). Basic Accounting Made Easy 2015 Issue – 20th
Edition.

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Republic of the Philippines

TRANSACTION ANALYSIS (Step 1)

Republic of the Philippines

Step 2 Transactions are Recorded in the

Republic of the Philippines

The General Journal

Office Equipment xx Cash xx Accounts Payable xx

Shows all the effects of a transaction in

Simple and Compound Entry

TRANSACTIONS ARE JOURNALIZED (Step

Republic of the Philippines

Initial Investment (Source of Assets)

Rent Paid in Advance (Exchange of Assets)

Note Issued for Cash (Source

Republic of the Philippines

Assets increased. Liabilities increased.

Service Vehicle Acquired for Cash (Exchange of Assets)

Insurance Premiums Paid (Exchange of Assets)

recorded by a credit to cash.

Republic of the Philippines

Supplies Purchased on Account (Source of

Accounts Payable Partially Settled (Use of Assets)

Entry Decrease in liabilities is recorded by a debit to accounts payable. Decrease in assets is

Republic of the Philippines

Revenues Earned and Cash Collected (Source of Assets)

Salaries Paid (Use of Assets)

Unearned Revenue Collected (Source of Assets)

Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a

Republic of the Philippines

Cash (A) 10,000

Revenues Earned on Account (Source of Assets)

Withdrawal of Cash by Owner (Use of Assets)

Salaries Paid (Use of Assets)

Salaries Expense (OE:E) 7,200

Expenses Incurred but Unpaid (Exchange of Claims)

Accounts Receivable Partially Collected (Exchange of Assets)

Expenses Incurred and Paid (Use of Assets)

Republic of the Philippines

175 Accumulated Depreciation 540 Insurance Expense ​Liabilities 550

330 Income Summary

Account: ​Diaz, Capital ​Account No. ​310

LEDGER ACCOUNTS AFTER

Republic of the Philippines

Accounts Receivable Unearned Referral Revenues

Supplies Diaz, Capital

Prepaid Rent Diaz, Withdrawals

Prepaid Insurance Costing Revenues

Service Vehicle Salaries Expense

Republic of the Philippines

Diaz, Capital 250,000

Republic of the Philippines

Republic of the Philippines

Activity #1 Modified True or False. (Estimated time required – 30 minutes)

Activity #2 Debits and Credits (Estimated time required – 15 minutes)

Activity #3 (Developing a Chart of Accounts – 30 minutes)

Accu. Depreciation – F/F Interest Payable

Republic of the Philippines

Activity #4 (Recording Transactions in T-Accounts and Preparing a Trial Balance – 60 minutes)

175 Accumulated Depreciation 540 Insurance Expense Liabilities 550

Account: Diaz, Capital Account No. 310

Required: Prepare a trial balance.

Required: Prepare a corrected trial balance.

Activity #7 Multiple Choice #1 (Estimated time required – 5 minutes)

Activity #9 Multiple Choice #3 (Estimated time required – 60 minutes)