Certified Bookkeeper Program

January 12, 19, 26 and February 2, 2007 Holiday Inn Galleria ADB Ave. Ortigas.

Certified Accounting Technician Program

COURSE SYLLABUS

Module 1 Introduction to accounting Basic terms in Accounting Types, Nature, and Characteristics of the different businesses Basic Elements of Accounting and the accounting Process The Accounting Equation in Relation to Business Transactions Financial Statements of a Service Business Double-Entry Method of Bookkeeping Recording in the Books of Accounts Terms Peculiar to a Merchandising Business Accounting for a Merchandising Business Financial Statements of a Merchandising Business Module 2 Completing the Accounting Cycle Steps in the Accounting Cycle The principle of Matching Cost Against Revenue Adjustments and their Adjusting Entries Preparation of the Worksheet of a Merchandising Business Closing Entries and the Post-Closing Balance Opening Entry and Reversing Entries

Certified Accounting Technician Program

Module 3 Constructive Accounting Internal Control of Cash Bank Reconciliation Statement Single Entry Method of Bookkeeping Reconstruction of Incomplete Records Conversion of Single Entry Method into Double Entry Method of Bookkeeping Cash Basis Versus Accrual Basis of Accounting Errors and Their Corrections Analysis and Interpretation of Financial Statements Module 4 Special Journals Nature of the Accounting System The Use of Special Journals Subsidiary Ledgers Computerized Accounting System Voucher System The Combination Journal

Certified Bookkeeper Program

Module 1
Introduction to Accounting

Module 1 - Introduction to Accounting

LEARNING OBJECTIVES:
1. 2. 3. 4. 5. 6. 7. 8. 9. Know the definition of accounting and its role in business Distinguish the different types and forms of business organization as well as their characteristics. Learn the different accounting values or elements. Learn the accounting process (functions of accounting). Know the accounting equation and its significance. Know what a business transaction is and its effect on the accounting elements. Learn how to record the business transactions using the double entry method of bookkeeping Learn how to prepare the trial balance and how to detect errors posting. Learn how to prepare the financial statements of a servicing and trading concern (Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows)

Module 1 - Introduction to Accounting

ACCOUNTING
A service activity whose function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions. In general sense, ACCOUNTING is an information system that provides reports to stakeholders about economic activities and condition of a business.

Module 1 - Introduction to Accounting

ROLE OF ACCOUNTING IN BUSINESS:

1. Help owners or management make decisions. 2. Record and analyze business transactions. 3. Communicate financial information to all interested parties

TYPES OF BUSINESSES:
1. Service Business 2. Merchandising Business 3. Manufacturing Business

TYPES OF OWNERSHIP STRUCTURES:

1. Proprietorship 2. Partnership 3. Corporation 4. Cooperative

Module 1 - Introduction to Accounting

Characteristics of the different Forms of Business Organizations:

Proprietorship 1. One owner 2. Unlimited liability for unpaid debts 3. Owner manages the business. Corporation 1. Unlimited owners 2. Limited liability of the stockholders for corporate debts 3. Management is vested in the board of directors (BOD). Partnership 1. Two or more owners 2. Unlimited liability for partnership debts 3. There is a managing partner.

Cooperative 1. Unlimited owners 2. Limited liability of the members for the cooperatives debts. 3. Management is vested in the BOD.

Module 1 - Introduction to Accounting

BASIC ELEMENTS OF ACCOUNTING:

1. Statement of Financial Position (ie, Balance Sheet) Assets Liabilities Owners Equity 2. Statement of Comprehensive Income (ie, Income Statement) Income Expenses Profit (Loss)

Module 1 - Introduction to Accounting

ACCOUNTING PROCESS:
Identification

Recording

Classifying

Summarizing

Interpretation

Module 1 - Introduction to Accounting

ACCOUNTING EQUATION:
Assets P500,000 Assets P500,000 = = Liabilities P200,000 Liabilities P200,000 + + Owners Equity P300,000

or

= Owners Equity = P300,000

ACCOUNTING EQUATION EXPANDED:

= + Assets Liabilities Accounts Payable Cash + Bank Loan + Accounts Receivable + Supplies + Repair Equipment Owners Equity Owners Capital - Drawing + Revenues - Expenses

Module 1 - Introduction to Accounting

BUSINESS TRANSACTIONS:
Business Transaction is an economic event or condition that directly changes an entitys financial condition or directly affects its results of operations. Debit/s (left side) Value/s received = Credit/s (right side) Values given up

Increase in assets are recorded in the left (debit) side of the account while decreases in assets are recorded in the right (credit) side of the account. Conversely, increases in liabilities and owners equity are recorded by Credits while decreases in liabilities and owners equity are recorded by Debits.

Module 1 - Introduction to Accounting

BUSINESS TRANSACTIONS Transactions

1. J. Cruz, invests P200,000 to start an auto repair business. 2. Cruz, buys repair equipment on credit, P100,000. 3. Cruz bought Shop Supplies for cash, P62,000. 4. Paid partial on equipment bought on account, P60,000. 5. Cruz received a bank loan for business use, P100,00. 6. Customers pay cash for auto repair rendered, P25,000. 7. Repair services rendered on account, P50,000.

Debit
Value/s received

Credit
Value/s given up

Cash Equipment Shop Supplies Accounts Payable (reduction of obligation) Cash Cash Accounts Receivable (right to collect)

J. Cruz, Capital (ownership right) Accounts Payable (obligation to pay) Cash Cash Bank Loan (promise to pay) Repair Income (services) Repair Income (services)

Module 1 - Introduction to Accounting

BUSINESS TRANSACTIONS Transactions Debit

Value/s received

Credit
Value/s given up

8. Paid a months rent, P10,000 9. Cruz collects partial from customers account, P30,000. 10. Cruz pays the salaries and wages of laborers, P15,000. 11. Billed a customer, P6,000; P2,000 was partially received. 12. Supplies purchased, P15,000 and P5,000 was partially received. 13. Shop Supplies used and paid, P18,000. 14. Cruz withdrew P20,000 for personal use.

Rent Expense (right to occupy) Cash Salary Expense (employees service) Cash Accounts Receivable (right to collect) Shop Supplies Supplies Expense (supplies used) J. Cruz, Drawing (ownership right taken)

Cash Accounts Receivable (reduction to right to collect) Cash Repair Income Cash Accounts Payable (obligation to pay) Cash Cash

Module 1 - Introduction to Accounting

ACCOUNTING EQUATION EXPANDED (refer to MS Excel Sheet 1)

Module 1 - Introduction to Accounting

FINANCIAL STATEMENTS:
Financial Statements are accounting reports that provide the financial information of the transactions that have been recorded and summarized. Principal Financial Statements: 1. Statement of Comprehensive Income 2. Statement of Changes in Equity 3. Statement of Financial Position 4. Statement of Cash Flows

Module 1 - Recording Business Transactions

Sample Problem 1: On July 1 of the current year, Paul Brite started a TV repair business.
1. He invested P50,000 in cash to start his business. 2. Purchased for cash shop supplies worth P3,500. 3. Bright bought repair equipment worth P20,000 on credit. 4. Customers paid P12,000 cash for repair services rendered. 5. Brite made a partial payment to A & G Company. P15,000. 6. Customers were billed on account P14,000 for repair services rendered. 7. Rental for the month of July was paid, P6,000. 8. Collected P8,000 from customers as payment of their account. 9. Paid wages of assistant helper for the month of July, P4,000. 10. Bought additional shop supplies costing P7,500. A down payment of P3,000 was made and the balance is payable at the end of the month. 11. Repair services rendered, P9,000. Received P4,500 as partial payment. 12. Repair supplies bought for cash and used for repairs amounted to P6,500. 13. Brite withdrew P10,000 for personal use.

Module 1 - Introduction to Accounting

Required: a. Record the peso amount under the appropriate heading below on the accounting equation to show the effect of each transaction. Show the balance after the second transaction and there after and their final balances. Assets Cash + A/R + Supplies + Equipment = Liabilities Accounts Payable + Owners Equity P. Brite Capital + Revenues - Expenses

b. Prepare the following financial Statements. Statement of Comprehensive Income for the month ended July 31 of the current year. Statement of Changes in Equity for the month ended July 31 of the current year. Statement of Financial Position as of July 31 of the current year. Statement of Cash Flow for the month ended July 31 of the current year. SOLUTION FOR PROBLEM 1 (refer to MS Excel Sheet 2)

Module 1 - Recording Business Transactions

DOUBLE-ENTRY ACCOUNTING:
Double-entry accounting is a record keeping in which each business transactions affects at least two accounts. The double-entry system is used because you are entering the transaction amount twice.

T - ACCOUNT
The T account, so called because of its T shape, is used to show the increase or decrease in an account caused by a transaction.
Top
Left side (debit) Right side (credit)

Account Title
Debit Credit

Module 1 - Recording Business Transactions

RULES OF DEBIT AND CREDIT:

Rules for Asset Accounts
Asset Accounts
Debit Increase + Balance Credit Decrease -

1. Add (increase) on the same side (debit). 2. Subtract (decrease) on the opposite side (credit). 3. The normal balance for an asset is a debit balance.

Rules for Liability and Owners Equity Accounts:

Asset Accounts
Debit Increase + Balance Credit Decrease -

1. Add (increase) on the same side (credit). 2. Subtract (decrease) on the opposite side (debit). 3. The normal balance for a liability or owners equity account is a credit balance.

Module 1 - Recording Business Transactions

USING THE T - ACCOUNT:

Example Problem 1. On July 1 of the current year, Paul Brite started a TV repair business. July 1 He invested P50,000 in cash to start his business. 3 Purchased for cash shop supplies worth P3,500. 5 Bright bought from A & G Company repair equipment costing P20,000 on credit. 8 Customers paid P12,000 cash for repair services rendered. 10 Brite made a partial payment to A & G Company, P15,000. 12 Customers were billed on account P14,000 for repair services rendered. 14 Rental for the month of July was paid, P6,000. 17 Collected P8,000 from customers as payment of their account. 19 Paid wages of assistant helper for the month of July, P4,000. 22 Bought additional shop supplies costing P7,500. A down payment of P3,000 was made and the balance is payable at the end of the month. 25 Repair services rendered, P9,000. Received P4,500 as partial payment. 28 Repair supplies bought for cash and used for repairs amounted to P6,500. 31 Brite withdrew P10,000 for personal use.

Module 1 - Recording Business Transactions

Solution Sample Problem 2-a

T - ACCOUNTS
Accounts Receivable Repair Equipment
7/5 Bal. 20,000 20,000 7/12 7/25 Bal. 14,000 4,500 18,500 10,500 7/17 8,000 8,000

Cash
7/1 7/8 7/17 7/25 50,000 12,000 8,000 4,500 7/3 7/10 7/14 7/19 7/22 7/28 7/31 3,500 15,000 6,000 4,000 3,000 6,500 10,000 48,000

Shop Supplies
7/3 7/22 Bal. 3,500 7,500 11,000 7/10

Accounts Payable
15,000 15,000 Bal. 7/5 7/22 20,000 4,500 24,500 9,500

Bal.

74,500 26,500

Paul Brite, Capital

7/1 Bal. 50,000 50,000 7/31 Bal.

Paul Brite, Drawing

10,000 10,000

Repair Income
7/8 7/12 7/25 Bal. 12,000 14,000 9,000 35,000 35,000

Salary Expense
7/19 Bal. 4,000 4,000 7/14 Bal.

Rent Expense
6,000 6,000 7/28 Bal.

Supplies Expense
6,500 6,500

Module 1 - Recording Business Transactions

TRIAL BALANCE:
A Trial Balance is a listing of all the balances of the different accounts (assets, liabilities, capital, revenues and expenses), as of a given time. Purpose of the Trial Balance 1. To check the accuracy of posting (recording in the T accounts) by testing the equality of the debits and credits. 2. It aids in locating errors posting. 3. It serves as a basis in the preparation of the financial statements.

Module 1 - Recording Business Transactions

Solution Sample Problem 2-b

PAUL BRITE TV REPAIR Trial Balance July 31, 20CY

DEBIT P 26,500.00 10,500.00 11,000.00 20,000.00 P 9,500.00 50,000.00 10,000.00 35,000.00 11,000.00 20,000.00 20,000.00 P 94,500.00 P 94,500.00 CREDIT

ACCOUNT TITLE Cash Accounts Receivable Shop Supplies Repair Equipment Accounts Payable P. Brite, Capital P. Brite, Drawing Repair Income Salary Expense Rent Expense Supplies Expense

Module 1 - Recording Business Transactions

BUSINESS TRANSACTION FLOW:

Source Documents

Journal Entries

Ledger Accounts

Trial Balance

Financial Statements

Module 1 - Recording Business Transactions

BUSINESS TRANSACTION FLOW:

Source Documents are the different documents, business forms and papers (e.g. invoices, official receipts, vouchers, memoranda, deposit slips, check stubs, cash register tapes, payroll time cards, etc.) evidencing or supporting a transaction, which serve as the basis for recording in the books of accounts. Books of Accounts are the accounting books where business transactions are recorded. The books of accounts consist of the GENERAL JOURNAL and the GENERAL LEDGER. The General Journal this is a two-column journal, which is called the book of origin entry because this is the first book where the business transactions are recorded. The General Ledger this is called the book of final entry because this is the book where the business transactions are finally recorded. The ledger serves the same purpose as the T account but more formal and detailed.

Module 1 - Recording Business Transactions

THE GENERAL JOURNAL:

General Journal is an all purpose journal in which all of a businesss transactions may be recorded. Each entry made in the general journal includes the following information, entered in order. 1. The date of the transaction. 2. The name of the account debited as well as the amount. 3. The name of the account credited as well as the amount. 4. A posting reference (PR) indicating the account number of the amount. 5. A short explanation of the transaction.

Module 1 - Recording Business Transactions

SAMPLE GENERAL JOURNAL FORM

Amount Credited Date Month/ Day Amount Debited GENERAL JOURNAL Date July 1 Cash Paul Brite, Capital To record initial investment. Description PR Debit 50,000.00 50,000.00 Credit

Account Title Debited Account Title Credited

Explanation Post Reference

Module 1 - Recording Business Transactions

CHART OF ACCOUNTS:
Chart of Accounts A listing of all accounts and their account (code) number used for journalizing business transactions. Sample Chart of Accounts (Service Business)
Balance Sheet Accounts 100 Assets 101 Cash 102 Accounts Receivable 104 Office Supplies 105 Prepaid Rent 121 Delivery Equipment 122 Accumulated Depreciation Delivery Equipment 200 Liabilities 201 Accounts Payable 202 Salaries Payable 300 Owners Equity 301 Brandon Lopez, Capital 302 Brandon Lopez, Drawing 303 Income Summary 401 Delivery Fees 500 Expenses 501 Salary Expense 502 Advertising Expense 503 Communication Expense 504 Office Supplies Expense 505 Rent Expense 506 Insurance Expense 507 Miscellaneous Expense 508 Depreciation Expense Income Statement Accounts 400 Income

Module 1 - Recording Business Transactions

Example Problem 3 Nestor Martel, a Lawyer decided to open a law firm named Martel Law Firm. The partial chart of accounts listed below is used for recording purposes:
Statement of Financial Position Accounts 100 Assets 101 Cash 102 Accounts Receivable 105 Prepaid Insurance 106 Office Supplies 108 Furniture and Equipment 200 Liabilities 201 Accounts Payable 300 Owners Equity 301 Nestor Martel, Capital 302 Nestor Martel, Drawing Statement of Comprehensive Income Accounts 400 Income 401 Fees Earned 200 Expenses 501 Salary Expense 503 Advertising Expense 504 Utilities Expense 509 Miscellaneous Expense

Required: a. Journalize the above transactions in the general journal. b. Post each journal entry to the general ledger. C. Prepare a trial balance at December 31 of the current year.

Module 1 - Recording Business Transactions

In December of the current year, the following transactions to place

Dec 2 Nestor Martel invested P60,000 cash to start his law practice. 4 A one-year insurance effective December 2 was paid, P6,000. 6 Office furniture worth P15,000 was purchased on account from EZ Furniture Company. 8 Office and computer supplies costing P2,500 was bought for cash. 11 Received from City Bank P60,000 for loan applied to be used in his law practice. 14 Purchased on credit a desktop computer and printer for office use worth P60,000 for Micro Systems Inc. 16 Received P12,500 cash for legal services rendered to Jose Lopez. 18 Paid P1,000 for Miscellaneous expenses incurred. 20 Received P10,500 cash for legal services rendered to clients. 22 Advertising placed on a local paper for three months effective December 1, was paid, P3,600. 25 Micro Systems, Inc. was partially paid, P45,000. 26 Collected accounts from various clients, P7,500. 27 Light, water and telephone use for the month of December was paid to the property-owner, P1,500 (Utilities expense) 28 The salary of the legal secretary was paid, P5,500. 29 Nestor Martel withdrew P12,000 for personal use. 30 Received P5,000 for legal services rendered.

Module 1 - Recording Business Transactions

SOLUTION FOR SAMPLE PROBLEM 3 (refer to MS Excel Sheet 3)

Module 1 - Recording Business Transactions

THE GENERAL LEDGER:

General Ledger is a book or file used by a business where accounts are kept on separate pages or cards.
Account Name Account Number

GENERAL LEDGER Accounts Receivable Date Dec 24 26 Explanation PR G2 G2 Debit 16,400.00 7,500.00 Credit Balance Debit 16,400.00 8,900.00 Credit 102

Date of Entry

Amount of Debit/Credit Entry Posting Reference for each entry Running Balance after each entry

Module 1 - Recording Business Transactions

EXAMPLES OF LEDGERS (Solution Sample Problem 3-b) (refer to MS Excel Sheet 4)

Module 1 - Recording Business Transactions

TRIAL BALANCE:
A trial balance in which debits equals credits is not necessarily error-free. A trial balance may contain errors but still look correct if: 1. No entry was made for a given transactions. 2. A journal entry was not posted to the general ledger. 3. A journal entry was posted twice. 4. Incorrect amounts were used to record a given transaction. 5. Incorrect amounts were recorded for a given transaction. Transposition Error Example: P864 is written or posted as P684 or P468. Slide Error Example: P684.00 is written or posted as P68.40 or P6.84. Procedure to Correct Errors in Journalizing and Posting: 1. Draw a straight horizontal-line through the error and insert the correct title or amount if the entry is incorrect or the posting is incorrect. 2. Make a correcting entry and post it to correct wrong entry already posted. Correcting Entry is an entry made in the general journal to correct an error discovered.

Module 1 - Recording Business Transactions

NATURE AND ACCOUNTING FOR MERCHANDISING BUSINESS:

Sales Cost of Goods Sold = Gross Profit Gross Profit Marketing and Administrative Expenses = Profit Merchandise are goods bought for resale. Merchandise Inventory unsold merchandise at the end of a given period. Fees Earned or Service Income Operating Expenses + Net Income

ACCOUNTING FOR PURCHASES:

Two methods or system for accounting for merchandise purchases 1. 2. Periodic Inventory Perpetual Inventory System

Module 1 - Recording Business Transactions

TERMS TO REMEMBER:
Purchase Requisition - written request to order items. Purchase Order - buyers formal order for the merchandise. Purchase Invoice - document containing the list of terms and quantity, description, unit price, vat and total cost of the items.
Cash or COD 2/10, n/30 2/EOM, n/60 2/10/EOM, n/60 Credit Terms Credit Period

Purchase Discount - discount for the buyers early payment. Discount Period - period of time within w/c the invoice must be paid. Trade Discount - special discount from the published list prices offered to large buyers.

Module 1 - Recording Business Transactions

TERMS TO REMEMBER:
Transportation In - transportation cost of merchandise purchased. FOB Shipping Point - buyer is responsible for the freight charges for the merchandise from the suppliers shipping point. FOB Destination - seller is responsible for the freight charges for the merchandise until it reaches the buyers destination. Freight Collect - buyer is to pay for the freight when the merchandise arrives. Freight Prepaid - seller pays for the freight at the time of the shipment. Purchase Returns and Allowances - reduction in purchases due to buyers return of merchandise to the seller. Debit Memorandum - a form used by the buyer to notify the seller of a return of merchandise or allowance for damaged merchandise. Credit Memorandum - a form used by the seller to notify the buyer that his account has been credited for the returned merchandise or allowance for damaged merchandise.

Module 1 - Recording Business Transactions

RECORDING PURCHASES AND PAYMENT OF ACCOUNT: (Gross Method) Note: The amount P10,000 for the purchases of merchandise and 12% Vat excluded is used for all the examples. Example 1: June 1 - Purchased merchandise worth P10,000 for cash per invoice No. 3857. Entry: June 1 Purchases 10,000 Vat input tax 1,200 Cash 11,200 Note: If the invoice amount is VAT inclusive, divide the amount by 11 to remove the Vat input tax and reduce cash. Entry: June 1 Purchases Cash 10,000 10,000

Module 1 - Recording Business Transactions

Example 2: June 1 - Purchased merchandise with a list price of P10,000 for cash per invoice No. 3857. Trade discount: 10% and 15%. Entry: June 1 Purchases 7,650 Vat input tax 918 Cash 8,568 Computation: 10,000 x 90% x 85%

Note: The net invoice amount is the list price deducted by the trade discounts.

Module 1 - Recording Business Transactions

Example 3: June 2 - Purchased merchandise worth P10,000 on account per Credit Invoice No. 1860. Terms: 15 days. Entry: June 2 Purchases Vat input tax AP 10,000 1,200 11,200

Note: If the purchase is a non-vat transaction, just remove Vat input tax and reduce Accounts Payable. Entry: June 2 Purchases 10,000 Accounts Payable 10,000 11,200 11,200

PaymentJune 17 Accounts Payable Cash

Note: If the purchase is a non-vat, Accounts Payable payment will be P10,000.

Module 1 - Recording Business Transactions

Example 4: June 2 - Purchased merchandise with a list price of P10,000 on account per Credit Invoice No. 1860. Terms: 2/10, n/30 Entry: June 2 Purchases Vat input tax AP 10,000 1,200 11,200

PaymentJune 17 Accounts Payable 11,200 Cash 11,000 Purchase Discount 200 Note: Discount is computed based on the merchandise cost without Vat. If the invoice is paid after June 12, there will be no cash discount.

Module 1 - Recording Business Transactions

Example 4: If the terms is: 2/EOM, n/60 PaymentJune 30 Accounts Payable 11,200 Cash 11,000 Purchase Discounts 200 Note: If the invoice is paid after June 30, there will be no cash discounts. Example 4: If the terms is: 2/10/EOM, n/60 PaymentJuly 10 Accounts Payable 11,200 Cash 11,000 Purchase Discounts 200 Note: If the invoice is paid after July 10, there will be no cash discounts.

Module 1 - Recording Business Transactions

Example 5: June 4 - Purchased merchandise with a list price of P10,000 on account per Credit Invoice No. 1865. Trade discount is 20% and 10%. Terms: 2/10, n/30 Entry: June 4 Purchases 7,200 Vat Input Tax 864 Accounts Payable 8,064 Computation: 10,000 X 80% X 90%

PaymentJune 14 Accounts Payable 8,064 Cash 7,920 Purchase Discount 144 Discount: 7,200 X 2% Note: If the invoice is paid after June 14, there will be no cash discounts.

Module 1 - Recording Business Transactions

Example 6: June 6 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1870. FOB Shipping Point, Freight Prepaid by the seller, P1,000. Terms: 2/10, n/30 Entry: June 6 Purchases 10,000 Transportation In 1,000 Vat Input Tax 1,320 Accounts Payable 12,320

PaymentJune 16 Accounts Payable 12,320 Cash 12,120 Purchase Discounts 200 Note: Freight or transportation cost is not included in computing the discount.

Module 1 - Recording Business Transactions

Example 7: June 6 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1870. FOB Shipping Point, Freight Collect by the seller, P1,000. Terms: 2/EOM, n/60 Entry: June 6 Purchases 10,000 Vat Input Tax 1,200 Accounts Payable 11,200 Transportation In VAT Input Tax Cash 1,000 120 1,120

PaymentJune 30 Accounts Payable 11,200 Cash 11,000 Purchase Discounts 200

Module 1 - Recording Business Transactions

Example 8: June 8 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1880. FOB Destination, Freight Prepaid, P1,000. Terms: 2/10, n/30 Entry: June 8 Purchases 10,000 Vat Input Tax 1,200 Accounts Payable 11,200

PaymentJune 18 Accounts Payable 11,200 Cash Purchase Discounts

11,000 200

Module 1 - Recording Business Transactions

Example 9: June 8 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1890. FOB Destination, Freight Collect, P1,000. Terms: 2/EOM, n/60 Entry: June 8 Purchases 10,000 Vat Input Tax 1,200 Accounts Payable 10,080 Cash 1,120

PaymentJuly 10 Accounts Payable 10,080 Cash Purchase Discounts

9,880 200

Note: Freight cost paid is deducted from accounts payable and the discount is computed from the invoice cost of the merchandise.

Module 1 - Recording Business Transactions

Example 10: June 2 - Purchased merchandise with a price of P10,000 on account per Credit Invoice No. 1900. Terms: 2/10, n/30. June 4 - Received credit memorandum from the seller for the return of merchandise, P2,000. Entry: June 2 Purchases 10,000 Vat Input Tax 1,200 Accounts Payable 11,200 240 2,000 8,800 160

Return June 4 Accounts Payable 2,240 Vat Input Tax Purchase Returns and Allowances Payment June 12 Accounts Payable Cash Purchase Discounts 8,960

Note: Discount is computed after returns and allowances are deducted from the invoice cost of the merchandise. When partial payments are made on a particular invoice within the discount period, cash discount is not yet allowed. Cash discount is allowed only if the invoice cost of the merchandise net of returns and allowances are paid in full within the discount period.

Module 1 - Recording Business Transactions

RECORDING PURCHASES AND PAYMENT OF ACCOUNT: (Net Method) Using Example 10 transaction without merchandise returns: Entry: June 2 Purchases 9,800 Vat Input Tax 1,200 Accounts Payable 11,000 11,000 11,000

Return June 12 Accounts Payable Cash

Note: If paid after the discount period, purchase Discount Loss is debited. Payment June 30 Accounts Payable Purchase Discount Lost Cash 11,000 200 11,200

Module 1 - Recording Business Transactions

RECORDING PURCHASES AND PAYMENT OF ACCOUNT: (Net Method) Using Example 10 transaction with merchandise returns: Entry: June 2 Purchases 9,800 Vat Input Tax 1,200 Accounts Payable 11,000 240 1,960

Return June 4 Accounts Payable 2,200 Vat Input Tax Purchase Returns and Allowances

Payment June 12 Accounts Payable 8,800 Cash 8,800 Note: If paid after the discount period, purchase Discount Loss is debited. Payment June 30 Accounts Payable Purchase Discount Lost Cash 8,800 160 8,960

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ACCOUNTING FOR SALES: Credit Memo is a form used by the seller to notify the buyer that his account is credited (the amount is reduced) for the return of detective merchandise or allowance for damaged merchandise. Sales Discount is a discount granted by the seller for early collection on a credit sale. Sales Returns and Allowances are reduction in Sales, resulting from merchandise being returned by the customer. Transportation Out represents transportation costs of merchandise sold and shouldered by the business. Freight Out this represents the cost of transporting the merchandise sold from the sellers place to the buyers place which is to be shouldered by the seller (business).

Module 1 - Recording Business Transactions

RECORDING SALES AND COLLECTION OF ACCOUNT: Note: The amount P15,000 for the purchases of merchandise and 12% Vat excluded is used for all the examples. Example 1: June 2 - Sold merchandise worth P15,000 for cash per invoice No. 1001. Entry: June 2 Cash Sales Vat output tax 16,800 15,000 1,800

Note: If the sale is a non-vat transaction, just remove Vat Output Tax and reduce cash. Entry: June 2 Cash Sales 15,000 15,000

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Example 2: June 3 - Sold merchandise worth P15,000 for cash per Credit invoice No. 101. Terms: 15 days Entry: June 3 Accounts Receivable Sales Vat Output Tax 16,800 15,000 1,800

Payment June 18 Cash

16,800 Accounts Receivable 16,800

Note: Vat Output Tax minus Vat Input tax is remitted to the government.

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Example 3: June 4 - Sold merchandise worth P15,000 per credit invoice No. 102. Terms: 2/10, n/30. Entry: June 4 Accounts Receivable Sales Vat output tax 16,800 15,000 1,800

Note: If the sale is a non-vat transaction, just remove Vat output tax and reduce Cash. Entry: June 4 Accounts Receivable Sales Vat Output Tax 16,800 15,000 1,800

PaymentJune 14 Cash 16,500 Sales Discount 300 Accounts Receivable 16,800 Note: If the sale is a non-vat, Accounts Receivable credit will be P15,000.

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Example 4: June 5 - Sold merchandise worth P15,000 on account per Credit Invoice No. 103. FOB Shipping Point freight Collect, P1,000. Terms: 2/10, n/30 Entry: June 5 Accounts Receivable Sales Vat output tax 16,800 15,000 1,800

PaymentJune 16 Cash 16,500 Sales Discount 300 Accounts Receivable 16,800 Note: The entries are the same as Example 3 because transportation costs are shouldered by the customer and will be paid by the customer.

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Example 5: June 6 - Sold merchandise worth P15,000 per Credit Invoice No. 104. FOB Shipping Point, Freight Prepaid, P1,000. Terms: 2/10, n/30 Entry: June 6 Accounts Receivable Sales Vat output tax Cash 17,800 15,000 1,800 1,000

PaymentJune 6 Cash 17,500 Sales Discount 300 Accounts Receivable 17,800 Note: The transportation costs prepaid is charged to the customers account.

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Example 6: June 7 - Sold merchandise with a price of P15,000 per Credit Invoice No. 105. FOB Destination, Freight Collect, P1,000. Terms: 2/10, n/30 Entry: June 9 Accounts Receivable Transportation Out Sales Vat output tax 15,800 1,000 15,000 1,800

PaymentJune 19 Cash 15,500 Sales Discount 300 Accounts Receivable 15,800 Note: Transportation costs paid by the customer is deducted to the customers account.

Module 1 - Recording Business Transactions

Example 7: June 8 - Sold merchandise worth P15,000 per Credit Invoice No. 106. FOB Destination, Freight Collect, P1,000. Terms: 2/10, n/30. Merchandise was received on June 10. Entry: June 10 Accounts Receivable Transportation Out Sales Vat output tax Cash 16,800 1,000 15,000 1,800 1,000

PaymentJune 19 Cash 16,500 Sales Discount 300 Accounts Receivable 16,800

Module 1 - Recording Business Transactions

Example 8: June 9 - Sold merchandise worth P15,000 per Credit Invoice No. 107. Terms: 2/10, n/30. June 10 - Received merchandise returns from the customer P2,000 and issued credit memorandum No. 001 (Assume Vat Excluded). Entry: June 9 Accounts Receivable Sales Vat output tax 16,800 15,000 1,800

Return: June 10 Sales Returns and Allow 2,000 Vat Output Tax 240 Accounts Receivable

2,240

PaymentJune 19 Cash 14,300 Sales Discount 260 Accounts Receivable 14,560

Module 1 - Recording Business Transactions

SALES AND RELATED ACCOUNTS: Sales Sales Returns and Allowances Sales Discounts Freight Out PURCHASES AND RELATED ACCOUNTS: Purchases Purchase Returns and Allowances Purchase Discounts Freight In Merchandise Inventory COST OF GOODS SOLD: Merchandise Inventory Purchases Transportation In Purchase Returns and Allowances Purchase Discounts

Cost of Goods Sold and Gross Profit

Net Sales Less: Cost of Goods Sold: Merchandise Inventory, beginning. Add: Purchases x Freight-in x Purchases discounts (x) Purchases ret and allow (x) Net Purchases Total goods available for sale Less: Merchandise Inventory, ending Cost of goods sold Gross profit x x

x x x x x

Statement of Comprehensive Income (by function)

Net Sales Less: Cost of Goods Sold Gross profit Other income Marketing expenses Administrative expenses Financing expense Profit before tax Less: Income tax Profit x x x x (x) (x) (x) x x x