Name: PALADAN, MARIA PAULA O. DICMT 1-1 irreg.

1.

Differentiate between cash basis and accrual basis of accounting ? In Cash basis revenues are reported on the income statement in the period in which the cash is received from customers and expenses are reported on the income statement when the cash is paid out. While in Accrual basis, revenues are reported on the income statement when they are earnedwhich often occurs before the cash is received from the customers while expenses are reported on the income statement in the period when they occur or when they expirewhich is often in a period different from when the payment is made. 2. Give distinction between revenue recognition and matching principles. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned while the matching principles, Expenses matched with revenues in the period when efforts are expended to generate revenues 3. What are adjusting entries? Adjusting entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred. 4. Why is the adjusting step of the accounting cycle necessary? It is necessary because a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions have not necessarily been documented during the period. 5. What four different types of adjustments are frequently necessary at the close of an accounting period? Deferred revenues -- previously recorded liabilities that need to be adjusted at the end of the period to reflect revenues that have been earned Accrued revenues -- revenues that have been earned by the end of the Accounting period but which will be collected in a future accounting period Deferred expenses -- previously recorded assets that need to be adjusted at the End of the period to reflect incurred expenses Accrued expenses -- expenses that have been incurred by the end of the accounting period but which will be paid in a future accounting period. 6. What is the primary difference between deferrals and accruals? An accrual occurs before a payment or receipt. A deferral occurs after a payment or receipt. 7. Under the accrual concept, accounts receivable that is doubtful of collection should be adjusted and provided an allowance. What accounting entry should the accountant make? Bad debts Expense XXX Allowance for doubtful Accounts XXX 8. Illustrate how the adjusting entries would defer if the payment of a two-year insurance policy is initially recorded using the asset method and the expense method. Asset Method Adjusting Entries Date 31 2009 Insurance Expense xxx Prepaid Insurance xxx Expense Method Adjusting Entries Date 31 2009 Prepaid Insurance xxx Insurance Expense xxx 9. Illustrate how the adjusting entries would defer if the receipt of a two-year rental revenue was recorded using the liability method and the revenue method. Liability Method Jan. 1 Cash XXX Unearned Insurance revenue XXX Income Method Jan. 1 Cash XXX Insurance Income XXX 10. Discuss the concept of providing depreciation.

Depreciation is the allocation of a plant asset to expense over its useful life. The depreciation for the financial statements is entered into the accounts via a general journal entry. Assuming that the company prepares only annual financial statements the journal entries can be prepared as of the last day of each year. 11. What factors are considered in computing depreciation expense? Depreciation & the ways to calculate it 3 Factors are: Present or purchase value of item (P) Its scrap value at the end of its life-span (S) The life span of the item considered (L) 12. If an accountant fails to record an accrued interest on notes receivable, what effect will there be on the balance sheet? On the income statement? The asset in the balance sheet will be understated and the revenues in the income statement will be understated. 13. On January 1, prepaid insurance was debited at the cost of a one-year premium, P912, what adjusting entry should be made on January 31? Before financial statements are prepared for the month? Jan 1 Adjusting Entry: Insurance Expense P 76 Prepaid Insurance P76 14. Referring to the question No. 13 supposed that the bookkeeper had charged the entire P912 premium to insurance expense when it was paid January 1. What adjusting entry should be made on January 31 before financial statements are prepared for the month? Adjusting Entry: Jan 31 Prepaid Insurance P 912 Insurance Expense P 912 15. At the beginning of January, the first month of the accounting year, the supplies on hand account had a balance of P700. During January, purchases of P800 worth of supplies were debited to the account. Although only P400 worth of supplies were on hand at the end of January, the necessary adjusting entry was omitted. How will the omission affect the (a) the income statement for January, and (b) the balance sheet prepared at January 31? (a.) Revenue in the income statement Understated (b.) Balance sheet - Understated 16. The publisher of international focus, a monthly magazine, received two-year subscriptions totaling P7,800 on January 1 (a) what entry should be made to record the receipt of 7,800? (b) what entry should be made at the end of January before financial statements are prepared for the month? Adjusting Entry Cash P 7800 Unearned Subscription Revenue P 7800 17. David travel agency pays employees P5000 in wages each Friday for the five-day work week ending on that day. The last Friday of December falls on December 27. What adjusting entry should be made on December 31, the year end? Adjusting Entry: Dec 31 Salary Expense P200 Salary Payable P 200 18. The Garcia Company earns interest amounting to P225 per month on its investment the company receives the interest every six months, on December 31 and June 30, monthly financial statements are prepared. Wahat adjusting entry should be made on January 31? Jan 31 Interest Expense P 225 Interest Payable P 225 19. In what way is the work sheet useful to the accountants? It provides a convenient way to organize the process of creating the adjusted trial balance and the preliminary financial statements. It would be difficult to complete the task without using a worksheet. 20. Where will the net income (or loss) appear in the work sheet? It appears when the amount by which the total revenues exceeds and the total expenses for the period.