CB Module 3 Constructive Accounting

Certified Bookkeeper Program
January 12,19, 26 and February 2

Holiday Inn Galleria
ADB Ave., Ortigas
Certified Accounting Technician Program
COURSE SYLLABUS
MODULE 3
CONSTRUCTIVE ACCOUNTING
LEARNING OBJECTIVES:
A Careful study of this module should enable you to know, explain and
understand the:
1. The internal controls to safeguard assets most specially cash

2. Imprest Cash System
3. Single entry bookkeeping systems.
4. Reconstruction of Incomplete records.
5. Conversion of Cash-basis of Accounting in to Accrual Basis
6. Correction of Errors.
7. Analysis and Interpretation of Financial Statements.
INTERNAL CONTROLS
comprise the plan of the organization together with

its methods and measures in order to protect its
assets, check the accuracy and reliability of
accounting information, promote operational
efficiency, and encourage adherence to prescrived
managerial policies.
Cardinal Principles of Internal Controls
1. Responsibilities must be fixed.
2. Functional responsibilities must be segregated.
3. No one person must be in complete charge of a
business transactions.
4. All available proof of accuracy must be utilized.
5. Personnel must be carefully selected and trained.
6. Personnel should be bonded, especially those in
a position of trust..
7. Personnel should be rotated.
Cardinal Principles of Internal Controls
8. Operating instructions must be reduced

into writing.
9. Do not exaggerate double entry
accounting.
10. Use of controlling accounts.
11. Use of mechanical or electronic
equipment, if feasible.
Transactional controls
• Authorization
• Execution
• Recording
• Custodianship
• Periodic Accountability
INTERNAL CONTROL OF CASH:
Cash – includes coins, checks, money orders, bank drafts and other
forms of money substitutes that can be accepted at face value
upon deposit and can be used for general disbursement purposes.
Money on deposit is also included in cash provided there is no
restriction as to its withdrawal.
Preventive Controls – are procedures designed to detect, prevent

and protect cash from the theft and misuse from the time cash is
received until it is deposited to a bank.
Internal Controls – refer to those steps and procedures the business

takes to protect cash and other assets.
Examples are:
1. Limiting the number of persons handling cash.

2. The cashier must not have access to the accounting
records.
3. Bonding (insuring) employees who handle cash or cash
records.
4. Using a safe or a cash register.
5. Depositing cash receipts in the bank daily.
6. Using checks to make all cash payments.
7. Establish petty cash for making small payments.
Module 3– Constructive Accounting
IMPEREST CASH SYSTEM

Cash is the business’s most liquid asset and it needs the greatest
protection to prevent loss or waste. One of the most commonly used
controls is a checking account.
Checking Account – is blank account that allows a bank customer to
deposit cash and to write checks against the account balance.
Depositor – is a person or business that has cash on deposit in a bank.

To open a checking account, a person or business owner must fill a
signature card, deposit minimum cash required by the bank, and
acquire a checkbook.
Signature Card – contains the signature(s) of the person (s) authorized to

write checks on the bank account. The signature cash is kept on file
by the bank so that it can be matched against signed checks
presented for payment. This helps protect both the account holder
and the bank against checks with forged signatures.
Module 3 – Constructive Accounting
Module 3 - Constructive Accounting
MAKING DEPOSITS
A business should make regular daily deposits of their collections to protect cash
(coins, bills and checks) it receives.
Recording Deposits in the Checkbook – the checks stubs in the checkbook are a
duplicate record of the Cash in Bank account. The completed check stubs
contain the records of all checking account transactions: deposits, withdrawals
and bank service charges.
WRITING CHECKS:
Writing checks is a simple procedure governed by a few important rules. These rules
must be followed to ensure correct record keeping and proper handling of the
money represented by the check. Complete the check stub before writing the
check to remove the chance of forgetting to complete the stub.
1. Write the checks in ink. Written in pencil is not acceptable.

2. Checks should preferably be typewritten.
3. Check writers are used by some companies for security and control.
Check – is a written document signed by the depositor, ordering the

bank to pay a sum of money to an individual or entity.
Module 3- Constructive Accounting
Drawer – is the one who signs the check ordering the bank to
make payment
Drawee – is the bank on which the check is drawn.
Payee – is the part to whom payment is to be made.
Deposit Slip – is a bank form on which the currency (bills and

coins) and checks to be deposited are listed. The deposit slip
or ticket gives both the depositor and the bank a detailed
record of a deposit. The bank teller validates the deposit. The
bank teller validates the deposit slip before a copy given to the
depositor or representative.
CHECKING THE CASH BALANCE
The balance in the Cash in Bank account in the general ledger is regularly
compared with the balance in the checkbook. This is to check whether all the
deposits and payments by checks are recorded in the books. If they do not tally,
the error must be located and corrections be made. If the balance in the general
ledger is in agreement with the balance as per the checkbook, the balance will
now be compared with the bank statement.
Bank Statement – is an itemized record of all transactions occurring in a

depositor’s account over a given month. This includes
•Cash balance at the beginning of the month.

•List of all deposits made by the business during the month.
•List of all check paid by the bank during the month.
•List of any other deductions from the depositor’s account.
•List of any other credits to the depositor’s account.
•Checking account balance at the end of the month.
Cancelled Checks – checks paid by the bank that were deducted from the
depositor’s account and returned together with the monthly bank statement sent by
the bank to the depositor.
Bank Reconciliation – the process of determining any difference between the

balance shown on the bank statement and the cash per book balance. Three
common differences between the bank statement and the checkbook balance are:
a.) Deposit in Transit, b.) Outstanding Checks, and c.) Bank Service Charges.
The New City Bank Statement of Account showed a balance of P31, 893.20 as of
July 31, 20CY, a bank service charge (bsc) of P500 and a credit memo (cm) for P3,
030.00. Below is the last check issued on July 31, 20CY and the checkbook showed
a deposit of P7, 845.80 and the cash balance of P32, 887.90 as of July 31, 20CY.
The checkbook and the cash per book balance are in agreement.
Note: The checkbook balance and the bank statement balance are not in agreement. The causes of the difference are the
deposit in transit, outstanding checks, bank service charge, and credit memo for note collected by the bank and NSF (No
Sufficient Fund) check.
Deposit in Transit or Outstanding Deposit – is a deposit that has been made

and recorded in the depositor’s book but that does not appear in the bank
statement. Usually this is the end of the month deposit.
Outstanding Checks – are checks that have been written and recorded in the
depositor’s book but not yet presented for payment to the bank.
Bank Service Charge – is a fee charged by the bank for maintaining bank
records and for processing bank statement items for the depositor.
Bank Debit Memo – is a charge made by the bank to the depositor’s account,
usually for bank service charge.
Bank Credit Memo – is a credit made by the bank to the depositor’s account,
sometimes for interest credit on deposits or collection made by the bank for the
depositor’s account.
NSF Check – is one returned by the bank because there are no sufficient funds in
the drawer’s checking account to cover the amount of the check. Under the current
practice, when a depositor receives a check payment from a customer and deposits
it in the bank, the bank will not credit the depositor’s account until it is cleared by the
drawee bank. If not cleared, the bank returns this check to the depositor as an NSF
check with corresponding bank charges.
BANK RECONCILIATION STATEMENT – it is assumed that there are no

recording errors made by the bank or the depositor but the reconciliation statement
should provide space in case such error/s occurs. Normally there are many
outstanding checks to be listed, that is why the reconciliation statement provides
for the purpose.
If the adjusted balances match, the bank statement has been reconciled. If the
adjusted balances do not match, the error must be found and corrected.
Book Adjustments – Entries must be made in the depositor’s books that

affect the business’s cash per reconciliation above.
July 31 Cash in Bank 3,030.00

Notes Receivable 3,000.00
Interest Income 30.00
31 Accounts Receivable 2,000.00

Miscellaneous Expenses 500.00
Cash in Bank 2,500.00
Steps in Reconciling a Bank Statement:
Step 1
•
Step 1 Arrange the cancelled issued/cleared checks in numerical order. Compare the
canceled checks with those listed on the bank statement and with the check
stubs and recorded per books.
• List on the bank reconciliation form, by number and amount, all checks issued
which not part of the cancelled checks or listed on the bank statement. These
are the outstanding checks.
• Compare deposits listed on the bank statement to deposits listed and recorded
per books. Deposits per books not listed on the bank statement are deposits in
transit.
• List debit and credit memos listed in the bank statement but not yet recorded
in the depositor’s books.
• List NSF checks returned by the bank for No Sufficient Funds.
Step 2
1. Enter the ending balance shown on the bank statement.
2. Add the total outstanding deposits to the bank statement balance.
3. Add bank error charged to the depositor’s account.
Step 3 4. Deduct total outstanding checks.
5. Deduct the bank error credited to the depositor’s account.
6. Determine the adjusted bank balance.
Step 3
1. Enter the ending cash balance per checkbook or book balance.
2. Add the credit memo credited by the bank not yet recorded.
3. Add book error causing reduction to the cash account.
4. Deduct the debit memo debited by the bank not yet recorded.
5. Deduct NSF Check returned by the bank.
6. Deduct book error causing increase to the cash account.
7. Determine the adjusted book balance.
PETTY CASH
Petty Cash Fund – it is a cash fund established by the business to handle

small, incidental cash payments.
Petty Cash Fund Custodian – It is the person responsible for maintaining

petty cash fund and for making disbursement from the fund.
Establishing the Petty Cash Fund – Before a petty cash fund is established, a
business must determine the amount of cash needed in the fund. The
business estimates the amount of cash that it will need for a certain period of
time, usually a month. The entry to establish a petty cash fund is as follows:
Aug. 1 Petty Cash Fund 3,000.00

Making Petty Cash Payments – The petty cash fund custodian is responsible
for making payments from the petty cash fund. Whenever a cash payment is
made, a petty cash voucher or receipt is completed.
Petty Cash Voucher/Receipt - It is a proof of payment from the petty cash
fund.
Replenishing Petty Cash – As payment are made out of the petty cash fund, the amount
of cash in the petty cash box decreases. Replenishing the petty cash fund restores the
fund to its original balance. If the petty cash vouchers, coins and currency total differ
from the established fund, there is cash short or over.
Assuming at the end of the month the summary of petty cash payments are: Office
Supplies – P544.60; Delivery Expense – P345.90; Advertising Expense – P300.00; Travel
Expenses – P200.00; Miscellaneous Expense – P480.80.
The entry to replenish the fund is:
Aug. 31 Office Supplies 544.60

Delivery Expense 345.90
Advertising Expense 300.00
Travel Expense 200.00
Miscellaneous Expense 480.80
Note: Petty Cash fund is debited only when the fund is set up or the amount of the fund
is increased.
EXAMPLE PROBLEM 1:
The accounting records of Jumbo Company indicated the following

summary of data for cash receipts and payments for July of the current year.
July 1 Cash balance – P78,870.00; Total cash receipts – P579,432.00; Total
checks issued – P564,116.40. The bank statement received for July 31
indicates a balance of P 182,862.20.
In making bank reconciliation, the following reconciling items were
discovered:
a. A deposit of P37,044.20 representing receipts of July 31 has been made
too late to appear on the bank statement.
b. Check outstanding were: #321228 – P32, 652.70; #321231 – P26,557.20;
and #321235 – P46,095.50.
c. The bank collected for Jumbo Company P20,600 on a note left for
collection. The face value of the note was P20,000.
d. Check #321225 for P3,690 was incorrectly charged by the bank as P3,960.
e. Check #321232 cleared by the bank for P2,400 had been

recorded in the depositor’s book as P4,200. This was the payment of
creditor’s account.
f. A customers check for P3,850.60 was returned by the bank with
stamped NSF.
g. The bank service charges for the month of July totaled P864.00.
Required:
a) Prepare a bank reconciliation for July.

b) Journal entries to be made by Jumbo Company.
• P78, 870.00 + P579, 432.00 – P564, 116.40 = P 94,185.60

Solution Example Problem 1-b)
July 31 Cash in Bank 22,400.00
Notes Receivable 20,000.00
Interest Income 600.00
Accounts Payable 1,800.00
31 Accounts Receivable 3,850.60
Miscellaneous Expenses 864.00

SINGLE ENTRY SYSTEM:
Single Entry Bookkeeping System – is a method used where transactions are

recorded without analyzing and considering the dual effect of each transaction as
is done in double entry system. The single entry method will result to have
records that are incomplete.
Under the single entry system transactions are recorded normally to maintain
record of cash, accounts receivable, accounts payable, property and equipment,
and expenses paid. The most important record under the single entry system is
the Cash Record or the Cash Book.
Under this method the cash record or cash book shows the cash receipts and
payments with description of what is received and paid but without specific debits
or credits. With respect to accounts receivable and accounts payable, only a list
of customers and creditors is available with their corresponding balances.
PROBLEMS ENCOUNTERED IN SINGLE ENTRY SYSTEM:
1. Determining the firm’s net income or loss.

2. Preparation of Income Statement.
3. Preparation of Balance Sheet.
Net Assets or Capital Approach of Determining Net Income:
For Proprietor or Partnership:
Capital, end of the accounting period P xxx

Add: Withdrawals during the period xxx
Total P xxx
Less: Capital, beginning of the accounting period P xxx
Additional Investment xxx
Net Income (Loss) P xxx
Retained Earnings Approach of Determining Net Income:
For a Corporation:
Retained Earnings, end of the accounting period P xxx

Add: Dividends declared or paid during the period xxx
Total P xxx
Less: Retained Earnings, beginning of the accounting period xxx
Net Income (Loss) P xxx
EXAMPLE PROBLEM 2:
The following data were made available:

December 31, 20PY December 31, 20CY
Total Assets P1, 000,000 P2, 000,000
Total Liabilities 600,000 1,400,000
Net Assets (Capital) 400,000 600,000
For Single Proprietorship or Partnership:
Additional Investments 500,000
Withdrawals 600,000
For Corporation:
Retained Earnings 100,000 200,000
Capital Stock 300,000 400,000
Dividends declared and paid 300,000
Required:
a) Determine the net income for 20CY for a Single Proprietorship or Partnership.
b) Determine the net income for 20CY for a Corporation.
Solution Example Problem 2-a)
Capital, December 31, 20CY P 600,000

Add: Withdrawals during 20CY 600,000
Total P 1,200,000
Less: Capital, December 31, 20PY P 400,000
Additional Investment 500,000 900,000
Net Income P 300,000
Alternate Solution:
Increase in Net Assets P 200,000

Add: Excess of withdrawals over investment 100,000
Solution Example Problem 2 – b)
Retained Earnings, December 31, 20CY P 200,000

Add: Dividends declared and paid during 20CY 300,000
Total P 500,000
Less: Retained Earnings, December 31, 20PY 100,000
Alternate Solution:
Increase in Net Assets P 200,000

Add: Dividends declared and paid P 300,000
Less: Increase in Capital Stock 100,000 200,000
RECONSTRUCTING INCOMPLETE RECORDS:
Income statement accounts are reconstructed from single entry

recordings with reference to cash receipts, cash
disbursements and the changes in assets and liabilities are:
1. Sales
2. Purchases
3. Income other than sales
4. Operating Expenses including depreciation
Balance sheet accounts not determinable from incomplete records may be done as
follows:
a. CASH- this can be determined through cash count and by looking at the ban
statement.
b. NOTES and ACCOUNTS RECEIVABLE – this can be determined by summarizing the

uncollected sales invoices and the confirmed promissory notes of tecustomers.
c. INVENTORY and SUPPLIES ON HAND at the end- that can be determined by physical
count. To check the accuracy of the count, the beginning inventory plus the
purchases minus the sales (in the case of inventory) or used (in the case of
supplies) should be equal to the ending inventory.
d. Property ad Equiptment- thiscan be determined by loking at the deed of sale and other
documents evidencing ownwership.
e. NOTES and ACCOUNTS PAYABLE- this can be determined from by summarizing the
unpaid invoices and the confirmed promissory notes given to the suppliers.
f. OWNER’S EQUITY OR CAPITAL- this can be determined by subtracting the assets and
liabilities as of any given date.
EXAMPLE PROBLEM 3:
The following data were made available from a single entry set of books of ABC Trading
owned by Juan Abalos and transactions for the current year:
Assets January 1 December 31

Cash P 900,000 P 1,200,000
Notes Receivable 270,000 550,000
Accounts receivable 1,200,000 1,100,000
Inventory 900,000 750,000
Prepaid Expense 30,000 50,000
Furniture and Equipment 750,000 900,000
Total Assets P 4,050,000 P 4,550,000
Liabilities
Notes payable P 400,000 P 500,000
Accounts payable 850,000 710,000
Accrued Expense 50,000 40,000
Interest Payable 5,000 15,000
Unearned rent income 20,000 30,000
Total Liabilities P 1,325,000 P1, 295,000
The cash record of the current year showed the following information:
Receipts: Disbursements:
Balance, January 1, P 900,000 Accounts payable P 1,200,000
Accounts Receivable 2,150,000 Notes payable 950,000
Notes receivable 750,000 Cash purchases 450,000
Cash Sales 600,000 Interest paid 50,000
Rent collection 150,000 Expense paid 600,000
Sales of equipment costing Equipment purchased 300,000
P150,000 – 50% depreciated Withdrawals 300,000
Additional investment 400,000
Total P 5,050,000 Total P 3,850,000
Balance, December 31, P 1,200,000
Additional Information:
1. Sales returns and allowance granted to customers P175,000

2. Sales discounts granted to customers 75,000
3. Uncollectible accounts written off 40,000
4. Purchase discounts on accounts payable paid 50,000
Required:
a. Determine the Net income or loss for the year ending December 31, 20CY.
b. Compute the gross sales.
c. Compute the total gross purchases.
d. Compute the interest expense.
e. Compute the rent income.
f. Compute the gain on sale of equipment.
g. Compute the expenses
h. Compute the depreciation on furniture and equipment
i. Prepare the Statement of Comprehensive Income for the year ended
December 31, 20CY
j. Prepare the Statement of Financial Position as of December 31, 20CY
Solution Example Problem 3-a) Net Income computation
Capital, December 31 (4,550,00 – 1,295,000) P 3,255,000

Add: Withdrawals during 20CY 300,000
Total P 3,555,000
Less: Capital, January 1, (4,050,000 – 1,325,000) P 2,725,000
Additional investments 400,000 3,125,000
Note: Analysis on increases in assets and decreases in liabilities increase net

income while decrease in assets and increases in liabilities decrease net
income.
Solution Example Problem 3- b) Computation of Gross Sales

Notes receivable, December 31 P 550,000
Accounts receivable, December 31 1,100,000
Collections of Notes receivable 750,000
Collections of Accounts receivable 2,150,000
Sales returns and allowances 175,000
Sales discounts 75,000
Uncollectible accounts written off – Bad debts 40,000
Total 4,840,000
Less: Notes receivable, January 1 P 270,000
Account receivable, January 1 1,200,000 1,470,000
Sales on Account P 3,370,000
Cash Sales 600,000
Total Gross Sales P 3,970,000
Note: If the information given is only the increase or decrease in Notes or Accounts receivable, The
procedure is add the increase or deduct the decrease in your computation. The same procedure is
followed in the computation of purchases below.
Solution Example Problem 3-c) Computation of Gross Purchases
Notes Payable, December 31 P 500,000

Accounts payable, December 31 710,000
Payments of Notes payable 950,000
Payments of Accounts payable 1,200,000
Purchase discounts 50,000
Total P3,410,000
Less: Notes payable, January 1 P 400,000
Accounts payable, January 1 850,000 1,250,000
Purchases on Account P 2,160,000
Cash Purchases 450,000
Total Gross Purchases P 2,610,000
Solution Example Problem 3 –d) Computation of Interest Expense
Interest expense paid P 50,000

Add: Interest payable – December 31 15,000
Total 65,000
Less: Interest payable – January 1 5,000
Interest Expense 60,000
Solution Example Problem 3- e) Computation of Rent Income

Rent income received P 150,000
Add: Unearned rent income – January 1 20,000
Total P 170,000
Less: Unearned rent income – December 31 30,000
Rent Income P 140,000
Solution Example Problem 3 – f) Computation of Gain on Sale
Selling Price P 100,000

Less: Book Value of equipment sold (P150,000*50%)= 75,000
Gain on sale of equipment P 25,000
Solution Example Problem 3 – g) Computation of Expenses
Expense paid P 600,000

Add: Prepaid expense – January 1 P 30,000
Accrued expenses – December 31 40,000 70,000
Total P 670,000
Less: Prepaid expenses – December 31 P 50,000
Accrued expenses – January 1 50,000 100,000
Expenses P 570,000
Solution Example Problem 3 – h) Computation of Depreciation Expense
Furniture and Equipment – January 1 P 750,000

Add: Equipment purchased 300,000
Total P1,050,000
Less: Furniture and Equipment - December 31 P 900,000
BV of Equipment sold – P150,000*50% = 75,000 975,000
Depreciation Expense P 75,000
Solution Example Problem 3 – I) Income Statement

ABC COMPANY
Statement of Comprehensive Income
For the Year Ended December 31, 20CY
Sales P 3,970,000
Less: Sales discounts P 75,000
Sales returns and allowances 175,000 250,000
Net Sales 3,720,000
Cost of Sales ( 2,710,000)
Gross profit 1,010,000
Rent Income 140,000
Gain on sale of equipment 25,000
Total income 1,175,000
Less Expenses:
Cash expenses 570,000
Depreciation Expense 75,000
Bad debts expense 40,000
Interest expense 60,000 745,000
Profit P 430,000
Solution Example Problem 3 – j) Balance Sheet
ABC COMPANY
Statement of Financial Position
As of December 31, 20CY
ASSETS
Current Assets:
Cash P 1,200,000
Notes receivable 600,000
Accounts receivable 1,100,000
Inventory 750,000 P3,650,000
Non Current Assets:
Furniture and Equipment (Net) 900,000
Total Asset P 4,550,000

LIABILITIES AND OWNER’S EQUITY
Current Liabilities:
Notes payable P 500,000
Accounts Payable 750,000
Interest Payable 15,000
Unearned rent income 30,000 P 1,295,000
Owner’s Equity:
Juan Abalos, Capital – January 1 P 2,725,000
Add: Net Income 430,000
Additional Investment 400,000
Total P 3,555,000
Less: Juan Abalos, Withdrawals 300,000 3,255,000
Total Liabilities and Owner’s Equity P 4,550,000

ACCRUAL VERSUS CASH BASIS OF ACCOUNTING:
Accrual Basis of Accounting – this method recognizes and records

revenues, services provided or products sold, when earned
regardless of whether cash has been received. It also recognizes
and records expenses when incurred regardless of whether cash
has been paid. The accrual method is the best method of
measuring income for most businesses.
Cash Basis of Accounting – this method recognizes and records

revenues, services provided or products sold, only when cash has
been received expenses only when cash has been paid. The cash
method is used in some small businesses.
EXAMPLE PROBLEM 4:
The following data represents the summarized transactions of XYZ Trading for the year 20CY,
its second year of operations.
Cash sales P 750,000 Purchase return & discounts P 60,000

Sales on accounts 4,500,000 Salaries and wages paid 1,050,000
Collections from customers 4,300,000 Store and office supplies paid 300,000
Sales returns & discounts 80,000 Other operating expenses paid 100,000
Cash purchases 450,000 Interest received 60,000
Purchases on account 3,000,000 Equipment purchased 600,000
Payment to creditors 2,700,000 Interest paid 50,000
Rental collections 140,000 Accounts receivable written off 10,000
Equipment was acquired at the beginning of its first year with a 10-year useful life.
Additional Information at December 31, 20CY:

Notes & A/c receivable, 12/31/CY P 320,000
Notes & A/c payable, 12/31/CY P 540,000
Notes & A/c receivable, 12//31/PY 210,000
Notes & A/c payable, 13/31/PY 300,000
Accrued salaries payable 110,000
Accrued Interest payable 10,000
Unused Store & office supplies 75,000
Inventory, 12/31/CY 600,000
Accrued Interest receivable 15,000
Inventory, 12/13/PY 500,000
Unearned rent income 20,000
Required:
1. Compute the following under Cash and Accrual basis of accounting:

a. Total gross sales e. Interest expense
b. Total gross purchase f. Salaries and wages
c. Interest Income g. Store and offices supplies expense
d. Rent Income h. Depreciation expense
2. Statement of Comprehensive Income for the year ended December 31,

20CY under Cash basis of accounting.
3. Convert the Cash basis Income statement to Accrual basis of accounting.
4. Adjusting entries necessary to convert to Accrual basis.

Solution Example Problem 4-1) Computations
Cash Basis Accrual Basis

a. Cash Sales 750,000.00 750,000.00
Sales on accounts - 4,500,000.00
Collections from customers 4,300,000.00 -
Total Gross Sales 5,050,000.00 5,250,000.00
Computations under Accrual if sales on accounts is not given:

Notes & Accounts receivable, 12/31/CY 320,000.00
Collections from customers 4,300,000.00
Sales returns and discounts 80,000.00
Accounts receivable written off 10,000.00
Total 4,710,000.00
Notes & Accounts receivable, 12/31/PY 210,000.00
Sales on accounts 4,500,000.00
Cash Sales 750,000.00
Total Gross Sales 5,250,000.00
Note: This procedure shows how to reconstruct an item or account not given.
b. Cash Purchases 450,000.00 450,000.00

Purchases on account - 3,000,000.00
Payment to creditors 2,700,000.00 -
Total Gross Purchases 3,150,000.00 3,450,000.00
Computations under Accrual if Purchases on account is not given:

Notes & Accounts payable 12/31/CY 540,000.00
Payment to creditors 2,700,000.00
Purchases returns and discounts 60,000.00
Total 3,300,000.00
Notes & Accounts payable 12/31/PY 300,000.00
Purchases on account 3,000,000.00
Cash Purchases 450,000.00
Total Gross Purchases 3,450,000.00
c. Interest received 60,000.00 60,000.00

Accrued Interest receivable 15,000.00
Interest Income 60,000.00 75,000.00
Under accrual deduct Accrued Interest receivable 12/31/PY if given.

d. Rental collections 140,000.00 140,000.00

Unearned rent income (20,000.00)
Rent income 140,000.00 120,000.00
Under accrual add Unearned rent income 12/31/PY if given.
e. Interest paid 50,000.00 50,000.00

Accrued Interest Payable 10,000.00
Interest expense 50,000.00 60,000.00
Under accrual deduct Accrued Interest payable 12/31/PY if given.
f. Salaries and wages paid 1,050,000.00 1,050,000.00

Accrued Salaries payable 110,000.00
Salaries and Wages 1,050,000.00 1,160,000.00
Under accrual deducted Accrued salaries payable 12/31/PY if given.
g. Store and office supplies paid 300,000.00 300,000.00

Unused Store & office supplies (75,000.00)
Store and office supplies expense 300,000.00 225,000.00
Under accrual and Unused Store & office supplies 12/31/PY if given.
h. Depreciation expense (P600,000/10 years)60,000.00 60,000.00

Solution Example Problem 4-2) Income Statement (Cash Basis)

Formula for Income other than Sales: Accrual basis

Income received P xxx
Add: Deferred income – beginning P xxx
Accrued income – ending xxx
Total xxx
Less: Deferred income – ending P xxx
Accrued income – beginning xxx xxx
Income for the Period P xxx
Formula for Operating Expenses: Accrual basis

Expense Paid P xxx
Add: Prepaid expense – beginning P xxx
Accrued expenses – ending xxx xxx
Total P xxx
Less: Prepaid expense - ending P xxx
Accrued expense – beginning xxx xxx
Expense for the Period P xxx
Solution Example Problem 4-4) Adjusting entries to convert to Accrual Basis
1. Sales 210,000.00
Capital/ Retained earnings 210,000.00
Unearned Notes/Accounts receivable – 12/31/PY collected in the CY.
Note: Capital is for Proprietorship or Partnership, Retained earnings is for corporation.
2. Notes/Accounts receivable 320,000.00

Sales 320,000.00
Unrecorded Notes/Accounts receivable – 12/31/CY
3. Capital/Retained earnings 300,000.00

Purchases 300,000.00
Unrecorded Notes/Accounts payable –12/31/PY paid in the CY.
4. Purchases 540,000.00
Notes/Accounts payable 540,000.00
Unrecorded Notes/Accounts payable – 12/31/CY.
5. Accrued Interest receivable 15,000.00

Interest Income 15,000.00
Unrecorded Accrued interest receivable –12/31/CY
6. Rent Income 20,000.00

Unearned rent Income 20,000.00
Unrecorded Unearned rent income – 12/31/CY
7. Interest expense 10,000.00

Accrued interest payable 10,000.00
Unrecorded Accrued interest payable- 12/31/CY
8. Salaries and wages 110,000.00

Accrued salaries payable 110,000.00
Unrecorded Accrued salaries payable – 12/31/CY
9. Unused store and office supplies 75,000.00

Store and office supplies 75,000.00
Unrecorded Unused store and office supplies – 12/31/CY
10. Capital/Retained earnings 60,000.00

Depreciation expense 60,000.00
Accumulated depreciation 120,000.00
Depreciation expense for CY and unrecorded depreciation for PY.
ERROR CORRECTIONS
Kinds of Errors:
1. Clerical Errors –errors that are normally detected in the performance of the
accounting procedures and are immediately corrected. Examples are
arithmetical errors (error in addition, subtraction, multiplication or division),
posting to the wrong side or account, misstating an amount (over or understated)
or error of omission.
2.
2. Balance Sheet Errors – errors that will affect only the real accounts (balance
sheet accounts). Examples are misstatement of balnce sheet items, errors in the
classification such as current asset is eroneously classified as non-current asset,
etc.
3. Income Statement Errors – errors that will affect only the nominal
accounts (income statement accounts). Examples are misstatement in
the classification of expenses such as curent asset is eroneously
charged to miscellaneous expense, etc.
4.
4. Errors affecting both Balance Sheet and Income Statement – errors
that will affect assets, liability or equity accounts that will have a
corresponding effect on income or expense items. The effect will either
understate or overstate assets, liabilities or equity accounts with
corresponding understatement or overstatement of income and revenue
items that will understate or overstate net income.
Errors Affecting Balance Sheet and Income Statement – The errors that
affect both these statements are either counterbalancing or non-
counterbalancing.
Counterbalancing Errors – are errors that will be offset or corrected over two
periods.
Non-counterbalancing Errors – are errors that are not offset in the next
accounting period.
COUNTERBALANCING ERRORS – First determine whether or not the books

have been closed for the period in which the error is found.
If the books have been closed:
a. If the error is already counterbalanced, no entry is necessary.

b. If the error is not yet counterbalanced, an entry is necessary to adjust the
present balance of capital or retained earnings.
EXAMPLE PROBLEM 5:
Jumbo Trading owned by Mario Portal reported net income as follows: 20PY –
P350,000; 20CY – P500,000. It is assumed that year-end adjustments for 20CY were
properly made except fro errors and misstatement for 20PY.
The audit and review of the records of Jumbo Trading disclosed the following errors
made in the year 20PY.
1. Inventory at the year-end was understated. P60,000
2. Sales on account was recorded in 20CY. 20,000
3. Purchases on account was recorded in 20CY 15,000
4. Year –end accrued advertising was not recorded 5,000
5. Year – end prepaid insurance was not recorded 8,000
6. Year –end unearned rent income was omitted 6,000
7. Year –end accrued interest income was omitted 3,000
8. Year -end unused office supplies was unrecorded 2,500
9. Year –end depreciation of equipment was omitted 4,000
10. Year –end provision for bad debts was not taken up 3,500
Required:
a. Prepare an analysis showing the corrected net income for 20PY and 20CY.
b. Prepare the correcting entries at year-end of 20CY assuming:
1) Books have not been closed.
2) Books have been closed.
Solution Example Problem 5-a.
20PY 20CY
Net Income 350,000.00 500,000.00
Errors made in 20PY:
1. Inventory – understated 60,000.00 (60,000.00)
2. Sales on account – unrecorded 25,000.00 (25,000.00)
3. Purchase on account – unrecorded (15,000.00) 15,000.00
4. Accrued advertising – unrecorded (5,000.00) 5,000.00
5. Prepaid insurance – unrecorded 8,000.00 (8,000.00)
6. Unearned rent income – omitted (6,000.00) 6,000.00
7. Accrued interest income – omitted 3,000.00 (3,000.00)
8. Unused office supplies – unrecorded 2,500.00 (2,500.00)
9. Depreciation of equipment – omitted (4,000.00) -
10. Bad Debts – not taken up (3,500.00) -
Corrected Net Income 415,000.00 427,500.00

Solution Example Problem 5-b.

Errors are treated as prior period adjustments and reported in the current year as
adjustments in the beginning balance of Capital or Retained earnings. If comparative
statements are presented, the prior year statements affected should be restated to
correct for the error.
FINANCIAL STATEMENT ANALYSIS
OBJECTIVES:
1. It attempts to evaluate a business entity for financial and management decision

making purposes.
2. It explores some aspect of a firm’s profitability or its risk (short – term and Long
– term Liquidity, or both).
3. It attempts to measure the firm’s operational efficiency and investment provided
by owners and creditors.
In order to draw valid conclusions about the financial health of an entity, it is

essential to analyze and compare specific types and source of information.
This analysis would include consideration of the following:
1. A review of the firm’s accounting policies.

2. An examination of recent auditors reports.
3. Analysis of footnotes and other supplemental information accompanying
the various financial statements, and
4. Additional information provided by trade journals and industry
publications.
HOW TO ANALYZE FINANCIAL STATEMENTS:
1. Comparative Statements – The presentation of financial information for current

and prior periods, which allows the statement user to compare changes in the
individual items.
2. Horizontal Analysis – The presentation of financial statement data on a

percentage basis over time. An index value of 100 is assigned to each particular
base year. In succeeding years, peso amount of each item is divided by the peso
amount of the same item in the base year. The result is the presentation of the
relative growth or decline of each item in terms of the base year.
3. Vertical Analysis – The presentation of each item on a financial statement as a

percentage of an appropriate base amount. Statements presented in this form are
known as Common- size Statements. In an income statement, the base amount
is Total Net Sales expressed as 100%. In the balance asset, the base amount is
Total Assets or Total Liabilities and Owner’s Equity expressed also as 100%.
RATIO ANALYSIS
USES OF RATIO ANALYSIS:
1. It provides an indication of the firm’s financial strengths

and weaknesses and should generally be used in
conjunction with other evaluation techniques.
2. Ratios are useful tools of financial statement analysis
because they summarize data in a form easy to
understand, interpret, and compare.
CONCLUSIONS DRAWN FROM RATIO ANALYSIS
1. Short-Term Solvency – The ability of a firm to meet its current

obligations as they mature.
2. Long –Term Solvency – The ability of the firm to meet interest

payments, preferred dividend, and other charges. Long – term solvency is
a required precondition for the repayment of principal.
3. Operational Efficiency – The ability of the business entity to

generate income and earn a satisfactory return on investments.
4. Profitability – The ability of the firm to generate income and earn

satisfactory returns to common stockholders.
5. Investment Analysis – Measures total investment provided by

stockholders and T. resources provided by the creditors.
EVALUATION OF SHORT-TERM SOLVENCY

EVALUATION OF LONG-TERM SOLVENCY

EVALUATION OF OPERATIONAL EFFICIENCY

EVALUATION OF PROFITABILITY
INVESTMENT ANALYSIS
EXAMPLE PROBLEM 6:
The following are the balance sheet and income statement data of
REQUIREMENTS:
1. Prepare comparative balance sheets for 20PY and 20CY, showing peso and
percentage increases or decreases (Horizontal Analysis).
2. Prepare income statement for the year ended December 31 20CY with
common size percentages (Vertical Analysis).
3. Prepare comparative common-size balance sheets as of December 31 20PY
and 20CY (Vertical Analysis).
4. Evaluate the firm’s short-term solvency for 20CY
5. Evaluate the firm’s long-term solvency for 20CY
6. Evaluate the firm’s operational efficiency for 20CY
7. Evaluate the firm’s profitability for 20CY
8. Make an investment analysis for 20CY
SOLUTION TO EXAMPLE PROBLEM 6-1


SOLUTION TO EXAMPLE 6-3




SOLUTION TO EXAMPLE PROBLEM 6 -7

SOLUTION TO EXAMPLE PROBLEM 6 -8

PROBLEMS:
3.1 Everest Company received the August Bank Statement that showed
a balance of P38, 810.00 as of August 31. Other information are as follows:
Balance per checkbook
Checks Outstanding: P38, 120.00
Customer’s check returned NSF P 680.00

August 31 deposit not recorded in the bank statement 8,430.00
Check No. 750153 for P 2,120.00 returned with the statement
Had been recorded in the books as P 2,210.00
Bank service charges 550.00
Required: Prepare bank reconciliation on August 31.

3.2 The following information pertains to GH Company’s checking account for the month
of
October current year:
Balance per bank statement, October 31 P 67, 777.70
Balance per checkbook, October 31 73, 331.00
Check Outstanding: No. 159179
310.00
Deposit on October 31 not recorded by the bank 4,000.00
Returned check marked “NSF” 552.30
Bank Service Charge 141.00
The bookkeeper of GH Company had recorded several checks incorrectly:
Required: Prepare bank reconciliation on October 31.

3.3 On June 30, the Francis Trading Co. had a cash account balance of P17, 940.
The bank statement for June showed a balance of P6, 970. The deposit of 18, 500
made on June 30 were still in transit. The following information was also available:
Customer’s check returned for no sufficient funds P 530.00
Bank service charges for June 80.00
Check No. 211346 had been written for 3, 620 but had been
recorded in the books at 6, 320 for payment of accounts.
The bank incorrectly credited Francis account for 2, 500 deposit.
The following checks were outstanding:

No. 211350 – P570; No. 211354 – P 1, 120; No. 211355 – P 1, 250.
Required: a. Prepare bank reconciliation.

b. Prepare journal entries necessary to correct cash account.
1.1 Joy Enterprises owned by Joyce Marcela uses a single entry system and
her accountant provided the following data for the year 20CY:
The cash record of the current year showed the following information:
Additional information:
1. Sales returns and allowances granted to customers P 160, 000
2. Sales discounts granted to customers 50,000
3. Uncollectible accounts written off 60,000
4. Purchase discounts on accounts payable paid 50,000
5. Purchase returns on merchandise purchases 40.000
Required
a. Determine the Net Income or Loss for the year ending December 31, 20CY.
b. Compute the total gross sales.
c. Compute the total gross purchases.
d. Compute the interest expense.
e. Compute the rent income.
f. Compute the depreciation on equipment.
g. Compute the result on sale of equipment.
h. Prepare the Income Statement for the year ended December 31 20CY.
i. Prepare the Balance a Balance Sheet as of December 31 20CY.
3.5 An analysis of the incomplete records of Darlene Trading owned by Darlene

Roxon provided by the following data for the year 20CY:
The cash recorded of the current year showed the following information:
Receipts:
Additional information:
1. Sales discounts granted to customers

2. Uncollectible accounts written off
3. Purchase discounts on accounts payable paid
Required:
a. Determine the Net Income or Loss for the year ending December 31 20CY
b. Compute the total Sales.
c. Compute the total purchases.
d. Compute the insurance expense.
e. Compute the interest income.
f. Compute the depreciation on equipment
g. Prepare the Income Statement for the year ended December 31, 20CY.
1.1 The following data represents the summarized transactions of ABC Trading
owned by Adeline Cruz for the year 20CY, its second year of operations.
At the beginning of its first year, equipment was acquired with a 10-year useful life.
Additional information at December 31 20CY
Required:
1. Compute the following under Cash and Accrual basis of accounting:

a. Total gross sales e. Interest expenses
b. Total gross purchases f. Salaries and wages
c. Interest Income g. Advertising expense
d. Rent Income h. Depreciation expense
2. Income statement for the year ended December 31, 20CY under Cash basis
of accounting.
3. Convert the Cash basis Income statement to Accrual basis of accounting.
4. Adjusting entries necessary to convert to Accrual basis.

3.7 Zulu Enterprises began operations on January 1, 20PY. During the two-year
period ended December 31, 20CY the cash basis of accounting has been
employed. The trial balance prepared from these records on December 31, 20CY
appeared as follows:
The following data were gathered from the records which showed:
a. Accounts receivable
December 31, 20PY 150,000
December 31, 20CY 250,000
b. Included in sales of 20PY was a 30,000 deposit by a customer for
merchandise to be delivered in 20CY
c. Accounts payable:
d. Included in purchases of 20PY was 50,000 cash advance to supplier for
merchandise to be delivered in 20CY.
e. Accrued expenses:
f. Merchandise Inventory:
a. Building and equipment were acquired on January 1, 20PY. Building has an

estimated useful life of 10 years and equipment 5 years.
b. It was determined that accounts receivable as of December 31, 20CY has
95% collectibility and the remainder is uncollectible.
c. Bank loan was made on July 1, 20CY with the interest rate of 12% per
annum payable semi-annually on July 1 and January 1. the loan is for 5 years.
Required:
1. Compute the income statement accounts that will be converted from cash to
accrual basis.
2. Prepare the adjusting entries on December 31, 20CY.
3. Statement of Comprehensive Income for the year ended December 31, 20CY\
under accrual basis
4. Statement of Financial Position as of December 31, 20CY
1.8 State the effects of each of the following errors made in 20PY and the
following errors made in 20PY and the balance sheets and the income
statements prepared in 20PY and 20CY following the analysis of accounting
errors format below.
a. The ending inventory is understated as a result of an error in the physical

count of goods on hand by 5,500.
b. The ending inventory is overstated as a result of an error including in the
physical count goods received on consignment by 8, 000.
c. A purchase of merchandise for 10, 000 at the end of 20PY is not recorded
until payment is made for the goods in 20CY. The goods purchased were
included in the ending inventory of 20PY.
d. A sale of merchandise in 20PY for P15, 000 is not recorded until cash is
received for the goods in 20 CY. The goods sold with a cost of 12, 000 were
excluded from ending inventory of 20PY.
e. Goods shipped to consignees in 20PY were reported as sales of P12, 000.
Goods in the hands of the consignees at the end of 20PY were not recognized
for inventory purposes. Sale of such goods in 2OCY and collection as such
sales were recorded as credits to the receivables established with consignees
in 20PY.
f. Accrued interest receivable was not recognized and recorded at the end of
20PY amounting to P3, 000.
g. Prepaid insurance of P2, 500 was not recognized and recorded at the end of
20PY.
h. Unpaid sales salaries of P 6, 000 were omitted at the end of 20PY.
i. Unearned rent of P5, 000 was not recorded at the end of 20PY.
j. The total of one week’s sales of P25, 000 during 20PY.
k. No depreciation statement in 20PY and 20CY for equipment costing

P200,000 acquired on June 30PY. The equipment has a useful
life of 10 years.
l. A customer notes receivables of 30, 000 was debited to accounts

receivable
1.8 Rambo Trading owned by John Rambo reported net income as follows:
20PY – 250,000; 20CY – 300,000. It is assumed that year-end adjustments for 20CY
were properly made expect for errors and misstatements for 20PY.
The audit and review of the records of Rambo Trading disclosed the following errors
made in the year 20Y:
1. Inventory at the year-end was overstated P 30, 000
2. Sales on account was recorded in 20CY 12, 500
3. Purchases on account was recorded in 20CY 10, 000
4. Year-end accrued advertising was not recorded 3, 000
5. Year-end prepaid insurance was not recorded 4, 000
6. Year-end unearned rent income was omitted 3, 500
7. Year-end accrued interest income was omitted 2, 500
8. Year-end unused office supplies was unrecorded 2, 000
9. Year-end depreciation of equipment was omitted 5, 000
10. Year-end provision for bad debts was not taken up 1, 750
Required:
a. Prepare an analysis showing the corrected net income for 20PY and 20CY:
b. Prepare the correcting entries at year-end f 20CY assuming:
1. Books have not been closed
2. Books have been closed
3.9.1 The following errors were discovered in the accounting records of Paul and
Phil Partnership on January 5, 20SY.
The partners share profit and losses as follows: Paul -40%; Phil – 60%.
1. Prepare correcting journal entries on January 5, 20SY, assuming that the books were closed for
20CY.
2. Prepare the correcting journal entries on January 5, 20SY, assuming that the books were still open
for 20CY.
• SY – Subsequent year.
Cam had 10, 000 shares of common stock outstanding throughout the year. The
market price of the stock at year-end was P65 per share. All sales are on credit.
Compute the following ratios as of the end of 20CY or for the year-ended December
31, 20CY, whichever is appropriate.
3.12 The balance sheet, income statement and related information of the Brief Company
are shown below:
Additional Information: -
There were no preferred dividends in arrears and the balance in the accounts receivable and
inventory accounts are unchanged from January 1, 20CY and there were no change in the
bonds payable, preferred stock or common stock accounts during 20CY.
REQUIRED: Compute the following for the year 20CY:
a. Current ratio
b. Number of times bond interest was earned
c. Average number of days’ sales in inventories (360 days)
d. Book value per share of common stock
e. Rate of return on common stockholders’ equity
f. Debt equity ratio
3.13
REQUIRED
Compute the following ratios and measurable for 20CY:
a. Amount of Working Capital
b. Amount of Net Monitory Asset
c. Current Ratio
d. Acid-test (Quick) Ratio
e. Cash flow from Operations to Current Liabilities
f. Inventory Turnover
g. Ratof gross Profit on sales
h. Book value per share of stock
i. Ratio of Net Income to Net Sales
j. Net earnings per share of stock
k. Rate of return on invested capital
l. Cash Flow from Operational to Total Liabilities
m. Ratio of Stockholders’ Equity to Total Liabilities
The following are made available to you by the management

of CORVEAU Trading:
Credit sales P 420,000

Inventory Turnover 7x
Current liabilities P 80, 000
Current Ratio 2 to 1
Quick Ratio 1.25 to 1
Average Collection period 36 days
Number of working days 360
REQUIRED
Compute the following:
a. Cash P _________
b. Accounts receivable _________
c. Inventory _________
d. Total current assets P __________
The accountant of Cornelius Trading, using HORIZONTAL

ANALYSIS for analyzing the Income Statement, came up with the
following:
1998 1999 Peso Change Percentage Change

Sales P 100,000 P 1) P 2) 20%
Cost of Sales 3) 63,000 3,000 4)
Gross Profit P P5) 6) P 7) 8)
Expenses 30,000 9) 10) 11)
Net Profit P P 12) 13) P 14) 50%
REQUIRED: Compute the missing amounts. (1-14)

Shown below is the condensed Income Statement of Arevalo Trading:
Sales P 1) 2) %
Sales Return 3) 10)
Net Sales P 4) 5)
Cost of Sales 6) 70%
GrossProfit P 7) 8)
Expenses 9) 10)
Net Profit P 35, 000 17.50%
REQUIRED: Compute the missing amounts. (1-10)

CB Module 3 Constructive Accounting

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Certified Bookkeeper Program

January 12,19, 26 and February 2

1. The internal controls to safeguard assets most specially cash

comprise the plan of the organization together with

8. Operating instructions must be reduced

INTERNAL CONTROL OF CASH:

Preventive Controls – are procedures designed to detect, prevent

Internal Controls – refer to those steps and procedures the business

1. Limiting the number of persons handling cash.

IMPEREST CASH SYSTEM

Depositor – is a person or business that has cash on deposit in a bank.

Signature Card – contains the signature(s) of the person (s) authorized to

1. Write the checks in ink. Written in pencil is not acceptable.

Check – is a written document signed by the depositor, ordering the

Payee – is the part to whom payment is to be made.

Deposit Slip – is a bank form on which the currency (bills and

CHECKING THE CASH BALANCE

Bank Statement – is an itemized record of all transactions occurring in a

•Cash balance at the beginning of the month.

Bank Reconciliation – the process of determining any difference between the

Deposit in Transit or Outstanding Deposit – is a deposit that has been made

BANK RECONCILIATION STATEMENT – it is assumed that there are no

Book Adjustments – Entries must be made in the depositor’s books that

July 31 Cash in Bank 3,030.00

31 Accounts Receivable 2,000.00

Steps in Reconciling a Bank Statement:

Petty Cash Fund – it is a cash fund established by the business to handle

Petty Cash Fund Custodian – It is the person responsible for maintaining

Aug. 1 Petty Cash Fund 3,000.00

Aug. 31 Office Supplies 544.60

The accounting records of Jumbo Company indicated the following

e. Check #321232 cleared by the bank for P2,400 had been

a) Prepare a bank reconciliation for July.

• P78, 870.00 + P579, 432.00 – P564, 116.40 = P 94,185.60

Solution Example Problem 1-b)

July 31 Cash in Bank 22,400.00

Notes Receivable 20,000.00

Interest Income 600.00

Accounts Payable 1,800.00

31 Accounts Receivable 3,850.60

Miscellaneous Expenses 864.00

Cash in Bank 4,714.60

SINGLE ENTRY SYSTEM:

Single Entry Bookkeeping System – is a method used where transactions are

PROBLEMS ENCOUNTERED IN SINGLE ENTRY SYSTEM:

1. Determining the firm’s net income or loss.

Net Assets or Capital Approach of Determining Net Income:

For Proprietor or Partnership:

Capital, end of the accounting period P xxx

Retained Earnings Approach of Determining Net Income:

Retained Earnings, end of the accounting period P xxx

The following data were made available:

Solution Example Problem 2-a)

Capital, December 31, 20CY P 600,000

Increase in Net Assets P 200,000

Solution Example Problem 2 – b)

Retained Earnings, December 31, 20CY P 200,000

Increase in Net Assets P 200,000

RECONSTRUCTING INCOMPLETE RECORDS:

Income statement accounts are reconstructed from single entry

b. NOTES and ACCOUNTS RECEIVABLE – this can be determined by summarizing the

Assets January 1 December 31

1. Sales returns and allowance granted to customers P175,000