Cash and Accrual Basis

 

CHAPTER XIV - CASH AND ACCRUAL BASIS 

Case 1. C

company provided the following year end data:

Accounts Receivable

2019 1,200,000

2020 150,000

Accounts Payable

1,500,000

1,850,000

In 20 2020, 20, account accountss writte written n off amount amounted ed to P100,0 P100,000. 00. Sales Sales returns returns amount amounted ed to P250,000, of which an amount of P50,000 was paid to customers. Cash receipts from customers after P500,000 discounts totalled P8,000,000. Purchase Purcha se return returnss amount amounted ed to P400,0 P400,000, 00, of which which an amount amount of P100,0 P100,000 00 was received from suppliers. Cash pa Cash paym ymen ents ts to trade trade credi credito tors rs amou amount nted ed to P5,0 P5,000 00,0 ,000 00 af afte terr di disco scoun unts ts of  P200,000. 1. Under accrual, what is the amount of gross sales?

Accounts receivable – 2020 Accounts written off Sales returns Cash receipts from customers Sales discounts Total Accounts receivable – 2019 Erroneous debit to accounts receivable Gross Sales

1,350,000 100,000 250,000 8,000,000 500,000 10,200,000 (1,200,000) (50,000) 8,950,000

2. Under accrual, what is the amount of net sales? Gross Sales Less: Sales Return   Cash Receipt Discount   Erroneous debit to accounts receivable Net sales

8,950,000 250,000 500,000 50,000

800,000 8,150,000

 

3. Under accrual, what is the amount of gross purchases? Accounts payable – 2020 Purchase returns Payment to trade creditors Purchase discounts Total Accounts payable – 2019 Gross Purchases

1,850,000 400,000 5,000,000 100,000 7,350,000 (1,500,000) 5,850,000

4. Under accrual, what is the amount of net purchases? Gross Purchases Purchase Returns Net Purchase

5,850,000 (400,000) 5,450,000

 

Case 2.  R

Company paid P72,000 to renew an insurance policy for three years on March 1, 2020. On March 31, 2020, the unadjusted trial balance showed P3,000 for prepaid insurance and P72,000 for insurance expense.

1. What amount should be reported for prepaid insurance on March 31, 2020? 2020? 12 months * 3 years = 36

Prepaid insurance – March 31, 2020

72,000 x 35/36 70,000

2. What amount should be reported for insurance expense for the three months ended   March 31, 2020? Insurance expense per book Prepaid insurance before adjustment Total Less: Prepaid Insurance - March 31, 2020 Insurance expense

72,000 3,000 75,000 70,000 5,000

 

P Compan Company y report reported ed that that the profess profession ional al fees expens expenses es accoun accountt had a  balance of P820,000 on December 31, 20202, before considering the year-end adjustments relating to the following: Consultants were hired for a special project at a total fee not to exceed P650,000. Thee en Th enti tity ty ha hass re reco cord rded ed P550 P550,0 ,000 00 of th this is fee ba based sed on bi bill llin ings gs fo forr work  work   performed in 2020. The attorney’s letter requested by the auditors dated January 31, 2021 indicated that the legal fees of P60,000 were billed on January 15, 2021 for work performed in  November 2020, and unbilled unbilled fees for December 20202 were P70,000 P70,000.. Case 3. 3.

What amount should be reported for professional fees expenses for the year ended   December 31, 2020? Balance per book Accrued Legal Fees   Month of November   Month of December Professional Fees Expense

820,000 60,000 70,000

130,000 950,000