CASH AND ACCRUAL BASIS

TOPIC OVERVIEW:
This chapter discusses cash basis and accrual basis of accounting as the use of T-accounts to
solve problems.

LEARNING OBJECTIVES:
After studying this chapter, you should be able to:
1.
1. Describe cash basis and accrual basis of accounting.
2. Compare and contrast cash and accrual basis of accounting.
3.
3. Apply cash basis in accounting for business transactions.
4.
4. Apply accrual basis in accounting for business transactions.
5.
5. Use and apply the T-accounts approach in solving problems.
6.
6. Translate accrual income to cash basis income and vice versa.

Cash Basis Accounting

It is an accounting system that recognizes revenue when earned rather to when cash is received
and recognizes expenses as it is incurred rather to when cash is paid.

Accrual Basis Accounting

It is an accounting system that recognizes revenue when earned rather than when
cash is received and recognizes expenses as it is incurred rather than when cash is
paid.

Comparison of Cash Basis and Accrual Basis Accounting

Items of
Comparison Cash Basis Accrual basis
Sales Includes: Includes:
 Cash sales  Cash sales
 Collection of trade  Credit sales (sale on
accounts receivable account)
 Collection of trade notes
receivable
Income other than Includes only those collected Includes those items earned during
sales during the period the period
 Items of
Comparison Cash Basis Accrual basis
Purchases Includes the following: Includes:
 Cash purchase  Cash purchases
 Payment of trade accounts  Purchase on account
payable
 Payment of trade notes
payable

Payment in advance to suppliers

Expenses in Includes only those expenses that are paid Includes those items that
general are incurred regardless of
when paid
Depreciation Depreciation is typically provided except Depreciation is typically
when the cost of equipment was treated as provided
expense
Bad debts No bad debts expense is recognized since Doubtful accounts treated
cash basis does not recognize receivables. as bad debts
Although some problem may give an
indication that the accounts written off were
charged to bad debt expense

T-ACCOUNTS APPROACH
In order to compute for cash payments or collections for certain account, it is suggested that the
T-account approach will be used on the following:
1. Accounts receivable/ notes receivables/ advances from customers;
2. Allowance for doubtful accounts;
3. Accounts payable/ notes payable/ advances to supplier;
4. Merchandise inventory
5. Property, plant and equipment;
6. Accumulated depreciation;
7. Rent receivable/ Unearned rent income;
8. Prepaid rent/ Rent payable;
9. Capital
10. Retained earnings;
11. Net Assets.

Guidelines in using T-account approach

When using T-account, the procedures are:
1. Plot the given data in the T-account.
2. To facilitate computation, the beginning balance is placed in the normal balance of an
account and the ending balance will be at the other side of its normal balance (e.g. the
normal balance of the accounts receivable is debit so the beginning balance will be
placed at the debit side while the ending balance will be placed at the credit side.)
 3. Compute the total debit and the total credit.
4. The difference between the total debit and the total credit is squeezed figure.

For example, let's use T-account of accounts receivable, notes receivable, advances from supplier
below.

When computing for sales on account, plot the given data on the T-accounts, get the sum of the
credits (this is the total of the balance end of the accounts and notes receivable, beginning
balance of the advances from customer, sales returns and allowance, sales discounts and
collection and accounts written off) then deduct the sum of the debits (this includes the
beginning balances of the accounts and notes receivable, balance end of the advanced from
customers and recoveries). The difference is the squeezed figure in the debit side which is the
sales on account.

The same procedures are to be applied when computing for the collections from customers. Get
the sum of the debits (this includes the beginning balances of the accounts and notes receivable,
balance end of the advanced from customers and recoveries and sales on account) and deduct the
sum of the credits (this is the total of the balance end of the accounts and notes receivable
beginning balance of the advances from customer sales return and allowance, sales discount and
accounts written off). The difference is the squeezed figure in the credit side which is the total
amount collections from customers.

T-ACCOUNT: ACCOUNTS RECEIVABLE, NOTES RECEIVABLE AND ADVANCES

FROM SUPPLIER
Account receivable/Notes receivable trade/Advances from customer
Beg. Balance - AR XX XX Balance end – AR
Beg. Balance - NR XX XX Balance end – NR
Beg. Balance - advances XX XX Beg. Balance - Advances
Sales on account XX XX Sales returns and allowances*
Recoveries XX XX Sales discounts
XX Collections including recoveries
XX Write off
Total =

*Included only those sales returns and allowances that are deducted from the accounts
receivable. If the sales returns and allowances arise from cash refund to customer, it should not
be included in the t-account of the receivables.
When there are no notes receivable and advances from customers, the T-account of the Account
receivable is:

T-ACCOUNT; ACCOUNT RECEIVABLE

Accounts receivable
Beg. Balance - AR XX XX Balance end – AR
Sales on account XX XX Sales returns and allowances*
 Accounts receivable
Recoveries XX XX Sales discounts
XX Collections including recoveries
XX Write-off
Total =

T-ACCOUNT: ALLOWANCE FOR DOUBTFUL ACCOUNTS

Allowance for doubtful accounts
Accounts written-off XX XX Beginning balance
Balance end XX XX Doubtful accounts expense
XX Recoveries
Total =

The format of the T-accounts was derived from the following journal entries:
To record sales on account Dr. Cr.
Accounts receivable XX
Sales XX

To record receipt of note from sales on account

Notes receivable XX
Sales XX

To record sales return from a customer

Sales returns and allowance XX
Accounts receivable XX

To record collection within the discount period

Cash XX
Sales discount XX
Accounts receivable XX

To record accounts written off

Allowance for doubtful accounts XX
Accounts receivable XX

To record re-establishment of accounts previously written off

Accounts receivable XX
Allowance for doubtful accounts XX

To record collection of accounts previously written off

Cash XX
Accounts receivable XX

To record advances received from customer

 Cash XX
Advances from customer XX

To record delivery of goods to customer with advances

Advances from customer XX
Sales XX

To record the provision for bad debts during the year

Bad debts XX
Allowance for bad debts XX

Observe that in the journal entries, for example sales on account the accounts
receivable is debited, so in the T-account of the accounts receivable, the same amount is
also debited.

Illustration: Computation of collections

The following data were reported by hydrogen Company during the current year.
Accounts receivable- January 1 100,000
Accounts receivable- December 31 150,000
Notes receivable- January 1 210,000
Notes receivable- December 31 120,000
Advances from customer- January 1 40,000
Advances from customer- December 31 55,000
Sales returns and allowance 3,000
Sales discount 1,000
Uncollectible accounts written off during the current year
4,000
Recoveries of accounts previously written off
Sales- accrual basis 500,000

Required: determine the gross sales under cash basis of accounting

Solution:
Accounts receivable/Notes receivable trade/Advances from customer

Beg balance – AR 100,000 150,000 Balance end - AR

Beg balance – NR 210,000 120,000 Balance end - NR
Balance end – Advances 55,000 40,000 Beg. Balance - advances
Sales on account 500,000 3,000 Sales ret. And allowance
Recoveries - 1,000 Sales discount
Collections including
547,000 recoveries
4,000 written-off
Beg balance – AR 100,000 150,000 Balance end - AR
Total 865,000 865,000

Illustration: Computation of bad debts

The following data were reported by Helium Company during the current year.
Allowance for doubtful accounts-January 1 20,000
Allowance for doubtful accounts-December 31 30,000
Uncollectible accounts written off during the current year 5,000
Recoveries of accounts previously written off 1,000
Required: Compute for the total bad debts expense during the current year?

SOLUTION:
Allowance for bad debts
Ending balance 30,000 20,000 Beginning balance
Written off 5,000 14,000 Bad debts expense
1,000 Recoveries
Total 35,000 35,000

T-ACCOUNT: ACCOUNTS PAYABLE, NOTES PAYABLE TRADE AND ADVANCES

TO SUPPLIER
Accounts Payable/Notes Payable Trade/Advances to supplier
Payments XX XX Beg. Balance - AP
Purchase returns and allow. XX XX Beg. Balance - NP
Purchase discount XX XX Balance end - Advances
Beg. Balance – advances XX XX Purchases
Balance end – AP XX
Balance end – NP XX
Total =

When there are no notes payable and advances to suppliers, the T-account of the accounts
payable is:

T-ACCOUNT: ACCOUNTS PAYABLE TRADE

Accounts Payable Trade
Payments XX XX Beg. Balance - AP
Purchase return and allow. XX XX Purchases (gross)
Purchase discount XX
Balance end – AP XX

Total =
The T-accounts were derived from the following journal entries.
To record purchase on account
Purchases XX
Accounts payable XX

To record issuance of note for purchase on account

Purchases XX
Notes payable XX

To record return of merchandise to supplier

Accounts payable XX
Purchase returns and allowances XX

To record payment within the discount period

Accounts payable XX
Purchase discount XX
Cash XX

To record advances to suppliers

Advances to suppliers XX
Cash XX

To record receipt of goods from suppliers arising from advances

Purchases XX
Advances to suppliers XX

T-ACCOUNT: MERCHANDISE INVENTORY

Merchandise Inventory
Beg. Balance XX XX Balance end
Net purchase XX XX Cost of Sales
Total =

Notes:
In using this T-account, aside from the journal entries, it follows the following formula in
the computation of the cost of sales:
Merchandise inventory, beginning XX
Add: Net Purchase XX
Total goods available for sales XX
Less: Merchandise inventory, end XX
Cost of Sales XX
Net purchase is computed as follows:
Gross purchase XX
Add: Freight-in XX
Less: Purchase discount XX
 Purchase allowance XX
Purchase returns XX
Net Purchase XX

The T-account presented is applicable to finished goods inventory of merchandising

company. Kindly refer to Inventories, for discussion of T-accounts of the Work-in-
process and Raw Materials.

Illustration: Computation of Purchases

The following data were reported by Lithium Company during the current year.
Accounts payable - January 1 100,000
Accounts payable - December 31 150,000
Notes payable - January 1 210,000
Notes payable -December 31 120,000
Advances to suppliers - January 1 40,000
Advances to suppliers - December 31 55,000
Purchase returns and allowance 3,000
Purchase discount 1,000
Payment 500,000
Required: Determine the gross purchases under the accrual basis of accounting.

Solution:
Accounts Payable / Notes Payable / Advances to Suppliers
Payments 500,000 100,000 Beg. Balance - AP
Purchase ret. and allow 3,000 210,000 beg. Balance - NP
Purchase discount 1,000 55,000 Balance end - Advances
Beg. Balance – Advances 40,000 449,000 Purchase (gross)
Balance end – AP 150,000
Balance – NP 120,000
Total 814,000 814,000

Illustration: Computation of Cost of Sales

The following data were reported by Beryllium Company during the current year.
Accounts payable - January 1 100,000
Accounts payable - December 31 150,000
Merchandise inventory - January 1 210,000
Merchandise inventory - December 31 120,000
Purchase returns and allowance 3,000
Purchase discounts 1,000
Payment 500,000
Cash purchases 20,000
Accounts payable - January 1 100,000

Required: How much is the total cost of sales

under the accrual basis of accounting?

SOLUTION:
Accounts payable (AP) / Notes Payable NP
Payments 500,000 100,000 Beg. Balance - AP
Purchases ret. And allow. 3,000 - Beg. Balance NP
Purchase discount 1,000 554,000 Purchases (gross)
Balance end – AP 150,000
Balance – NP -
Total 780,000 654,000

Merchandise Inventory
Beg, balance 210,000 120,000 Ending balance
Net purchase 570,000 660,000 Cost of sales
Total 780,000 780,000

Computation of the net purchases:

Gross purchase on account 554,000
Add cash purchases 20,000
Total 574,000
Less: Purchase returns and allowances 3,000
Purchase discounts 1,000
Net purchases 570,000

T-ACCOUNT: PROPERTY PLANT AND EQUIPMENT

Property, Plant and Equipment
Beginning balance XX XX Cost of asset depreciated
Cost of asset acquired XX XX Balance end
Total =

T-ACCOUNT: ACCUMULATED DEPRECIATION

Accumulated Depreciation
Accum. Depreciation of asset XX Beginning balance
Derecognized XX
Balance end XX XX Depreciation expense
Total

The T-account were derived from the following journal entries:

To record cash acquisition of PPE
 PPE XX
Cash XX

To record derecognition (e.g. sale, donation, retirement) of PPE

Cash XX
Accumulated depreciation XX
Loss on sale XX
or Gain on sale XX
PPE XX

Illustration: Computation of Cost of Machine Acquired and sold

Boron Co. provided you the following information in relation to its property, plant and
equipment account:
1/1/2026 12/21/2026
Machine P135,000 P150,000
Accumulated depreciation 50,000 45,000

Additional information:
a. Depreciation is 10% per annum. As a company policy, newly acquired assets are
depreciated for a whole year at the year of the purchase and no depreciation is provided
for assets disposed at the year of disposal.
b. At the start of the year, a fully depreciated machine without scrap value was sold for
P5,000, at the same date, a new machine was acquired.

Required: Based on above data, answer the following:

1. How much is the cost of the machine acquired?
2. How much is the historical cost of the machine sold?

SOLUTION:
Machinery
Beginning balance 135,000 Cost of asset
Cost of asset acquired 35,000 20,000 Derecognized
150,000 Balance end
Total 170,000 170,000

Accumulated depreciation
Accumulated 50,000 Beginning balance
depreciation of asset 15,000 Depreciation expense
Derecognized 20,000 (150,000 x 10%)
Balance end 45,000
65,000 65,000
 T-ACCOUNT: RENT RECEIVABLE / UNEARNED RENT INCOME
Rent receivable/Unearned rent income
Beg. Balance - Rent receivable XX XX Balance end - Rent receivable
Balance end - Unearned rent XX XX Beg. Balance - Unearned rent
Income XX XX Collection
Total =

This T-account is also applicable to interest receivable / unearned interest income, royalty
receivable/unearned royalty income and other deferred assets.
The T-accounts were derived from the following journal entries:

To record collection of rent

Cash XX
Unearned rent income/Rent receivable XX

To record adjusting entry of the rent income

Unearned rent income XX
Rent income XX

To record accrual of rent receivable

Rent receivable XX
Rent income XX

Illustration: Computation of Rent Income

The following data were reported by Carbon Company during the current year:
Rent receivable-January 1 100,000
Rent receivable-December 31 150,000
Unearned rent income-January 1 60,000
Unearned rent income-December 31 50,000
Collection of rent 500,000

Required: How much is the total rent income under the accrual basis accounting?

SOLUTION:
Rent receivable (RR) / Unearned Rent Income (URI)
Beginning balance - RR 100,000 150,000 Balance end - RR
Balance end - URI 50,000 60,000 Beg. Balance - URI
Rent Income 560,000 500,000 Collections
Total 710,000 710,000

T-ACCOUNT: PREPAID RENT / RENT PAYABLE

 Prepaid Rent / Rent payable
Beg. Balance - Prepaid asset XX XX Balance end - Prepaid asset
Balance end - Accrued liab. XX XX Beg. Balance - Accrued liab.
Payments XX XX Expense
Total =

Notes: This T-account is also applicable to prepaid salaries / salaries payable.

The T-accounts were derived from the following journal entries:

To record payment of rent in advance

Prepaid rent/Rent payable XX
Cash XX

To record adjusting entry for the expired portion of rent

Rent expense XX
Prepaid rent XX

To record accrual of rent expense

Rent expense XX
Rent payable XX

Illustration: Computation of Rent Expense

The following data were reported by Nitrogen Company during the current year:
Prepaid Rent-January 1 100,000
Prepaid Rent-December 31 150,000
Rent payable-January 1 60,000
Rent payable-December 31 50,000
Payment of rent 500,000

Required: How much is the total rent expense under the accrual basis of accounting?
SOLUTION:
Prepaid Rent (PR) / Rent Payable (RP)
Beginning balance - PR 100,000 150,000 Balance end - PR
Balance end - RP 50,000 60,000 Beg, balance - RP
Payment of rent 500,000 440,000 Rent expense
Total 650,000 650,000

T-ACCOUNT: CAPITAL
Capital
Withdrawal XX XX Beginning balance
Balance end XX XX Additional Investment
Net loss XX XX Net income
Total =
Note: when the owner withdrawn merchandise inventories or other non-cash assets, the drawings
account should be debited to an amount equal to the cost, not the selling price or fair value of the
merchandise or non-cash asset withdrawn.
The T-accounts were derived from the following journal entries:

To record investment made by the owner

Cash XX
Capital XX

To record withdrawal by the owner

Drawings XX
Cash or any other appropriate account XX

To close the drawing account to capital

Capital XX
Drawings XX

To close the net income to capital account

Income summary XX
Capital XX

To close the net loss to capital account

Capital XX
Income summary XX

T-ACCOUNT: RETAINED EARNINGS

Retained earnings
Balance end XX XX Beginning balance
Prior period error XX XX Prior period error
Dividends declare XX XX Net income
Net loss XX
Total =

The T-accounts were derived from the following journals entries:

To record declaration of dividends
Retained earnings XX
Dividends payable (cash, stocks, property, etc.) XX

To close net income to retained earnings

Income summary XX
Retained earnings XX

To close net loss to retained earnings

Retained earnings XX
 Income summary XX

Illustration: Computation of Net Income or Loss

The following data were reported by Oxygen Company during the current year:
Capital-January 1 100,000
Capital-December 31 400,000
Cost of merchandising withdrawn by Oxygen 60,000
Sales value of merchandise withdrawn by Oxygen 80,000
Principal amount of Notes payable paid by Oxygen with her
personal checking amount 200,000
No. of months on the notes payable also paid by Oxygen 6
Interest rate of notes payable paid by Oxygen 12%

Required: How much is Net income (or loss) during the year?

SOLUTION:
Capital
Balance end 400,000 100,000 beginning balance
Withdrawal at cost 60,000 212,000 Additional investment
Net loss - 148,000 Net income
Total 460,000 460,000

T-ACCOUNTS: NET ASSETS

Statement of Financial Position / Net assets
Increase in asset XX XX Decrease in asset
Decrease in liabilities XX XX Increase in liabilities
Dividends declared XX XX Increase in share capital
Net loss XX XX Increase in share capital premium
XX Net income
Total =

Note:
The T-accounts follow the basic rule in making journal entry an account is increased through its
normal balance while it is decreased in the other side of the normal balance, for example
increase in asset is debited which is the normal balance of an asset while decrease is
credited which is at other side of the normal balance.

Illustration: Computation of Net Income or Loss

Changes in the account of Flourine Company for the current year are as follows:

Jan. 1 Dec. 1
Total Asset 2,000,000 3,000,000
Total liabilities 800,000 1,100,000
 Jan. 1 Dec. 1
Share capital Share premium 1,500,000
Retained earnings 450,000
? ?
During the current year, the company issued 80,000, P10 par share capital for P15 per share.
Dividends paid on December 31 of the current year amounted to P750,000.
Required: How much is the net income (or loss) during the year?
SOLUTION:
Net Asset / SFP
Increase in asset(3M-2M) 1,000,000 Decrease in asset
-
Decrease in Liabilities Increase in liabilities (1.1M-800,000)
- 300,000
Dividends declared 750,000 Increase in share capital (80,000 x 10)
800,000
Net loss Increase in share premium (80,000 x
- 400,000 5)
250,000 Net Income
1,750,000 1,750,000

Illustration: Computation of Net Income or Loss

Changes in the accounts of Neon Co. for 2026 are as follows:
Increase
(Decrease)
Cash 500,000
Accounts receivable (4,600,000)
Allowance for bad debts (460,000)
Merchandise inventory 4,800,000
Investment in associate 3,000,000
Property, plant and 2,400,000
equipment
Accumulated depreciation 800,000
Notes payable 2,000,000
Bonds payable (2,800,00)
Discount on bonds payable (600,000)
Ordinary share capital 3,900,000
Share premium 200,000
Revaluation surplus 2,600,000
Treasury shares 320,000

Additional information:
 On December 31, 2026, Neon Co. declared cash dividends amounting to P500,000 and
share dividends amounting to P800,000. Also during the year, the company appropriated
retained earnings for the retirement of bonds amounting to P100,000
 REVIEW QUESTIONS

 During the year, Neon obtained a band loan of P2,000,000 and paid off loan amortization
of P1,600,000 and interest of P100,000. Interest of P180,000 is accrued on December 31,
2026. There was no interest payable at the end of 2025. In 2026, Neon Company acquired
treasury shares from its existing shareholders.

Required: Compute for the net loss during the year.

SOLUTION:
Net Asset / SFP
Inrease in asset (Cash to PPE) 5,670,000 Decrease in asset
-
Decrease in liabilities Increase in NP. Net value of BP
- 400,000 (2.6M+600,000)
Dividends declared-cash 500,000 3,900,000 Increase in share capital
Treasury shares 320,000 200,000 Increase in share premium
Net loss 1,100,000 2,600,000 Increase in reval'n surplus
Increase in loans payable (2M-
400,000 1.6M)
180,000 Increase in int. payable
Total 7,680,000 7,680,000

PROBLEM NO. 1
The following balances have been excerpted from Chlorine’s Statement of Financial Position for
the year 2026:

Accounts receivable, decrease ₱100,000

Merchandise inventory, decrease 25,000
Accounts payable, decrease 200,000
Notes receivable-trade, increase 100,000
Rental receivables, increase 14,000
Unearned rental income, decrease 40,000
Prepaid interest, decrease 5,500
Interest payable, increase 8,500

Additional data:
Accounts receivable written off 10,000
Cash received from customers 4,200,000
Cash paid to creditors 2,800,000
Sales discounts 30,000
Sales returns and allowances 20,000
Purchase discounts 40,000
Purchase returns 10,000
Cash received from tenants 400,000
Interest paid 100,000

Questions:
Based on the above data, answer the following questions;
1. What is the amount of gross sales?
a. ₱ 4,110,000 c. ₱ 4,210,000
b. ₱ 4,160,000 d. ₱ 4,260,000

2. What is the amount of gross purchases?

a. ₱ 3,000,000 c. ₱ 2,600,000
b. ₱ 3,050,000 d. ₱ 2,650,000

3. What is the amount of the cost of sales for the year?

a. ₱ 2,625,000 c. ₱ 2,675,000
b. ₱ 2,575,000 d. ₱ 2,725,000

4. What amount of rental revenue should the company report for the year?
a. ₱ 454,000 c. ₱ 374,000
b. ₱ 426,000 d. ₱ 346,000

5. How much interest expense should the company report for the year?
a. ₱ 86,000 c. ₱ 103,000
b. ₱ 97,000 d. ₱ 114,000

PROBLEM NO. 2
The following balances have been excerpted from Argon’s financial statements for the year
2026:
January 1 December 31
Accounts receivable 200,000 250,000
Notes receivable 300,000 100,000
Cash received from customers 1,120,000
Sales returns and allowances 20,000
Sales discounts 10,000
Merchandise inventory 200,000 100,000
Accounts payable 50,000 25,000
Notes payable 100,000 75,000
Purchase returns and allowances 40,000
Purchase discounts 10,000
Payments to suppliers 650,000
Accrued rent receivable 70,000 40,000
Unearned rent income 80,000 40,000
Collection of rent 480,000
Prepaid salaries 100,000 125,000
Accrued salaries payable 75,000 50,000
Payment of salaries 350,000

Questions: Determine the following:

1. The Gross Sales for the year 2026.
a. 1,000,000 c. 970,000
b. 1,030,000 d. 1,240,000
2. The net purchases for the year 2026.
a. 650,000 c. 550,000
b. 600,000 d. 500,000
3. The Gross Income for the year 2026.
a. 300,000 c. 270,000
b. 350,000 d. 320,000
4. The salaries expense for the year 2026.
a. 400,000 c. 350,000
b. 300,000 d. 450,000
5. The rent income for the year 2026.
a. 470,000 c. 460,000
b. 490,000 d. 500,000

PROBLEM NO. 3: COMPREHENSIVE

You are engaged in the audit of the financial statements of JULIE ANN Corporation for the year
ended December 31, 2026. The following information was prepared by the bookkeeper.
Cash receipts:
Collection on accounts receivable ₱ 1,513,000
Less: Cash discounts taken 13,000 ₱ 1,500,000
Cash sales of merchandise 160,
000
Sale of warehouse equipment 12,
000
Insurance proceeds from boiler explosion 42,
000
Sale of land on November 3 20,
000

Cash disbursements:
Cash receipts:
Payments to trade creditors ₱
1,206,000
General and administrative expenses 204,
000
Cash purchases of merchandise 120,000
Repairs made on warranty contracts 6,
400
Purchase of land on May 1 16,
000
Purchase on November 10 of 100 shares of Tommy Co. stock 24,
000

Supplementary information:
1. The following account balances were taken from the general ledger:
December 31,2025 December 31,2026
Accounts receivable ₱ 124,000 ₱ 146,000
Inventory 186,00 190,00
0 0
Prepaid gen. and admin. Expenses 9,6 8,4
00 00
Accrued gen. and admin. Expenses 7,0 9,0
00 00
Accounts payable 382,00 410,00
0 0

2. Depreciation for 2026 was ₱84,000

3. The warehouse equipment sold during 2026 was acquired in 2019 at a cost of ₱25,000.
The double-declining method of depreciation was used and accumulated charges were ₱
16,000 at date of sale. If the straight-line method had been used, the accumulated
depreciation at date of sale would have been ₱10,000.
4. An explosion occurred on January 15, 2026 in which a boiler, not the structural
component of a building, was completely destroyed. It was purchased in January 2018 at
a cost of ₱ 48,000, depreciation was recorded by the straight-line method and ₱ 20,000
had accumulated at the date of explosion.
5. Land was purchased on May 1, 2026 and was used as a storage facility. It was found to
be unsuitable for this purpose and was sold on November 3, 2026.

Questions:
Based on the above information, compute the adjusted balances of the following accounts as of
December 31, 2026:
1. Gross sales
 a. ₱ 1,535,000 c. ₱ 1,522,000
b. ₱ 1,695,000 d. ₱ 1,362,000
2. Net Sales
a. ₱ 1,522,000 c. ₱ 1,682,000
b. ₱ 1,509,000 d. ₱ 1,349,000
3. Total purchases
a. ₱ 1,234,000 c. ₱ 1,298,000
b. ₱ 1,178,000 d. ₱ 1,354,000
4. Cost of Sales
a. ₱ 1,350,000 c. ₱ 1,174,000
b. ₱ 1,230,000 d. ₱ 1,358,000
5. General and administrative expenses
a. ₱ 204,000 c. ₱ 211,200
b. ₱ 207,200 d. ₱ 204,800
6. Total operating expenses
a. ₱ 297,600 c. ₱ 294,400
b. ₱ 291,200 d. ₱ 295,200
7. Gain or loss on sale of land
a. ₱ 4,000 gain c. ₱ 16,000 loss
b. ₱ 4,000 loss d. Nil
8. Gain or loss on sale of warehouse equipment
a. ₱ 5,000 loss c. ₱ 3,000 gain
b. ₱ 13,000 loss d. ₱12,000 gain
9. Gain or loss as a result of January 15, explosion
a. ₱ 6,000 loss c. ₱ 28,000 loss
b. ₱ 14,000 gain d. ₱42,000 gain
10. Net income
a. ₱ 55,400 c. ₱ 35,400
b. ₱ 61,800 d. ₱ 47,400