Fundamentals of Accountancy, Business and Management

The Accounting Equation and the Double Entry System

EXERCISES AND PROBLEMS

I. Give the effect on the accounting equation by putting a (+) sign to indicate an increase and a (-) sign to indicate a
decrease on the transactions enumerated below:

Assets Liabilities Capital

1. Invested P200,000 cash into the business. _____ _____ _____
2. Purchased office supplies and equipment in cash. _____ _____ _____
3. Paid rent of office space _____ _____ _____
4. Paid municipal license tax and mayor’s permit fee. _____ _____ _____
5. Rendered services to clients on account. _____ _____ _____
6. Borrowed money from the bank _____ _____ _____
7. Received cash from customers on account. _____ _____ _____
8. Purchased additional equipment on account. _____ _____ _____
9. Withdrew cash for personal use. _____ _____ _____
10. Paid salaries. _____ _____ _____
11. Collected cash from customers. _____ _____ _____
12. Paid monthly installment on loan from the bank. _____ _____ _____

II. Supply the missing figures.

Assets Liabilities Equity
1. 98,000 __________ 80,000
2. __________ 48,000 150,000
3. 102,670 35,700 __________
4. 266,000 68,900 __________
5. _________ 94,200 176,000

III. Based on the given formulas, fill the blanks in the table given below:

a. A = L + C
b. Revenue less Operating expenses = Net income
c. Capital beginning + Net Income = Capital ending balance

Asset Liabilities Capital Capital Revenue Operating Net income

End Beginning Expenses (Net loss)

1. 175,000 25,000 __________ 115,000 280,000 245,000 __________

2. __________ 115,200 296,450 235,950 __________ 88,000 60,500
3. 96,000 __________ 50,000 85,000 145,000 180,000 __________
4. 250,500 105,500 145,000 __________ 450,200 __________ (50,000)
5. __________ 98,180 257,120 136,520 508,600 388,000 __________
6. __________ 108,400 268,000 206,000 350,000 __________ __________
7. 342,200 82,000 260,200 140,000 __________ 194,200 __________
8. 252,400 42,200 210,200 __________ 350,800 412,000 __________
9. 505,000 __________ 420,000 __________ 750,000 685,000 __________
10. __________ 128,000 332,000 258,000 __________ 167,000 74,000

IV. From the items listed below, prepare a statement of financial position for JVC Trucking Services, owned and
managed by Jose Castillo.

Office furniture and fixtures 180,000

Cash 56,500
Delivery equipment 145,200
Unpaid personal expenses 2,000
Personal savings account of Jose Castillo 15,000
Residential house and lot 1,000,000
Accounts receivable from trade 112,200
Unpaid office payroll at the end of the month 17,000
Accounts payable 150,000
Promissory note payable to the bank, issued
by JVC Trucking Services 100,000

V. Jane Santos invested assets in the amount of P150,000 and has liabilities of P30,000 in a beauty parlor.

1. How much is her capital?

 2. What is the effect on the accounting equation if she paid P10,000 of her liabilities?

3. What will be her equity if after one month of operations, assets are increased by P28,000 and liabilities are
decreased by P5,000?

4. If she incurs and pays expenses of P5,000, what is the effect on capital?

5. Suppose the owner decided to put in additional investment of P20,000 give the change in the accounting
equation.

VI. The transactions below were taken from Czarina Cruz Auto Repair Shop for the month of May:

1. Czarina Cruz invested cash of P100,000 into her business.

2. Paid monthly rent for the shop, P5,000.

3. Bought repair equipment, P30,000 on account from Atlanta Inc.

4. Purchased tools and supplies for the shop, P12,5000 in cash.

5. Rendered services to various customers and received cash of P6,000.

6. Invested a welding equipment into the business in the amount of P16,000.

7. Charged Ruth Go, a customer, the amount of P28,000 for repainting of her car.

8. Czarina Cruz withdrew P5,000 for personal expenses.

9. Paid partial installment of P1,500 to Atlanta, Inc.

10. Collected P3,000 from Ruth Go, to apply on account.

11. Obtained a P50,000 loan from a bank.

12. Paid salaries expense of P6,500 for the month.

Required: Give the effect on the accounting equation of each of the transactions above by choosing the best
statement below:
A. Increase in asset; increase in liability
B. Increase in asset; increase in capital
C. Increase in asset; decrease in another asset
D. Decrease in asset; decrease in liability
E. Decrease in asset; decrease in capital

VII. On May 30, 2022, the records of Julio Body Building and Gym showed the following data:

Gym equipment 94,600 Notes payable 50,000

Furniture and fixtures 42,000 Supplies 4,600
Accounts payable 35,000 Accounts receivable 27,300
Cash 18,400 Sauna equipment 28,000
Tax payable 1,400 Julio, Capital 128,500

Required: Prepare a statement of financial position as of May 30, 2022.

VIII. On December 1, 2022, Lou has the following accounts in her hair salon business:

Cash P38,000
Land 250,000
Building 750,000
Furniture and fixtures 28,500
Supplies 8,600
Equipment 46,200
Accounts payable 150,000
Mortgage payable 600,000
 a. How much was the net worth of the business on December 1?
b. Prepare a statement of financial position as of December 1.
c. If equity is P410,000 on December 31, how much was the profit during the month?

IX. Matching type. Indicate the letter of the statement that best describes the given terms below:

___________1. Bookkeeping
___________2. Transactions
___________3. Statement of comprehensive income
___________4. Asset
___________5. Accounting equation
___________6. Capital / Equity
___________7. Accounts receivable
___________8. Drawing
___________9. Income
___________10. Accounts payable

A. Amount decreased from the capital of the business for personal use of the owner.
B. Anything of value owned by the company.
C. Claim of creditors or liabilities incurred by the business.
D. The systematic recording of business transactions that results in the preparation of statement of financial
position and the statement of income.
E. Exchange of goods or services for money.
F. Assets equals liabilities and capital.
G. Financial report presenting the income and expenses for a given period.
H. Claim against customers for goods sold or services rendered.
I. Rights or claims of owners in the business.
J. Revenue realized from sale of goods or services rendered which result in an increase in proprietorship.
K. Reduction from income which would result in a decrease in proprietorship.

X. EJR Steam Laundry is owned and operated by Elize Rodriguez. On June 30, 2022, the following account balances
are available from the records:

Cash 41,460
Accounts receivable 80,125
Laundry supplies 6,820
Office supplies 2,600
Office equipment 29,400
Laundry equipment 168,800
Delivery equipment 94,600
Accounts payable 69,200
Notes payable 50,000
Interest payable 6,000
Rodriguez, capital 298,605
Laundry revenue 88,640
Rent expense 5,000
Salaries and wages 26,520
Light and water expense 6,300
Repairs and maintenance 2,200
Gas and oil 8,620
Taxes and licenses 2,900
Advertising expense 5,600
Miscellaneous expenses 3,670

Required:
1. Prepare a statement of profit or loss for the month of June 2022.
2. Prepare a statement of financial position as of June 30, 2022.

XI. Bella Jose opened a law office in Catarman and completed the following transactions for the month of January:

1. Invested cash into the business.

2. Paid taxes and rent for the month.
3. Acquired office furniture and fixtures on account.
4. Purchased office supplies paying cash.
5. Received cash from various clients for services rendered.
6. Paid salaries for the first half of the month.
7. Billed a client for services rendered.
8. Paid for repair of equipment.
 9. The owner invested additional fixtures into the business.
10. Received cash from a client in settlement of an account.
11. Sold an old furniture for cash.
12. The owner withdrew cash for personal use.
13. Obtained a loan from the bank.
14. Paid first monthly installment on the furniture acquired on credit.
15. Received cash as retainer’s fee from a client.

Required: Determine the accounting element affected in each of the above transactions and indicate the effect by
putting a (+) if it increased and (-) if it decreased:

Assets Liabilities Capital

1. _______________ _______________ _______________
2. _______________ _______________ _______________
3. _______________ _______________ _______________
4. _______________ _______________ _______________
5. _______________ _______________ _______________
6. _______________ _______________ _______________
7. _______________ _______________ _______________
8. _______________ _______________ _______________
9. _______________ _______________ _______________
10. _______________ _______________ _______________
11. _______________ _______________ _______________
12. _______________ _______________ _______________
13. _______________ _______________ _______________
14. _______________ _______________ _______________
15. _______________ _______________ _______________

XII. Rachel Bernabe opened a hair salon called RB Salon. The following are the transactions for the month:

1. Invested cash of P50,000 into the business.

2. Paid for rent for the month, P5,000.
3. Purchased furniture and fixtures worth P26,000 on account from Atlas Furniture.
4. Purchased beauty supplies P14,400 in cash.
5. Received cash P6,200 for services rendered.
6. Billed a customer, P9,000 for services for a wedding preparation.
7. The customer paid P4,500 to apply on account.
8. Paid P2,000 to Atlas Furniture to apply on account.
9. Rachel Bernabe invested additional cash of P10,000 into the business.
10. Purchased beauty equipment worth P18,000 in cash from Hortaleza, Inc.

Required: Enter the above transactions in the T-accounts given below:

CASH ACCOUNTS RECEIVABLE

BEAUTY SUPPLIES FURNITURE & FIXTURES

EQUIPMENT ACCOUNTS PAYABLE

 RACHEL BERNABE, CAPITAL SERVICE INCOME

RENT EXPENSE

XIII. Classify the following accounts according to the elements in the accounting equation (Column I) and indicate in
which financial statement the accounts are to be shown (Column II). Use the letter code as follows:

Column I Column II
A. Asset A. Statement of Financial Position
B. Liability B. Statement of Comprehensive Income
C. Equity / Capital
D. Income
E. Expense

Column I Column II
1. Furniture and fixtures ________ ________
2. Office supplies expense ________ ________
3. Interest payable ________ ________
4. J. Edwards, Drawing ________ ________
5. Cash ________ ________
6. Taxes & licenses ________ ________
7. Office supplies ________ ________
8. Delivery truck ________ ________
9. Gain on sale of equipment ________ ________
10. Interest income ________ ________
11. Building ________ ________
12. Notes payable ________ ________
13. Repairs & maintenance ________ ________
14. Rent paid in advance ________ ________
15. Notes receivable ________ ________

XIV. Classify the following accounts as to asset, liability, capital, income or expenses

_________1. Cash
_________2. Accounts payable
_________3. X, Capital
_________4. Accounts receivable
_________5. X, Drawing
_________6. Machinery
_________7. Advertising expense
_________8. Mortgage payable
_________9. Office equipment
_________10. Land
_________11. Rent income
_________12. Notes payable
_________13. Salaries & wages
_________14. Interest income
 _________15. Salaries payable
_________16. Notes receivable
_________17. Interest income
_________18. Store equipment
_________19. Building
_________20. Rent expense

XV. On November 1, 2021, Nancy Andal withdrew P250,000 from her personal savings account and deposited the cash
in the account of her newly opened company, Nancy Laundromat. During the first month, the following transactions
occurred:

Nov. 1 Paid monthly rent, P15,000.

2 Acquired laundry supplies on account, P45,000.
5 Acquired a service vehicle for P600,000 by issuing a note payable in that amount, which will be
payable in 12 equal installments.
6 Received P50,000 cash for laundry services for the nearby hospital.
9 Paid half of the laundry supplies bought on November 1.
13 Billed various customers for laundry services rendered, P24,500.
14 Paid light, water and telephone bills, P8,500.
15 Paid salaries, P18,000.
20 Received P18,000 from customers billed on November 13.
25 Ms. Andal withdrew P20,000 for personal use.
30 Paid the first installment on the note issued plus the corresponding P5,000 interest to date.
30 After a physical inventory, it was determined that only P8,000 of the laundry supplies are still unused.

Required:
1. Open the following T-accounts and record the transactions listed above:
Cash N. Andal, capital
Accounts receivable N. Andal, drawing
Laundry supplies Laundry revenue
Service vehicle Rent expense
Accounts payable Salaries expense
Notes payable Laundry supplies expense
Utilities expense

2. Prove the equality of your debit and credit entries by preparing a trial balance at the end of the month.

XVI. Maria Cristina opened the MC Computer Services, Co. The company provides computer usage and internet
services. The transactions for the first month are the following:

June 1 Invested cash of P1,000,000 and a small piece of land and an old building worth P1,000,000 into the
business. The land is valued at P800,000. The land & building is mortgaged with PNB for P200,000.
2 Acquired various computed equipment on account, P500,000.
3 Remodeled the old building, paying P100,000 in cash while the other half is payable in 15 days.
4 Purchased furniture and fixtures paying cash of P85,000.
5 Bought computer supplies for P67,000 cash.
6 Paid P12,500 for advertising.
10 Received cash from customers for services rendered, P23,000.
16 Sent bills to various clients for services rendered, P31,800.
17 Paid salaries, P24,000.
 18 Paid the liability on the remodeling of the building.
29 Paid various utilities expense, P22,600.
30 Maria Cristina withdrew cash for personal use, P10,000.

Required:
1. Open the following T-accounts and record the transactions listed above:
Cash Maria Cristina, capital
Accounts receivable Maria Cristina, drawing
Computer supplies Service income
Furniture and fixtures Salaries expense
Computer equipment Advertising expense
Land Utilities expense
Building
Accounts payable
Mortgage payable

2. Prove the equality of your debit and credit entries by preparing a trial balance at the end of the month.

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