Xfunac Midterms

XFUNAC: PAYROLL ACCOUNTING
AND 10-COLUMN WORKSHEET

Junior Philippine Institute of Accountants and Auditors-United
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OVERVIEW Witholding Tax Table (No need to memorize the table)

1. PAYROLL MONTHLY 1 2 3
2. PROMISSORY NOTES
3. ADJUSTING ENTRIES Compensation 20,833 and 20,833 to 33,333 to
4. WORKSHEET Level (CL) below 33,332 66,666
5. FINANCIAL STATEMENTS
6. CLOSING ENTRIES Prescribed 0.00 0.00 + 15% 1,875 + 20%
Minimum Over Over
Witholding Tax 20,833 33,333
PAYROLL
● Payroll - Compensation paid to employees and
workers. MONTHLY 4 5 6
● Payroll Sheet - A tabular form prepared by the
company to determine the take home pay of Compensation 66,667 to 166,667 to 666,667
workers, officers, and employees. Level (CL) 166,666 666,666 and above
● Salaries - Monthly or semi-monthly rate

Prescribed 8,541.8 + 33,541.8 + 183,541.8 +
● Wages - Daily, hourly or piece rate. Minimum 25% 30% 35%
Witholding Tax Over 66,667 Over Over
DEDUCTIONS FROM GROSS PAY 166,667 666,667
The gross pay is not the actual amount to be
received by an employee or worker because of the
● SSS - 14% of monthly salary credit with a
following payroll liabilities which are deducted from
minimum of P4,000 and not exceeding P30,000.
their pay as required by law:
Shared by employer 9.5% (0.095) and employee
4.5% (0.045)
● Income tax - The money that people and
businesses have to pay to the government
● PhilHealth - 5% of monthly salary with a floor of
based on how much they earn.
P10,000 and ceiling of P100,000. Equally shared
by employee and employer; 2.5% (0.025)
Taxable Income = Gross Pay - Deductions
Income Tax Table (No need to memorize the table) ● HDMF/Pag-IBIG - 1% for a monthly salary of
P1,500 or less. And 2% if more than P1,500 to
Annual Taxable Income Tax Rate P10,000. If the salary is more than 10k, it is always
P200 (10,000 x 0.02 = 200).
P250,000 and below 0%
● Union Dues - An employee or worker may be a
Over P250,000 but not 15% of the excess over
member of a labor union, and such is also
over P400,000 P250,000
required to make a contribution to the union.
Over P400,000 but not P22,500 + 20% of the
over P800,000 excess over P400,000
● Advances - In case of emergency or necessity,
employees or workers are sometimes allowed to
Over P800,000 but not P102,500 + 30% of the draw a cash advance against their
over P2 million excess over P800,000 compensation.
Over P2 million but not P402,500 + 30% of the

over P8 million excess over P2 million ILLUSTRATION
Over P8 million P2,202,500 + 35% of the Sample 1: The following are the employees of
excess over P8 million Shimenet Company and their August 2024 monthly
pay:
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Employee Position Monthly Cash

b) Monthly Taxable Income and Withholding Tax
salary Advances
Ernie
Ernie Incorporator P42,000 Gross Pay 42,000
Less: SSS 1,350
Bea Secretary P19,000
PH 1,050
Miley Accountant P27,000 HDMF 200 2,600

Net Taxable Income 39,400
Katie Manager P20,000 August 23
P500 Witholding Tax:
(39,400 - 33,333)20% + 1,875 3,088.40
a) Prepare Schedules to determine monthly

contributions. Bea
b) Compute for monthly taxable income and Gross Pay 19,000
withholding taxes. Less: SSS 855
c) Prepare a payroll sheet for August and make PH 475
an entry to record the payroll. HDMF 200 1,530
d) Determine the monthly employer’s
contributions and make an entry to record
liabilities.
Witholding Tax:
e) Entries to record the various payments made
0.00
on September 7 to the different agencies.
a.) Schedule Miley

Gross Pay 27,000
Emplo
yee
Monthly
salary
SS PH HD
MF
WITHOLDING
TAX
ADVAN
CES
TOTAL
DEDUCTION
NET PAY Less: SSS 1,215
PH 675
Ernie 42,000 1,350 1,050 200 -
HDMF 200 2,090
Bea 19,000 855 475 200 - Net Taxable Income 24,910
Miley 27,000 1,215 675 200 -

Witholding Tax:
Katie 20,000 900 500 200 500 (24,910 - 20,833)15% 611.55
Total 108,000 4,320 2,700 800 500
Katie
*How: Gross Pay 20,000
Less: SSS 900
Ernie: Miley: PH 500
SSS: 30,000 x 0.045 = 1,350 SSS: 27,000 x 0.045 = 1,215 HDMF 200 1,600
PH: 42,000 x 0.025 = 1,050 PH: 27,000 x 0.025 = 675
HDMF: 10,000 x 0.02 = 200 HDMF: 10,000 x 0.02 = 200
Bea: Katie: Witholding Tax:

SSS: 19,000 x 0.045 = 855 SSS: 20,000 x 0.045 = 900 0.00
PH: 19,000 x 0.025 = 475 PH: 20,000 x 0.025 = 500
HDMF: 10,000 x 0.02 = 200 HDMF: 10,000 x 0.02 = 200
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c) Payroll Sheet and Journal Entries

Journal Entries
Total deduction = SS + PH + HDMF + ADVANCES

Net Pay = MONTHLY SALARY - TOTAL DEDUCTIONS Date Account Titles DR. CR.
Emplo Monthly SS PH HD WITHOLDING ADVAN TOTAL

NET PAY
yee salary MF
TAX CES DEDUCTION Aug 31 SSS/MPF Premiums Expense 9,240
Ernie 42,000 1,350 1,050 200 3,088.40 - 5,688.40 36,311.60 PH Premiums Expense 2,700
Bea 19,000 855 475 200 0.00 - 1,530.00 17,470.00

HDMF Premiums Expense 800
Miley 27,000 1,215 675 200 611.55 - 2,701.55 24,298.45
SSS Payable 9,240

Katie 20,000 900 500 200 0.00 500 2,100.00 17,900.00
Total 108,000 4,320 2,700 800 3,699.95 500 12,019.95 95,980.05

PH Payable 2,700
HDMF Payable 800
Journal Entries
Employer’s Share 12,740 12,740
Date Account Titles DR. CR.
e) Remittances to Respective Agencies
Aug 23 Advances to Employees 500.00 Employer + Employee’s contributions (except for withholding tax)
Cash on Hand 500.00 Journal Entries
# Date Account Titles DR. CR.
Aug 31 Salaries Expense 108,000.00 Sept 7 Witholding Tax payable 3,699.95
Witholding Tax Payable 3,699.95 Cash in Bank 3,699.95
SSS Premiums Payable 4,320.00 Remittance to BIR
PH Premiums Payable 2,700.00 #
HDMF Premiums Payable 800.00 SSS Premiums Payable 13,560.00

(4,320 + 9,240)
Advances to Employees 500.00 Cash in Bank 13,560.00
Cash in Bank 95,440.05 Remittance to SSS
#
d) Monthly employer’s contributions and Journal Entries
Refer to SSS Contribution Table to see amounts (ER) PH Premiums Payable 5,400
(2,700 + 2,700)
Employee SSS WISP EC PH HDMF

Cash in Bank 5,400
Ernie 1,900 950 30 1,050 200
Remittance to PhilHealth
Bea 1,805 - 30 475 200
#
Miley 1,900 665 30 675 200
HDMF Premiums Payable 1,600
(800 + 800)
Kate 1,900 - 30 500 200
Cash in Bank 1,600
Total 7,505 1,615 120 2,700 800
Remittance to Pag-Ibig
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● Current or Checking Account - Opened with a ● Return Of Asset - If the asset is returned because
bank when a company’s intention is to make of defect or not the right specification.
payments using bank checks.
SALE OF PROPERTIES
● Imprest System - An internal control procedure
for cash transactions. All cash received are ● Obsolence - When a better model is invented or
deposited intact in a bank and all cash produced than what was originally acquired.
disbursements are made by checks, except for
petty cash. ● Inadequacy - When the asset can no longer
meet the demands of the business.
● Savings Account - Bank account where business
deposits all extra cash and uses it when need ● Gain - Selling price is higher than the book
arises. value.
INVESTMENT OF OWNER ● Loss - Selling price is lower than the book value.
● Market Value - The amount for which the asset PROMISSORY NOTES
could be sold or bought in its present condition.
● Promissory Notes - A written promise made by
● Exchange Price or Cost Concept - Acquired the maker or debtor promising to pay the
assets should be recorded at the actual price payee or creditor a sum of money due at a
established on acquisition date which is fixed time.
measured in cash or its equivalent amount.
● Non-Interest Bearing Note - The face value is the
● Investment In Property With An Attached Liability same as its maturity value. It means if the note is
- If the owner invests in a piece of property with for P500, the amount to be paid on the due
an attached liability to be assumed by the date is P500.
business.
Manila, Philippines
● Investment Of An Already Existing Business - If P500 March 02, 2024
the owner buys an already existing business.
The assets and liabilities must also be recorded For value received, I promise to pay Yvan Juancho, the
at the current market value of the old business. sum of five hundred pesos on or before April 07, 2024.
ABC Orfi Nada

DRAWINGS OF OWNER
● Original Cost or Book Value - (Cost Less ● Interest Bearing Note - The maturity value
Accumulated Depreciation) If the withdrawal of (amount to be paid on the due date) is higher
the owner is in the form of property, it should be than its face value or principal (amount stated
recorded on the original cost or at book value. in the promissory note) because of the interest
charge considering the time value of money.
ACQUISITION OF PROPERTIES
Manila, Philippines
● Rebate - A discount granted for paying an P500 March 02, 2024
account quickly.
For value received, I promise to pay Yvan Juancho, the
● Allowance - A reduction on the price given to sum of five hundred pesos sixty days from date with interest at
the buyer to cover up for defects or spoilage on 17% per annum.
the asset purchased without returning the asset.
ABC Orfi Nada
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1. March 02, 2024 is the issue date or the date the TYPES OF ADJUSTING ENTRIES
note was drawn and issued by the maker.
2. P500 is the face value or principal amount to be 1. Accrued income - income already earned but
paid. not yet collected.
3. 17% is the interest or nominal rate. 2. Unearned income - income that has been
4. Yvan Juancho is the payee to whom payment is collected, but not yet earned (i.e., advance
to be made. collection).
5. Orfi Nada who signs it is the maker or debtor 3. Accrued expense - expenses already incurred
who will pay on the due date May 01, 2024. but not yet paid.
4. Prepaid expense - expenses already paid but
Interest = Principal x Interest Rate x Time not yet incurred (i.e., advance payment).
= P500 x 0.17 x 60/360 5. Bad Debts/Doubtful Accounts - client accounts
= P14.17 that may not be collected anymore.
6. Depreciation expense - declining utility value of
Maturity Value = Principal + Interest asset cost that should be expensed.
= P500 + P14.17
= P514.17 ACCOUNTING CYCLE
Determining the Due Date DURING THE ACCOUNTING PERIOD

No. of days for March 31 1. Gather the documents
Less: issue date 02 2. Analyze and record
Remaining days for March 29 3. Post to the ledger
No. of days for April 30 4. Prepare a trial balance
No. of days needed in May 01
To make it a total of 60 END OF THE ACCOUNTING PERIOD
The due date is May 01 5. Prepare a worksheet for adjustments and
financial statements
ADJUSTING ENTRIES 😀 6. Journalize and post the adjusting entries

7. Prepare an adjusted trial balance
● Adjusting entries - entries prepared at the end 8. Prepare financial statements
of the accounting period to update some 9. Journalize and post the closing entries
accounts and ensure their accuracy before 10. Prepare a post-closing trial balance
preparing the financial statements. 11. Journalize and post the reversing entries
● Calendar Accounting Period - is a twelve-month
period ending on December 31. ACCRUAL PRINCIPLE
● Fiscal Accounting Period - is a twelve-month
period that ends on any month other than ● Accrual Principle - This is also known as the
December 31. Revenue Recognition Principle and the Expense
Recognition Principle.
CHARACTERISTICS OF ADJUSTMENTS ○ In the accrual basis, income is recognized when
Adjusting entries… earned, and expenses are recognized when
● are internal transactions, meaning no new incurred, at the time the service is rendered or
source document exists for the adjustment. used up regardless of whether cash has been
● are non-cash transactions, so the cash account exchanged.
will never be used in an adjusting entry.
● will always involve at least one income ● Cash basis - Income and expenses are
statement account and one balance sheet recognized when cash is received or disbursed.
account.
● are needed for revenues and expenses ● Matching Principle - requires that the expenses
covering two periods. (representing the effort of the business) should
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be matched against the income (representing Account Titles DR. CR.

the accomplishment of the business) during the
period it was earned. Expense xxx
○ E.g., a company salesperson earns a Payable xxx

commission in 2023. The commission income
must be recognized in the same period that the Sample: At the end of the fiscal year on March 31,
commission expense is incurred, which is also 2024, Rowlet Manufacturing Co. owes its employees
2023. ₱5,000 in unpaid wages for work performed in
March. The payment for these wages will be made
Note: Sometimes revenues and expenses cover on April 5, 2024. As of March 31, 2024, the company
more than one accounting period. E.g., a has not yet recorded this obligation in its financial
one-year insurance paid in advance on March statements. Determine the adjusting entry needed
1, 2022 should be expensed only for ten months to recognize the unpaid wages expense in the
in 2022 (i.e., March to December) and for two financial statements for the year ending March 31,
months in the succeeding period. 2024.
● ACCRUED INCOME - This will prompt an increase Solution:

in the balance of the accounts receivable since
it has not been collected yet.
Adjusted Entry

Account Titles DR. CR.
2024
Receivable xxx
Mar. 31 Wages Expense P5,000
Revenue xxx
Wages Payable P5,000
Sample: Mirhiane Company provides consulting

services and bills clients monthly. They completed a PREPAID EXPENSE
consulting service on December 20, 2022 but the ● Prepaid Expense - represents advance
client will pay the P48,000 fee on January 15. payment for service to be received (expense to
Record the entries on Dec. 31. be incurred in the future)
Solution: ● Prepayment - opposite of accrual
Adjusted Entry ● ASSET METHOD - The advance payment is

recorded as an asset Prepaid Expense. At the
Date Account Titles DR. CR. end of the year, if there is already an expired
portion or if service has been received, transfer
2022
this amount from the asset called prepaid
Dec. 31 Accounts Receivable P48,000 expense account to the expense account.
Consulting Revenue P48,000

Journal Entry
● ACCRUED EXPENSE - This will lead to an increase Account Titles DR. CR.
in the liabilities of the business since it is yet to be
Prepaid Expense xxx
paid.
Cash In Bank xxx
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Adjusted Entry Account Titles DR. CR.
Account Titles DR. CR. Prepaid Expense xxx
Expense xxx Expense xxx
Prepaid Expense xxx

Sample: StarTech Ltd. prepaid for a one-year
insurance policy on June 1, 2022, with a total
Sample: StarTech Ltd. prepaid for a one-year premium of ₱9,600. The insurance policy covers the
insurance policy on June 1, 2022, with a total period from June 1, 2022, to May 31, 2023. Assume
premium of ₱9,600. The insurance policy covers the the expense method for prepaid expense was
period from June 1, 2022, to May 31, 2023. Assume used. Record all entries up to and as of December
the asset method for prepaid expense was used. 31, 2022.
Record all entries up to and as of December 31,
2022. Solution:
Solution:
Journal Entry
Journal Entry Date Account Titles DR. CR.
Date Account Titles DR. CR. 2022
2022 June 1 Insurance Expense P9,600
June 1 Prepaid Insurance P9,600 Cash In Bank P9,600
Cash In Bank P9,600

Adjusted Entry
Adjusted Entry Date Account Titles DR. CR.
Date Account Titles DR. CR. 2022
2022 Dec. 31 Prepaid Insurance P4,000

(9,600/12 = 800 x 5)
Dec. 31 Insurance Expense P5,600
(9,600/12 = 800 x 7) Insurance Expense P4,000
Prepaid Insurance P5,600

Note: The asset method is preferable since it
follows the conceptual flow of cost.
● EXPENSE METHOD - An alternative method to
record the advance payment is to immediately
DEFERRED OR UNEARNED REVENUE
debit it to an expense account. It will appear as
● Some companies require their clients to pay in
follows.
advance. The advance collection may be
recorded under the liability method or under
Journal Entry the income method.

LIABILITY METHOD
● The advance collection is credited to a liability
Expense xxx
account called Unearned or Deferred Revenue.
Cash In Bank xxx It is a liability of the company to render service
for cash that was advanced by the client.
Adjusted Entry
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● If, before the end of the year, service has been ● INCOME METHOD - An alternative method is to
rendered, decrease the liability and increase record the advance collection immediately
the revenue account. with a credit to an income account. It will
appear as follows:
Journal Entry
Journal Entry
Cash In Bank xxx
Cash In Bank xxx
Unearned Revenue xxx
Revenue xxx
Adjusted Entry
Adjusted Entry
Revenue xxx
Revenue xxx
Sample: A customer paid DEF Enterprises ₱18,000 on

November 1, 2021, for a five-month consulting Sample: A customer paid DEF Enterprises ₱18,000 on
service covering November through March. DEF November 1, 2021, for a five-month consulting
Enterprises earns the fee evenly throughout the service covering November through March. DEF
project. By December 31, the company had Enterprises earns the fee evenly throughout the
completed its obligations for the period. Assume project. By December 31, the company had
the liability method was used. Record all entries up completed its obligations for the period. Suppose
to and as of December 31, 2021. the income method was utilized. Record all entries
up to and as of December 31, 2021.
Solution:
Solution:
Journal Entry
Journal Entries
2021
2021
Nov. 1 Cash In Bank P18,000
Nov. 1 Cash In Bank P18,000
Unearned Consulting P18,000
Fees Consulting Fees P18,000
Adjusted Entry Adjusted Entry
Date Account Titles DR. CR. Date Account Titles DR. CR.
2021 2021
Dec. 31 Unearned Consulting Fees P7,200 Dec. 31 Consulting Fees P10,800

(18,000/5 = 3,600 x 2) (18,000/5 = 3,600 x 3)
Consulting Fees P7,200 Unearned Consulting P10,800

Fees
8
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Note: The liability method is preferred, again Adjusted Entries

because it follows the conceptual flow of
recognizing first the liability until the amount is Date Account Titles DR. CR.
earned.
2023
BAD DEBTS - Accounts Receivable P140,000
Service Revenue P140,000

● DIRECT WRITE OFF METHOD - This method
recognizes bad debts expense only when it is #
certain that the company will not be able to
collect the account anymore. - Cash In Bank P70,000
Accounts Receivable P70,000

#
Doubtful Accounts Expense xxx
- Bad Debt Expense P12,000
Accounts Receivable xxx
Accounts Receivable P12,000
Sample: Suppose that Auto Repair Services

recorded P90,000 in accounts receivable for ● ALLOWANCE METHOD - It provides for bad debts
services provided in 2022, with P60,000 collected. In or doubtful accounts during the period the sale
the following year, an additional P140,000 was of service is recorded.
recorded for services with P70,000 collected from
both previous and current accounts. Mr. Torres, a ● Doubtful accounts - Determined by estimation
customer from 2022 who owed P12,000, declared based on the company’s past experience or
bankruptcy in 2023 and could no longer pay his the experience of other companies within the
debt. The bookkeeper, with the owner's consent, same business industry.
wrote off the account and made the following
entry in 2023 to record the bad debt expense from ● Allowance for Doubtful Accounts - A contra
2022. Record the entries of the transactions asset account which is deducted from the
indicated above. principal account.
Solution: ● Net realizable value - The difference between

the accounts receivable and the allowance for
doubtful accounts.
Journal Entries
Date Account Titles DR. CR. Account Titles DR. CR.
2022 Doubtful Accounts Expense xxx
- Accounts Receivable P90,000

Allowance for Doubtful Accounts xxx
Service Revenue P90,000
Sample: For the year 2022, Bright Horizons Agency

#
billed their clients a total of P1,500,000. They
Cash In Bank P60,000 collected P1,100,000 of this amount within the same
year. Based on historical data, the accountant
Accounts Receivable P60,000 estimates that 4% of the receivables might be
uncollectible. Record the entries for Bright Horizons
Agency.
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Solution: DEPRECIATION
● Except for land, the utility value (ability to yield
Journal Entries
services) of properties will decrease over time
because of:
○ Wear and tear
2022
- Accounts Receivable P1,500,000 ○ Obsolence - When a better model is invented or

produced than what was originally acquired.
Service Revenue P1,500,000
○ Inadequacy - When the asset can no longer

#
meet the demands of the business.
Cash In Bank P1,100,000
Accounts Receivable P1,100,000
Adjusted Entry ● Scrap value - the amount remaining when the

asset has been fully depreciated.
2022 ● Accumulated depreciation - is a contra-asset

account, which is deducted from the cost price
Dec. 31 Doubtful Accounts Expense P16,000 to arrive at net book value.
(1,500,000 - 1,100,000 = 400,000 x .04)
Allowance for Doubtful P16,000 Account Titles DR. CR.

Accounts
Depreciation Expense xxx
Note: The preferred method in recording doubtful Accumulated Depreciation xxx

accounts is the allowance method.
Sample: White Beach Resort has the following assets

DIFFERENCE BETWEEN THE ALLOWANCE AND DIRECT
as of December 31, 2021
WRITE OFF METHODS
1. The direct write off method recognizes
doubtful accounts only when it is certain Building Furniture & Equipment
that the account will not be collected Fixtures
anymore, whereas the allowance method
recognizes doubtful accounts every Date Jan. 1, 2021 July 1, 2021 March 1,
accounting period based on an estimate of Acquired 2021
accounts not collected as experienced in
the previous years by the entity. Useful Life 10 years 5 years 8 years
2. The direct write off method credits the
accounts receivable directly, while it is Cost P8,000,000 P3,500,000 P950,000
credited indirectly (using the contra asset
account allowance for doubtful accounts) Salvage P750,000 P25,000 P50,000
under the allowance method.
Value
3. The allowance for doubtful accounts can
be estimated based on a certain
percentage of revenue or outstanding Give the adjusting entries to record depreciation for
accounts receivable. each asset at the end of the accounting period.
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Solution: Accounting Statement of Statement of

Value Affected Financial Position Income
Adjusted Entry
Current Assets Understated
Owner’s Equity Understated
2021
Revenue Understated
Dec. 31 Depreciation Expense - Building P725,000
(8,000,000 - 750,000 = 7,250,000/10 =
Net Income Understated
725,000 x 1)
Accumulated P725,000
Prepaid expense is not recognized:
Depreciation - Building
● Asset method
# ○ Fails to expense the expired portion (assumes
less expense)
Depreciation Expense - F&F P347,500 ○ Assumes there is more prepaid asset
(3,500,000 - 25,000 = 3,475,000/5 =
695,000 x 6/12)
Accounting Statement of Statement of
Accumulated P347,500
Depreciation - F&F
Current Assets Overstated

#
Depreciation Expense - Equipment P93,750 Owner’s Equity Overstated

(950,000 - 50,000 = 900,000/8 =
112,500 x 10/12) Expense Understated
Accumulated P93,750 Net Income Overstated

Depreciation - Equipment
● Expense method
WITHOUT END-OF-YEAR ADJUSTMENTS ○ Fails to recognize the unexpired portion
(assumes more expense)
Accrued expense is not recognized: ○ Assumes there is less prepaid asset
● Payables are not recognized
● Assumes less expense
Value Affected Financial Position Income Current Assets Understated
Current Liabilities Understated Owner’s Equity Understated
Owner’s Equity Overstated Expense Overstated
Expenses Understated Net Income Understated
Net Income Overstated

Unearned revenue is not recognized:
Accrued income is not recognized: ● Liability method

● Uncollected accounts are not recognized ○ Fails to recognize the earned portion of the
● Assumes less revenue advance collection (assumes there is less
income)
○ Assumes there is more liability
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6. From the adjusted balances, extend all income
Value Affected Financial Position Income and expense accounts to the income
statement column.
Current Liabilities Overstated 7. Extend all assets, liabilities, capital, and drawing
accounts to the financial position column. Add
Owner’s Equity Understated the net income to the capital.
Revenue Understated
Example: A trial balance and additional information
Net Income Understated
for adjustments appear below for Potter Auto
Repair Shop after one year of operation:
● Income method
○ Fails to recognize the unearned portion of the
advance collection (assumes there is more
income)
○ Assumes there is less liability

Current Liabilities Understated
Owner’s Equity Overstated
Income Overstated
Net Income Overstated
WORKSHEET
● Worksheet - A columnar paper needed to
gather and “workout” the adjustments.
○ A ten-column worksheet has the following
1. 12% of the accounts receivable should be
money columns: trial balance, adjustments,
recognized as doubtful of collection.
adjusted trial balance, income statement, and
2. Insurance premium recorded as Prepaid
financial position.
Insurance was for eight months starting
September 1, 2023
STEPS IN PREPARING THE WORKSHEET
3. Supplies still on hand, P300.
4. The note receivable represents a 90-day 14%
1. Enter the worksheet heading.
note received from the customer on November
2. Enter the column headings.
16, 2023.
3. Copy the trial balance and foot (sum up the
5. Machinery and equipment were acquired April
columns).
1, 2023 with an estimated useful life of 10 years
4. Enter the adjustments next. If no account exists
and scrap value of P75,000.
in the trial balance, create an account below it.
6. The furniture and fixtures were acquired January
Identify each adjustment by using key letters or
1, 2023 with an estimated useful life of 10 years
numbers.
and a scrap value of P3,000.
5. Take the adjusted balances of all accounts and
7. The notes payable is for 60 days at 20% due to
extend to the Adjusted Trial Balance column.
Republic Finance dated December 1, 2023.
8. December gross receipts is P50,000.00 and is
subject to 4% percentage tax.
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(55,200 x ..2 x 30/360)

Solution:
Interest Payable P920
Adjusted Entry
#

8) Taxes & Licenses Expense P2,000
(50,000 x .04)
2023
Taxes Payable P2,000
Dec. 31 1) Doubtful Accounts Expense P6,360
Allowance for Doubtful P6,360 Worksheet:

Accounts
(53,000 x .12)
1ST YEAR_XFUNAC_MT_Answer Key
# FINANCIAL STATEMENTS
● Income Statement - provides information
2) Insurance Expense P8,600
(17,200/8 = 2,150 x 4) regarding the financial performance of the
business or its profitability.
Prepaid Insurance P8,600 ○ Return on Equity (ROE) - a high ROE marks a high
profitability.
#
3) Supplies Expense P420 ● Statement of Changes in Equity - shows the

(720 - 300) changes in the interest of the owner(s) for a firm.
Office Supplies P420

● Statement of Financial Position - lists down the
# economic resources being controlled by the
firm. From this information, the liquidity and
4) Interest Receivable P560 solvency of the firm can be determined.
Interest Income P560

(32,000 x .14 x 45/360)
● Statement of Cash Flows - shows how cash was
affected by the operating, investing, and
# financing activities of the business.
5) Depreciation Expense (Machinery P6,000

LIMITATIONS OF THE FINANCIAL STATEMENTS
& Equipment)
1. The information contained herein is largely
Accumulated P6,000 financial in nature.
Depreciation (Machinery 2. They do not contain non-financial information.
& Equipment)
3. Some information is not factual and objective,
(155,000 - 75,000 =
80,000/10 = 8,000 x 9/12)) resulting from estimation and use of judgment.
4. Current fair values are not reported.
#
INTEGRITY OF THE FINANCIAL STATEMENTS

6) Depreciation Expense (Furniture & P2,480
Fixtures) The entity must ensure that…
1. The preparer possesses competence, rational
Accumulated P2,480 judgment, and ethical behavior.
Depreciation (Furniture &
2. The financial statements are based on
Fixtures)
(27,800 - 3,000 = 24,800/10 standards formulated by an authoritative body
= 2,480) called the Financial Reporting Standards
Council.
#
3. The reports are also audited by an Independent
7) Interest Expense P920
Certified Public Accountant (CPA) who certifies
to the fairness of its presentation.
13
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● Fairness - means the financial statements are EXAMPLE:

reliable, complete, and in accordance with
generally accepted accounting principles.
FEATURES OF THE FINANCIAL STATEMENTS

1. Accrual is the basis of reporting except for
the cash flow statement.
2. Consistency of presentation should be
observed from one period to the next.
3. Comparability requires that previous

information must be presented to make the
current information more meaningful.
4. Going concern requires that management

must assess the ability of the firm to continue
operating.
Note: Similar sort of assets or expenses must be
5. Materiality of information requires that expressed as a single category in the financial
reports will reasonably influence decisions statement and must be stated distinctly in the
that primary users make. supporting note. This is not necessary when the
list of items is short.
INCOME STATEMENT
● Income Statement (result of operation of an PREPARATION RULES
entity) - summary of income earned and 1. Heading: business name, income statement,
expenses incurred for a certain period of time. and the accounting period.
○ Income may be subdivided into two: regular or 2. Major sections: revenue, expenses, and net
operating income and other income. income or net loss
○ The two presentation forms for cost and 3. Revenue and expense accounts are arranged
expenses: 1) based on its nature or 2) based on in descending order of their amounts.
its function. 4. Peso signs in the final money column are placed
● Nature of Expense - presents expenses on the first and last amounts.
according to their nature. Depreciation, 5. A single rule is placed under the last figure to be
advertising, transportation, and employee added or subtracted.
benefits are normally used for a single business. 6. A double line is placed under the final figure.
● Function of Expense - presents the expenses
according to their function or use—cost of sales, STATEMENTS OF CHANGES IN EQUITY
distribution cost, administrative cost, and
financial cost. ● Statement of Changes in Equity (Capital
Statement) - Changes in the owner’s capital or
owner’s equity are summarized in this
statement.
14
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EXAMPLE EXAMPLE
PREPARATION RULES
1. Heading: business name, statement of changes

in owner’s equity, and the accounting period.
2. Add/less the balance of the accounts that

affect the capital (i.e., drawings and net
income or net loss).
STATEMENT OF FINANCIAL POSITION
● Statement of Financial Position - lists in detail the

business's assets and liabilities and shows the
owner's residual interest as of a specific date.
● Account Form - follows the accounting

equation where assets are listed on the
left-hand column of the report with the liabilities
and owner’s equity listed on the right-hand Note: The statement of financial position is
column. prepared for a specific date, rather than for an
accounting period.
● Report Form - shows the assets in one straight
column, followed by the liabilities and owner’s PREPARATION RULES
equity.
1. Heading: business name, statement of financial
position, and a specific date.
2. Major sections: current assets, non-current
assets, total assets, current liabilities, owner’s
equity, and total liabilities & owner’s equity.
3. In the final money column, the peso sign is
placed on the first and last amounts, while in
the inner money column, the peso sign is
placed on the first amount of every column of
figures.
4. A single line is placed under the last figure to be
added or subtracted and a double line is
placed under the final figure.
15
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fan, trucks or cars. Specific titles: Office

CURRENT AND NON-CURRENT CLASSIFICATION Equipment, Store Equipment, and Delivery
● Current Assets - include cash and assets Equipment.
expected to be realized into cash, or sold or ○ Furniture and Fixtures - Tables, chairs, curtains,
consumed within the normal operating cycle of lighting fixtures, and wall decors. Specific titles:
the business (one year). Office Furniture and Fixtures, as well as Store
○ Cash - includes currencies, coins, a bank check, Furniture and Fixtures.
or a postal money order used as a medium of ○ Leasehold or Lease Right - For a fee, the lessee is
exchange. Two account titles could be used: given the right to use the property of a lessor
Cash on Hand for cash items in the custody of over a long period of time.
the officer-in-charge, and Cash in Bank for cash ■ Leasehold Improvement - encompasses
deposited in the bank. improvements made to a leased property.
■ Cash Equivalents - short term, highly liquid ○ Intangibles - identifiable non-monetary assets,
investments such as a three-month time deposit no physical substance, with future economic
or a three-month government treasury bill. benefits, separable or capable of being sold or
○ Marketable Securities - highly traded securities transferred such as patents.
such as the stocks and bonds purchased by the ● Other Assets include Advances to Employees
enterprise that are to be held for a short-term and Depostis for Utilities or Containers.
duration. ● Current Liabilities - are those debts or
○ Receivables - collectibles from customers, obligations reasonably expected to be
clients, and other persons for the goods, liquidated in the normal course of the
services, or money given by the business. Other enterprise’s operating cycle or paid within a
receivables are Interest Receivable, Rent period of one one year.
Receivable, and Dividends Receivable. ○ Accounts Payable - to trade creditors for
○ Merchandise Inventory - an account title used purchase of goods or services on credit
to represent the stock of goods available for supported by the oral or implied promise of the
sale by the business. business.
○ Prepaid Expenses - represent advance ○ Loan Payable - is a liability to pay a bank or
payments made for benefits or services to be financing institution for an amount of money
received by the business in the future. Examples borrowed by the business.
of these are Supplies, Prepaid Insurance, and ○ Utilities Payable - is a liability to pay utility
Prepaid Rent. companies like PLDT, Meralco, and Manila
Water for telephone, electricity, and water
Note: Deductions from current assets are called services received from them.
contra-asset accounts. An example of this is the ○ Other payables include Interest Payable,
allowance for bad debts or doubtful accounts Salaries Payable, and Taxes Payable.
and the accumulated depreciation of an asset. ● Non-current Liabilities - long-term liabilities or
obligations which are payable longer than one
● Non-current Assets - include those assets not year such as:
included as current assets such as the long-term ○ Note Payable - is issued to the creditor and
investments (in securities or evidenced by a promissory note. Some notes
subsidiaries/associates), property, plant, payable may be due within a year.
equipment, and intangibles. ○ Mortgage Payable - is an obligation secured by
the real property of the business.
○ Land - A lot of real estate owned by the business ○ Bond Payable - is a long-term promise usually
on which a building could be constructed. from five to ten or twenty years supported by a
○ Building - Structure used to house the office, formal contract containing the face value of
store, or factory. the bond, the interest rate, the interest
○ Equipment - Typewriter, air conditioner, payment, and the maturity date.
calculator, filing cabinet, computer, electric
16
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STATEMENT OF CASH FLOWS EXAMPLE

● Statement of Cash Flows - will enlighten you on
how cash is being managed. Cash flows are
vital to financial health. Failing to maintain a
proper balance between receipts and
disbursements can lead to the failure of the firm.
○ Cash is either an inflow (source or receipt) or an
outflow (use or disbursement) and are classified
as: operating activities, investing activities, and
financing activities.
SUMMARY OF CASH FLOWS
Activities Inflows Outflows
Operating Revenue collections Payment for

expenses
Investing Sale of securities, Acquisition of

plant, property, and securities, plant,
equipment property, and
equipment
Financing Loans extended by Cash paid to

creditors or creditors or
contributions of withdrawn by
investors investors
PREPARATION RULES
1. Operating activities ADEQUATE DISCLOSURES

a. Receivables should be deducted from income
to arrive at the cash actually collected.
● PAS 1 states that an entity should disclose any
b. Payables should be deducted from expenses information that a reasonably informed person
reported in the income statement to arrive at would consider necessary for the proper
expenses actually paid. interpretation of the financial statements.
2. Investing activities
CLOSING ENTRIES
a. Record the amount of cash paid for the
● Closing the books means bringing the
acquisition of properties.
temporary or nominal accounts to zero balance
b. Record the cash proceeds received from the
by transferring them to the capital account or
sale of properties
owner’s equity.
3. Financing activities
● Temporary or Nominal accounts - Typically
a. Record the cash inflows (increase in loan and
associated with the income statement.
investment).
1. Revenues
b. Record the cash outflows (decrease in loan and
2. Expenses
withdrawals).
17
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● Income Summary - An account used to close Note: After the closing entries have been recorded
the nominal values and bring them to the and posted, note that all accounts in the
capital account. general ledger must be double-ruled to show
the end of the accounting period.
STEPS IN MAKING THE CLOSING ENTRIES
POST CLOSING TRIAL BALANCE
1. The revenue accounts such as Repair Income
and Interest Income which normally are credit ● Post Closing Trial balance is prepared after
balances should be closed on the debit side closing the books and contains only real
and credited to the Income Summary account. accounts with balances.
2. The expense accounts such as Salaries Expense
and Taxes Expense which normally are debit ● Real Accounts - Typically associated with the
balances should be closed on the credit side Balance Sheet.
and debited to the Income Summary account. 1. Assets
3. Determine the balance of the Income Summary 2. Liabilities
account which is a net income or a net loss. If a 3. Owner’s Equity
credit balance, representing a net income,
close by debiting the Income Summary Illustration:
account and credit to increase the Owner's
ABC Company
Capital account. If a debit balance,
Post Closing Trial Balance
representing a net loss, close by crediting the December 31, 20XX
Income Summary account and debit to
decrease the Owner's Capital Account. Cash xxx
4. The drawing account which normally is a debit

Receivables xxx
balance is credited to close and debited to the
capital account to bring a reduction. Allowance for Bad Debts xxx
Prepaid Accounts xxx

Equipment xxx
Dec 31 Closing Entries:
Accumulated Depreciation - Equipment xxx
Service Income xxx
Payables xxx
Income Summary xxx
Owner, Capital xxx
#
Totals
Income Summary xxx
Expenses xxx
OPENING ENTRY
#
To bring forward the accounts with balances to the
Income Summary xxx next accounting period an opening entry should be
prepared based on the post closing trial balance.
Owner, Capital xxx
# To illustrate, using one nominal account and one

real account, this is how it will look like at the start of
Owner, Capital xxx the next accounting period:
Owner, Drawing xxx
18
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Prepaid Supplies Acct. No. 108 Dec. 31 Prepaid Supplies xxx
Date Explanation DR. CR. Bal. Supplies Expense xxx
2023 Adjust for the unused

portion
Feb 8 Supplies purchased 600
#
Dec 31 Supplies used up 600 400 200
2023
2024
Jan. 1 Supplies Expense xxx
Jan 1 Opening balance 200 200
Prepaid Supplies xxx
Reverse prepaid
Prepaid Expense Acct. No. 608
supplies
Date Explanation DR. CR. Bal.
UNEARNED INCOME (INCOME METHOD)

2023
Dec 31 Supplies used 400 Journal Entry
To close nominal account 400 400 Date Account Titles DR. CR.
2024 2022
Apr. 3 Cash In Bank xxx

REVERSING ENTRIES
Consulting Fees xxx
1. To close out the accounts created when the
Collected advance
adjusting entries were prepared such as the
payment from clients
prepaid expense (under the expense method)
and the unearned income (under the income #
method).
2. To recognize the expired/income portion Dec. 31 Consulting Fees xxx
applicable for the succeeding period.

Unearned Consulting Fees xxx
3. To simplify the bookkeeping entries in the
following accounting period. Adjust for the
unearned portion
PREPAYMENTS (EXPENSE METHOD)

#
Journal Entry 2023
Date Account Titles DR. CR. Jan. 1 Unearned Consulting Fees xxx
2022 Consulting Fees xxx
Feb. 8 Supplies Expense xxx Reverse unearned

consulting fees
Cash On Hand xxx
Purchased supplies
for cash
19
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LET’S TRY SOME EXERCISES ! 😀 Answer:

Journal Entry
Exercise 1: On December 31, 2021, Gray Electronic
Repair Services rendered P16,870 worth of services Date Account Titles DR. CR.
to a client. However, the amount has not yet been

collected. It was agreed that the customer will pay
the amount on January 15, 2022. The transaction
was not recorded in the books of the company as
of 2021. Come up with an adjusting entry in relation
to this transaction.
Adjusted Entry
Answer:
Adjusted Entry Date Account Titles DR. CR.
Exercise 4: On December 15, 2022, ABC

Corporation ran out of supplies and bought ₱1,800
Exercise 2: A company has a long-term note worth of supplies on credit. By December 31 of the
payable amounting to ₱15,000 with an annual same year, an inventory check showed that ₱300
interest rate of 8%. Assume the note was issued on worth of supplies remained. Use the expense
March 1, 2023, and is set to be repaid by April 1 of method in coming up with the original and
the next year. Make an adjusting entry for the end adjusted entry for this problem.
of the calendar year.
Answer:
Answer:
Journal Entry
Adjusted Entry
Adjusted Entry
Exercise 3: Suppose that Aguilar Pharmacy paid
₱10,500 on November 1, 2022 for a six-month lease Date Account Titles DR. CR.
in advance. As of December 31, which marks the
end of the accounting period, prepare the original
and the adjusting journal entry.
20
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Exercise 5: Assume that on October 1, 2020, Exercise 7: R and T, a reflexology and therapy clinic,
Wellness Clinic leased a property to Rivera offers a 10-day payment term for its clients,
Pharmacy, which paid ₱72,000 in advance for a including patients, tourists, and hotel managers. For
four-month period. What would be the adjusting the year 2022, the clinic billed a total of P245,000,
journal entry on December 31? with collections amounting to P176,545. In 2023, the
clinic billed ₱395,000, of which 30% was collected.
Answer: Collections in 2023 from 2022 accounts amounted
Journal Entry
to half of the outstanding balance from 2022. The
clinic uses the direct-write-off method and the
Date Account Titles DR. CR. accountant discovered that a P15,000 account
from 2022 should be written off in 2023 because the
client could no longer be contacted despite
numerous attempts. In January 2024, the same
client contacted the clinic and promised to pay the
previously written-off amount before the end of
Dec. 31. Prepare the journal entries to record the
write-off, the collection from 2022 accounts, and
Adjusted Entry
the reestablishment of the account.
Answer:
Journal Entries
Exercise 6: On December 1, 2023, three clients

each paid ₱600 in advance for a 5-month
consulting package. By December 31, ABC
Corporation had met its obligations for the month.
Use the income method.
Answer:
Journal Entries
Date Account Titles DR. CR. Journal Entries
Adjusted Entry
21
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Journal Entries
1. Eli’s Consulting Services began the month

with P1,500 in supplies. At the end of the
Exercise 8: Assume that Nexus Solutions Ltd. month, P1,000 in supplies remained.
generated ₱1.5 million in credit sales during 2023.
Based on past experience, the company estimates 2. On November 20, 2019, Eli’ s Consulting
that 5% of these sales may be uncollectible. Services paid P8,000 for the December and
January rent. As of December 31, 2019, one
Answer: month’s rent had already been used up.
Journal Entry
3. Eli’s Consulting Services purchased
equipment in November, 2019.
Cost = P11,000
Useful life = 5 years
Salvage value = P0
4. 3% of the accounts receivable should be

recognized as doubtful of collection.
Adjusted Entry
Adjusted Entry
Exercise 9: Below is the trial balance and additional

information for adjustments for Weasley’s Consulting
Services after its first year of operation. Prepare a
worksheet for the year ended December 31, 2019.
22
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Answer Key:
1ST YEAR_XFUNAC_MT_Answer Key
23

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XFUNAC: PAYROLL ACCOUNTING

AND 10-COLUMN WORKSHEET

OVERVIEW Witholding Tax Table (No need to memorize the table)

● Salaries - Monthly or semi-monthly rate

Over P2 million but not P402,500 + 30% of the

Employee Position Monthly Cash

Miley Accountant P27,000 HDMF 200 2,600

a) Prepare Schedules to determine monthly

a.) Schedule Miley

Miley 27,000 1,215 675 200 -

Total 108,000 4,320 2,700 800 500

Bea: Katie: Witholding Tax:

c) Payroll Sheet and Journal Entries

Total deduction = SS + PH + HDMF + ADVANCES

Emplo Monthly SS PH HD WITHOLDING ADVAN TOTAL

Bea 19,000 855 475 200 0.00 - 1,530.00 17,470.00

SSS Payable 9,240

Total 108,000 4,320 2,700 800 3,699.95 500 12,019.95 95,980.05

HDMF Payable 800

Cash on Hand 500.00 Journal Entries

# Date Account Titles DR. CR.

Aug 31 Salaries Expense 108,000.00 Sept 7 Witholding Tax payable 3,699.95

Witholding Tax Payable 3,699.95 Cash in Bank 3,699.95

SSS Premiums Payable 4,320.00 Remittance to BIR

PH Premiums Payable 2,700.00 #

HDMF Premiums Payable 800.00 SSS Premiums Payable 13,560.00

Advances to Employees 500.00 Cash in Bank 13,560.00

Cash in Bank 95,440.05 Remittance to SSS

Employee SSS WISP EC PH HDMF

ABC Orfi Nada

Determining the Due Date DURING THE ACCOUNTING PERIOD

ADJUSTING ENTRIES 😀 6. Journalize and post the adjusting entries

be matched against the income (representing Account Titles DR. CR.

○ E.g., a company salesperson earns a Payable xxx

● ACCRUED INCOME - This will prompt an increase Solution:

Date Account Titles DR. CR.

Sample: Mirhiane Company provides consulting

Solution: ● Prepayment - opposite of accrual

Adjusted Entry ● ASSET METHOD - The advance payment is

Consulting Revenue P48,000

Adjusted Entry Account Titles DR. CR.

Account Titles DR. CR. Prepaid Expense xxx

Expense xxx Expense xxx

Prepaid Expense xxx

Journal Entry Date Account Titles DR. CR.

Date Account Titles DR. CR. 2022

2022 June 1 Insurance Expense P9,600

June 1 Prepaid Insurance P9,600 Cash In Bank P9,600

Cash In Bank P9,600

Adjusted Entry Date Account Titles DR. CR.

Date Account Titles DR. CR. 2022

2022 Dec. 31 Prepaid Insurance P4,000

Prepaid Insurance P5,600

Account Titles DR. CR.

Sample: A customer paid DEF Enterprises ₱18,000 on

Adjusted Entry Adjusted Entry

Dec. 31 Unearned Consulting Fees P7,200 Dec. 31 Consulting Fees P10,800

Consulting Fees P7,200 Unearned Consulting P10,800

Note: The liability method is preferred, again Adjusted Entries