CASH TO ACCRUAL ACCOUNTING & SINGLE ENTRY SYTEM

THEORIES

TRUE OR FALSE

1. Under cash basis, revenue is recorded when earned and realized. False
2. The cash basis is less useful in predicting the timing and amounts of future cash True
flows
3. Under the cash basis of accounting, depreciation of assets having an economic False
life of more than one year is not recognized
4. The net income over the life of an entity is the same under the cash basis and True
accrual basis
5. Under IFRS, events are recorded in the period in which the event occurs True
6. Under cash basis, no bad debts are recorded True
7. Under accrual basis, depreciation is provided normally True
8. The same as depreciation, discount or premium on financial instruments is
recognized under cash basis False
9. Under accruals basis of accounting, the effects of transactions and other events
are recognized when they occur (and not as cash or its equivalent is received or True
paid) and they are recorded in the accounting records and reported in the
financial statements of the periods to which they relate.
10 Under cash basis of accounting, income is recognized only when cash is received
. and expense is recognized only when cash is paid True
11 Under single entry system, increases in net assets and decrease in liabilities
increase net assets while increase in liabilities and decrease in assets decrease net True
assets.
12 Under single entry system, cash on hand and cash records reconciled with bank True
. statements are possible sources for generating cash account balance
13 A single entry system is a system of record keeping in which transactions are not
. analyzed and recorded in the double entry framework True
14 Cashbook is the major record under the single entry system True
.
15 Any set of procedures that does not provide for a debit-credit analysis is referred True
. to as single-entry accounting system.

MULTIPLE CHOICE

1. The inventory and accounts payable balances decreased. Should these decreases be added or
deducted from cash payments to suppliers to arrive at cost of goods sold for the current year?
Decrease in Inventory Decrease in Accounts Payable
a. Added Deducted
b. Added Added
c. Deducted Deducted
d. Deducted Added

2. Compared to the accrual basis of accounting, the cash basis overstates income by the net decrease
during the accounting period of:
a. Both accounts receivable and accrued expenses
b. Accrued expenses but not of accounts receivable
c. Neither accounts receivable nor of accrued expenses
d. Accounts receivable but not of accrued expenses

3. When converting from cash basis to accrual basis of accounting, which of the following adjustments
should be made to cash collections from customers to determine accrual basis service revenue?
a. Subtract ending accounts receivable
b. Add ending accounts receivable
c. Subtract beginning unearned service revenue
d. Add cash sales
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4. When converting from cash basis to accrual basis of accounting, which of the following adjustments
should be made to cash paid for operating expenses to determine accrual basis operating expenses?
a. Add beginning accrued liabilities
b. Subtract beginning prepaid expense
c. Subtract ending prepaid expense
d. Subtract interest expense

5. Which of the following statements is true regarding single-entry accounting system?

a. It is adopted by organizations with complex and numerous transactions
b. It is also called incomplete records because only minimal accounting records are
kept without the benefit of a complete accounting system
c. The single entry method of determining profit is the transaction approach
d. Transactions are analyzed in terms of debits and credits

6. The net worth method , otherwise known as the capital maintenance approach, is a concept in which
a. Profit = Change in fair value of net assets during a period
b. Profit = Amount that an enterprise could distribute to its owners and be as well
off at the end of the period as it was at the beginning of the period
c. The financial statements effects of business events classified as revenues, gains,
expenses and losses, which are used to measure and define profit
d. Fair value adjusted for the effects of inflation or deflation are used to measure profit

7. Which of the following is true?

a. The double –entry bookkeeping system requires analysis of transactions in terms of
debits and credits
b. The single entry system is adopted by organizations whose activities are few and
simple, so that they do not employ the services of a bookkeeper
c. The minimum record kept under the single entry system is the daybook which
records transactions in chronological order in narrative form
d. All of the above

8. All of the following are correct, except:

a. Incomplete records is another term for double entry system
b. Double-entry system is a system of recording transactions in a way that maintains the
equality of the accounting equation
c. Cash basis does not recognize accruals and deferrals
d. Single-entry system does not provide for a debit-credit analysis of transactions

STRAIGHT PROBLEMS

1. Data:

January 1, 2019 December 31, 2019

Trade accounts receivable P 1,000,000.00 P 3,895,000.00
Allowance for doubtful accounts 200,000.00 237,000.00
Trade notes receivable 1,000,000.00 2,100,000.00
Customer advances 400,000.00 650,000.00

Additional information for CY 2019:

Sales return and allowances P 40,000.00

Accounts written off 65,000.00
Cash receipts from customers 3,600,000.00
Notes receivable discounted without recourse 400,000.00

Requirements:
1.1 Compute the gross sales under accrual basis P 7,850,000.00
1.2 Compute the net sales under accrual basis P 7,810,000.00

2. Data:
CASH TO ACCRUAL ACCOUNTING & SINGLE ENTRY SYTEM

Account Increase (Decrease)

Accounts Receivable (P 95,000.00)
Customers Advances 100,000.00
Allowance for doubtful accounts 52,000.00

Additional information for CY 2019:

Sales return and allowances P 45,000.00

Accounts written off 50,000.00
Cash receipts from customers 4,950,000.00

Requirements:
2.1 Compute the gross sales under accrual basis P 4,850,000.00
2.2 Compute the net sales under accrual basis P 4,805,000.00

3. Karen Company reported total purchases of P2, 500,000 in its cash basis financial statement on
December 31, 2019.

Requirements: Compute purchases and cost of sales under accrual basis under each of the following
assumptions

Beginning Balance Ending Balances Accrual Basis

Accounts Merchandise Accounts Merchandise Purchases Cost of Sales
Payable Inventory Payable Inventory
1. P 600,000.00 P 400,000.00 P 800,000.00 P 460,000.00 P 2,700,000.00 P 2,640,000.00
2. 900,000.00 500,000.00 650,000.00 430,000.00 2,250,000.00 2,320,000.00
3. 700,000.00 400,000.00 850,000.00 460,000.00 2,650,000.00 2,590,000.00
4. 840,000.00 500,000.00 760,000.00 430,000.00 2,420,000.00 2,490,000.00

4. Under the cash basis, rent income and rent expense of Diesel Company for the calendar year 2019 is
P615, 000.00 and P500, 000, respectively. Additional information are presented below:

Rent collected in advance , beginning of the year 50,000

Rent collected in advance , end of the year 75,000
Rent earned , but not yet collected, beginning of the year 30,000
Rent earned , but not yet collected, end of the year 40,000
Rent paid in advance , beginning of the year 80,000
Rent paid in advance, end of the year 90,000
Rent incurred, but not yet paid, beginning of the year 45,000
Rent incurred, but not yet paid, end of the year 40,000

Requirements: Under accrual basis, compute the following:

4.1 Rent income P 600,000.00
4.2 Rent expense P 485,000.00

5. Under the cash basis, interest expense of Millan Company for the calendar year 2019 is P 800,000.00
Additional information are presented below:

Interest receivable, end 60,000

Interest receivable, beg 80,000

Requirements: Answer each independent question:

5.1 Assume discount amortization of debt investment is P 10,000.00, what is the interest revenue
under the accrual basis? P 790,000.00
5.2 Assume, premium amortization of debt investment is P15, 000.00, what is the interest revenue
under accrual basis? P 765,000.00

6. Calapan Company provided the following data:

CASH TO ACCRUAL ACCOUNTING & SINGLE ENTRY SYTEM

January 1 December 31
Accounts receivable 1,200,000 1,350,000
Accounts payable 1,500,000 1,850,000

During the current year, accounts written off amounted to P100, 000. Sales return totaled P250,
000, of which P50, 000 was paid to customer. Cash receipts from customers after P500, 000 sales
discounts amounted to P8, 000,000. Cash payments to trade creditors totaled P5, 000,000 after
purchase discounts of P200, 000. Purchase returns amounted to P400, 000, of which P100, 000
was received from supplier.

Questions:
5.1 Under accrual, what is the amount of gross sales? P 8,950,000.00
5.2 Under accrual, what is the amount of net sales? P 8,200,000.00
5.3 Under accrual, what is the amount of gross purchases? P 5,850,000.00
5.4 Under accrual, what is the amount of net purchases? P 5,250,000.00

7. Eros Company kept the records on a cash basis. The entity reported the following cash basis income
statement for 2019:

Revenue 1,910,000
Expenses 809,000
Net Income 1,101,000

The following amounts of accrued, prepaid, and unearned items were ignored at the end of 2018 and
2019:
2018 2019
Accrued revenue 91,000 73,000
Unearned revenue 66,000 108,000
Accrued expenses 49,000 65,000
Prepaid expenses 46,000 56,000

What is the net income under accrual basis for 2019? P 1,035,000.00

8. During the current year, Tara Company received P8, 000,000 from tenants. The statement of financial
position contained the following data:

Increase in rent receivable 280,000

Decrease in unearned rent revenue 800,000
Uncollectible rent written during the year 500,000

What amount of revenue should be reported for the current year? P 9,580,000.00

9. During 2018, Cooke Company acquired patent right and remitted royalties of P3, 000,000. The entity
reported prepaid royalties of P550, 000 and P450, 000, royalties payable of P800, 000 and P750, 000,
respectively, on December 31, 2017 and 2018.

What amount should be reported as royalty expense for 2018? P 3,050,000.00

10. Vela Company reported the following increases in account balances during the current year:

Assets 10,000,000
Liabilities 2,700,000
Share Capital 6,000,000
Share Premium 600,000

Except for a P1, 300,000 dividend payment and the year’s earnings, there were no changes in retained
earnings for the year.

What is the net income for the current year? P 2,000,000.00

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11. Camadillo Company reported the following changes in all the account balances for the current year,
except for retained earnings:

Increase (Decrease)
Cash 700,000
Accounts receivable, net 550,000
Inventory 500,000
Investments (500,000)
Accounts payable (400,000)
Bonds payable 800,000
Share capital 1,500,000
Share premium 100,000

There were no entries in the retained earnings account except for net income (loss) and a dividend
declaration of P300, 000 which was paid in the current year.

What is the net income for the current year? P0.00 but net loss of P 450,000.00

12. Java Company reported the following increase (decreases) in the accounts for the current year:

Cash 1,500,000
Accounts receivable (net) 3,500,000
Inventory 3,900,000
Investments (1,000,000)
Equipment 3,000,000
Accounts payable (800,000)
Bonds payable 2,000,000

During the year, the entity sold 100,000 shares with P20 par value for P30 per share and received
cash in full. Dividend of P1, 500,000 was paid in cash during the year. Equipment with fair value of
P2, 000,000 was donated by a shareholder during the year.

What is the net income for the current year? P 6,200,000.00

13. At the beginning of current year, Crispin Santos started a retail merchandise business. During the
current year, the entity paid trade creditors P2, 000,000 and suffered a net loss of P350, 000. The
ledger account preclosing balances at year-end included the following:

Accounts receivable 600,000

Accounts payable 750,000
Capital – total investment in cash 2,000,000
Expenses paid in cash 100,000
Merchandise account with unadjusted debit balance 700,000

All sales and purchases were on credit. The merchandise account is debited for purchases and
credited for sales.

Questions:
13.1 What is the amount of purchases for the year? P 2,750,000.00
13.2 What is the amount of sales for the year? P 2,050,000.00
13.3 What is the cash balance on December 31? P 1,350,000.00
13.4 What is the merchandise inventory on December 31? P 450,000.00
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14. On December 31, 2019 and 2018 comparative financial statements of World Gallery Company
showed equipment with an original cost of P379, 000.00 and P344, 000.00 with accumulated
depreciation of P153, 000.00 and P 128,000.00, respectively. During 2019, the company purchased
equipment costing P50, 000, and sold equipment with a carrying value of P9, 000.00.

Question: What amount should the company report as depreciation expense for the year ended
December 31, 2019? P 31,000.00

15. The following information is relevant to the calculation of the sales figure for Paulo, a sole trader who
does not keep proper accounting records:

Accounts receivable , January 2, 2019 balance 291,000

Cash received from credit customers and paid into the bank 3,861,000
Expenses paid out of cash received from customers before banking 68,000
Bad debts written off 72,000
Refund to credit customers 21,000
Discounts allowed to credit customers 94,000
Cash sales 1,120,000
Accounts receivable, December 31, 2019 386,000

Question: What amount of sales revenue should appear in Paulo’s profit or loss for the year ended
December 31, 2019? P 5,289,000.00

COMPREHENSIVE PROBLEMS

1. Veronica Company, a proprietorship , which maintained the accounting records on the cash basis
provided the following information during the current year:

Cash 320,000
Accounts receivable 1,600,000
Inventory- January 1 600,000
Furniture & fixtures 1,200,000
Accumulated depreciation – January 1 300,000
Accounts payable – January 1 200,000
Veronica, Capital- January 1 2,000,000
Sales 6,500,000
Purchases 3,050,000
Salaries 1,750,000
Payroll taxes 110,000
Insurance expense 90,000
Utilities Expense 150,000
Living Expenses 130,000
P 9,000,000 P 9,000,000

Additional Information:
 Accounts receivable totaled P 3,600,000 on December 31
 An analysis of the total accounts receivable revealed that an allowance for doubtful accounts of
P400,000 should be provided
 Accounts payable totaled P300,000 on December 31
 The inventory totaled P750,000 at cost based on a physical count of the goods on December 31
 On May 1, the entity paid P90, 000 to renew the insurance policy for one year. The premium on
the previous policy which expired on April 30 was P75,000.00
 Depreciation on furniture and fixtures was P120,000
 Accrued expenses on January 1 and December 31 were:
January 1 December 31
 Utilities 10,000 15,000
 Payroll taxes 20,000 30,000
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 The entity is being sued for P4, 000,000. The coverage under the comprehensive income policy is
limited to P2, 500,000. The attorney believed that an unfavorable outcome is probable and that a
reasonable estimate of the settlement is P3, 000,000. The liability is expected to be settled in the
following year.
 The salaries included P40, 000 per month paid to the owner. The owner also received P2, 500 per
week for living expenses.

Questions:
1.1 What amount of sales should be reported under accrual basis? P 8,500,000.00
1.2 What amount of cost of goods sold should be reported under accrual basis? P 3,000,000.00
1.3 What total amount of expenses should be reported under accrual basis? P 2,650,000.00
1.4 What is the net income for the year under accrual basis? P 2,850,000.00
1.5 What is the capital on December 31? P 4,235,000.00

2. Emmyrelle Company provided the following selected accounts, cash receipts and disbursements for
the current year:

December 31 January 1
Accounts receivable 250,000 300,000
Notes receivable 150,000 100,000
Accounts payable 120,000 160,000
Notes payable 200,000 150,000
Prepaid insurance 30,000 10,000

Cash receipts for current year:

Cash sales 500,000
Collections of accounts, net of cash discounts of P40, 000 1,800,000
Collections of notes receivable 80,000
Bank loan- one year, dated December 31, 2018 100,000
Purchase returns and allowances 60,000

Cash disbursements for current year:

Cash purchases 130,000
Payment of accounts payable, net of cash discounts of P20, 000 1,500,000
Payments of notes payable 400,000
Insurance 220,000
Other expenses 650,000
Sales returns and allowances 50,000

Questions:
2.1 Under accrual basis, what amount should be reported as gross sales? P 2,420,000
2.2 Under accrual basis, what amount should be reported as gross purchases? P 1,960,000

3 At the beginning of current year, Complex Company started business and issued share capital, 60,000
shares with P100 par value, for the following considerations:

Cash 500,000
Building with useful life of 15 years 4,500,000
Land 1,500,000
6,500,000

An analysis of the bank statement showed total deposits, including the original cash investment, of
P3, 500,000. The balance in the bank statement on December 31 was P250, 000 but there were checks
amounting to P50, 000 dated in December but not paid by the bank until January of next year. Cash
on hand on December 31 was P125, 000 including customers’ deposit of P75, 000. During the year,
the entity borrowed P500, 000 from the bank and repaid P125, 000 and P25, 000 interest. The
proceeds of the loan were credited to the bank account of the entity.

Disbursements paid in cash during the year were:

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Utilities 100,000
Salaries 100,000
Supplies 175,000
Taxes 25,000
Dividends 150,000
550,000

An inventory of merchandise taken on December 31 showed P755, 000 of merchandise. Tickets for
accounts receivable totaled P900, 000 but P50, 000 of that amount may prove uncollectible. Unpaid
suppliers invoices for merchandise amounted to P350, 000. Equipment with a cash price of P400, 000
was purchased in early January on a one-year installment basis. During the year, checks for the down
payment and all maturing installments totaled P445, 000. The equipment has a useful life of 5 years.

Questions:
3.1 What is the amount of sales for the year? P 4,000,000.00
3.2 What is the amount of purchases for the year? P 3,055,000.00
3.3 What is the net income for the year? P 800,000.00
3.4 What is the amount of total assets on December 31? P 7,950,000.00
3.5 What is the total amount of shareholder’s equity on December 31? P 7,150,000.00