Initial Investment
Nov The owner of
1 Del Mundo Landscape Specialist, Galicano Del Mundo, invests
P 450,000 to open the business.
Rent Paid in Advance
Nov. 1 Rented office space and paid three months' rent in advance, P21,000.
Given the length of time i.e., more than a month, that this contract is in
the matching principle requirest that the
effect, contract's cost initially be
recorded as an asset since it providesa future benefit.
Vehicle Acquired by lssuing a Note
Nov 2 Del Mundo purchases a P300,000 used truck by paying P200,000 in cash and
signing a P100,000 note payable which is due in eighteenmonths.
Equipment Acquired for Cash
Nov 3 Del Mundo purchases mechanical lawn mowers for P54,000 in cash.
Expenses Incurred and Paid
Nov. 4 Del Mundo purchases P1,500 worth of gasoline.
Insurance Premiums Paid
Nov. 5Del Mundo pays P24,000 for a one-year insurance contract that protects
his businessfrom Nov. 1 until Oct. 31 of the following year.
Supplies Purchased on Account
Nov. 8 Del mundo purchases P1,000 worth of supplies, placing the purchase on
his account with the store rather than paying cash.
Suppliesare a prepaid expense (an asset) until they are used and thereby
become acost of doing business (an expense).Accounts payable
differ from notes [Link] payable are amounts the entity owes
based on the good credit of the entity of the owner, whereas notes payable
are amounts the entity owes under formalobligations.
Revenues Earned and Cash Collected
Nov. 14 The Del Mundo Landscape Specialist cuts grass for seven customers,
receiving P2,500 from each.
Unearned Revenues Collected
Nov. 20 Del Mundo receives P13,500 from a customer for a six future maintenance
visits. An advance deposit from a customer is an obligation to perform
work in the future. It is a liability until the work is performed, at which time
it becomes revenue. Therefore the advance depostis called unearned
revenues.
Revenues Earned on Account
Nov. 22 Del Mundo Landscape Specialist cuts grass foreight customers, billing
each one P2,500 but receiving no cash. In accordance with the revenue
recognition principle, revenue is recognized upon the completion of a
service or the delivery of a product, even if no cash changes hands at
that time.
Salaries Paid
Nov. 26 Del Mundo pays P4,000 in salariesto a part-time employee.
Advertising Paid
Nov. 28 Del Mundo pays P1,750toprint advertising fliers.
Withdrawal of Cash by Owner
Nov. 29 Del Mundo withdraws P5,000 for personal use.
Accounts Receivable Partially Collected
Nov. 30 Five of the eight customers billed last Nov. 22 each pay P2,500
Debit Credit
Cash 450,000
Capital 450,000
Initial investment.
Prepaid Rent 21,000
Cash 21,000
Paid rent for 3 months
Vehicle 300,000
Cash 200,000
Note Payable 100,000
Purchased truck.
Equipment 54,000
Cash 54,000
Purchased mechanical lawn mowers.
Gasoline Expense 1,500
Cash 1,500
Paid gasoline.
Prepaid Insurance 24,000
Cash 24,000
Paid Insurance Nov 1-Oct 31 2022
Supplies 1,000
Accounts Payable 1,000
Purchased supplies on account.
Cash 17,500
Revenue 17,500
Rendered services.
Cash 13,500
Unearned Revenue 13,500
Collected advancefrom customer.
Accounts Receivable 20,000
Revenue 20,000
Rendered services on account.
Salaries Expense 4,000
Cash 4,000
Paid salaries.
Advertising Expense 1,750
Cash 1,750
Paid advertising expense
Withdrawals 5,000
Cash 5,000
Withdravwals from owner
Cash 12,500
Accounts Receivable 12,500
Collected paymentfrom customers
925,750.00 925,750.00
Illustration: The ledger accountsof Fel Mundo Landscape Specialist after posting ate show below. T
accoountnumbers and journal reference columnsare purposely omitted. The balance of each accoun
has been determined.
Cash Notes Payable
Nov 450,000| Nov. 1 21,000 Nov. 2
1.
14 17,500 2 200,000 Bal.
20 13,500 3 54,000
30 12,500 4 1,500
5 24,000 Accounts Payable
26 4,000 Nov. 8
28 1,750 Bal.
29 5,000
493,500 311,250
Bal. 182,250 Supplies
Nov. 8 1,000
Accounts Receivable Bal. 1,000|
Nov. 22 20,000 Nov. 30 12.500
Bal. 7,500
Equipment Del Mundo, Capite
Nov. 3 54,000| Nov. 1
Bal. 54,000 Bal.
Revenues Salaries Expense
Nov. 14 17,500 Nov.26 4,000|
22 20,000 Bal. 4,000
37,500
Bal. 37,500
Unearned Revenu
Advertising Expense Nov. 8
Nov. 28 1,750 Bal.
Bal.
1,750|
t
Prepaid Rent
100,000 Nov. 1 21,000|
100,000 Bal. 21,000
Prepaid Insurance
1,000 Nov. 5 24,000|
1,000 Bal. 24,000|
Vehicles
Nov. 2 300,000
Bal.
300,000
Del Mundo, Withdrawals
450,000 Nov. 29 5,000
450,000 Bal. 5,000|
Gas Expense
Nov. 4 1,500|
Bal. 1,500|
13,500
13,500
Prepaid Rent (Adjustment a). Del Mundo makes and adjusting enrty to record the
expirationof the month of the three months' advance rent paid on Nov. 1.
Prepaid Insurance (Adjustment. b). Del Mundo record the expirationof the one-twelfth
of the entity's one-year insurance policy taken last Nov. 5
Supplies (Adjusment c). Del Mundo discovers that he used P500 worth of supplies during
November. He makes the necessary adjusting entry.
Vehicle and Equipment (Adjs.d and e). Del Mundo bought a truck and lawn mowers last
Nov. 2 and 3, [Link] Mundo allocates a full month's depreciation for property
and equipment bought on or before the 15th day of the month; otherwise, is half-month's it
depreciation. is estimated that the truck will have a useful life of five years and a salvage
It
value of P30,000, while lawn mowers, four-and-a-half years useful life without salvage
value. Del Mundo the computes that depreciation expenses for the truck as P4,500 a
month [(P300,000- P30,000) /60months] and for the lawnmowers,
1,000 (54,000/54 months).
Unearned Referral Revenues On Nov. 20, Del Mundo received a P13,500
(Adj. f).
prepayment forsix future visits. Since Del Mundo completed one of these visits in
November, he makes an adjusting entry reflect this.
Accrued Salaries (Adj. g). Del Mundo records an expense for the salariesof his part-time
employee who earned P1,600 during the last four days of November but will not be paid
until Dec. 10.
Accrued Interest (Adj.h) Del Mundo's P100,000 note payable, which he signed on
Nov. 2, carriesan 18% interest rate. Del Mundo uses the formula (for simple interest) below
to calculate how much interest expense accrued during the final twenty-eight days of
November.
Accrued Lawn Cutting Revenues (Adj. i). During the afternoon of Nov. 30, Del Mundo
cuts one lawn, and he agrees to mail the customera bill for P2,500 which he does on
Dec. 2. Del Mundo makes an adjusting entry in accordance with the revenue recognition
principle.
DR CR
Rent Expense 7,000
Prepaid Rent 7,000
Insurance Expense 2,000
Prepaid Insurance 2,000
Supplies Expense 500
Supplies 500
DepreciationExpense - Truck 4,500 Truck
Accumulated Depreciation-Truck 4,500
DepreciationExpense -Equipment 1,000
Accumulated Depreciation- Equipment 1,000
Equipment
Uneaned Revenue 2,250
Revenue 2,250
Salariesexpense 1,600
Accrued Salaries/Salaries Payable 1,600
Interest Expense 1,400
Accrued Interest/interest Payable 1,400
Accounts Receivable 2,500
Revenue 2,500
Depreciation
Straight line method
Cost- Salvage Value
Useful life
50,000
10,000
5yrs
300,000-30,000 50.000-10,000
5 5
54,000/year
54,000/12 8,000/year
4,500 8,000/12
667/month
54.000-0
4.5
12,000/year
12,000/12
1,000
P'RT
PrincipalRate*Period
100,000*18%*28/360
Unadjusted Trial Balance
Debit Credit
Cash 182,250
Accounts Receivable 7,500
Supplies 1,000
Prepaid Rent 21,000
Prepaid Insurance 24,000
Vehicles 300,000
Accumulated Depreciation - Vehicle
Equipment 54,000
Accumulated Depreciation - Equipment
Notes Payable 100.000
Accounts Payable 1,000
Unearned Revenues 13,500
Accrued Salaries/Salaries Payable
Accrued Interest/nterest Payable
Capital 450,000
Withdrawals 5,000
Revenues 37,500
Salaries Expense 4,000
Gas Expense 1,500
Advertising Expense 1,750
Rent Expense
Insurance Expense
Supplies Expense
Depreciation Expense -Truck
Depreciation Expense -Equipment
Interest Expense
Total 602,000 602,000
Adjustments Adjusted Trial Balance
Debit Credit Debit Credit
182,250
2,500 10,000
500 500
7,000 14,000
2,000 22,000
300,000
4,500 4,500
54,000
1,000 1,000
100,000
1,000
2,250 11,250
1,600 1,600
1,400 1,400
450,000
5,000
4,750 42,250
1,600 5,600
1,500
1,750
7,000 7,000
2,000 2,000
500 500
4,500 4,500
1:000 1,000
1,400 1,400
22,750.00 22,750.00 613,000.00 613,000.00