Application: Adjusting and Closing Entry

Company A had a beginning merchandise inventory of P250,000 on January 1. A physical count on December 31 revealed an ending inventory of P200,000. What adjusting entry is necessary to correct the merchandise inventory account?

​ (a)   ​ (b)  

​ (c)   ​ (d)  

• Merchandise Inventory, End
• 200,000
• Income Summary
• Merchandise Inventory, Beg.
• 250,000

Comprehensive Closing Process

A company has the following account balances: Sales: P800,000; Sales Returns and Allowances: P15,000; Sales Discounts: P8,000; Cost of Goods Sold: P450,000; Salaries Expense: P120,000; Rent Expense: P40,000; Depreciation Expense: P30,000; Interest Expense: P15,000; Retained Earnings: P20,000

1. Close Revenue Accounts to Income Summary

​ (a)   ​

​ (b)  

• Debit Sales P800,000
• Debit Income Summary P23,000
• Credit Income Summary P800,000

Comprehensive Closing Process

A company has the following account balances: Sales: P800,000; Sales Returns and Allowances: P15,000; Sales Discounts: P8,000; Cost of Goods Sold: P450,000; Salaries Expense: P120,000; Rent Expense: P40,000; Depreciation Expense: P30,000; Interest Expense: P15,000; Retained Earnings: P20,000

1. Close Contra-Revenue Accounts to Income Summary

​ (a)   ​

​ (b)  

​ ​ (c)  

• Credit Sales Returns and Allowances P15,000
• Debit Income Summary P23,000
• Credit P800,000
• Credit Sales Discounts P8,000

Comprehensive Closing Process

A company has the following account balances: Sales: P800,000; Sales Returns and Allowances: P15,000; Sales Discounts: P8,000; Cost of Goods Sold: P450,000; Salaries Expense: P120,000; Rent Expense: P40,000; Depreciation Expense: P30,000; Interest Expense: P15,000; Retained Earnings: P20,000

Close Expense Accounts to Income Summary

​ (a)   ​ ​

​ (b)  

​ (c)  

​ (d)  

​ (e)  

• Debit Income Summary P190,000
• Credit Interest Expense P15,000
• Credit Salaries Expense P120,000
• Credit Rent Expense P40,000
• Credit Depreciation Expense P30,000

Comprehensive Closing Process

A company has the following account balances: Sales: P800,000; Sales Returns and Allowances: P15,000; Sales Discounts: P8,000; Cost of Goods Sold: P450,000; Salaries Expense: P120,000; Rent Expense: P40,000; Depreciation Expense: P30,000; Interest Expense: P15,000; Retained Earnings: P20,000

Close COGS to Income Summary

​ (a)   ​

​ (b)  

• Debit Income Summary P450,000
• Credit Cost of Goods Sold P450,000
• Debit Cost of Goods Sold P450,000, Credit Income Summary P450,000
• Debit Income Summary P450,000, Credit Retained Earnings P450,000
• Debit Cost of Goods Sold P450,000, Credit Retained Earnings P450,000

Comprehensive Closing Process

A company has the following account balances: Sales: P800,000; Sales Returns and Allowances: P15,000; Sales Discounts: P8,000; Cost of Goods Sold: P450,000; Salaries Expense: P120,000; Rent Expense: P40,000; Depreciation Expense: P30,000; Interest Expense: P15,000; Retained Earnings: P20,000

Close Income Summary to Retained Earnings

​ (a)   ​

​ (b)  

• Income Summary P20,000
• Retained Earnings, P20,000

A Chart of Accounts (COA) is a comprehensive list of all financial accounts used by a business. It serves as the backbone of the accounting system, categorizing and organizing financial transactions.

Organize these options into the right categories

Groups:

(a) ASSETS

,

(b) Liabilities

,

(c) Revenue

,

(d) Expenses

• Sales revenue

• Prepaid expenses

• Utilities

• Rent

• Unearned revenue

• Advertising

• Bonds payable

• Property, plant, and equipment (PPE)

• Accrued expenses

• Accounts receivable

• Inventory

• Accounts payable

• Cash and cash equivalents

• Service revenue

• Short-term loans

• Salaries and wages

• Long-term loans

• Intangible assets (patents, copyrights, trademarks)

• Investments

Answer explanation

1. Assets

• Represents economic resources owned by a business.

  • Current Assets: Easily converted into cash within a year.

    • *Cash and cash equivalents

    • *Accounts receivable

    • *Inventory

    • *Prepaid expenses

  • Non-current Assets: Assets with a lifespan of more than one year.

    • *Property, plant, and equipment (PPE)

    • *Intangible assets (patents, copyrights, trademarks)

    • *Investments

    • *Goodwill

2. Liabilities

• Obligations or debts owed by a business to others.

  • Current Liabilities: Due within a year.

    • *Accounts payable

    • *Short-term loans

    • *Accrued expenses

    • *Unearned revenue

  • Non-current Liabilities: Due after one year.

    • *Long-term loans

    • *Bonds payable

    • *Deferred taxes

3. Equity

• Represents the owner's investment in the business.

  • Owner's Equity (for sole proprietorships and partnerships):

    • *Capital

    • *Drawings or withdrawals

    • *Retained earnings

  • Shareholders' Equity (for corporations):

    • *Common stock

    • *Preferred stock

    • *Retained earnings

4. Revenue

• Income generated from the core operations of a business.

  • *Sales revenue

  • *Service revenue

  • *Interest income

  • *Dividend income

  • *Rental income

5. Expenses

• Costs incurred to generate revenue.

  • Operating Expenses: Costs related to day-to-day operations.

    • *Salaries and wages

    • *Rent

    • *Utilities

    • *Advertising