Intacc 1a Reviewer Conceptual Framework and Accounting Standards

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Intacc-1A ( Reviewer) - Conceptual Framework and


Accounting Standards
Financial Accounting And Reporting (Adamson University)

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INTERMEDIATE ACCOUNTING – 1A (REVIEWER) o Travel fund


o Tax fund
CASH AND CASH EQUIVALENTS
o Bond Sinking Fund – basta one year after the reporting
CASH INCLUDES: period.
 Money  Deposits in foreign currency which are not subject for foreign
 Any other negotiable instrument that is payable in money and exchange restriction are included in cash.
acceptable by the bank for deposit and immediate credit.  Undelivered or Unreleased Check
 Checks  Postdated Check Delivered
 Bank drafts  Stale Check Given.
 Money orders NOT INCLUDED IN CASH
 Cash on Hand – undeposited cash collections and other cash
items awaiting deposit such as:  Postdated checks received. (unacceptable by the bank for
o Customers’ checks deposit and immediate credit or outright encashment.) (“cash in
o Cashier’s or manager’s checks bank includes customer check of 200,000 outstanding for 18
months)
o Traveler’s checks
 Restricted Cash
o Bank drafts
 IOU
o Money orders. (postal money order)  NSF Check – if na redeposit within the year, di na ileless or
 Cash in Bank – includes: ignored nalang.
o Demand deposit  Sinking fund
o Checking account  Preference share redemption fund
o Savings deposit  Contingent fund
o All of the above must be unrestricted as to  Insurance fund
withdrawal.  Fund for acquisition and construction of PPE
 Cash fund – set aside for current purposes such as:  Savings Deposit in Closed Bank
(depende talaga sa purpose pag cash fund)  “the cash receipt journal was held open until Jan 15, 2021
o Petty cash fund during which time an amount of 450,000 was collected and
o Payroll fund recorded on Dec 31, 2021.
o Dividend fund A/R 450,000
o Interest fund Cash 450,000

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UNRESTRICTED CASH o BSP treasury bill that was purchased 1 year ago
cannot qualify as cash equivalent even if the
 There is no specific dealings with “cash”.
remaining maturity is three months or less.
 An entity shall classify an asset as current when the asset as
cash or cash equivalents unless it is restricted to settle a liability INVESTMENT OF EXCESS CASH
for more than 12 months after the end of the reporting period.
 Entity must maintain sufficient cash for use in current
 To be reported as “cash”, an item must be unrestricted in use.
 Cash must be readily available and not subject to any operations.
 Any cash accumulated in excess of that needed for current
restriction, contractual or otherwise.
operations should be invested even temporarily in some type of
CASH EQUIVALENTS revenue earning investment.
 Excess cash may be invested in time deposit, money market
 Short-term and highly liquid investments that are readily
instrument and treasury bills for the purpose of earning interest
convertible into cash and so near their maturity that they present
income.
insignificant risk of changes in value because of changes in
interest rates. CLASSIFICATIONS OF INVESTMENT OF EXCESS CASH
 Only highly liquid investments that are acquired 3 months
 Investment in time deposit, money market instruments and
before maturity can qualify as cash equivalents
treasury bills should be classified as:
o If the term is three months or less, such instruments are
 Examples of Cash Equivalents are:
o Three-month BSP Treasury Bill. classified as cash equivalents.
o If the term is more than 3 months but within one year,
o Three-year BSP Treasury Bill purchased 3 months
such investments are classified as short-term financial
before date of maturity.
asset or temporary investments and presented as
o Three-month time deposit.
current assets.
o Three-month money market instrument or commercial
o If the term is more than 1 year, such investments are
paper.
classified as non-current or long term investment.
o Preference shares with specified redemption date
o If such investments become due within one year from the
acquired 3 months before date of maturity.
end of the reporting period, they are reclassified as
o Time Deposit and Commercial Paper if silent is included.
current or temporary investments.
o Certificate of Deposit
 Not examples of Cash Equivalents: MEASUREMENT OF CASH
o Equity Securities (do not have maturity date)

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 Measured at face value  Should be parallel in the classification of the related liability.
 Cash in foreign currency is measured at the current o Example, sinking fund that is set aside to pay a bond
exchange rate. payable shall be classified as current asset when due
 If a bank or financial institution holding the funds of an entity within one year after the end of the reporting period,
is in bankruptcy or financial difficulty, cash should be written part of cash and cash equivalent
down to estimated realizable value if the amount of o Preference share Redemption fund – depende kung
recoverable is estimated to be lower than the face value. current or not, pag current part of cash.
 Cash fund set aside for the acquisition of a noncurrent asset,
FOREIGN CURRENCY
future expansion for PPE. should be classified as noncurrent
 Should be translated to Philippine Pesos using current regardless of the year of disbursement.
exchange rate.  Cash Fund set aside for current purpose – part of cash
 Deposits in foreign currency which are not subject for foreign
BANK OVERDRAFT – mas madami kang inissue na check kesa sa
exchange restriction are included in cash.
naka deposit
 Deposit in foreign bank subject to foreign restriction should be
classified as non-current assets.  Credit Balance of CASH IN BANK.
 IF material and restricted – Part of NCA o Results from the issuance of checks in excess of the
 If Immaterial and restricted – part of C&CE deposits.
 Without restriction – part of C&CE  Classified as current liability
 If restricted and silent – part of NCA  NOT TO BE OFFSET against other bank accounts with debit
balances from the same bank. EXAMPLE:
a. Cash in Bank – First bank, which is overdrawn by
CASH FUND FOR CERTAIN PURPOSE 10,000
b. Cash in Bank – Second Bank, with a debit balance of
 Part of cash and cash equivalents.
100,000.
o Petty cash fund, payroll fund, travel fund, interest fund,
o Net Cash Balance is 90,000.
dividend fund and tax fund.
 It is not necessary to adjust and open a bank overdraft account
 Not part of cash and cash equivalents.
in the ledger.
o Sinking fund, P/S redemption fund, contingent fund,
o In other words, Cash in Bank – First Bank account is
insurance fund and fund for acquisition and construction
maintained in the ledger with a credit balance.
of PPE.
 Overdrafts are not permitted in the Philippines.
CLASSIFICATION OF CASH FUND

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EXCEPTION TO THE RULE ON OVERDRAFT.  Pag legally restricted as to withdrawal yung amount ng
compensating balance, I miminus siya sa Cash in Bank
 When an entity maintains two or more accounts in one bank
account.
and one account results in an overdraft, such overdraft can be
o It will be classified as “cash held as compensating
offset against the other bank account with a debit balance in
balance” under current assets if the related loan is short
order to show cash, net of bank overdraft or bank overdraft,
term.
net of other bank account.
o If Long term, compensating balance is classified as
 An overdraft can also be offset against the other bank account if
noncurrent investment.
the amount is not material.
 Pag not legally restricted as to withdrawal yung amount ng
 Under IFRS, bank overdraft can be offset against other bank
account when payable on demand and often fluctuates from compensating balance, hindi siya ileless sa cash in bank. (in
positive to negative as an integral part of cash management. effect, part siya ng cash)

COMPENSATING BALANCE Possible Questions:

 Generally takes the form of minimum checking or demand 1. What is the correct amount of Cash?
deposit account balance that must be maintained in connection a. Cash only, not included si cash equivalents.
with a borrowing arrangement with a bank. 2. What is the correct amount of cash in the notes to financial
statements?
 Example:
o Entity borrows P 5,000,000 from a bank and agrees to a. Cash only, not included si cash equivalents
3. What is the correct amount of cash in the SFP?
maintain a 10% or 500,000 minimum compensating
a. Cash and Cash Equivalents
balance in a demand deposit account.
4. What is the correct amount of cash and cash equivalents?
 In effect, this arrangement results in the reduction of the amount
a. Cash and Cash Equivalents
borrowed because the compensating balance provides a source
of fund to the bank as partial compensation for the loan
extended.
 Naka charge to normally sa cash in bank account.
 If silent, assume as not legally restricted.
CLASSIFICATION OF COMPENSATING BALANCE

Chapter 2 Bank Reconciliation


Bank Deposits

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 3 kinds of bank deposit  A bank statement is a monthly report of the bank to the
o Demand Deposit depositor showing:
o Saving Deposit o Cash balance per bank at the beginning
o Time Deposit o Deposits made by the depositor acknowledged by the
bank
Demand Deposit o Checks drawn by the depositor and paid by the bank
 Current account or checking account or commercial deposit o Daily cash balance per bank during the month
where deposits are covered by deposit slips and where funds  When bank statement is received, attached thereto are the
are withdrawable on demand by drawing checks against the depositor’s canceled checks and any debit or credit memo that
bank. have affected the depositor’s account.
 Noninterest bearing  Cancelled Check – checks issued by the depositor and paid by
the bank during the month
Saving Deposit
RECONCILING ITEMS
 Depositor is given a passbook upon the initial deposit.
Passbook is required when making deposits and withdrawals.  Book Reconciling Items
 Interest bearing o Credit Memo
o Debit Memo
Time Deposit
o Erros
 Similar to saving deposit in the sense that it is interest bearing.  Bank Reconciling Items
 Evidenced by a formal agreement embodied in an instrument o Deposit in Transit
called certificate of deposit. o Outstanding Checks
 May be preterminated or withdrawn on demand or after a o Errors
certain period of time agreed upon.
CREDIT MEMOS
BANK RECONCILIATION
 Items that are not deposits credited by the bank to the account
 Statement which brings into agreement the cash balance per of the depositor but not yet recorded by the depositor as
book and cash balance per bank. cash receipts.
 Prepared monthly because bank provides the depositor with the  Has the effect of increasing the bank balance.
bank statement at the end of every month.

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 Typical examples of credit memos are: DEPOSIT IN TRANSIT


o Notes Receivables collected by bank in favor of the
 Collections already recorded by the depositor as cash
depositor and credited to the account of the depositor.
receipts but not yet reflected on the bank statement.
o Proceeds of bank loan credited to the account of the
 It includes:
depositor.
o Collections already forwarded to the bank for deposit but
o Matured time deposit transferred by the bank to the
too late to appear in the bank statement.
current account of the depositor. o Undeposited collections or those still in the hands of the
DEBIT MEMOS depositor. In effect, these are cash on hand awaiting
delivery to bank for deposit.
 Items that are not checks paid by bank which are charged or
debited by the bank to the account of the depositor but not yet OUTSTANDING CHECKS
recorded by the depositor as cash disbursement.
 Checks already recorded by the depositor as cash
 Have the effect of decreasing the bank balance.
disbursements but not yet reflected on the bank statement.
 Mga auto debits ganon.
 It includes:
 Typical examples of debit memos are:
o Checks drawn and already given to payees but not yet
o NSF or No Sufficient Fund Checks – checks deposited
presented for payment.
but returned by the bank because of insufficiency of fund.
o Certified Check – one where the bank has stamped on
Other name is DAIF or “drawn against insufficient fund”
its face word “accepted” or “certified indicating sufficiency
o Technically Defective Checks – checks deposited but
of fund”
returned by the bank because of technical defects such
 When the bank certifies a check, the account of
as absence of signature or countersignature,
the depositor is immediately debited or charged to
erasures not countersigned, mutilated checks,
insure the eventual payment of the check.
conflict between amount in words and amount in
 SHOULD BE DEDUCTED FROM THE TOTAL
figures.
OUTSTANDING CHECKS (if included therein)
o Bank Service Charges – bank charges for interest,
because they are no longer outstanding for Bank
collection, checkbook and penalty. Recon.
o Reduction of loan – amount deducted from the current
account of the depositor in payment for loan which the FORMS OF BANK RECONCILIATION
depositor owed to the bank and which has already
matured.

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1. Adjusted Balance Method – the book balance and the bank Errors will have to be analyzed if it is a deduction or
balance and the bank balance are brought to a correct cash addition.
balance that must appear on the balance sheet.
2. Book to Bank Method – the book balance is reconciled with 2. BOOK TO BANK METHOD
the bank balance or the book balance is adjusted to equal the
bank balance. Book Balance
3. Bank to Book Method – bank balance is reconciled with the xxx
book balance or the bank balance is adjusted to equal the book Add: Credit Memo xx
balance. Outstanding Checks xx
xxx
Total
xxx
Less: Debit Memo xx
PROFORMA RECONCILIATION Deposit in Transit xx
1. ADJUSTED BALANCE METHOD (xx)
Bank Balance
Book Balance xxx xxx
Add: Credit Memo xxx
Total xxx 3. BANK TO BOOK METHOD
Less: Debit Memo (xx)
Adjusted Book Balance Bank Balance xxx
xxx Add: Deposit in Transit xx
Debit Memo xx xxx
Bank Balance xxx Total
Add: Deposit in Transit xxx xxx
Total xxx Less: Outstanding Checks xx
Less: Outstanding Checks (xx) Credit Memo xx (xx)
Adjusted Bank Balance Book Balance
xxx xxx
Illustration

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The cash records of Company X show the following for the Jan 11 722 10,000 45,000
month Jan 12 723 18,000 27,000
Jan 14 20,000 47,000
CASH RECEIPTS CASH DISBURSEMENT Jan 17 724 2,000 45,000
Jan 5 60,000 Jan 6 Check No. 5,000 Jan 26 30,000 75,000
721 Jan 26 15,000 CM 90,000
Jan 13 20,000 Jan 7 Check No. 10,000 Jan 30 5,000 RT 85,000
722
Jan 30 1,000 SC 84,000
Jan 25 30,000 Jan 10 Check No. 18,000
723
The following data are gathered in connection with the CM and
Jan 31 40,000 Jan 14 Check No. 2,000
DM appearing on the bank statement:
724
150,000 Jan 28 Check No. 37,000 a. The CM of 15,000 on Jan 26 represents proceeds of note
725 collected by bank in favor of company.
Jan 31 Check No. 28,000 b. The RT of 5,000 represents check of customer deposited
726 previously but returned by the bank because of NSF.
100,000 c. The last amount on the balance of the bank statement is the
unadjusted balance per bank amount.
The general ledger shows the cash in bank account with a debit
balance of 150,000 and credit balance of 100,000. So the
balance of the cash in bank in depositor’s account is 50,000  Deposit in Transit 40,000
Usually pag Jan 1 yung tas “balance” yung description, di siya  Outstanding Checks
kasama kase beginning balance yon ng cash account Check No. 725 37,000
Check No. 726 28,000

 Debit memo 6,000


 Credit memo 15,000
BANK STATEMENT
Adjusted Balance Method:
Date Check Withdrawals Deposits Balance
No.
Balance per book 50,000
Jan 6 60,000 60,000
Add: Credit Memo 15,000
Jan 8 721 5,000 55,000

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Total 65,000 Bank to Book Method


Less: Debit Memo (6,000) Balance per Bank 84,000
Adjusted Balance per book 59,000 Add: Deposit in Transit 40,000
Debit Memo 6,000 46,000
Balance per Bank 84,000 Total 130,000
Add: Deposit in Transit 40,000 Less: Outstanding Check 65,000
Total 124,000 Credit Memo 15,000
Less: Outstanding Check 65,000 (80,000)
Adjusted Balance per Bank 59,000 Balance per Book
Chapter 3 Proof of Cash
TWO-DATE BANK RECONCILIATION
 Literally involves 2 dates
 Same procedure as to 1 date bank recon.
Formula of Book Balance
Balance per book – beginning of the month
xxx
Add: Book Debits during the month
Book to Bank Method xxx
Balance per Book 50,000 Total xxx
Add: CreditMemo 15,000 Less: Book Credits during the month
Outstanding Check 65,000 (xx)
80,000 Balance per book – end of the month
Total 130,000 xxx
Less: Debit Memo 6,000
Deposit in Transit 40,000  Book Debits – refer to cash receipts or all items debited to the
(46,000) cash in bank account.
Balance per Bank 84,000  Book Credits – cash disbursement or all items credited to the
cash account.

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Formula of Bank Balance


Balance per bank – beginning of the month xxx
Add: Bank Credits during the month xxx
Total xxx
Less: Bank Debits during the month
(xx)
Balance per bank – end of the month Formula of Outstanding Checks
xxx Outstanding Checks – beginning of the month xxx
Add: Checks drawn by depositor during the month xxx
 Bank Credits – all items credited to the account of the Total checks to be paid by the bank xxx
depositor which includes deposits acknowledged by bank and Less: checks paid by the bank during the month
credit memos. (xx)
o In the absence of any statement to the contrary or if the Outstanding Checks – end of the month
problem is silent, bank credits are assumed to be xxx
deposits acknowledged by bank.
 Bank Debits – all items debited to the account of the depositor Illustration
which include checks paid by bank and debit memos. Cash in bank per ledger
o In the absence of any statement to contrary or if the Balance, January 31
problem is silent, bank debits are assumed to be checks 50,000
paid by bank. Book debits for February including January CM
for note collected of P15,000
Formula of Deposit in Transit
200,000
Deposit in Transit – beginning of the month xxx Book Credits for February, including NSF check
Add: Cash Receipts deposited during the month of 5,000 and service charge of 1,000 for January
xxx 180,000
Total deposits to be acknowledged by bank xxx Bank statement for Feburary
Less: Deposits acknowledged by bank during the month Balance, January 31
(xx) 84,000
Deposit in Transit – end of the month Bank Credits for February, including CM for
xxx note collected of 20,000 and January

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deposit in transit of 40,000 170,000 Outstanding check for January


Bank Debits for February, including NSF check of (65,000)
10,000 and January outstanding Adjusted bank balance
check of 65,000 130,000 59,000

Computation of Book Balance


Balance per book – January 31
50,000
Add: Book Debits during February
200,000
Total 250,000
Less: Book Credits during February
Bank Recon for the month of January (180,000)
Balance per book – January 31 Balance per book – Feb 28
50,000 70,000
Note collected by bank in January
15,000 Computation of Bank Balance
Total 65,000 Balance per bank – January 31
NSF check for January 84,000
(5,000) Add: Bank Credits during February
Service Charge for January 170,000
(1,000) Total 254,000
Adjusted book balance Less: Bank Debits during February
59,000 (130,000)
Balance per bank – February 28
Balance per bank, January 31 124,000
84,000
Deposit in Transit for January
40,000
Total 124,000

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Computation of Deposit in Transit Bank Reconciliation in February


Deposit in Transit – January 31 Balance per Book 70,000
40,000 Add: Note collected by Bank in Feb (CM)
Add: Cash Receipts deposited during February: 20,000
Book Debits 200,000 Total 90,000
Less: January Credit Memo (15,000) Less: NSF Check for February (DM)
185,000 (10,000)
Total Adjusted Book Balance
225,000 80,000
Less: Cash Disbursement during February:
Bank Credits 170,000
Less: Feb. CM for note collected (20,000)
150,000 Balance per Bank 124,000
Deposit in Transit – Feb 28 Deposits in Transit for Feb 75,000
75,000 Total 199,000
Outstanding Checks for February (119,000)
Adjusted Bank Balance
Computation of Outstanding Checks 80,000
Outstanding Checks – January 31
Jan 31 Receipts Disbursement Feb 28
65,000
Bal. per Book 50,000 200,000 180,000 70,000
Add: Check drawn by depositor during February:
Note Collected
Book Credits 180,000 Jan 15,000 (15,000)
Less: January DM (6,000) Feb 20,000 20,000
174,000 NSF Check
Less: Checks paid by bank during February Jan (5,000) (5,000)
Bank Debits 130,000 Feb 10,000 (10,000)
Less: February NSF (10,000) Service
120,000 Charge:
Outstanding Checks – February 28 Jan (1,000)
119,000 Adjusted 59,000 205,000 184,000 80,000
Book Bal

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Balance per 84,000 170,000 130,000 124,000  Notes Receivable


Bank o Accounts Receivables – open account arising from the
Deposit in sale of goods and services in the ordinary course of
Transit business and not supported by promissory notes.
Jan 40,000 (40,000)  If A/R is related to trade receivables, it is part of
Feb 75,000 75,000 current even if more than 12 months.
Outstanding  AKA customers’ accounts, trade debtors, and
Checks
trade accounts receivable.
January (65,000) (65,000)
o Notes Receivables – those supported by formal
119,000 (119,000)
Adjusted 59,000 205,000 184,000 80,000 promise to pay in the form of notes.
Bank bal  Nontrade Receivables – represents claims arising from
sources other than the sale of merchandise or services in the
ordinary course of business.
Classification
 Trade Receivables – if expected to be realized in cash within
the normal operating cycle or one year whichever is longer,
Chapter 4 Accounts Receivables are classified as current assets.
 Nontrade Receivables – if expected to be realized in cash
Definition within one year, the length of operating cycle notwithstanding,
are classified as current asset.
 Financial assets that represent a contractual right to receive
o If collectible beyond one year, nontrade receivables
cash or another financial asset from another entity.
 For retailers or manufacturers, receivables are classified into are classified as noncurrent assets.
trade receivables and nontrade receivables.  An entity shall classify an asset as current when the entity
expects to realize the asset or intends to sell or consume it in
Trade and Nontrade Receivables the entity’s normal operating cycle, or when the entity expects to
realize the asset within 12 months after the reporting period.
 Trade Receivables – claims arising from sale of merchandise
or service in the ordinary course of business. Presentation
o Includes:
 One line item, trade and other Receivables.
 Accounts Receivable

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Example of Nontrade receivables Customers’ Credit balances


a. Advances to or receivables from shareholders, directors,  Credit balances in accounts receivables resulting from:
officers or employees. If collectible in one year, such o Overpayments
advances or receivables should be classified as current assets, o Returns and allowances
otherwise noncurrent. o Advance payments from customers
b. Advances to affiliates are usually treated as long-term  Classified as current liabilities and are not offset against the
investments. debit balances in other customers’ accounts, except when the
c. Advances to supplier for the acquisition of merchandise are same is not material.
current assets.
d. Subscription Receivables current asset if collectible within one Initial measurement of Accounts Receivable
year, otherwise noncurrent.  Recognized initially at fair value plus transaction costs that are
e. Creditor’s accounts may have debit balances as a result of directly attributable to the acquisition.
overpayment or returns and allowances. It is classified as o The fair value of the asset is usually the transaction
current asset. price, meaning the fair value of the consideration given.
a. Accounts Payable with debit balance.  For short-term receivables, the fair value is equal to the face
i. If not material, offset against the creditors amount or original invoice amount.
accounts with credit balances and only net  Cash flows relating to short-term receivables are not
accounts payable may be presented. discounted.
f. Special Deposits on contract bids normally are classified as  Accounts receivable – shall be measured initially at face
noncurrent assets. amount or original invoice amount.
a. if collectible currently, current assets.
g. Accrued income are usually current asset such as: Subsequent Measurement
a. Dividend Receivable
 Amortized cost.
b. Accrued Rent Receivable
o It is the net realizable value of accounts receivable.
c. Accrued Royalties Receivable
 The net realizable value of accounts receivable is the amount of
d. Accrued interest receivable on bond investment.
cash expected to be collected or the estimated recoverable
h. Claims Receivable are current asset such as
amount.
a. Claims against common carriers for losses or damages
b. Claim for rebates and tax refunds Net Realizable Value
c. Claim from insurance entity

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 The initial amount recognized for accounts receivable shall be the freight charge and deduct the same when remittance is
reduced by adjustments which in the ordinary course of made by him.
business will reduce the amount recoverable from the customer.  On the part of the seller, the freight charge is recorded by
 In estimating the net realizable value of trade accounts debiting freight out and crediting allowance for freight charge.
receivables, the following deductions are made:
Example.
o Allowance for freight charge
o Allowance for sales return An entity has a 100,000 account receivable at the end of
o Allowance for sales discount accounting period. The terms are 2/10, n/30, FOB destination
o Allowance for doubtful accounts and freight collect. The customer paid freight charge of 5,000.

Terms related to freight charge To record the sale:


 FOB destination Accounts Receivable 100,000
o Owner of the goods is the seller Freight out 5,000
o Seller should pay the freight Sales 100,000
Allowance for freight charge
o Buyer will only own it upon receipt or when it reached the
5,000
company.
To record the collection within the discount period:
 FOB shipping point
Cash 93,000
o Owner of goods while in transit is the buyer
Sales Discount 2,000
o Buyer should pay the freight
Allowance for freight charge 5,000
o Buyer will be the owner upon shipment. Accounts Receivable
 Freight Collect 100,000
o Freight charges is not yet paid
o Buyer actually paid Allowance for Sales Returns
 Freight prepaid  Measurement of accounts receivables shall also recognize the
o Paid by the seller. probability that some customers will return goods that are
unsatisfactory or will make other claims requiring reduction in
Accounting for Freight Charge
the amount due as in the case of shipment shortages and
 Sometimes, goods are sold FOB destination but shipped defects.
freight collect with the understanding that the buyer will pay for

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Accounts Receivable
100,000
Example
An amount of 50,000 of the total accounts receivable at year-
end represents selling price of goods that will probably returned.
The journal entry to recognize the probable return is:
Illustration – Net Method
Sales Return 50,000
Allowance for Sales Return  Sale of merchandise for P100,000, terms 5/10, n/30.
50,000 Accounts Receivable 95,000
Sales 95,000
Sales Discount
 Assume collection is made within the discount period.
 Cash discounts. Cash 95,000
 It is known as sales discount for the seller, and purchase Accounts Receivable
discount for the buyer. 95,000
 Methods of recording credit sales  Assume collection is made beyond the discount period
o Gross Method – recorded at gross amount. Cash 100,000
o Net Method – recorded at net amount Accounts Receivable
95,000
Illustration – Gross Method Sales Discount forfeited
 Sale of Merchandise for 100,000, terms 5/10, n/30. 5,000
Accounts Receivable 100,000  The sales discount forfeited is classified as other income.
Sales 100,000 Allowance for Sales Discount
 Assume collection is made within the discount period
Cash 95,000 Of the accounts receivable of 1,000,000 at the end of the
Sales Discount 5,000 reporting period, it is estimated that the discounts to be taken
Accounts Receivable will amount to 50,000.
100,000 Sales Discount 50,000
Allowance for Sales Discount
50,000
 Assume collection is made beyond the discount period.
Cash 100,000

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The adjustment may be reversed at the beginning of the next  Accounts of 30,000 are considered doubtful of collection
period in order that discounts can then be charged normally to Doubtful Accounts 30,000
sales discount account. ADA 30,000
 The accounts are subsequently discovered to be worthless or
Accounting for Bad Debts
uncollectible.
 Two methods: ADA 30,000
o Allowance method A/R 30,000
o Direct write-off method

 The same accounts that are previously written off are


unexpectedly recovered or collected.
A/R 30,000
ADA 30,000
Allowance Method Cash 30,000
A/R 30,000
 Requires recognition of a bad debt loss if the accounts are
doubtful of collection. Direct Write-Off Method
Doubtful Accounts Expense xxx  Requires recognition of a bad debt loss only when the accounts
ADA xxx proved to be worthless or uncollectible.
 The ADA is deduction from A/R  It is used by the BIR for tax purposes.
 If the allowance was found worthless  It violates the matching principle.
ADA xxx  Not permitted under IFRS
A/R xxx
Illustration – Direct Write-off Method
Recoveries of Accounts written off
 Accounts of 30,000 are considered doubtful of collection
 If a collection is made on account previously written off as No entry
uncollectible, the procedure is first to recharge the customer’s  The accounts proved to be worthless.
account. Bad debts expense 30,000
 Simple reverse the original entry. A/R 30,000
Illustration – Allowance Method  The same accounts that are previously written off as worthless
are recovered and collected.

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A/R 30,000 1. Aging of Accounts Receivable or “statement of financial


Bad Debts expense 30,000 position approach”
Cash 30,000 2. Percent of Accounts Receivable or also “statement of
A/R 30,000 financial position approach”
3. Percent of Sales or “income statement approach”
AGING OF ACCOUNTS RECEIVABLES
 Involves analysis where accounts are classified into not due or
Chapter 5 Estimation of Doubtful Accounts
past due.
Methods of Estimating Doubtful Accounts
a. Not due e. 91-120 days past due
b. 1 to 30 days past due f. 121 to 180 days past due
c. 31 to 60 days past due g. 181 to 365 past due
d. 61 – 90 days past due h. More than 1 year past due
 The allowance is determined by multiplying the total of each The following data are summarized in aging the accounts
classification by the rate or percent of loss experienced by receivable at the end of the period:
the entity for each category.
Balance Experience Required
 The major argument for the use of this method is the more
rate Allowance
accurate and scientific computation of the allowance for doubtful
Not due 500,000 1% 5,000
accounts.
1-30 days 300,000 2% 6,000
 It has the advantage of presenting fairly the accounts receivable past due
in the statement of financial position at net realizable value. 31-60 days 200,000 4% 8,000
 The objection of this method is it violates the matching process. past due
 This method is time consuming if a large number of accounts 61-90 days 100,000 7% 7,000
are involved. past due
91-180 days 50,000 10% 5,000
past due
Illustration 181-365 30,000 30% 9,000
days past
due

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More than 1 20,000 50% 10,000 o Moreover, the loss experience rate may be difficult to
year obtain and may not be reliable.
1,200,000 50,000
Illustration
The amount computed, which is 50,000 is the required balance The balance of accounts receivable is 2,000,000 and the credit
of ADA at the end of the period. balance in the allowance for doubtful accounts is 10,000.
Doubtful accounts are estimated at 3% of accounts receivable.
Thus, if the ADA has a credit balance of 10,000 before the
adjustment, the doubtful accounts expense is determined as Required Allowance (2,000,000)(3%)
follows: 60,000
Required Allowance 50,000 Less: Credit Balance in Allowance
Less: ADA before adjustment 10,000 10,000
Doubtful Accounts Expense 40,000 Doubtful Accounts Expense
The Journal Entry to record the doubtful accounts expense is: 50,000
Doubtful Accounts Expense 40,000 Journal Entry:
ADA 40,000 Doubtful Accounts Expense 50,000
When is an Account Past Due ADA 50,000

 Credit terms will determine whether an account is past due. PERCENT OF SALES
o For example: 2/10, n/30, and the account is 45 years old,  The amount of sales for the year is multiplied by a certain rate to
it is considered to be 15 days past due. get the doubtful accounts expense.
 The term “past due” refers to the period beyond the maximum  The computed amount is the amount of doubtful accounts
credit term. expense and not the required ADA.
PERCENT OF ACCOUNTS RECEIVABLES  The rate may be applied on credit sales or total sales.
 The rate to be used is computed by dividing bad debt losses
 A certain rate is multiplied by the open accounts at the end of in prior years by the charge sales of prior years. (in case na
the period in order to get the required allowance balance. hindi given yung rate)
 It has the advantage of presenting accounts receivable at  The rate obtain is multiplied by the current year’s charge sales
estimated NRV. The approach is also simple to apply. to arrive at the doubtful accounts expense.
 This approach violates the principle of matching bad debt  There is no substantial difference if in the computation of the
loss against the sale revenue. rate, the basis is total sales of the prior periods.

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o In such case, the rate obtained is multiplied by the Accounts Receivable 1,000,000
current year’s total sales to get the doubtful accounts Sales 5,050,000
expense. Sales Return 50,000
 This procedure of determining the rate has the advantage of Allowance for doubtful accounts 20,000
eliminating the extra work of making a record of cash sales and
credit sales.
 However, this approach may prove unsatisfactory when there is
a considerable fluctuation in the proportion of cash and credit
sales periodically. If doubtful accounts are estimated at 1% of net sales, the
doubtful accounts expense is 50,000 or (1% of 5,000,000)
Argument for Percent of Sales Method
 When the “percent of sales” method is used in computing Doubtful Accounts Expense 50,000
doubtful accounts, proper matching of cost against revenue ADA 50,000
is achieved. The allowance of doubtful accounts now have a total balance of
 This is so because bad debt loss is directly related to sales and 70,000.
reported in the year of sale. Correction in Allowance for Doubtful Accounts
 This method is an income statement approach, because it
favors the income statement.  The correction is to be reported in the income statement either
as an addition to or subtraction from doubtful accounts expense.
Argument against percent of sales method.  Inadequate allowance is adjusted as follows:
 The accounts receivable may not be shown at estimated Doubtful Accounts xxx
realizable value because the ADA may prove excessive or ADA xxx
inadequate. An excessive allowance is recorded as follows:
 Thus, it becomes necessary that from time to time the accounts ADA xxx
should be “aged” to ascertain the probable loss. Doubtful Accounts xxx
 As a consequence, the rate applied on sales should be revised  When the allowance is excessive, there is a corollary problem
accordingly. when the discrepancy is more than the debit balance in the
doubtful accounts expense account.
Illustration For example, if the amount of correction due to excessive
The following accounts are gathered from the ledger: allowance is 30,000 and the DAE has a debit balance of 20,000,
following the above procedure will result to a credit balance in

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the doubtful accounts expense account of 10,000. Such balance


is obviously abnormal. To continue the illustration, if on Dec. 31, the required
allowance is 40,000, the adjustment should be:
The 10,000 difference should be treated in the determination of
income of the current period. DAE 60,000
ADA 60,000
ADA 30,000 Required allowance 40,000
DAE 20,000 Add: DR balance in allowance
Miscellaneous Income 10,000 20,000
DAE 60,000
Debit balance in allowance account
 In certain instances, it may have a debit balance because it may
be the policy of the entity to adjust the allowance at the end of
the period and record accounts written off during the year.

For Example, on Jan 1, the allowance account before


adjustment has a credit balance of 30,000 and during the year,
an account of 50,000 is written off and recorded as follows:
ADA 50,000
A/R 50,000
Thus, on Dec. 31, the allowance has a debit balance of 20,000
before adjustment Notes Receivable

 The debit balance does not indicate that the allowance is Type of Receivable Initial Measurement Subsequent
inadequate because the accounts written off during the year and Measurement
charged to the allowance may have arisen from current year Short Term Face Amount Face Amount
Receivable
sales.
Long Term interest
 Thus, the charge to the allowance account simply predates the
bearing note Face Amount Face Amount
recording of doubtful accounts.
reasonable interest
 At the end of the period, when adjustments are made, the debit rate (above market
balance should be considered. rate)

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Long Term interest Order of Priority: Future Value=PV (1+i)t


bearing note 1. F.V. of Example what will be paid on maturity = 1,404,928. The total
unreasonable (below property given, Amortized Cost interest received is 404,928.
market rate) cash price Effective Interest
equivalent. Method Example – Noninterest Bearing Note
2. F.V. of
property An entity manufactures and sells machinery. On Jan 1, 2020,
received or P.V. the entity sold machinery costing 280,000 for 400,000. The
Long term Order of Priority: buyer signed a non-interest bearing note for 400,000 payable in
noninterest bearing 1. F.V. of property four equal installments every December 31. The cash sale price
note given, cash Amortized Cost of the machinery is 350,000.
price Effective Interest
equivalent. Method  Long-term noninterest bearing note. And may cash sales price na
2. F.V. of given.
property
received or P.V. Face Value of Note 400,000
Present Value – Cash Sale Price 350,000
Unearned Interest Income 50,000

Example:
An entity owned a tract of land costing 800,000 and sold the land
for 1,000,000. The entity received a 3-year note for 1,000,000 plus Note Fraction Interest
interest of 12% compounded annually. Receivable Income
2020 400,000 4/10 20,000
 The note is a long term interest bearing note. So the 1,000,000 2021 300,000 3/10 15,000
is its present value. 2022 200,000 2/10 10,000
2023 100,000 1/10 5,000
The Lumpsum formula can be used in this problem when 1,000,000 50,000
determining the FUTURE value of the note and interest per
year. What is the current portion of the note on December 31, 2020?
NR – Current Portion 100,000

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Unearned Interest Income (15,000) Jan 1, 20x2 Xx Xx xx xx


Carrying Amount 85,000
Tables to be used:
For Lumpsum:
A B C Loans Receivables
Date Interest Income Unearned Present value
Initial Carrying Amount of Loan is:
(c x rate) Interest Income (bal + a)
(bal – a) Principal Amount xx
Jan 1, 20x1 xx xx Direct Origination Cost xx
Dec 31, 20x1 xx xx xx Origination Fees Received (xx)
Sa dulo xx 0 Amount of loan Initial Carrying Amount xxx

For Ordinary Annuity Yung initial carrying amount din yung P.V. sa effective interest
method table.
Principal amount less Initial Carrying amount = unearned
Date Collectio Interest Amortizatio Present interest income
n Income n Value
Jan 1, 20x1 xx If ang given lang is Principal tas may nominal at effective rate. Pag
Dec 31, xx Xx xx xx tinanong ang what is the amount of cash paid to the borrower or initial
20x1 carrying amount ganto gagawin:
Sa dulo xx xx xx xx
Ex. Dec. 31, 2019, London Bank granted a 5,000,000 loan to a
borrower with 10% stated rate payable annually and maturing in 5
years. The loan was discounted at the market interest rate of 12%.
For Annuity Due Initial carrying amount of loan is?
PV of Principal = (5,000,000)(.57) = 2,850,000
Date Collectio Interest Amortizatio Present PV of Interest = (500,000)(3.6) = 1,800,000
n Income n Value Initial Carrying Amount 4,650,000
Jan 1, 20x1 xx
Jan 1, 20x1 Xx xx xx Loan Impairment:

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 Kalian gagamit ng PV of Principal plus PV of Interest? o Subsequent Entries:


o Kapag ma cocollect mo both interest and principal. Nov 31, 2020 Interest Expense 10,000
 Kailan gagamit ng PV of Principal lang Note Payable 10,000
o If principal nalang ma cocollect mo. Dec 31, 2020 Interest Expense 10,000
 Be careful sa date kung kalian tinatanong yung carrying Note Payable
amount. Minsan kase 2019 yung loan tas 2021 carrying amount 10,000
yung tinatanong. (120,000/12) = 10,000 per month.
 Impairment loss is always =
Carrying Amount on Carrying Amount of Note Payable at Year end:
the year of impairment xx Note Payable – Bank 1,000,000
Less: Present Value (xx) Discount on Note Payable(120k-20K) (100,000)
Impairment Loss (xx) Carrying Amount 900,000
 If inaccrue ni bank yung interest, kasama yun sa carrying
ASSIGNMENT
amount.
 A more formal type of pledging.
Receivable Financing – Pledge, Assignment, Factoring
 Assignor = Borrower, Assignee = Lender
PLEDGE  Notification Basis = Customer is paying to Assignee or Lender
of Loan.
 In banking, if it is discounted, it means that interest from the loan is  Non – Notification Bases = Customer is paying to Assignor and
deducted in advance. assignor remits the payment to the assignee.
o Example: On Nov. 1, 2020, entity borrowed 1,000,000. The  There is transfer of rights with regards to A/R but there is no
term is 1 year and discounted at 12%. The entity pledged A/R transfer of ownership.
for 2,000,000.
Cash 880,000 Non-notification Basis:
Discount on Note Payable 120,000
Note Payable Bank 1,000,000 Apr. 1. An entity assigned 700,000 of A/R to a bank under a
non-notification basis. The bank advances 80% less a service
Face Value of Loan 1,000,000 charge of 5,000. The entity signed a promissory note that
Interest in Advance (12%)(1m) (120,000) provides for interest of 1% per month on the unpaid loan
Net Proceeds 880,000 balance.

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To separate the assigned accounts. Cash 268,660


A/R – Assigned 700,000 To transfer the remaining balance of assigned accounts to A/R
A/R 700,000 Accounts Receivable 65,000
To record the Loan: A/R – Assigned 65,000
Cash (700,000)(80%) – 5,000 555,000
Service Charge 5,000 Notification Basis:
Note-Payable Bank 560,000 July 1. An entity assigned 1,000,000 of A/R to a bank under a
5. Issued credit memo for sales return to a customer whose notification arrangement. The bank loans 80% less 4% service
account was assigned, 20,000: charge on the gross amount assigned. The entity signed a
Sales Return 20,000 promissory note that provides for 1% interest per month on the
A/R – Assigned 20,000 unpaid loan balance.
10. Collected 300,000 of the assigned account less 2% To separate accounts assigned:
discount. A/R – Assigned 1,000,000
Cash 294,000 A/R 1,000,000
Sales Discount (2%)(300,000) 6,000 July 1 To record the loan:
A/R – Assigned 300,000 Cash (1m)(80%) – 40,000 760,000
30. Remitted Total Collections to the bank plus interest for 1 Service Charge 40,000
month: Note Payable – Bank
Note Payable Bank 294,000 800,000
Interest Expense (1%)(560k) 5,600 July 31 Received notice from bank that 600,000 of the assigned
Cash 299,600 accounts were collected less 2% discount. A check was sent to
May 7. Assigned Accounts of 15,000 proved worthless the bank for the interest due.
ADA 15,000 Note Payable – Bank 588,000
A/R 15,000 Sales Discount (2% x 600,000) 12,000
20. Collected 300,000 of the assigned Accounts A/R – Assigned
Cash 300,000 600,000
A/R – Assigned 300,000 Aug 31 Received notice from bank that 300,000 of the assigned
30. Remitted the total amount due the bank to pay off the loan accounts were collected. Final settlement was made by the
balance plus interest for one month. bank for the excess collections together with the uncollected
Note Payable – Bank (560-294) 266,000 assigned accounts of 100,000.
Interest Expense (1%)(266,000) 2,660 Cash 85,880

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Interest Expense 2,120  Factor’s Holdback – factor withhold a predetermined amount as


Note Payable – Bank 212,000 protection against customer returns and allowances and other
A/R – Assinged special adjustments.
300,000  If hinahanap yung net realizable value, yung factored amounts ay
di kasama.
A/R 100,000  “Weighted Average” sa interest – use 365 days.
A/R – assigned
100,000 Cash Received from Factoring
Computation: Gross Amount xxx
Loan from Bank 800,000 Less: Sales discount xx
Less: July Collection by bank 588,000 Commission xx
Balance due the bank 212,000 Factor’s Holdback xx
Factoring Fee xx
August collection by bank 300,000 Interest xx (xx)
Less: Loan Balance (212,000) Cash Received xxx
Excess Collection 88,000
Less: Interest (1% x 212,000) 2,120 Initial loss from Factoring
Remittance from bank 85,880 Factoring Fee xx
Interest xx
Equity in assigned accounts
Recourse Obligation xx
 A/R assigned less Note Payable Outstanding. Sales Discount xx
Commission xx
FACTORING Loss Initially Recognized xxx
 Sale of accounts receivable on a without recourse notification  Wala yung Factor’s holdback sa initial loss.
basis.
 There is transfer of ownership. If accounts are not collected by the factor
 The entity sells accounts receivable to a factor (bank or finance  The loss on factoring will include the recourse obligation. Hindi
entity) siya ileless. As is na yung initial loss
 Casual Factoring or Continuing Agreement If accounts are collected

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The recourse obligation is not included in the loss on factoring i Step 5 = 604,800 – 610,000 = (5,200).
miminus siya sa initial loss on factoring.
Receivable Financing – Discounting of Notes Receivable
 5 Steps:
o Maturity Value = Face Amount + Total Interest With Recourse Conditional Sale Secured
o Discount = Maturity Value x Discount Rate x Unexpired Term Borrowing
(exclude the 1st day and include the last day) Cash 604,800 Cash 604,800 Cash
o Net Proceeds = M.V. less Discount 604,800
o Carrying Amount = Face + Accrued Interest Loss 5,200 Loss 5,200 Int Exp
o Gain or Loss = Proceeds less Carrying Amount 5,200
NR 600,000 NR 600,000 Liab for NRD
 Example:
600,000
On June 30. Rain Company discounted at the bank a customer’s
Int.Inc 10,000 Int.Inc 10,000
600,000,
Int Inc 10,000
6-month, 10% note receivable dated April 30 2020. The bank
discounted the note at 12%
No Entry NRD 600,000 Liab for NRD
o What amount should be reported as proceeds from the
600k
discounted note?
NR 600,000 NR 600K
o Prepare Necessary entries
o Prepare entries assuming that the note is paid by the maker
No Entry A/R 634,000 A/R 634,000
on maturity Cash 634,000 Cash
o Prepare entries assuming that the note is dishonored by the 634,000
maker.
NRD 600,000 Liab for NRD 600,000
NR 600,000 NR
Step 1. M.V. = 600,000 + (600,000)(10%)(6/12) = 630,000 600,000
Step 2. Discount = 630,000 x 12% x (4/12) = 25,200
Step 3. Net Proceeds = 630,000 – 25,200 = 604,800
Step 4. Carrying Amount = 600,000 + (30,000 interest)/6) x 2
months accrued = 610,000

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 Shall not include foreign exchange differences.


 If tinanong, what amount of cash was received from the bank? Net
proceeds yon.X` Method Date of Payment Payment w/
Purchase w/ out
discount discount
Gross Gross Net Gross
Net Net Net Net
Allowanc Net Net Net
e
INVENTORIES
 Freight
 Held for sale in the ordinary course of business. o If the perspective is that we are the buyer, and the term is FOB
 In process of production for such sale. Shipping point, the freight charge is capitalized as cost of
 Materials or supplies to be consumed in the production process inventory.
 Consumed in rendering services.  Import Duties and Irrevocable Purchase Taxes
o Exclude the VAT
CLASSES OF INVENTORIES
 Handling and Other Cost Directly Attributable to the Acquisition.
 Trading Concern
COST OF CONVERSION
o Merchandise Inventory
 Manufacturing concern  Direct Labor + Overhead
o Finished Goods
Other Cost
o Work in Process/ Goods in Process
o Raw Materials  Necessary to bring the inventories to their present location and
o Factory or manufacturing supplies condition
 Purchase Discount Loss – part of other expense in Income
INITIAL MEASUREMENT Statement.
 Cost of Purchase Cost of Item Excluded from Cost of Inventories
o Purchase price
 subject to Trade discount & Cash discount.  Abnormal blabla
 Methods of Recording Cash Discounts: Gross, Net,  Storage cost for Finished Goods (unless necessary for production
Allowance process before a further production stage)

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 Administrative Overhead CONSIGNED GOODS


 Selling Expense
 Goods out on Consignment
 Interest Expense
o Inventory of the entity
 Goods held on consignment
o Cost = Costs + Handling cost + Shipping Costs
 “Specifically segregated per sale contract”, if included in count,
deduct mo.  Goods held on Consignment
 Items in receiving department refused because of damage o Not part of the entity’s inventory
 Freight is on account of seller “kay seller yung inventory” Special Orders
 Items included in count, damaged and unsaleable “if included,
deduct mo”  If still in process – inventory of the seller
 Unexpired insurance (asset kase to prepaid insurance)  If finished – Inventory of the buyer even if not yet delivered
 Stock items of seller – not considered as special orders. If
undelivered, inventory of the seller.
Goods Includible in Inventory
Installment Sales
 Goods owned & on hand
 Goods purchased and in transit FOB Shipping Point (tayo ang  Inventory of the buyer.
buyer) Conditional Sale
 Goods sold and in transit FOB Destination (tayo ang seller)
 Goods out on consignment  Goods sold with buyback agreement – Inventory of the seller.
 Goods in the hands of salesman or agent  Goods sold with refund orders
 Goods held by customer on approval or on trial o If the seller can estimate future returns – inventory of the
 Items in the shipping Department Buyer
o If items are unpredictable – inventory of the seller until the
Title or Control
expiration of refund period.
 FOB Destination – Inventory of the Seller (except if received)  Goods held on approval – Inventory of the Seller
 FOB Shipping point – Inventory of the buyer (except if not yet  Goods held for storage/processing/shipment – inventory of the
shipped) Seller
(note)
Contract of Sale vs Contract to Sell

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 Contract of sale – inventory of the buyer regardless of payment.  All accounts for inventory is included except sales allowance and
 Contract to sell – inventory of the seller until full payment, there is sales discount.
transfer of title upon full payment.  Sales returns – increases the number of inventory (add to)
 New weighted average unit cost must be computed after every
Items Ordered – tayo ang buyer purchase and purchase returns.
Items Shipped – tayo ang seller  GOLDEN FORMULA
TGAS xxx
INVENTORY SHORTAGE & OVERAGE Less: Ending Inventory (xx)
 Overage: Physical Count > Ledger Balance COGS xxx
 Shortage: Physical Count < Ledger Balance
Normal Overage/Shortage Units Unit Cost Selling Price
Inventory beg. 250 10.5
 Charged to inventory short or over then closed to COGS
Purchases 3/7 200 11
Abnormal Overage/ Shortage Purchases 275 11.75
7/15
 Theft, ganon. Sale 5/20 (120) 14
 Charged to Gain or Loss and becomes part of other expenses or Sale 6/30 (55) 15
income. Sale 9/17 (250) 16
FAS = Shipping Point Inventory End 300
CIF = Shipping Point
Ex-Ship = Destination FIFO Method
FOB Buyer = Destination Ending Inventory = 300
FOB Seller = Shipping Point TGAS = 725
40% above cost = GP based on Cost Therefore, COGS = 425
Normally sell for or Marked to sell = multiply to cost ratio.
INVENTORY COST FLOW Ending Inventory =
 FIFO (275)(11.75) = 3,231.25
 Weighted Average – Periodic (25)(11) = 275
 Moving Average – Perpetual Total 3,506.25
 TGAS in PESO / TGAS in Units COGS
(250)(10.5) = 2,625

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(175)(11) = 1,925 Purchase Returns (xx) (xx)


TOTAL 4,550 Abnormal chuchu (xx) (xx)
Departmental In xx xx
Weighted Average Method Departmental out (xx) (xx)
TGAS in Peso/ TGAS in Units Markup xx
8,056.25/725 = 11.11 Markup Cancellation (xx)
Mark Down (xx)
Ending Inventory = (300)(11.11) = 3,333 Mark Down xx
Cost of Goods Sold = (425)(11.11) = 4,721 Cancellation
TGAS xx xx
LCNRV
Sales xxx
 NRV = Selling price less Estimated cost to complete less
Sales Returns (xx)
Estimated Cost to sell.
Employee Discount xx
Normal chuchu xx xx
Inventory Estimation End inventory @ XXX
 GP METHOD Retail
 RETAIL METHOD
GP METHOD Cost = TGAS @ Cost / TGAS @ RETAIL
 Based on sales = GP = (40%)(Net Sales) Average Method = Included lahat
 Based on COGS = GP = (40/140)(Net Sales) Conventional Method = From Beginning inventory to markup
cancellation.
FIFO = di kasama beginning inventory
RETAIL METHOD
Cost Retail
Beginning Inventory xx xx
Purchases xx xx
Purchase Discount (xx)
Freight In xx
Purchase Allowance (xx)

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