September 14, 2017

EMMA V. MOISES
Supervising Auditor
Commission on Audit
 SESSION OVERVIEW
 Basic Concepts of Accounting
 Accounting Process
 Completion of the Accounting Cycle
 Adjustment Process and the
Matching Concept
 The Financial Statements

Introduction
Slide 1
 SESSION OBJECTIVES
 to provide learners with an
understanding on how to
record business transactions
into an accounting system;
 to enable learners to prepare
and interpret major financial
reports.

I
Learning Objectives
At the end of the session, you shall be able to:

 Describe accounting concepts

 Describe the relationship between assets,

liabilities, equity, revenues and expenses
through the accounting equation

 Analyze the effects of transactions on the

accounting equation
Accounting defined . . .
The art of recording,
classifying, and summarizing
in a significant manner and in
terms of money, transactions
and events which are, in part
at least, of a financial
character, and interpreting the
results thereof.
(Committee on Terminology, AICPA)

Slide 2.2
 Accounting defined . . .
Now.....
Accounting is defined as the
process of identifying,
measuring, recording and
communicating economic
information to permit informed
judgment and decision by
interested users of the
information.
 is a
Accounting
Accounting Identifies
Identifies
system that

Records
Records
information
Relevant
Relevant Communicates
Communicates
that is
Reliable
Reliable
to
to help
help users
users make
make
Comparable better
better decisions.
decisions.
Comparable
 Relevant
Relevant Affects
Affects the
the decision
decision
Information
Information of
of its
its users.
users.

Reliable
Reliable Is
Is trusted
trusted by
by
Information
Information users.
users.

Comparable
Comparable Is
Is helpful
helpful in
in contrasting
contrasting
Information
Information organizations.
organizations.
 Purposes of Accounting

1. It provides decision-makers (users) with useful

information relating to the financial affairs of an
organization, business enterprise/ entity or
individual.

2. It provides a continuing measurement of the

financial effects of a series of decisions already
made (results of past operations/ decisions).

3. It keeps track of a wide range of items to meet

the scorekeeping and safeguarding
responsibilities imposed on all organizations.
Slide 2.3
 M

External Users Internal Users

•Banks •Media •Board Members •Departments

•Bond Holders •External Auditors •Administrators •Budget Officers
•Governments •Grantors/Investors •Internal Auditors •Controllers
11
 M

 Identifying  Recording
Business Business
Activities Activities

Communicating
Business
Activities

12
Basic Elements of Accounting

 Assets (A)
 Liabilities (L)
 Owner’s Equity (OE)
or Equity (E)

 Revenue (R)

 Expense (E)

Slide 2.5
 Cash
Cash
Accounts
Accounts Notes
Notes
Receivable
Receivable Receivable
Receivable
Resources
Resources
owned
owned or
or
Vehicles
Vehicles controlled
controlled Land
Land
by
by an
an Entity
Entity

Buildings
Buildings
Supplies
Supplies
Equipment
Equipment
Accounts
Accounts Notes
Notes
Payable
Payable Payable
Payable

Creditors’
Creditors’
claims
claims on
on
assets
assets
Benefits
Benefits Wages
Wages
Payable
Payable Payable
Payable
 M

Capital
Capital Drawings
Drawings

Entity’s
Entity’s
claims
claims
on
on
Revenues
Revenues assets Expenses
Expenses
assets

16
Losses
Losses
 Accounting Equation

Owner’s
Assets
Assets = Liabilities
Liabilities + Owner’s
Equity
Equity

Liabilities
Assets & Equity
 Accounting Equation

Assets = Liabilities + Owner’s Equity (or Capital)

Liabilities = Assets – Owner’s Equity (or Capital)

Owner’s Equity = Assets - Liabilities

Assets = Liabilities + Owner’s Equity (Capital +

Profit (or - Loss) – Drawings)
 Accounting Equation
Owners Equity = Contributed Capital +
Retained Earnings

Retained Earnings = Net Income − Dividends

Net Income = Income - Expenses

Revenues - Expenses = Profit or Loss

 Accounting Equation

A transaction may have the following effects:

1. increase an asset and decrease another

asset account;
2. increase an asset and increase a liability;
3. increase an asset and increase the equity;
4. increase a liability and decrease another
liability account;
5. increase in liability and decrease in equity; Slide 2.3
 Effects of Transaction on the
Accounting Equation

A transaction may have the following effects:

6. decrease an asset and decrease a liability;

7. decrease an asset and decrease the equity;
8. decrease a liability and increase the equity.

Slide 2.3
Questions?
EXERCISE 1.1

Time Allotment: 10 min.

 Learning Objectives
At the end of the session, you shall be able to:

 define what an account is;

 explain what debits and credits are;

 explain the principles of the

Double-Entry System;

Slide 3.1
Learning Objectives

 identify the
steps in recording transactions;

 state the nature and purpose of

journals and their relationship
to the General Ledger; and

 explain the nature and purpose

of Trial Balance

Slide 3.1
 7
Journalize
and Post the
The Adjusting Entries
Accounting Prepare
Worksheet for
Process Adjustments Prepare 8
and for Financial
1 Financial Statements
Statements & Reports
6
Financial (BS/SIE/CFS)
Transactions
takes place

Prepare 9 Journalize
2 Gather and Trial Balance and Post
Prepare 5 Closing
Documents Entries

Post to
Ledgers Prepare
3
Analyze and Post-Closing 10
Record in 4 Trial Balance
Journals
Slide 3.4
 ACCOUNT

Individual accounting record of

increases and decreases in a
specific asset, liability and
owner’s equity.

Slide 3.2
 a list of the accounts on a ledger.
 The accounts are listed in the order in which they
appear in the financial statements.
 An indexing/numbering system is used to
facilitate the recording and understanding of
these accounts,
 CHART OF ACCOUNTS
Code Account Title
101 Cash
102 Accounts Receivables
103 Office Supplies Inventory
104 Motor Vehicles
201 Accounts Payable
202 Unearned Revenue
301 Drawing, J. Dela Cruz
302 J. Dela Cruz, Capital
401 Service Revenue
501 Utilities Expenses
502 Rent Expense
 Debits and Credits

Debits are those entries entered on the left

side (column) of a journal or ledger account

Credits are those entries  entered on the right

side (column) of a journal or ledger account.

Slide 3.2
 M

A T-account represents a ledger account and

is a tool used to understand the effects of one
or more transactions.

T- Account
(Left side) (Right side)
Debit Credit
 DOUBLE – Entry System

 A process used by accountants in

recording business transactions.
 system where all transactions must
be recorded in at least two accounts,
one on the debit side and another on
the credit side.
Slide 3.3
 M

DOUBLE – Entry System

 It also means the total amount debited

must equal the total amount credited
for each transaction.

34
 RULES FOR RECORDING
TRANSACTIONS
UNDER DOUBLE-ENTRY SYSTEM

  Normal Balance Increase Decrease

Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner's Equity Credit Credit Debit
Expenses Debit Debit Credit
Revenue Credit Credit Debit

Slide 3.3
 Accounting Process

Accounting Process  - is the

sequence of procedures used to
record, classify and summarize
accounting information in financial
reports, on a regular basis.

Slide 3.3
 Recording in the Journals

Journal Entries are prepared to

record and summarize transactions
in special books called Journals.

Slide 3.3
 Recording in the Journals

Every journal entry contains:

1) the date of the transaction,

2) the title of the accounts to be
debited and credited,
3) the amount of debits and
credits, and
4) a brief explanation of the
transaction.
Slide 3.3
 
Transaction
Transaction 
Titles
Titles of
of Affected
Affected
Date
Date Accounts
Accounts


Transaction
Transaction 
 Amount
Amount of
of debits
debits
39 explanation
explanation and
and credits
credits
 Recording in the Journals

Significance of a Journal:
1. It discloses in one place the complete
effect of a transaction;
2. It provides a chronological record of
transactions; and
3. It helps in preventing or locating errors
because the debit and credit amounts
for each entry can be readily compared.
Slide 3.3
 Recording in the Journals
New Government Accounting System
(NGAS), prescribes the following journals:
1. General Journal (GJ)
2. Special Journals
• Cash Receipts Journal (RA Books)
• Cash Journal (NG Books)
• Check Disbursement Journal
• Cash Disbursement Journal
Slide 3.3
 Recording in the Journals
General Journal:
Date Accounts & Ref Debit Credit
Particulars
2012
Jan. 2 Cash 400,000.00
Office Equipment 100,000.00
Owner’s Equity
or Capital 500,000.00
To record
investment by
owner. Slide 3.3
 Posting to the Ledgers

Posting is the procedure of transferring

accounting information from a journal to
the ledger accounts.

Ledger is the entire group of accounts

(ledger accounts) maintained by a
business entity.

Slide 3.3
 Posting to the Ledgers

Types of Ledger
General Ledger (GL) – is a book of final
entry containing accounts arranged in the
same sequence as in the chart of accounts.
Subsidiary Ledger (SL) – is a book of
final entry containing the details or
breakdown of the balance of the
controlling account appearing in the
General Ledger.
Slide 3.3
 Posting to the Ledgers

General Ledger
Account Title _____________
Amount
Date Particulars Ref Debit Credit Balance

Slide 3.3
 The Trial Balance

A Trial Balance is simply a list

of accounts in the general
ledger and their debit or credit
balances at a given time.

Slide 3.3
 The Trial Balance

Purpose(s) of the Trial Balance

1. to prove the mathematical accuracy
of the accounting equation after
posting to the ledger;
2. helps in locating errors; and
3. assists in the preparation of
financial statements.

Slide 3.3
 The Trial Balance

Kinds of Trial Balances

1. Monthly Trial Balance

2. Quarterly Trial Balance
3. Pre-Closing Trial Balance
4. Post Closing Trial Balance

Slide 3.3
 The Trial Balance

Procedures in Preparing the Trial Balance

1. The Heading of the trial balance should
state the name of the business entity, the
title of the statement and the date of the
statement.
2. The title of each account and the account
code should be listed after the heading and
in the order in which they are found in the
ledger. Slide 3.3
 The Trial Balance

Procedures in Preparing the Trial Balance

3. The account balances should be listed in
parallel columns – debit balances on the
left and credit balances on the right.
4. Each column (debit and credit) should be
totaled and the totals entered at the bottom
of the columns; a double line should be
drawn below each total.
Slide 3.3
 The Trial Balance
TransCo
Pre-Closing Trial Balance
As of December 31, 2011

Account
Particulars Code Debit Credit
Cash – Collecting Officers xxx
Cash in Bank – LCCA xxx
Accounts Receivable xxx
Office supplies Inventory xxx
Building xxx
Accounts Payable xxx
Rent Income xxx
Salaries and Wages xxx
Traveling Expenses xxx
Rent Expenses xxx
Office Supplies Expenses xxx
TOTAL xxxx xxxx
====== ======
Slide 3.3
 Adjusting Entries
There are two scenarios where adjusting journal entries are needed
before the financial statements are issued:

Nothing has been entered in the accounting records for

certain expenses or revenues, but those expenses and/or
revenues did occur and must be included in the current
period's income statement and balance sheet.

Something has already been entered in the accounting

records, but the amount needs to be divided up between
two or more accounting periods.
 Adjusting Entries Always Involve A:

balance sheet account (Interest Payable, Prepaid

Insurance, Accounts Receivable, etc.) and an

income statement account (Interest Expense,

Insurance Expense, Service Revenues, etc.)
Questions?
 EXERCISE 2.2
Time Allotment 30 min

Requirements:

Journalize the transactions using the accounts indicated in

the Chart of Accounts

Post the transactions in a Ledger (using T Accounts)

Prepare a Trial Balance

Learning Objectives
At the end of the session, you shall be able to:

 Identify the components of the financial

statements;
 Identify the users of the FS; and

 Describe the qualitative characteristics

of FS.

Slide 1.1
Financial Statements

--- are the principal

means by which
important and relevant
information about
a business
entity/organization are communicated
to interested parties (users) for their
decision-making.

Slide 1.2
 The General Purpose Financial
Statements

Objective To provide information about

of the financial position, financial
General performance, and cash flows of
Purpose an entity that is useful to a wide
Financial range of users in making and
Statemen evaluating decisions about the
ts allocation of resources.
 Understandability
 Relevance
 Reliability
 Comparability
 Timeliness
 It is readily understandable by users.
Users are assumed to have reasonable
knowledge of business and economic activities
and accounting and willingness to study the
information with reasonable diligence.
 It influences the decision making of users by
helping them to evaluate past, present or future
events

 Relevance is affected by the nature and

materiality of the financial information.
 Materiality depends on the size of the item or
error judged in the particular circumstances of its
omission or misstatement, that provides
thresholds or cut-off point rather than being
primary qualitative characteristic.
 It reflects the transactions and other events it
either purports to represent or could reasonably
be expected to represent. The financial
information is free from material error and bias
and can be depended on by users.
 Substance over form – The transactions and
events are accounted for and presented in
accordance with their substance and economic
reality and not merely their legal form.
 Prudence (Conservatism) – Inclusion of a degree
of caution in the exercise of judgments needed in
making the estimates required under conditions
of uncertainty.
 Completeness – Financial information in the FS
must be complete within bounds of materiality
and cost.
 Users must be able to compare the FS of
different enterprises in order to evaluate their
relative financial position and performance and
changes in financial position.
 Users must be informed of the accounting
policies employed in the preparation of FS.
Any changes in those policies and effects of
such changes must be fully disclosed.
 Delay in the reporting of financial information
may lose the relevance of the FS
Financial Position
Assets
Liabilities
Equity

Performance
Income
Expenses
 Measurement – is the process of determining the
monetary amounts at which the elements of FS
are to be recognized and carried in the BS and
SIE
Bases of Measurement
a. Historical Cost
b. Current Cost
c. Realizable (settlement) value
d. Present Value
 Assets – are recorded at amount of cash or cash
equivalents paid or the fair value of the consideration
given to acquire them at the time of their acquisition.
 Liabilities – are recorded at the amount of proceeds
received in exchange for the obligation, or in some
circumstances, at the amount of cash and cash
equivalents expected to be paid to satisfy the liability in
the normal course of business.
 Assets – are carried at the amount of cash or
cash equivalents that would have to be paid if the
same or an equivalent asset was acquired
currently.
 Liabilities – are carried at the undiscounted
amount of cash or cash equivalents that would be
required to settle the obligation in cash.
 Assets – are carried at the amount of cash or cash
equivalents that could currently be obtained by selling
the asset in an orderly disposal.
 Liabilities – are carried at their settlement value, that
is, the undiscounted amounts of cash or cash equivalents
expected to be paid to satisfy liabilities in the normal
course of business.
 Assets – are carried at the present discounted value of
the future net cash inflows that the item is expected to
generate in the normal course of business.
 Liabilities – are carried at the present discounted value
of the future net cash outflows that are expected to be
required to settle the obligation in the normal course of
business.
 07/24/21

Components of Financial Statements

1. Statement of financial position (balance sheet)

2. Statement of profit or loss (income statement)

3. Statement of changes in equity for the period

4. Statement of cash flows for the period

5. Notes, comprising a summary of significant

accounting policies and other explanatory notes

07/24/21 75 75
Balance Sheet

- is the statement which

shows the business
entity’s/organization’s
financial condition/
status as of a given
date.

Slide 1.3
 Uses of a Balance Sheet

1. Provides useful data/relevant information

• Evaluation of liquidity
• Evaluation of financial flexibility

2. Basis for predicting/ forecasting future

events

3. Useful means for:

• Controlling solvency
• Analyzing cost of new financing activities
• Determining the flexibility available for
altering basic capital structure
Slide 1.4
 Balance Sheet

Balance Sheet Format

1. Account Form

2. Report Form
 Balance Sheet

Balance Sheet is composed of:

1. Assets

2. Liabilities

3. Equity
 BALANCE SHEET
Sample Balance Sheet December 31, 2011
Report Form
Assets
Current Assets:
Cash P xxx.xx
Accounts Receivable P xxx.xx
Lees: Allowance for Bad Debts xx.xx xxx.xx
Total Current Assets P xxx.xx

Non-Current Assets:
Marketable Securities /1 P xxx.xx
Total Non-Current Assets P xxx.xx

Property, Plant & Equipment:

Building P xxx.xx
Less: Accum. Depreciation-Building xxx.xx xxx.xx
Furniture and Fixtures P xxx.xx
Less: Accum. Depreciation-F&F xxx.xx xxx.xx
Total Property, Plant & Equipment P xxx.xx

Other Assets: P -
TOTAL ASSETS P x,xxx.xx
================
Liabilities and Owner’s Equity
LIABILITIES
Current Liabilities:
Accounts Payable P xxx.xx
Notes Payable xxx.xx
Tax Payable xxx.xx
Total Current Liabilities P xxx.xx

Non-Current Liabilities:
Loans Payable P xxx.xx

Other Liabilities:
Other Payables P xxx.xx
TOTAL LIABILITIES P xxx.xx
OWNER’S EQUITY
C&C Company, Beginning Equity (Jan.2004) P x,xxx.xx
Less: Withdrawals xxx.xx P x,xxx.xx
Add: Net Income, 2004 xxx.xx
C&C Company Ending Equity (Dec. 2004) P x,xxx.xx
TOTAL LIABILITIES & OWNER’S EQUITY P `x,xxx.xx
 Sample Balance Sheet
Account Form
BALANCE SHEET
December 31, 2011

Assets Liabilities and Owner’s Equity

Current Assets: Current Liabilities:

Cash P xxx Accounts Payable P xxx
Accounts Receivable P xxx Notes Payable xxx
Less: Allowance for Bad Debts xx xxx Tax Payable xxx
Total Current Assets P xxx Total Current Liabilities P xxx

Non-Current Assets: Non-Current Liabilities:

Marketable Securities /1 P xxx Loans Payable P xxx

Property, Plant and Equipment: Other Liabilities:

Building P xxx Other Payables P xxx
Less: Accum. Depr.-Building xx xxx Total Liabilities P xxx
Furniture and Fixtures P xxx
Less: Accum. Depr. -F&F xx xxx Owner’s Equity
Motor Vehicles P xxx C&C Company, Equity, Jan.1) P xxx
Less: Accum. Depr.-MV xx xxx Less: Withdrawals xx
Total Property, Plant & Equipt P xxx P xxx
Other Assets: - Add: Net Profit, 2004 (if Net Loss, deduct) xxx
C & C Company, Equity, Dec. 31 P xxx

Total Assets P xxx Total Liabilities & Owner’s Equity P xxx

========= ========
Statement of Income and Expenses

- shows the results of

operations of a
business entity for the
month or year or
period.

Slide 1.3
Sample Statement of C & C Company
Income and Expenses Statement of Income & Expenses
For the period ended December 31, 2011

Sales Revenue/Income P xxx.xx

Less: Sales Returns & Allowances xxx.xx
P xxx.xx
Less: Cost of Sales:
Inventory, Beginning P xxx.xx
Add: Purchases P xxx.xx
Plus Freight In xx.xx
P xxx.xx
Less: Purchase Returns
& Allowances xxx.xx xxx.xx
Total goods available for sale P xxx.xx
Less: Inventory, End xxx.xx xxx.xx

Gross Income/Profit P xxx.xx

Less: Operating Expenses
Salaries and wages P xxx.xx
Rent Expense xxx.xx
Water, Light & Power xxx.xx
Insurance Expense xxx.xx
Supplies Expense xxx.xx
Depreciation Expense xxx.xx
Bad Debts Expense xxx.xx
Miscellaneous Expense xxx.xx xxx.xx
Net Income/Profit before tax xxx.xx
Less: Taxes xxx.xx
Net Income/Profit P xxx.xx
Slide 1.6
==========
 Statement of Changes in Equity

Statement of Changes in Equity, often referred to as Statement of Retained

Earnings, details the change in owners' equity over an accounting period by
presenting the movement in reserves comprising the shareholders' equity.

Movement in shareholders' equity over an accounting period comprises the

following elements:

•Net profit or loss during the accounting period attributable to shareholders

•Increase or decrease in share capital reserves

•Dividend payments to shareholders

•Gains and losses recognized directly in equity

•Effect of changes in accounting policies

•Effect of correction of prior period error

 HDA Corporation
Statement of Changes in Equity
For the Year Ended December 31, 2012

Share Capital Retained Earnings Revaluation Surplus Total Equity

Balance at 1 January 2011 100,000 30,000 - 130,000

Changes in accounting policy - - - -

Correction of prior period error - - - -

Restated balance 100,000 30,000 - 130,000

Changes in equity for the year 2011

Issue of share capital - - - -

Income for the year - 25,000 - 25,000
Revaluation gain - - 10,000 10,000
Dividends - (15,000) - (15,000)

Balance at 31 December 2011 100,000 40,000 10,000 150,000

Changes in equity for the year 2012

Issue of share capital - - - -

Income for the year - 30,000 - 30,000
Revaluation gain - - 5,000 5,000
Dividends - (20,000) - (20,000)

Balance at 31 December 2012 100,000 50,000 15,000 165,000

Statement of Cash Flows

- is a statement that reports on

the business entity’s major cash
inflows and outflows for a
specific period.

Slide 1.3
Statement of Cash Flows

The statement also provides information

on the enterprise’s:

1. capability to generate cash from

operations;
2. maintain and expand its operating

capacity;
3. meet its financial obligations
and pay dividends. Slide 1.3
Statement of Cash Flows

The Statement of Cash Flows reports

cash flows from three types of activities:

1. Cash Flows from Operating activities

2. Cash Flows from Investing activities
3. Cash Flows from Financing activities

Slide 1.3
 EFFECTS ON CASH
of the
Three Main Types of Activities

OPERATING OPERATING
(receipts from revenues) (payment for expenses )

INVESTING INVESTING
(receipts from sale of CASH (payment for acquiring
non-current assets) non-current assets)

FINANCING FINANCING
(receipts from issuing equity (payment for treasury stocks,
& debt securities) dividends, & redemption of
debt securities)

Slide 1.8
Statement of Cash Flows
There are two methods in presenting
cash flows from operating activities:
1. Direct Method – reports the sources
and uses of operating cash. The major
source of operating cash is cash
received from customers or clients while
the major uses include payments to
suppliers, for goods and services, and to
employees, for salaries and wages.

Slide 1.3
Statement of Cash Flows
There are two methods in presenting
cash flows from operating activities:

2. Indirect Method – the indirect

method reports the operating cash
flows by beginning with net income
and adjusting it for revenue and
expenses that do not involve the
receipt or payment of cash.

Slide 1.3
Sample Statement of Cash Flows – Cash Flow Statement
Indirect Method
Cash Flow from Operating activities
Net Income before taxes, & extraordinary items P xxx.xx
Adjustments for:
Depreciation xx.xx
Foreign Exchange Loss xx.xx
Investment Income xxx.xx
Interest Expense xx.xx
Operating Income before working capital changes xxx.xx
Increase in trade * other receivables ( xx.xx)
Decrease in inventories xx.xx
Decrease in trade payables ( xx.xx)
Cash generated from operations xxx.xx
Interest paid ( xx.xx)
Income taxes paid ( xx.xx)
Cash flow before extraordinary items xxx.xx
Extraordinary items xx.xx
Net cash from operating activities xxx.xx

Cash Flow from Investing activities

Acquisition of Subsidiary X, net of cash acquired (Note A) ( xx.xx)
Purchase of property, plant & equipment (Note B) ( xx.xx)
Proceeds from sale of equipment xx.xx
Interest received xx.xx
Dividends received xx.xx
Net cash used in investing activities xxx.xx

Cash flow from financing activities

Proceeds from issuance of share capital xx.xx
Proceeds from long-term borrowings xx.xx
Payment of finance lease liabilities ( xx.xx)
Dividends paid (*) ( xx.xx)
Net cash in financing activities xxx.xx
Net increase in cash and cash equivalents xxx.xx
Cash & cash equivalents at the beginning of period (Note C) xxx.xx
Cash & cash equivalents at the end of period (Note C) xxx.xx
=========
(*) This can also be shown as an operating cash flow. Slide 1.7
 Notes to the Financial StatementsHGC10_Financial_Statements_Final.xls

The notes to the financial statements

communicate information necessary for a fair
presentation of financial position and results
of operations that is not readily apparent
from, or not included in, the financial
statements themselves.

Notes attached to a company's income

statement, balance sheet, or other financial
document to explain unusual entries or items.
These notes help company decision makers and
shareholders understand the accounting methods
and practices employed by the company, while
preserving readability of the body of the document
itself.
 Notes To Financial Statements

Note 2:Summary of Significant Accounting Policies

 Basis of Financial Statements Preparation
 
The consolidated financial statements comprise the consolidated statement
of financial position, the statement of profit or loss and other comprehensive
income showing as two statements, the statement of changes in capital
funds, the statement of cash flows and the notes.
 
These financial statements have been prepared on a historical cost basis
modified by the fair value measurement of financial assets on trading and
available for sale securities, derivative financial instruments and real and
other properties owned. The preparation of financial statements in
conformity with Philippine Financial Reporting Standards (PFRS) requires
the use of certain critical accounting estimates. It also requires management
to exercise its judgment in applying the Group’s accounting policies. The
areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the consolidated financial
statements are disclosed in Note 3.

 
 Notes To Financial Statements

Note 3: Cash on Hand and in Banks

2010 2009
Cash in banks 1,826,353,411 169,298,455
Collecting officers 1,499,276 4,599,917
Disbursing officers/others 111,455 52,770
1,827,964,142 173,951,142

The increase in the cash account was due to the following:

 
National Government equity of P600 million which was released
on December 28, 2010. Of the total equity released, only P500
million was remitted to HGC, the balance was retained by the
Bureau of the Treasury to settle the P50 million guaranty fee and
P50 million sinking fund; and
 
Proceeds from the sale of investments in bonds and marketable
securities amounting to P1.07 billion and investment placements of
P787 million.
 Exercise 3.2 Time allotment 15 min

Using the Solution to Exercise 2.2, (1 ) Prepare adjusting entries. All facts the
same except that the rent paid in advance of P60,000 on December 5, 2012
is for two months, for December 2012 and January 2013. Also, on
December 30, 2012, Aero Services rendered services to the customer
who paid in advance in the amount of P40,000.00.

(2) Prepare the balance sheet and Income statement.

Thank you!