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Beg 1,700,Withdrawals 100,000 Additional Investment 1,060,Net Loss ???MODULESINGLE ENTRY METHODDouble Entry SystemThe double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts. The double-entry system also requir...

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MODULE SINGLE ENTRY METHOD Double Entry System The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts. The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Single Entry System It is a system of record keeping in which transactions are not analyzed and recorded in the double entry framework. The records maintained are represented only by the so-called “bare essentials”. Normally, the records include a cash, accounts receivable, accounts payable, property, plant and equipment, and taxes paid. The major record under the single entry system is the cashbook.

FORMULA for computing Net Income or Net Loss in Single Entry Method:

Proprietorship or Partnership Capital, end of the year Add: Withdrawals Total Less: Capital, beginning of year Additional investments Net Income (Loss)

Xx Xx Xx Xx xx

Xx xx

Illustration: On January 1, the capital of Console Company was P1,700,000 and on December 31, the capital was P2,400,000. During the year, the owner withdrew merchandise costing P100,000 and with sales price of P180,000, and paid a P1,000,000 note payable of the business with interest of 12% for six months with a check drawn on a personal checking account. Capital, end of the year Add: Withdrawals Total Less: Capital, beginning of year Additional investments ( 1,000,000 principal + 60,000 interest) Net Income (Loss)

2,400,000 100,000 2,500,000 1,700,000 1,060,000

2,760,000 (260,000)

CAPITAL Beg Withdrawals

100,000

Net Loss

???

Additional Investment

1,700,000 1,060,000

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1

End

2,400,000

Corporation Retained Earnings, end Add: Dividends declared or paid Other items that decrease retained earnings but not profit or loss Total Less: Retained earnings, beginning Other items that increase retained earnings but not profit or loss Net Income (loss)

Xx Xx Xx Xx Xx Xx xx

Illustration: 1. During the first year, Exel Company issued 15,000 shares with P100 par value at P150 per share. At year-end, the entity issued 2,000 shares in payment of current obligations of P250,000. Dividends of P500,000 were paid during the year. Total liabilities at the end of the year amounted to P200,000 and total assets at the end of the year equaled P3,000,000. What is the net income for the first year of operations? Retained Earnings, end ( 3,000,000 Total Assets – 200,000 Total Liabilities = 2,800,000 Equity – 2,250,000 shares issued – 250,000 shares issued) Add: Dividends declared or paid Other items that decrease retained earnings but not profit - or loss Total Less: Retained earnings, beginning Other items that increase retained earnings but not profit - or loss Net Income (loss)

300,000 500,000

800,000 -

800,000

ALTERNATIVE SOLUTION: Capital, end of the year (3,000,000 Total Assets – 200,000 Total Liabilities)

2,800,000

Add: Withdrawals Total Less: Capital, beginning of year (15,000 shares)

500,000 3,300,000

2,250,00 Additional investments (2,000 Shares) 250,00 Net Income (Loss)

2,500,000 800,000

2. Aubrey Company provided the following data at year-end:

Share capital (P100 par value) Share premium Retained earnings

2020 5,000,000 1,000,000 3,500,000

2021 5,750,000 1,500,000 4,500,000

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During the current year, the entity declared and paid cash dividend of P1,000,000 and also declared and issued a share dividend. There were no other changes in shares issued and outstanding during the year. What is the net income for the current year? Retained Earnings, end Add: Cash Dividends declared or paid Share Dividends ( share capital increase – 750,000 plus share premium increase – 500,000) Total Less: Retained earnings, beginning Net Income (loss)

4,500,000 1,000,000 1,250,000 6,750,000 3,500,000 3,250,000

ENTRY for the Share Dividend: Retained Earnings 1,250,000 Share capital 750,000 Share premium 500,000 Note: The credit to share premium indicates that the declaration is a small share dividend hence, the fair value of the shares may be used in the declaration of share dividend. A share dividend representing less than 20% of the outstanding shares is considered small share dividend.

3. Camadillo Company reported the following changes in the account balances for the current year, except for retained earnings: Cash Accounts receivable, net Inventory Investments Accounts payable Bonds payable Share capital Share premium

Increase(Decrease) 800,000 250,000 1,250,000 (500,000) (400,000) 900,000 1,000,000 100,000

In the example, the retained earnings and shareholders’ equity at the beginning and end of the year cannot be determined. Thus, the procedure is to determine the effect of the changes in assets and liabilities on net assets whether the change in the asset or liability increases or decreases the net assets.

Increases in assets and decreases in liabilities increase net assets while increases in liabilities and decreases in assets decrease net assets.

Increase in cash Increase in AR Increase in Inventory Decrease in investments

Effect on Net Assets Increase Decrease 800,000 250,000 1,250,000 500,000

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Decrease in accounts payable Increase in bonds payable Total

400,000 900,000 1,400,000

2,700,000

Net increase in net assets Add: Dividend Total Less: Increase in share capital Increase in share premium Net income

1,300,000 300,000 1,000,000 100,000

1,100,000 500,000

Preparation of Financial Statements The preparation of the income statement involves the computation of individual revenue and expense balances by reference to the cash receipts and disbursements and the changes in assets and liabilities. The formulas used in converting cash basis to accrual basis of accounting are useful in this case. These formulas involve the computation of (1) Sales, (2) Purchases, (3) Income other sales, (4) Expenses in general CONVERSION FROM CASH TO ACCRUAL BASIS: Cash sales Sales on Account Trade A/R and N/R (end) Collection of Trade A/R and N/R Sales Returns, discounts and allowances A/R and N/R written off Trade N/R discounted (N/R directly credited) Total Trade A/R and N/R (beg) ACCRUAL Basis – SALES

Cash Purchases Purchases on Account Trade A/P and N/P (end) Payment of Trade A/P and N/P Purchase returns, discounts and allowances

Pxx Pxx xx xx xx xx Pxx (xx)

xx Pxx

Pxx Pxx xx xx

Total Pxx (xx)

Trade A/P and N/P (beg) ACCRUAL Basis – PURCHASES

INCOME Other than Sales Income received – CASH basis

Px

xx Pxx

EXPENSES Other than Purchases Expenses Paid – CASH basis Px

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Deferred Income – beginning Accrued income – end Total Deferred Income – end Accrued income – beginning INCOME – ACCRUAL Basis

x xx xx Px x (xx ) (xx ) Px x

x xx xx Px x (xx ) (xx ) Px x

Prepaid Expenses – beginning Accrued Expenses – end Total Deferred Expense – end Accrued Expense – beginning EXPENSES – ACCRUAL Basis

Illustration Haze Company provided the following information for the current year: January 1 December 31 Cash 620,000 ? Accounts Receivable 670,000 900,000 Merchandise Inventory 860,000 780,000 Accounts Payable 530,000 480,000 The sales and cost of goods sold were P7,980,000 and P5,830,000, respectively. All sales and purchases were on credit. Various expenses of P1,070,000 were paid in cash. There were no other pertinent transactions. 1. What is the amount of collections from customers? Sales on Account: Trade A/R and N/R (end) Collection of Trade A/R and N/R Sales Returns, discounts and allowances A/R and N/R written off Trade N/R discounted (N/R directly credited) Total Trade A/R and N/R (beg) Sales on Account

900,000 ??? 8,650,000 670,000 7,980,000

SOLUTION IN GOOD ACCOUNTING FORM:

Sales on Account Add: Trade A/R and N/R (beg) Total Less: Trade A/R and N/R (end) Collection of Trade A/R and N/R

2. What is the payment of accounts payable? Step 1; Compute for the Purchases on Account

7,980,000 670,000 8,650,000 900,000 7,750,000

Step 1 Step 5

Given 7,750,000

Step 4 Step 2 Step 3

computed Given Given

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Beginning inventory Purchases on accounts Goods available for sale Less: Ending inventory Cost of Goods sold

860,000 5,750,000 6,610,000 780,000 5,830,000

Step 1 Step 5 Step 4 Step 2 Step 3

Step 2: Compute for the payment of accounts payable Purchases on Account Trade A/P and N/P (end) Payment of Trade A/P and N/P Purchase returns, discounts and allowances Total Trade A/P and N/P (beg) Purchases on Accounts

480,000 5,800,000 6,280,00 530,000 5,750,000

SOLUTION IN GOOD ACCOUNTING FORM Purchases on Accounts Trade A/P and N/P (beg) Total Trade A/P and N/P (end) Payment of Trade A/P and N/P

5,750,000 530,000 6,280,00 (480,000) 5,800,000

Step 1 Step 5 Step 4 Step 2 Step 3

3. What is the cash balance on December 31? Cash, beg. Collection from customers Payment of accounts payable Payment of various expenses Cash, ending balance

620,000 7,750,000 (5,800,000) (1,070,000) 1,500,000

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