( l )Determine the missing data for each letter in the following two income statements for Labangon General Merchandise. 2006 2005 Sales ( h ) P 490,000 Sales returns and allowances 60,000 ( a ) Net sales 720,000 ( b ) Merchandise inventory, beginning ( i ) 62,000 Purchases 500,000 ( c ) Purchase returns and allowances ( j ) 8,000 Transportation in 16,500 13,000 Net cost of purchases ( k ) ( d ) Goods available for sale 579,000 387,000 Merchandise inventory, end ( l ) 84,000 Cost of goods sold 504,500 ( e ) Gross profit ( m ) 157,000
Selling expenses 56,000 ( f ) General and administrative expenses ( n ) 14,000 Total operating expenses 74,000 ( g ) Net income ( o ) 101,000 Nature of Reversing Entries After the books have been closed and the post-closing trial balance has proved the equality of the debits and credits in the ledger, certain adjusting entries have an important effect on otherwise routine transactions that occur in the next accounting period and so it is preferable to prepare the so-called reversing entries. The reversing entries are optional (which means that they may or may not be made) and if made, they shall be dated as of the first day of the next accounting period. The use of reversing entries generally simplifies the analysis of transactions and reduces the likelihood of errors in the subsequent recording of transactions. They are made for convenience and consistency in the handling of accrued and deferred items. Only the following adjusting entries will be reversed: Accrued or Unpaid expenses Accrued or Uncollected Revenues Unearned Income under the Income Method Prepaid Expense under the Expense Method Such reversing entry made eliminates the balance of a balance sheet account that was recognized in the adjusting entry. These reversing entries are posted to the general ledger after which the books are ready for the next accounting period and the successive steps in the accounting cycles are then repeated. With the increased use of computerized accounting systems, data entry personnel may be inputting routine accounting entries. In such an environment, reversing entries may be useful, since these individuals may not recognize the impact of adjusting entries on the related transactions in the following period. Reversing Entry for Accrued Income Accrued Income for the present accounting period usually collected in the next accounting period. If no reversing entry is made, this accrued income when received in the future must necessarily be credited to the Accrued Income account. However, if there is a reversing entry, all income collected in the future, whether accrued or not, can be uniformly credited to the Income account. To illustrate the optional use of reversing entries, consider the given cases below. Case # 1 During the month of December, only P20,000 out of the agreed monthly rental of P50,000 was collected on December 23. An adjusting entry was made on December 31, 2008 for the uncollected rental of P30,000. On January 18, 2009, the accrued rental of P30,000 and the January rental were received.
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- Summer '19
- Generally Accepted Accounting Principles