38

Exercise No. 1

• Cash Inflow

• Accounting Income = Income accrued or generated in a period. Value of received resources

product of the sale of goods and services over a period

• Cash Outflow

• Expense accrued or generated in a period. Value of resources delivered or

consumed in a period used in the generation of the accounting income for that period.

• Accrual Basis = Recognition criteria for revenues and expenses for measurement of
result of the management of a company in a period, based on the moment when they (the
income or expenses are generated, regardless of the moment they are received in the
cash form (income) or are paid in cash (expenses).

• Cash Basis = Recognition criteria for income and expenses for measuring results
of managing a company over a period, depending on the time when they (the revenues or
expenses are received in cash, regardless of when they are incurred.

• Closing Process
expenses) to zero at the end of each period.

• Temporary Accounts = Accounting accounts used to 'accumulate' income and expenses

accounting during a period. Its initial and final balance must be $0

• 8 Column Balance = List of all accounts used in the accounting of a company

during a period, in which the total debits or credits of each account are recorded according to
correspond, the debit or credit balance of each account as appropriate and its classification
(asset, liability or equity, income or expense)

• Depreciation (of the period) = Expense for the 'consumption' of depreciable fixed assets such as
result of its use over a period

• Provision for Bad Debts

 39

Exercise No. 2
a. False. Except for exceptions or coincidences, the accounting income of a period normally
they are also not the same as the cash inflows resulting from the sale of goods and services in the same
period.

b. True: Assuming that the company usually makes provisions for uncollectibles.

c. False: When closing against Retained Earnings (that is, not "passing" through "Losses and
Profits are closed by charging the income account and crediting 'Retained Earnings.'

d. False: It only reflects the depreciation expense of the last period. The account
Accumulated Depreciation is what reflects the total depreciation of the asset from the date of its
acquisition

Exercise No. 3
a. When they pay us for a sale in advance, specifically, when they pay us in the period before
of the delivery of the good or service.

b. A cash sale

c. When we sell on credit, specifically, when the sale will be paid to us in the period following that of the
delivery of the good or service

When we pay for a service in advance, specifically, when we pay for it in the period preceding the
from the receipt of the service (examples: insurance, rent, salary, etc. paid in advance)

When we pay for a service in cash or in the same period in which we receive it (examples: salary,
interests, etc. that are paid in the same period in which they are recognized as an expense for having been received
in that period)

f. When we receive a service and we owe it to pay in the next or future periods
(examples: interests, etc.)

Exercise No. 4

a. Disagreeing with the student (that is, we agree that the 'Gálvez and Clarke' is fine, oh
less at this point!)

b. A particular case in which the depreciation of the period is not an expense in the period in which they are used.
fixed assets that depreciate, it is one in which the benefit of using such fixed asset has not yet been realized
received and therefore is expected to be received in the future. This case can occur when the asset
fixed (the machine for example) was used to produce the products that the company manufactures and that will be
subsequently sold. In this case, the benefit of using or 'wear' of that machine is expected
receive in the future, that is, when the manufactured product is sold and, therefore, the value of said
Depreciation is not an expense until the product is sold (specifically, the estimated amount of
The use or wear of the machine is 'activated' as part of the value of the asset 'Inventory' and will be charged as an expense.
as "Cost of Sales" when said inventory is sold)
 40

Exercise No. 5

a. Revenue from Sales $ (R) 1,000 Stock (A) $800

Accounts Receivable (A) $ 1.000 Cost of Sales ( R) $800

b. June 30 December 31

Box (A) $1,000,000 IPPA (P) $500,000

IPPA (P) $ 1.000.000 Income from Rent $500,000

IPPA: Income Received in Advance

c. Documents to Collect $90,000

Accumulated Depreciation $ 60,000
Machines (A) $100,000
Non-Operational Income $ 50,000

Company Registration Insurance Company Registry

Expense per Claim (R) $90,000 Documents Payable $190,000

Fine Expense (R) $100,000 Non-Operational Income $190,000
Notes Payable $ 190.000

e. Company Registration Bank Register

Bank Debt (P) $150,000,000 Negotiable Values $110,000,000

Capital (Pat) $100,000,000 Loss from Uncollectibles $40,000,000
SPVAP (Pat) $ 50.000.000 Document to be Collected $ 150.000.000

SPVAP: About Selling Price of Own Shares

 41

Exercise No.6

a. BBC - RSO

Why?

The company did:

Box 2,000 Result of the Exercise 2,000

+
Total Activos 2.000 +
Total Assets + Equity. 2,000

Should have done:

Box 2,000 IPPA 2.000

+
Total Activos 2.000 +
Total Pass. + Assets. 2.000

Income Received in Advance (Liability)

b. BBC - RSO

The company did:

Box 6,000 Capital 5,000

translatedText Result of the Exercise 1,000
Total Assets 6,000 Total Assets + Equity. 6,000

Should have done:

Box 6,000 Capital 6,000

+
Total Activos 6.000 +
Total Pass. + Equity. 6,000

c. BB – RSU

The company did:

Box 10,000
Trucks 10,000
Total Assets 0 Total Expenses + Assets0

Should Have Done:

Box 10,000
Trucks 10,000
Dep. Accum. 10,000 Result of the Exercise 10,000
+
Total Activos 10.000 +
Total Assets + Equity 10,000

d. BBC – RSU

The company did:

Retained Earnings 100

Result of the Exercise (100)
Total Assets 0 Total Assets + Equity. 0

Should Have Done:

Dividends Payable 100

Retained Earnings (100)
Total Assets 0 Total Pass. + Assets. 0
 42

e. BB – RSU

The company did:

Dep. Accum. 1.000 Result of the Exercise 1,000

-
Total Assets 1.000 -
Total Pas. + Assets. 1,000

Should have done:

Go now.. (500) Result of the Exercise (500)

-
Total Assets (500) -
Total Pas. + Patrim. (500)

Assumption: The depreciation of machines is part of the production cost and therefore should be
record $500 as part of the asset "Inventory".

f. BB – RSO

The company did:

Prov. for Inc. 1.000

Capital 1.000
Total Assets 0 Total Expenses + Assets 0

It should have been done:

PDI 1,000 Result of the Exercise (1.000)

-
Total Assets (1.000) -
Total Pas. + Patrim. (1.000)

PDI = Provision for Bad Debtors (contra asset account)

g. BBC - RSO

The company did:

Box (880,000)
Placements 1,000,000 Exercise Result 120,000
+
Total Assets 120,000 +
Total Assets + Equity. 120,000

Should Have Done:

Box 880,000 Int. Charged x Anticip.* 120,000

Collocations 1,000,000 _____
+
Total Assets 120,000 +
Total Assets + Equity. 120,000

* Note: Interest Charged in Advance = Liability

h. BB – RSU

The company did:

Total Assets 0 Total Pas. + Patrim. 0

Should Have Done:

Box 1.000
Inventory (800) Result of the Exercise 200
+
Total Assets 200 +
Total Assets + Equity. 200
 43

Exercise No. 7 "Party Monday"

a. May 1, 1999 10/01/1999

Stocks $ 375 Existences $ 375
Accounts Payable $ 375 Accounts Payable $ 375

31/01/1999 04/02/1999

Expenditure on Salaries $ 100 Accounts Payable $375

Salaries Payable $100 Box $ 375

d. October 2, 1999 15/02/1999

Salaries Payable $ 100 Box $1.050

Box $ 100 Accounts Payable $1.050
Income from Sale $2,100

15/02/1999
Cost of Sales $1.125 Loss due to Theft $ 75
Stocks $1.125 Stocks $ 75

g. 28/02/1999 View Accounts T (See note 5)

Accounts Payable $ 75 Expense by Salary $100
Box $ 75 Salaries Payable $ 100

h. March 1, 1999 10/03/1999

Box $ 1.800
Capital $ 1,500 There is no accounting event
SPVAP 300

j. March 15, 1999 31/03/1999

Retained Earnings $ 60 Expense by Salary $ 100
Dividends Payable $ 60 Salary to be Paid $100

See note 2 Note 4

Insurance Expense $150 Depreciation Expense $ 90
Valid Insurance $150 Accumulated Depreciation $90

Closure
Losses and Gains $ 360
Usefulness of Exercise $360

Usefulness of Exercise $ 360

Retained Earnings $ 360

Note that this last entry represents the closing of the 'Net Income' account. It is also correct.
omit this last entry, leaving the equity with the accounts 'Retained Earnings' and 'Profit of
"Exercise" separately.
 44

Box Accounts Receivable Machinery

$2.330 $300 $3,600
e. $ 1.050 $ 100 b.
h. 375 c. e. $1.050
$ 100 d.
$75 g.
$4.530 $172 $3,600

Accumulated Depreciation Valid Insurance Stocks

$ 720 $300 $1,500
$ 90 j $150 j $ 1.125 e.
a. $ 375 $ 75 f.
$ 810 $150 $ 3,000

Accounts Payable Dividends Payable Salaries Payable

$ 150 $0 $ 100
c. $ 375 $ 375 a. $60 j. b. $ 100 $ 100 b.
d. $ 100 $ 100 g.
g. $ 75 $ 100 j.
75 dollars $ 60 $200

Doc. Payable LP Capital About Price

$ 50 $ 4.500 $0
$ 1.500 h. $300
$ 50 $6,000 $300

Retained Earnings Expenditure on Salaries Revenue from Sales

$2.510 $ 100 $ 2.100 e.
j. $ 60 $ 100 $ 300 j. j. $2,100
$360 j. $ 100
$ 50 $ 6,000 $0

Cost of Sales Loss due to Theft Expense for Insurance

$ 1.125 f. $ 75 j. $150
$ 1.125 $75 j. $ 150 j.
$0 $0 $0

Expense for
Depreciation Result of the Exercise Loss and Gains
$ 1.125 $ 2.100
j. $90 $360 $300
$ 90 j. $ 150
$0 $ 360 $90
$ 75
$ 360

In the expense accounts, the component of item (j) that leaves the account with a balance of 0 corresponds to the closing of
exercise for the construction of the Income Statement.
 45

b.
Monday Fiesta S.A. 1/1/99 ($)

Box 2.330 C x P 150

CxC 300 Salaries to Pay 100
Current Insurance 300 Current Liabilities 250
Inventory 1,500
Current Asset 4.430 Doc. x Pay 50
Total Liabilities 300
Machines 3.600
Dep. Accum. (720) Capital 4.500
Fixed Asset 2.880 Net Profit 2.510
Total Assets 7.010
====== ======
Total Assets 7,310 Total Pts. +Pts. 7,310

c.
Income Statement Monday Fiesta S.A. 1erQuarter 1999 ($)

Income from Sales 2.100

Cost of Sale 1.125
Gross Margin 975
Expense for Salaries (300)
Insurance Expense (150)
Depreciation Expense (90)
Loss due to Theft (75)
Result of the Exercise $ 360
 46

Exercise No. 8 "Alambrito"

a.
01/01/1998
Box $ 2,000 Building $ 500
Capital $2,000 Box $500

SPPA $ 60 Inventory $1,000

Box $ 60 Accounts Payable $ 1.000

SPPA: Insurance Paid in Advance (Active)

Box Building Inventory

$2,000 $500 $ 1,000
$ 500
$ 60
$ 1.440 $ 500 $1,000

SPPA Accounts Payable Capital

$ 60 $ 1,000 $2,000

$ 60 $ 1.000 $ 2,000

Balance Alambrito S.A. as of 1/1/98 ($)

Box 1.440 CxP 1.000

Stock 1.000
SPPA 60
Building 500 Capital 2,000
Total Act. 3,000 Total P.+P. 3,000

Expense by Salary $ 400 Depreciation Expense $50

Box $400 Accumulated Deposit $ 50

Insurance Expense $15

SPPA $ 15

Box SPPA Accumulated Depreciation

$ 1.440 $60
$ 400 $15 $ 50

$ 1.040 $ 45 $ 50

Expense for Salaries Expense per Dep. Insurance Expenses

$ 400 $50 $ 15

$ 400 $ 50 $ 15
 47

Balance Alambrito SA as of 30/06/98

Box $1.040 Accounts Payable $ 1,000

Inventory $ 1.000
SPPA $45 Capital $ 2,000
Building $500 Exercise Result -$ 465
Accumulated Depreciation -$50
Total Assets $2.535 Total Liability + Equity $2.535

EERR Alambrito SA 1st Semester

Expenses for Salaries -$400

Depreciation Expense -$ 50
Insurance Expenses -$ 15
Exercise Result -$ 465

Two possible Closing Entries:

1. Retained Earnings $465

Expenditure on Salaries $ 400
Insurance Expenses $ 15
Depreciation Expense $ 50

2. Losses and Gains $ 465

Expenditure on Salaries $ 400
Insurance Expense $15
Depreciation Expense $ 50

Exercise Result $ 465

Losses and Gains $ 465

c.

01/07/1998
Expense for Insurance $ 45 Box $300
SPPA $45 Long-term Debt $300

01/08/1998
Accounts Payable $ 1.000
Box $1,000

01/10/1998
Accounts Receivable $1,600 Cost of Sale $ 800
Revenue from Sales $1.600 Existences $ 800

31/12/1998
Expense for Bad Debts $ 160 Expenditure on Salaries $ 400
Accounts Receivable $160 Box $250
Salaries Payable $150

Financial Expense $30 Depreciation Expense $50

Revenue from Sales $30 Accumulated Depreciation $ 50
 48

Box SPPA Inventory

$ 1.040 $ 45
$ 300 $ 1.000 $45 $ 1.000 $ 800
$ 250
$ 90 $0 $ 200

Building Accounts Payable Capital

$500 $ 1,000 $ 1,000 $2,000

$ 500 $0 $ 2.000

Retained Earnings LP Debt Accumulated Depreciation

$ 465 $300 $50
$ 50

$ 465 $300 $100

Accounts Receivable Salaries Payable Interest in Paying

$ 1.600 $ 160
$ 150 $ 150

$ 1.440 $150 $ 150

Insurance Expenses Income from Sales Cost of Sales

$ 45 $ 1.600 $ 800

Expense by
Uncollectible Salaries Expense Financial Expense
$160
$ 400 $30

Depreciation Expense
$50
 49

Balance Alambrito SA as of 12/31/98

Box $ 90 Salaries Payable $150

Inventory $ 200 Interest to Pay $ 30
Accounts Receivable $ 1.440 Long Term Debt $300
Building $500 Capital $ 2,000
Accumulated Depreciation -$100 Exercise Result $ 115
Retained Earnings ($ 465)
Total Assets $ 2.130 Total Liabilities + Equity $ 2.130

EERR Alambrito SA 2nd Semester

Revenue from Sales $ 1.600

Cost of Sales ($ 800)
Gross Margin $800
Depreciation Expense ($ 50)
Expense for Salaries ($ 400)
Expense for Bad Debts $160
Insurance Expense $45
Financial Expense $30
Exercise Result $ 115

Closure Seats:

Sales Revenue $ 1,600

Cost of Sales $ 800
Bad Debt Expense $ 160
Expenditure on Salaries $400
Insurance Expenses $ 45
Depreciation Expense $ 50
Financial Expense $30
Exercise Result $ 115

Result of the Exercise $115

Retained Earnings $ 115
 50

Exercise No. 9 "Savere"

Box Accounts Receivable PDI

$300 $ 250 $25
(2) $ 2.000 $ 1.600 (3)
$ 15 (6) (1) $ 2.500 $2.000 (2) (3') $20 $68 (4')
$ 50 5 $20 (3')
$250 (5)
$ 100 (8)
$ 285 $730 $73

Stocks Building Accumulated Depreciation

$500 $ 700 $100
(4) $2,000 (1) (1) $1,000 $ 70 (1')

$700 $1,700 $170

Accounts Payable Tax to be Paid Bank Debt

$300 $ 100 $ 500
(3) $ 1.600 $ 2.000 (4) (8) $100 $ 43.2 (8') (5) $250

$700 $43.2 $250

Special Credit Capital Retained Earnings

$ 1,000 (7) $700 $ 25
$ 80 (7') $15
$ 1.080 $700 $ 10

Result Exercise
$2,500 (1)
(1) $ 1,800
(5) $50
(7') $80
(1’) $70
(8') $43,2
(4') $68
$388.8

Balance Savere S.A.: January 1, 1999 31/12/99

Box 300 285

CxC 250 730
P.D.I. (25) (73)
Stocks 500 700
Buildings 700 1,700
Acum Dep 100 (170)
Total Assets 1.625 3.172

CxP 300 700

Tax to Pay 100 43.2
Bank debt. 500 250
Special Credit ---- 1.080
Capital 700 700
As it is 25 10
Res Exercise ---- 388.8
Total Liabilities and Equity 1.625 3.172
 51

EERR Savere SA 1999

Income from Sales $2,500

Cost of Sales $1,800
Gross Margin $700
Expense for Bad Debts ($68)
Depreciation Expense ($70)
Operational Result $562
Financial Expenses ($130)
Result Before Taxes $432
Taxes (10%) ($43,2)
Exercise Result $388.8

Cash Movement 1999

Initial Balance $300

Collection of Accounts Receivable $2,000
Payment of Accounts Payable $1,600
Dividend Payments $15
Bank Debt Payment $300
Tax Payment $100
Final Balance $285
 52

Exercise No.10 "Burnt"

a.

Balance of La Quemadita S.A. (M)

as of 31/12/98
(Figures in millions of $)

Current Assets Current Liabilities

Box 1.000 Salaries Payable 200
Accounts Receivable 4,000 Accounts Payable to Suppliers 1,000
Prov. Bad Debts (200) Taxes Payable 375
Stock 8,000 Dividends Payable 0
Insurance Paid in Advance 1.000 Interest Payable 750
Income Received in Advance 1.500

Fixed Asset Long Term Liabilities

Lands 25,000 Debt with Banks 15,000
Constructions 10,000 Heritage
Accumulated Depreciation (4.800) Paid Capital 20,000
Markup on Sale of Shares 0
Retained Earnings 2.675
Benefits of Exercise 2,500

Total Assets 44,000 Total Liabilities and Equity 44,000

b.
Statement of Results 1999

Sales Income 19,500

Cost of Sales 13.500
Gross Margin 6,000
Expenditure on Salaries (1.800)
Insurance Expenses 1.600
Expense for Uncollectibles (115)
Depreciation Expense 400
Operating Result (1) $2.085
Financial Expenses (Interest) 1.250
Loss from Sale of Fixed Asset 65
Non-Operating Result (2) (1.185)
Result before Income Tax [(1) + (2)] $900
Expense on Tax (250)
Result of the Exercise $650
 53

Exercise No. 11 "ABC-M"

SEATS (1989)

(1) 02/01/1989 $1,800

Box $ 900
Accounts Payable $900

(2) 15/02/1989 Box $ 3,200

Income from Sales $ 3.200

Cost of Sales $1,200

Inventory $1,200

(3) 03/06/1989 $400

Income from Sales $ 400

(4) 15/07/1989 Dividend to be Paid $ 360

Box $360

(5) 10/09/1989 Insurance Paid in Advance $ 600

Box $600

(6) 10/10/1989 Box $ 2.400

Capital $2,000
About Sale Price of Shares $ 400

(7) 10/15/1989 Accounts Payable $900

Box $ 900

(8) 31/12/1989 $ 50
Dividends Payable $ 50

(9) 31/12/1989 Loss due to Theft $ 60

Stock $ 60

Adjustment Seats: 12/31/89

10 31/12/1989 Earned Premium

Insurance Expense $200
S.P.P.A. $ 200

(11) 31/12/1989
Expense for Salaries $ 540
Box $ 490
Salaries Payable $50

(12) 02/01/1989 Payment of Salaries on 02/01/89

Salaries to be paid $ 40
Box $ 40

(13) 31/12/1989 Depreciation of the Fiscal Year $50

Accumulated Depreciation $50
 54

Other Period Entries:

14 Interests and Payment of the Document

31/03/89 Financial Expense $30
Interest Payable $30
Box $ 60

30/09/89 Financial Expense $ 60

Documents Payable $1,000
Box 1.060

Closure of Temporary Accounts (Summary)

31/12/89
Sales Revenue $3,200
Cost of Sales $ 1,200
Loss Due to Theft $60
Insurance Expense $200
Salaries $540
Depreciation for the Period $50
Financial Expense $ 90
Losses and Gains $ 1.060

(12) Closing of Losses and Profits

Losses and Gains $ 1.060
Result of the Exercise $ 1.060

BALANCE AL : 1/1/89
ASSETS LIABILITIES + EQUITY
Current Assets $ Current Liabilities $
Box 5.350 Accounts Payable 1.540
Accounts Receivable 500 Document Payable 1.000
Inventory 600 Dividends Payable 800
Total Current Assets 6,450 Interest Payable 30
Salaries Payable ___40
Total Current Liabilities 3.410
Fixed Asset
Building 3,000
-Dep. Accum. (450) Heritage:
Total Fixed Act 2.550 Capital 4,000
Ut. Retained 1.590
____ Total Heritage _5.590
Total Assets $9,000 Total Liabilities + Equity. $9,000
 55

INCOME STATEMENT (1989)

Income from Operations 3.200
Less: Cost of Sales 1,200
Gross Margin or Exploitation 2.000
Less: Administration and Sales Expenses:
Salaries 540
• Deprec. 50
Insurance 200 790
Operating Result 1.210

Less: Non-Operating Expenses:

Loss due to Theft 60
Financial Expenses ___90 150

Result of the Exercise 1.060

 56

Exercise No. 12 "Crazy Chip"

1998 1999 1998 1999

Current Assets $ $ Current Liabilities $ $
Box 500 7.810 Salaries to be Paid 200 300
Accounts Receivable 800 480 Accounts Payable 300 1,200
Prov. Uncollectible Debtors (40) (24) Informed. By Advance 100 300
Inventories 600 1.150 Taxes Payable 70 50
Rent Page. In Advance 400 500 Interest Payable 80 180
Dividends Payable 40 50

Fixed Asset Long Term Liabilities

Land 4,000 5,000 Bank Debt 5,000 7,000
Machinery 6,000 4,000
Accumulated Dep. (1.000) (1.050) Heritage
Capital 3,000 4,000
Other Assets Retained Earnings 1.770 2.070
Trade Marks 200 0 Outcome of the Exercise 900 2.716

Total Assets 11.460 17.866 Total Liabilities and Equity 11.460 17.866
 57

Income Statement 1999

Sales Revenue $20,200

Cost of Sales ($15.150)
Gross Margin $5.050

Expenditure on Salaries $1,000

Expense on Rent $900
Bad Debt Expense ($4)
Depreciation Expense ($350)
Operational Result $2.796

Financial Expenses ($580)

Profit from Brand Sales $800
Loss on Sale of Fixed Asset ($200)
Non-Operating Result $20

Result before Income Tax $2.816

Expense on Tax $100

Exercise Result $2.716

Cash Entries Cash Outflows

Cash Sales $12,000 Payment to Suppliers $14,800
Client Advances $400 Dividend Payment $590
Collections from Clients $8.300 Tax Payment $120
Sale of Commercial Brands $1,000 Advance Rent Payment $1,000
Sale of Machinery $1.500 Payment of Interest $480
Bank Loan $2,000 Payment of Salaries $900

Total Entries $25,200 Total Outputs $17.890