CHAPTER I : INTRODUCTION TO FINANCIAL ACCOUNTING 1.

To assist the International Accounting Standard

Board to develop IFRS standards based on
Financial Accounting: Definition consistent concepts.
American Insitute of Certified Public Accountants 2. To assist preparers of financial statements to
(AICPA) - Accounting is an “art of recording, classifying, develop consistent accounting policy when no
and summarizing in a significant manner and in terms standard applies to a particular transaction or
of money, transactions, and events which are, in part at other event or where an issue is not yet
least, of a financial character, and interpreting the addressed by an IFRS.
results thereof.” 3. To assist national standard-setting bodies in
developing national standards.
Financial Accounting: Users 4. To assist preparers of financial statements to
develop accounting policy when a standard
allows a choice of an accounting policy.
5. To assist auditors in forming an opinion on
whether financial statements comply with the
PFRS.
6. To assist users of financial statements in
Financial Accounting (ACCCOB 2) vs interpreting the information contained in
Managerial (Management) Accounting (ACCCOB 3) financial statements prepared in compliance
with PFRS.
Financial accounting is concerned with reporting 7. To provide those who are interested in the work
financial information to external parties, such as of the IASB with information about its approach
stockholders, creditors, and regulators. to the formulation of PFRS.

Managerial accounting is concerned with providing According to the Conceptual Framework for Financial
information to employees within an organization so that Reporting, useful financial information must have two
they can formulate plans, control operations, and make general characteristics, namely,
decisions. (1) fundamental
(2) enhancing
characteristics.
Financial Accounting Managerial Accounting

External Internal

Historical Future

Verifiability Relevance

PFRS or GAAP None

Comparable Special-Use

GAAP and the Conceptual Framework for Financial

To have relevance, accounting information must be
Accounting
capable of making a difference in a decision.
There are two major financial reporting frameworks -
Information with no bearing on a decision is irrelevant.
U.S. GAAP and the IFRS.
Financial information is capable of making a difference
when it has predictive value, confirmatory value, or both
U.S. GAAP - United States Generally Accepted
Accounting Principles
Materiality is a company-specific aspect of relevance.
Information is material omitting it or misstating it could
IFRS - International Financial Reporting Standards
influence decisions that users make on the basis of the
*The Philippine adopts IFRS to Philippine Financial
reported financial information.
Reporting Standards.

Faithful representation means that the numbers and

Conceptual Framework for Financial Reporting was
descriptions match what really existed or happened.
developed so that the financial reporting standards are
Faithful representation is a necessity because most
applicable to a wide range of accounting models,
users have neither the time nor the expertise to
including the concepts of capital and capital
evaluate the factual content of the information. To be a
maintenance. Its various purposes are listed below:
faithful representation, information must be complete,
neutral, and free of material error (CoNeFree).
Enhancing qualitative characteristics is Statement of profit or loss and other comprehensive
complementary to the fundamental qualitative income : presents an entity’s profit or loss, other
characteristics. These characteristics distinguish more comprehensive income or loss, and total
useful information from less useful information. comprehensive income or loss for the period. This
Enhancing characteristics, shown below, are indicates an entity’s income, expenses, gains, and
verifiability, comparability, consistency, losses that were recognized during a particular period.
understandability, and timeliness (VCCUT). Other

Verifiability : occurs when independent measurers The purpose of the statement of cash flows is to
obtain similar results using the same methods. provide a more detailed picture of what happened to a
business’s cash during an accounting period. A typical
Comparability : Information that is measured and cash flow statement comprises three sections: cash
reported similarly for different companies is considered flow from operating activities, cash flow from investing
comparable, including comparability across periods. activities, and cash flow from financing activities.

Consistency : the use of the same methods for the Elements of Financial Statements: Financial Position
same items, either from period to period within a Financial Position (Balance Sheet) : The three broad
reporting entity or in a single period across entities. elements of financial position are assets, liabilities and
equity. In a nutshell, assets are the resources of an
Understandability : is enhanced when information is entity. Liabilities and equity are the claims to such
classified, characterized, and presented clearly and resources.
concisely.

Timeliness : means having information available to

decision-makers before it loses its capacity to influence
decisions.

1. Going Concern Assumption : Financial

Assets : An assets is a present economic resource
statements are prepared under an assumption
controlled by an entity as a result of past events and
that the business will continue in operation for
from which future economic benefits are expected to
the foreseeable future - the company will still
flow the entity.
operate in the future.
2. Accrual basis of accounting : The accrual basis
Recognition criteria: (1) it is probable that future
requires that the effects of transactions and
economic benefits will flow to the entity; (2) cost can be
other events are recognized when they occur,
measured reliably.
not when cash is received or paid.

Liabilities : A liability is a present obligation of an entity

Financial Statements
arising from past events; the settlement of which is
Financial statements are a structured representation of
expected to result in an outflow from the entity of
the financial position and financial performance of an
resources embodying economic benefits.
entity. They also show the results of the stewardship of
the resources entrusted to an entity’s management.
Recognition criteria: (1) it is probable that an outflow of
1. Statement of financial position at the end of the
resources embodying economic benefits will result
period
from the settlement of a present obligation; (2) the
2. Statement of profit or loss and other
amount at which the settlement will take place can be
comprehensive income
measured reliably.
3. Statement of changes in equity
4. Statement of cash flows
Equity : Equity is the residual interest in an entity’s
5. Notes to the financial statements (significant
assets after deducting its liabilities - Equity = Assets -
accounting policies and other explanatory
Liabilities.
information)

Elements of Financial Statements: Financial

Statement of financial position : shows an entity’s
Performance Financial Performance (Income
assets, liabilities, and equity as of a particular date.
Statement) : The elements that measure performance
Previously called the balance sheet, this financial
or profitability of an entity are broadly classified into
statement also proves that the assets (entity’s
two, namely, income and expenses. Income and
resources) are equal to the sum of the liabilities (claim
expenses are mainly extensions or sub-elements of
of outside parties) and equity (claim of owner/s).
equity.
 ● Cash in Bank (demand deposit or checking
account and saving accounts that are
unrestricted).
● Cash Fund set aside for current purposes (petty
cash fund, payroll fund and dividend fund).

Cash Equivalents
● PAS 7, pg. 6
- “cash equivalents are short-term and
Income represents the increase in economic benefits highly liquid investments that are
during an accounting period, in the form of inflows or readily convertible into cash and so
enhancement of assets or decrease in liabilities, that near their maturity that they present
results in an increase in equity, other than those relating insignificant risk of changes in value
to contributions from equity participants. because of changes in interest rates.”
● Highly liquid investments that are acquired
Income encompasses revenues and gains. Revenues three months before maturity.
arise in the course of the ordinary activities of an entity. a. 3-month BSP T-bill
On the other hand, gains represent other items that do b. 3-year BSP T-bill purchased three
not arise in the ordinary course of business. months before date of maturity.
c. 3-month time deposit
Expenses constitute the decrease in economic benefits d. 3-month money market instrument or
during an accounting period in the form of outflows or commercial paper.
depletion of assets or incurrence of liabilities that ● Equity Securities are not cash equivalents,
result in a decrease in equity, other than those relating because shares do not have maturity date.
to distributions to equity participants. ● Redeemable Preference Shares acquired three
months before redemption date can qualify as
Expenses encompasses expenses and losses. Expenses cash equivalents.
arise in the course of the ordinary activities of an entity.
On the other hand, losses represent other items that do Classification of investment of excess cash
not arise in the ordinary course of business.
Investments in time deposits, money market
instruments and treasury bills.
CHAPTER II : CASH AND CASH EQUIVALENTS
TERM CLASSIFICATION
Definition:
Three months or less Cash equivalents
● “money and any other negotiable instrument
presented under
that is payable in money and acceptable by “cash and cash
the bank for deposit and immediate credit.” equivalents”
● Checks, bank drafts and money orders
More than three months Short-term financial
but within one year. assets/temporary
Unrestricted Cash
investments presented
● PAS 1, pg. 66 as current assets.
- “an entity shall classify an asset as
current when the asset is cash or a More than one year Noncurrent or long-term
cash equivalent unless it is restricted to investments. *reclassified
as current when it
settle a liability for more than twelve
becomes due within one
months after the end of the reporting
year from the end of the
period.” reporting period.

● Cash must be readily available for payment of

Measurement of Cash
current obligations and not restricted
● Cash is measured at FACE VALUE.
contractually or otherwise.
● Foreign currency is measured at the current
exchange rate.
Cash items included in cash
● Cash in banks or other financial institutions that
● Cash on Hand (undeposited cash, customer’s
are in bankruptcy is written down to estimated
checks, cashier’s or manager’s checks,
realizable value if the estimated recoverable
traveler’s checks, bank drafts and money
amount is lower than the face value.
orders).

Financial Statement Presentation

● “cash and cash equivalents”
 ● Details are disclosed in the notes to financial the Bank A is overdrawn by P10,000.
statements. However, Cash in Bank with Bank B has
a debit balance of P100,000.
Foreign Currency
● Translated to Philippine Peso using the current Cash in Bank B – current asset
exchange rate. Bank Overdraft in Bank A –
● Deposits in foreign countries which are not current liability
subject to any foreign exchange restriction are
included in cash. It is not necessary to adjust and open a
● Deposits in foreign bank which are subject to ”bank overdraft” account in the ledger.
foreign exchange restriction, if material, should Cash in Bank A account is maintained
be classified separately among noncurrent in the ledger with a credit balance.
assets and the restriction clearly indicated.
Compensating Balance
Cash Fund for a certain purpose ● Minimum checking or demand deposit account
balance that must be maintain in connection
Purpose Classification Examples
with a borrowing arrangement with a bank.
use in current cash and cash petty cash fund,
operations/pay equivalents payroll fund, Example: Company X borrowed P5 million from
ment of current travel fund, a bank and agrees to maintain a 10% or
obligations interest fund,
P500,000 minimum compensating balance in a
dividend fund
demand deposit account.
and tax fund.

● Not legally restricted (informal agreement) –

“cash”
use for long-term sinking fund,
● Legally restricted (formal agreement) – “cash
noncurrent investment preference
held as compensating balance” under current
purposes/ share
payment of redemption assets if related to short-term and noncurrent
noncurrent fund, contingent investment if the related loan is long-term.
obligations fund, insurance
fund, fund for
acquisition or
construction of
PPE.

Classification of cash fund as current or noncurrent

should parallel the classification of the related liability.

Bank Overdraft
● Cash in Bank has “credit balance”
● Issuance of checks in excess of deposits. Undelivered or Unreleased Check

● Generally, overdrafts are not permitted in the ● Drawn and recorded but not given to the payee

Philippines. before the end of reporting period.

● Classified as current liability and should not be ● There is no payment.

offset against other bank accounts with debit ● The undelivered check is still subject to the

balances. company’s control and may be cancelled

● When an entity maintains two or more anytime before delivery at its discretion.

accounts in one bank and one account results

in an overdraft, such overdraft can be offset Example: Company A drew a check with the

against the other bank account with debit amount of P10,000 and recorded as payment to

balance in order to show “cash, net of bank supplier on November 15, 2020. However, as of

overdraft” or ”bank overdraft, net of other bank the end of the year (December 31, 2020) the

account.” check is not yet delivered to the supplier and

● Overdraft can also be offset against the other still in the possession of the Company A.

bank account if the amount is not material.

ADJUSTING ENTRY:

Example: Cash P10,000

● Company X has two bank accounts in Accounts Payable P10,000

two different banks. Cash in bank with

Postdated Check Delivered
 ● Drawn, recorded and delivered to the payee but ● The replenishment checks are drawn upon the
bears a date subsequent to the end of the request of the petty cashier.
reporting period. ● Petty cash disbursements are immediately
● There’s no payment until the check can be recorded, resulting in a fluctuating balance of
presented to the bank for encashment or the petty cash fund per book from time to time.
deposit.
Fluctuating Fund System
Example: Company A drew a check with the Establishment of Fund:
amount of P10,000. It was given to the payee Petty Cash Fund XX
and recorded as payment to supplier on Cash in Bank XX
November 15, 2020. However, the check is dated
“January 12, 2021”. Payment of expenses out of the petty cash fund:
Expenses XX
ADJUSTING ENTRY: Petty Cash Fund XX
Cash P10,000
Accounts Payable P10,000 Replenishment or increase of the fund:
Petty Cash Fund XX
Stale Check or Check long outstanding Cash in Bank XX
● Stale check – not encashed by the payee within
a relatively long period of time. No adjustments at the end of the reporting period.

Imprest System Decrease in fund:

● System of control of cash which required that Cash in Bank XX
all cash receipts should be deposited intact Petty Cash Fund XX
and all cash disbursements should be made by Accounting for Cash Shortage/Over
means of check. ● Where the cash count shows cash which is less
than the balance per book, there is a cash
Petty Cash Fund shortage to be recorded as follows:
● Money set aside to pay small expenses which
cannot be paid conveniently by means of Cash Count < Cash Balance per Book/Record
check. Cash short or over XX
● Imprest fund system or Fluctuating fund Cash XX
system.
Accounting for Cash Shortage/Over
Imprest Fund System ● The cash short or over account is only a
Establishment of Fund: temporary or suspense account. When financial
Petty Cash Fund XX statements are prepared the same should be
Cash in Bank XX adjusted.

Payment of expenses out of the petty cash fund: Hence, if the cash custodian is held responsible for cash
NO ENTRY shortage, the adjustment should be:

Replenishment or increase of the fund: It was found that the cash custodian is responsible for
Expenses XX cash shortage
Cash in Bank XX Due from cashier XX
Cash short or over XX
Increase in fund:
Petty Cash Fund XX However, if reasonable efforts fail to disclose the cause
Cash in Bank XX of shortage, the adjustment is

Year-end Adjustments: No one is found responsible for cash shortage

Expenses XX Loss from cash shortage XX
Petty Cash Fund XX Cash short or over XX

Fluctuating Fund System Accounting for Cash Shortage/Over

● Checks drawn to replenish the fund do not Where the cash count shows cash which is more than
necessarily equal the petty cash the balance per book, there is cash overage to be
disbursements. recognized as follows:
Cash Count > Cash Balance per Book/Record which are bank charges for interest, collection,
Cash XX checkbook and penalty.
Cash short or over XX
DEPOSIT IN TRANSIT
Note that whether it is a cash shortage or cash overage, Cash and/or checks that have been received and
the offsetting account is cash short or over. The cash recorded by an entity, but which have not yet been
short or over account is only a temporary or suspense recorded in the records of the bank where the entity
account. When financial statements are prepared the deposits the funds.
same should be adjusted.
A deposit in transit occurs when a deposit arrives at the
Accounting for Cash Shortage/Over bank too late for it to be recorded that day.
The cash overage is treated as miscellaneous income if
there is no claim on the same. The journal entry is:

No one claims the excess cash found during cash count

Cash short or over XX
OUTSTANDING CHECKS
Miscellaneous Income XX
A check payment that has been recorded by the
issuing entity, but which has not yet cleared its bank
But where the cash overage is properly found to be the
account as a deduction from cash.
money of the cashier, the journal entry is:

It was found that the cash custodian owns the cash

overage
Cash short or over XX EXAMPLE

Payable to cashier XX ABC Company provided the following bank

reconciliation on January 31 of the current year:

CHAPTER II : BANK RECONCILIATION

DEFINITION Bank balance 300,000

A bank reconciliation is the process of matching the Add: Deposit in Transit 600,000

balances in an entity's accounting records for a cash TOTAL 900,000

account to the corresponding information on a bank Deduct Outstanding Checks

statement. No. 114 240,000

No. 115 160,000

Reconciling Items No. 116 60,000 460,000

Adjusted bank balance 440,000
Book Reconciling Items Bank Reconciling Items

1. Credit Memos 1. Deposit In Transit All receipts of cash are deposited in the bank account.
2. Debit Memos 2. Outstanding Checks The bank statement for the month of February is
3. Book Errors 3. Bank Errors presented below:
PNB Bank
Book Reconciling Items Checks Deposit Date Balance
CREDIT MEMO Balance forwarded Jan 31 300,000
This is issued by a bank when it increases a depositor's 240,000 600,000 Feb 1 660,000
checking account for a certain transaction. 2,000,000 3 2,660,000
200,000 5 2,460,000
An example is a note receivable collected by the bank 900,000 400,000 7 1,960,000
in favor of the depositor and credited to the account of 160,000 9 1,800,000
the depositor. 1,000,000 10 2,800,000
500,000 13 2,300,000

DEBIT MEMO 1,200,000 16 3,500,000

1,300,000 21 4,800,000
A debit memo on a company's bank statement refers to
550,000 23 4,250,000
a deduction by the bank from the company's bank
5,000 - DM 24 4,245,000
account.
1,000,000 550,000 27 3,795,000
800,000 270,000 - CM 28 3,265,000
Examples of debit memos are no sufficient fund checks
(NSF) or drawn against insufficient fund (DAIF) which
The following information was taken from the credit
are checks deposited but returned by the bank
memo of February 28:
because of insufficiency of fund, bank service charges
Face of the Note 250,000
Interest on the Note 30,000
Maturity value of the note 280,000 Computation
Collection charge 10,000 Deposit in transit – beginning of the month xx
Credit to your account 270,000 Add: Cash receipts deposited during the month xx
Total deposits to be acknowleged by the bank xx
The following data were taken from the cash journals of Less: Deposits acknowledged by the bank during xx
ABC Company: the month
Deposit in transit – end of month xx
Cash Receipt Journal Cash Disbursement Journal

Date Balance Check No Balance Outstanding Checks

Feb 2 2,000,000 117 200,000 An outstanding check is a check payment that is
6 400,000 118 900,000 written by someone, but has not been cashed or
9 800,000 119 800,000 deposited by the payee. The payor is the entity who
10 200,000 120 500,000 writes the check, while the payee is the person or
15 1,200,000 121 550,000
institution to whom it is written. An outstanding check
20 1,300,000 122 180,000
also refers to a check that has been presented to the
24 550,000 123 1,000,000
28 450,000 124 120,000 bank but is still in the bank’s check-clearing cycle.

6,900,000 125 250,000

4,500,000 Computation
Outstanding checks – beginning of the month xx
Solution Add: Checks drawn & recorded by company during xx
Bank balance 3,265,000 the month
Add: Deposit in Transit 450,000 Total checks to be paid by the bank xx
TOTAL 3,715,000 Less: Checks paid by the bank during the month xx
Deduct Outstanding Checks Outstanding checks – end of the month xx
No. 116 60,000
No. 122 180,000 ABC Company provided the following information:
No. 124 120,000 Balance per bank statement – May 31 2,600,00
No. 125 250,000 610,000 Deposits outstanding 300,000
Adjusted bank balance 3,105,000 Checks outstanding (100,000)
Correct bank balance – May 31 2,800,00
Book balance 2,840,000
Add: CM for note collected 270,000 Balance per book – May 31 2,810,000
TOTAL 3,110,000 Bank service charge (10,000)
Less: DM for service charge 5,000 Correct book balance – May 31 2,800,000
Adjusted bank balance 3,105,000
ABC Company provided the following information. June
BOOK to BANK METHOD data are as follows:
Book balance 2,840,000 Bank Book
Add: CM for note collected 270,000 Check recorded 2,200,000 2,500,000
Deposits recorded 1,600,000 1,800,00
Outstanding Chek 610,000
Service charges recorded 50,000
Less: DM for service charge (5,000)
Note collected by bank, 550,000
Deposit in Transit (450,000)
P500,000 plus interest
Bank balance 3,265,000 NSF check returned with June 100,000
30 statement
BANK TO BOOK Balances 2,400,000 2,100,000
Bank balance 3,265,000
Add: Deposit in Transit 450,000 Questions:
Add: DM for service charge 5,000 1. What is the amount of outstanding checks on June
Less: Outstanding Checks (610,000) 30?
Less: CM for note collected (270,000) Outstanding checks –May 31 100,000
Book balance 2,840,000 Add: Checks drawn by depositor during 2,500,000
the month of June
Deposit In Transit Total checks to be paid by the bank 2,600,000
A deposit in transit is money that has been received by Less: Checks paid by the bank during the 2,200,000
a company and recorded in the company's accounting month of June
system. The deposit has already been sent to the bank, Outstanding checks – June 30 400,000
but it has yet to be processed and posted to the bank
account. 2. What is the amount of deposits in transit on June
30?
Deposit in transit – May 31 300,000 According to paragraph 5.1.1 of PFRS 9: FINANCIAL
Add: Cash receipts deposited during the 1,800,000 INSTRUMENTS, “Financial assets such as receivables are
month of June recognized at face value, plus transaction costs that
Total deposits to be acknowleged by the 2,100,000 are directly attributable to the acquisition.”
bank
Less: Deposits acknowledged by the bank - 1,600,000 Measuring the fair value of a receivable is
June straightforward because accounts receivable are
Deposit in transit – June 30 500,000 initially recorded at face value.

3. What is the adjusted cash in bank on June 30? Subsequent Recognition

Bank balance - June 30 2,400,000 At the end of a reporting period, accounts receivable
Add: Deposit in Transit - June 30 500,000 are reported at their NET REALIZABLE VALUE. This means
Less: Checks outstanding - June 30 (400,000) that they are no longer carried at their initial face value
Adjusted bank balance 2,500,000 but at an amount expected to be collected from them
through an adjustment that recognizes probable loss.
Book balance 2,100,000
Service charges (50,000) The accounting process of anticipating probable loss
Collection by bank 550,000 on receivables is supported by the principle of
NSF check (100,000) PRUDENCE.

Adjusted bank balance 2,500,000

Derecognition

RECEIVABLES According to paragraph 3.2.3 of PFRS 9, a financial asset

- as financial assets, represent a contractual right such as an account receivable is DERECOGNIZED or

to receive cash or other financial assets from another REMOVED from the books, when either of the two occurs:

entity. It is presented under the CURRENT ASSETS section 1. The contractual rights to the cash flow expire

in the Statement of Financial Position under the heading 2. The entity transfers the receivables, and the

“Trade and Other Receivables”. It is recognized due to transfer qualifies for derecognition.

the accrual assumption in accounting, whereas

business entities are allowed to recognize income when Net Realizable Value (NPV)

goods are sold or when services have been rendered, At the end of the year, an entity assesses or estimates

not necessarily when cash is received. the amount that could be eventually collected from its
customers’ accounts. The estimated amount is the

TRADE RECEIVABLES receivable’s NET REALIZABLE VALUE (NPV).

are comprised of accounts receivables and notes

receivables. These are the usual receivables that arise It is the difference between the gross receivables and

from the ordinary course of business operation. the allowance for doubtful accounts at the end of
reporting period. Allowance for doubtful accounts is a

NON-TRADE RECEIVABLES “contra-receivable” (deduction from receivable)

However, receivables may not only arise from the sale account.

of goods or rendering of services. They may also come

from other sources. Other factors that would affect the NPV of the accounts

Ex. receivables are sales discounts, sales returns and

1. Claims Receivables allowances.

2. Interest Receivables
3. Advances to Affliates/IOUs from Officers and METHODS OF ESTIMATING LOSS ON A/R

Employees A. THE ALLOWANCE FOR DOUBTFUL ACCOUNTS IS

UPDATED BY PERCENTAGE OF ACCOUNTS

Accounts Receivables RECEIVABLES

These are essentially short-term receivables that arise B. AGING OF ACCOUNTS RECEIVABLES

from the ordinary course of business operations. When C. PERCENTAGE OF SALES METHOD

a merchandiser sells goods on credit, he/she

recognizes account receivable in his/her books. The ALLOWANCE FOR DOUBTFUL ACCOUNTS IS UPDATED BY

credit term or agreement is considered an open PERCENTAGE OF ACCOUNTS RECEIVABLES

account, which means no formal written promise to pay 1. The allowance for doubtful accounts is

or promissory note is required of the customer-debtor. estimated at a certain percentage of the

accounts receivables

Sample terms: 3/10, n/30 ; 2/15, n/30 2. The allowance for doubtful accounts is
increased to a certain percentage of the

Initial Recognition accounts receivables

 3. The allowance for doubtful accounts is
increased by a certain percentage of the
accounts receivables

GENERAL FORMULA TO COMPUTE FOR THE DOUBTFUL

ACCOUNTS EXPENSE UNDER THE ALLOWANCE METHOD

Accounts receivable, end P xxx

Multiplied by estimated loss rate 0.xx
Required allowance P xxx
Allowance for doubtful accounts, before adjustment (xxx)
Doubtful accounts expense P xxx

Illustrative Problem
Mendoza Trading shows the following balance in its
books as of 12/31/20
Accounts Receivable P 500,000
Allowance for Doubtful Account 30,000

Determine the amount of doubtful accounts expense to

be recorded by the entity in 2020 under the following
situations:
1. The Allowance for Doubtful Accounts is
estimated at 10% of Accounts Receivable.
2. The Allowance for Doubtful Accounts is
increased to 15% of Accounts Receivable.
3. The Allowance for Doubtful Accounts is
increased by 5% of Accounts Receivable.

Mendoza Trading shows the following balance in its

books as of 12/31/20
Accounts Receivable P 500,000
Allowance for Doubtful Accounts 30,000

1. The Allowance for Doubtful Accounts is

estimated at 10% of Accounts Receivable.
Accounts receivable, end P 500,000
Multiplied by estimated loss rate 0.10
Required allowance P 50,000
Allowance for doubtful accounts, before adjustment
(30,000)
Doubtful accounts expense

0.10

(30,000)
P 20,000