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Accrual to Cash Accounting

Ang topic po na ito ay mahalaga lalo sa pag-gawa ng Cash Flow Statement especially for Direct Method, which shows how cash are received and disbursed. Laging tandaan, sa pag gawa ng CFS ang mahalaga sa iyo ay kung kelan ka nakatanggap ng cash o kelan ka gumasta ng cash. Ang cash basis of accounting, based on IFRS/PFRS, ay hindi ginagamit for general purpose financial statement. Ngunit, gagawin natin ito dahil importanteng malaman ng isang investor or ng entity itself kung saan nanggagaling ang cash inflow at kung saan napupunta ang cash outflow. So, on the part of the prospective investor, malalaman nya kung worth ba mag-invest sa isang kumpanya, kung kikita ba sya through cash dividends or makikita nya kung gaano ka-liquid (kung gaano kabilis magconvert ng cash ang isang kumpanya) a gaano ka solvent (kung nakakabayad ba ng utang) ang isang kumpanya. On the part of the Company, malalaman nya kung paano ginagastos ang cash therefore, mas magiging madali ang financial planning sa kanila.

This topic will only help you give the idea how to get the cash flow from a specific account(s). Full discussion is on the Cash Flow Statement Topic.

Pag kinukuha nyo ang cash flow, importanteng gumamit kayo ng t-account. Mas madali kasi isolve ang lahat pag may t-account instead na nagmememorize. Mas logical kasi diba. I will assume you know how to use T-Account. πŸ™‚

Bago kayo magconvert, itanong nyo muna sa sarili nyo kung anong possible accounts ang affected then you’ll go from there.

Just a reminder, para sa mga hindi po marunong gumamit ng T-Account:

Assume any DEBIT/CREDIT account. To get the value of x:

T-ACCOUNT.png picture by joseph0487

Tapos from there, i-modify nyo nalang yung T-account.

A. Cash Received from Customers

From the description itself, sabi, ito yung salapi na natanggap natin mula sa mga customers outside the entity. So, ano ba usually ang mga accounts na may kinalaman sa customers? Sa asset side, Accounts Receivable. Sa liability side Unearned Income. The thing is, using a T- account, you should be able to tell how much cash flow in to the company coming from customers. Eto sya:

ARUI.png picture by joseph0487

**yung income earned, if any lang.

Yung cash na galing sa AR, ito yung mga nakolekta nating utang ng customers. Yung cash naman na galing sa Unearned income, ito yung ibinigay ng customer sa atin na pera in advance, kaya hindi pa earned. So pag in-add nyo yung dalawang amounts:

Cash from AR + Cash from UEI = Total Cash Received from Customers.

Example:

p1-1.png picture by joseph0487

Ang sagot ay Β $ 23,900

Eto ang solution:

correctd.jpg picture by joseph0487

Pano ko nakuha yung 20,500 na Sales on Account?

Yung Total sales mo kasi ay 26,000. It is composed of the Cash Sales, the Earned Income (previously Unearned, and Sales on Account. Kung papansinin nyo sa Unearned income, walang cash advances from customer for year 2010. So ang makukuha lang natin ay yung 3,000 na earned income. So…

26,000 – 2,500 Cash Sales – 3,000 Earned Income = 20,500 Sales on Account.

So, we can compute the Cash Received from customers:

17,900 (Cash from AR)

+ 2,500 (Cash Sales)

20,400 Total Cash from Customers

B. Cash Paid to Vendors

Ano bang usual account for vendors? Edi Accounts Payable!

AP.png picture by joseph0487

C. Cash Paid to Other Operating Expenses (Prepayments; e.g. Prepaid Insurance)

ppd.png picture by joseph0487

D. Cash paid to Other Operating Expenses (e.g. Salaries Expense, Advertising Expense, etc)

sp.png picture by joseph0487

E. Cash Received for Other Income (e.g.Β Rent)

rent.png picture by joseph0487

F. Cash Paid for Interest

int.png picture by joseph0487

G. Cash Paid for Taxes

tax-1.png picture by joseph0487


Problem

prob.png picture by joseph0487

answer key:

Paid to vendors: 9,500

Paid to Insurance: 65,000

Paid to Advertising: 5,400

Received from Rent: 9,140

kuya pahabol lang nga tanong:

Dun sa cash payment to vendor

COS + Inventory End + AP beg – Inv Beg – AP End = Cash Paid to vendors

Total Cash Paid to vendors = Cash Purchases + Paid Purchases on Account
Yung sa unang formula po kasi parang ina-ssume na all purchases are on account (tama po ba)
So pag silent yung problem (yun po yung assumption?)…

Yes, unless otherwise specified, Purchases are made on account. Pero syempre, beware of any hints na maaring may cash purchases. Kung walang hints, assume all are made on account.

Tapos sa Sales Revenue naman
Given ang beg end Cash Account balance ,Paano kung sinabi ng problem ALL CASH RECEIPTS WERE FROM CUSTOMERS (eto na po ba yung Cash Sales o Cash Sales + Collections on Account?)

Yes, pero isama mo rin yung CASH RECEIVED FROM CUSTOMER ADVANCES. Basically lahat ng salaping nanggaling sa customers.

Sales Revenue ???
Cash beg 700 , end 980
Total Cash disbursed during period 1160
ALL CASH RECEIPTS WERE FROM CUSTOMERS
AR beg 1200, end 1660
AR written off , 30

* anyway, sa cash to accrual na to, pero related parin sa SCF
bale naderive yung cash receipts(1440) via T-Account ng cash tapos Sales on Account (490) via t-account ng AR. Tapos in-add, anyway di yun yung tanong ko… bakit yung Cash receipts from customers(1440) eh treated LAHAT as Cash Sale, ang assumption na naman ba eh walang collection from AR??? (may sense po ba tanong ko), parang initial ko po kasing pagkaka-intindi eh, yung 1440 cash receipt , part nun ay cash sales (dr Cash cr sales) at collection on sales on account ( dr Cash cr AR)

Base sa problem, ang pagkakaintindi ko ay nakreceive ka ng cash worth 1,440 at since sinabi that everything is collection from customers, it impliedly tells us that this 1,440 is a credit to AR, meaning a collection of accounts. It assumed na lahat ay collection on Sales on Account since wala namang sinabi kung magkano ang Cash Sales. Pag nakakaencounter kayo ng ganitong problems, stick to what is given and the assumptions. Sa mga collections from customers, unless walang sinabi kung magkano dun ang cash sales or cash advances, always assume that everything is a collection of Sales on Account. πŸ™‚ By the way ang Sales Revenue ay equal to 1,930.

(kung may tanong, sabihin lang po)

topic on Cash Flow Statement to follow

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  1. 3rdyramvstud
    February 7, 2010 at 6:42 am

    Pano po nakuha yung 6000 Cash sale, di ba dapat 2500… Tapos yung Earned Income 3000 di ba dapat nasa debit side ng T-account?

    • February 7, 2010 at 10:11 am

      Yep, I corrected the typo’s. Nagmodify lang kasi ako ng old old old problems kaya medyo nakalimutan kong palitan yung values sa solution (antok kasi). πŸ™‚

  2. 3rdyramvstud
    February 7, 2010 at 7:10 am

    sa letter D po , parang may mali dun sa formula sa baba… kasi dinerive ko sya sa t-account dapat ata SPbeg + SExp – SPEnd = Salaries Paid

    tapos sa Letter E
    (Rent revenue), parang may maili din po sa formula sa baba ng T-account.. di ba dapat po RR beg+ Rent Revenue – RR end = Rent received
    (Unearned rent), nagkabaliktad po ata yung RA received tsaka rent Revenue realized (tama po ba?)..naguguluhan po ako sa formula

    tapos sa F formula parang nagkamali din po sa signs… baka typo errors lang

    Anyway thanks po! I’ll look forward to the SCF topic! God bless!

    • February 7, 2010 at 10:29 am

      Hmmmm… I guess nothing’s wrong with the formula’s. Actually ngayon lang ako nagformula para makita ng lahat kung paano gumamit ng T-Account. If you’ll notice, nagsimula ako sa Ending Balance ng t-account tapos yung sayo naman, nagsimula ka sa Beginning balance. We’ll arrive at the same figures but different signs (+/-). Yung akin kasi, yan na yung nakasanayan ko since hindi pa ko CPA hanggang sa ngayon.

      Anything works as long as it’s logical (though different signs) and you know the procedure you’re doing. Ito yung sinasabi kong diskarte. Kasi diba, may sarili kang procedure that works for you then the stuff written above, works for me. Ayun.

      Kaya okay rin yung sinuggest mong formulas for letters D & E & F. Magkaiba lang ang signs na gagamitin natin.

      Yung akin, diba nag-aarive sa negative figures, ang ginagawa ko, kung negative sya, ittranspose ko sa kabilang side ng t-account (whether debit or credit). Or I just get the absolute value and decide what is most logical (e.g. credit AR for cash receipts, debit UEI for amounts earned).

      I had the same question as you had before but I had my own diskarte that worked naman. Kasi kung masyado tayong magsstick sa tinuturo ng prof (e.g. formula), baka mahirapan tayo intindihin yung diskarte ng prof. Usually yan ang dahilan kung bakit bumabagsak mga students, they just eat whatever their professors feeds them. We should figure out how to make things work for us easily throung having our own LOGICAL and APPROPRIATE ways.

      At least I know you’re really reading my stuff in my blog. hehehe! Thanks for the insights!

      Rent Revenue Realized – eto yung amount na naearn mo through passage of time from previously unearned income.

      Rent Received from Lessee’s – binayaran ka kasi ng lessee’s mo ng utang nila.

      (both terms may be used interchangeably, so make sure you get what the problem is really asking you for)

      πŸ™‚

  3. 3rdyramvstud
    February 8, 2010 at 4:56 am

    That really makes sense. I knew I shouldn’t have questioned your wisdom.=). Tamatama, di dapat nagmememorize lang. Anyway, thanks po! πŸ˜€

    • February 8, 2010 at 7:31 am

      Ang drama nito. Hehehehe. Okay nga yun. Sabi nga ni Descartes “Dubito cogito ergo, cogito ergo sum.” (I doubt therefore I think, I think therefore I am). Reasonable doubting is a good sign that you are thinking. πŸ™‚

      Kina-clarify mo lang naman yung nalalabuan ka, di mo naman kinu-kwestion ang kaalaman.

  4. 3rdyramvstud
    February 12, 2010 at 9:44 pm

    kuya pahabol lang nga tanong:

    Dun sa cash payment to vendor

    COS + Inventory End + AP beg – Inv Beg – AP End = Cash Paid to vendors

    Total Cash Paid to vendors = Cash Purchases + Paid Purchases on Account
    Yung sa unang formula po kasi parang ina-ssume na all purchases are on account (tama po ba)
    So pag silent yung problem (yun po yung assumption?)…

    Tapos sa Sales Revenue naman
    Given ang beg end Cash Account balance ,Paano kung sinabi ng problem ALL CASH RECEIPTS WERE FROM CUSTOMERS (eto na po ba yung Cash Sales o Cash Sales + Collections on Account?)

    Sales Revenue ???
    Cash beg 700 , end 980
    Total Cash disbursed during period 1160
    ALL CASH RECEIPTS WERE FROM CUSTOMERS
    AR beg 1200, end 1660
    AR written off , 30

    * anyway, sa cash to accrual na to, pero related parin sa SCF
    bale naderive yung cash receipts(1440) via T-Account ng cash tapos Sales on Account (490) via t-account ng AR. Tapos in-add, anyway di yun yung tanong ko… bakit yung Cash receipts from customers(1440) eh treated LAHAT as Cash Sale, ang assumption na naman ba eh walang collection from AR??? (may sense po ba tanong ko), parang initial ko po kasing pagkaka-intindi eh, yung 1440 cash receipt , part nun ay cash sales (dr Cash cr sales) at collection on sales on account ( dr Cash cr AR).

    • February 14, 2010 at 12:22 pm

      Hi! may sagot na sa iyong katanungan! maari lamang pong pakitignan dun sa idinagdag ko sa ibaba ng lecture na ito. Thanks! πŸ™‚

  5. Gemma Lyn Pasia
    June 16, 2010 at 8:11 am

    like this site

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