OBJECTIVES:

•1. analyze common business transactions using the

rules of debit and credit.
•2. Solve simple problems and exercises in the analyses
of business transaction.
REVIEW
• Overview of the accounting cycle
• Source documents
• Step 1 – transactions
ACCOUNTING CYCLE
ACCOUNTING CYCLE
 DECISION-MAKING FRAMEWORK

Does it affect the composition of either the

assets, liabilities, equity, revenues, or
expenses?

Yes No

Is there a monetary amount that Yes Record in books. Do not record.

can be assigned to the event?
No Do not record. Do not record.
• In a typical service business, the following are the business documents used:
1. Official Receipt or Cash Receipt - This document is used when a business receives money or a
check. An Official Receipt or Cash Receipt is a document that acknowledges that money or a check have
been received.
2. Charge Invoice or Sales Invoice - A charge invoice is a document used when a service has been
rendered, but the client will be billed only after a certain number of days from the date of service. Often, a
company will issue a statement of account to a customer, with the charge or sales invoice attached.
3. Check or Cash Voucher – This document will serve as a record of payment and at the same time, as
proof that a payment has been made by the company.
MOTIVATION

• Enumerate the existing service type of business in

the locality.
ANALYSIS OF EVENTS
 The owner invested additional
capital to the business amounting
to ₱100,000.00
 The business hires a marketing
manager which will be task to
intensify the marketing efforts of
the company in order to increase
revenue. She will be paid ₱15,000
monthly.
The business purchase a second
hand equipment with a market
value of ₱50,300.
 The business signs a subscription
contract for an internet plan with
Marbel Telephone System, Inc. at
₱995.00 per month which will be due
at the end of each month.
 The business purchase office
supplies on account amounting to
₱2,000.00.
Why is it that the analysis of
business transactions is
important?
JOURNALIZING USING THE RULES OF DEBIT AND CREDIT
Journal – is the chronological record of economic events or business transactions
showing all the effects of each transaction in terms of debits and credits. It is often called
as the book of original entry.
The journal entry should contain the following:
1. Date
2. Account Titles and Explanations
3. Reference Number / Posting Reference
4. Debit
5. Credit

Reference Debit Credit

Date Account Titles and Explanation
Number (Dr) (Cr)
2018
Aug.1 Cash 800,000.00
Daya, Capital 800,000.00
To record the initial investment
of the owner
The Rules of Debit and Credit
Normal Balance of an Account

Assets = Liabilities + Equity

Credit
Debit
 Asset Liability Equity

debit side credit side debit side credit side debit side credit side

increases decreases decreases increases decreases increases

In Summary:

You credit to show:

You debit to show:
1. Decrease in assets
1. Increase in asset
2. Increase in liabilities
2. Decrease in liabilities
3. Increase in Owner’s Equity
3. Decrease in Owner’s Equity ✓ Initial Investment
✓ Owner’s withdrawal
✓ Additional Investment
✓ Expenses
✓ Revenue / Income
Example of Journal Entry
✓ The name of the account to be debited is always listed first. The debited account is
listed on the first line with the amount in the left side of the register.
✓ The credited account is listed on the second line and is usually indented. The
credited amount is recorded on the right side of the register.
✓ The total amount of debit should always equal the total amount of credit.

Reference Debit Credit

Date Account Titles and Explanation
Number (Dr) (Cr)
2018
Aug.1 Cash 800,000.00
Daya, Capital 800,000.00
To record the initial investment
of the owner.
The Simple and Compound Entry

When two accounts are affected, it is called

simple entry. Meaning, there is only one debit
account and one credit account. In some cases, a
transaction would require the use of three or more
accounts, this is called compound entry.
Exercises
**Analysis of business transactions using the rules of debit and credit.
TRANSACTION 1
Investment of capital.

Mr. XYZ invested P10,000,000.00 to his

dormitory business, the ABC Company on
January 1, 2017.
 Asset = Liability + Equity
Cash XYZ, Capital

debit side credit side debit side credit side debit side credit side

P10,000,000 P10,000,000
increase increase
 JOURNAL ENTRY
Date Account Titles and Explanation Ref Debit Credit

2017
January 01 Cash 10 0 0 0 0 0 0 .00
XYZ, Capital 10 0 0 0 0 0 0 .00
To record the investment of capital to the business.
TRANSACTION 2
Payment of business permit fees.
On January 08, he pays a total of P2,200
evidenced by an official receipt from the
city hall.
 Asset = Liability + Equity
Cash XYZ, Capital

debit side credit side debit side credit side debit side credit side

P2,200 P2,200
decrease decrease

Expense

Organization Expense
debit side credit side
P2,200
increase
JOURNAL ENTRY
Date Account Titles and Explanation Ref Debit Credit

08 Organization Expense 2 2 0 0 .00

Cash 2 2 0 0 .00
To record payment of business registration fees.
TRANSACTION 3
Purchase of building.
On February 01, 2017, Mr. XYZ purchases a
building that costs P1,000,000.00. He pays
P500,000.00 in cash and signs a note for
the balance.
 Asset = Liability + Equity
Cash Note Payable

debit side credit side debit side credit side debit side credit side

P500,000 P500,000
decrease increase

Asset

Building

debit side credit side

P1,000,000
increase
 JOURNAL ENTRY
Date Account Titles and Explanation Ref Debit Credit
February 01 Building 1 0 0 0 0 0 0 .00
Cash 5 0 0 0 0 0 .00
Notes Payable 5 0 0 0 0 0 .00
To record the purchase of building.
 TRANSACTION 4
Payment of fire insurance premium.
ABC company took a fire insurance policy with Antifire
Insurance Corp., which requires the company to pay a
premium of P12,000 which is good for one year of fire
insurance. ABC company pays its premium on February
15.
 Asset = Liability + Equity
Cash

debit side credit side debit side credit side debit side credit side

P12,000
decrease

Asset

Prepaid Insurance

debit side credit side

P12,000
increase
JOURNAL ENTRY
Date Account Titles and Explanation Ref Debit Credit
15 Prepaid Insurance 1 2 0 0 0 .00
Cash 1 2 0 0 0 .00
To record the payment of 1-yr fire insurance contract.
TRANSACTION 5
Receive of cash from dormers.
It is March 1 and ABC Company is finally in business. The
business receive cash from its dormer in the amount of P60,000.
Following the contract provisions, cash equivalent 1 month of rent
(P30,000) is to be paid at the start of the contract as a security
deposit to be returned at the end of the lease term, and cash
equivalent to another month of rent (P30,000) is also to be paid
at the start of the contract as advance payment.
 Asset = Liability + Equity
Cash Refundable Deposits

debit side credit side debit side credit side debit side credit side

P60,000 P30,000
increase increase

Liability

Unearned Rent Revenue

debit side credit side

P30,000
increase
 JOURNAL ENTRY
Date Account Titles and Explanation Ref Debit Credit

March 01 Cash 6 0 0 0 0 .00

Refundable Security Deposits 3 0 0 0 0 .00
Unearned Rent Revenue 3 0 0 0 0 .00
To record receipt of cash representing security depo-
sit and advance payment.
TRANSACTION 6
Receipt of cash as payment of rental fee.

ABC Company received P30,000 from a dormer

in payment of her one-month rent on April 01.
 Asset = Liability + Equity
Cash XYZ, Capital

debit side credit side debit side credit side debit side credit side

P30,000 P30,000
increase
increase

Revenue

Rent Revenue
debit side credit side
P30,000
increase
 JOURNAL ENTRY
Date Account Titles and Explanation Ref Debit Credit
April 01 Cash 3 0 0 0 0 .00
Rent Revenue 3 0 0 0 0 .00
To record receipt of cash as payment of rent.

General Journal
Group
activity
 TRANSACTION 1
•LET US TAKE THE CASE OF PEDRO MATAPANG, A COMPUTER
TECHNICIAN. PEDRO DECIDED TO OPEN HIS COMPUTER REPAIR
SHOP ON FEBRUARY 14, 2016, NAMING IT MATAPANG COMPUTER
REPAIRS. PEDRO KNOWS THAT BUSINESS TRANSACTIONS SHOULD
BE SEPARATED FROM PERSONAL FINANCES. THUS, HE DECIDED TO
INVEST PHP200,000 IN THIS BUSINESS. HE DEPOSITED THE
AMOUNT WITH NATION BANK.
ANSWER
TRANSACTION 2

• FEBRUARY 15, 2016 - PEDRO PURCHASED ONE

COMPUTER UNIT FROM XY COMPUTER STORE TO BE
USED FOR THE BUSINESS. HE ISSUED CHECK NUMBER
001 AMOUNTING TO PHP 25,000.
ANSWER
TRANSACTION 3

•FEBRUARY 16, 2016 - PEDRO HIRED JUANA

MAGALING, AN EXPERIENCED SECRETARY. SHE
WILL RECEIVE A MONTHLY SALARY OF PHP
4,000.
 TRANSACTION 4

•FEBRUARY 17, 2016 – REPAIRED THE

COMPUTER OF JEAN AND COLLECTED
PHP10,000.
ANSWER
TRANSACTION 5
•FEBRUARY 18, 2016 – REPAIRED MIKE’S
COMPUTER. HOWEVER, MIKE WILL PAY
PHP15,000 ON MARCH 18, 2016
ANSWER
TRANSACTION 6
•FEBRUARY 19, 2016 – PEDRO PURCHASED
OFFICE SUPPLIES FROM MM MERCHANDISE
AMOUNTING TO PHP5,000 ON ACCOUNT.
PEDRO WILL PAY THIS ON MARCH 30, 2016.
ANSWER

Office Supplies
TRANSACTION 7
•FEBRUARY 25, 2016 – PAID THE
SALARY OF JUANA AMOUNTING TO PHP
4,000.
ANSWER
QUIZ