(Basic Accounting)

LECTURE AID

2020
Chapter 3 Recording Business
Transactions

Learning Objectives
• List and explain in brief the sequential steps
in the accounting cycle.
• Outline the steps in analyzing transactions
and state the role of source documents.
• Analyze the impact of transactions on the
elements and the specific accounts.
• Apply the rules of debits and credits in
analyzing business transactions.
• Journalize transactions in proper form.
Transaction Analysis

• Identify the transaction from source documents.

• Indicate the accounts—assets, liabilities, equity, income or expenses
—affected by the transaction.
• Ascertain whether each account is increased or decreased by the
transaction.
• Using the rules of debit and credit, determine whether to debit or
credit the account to record its increase or decrease.
Source Documents

• Where transaction and events can be analyzed as to how they will

affect performance and financial position of an entity.
• Identify and describe transactions and events entering the
accounting process.
• Original written evidences that contain information about the
nature and the amounts of transactions.
• E.g. official receipt, purchase orders, checks, sales invoice, etc.
 ACCOUNTING CYCLE

• Refers to a series of sequential steps or procedures performed to

accomplish the accounting process. The steps in the cycle and
their aims follow:
Steps in the Accounting Cycle (SUMMARY)
1. Identifying and analyzing transactions
2. Journalizing
3. Posting
4. Preparing the unadjusted trial balance
5. Preparing the adjusting entries
6. Preparing the adjusted trial balance
7. Preparing the financial statements
8. Closing the books
9. Preparing the post-closing trial balance
10. Preparing the reversing entries
Note:
• Step 1 to 3 – are accomplished during the accounting period
• Step 4 to 9 - occur at the end of the accounting period
• Step 10 – optional and occurs at the start of the next period
THE JOURNAL

Journal - a chronological record of the entity’s transactions. Each transaction is

initially recorded in a journal. It’s called “book of original entry”
--“book of original entry”
a. General Journal –used to record transactions other than those that are recorded in the
special journals. The simplest journal
b. Special Journal – used to record transactions of a similar nature.
• Simple Entry – only two accounts are affected (1 account for debit
and 1 account for credit)
• Compound Entry – use or more than two accounts; 3 or more
accounts are required in a journal entry.
• Journalizing – the process of recording a transaction
THE LEDGER

• Ledger – “book of final entry”

– is a systematic compilation of a group of accounts.
a. General ledger – contains all accounts appearing in the financial statements.
b. Subsidiary ledger – supporting ledger for controlling accounts in the general
ledger.
Accounts in general ledger are classified into:
• Balance sheet or permanent accounts (A, L and OE)
• Income statement or temporary accounts (income and expenses) – used
to gather information for a particular accounting period, At the end of the
period, the balances of these accounts are transferred to permanent account
(OE).
Account

• Account is the basic storage of information in accounting, e.g.,

“cash,” “land,” “accounts payable,” etc. Accounts in the ledger follow
the format of a T-account.
• Chart of accounts
list of all the accounts used by the entity.
Arranged in the financial statement order, that is, Assets
first, followed by liabilities, owner’s equity, income and
expenses.
• Real accounts, Nominal accounts, Mixed accounts, Contra
accounts
POSTING (Step 3)

means transferring the amounts from the journal to the appropriate accounts
in the ledger. Debits in the journal are posted as debits in the ledger, and
credits in the journal as credits in the ledger.
 
LEDGER ACCOUNTS AFTER POSTING
• Each account balance is determined by footing (adding) all the debits and
credits
• If the sum of an account’s debits is greater than the sum of its credits, that
account has a debit balance
• If the sum of its credits is greater, that account has a credit balance.
Trial balance

• Trial Balance – is a list of general ledger accounts and their balances.

It is prepared to check the equality of total debits and total
credits in the ledger.
Steps to follow:
1. List all the account titles in numerical order.
2. Obtain the account balance of each account from the ledger and enter the
debit balance in the debit column and credit balance in the credit column.
3. Add the debit and credit columns.
4. Compare the totals.
APPLICATION OF CONCEPTS
 

SAMPLE PROBLEM: FOR CLASSROOM

DISCUSSION
 Illustration A:
Required.
1. Do Step 2 (Journalized the ff. transactions).
2. Do the Step 3 (posting to the ledger) • May 2 Hired an office assistant and an account
3. Do the Step 4 (Preparation of Trial Balance). executive each with a P7, 800 monthly salaries, or
each receive P300 per day for the 26-day work
• May 1 Maria Concepcion Jennifer Perez-Manalo month. They started work immediately.
is a social entrepreneur from the South. She is into a lot
of interesting causes. Her fine taste is preeminent such • May 4 Acquired service vehicle for P420, 000.
that she is considered an authority in planning
weddings. Upon the advice and prodding of an esteemed
colleague Bendalyn Landicho, Perez-Manalo decided
• May 4 Paid Prudential Guarantee and Assurance,
to organize her wedding consultancy. She invested Inc. P14, 400 for a one-year comprehensive
P250,000 into this entity. insurance coverage on the service vehicle.

• May 1 Rented office space and paid two month’s rent • May 5 Acquired office equipment from fair and
in advance, P8, 000. Square Emporium for P60, 000; paying P15, 000
in cash and the balance next month. Note: A
• May 2 Maria Concepcion Jennifer Perez-Manalo compound entry is needed for this transaction.
issued promissory note for a P210,000 loan from
Metrobank. This availment will be used for the • May 8 Purchased supplies on credit for P18, 000
acquisition of a service vehicle. The note carries a 20%
from San Jose Merchandising.
interest per annum. The arrangement with the bank is
that both the interest and the principal are payable in
full in one year.
 Illustration A:
• May 9 Paid San Jose Merchandising P10, 000 of the
amount owed.
• May 25 Perez-Manalo withdrew
P14, 000 for personal expenses.
• May 10 Coordinated and finalized simple bridal
arrangements for three couples and collected fees of P8,
800 per couple. Services include prospecting and
selecting the church and reception location, caterer, car
• May 27 Paid salaries, P7,200.
service, flowers, souvenirs and invitations.

• May 13 Paid salaries, P6, 600. The entity pays salaries • May 30 Received the ICC-Bayan
every two Saturdays.
Tel telephone bill, P1, 400.
• May 15 The entity is earning additional revenues by
referring consulting clients to friendly hotels, caterers,
and printers. Received P10, 000 in advance fees for • May 30 Received P24, 000 from
three clients referred. two clients for services billed last
• May 19 Coordinated and finalized elaborate bridal May 19.
arrangements for three couples and billed fees of P12,
000 per couple. Additional services include documents
preparation, consultation with a feng shui expert as to • May 31 Settled the electricity bill
the ideal wedding date for prosperity and harmony,
provision for limousine service and honeymoon trip. of P30, 000 for the month.
Requirement #1: Journalizing
Requirement #1: Journalizing
Requirement #1: Journalizing
Requirement #1: Journalizing
Requirement #1: Journalizing
Requirement #1: Journalizing
 Requirement #2: Posting to the Ledger

Steps. 3. Write the amount under debit or

credit, depending on the given business
1. List all the account title transaction. Debits in the journal are
used in the problem. posted as debits in the ledger, and
credits in the journal as credits in the
e.g. Perez-Manalo, Capital ledger.
2. Follow this format for
manual posting of business
transactions to the ledger.
Requirement #2: Posting to the Ledger

As for your Class activity, continue posting the amounts to the ledger,
following the format given in the previous slide. Use the following
accounts. Cash
Prepaid rent
Notes Payable
Service Vehicle
Prepaid Insurance
Office Equipment

Supplies
Consulting Revenue
Salaries Expense
Unearned Referral revenues
Accounts receivable
Perez-Manalo, Withdrawals
Utilities Expense
Utilities Payable
 Requirement #3: Preparation of Trial
Balance

Steps.
1. List all the account titles in numerical
order.
2. Obtain the account balance of each
account from the ledger and enter the debit
balance in the debit column and credit
balance in the credit column.
3. Add the debit and credit columns.
4. Compare the totals.
5. Do it as your class activity, follow the
format at the right side.
APPLICATION OF CONCEPTS
 

SAMPLE PROBLEM: Class Activity

Sample Problem 1:
Portgas D. Ace Company completed the following transactions ins June 2020:
 
June 3 Placed four week-end advertisements in the Go Sunny Inc. for P18, 500; the amount is due in 30 days.
6 Bought supplies on account from Going Merry Supplies Inc., P8, 800
15Ace invested in the business own office equipment with a fair market value of P52, 500.
17Received P61, 800 for charge customers to apply on their accounts.
22 Received a bill from Franky Trucking for repair services performed, P8, 500.
26Paid Going Merry Supplies Inc. P8, 800 in full payment on account.
29Paid salaries to employees, P21, 000.
30Received P39, 000 for services performed.
31 Received and paid gasoline and oil bill relating to the service vehicle, P12, 500.
31 Billed Brook Bank for services performed, P45, 000.
31 Ace withdrew cash for personal use, P14, 500.

Required.
• Journalize each business transactions
• Post the accounts to the ledger
• Make a Trial Balance
Sample Problem 2:
On May 1, 2017, Luffy opened a Self-Service Laundry. During May, the following transactions were completed:
• Luffy deposited P250, 000 in a bank account in the name of business.
• Bought chairs and a table paying cash, P6, 700.
• Bought laundry supplies on account from Zoro Supply Inc., P3, 250.
• Paid rent for the month, P5, 750.
• Bought washing machines and dryers from Shanks Equipment Corp., P115, 000, paying P35, 000 cash and the
balance on account.
• Revenues earned on cash basis for the first half of the month, P19, 250.
• Bought insurance for one year, P5, 600.
• Paid accounts to Shanks Equipment Corp., P7, 000.
• Received and paid electric bill, P2, 080.
• Revenues earned on cash basis for the second half of the month, P12, 350.
• Paid salaries of the part-time assistant, P7,400.
• Luffy withdrew cash for personal use, P5, 000.
• Paid accounts to Zoro Supply Inc., P2, 750.
• Paid the city government for sidewalk repair assessment, P2, 800.
Use the following accounts for
Sample problem 2:

• Cash • Rent Expense

• Accounts Receivable • Utilities Expense
• Prepaid Insurance • Salaries Expense
• Laundry Equipment • Miscellaneous Expense
• • Supplies Expense
Furniture and Fixtures
Required.
• Accounts Payable
• Journalize each business
• Luffy, Capital transactions
• Luffy, Withdrawal • Post the accounts to the
• Laundry Revenues ledger
• Make a Trial Balance
Sample Problem 3:
Nelson Daganta formed the Liceo Signages on Oct. 1, 2017. He deposited P250,000 in GE Money Bank under the name of the new
business entity. During the month of October 2017, the following transactions occurred:
Oct. 2 Acquired a service vehicle in the amount of P195,000 on account.
3 Acquired supplies for cash, P57,000.
9 Received P87,500 cash for signs painted.
10 Paid the month’s rent, P25,000.
11 Painted signs for Cagayan Mobile on account, P170,000.
12 Paid P55,000 on account from Oct. 2.
16 Withdrew P25,000 for personal use.
23 Collected P35,000 from Cagayan Mobile.
27 Paid salaries of P57,000 for the month.
30 Paid BayanTel P7,500 for communication services for the month.
31 Paid a bill from AdAsia for P5,500 of advertising for the month.
 
 Required.
• Use the ff. account title: Cash; Account Receivable; Supplies; Service Vehicle; Accounts Payable; and Daganta, Capital.
• Journalize each business transactions
• Post the accounts to the ledger
• Make a Trial Balance
OPEN FORUM
QUESTIONS????
REACTIONS!!!!!
END