Lesson 3: Business Transaction Analysis using the column method 

 
Questions to ask for every transaction: 
1. What were the elements affected? (Asset, Liability, Capital, Drawing, Income, Expense) 
2. What specific account was used? (Cash, Accounts receivable, Accounts Payable, etc.) 
3. What were the effects of the account to the element? (increase or decrease) 
4. What is the amount for each account? 
5. Is it a debit or a credit? 
Example Transaction: 
Oct. 1     Mr. Cruz made the following investments: Cash of P200,000; office equipment
worth                    P800,000; land worth P3,000,000; and building worth P2,000,000. 
Date  Element  Account  Effect  Amount  Debit/Credit 
Oct 1  Asset  Cash  Increase  200,000  Debit 
  Asset  Office Increase  800,000  Debit 
Equipment 
  Asset  Land  Increase  3,000,000  Debit 
  Asset  Building  Increase  2,000,000  Debit 
  Capital  Cruz, Capital  Increase  6,000,000  Credit 
 
Rules of Debit and Credit 
This applies for each account. For class purposes, the T-Account shall be used. 
 
 Record on the DEBIT side when: 
o ASSET is increased. 
o Liability is decreased. 
o Capital is decreased. 
o Drawing is increased. 
o Income is decreased. 
o Expense is increased 
 Record on the CREDIT side when: 
o ASSET is decreased. 
o Liability is increased. 
o Capital is increased. 
o Drawing is decreased. 
o Income is increased. 
o Expense is decreased 
 
Example transactions involving cash: 
1. Invested cash, P150,000 (increase in asset) 
2. Bought supplies, P20,000 (decrease in asset) 
3. Collected cash, P40,000 (increase in asset) 
4. Paid rent, P10,000 (decrease in asset) 
5. Withdrew cash, P5,000 (decrease in asset) 
 Cash 
Debit  Credit 
150,000 20,000 
40,000 10,000 
 5,000 
Total Debit  P190,000 Total Credit  P35,000 
Balance   P155,000  
 
To explain, the T-account summarizes all the effects of the transactions on each account and
determines the balance at the end of a period. This shows that the cash at the end of the period has
a debit balance of P155,000 by getting the difference between the total debit and total credit. The
side with the higher value determines the side of the balance. 
 This also means that the normal balance of an account is determined by the position of its
increases. Ex. Cash has a normal balance on the debit side because it increases are on the debit side
while Accounts payable has a normal balance on the credit side because its increases are on the
credit side.