Ch2b Accounting Transaction

Chapter 2
ANALYZE OF ACCOUNTING
TRANSACTION
ACCT 501
Objectives of this Chapter
 Define business transaction and

its importance to organization
 Identify the elements of
accounting equations
 Explain how business transaction
are recognized using accounting
equation
2
Objectives of this Chapter
 Demonstrate the effects of business
transaction in accounting expanded
equation;
 Illustrate how to prepare company’s
financial statement and;
 Explain the accounts the affect the
balance sheet, income statement,
statement of equity and statement of
cashflow.
3
Business Transaction
Business nature is to earn profit and build
good relationship with suppliers, employees,
investors and other stakeholders.
Stakeholders – are the source of company’s in
called business transactions
business transactions – are measured in
monetary and non-monetary value..
4
Business Transaction (cont..)
Arganda stated that;

External transaction are activities involved in
one enterprise an another enterprise.
Internal Transaction are activities performed
with enterprise.
It is better to know which transaction affects
the financial statement.
Business Transaction affects balance sheets
are: assets, liabilities and Owner’s
Equity(OE) 5
Business Transaction (cont..)
Arganda stated that;

Business Transaction affects balance sheets
are: assets, liabilities and Owner’s
Equity(OE)
While transactions that affect income
statements are revenues/income and
expenses.
6
Accounting Equation.
Defined as:
Known as balance sheet equation, because
it represents the relationship of three
elements such as Assets, Liabilities and
Owner’s Equity.
It is the foundation of double-entry
bookkeeping system.
Double Entry bookkeeping system is recording
of transaction that requires balance of the
total amount both DEBITS and CREDITS.
7
Hernane defined accounting equation: “assets
is equal to equity.
Equity is the right to properties, these are the
equity to creditors(liabilities) and the equity
of the owners(capital)
Assets = Equity
Assets = Liability + Owner’s Equity
8
Left side represent the assets, right side
represent liabilities and Owner’s Equity
Assets – Liabilities = Owner’s Equity and

Assets – Owner’s Equity = Liabilities
Accounting equations should always be

balance.
9
The effect of each transaction will either
increase or decrease the element of
accounting transaction.
The owner’s equity increase by investment of
an owner, earned income/revenue, and it
decrease due to incurred expense and
personal drawings of the owners.
ASSETS = LIABILITIES + OWNER’S EQUITY
10
Solve the ff problem using acctg
equations
1. The assets of Agnes Tan amounting to
P950,000 and the Owner’s equity of
P560,000. What is the amount of Liabilities
Assets (A) = Liabilities (L) Owners Equity (OE)
950,000 560,000
Accounting for Branches 11

equations
2.The liabilities and owners equity of Lee Jhae
amounting to P5,980.00 and P3,200,300
respectively. How much is the company’
asset

equations
3) Lu Gi Company has owner’s equity of
P7,940,100 and total asset of P10,670,000.
How much is the creditors Liability?

Illustration
1)Given liabilities of P50,000 and the owner’s
equity of P150,000, find the value of Assets.
2)Given assets of P180,000 and the owner’s
equity of P110,000b. Find the liabilities
3) Given assets of P250,000 and liabilities of
of 90,000, find the owner’s equity

equations
4) The liabilities of Han’s Company are equal
to 1/4 of the Owners Equity. The owner’s
equity is P2,400,200. What is the amount of
liabilities and Assets

FIND THE MISSING AMOUNT
ASSETS LIABILITIES OWNER’S EQUITY
1) 650,000 340,000
2) 295,000 305,000
3) 967,000 660,000
4) 788,000 345,000
5) 845,000 533,000
6) 588,000 987,000
7) 2,000,000 967,000
8) 1,896,000 1,310
9) 3,708,000 2,055,000
10) 1,123,000 1,933,000

Exercises
OWNER'S
ASSETS LIABILITIES EQUITY
1 950,000 390,000 560,000
2 9,180,300 5,980,000 3,200,300
3 10,670,000 2,729,900 7,940,100
4 3,600,300 1,200,100.00 2,400,200

5 19,000,000 14,000,000 5,000,000
19,000,000 13,500,000 5,500,000
6 4,162,500 1,710,000 2,452,500
7 3,560,000 980,000 2,580,000
2,960,000 1,830,000 1,130,000
8 5,450,000 1,980,000 3,470,000
6,200,000 1,680,000 4,520,000
9 8,000,000 3,500,000 4,500,000
10 11,000,500 3,500,500 7,500,000

Exercises

Assignment
1) The total Asset of XYZ Company is
P8,000,000.00, the total Capital is
4,500,000.00. How much is the total
liability?
2) Mel Gibson is the owners of Y laundry
shop. A the end of accounting period, Dec
31, 2016, the business assets of
P4,162,500 and liabilities of P1,710,000?
How much is the capital as of December
31, 2016
Chart of Accounts
A chart of accounts is a list of all accounts
used by a company in its accounting system.
It makes the bookkeeper's work easier.
The accounts included in the chart of accounts
must be used consistently to prevent clerical
or technical errors in the accounting system.
Chart of accounts vary from company to
company
20
Sample Chart of Accounts
Accounts are classified into assets, liabilities,
capital, income, and expenses; and each is
given a unique account number. A coding
system is used to organize the accounts.
21
ASSETS (1000-1999)
1000 Cash
1010 Accounts Receivable
1011 Allowance for Doubtful Accounts
1020 Notes Receivable
1030 Interest Receivable
1040 Service Supplies
1510 Leasehold Improvements
1520 Furniture and Fixtures
1521 Accumulated Depreciation – Furniture and Fixtures
1530 Service Equipment
1531 Accumulated Depreciation – Service Equipment

LIABILITIES (2000-2999)
2000 Accounts Payable
2010 Notes Payable
2020 Salaries Payable
2030 Rent Payable
2040 Interest Payable
2050 Unearned Revenue
2060 Loans Payable
OWNER'S EQUITY (3000-3999)

3000 Mr. Gray, Capital
3010 Mr. Gray,
Accounting Drawing
for Branches 23
REVENUES (4000-4999)
4000 Service Revenue
4010 Interest Income
4020 Gain on Sale of Equipment
4999 Income Summary
EXPENSES (5000-5999)
5000 Rent Expense
5010 Salaries Expense
5020 Supplies Expense
5030 Utilities Expense
5040 Interest Expense
5050 Taxes and Licenses
5060 Depreciation Expense
Expense
An expense is the reduction in value of an asset as it
is used to generate revenue. If the underlying
asset is to be used over a long period of time, the
expense takes the form of depreciation, and is
charged ratably over the useful life of the asset. If
the expense is for an immediately consumed item,
such as a salary, then it is usually charged to
expense as incurred. If an expenditure is for a
minor amount that may not be consumed for a long
period of time, it is usually charged to expense at
once, to eliminate the accounting staff time that
would otherwise be required to track it as an asset.
Additional accounts can be added as the need
arises. For bigger companies, the accounts
may be divided into several sub-accounts.
For example, employee salaries may have
various accounts for different departments
and be included in the chart of accounts as:
5011 Salaries Expense – Administrative,
5012 Salaries Expense – Servicing,
5013 Salaries Expense – Marketing, etc.

Journal Entry
is an entry to the journal.
Journal is a record that keeps accounting
transactions in chronological order, i.e. as
they occur. Ledger is a record that keeps
accounting transactions by accounts.

Accounting Ledger
refers to a book that consists of all accounts
used by the company, the debits and credits
under each account, and the resulting
balances.
While the journal is referred to as Books of
Original Entry, the ledger is known as
Books of Final Entry.

Format of General Ledger

Example
1)Tom Cruise opened a law firm and invested
P50,000 cash
Accounting Equation:
Cash P50,000 Cruz, Capital P50,000
Analysis:
Increase in Increase in OE
Assets(Cash) P50,000 (Cruz, Capital) P50,000
33
Example
1)Tom Cruise opened a law firm and invested
P50,000 cash
Accounting Equation:
Cash P50,000 Cruz, Capital P50,000
Analysis:
Increase in Increase in OE
Assets(Cash) P50,000 (Cruz, Capital) P50,000
34
Example
2) He purchased office supplies worth P5,000
on credit from Sea Enterprises
Office Supplies Acctgs Payable
P5,000 P5,000
Analysis:
Increase in office Increase in Accts

Supplies P5,000 Payable P5,000
35
Example
3) Billed R. Castillo for service rendered ,
P12,000

Accounts Receivables Cruz, Capital (Service
P12,000 Rendered) P12,000
Analysis:
Increase in Assets Increase in Owner’s
(Accounts Equity
Receivables) Cruz Capital because of
P12,000 service rendered
P12,000
36
Example
4) He bought on Cash table and chairs for the
business, amounting to P6,000

+ Tables and Chairs
P6,000 – Cash P6,000
Analysis:
•Increase in Assets:
(Furniture &Fixtures)
P6,000
•Decrease in other
Assets (Cash) P6,000
37
Example
5) Tom Cruise issued promissory note to Sea
Enteprises in payment for transaction No.2

• + Notes(increase)
Payable(P5,000)
• - Accounts Payable
(decrease) P5,000
Analysis:
Increase in Liabilities
(Notes Payable)
P5,000
Decrease in Other
liabilities(Accounts
Payable) P5,000
38
Example
6) Paid the salary of clerk, P5,000 and utility
Expenses for P3,000
Cash P8,000 Cruz Capital, P8,000
(5,000 + 3,000) (5,000 + 3,000)
Analysis:
Decrease in Owner’s
Decrease in Cash Equity
P8,000 •Cruz, Capital because
incurred
Salary Expense P5,000
Utility Expenses P3,000
39
Example
7) Paid the notes issued to Sea Enterprises

Cash P5,000 Notes Payable )
P5,000
Analysis:
Decrease in Cash Decrease in Liabilities
P5,000 (Notes Payable )
P5,000
40
Example
8) Tom Cruize, withdraw P15,000from the
business for his personal use
Cash P15,000
Cruize, Capital P15,000
Analysis: Decrease in Owner’s

P15,000 •Cruize Capital (Cruize
Drawing) P15,000.00
41
Example
9) Tom Cruize, paid for utilities expense,
P3,000
Cash P3,000
Cruize, Capital P3,000
Analysis: Decrease in Owner’s

P3,000 •Cruize Capital (Utilities
Expense)
P 3,000.
42
ASSETS Liabilities Owner's Equity
Transaction Cash Office Supplies Accounts Receivables Furniture Accounts Payable Notes Payable Accounts Payable
(1) 50,000.00 50,000.00

Balance 50,000.00 50,000.00
(2) 5,000.00 5,000.00
Balance 50,000.00 5,000.00 5,000.00 50,000.00
(3) 12,000.00
Balance 50,000.00 5,000.00 12,000.00 5,000.00 50,000.00
(4) (6,000.00) 12,000.00
Balance 44,000.00 5,000.00 12,000.00 6,000.00 5,000.00 62,000.00
(5) (5,000.00) 5,000.00
Balance 44,000.00 5,000.00 12,000.00 6,000.00 5,000.00 62,000.00
(6) (8,000.00) (8,000.00)
Balance 36,000.00 5,000.00 12,000.00 6,000.00 5,000.00 54,000.00
(7) (5,000.00) (5,000.00)
Balance 31,000.00 5,000.00 12,000.00 6,000.00 - 54,000.00
(8) (15,000.00) (15,000.00)

Balance 16,000.00 5,000.00 12,000.00 6,000.00 - 39,000.00
(9) (3,000.00) (3,000.00)

TOTAL 13,000.00 5,000.00 12,000.00 6,000.00 - 36,000.00
43
Seatwork
The ff are the transaction of Soon Yuk Yang,
an interior decorator in her firstmonth of the
buss operations:
Sept 2 – invested P1,000,000 cash in business
3 – bought for cash a used car for P250,000 for
use in the business
11- Purchased supplies on account P7,000
12 – Received a check from a customer for
services rendered for cash P10,500
15 – Paid 2,500 cash for advertising the start
of the business

Seatwork (cont..)
Sept 16 – The owner invested additional

P100,500 cash in business
17 – Purchased equipment P50,000,issued a
promissory note payable
18 - Issued check in payable for supplies
purchased on Sept 11
20 – Received 15,000 for cash for customers
billed on Sept 11.
21 - Purchased additional office supplies for
cash 5,000
22 – Issued check in payment for the
promissory note issued on Sept 17

Seatwork (cont..)
Sept 23 – Paid creditor on account P3,500

28 – Withdrew 5,200 cash for personal use
30 – Salaries of Assistant 12,000
Prepare tabular analysis transaction

Balance Sheet
Balance Sheet is usually prepared in either
account form or report form,
Example of Account Form, listed on left-side –
Asset and right side the liabilities & Capital

Report Form -
Balance Sheet
Form is used
when the
balance sheet
data for several
different dates
are being
compared

Things to observed in preparing balance
Sheet
1) Balance sheet should include the name of
the business or Proprietor(first line), the
name of the statement(second Line) and
the date for which Balance Sheet is line).
2) The assets, liability, and owner’s equity
items should be properly classified.
Appropriate classification of items on the
balance sheet helps in studying the
financial condition of the business.

Sheet (cont..)
3) The pesos sign should be in the first
column, and not repeated until a line is
drawn through the column
4)Special attention should be given to the
indentation of items and captions, spacing
of items, showing peso amount in proper
column and indicating totals of items
included in the different sections and
divisions of the balance sheet. A double-
line should be drawn below the amount for
total assets and for total liabilities and
owner’s equity Accounting for Branches 50
Sheet (cont..)
5) The order of presenting the accounting data
on the balance sheet is important. In most
commercial and industrial balance, the
order of the assets and liabilities is as
follows:
5.1 current assets
5.2 Non-current Assets
5.3 Current Liabilities
5.4 Non-current Liabilities

Sheet (cont..)
6) The items in the current assets section, with
exception of prepaid expenses, are listed in
the order of liquidity(order of probably
conversion into cash).
The noncurrent assets are generally shown
according to their estimated useful life:
The shortest-lived asset is listed first, the
longest –live assets(land) is shown last.
The current and non-current liabilities are
listed in the order of probable order of
payment.
Income Statement
Is a statement of financial result of
operations(economic performance) that
presents revenues and expenses for a
specific period.

Revenue and Expenses
Revenues increase in economic benefits
Characteristics of revenues
1.Inflow of economic benefits arise in the
course of ordinary activities of an enterprise
2.Inflows are to be reported gross
3. Inflows result in increase in equity, other
than increase relating to contributions of
equity

Expenses
Are decreased in economic benefits during an
accounting period in the form of gross
outflows or depletions of assets or increase
of liabilities that results in decrease in
equity
Expenses are expired cost, or items that were
assets but no longer assets because they
have no future values

Expenses
The following are the characteristics of
expenses:
1. Sacrifices involving in carrying out the
earning process
2. Actual or expected cash outlfows results
from ordinary activities.
3. Outflows are to be reported gross

Income Statement

Income Statement
Is a statement of financial result

Ch2b Accounting Transaction

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Chapter 2

 Define business transaction and

Arganda stated that;

Arganda stated that;

Assets – Liabilities = Owner’s Equity and

Accounting equations should always be

Accounting for Branches 11

Accounting for Branches 12

Accounting for Branches 13

Accounting for Branches 14

Assets (A) = Liabilities (L) Owners Equity (OE)

Accounting for Branches 15

Accounting for Branches 16

4 3,600,300 1,200,100.00 2,400,200

10 11,000,500 3,500,500 7,500,000

Accounting for Branches 17

Accounting for Branches 18

1521 Accumulated Depreciation – Furniture and Fixtures

1530 Service Equipment

1531 Accumulated Depreciation – Service Equipment

OWNER'S EQUITY (3000-3999)

Accounting for Branches 26

Accounting for Branches 27

Accounting for Branches 29

Accounting for Branches 30

Increase in office Increase in Accts

Assets (A) = Liabilities (L) Owners Equity (OE)

Assets (A) = Liabilities (L) Owners Equity (OE)

Assets (A) = Liabilities (L) Owners Equity (OE)

Assets (A) = Liabilities (L) Owners Equity (OE)

Analysis: Decrease in Owner’s

Analysis: Decrease in Owner’s

(1) 50,000.00 50,000.00

(8) (15,000.00) (15,000.00)

(9) (3,000.00) (3,000.00)

Accounting for Branches 44

Sept 16 – The owner invested additional

Accounting for Branches 45

Sept 23 – Paid creditor on account P3,500

Prepare tabular analysis transaction

Accounting for Branches 46

Accounting for Branches 47

Accounting for Branches 48

Accounting for Branches 49

Accounting for Branches 51

Accounting for Branches 53

Accounting for Branches 54

Accounting for Branches 55

Accounting for Branches 56

Accounting for Branches 57

Accounting for Branches 58

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