1/otes:

BASIC ACCOUNTING

3 . h D uble-Entrv System
The Accounting Equation and t e 0

Learning Objectives:

After studying this chapter, you should be able to:

1. Describe the parts of an information system. k

2. Explain how an accounting information system helps the decision ma ers.
3. Define the elements of financial statements.
4. Describe the account (the simple T-Account) and its uses.
th
5. Understand what is meant by the accounting equation and prove e
validity of the "mirror image" concept.
6. Understand what is meant by the double-entry system. .
7. Explain how the double-entry system follows the rul_es of the accounting
equation.
8. Define debits and credits.
9. Summarize the rules of debit and credit as applied to balance shee! and
income statement accounts.
10. Describe the nature of the typical account titles used in recording
transactions.
11. Analyze and state the effects of business transactions on an entity's assets,
. liabilities and owner's equity and record· these effects in accounting
equation form using the financial transaction worksheet and the T-
Accounts.
12. Distinguish between revenue and receipts. ·
l'
(::ompanies like Microsoft, the software giant and Deloitte & Touche, the big US
accounting firm, use Vervex's EnGage 2.0 to manage large projects that involve
employ!!es, subcontractors and consultants worldwide. The software allows team
members to report on th~ir progress· via the corporate intranet, as well as gen~rate
invoices and timesheets that can be easily accessed by corporate headquarters.
Intranet is a version of the Internet internal _to a specific company and is privately
controlled.

i
 Trt! A.cco,;11r1n9 Fqv,;fjor, and~ oo,;b~ f f'trf 5,stt!m I 3--3

~ So'tw,we
---
System wltware ,s background softw are that ~ ps a com,--· ~ ~er mana~e its !~
, r. _.,_ 7) ----' Linux
--:---"-- , - - - - - --::--::::-"-TI,,.,.,,,,r,1;;.;.:"1·XP
1 .,,sta a.-.u '"'""
~ e s An example ,s tt>e operau ng s•~em. ' ows •
~re popular operating systems

Apf>liation Software
-pg:,e !lfo,oterns. The two
Applica tion software performs u,eful 1t0!:l< on g~ Q:J pl'rcationS-
types of applications software are basic appfiat10f\5 and advanced a.p

I
"'>Jf Basic a pplications include:

Browsers - navigate. explore. fi nd information on the Internet.

Word pr~or-prepare written documents.
Spreadsheet- ana lyze a nd summam e nu rn..Pfical_da-ra. _ . ,__.....~
.
Database manageme nt system-orgaruze ;;r,d manage .,_.,ta-'~· nd tn't '-" ,.,a u..,. •·
a
Presentation graphics- commu nicate a message o, persuade other people.

:Y Advanced applications include:

Multi media- integrate video, music, ·-
•~ -~ . and =...,•cs
.,,-,•'" to create interactive
presenta tions.
Web publishe.s-create interactive multi-media W eb pc:.-ges.
Graphics programs-create professional publications, draw, afrt, a nd modify
images.
PARTS Of AH NORMATION SlSTcM Virtual reality-create realistic three-dimensional virtual or simulated
environments.
,_- ·
""'-' ~
·
c:io,- ~ JS - =
- ,, .,..,,,_-ioo ci "'~.....
..,,.......ic procedures. so,~re.
CcG w'"lU wens~ ::i ~ ;s..,;Drm=-txll'i essentiat to runnmg an orga mza na.1.
. hardware
. . =~= Artificial intel ligence- simulated human thought proasse5 and actions..
Project managers- plan projects, schedule. people, an d control resources.

~
~ are: m::::-DE<:ECI e:e~ ~ ro iocr??se
- - pmds . .. ,._., ~
users u:""rt,ejractiYtty cu u
Hardware consists of input devices, the system unit. secondary sto.--age. output devices,
~~ ~ -s:r-Jt1Erc j ) scr.e ~ ar decision-ma.!cing problems .
and communi cation devices.

PRx:eduieS _!.nPutDevices
~ ax ~

-
~ o ace ma'! instrua end users on how to use ,,..:: Input devices t ranslate data and programs that huma ns can understand into a fonn the
sci:::a<":re a::c.=-~ computer ca n prnce.s.s.. The more common are the k,'!yboan:i and the mouse.

Saftwwwe The System Unit

=-
Sat:a= :S zrc::::-.es --a-e w ~-:is~ ma: tea the computer how :c The system unit consists of e lectronic circuitry w;m two parts:
;:rxes r,:.;;-;; , r.e-e ze ~ - . c i iirds of so'tw--cre:
Central processing unit (CPU)-contro1s and monipulates data to produce
information.
Memory (primary storage)- temporarily hotds data, program ir.structioos. and
processed data.
 , d th Double fntn; Sysrem I 3-5
f he Accounlln(I Equot1on on e

~ a r y Stor.lfl! . riiost comnwn storafle 111edi;1;11 t,

• --=::._- - . iarns Three • . the following objectives:
~ dill)• i.t ora~- stN 'CSd., ra ,111d prt>ii ' · An etrectlve accounting information system $hould achieve
( st-benefit pri nciple).
H<!l.h drwr d. k drive • To process the information effidently at the least cost co • . •
H:ird oi!>k-"on-ren101·abk•: internal ,s · liable and to mrn 1mrze
• To protect entity's assets, to ensure that data are r~ '
d DVD are comnion.
Op!X.tl d,sk-r-ernovJble. (0 an wastes and the possibility of theft or fraud (control principle). f ct
. . al and human a ors
• To be In harmony with the entity's organizatron

- --=== .
Output Ot!Vices
Output de...tces output processed inform
.
ation ·from the CPU. Two important output
(compatibility principle).
• To be able to accommodate growth in the volume
of transactions and for

de\'l«'S are:
organizational changes (flexibility princi ple).
. d . to display results.
Monrtor- TV screen-like ev,ce
The
Pmrter -device that prints out images on paper.
Accounting
Proc:ess
Communications Devices
~ · . f · one computer to another. A device
These send and receive data and rograms rom
. I h ne is a modem.
that connects a m,crocomputer to a te ep 0

Accounting
Data
Information
= -. rcessssrinnl! Data consists of .numbers, letters
- ··· - ~• ,.;, r fn , ,dbtt:> nro and
Data ,s t h e ~ - 0 .
,..._, d t t facts events and transactions. Data describes something . and is
symvvo s an re Ia es o , , .
typically stored electronically in a file. A file is a collection of characters organized as a
single unit. Common ty~s of files are:
Actions
Document-letters, research papers, and memoranda. (decisions)
Decision
Worksheet-budge t analyses, sales projections. Makers
Database-structured and organized data.

The diagram illustrates how economic activities flow into the accounting proce~, which
ACCOUNTING INFORMATION SYSTEM
produces accounting information. This information is then used by decision makers in
Every business organization must have an accounting information system which will making economic decisions and taking specific actions; thus, resulting in economic
generate reliable financial information needed by the decision-makers in a timely activities. The cycle goes on.
manner. The ~~~_and op~ atjg_o of a system must consider the anticipated users of
the information and the types of decisions they are expected to make. The .design of TYPES OF ACCOUNTING INFORMATION SYSTEMS
the system to meet the entity's information requirement depends on the firm's size,
nature of operations, volume of transaction data, organj1.~tional s_truc.):!,Jre, form of In general terms, companies use three types of accounting information systems to
~ siness and-extent of government reg~latLon. These wOI influence the way i~ which record the results of transactions: manual systems, computer-based transaction
information is accumulated and _reported in the financial statements. systems and database systems. All of these systems are designed to capture
information regarding accounting events to prepare financial statements.
An accounting information system is the combination of personnel, records and
proc~ ~s t l_!at a busine»_ uses to meet its need for fina-ndaf information.· Mo~t firms In a nutshell, .manual svs~~ utilize paper-based journals (general and special) and
ounting manua_l that specifies the P?li~ies and pro~_edures to be followed in
have an f!_CC_ ~edge~ (g~neral and subs1d1ary). Com ter-based transaction systems replace paper
accumulating information within the accounting information system. This manual records with computer records. Database systems embed accounting data within the
business event data on which they are based. · - - - - - - - - - - - - - - --
details w~a~ events ar: to be recorded in the accounts, and when and how the
information is to be classified and accumulated.
 . .. ooiibll! En try Systl!m I 3. 7
rhe Accounl inr; [(luarlon ond vd!

Comput.r~ Transaction svst-ms re labor Intensive and mily b • The system recognizes busine~s rather than just accounting events.
sslng so
they 3 I t C
Manu,1 syst~s rely on hum11n proce. ,ent Because manua sys ems rely on • The system supports reduction in operat ing inefficiencies.
·
ineffiotmt m todJy·s comple~ bus111e
ss envlronn · d fi · n ·
T overcome these e ,c,e c1es, rnany • The system eliminates redundant data.
be rone to error. o
human p~ssu1.&, t hey mav P_ nting processes.
companies have computerized their accou STAGES OF DATA PROCESSING

I
1
A. rompu~-based transaction system ~
_.:ntoins accoulJ!!P&..dala...5e~ orn..other
d are kepntt sseparately from the records
ntins recor s . processes. Su ffiice ·t t o say, at this
h fi ally into summarized
Processing of raw data into useful accounting information t en_ '"
s
Each transaction
d ts like
oper.iting dj!a That is the accou I reports follows the usual Input-processing-output progres ion.
1 - · ' and conversion · h rt d by source acumen These
required for the ex.pendirure, revenue rtmentalizatiori of work to preserve the entere d into t e accounting system should be suppo e
rd nd me7os. ' de
potnt. that there is a greater degr~ of com!abut not as ideal as the database system. customer invoices, vendor invoices deposit slips, checks, time ca s a
i ntegrity of the accounting informat1on syste documents serve as evidence that 'a particular transaction occurred. They a so pr~'.
th e accoun ,n~
er as a manual system. The user is the necessary details and supports. The computer, with the use of
51 0
. f · ·n the same ma nn 1·k software, then processes the inputs. As will be discussed later, the manual sy e;
This system treats m ormat,on 1 ks and oftentimes acts I e a source
1 journalizing, posting, preparing the trial balance and updating the accounts are ~ne
simply filling in a computer screen t~at oo m are as follows: . . t nts and other accounting
.
document. Some of the advantages of th1s syste almost instantaneously. When required, the financ1a 1sta eme
. ed t 0 the appropriate accounts, bypassing reports can be viewed on the screen or printed as output documents.
• Transactions can be quickly post
the j ournalizing process. · • t f In many situations, manual systems are inferior to computerized systems in terms of
. . f cti. scan be printed for review a any ,me.
• Detailed hstmgs o transa on d productivity, speed, accessibility, quality of output, incidence of errors and bulk.
. ks be used to prevent and etect errors.
• Internal controls and edit chec can
• A wide variety of reports can be prepared. ( E..LEMENTS OF FINANCIAL STA!EMENTS
• -'-• ·sts f several modules A module .is a program which deals
Accounting pa..,_.,ges canst o · . ._!:!!!a~£ial Position
with one particular part of a business accounting system. A simple accounting package
In simple terms, assets are valuable resources owned by the entity. Per Framework,
might consist of only one module, in which case it is called _a ~and-alone module. But
asset is a resource controlled by the enterprise as a result of past events and from which
more often it will consist of several modules, in which case, 1t will then be called a suite.
future economic benefits are expected to flow to the enterprise. The future ~anomic
Examples indude QuickBoo_ks and Peachtree.
benefits embodied in an asset may flow to the enterprise in a number of ways. The
parts of the definition of an asset can be explained further:
Database Systems
Relational database systems such as enterprise resource planning (ERP) depart from the • •:~ontrolled by the enterprise" - Control is the ability to obtain the economi~
"accounting equation" method of organizing data. These ERP systems such as SAP, . benefits and to restrict the access of others (e.g. an entity being the sole user of its
Oracle and PeopleSoft capture data, both financial and non-financial, and store that plant and equipment, or by selling idle assets).
information in a data warehouse. Database systems reduce inefficiencies . and • "Past events" - The event must be past before an asset can arise. For example,
redundancies that often exist in transaction-based systems. equipment will only be'i:ome an asset when there is the right to demand delivery or
access to the asset's potential. Dependent on the terms of the contract, this may be
For example, in transaction-based systems, customer information (like name, address, on acceptance of the order or on delivery.
phone, credit limit) is often maintained separately from customer account information.
Thus, a salesperson who does not know a customer's balance might inadvertently • "Future ~conomic bene~ts" - These are evidenced by the prospective recelru...Q!
encourage a customer to purchase items that exceed that credit limit. Also, separate -~ . This could be cash itself, an account receivable or any item which may be sold.
departments have special information needs such that when a database system is not Although, for example, a factory may not be sold (on a going concern basis) for it
used then the same customer information may be recorded several times. Advantages houses ~he manufacturing facility for the goods. When these goods are sold, the
of database systems include: economic benefit resulting from the use of the factory is realized as cash.
 ooub l,. En try Sys rem 1 3-9
3-S I Bnslt Ac"(:Ollf1M\'1 /'hr Accountin(J Equation Ofl( I t he ·

For example. ~ ,met may br : th e production of good s or lty account because

. . n with othar assets I
11 In a sole proprlf•t or~hip, there is only one ow ner' s equ
used srt\glYor in rombintttiO . . there I, on ly one ownPr
. .._a __Id by the e11terpn~e, . . . t for each partner .
seMc-es t o = ~"" In a part ner•,hlp, an ovmer's equ ity accou r1t i,xi:, !, . • t s , share
. .1 kh 0 Id r<' equity cons1s 0 •
Exchahtre-d for other assets; In a co rporation, owners' cqu1t 1 or ,toe · e ' ·. riat ions o f
, . . esent Ing appro p
Used to settle a liability; or ·se ca pi ta l, retained earn ings and reserves repr
• Distributed to the owners of the enterpn . ret ained earn ings among other s.
. bl accounts receivable, inventories
otes receiva e, 'bl '
A ~ t ·nctude cash cash equivalents, n . t ·nvestments, intang1 e assets and Performance
= se s 1 , , d equrpmen , 1 . g period in the fo rm of
prepaid expenses.. property, plant an t!ncome is increa se s in eco nomic ben efits during the account in - n ,·ncrease s in
lt ---:----
tl othef assets.
. rt· s who have furnished resources . ~ -- - -
.
-
f - b·I·t· s th at resu 1
inflow~ or enhancem ents of assets or decreases o 11a 11 ie - ..
·ty part1c1pants.
. ftv to outside pa ie . . - f :3u_iry_,,_ other than those relating to contributions from eq u,
Li,.b iliries are obllgat1ons of the en 1•1 . . f the enterprise arising rom Past
..=--" . nt obligation o h d ins Revenue ari ses in the
Per Framework. fiabl11ty Is a prese
- h. h . expected to resu
It in an outflow from t e enterprise
f 1· b'I '
The definition of income encompasses both revenue an _ ga · . -d b
a- vari et of
events. the settlement of w IC is he arts of the definition o a 1a 1Ity can course of the _ordinary activi ti es of _an ent er rise and is reforre ~o Vt
bodying economic benefits. T P different n_ames l!l£1_wiiog sales fees interest dividends, royaltie_s, an ren ·
o f resources em -
be expl ained fu rther.
r example the year end tax liability ,l,.._,, f. . . Linco,.,.,e and may or m ay not ,
be legal or not. F0
~ s represent other items that meet the de 1m tIon. o• ,,, - ' ·· . .
' . . · --- - e Gains represent increases
• "Obligations. - These may b ·t . law this liability does not arise until it is arise in the course of the ordinary activities af ag enterQli! · ·
relat es t o the year's (i.e. pa5t) events u in - . . t from revenue 0 Hence, they
in economic b_enefits and as such are no different In na ure -
assessed some time later. · ~re not regarded as constituting a separate element.
- n -This could be a transfer of ~ash, or other property,
• "'Transfer economic ~nefits f . . from activities which would otherwise be tr . . • d · th ccounting period in th e form
t he provision of a service or the re rammg . . . . .
·~-2!..£1:l!flows
=penses are..or--·--
~
decreas es In economic benefits unn~
depletions · _o f 1·1a bT11_af__________
--- of assets or l_n.cu_rren.f..~S that
1es__ _ result
___
_ __ _ _..
i.n decreases
- _ ..m
profi taQle. _
~ uity, other than those relating to distributions to equity participants.
f t discussion in as~ets.
• • Past transactions or events" - re_ er_!!. - - - - · ·- ·
ts nd liabilities" _ As should be eviderit from the The definition of expenses encompasses losses as well as those expenses that ari se in
• •eom_plementary nature of asse a__ .. - - - · . h
above, asse~ and liabiliti e~ are s~en as mirre>r_images_9_f each ot er. the course of the ordinary activities of the enterprise. There are various classes o f
expenses but they are generally classified as cost of services rendered or goods sol d,
Settlement of a present obligation may occur in a number of ways, for example, by: distribution or selling expenses, administrative expenses or other operating expenses.

Payment of cash; ~ es Ire present o_!her ite~ lli~ ~~!. !filLcj_gfini_ti.Q.rl__g.f_e~pense..ar:u;L[!:l~'U?r _rn_ay n9t,
Transfer of other assets; arise in the course of the ordinary activities of an enterprise. Losses represent
Provision of services; ~ eases !.!l E;_COn~mic be~ef!.!$ s□cl as.~ ch are_ no 9 iffer~11_!.. iQ_ natµ re from other
Replacement of that obligation with another obligation; or ~_!(P-_enses. Aence, they are not regarded as a separate element in this framework .
Conversion of the obligation to equity.
THE ACCOUNT
Liabilities include notes payable, accounts payable, accrued liabilities, unearned
revenues, mortgage payable, bonds payable and other debts of the enterprise. _The e d i umm~ry devic~ of a~ nting is the ~ A s~ parate ·account is
[llaintai r_:i_ed for each_el~ men t_ th~t _app__E!~ rs in the balance sheet (assets, liabilities and
,Equity is the residual interes_t J n the assets of the en! erprise :after _ded_ucting all its ~quity) and in the income statement (income..and expenses) . Thus, an account may be
liabilities. Equi~ -m'ay pertain to any of the following depending on the form of business defined as a cjfilail ed record of t he jncreases. decrease s and balance of each element
organization: that appears in an entity's financial statements. The simplest for~ of ·the accoui1tls
known as the "T" _accou_nt because of its similarity to the letter "T". The account has
three parts as shown next page :

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 3-10 I BaP<An.--ountmQ Thi! Accovntlng Equation and tht! ooublt! Entry 5ys-tem I 3-11

DEBITS ANO CREDITS-THE DOUBLE-ENTRY SYSTEM

Account Title
Accounting 1s based on a doubl e-entry system which means that the dual effects of a
Right side or ~uslness transaction is recorded. A debit side entry must haye a s q_rrespondi ng crt!dit
teft side or
Credit side side entry. For every transaction, there must be one or more accounts debited and one
Debit side or more accounts credited. Each transaction affects at least two accounts. The total
debits for a transaction must always equal the total credrts.

An account is debited when an amount is entered on the left side of the aa.ount and
THEACCOUNTINGEQUATION qe_d'.!ed when an amount is entered on the right side. The abbreviations for debit and
- . - · rfOrn1I·ng They are the final product credit are Dr. (from the Latin debere) and Cr. (from the Latin credere), respectively.
Finanoal statements
- · and amounts that mak s of
tell us how a business 1s· pe t the ·,terns
the accounting process. But how do we arrive a . . . e up The account type determines how increases or decreases in it are recorded. (ncreases in·
the financial statements? The most basicJ?Ol of accounting~ h~ a!=s~ullt!!!g equation. l?Ji-etuire recorded as debits (on the left side of the account) while decreases in assets
This equation resents the resources controlled by . t~e ent rise, the resent are recorded as credits (on the right side). Conversely, fncreoses in liabilities and-
obligations ~erJ).fil.~ e residual interest in ~h.e.cissets._ It ~~ates ~hat assets
~ equal liabilities and owner's equity. The basic accounting model 1s:
owner's equity are recorded by credits and decreases are entered as debits. ·

~-
Uabilities + owner's
. ,.,. ' The rules of debit and credit f~r income and expense accounts are based on the
•.:;.. ,;_ Equity :r
Assets = ,__
relationship of these accounts to owner's equity. Income increases owner's equity and
,-
Note that the assets are on the left -side of the equation opposite the liabilities and expense decreases owner's equity. Hence, increases in incom e are recorded as credits
and
. .decreases.as
= ~debits- ~ases .in expenses-are-- -. - . -
recorded as- ~ ~~ and
i:lebits __,- decreases
- - - - as
··•
owner's equity. This explains why increases and decreases in assets are recorded in the 1
opposite manner ("mirror image" ) as liabilities and owner's equity are recorded. The
~ . es 01.~deb 1t
credits. These are the rut ' an d qed1_.t . The following summarizes the
- -rules:
- -
equation also explains why liabilities and owner's equity follow ,the same rules of debit
and credit. · Balance Sheet Accounts

The logic of debiting and .crediting is related to the accounting equation. Transactions Assets Liabilities and Owner's Equity
may require additions to both sides (left and right sides), subtractions from both sides
(left_and right sides), or an addition and subtraction on the same side (left or right side),
but in all cases the equality must be maintained as shown below: t
Debit
(+)
Increases
(-) l l
Credit

Decreases
Debit
H
Decreases
Credit
(+)
Increases
t
Normal Balance Normal Balance
Owner's
Assets Liabilities Equity

Income Statement Accounts

Debit for Credit for
decreases in owner's equity increases in owner's equity
=
.Expenses Income

t
Debit Credit Debit Credit

t . (+)
Increases
H
Decreases
I
f l H
Decreases
(+)
Increases

Normal Balance
Normal Balance

I
 I 3 · 13
The Acco1Jntln(J Equutlon and the Double Entry SySfem

I NORMAL BALANCE OF AN ACCOUNT

•. u1t! 0 I A d
a~r,et account decre,1~es an a
cnrrespond ing
.
claims
.
I 'd of the account - debit• or credit SSl!t5 IUAJ. An
rers to the ~, e - J

(llahilltle; or c quily) au ount deueascs. Eumple: (1) Settled accounts payable, 12)
The normal !wane-,' of ..1nv ,1.:t'ount ro • withdrawal and expense account ;
.., Asset owner s Paid 1alarlei, of employee~.
•
where ioc-re.lSeS ar\' n,'C'l)fO..-u. T ty. owner , . lty and Income accounts norn1illl V
II b11 s equ
'ncreases in an account are usuull 4· Exchangc oI Cl a1ms (EC). One claims (habrliti~ or owner..,s equity) account increases -.
normally have dt'M balances; a •
nt decreases. Example.
V an d anot her claim; {ftabrlrt,e; or owner's equity) accou
have crroit balances. This result occurs because '
1 greater than or equal to decreases.
,~~s R«orded bv
Normal Balance
~bit
-
Credit
Received utilities bill lrut drd not pay.

Every accountabl e event has a dual but self-balancing effect on the accountin g
h
equation.
ualrty of the basic
Otl,I! cndlt · h • .
AC'<Ollftt ,~~on• I ✓
Recogn Izing t ese events will not in any manner affect t e eq
s above may be furthe r expanded into
accounting model. The four types of transaction
...,.~ ,/ ✓

I
✓
nine types of effects as follows:
l ~s
✓
O-ner's fqu 't) . ✓ 1. Increase in Assets = Increase in Liabilities (SA) --. ;
✓
O..ne<s upnal ✓
2. Increase in Assets= Increase in Owner's Equity (SA) ,
✓
\\'lthdrawals ✓ 3. Increase in one Asset = Decrease in another Asset IEA)
l ✓
tnrome ✓ I 4. Decrease in Assets = Decrease in Liabilities (UA)
E~es S. Decrease in Assets= Decrease in Owner's Equity {UA)
6. Increase in Liabilities= Decrease in Owner's Equity (EC) -
7. Increase in Owner's Equity= Decrease in Liabilities {EC) -
ACCOUNTING EVENTS AND TRANSACTIONS 8. Increase in one Liability= Decrease in another Liability {EC) '
9. Increase in one Owner's Equity;, Decrease in another Owner's Equity (EQ
. · e that causes changes in an enfernrise'
-=--.S
An accounting event Is an economic occurrenc .
assets, liabilities, and/ or equity. Events may. be internal actions, such as the use of TYPICAL ACCOUNT TITLES USED
t for the production of goods or services. It can also be an external event,
equipmen
such as the purchase of raw materials from a supplier. STATEMENT OF FINANCIAL POSITION

of
IE~s,
A transaction is a particular kind of event that involves the transfer of something assets. Per
, include acquiring assets from Assets are ~hould be clas~ified only into two: cu.!!en.t .as,sets and n_£!!:_qn::cent
value between two entities. Examples of transactions shall classify assets as
revised Philippine Accounting Standards (PASi No. 1, an entity
owner{s), borrowing funds from creditors, and purchasing or selling goods and services. current when: ·

a. it expects to realize the asset, or intends to sell or consume it, in its normal
TYPES AND EFFECTS OF TRANSACTIONS operating cycle; ·

It will be beneficial in the long-term to be able to understand .a classificati on approach b. it holds the asset primarily for the purpose of tradi ng;
that emphasizes the effects of accounting events rather than the recording procedures
in c. it expects to realize the asset within twelve months after the reporting
involved. This approach is quite pioneering. . Although business entities engage period; or
numerous transaction s, all transaction s can be classified into one of four types, namely:
the
d. the as_set is ~ash or a cash equivalent (as defined in PAS No. 7) unless
1. Source of Assets (SA). ~ n t increases and a corresponding claims asset 1s re_s tncted from being exchanged or used to settle a liability for at
{liabilities or owner's equity) account increases. Examples: (1) Purchase of supplies least twelve months after the rei:iorting period.
on account; (2) Sold goods on cash on delivery basis.

2. Exchange of Assets (EA). Pne asset account increases and another asset account
. h .
All other assets should be classified as non-curre nt assets Operat'mg eye1e Is t e time
decreases. Example: Acquired equipment for cash. ---=· · · . ..., between the · 'f f ·
f . h-
-- acquis, ion o assets for processing and their r~aliz
_equivalents. When the entity's normal o eratin . a ion_in c~s or cash
assumed to be.twelve months. p g cycle is not clearly 1dent1fiable, it is
 3
The Acr.ountinr; Equation ond the Double Entry System I -lS

(<:utrfflt A~ " accept for deposit at faqi v~i

th-11 a oon~ w111 d d ft ' l1~ a. It eKpetts lo s1, ttlc the liability in Its normal /Jperatlng cycle;
· ) Qsh. cash 1:5 3ny med,1in, of t>:>."t'hJl'l!Je . d bank deposits an ra · s.
. h ks. n,onilY or ers, b. It holds the liability primarily for the purpose of trading;
It mch.tde~ C'()i;l.5, cwrencv, c et . t n, highly liquid Investment~ th
are short· er ' ~t t he reponing
f cash and which are subject to c. the liability Is due to be settled within twelve months after
1 ~ cah .E:- .....~ nts.. Per PAS No. 7, these ~n
'('"'.. amounts o . period; or
are readily corw~rtible to known th
;;,_~gnificant risk of change~ in value. d that the customer will pa d. the entity does not have an unconditional right to defer settlement of e
- written pie ge Y the
a• . liability for at least twelve months after the reporting period.
' lltom R ~blie. A note receivable aiscertain date. •
buslness J fh'ed amount 01 mon_ey on · ·· • rising from sale of se -
. ainst customers a rvices All other liabilities should be classified as non-current liabifities.
' A.ta>Unts Receivable. These are claims ag 1fj!cs le s s~ ritY than a promissory note·
l ·v,.ble o s

I
or goods on credit. This type of rece "'
1 • ~Current Uabllltfes
h ·ch are 'al held for sale IR the ordina ry
\ . h are assets w 1 ~ •
• coun_u
f roduction for such sale; or (c) in the forrn of I!)Accounts Payable. This account represents the r se r ·
• ln~tones. Per PAS N~- 2, t ese
coo~ of business; (b) 1r, the proces~ ~ ~he roduction process or in the rendering of
P
receivable By accepting the goods or services, the buyer
·
agrees to pay for them '" t he I
materials or supplies to be consumed in near future.
th

t
J ..
services.
Prepaid Expenses. These are expense~
asset because the business
.d for by the business in advance. It is a
pa! -~ . f f ·
. h • to pay cash in the uture or a specifi
avoids aving
expense These include insurance and rent.
These prepaid items
.
represent f utu/
n

- :
economic ~ts-asse ts-un
process; these, then, become expenses.
_:_!~c:..::.:.:.:....c~ '~ e
I It-Notes Payable. A note payable is like a note receivable but in a reverse se~e. In e
case of a note payable, the business entity~ maker of the note; that is, the business
entity is the party who promises to pay the other party a specified amount of money on
a specified future date.
I
t·I th time these start to contribute to th.e earning
e
Accrued Liabilities. Amounts owed to others for unpaid expens~- This account
I
I)
includes salaries payable, utilities payable, interest payable and taxes payable.

Non-current Assets ll}Unearned Revenues. When the business entity receives payment before providing its
custo_mers.with goods or services, the amounts received are recorded in the unearned
~ , Pla~; and Equipment. ·per PAS No. 16, these are tangi_b)e ~ssets that are held
revenue account (liability m·ethod). ·when the goods or services are provided to the
by an ~nterprise for use in the produq iory__~~ supply qf.gooqs or services, or for_rental to
customer, the unearned revenue is reduced and income is ·recognized.
~thers or for administrative purposes and which are expected to be used during more
than o~e period. Included are such items as land, building, machinery and equipment, Il ~ Current Portion of Long-Term Debt. These are portions of mortgage notes, bonds and
·furniture and fixtures, motor vehicles and equipment. other lo!1g-term indebtedness which are to be paid within one year from the balance
sheet date.
1 Accumulated Depreciation. It is a contra account that C£!l_!filCIS. th.~ sum of the periodic
depreciation charges. The balanc ·n this account is deducted f~~~~st EfJ.h.e ~ -c~rr~ Lia~ili!ies
related asset-equipment or buildings-to obtain boo va ue. -
11~.M~rtgage Payable. T~is account records ~g-term debt of the business entity for
./ .i;. Intangible Assets. Per PAS No. 38, these are i_~en~ifiable, nonmonetary assets without
which the business entity has ple:f_ ed certain asset~ as security tQ the creditor. In the
physical substance held for use in the production or supply of goods or services, for
I event that the debt payments are not made, the creditor can orec ose or cause the
rental to others, or for administrative purposes. These include goodwill, ~ t s, mortgaged asset to be sold to enable the entity to settle the claim. ·
I ,S?PYrig~ts, licenses, ~ s , ~ k s , brand name~, s~ret pro_cesses,
l\t Bonds Payable. Business organizations ofte~ obtain substantial sums of mo f
subscription lists and non-competition agree_mer,ts.
i
' ---- . lenders to fina~ce ~he acquisition of equipment and other needed
these funds by issuing bonds. The bond is a contract between th .
ass ney ro~
ets. They obtain
Liabilities
~pecifying the terms of repayment and the interest to be charged~ issuer and t he le!!!!_er
Per revised Philippine Accounting Standards (PAS) No. 1, an entity shall classify a liability
as current when:
 3-16 I Basic Accounting . d h o0 uble Entry System I 3-17
Th e Accounting Equation an I e

tciwner's Eaultvt ") This account Is. used to reco

"' , -:i - - • •propertY · 1 1 rd
)- Capital (from the Latin copit~lis, meaningof the ow.ner of the bus ness ent ty, It is ACCOUNTING FOR BUSINESS TRANSACTIONS
the original and additional mv_eS t rnJ!ntL .-· the year or Is decreas~d by a loss. Ca sh
re in financial terms. A
increa sed-by t he·amount of profit earne_~!u~:gfrom the business ultimately reduce it. Accountants observe many events that-they identify and measu • ff f' • 1
1 10n that a ects manc1a
·t
~~~~~':-!.!:==
·
or other assets that the owner may WI business transaction is the occurrence of an evenl!_t_£o~r1a~c~o~n~d ~
Oftheowner. . position and can be reliably recorded. -
This account title bears the name • withdraws cash or other asset
·ness entity . I s,
:t~ Wrthdrawals . When the owner of a bus1 I count rather than direct y reducing Financial Transaction Worksheet
· • withdrawa ac d. s of its effects on the
such are recorded in the drawing or . .
' Every financial transaction can be analyzed or expresse m ter.m · · f -f ·- • 1
O
the owner's equity account. h nd of the accounting period t accounti~g equation. The financial transactions willb e analyzed by means a m~nchia
unt used at t e e . . . o - - ----:----- - - . d decreases mt e

I
!\Income summary. It Is a t ~meQrc!!Y ~~ the profit or loss for the period before transaction worksheet which is a form used to analyze increases an
. count shows assets, liabilities or owner's equity of a business entity.
close income and expenses. Th is ac ·
closing to the capital account. nd
Illustration. Edgar Detoya decided to establish a sole proprietorship business a_
INCOME STATEMENT named it as Detoya Graphics Design. Detoya is a graphic designer who has extensive
experience in drawing layout typography lettering, diagramming and photography. He
\Income' . ' ' ' · · h the ri ht
'-- - rf . ,ir services for a customer or client; for possesses the talent to visually communicate to a target audience wit g
0

. ,, Service Income. Revenues earned by pe !_mi~d~ .. ervi c~s by a laundry shop. combination of words, images and ideas.

'I
' · • '"' CPA firm • laun rv s _
example, accounting services uY a
. f merchandise; for example, sale of building
Detoya Graphics Design can do the layout and production design of newspapers,
Sales. Revenues earned as a !~ult Of sa1e
O
· ·
magazines, corporate reports, journals and other publications. The entity ~an cre~te
materials by a construction supplies firm.
promotional displays; marketing brochures for services and products; packaging design ;;
l
Expenses
', for products; and distinctive logos for businesses. He also enters into agreements with
to produce the products sold to · clients for the progressive development and maintenance of their web sites. His initial
Cost of Sales. The cost incurr~d_to_pure hase or . . revenue stream comes from web designing.
customers during the period; also called cost of goods sold.
Salaries or Wages Expense. Includes ~ Yl!leJltS JI~ a resul! of ii~ ~mployer-employee The owner, Edgar Detoya, makes the business decisions. The assets of the company
". 131h nth pay cost of hvmg allowances and belong to Detoya and all obligations of the business are his responsibility. Any income
relati.onship such as salaries or wages, mo , .
that the entity earns belongs solely i:o Detoya.
other related benefits.
·I
Telecommunications, Electrlclty, Fuel and Water Expenses. Expenses related to use of
When a specific asset, liability or owner's equity item is created by a financial
t~lecommuni ~ations facilities, consumption of electricity, fuel an_d water. transaction, it is listed in the financial transaction worksheet using the appropriate
Rent Expj!nse. Expense for spac~ ~ µigment.Qr other assl!tJ entals. accounts. The worksheet that follows shows the first transaction -of the Detoya Graphics
Design. The dates are enclosed in parentheses. During March 2014, the first month of
:, I
s~ pplies Expense. Expense of usfo.g s~pplies (e._g. offjce suppl_ies) in the conduct of daily
I I
operations, various financial transactions took place. These transactions are described
I I ~usi_nes.s. and analyzed as follows :
.I
!, ,: Insurance Expense. Portion of p!_e!!!L~ms. paid on insurance cpverage (e.g. on motor
I,/ vehicle, health, life, fire, typhoon or flood) which has expired . Mar. 1 Detoya started his new business by depositing P350,000 in a bank account in
. :' the name of Detoya Graphics Design at BPI Pobl~cion Branch.
Depreciation ~xpense. The portion of the cost of a tangible asset (e.g. buildings and
equipm~nt) allocat ed or charged as expense during an 'accounting period.

Uncollectible Accounts Exi>ense. The amount of receivables estimated to be doubtful

of collection and charged as expense during an c1ccountlng period.

Interest Expense. An expense related to use of borrowed funds.

 Double Entry System I 3- 19
3-18 I Basic Accounting Th e Accounting Equati on a nd th e
h'CS
1 oeslgn
oetova Grap . worksheet hased on credit. Acquiring
. T ns~cuon ~ s. dolJ.'.ttiave to be purchased in cash. It can also be pu~~e later is called buying on
F1nanc1al ra • h 2014
Month of Ma re the computer suppli es with a promise to pay the amount . . . •es of the business.
+ Owner's Equity account. This tran sa ction increases both the ass~ ~ dlra n accounts payable.~
.
I Assets
Uabllltlas
Detoya, Capital The a~t affected is com puter supplies and th e l~
hhilitv r ~12.s~ ac'..'..!=::.=...- '--'- -

Ii
l
I,
I
Cash P3S0,00o
--..
.
Mar.11 Detoya Graphics Design collected P88,000 in cas
. . .
h for designing interactive
h Naga Ecozone.
web sites for two exporters based inside t e
1,
'
:I .
(11
. .
PlS0,000

I ed as follows: . .
Assets
Liabilities + owner's
Equity
The financial transaction is ana yz al financial affairs 1s created.
!/ ' D toya's person
• An entity separate and distinct from e000 is invested in the busine~s entity. The Cash + Computer + Computer Accounts + OetoY3, Capital
payable
An economic resource-cash of p~so,_ de by the owner, which represents Supplies Equipment
• . h ontnbut1on ma . P350,000
P25,000
t• source of this asset 1s t e c t . Oetoya Capita 1. Bal. P205,000 P25,000 P145,000 88,000

I I
•I
, •"' accoun 1s ' d
owner's equity. The owners equ1:, . h t cash is investe an owners equity
d
• The dual nature of the transaction is t a . are as follows: increase in asset-
,
(11)
Bal .
88,000
P293,000 + P25,000 + P145,000 P25,000 + P43.B,000

r
unting equation P35 P463,000 P463 ,000
\j l
.I
created. The effects on the acco
d increase
.
in owne
r's equity from zero to
cash from zero to P350, 000 an . . . . and assets equal owner's equity.
·
0,000. .I
. . . f lients oetoya rendered
.~ .il • At this point, the entity has no hab1ht1es, . The entity earned service income by designing web sites or c
·
his professional services and collected revenues m cas ·
·
h The effect on e
th accounting
·ty Income
f Mar. 5
. 000 is acquired on cash basis. The effect
Computer equipment costing P14 5• . . . .
·
equation is an increase in the asset-cash an d an mcrea
se in owner's equ1 •
h b th
JI · quat1on 1s · . cause d t h e b usi·nesstogrow' ass own Y e
increases owner's equity. This transaction
of the transaction on the basic e ·
~ + Owner's Equity increase in total assets from P375,000 to P463,000.
J II
Assets
Llabllltles

Detoya, Capital payment service

11 cash + Computer Mar.16 Detoya paid PlS,000 to Bills Express, a one-stop bills
Equipment P350,000 company, for the semi-monthly utilities.
.:1 Bal. P350,000 Liabilities + Owner's Equity
P145,000 Assets
(5) (145,000) P350,000
+ P14S,000 Detoya, Capital
Bal. P205,000 P350,000 Cash + Computer + Computer ~ Accounts +
P350,000 Payable
Supplies Equipment

I This transaction did not change the total assets but it did change the composition of the
Bal.
(16)
P293,000
(18,000)
P25,000 P145,000 P25,000 P438,000
(18,000)
assets-it decreased one asset-cash and increased another asset-:--computer Bal. P275,000 + P25,000 . + P145,000 P25,000 + P420,000
•
equ1pmen t ·by Pl45,ooo. Note that the sums of the balances on both sides of the P445,000 P445,000
equation are equal. This equality must always exist.
I :r'
'I·; Expenses are recorded wh.en they are. incur.i:ed. Expenses can be paid in cash when they
'; 1: i Mar. g computer supplies in the amount of P25,000 are purchased on account. occur, or they can be paid later. The payment for
utilities is an expense for the month of
'f'
l ! 1i ,!
Assets = Llablllties + Owner's Equity March. It represented an outflow of resources and a reduction of owner's equity.
. I I· , I Expenses have the opposite effect of income; they cause the business to shrink as
Computer Accounts + Detoya, Capital
. I
.. I Cash + Computer
Supplies
+
Equipment Payable
shown by the smaller amount of total assets of P445,000 . .

Bal. P205,000 P145,000 = P3S0,000 Mar. 17 The entity has service agreements with several Netpreneurs to maintain and
{9) PZS,000 P 25,000 update their web sites weekly. Detoya billed these clients P35,000 for
Bal. P205,000 + P25,000 +==P1=4=5,,..000=-= P 25,000 + P350,000
services already rendered during the month.
P375,000 P375,000
~3~-~20~1~8o.l~•:ic~A~cro;.:c~,n~l'·Tr: i~g----•----------llliii-liil-&iioii~, The Accounting fquotlon ond the Double Entry System I 3-21

l +
Income last Mar. 17. Total assets are unchanged. The business merely reduced one
A uter = Accounts + Det 0 asset-accounts receivable and increased another-cash .
Comp
• computer • Payable Ya
• . Act0unts 5upplles Equipment Capita!
Cash Mar. 21 Detoya withdrew P20,000 from the business for his personal use.
Receivable Pl4S,000 P25,000 P420,nn.
P2S,000 A = l + OE
~
35 "V\J
6.\1. P2 i 5,000 S 000 ?25,000 + ~ 45 5•~ + Oetoya,
P3, ~ Pl4S,002,. = _ _.,.,;..;...... AUO<J"U

-
+ =-==.;;:._V\J\J eomputtr
cash + Accounts + Computer + Capital

-
(17) - - - - ?35,000 +- ' - - p4ao,OOO = P480,000 --.... payable
Bal. P2 i 5,000 ♦ Receivable Supplies Equipment
PS,000 P45S,000
Bal. P283,000 Pl0,000 P25,000 P14S,000 (20,000)
. . I' ts so income should already be recognize (21) (20,000) P435.000
P8,000 +
The entity has performed services to c ,en b t the clients did not pay immedia d. Bal. P263,000 + Pl0,000 + P25,000 + P145,000
Detoya is entitled to receive payment for th ~se u - , rom • te\y, P443,000 P443,000
J

Performin the servic · no

ble Th",s· trans action resulted to an inc~rease ·e
amount which is called accounts rec~iva · . , equity of p35 000
~t-accounts receivable and an increase in owners ' ·
in Wlt hdrawal of cash or other assets for personal use...is the way by wJlich the. owner of
th~ entity receives advance distribution of the profits. On Mar. 11, Oetoya invested I
Mar. 9 purchase on P350,000; both cash and owner's equity increased. The transaction was an investment
payment of P17,000 for the
Mar.19 Detoya made a partial by the owner and not an income-generating activity. Detoya simply transferred funds
from his personal account to the business. A cash withdrawal is exactly the opposite.
I
account. l + OE The P20,000 cash withdrawal transaction resulted to a reduction in both cash and
A
Accounts + Detoya, owner's equity. ·
+ computer
cash + Accounts + Computer Payable Capital
Equipment
Receivable supplies Mar. 27 Edman Flores Publishing submitted a bill to Oetoya for PS,000 worth of

-
P145,000 P25,000 P4ss,ooo
P35,000 P25,000 (17,000)
· newspaper advertisements for- this month. Oetoya will pay this bill next
Bal. P275,000
(19) (17,000) P145,000 PB,000 + P455,000 month.
PZS,000 +
Bal. ?258,000 +· P35,000 + L + OE
P463,000 P4Ei3,000 A

Computer Accounts + Detoya,

cash + Accounts + Computer +
Payable Capital
This transaction is a payment on account. The effect on the accounting equation is a Receivable • Supplies Equipment
decrease in the assei"=cash and a decrease in the . liability-accounts payable. The Bal. P263,000 PlO;OOO P25,000 P145,000 P 8,000 P435,000
payment of cash on account has no effect on the asset-computer supplies because the (27) 8,000 (8,000)
Bal. P263,000 + Pl0,000 + P25,000 + P145,000 PlG,000 + P427,000
paymeht does nQt increase or decrease the supplies available to the business.
P443,000 P443,000

Mar. 20 Checks totaling P25,000 were received from clients for billings dated Mar. 17.
L + OE Edman Fl_ores rendered services on account. Detoya Graphics- Design has incurred an
A
e:pens~ in t~e amount of PS,O?O by av~iling of Edman Flores' services. There was no
+ Computer + Computer Accounts + Detoya, p y~ent :uri~g the m~nth. This advertising expense resulted to a decrease in owner;s
cash + Accounts
Receivable Supplies Equlpryient Payable ' Capital equity an an increase in the liability-accounts payable.
P35,000 PZS,000 P145,000 PB,000 P455,000
Bal. P258,000
(20) 25,000 (25,000) Mar. 31 Detoya paid his assistant designer salaries of PlS,000 for the month.
Bal. P2B3,000 + Pl0,000 + P25,000 + P145,000 PB,000 + P455,~
P463,000 P463,000

Last Mar. 17, Detoya billed clients for services already rendered O tity
was able to collect P25 000 f h . n Mar. 20, the en
. ' ram t em. The asset-cash is increased b P25 000 The
business should not record service income on M ar. 20 since. .1t has already
Y recorded
• · the
 3-22 I Basic Accauntlng '- The Accounting Equation ond the Double Entry System I 3-23

= L + OE
Uabllltles (Increase)
A Assets (Increase)
Accounts + Detoya
computer Notes Payable
computer + Payable Capita( Com puter Equi pment
Cash + AccoUnts Equipment Credit
Supplies Debit
Recelv1ble Pl6,000 P4 27,ooo Debit Credit (+)
Pl4S,000 (· )
~
P25,000 (+) (-)
Bal.
(28)
P263,000
(15,000)
P!0,000

Pl0,000 + P25,000 + - Pl45,000

=
P16,000
P428,000
+~ 3-2 50,000
3-2 50,000

Bal. P248,000 + P428,000

r equipm ent and the
The_ transaction increased by PSO,OOO the asset-c ompute
be debited and notes payable must
's equity as well as a reductio n in llab1llty -notes payable. computer equipment must
r I '

By providing his services to Oetoya

. •

fort h e mon
th
•
.
This transaction resulted to a reduction m owner the assistant
.
designer
e
cash
has creat d ·
for
~ ited. .

studio for the

the business an expense-salaries expense. Mar. 3 Detoya paid PlS,000 to Grande Suites for rent on the office
month.s of March,' April and May.
Assets (Increase)
Use of T-Accounts Assets (Decrease)
Analyzing and re~ording transactions -using the accounting
equation is useful i Prepaid Rent I
Cash

I
busi~ess. However,1t~·
Zonveyin g a basic understanding of how transactions affec~ the Debit
Credit
of accounts involved increases. Double. Debit Credit
not an efficient approach once the number (+)
(-)
of classification and recordin g business (+) (-)
entry system provides a formal system
3-3 15,000
3-1 350,000 3-3 15,000
transactions.
having future econom ic
Illustration. The rules of debit and credit will be applied to the Detoya
Graphics Design The entity paid advance· rent for three months. A resource
paymen t of PlS,000 . increase s in assets
the example . Before benefit- prepaid rent, is acquired for a cash
illustrati on for comparison. Three transactions will be added to are recorded by credits. The transac tion
to determin e which accounts must be are recorded by debits and decrease s in assets
being recorded, a transaction must be analyzed
debit to prepaid rent and a ·credit to cash for PlS,000 . The prepaid rent is
d. After this has been determin ed, th,e rules of debit and credit resulted to a
increased or decrease month, PS,000 of the prepaid
effect the appropria te increases and decrease s to the accounts . consu~ed based on the passage of time so that after one
are applied to
rent will be transferred to the rent expense account .
account in
Mar. 1 Detoya started his new business by depositing P350,000 in a bank Hotel for web
at BPI Poblacio n Branch. ·Mar. 4 Received advance payment of P18,000 from Marco Polo Naga
the name of Detoya Graphics Design
site updating for the next three months.
Owner's Equity (Increase)
Assets (Increase) Assets (Increase) Uabilities {lncreasel
Detoya, Capital /
Cash Cash Unearned Revenues /
Credit Debit Credit
Debit Debit Credit Debit Credit
(-) H (+)
(+) (+) (-) H. (+)
3-1 350,000
3-1 350,000 3-1 350,000 3-3 15,000 3-4 18,000
3-4 18,000
According to the
This transac~ion increa~ed both the asset-cash and owner's equity.
an ncrease
~ in (!Sset is record~ bit h'I . . next three . .
rules of debit and credit, '.he_~nt'.ty has an obligation to Marco Polo Naga Hotel for the
owner's
_ ..
eQ11ity
. ::
js reco d d d' . . w I e an ~
r e as ere it; thus, the entry is to debit cash and to
e.J!l.
credit
hab1hty is called UI1earqed reve□ues.
The asset-c ash is . . d b n:1onths. This
d . f h f ~ p y a debit o_f P18,000
Detoya, Capital. The transaction dates are placed on the left- SI, e o t e amounts or and _the liabiljcy -unearn ed revenues is increased by a c1:~~a~
reference. n at a rate of P6000 18,000. As it renders
service, the entity discharges its obligatio
· ' per month for the next
three months.
· • d . payable to
Mar.2 . .equipment is acquire by issuing a PSO 000
Computer
.
Rosemarie Jacalan Office Systems . Th e note is . .' note
due in six months.
· L'lr, ,_., 1 L r\' 'f \ ) ,- .
·:');_,..,;_~- I t " " "
•,,,'• I r T
 3-24 I 8osic Accoun ting The Accoun ting Equation and the Double Entry
SySlem I 3 -is
. is acquired on cash basis.
45 000 I
Mar.S Computer equipment co5ltn8 Pl ' Assets (Increase
Assets (De<rNse) ,. Owner's Equity (Decrease)
computer Equipment , Assets (Decrease)
Olsh
Utilities Expense
Debit Credit Cash
Credit
1 Debit Credit (+) H Debit Credit Debit (-)
I (·) (+)
(+) S0,000 (+) (-)
!f 3-1 350,00 0 3.3 15,000
3-2
3-5 145,000 3-1 350,000 3-3 15,000 3-16 18,000
3-4 18,000 3-5 145,000 3-4 18,000 3-5 . 145,000
equipment and decreased the ass 3-11 88,000 3-16 18,000
ction increased the asset- ~mpu ter reased by credits; thus, corn et..._
This transa
=-""'--~ - - - · PUter sed by cre(!its; theref ore, utilities
cash. Assets are increased by debits and dee Ex enses are increased by debits and assets are decrea
Increases in expen ses decrea se
equipment is debited and cash is credited for P145,0 00. · expense is debited and cash credited or P18,000.
owner's equity.
· f P25 ,000 are purchased on account • --=
Mar.9 Computer supplies in the amoun
to th th
Uablllties (Increase) Mar. 17 Detoya billed clients P35,000 for services
already rendered during e mon ·
Assets (Increase►
=
owner's Equity (Increase)
Accounts Payable Assets (Increase)
Computer Supplies Design Revenues ·
Debit Credit Accounts Receivable /
Debit Credit (+) Debit Credit
(·) Debit Credit
(+) (-) (+)
3-9 25,000 (+) (-) H
3-9 25,000 3-11 88,000
3-17 35,000 3-17 35,000
of P25,000 while the ~ty
The asset- comp uter supplies is increased by_a _debit
cre~!t for the same amount.
accoun.t:-actounts payable is in~r~ase_(!!Y.a Assets are increased by debits , income are increased
by credits . Increases in income
A debit of P35,000 to accou nts receivable and a credi tor-
in cash for designing _web sites. increase owner's equity.
Mar. 11 Detoya Graphics Design collected P88,000 P35,000 to th·e income accou nt-des ign revenues is neede
d.
= Owner's Equity (Increase)
Assets (increase)
9 purchase of computer"supplies.
Cash .,,,- Design Revenues Mar. 19 Detoya partially paid P17,000 for the Mar.
Assets _(Decrease) Liabilities (Decrease)
Debit Credit Debit Credit
(-) (-) (+) Cash I Accounts Payable
(+)
15,000 3-11 88,000 Debit Credit Debit' Credit
3-1 350,000 3-3
(-) (-) (+)
3-4 18,000 3-5 145,000 (+)
3-11 88,000
3-1 350,000 3-3 15,000 3-19 · 17,000 3-9 25,000
3-4 18,000 3-5 145,000
ed the income accou nt-des ign
The transaction inc~ea~ed the asset-cash and increas 3-11 88,000 3-16 18,000
increased by cred~ ; hence, a
rev~nues. ~s~ts are increased by_debits, income are 3-19 17,000
revenues is made. Increases
~e~1t of P~B,.000 to cash and a credit of P88,000 to design
sed b y ~ The transa ction
in income increase owner 's equity. ~sets are decreased by credits while liabilities are decrea
cash for Pl7,00 0 each.
is recorded by debiting accounts payable and crediting
Mar. 16 Detoya paid P18,000 to Bills Express for the
semi-monthly utilities.
rr 3-26 I Basic Accounting

Mar. 20 Received checks totaling PZ '

·ents for blllings dated Mar. 17 .
5 000 from cl,
Assets (Decrease)
a.....__ The Accounting Equation and the Double Entry System

This transaction Increased the expense-a dvertis_ing expe

nse and increased the
debits while liabilities
I 3-27

llablllty-accounts payable by PS,000. ](penses

E are increa~e~ byex ense and to credit
Assets (Increase) Accounts Receivable
are Increased by credits; hence, an entry to deb it advertising P
Cash Credit
Debit accounts payable for PB,000 is needed.
Credit (·)
Debit (+)
. f PlS 000 for the month.
(+) (·)
35,000 3-20 2s,ooo Mar. 31 Detoya paid his assistant designer salaries o ,
3.17 = owner's Equity (oecrease)
350,000 3-3 15,000 Assets (Decrease)
3-1
3-4 18,000 3-5 145,000 Salaries Expense
18,000 Cash
3-11 88,000 3-16 Cred it
25,000 3-19 17,000 Debit
3-20 Debit Credit (-)
(+)
t-accounts re_cejya_ble but incre~sed th (+) (-)
.
Collections on. account reduced th e asse nd d · d b credits· thus a d , _. ..toe 3-1 350,000 3.3 15,000 3-31 15,000
asset:....cash. Assets are increased b debits a ecrease . d, ' eo,t
000 3.4 18,000 3-5 145,000
cash for P25,000 and a credit to accounts receivable for pis, is ma e.
3-11 88,000 3-16 18,000
3-20 25,000 3-19 17,000
Mar. 21 Detoya withdrew P20,000 from the business for his personal use. 3-21 20,000
= owner's Equity (Decrease) 3-31 15,000 I
Assets (Deaease)

cash
/
I Detoya, Withdrawals
Expenses are increased by de!;>Lts and assets are decreased by credi~. Hence, salaries
I
Debit Credit expense is debited for PlS,000 and cash credited for the same amount.- Increases in
? Debit Credit (· ) J.
j
(+) (·)
(+) salaries expense decrease owner's equity.
I.. 3-1 350,000 3.3 15,000 3-21 20,000
DISTINCTION BETWEEN REVENUES AND RECEIPTS
3-4 18,000 3.5 145,000
88,000 3-16 18,000
3-11
17,000 At this point, it will be useful to .learn the distinction between revenues and receipts as
3-20 25,000 3-19
3-21 20,000 illustrated in the following table. The table shows various types of sales transactio ns
and classifies the effect of each on cash receipts and sales revenues for "this year":
Withdrawals are reductions of owner's equity but are not expenses of the business This Year
entity. A withdrawal is a personal transaction of the owner that is exactly the opposite Transaction Amount Cash Sales
Receipts Revenue
of an investment.
1. Cash sales made this year. P200,000 P200,000 P200,000
300,000 0
This transaction increased the. withdrawals account but reduced cash. Debits record 2. Credit sales made last year; 300,000
increases in the withdrawals acco11ot aod ccedjts record decreases jn asset accouots· cash received this year.
3. Credit sales made this year; 400,000 400,000 400,000
thus, a debit to withdrawals and a credit to cash for P20,000 each is necessary. · .,
cash received this year.
4. Credit" sales made this year; 100,000 0 100,000
Mar. 27 ooo ads. Detoya will pay next month.
Edman Flores billed Detoya for PB,_ cash to be received next year.
Total P900,000 P700,000
Liabilities (Increase) Owner's Equity (Decrease)

Accounts Payable / Advertising Expense

Debit Credit Debit Credit
H (+) (+) H
3-19 17,000 3-9 25,000 3-27 8,000
3-27 8,000
 TM Accovmi ng Eauation and rht aoullk Encry Systtm 3-29

DfSCUSSION QOESTIONS

1. Wnat is an .)CCOOntin5 information ~em?

What must be considered before 1.
t1 I NAME:
SECTION:
ISCOR£·
PROFESSOR:
setup'
ts Define each briefly. True or False
2. Enume-rate tt,e e'ements of financial statemen · ~<-l ...thf>r eJU)!;!(lS eS-Of a business.
, •
. , What does it contain ? '- 1. The owner's Withdrawals account is listed with the ~
3_ What is the basic summary de\i re of accountmg. dded to liabilitie s-
-
hi and corporations differ?
·
.-:; $<- 2. Inthe fu ndamental accounting equation, assets are a
. .
4. How do sok propnetorShips, partners ps ccount is called a n accou nt
bought on a
1r . <. 3. The liabUity created when supplies are
5. How can the owner's equity be increased or decreased? payable.

6. What is the basic accounting model? /I ~'-4_ Liabilities represent amounts owed to creditor s.
in a relatively~~ri~_period of
Discuss brie,'ly the theory of the double-entry SVS;em-
"" .)'-~ ~- Equipment is listed as .an asset because it is used up
7_ .• ...
time:- -. -
. (.. --- --.
8. State the rutes of debit and credit- . . d d cti' on from _a·s sets a nd an increas e
. '\"<""6. A withdrawal by the owner 1s recorded as a e u
of assets transac tions. -' .". .,,-
9 _ Differentiate source of assets tra~cti ons from exchange in expenses.
-- - . -· .
"VJ'~ total habi lrties to
7. Payment of a liability will not affect total assets but will cause
10. What criteria must an asset meet to be dassified as current? decrease. - - · - - - -

1L Explain the concept of prepaid expenses- d as an increas e to Cash and a

' •' -~ 8. When a business receives cash, it is always recorde
. decreas e to a,~ s e .
12. Give the nature of the accumulated depreciation account
,<-':t, partner .
" 9. In a partnership, an owner's equity accoun t exists for each
13_ What is an intangible asset? Give at least three examples. .).:..:;;'.
ting equatio n _
What are the - ~ Sd O. The basic summary devic:,,o f account ing is the accoun
14. Liability accounts are dassified as either current or non-cur
rent.
u - . .
d by ~,edits .--=== :-::
criteria used? Yh. Expenses cause decreases in owner's equity and are recorde
~---
/ , r -~

15. Income and expenses comprise the income stateme nt.

Give at least two examples terms of the basic accoun ting
,\.- 12. Not all , financial transac tions can be analyze d in
for income and five for expenses. mo¥ .

t 6. Ote a transaction that will decrease an asset and decreas e a liability

. \~,<. s_
13. An owner can invest cash or other assets of value in the busines
,f\tA'. .
ing anothe r liability.
17. A transaction was recorded increasing a liability and decreas 14. Both sides of the fundam ental accoun ting equatio n must always be
~
equal.
-~
What transaction may have occurred?
it'-,e
what accoun ts are involve d.
15. The first step in analyzing a transac tion is to determ ine
18 the use of cash to acquire another asset affect the accoun ting equatio n ?
- How does
How about cash to settle a liability?

.
19. Illustrate the distinction between revenues an d receipts .
 t 3-31
Th e ¾ counting £quo r/on and th~ Doub /~ ErHry SyS l!m

corded by a debit.
16. Income in~ases owner's equity 3nd is re · f NAME: I SCORE:
SECTION: PROFESSOR:
17. Accounts R~'vable is considered an asset.
- of an account. FIii in the Blanks
18. A debit en try always c1eereases the balance Rules of Debit and Credit
. • cause total assets to increase . corded Determine
11
19. A cash acquisition of a laptop computer wi '- The account type determines how increases or decreases in i t are re ·
. the assets of a business entity must alw~y whether the word debit or cred it is appropriate for each statement.
20. Acrording to the balance sheet equation, · s rd
equal the liabilities and owner's equity. 1. Ass~t. a~count~ normally have ~ ba lances. An incr~ase in asset is reco ed as
a ~ while a decrease in asset is recorded as a c:M' ·
.d f the accounting equation usually have cred·
21. Accounts that appear on the left s1 e o
balances_ . ,"
it
2. Liability accounts _normally have ~ balances. ,Ai t~ increase in liability is
~) -
recorded by a eruil and a decrease is entered as a _ _ _.
• • _/:'3:":Jaccount affected.
-:- 22 . For every transaction, there Is at 1ea~
«cJ ' J.. b lance Thi.s account
" 3. The owner's capital account normally has a _ C __,.-;- a ·
23. Business transactions are expressed in terms of.!].®_e,Y.· in~reases on the craA I I- side and decreases on the ~ '.,;,f side.

: 24. Assets are things of value owned by a business entity. 4. Income accounts normally have er<d,} balances. These accounts increase on the
frr'J ,t side and decrease on the d..wi,:f side.
y ~I represents the owner's investment, or equity, in a business.
----
25.
5. Ex~er~e accounts normally have eklo.+ balances. These accounts increase on the
~--26. Every transaction is recorded in terms of increases and/or decreases in tw_o or more - ~- ~- side and decrease on the ciJ;I-- side.

accounts.

27. An accounting information system is the combination of personnel, records and

procedures that a business uses to meet its need for financial information .

28. Expenses represent the cash p11id for goods sold or services rendered in the process
of generating revenue. ·
a,

29. Ow~r's equity is the excess of an entity's capital ~ tits liabilities.

-~ ~/
30. Asset is a resource controlled by the enterprise as .a result of past events and from
which future economic benefits are expected to flow to the enterprise.

31. .Income is increases

. . in economic benefits during the ace oun t ·mg peno
· d that
mcr~asesb etqhu1tyb w_h1ch may have resulted from the sale of goods or rendering of
services y e usmess.

.,,.
/
 3-33
3-32 I Bcsic Acrounti(I(} The Accounting Equation and th e Double Entry Sysrem

~~~========---bs~c~o~RE~:soi~. ,. --=====-j
Irc:
NAME:
@ ~= = = = - - --
~ ECTION:
_uP~RO~F~ESS~O~R:~ - - --
·
tNAME:
~ECTION:
I SCORE:
PROFESSOR:

Fill in the Blanks Multiple Choice

I I

a. The four phases of accounting are 1. When the rent for.the business is paid with a check.
(3) • and (41
~)J\\- a. Cash is decreased and Accounts Payable is decreased.
b. Increases in the capital account are _ ___.{5::,)c.---- b. Cash is decreased and Rent Expense is decreased.
" .{\- ✓ 'c) Cash is decreased and Rent Expense is increased.
·' 1v6l
c. Increases in income accounts are ----l-=---c-- d. Cash is decreased and Rent Income is increased .
?u.\.i< e. Cash is increased ~nd Rent Expense is decreased.
d. Increases in expense accounts are _ _....l{..!.7L..l- - - · ow~,Y~Ulfh
81 2. The issuance of a_n~!e by_an entity for services received should be recorded as
e. The difference between assets and liabilities is _ _ _. 11~L----·
91 (§} a notes payable.
f. Financial events that occur in a business are termed _ _ _...,/"'- - - - \' b. a prepaid expense.
. . . (10) ~ '( I, J
and c. an accounts receivable.
g. ~ in~estment (by the owner) in the business increases . ., .
· d. an unearned revenue.
'L' (lll . <>(t,C ()\)0~ ~li-~0-- OJ..
3. Which of the following is an intangible asset?
h. To acquire something "on account" is to create a _ _ _..J{.=1~2l,___ __
a.copyrights
The transaction description "paid on account" means a reduction of the asset
i.
~
1 1 b.patents
(131 ,,-:.. ,. and reduction of the liability 1141 I) ~Co1-1i~· '· ·,J , , ',!- : ·,
s.trademarks
~ - all of the above
j. Income increases net assets and also

of cash for owrler's personal use reduces cash and 4. The expectation of a future payment from a customer for goods sold is
k. A withdrawal
(16) a. a notes receivable.
cwV- Q· a prepaid expense.
I. The left side of the accoul'\t is ~nown as the _ _.......,{.=l.!...71'------'' whereas the
i..Si an accounts receivable.
right side is the 118) "'t,l,,,>- .
d. all of the above.
/C_· 6_;.;_+_.
m. Increases in asset accounts are _ ___,li..:!,1~9lL-....;~_
\
5. When an entity receives cash for services performed,
n. \,\_ .•
Increases in liability accounts are _ ___,1.,,,2::<.0)L...,;.rt_, ~o..:..
a. an asset is decreased. t
b. the owner's equity is decreased.
c. the owner's equity is increased .

I
.I
'I
d. total assets remain unchanged.
e. none of the above
 3-34 I Basic Accoonfjng

.
6. When a business entitv receives
revenue account is
paym
ent t,efore
delivering goods, the unearn
ed
Th~ Accounting Equation and the ooublt! Entry System

11. A credit entry decreases the balance of

~- assets.
3 35
I -

I
b. income.
a. credited.
c. liabilities.
b. debited.
c. debited and credited. d. owner's equity.
d. not affected. .
· . ess entity for which 1t has pledged 12. Another way of stating the accounting equation is
7. This account records long-term debt of the bus,n
a. Assets+ Liabilities= Owner's Equity
certain assets as security. b. Assets= Liabilities - Owner's Equity
a. accounts payable .E· Assets - Liabilities= Owner's Equity
d. Assets= Owner's Equity - Liabilities
b. bonds payable
e. Owner's Equity+ Assets = Liabilities
c. mortgage payable
d. notes payable
13. The purchase of a service vehicle on account
d printer in the business, there is an
8. If an owner invests her laptop computer an a. Will decrease asset and decrease liability.
increase to b. Will decrease equity. .
c. Will increase asset and decrease a liability.
a. Cash and Capital.
d. Will increase asset and increase a liability.
b. Cash and Withdrawals.
c. Computer Equipment and Capital.
14. Which of the following is an asset of a firm?
d. Computer Equipment and Cash.
e. Computer Equipment and Withdrawals. a. An overdrawn balance on the·firm's bank account.
I'
(b. Computer equipment owned by the firm.
9. Which of the following is correct? c. Money owed by the firm to one of its suppliers in respect of goods purchased
on credit
Assets Liabilities Capital
d. The capital of the firm.
a. P7,850 Pl,250 P6,600
b. PS,200 P2,800 Pll,000
15. Which of the following equations is correct?
c. P9,550 Pl,150 PS,200
d. PS,420 P6,540 Pl,120 a. Assets + Capital Liabilities
b. Liabilities - Capital = Assets
10. Which is false concerning the rules of debit and credit? c. Capital Assets + Liabilities
I
a. The left side of an account is always the debit side and the right side is always ~- Capital = Assets Liabilities

the credit side. 16. The following can be found in an income statement except
b." The word "debit" means to increase and the word "credit" means to decrease.
I
c. lnfreases in assets and expenses are debit entries, and increase the liabilities, ~- assets.
equality and revenue are credit entries b. expenses.
d. The normal balance of any account appears on the side for recording increases. c. income.
d. profit or loss.

; 1.
 -
( 1 3-36 I Basic A" ounting
I
37

,
The Accounting Equotfon ond th e Double Entry System 3-
. ff cts except
follow1nge e
, . has all of the
17. Withdrawals by the propnetor
22. The purchase of an asset for cash will
I
l
a.
reduction of cash balance.
a. have no effect on total assets or total liabilities.
b.
reduction of owner's equity. . d
b. Increase total assets and decrease total liabilities.
<-
reduction of profit for the peno .
c. increase total assets and decrease total owner's equity.
d.
reduction of total assets.

II I d. increase total assets and increase total liabilities:

. to depreciation? e. increase total assets and increase total owner's equity.
18. Which of the following is not subJect
I

a. building 23. When the proprietor withdraws cash or other assets, t he w,'thdrawal account is
b. equipment a. credited.
' 'i: land b. debited.
d. machinery c. debited and credited.
· correct? d. not affected.
19· Which of the following statements is
. r bility account that account must be 24. Which of the following is a liability of a firm?
a. To record a decrease in any given ia
credited. . count must be credited. a. A building owned by the firm.
To record a decrease in capital, th e capi~a 1ac nt that account must be debited. b. Cash in the firm's safe.
b. - ·ven asset accou ,
c. To record an increase in any 81 _ . bility account that account must be {y Money which the firm has borrowed and has not yet repaid.
d. To record an increase in any grven ha d. Money owed to the firm by its debtors.
debited.
set may flow to the enterprise in a 25. Which of the following is not considered an account?
20. The Mure economic benefits embodied . 7in an as a. Accounts Payable
number of ways. Which is the exception.
b. Accounts Receivable
a. An asset may be d·st
I n
'buted to the owners of the enterprise. C. Cash
b. An asset may be exchanged for other assets.b·nation with other assets in the d. Equipment
An asset may be used singly or in com I • e. Revenues
c. production of goods or services to be sold by the ent~rprise.
. d. An asset may be used to convert an obligation to equity. ' 26. When an entity acquires computer equipment for cash,
.I j I
21.
The owner of a business invested PS0,000 in the business. What are the effects on a. an asset is increased and a liability is decreased .
b. assets and owner's equity are increased.
1/: the fundamental accounting equation?
c. one asset is increased and another is also increased.
r
Assets decrease PS0,000; liabilities, no effect; owner's equity increases PS0,000 '9· one asset is increased while another is decreased.
'I
I.
1'
:: Assets increase PS0,000; liabilities decrease PS0,000; owner's equity increases
PS0,000 27. Recording a single transaction in the double-entry accounting records may
. . · ff t
c. Assets increase PS0,000; liabilities increase PS0,000; owner's equity, no e ec
-/
I d. Assets increase PS0,000; liabilities, no effect; owner's equity decreases PS0,000
Decrease the balance on a liability account by a given amount ai;id decrease the
balance on an asset account by the same amount.
'e. Assets increase PS0,000; liabilities, no effect; owner's equity increases PS0,000
b. Decrease the balance on an asset account by a given amount and increase the
balance on a liability account by the same amount.
c. Increase the balance on an asset account by a given amount and decrease the
balance on a liability account by the same amount.
d. Increase the balance 6n one asset account by a given amount and increase the
balan'ce on another asset account by the same amount.

~~ 1)
 r The Accounting Equation ond the Double Entry
5Ys t em I 3-
39
3-38 I Basic ACC'OU11ting
.
c. Increases In owner 's equity. services.
. od
. ring or produc,ng go s or r ender ing
d. Inflows of asset s f rom deltve
28. The purchase of an asset on account will
t I liabilities.
a. have no effect on total assets or to a , uity 34, Inventories are assets which ,1re
se total assets and decrea se owne~ s ,ty ·
eqqu·
b. increa ss.
d
. s
eowner.se. • · a. held for sale in the ordinary course of busine
c. increa se total assets an increa
1 of materials or supplies to be consu med in the produ ction process
b. In ~he form
Q. increase total assets and increase total Uabi itie~ -
asse · ?r in the rendering of services.
e. increase total liabilities and decrease total
c. '" th e process of production for such sale.
red to as \.. d. ail of the above .
29. Amounts owed by a business are refer
throug h the use of existin g curre nt
a. assets. 35. Obligations which are expected to be liquidated
are called
b. capital. assets or the creation of other current liabilities
c. equities. a·. current assets .
d. expenses. l':.b. current liabilities.
e.. liabilities. c. long-term liabUities.
· ·the name of the business, it is an d. unearned revenue.
30. When an owner deposits cash in an accou
nt '" I
increase to 36. In recording transactions,
a. Cash and Accounts Payable. ·
Cash and Accounts Receivable.
a. Assets, expenses, and capital accounts are debite
g accounts are
d for increases.
debite d for increases.
I
b. :[·) Assets, expen ses, and drawin
debite d for increases.
c. Cash and Capital. c. Liabilities, revenue, and drawing accounts are
Cash and Rent Expense. and the word "cred it" m·eans decrease.
d. d. The word "debit" means increase
e. Cash and Withdrawals. I
nt receivable. Considering this trans action
37·. The company collected in full an accou
31. The purchase of supplies for cash will alcine,

a. decrease Cash and increase Accounts Payable. a. Equity will increase.

b. decrease Cash and increase Capital. b. Total assets will decrease. ·
c.
d.
increase Supplies and decrease Cash.
increase Supplies Expense and decrease Cash.
c. Total assets will increase.
~ Total assets will remain the same.
'I
1
nts Payable.
e. increase Supplies Expense and increase A~cou
38. 'Debit s
ental accounting equation?
32. Which of the following equations is the fundam
rease liabilit ies, reven ue, and owne r's
a. · Decrease assets and expenses and in-c
a. Assets - Liabilities= Owner's Equity equity.
b. Assets = Liabilities + Owner's Equity liabilities, reven ue, and ow~e r's equit y.
b. Increase assets and gecrease expenses,
Assets+ Liabilities= Owner's Equity owne r's
c.
rc: 1 Increase assets and expen
ses and decrease liabilit ies, reven ue and
d. Assets - Owner's Equity= Liabilities equity.
e. Assets+ Owner's Equity= Liabilities decrease liabili ties, expen ses, and
d. Increase assets and owner's equity and
revenue.
33. Expenses can be defined as
nting period in the form of
a. decreases in economic benefits during the accou
nces of liabilities that result in
outflows or depletions of assets or incurre
.
decreases in equity.
b. decreases in owner 's equity.
 3-40 I Basic Accounting
The AccouJ1t/ng Equation ond the Double Entry System I l -41
e customers to apply on account. Th
39. A business received P6,000 cash from charg e nd
' c. shows the claims on the entity's assets by both the creditors a owner.
effect of the transaction is
d. shows the claims on the owner's equity by the creditors.
a. an increase in an asset and a decrease in a liabHity.
rti:-- an increase in an asset and a decrease in an asset. 45. When an entity pays employees for their services, the effect is an increase in
i:. an increase in an asset and a decrease in capital.
a. assets.
d. an increase in an asset and an increase in capital.
b. expenses.
e. an increase in an asset and an increase in revenue. -
C. income.
d. liabilities.
40. Which of the following is a form of Revenue?

a. A cash purchase Invoice 46. A current asset which includes coins, currencies and bank deposits is called
b. A check paying.a mortgage a. accounts receivable.
c. A check paying utilities , b. cash.
d. A credit purchase invoice c. cash equivalents.
e. Credit sales to charge customers d. notes receivable.

41. Settlement of a present obligation may occur in a number of ways, for example, by:
47. All of the following affect the owner's equity account except
a. Conversion of the obligation to equity. a. addition.al investment.
b. Payment of cash. b. original investment.
c. Provision of services. c/ payment of a liability.
d. Replacement of that obligation with another obligation. d. withdrawal by the owner.
e. Transfer of other assets.
f. All of the above. 48. The components of the balance sheet equation are

42. Which of the following transactions does not include an increase to expenses? a. assets, income and owner's equity.
b. assets, liabilities and owner's equity.
a. Bought medical supplies for cash. c. income, expenses and profit.
b. Bought office supplies on account. d. investments, withdrawals and profit.
c. Paid the week's salaries.
d. Received and paid the phone bill. 49. In the accounting equation, an increase in asset can be associated with
e. Received cash for services performed.
a. a decrease in a liability.
b. a decrease in owner's equity.
43. ?ver a period of time, if total assets increase by P270,000 and total liabilities
increase by P70,000, then owner's equity will be increased by
c.
d.
an increase.in a liability.
an increase in another asset.
\
a. P70,000.
b. P340,000. SO. Decrease in asset may
c. P270,000.
a. decrease another asset.
, . d. ' P200,000.
• b. decrease liabilities.
c. increase capital.
44. The accounting equation
d. . increase liabilities.
a. is used to determine the amount of income earned d .
b. is used to determine the amount of liabilities owed. uring the period.
 -
oou ble Entry 5y:su m 3-43
3-42 I 8osic AccoUnrmfl The Accounting Eq ua t ion and t he

$CORE: =i
l~
LSEa,c;N:
I ;ESSo~R~:~ -- ----~
NAM~~~E~·~:==================r~pRO~F! INAME:
SECTION:
I SCORE:
PROFESSOR:

Problemll Problem#2A
Accounting Events Elements of Flnanclal Statements
. d . the accounting records of Rogel io
ecognIze In
Which of the following events would be r Assets liabilities Owner's Equity
Ceradoy Company on the date indicated? a. 760,000 360,000 ?
purchase a piece of land for b. 860,000 ? 592,000
Feb. 15 Ceradoy Company off~rs . to likelihood that the offer will be C. ? 108,000 760,000
Pl,400,000. There is a high ' ?
d. 626,600 376,240
accepted. f ffi e. ? 800,000 (100,000)
. that its rentals or an o ice
d Co .
y receiveS noticet P60 000 per month e ff ectIve
Mar. 2 Cera oy mpan
space will increase from PSO, 000 0
' Required: Fill in the amount of the missing element of financial position.
April 1. . .
. . lectricity bill for the month of April.
Apr. 29 Ceradoy Company receives its e
Problem#2B
The bill is due on May 9.
der for an office equipment costing 4
July 10 Ceradoy Company places an or _
1"5 ,t'- a. Jimmy Delgado Pest Control has assets of P600,000 and owner's eq-:Crty of P4 SO,OOO.
P108,000. :J4'.i00'.: b. Margie Clavano Realtors has liabilities of P530,000 and owner's equity of P lO,OOO.
6 The office equipment ordered on July 10 is delivered . Payment is , J ::r;c. Marko Fuentes Plumbing Contractor has · assets of P473,000 and liabilities of
Aug.
not due until Sept. 1. P153,700.
:, -,-:: :d. Ryan Morales Acting Studio has liabilities of P147,000 and owner's equity of
P236,500.
f! . Fely Monarca Dance has assets of P624,000 and liabilities of P237,000.

Required: Compute the amount of the missing element of financial position.

Problem #2C

a. At the beginning of the year, the assets of Cleofe Arib Services were P360,000 and
its owner's equity was P200,000. During the year, assets increased by P120,000 and
liabilities in_creased by P20,000. What was the owner's equity at the end of the
year? l'

b. At the beginning of the year, Cora Gabayan Calling Sta~ion had liabilities of Pl00,000
and owner's equity of P96,000. If assets increased by P40,000 and liabilities
decreased by P30,000, what was the owner's equity at the end of the year?

c. The liabilities of Lenore Loqueloque Company equal one-third of the total assets
and the owner's equity is P240,000. What is the amount of the liabilities? '

Required: Use the accounting equation to answer each of the questions above.
 3-44

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Basic Accounting

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The Accounting Equation and the 0 ou

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PROFESSOR:
ble Entry System 3-45

l
Problem#3A Problem#4
Income and Expenses Transaction Effects on the Basic Accounting Model
Profit L OE
A
Income Expenses Transaction .,,_
(Loss)
~

360,000
a. Bought equipment, paying cash. -- -
a. 840,000 ?·f, -' '.'1 •
540,000 --
2,400,000 ? l , ~ ~1 n ,i . t·, . . . b. Paid the monthly rent expense.
b. ? ·h ( . l
C.
d.
1,300,000
? .J..-
860,000
"X r'l '} 2,000,000
120,000
(400,000)
c. Purchased supplies on credit. -- -
? ',i \) ,:'fi: ) 1,800,000 + .•
e. d. Made an additional investment in the company.

• • • nt of performance. - -·-
Required: Supply the missing e 1eme e. Charged customers for services provided on account.

Problem#3B
f. Paid creditor on account. --
_,!..
' -
g. Received payment from customers on account. -
· . f p ooo and expenses of P237,000.
a. A small accounting firm has income o 325, · .
f Pl63,000 and profit of P42,000.
b.
·
An advertising agency has expenses o
f P153 ,000 and. loss of P27,S00.
h. Received cash for services rendered today. + _. ~ 'l
c. A computer-training outfit has expenses o
d. A medical practitioner has income of P737,000 and prof1tl of Plf6P82,000000. 0 i. Permanently reduced his investment in the business - -
, · by taking out cash.
e. An environment consultant has income of P362,000 and _oss o

Required: In each of the preceding five situations, determine the amount of the missing j. Paid salaries for the week. --
element of performance. k. Acquired equipment, paying 50% down, the balance I
t ,. . due in 30 days. --
1' '> I
i 'I
Required: \

For each transaction, indicate whether the assets (A), liabilities (L) or owner's equity
(OE) increased(+), decreased (-) or did not change (O) by placing the appropriate sign in
the appropriate column.

I
I •
 -
"h D ble EnC,Y sysre-m 3-47

~---~
3-46 l Sosic Accounting The Accounting Equati on and t t' au

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SCORE: l
~. SECTION: - SECTION:

Problem #5 Problem #6
Owner's Equity Transactions ·Transactions that Affect the Elements of Financial Statements

a. Decrease an asset and decrease owner's equity (use of assets event).

a. Received cash for rendering services. b. Increase a liability and decrease owner's equity (exchange of claims event).
c. Increase an asset and i ncrease owner's equity (source of assets event).
b. Withdrew cash for personal expenses. d. Decrease a liability and increase owner's equity (exchange of claims event).
mer who have been rendered service on
c. Received cash from a cu st
0
e. Increase an asset and decrease another asset (exchange of assets event).
account. f. Increase an asset and increase a liability (source of assets event).
Transferred personal assets to the business. g. Decrease an asset and decrease a liability (use of assets event).
d.
. for a business service vehicle.
I
e. Paid a service station for gaso me Required:
Performed a service and received a promise of payment.
f. Be able to give an example of a transaction for each of the above.

g. Paid cash to acquire equipment.

Paid cash to an employee for services rendered.
.- h.

Required:
Identify the foregoing transactions by identifying each as either one of the following: Problem#7
owner's investment (01), owner's withdrawal (OW), income (I), expense (E) or not an Classification of Events

owner's equity transaction {NO).

a. Received cash investment from the owner.

f
b. Paid cash on accounts payable.
c. Collected cash from accounts receivable.
d. Made cash distribution to the owner.
e. Paid cash for rent expense.
f. Invested cash in time deposit.
g. Purchased land with cash.

lr
I,
I
h.
i.
j.
Performed services for clients on account.
Incurred operating expenses on account.
Performed services for cash. I •

Required:

Indicate whether each of the above transactions is a source of assets (SA), use of assets
I (UA), exchange of assets (EA), or exchange of claims (EC) transaction.

'
 3-49.
3-48 I Basic Acrountlllg Th e Accounting Equation and the Double Entry SyS t em

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NA~M~E::___ _ _ _ _ _ _ _ _i!PROfESSOR: ___] ~NAME:
~ECTION: ~ECTION: PROFESSOR:

Problem #9
Problem#S
Classlflcatlon of Events as to Source, Use or Exchange of Assets
Transaction Analysis
by Asuncion Alcala to help working
d Transactions:
Toddlers Learning Center was reCe ntly forrne .
. , t· •
. the entity s accoun mg equation is
of each item in
mothers in Lucena City. The ba Iance . da s· a. Established a CPA fi rm with cash contribution from owner.
shown for April 8 and for each of th e business y · b. Received cash proceeds of loan from the Metro Bank.
Accounts Alea ~ c.- Purchased supplies with cash.
Accounts Payable Capital
Equipment d. Made plans to purchase office equipment.
Cash Receivable supplies
PS0,000
P40,000 · PBo,ooo e. Traded a used car for a computer system . Both assets had identical values.
P40,000 Pl0,000 40,000 220,000
Ap< . 8 P40,000 80,000 ,
40,000 10,000 40,000 220,000 f. Used supplies in the process of rendering services to customers.
10 130,000 150,000
40,000 10,000 60,000 220,000 g. Agreed to represent a cl ient in a BfR audit.
13 60,000 150,000
40,000 30,000 50,000 220,000 h. Received cash from customers who had received services.
15 60,000
, 16
17
50,000
70,000
40,000
20,000
30,000
30,000
30,000
1so;ooo
150,000
150,000
50,000
50,000
220,000
300,000
i.
j.
Paid employees' salaries with cash.
Repaid a bank loan with cash.
18 150,000 20,000 20,000 300,000
30;000 150,000 k. Transferred cash from its current account to a money market account.
19 120,000 20,000 20,000 300,000
150,000

l 23
25
110,000
30,000
20,000
20,000
40,000
40,000 150,000 20,000 220,000 I.
m.
Sold land for PG00,000 cash. The land originally cost PG·oo,ooo.
Distributed cash to the ow.ner.

Required: Required:
· I t nsact·10n took place on each day. . Briefly describe the Identify each of the above unrelated events as a sourc~, use or exchange of assets
Assume t h at a sing e ra . . .
transaction that most likely occurred on each day, beginning with April 10. Indicate transaction. Some events may not be recordable under current accounting practice. In
which accounts were increased or decreased and by what amounts. No revenue or this case, classify the events as not applicable (n/a). Also for each event, indicate
expense transactions occurred on these dates. whether total assets will increase, decrease or remain unchanged. The first event has
been recorded in the table as an example.

Type of Event Effect on Total Assets

a.
b.
Source of Assets Increase :\
l
C. d
d.
e.
l
f.
g.
h.
i.
j.
k:
I.
m.
 3-50 I Basic Accounting The Accounting Equation ond the Double Entry System 3-51

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SECTl~N:
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~ROFESSOR: 3 I NAME:
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IPROFESSOR:
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Problem#lO Problem #11

Effects of Transactions Financial Transaction works heet

The following selected transactions were completed by Roberto Orcajada D I' shopassets,
The liabilities and
are expressed . of Deogracia Corpuz who operates a repair
. ow ner's equity
Service during July 2014: e ivery transactions: in equation form below. Corpuz completed the following

i 1' r. I
~-
- -,-
_ (1_
1.
cash received from delivery services, P92,700.
2. Paid creditors on account, P20,000.
Assets
Liabilities

Accounts +
OE

Corpuz,
Received cash from owner as additional investment, PG00,000, Cash +Supplies+ Land
__c_ 3. Payable Capital

4. Paid advertising expense, PS,000-

lit
C

Billed customers for delivery services on account, PSS,200. 1. Organized a repair shop
f .l ' s.
Purchased supplies for cash, PG,000.
and ~eposited PS00,000
"· 6. cash m the bank for use
----- Paid rent for July, P20,000. by the business.
il.;.
• I •
---
7.
Received cash from customers on account, P25,440.
8. 2. Purchased P20,000 ~f
l Determine~ that the cost of supplies on hand was Pl,440 so
9. supplies on account. (2)
~ P4,560 of supplies were used during the month.
_ L_ _ Bal.
10. Owner withdrew cash for personal use, P20,000. 3. Purchased land for future

I
repair site for P140,000
. transaction on the space provided:
I nd",cate th e effects of each cash . (3) l'
1 '
\ 'r'\ ·· ··. )) )
Bal.
4. Paid PlS,000 to creditors. (4) i ·,
a. Increase an asset, decrease another asset. Bal. I

b. Increase an asset, increase a liability. 5. Withdrew P25,000 for

c. Increase an asset, increase owner's equity. (S)
personal use.
' .,
I),

d. Decrease an asset, decrease a liability. Bal.

e. Decrease an asset, decrease owner's equity. 6. Paid P28, 000 for site and
equipment rent fo.r the
(6) ),
month. i l

l
Bal.
7. During the month
Pl0,000 expenses' were
(7)
incurred on account by
the business. ,
Bal. I

8· During the month, Corpuz

Invested another
PlOo;ooo of personal

~~::============\~=
funds in the business. (8) I •

9. Received PS,000 for a Bal. I

cash service call. (9)
Bal.
l0. Corpuz used P6,000 worth
of supplies.
 ~3~-5~2;Jl~8~os:1~·c~A~cc~o:un:r:in~g---------~----•iliili.&lliiiiiiiiiiiii;iii;;;;;~
Required:
On each of the numbered lines,
.
transactions on the equation. or e
.
show
F
by a
I
ach transac
t
)
'
i on
,
w
· th effect of eac h of th
dd"tlon or subtraction e
identify the changes in own e
(withdrawal), or INV (investrne
er's
[NAME:
. SECTION:
SCORE:
t
The Accounting Equation and the Double Entry SyS em

IPROFESSOR:
3-53

I
. me) E (expense , · nt)
equity by placing the letter I (mco ' . wner's equity. on the lines labeled "Ba ,, Problem#13
at the right of each increase or decrease I~ o f m the transaction. I. Recording Transactions in a Financial Transaction Worksheet
(i.e. Balance) show the new equation resulting ro .
Nelson Daganta formed the Liceo Sign Company on Oct. 1, 2014. . He de~osited
th
P250,000 in GE Money Bank under the name of the new business entity. During e
month of October 2014, the following transactions occurred:

Problem#l2 Oct. 2 Acquired a service vehicle in the amount of P195,000 on account.

Transactions in a Completed Worksheet 3 Acquired supplies for cash, P57,000.
9 Received P87,S00 cash for signs painted.
Nine transactions are reflected in t~e October transaction worksheet of the Teresita
J 10 Paid the month's rent, P25,000.

l
Galang Company presented below: 11 'Painted signs for Cagayan Company on account, P170,000.
12 Paid PSS,000 on account from Oct. 2.
Teresita Galang Company
16 Withdrew P25,000 for personal use.
Financial Transaction Worksheet
23 Collected P35,000 from Cagayan Company.
Month of October 2014
27 Paid salaries of PS7,000 for the month.
l + OE 30 Paid BayanTel P7,500 for communication services for the month.
A
'31 . Paid a bill from AdAsia for PS,500 of advertising for the month.

I
Office Accounts + Galang,
I Cash + Accounts
Receivable
+ Supplies +
Equipment Payable Capital
I ,l ' Required:
P 4,500 P 153,000 P 60,000 P 130,000
Bal. P 15,000 P 17,500
(7,000)
Establish the following accounts 'in a financial transaction worksheet: cash; Accounts
1 7,000
(5,000) 5,000. R~ceivable; Supplies; Service Vehicle; Accounts Payable; and Daganta, Capital. Record in
2
25,000 25,000 the worksheet the transactions listed above . . I
3 24,500 I
4 24,500 'I
16,000 (16,000)
5
6 (6,500) - (6,500)
'It
7 3,700 3,700
(2,500) (2,500)
8
9 (5,000) (5,000)
P 3,000 + P 35,000 + P 13,200 + P 178,000 P 98,200 + P 131,000
P 229,200 P 229,200

II
I' Required:

i, 1. Descr'.be each of_the above transactions. The last transaction is the only transaction
affecting the capital account that does not affect profit. .

2. What was the change in the Cash account for the month? In Galang, Capital?
 ble Entry System 3-55
3-54 I BosicAccoundng The Accounting Equation ond the 0 ou

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NAME: I SCORE:
PROFESSOR:

Problem #14 action worksheet Problem #15

Recording Transactions In a Finandal Trans Recording Transactions In a Financial Transaction Worksheet
M D established the Calaguas Sports Rehab . t I store cavite Video, by
. . . . ' h f
On March 1, 2014, Theodore cal~guaS, · -~h of March are as follows: On Dec. 1, 2014, Lud1v1nia Victorino opened a videotape ren a the mont 0
ainic. Transactions completed dunng th e mon investing P250,000 cash from her personal savings account. During
. b k account in the name of the business. December, the following transactions took place:
a. calaguas deposited P2S0,000 in a an
b. Paid rent for the month, Pll,000- Pll 700 Dec. ·1 Acquired supplies on account, P67,000.
. t from Shaw Company, •· · Acquired videotapes costing P235,000, on account.
c. Bought supplies on acco~n from Rizal company, PSB,000. 4
d. Bought professional equipment on accoun~arikina Company, PB,640. 5 Paid PSS,000 to creditors.
e. Bought office equipment on account from 8 Received P78,000 cash from ACA Video for rental fees.
f. Performed professional services for cash, P48,200. P18 500 11 Billed Video City for video rentals, PlOS,000.
g. Settled a portion of the accounts with Rizal Company, ' · 16 Paid salaries, P65,000.
h. Received and paid the bill for utilities, P3,820. 17 Collected P77,000 from Video City.

t i.
j.
k.
Paid salaries of assistants, Pll,500.
Rendered professional services for cash, P38,000.
Calaguas withdrew cash for personal use, P16,000.
23
24
30
Victorino withdrew P47,000 from the business.
Paid rent for the month, P41,SOO.
Paid utilities bill for the month, Pl7,SOO.

Required:
Required:
Record the transactions for the month of December 2014 using a financial transaction
Record the transactions for the month of March 2014 using a financial transaction
worksheet. Use the following accounts: Cash; Accounts Receivable; Supplies;
worksheet. Use the following accounts: Cash; Accounts Receivable; Supplies; Office
Videotapes; Accounts Payable; and Victorino, C:apital.
Equipment; Professional Equipment; Accounts Payable and Calaguas, Capital. If the
owner's equity account is affected by a transaction, identify it as revenue, expense,
investment or withdrawal.

l
. I
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ffi''L /1
11
I
3-56 I Basic Accounrinf} The Accounting Equation and the Double Ent ry s-ystem I 3-57

Problem 116 T nsactton Worksheet Problem #17

1 Recording Transactions in a Financial Transaction Worksheet
Recording Transactions in a Flnancla ra
. e on Apr. 1, 2014. During April,
• 1 Spray serv1c
Ruth Russell started Russell lnduSt na . ns· · · Engracio Lucinada, Attorney-at-Law, opened his office on Sept. 1, 2014. The following
Russell completed the following transactio · transactions were completed during the month:

a. Invested cash in the business, P60,000, for P112 500, paying P22,S00 in a. Deposited P210,000 in the bank in the name of the business.

I
. coo Motors ' Bought office equipment on account from Daraga Company, P147,000-
b. Bought a service veh1de from b.
th c. Invested his personal law library into the business, P57,000.
cash, with the remainder due in irtvr::sMisamis company, P18,000.
C. Bought spray equipment on account f d. Paid office rent for the month, P7,600.
'I d. Paid rent for the month, PS, ~ ·
6 hide for the year, PS, 760. e. Bought office supplies for cash, PS,850.·
Paid the premium for a one-year fire insurance policy on the equipment
~
a building, P21, 750. f.
e. Paid cash for insurance on s~rvice ve
f. Received cash for spray services done on · and the library, Pl,860.
rformed P4,440. g. Received professional fees for services ren9ered, P24,600.
g. Bought supplies for cash, PS,730. .
Received and paid bill for the use of a landline, P2,280.

'
. ' h.
h. Billed customers on account for services pe
P3,270. i. Paid salaries of two part-time legal researchers, P9,600.
i. Paid cash for utilities, P960.
th
. 1 during the month,
h"cle
j. Paid car rental expense, P2,880.
j. Received bill for gasoline used by e service ve
k. Received professional fees for services rendered, P21,200.
k. Receipts from cash customers, P16,420. ·
I. Paid Daraga Company a portion of the amount owed for the acquisition of
I. Russell withdrew cash for personal use, Pl0,500.
the office equipment recorded earlier, PlS,000.
m. Paid salaries to employees, P2Q,400.
m. Lucinada withdrew cash for personal use, P20,750.
Required:
Required :
Record the transactions for the month of April 2014 using a financial .transaction
worksheet. use the following accounts: Cash\ Accounts .Receivable; Supplies; Prepaid Record the transactions for the month of September 2014 usin~ a financi a1 transact!on
Insurance; Spray Equipment; Service Vehicle; Accounts Payable; and Russell, Capital. If worksheet. Use the following accounts: Cash; Accounts Receivable; Office Supplies;
the owner's equity account is affected by a transaction, identify it as revenue, expense, Prepaid Insurance; Office Equipment; Professional Library; Accounts Payable; and
investment or withdrawal. Luci'!ada, Capital. If the owner's equity account is affected by a transaction, identify it
as revenue, expense, investment or withdrawal.
 59
3-58 I eas1t/.ccour.tmq The Accounting Equation and the Double Errtry System I 3-

tNAME·
SECTl~N:
ISCORE:
PROFESSOR:
j
Problem#19
Problem Ill . · worksheel
Recordil11 T r i ~ in a fjnanCial y,ansacuon Recording Transactions in a Financial Transaction Wort<sheet
. . 1ocato< business near a college cam_pus. She is
ed !)onTlitorv Locators. During the first On July 1, 2014, Ma. Concepcion Manalo established the Manalo Rehab dinic.
Stephanie (alamba apened a ~~ory
the owner of the pl'opnetorship which
stie nam d . the following transactions: Transactions completed during the month of July follow:
month of operations, July 2014, Calamba engage '" a. Manalo deposited PlS0,000 in a bank account in the name of the business.
funds to start the business. b. Paid office rent for the month, Pll,000.
1
a. Calamba ino,ested P450,000 of persona .
office supplies costing P3,500• c. Bought supplies for cash, P2,750.
b. Purchased on account . of lot near an access road to a d. Bought professional equipment on account from J. Perez Equipment Company,
. P300 000 cash to acquire a parce1
c. Calamba paid , h d as a future site for her own P142,000.
· college campus. She intends to use t e an
I
e. Bought office equipment from s. Lacorte Computers, PlS,700, paying PS,700 in cash
boutique d<)rmito(y. d it ryowners She and the balance on account.
d. ealamba pre-qualified and signed-up d ients for orm o .
f. Performed professional services for cash, P32,800.
received cash of P19,000. · (b) g. Paid accounts to S. Lacorte{:omputers, PS,000.
e. Paid Pl,000 on the account payable she created in transaction .
h. Received and paid the bill for utilities, P2,830.
f. Paid PZ0,000 of personal funds for a vacation. i. Paid salaries of the part-time assistants, Pl0,000.
g..Paid for office rent, P4,000 and for utilities, Pl,000. j. Performed professional services for cash, P37,250.
h. Sold some office supplies to another busin~s at cost, Pl,500.
k. Manalo withdrew cash for personal use, P16,000.
i. Wrth«ew PU,000 for personal use.
Required : I?
Required:
Record the transactions for the month of July 2014 using a financial transaction
1. Record the transactions using a financial transaction worksheet. worksheet. Use the following accounts: Cash; Accounts Receivable; Professional
Equipment; Office Equipment; Accounts Payable; and Manalo, Capital. If the owner's
2. After. studying Qiapter 6, be able to prepare the income statement, statement of equity account is affected by a transaction, identify it as revenue, expense, investment
changes in equity and statement of financial position for this problem. or withdrawal.

I
 3
3-60 I 8asic" ~ Th~ Accounring Equari on and th~ Ooubl~ Entry Syst~m I -Gl

-NAME:-
. -.- -------~-:-----3 tNAME: ISCORE: j
ISECTION: ~ECTION: PROFESSOR:

Problem 120 . . wortsheet Problem#21

Recorciq TransactionS in a finanCial yran,sacti0'1 Recording Transactions in a Financial Transaction Worksheet
. a billiards recreation business, Balls and
Dec. 1 2014 lavel.l Abello ventured into . -~· On Mar. 1, 2014, Froilan Labausa established Labausa Catering Service. Transactions
On , ' ctions occun=-•
Stidcs.. During the month, the following transa . completed during the month are as follows:
·tin P200 000 cash in a
Abello began the business by deposi . g ' a. Labausa deposited P165,000 in a bank account in the name of the business.
Dec.1 f the business.
bank account in the name 0 b. Bought a service vehicle from Elpidio Motors for P194,900, paying PZS,000 in cash
. . . . hall at a price of P210,000 for the and placing the balance on account.
3 Purchased an existing billia rd _ . A.bello paid the former c. Bought catering equipment on account from Quirino Company, PZB,500.
d P300 000 for the building.
land an , . d h rt-term notes payable d. Paid rent for the month, PG,200.
owner Pl00,000 in cash and issue . a s o . e. Rendered catering services for cash for the first half of the month, P24,200.
for the balance of the purchase pnce. f. Bought supplies for cash, Pl,800.
ach paying P60,000 cash
10 Bought 10 billiard tables for PlO,000 e ' g. Bought insurance for the service vehicle for one year, P4,000.
and agreeing to pay the balance in 30 days. h. Received and paid the utilities bill, PG,040.
l0 000 The entity was i. Received a bill from Manila Gas for gas and oil used by the service vehicle for the
14 Sold a billiard table to the owner for P ' · month, PG,080. ·
paid PS,000 cash and the balance within 30 days.
j. Rendered catering services on account, P28,240.
Paid P20,000 of the amount owed on the billiard tables. k. Performed catering services for cash for the remainder of the month, PZS,200.
20
I. Paid sa.laries of the part-time assistants, Pll,200.
24
30
Collected P2,000 on the billiard table sold.
Purchased one used billiard table from another billiard hall,
m. Labausa withdrew cash for personal use, PlS,500.

Re.quired:
'
paying P6,000 cash.
Record the transactions for the month of March 2014 using a financial transaction
Required: worksheet. Use the following accounts: Cash; Accounts Receivable; Prepaid Insurance;
Record the transactions for the month of December 2014 using a financial transaction Service Vehicle; Equipment; Accounts Payable; and Labausa, Capital. If the owner's
worksheet. Indicate the new account balances after each transaction. Use the equity account is affected by a transaction, identify it as revenue, expense, investment
following accounts: Cash; Accounts Receivable; Land; Building; Billiard Tables; Notes or withdrawal.
Payable; Accounts Payable; and Abello, capital.
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 3
3-62 I Basic Accounting The Accounting Equotion ond the Double Entry System I 3-6

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Problem#22 Problem #23
Recording Transactions in a Finandal Transaction Worksheet Transaction Analysis
Appraisals. He inspects prope Transactions:
rty
Joel Feliciano has started his own business, Prope d h rty
for buyers and sellers of real estate. Feliciano rents office space an as _a part-tirne a. Re~eived P260,000 cash from clients for services rendered.
assistant to answer the phone and to help with inspections. The transactions for the b. Paid P480,000 of salaries to employees.
month of September are as follows: c. Collected Pl20,000 from clients on account.
th d. The owner, Winston Apalisoc, withdrew PS0,000 cash for personal use.
a. Feliciano invested cash by making a deposit in a bank account for e

t
e. Purchased Pl40,000 of supplies on account.
business, PlS0,000. f. Billed clients PlS0,000 for services rendered.
b. Paid rent for the month, P3,000. g. Paid Pl00,000 to suppliers on account.
c. Bought a second-hand service vehicle for cash, PS0,000- For each of the transactions for Winston Apalisoc Company, a sole proprietorship, fill in
d. Bought service tools on account, P30,000. the spaces to answer the following questions: ·
e. Paid electricity bill, PSOO.

r f.
g.
Paid a one-year insurance premium on the service vehicle, PG,000.
Received cash from clients for service performed, P20,000.
1. What are the two accounts affected by the transaction?
2. What type of-account is affected-a~set, liability, owner's capital, owner's

I h. Paid salaries to assistant for first half of the month, P2,000. withdrawal, income or expense account?
i. Performed appraisal services for clients on account, Pl0,000. 3. Should the account be increased or decreased?
4. Should the account be debited or credited?
j . Paid water bill, P350.
k. Bought office supplies for cash, Pl,000. Increase or Debit or
Accounts Type of
I. Received cash from clients for inspections performed on account in (i), Decrease Credit
Trans. Affected Account
P3,000. a. 1.
m. Paid salaries to assistant for last half of the month, P2,500.
2.
n. Made partial payment on service tools bought in (d), Pl0,000.
b. 1.
o. Additional revenues earned amounted to P20,000: P14,000 for cash and
2.
P6,000 on account.
c. 1.
p. Feliciano withdrew cash for personal expenses, PS,000.
2.
Required: d. 1.
2.
1. Establish the following accounts in a financial transaction worksheet: .
e. 1.
Cash Accounts Payable 2.
Accounts Receivable Feliciano, Capital f. 1.
Office Supplies Feliciano, Withdrawals_ 2.
Prepaid Insurance Revenues g. 1.
Service Tools Expenses
2.
Service Vehicle

2. Compute the ending balances for all accounts.

 :i_t:c,==========:-;,;=~;;;;;;
~ I Basic Accounting

;;~-
= ========-~p.s~co~R~E~:;oR:-======-i - ~ ..., I st
Th e Accounting Equation and the Double Entry 5Y em I
3 65
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Problem#24
Problem #25
Recording Transactions in T-Accounts
Recording Transactions in T-Accounts
The transactions and accounts
Remedios Palaganas, is an experienced event~ planner. .
The accounts and transactions •
of Evelyn Tna, Systems Consu 1tan t , ar e shown below:
for the business are as follows:
a. Invested PlS0,000 in cash to start the business.
a. Invested Pl00,000 in cash to start her own business.
b. Paid P7,500 for one month's rent.
b. Paid PS,000 for one month's rent.
c. Bought office furniture for P26,000 in cash.
c. Bought office furniture for PlS,000 in cash. 0 Paid 50% down, d. Performed services for Pl0,500 in cash:
d. Received delivery of laptop computer, P54,00 · .
·, e. Performed services for P12, 750 ori credit.
· w
I ,, e.
balance due in 30 days.
Performed services for P12,000 in cash. .
f.
. I
Bought a desktop computer for PSS,000; paid 50% down, ba ance in
days.

t
f. Performed services for Pl0,800 on credit. . g. Acquired a personal copier for P39,500 on credit; paid P9,500 cash,
g. Acquired a fax machine for P7,500; paid P3 ,ooo in cash, balance due in balance due in 30 days.

r
10 days. , h. Received P7,000 from credit clients.
h. Received PS,400 from clients on account. i. Bought additional office chairs for PS,000 on credit.
i. Paid Pl0,000 for salaries. j. lss4ed a check for P32,500 to pay for salaries.
j. Settled in full the P4,SOO balance for the fax machine. k. Performed services for Pl0,250 in cash .
k. Received P7,000 in cash for services performed. ' I. Performed services for Pll,500 on credit.
I. Performed services for Pl2,000 on credit. m. Collected PG,000 on accounts receivable .
m. Paid Pl,350 for the monthly telephone bill. n. Issued a check for P4,000 in partial payment of the amount owed for
n. Paid P2,400 for the electric and water bills. office chairs.
o. Collected P2,000 from clients on account. o. Paid P2,250 for the monthly telephone bill.
p. Palaganas withdrew P7,000 in cash for per$onal expenses. p. Paid P2,500 for the monthly electric bill.
q. Tria withdrew PlO,O?O in cash for. personal expenses.
Required:
Required:
1. With the aid of T-accounts, record the transactions listed abbve. Use the following
accounts: Cash; Accounts Receivable; Office Furniture; Office Equipment; Accounts 1., With the aid of T-accounts, record the transactions listed above. Use the following
Payable; Palaganas, Capital; Palaganas, Withdrawals; ConsuJting Revenues; Salaries accounts: Cash; Accounts Receivable; Office Furniture; Office Equipment; Accounts
Expense; Rent Expense; Utilities Expense and Miscellaneous Expense. Payable; Tria, Capital; Tria, Withdrawals; Consulting Revenues; Salaries Expense;
Rent Expense; Utilities Expense and Miscellaneous Expense.
2. Determine the balances of the T-accounts.
2. Determine the balances of the T-accounts.

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 I
3-66 I Basic Accounting

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Th e Account ir1g Equation ond the Double Entry SY5 e

I
l 3-67

j
Problem#26
problem #27
Recon:linc Transactions in T-Accounts
Identification of Errors
. h p f ssional Shoppers. The business
' ' Rebecca Miranda established a proprietorship, T e ro e su art a cost-effectiv . · g the month, the
charges a fee based on the amount of research done t O PP . h h h e On Sept. 1, 2014, Helenita Ruiz established Ruiz Delivery Service. 0 unn
. • · ed Miranda wit t e e IP of her company had the following transactions :
purchase decision and the actual shopping time requir · .
" professional shoppers• will shop for almost anything from corporate giveaways,
a. Helenita Ruiz invested P240,000 in the business (increase Cash; increase Ruiz,
computers to office and home furnishings.
Capital).
Business is particularly heavy around Chrlstmas and in early summ~r- The bu~in~ss b. Bought two used delivery vans from The Van Lot for P200,000 and paid PSO,i: ~ ;
operates from a rented office condominium unit. The shoppers r~ceive a commission down payment (increase Delivery Equipment, P200,000; decrease Cash, ' ;
based on the revenues they produce and a transportation allowance for the use of their
increase Accounts Payable, PlS0,000).
personal vehides for shopping trips. The following transactions are for December 2014:
c. Received P25,000 in cash for delivery services (increase Cash; increase Delivery
a. Miranda invested P300,000 in the business. Revenues) .
b. Acquired office equipment for Pl00,000. Miranda paid P20,000 in cash and promised d. Received bill from Bicol News for advertising, P3,500 (increase Advertising Expense;
to pay the balance equally every end of the month. decrease Cash).
c. Paid rent for December, PS,000.
d. Provided shopping services for corporate accounts, P52,000. e. Billed Naga Surgical Supply for delivery services provided, PG,200 (increase Accounts
e. Paid telephone bill, P900. Receivable; increase Delivery Revenues) .
f. Borrowed cash from the bank by signing a note payable, PS0,000. f. Received and paid telephone bill, Pl,000 (decrease Cash; decrease Telephone
g. Bought a computer for office use, P48,000 cash. Expense).
h. Collected cash from clients for services performed on account, P40,000.
i. Paid commissions to shoppers for revenues generated during the first half of the
month, PlS,200.
g. Ruiz invested in his business office eq·u ipment having a fair market value of P9,600
(increase Office Equipment; decrease Cash).
./,
j. Paid electricity bill, P6,000. h. Received and paid bill for gas and oil, Pl,500 (decrease Cash; increase Maintenance
k. Earned shopping revenues of Pl32,000: PG0,000 cash, P72,000 on account. Expense).
I. Paid shoppers' commissions for last half of month, P46,200:
i.

\
m. Paid transportation allowances for the month, PlS,000. · Paid P3,500 to Bicol News to pay account in full (increase Advertising Expense;
n. Paid Pl0,000 on note payable to bank. increase Cash).
o. Paid cash on account for the office equipment purchased in transaction (b), P20;000. j. Received P29,000 cash for delivery services performed (increase Cash; increase
p. Miranda withdrew PZ0,000 for personal use.
Delivery Revenues).

Required :
k.
I.
Ruiz withdrew Pll,000 for personal use (decrease Cash; increase Salaries Expense).
Received P4,000 from Naga Su rgical Supply to apply on account (increase Cash;
increase Delivery Revenues) .
l
1. Record the transactions using T-accounts. Use the accounting equation as a guide
for setting up the T-accounts. The following accounts will be needed: Cash; m . Paid salaries to part-time employee, PS,000 (increase Salaries Expense; decrease
Accounts Receivable; Office Equipment; Notes Payable; Accounts Payable; Miranda, Cash).
Capital; · Miranda, Withdrawals; Shopping Revenues; Commissions Expense;
Transportation Expense; Rent Expense and Utilities Expense. Required:

2. Determine the balances of the T-accounts.

Find six errors that were made in recording the transactions, and state how they should
have been recorded .
3-68 I Bos,c .Accounting

Notes:

BASIC ACCOUNTl1'4G

4 Recording Business Transactions

Learning Objectives:

After studying this chapter, you should be able to:

1. List and explain in brief the sequential steps in the accounting cycle.
2. Identify the general journal as the book of original entry.
3. Detail the standard contents of the general journal.
4. Outlir:ie the steps in analyzing transactions and state the role of source
documents.
5. Analyze the impact of transactions on the elements and the specific
accounts.
6. Apply the rules of debits and credits in 'analyzing business transactions.
7. Journalize transactions in proper form . I
8.
9.
Describe a general ledger and understand what purpose it serves.
Post entries from the general journal to the general ledger.
I
10. Distinguish between permanent and temporary accounts. I
11. Develop a chart of accounts.
12. Prepare and explain the use of a trial balance.
13. Perform steps in locating and correcting errors.
4-2 I Basic Accounting
.
Weather or not! The moral of the f~ll~v:'ing
st0 rv is
technology gathering dust and exploit it 1n a good way..
when he bought a business that supplied advisory services
z...
. to look for a potentially prosperous
That's what ~~ederic Fox, 34, did
to large corporations.
-
bank statements, checks, purchase orders, time cards and statements of account.
specimens and discussions on som e of these documents will be in Chapter 8.
. s I 4-3
Recording Bqslness Tronso ct,on

. weather services (SWS) Inc., Fox ACCOUNTING CYCLE

After renaming the acquired company as St rategic f casts weather 12 months i
th
expanded his core business-patented technology at o~e ss techniques to predi ct n The accounting cycle refers to a series of sequential steps or procedures performed to
advance in North America a~d Europe, and analyze\~~;1;;99· sales of US$13.0 mi\lio~ accomplish the accounting process. The steps in the cycle and their aims follow :
company's success. Today, his 90-employee fir'.'1 proJ d ufacturers plan sales based
from its three divisions. One division hel~~ ~etailers an til~a~ompanies plan operations Step 1 Identification of Events to be Recorded
on long-range weather data . Another d1v1s1on helps u ty
Launched late last year, the third division offers .'°.
nsumers the popui .
. g via a web site.
ar l
During the
Aim : To gather information about transactions or events
generally through the source documents.
WeatherPlanner, the long-range weather f orecast in Step 2 Transactions are Recorded in the Journal
accounting
t would prosper. He seriou sly period Aim : To .record the economic impact of transactions on the
Fox did not know if the WeatherPlanner concep •t •

1Step3
1 19 93 firm in a journal, which is a form that facil itates transfer to
considered starting the business only after consulting SWS meteorohogishs in to
• f Or Fox to ensure t at t e1r wedding the accounts.
plan his wedding. His fiancee's requirement was h' h d .
would be free from rain. It was rain-free. in 1994, WeatherPlanner _it t e raw1ng Journal Entries are Posted to the Ledger
Aim: To transfer the information from the journal to the
board. Adopted from: Business Start-Ups, April 1999.
ledger for classification.
Fox provides p~ople with valuable information-weath~r forecaS t s t_welve months i_ n Step4 Preparation of a Trial Balance
advance in North America and Europe. His weather services help buSinesses plan their Aim: To provide a listing to verify the equality of debits and ' fi
operations. Fox is using data to study the weather cycle in that pa~ of the world . In credits in the ledger.
Step S Preparation of the Worksheet including Adjusting Entries I
parallelism, entities also have their own "weather'' cycle-the accounting cycle.

TRANSACTION ANALYSIS (Step 1)

Step 6
Aim : To aid in the preparation of financial statements.
Preparation of the Financial Statements )
The analysis of transactions should follow these four basic steps:
At the end
Aim : To provide useful information to decision-makers. I
of the Step 7 · Adjusting Journal Entries are Journalized and Posted
1. Identify the transaction from source documents. accounting Aim : To record the accruals, expiration of deferrals,
period estimations and other events from the worksheet.
2. Indicate the accounts-either assets, liabilities, equity, income or expenses-

'I
affected by the transaction. Step 8 Closing Journal En~ries ·are Journalized and Posted
3. Ascertain whether each account is increased or decreased by the transaction. Aim : To close temporary accounts and transfer profit to
4. Using the rules of debit and credit, determine whether to debit or credit the owner's equity.
account to record its increase or decrease. · Step 9 Preparation of a Post-Closing Trial Balance
Aim: To check the equality of debits and credits after the
SOURCE DOCUMENTS closing entries.
At the start Step 10 Reversing Journal Entries are Journalized and Posted
Transactions and events are the starting points in the accounting cycle. By relying on of the next
period
Aim : To simplify the recording of certain regular transactions
source documents, transactions and events can be analyzed as to how they will affect in the next accounting period.
performance and financial position. Source documents identify and describe
transactions and events entering the accounting process. These original written
This cycle is repe~ted each_accounting period. The first three steps in the accounting
evidences contain information about the nature and the amounts of the transactions. cycle are accomplished. during the period . The fourth to the ninth steps genera IIy occur
These are the bases for the journal entries; some of the more common source .
at the end of the period. The last step is optional and occurs at th b • • f h
documents are sales invoices, cash register tapes, official receipts, bank deposit slips, next period. . e egmnmg o t e
4-4 I Basic Accounting

• . t four steps. The fifth and sixth steps

The discussion in this chapter will focus on th e firs . Chapter 7. Refer to the following
in Chapters 5 and 6 while the rest will be taken up in
-
fl'FIE JOURNAL
. s
Recording Business Tronsac t ,on I

The Journal is a chronological record of the entity's transactions . A Lournal entry sho_w s
4-5

diagram for steps 2, 3 and 4.
The General Journal
(the book of original ent'!)
Office Equipment xx
Cash xx
Accounts Payable xx
• . -~ ct1on
all the effects of a bus1 M2s tran saction in terms of debits and credits. Each transa
Uitlally recorded in a jo~ I rat her than directly in th~ led ~ournal is calle~ the
book of original entry. The nature and volume of transactions of the business
determine the number and type of journals needed . The general journal is the sim ple st
Journal. -
:-=--
ll the effects of a transaction
Sh ows a d' Format
in terms of debits and ere its.
.The standard contents of the general journal are as follows:
·1. Date. The year and month are not rewritten for every entry unless the year or
month changes or a new page is needed.

~ing _ 2. Account Titles and Explanation. The account to be debited is entered at th e

extreme left of the first line while the account to be credited is entered slightly
Transferring the amounts indented on the next line. A brief description of the transaction is usually made
from the general journal to on the line below the credit. Generally, skip a line after each ~ntry.
appropriate accounts in the
3. · P. R. (e.qili11g.ref.e rencg ). This will be used when the entries are posted, that is,
ledger.
until the amounts are transferred to the related ledger accounts. The posting
process will be described later.
4. Debit. The debit amount for each account is entered in this column .
A grouping of accounts.
Used to classify and 5. Credit. The credit amount for each account is entered in this column.
summarize transactions Accounts Payable
and to prepare data for Assume that Elisa Diaz established her own wedding consultancy with an initial
basic financial investment of P250,000 on May 1.
statements.
The journal entry is shown below:

Journal page 1

Date Account Titles and Explanation P.R. Debit Credit

j 1
2014

-----•
2 May 1 Cash 250,000
3 Diaz, Capital
Listing of all ledger accounts, in Trial Balanc;e 4
250,000
order, wfth their respective -----.--· Initial investment.
. Assets 5
debit or credit balances.
Liabilities
Owner's Equity Simple and Compound Entry
Revenues
In a simgle e~trv, onl y two accounts are affected-o ne account is d e bited and the-othe.r
Expens~s account credited. An example of this is the entry to record th · ·t · I •
~H -· ·
1az. owever, some transactions require the use of more th e t m1 1a investment of ·
· an wo accounts. When
 4-6

~
I Basic Account ing

th~r!e:;e~o~r~ m~o~re~ a!£CC~o~u~n~t~

co_rnpound entry .
......
s ~a~re~ re~Q
.
z:....
. rnal entr , the entry is referred to as a
~l~11r~e~d~l~n~a'!..!.:
JO :;U:;..:c.:c..---
- Recording Business Transactions I 4--?

Rent Paid In Advance (Exchange of Assets)

JRANSACTIONS ARE JOURNALIZED (Step 2)
May 1 Rented office space and paid two months' rent in advance,
. ·ri d and measured, it is recorded In the PS,000.
After the transaction or event has been ide~ti 1_e called J.Q!!!:!l!!Wng. The following are
journal. The Rrocess of recordi Q2-. a tran sactiol1 is th of May. The double-e t
the transactions for Weddings "RH Us during the man Analysis Asse~s increased. Assets decreased .
n ry
Rules Increases in assets are recorded by debits. Decreases in assets
system will be used.
are recorded by credits. _
To understand the nature of the affected accounts, the let~er A (for a:set), ~?~b~ity) or Entry Increase in assets is recorded by a debit to prepaid rent.
OE (owner's equity) is inserted after each entry. In addition, owne s equi Y is urther Decrease in assets is recorded by a credit to cash.
classified into OE:I (income) and OE:E (expenses).
Dr. Cr.
Note that the rules of doubie--entry system are observed in each transaction : Prepaid Rent (A) 8,000
Cash (A) 8,000
1. Two or mo·re accounts are affected by each transaction. .
2. The sum of the debits for every transaction equals the sum of the credits.
3. The equali~ of the accounting equation is always maintained.
Note Issued for Cash (Source of Assets)
May 2 Elisa Diaz issued a promissory note for a P210,000 loan from
Metrobank. This availment will be used for the acquisition of a
Initial Investment (Source of Assets) service vehicle. The note carries a 20% interest per annum. The
Elisa Diaz is a social entrepreneur from the South. She is into a lot arrangement with the bank is that both the interest and the
May 1 principal are payable in full in one year.
of interesting causes. Her fine taste is preeminent such that she
is considered an authority in planning weddings. Upon the advice
Analysis Assets increased. Liabilities increased.
and prodding of an esteemed colleague, Maria Concepcion
Rules Increases in assets are recorded by debits. Increases in liabilities
Manalo, Diaz decided to organize her wedding consultancy. She
are recorded by credits.
invested P250,000 into this entity.
Entry Increase in assets is recorded by a debit to cash . Increase in
liabilities is recorded by a credit to notes payable.
Analysis Assets increased. Owner's equity increased.
Rules Increases in assets are recorded by debits. increases in owner's
Dr. Cr.
equity are recorded by credits.
j, : Entry Increase in assets is recorded by a debit to cash. Increase in Cash (A) 210,000
II
//
II owner's eq_uity is recorded by a credit to Diaz, Capital. Notes Payable (L) 210,000

Dr. Cr.
May2 Hired an office assistant and an account executive each with a
Cash (A) 250,000 P7,800 monthly salary. Or, each is to receive P300 per d
Diaz, Capital (OE) ay f orthe
250,000 26-day work month. No entry is necessary at this p . t Th
started work immediately. om · ey
 4-8 I Basic Accounting

Service Vehicle Acquired for Cash (Exchang

e of Assets)
- Entry
Recording Business Tronsoc

Increase in assets is recorded by a debit to office equipment. .

fnsl4-9

Decrease in assets is recorded by a credit to cash. Increase in

10

. I for P420,000. liabilities is recorded.by a credit to accounts payable.

May 4 Acquired service ve hice
Dr. Cr.
A ts decreased. .
Analysis Assets increased. sse d b debits. Decreases by credits.
rd Office Equipment (A) 60,000
Rules Increases in assets are reco e Yd bit to service vehicle. 15,000
Cash (A)
Entry Increase in assets is r~co rdeddb:daby: c;edit to cash. 45,000
Decrease in assets is recor Accounts Payable (L)

Dr. Cr.
420,000 supplies Purchased on Account (Source of Assets)
Service Vehicle (A) 420,000 Mays Purchased supplies on credit for PlS,000 from San Jose
Cash (A) Merchandising.

Analysis _Assets increased. Liabilities increased.

Insurance Premiums Paid (Exchange of Assets) Rules Increases in assets are recorded by debits. Increases in liabilities
. t d Assurance Inc. P14,400 for a one- are recorded by credits.
May4 Paid Prudential Guaran ee an ' . h..
. . ce coverage on the -service ve 1cle. Entry Increase in assets is re~orded by a debit to supplies. Increase in
year comprehensive msuran
liabilities is recorded by a credit to accounts payable.
Analysis An asset increased. Another asset decreased. .
. ecorded by debits. Decreases in assets Dr. Cr.
Rules Increases m assets are r
are recorded by credits. . . Supplies (A) 18,000
lncfease in assets is recorded by a debit to prepaid insurance. Accounts Payable (L) 18,000
Entry
Decrease in assets is recorded by a credit to cash.

Dr. Cr.
Accounts Payable Partially Settled (Use of Assets)
Prepaid Insurance (A) 14,400
14,400 May.9 Paid San Jose Merchandising Pl0,000 of the amount owed.
Cash (A)
I Analysis Assets decreased. Liabilities decreased.
!I Rules Decreases in assets are recorded by credits. Decreases in
office Equipment Acquired on Account (Exchange and Source of Assets) liabilities are recorded by debits.
Entry Decrease in liabilities is recorded by a debit to accounts payable.
·Ill i Mays Acquired office equipment from Fair and Square Emporium for
P60,000; paying PlS,000 in cash and the balance next month. Decrease in assets is recorded by a credit to cash.
;1'
Note: A compound entry is needed for this transaction.
Dr. Cr.
Analysis Assets increased. Assets decreased. Liabilities increased. Accounts Payable (LI 10,000
Rules Increases in assets are recorded by debits. Decreases in assets Cash (A) 10,000
are recorded by credits. Increases in liabilities are recorded by
credits.

.'
4-10 I BasicAcro unting

Revenues Earned and Cash Collecte

d (Source of Assets)
- Rules
Recording Business Transactions

Increases in assets are recorded by debits. Increases in liabilities

are recorded by credits.
I 4-11

'd arrangem ents for three

. d I Entry Increase in assets is recorded by a debit to cash. Increase in
May 10 Coordina ted and finahze SI·mple bn aer couple . Services .
Include
fees of PS,BO O P · liabllities is recorded by a credit to unearne d referral revenue
couples and collecte d I
h and reception oca t 10n,
· s.
.
rospectin g and se Iect in g the churc d . . .
P souvenirs an mv1tat1ons.
rvice flowers, Dr. Cr.
couturie r, caterer, car se '
Cash (A) 10,000
Unearne d Referral Revenues (L) 10,000
's equity increased. . ,
Analysis Assets increased. owner d b debits Increases m owner s
Increases in assets are recorde_ y .
Rules
rded by credits. .
equity are reco b debit to cash. Increase m
•
Entry Increase m asse ts is recordedd bY a credit to consultin
.
g revenues .
_Revenues Earned on Account (Source of Assets)
owner's equity is recorde ya . May 19 . Coordina ted and finalized elaborat e bridal arrangem ents for
Dr. Cr. three couples and billed fees of P12,000 per couple. Addition
al
services include documen ts preparat ion, consulta tion with
26,400 a feng
Cash (A) shui expert as to the ideal wedding date for prosper ity and
26,400
consultin g Revenues (OE:I) _ harmony , provision for limousin e service and honeym oon
trip.

Analysis Assets increase d. Owner's equity increase d.

Rules Increases in assets are recorded by debits. Increase s in owner'
salaries Paid (Use of Assets) s
.d I . equity are recorded by credits .
PG 600 The entity pays salaries every two
May 13 Pai sa anes, , · ) Entry Increase in assets is recorded by a debit to account s receivab
Saturdays (refer to the calenda[ in ~hapter 5 . le.
Increase in owner's equity is recorded by a credit to consulti
ng
revenues .
Assets decreased. Owner's equity decreased. .
Analysis . '
Decreases in assets are recorded by credits . Decreases m owners
Rules Dr. Cr.
equity are recorded by debits. . .
De.crease in owner's equity is recorded by a debit to ~alanes Accounts Receivab le (A) 36,000
Entry
expense. Decrease in_assets is recorded by a aed1t to cash . Consultin g Revenues (OE:I) 36,000

Dr. Cr.
Wlth~rawal of Cash by Owner (Use of Assets)
Salaries Expense (OE:E) 6,600
Cash (A) 6,600 May 25 Diaz Withdrew Pl4,000 for persona l expense s.

Analysis Assets decrease d. Owner's equity decreas ed.

Rules . Decreases in assets are recorded by credits. Decreas es in
Unearned Revenues Collected (Source of Assets) owner's
equity are recorded by debits.
MaylS The entity is earning additiona l revenues by referring consulti Entry
ng Decrease in owner's equity is recorde d by a debit to Diaz
clients to friendly hotels, caterers, printers, and couturie rs.
Withdra wals. Decreas e in assets is recorde d by a credit
Received Pl0,000 advance fees for three clients referred . to
cash.

Analysis Assets increased. Liabilities increased.

 4-14 I 8asic Ac-ro11nrio11
.... Recording Business Transactio ns I 4-lS

1. Transfer the date of the transaction from the journal to the ledger.
CHART OF ACCOUNTS 2. Transfer the page number from the journal to the journal reference
I the ledger_ is known as the (J.R.)
umbers n -· h column of the ledger.
nd their account n . I statemen t order, t at Is, assets
A listing of all the accounts a_ nged in the flnancia enses. The accounts should . figure
.
The chart 1s arra 3. Post the debit from the journal as a debit . figure • the ledger and the
chart ~~n~ - . . . e and exp in
ner's equity, incom d cross-referencing. credit figure from the journal as a credit figure in the ledger.
• followed by 1iab1ht1es, ow
fi rs., mit indexing an
'bl nner to per 4. Enter the account number in the posting reference co Iumn of the journal once
be numbered in a flexi e ma h chart of accounts to identify
. the accountant re
fers to t e .
If an appropria te account tit
When analy?ing transactio n: increased or decreased . added. Presented
.I .
e is
the figure has been posted to the ledger.
The Journal
Q
below is the
the perti~nt accounts to b dditional account m_ay be page l -- - :
not listed in the chart, a_n a ·on· . '
I
chart of accounts for the ,nustratl . Date Account Titles and Explanation P. R. Debit Credit '
Weddings "R" Us '
Chart of Accounts

Income Statement Accounts

0:-- 1
2
·2014

May 1 Cash 110 J 250,000

''
''
''
Balance Sheet Accounts 3 Diaz, Capital 310 : 250,000 ''
Income '' 4
4°'t
'
:'
Initial investme nt. ~ :
Assets
410 consulting Revenues
-
110
120
Cash
Accounts Receivable
420 Referral Revenues '
''
'''
The Ledger (:"i\
~
\ :
t,; ----\\.-' I, 0 I
Supplies Expenses
130
140 Prepaid Rent Salaries Expense
: Accoun t : Ca 5 h \\ Account No 110 I
Prepaid Insurance
510
'' Date Explanation I
'''
1S0 Supplies Expense J. R. Debit: Credit Balance
Service Vehicle
520 I\
l
160
165
170
Accumulated Depreciation
Office Equipment
530
540
Rent Expense
Insurance Expense
Utilities Expense
I

~-•''
' 1
2 May 1
2014

J-1 250,000
~ \ \
250,000
''
'l ''I
'I
550
\ 175

210
Accumulated Depreciation
Liabilities
Notes Payable
560 Depreciation Expense-
service Vehicle
'''
'
''
Account· Diaz, Capital ~----- -- ---Accou n~No-31 0
\:
\ \
Depreciation Expense-
220 Accounts Payable 570
Office Equipment ''' Date Explanation J. R. Debit Credit Balance '' ''
230
240
2S0
Salaries Payable
Utilities Payable
Interest Payable
Unearned Referral Revenues
580
590
Miscellaneous Expense
Interest Expense
'
I

''
I

~-► 2
1

May 1
2014

J-1 250,000 250,000

l\
.i
l
'
I
260
owner's Equity ~----------- ------ +________________ \_:
310 Diaz, Capital
Diaz, Withdrawals LEDGER ACCOUNTS AFTER POSTING
320
330 Income Summary
At the end of an accountin g period, the debit or credit balance of each
account must be
POSTING (Step 3) determine d to enable us to come up with a trial balance.

. t accounts in • Each account balance is determin ed by footing (adding) all the

transferring the amounts from the journal to the appropna debits and
PostI ng me ans .
e . the
d redlts 1n
credits.
r
the Ie d ge · De bits in the journal are posted as debits In the ledger, an c • If the sum of an account's debits is greater than the sum of its
credits, that
ourna 1 as credits in the ledger. The steps are illustrated as follows:
•-
1 account has a debit balance .
• If the sum of its credits is greater, that account has a credit balance.
 Recording Business Transactions
I 4-l]
4-16 I Basic Accounting
osting are sho. wnd belo w
dd"mgs "R" Us aft er P y om1 tte . The lfRIAL BALANCE (Ste p 4)
of We I mns are purp osel
unts
Illustration. The ledg er accoJour
• na 1 refe renc
. d e co u
The acco unt num bers and or cred it bala nci;s , It
been dete rmin e . witb rbeic resPeCTive deb it
bala nce of each acco unt has The ~ •~nee is a list_of all accounts its in the ledg er at the end of each
lity of debi ts and cred
1
_ _ _ __.!N~o~tesrP ~a~y
~ab~ l~el:u ci;Qc io
210,0 oo is prep ared to veri fy the equa the postings are upd ated .
May 2 time
acco untin g peri od or at any
I
Cash -
May 1 B,000 Balance 210, 000
May 1 250,0 00
w:
210,0 00 4 420,000 arat ion of a trial balance follo
2
14,40 0 The proc edu res in the prep
10 26,40 0 4 Accounts Payable
erica l orde r.
15 10,00 0 5 15,00 0
May 9
lO OOO May 5 45,00 0 1. List the acco unt titles in num
24,00 0 9 10,000 • s __1_s_,o_o_o_ er and ente r the deb it
30
of each acco unt from the ledg
13 6,600
10,000 63,00 0 2. Obt ain the account balance it bala nces in the cred it colu mn.
25 14,000 53,00 0 deb it colu mn and the cred
Balance balances in the
27 7,200 mns .
31 3,000 3. Add the deb it and cred it colu
520,4 00 498,200
Utilities Payable 4. Com pare the tota ls.
22,20 0 May 30 1,400
Balance
I Balance 1,40 0
The trlal balance is a cont rol
device that help s min imiz e
nce is in bala nce. This equ
acco unti ng erro rs, ~he n
ality prov ides
the
an inte rim pro of
Unearned Referral Revenues tota ls are equa l, the trial bala the abse nce of erro rs.
For
rds but it does not sign ify
of the accu racy of the reco
May 19
Balance
0
36,00
12,00 0
I
Accounts Receivable
May 31 24,00 0
May 15
I
Balance
10,00 0
10,00 0 exa.:Ople, if the boo kkee per
are equal but in reality, the
failed to reco rd pay men t of
acco unts are inco rrec t sinc
rent , the trial bala nce colu
e rent expe nse is \.md erst ated
mns
and

Diaz, Capital cash over stat ed.

May 8
Balance
18.00 0
lB,00 0
I
Supplies

I
May 1
Balance ·
250,0 00
250, 000 The trial bala nce for the illus
trati on follo ws :

Diaz, With draw als Weddings "R" Us

May 1
Balance
s.ooo
8,000
I
Prepaid Rent
May 25 ~
Ba lan ce~
Trial Balance
May 31, 2014
Cash P 22,200
-:v:e:;-nu~e~s:--_~40IJ
. _ _ _ _..!C:!:o~n~su~lt ini-!g:..!R~e:
7 Accounts Receivable
/ May 4
Balance
14,40 0
14,40 0
I
Prepaid Insurance
/ - May 10
19
26,40 0
36,00 0
62,40 0
Supplies
Prepaid Rent
12,000
18,000
8,000
62,4 00 Prepaid Insurance 14,400
Balance
Service Vehicle 420, 000
Salaries Expense
Office Equipment 60,000

May 4
Balance
420.0 00
420,0 00
I
Service Vehicle
May 13
27
Notes Payable
Accounts Payable
Utili ties Payable
P210,000
53,000
1,400
Balance
Unearned Referral Revenues 10,000
Diaz, Capital 250,000
Diaz, Withdrawals 14,000
Offic e Equip ment
Consulting Revenues 62,400
May 5
Balance
60.00 0
60,00 0
I May 30
31 Salaries Expense 13,800
Balance
Utilities Expense 4,400
P586,8QO P586,800
4-18 I Bosic ,l,crounring
.. - It Is a_lso advisable to look over
th e discrepancy. An erro r may have been mad e by
Recording Business Tran sact

the transactions for an item of

reco rdin g the
ions I 4-19

the exa ct amo unt of

deb it side of the
r the cred it side .
tran sact ion and forgetting to ente
LOCATING ERRORS that in the ledg er. Be
d redits would automatically
signal the th amo unts in the trial bala nce with
.
c · 3. '9m @re e accounts and .
--
of the debi ts an cert ain that no account is omitted
An inequality in the totals
rs include:
pres ence of an error. These erro 4. · !!!!53mpute th e balance of
each ledger acco unt:
l . Error in posting a transact
ion to the ledger: . As this is don e, plac e a
11 journal to the ledg er acco unts
S. T~ e_: po~tings from the is veri fied . Wh en the
o an erroneous amount was posted to
th e account. in the ledg er afte r each figu re
checl< '.11ar~ m the journal and and the ledg er for unc hec ked
ed as a cred it or vice versa. through the jour nal
◊ a debit entr y was post ope ratio n is completed, look amo unt but also for
be aler t not only for erro rs in
◊ a debit or credit posting was
omitted. am~ unts . In tracing postings,
versa.
unt balances: ~bi ts ente red as credits, or vice
2. Error in determining the acco
unti ng reco rds may still
◊ a balance was incorrectly com
puted. balance is in balance, the acco
Note ,tha t even whe n a trial , as reco rded , deb its equ al
in the wron g balance column. balance simply prov es that
◊ a balance was ente red
contam erro rs. A balanced trial
not dete cted by a trial bala nce:
nce: credits. The following errors are
3. Error in preparing the trial bala . transaction.
was incorrectly add ed. 1. Failure to record or post a
o one of the columns of the trial balance incorrectly record_e d on the trial balance. e tran sact ion mor e than once .
o the amount of an account balance was balance as a credit or vice versa, or a 2.- Recording the sam cred it amo unts .
the sam e erro neo us deb it and
o A debit balance was recorded on the trial 3.. Recording an entr y but with cred it but to the wro ng
ion corr ectl y as a deb it or
4. Posting a part of a tran sact
balance was omitted entirely. account. I
following procedures
oach in locating an error? The I
What is the most efficient appr loca ting erro rs:
considerable time and effort in
when don e in sequence may save I
thes e colu mns in the
trial balance columns by adding
1. Prove the addition of the
opp osit e direction . trial
tion, d~ the e)(act am o~t by which the
2. If the erro r does not lie in addi is ofte n a clue to the
amo""Gnf"of the -discrepancy
balance is out of balance. The by 9, this sugg ests eith er a
epancy is divis ible
source of the error. If the discr ----,- ..,..._ __
ving _of the
(rev ersing the orde r of numbers) erro r or a ~e (mo
tra ~si tion nce is P21 ,750, but
me that the cash account bala
decimal point). For example, assu res are tran spos ed and written
trial balance the figu
in copying the balance into the and is divis ible by 9. Another
r amounted to P180
as P21,570. The resulting erro poin t, as when
erro r is the slide, or inco rrect placement of the decimal
common in the trial bala nce will
0. The resulting discrepancy
P21,750.00 is copied as P2,175.0 ·
also be an amount divisible by 9.
of P42 000 but it is
nt account has a debit balance
Assume that the office equipme This 'will cause a
column . of the trial balance.
erroneously listed in the credit tota ls. Since such
or P84,000 in the trial balance
discrepancy of two times P42,000 mon it is advi sabl e after
a credit column are com
erro rs as recording a debit in to sc~n the colu mns 'tor an
the trial balance tota ls,
dete rmin ing the discrepancy in
of the discrepancy.
amo unt equal to exactly one-half
 4-20 I BasicAcrounting

DISCUSSION QUESTIONS
-
~AME:
SECTION:
I
Recording Business Transactions

SCORE:
PROFESSOR:
4-21

mplish the accounting process.

1. The accounting cycle involves ten steps to acco · True or False
Enumerate. ,,,._v).. .
Id b followed to attain a structured analysis 1. Amounts entered on the left side of an account, regardless of the account title, are
2. What are the four basic steps that shou e .
of transactions? .,~, ·,.
called credit_s or charges to the account.
·dencing the occurrence of a transaction.
3. Journal entries are based on documents eVl 2. The accounting cycle begins with the recording of the transactions and ends wi th
Give at least five examples of these source documents. the preparation of the financial statements.
,<.~
4. State the rules of the double-entry system. 3. An expense may . be recognized and recorded although no cash outlay has been
Is this statement always true? made.
5. Debit means increase and credit means decrease.
Explain.
?'-'vi
4. Withdr.awals of assets from a business by the . owners are considered to be
. . . d ·,n the general journal? Discuss each briefly.
6. What are the mformat,on contame expenses .
. -=--=--
7. What is a compound journal entry? "\\I<-'
5. Record ing an account with a debit balance as a credit, or vice versa, will cause the
8. Discuss the features of a chart of accounts. trial balance to be out of balance by an amount that is divisible by 2.

_ The normal balance of assets, withdrawals and expenses is debit, while that of
w~
9 6. A credit always means an entry on the I:!!_~ of an account.
liabilities, owner's equity and income is credit. Why is this so?
. .A(cv,t,
escribe the act of posting. What difficulties could arise if no cross-indexing exists 7. Every business transaction affects a minimum of two accounts .
. 10. D
between the general journal and the ledger accounts.
-8. The process of recording a transaction in a journal is called classifying.
lL A trial balance is a list showing all account titles in the general ledger and the total
~~ -
debits and total credits in each account. Is this statement true? Why or why not? 9. An increase in an expense is recorded as a .credit.
12. Cite some errors that will cause the debits and credits of the trial balance not to
10. Recording P52,000 as P520 is an example of a slide.
balance.
~J.~ J .-·•.• ·l
13. Cite some occurrences which, despite the presence of errors, will still make the 11. 'Debit means increase and credit means decrease.
debit and credit columns of the trial balance equal. ~t-l!-
12. The sequence of the account titles in a trial balance depends upon the size of the
14. You found out that the total of the debits column of the trial balance is P200,000 11ccount balances.
while the total of the credits column is PlS0,000. What are some possible causes of
this difference? If the difference between the columns is divisible by 9, what types 13 . . Double posting of a transaction causes the debits and credits not to balance.
of errors are possible? ,~ 14. A listing of the accounts in a ledger is called a chart of accounts.
15. The accountant mistakenly recorded a PS00 purchase of supplies on account as a
P5,000 purchase. He debited Supplies and credited Accounts Payable for PS,000.
15. A recording error caused by the erroneous rearrangement of d' ·ts h •.
Does this error cause the trial balance to be out of balance? Explain. · P627 as P672, is called a transposition. . ,g, ' sue as wntmg
16. How would balance sheet accounts be affected if an expense was erroneously
recorded for P22,000 rather than PlG,0007
 4-22 I Basic Acrounting

16. Normally, Income accounts have c

redlt balances.

In of a Journal entry to the wrong ledger

"' ~
-
<,C-'';.,
31, An Increase In a liability Is recorded by a debit.
,I
32, An Increase In revenue is recorded with a credit.
Recording Business Transoct/ons
4-23

t
17. A transposition error means a poS g
33, If equlp~ent Is bought by paying p 2o,ooo as a down payment and the remaining
account.
h bOok of original entry. P40,000 in 30 days, total liabilities are increased by P2Q,OOO.
18. The T...-iccount is sometimes called I e •
•. . • . more than one account and credits to more 34, A credit signifies increases in liabilities capital and revenues, and decreases in
, .::··19. A journal entry may include debits to debits must always equal the total of the assets, withdrawals, and expenses. ' '
th
than one account, but the total of e
credits. 35, The double-entry system is possible because all business transactions have two
. b aying P30,000 as a down payment and equal and opposite aspects.
20. If equipment costing P~3,000 is bought , \p uit is increased by P93,000. ,;ff
the remaining P63,000 in 30 days, owners q y . 36, A decrease in owner's equity is recorded with a credit .
, ,, ' b is the difference in total pesos between total
21. For a T-account, the account aIance ~37, When the owner makes an investment, the owner's capital account is ~_eB,it_E!q.
debit footings and total credit footings.
'\.w
38, Notes receivable are claims against debtors evidenced by a written promise to pay a
22. A basic storage unit for accounting data is the account. certain sum of money at a definite time to the order of a specified person or to
bearer.

I
• t the Post Ref or P R column is left blank until the entry
23. In a proper iourna 1 en ry, • · : ·
has been posted. 39. An account balance is the difference between total debits and total credits in an

24. When a company receives a product previously ordered, a recordable event has

. ')-.
occurred.
,<_~
v account.
I
40.· A debit entry to an expense account will increase it.
,"1L-41.
I
11

25. Salaries payable is a type of expense. Income statement accounts are also known as temporary accounts.

26. Companies use the same standard set of accounts. ~ \

42. Another word for expense is ~~~-

27. The accounts in a chart of a_

ccounts are normally listed in alphabetical order.
\0'-\,;;t. t
43. Office ·supplies are classified as expenses. 1-- : , :-:

28. An entry to Accounts Payable will be on the left side of the account if there is a ().•'<--
44. A trial balance may balance but may not be correct.
decrease and on the right side of the account if there is an increase.

45, Transactions are analyzed on the basis of source documents.

29. A credit_has an unfavorable effect on an account.
'\(W'
46. A transaction with more than one debit and/or more th d' .
30. Another name for the journal is the book of original entry. compound entry. an one ere 1t 1s called a
~
47 · An increase in an asset is recorded by a debit.
 Rt!cording Busint!ss Trans action
s I 4-25
4-24 8ol-!C Acco vn ring

.
In a trial balance, all debits are hS
record of all transactions. t ed before all credits.
48. The ledge r is a c:hronologtcal
reco rded until
es not yet rendered, no entry is 65. The doub le-en try svst ~m ~n s~t . in the journ al
When paym ent is received for servic a transactions are reco rded both
49 . an d in the ledger.
that service has be-en rendered . ,,,.,,.
ed cash has
no entry is recorded until the relat 66. A trial balance with e qua 1 debi t and ere d.rt total s proves that all trans actio ns have
Whe n revenue has been earned, d d
50. been corre ctly journalize an poS t ed to the prop er ledge r accounts.
been collected.
ition. . and sum
67. The• journ al is us~d to cl assrfy · are data for
as 41,250 is an example of a trans_pos marrze transactions, and to prep
51. Re-coming 4,125 \ , ! ,l \ • ·l . basrc financial state
ments.

the balance sheet.

revenues are dassified as i!SS~ts on
52. Unearned .
68. In some transactions ' th e accountrng equa tion may not be main taine d.
in a
the owner's Capital acco unt, not
ts by the owne r are recorded in
53. Investmen , . .
69. The char t of accounts is a syste m of organrzrng and num berin g the acco unts in the
revenue account. general ledger.

account has been increased.

54. A debi t means that an
t}ed its.
lished with debfu and eliminated wi~
55. Liabi l.ities are estab
account is debi ted and Cash
l is made, the owner's Withdrawals
·. 56. When a withd rawa ·
is credited.
I
a ne':" employee,(a recordable even t has occu rred.
57. When a company hires

- .. -. 58. When the columns of

the trial balance are equal, no
errors have occurred in I-
ns.
recording and posting the transactio
cred it total s to be
compound entry's debi t total s and
59. It is sometimes correct for a
unequal.
one acco unt.
• :... ~60. The Land account and the Building account may be combined into

s to the side of. the acco unt- debi t or

61. The _norm al balance of any account refer
ded
cred it-wh ere decreases are recor ·• 1l~ ,-,," ,
al is called ~ g. _,.,.
~ 62. Entering transactions into the journ

d with b .
63. Cost is the exchange . price associate a usiness trans actio n at the time
the
trans actio n is recognized .
4-26 I Basic Accounting

~~~========----
~=======--_j_!P~R~O!t\1s~'FcoE:~R~Ei:SS~O~R:
NA~M~E~:
tt
SECTION:
:@c:======J
:________ j
- Revenue, credit
None of these
. Business Transact Ion s I 4-27
Recording

7, Which of th e following describes the classification and normal balance of the Service
Multiple Choice Revenues account?
. e the debit and credit columns of the trial
1. Which of the following errors will not caus ~ Asset, credit
b. Asset, debit
balance to be unequal?
c. Capital, debit
. h wrong account. ·
a. A debit entry was recorded int e . d. Expense, debit
1
b. A debit was entered in an acc~unt::ha/;! ~~ column of the trial balance. e. Revenue, credit
c. The account balance was earned t uted
d. The balance of an account was incorrectly comp . s. Which of the following is an":lsset account?

2. An entry with more than one debit or credit is called a a. Insurance Expense
® Office Equipment
a. compound entry. c-. Sales
'ti.
double entry. d. Supplies Expense
c. dual entry.
d. multiple entry. 9. If a P4,700 cash purchase of supplies is recorded as a PS,700 debit to Supplies
Expense and a PS,700 credit to Cash, the result ":'ill be that
3. Which of the following accounts will not 11ffect owner_'s equity?
@ Supplies Expense will be overstated and Cash will be understated.
a. Advertising Expense b. the Cash account will be overstated.
~ Land c. the Supplies Expense account will be understated .
c. Owner's Withdrawals .d. the trial balance will be out of balance. I \
d. Revenues
10. If Accounts Receivable has debit postings of PSS0,000, credit postings of P440,000,
4. Which of the following accounts has a normal debit balance? and a normal ending balance of P480,000, which of the following was its beginning
balance?
a. owner's Capital
·ii. · Owner's Withdrawals a. P620,000 Cr.
b. P340,000 Cr.
I J·.- - ~-~ ·:.,,
c. Salaries Payable
d. Unearned Revenues c. /'\P620,000 Dr. --~;_:_-jJ
~ P340,000 Dr.
s. Which of the following errors wiU cause the trial balanc.e to be out of balance?
11. When collections are made on Accounts Receivable,
a. A debit entry was entered in the wrong debit account.
b. An entire transaction was entered in the general jo11rnal as P53 instead of P35. a. owner's equity increases.
c. An entire transact.ion was 9mitted from the general journal. b. total assets decrease.
d. The balance of an account was incorrectly computed, c. total assets increase.
@) total assets remain the same.
6. Which of the following describes the classification and normal balance of Jay
Cabrera, Capital? 12. Which of the following accounts has a normal credit balance?

a. Asset, debit {i) Advertising Revenues

b. Expense, debit b. Interest Expense
c. Owner's ·equity, debit
 4-28 I Basic Acrounting

c. Owner' s Withdrawals
d. Service Vehide
- Recording Business Transactions

19, Which of the following accounts might be placed first in a proper journal entry?
' Bonds Payable, when it has been decreased
1a.
I 4 - 29

. but has not yet received payment, it b. Cash, when it has bee~ decreased
13. When a company has performed a service c. Interest Income, when it has been increased
ii~ debits Accounts Receivable and credits ServicepRev~~eues. d. Unearned Revenues, when it has been increased
b . debits Service Revenues and credits Accounts aya. ble
c. debits Service Revenues and credits Accounts Rece1va . 20. Which pair of accounts follows the rules of debit and credit in the opposite manner?
d. makes no entry until the cash is received. a. Advertising Expense and Land
. . h d by paying PS0 000 ca~h and issuing a promissory b. Interest Payable and Owner's Capital
14. A P200,000 machine 1s pure_~ -. / lude a Owner's Withdrawals and Medical Revenues
1 c.
note for the remainder. The Journal entry shou me
d. Prepaid Insurance and Owner's Withdrawals
a.credit to Machinery.
b.credit to Notes Payable. 21. Which of the following accounts would be credited in a proper journal entry?
c. credit to Notes Receivable. ~0 Accounts Receivable, when it has been decreased
d. debit to cash. 15.Owner's Withdrawals, when it has been increased
c. Salaries Expense, when it has been increased
15. The chart of accounts is a table of contents for a d. Salaries Payable, when it has been decreased
a. financial statement.
22. For which of the following accounts would a related Accumulated Depreciation
· b. journal.
account be recorded?
c. ledger.
d. trial balance. a. Land

16. Which of the following classifications of accounts has/have a normal credit balance?
@ Office Equipment
c. Office Supplies
,....a.. Liabilities d. . Prepaid Rent
~, Revenues and liabilities
Revenues 23. The process of transferring journal entry information from the journal to the ledger
c.
d. Withdrawals __. ·is called
e. Ali of these a. analyzing.
b. footing.
17. A purchase is recognized in the accounting records when
fd~· journalizing.
a. payment is made for the item purchased. (;JI posting.
b. the buyer receives the seller's bill.
c. the purchase requisition is sent to the purchasing department. 24. Debits to expense accounts signify
d_;, title transfers from the seller to the buyer. ~ decreases in capital.
b. increases in assets.
18. The primary purpose of the trial balance is to test the c. increases in capital.
a. analysis of transactions. d. increases in liabilities.
b. equality of debit and credit balances in the ledger.
c. equality of debit and credit entries in the journal. 25. Which of the following accounts is decreased with a credit?
d. recording of transactions.
 4-30 I &nlc Accounting

a.
b.
c.
Advertising Revenues
owner's capital
Rent Expense
......
- a>
. s I 4-31
Recording Business Transaction

Posting a debit to Land as a debit to Machinery

Placing a debit balance amount into the credit balance column of the ledger

32, A credit may result in

d. Unearned Art Revenues
. of Pll0,000, credit postings of Pl40,00Q, and
.
a. a decrease in a liability account.
26. tf Accounts Payable has debit po stin g
5 b. a decrease in the Capital account.
which of the following was its beginning
a normal ending balance of P60,000' @ an Increase in a liability account.
balance? d. an increase in an asset account.

a. P30,000 Cr. 33, The Posting Reference column in the general journal is used to show ~ha_t?an
b. P30,000 Dr. · ·s
account has been posted to the ledger when which of the fol Iowmg 1 placed in 1t

; _-, P90,000 Cr.

a. Account number
d. P90,000 Dr.
b: AnX
h Id be recorded as c. Journal number
27. A purchase of supplies on accounts ou
a. a debit to Accounts Payabl~ and a cred_it to ;~~:~i:~
b. a debit to Supplies Expense and a cre~i: :o Accounts Receivable.
Payable.
dJ Journal page number

34. W hen a T-account has several items on both sides, the balance of the account is
c. a debit to Supplies Expense and a ere 1 0 written
d. a debit to Supplies Expense and a credit to Cash.
a.- on the side with the greatest number of Items.
b. on the side with the larger total.
28. The OWner's Withdrawals account appears i.n
c. . on the side with the least number of items.
a. both the income statement and the balance sheet. d. on the side with the smaller total. It

'
I b. the balance sheet only.
35. ~ A debit may signify a decrease in
I
!
I
c. the income statement only.
i d. the statement of changes in equity only. a. a liability account .
.I
l
c§) a liability and a revenue account.
29. Which pair of accounts follows the rules of_debit and credit in the same manner? c. an asset account.
d. an asset and a revenue account.
a. Owner's capital and Rent Expense
l e. a revenue account.
b. Prepaid Rent and Advertising Expense
F, Repair Expense and Notes Payable , 36. A Pl,000 debit item is accidentally posted as a credit. The trial balance column totals
.'I
d. Service Revenues and Equipment Rentals Revenues
therefore will differ by

I
I.
30. Which of the following accounts has a normal debit balance?

a. Art Revenues
a. PO.
b. PS00.
,, c. Pl,000.
· I /1 b. Mortgage Payable
~ P2,000.
c. Unearned Art Revenues .,
·lk ,-d.Unexpired Insurance ' { -i--lJ', 37. Which of the following errors will not cause the debit and credit columns of a trial
· balance to be unequal?
31. Which of the following errors will cause a trial balance to be out of balance?
a. A debit was posted to an account as a credit.
a. Forgetting to enter an entire transaction into the journal ~ 1. A journal entry was accidentally posted twice.
b. Incorrectly recording the purchase of land for cash as a debit to Cash and a c. Only part of a journal entry was posted.
credit to Land d. The trial balance was incorrectly summed.
 4 -32 I Basic Accountrng

38. Which of the following

.

errors wll
. b I nee to be out of balance?
1
I cau sea tna a a
nt as a debit .
a. A credit was posted to an accou sted twice.
- a. Owner withdrawal of cash
•
Recording Business Transactions

45, Which of the following transactions increases both assets and owner's equity?
I 4-33

b. A journal entry was accide~tally ~i~e a transaction. b. Payment received from a credit customer
c. The bookkeeper forgot to Jouma. urnal entry to the ledger. c. Received a bank loan
d The bookkeeper forgot to post a JO ~ Rendered services; payment not yet received
· debit. The trial balance column totals
A PSOO credit item is accidentally posted as a 46. Which of the following entries records the withdrawal of cash for personal use by
39.
will therefore differ by Rosenda Huerto, the owner of a business?

a. PO. a. Debit Cash and credit Huerto, Withdrawals

b. P400. b. Debit Cash and credit Salary Expense
c. PSOO. (f)'Deb~t Huerto, Withdrawals and credit Cash
d. Pl,600. d. Debit Salary Expense and credit Cash

40. The principal purpose of posting is to 47. The trial balance will not expose which of the following problems?
. d. ectly into the ledger.
a. enter transactions ir .
b. help determine if the financial st_atemen
ts are ready to be prepared . Wb.
Leaving out an entire entry
Recording both halves of an entry on the same side
c. help identify errors made in the Journal. c. Recording half an entry
d. obtain updated account balances. d. Recording half an entry and leaving out an entire entry
. b ta proper journal entry? e. Recording half an entry and recording both halves of an entry on the same side
41. Which of the following statements is true a ou -
a. A line is skipped between each debit and each credit. 48. The general journal does not have a column t itled
b. Assets are entered before liabilities.
a. Account Balance.
c. Decreases in liabilities are indented.
d- The Posting Reference column is left blank until entries are posted . b. Date.
«: ) Description.

42.
Which of the following events does not require an ,entry in journal form_? Y. Posting Reference

a: Agreement to perform a service at a future date 49. To find an explanation for a transaction, one should look afthe
b. P-ayment for a service performed previously
c. Performance of a service agreed to at a past date chart of accounts.
d. Purchase of a one-year insurance policy journal.

l
I •
' 43. When a magazine company receives an advance payment for a subscription, it

a. debits Cash and credits Subscriptions Revenue.

c. ledger.
d. trial balance.

SO. Which of the following gives the correct sequence of accounting procedures?
b. debits Cash and credits Unearned Subscriptions Revenues.
c. debits Prepaid Subscriptions and credits Cash. a. Financial statements, journal, ledger, trial balance
d. debits Unearned Subscriptions Revenues and credits Cash. b. Financial statements, trial'balance, ledger, journal

44. Which of the following transactions decreases both assets and owner's equity?
C9'> Journal, ledger, trial balance, financial statements
d. Ledger, trial balance, journal, financial statements
a. Advance payment made for insurance
b. , Owner withdrawal of cash
(. Payment of a liability
d. Receipt of a phone bill, to be paid at a-later time
 4. 34

LSECTION:
I Basic Aro>unlin9

======
~~NA~M~E:~===
~~~ ====--jl IHs~cRo~OR~iFE~SS~=~c=
=--~._!P~ O~:R;:______==-i
=== ~
- c. consists of two debits and one credit.
d. Is a memora ndum entry.

7. The Po st ing Reference column in the ledger shows that an

item has been po5ted
·
Rtt.ording Busin~ss Transact/Ofl
5 I 4-35

when which of the following is placed in it?

Muttiple Choke
. s before actual receipt, the paymen t should a. A check mark
. for goods or seMce ·ncrease in
1. When an entity pays b. An "X"
be recorded as a decrease in Cash and an , c. The account number
c. an expense.
d. The journal page number
a. a liability. 'er.
an owner's equity account.
b. an asset. the others listed?
8. Which of the following accounts is classified different ly from
2. Entries recorded on the right sid~ of any account are called
a. Accounts Receivable
b. Cash
a. credits.
c. Owner's Capital
ll b. debits.
d. Prepaid Rent
C. decreases.
d. increases.
a 9. When owner's equity decreases, one of the following must occur:
h"ch th e accounting records are organized and employe d within
.
3. The manner in w I o/ a liability increases
business is referred to as

I
b. an asset increases
a. accoonting information system. c. an income increases
b. business docume nt d. withdraw als decreases
c. voucher system. ing process?
d. special journal. 10. What function do accounting j ournals serve in the account
a. Classifying c. Reportin g
4. The accounting cyde is b. Recording d. Summar izing

l a. applicable only to manual system·s, not to computerized systems.

b. a process that begins with adjusting entries and ends with
the financial statements.
the preparation of

c. the length of time it takes to complete a set of financial stateme

books are dosed.
d. the sequence of procedures used by a business to
process economic
nt after the
11. Which of the following accounting steps is accompl ished

a.
b.
c.
d.
Apply the rules of double entry.
Post the entry.
Prepare the trial balance.
Record the entry.
after the others listed?

information and to produce financial statements.

I.
conside red a recorda ble
i 5. A ledger is defined as a collection of
12. Which of the following is a business event that is not
transact ion?
.
a. account titles - asset, liability, equity, income and expense accounts
a. A compan y pays an employe e for work perform ed.
b. all income statement accounts .
A compan y re_ceives a product previous ly ordered .
c. all statement of financial position accounts.
A custome r inquires about the availabil ity of a service.
d. transactions.
A custome r purchases a service.

6. A simple journal entry conside r d a recorda ble

13. Which of the following is a business event that is also e
a. consists of one debit and one credit. transact ion?
b. consists of one debit and two credits.

inn,
 - I
. s 4--37
Recording Business Tronsoct1on
4-36 I Basic Accounting

a. A company hires a new employee. ppller

b. A company orders a product fro; a su . 20. Which of the following accounts is classified differently from
the others liS t ed?
A customer purchases merchan se._ ·t· n to the purchasing department. a. Art Reven1.1es
c. hase requIsI ,o
a. An employee sends a pure b. Mortgage Payable
c. Notes Payable
14. The term footing refers to th e d. Unearned Revenues
a.addition of a column of figures. b r in an account. e following is the trial
b.process of obtaining the bottom num_ e account. use the following information to answer the questions below. Th
. . th top number in an balance for Anselmo Giron Company:
c.process of obtaining e
d.process of posting. Anselmo Giron Company
. ed from the trial balance is the Trial Balance
15. The first financial statement that is prepar · Jan. 31,2014

a. balance sheet. Cash P30,000

b. income statement. Accounts Receivable 20,000
c. statement of cash flows. Art Supplies 30,000
d. statement of changes in equity. Office Supplies 50,000
Prepaid Rent 70,000
. . d d"t ·n the ledger should be verified at the end of each 50,000
16. The equality of debits an ere I s 1 Prepaid Insurance
Art Equipment 50,000
accounting period by preparing.
Qffice Equipment 30,000
p 50,000
a. a balance report. ·Accounts Payable
150,000
b. a trial balance. Giron, Capital
Giron, Withdrawals ?
c. an accounting statement.
d. an account verifkation report. Advertising Revenues
Salaries Expense .?
' Utilities Expense 50,000
one that will cause an inequality in the trial balance
17 _ Of the following errors, the 30,000
Telephone Expense
totals is p A p B

a. failure to record a transaction. q,.¼..,""'

b. recording the same transaction more than once. 21. If the balance of the Giron, Withdrawals account were P120,000 and the balance of
c. posting a transaction to the wrong account. the Salaries Expense ~ccount were PS0,000, what would be the amount of 87
d. incorrectly ~omputing an account balance.
1'"°\ PlS0,000
18. Office supplies are expensed e y PSS0,000
c. P370,000
a. at no time, since they are assets. d. P380,000
b. when they are consumed (used up).
c. when they are paid for. 22. If the trial balance showed a balance of P70,000 in the Giron, Withdrawals account
d. when they are purchased. and a balance of PS0,000 in the Salaries Expense account, what _w ould be the
amount of Advertising Revenues for the period?
19. The first step in recording a transaction in a journal is to
(a) P330,000
a. · record the credit. b. P480,000
b. record the date. c. PlS0,000
c. record the debit. d. P430,000
d. write an explanation.
 Recording Business Transactions I 4-39
4-38 I Basic Accounting

23. In t~e trial balance, total assets equal 29. Which of the following statements is true about a proper journal entry?
/' '
,a,1 P330,000. a. All debits are listed before any credits.
b. P230,000. b. An explanation must follow each debit and each credit.
c. P430,000. c. The name of the month should be repeated for each entry.
d. P410,000. d. The Posting Reference column is filled in prior to posting.
of PS0 ooo in the Salaries Expense account and
1 30. What function do general ledgers serve in the accounting process?
24. If the trial balance showed a ba a~~:rtising 'Revenues account, what would be the
a balance of P3S0,000 In th e A a. Classifying
amount of A? b. Recording
a. PS00,000 c. Reporting
1'b:I PSS0,000 d. Summarizing
·c. P450,000
d. P600,000 31. A.chart of accounts is a (an)
and a. accounting procedure manual.
ba lance of P40, 000 in the Salaries Expense account
25. If the trial balance s howe•d athe Advertising Revenues account, what would be the b. flowchart of all transactions.
a balance of P300, 000 in c. journal.
amount of the Giron, Withdrawals account?
d. list of names of all account titles.
a. P250,000
b. P190,000 32. A journal entry that contains more than two ;iccounts is called
c. Pl40,000 a. a compound journal entry.
~ J PS0,000 b. a posted journal entry.
c. an adjusting journal entry.
26. Which of the following transactions does not affect the balance sheet totals?
,. ':' :,,\, d. an erroneous journal entry.
~-It]_
Collecting P40,000 from customers on account
Paying a P300,000 note payable 33. When accounting information is accumulated in individual accounts, a chart of
c. Purchasing PS0,000 supplies on account accounts is
d. Withdrawal of PS0,000 by the firm's owner a. a listing of each account that will be used to accumulate information.
b. changed each year by an entity depending on the-results of operations.
27. The accrual basis of accounting recognizes . c. limited to those accounts that will appear in the balance sheet.
a. expenses when cash is paid. ·d. use~ to determine whether a debit or credit balance will appear in each of the
b. expenses when resources are consumed as part of operating activities. accounts at the end of the accounting period.
c. revenues when cash is received.
d. revenues when products are produced as part of operating activities. 34. Which of. the following events would not be considered an accounting transaction?
a. Payment of fees to a tax consultant ..
28. An.error of original entry occurs when
b. Purchase of print advertising space for a new service.
a. a correct figure is entered in the double-entry accounting records, once in the c. Sales of a new product during the first month of operations.
correct ledger account and once in the wrong person's account. d. Tabulation of the results of a customer satisfaction survey.
b. an incorrect figure is entered on the correct sides of the correct ledger accounts.
c. either the debit entry or the credit entry for a particular transaction is recorded 35. The primary function of an account in the accounting system is to .
in· the wrong class of account. a. accumulate accounting information.
d. None of the above.
b. determine at what point a transaction should be recorded.
4-40 I Basic Accounting Recording Business Transactions I 4-41

c. identify the type of organization. ii they are classified.

. . bTfes + Owner's
d. store accounting transactions unt . 42, At th e en d of an accounting period, the equation Assets = Lia 1 1 1
th
d"t1 the contract is regarded as complete Equity does not necessarily balance. Which of the following actions balances e
36. When a customer buys services on ere ' equation?
when
a. Add the difference between revenues and expenses to owner's equity.
a. the bill is presented. b. Add revenues and subtract expenses from assets. ·
b. the cash payment is received. . c. Subtract revenues and add expenses to owners' equity.
c. the date specified in the contract is at hand. d. Subtract revenues from owners' equity and add expenses to assets.
d. the services are rendered.
43. Which of the following steps in the accounting cycle are listed in logical 0rd er?
nts prepared by the
37. Most companies use a chart of accou
a. Journ·alize the closing entries, post the closing entries, and then take a po5t-
a. Accounting Standards Council. closing trial balance. .
th
b. Bureau of Internal Revenue. b. Post the closing entries, take a post-closing trial balance, then journalize e
c. company's accounting department. closing entries.
th
d. Securities and Exchange Commission. c. Post the journal entries to the ledger accounts, prepare a worksheet, and en
take a trial balance.
38. Balance sheet accounts are d'. Prepare the income statement, prepare the statement of financial position a nd
then prepare a worksheet.
a. accounts with debit balances only.
b adjusting accounts. 44. The purpose of the ledger is to
(0 permanent accounts.
d. temporary accounts. a. keep a record of documentation to support each transaction.
b. maintain a separate account for each balance sheet and income statement
39. The normal balance of an account is on the accounts.
c. make sure that all balance sheet and income statement accounts have normal
a. credit side of the·account. balances at all times.
b. debit side of the account. d. record chronologically the day's transactions.
c. side represented by decrease in the account balance.
•~ -; side represented by increases in the account balance. 45. Which of the following statements is false about a proper journal entry?

40. When cash is debited, a typical credit is to a. Accounts that are increased are always listed first.
b. A space should be skipped between journal entries.
a. accounts payable. c;. · Credits are always indented.
n,~ accounts receivable. d. It may have more than one debit or credit entry.
c. expenses.
d. withdrawals. 46. Transactions are recorded chronologically in the

41. Payment of insurance premiums in advance gives rise to . .,..ai daybook. c. ledger.

a. accrued expense.
l ~·) journal. d. T-account.

b. accrued income.
( c')_ prepaid expense.
'a unearned income.
4-42 I Bo:sic Accountinp Recording Business Transactions ~3

47. The amount of cash received or paid during a period Is not an adequate measure S2, Unearned Revenues are reco rded by companies that
the economic consequences of an organization's activities because of
a. pay money at the time th rf
a. cash inflows may represent the result of activities_completed in a previous b pay money In advan f e pe ormance of a service is complete.
· ce the perform
O f •
c. receive money at the r ance o a service.
period. th
b. cash - outflows may precede or follow the activities with which they are d. receive money in adva~mce fehperformance of a service is complete.
e O t e performance of a service. .
associated.
c. many activities may not Involve the use of cash. 53· · Which of the following stat ements regard ing a trial balance is incorrect?
d. All of the above reasons are correct. a. A trial balance helps t I r
b. A trial balance is a l~stocaf izlel erfrors within an identifiable time period.
balances a f . 0 a O the open accounts in the ledger with their
48. Which of the following does not directly or indirectly affect the owner's Capital
s O a given date.
account? c. Al dtrial balance is a test of the equality of the debit and credit balances in the
a. Earning of revenues e ger.
b. incurring of expenses d. A trial balan_ce proves that no errors of any kind have been made in the
-..---.... accounts during the accounting period.
.S· Paying an accounts payable
d. Wrthdrawals by the owner

49. Which of the following transactions correctly_ maintains the equality in the
accounting equation?
a. To record collections on account, cash and accounts receivable are increased by
P160,000.
b. To record payment of notes, notes payable !S decreased and cash is increased
by P70,000. ,
c. To record payment of rent, rent expense and cash are increased by PS,000.
d. To record the purchase of computer equipment, computer equipment is
increased and cash is decreased by P46,000. ·

SO. Which of the following combinations of trial balarice totals suggest the presence of
either a transposition error or a number slide?

a. P65,470 debit and PGB,170 credit

b. P33,220 debit and P35,420 credit
c. P25,670 debit and P26,670 credit
d. P14,517 debit and PlS,477 credit

51. Which of the following accounts probably would be listed after the others in a chart
of accounts?

a. Art Revenues
b. Owner's Capital
c. Prepaid Rent
d. Unearned Art Fees
4-44 I Basic Accounti119

-
~ME:
~CTION: ISCORE:
PROFESSOR:
Recording Business Transactions I 4-45

]
Problem 11 problem#2
Debits and Credits r-Account Analysis

Innovative Designs, owned by Nilo Burgos, has been operating for two years. Below is a The ten accounts that follow su . . · .
series of transactions. For each transaction, indicate the accounts that should be Cruz Airport Taxi: mmarrze the first week's transactions of the Daisy Dela
debited and credited. If no journal entry is required, write "n/a" in the columns. Use
the following account titles: cash; Accounts Receivable; Supplies; Prepaid Expenses· Cash 11 Dela Cruz, Capital 31
Equipment; Patents; Accounts Payable; Notes Payable; Salaries Payable; Burgos, Capital;
Burgos, Withdrawals; Service Revenues and Operating Expenses.
(a)
(e)
140,000 100,000
10,000 2,000
(b)
(d)
I
140,000 · (a)

3,000 (f}
5,000 (g)
la : :r. :u: :.,,z.,Wi::...it.:::h:..;.d:.;.ra::.cwc..a::.:.~~-- 32
. . ., .(h-:--)__D:.;.e: .:.::.:.C.
Debit Credit 1,000 {h)
Transactions
Purchased equipment for use in the business; paid one-
- 20,000 (i)
1.000 I
a.
third cash and gave a note payable for the balance. 3,000 (j)
Income 41
b. Paid cash for salaries. - - - - - Fees
-~ - - - -(e)-
- -10,000
C. Collected cash for services perfonned this period.
d. Collected cash for services perfonned last period.
e. Performed services this period on credit. .Supplies 12 Salaries Expense 51
Paid operating expenses incurred this period.
f.
g. Paid cash for operating expenses incurred last period.
(d) 2.000 I (f)
3,000 I
h. Incurred operating expenses this period to be paid next
period. Service Vehicle 13 Rent Expense
i. Purchased supplies for inventory to be used later; paid
cash.
(bj
(c)
100,000
60,000
I (g) s.ooo I
j. Used some of the supplies from inventory for
operations. Accounts Payable 21 . Gasoline Expense I I
k.
I.
Purchased a patent (an intangible): paid cash.
Made a payment on the equipment note in (a); the
(i) 20.'.1°0I 60,000 c) U) 3,000 I
payment was part principal and part interest expense.
m. Collected cash on accounts receivable for services Required:
previously performed.
n. Paid cash on accounts payable for expenses previously Determine whether the account debited or credited has increased or decreased .
incurred.
0. On the last day of current period, paid cash for an
insurance policy covering the next twelve months.
4-46

~
I Basic Accounting

NA~M~E:___________ts:-:co:=R:::E:===-=----,--- -J .
SECTION: PROFESSOR: j
-
~E:
SECTION:
I SCORE:
Recording Business Transactions

PROFESSOR:
I 4-4

j
7

problem #4
Problem#3
Classmcatio,n of Accounts
Developing a Chart of Accounts

Rodrigo Lucena organized a new business and named it Lucena Business Consultancy. The following ledger accounts are used by Lani Garachico Repair Shop:
Listed below are the accounts that will be needed in the ledger: a. Cash m. Garachico, Withdrawals
b. Salaries Expense n. Salaries Payable
Lucena, Withdrawals
Consul.ting Revenues c. Accounts Receivable 0. Unearned Revenues
Income Summary
Accounts Receivable d. Garachico, Capital p. Office Equipment
Office Supplies Expense
Building e. Service Revenues q. Rent Payable
Lucena, Capital Prepaid Rent
Cash f. r. Notes Receivable
Notes Payable
Rent Expense g. Accounts Payable s. Interest Expense
Prepaid Rent
Furniture and Fixtures h. land t. Notes Payable
Interest Expense Supplies Expense
Land i. u. Supplies
Miscellaneous Expense Salaries Expense Prepaid Insurance
j. V. Interest Receivable
Unearned Consulting Revenues
Referral Revenues k. Utilities Expense w. Rent Expense
Accu. Depreciation-Building Office Supplies · 1. Service Revenues
Accu. Depreciation-F/F Interest Payable
Depreciation Expense-Building Insurance Expense
Required: Indicate each account's classification and normal balance by placing(/) marks.
)
Depreciation Expense-F/F Accounts Payable
Type of Account
I
Owner's Equity Normal Balance
Required: Asset Liability Garachico, Garachlco,
Expenses Debit Credit I
Arrange these accounts in the order in which they would appear in the ledger. Assign
each account a number, using a three-digit numbering.scheme: the 100 series for assets,
..
b.
I
Capital Withdrawals Revenues
I

the 200 series for liabilities, etc. Use the second digit to indicate specific accounts C.
d,
within a major category; for example, Cash would be account number 110.
e.
f.
g.
h.
I.
j,
k.
I.
m.
n.
o.
p.
Q,

r.
s.
I.
u. i,
v.
w.
 ~
~
- SCORE:
PftOR:sS0lt; l
....... 16
~ JS
••· · • T~ · .,..,..,. in T-Attounts aid ~ire a TNI.. ..,.
_ . . . . Tln••ILWCtiuitsam.
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.
~ .a:r:ff:o- a l ~ ~ ~~~,t =>;5 XCi_ e. ~ ~ ~ a n ; d m"\.'el'S ffi:mlloi o ~ ~
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:ac: 'tr ::::e ~ :i:,:i~-c ::170::l.-:?~ ::r ::>:: l ~ ~ o., asti ~ f.N~ iwst half of the montt\. Pl!USO
.
g. ~ t insura.n:..r-e ~ ~ ,ear. PS,tn)..
- Z-S.XC
n m ~ si:m1es = =± :i-r· ;:,,..:._ b. Paid ~ "1.:n!S ttl ~ ~-n.s' \t ~ y. P7.tm..

.:e_~ ==s- tr =Iii=•\ ..r:oueo =>u.~--c=~ i ~ , e a aoo ~ ~ oil. P2,.0SO.

i- ~ ~ ~ o., ~ ~ f.N ~=onah aitfoith emonth ,,Pl.US JO.
3D~ ::.s!:J!re! :S i:r ~ h ~~
~ .lL :,:Cu 5N.. k. Paid ~ oi ~ pait-ttne ~ P1 ,«n
':gc iF:,; ::E"=1! -=f':::"e = i e s ~ o .
l ~ , a • ~1 ~ fur pe,r'S0nal use. f'S.,000.
:::>ac= ee=-:d: J·:,il b-D::... =s....~
a Paid ;;anur.!S ro Sa'!-.~~ I-to ~ y Comp.wly. P2.750.
::>::ic :=e::m :iifuu= ._=r-i· ::p
EL "hid d>e~ ~~ ~ si!ilel,,'cllk repaif'
neut. Pl.,800.
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E111ir ,:; ~~ and Fnu:.res; Atrnt1nts ~ ~ ~

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. ~ Supplies ~ ;
~ ,. _ , . . . ~ laundry ~ Salaries E
~ upense; Uti1iBes ~ alOO ~idlUS Elrpen se_
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4-50

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I Basic Accounting

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Recording Business Tronsoctions

PROFESSOR:
4-51

problem #8
Problem #7 Recording Transactions in T-Accounts and Preparing a Trial Balance
Recording Transactions In T-Accounts and Preparing a Trial Balance
Winst~n Ap~lisoc opened Cagayan Chiropractic Clinic. The following transacti ons
The following
Nancy Mulles established the Mulles Data Encoders on May 15, 2014.
occurred during June of this year:
transactio ns occurred during the month:
a. Apal!soc !nvested PlS0,000 cash in the professional practice.
a. Mulles invested P157,000 cash to establish the business.
b. Apahsoc invested in the firm professional equipmen t w ith a fair market
b. Bought office desks and filing cabinet for cash, PlS,150. value of P72,000.
c. Mulles invested in the business her.personal computer with a fair
c. Bought a filing cabinet on account from Andrews Office Essentials, P3,260.
market value of PS7,SOO. d. Paid cash for chairs for the waiting room, P4,620.
d. Bought computer software for use in the business from San Jose Bought a multi-function printer for PlS,400 from Main Office Machines
,
e.
Computer Center for P39,000, paying PlS,000 down; the balance is due
paying P7,400 down; the balance is due in thirty days.
in thirty days. f. Received and paid telephone bill, P990.
e. Paid rent for the month, PS,300. g. Billed patients for professional services performe d, P16,120.
f. Received cash for services rendered, PS,160. h. Paid Pl,800 as membership dues to the national chiroprac tic associati
on.
g. Ordered a panaflex sign for P9,000 from Royal Bright Enterprises, with Received and paid electric bill, P910.
i.
PS,000 as down payment and the balance due when installed.
j. Received P6,900 from patients previously billed in transacti on (g).
h. Received bill for advertising from Buy and Sell Newspaper, P3,230. Paid in full accounts related to purchase of a filing cabinet.
k. '
i. Bought print paper and stationery on account, P2,290. .Paid office rent for the month, PS,000.
I.
j. Received and paid electric bill, Pl,240. m. Received P2,420 cash from walk-in patients.
k. Paid bill for advertising recorded previously in transaction (h).
n. Paid salaries of nurse assistant, PS,250.
I. Received cash for services rendered, Pl0,900. o. Apalisoc withdrew cash for personal use, Pll,500.
m. Paid salaries to employees, PS,400.
n. Mulles withdrew cash for personal use, P4,SOO. Required: l
Equipme nt;
Required: 1. Establish the following T-accounts: Cash; Accounts Receivable; Office
W ithdrawa ls;
1. Establish the following T-accounts: Cash; Accounts Receivable;
Equipmen t; Computer Software; Signage; Accounts Payable; Mulles,
Supplies; Office
Capital; Mulles,
Medical Equipmen t; Accounts Payable; Apalisoc, Capital; Apalisoc,
Service Revenues ; Salaries Expense; Rent Expense; Utilities Expense and 1
Advertisin g Expense; Rent Miscellaneous Expense.
Withdrawals; Service Revenues; Salaries Expense;
s to identify
Expense; Utilities Expense and.Miscellaneous Expense. 2. Record the transactions directly into the T-accoun ts using the alphabet
to identify each transactio n.
2. Record the transactions directly into the T-accounts using the alphabets
each transaction. · 3. ·Prepare a trial balance.

3. Prepare a trial balance.

 4-52

I
NAME:
I Basic Accounting

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Recording Business Transactions

I SCORE:
PROFESSOR:
4-53

problem #10
Problem#9
Recording Transactions In T-Accounts and Preparing a Trial Balance Recording Transactions In T-Acco_unts and Preparing a Trial Balance

Michael Bryan Jordan, a dentist, established Jordan Clinic. The following transaction
s Loida, Cardenas recently established her own business, which she called Cardenas
June of this year: Delivery Service. During the fi rst month of business in October 2014, the following
occurred during
transactions were completed :
a. Jordan deposited P280,000 in a bank account in the name of the business.
pct. 1 Deposited Pl9,SOO of personal savings in an account at the Tarlac
b. Bought a 3-in-1 office equipment from Pitular Equipment for P4,950, paying
Development Bank in the name of Cardenas Delivery Service.
Pl,000 in cash and the balance on account.
2 Acquired a second-hand service vehicle costing P63,000, paying
c. Bought waiting room chairs and a table, paying cash, Pl2,300.
P7,000 in cash, and financing the remaining P56,000 by issuing a
d. Bought office intercom on account from NE Office Supply, P2,750.
note payable.
e. Received and paid the telephone bill, P.1,080.
4 Paid rent for the month, P2,950.
f. Performed professional services on account, Pl2,940.
__ 5 Acquired supplies on account PS,200.
g. Received and paid the electric bill, Pl,850.
6 Paid for three months' insurance and recorded prepaid insurance in
h. Received and paid the bill for the Regional Dental Convention , P3,500.
the amount of P4,500.
i. Performed professional services for cash, P17,650.
8 Received Pl3,900 cash for delivery work done for the Pascua
j . Partially settled accounts-w ith NE Office Supply, Pl,000.
Corporation .
k. Paid rent for the month, PS,400.
10 Acquired additional supplies for cash, P2,050.
I. Paid salaries of the part-time receptionist, P3,500.
13 Paid salaries, P3,900.

~ '
1
I
l
m. Jordan withdrew cash for personal use, PS,500.
n. Received PS,500 on account from patients who were previously billed.
16

17
Completed an assignment for Luisita Company and billed the
company P15,250.
Paid P2,300 of the amount owed from the Oct. 5 transactio n. r t
·r~1
'
Required:
19 Paid miscellaneous expenses, Pl,700. I
;
1. Establish the following T-accounts: Cash; Accounts Receivable; Office Equipment 21 Withdrew cash fro,;, the busine'ss, PG,150. \
Capital; Jordan, Withdrawa ls; Coll~cted P9,500 on account from Luisita Company.
Office Furniture; Accounts Payable; Jordan, 22 '
Professional Fees; Salaries Expense; Rent Expense; Utilities Expense and 24 Paid salaries, P4,200.
Miscellaneous Expense. . 75 Paid utilities expense, PS00.
,27 Billed the Cojuangco Company for delivery seryices rendered,
2. Record the transactions directly into the T-accounts using the alphabets to identify
each transaction. P.13,400.

3. Prepare a trial balance. Required:

1. Establish the following T-accounts : Cash; Accounts Receivable ; Supplies; Prepaid

Insurance; Service Vehicle; Notes Payable; Accounts Payable; Cardenas, Capital;
Utilities
Cardenas, Withdrawals; Delivery Revenues; Sala.ries Expense; Rent Expense;
Expense; and Miscellane ous Expense.
of the
t
2. Record the transactions directly into the T-accounts , using the dates
transactions to identify each transacti-on .

3. Prepare a trial balance.

 55
Recording Business Transactions I 4-
4·54 I Basic Acrounting

~ME: SCORE: I J ISCORE: j -.

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PROFESSOR:

problem#12
Problem Ill
Jaurnallzlng Transactions
Preparing a Trial Balance

The ledger of Daria Tolentino Advertising and Publicity contained the following account ,:he chart of accounts for Peter Tulio Landscaping is as follows:

balances as at Oct. 31, 2014: Assets Income

P160,000 110 Cash 410 Landscaping Revenues
Cash
426,000 120 Accounts Receivable Expenses
Accounts Receivable
36,000 130 Prepaid Insurance 510 Salaries Expense
Prepaid Insurance Equipment
524,000 140 520 Gas and Oil Expense
Equipment 150 Service Vehicle 530 Rent Expense
Accounts Payable 245,000
Liabilities 540 Utilities Expense
Tolentino; Capital 765,000 Accounts Payable Supplies Expense
210 550
Tolentino, Withdrawals 562,000 Owner's Equity 560 Miscellaneous Expense
Advertising Revenues 964,000 310 Tulio, Capital
Public Relations Revenues 425,000 320 Tulio, Withdrawals
Salaries Expense 520,000
Rent Expense 90,000 The company completed the following transactions in July 2014:
Supplies Expense 40,000
· · 24,000 July 2 Paid rent for the month, Pl0,000.
Utilities Expense
17,000 7 Received cash on account from Crown Peak Condos, P21,800.
Miscellaneous Expense
9 Bought equipment on account from Bay Equipment, P61,000.
12 Received and paid telephone bill, P2,500.
Required:
15 Billed City Hall for services performed, P35,000.
Prepare a trial balance. 20 Paid cash for liability insurance (six months), P16,000.
21 Tulio invested in the business a personal equipment having a fair
market value of P49,500.
23 Paid P20,000 on account to Bay Equipment.
31 Paid salaries to part-time employees, Pl4,800.
31 Received cash for services performed, P72,300.
31 Tulio withdrew cash for personal use, P21,500.
,1
Required:

Prepare-the journal entries for the July transactions.

4-S6 I Basic Accounting
Recording Business Transactions I 4-
57

ISCORE·
PROF~SOR:
j
Probleml13 p,oblem#14
Joumalizi.ng Transactions Joumallzlng Transactions

Evangeline Jamili Landscaping Service has the following completed transactions: Joanne Java Review School entered into the following transactions during October 2014:

M ar. 1 Jamili deposited P200,000 in a bank account in the name of the
business..
4 Jamili invested personal gardening equipment, with a fair market
value of Pl0,000, in the business.
6 Bought a used trailer on account from Sala Sales, P8,500.
7 Paid rent for the month, P6,000.
9 Bought a used backhoe from Mobile Equipment, P62,000, paying
P30,000 in cash and the balance on account.
10 Bought liability insurance for one year, P9,000.
13 Performed landscapi ng services on account for Tindoy Company,
P34,200.
14 Bought supplies on account from Office Decor, P2,400.
1S Performed landscaping services on account for Urios University,
P2S,600.
17 Received and paid the billirom De Leon Services for gas and oil for
the equipment, Pl,400.
19 Performed landscaping services for Calimpusan on cash basis,
P18,800.
22 Paid accounts to Sala Sales, P4,000.
24 Collected accounts from Tindoy Company, P7,000.
28 Performed landscaping services on account for Gucela Company,
P16,2S0.
29 Received and paid the telephone bill, Pl,860.
30 Paid the salaries of the employees, P13,400.
31 Jamili with_d rew cash for personal use, P14,000.
Required:
Prepare the journal entries for the March transactions. Use the following accounts:
Cash; Accounts Receivable; Prepaid Insurance; Equipment; Accounts Payable; Jamili,
Capital; Jamili, Withdrawals; Landscaping Revenues; Salaries Expense; Rent Expense;
Gas and Oil Expense; Supplies Expense; Utilities Expense and Miscellaneous Expense.
Oct. 1 Java made additional investments of PSO 000 in the business.
2 Bought liability insurance for one year, P~4,500.
3 Received a bill for advertising from SouthMin News, P3,200.
4 Paid rent for the month, P8,900.
I .7 Received a bill for equipment repair from E. Hipolito, P2,880.
10 Received and deposited tuition from students, P62,500.
11 Received and paid the telephone bill, P2,300.
15 Bought chairs from E. Awayan Furniture Company, PlS,800, paying
l
PS,800 in cash and the balance on account.
18 Paid accounts to SouthMin News, P3,200.
21 Java withdrew P8,000 for personal use.
"24 Received a bill for gas and oil from Mindanao Oil Company, Pl,800-
25 Received and deposited tuition from students, P61,400.
27 Paid salaries of the office assistants, P12,000.
28 Bought a photocopie~ on account from Dadiangas Office Machines,
P7,500.
29 Received P7,000 tuition from a student .who had charged the tuition
on account last month.
30 Received and paid the water utilities bill, P3,600.
31 Paid for flower arrangements for front office, P620.
31 Java invested personal computer, with a fair market value of
P12,300, in the business.
Required:
Prepare the journal entries for the October transactions. Use the following accounts:
Cash; Accounts Receivable; Prepaid Insurance; Equipment; Furniture; Accounts Payable;
Java, Capital; Java, Withdrawals; School Fees; Salaries Expense; Rent Expense; Gas and
Oil Expense; Advertising Expense; Repair Expense; Supplies Expense; Utilities Expense;
Telecommunications Expense and Miscellaneous Expense.

l
 4-58

/
L
I Basic Accoun ting

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Recordi ng Bu ~iness Transac tions I -~

PROFESSOR:
j
59

Proble mt15 problem#l6

Journalizing. Posting and Prepar in, a Trial Balance Journalizing, Posting and Preparing a Tr1a1Balance

Kareen Leon won a conce5'ion to rent out bicyde s

in the Burnha m Park during th aaro • Nursery School It provides day-ca re, schooI b us
Ventic operat es the vent,c
the following transac tions for he~ d •
summer. During the month of April, Leon comple ted 1 on Jan 31 2014 the compa ny's
service an ~arning program s to pre-school childr~n · · • '
bicycle rental business: trial balanc e rs as follows :
account.
Apr. 2 Began business by placing Pll0,00 0 in a business checking Ventic Nursery School
3 Purchased supplies on account for Pl,500. Trial Balance
agreed to pay
4 PurchiSed ten bicycles for P25,000, paying PU,000 down and Jan. 31, 2014
the balance in th irty days.
and use for Cash (110) P 187,000
5 Paid P29,000 in cash for a furn ished container to store the bicycles · Accounts Receivable (120) 170,000
other operations. Equipment (140) 104,000
operati on.
6 Received P4, 700 in cash for rentals during the first week of Service Vehicles (150) 1,740,000
and installa tion costs (consid ered an addition Notes Payable (210) Pl,500,000
8 Paid P4,000 in cash for shipping

,
cost of the contain er) to place the contain er at the park entranc e. Accounts Payable (220) 164,000
to the
9 Hired a part-time assistant to help on weeken ds. Ventic, Capital (310) 537,000
P2,201,000
10 Paid a maintenance person P750 to dean the grounds . P2,201,000
of operati on .
13 Received PS,000 in cash for rentals during the second week
the following transa ctions :
16 Paid the assistant P480 for a weeken d's work. During the month of February, the compan y comple ted
17 Paid for the suppl~ purchased on April 3. I
Feb. 2 Paid th is month' s rent, P27,000.
18 Paid a PSSO repair bill on bicycles. J
operati on. 3 Received fees for this month 's service s, P65,00 0.
20 Received PS,500 in cash for rentals during the third week of
d's work.
4 Purcha sed supplies on accoun t, PS,500 .
22 Paid the assistan t P480 for a weeken
5 P"aid for oil change on a service vehicle, P4,000 .
23 Billed a company Pl,100 for bicycle rentals for employees' outing. 6 Ordere d playground equipm ent, Pl00,0 00.
the right to the
25 Paid the P3,000 fee for April to the Park Adm inistration for 8 Made payme nts on accoun t, P17,00 0.

'iJ
bicycle concess ion. 9 Collect ed from custom ers on accoun t, P120,0 00.
27 Received P4,100 in cash for rentals during the week. 10 ·Billed custom ers who had not yet paid for this month
's service s,
29 Paid the assistant P480 for a weekend's work. P70,00 0.
30 Transferred PS,000 to personal checking account. 11 Paid for the supplie s purcha sed on Februa ry 4.
d on
13 Received and paid for the playgro und equipm ent ordere
Requ ired:
Februa ry 6, Pl00,0 00.

I)
1. Prepare the journal entries for the April transac tions. 17 Purcha sed equipm ent on accoun t, P29,00 0.
journal entries : Cash; Accounts
19 Paid this month' s utility bill, P14,50 0.
2
- Set u_p the following ledger accoun ts and post all the 22 Received cash for one month 's service s from custom
ers previo usly
ner; Bicycles; Accoun ts Payabl e; Leon, Capital ; Leon,
R~rva ble; Supplies; Contai billed, PS0,00 0.
es; Wages Expens e; Mainte nance Expens e; Repair
Wrthdrawals; Rental Revenu 26 Paid salarie s of staff, P46,00 0.
Expens e; and Concession Fee Expense. by the servic e
27 Receiv ed statem ent of accoun t for gas and oil used
Prepar e a trial balance. ·
3. vehicle s during the month , P32,50 0.
28 Made a cash withdr awal of Pll,00 0.

,.
I
4-60 I
Required:
Basic Accounting
. I
1. Prepare the 1ouma entnes
. for the Februarv transactions.
. h led r accounts. Be sure to
2. Post the en~nes to_t e ~d
ledger as you post. The following
references in the ioumal a .
Supplies (l 30); ventic, Withdraw
accou_nts used by the _company.
( . Rent Expense (520); Gas and Oil
Revenues (410); Salanes expense 5101
(530) and Utilities Expense (540).
3. Prepare a trial balance as at Feb.
28,
-NAME:
~~ -- -- -- -- -t~SC~O~R~E:~ -- -- ----j
SEcTl:-..-IO_N:_ _ _ __ _ _
Recording eusinns Transactions
_J~~~~-- - - -
PROFESSOR:
I
-
4-6_,
-
l
problem #17
make the appropriate posting Journallzing, Posting and Preparing
a Trial Balance
are the other
Angeles De Guzman Guardians com
als (320); School pleted the following transactions
during October
Expense 2014:
'
Oct, 1 De Guzman transferred cash from
a personal account to an aceount
be used for the business, p2 43, to
2014 000_
· 3 De Guzman invested in the busin
ess personal weapons having a fair
market value of P34,000.
4 Bought communication equip
ment on account from Pesa Elec
tronics,
PB,740.
5 Paid rent for the month, P7,65
0.
6 Bought a used service vehicle
car for P93,000, paying P45,000 dow
with the balance due in thirty days n,
.
9 Received invoice and paid insur
ance premium ·to Cacawa Fidelity
Company for bonding employees,
P7,710.
12 Performed security services
for Loreta Galleries. Billed Loreta
for
services rendered, PS,250.
16 Received bill from Marcos Print
ers for office stationery, Pl, 757.
17 Billed Pascua Construction for
services rendered, P14,790.
22 Paid Regal Shell Service for gaso
line for service vehicle, P720 .
24 Performed security services
at a fashion jewelry fair. Billed orga
nizers
for services rendered, Pl 7,500 .
27 Paid Pesa Electronics P4,500
to apply on an account.
29 Received PB,250 from Loreta
Galleries in full payment of acco
30 Billed Merchant Bank for servi unt.
ces rendered, P21,600.
31 Received and paid telephone
bill, Pl,030.
31 Paid salaries to employees,
P31,500.
31 De Guzman withdrew cash for
personal use, PlB,000.
Required:
1. Prepare the journal entries for the
October transactions .
2.' Set up the following ledger acco
unts and post all the journal entr
Receivable; Prepaid Insurance; ies: Cash; Accounts
Arms and Communications Equ
Vehicle; Accounts Payable; De Guzm ipment; Service
an, Capital; De Guzman, Withdraw
Revenues; Salaries Expense; Rent als; Service
Expense; Supplies Expense; Gas
oline Expense and
Utilities Expense.
3. Prepare a trial balance.
4-62 I Basic Accounting

N~A~M~E~:E ================j J
Dj 1
L5ECTION:

Problem #18
I
SCORE:
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sEatoN:
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Recording Business Transactions

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PROFESSOR:
4-63

-
problem#19
Journalizing, Posting and Preparing a Trial Balance .
arge accounting firm, Purita Allsuag decided to establish her
After severa I years wIth a l . f · Al ' c Galicano Del Mundo hired a lawyer to help him start Del Mundo Repair Service. On
.
own accounting practice. The following transactions o Punta 1suag, PA, were March 1, Del Mundo deposited Pl43,7SO in a bank account in the name of the company.
completed during May 2014 : When th e. company paid th e lawyer's bill of PB,750, the lawyer advised the company to
hire an accountant to keep its records. Del Mundo was so busy that it was already
May 2 Transferred P92,500 cash from a personal savings account to a checking
March 31 when he hired you to straighten out his records. Your first task is to develop a
account, Purita Alisuag, CPA. . . trial balance based on the March transactions, which are described in the next two
Acquired office equipment on account from L1~oro Furniture, P36,800.
3 paragraphs.
Acquired office supplies on account from Palatino Office Supply
4
Company, P17,100. After the business began and the company had paid the lawyer's bill, the compan_y
Performed accounting services for Gabayan Computer Company and
6 borrowed P62, 5oo from a bank. It later paid P3,250, including interest of P750, on t _
his
submitted a bill of P29,200 for those services. loan. It also acquired a second-hand service vehicle in the company's name, paying
7 Paid for accounting and tax books for use in the practice, Pl9,500. P31,250 down and financing P92,500. The first payment on the vehicle is due April 15.
8 Paid Palatino Office Supply Company, P4,100 on account. The company then leased an office and paid two months' rent, Pll,250, in advance.
10 Acquired a condominium unit for the accounting practice, P265,000. A Credit acquisitions of office equipment of Pl0,000 and repair tools of P6,250 must be
down payment of P38,000 was made and issued a note payable for the paid by April 10.
remaining P227,000.
12 Paid salaries, P14,200. In March, Del Mundo Repair Service completed repairs of P16,250, of which P5,000
13 Received P9,750 from Gabayan Computer Company, billed on May 6. were cash transactions. Of the credit transactions, P3, 750 were collected during March,
16 Paid telephone expense, P650. . and P7,500 remained uncollected at the end of March. The company paid salaries of
19 Received cash in the amount of P14,600 from Mallari Book Company PS,620 to its employees. On March 31, the company received a P930 bill for the March
for accounting services rendered for the month. utilities expense and a P620 check from a customer for work to be completed in April. A
22 Acquired office suppl ies on account from Palatino Office Supply customer requested a repair on March 31 to be done the following week and agreed to
Company, P4,650. pay P2,500 for it. The company is considering recording this agreement as revenue in
23 Withdrew PB,150 for personal use. March to make the business look better.
25 Paid salaries, Pl0,300.
26 Billed Chua Exporters P31,600 for accounting services rendered . Required:
27 Paid PICPA-Palawan P5,500 for professional dues.
28 Paid P3,250 rent on an office-copying machin~. 1. Record all of the transactions for March in journal form . Label each of the entries
alphabetically.
Required: 2. Set up T-Accounts. Then, post the entries to the T-accounts. Identify each posting
with the letter corresponding to the transaction.
1. Prepare the journal entries for the May transactions.
3. Determine the balance of each account.
2. Post the entries to the ledger accounts, using account numbers for cross-reference
4. Prepare a trial balance as at March 31.
and using journal page number 1. The following accounts will be needed : Cash
5. Gallcano Del Mundo wants you to evaluate the trial balance. The cash account
(110); Accounts Receivable (120); Office Supplies (130); Office Condominium (140);
balance is P155,500 which exceeds the original investment of Pl43,750 by Pll,750.
Office Equipment (150); Accounting Library (160); Notes Payable (210); Accounts
Did the company make a profit of Pll, 7507
Payable (220); Alisuag, Capital (310); Alisuag, Withdrawals (320); Accounting 0

6. What are the implications of recording the repair order received on March 31 as
Revenues (410); Salaries Expense (510); Rent Expense (520); Telephone Expense
revenue in March?
(530) and Professional Dues Expense (540).
3. Prepare a trial balance.
4-64 I ~ ~ /tttOr'Cfn9 Bus/flt!SJ T ~ l 4-65

3
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Probleml20
Effects of Errors on the Trial Balance
. ould cause a trial balance to have unequal total ) ~ I errors were found in the accounti ng records of the Jennifer Pere?
Which of the following errors w
. .
..._ fly Be able to state amount of the error, 1f s. eompanv
Explain your answers .,. ,e . any. d1Jrin8 the month of August 2014:
· cred·t ..,,. recorded as a debit to Accounts Payable f a. The debits in the ledger account Accounts Receivable were correcttv added to
a. A payment to a I Of .. ~ 5 or
PlZ,900 and as a credit to Cash for PlO,ZOO. a total of P132,000. The credits were correcdy added to Plll,000- The
. balance of the Accounts Receivable account 00 the trial balanre was Pl0,000-
b. A payment of PlS,000 to a creditor for an account payable was debited to
Accounts Receivable and credited to Cash.
c. A purchase of office supplies of P42,000 in cash was recorded as a debit to b. Office Supplies were acquired for p67,000 _ The entry was recorded as a debit
to Office Supplies for P67,000 and a credit to Accounts Payable for P76,000-
Office Supplies for P4,200 and as a credit to Cash for P4,200.
d. A purchase of equ_ipment for P45,000 in cash was recorded as a debit to
c. Repair Equipment was acquired for P78 750 at month-end and recorded as a
Supplies for P45,000 and as a credit to Cash for P45,000. debit to Prepaid Insurance and a credit t~ cash for P78, 750.

d. Repair services were rendered on account, P24,750. The entry was recorded
as a debit to Accounts Receivable for P26,750 and a credit to Repair Revenues
for P26, 750.

Required: For each of these errors:

1. Indicate whether or not the trial balance will balance.

2. If the trial balance will not balance, decide whether the debit or the credit column
will show the larger total.

3. Tell the most likely reason for the error's discovery.

]
 4-66 I Basic Accounting

SCORE: j
\'
Recording Business Tran sa ctions I
4
-
7
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oec,
I 0F~E.: :SS~.OI;:.O~RR::==========
r.PNAM~~~E:~~===============tP~R£1
LSECTION:
3
4
Settled accounts payable, Pl,657,500.
Paid for TV advertising, P78,600. .
5 Acquired on account additional uniforms for the upcoming series with
t~e San Alcantara Padres, P30,750.
Problem 122 Tri Balance and Financial Statements 811 !ed season-ticket holders for the last five games, P320,250-
Joumallzln1, Posti,._ Preparing • • I 9,
10 Pa1d the
. amount
. d ue on this
• date for a note payable, P600 ,00o ·
. R" Heavy Bombers, a collegiate basketball team in th
11 Acquired insurance for the months of December to June, P2lS,lSO.
Vincent Fabella owns t~e _Jo~e ,za 1 d below is the Nov. 30, 2014 trial bal e
Phil-Am Basketball Assooat1on. Presente . Record as prepaid insurance. .,
. . .. J to Nov. 30, 2014, together with ance
the account Ac~uired add itional training equipment on account, P319,SOO-
representing act1V1t1es from an. 1, 2014 12
15 Pa1d players' salaries, Pl,l3G, 2so.
numbers and titles:
Jose Rizal Heavy Bombers 17 Received P3,316,0SO cash for tickets to playoff games.
Trial Balance 19 Paid travel expenses to San Alcantara, PSSS,000.
Nov. 30, 2014 20 Paid laundry expenses, Pl2,600.
Credit 23 Paid creditors, P941,850.
Debit
Account Titles Paid miscellaneous expenses, P26,850.
Acct. No. · 25 •
P 1,129,800 26 Paid medical expenses, PlB,900.
110 cash 3,712,500
Accounts Receivable 27 Paid utilities expenses, P210,450.
120 31,050
Uniform Supplies 28 Paid players' salaries, Pl,240,650.
130 -0-
140 Prepaid Insurance 30 Vincent Fabella withdrew P250,000.
2,025,000
150 Land 12,750,000
160 Training Facilities Required:
2,625,000
170 Training Equipment
11,250,000 1. Enter the amounts from the November 2014 trial balance into the appropriate
180 Player Contracts P 1,800,000
210 Notes Payable ledger accounts.
4,725,000
220 Accoltnts Payable 2. Prepare the journal entries for the December transactions.
10,500,000
230 Mortgage Payable
17,643,750
310 Fabella, capital 3. Post the entries to the ledger using page 12 as the journal page reference.
Fabella, Withdrawals
1,875,000
320 10,125,000 4. Prepare a trial balance as at Dec. 31, 2014.
410 Game Attendance Revenues
Salaries Expense 4,875,000
510 S. Prepare an income statement and a statement of changes in equity for the year
Advertising Expense 400,950
520 ended Dec. 31, 2014, and a balance sheet as at Dec. 31, 2014 (Note: The
Travel Expense 1,532,400
530 accoryiplishment of this requirement may be deferred).
Laundry Expense 528,000
540
Medical Expense 194,550
550
560 Utilities Expense 1,734,000
570 Miscellaneous Expense 130,500
Totals P44,793,750 P44, 793,750

During the month of December 2014, the Bombers were participating in the 2014
playoffs and the following transactions took place:

Dec. 1 Acquired the contract of Agustin Tiongco from the Negros Navigators
for Pl,875,000; paying P225,000 in cash and financing the Pl,650,000
by issuing a note payable.
2 Collecte.d P2,809,500 on accounts receivable from season-ticket
holders.