MODULE III LESSON 1 - ANALYZING & SUMMARIZING BUSINESS TRANSACTIONS

BUSINESS TRANSACTIONS – is any event that affects the financial position of the business
and can be recorded reliably. It involves exchange of values.

Examples of transactions

1. Cash investment by the owner

2. Payment for taxes & licenses
3. Renovation & improvement of office
4. Payment for rental deposits and advances
5. Purchase of office supplies on account
6. Purchase of office supplies for cash
7. Payment of accounts payable
8. Provide services for cash
9. Purchase of equipment and furniture for cash
10. Purchase of equipment and furniture giving a 30 day promissory note
11. Payment of salaries of employees
12. Personal transaction like withdrawal of the owner
13. Provide services on account
14. Provide services for cash
15. Collection of accounts from a customer
16. Payment for utility bills
17. Provide services receiving a 30-day promissory note
18. Payment for other expenses.

SOURCE DOCUMENTS – are the evidences of the daily activities of a business enterprise. It
helps us identify the transactions that should be recorded in the books of accounts.

1. Official Receipt – this document evidences the daily receipt of a business. It is an

accountable form because it is registered with the BIR. When cash is received from
customers for revenue earned or collection of accounts, an official receipt must be
issued.
2. CHECK AND CHECK STUB. This is the source document for all payments made. The
check stub must be properly filled to include all information needed in recording the
payment.

3. DEPOSIT SLIPS. These are evidences that the cash received as indicated in the
official receipts issued are dopiest slips.
4. WITHDRAWAL SLIP is a document evidencing withdrawal from a savings account
with corresponding passbook.

5. BANK STATEMENT a bank statement is issued by the bank to current or checking

account depositors. This shows the total deposits made by the depositor and the
checks paid by the bank at a given month.
 6. PAYROLL - This serves as the basis of recording the salaries paid to employees.
7. DELIVERY RECEIPT – this documents serves as an evidence for the receipt of goods
delivered to a customer.
8. STATEMENT OF ACCOUNT. This is a formal notice showing the details of the amount
billed to a client, or details of account already due.
9. PROMISORRY NOTE. This is a written promised issued by a customer to another
party engaging to pay a sum certain in money at a fixed or determinable future
period.
10. BUSINESS LETTERS. Any form of communication or correspondence from suppliers,
customers, government regulatory bodies and other parties.

THE ACCOUNTING PROCESS

1. DOCUMENTATION. Analyzing business documents which serve as a basis of

recording transactions. Module 3
2. JOURNALIZING. Recording business transactions in the journal to have
chronological records of economic activities. Module 4
3. POSTING. The information in the general journal is transferred to the General
Ledger to create a record of classified accounts. Module 4
4. PREPARATION OF TRIAL BALANCE. Prepared to prove the equality of debits and
credits in the general ledger. Module 4
5. ADJUSTING ENTRIES. Making end of period adjustments before financial statements
are prepared so that the income and expenses in the income statement are reported
at their correct amounts. Module 5
6. WORKSHEET. Prepared to facilitate the preparation of financial statements. Module
5
7. FINANCIAL STATEMENTS. Prepared after making the necessary adjustments.
Module 5
8. JOURNALIZING AND POSTING CLOSING ENTRIES. The objective of closing entry is
to transfer the revenue, expense and drawing accounts to the capital accounts.
Module 6
9. Preparation of post-closing trial balance to ensure that the ledger remains in
balance after posting the closing entries. Module 6
THE ACCOUNTING EQUATION AND ITS ELEMENTS

ASSETS = LIABILITIES + CAPITAL

Assets Accounts: Liability Accounts: Capital Accounts

Cash Accts. Payable Capital investment of owner
Accts. Receivable Notes Payable Additional Investment
Notes Receivable Loans Payable Revenues Earned
Office Supplies WHT Payable Owner’s Withdrawals
Prepaid Expenses SSS Pre. Payable Expenses
Office Equipment Pag ibig Payable
Office Furniture Philhealth Payable
Building VAT payable
Land Unearned Revenue

BUSINESS TRANSACTIONS AND THEIR EFFECTS ON THE ACCOUNTING EQUATION

1. The owner invested P100,000 in a computer shop.

Increased in asset = increase in owner’s equity.

2. Purchased computer unit for P30,000 on account.

Increased in assets = increased in liabilities

3. Purchased computer unit for cash, P30,000

Increase in one asset = decrease in another form of asset

4. Received cash amounting to P20,000 for computer rentals

Increase in asset = decrease in liability

5. Paid the account to a supplier in full, P30,000

Decrease in asset = decrease in liability

6. Paid salaries of computer technician, P10,000.

Decrease in asset = decrease in owner’s equity (expense)

7. Borrowed money from a bank to expand operation, P20,000.

Increase in asset = increase in liability