Module 3 & 4 - Business Accounting 2001

By Archill B.
Yapparcon
A Learning Module in
ACCOUNTING FOR
NON-ACCOUNTANTS
MODULE 3 & 4
Accounting Information System /
Analyzing and Summarizing Business
Transactions
“Commit to the Lord whatever you do, and
your plans will succeed.”
--Proverbs 16:3--
PSU-PCAT CUYO
BUSINESS
ADMINISTRATION
Accounting Information System / Analyzing and
Module 3 & 4
Summarizing Business Transactions
&:
OVERVIEW
Let’s get started.

“The analysis of variance is not a mathematical theorem
but rather a convenient method of arranging the arithmetic.” - - Ronald Fisher
In this chapter we will be discussing how to analyze and summarize business transaction.
This time you will be learning how it is important to analyze and summarize data before
recording it. Topics to be discuss are: Accounting information system, different forms, various
accounts like T account, chart of accounts, journal entries, ledgers, the rules of debt and credit and
preparation of Financial Statement.
Submissions of Assessment and activities: December 17-21, 2021
LEARNING OUTCOMES
What are expected from you?
At the end of this chapter, you will be able to:
1. Define Accounting Information system and its importance to the business;

2. Prepare trial balance following the basic steps;
3. Apply the rules of debit and credit in journal entry;
4. Analyze Accounting Transactions;
5. Identify Business Activities;
6. Prepare financial statements using ledger accounts;
LET US EXPLORE
Activity 3.1. Let us check your prior knowledge.

What comes in your mind when you heard the word Accounting Information System (AIS)?
Describe it Three (3) words.
_____________________________________________________________________________
BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 2

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Accounting Information System
Accounting needs a planned process
for collection, storage, and processing of
financial and accounting data to provide
reliable financial information that can be
used by the management and other
interested parties. This planned process is
called Accounting Information System
(AIS).
AIS gathers and processes
transaction data and then distributes the
financial information to interested end-
users. These systems vary on the nature of
business, the transactions, the size of the
firm, the volume of data and the informational requirements that the management and stakeholders
desire.
What are these AIS?
These AIS comprises of sales, cash receipts, cash disbursements, and purchases journals. It also
includes accounts receivable, payable and subsidiary ledgers, which are listing of all transactions
that make up a general ledger account.
Importance of AIS
Below are the following reasons why AIS are very important to the business.
1. Business recordkeeping is required by law. Maintaining accounting records Is not
optional. Business entities are obliged by law to preserve books of accounts and other
accounting records that can be verified.
2. It helps to prevent unnecessary cost. Without proper business records, the enterprise
might not be able to collect receivables, pay obligations correctly, and protect its assets
effectively. Poor AIS poses greater risk to business.
3. It facilitates decision-making. Managers are generally guided by the financial information
and reports in making sound economic decisions.
AIS serve three basic functions: to collect and process data, to provide information to decision-
makers within the organization and to see that accounting personnel records information accurately
and protects data. It store not only financial data but also non-financial data in a single integrated
enterprise-wide repository.
Effective AIS must be adaptable and appropriate to the firm’s organizational structure and
policies; the system should also be able to provide specific, relevant and accurate accounting
reports efficiently; It should also provide adequate controls to ensure the reliability and accuracy of
financial data to safeguard assets, and to minimize errors and fraud.
The method of processing AIS maybe though Manual Processing and Automated or
computerized processing.

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STAGES OF ACCOUNTING INFORMATION SYSTEM
THE ACCOUNTING INFORMATION SYSTEM
ACCOUNTING THE ACCOUNTING FINANCIAL REPORTS

INFORMATION SYSTEM CYCLE
INPUTS PROCESSES OUTPUTS
✓ Basic Terminologies ✓Identifying and ✓Statement of

✓ Business Transactions recording Performance/
and Events ✓Journalizing Comprehensive
✓ Source documents ✓Posting Income
✓ Debits and credits ✓Trial Balance ✓Statement of Financial
✓ Accounting Equation ✓Adjusting Entries Position
✓ Available financial ✓Adjusted Trial Balance ✓Statement of Owner’s
records and information ✓Preparing Financial Equity
✓ Accounting policies and Statements ✓Notes to Financial
standards ✓Closing Entries statements
✓ Methods and procedures ✓Post-closing trial ✓Other disclosure
✓ Personnel, equipment Balance requirements
and devices ✓Reversing entries
✓ Ownership structure
Source Documents
These are the evidential matters, forms, or legal/ official papers that serve to support the
underlying economic transactions recorded in the accounting books.
As a rule. All source documents must be prepared, compiled, controlled, and readily
available to confirm the truthfulness and accuracy if accounting records. No data must be
recorded in the accounting books of accounts without supporting documents and approval
of recording by an authorized officer of an entity.
Source Documents usually are: Commercial/ Sales Invoice; Official Receipt; Bank Check,
Check Voucher; Petty Cash Voucher; Promissory note; Bank Deposit Slip; Debit Memo; Payroll
Sheet; and Billing or Statement of Account.
Activity 3.2. Gather and identify.

Gather at least 7 kinds of Source Documents samples and identify it.

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The Double-Entry System vs. Single-Entry System
The Double -Entry System is based on dual-aspect concept, that for every change in financial
transaction there would always be two-sided effect to the extent of the same amount in the
accounting books. The first is the assets, second is the claims against the assets. From this, the
basic accounting was derived.
Debit (Lat. Debitum, a “debtor” or “borrower”) is the value received in a business. The place of
debit in the equation is on the left-hand side. The word “charge” would also mean debit.
Credit ( Lat. Creditum, a “creditor” or “lender”) is the value parted with or the value given in a
transaction. In every value received, there must be corresponding value parted with. The place of
credit in the equation is on the right-hand side.
The double entry system is the basis of modern accounting theory. It is known as the most
acceptable accounting system in recording accounting transactions and events due to these following
reasons: (a) it results in a more accurate accounting records and financial reports; (b) It allows a more
convenient means of recording business transactions and events; (c) It also provides numerous ways to
safeguard and check intentional and unintentional errors committed by accountants.
GENERAL JOURNAL PAGE NUMBER __________
DATE DESCRIPTIONS PR # DEBIT CREDIT

2021
10/14 Cash Php 100,000
Sales 100,000
To record Sales on cash
10/15 Salary Expense 40,000
Cash 40,000
LEFT SIDE
Salary Expense for the Month of October
RIGHT SIDE
Under the single-entry system, the business records contain merely essential descriptions of business
transactions and event using the cashbook or checkbook. Cashbook contains all cash receipts and cash
disbursements during a period. No specific accounts for receipts and disbursements that are to be debited or
credited.

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CASHBOOK
DATE DESCRIPTIONS Disbursement Balance
2021 Receipts
Balance Forwarded 80,000
10/14 Sales per OR# 0001 100,000 180,000
10/15 Payment of Salaries 40,000 140,000
The Accounts and the Book of Accounts

An Account is an accounting form of record in which the effect of similar business transactions are grouped
or classified. Account could be in the form of a column on a spreadsheet, a separate card or piece of paper,
or a specified location in a computer memory.
The “Journals” and the “Ledgers” are the book of accounts that are commonly used in recording economic
transactions and events.
The Journal is commonly called the “books of original entry”, which is used to initially record business
transactions and events.
The Ledger, known as the “book of final entry”, which the accounts and their related amounts recorded in
journal are posted and summarized periodically, and the balances of accounts contained in it are used to
prepare the financial reports.
THE T – ACCOUNT
An account expressed in a “T” device form where the debits are recorded on the left-hand side and credits
are recorded on the right-hand side of the letter T.
To debit is to record the value received in an economic transaction.
To credit is to record the value parted with in an economic transaction.
T-account has three parts, the account title (name), the debit side and the credit side.
T - ACCOUNT
Account title – describe the specific item of account
CASH involved in a transaction. Other examples are accounts
receivable, inventory, land, accounts payable, etc.
DEBIT CREDIT
1/1 20,000 1/05 10,OOO
1/8 15,000 1/15 3,000

Debit represents Credit represents
increases in assets and decreases in assets and
expenses; and expenses, and
decreases in liability, increases in liability,
capital and revenue. capital and revenue.
The difference between the total debits and credits in the accounts is called the account balance. If total
debit exceeds the total credit, the account has a debit balance and if credit exceeds debit it has credit balance.

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Activity 3.3. T-account application.
Analyze the following transactions of a merchandise business and make a T-account record.
Jan. 1. M. Garcia started his business with initial capital of P100,000
Jan. 5. Purchase Equipment on account worth P10,000.
Jan 8. Bought Merchandise amounting to P50,000.
Jan 10. Sold merchandise to customer Z worth P20,000.
Jan. 15. Sold merchandise on account to customer V worth P10,000.
Jan. 18. Borrowed money from RCBC bank amounting to P30,000 payable in One (1) year.
Jan. 20. Bought merchandise on account from C Company worth 30,000 on account payable in 1
month.
Jan 24. Paid Salaries worth P12,000.
Jan. 26. M. Garcia withdraw P10,000 from business capital.
Jan. 30. Paid operating expenses: Rental P8,000; Utilities P1,300; Advertising expense 800;
Salaries 8,000
The Chart of Accounts

This is the listing of all the accounts the business uses to record economic transactions.
The increase and decrease in an accounting element as affected by business transaction are recorded in a
device called account name, account title, or account.
The chart of accounts is usually arranged in the financial statement order – that is, asset account first,
followed by liability accounts, Owner’s Equity, Revenue and Expenses accounts.
The account number is assigned to each account. It is used to facilitate recording, arranging, and
cross-referencing of the accounts. Assets start with 100 and 200; liabilities start with 300 and 400; Owner’s
Equity start with 500; revenues start with 600 and 700; and expenses start with 800 and 900.

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Sample chart of accounts of a sole proprietor engage in service business.

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Classification of Journal Books.
There are two classification of journal books – the general journal and special journal.
Steps in Journalizing a transaction
1. Enter the date.
2. Enter the debit account title and its amount
3. Enter the credit account and its amount.
4. Enter the explanation
Note that the posting reference (PR) column is not yet used at the time transactions are recorded in the
journal.
Sample General Journal (Two-column Journal)
GENERAL JOURNAL PAGE NUMBER _____

2021
10/14 Accounts Receivable 200,000
Sales 200,000
To record Sales on account invoice # 1234
10/15 Cash 100,000
Accounts receivable 100,000
To record collections of A/R
✓ The date column is for recording the date in which the transactions is journalized.
✓ The description column is for account titles (Debit/credit) identify the source document and the
nature of transactions
✓ PR stands for posting reference. This used to cross-reference the account to the general ledger.
✓ The debit and credit column are used to record the amount of the transactions.
✓ Page number is preprinted and will be used to cross-reference the account to the general ledger
page
✓ Leave one blank line / space between each journal entry.
The ledgers
It refers to the accounting book in which the accounts and their related amounts as recorded in the journal
are posted periodically. This is known as the book of account because the balance of accounts in the ledger
is used to prepare financial statements. It is sometimes called the “modified T-account,’ because of its form.
Two kinds of ledgers: general ledger and subsidiary ledger.
Step in posting from journal entry to the Ledger:
1. Locate the corresponding account in the Ledger.
2. Transfer the following information from the journal to the respective account ledger.
• Date
• Explanation
• Debit or credit amount
3. Place the page of the journal where the information transferred is located in the post-reference column of
the ledger account.
In the Journal:
4. Place the number of the account as indicated in the ledger in the PR column of the journal.

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A general ledger is a grouping of all the accounts used in preparing the financial statements. It is called
controlling account, because it reports in summarized form the activities that have taken place as recorded in
its subsidiary ledger.
The General Ledger (Two-column Ledger)
GENERAL LEDGER
Account: Accounts Receivable Account No. 120
Date Date
Item PR Dr. Item PR Cr.
2021 2021
1/1 Beginning balance 50,000 1/15 Collections GJ-02 100,000
1/2 Sales on account GJ 200,000
✓ Date identifies when the transactions happened

✓ Name of the Account (Cash, Accounts receivable, etc.)
✓ An account number which is assigned to each account is used in recording and cross-referencing.
✓ Item describes the nature of transaction in which the account is involved.
✓ The PR will be taken from general journal page of the transaction.
✓ The transactions columns are used for recording the amount of the transactions taken from general journal.
Note: The running debit balance of the accounts receivable ledger is 150,000, computed as follows:
Total debits P250,000
Less: Total credits 100,000
Accounts receivable balance P150,000
The Subsidiary Ledger

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Notes:
1. The 150,000 accounts receivable in the general ledger is the total of the claims from Balingit and
Cuesta which is P50,000 and P100,000, respectively.
2. Some accountants journalize a single account title consisting of both general and subsidiary ledger
accounts as the following:
GENERAL LEDGER

2021
10/14 Accounts Receivable – Cuesta Enterprise 200,000
Sales 200,000
General ledger Subsidiary ledger
THREE TYPES OF LEDGER:

➢ Two-Column Ledger
➢ Three-Column ledger
➢ Four-Column ledger

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Illustration:
Transaction: Mr. JC invested P50,000 cash in his business evidenced by Official Receipt No. 005. The Journal
entry and the corresponding posting to the ledger would be:
THE TRIAL BALANCE

It is a device used periodically test the equality of debits and credits as recorded in the ledger accounts.
This device is presumptive proof of recording correctly the account’s debits and credits.
Basic procedure in making trial balance is the transfer of ledger accounts’ open balances to another
accounting form in order to check the accuracy of the debit and credits total.
Footing the General Ledger Accounts (Manual Accounting)
Before Trial Balance is made, each general ledger account with more than one entry on either both
sides are footed. This means that the amount on each side of the account is totaled.
Footing is usually made if the ledger is a two-column ledger. However, if the ledger were a three-column or a
four-column ledger, footing would not be necessary because the ledger accounts have their respective
running balance already.
Open and Closed Accounts.
Closed Account. When the debit and the credit total of an account are equal. This means that the account
title shall not be transferred anymore to the trial balance because the account has a zero-balance.

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Open Accounts. When the debit total and the credit total, of an account are not equal. It has a remaining
ending balance.
Account Balance. The difference between the debit and credit total of an open account.
STEPS IN PREPARING THE TRIAL BALANCE (MANUAL ACCOUNTING)

1. On a two-column journal paper, write the heading at the top. The heading shows the name of the
business first line, trial balance on the second line, and the date or month and year for which the trial
balance is being prepared on the third line. Each line of the heading is preferably centered on the page.
2. Determine all open accounts in the ledger. Accounts with no remaining balance are excluded from the
trail balance. Write the title of each open account in the description column of the trial balance. If it has
a debit balance, write the balance in the debit amount column of the trial balance; otherwise, write it in
credit amount column.
3. All debit and credit account titles in the trial balance are written with the same margin from the left side
f page; that is, credit account titles should not be indented.
4. Add each amount column and write the totals in small pencil figures in the uppermost portion of the
space below the single ruling, If the two totals are equal, write them in ink on the line.
5. Draw the double lines under the total od the debit and credit columns. Do not write the totals in ink and
do not draw the double lines until the debit total equals the credit total.
Trial Balance with Equal Sides
When the debit and credit totals of the trial balance are equal, the trial balance is said to be in balance
or equal. However, this only proves that the debits and credits in the ledger are equal in amount but it does
not guarantee the correctness of the bookkeeping records.

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Trial Balance Out-of-Balance
If the trial balance totals are not equal, the trial balance is said to be out-of-balance. This is a positive
proof of the existence of one or more errors. The main causes of the errors are the following:
1. Posting to the wrong side of account.
2. Erroneous copying when transferring a balance.
3. Omission of the posting of either a debit or credit entry in the journal.
4. Posting the same account twice; and/or
5. Wrong addition or subtraction in the determining the balance of an account.
Normal Balance of Accounts

The accounting equation is divided into two sides (left and right) which are accounted to always maintain a
balanced amount.
If the SFP is constructed immediately after each transaction, it should always be that the total assets must be
equal to the totals of the aggregate liabilities and owner’s equity.

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Normal Balance of Statement of Performance / Comprehensive Income Accounts
Normal Balance of Statement of Financial Position Accounts
The “two sides” of the accounting equation is an application of the dual aspect concept which
provides that every value received must have a corresponding value parted with.
The two equal sides define the foundation of the rules of debit and credit.
THE RULES OF DEBIT AND CREDIT

The rules of debit and credit are based on the normal balance of an accounting element or account.
The term “normal balance of an account” refers to the usual position of account in T-account.
Rule 1 – Assets: Debit to increase the amount of asset.
Credit to decrease its amount.
To illustrate, assume the following information:

1. January 5, Pearl Services bought P3,000 worth of supplies on account.Pearl used P2,500 worth of
supplies during the month.
The remaining unused supplies at the

end of the mount amounting to P500.
Using T-account method, the analysis
would be as follows:

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Rule 2: Liability: Credit to increase the amount of liability.
Debit to decrease its amount.
Illustration: Assume the following transactions:

1. January 5 – Pearl Services bought P3,000 worth of supplies on account.
2. January 18 – Pearl paid P1,800 for the said obligation.
After partial payment, the remaining

accounts payable decreases to P1,200.
Using T-account method the analysis would
be as follows:
Rule 3: Owner’s Equity: Credit to increase the capital

account
Illustration:
1. January 1 – J. Pearl invested P90,000 cash into his business.
2. June 1 – J. Pearl withdrew P60,000 vash as permanent withdrawal from the business.
The remaining balance of capital after the

permanent withdrawal by the owner
amounting P30,000.
RULE 4 – Revenue: Credit to increase the revenue account.

Illustration:
1. December 1 – Pearl Service recorded service income of P10,000
2. December 31 – Pearl determined that the recorded service income on December 31 should not be
P10,000. The correct amount is P1,000. Pearl reduced the service income by P9,000.
Using T-account method, the analysis would be as follows:

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Rule 5 – Expense: Debit to increase expense account.
Credit to decrease its amount.
To illustrate, assumes the following information:
1. December 15 – Pearl Service paid P12,0000 for rent expense.
2. December 31 – Pearl Service discovered that the correct amount of rent expense is P1,200 instead of
P12,000. Pearl reduced the rent expense account by P10,800.
Observe that after the credit to the rent expense
by P10,800 its balance was reduced to P1,200.
Using the T-account method, the analysis would
be as follows:
Summary of Debit and Credit Analysis

The T-account, when used as a tool to analyze the effects of business transactions, maintains the equation:
DEBITS=CREDITS.
Reflecting the rules of debit and credit in the T-account could be summarized as follows:
Activity 3.4. THE WORD OF DEBIT AND CREDIT.

Using the transactions from Activity 3.3.
Analyze the transactions of a merchandise business applying debit and credit and prepare the
following:
✓ Journal entries
✓ Chart of Accounts
✓ Ledgers
✓ Trial Balance
The Basic Accounting Equation

The accounting equation is an accounting formula expressing the equality of asset, and equity (liabilities and
capital) in every business transaction.
This equation is made up of the elements comprising the statement of Financial Position as expressed in the
following formula:

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This accounting equation plays a vital role in analyzing and recording economic transactions and events of a
business enterprise.
Accounting Equation and its Elements.
The Expanded Accounting Equations:

The basic accounting equation depicts only the Statement of Financial Position elements.
It is because they represent real (permanent) accounts,
Which are usually maintained at the end of the accounting period.
The revenue (profit/ income) and expense (loss) accounts, as elements of statement of
Comprehensive Income / Statement of Performance, are only nominal (temporary) accounts. They are usually
closed to the capital at the end of the accounting period.
The capital account is increased by any revenue (profit/ Income) and decreased by any expense (loss).
Accordingly, the accounting equation can be expressed in its expanded form as follows:
From the expanded accounting equation, the equation for working capital has been derived.
WORKING CAPITAL
The term as working capital refers to the difference of business current assets and current
liabilities, which ensures that the business has sufficient resources to continue its operations
smoothly and avoid costly interruptions. Lack of working capital can lead to a failure of a business
If the business has a current assets in the amount of P 70,000

Current liabilities of 35,000
The Business working capital would be: P 35,000

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In this case the working capital ratio is 2:1, computed as follows:
Current assets P 70,000
Divide by current liabilities P 35,000
Working Capital Ratio 2
The ratio implies that in every P1 current liability, the business has an available P2 to pay. Thus,
the excess of P1 can be used as current back-up resources to continue the current operations
smoothly.
BUSINESS TRANSACTIONS AND THE ACCOUNTING EQUATION
Every business transaction affects two or more accounts. Transactions are recorded in the
accounting books using the double-entry system. In each transaction, the value of debits is always
equal to the value of credits.
Illustration:
Transaction Effects in the Accounts Amount
Debit Credit
1. The owner invested Increase in cash(asset) 100,000
P100,000 cash in Increase in Owner’s Equity 100,000
his business.
In accounting Equation form, the effect is describe as:

Asset = Liabilities + Owner’s Equity
100,000 = P- 0 - + P100,000
2. Purchased equipment Increased in equipment (asset) 20,000

P20,000, P5,000 down Decrease in cash (asset) 5,000
payment balance on Increase in Accounts payable(liabilities) 15,000
account

(P5,000)
20,000 = P15,000 + P–0–
3. Received P50,000 cash Increase in cash (asset) 50,000

Proceeds of loan granted Increase in notes
By the bank. Issued P50,000 payable (liabilities) 50,000
Promissory note for the amount

P50,000 = P50,000 + P–0-

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Summary of transactions 1, 2, and 3.
Cash P145,000 Accts payable P15,000
Equipment 20,000 Notes payable 50,000 Owner’s equity P100,000
Total P165,000 = P65,000 + P100,000
Owner’s Drawing Account vs. Owner’s Capital Account
ANALYZING AND ACCOUNTING FOR BUSINESS TRANSACTIONS
The process of analyzing accounting transactions comprises the determination of accounting

elements affected and their effects in the accounting equation, the choice of the appropriate
account title to be debited or credited, and the computation of the correct amount to be recorded in
the books of accounts.
Usually accountants mentally answer the following questions:
Question No. 1 – What is the value received? (debit)

Question No. 2 – What is the value parted with? (credit)
Question No. 3 – What accounting elements are affected? (Assets, Liabilities, or Owner’s Equity)
Question No. 4 – What are their effects to the affected accounting elements.
Question No, 5 – What appropriate account title will describe the effect of transactions?
Question No. 6 – How much is the amount to be recorded for a particular account title?

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An analysis of the effect of a transaction should always be guided by the basic rules of debit
and credit as follows.
DEBIT CREDIT
Increase in Decrease In
Assets Assets
Expenses Expenses
Decrease In Increase In
Liabilities Liabilities
Owner’s Equity Owner’s Equity
Revenues Revenues
BUSINESS ACTIVITIES
The Economic Activities of the business are classified into operating activities, investing
activities and financing activities.
Operating Activities. Are those transactions which are conducted to generate revenue to the
business.
The items on operating activities and their effects on cash flows are:
Increase in Cash Decrease in Cash

Cash receipt from: Cash payment for:
• Sales of goods or services • Purchases
• Sales of Trading Securities • Operating expenses
• Interest income • Taxes
• Dividend income • Interest expense
Investing Activities arise from business transactions involving acquisition and disposal of assets
other than inventory, which are needed in the operation of the business.
Below are the items on investing activities and their effects on cash flows:
Increase in cash Decrease in cash

Cash receipt from: Cash payment for:
• Sale of plant assets • Purchase of plant assets (equipment)
• Sale of non-trading securities • Purchase of non-trading securities (office
• Sale of business segment supplies)
• Collection of loans • Making loan to other entities.
Financing Activities refer to transactions between the business and its owner(s) and creditors
(lenders).
Main concern of this activity is to raise working capital for the business.

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Below are the items on financing activities and their effects on cash flows:
Increase in cash Decrease in cash

Cash receipt from: Cash payments for:
• Owner’s investment • Owner’s drawings
• Notes Payable • Payments for notes payable
PREPARATION AND RELATIONSHIPS OF FINANCIAL STATEMENT

Preparation of Financial Statements
The results of routine transactions of the accounting process are made through the preparation of
financial statements.
Using the analysis of business transactions, the final statement that can be prepared are the basic
(a) Statement of Performance; (b) Statement of Owner’s equity; (c) Statement of Financial Position
and (d) Statement of Cash flows; and (e) Cost of Good sold (for merchandising accounting)
Relationship of Financial Statement.

The basic financial statements complement each other because they are taken from related
transactions.
The cash flows statements reveal that not all service income has been collected so even if
there was an operating net income, the cash flows from operations might have a negative cash. This
is because the cash flow statement reports only cash activities affecting operations while statement
of performance or comprehensive income reports the results of operation comprising both cash and
noncash item (collectibles and unpaid expenses)
LET US WRAP UP
Why analyzing and summarizing important in accounting?
Analyzing business transactions is a vital operation in accounting. It is where you should account
all transaction applying the rules of debit and credit. You can also check the business profitability
and liquidity upon checking the ratio of your working capital. Analyzing will also guide you in
attaining a well balance accounting statement.
Summarizing business transactions help us to easily prepare the financial statement.

It is one of the accounting procedures that is also important in preparing business financial records.
All transaction will be recorded systematically and chronologically.

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LET US ASSESS
WO5. Part 1. Identification. Rules of Debit and Credit. (1 pt. each)

Instruction: Indicate whether each account is to be debited (Dr.) or credited (Cr.).
________ 1. Owner’s Drawing was increased.
________ 2. Increase Merchandise Inventory
________ 3. Accounts receivable was collected
________ 4. Accounts payable was paid.
________ 5. Operating expenses was paid
Identify Business Activities: Indicate which of the above transaction belongs to:
(1) Operating Activities; (2) Financing Activities (3) investing activities
______________________ 6. Purchased goods for sale
______________________ 7. Sold gods to the customers.
______________________ 8. Collected amounts from clients for previous sales or credit.
______________________ 9. Purchased equipment for business use.
_____________________ 10. Withdrew money for owner’s personal use.
Part 2. Problem Solving.
1. Analyze the accounting transaction and fill up the transaction analysis table and general journal
as shown Below: (5 pts)
Transaction: pretend that you own a business and you received a customer’s check for a car sale as
of November 28, 2021 worth P250,000 from ANC Company.
Note: the check date is December 16, 2021
Transaction Analysis
Value received:
Accounting element affected: ___________________________________________
Account to be debited: ________________________________________________
Amount to be debited: ________________________________________________
Value parted with:
Accounting element affected: ______________________________________
Account to be credited: ___________________________________________
Amount to be credited: ______________________________________________
2. Analyze the following transactions of a Service company. Apply the rules of debit and credit thru journal
entries. (10)
Bitoy registered a sole proprietorship for a janitorial services business under the name Bitoy Janitorial
Services. He experienced the following events during the organizing phase of his business
October 1 - Started his business with initial investment of P20,000

1 - Incurred P3,000 for Bitoy Janitorial Services Office registration.
1 - Paid two months advance rent payment of the office space worth P6,000.
3 - Purchased cleaning equipment worth P15,000, paying P5,000 and the balance on account.
5 - Rendered one day cleaning service in the house of Big Brother for P1,000. The expenses
incurred during the cleaning were:
Salaries for the cleaning crew P300
Cleaning supplies 300

Module 3 & 4
&:
7 - Rendered one week cleaning of the City Library building for P7,000. Received cash of
P3,000 and another cash of P4,000 to be received after a week. Expenses incurred were:
Salaries of cleaning crew
(P2,000 was paid in cash and the other P2,000 is payable next week. P4,000
Cleaning supplies (paid in cash) 1,000
13 - Collected the remaining P4,000 from City Library
14 - Paid the cleaning crew of P2,000
18 - Received cash of P1,000 for advance payment of cleaning service scheduled on Oct. 20.
20 - Incurred expense for the schedule cleaning service:
Salaries of cleaning crew P300
Cleaning supplies (paid in cash) 200
21 - Rendered 4 days cleaning of Mr. Marasigan Mansion for P4,000 with additional tip of
P1,000. Expenses incurred were:
Salaries of cleaning crew P2,400
Cleaning supplies (paid in cash) 600
25 - Withdraw P1,000 from the business capital.
29 - Paid 3% service tax during the period.
30 - Paid monthly expense; utilities P1,000.
4. Using the same transactions make the following: (10 pts)

(a) Chart of Account
(b) post journal entries to the general ledger
(c) and prepare the trial balance following the steps.
5. Prepare the following Financial Statements: (5 pts)

a. Statement of Performance
b. Statement of owner’s Equity
c. Statement of Financial Position
d. Cash Flow Statement.
Part 3. Essay.
1. What is Accounting Information System and its importance to the business? (5 pts)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
ANSWER KEY
Provided a sample copy of Financial Statements.
REFERENCES
Books
1. G. A. Rante, 2013 Edition Fundamentals of Accounting, accounting for Service,
Merchandising and Manufacturing Entities
2. E. G. Valencia, G. F. Roxas, (2014-2015) Basic Accounting, Concepts, Principles, Procedures
and Applications 4th Edition (2014-2015).

Module 3 & 4 - Business Accounting 2001

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Module 3 & 4 - Business Accounting 2001

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By Archill B.

Let’s get started.

Submissions of Assessment and activities: December 17-21, 2021

What are expected from you?

At the end of this chapter, you will be able to:

1. Define Accounting Information system and its importance to the business;

Activity 3.1. Let us check your prior knowledge.

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 2

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 3

THE ACCOUNTING INFORMATION SYSTEM

ACCOUNTING THE ACCOUNTING FINANCIAL REPORTS

INPUTS PROCESSES OUTPUTS

✓ Basic Terminologies ✓Identifying and ✓Statement of

Activity 3.2. Gather and identify.

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 4

GENERAL JOURNAL PAGE NUMBER __________

DATE DESCRIPTIONS PR # DEBIT CREDIT

To record Sales on cash

10/15 Salary Expense 40,000

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 5

Balance Forwarded 80,000

10/14 Sales per OR# 0001 100,000 180,000

10/15 Payment of Salaries 40,000 140,000

The Accounts and the Book of Accounts

1/1 20,000 1/05 10,OOO

1/8 15,000 1/15 3,000

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 6

Jan. 1. M. Garcia started his business with initial capital of P100,000

Jan. 5. Purchase Equipment on account worth P10,000.

Jan 8. Bought Merchandise amounting to P50,000.

Jan 10. Sold merchandise to customer Z worth P20,000.

Jan. 15. Sold merchandise on account to customer V worth P10,000.

Jan 24. Paid Salaries worth P12,000.

Jan. 26. M. Garcia withdraw P10,000 from business capital.

The Chart of Accounts

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 7

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 8

GENERAL JOURNAL PAGE NUMBER _____

DATE DESCRIPTIONS PR # DEBIT CREDIT

To record Sales on account invoice # 1234

10/15 Cash 100,000

Accounts receivable 100,000

To record collections of A/R

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 9

1/2 Sales on account GJ 200,000

✓ Date identifies when the transactions happened

The Subsidiary Ledger

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 10

DATE DESCRIPTIONS PR # DEBIT CREDIT

General ledger Subsidiary ledger

THREE TYPES OF LEDGER:

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 11

THE TRIAL BALANCE

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 12

STEPS IN PREPARING THE TRIAL BALANCE (MANUAL ACCOUNTING)

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 13

Normal Balance of Accounts

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 14

Normal Balance of Statement of Financial Position Accounts

THE RULES OF DEBIT AND CREDIT

To illustrate, assume the following information:

The remaining unused supplies at the

BA 2001 – ACCOUNTING FOR NON-ACCOUNTANTS 15