Module 2 - The Transaction Analysis

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Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

BUSIACC - MODULE 2

Business Accounting
Busiacc/ Business Accounting (MerService Business)
Dr. Ma. Liza B. Igbuhay, CPA

Chart of Account
– Is a listing of
account titles which
guides the
bookkeeper in the
recording of
transactions.

Chart of
Account

Business Transaction
– is an event that has

some effect on the
resources of a firm or on
the source of the firm’s
assets. It is also an activity
that involves a change of
values.

Source Document
➢ Invoices – is issued when

services or merchandise is
provided or delivered to
customers.
➢ Official receipts – is issued

when payment is received
from a customer.
➢ Check/Cash voucher - is a
document used when cash is
paid or check is issued

Steps in the Recording Process
Business documents, such as a sales slip, a check, or a bill,

provide evidence of the transaction.

5 Basic classification of accounts
1. Assets – are also known in layman’s term as the properties

owned by the business.
Examples of Asset accounts are:
Cash Land Franchise
Account Receivable Building Copyright
Notes Receivable Leasehold Improvement Patents
Merchandise Inventories Office Equipment Trademarks
Office Supplies Furniture & Fixtures Goodwill
Store Supplies Store Equipment Organization Cost
Marketable Securities Automobiles Intellectual Property Rights
Prepaid expenses Machineries

2. Liabilities – are defined as present obligation of an enterprise
arising from past transaction or events. Settlement of
which will results on the outflow of an enterprises.
Examples of Liabilities accounts are:
Accounts Payable Notes Payables

Mortgage Payable Salaries Payable
Interest Payable Taxes Payable
Utilities Payable Accrued Expense payable
Unearned Revenue Loans Payable

3. Capital or Owner’s Equity – represents the

equity or claim of the owner on the assets
of the business.
Examples of Owner’s Equity accounts are:
Owner’s Capital Owner’s Drawings

4. Revenue or Income – the gross inflow of economic

benefits during the period in the form of inflows
or enhancements on assets or decrease in
liabilities
Examples of revenue accounts are:
Sales Service revenue

Professional Fees Rent Income
Interest Income Fees Earned
Subscription Revenue Commissions earned

5. Expenses – the gross outflow of economic benefits during the

period in the course of ordinary activities when these
outflows result in decrease in equity other than those
relating to distribution to owners. In simple terms
expenses are costs incurred to produce revenue.
Examples of expense accounts are:
Salaries & Wages Expenses Transportation Expense

Taxes and Licenses Supplies Expenses
Rent Expenses Utilities Expense
Advertising Expenses Repairs & Maintenance
Insurance Expense Bad Debts Expense
Depreciation Expense Miscellaneous Expense

Basic Accounting Equation
Owner's
Assets = Liabilities +
Equity
◆ Provides the underlying framework for recording

and summarizing economic events.
◆ Assets are claimed by either creditors or owners.
◆ If a business is liquidated, claims of creditors must
be paid before ownership claims.

Basic
Assets
Assets = Liabilities + Owner's Equity
Assets
◆ Resources a business owns.
◆ Provide future services or benefits.
◆ Cash, Supplies, Equipment, etc.

Liabilities
Liabilities
◆ Claims against assets (debts and obligations).
◆ Creditors (party to whom money is owed).
◆ Accounts Payable, Notes Payable, Salaries and Wages

Payable, etc.

Owner’s Equity
Owner's Equity
◆ Ownership claim on total assets.
◆ Referred to as residual equity.

◆ Investment by owners and revenues (+)
◆ Drawings and expenses (-).

Owner’s Equity
Increases in Owner’s Equity

◆ Investments by owner are the assets the owner puts into
the business.
◆ Revenues result from business activities entered into for the

purpose of earning income.
► Common sources of revenue are: sales, fees, services,

commissions, interest, dividends, royalties, and rent.
LO 3
Owner’s Equity
Decreases in Owner’s Equity

◆ Drawings An owner may withdraw cash or other assets for
personal use.
◆ Expenses are the cost of assets consumed or services used in

the process of earning revenue.
► Common expenses are: salaries expense, rent expense,

utilities expense, tax expense, etc.
Analyze the effects of business transactions on
the accounting equation.
Transactions are a business’s economic events recorded by
accountants.
◆ May be external or internal.
◆ Not all activities represent transactions.
◆ Each transaction has a dual effect on the accounting

equation.

Transaction Analysis
Illustration: Are the following events recorded in the accounting
records?
Event Purchase Discuss product

computer design with Pay rent
potential customer
Criterion Is the financial position (assets, liabilities, or

owner’s equity) of the company changed?
Record/
Don’t Record

Transaction Analysis
TRANSACTION 1. INVESTMENT BY OWNER Ray Neal decides to start a smartphone app

development company which he names Softbyte. On September 1, 2017, he invests P15,000
cash in the business. This transaction results in an equal increase in assets and owner’s
equity.

Owner's
Accounts Accounts Owner's
Transaction Cash + + Supplies +Equipment = + + Drawing + Rev. - Exp.
Receivable Payable Capital
s
1. +15,000 +15,000

TRANSACTION 2. PURCHASE OF EQUIPMENT FOR CASH Softbyte
Inc. purchases computer equipment for P7,000 cash.

Trans- Accounts Accounts Owner's Owner's
Cash + + Supplies +Equipment = + + + Rev. - Exp.
action Receivable Payable Capital Drawings
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 3. PURCHASE OF SUPPLIES ON CREDIT Softbyte Inc.
purchases for P1,600 headsets and other accessories expected to last
several months. The supplier allows Softbyte to pay this bill in October.
Illustration 1-8 Assets = Liabilities + Owner's Equity
Owner's
Trans- Accounts Accounts Owner's
Cash + + Supplies +Equipment = + + Drawing + Rev. - Exp.
action Receivable Payable Capital
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 4. SERVICES PERFORMED FOR CASH Softbyte Inc.
receives P1,200 cash from customers for app development services it has
performed. Illustration 1-8

Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 5. PURCHASE OF ADVERTISING ON CREDIT Softbyte
Inc. receives a bill for P250 from the Daily News for advertising on its
online website but postpones payment until a later date. Illustration 1-8

Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 6. SERVICES PERFORMED FOR CASH AND CREDIT.
Softbyte performs P3,500 of services. The company receives cash of
P1,500 from customers, and it bills the balance of P2,000 on account.
Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 7. PAYMENT OF EXPENSES Softbyte Inc. pays the
following expenses in cash for September: office rent $600, salaries and
wages of employees $900, and utilities $200. Illustration 1-8

Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 8. PAYMENT OF ACCOUNTS PAYABLE Softbyte Inc.
pays its P250 Daily News bill in cash. The company previously (in
Transaction 5) recorded the bill as an increase in Accounts Payable.
Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 9. RECEIPT OF CASH ON ACCOUNT Softbyte Inc.
receives P600 in cash from customers who had been billed for services
(in Transaction 6). Illustration 1-8

Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300

TRANSACTION 10. WITHDRAWAL OF CASH BY OWNER Ray Neal
withdraws P1,300 in cash in cash from the business for his personal use.
Owner's
s
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $1,300 - $4,700 - $1,950
P18,050 P18,050

Summary of Transactions
1. Each transaction is analyzed in terms of its effect

on:
a. The three components of the basic accounting
equation.
b. Specific of items within each component.
2. The two sides of the equation must always be equal.

Underlying Assumptions
➢ Accrual Basis – under this basis, the

effect of transactions and other events
are recognized when they occur ( and not
as cash or its equivalent is received or
paid) and they are recorded in the
accounting records and reported on the
financial statement of the period to
which they relate.
➢ Going Concern – the financial statements

are normally prepared on the assumptions
that an entity is a going concern and will
continue in operation for the foreseeable
future.
unsplash.com

Financial Statements
Companies prepare four financial statements :
Statement
Income of Statement
Balance
Statement Changes of Cash
Sheet
in Owner’s Flows
Equity
Comprehensive Balance sheet or the Statement of Statement of cash

Income Statement is Statement of Changes in Owners Flow is a statement
a statement that Financial Position Equity is the summary that provides
shows the company’s which show the lists of of changes in owner’s information about the
revenue and Assets, liabilities and equity that have been cash receipts and
expenses on a given owner’s equity, as of occurred during a payments of an entity
period of time specific date usually at specific period of time, for a given period of
the close of the last day such as a month or a time
of a month or a year. year.

References
Images:
● Accounting
https://www.merchantmaverick.com/the-
beginners-guide-to-accounting-software-ebook/
Books:
● Weygandt, Kimmel, Kieso (2017): Accounting

Principles, 13th Edition.
https://catatanpenelitianakuntansi.wordpress.co
m/2017/09/02/ppt-accounting-principles-13th-
edition-weygandt-kimmel-and-kieso/
● Manuel, Z. VC (2019), 21st Century Accounting

Process, Basic Concept And Procedure, 2019
● Veron, E. Jr., Anastacio, MF. (2020) Accounting

Essentials 2020 Edition
● Baguino, A. et al. (2013). Principles of Accounting.

Allen Adrian Books Inc. June 2013
unsplash.com

References
Images
• Business Transaction
https://www.toppr.com/guides/accountancy/r
ecording-transactions/business-transaction-
and-source-document//
https://study.com/academy/lesson/business-
transaction-definition-types-analysis.html
• Sales Invoice
https://gvacpas.wordpress.com/tag/bir-
sample-receipts/
• Official receipt
https://vjgraphicarts.com/official-receipt/
• Cash or Check Voucher

https://shopee.ph/10-Pads-Check-Voucher-w-
unsplash.com
Duplicate-i.1898326.1972798019

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Prepared by CIC-Branding and Creative Services

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Dr. Ma. Liza B. Igbuhay, CPA

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

– is an event that has

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

➢ Invoices – is issued when

➢ Official receipts – is issued

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Business documents, such as a sales slip, a check, or a bill,

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

1. Assets – are also known in layman’s term as the properties

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Examples of Liabilities accounts are:

Accounts Payable Notes Payables

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

3. Capital or Owner’s Equity – represents the

Owner’s Capital Owner’s Drawings

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

4. Revenue or Income – the gross inflow of economic

Sales Service revenue

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

5. Expenses – the gross outflow of economic benefits during the

Examples of expense accounts are:

Salaries & Wages Expenses Transportation Expense

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

◆ Provides the underlying framework for recording

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Assets = Liabilities + Owner's Equity

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Assets = Liabilities + Owner's Equity

◆ Creditors (party to whom money is owed).

◆ Accounts Payable, Notes Payable, Salaries and Wages

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Assets = Liabilities + Owner's Equity

◆ Referred to as residual equity.

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Increases in Owner’s Equity

◆ Revenues result from business activities entered into for the

► Common sources of revenue are: sales, fees, services,

Decreases in Owner’s Equity

◆ Expenses are the cost of assets consumed or services used in

► Common expenses are: salaries expense, rent expense,

◆ Not all activities represent transactions.

◆ Each transaction has a dual effect on the accounting

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Event Purchase Discuss product

Criterion Is the financial position (assets, liabilities, or

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

TRANSACTION 1. INVESTMENT BY OWNER Ray Neal decides to start a smartphone app

Assets = Liabilities + Owner's Equity

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Assets = Liabilities + Owner's Equity

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Assets = Liabilities + Owner's Equity

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Assets = Liabilities + Owner's Equity

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.

Copyright © 2020 De La Salle-College of Saint Benilde. All rights reserved.