Compilation Baen

1
Pre-Assessment:
Classify the following establishments whether they are Service Concern, Trading or
Merchandising, or Manufacturing. Put your answer on the appropriate blank provided for.
1. Cebu Pacific Airlines _______________________
2. South Star Drugstore _______________________
3. Far Eastern University _______________________
4. Abbot Laboratories _______________________
5. Smart Philippines _______________________
6. San Miguel Corporation _______________________
7. Colgate Palmolive Philippines _______________________
8. SyCip Gorres Velayo & Co. _______________________
9. Toyota Philippines _______________________
10.Red Ribbon Bakeshop _______________________
Course Code and Title: BAEN – Fundamentals of Accounting Review (BSBA)
Lesson Number 1: Accounting and Its Environment
Topic 1: Accounting history, meaning and its importance, types and forms
of Business Organization.
Lesson no. 1 introduces the brief history of accounting, the definition, and the importance
of accounting to the learners. It discusses the types and forms of business organization as
well as the users of financial information.
Professor: Ms. Rosario A. Calamba, CPA, MBM, PhD cand
Learning Objectives:
At the end of this lesson, the student should be able to:
• Know and understand the brief history of accounting and the meaning of accounting
• Differentiate the forms, nature, and types of business organization
• Identify the users of financial / accounting information

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Lesson Presentation:
Introduction:
Accounting is the information system that measures business activities, processes that
information into reports, and communicates the results to decision-makers. The better one
understands accounting; the better one can manage the financial aspects of living and the
better the financial decisions will be.
Definition of Accounting:
The Statement of Financial Accounting Standards (SFAS) defines accounting as:
“Accounting is a service activity. Its function is to provide quantitative information,
primarily financial in nature, about economic activities, that is intended to be useful in
making economic decisions”.
The American Institute of Certified Public Accountants (AICPA) defines accounting as
follows:
“Accounting is the art of recording, classifying, and summarizing in a significant manner
and in terms of money, transactions, and events which are, in part at least of financial
character, and interpreting the results thereof.”
The American Accounting Association (AAA) defines accounting as follows:
“Accounting refers to the process of identifying, measuring, and communicating economic
information to permit informed judgments and decisions by users of the information.”
BRIEF HISTORY OF ACCOUNTING:
The present recording system which is already innovative in the procedure and is
designed to fit the changing need of our current economic development gives growth also to
the development in the practice of accounting profession worldwide can be traced in the work
of a Franciscan monk by the name of Luca Pacioli.
In Venice, as early as November 1494, this Franciscan monk had published a book that
contained the primary principles of Mathematics and incidentally a set of accounting
procedures. The title of this book was “Summa de Arithmetica, Geometria, Proportioni et
Propotionalita” (Everything about Arithmetic, Geometry, Proportions, and Proportionality)
which later earned him the title “Father of Accounting”
Online Reference: Read: https://wwwfacebook.com/commerceiets
TYPES OF BUSINESS OPERATION:
A business firm earns profit depending on its type of operation or activity. They may be
classified in terms of what they offer, sell, or produce. There are at least three general types
of business operation as follows:
1. Service Business – a business that provides services as its main product with no
physical form. It may be an exercise of profession, expertise, advice, and other similar
products.
Examples:
a. Laundry shops
b. Hospitals
c. Professionals like Medical Practitioners, Lawyers, Accountants, etc.
d. Schools
e. Banks
2. Merchandising Business – a business that buys and sells goods or products without
changing its form. They buy products at wholesale price and sells the same at retail
price.
Examples:
a. Drugstore
b. Furniture stores
c. Groceries and supermarkets
d. Department store
e. Appliance store
3. Manufacturing Business – a business that buys raw materials and supplies to be

processed or manufactured into finished products for sale at a profit. (Rafael Lopez,
Revised Edition 2018)
Examples:
a. Car manufacturers like Toyota, General Motors, Hyundai, etc.
b. Makers of athletic shoes like Nike, Adidas, etc.
c. Garment factories
d. Beverages companies like Coca-Cola, Pepsi-Cola, etc.
e. Manufacturers of personal products like Unilever, Lamoiyan Corp.
FORMS OF BUSINESS ORGANIZATION
There are three (3) forms of business organization as follows:
1. SOLE PROPRIETORSHIP – a business owned by only one person or individual.
This is the simplest form of business organization where capital is owned and provided
by one person called “proprietor” who may manage the business by himself or hire
another person to do so. (Lopez, 2018)
Characteristics of Sole Proprietor:
a. Single Ownership – only one person owned the business
b. One-man Control – owner manages the business
c. Less Legal Formalities – very few legal restrictions
d. No Sharing of Profit and Loss – owner bears the business profit or loss
e. Risk – owner bears all the risks
Advantages of Sole Proprietor:
a. Ease of Formation – easy to open/register and close the business
b. Prompt Decision – owner solely makes the decision
c. Secrecy – benefits of business confidentiality
d. Flexibility – easy to adjust concerning the business operation
e. Freedom – total control on the part of the owner
Disadvantages of Sole Proprietor:
a. Limited Capital – only the owner made the investment

b. Unlimited Liability – bears all the business liabilities in case of closure
c. Lack of Continuity – business ceases when an owner dies or incapacitated
d. Limited Size – the owner is the sole investor
e. Lack of Managerial Expertise – limited management skills
2. PARTNERSHIP – a business owned by two or more individuals who entered into a
contract to carry on a business and divide the profits among themselves. (Win Ballada,
2018)
Characteristics of Partnership:
a. Mutual Contribution
b. Division of Profits and Loss
c. Co-ownership of Contributed Assets
d. Mutual Agency
e. Limited Life
Advantages of Partnership:
a. More Capital Infusion – more partner, more funds to the business
b. Ease in Business Management – because more owners are involved
c. Benefit of Collaboration - better business decisions
d. Sharing of business risk and responsibility
e. Low extent of government regulations
Disadvantages of Partnership:
a. Indefinite or Limited Life – disagreements may arise among the partners
b. Unlimited Liability – each partner is liable for the partnership debts
c. Conflict in Decision Making – there is a risk of disagreements and friction
d. Division of Profits among Partners
e. Joint Accountability -
3. CORPORATION – a business organized by one or more shareholders/stockholders
that has a separate legal personality from its owners. It is created by the operations of
law and the ownership is represented by the shares of stocks.
Attributes of Corporation:
a. An artificial being – with separate personality and apart from its shareholders or
members.
b. Created by operation of law – it requires special authority or grants from the
State, either by a special incorporation law that directly creates the corporation
or by means of general corporation law.
c. Enjoys the right of succession – has the capacity of continued existence
d. Has the power, attributes, and properties expressly authorized by law or incident
to its existence.
Advantages of Corporation:
a. Easy Availability of Capital – greater ability to acquire or raise funds
b. Unlimited Life – continuity of existence
c. Ownership Transfer – shares of stocks can be transferred without the consent
of the other shareholders
d. Limited Liability – shareholders liability up to the extent of their investment
e. Management is centralized in the board of directors
Disadvantages of Corporation:
a. Complex Process – relatively complicated in formation and management
b. Start-up Costs are higher - difficult and costly to organize
c. Greater degree of government control and supervision
d. Subject to heavier taxation than other forms of business organization
e. Abuse of power – there is the tendency of corruption
4. COOPERATIVE – an autonomous and duly registered association of persons with a
common bond of interest, who have voluntarily joined together to achieve their social,
economic, and cultural needs and aspirations by making equitable contributions to the
capital required, patronizing their products and services and accepting a fair share of
the risks and benefits of the undertaking in accordance with universally accepted
cooperative principles. (CDA)
Characteristics of Cooperative:
a. Voluntary membership – anybody is free to join and can leave anytime
b. Open membership – open to all who are interested
c. Equal voting rights – based on the principle of “one man, one vote”
Advantages of Cooperative:
a. Unlimited life
b. Equality of members
c. Tax benefits
d. Limited liability
e. Greater ability to attract capital
Disadvantages of Cooperative:
a. Shared control
b. One member, one vote
c. Prone to poor management
d. Difficulty to sustain growth
e. Susceptible to corruption
USERS OF FINANCIAL INFORMATION
The financial information of a business entity is used by a variety of groups and for different
purposes. Users of financial information are called stakeholders who have interest in the
business. They can be grouped into either internal or external users.
Internal Users – they are the primary users of financial / accounting information.
1. Investors / Owners
- To assess how well their business is performing.
- To know about the profitability of the overall business
- To determine whether they should buy, hold or sell their investments

2. Management
- To plan, monitor and make business decisions
- To monitor the business performance as compared to past performance, competitor
analysis, key performance indicators, and industry benchmarks.
3. Employees
- To assess the ability of the enterprise to provide remuneration, retirement benefits,
and employment opportunities.
- To have the chances of joining the business as potential investors as well.
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External Users
1. Lenders and Creditors
- To determine whether their loans and the related interest will be paid when due
2. Customers
- To assess the continuance of an enterprise especially when they have a long-term
involvement with or are dependent on the enterprise.
3. Suppliers and Other Trade Creditors
- To determine whether amounts owing to them will be paid on maturity
- To assess whether the business condition for sustainable growth
4. Government and their Agencies
- To regulate the activities of the entity, determine taxation policies, and as a basis
for national income and similar statistics.
5. Public
- Enterprises affect members of the public in a variety of ways. For example,
enterprises make substantial contributions to the local economy in many ways
including the number of people they employ and their patronage of local suppliers.
Financial statements may assist the public by providing information about the trends
and recent developments in the prosperity of the enterprise and the range of its
activities. (Rafael Lopez, Jr., 2018)
Online Reference:
https//youtu.be/PxnfbMBUFwM
Generalization
The topic is all about the introduction of accounting to the learners by knowing its brief
history, the meaning of accounting, the different types and forms of business organization, its
features, advantages, and disadvantages of those business entities. It discusses also the
users of financial statements classified into internal and external users of the accounting
information and how it affects the business in general.
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Activity/ Evaluation:
I. True or False: Write the word “True” if the statement is correct and “False” if the
statement is incorrect in the space provided for:
__________1. Accounting is considered the language of business because it is used as a
medium of communication understandable in the business world.
__________ 2. Manufacturing companies buy raw materials, convert them into products, and
then sell the products to other companies or final consumers.
__________ 3. Mutual agency means that each partner has the right to bind the partnership
contracts.
__________ 4. The number of voting shares in a cooperative is on “one man, one vote basis”.
__________ 5. A corporation is an economic unit that is legally separate from its owners.
__________ 6. Work or services that may either be personal manual efforts or intellectual
may also be contributed to a partnership.
__________ 7. Customers need financial information to enable them to determine whether
their loans and the related interest will be paid when due.
__________ 8. An entity may adopt any of the accounting periods as long as the period was
chosen is reflective of the results of the operation.
__________ 9. Financial statements are prepared and communicated to various users
“periodically”.
__________ 10. A corporation can be held liable for the personal indebtedness of a
shareholder.
__________ 11. An advantage of the partnership form of business is that each partner’s
potential loss is limited to that partner’s investment in the partnership.
__________ 12. The separation between the owner and the business is only an accounting
assumption but it is not true in the real situation.
__________ 13. A corporation has continuity of existence which permits the business to
continue regardless of changes in ownership or the death of a shareholder.
__________ 14. If the creditor has no claim over the assets of the business, such assets are
solely owned by the business.
__________ 15. A partnership cannot be established for religious purposes.
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II. Identify each of the following words as either internal use or external user of
accounting information. Write I for internal and E for external.
_________ 1. Stockholders __________ 6. Suppliers
_________ 2. Government __________ 7. Educational Institution
_________ 3. Lenders __________ 8. Owners
_________ 4. Managers __________ 9. Customers
_________ 5. Public __________ 10. Employees
Reinforcement/ Assignment:
Observe a business establishment in your community and identify what
type of business organizations they are. Inquire from the owner/manager why
they are preparing a financial statement and who uses that accounting
information. Submit your findings and observation in a bond paper.
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References:
Suggested Textbook:
Lopez, Jr. Rafael M. (2018 Revised Edition) Basic Accounting for Non-Accountants:
Simplified Procedural Approach based on PAS: MS Lopez Printing & Publishing
Additional Materials:
Vera Cruz-Manuel, Zenaida (2017), 21st Century Accounting Process: Concepts and
Procedures: Raintress Trading & Publishing
Ballada, Win (2017), Fundamentals of Accounting: DomDane Publishers
Balatbat-Cabrera, Ma. Elenita (2019), Financial Accounting and Reporting: GIC Enterprises
& Co., Inc.
Online References:
https://wwwfacebook.com/commerceiets
https//youtu.be/PxnfbMBUFwM
1
Pre-Assessment:
Exercise #1 – Multiple Choice:
1. The business is considered as an entity that is separate and distinct from the owner:
a. Accounting Entity c. Business Entity
b. Separate Entity d. All of these
2. The accounting assumption that gives the business a continuous life of existence:
a. Periodicity c. Stable Monetary Unit
b. Going Concern d. Accrual
3. It represents the residual interest in the assets of the business after deducting its
liabilities:
a. Net Worth c. Capital
b. Owner’s Equity d. All of the above
Course Code and Title: BAEN1 - Accounting Principles (BSBA)
Lesson Number: 2 Basic Accounting Concepts, Business Transactions, and Elements
of Financial Statements
Topics : Accounting Concepts and Principles, Elements of Financial
Statements, The Chart of Accounts and Business Transactions
Professor: Ms. Rosario A. Calamba, CPA, MBM, Phd cand
• Read and explain the basic accounting concepts and principles.
• Identify the elements of financial statements.
• Create a chart of accounts.
• Illustrate business transactions.
4. Accounting is the bridge of communication between the owner of the business and
various users through:
a. Balance Sheet c. Financial Statements

b. Income Statements d. Statement of Owner’s Equity
5. The records of properties acquired, and services availed of by a business are
maintained in accordance with the:
a. Proprietorship Principle c. Cost Principle
b. Business Entity Concept d. Matching Principle
Exercise #2:
Hanna Grace Co. showed the following account balances. Determine the unknown
accounting values in two (2) separate cases:
Case 1 - Accounts Payable P 40,000
Unearned Income 25,000
Hanna Grace, Capital 207,000
How much is Assets? _____________
Case 2 - Cash in Bank P 70,000
Accounts Receivable 180,000
Estimated Uncollectible Accounts ( 3,000)
Prepaid Expenses 10,000
Supplies Inventory 15,000
How much is Owner’s Equity balance? __________
You have studied in the previous lesson the meaning of accounting, the nature and forms
of business organizations, and the users of financial information. The preparation of financial
statements is guided by concepts or assumptions. Accounting concepts or assumptions are
the very foundations of Generally Accepted Accounting Principles (GAAP). Generally
Accepted Accounting Principles are a uniform set of accounting rules, procedures, practices,
and standards that are followed in preparing the financial statements. They serve as “ground
rules” that guide accounting practitioners in recording (identifying, analyzing, and measuring)
and reporting financial information of a business entity.
ACCOUNTING CONCEPTS / ASSUMPTIONS:

Business Entity / Accounting Entity Concept
- The business is considered as “an entity that is separate and distinct from the owner
or management”.
- The personal transactions of the owner are separate from that of the business.
- There is a clear distinction between the business transactions and personal affairs of
the entrepreneur.
- Each entity should be evaluated separately.
- For example, Mr. Paulo De Jesus started a computer shop business named PTL
Computer by investing P100,000 cash. He purchased computer equipment worth
P50,000, Furniture for P15,000, and supplies worth P10,000. These are the assets of
the business and not of Mr. De Jesus anymore meaning the personal ownership has
been transferred from Mr. De Jesus to PTL Computer shop. If he made a cash
withdrawal of P5,000 for his personal purposes, the withdrawal by the owner from the
business is his private expense and not an expense of the business. It is called
Personal Drawings.
Going Concern Concept
- This concept means that a business entity will continue to carry on its activities for an
indefinite period meaning that every business enterprise has continuity of life.
- Financial statements are prepared on the assumption that the business will continue
in operation in the future.
- Since business is to continue, fixed assets will be shown at cost less depreciation basis.
- For example, a company purchases a Machinery & Equipment worth P100,000 and
its Estimated Useful Life is ten (10) years. According to this concept every year some
amount will be shown as expenses and the balance sheet amount as an asset. Only a
part of the value is shown as an expense in the year of purchase and the remaining
balance is shown as an asset.
Periodicity Concept
- The activities of a business entity can be divided into an equal time period like for a
month, quarter, semi-annual, or for a year for financial reporting purposes.
- The usual accounting period is one year. The year that begins from January 1 and
ends on December 31 is called Calendar Year. The year that begins from February 1
and ends after one year is called Fiscal Year.
- All transactions are recorded in the books of accounts on the assumption that profits
on these transactions are to be ascertained for a specified period.
- This concept allows users to obtain timely information to serve as a basis for making
decisions about future activities.
Monetary Unit Concept
- All business transactions are measured and recorded using only one unit of
measurement. Since money is used as a medium of exchange, it is therefore the most
practical unit of measuring financial data. (Manuel, 2018)
- Without a common unit of measure, it would be impossible to produce financial
statements.
- The Philippine Peso is a reasonable unit of measure and that its purchasing power is
relatively stable.
- Thus, only data measurable in terms of money are recognized and recorded in the
books of the entity.
- For example, Service Income rendered worth P150,000, purchase of supplies
amounting to P15,000, payment of rental worth P10,000, etc., are expressed in terms
of money and so they are recorded in the books of accounts.
BASIC ACCOUNTING PRINCIPLES:
Historical Cost – assets, liabilities, revenues, and expenses should be recorded at their
actual cost. Cost is the amount agreed upon in an arm’s length transaction. It may be based
on cash or its cash equivalent if no cash was exchanged (paid) at the time the transaction
occurred.
Accrual Basis – assets, liabilities, revenues, or expenses should be recognized based on the
period they relate or based on the occurrence of transaction/event rather than based on cash
received or paid.
Matching Principle – revenues and any related expenses should be recognized together in
the same reporting period.
Conservatism / Prudence –it is the inclusion of a degree of caution in the exercise of the
judgments needed in making the estimates required under conditions of uncertainty. The
preparer must always show a conservative approach while reporting profits, revenues, and
assets.
Materiality – states that an accounting standard can be ignored if the net impact of doing so
has such a small impact on the financial statements. In deciding whether an item or an
aggregate of items is material, the nature and size of the item are evaluated together.
Full Disclosure – all information should be included in an entity’s financial statements that
would affect a reader’s understanding of those statements
Online References:
https://www.accountingtools.com/articles/what-are-the-key-accounting-assumptions.html
https://www.accountingtolols.com/articles/basic-accounting-concepts.html
CHART OF ACCOUNTS
- A chart of accounts is a listing of all the accounts used by a business in recording the
transactions. The accounts are properly arranged with the assets listed first, followed
by the liabilities, and lastly, the owner’s equity. (Manuel, 2018) An example is as
follows:
CHART OF ACCOUNTS
Acct. No. Account Name Acct. No. Account Name
ASSETS INCOME
110 Cash 410 Service Income
120 Accounts Receivable 420 Sales
125 Allowance for bad debts 430 Interest Income
130 Notes Receivable 440 Gain

140 Prepaid Expenses
150 Leasehold Improvements EXPENSES
155 Accumulated Depreciation 510 Cost of Sales
160 Equipment 515 Freight Out
165 Accumulated Depreciation 520 Salaries Expense
LIABILITIES 525 Rent Expense
210 Accounts Payable 530 Utilities Expense
220 Salaries Payable 535 Depreciation Expense
230 Utilities Payable 540 Taxes and Licenses
EQUITY 545 Bad Debts Expense
310 Owner’s Capital
320 Owner’s Drawing
THE ELEMENTS OF FINANCIAL STATEMENTS
- The elements of financial statements are the general groupings of the line items
contained within the statements. Financial statements portray the financial effects of
transactions and other events grouping them into broad classes according to their
economic characteristics.
1.BALANCE SHEET
▪ Assets – these are resources controlled by the enterprise as a result of past
transactions and events and from which future economic benefits are expected to flow
to the enterprise. Assets are classified into two, namely current assets and non-current
assets.
Current assets – refers to all assets that are expected to be sold or consumed within
the normal operating cycle of the business. Examples of current assets are:
o Cash – includes money or its equivalent that is readily available for unrestricted
use.
o Accounts Receivable – these are amounts collectible arising from services
rendered to a customer or client on credit or sale of goods to customers on

accounts. This constitutes an oral or verbal promise to pay by a customer.
o Allowance for Bad Debts – this is a contra-asset account. It provides for
possible losses from uncollected accounts.
o Notes Receivable – receivables supported by written or formal promise to pay
in the form of a promissory note.
o Inventories – these are assets that are held for sale in the ordinary course of
business.
o Prepaid Expenses – account title for expenses that are paid in advance but are
not yet incurred or have not yet expired such as Prepaid Rent, Prepaid
Insurance, Prepaid Supplies, etc.
Non-Current Assets
- Property, Plant and Equipment – “tangible assets which are held by an enterprise
for use in production or supply of goods and services, for rental to others, or
administrative purposes, and which are expected to be used during more than one
period” (International Accounting Standards No. 16) Examples are:
• Land – the site where the building used as office or store is constructed.
• Building – a finished construction owned by the business where operations
and transactions took place.
• Equipment – various assets such as machinery, transportation equipment,
office equipment, delivery equipment, and store equipment.
• Accumulated Depreciation – this is a contra-asset account. This is a
Valuation Account which is shown as a deduction from property and
equipment.
- Intangible Assets – these are identifiable, non-monetary assets without physical
substance held for use in production or supply of goods or services.
• Liabilities – these are present obligations of the enterprise arising from past
events, the settlement of which is expected to result in an outflow from the

enterprise of resources embodying economic benefits. Liabilities are classified into
two, namely: current liabilities and non-current liabilities. (PAS No.1)
Current Liabilities - financial obligations of the enterprise advance which are
expected to be settled in the normal operating cycle which is within one (1) year.
o Accounts Payable – obligations supported by oral or verbal promise to pay.
o Notes Payable (short-term) – obligations supported by written or formal
promise to pay by the debtor (enterprise) evidenced by a promissory note.
o Salaries Payable – salaries earned by employees but not yet paid.
o Utilities Payable – utilities already consumed but not yet paid
o Unearned Income – cash collected or received in but services have not yet
been rendered.
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Non-current Liabilities - these are financial obligations of the enterprise which are
expected to be settled for more than a year.
o Notes Payable (long-term) – it is of the same nature with Notes Payable
(short-term) but only, this requires payment for more than one year.
o Mortgage \payable – a financial obligation of the enterprise which requires a
fixed or tangible property to be pledged as collateral to ensure payment.
Equity or Capital – net worth or net assets of the enterprise
o Owner’s Capital - is the residual interest in the assets of the enterprise after
deducting all its liabilities.
o Owner’s Drawing – this is the account used for the temporary withdrawals
from the capital balance and then to be closed at the year-end to the capital
account.
2.INCOME STATEMENT:
- is increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants. (IFRS)
- it summarizes the results of a company’s operations for a period of time.

- The following are the elements of an income statement:
• Revenues or Income - are inflows or settlements of liabilities (or a combination of
both) during a particular accounting period. (Cabrera, 2019)
a. Service Income – revenue earned from the rendering of services
b. Sales – income earned from the sale of goods
c. Interest Income - revenue earned from the issuance of interest-bearing
receivables
d. Gain – income earned from the sale of assets or other activities not
related to the main operations of the business.
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• Expenses – refer to decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrence of liabilities that result
in a decrease in equity, other than those relating to distribution to equity
participants.
a. Cost of sales or cost of goods sold – refers to the cost to produce and sell
the goods and merchandise
b. Freight Out – transportation expenses of merchandise sold
c. Supplies Expense – this represents the cost of supplies that were used and
consumed during the period
d. Rent Expense – for the amount paid or incurred for use of property, usually
premises
e. Salaries Expense – for compensation given to employees of a business
f. Uncollectible or Bad Debts Expense – for the anticipated loss that the
business may incur arising from uncollectible accounts
g. Depreciation Expense – for the portion of the cost of property and
equipment or fixed assets that have expired based on systematic allocation
procedure
h. Taxes and Licenses – for the amount paid for the business permits,
licenses, and other government dues

i. Insurance Expense – for the expired portion of the insurance premium paid
j. Utilities Expense – for the telephone, light and water bills (Lopez, Jr. 2018)
Online References:
https://www.accountingcoach.com/blog/elements-of-financial-statements
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BUSINESS TRANSACTIONS
- Business Transactions are exchanges of equal monetary values. This definition
implies the following concept of understanding:
• For every value received, another value is given away as an exchange;
• These values are measured in terms of pesos which are presumed to be equal.
• The business transaction must always have a dual effect and that is for every value
received, we call this Debit, there is an equal value parted with, we call this Credit.
Debit, Value Received = Credit, Value Parted With
- Examples of Business Transactions:
a. Investment of cash or other assets by owners
b. Borrowings of cash from other entities for business use
c. Sale of goods or services
d. Collection of receivables from customers and other entities
e. Withdrawal of cash or other assets by the owners
f. Payment of borrowings
g. Payment of payables to suppliers or other entities
h. Acquisition of assets or services (either for cash or on credit/account)
i. Consumption or expiration of assets (such as the use of office supplies and the
expiration of insurance and rent, depreciation of fixed assets).
Generalization:
- In this lesson, we have learned about the basic concepts and principles of accounting
based on the Generally Accepted Accounting Principles (GAAP) which will be the guide
in preparing the financial statements. Also, we discussed the elements of the financial
statements, and the business transactions, the nature of the chart of accounts, and
how to prepare it.
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Exercise #1: Accounting Concepts, Assumptions, and Principles:
Multiple Choice: Encircle the letter that best describes the statement.
1. The financial statements should be stated in terms of the common financial
denominator:
a. Accrual c. Time period
b. Going concern d. Stable monetary unit
2. This principle requires relevant information to form part of financial statements for
decision-making purposes:
a. Objectivity c. Adequate disclosure
b. Materiality d. Accounting entity
3. They encompass the conventions, rules, and procedures necessary to define what is
the accepted accounting practice:
a. Accounting concepts
b. Generally accepted accounting principles
c. Conceptual frameworks
d. Accounting assumptions
4. The assumption that an entity will continue to operate for the foreseeable future is
called:
a. Accrual basis
b. Comparability
c. Going concern
d. Relevance
5. The records of properties acquired, and services availed of by a business are
maintained in accordance with the:
a. Matching principle
b. Cost principle
c. Business entity concept
d. Proprietorship principle
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Exercise #2: Elements of Financial Statements
Instruction: Classify the following account titles as to Assets, Liabilities, and Owner’s Equity
(Income, Cost, and Expense). Use a “check mark”.
Owner’s
Asset Liability Equity
1. Cash in Bank __________ __________ __________
2. Unused Office Supplies __________ __________ __________
3. Insurance Expense __________ __________ __________
4. Accrued Income __________ __________ __________
5. Taxes and Licenses __________ __________ __________
6. Juan Dela Cruz, Capital __________ __________ __________
7. Accounts Receivable __________ __________ __________
8. Freight Out __________ __________ __________
9. Accounts Payable __________ __________ __________
10.Sales __________ __________ __________
Reinforcement/ Assignment:
Open a Single Proprietor business of your choice and start creating your business
Chart of Accounts by applying the Elements of the Financial Statements. Submit in a bond
Paper.
15
References:
Suggested Textbook:
& Co., Inc.
Online References:
https://www.accountingtools.com/articles/what-are-the-key-accounting-assumptions.html
https://www.accountingtolols.com/articles/basic-accounting-concepts.html
https://www.accountingcoach.com/blog/elements-of-financial-statements
1
Pre-Assessment:
Multiple Choice:
Choose the correct answer from the choices provided. Write the answer beside the number.
1. A statement that shows the financial condition of the business as of a particular date:
a. Balance Sheet
b. Profit and Loss Statement
c. Statement of Changes in Owner’s Equity
d. Statement of Cash Flows
2. Which of the following equation is the fundamental accounting equation?
a. Assets – Liabilities = Owner’s Equity
b. Assets = Liabilities + Owner’s Equity
c. Assets – Owner’s Equity = Liabilities
d. Assets + Liabilities = Owner’s Equity
3. Amounts owed by a business are referred to as:
a. Assets c. Expenses
b. Capital d. Liabilities
Course Code and Title: BAEN 2 Fundamentals of Accounting & Review (BSBA)
Lesson Number 3: The Accounting Equation and Analyses of Business Transactions
Topics: The Basic Accounting Equation, The Expanded Accounting Equation, The
Account and Analyses of Business Transactions
Professor: Ms. Rosario A. Calamba, CPA, MBM, Phdcand
• Discuss and understand the meaning of the accounting equation.
• Evaluate the process of business transactions.
• Analyze and state the effect of business transaction on the accounting equation
4. It represents the residual interest in the assets of the business after deducting its
liabilities:
a. Capital c. Owner’s Equity
Net worth d. All of the above
5. The following can be found in an income statement except:
a. Assets c. Income
b. Expenses d. All of the above
6. The left-hand side of an account refers to:
a. Debit side c. Increase side
b. Credit side d. Decrease side
7. Freight-out is recorded in the book of the business – seller:
a. As an expense c. As a liability
b. As an asset d. As cost
8. Which of the following is not considered an account?
a. Accounts Payable c. Cash
b. Accounts Receivable d. Revenues
9. A current asset which includes coins, currencies, and bank deposits is called:
a. Cash c. Notes Receivable
b. Cash Equivalents d. Accounts Receivable
10. Which of the following is not subject to depreciation?
a. Equipment c. Building
b. Machinery d. Land
In the previous lesson, we have discussed the accounting concepts, principles, and
elements of the financial statements as a preparation for this week’s topic.
Financial statements tell us how a business is performing, they are the final products of
the accounting process. The most basic tool of accounting is the accounting equation.
The Basic Accounting Equation
- The accounting equation is the backbone of the accounting and reporting system. This
equation presents the resources controlled by the enterprise, the present obligations
of the enterprise, and the residual interest in the assets.
- The basis of accounting balances and reports on profits and losses that is called
financial statements is based on the basic accounting equation.
- At all times, the total assets must equal the total liabilities plus the owner’s equity as
expressed in the equation.
- The accounting equation is:
ASSETS = LIABILITIES + OWNER’S EQUITY
Where:
- Assets - are resources controlled by the enterprise as a result of past transactions and
can provide future benefits.
- Liabilities – are amount owed to creditors. They represent present obligations that
resulted from past events and require settlement in the future.
- Owner’s Equity – the residual amount of interest of the owner in the enterprise. It is
assets minus liabilities. It is also called the “net assets”, “capital”, or “net worth”.
- Assets are found at the left-hand side of the equation which we termed “Debit” while
Liabilities and Owner’s Equity are found at the right-hand side of the equation which
we termed “Credit”. The final rule is that the “total of the left will always equal to the
total of the right”.
- If the owner wants to know his proprietary interest in the business, the accounting
equation may be slightly modified and restated as follows:
THE EXPANDED ACCOUNTING EQUATION
- In this expanded accounting equation, we are putting together the components of the
Income Statement which are the Revenues and Expenses. Revenue will increase the
Owner’s Equity and will be decreased by Expenses. Owner’s Withdrawal is an outright
reduction from the Owner’s Equity. Hence, the expanded accounting equation is:
Assets = Liabilities + Owner’s Equity (+Revenue – Expenses)

Assets = Liabilities + Owner’s Equity
P 846,380 = P 94,300 + P 752,080
Owner’s Equity = Assets - Liabilities
P752,080 = P 846,380 - P 94,300
ANALYSIS OF BUSINESS TRANSACTIONS
- The accounting elements are affected by the business transactions or economic
activities of a business.
- A transaction is defined as an exchange of values between two parties expressed in
monetary terms. It has three characteristics: (1) exchange of values, (2) between two
parties, (3) in terms of money. (Manuel, 2016 edition, Accounting Process)
- Business transactions are exchanges of equal monetary values.
HOW ARE BUSINESS TRANSACTIONS ANALYZED?
- Business transactions are analyzed from the viewpoint of the business. If the
transaction is “Purchased” or “Bought”, it is the business that is buying; if the
transaction is “Sold”, it is the business that is selling; if the transaction is “Paid”, it is the
business that is paying.
- The value received or debit should first be determined before the value parte3d with
or credit.
This Photo by Unknown Author is licensed under CC BY-SA
DEMONSTRATION EXAMPLE:
Transaction No. 1 – Mr. Roland Simon, CPA opened an account with Banco De Oro the
amount of P100,000 to start with his accounting practice.
Analysis : The assets of the business will increase in the form of cash of P100,000
and a corresponding increase in owner’s equity.
ASSETS = OWNER’S EQUITY
1) Cash P 100,000 Roland Simon Capital P 100,000
Transaction No. 2 - Bought office supplies on account for P 3,000.

Analysis : The assets of the business will increase in the form of Office Supplies
with the corresponding increase in liabilities in the form of Accounts
Payable.
1) Cash P 100,000 Accounts Payable P 3,000 Roland Simon Capital P 100,000
2) Office Supplies 3,000
P 103,000 P 3,000 P 100,000
Transaction No. 3 - Received cash of P10,000 for auditing services rendered to clients.
Analysis : The assets of the business will increase again in cash by P 10,000 with
a corresponding increase in Owner’s Equity in the form of Professional
Income.
2) Office Supplies 3,000 3) Professional Income 10,000
P 113,000 P 3,000 P 110,000
Transaction No. 4 - Mr. Simon withdrew cash of P5,000 from his business.
Analysis : The assets of the business will decrease in cash by P5,000 with a
corresponding decrease in owner’s equity since the owner recovered part of
his investment.
4) Roland Simon Drawing (5,000)
P 108,000 P 3,000 P 105,000
Transaction No. 5 - Paid salaries to audit staff, P4,000.
corresponding decrease in owner’s equity for salary expense incurred.

4) Roland Simon Drawing (5,000)
5) Salaries Expense (4,000)
P 104,000 P 3,000 P 101,000
Transaction No. 6 - Partial payment of account on supplies, P1,000.
corresponding decrease in liabilities in the form of accounts payable.
2) Office Supplies 3,000 6) Partial payment (1,000) 3) Professional Income 10,000
4)Roland Simon Drawing (5,000)
5)Salaries Expense (4,000)
P 103,000 P 2,000 P 101,000
- The following is the summary of the Debit and Credit Balance of Accounts
Debit Credit
Assets Cash in Bank P 100,000 P 0
Supplies 3,000
Liability Accounts Payable 2,000
Owner’s Equity Roland Simon, Capital 100,000
Roland Simon, Drawing 5,000
Income Professional Income 10,000
Expense Salaries Expense 4,000
---------------- --------------
Total P 112,000 P 112,000
- This proves the equality of debit and credit as expressed in the expanded accounting
equation:
Assets, P 103,000 = Liabilities, P 2,000 + Owner’s Equity, P 95,000
+ 10,000 (Income)
- 4,000 (Expenses)
P101,000
- We then say, “total debit is equal to total credit” of P 112,000.
(excerpts from the book of Rafael M. Lopez, Jr. – Basic Accounting for Non-Accountants)
THE ACCOUNT
- The account is a device used to record the changes (increases or decreases) in the
accounting elements (the effect of changes in Assets, Liabilities, and Owner’s Equity).
- This device will classify these accounting values with their amounts belonging to one
item only.
- It is the record in an accounting system that tracks the financial activities of a specific
asset, liability, equity, revenue, or expense. www.myaccountingcourse.com
- An account shows the summarized records of transactions. It is expressed in a
statement form. www.toppr.com>guides>fundamentals-of-accounting>
10
Generalization:
In this lesson, you have learned the basic accounting equation or what we called the
accounting formula plus the expanded accounting equation, how the business transactions
are analyzed and the effects of such transactions in the accounting equation.
References:
Suggested Textbook:

& Co., Inc.
This Photo by Unknown Author is licensed under CC BY-SA
www.myaccountingcourse.com
www.toppr.com>guides>fundamentals-of-accounting>
Course Code and Title: BAEN 1 – Accounting Principles (BSBA)
Lesson Number 4: Journalizing Transactions
Topics: Rules of Debit and Credit, Double-entry System, the T-Account, the Journal,
the General Ledger and Journalizing the Business Transactions
Professor: Ms. Rosario A. Calamba, CPA, MBM, Phd cand.

 State the rules of debit and credit and assimilate with double-entry system
 Analyze the transaction in T-accounts using Debit / Credit
 Journalize business transactions
Pre-Assessment:
True or False: Identify whether the statement is correct by answering the word “True”
and “False” after each question.
1. A cash acquisition of a laptop computer will cause total assets to increase.
2. The T-account is sometimes called the book of original entry.
3. Payment of liability will not affect total assets but will cause total liabilities to
decrease.
4. A debit entry always decreases the balance of an account.
5. Expenses cause decreases in owner’s equity and are recorded by debits.
6. When an entity receives a product previously ordered, a recordable event has

occurred.
7. The basic summary device of accounting is the accounting equation.
8. The accounting equation is used to determine the amount of liabilities owed.
9. An investment by the owner in a business increases assets and owner’s equity.
10. Revenues should be recorded when cash is received from the customer.
- In the previous lesson, we analyzed transactions as to their effects in the accounting
equation. Now, we are going to discuss the rules of debit and credit and the normal
balances of each account until in the process of Journalization.
RULES OF DEBIT AND CREDIT:
- The accounting equation, A = L + OE has developed the rules to be followed in the
study of accounting.
- An account is debited when an amount is entered on the left side of the account and
credited when an amount is entered on the right side.
- The account type determines how increases or decreases in it are recorded.
- Increases in assets are recorded as debits (on the left side of the account) while
decreases in assets are recorded as credits (on the right side). On the other hand,
increases in liabilities and owner’s equity are recorded by credits and decreases are
entered as debits.
- The rules of debit and credit for income and expense accounts are based on the
relationship of these accounts to owner’s equity. Income increases owner’s equity
and expense decreases owner’s equity. Consequently, increases in income are
recorded as credits and decreases as debits. Increases in expenses are recorded as
debits and decreases as credits. (Win Ballada, 2018)
NORMAL BALANCE OF AN ACCOUNT:

- The normal balance of any account refers to the side of the account – debit or credit
– where increases are recorded. Asset, owner’s withdrawal and expense accounts
normally have debit balances, liability, owner’s equity and income accounts normally
have credit balances.
The Normal Balances of an Account

Increases Recorded by Normal Balance
Account Category Debit Credit Debit Credit
Assets  
Liabilities  
Owner’s Equity:
Owner’s Capital  
Owner’s Drawing  
Income / Gain  
Expense  
DOUBLE-ENTRY SYSTEM:
- Double-entry accounting is a method of record keeping in which each transaction
affects at least two accounts, one debited, one credited.
- For every transaction, there must be one or more accounts debited and one or more
accounts credited. Each transaction affects at least two accounts.
- The total debits for a transaction must always equal the total credits.
- Double-entry system provides a formal system of classification and recording
business transactions.
Online references:
https://www.thebalance.com/what-is-double-entry-accounting-1293675
The T-Accounts:
- The T-Account is an accounting tool used to help understand the double-entry
accounting. With the use of this T-Account, transactions can be summarized into its
debit and credit components.
- The T-Account is used by accountants to analyze transactions and immediately
determine balances of accounts.
Online Reference:
www.investopedia.com/terms/t/t-accounts.asp#
JOURNALIZING TRANSACTIONS:
- Journalizing is the process of recording a business transaction in the accounting
records, tracing them chronologically including the date, the accounts being debited
and credited and a brief description of the transaction that occurred.
- It is the act of recording business transactions in the journal which is the first step of
the accounting process.
- The steps involved in journalizing are as follows:
1. Examine each business transaction to determine the nature of the transaction.

2. Determine which accounts will be affected
3. Prepare a journal entry. This involves not just entering the transaction in the
accounting system, but also documenting it sufficiently so that someone
reviewing the entry later will understand why it was created.
www.accountingtools.com.articles.what-is-journalizing
THE JOURNAL:
- The journal is a chronological record of the entity’s transactions.
- It is called the book of original entry. The debits and credits of each account are
recorded by day.
- The simplest form of journal is the two-column general journal and the process of
recording in this book is called journalization.
- Every entry made is called journal entry. Each journal entry contains the following
items:
1. Date - shows the date when the transactions took place
2. Particulars – shows the item or the accounts debited and credited as a result
of a transaction analysis as well as a brief or concise explanation of what the
transaction is about.
3. Folio – shows the number of an account in a ledger or page of a ledger to
which it was transferred. Folio is the Latin word for page. It is also called
reference.
4. DEBIT COLUMN – this is a money column showing the peso amount of the
value received in a transaction.
5. CREDIT COLUMN- this is the money column showing the peso amount of the
value parted with in a transaction.
- Shown below is an illustration of a General Journal

www.accountingcoach.com/AccountingBasics/BookkeepingEssentials
GENERAL LEDGER:
- It is an account or record used to sort, store and summarize an entity’s business
transactions wherein a separate page is maintained for each account.
- Each page is called a ledger and it contains aside from the account title, the date,
amount, page reference (to identify the entry source), account number and the
balance of the account. (Vera-Cruz Manuel, 21st Century Accounting Process)
- Transactions are posted to individual sub-ledger accounts, as defined by the
company’s Chart of Accounts. The transactions are then closed out or summarized to
the general ledger and generates a Trial Balance which later generates the
Financial Statements of the company.
- The accounts in the general ledger are classified into two general groups:
1. Balance Sheet or permanent accounts (assets, liabilities and owner’s equity)
2. Income Statement or temporary accounts \9income and expenses).
Temporary or nominal accounts are used to gather information for a particular
accounting period. At the end of the accounting period, the balances of these
accounts are transferred to a permanent owner’s equity account.
www.accountancyknowledge.com.general-ledger-examples
ILLUSTRATIVE PROBLEM:
Initial investment:
Dec. 1 The owner of YUAN Plants and Home Gardening, Yuan de Leon, invests
P500,000
to open the business.
Analysis Assets increased and recorded by debits. Owner’s equity increased and
recorded
by credits.
Entry Increase in assets is recorded by a debit to Cash.
Increase in owner’s equity is recorded by a credit to De Leon, Capital
Journal Entry:
Dr. Cr.
Cash (Asset) P 500,000
De Leon, Capital P 500,000
Rent Paid in Advance:

Dec. 1 Rented space to be used as an office / showroom site and paid three months in
advance, P 24,000. (Given the length of time, i.e., more than a month, that this
contract is in effect; the matching principle requires that the contract’s cost initially
be recorded as an asset since it provides a future benefit.
Analysis Assets increased and recorded by debits. Assets decreased and recorded as
credit.
Entry Increase in assets is recorded by a debit to Prepaid Rent and credit to Cash.
Journal Entry: Dr. Cr.

Prepaid Rent (Asset) P 24,000
Equipment Acquired for Cash:

Dec. 3 De Leon purchases gardening tools for the business for P 60,000 in cash.
Analysis Assets increased and recorded as debits. Assets decreased and recorded as
credits.
Entry Increase in assets is recorded by a debit to Gardening Tools. Decrease in
Assets is recorded by a credit to Cash.
Gardening Tools (Asset) P 60,000
Expenses Incurred and Paid
Dec. 4 De Leon purchases P 3,000 worth of gasoline.
Analysis Decrease in assets and recorded as credits. Owner’s equity decreased and
recorded as debits.
Entry Decrease in owner’s equity is recorded by debit to Gasoline Expense.
Decrease in assets is recorded by a credit to Cash.

Gasoline Expense (OE-Expense) P 3,000
Insurance Premium Paid:

Dec. 5 De Leon pays P24,000 for a one-year insurance contract that protects his
business from December 1 to November 30 of the following year.
Analysis Asset increased and recorded as debits. Another asset decreased and
recorded
as credits.
Entry Increase in assets is recorded by a debit to Prepaid Insurance.
Prepaid Insurance (Asset) P 24,000
Supplies Purchased on Account:

Dec. 8 De Leon purchases P2,000 worth of office supplies on account.
Analysis Assets increased and recorded as debits. Increases in liabilities and are
recorded as credits.
Entry Increase in assets is recorded by a debit to supplies.
Increase in liabilities is recorded by a credit to Accounts Payable
Office Supplies P 2,000
Accounts Payable P 2,000
Revenues Earned and Cash Collected:

Dec 14 The YUAN Plants and Home Gardening receives P10,000 from customers
buying
various plants and gardening supplies.
Analysis Assets increased and recorded as debits. Increase in owner’s equity and
Entry Increase in assets is recorded by a debit to Cash.
Increase in Owner’s Equity is recorded by a credit to Gardening Revenue
Gardening Revenue P 10,000
Revenues Earned on Account:

Dec. 22 The YUAN Plants and Home Gardening delivers plants and garden soil to
customers, billing them P7,500 but receiving no cash.
(In accordance with the revenue recognition principle, revenue is recognized
upon the completion of a service or the delivery of a product, even if no cash
changes hands at that time).
Analysis Assets increased and recorded as debits. Owner’s equity increased and
Entry Increase in assets is recorded by a debit to Accounts Receivable.
Increase in Owner’s Equity is recorded by a credit to Gardening Revenue.
Accounts Receivable (|Asset) P 7,500
Gardening Revenue P 7,500
Salaries Paid:
Dec. 26 De Leon pays P5,000 in salaries to a part-time employee.
Analysis Assets decreased and recorded as credits. Owner’s equity decreased and
recorded as debits.
Entry Decrease in owner’s equity is recorded by a debit to Salaries Expense.
Salaries Expense (OE-Expenses) P 5,000
Cash P 5,000
Advertising Paid:
Dec. 28 De Leon pays P2,500 to print advertising fliers.
Analysis Assets decreased and recorded as credits and Owner’s Equity decreased and
recorded as debits.
Entry Decrease in owner’s equity is recorded by a debit to Advertising Expense.
Advertising Expense (OE-Expenses P 2,500
Cash P 2,500
Withdrawal of Cash by Owner:

Dec. 29 De Leon withdraws P 5,000 for personal use.
Analysis Assets decreased and recorded as credits and Owner’s Equity decreased and
recorded as debits.
Entry Decrease in Owner’s Equity is recorded by a debit to De Leon Drawing.
Decrease in Assets is recorded by a credit to Cash.
De Leon, Drawing P 5,000
Cash P 5,000
Accounts Receivable Partially Collected:

Dec. 30 Partial collection from customers amounting to P 5,000 billed last December
22.
Analysis Assets increased and recorded as debits and another Asset decreased and
Entry Increase in Assets is recorded by a debit to Cash.
Decrease in Assets is recorded by a credit to Accounts Receivable.
Cash P 5,000
Accounts Receivable P 5,000
Generalization:
- We know that accounting is based on a double-entry system which means that the
dual effects of a business transaction are recorded. Each transaction affects at least
two accounts. The rules of debit and credit that a debit side entry must have a
corresponding credit side entry.
- The T-Account is the simplest tool used to analyze the effects of the transactions on
each account, hence, it has two sides: one side for recording increases and the other
side for recording decreases. Its shape comes from the letter T hence it is called
T account.
- After the transaction or event has been identified and measured, it is recorded in the
Journal. The process of recording a transaction is called journalizing. Every entry
made is called a journal entry. Each journal entry contains the following items:
a. Date
b. The account title and the amount to be debited
c. The account title and the amount to be credited
d. Explanation
Exercise #1:
Instruction: On the space provided, indicate a “check mark” as to what normal
balance the following account have:
Debit Credit
1. Accounts Receivable ________ _______
2. Service Income ________ _______
3. De Los Reyes, Capital ________ _______
4. Cash in Bank ________ _______
5. Land ________ _______
6. Sales ________ _______
7. Utilities Expense ________ _______

8. Furnitures and Fixtures ________ _______
9. De Los Reyes, Drawing ________ _______
10. Accounts Payable ________ _______
11. Prepaid Expenses ________ _______
12. Accumulated Depreciation ________ _______
13. Building ________ _______
14. Notes Receivable ________ _______
15. Accumulated Depreciation ________ _______
Course Code and Title : BAEN 2 – Fundamentals of Accounting Review (BSBA)
Lesson Number : 5
Topic : Recording Business Transactions
Professor : Rosario A. Calamba, CPA, MBM, Phdc.
INTRODUCTION:
This topic will show how to record business transactions in the general journal and the general ledger as
presented in the previous module.
LEARNING OBJECTIVES:
At the end of this module, the learners should be able to:
1. Evaluate the correctness of the journal entry.
2. Record the business transactions in the general journal and ledger.
Page 1 of 9
PRE-ASSESSMENT:
Exercise #1: Modified Matching Type
Instruction: From the list of possible answers, write the letter that corresponds to each of the given
statement.
List of Possible Answers

A. General Ledger F. Journalizing
B. Simple Journal Entry G. Accrual Basis
C. T- account H. Journal
D. Recording I. Folio
E. Chart of Accounts J. Journal Entry
Given Statements
________ 1. Recognizes the two-fold effects of a transactions.
________ 2. The book f original entry.
________ 3. An entry containing one debit and one credit item.
________ 4. The first phase of accounting.
________ 5. It means posting reference.
________ 6. Income is recorded although not earned and expense recorded although not paid.
________ 7. The book of final entry.
________ 8. The skeleton form of a ledger.
________ 9. The act of recording transactions in the journal.
________10. Describes what account title to be used.
Page 2 of 9
LESSON PRESENTATION:
After analyzing the business transactions (Module 3) and prepare the journal entry (Module 4), it is now
the
time to start recording those transactions. The recording of transactions was done under the accounts
within
each section of the fundamental accounting equation to see how the double-entry accounting system
works in
that with each transaction, the accounting equation must remain in balance. The transactions are shown
with
increases and decreases in the elements of the accounting equation.
The Accounting Process as the process of Analyzing - identifying business transactions; Classifying –
determining the specific accounts involved and deciding whether the account should be increased or
decreased; Recording – listing the details in a permanent record; Summarizing – after the accounting
period,
showing the results of a group of transactions in the form of financial statements and Interpreting –
drawing
conclusions and making decisions from financial statements.
Let us have a review on the past lessons so that you will familiarize the accounting process:
ANALYZING:
We will have to be reminded of the questions that are asked?
1. What ACOUNTS are involved?
2. What are the CLASSIFICATIONS of the accounts?
3. Are the accounts INCREASED (+)? Or
4. Are the accounts DECREASED (-)?
CLASSIFYING:
The accounts involved in the business transaction are classified under the elements of the accounting
equation as follows:
Page 3 of 9
Assets = Liabilities + Owner’s Equity
Properties of Creditors’ claims Owner’s claims
the business against the properties against the properties
RECORDING:
Recording involves the writing down of business transactions in a systematic manner and in order of
their occurrence in the book of original entry called Journal. The act of recording business transactions
in the
journal is called Journalizing. The entry that is made in the Journal is called JOURNAL ENTRY. A Journal
Entry may be SIMPLE or COMPOUND.
A simple journal entry is one that has one debit item with a debit amount and one credit item with a
credit
amount. Shown below is a formation of a simple journal entry.

A compound journal entry is one that may have one debit item and two or more credit items; two or
more
debit items and one credit item; or may have two or more items on both sides. Also shown below is the
formation of a compound journal entry with two or more items on both sides.
Page 4 of 9
Illustration:
In Module 4 illustrative problem of YUAN Plants and Home Gardening, we will record the corresponding
journal entries of business transactions in the general journal as follows:
General Journal
Date
Particulars Folio
Debit
Credit
Dec. 01 Cash 500,000
De Leon, Capital 500,000
Initial investment
01 Prepaid Rent 24,000
Cash 24,000
Rent paid in advance
03 Gardening Tools 60,000
Cash 60,000
Purchased of gardening tools for business
04 Gasoline Expense 3,000

Cash 3,000
Payment for gasoline expense
05 Prepaid Insurance 24,000
Cash 24,000
Payment for one-year insurance
08 Office Supplies 2,000
Accounts Payable 2,000
Purchased office supplies on account
Page 5 of 9
General Journal
Date
Particulars Folio
Debit
Credit
Dec 14 Cash 10,000
Gardening Revenue 10,000
Revenues earned
22 Accounts Receivable 7,500
Sales on account
26 Salaries Expense 5,000
Cash 5,000
Payment of salaries
28 Advertising Expense 2,500
Cash 2,500
Payment for advertising expenses
29 De Leon, Drawing 5,000
Cash 5,000
Owner’s cash withdrawal for
personal use
30 Cash 5,000
Partial collection of sales on account
Page 6 of 9
GENERALIZATION:
Recording of business transactions takes place after the analyzing an and classifying process of the
source
documents. Then the appropriate account titles for the journal entry.
EVALUATION:
Activity: Recording the Transactions:
Dr. Pepito de la Torre opened a medical clinic in Las Pinas City, NCR. With the use of a two-column
General
Journal, record the completed transactions during the first month of its operation using the given chart
of
accounts.
Chart of Accounts
Assets Owner’s Equity
Cash on Hand P. De la Torre, Capital
Accounts Receivable P. De la Torre, Drawing
Unused Medical Supplies
Prepaid insurance Income
Medical Equipment Medical Fees Income
Furnitures and Fixtures

Ambulance Car Expenses
Liabilities Salaries Expense
Accounts Payable Taxes and Licenses
Notes Payable Utilities Expense
Transactions:
July 1 - Dr. de la Torre invested cash amounting to P2,000,000 and a clinic furniture worth P2,500,000.
2 - Bought medical equipment on account from Medical Equipment Supply amounting to P750,000,
paying P200,000 and issued a note for the balance.
4 - Bought medical supplies for cash, P100,000.
5 - The doctor withdrew for his personal use, P15,000.
7 - Medical fees income earned for the week: Cash P50,000 and on account P60,000.
9 - Dr. de la Torre made an additional cash investment of P350,000.
11 - Full payment of the note issued to Medical Equipment Supply P550,000.
14 - Medical fees income earned for the week: Cash P30,000 and on account P10,000.
15 - Collected in full the patient’s accounts of July 7, P60,000.
18 - Bought medical supplies on account from MEDSCO, P30,000.
Page 7 of 9
July 20 - Bought an ambulance car on account P1,500,000, paying P850,000 as down payment and
issued a promissory note for the balance.
25 - Paid insurance premium for the ambulance car, P25,000.
28 - Medical fees income for two weeks: Cash P40,000 and on account P70,000.
30 - Paid the following expenses: Taxes and Licenses, P20,000 and Utilities Expense, P40,000.
31 - Paid the note issued for the ambulance car.
31 - Purchased medical supplies on account from Ms. Hanna Grace, P60,000.
31 - Paid salaries to hospital employees, P100,000.
(excerpts Rafael M. Lopez, Jr. – Basic Accounting for Non-Accountants)
REINFORCEMENT:
Icen Marie’s Computer and Cellfone Shop was opened by Icen Marie Santos on August 1, 2017 with a
cash investment of P150,000. Additional transactions for the month follow:
Aug 3 – Signed a contract of lease and made a cash deposit of P15,000.
4 – Paid for the construction of display counters, tables, chairs and cabinets, P50,000
5 – Bought repair equipment worth P15,000 from CBA Co. for use in the store. Paid 50% with balance
on credit for 30 days
8 – Bought repair supplies for cash P7,500.
9 – Collected cash of P1,500 for cell phone repair services.
10 – Billed Madison Corp. P7,500 for computer repair services rendered.
14 – Summary of cash received P8,000 from customers and a promissory note for P2,500 for computer
repair services.
15 – Signed a contract with Telecom System for the repair work to be done on their computers,
P15,000.
16 – Paid for telephone, light and water, P3,800.
18 – Sent a bill to Telecom System for repair work done.
22 – Total cell phone repair work collected in cash, P8,500, P12,000 on account from Liberty Trading.
25 – Repair supplies used amounted to P2,200.
28 – Collected 50% of the amount owed by Madison Corp.
30 – Payment for salaries, P10,000 and rent P15,000.
31 – Icen Marie Santos took home repair supplies worth P2,500.
Required:
1. Analyze and record the transactions using a two-column general journal.
Page 8 of 9
REFERENCES:
Suggested Textbook:
Lopez, Jr. Rafael M. (2018 Revised Edition) Basic Accounting for Non-Accountants: Simplified
Procedural Approach based on PAS: MS Lopez Printing & Publishing
Vera Cruz-Manuel, Zenaida (2017), 21st Century Accounting Process: Concepts and Procedures:
Raintress Trading & Publishing

Balatbat-Cabrera, Ma. Elenita (2019), Financial Accounting and Reporting: GIC Enterprises & Co., Inc.
Course Code : BAEN 1 - Accounting Principles (BSBA)
Lesson Number : 6 - Summarizing the Business Transactions
Topic : Posting the Journal Entries and preparation of Trial Balance
Professor : Rosario A. Calamba, CPA, MBM, Phdc.
INTRODUCTION:
This topic will demonstrate the posting process that summarizes the business transactions.
LEARNING OBJECTIVES:
At the end of the lesson, the students should be able to:
1. Acquaint the proper use of a ledger.
2. Develop the skills in posting process.
3. Prepare a Trial Balance.
PRE-ASSESSMENT:
Multiple Choice: Choose the letter of the correct answer by encircling the letter of your choice.
1. The term footing refers to the:
a. Process of obtaining the top number in an account.
b. Process of obtaining the bottom number of an account.
c. The process of posting.

d. Addition of a column of figures.
2. A chart of accounts is a (an):
a. Journal.
b. Flowchart of all transactions.
c. List of names of all account titles.
d. Accounting procedure manual.
3. What functions do general ledgers serve in the accounting process?
a. Summarizing c. Classifying
b. Recording d. Reporting
4. A ledger is defined as a collection of:
a. All statement of financial position accounts.
b. All income statement accounts.
c. Account titles - asset, liability, equity, income and expense accounts.
d. Transactions.
5. Which of the following statements is false about a proper journal entry?
a. It may have more than one debit or credit entry.
b. A space should be skipped between journal entries.
c. Credits are always indented.
d. Accounts that are increased are always listed first.
Page 1 of 14
LESSON PRESENTATION:
After journalizing the business transactions (Module 4) and recording such journal entry in the general
journal
(Module 5), the next step in the accounting process is summarizing those transactions by way of posting
to the
general ledger or simply the ledger and / or the T-accounts.
The Journal is a chronological record of the entity’s transactions. It shows all the effects of a business
transaction in terms of debits and credits. Each transaction is initially recorded in a journal whereas the
Ledger
is the grouping of accounts. It is used to classify and summarize transactions and to prepare data for
basic
financial statements.
POSTING - is the process of transferring the entries from the journal (the book of original entry) to the
ledger
(the book of final entry). It simply means updating the ledger accounts due to the effects of the
transactions
recorded in the journal. Debits in the journal are posted as debits in the ledger, and credits in the journal
as
credits in the ledger.
Procedures in Posting Journal Entries to the Ledger
Each item or account is provided with a page of a Ledger. The account in the Ledger are arranged and
placed with an account or page number according to the sequence of the listing of account titles in the
Chart of
Accounts (Assets, Liabilities, Owner’s Equity, Income and Expenses).
Using our illustrative problem, YUAN Plants and Home Gardening, the following are the steps in posting
the
journal entries to the General Ledger.
1. As the first account in the General Journal entry is Cash, turn the ledger to the page where the
account Cash is located;
2. In the Ledger of the account Cash enter in the date column at the left side (debit) of the said ledger
the date when transaction occurred as shown in the journal;
3. In the Particular column of the ledger, state briefly the nature of the transaction, how cash existed in
the record;
4. In the Folio column of the ledger, write down the page of the journal where the account Cash entry
was taken from and simultaneously, write down in the Folio column of the journal the account or page
number assigned to the account Cash. This is called cross-referencing or cross-indexing.
5. Enter in the debit money column of the ledger Cash the amount and the same procedure is followed
in posting the next account and subsequent journal entries.
The posting procedures as illustrated below show the entries in the General Journal of Dec 01, 20A of
YUAN
Plants and Home Gardening; and posting of the accounts involved in the transactions to their respective
ledger
accounts. The General Ledger accounts are assigned with a page number instead of using an account
number
in using the folio.
Dec. 1 transaction:
The owner of YUAN Plants and Home Gardening, Yuan de Leon invests P500,000 to open the business.
GENERAL JOURNAL
20A P a r t I c u l a r s F Debit Credit
Dec. 01 Cash GL-1 500,000
De Leon, Capital GL-11 500,000
Initial Investment
GENERAL LEDGER
Cash Account No. 101
20A Particulars F Debit 20A Particulars F Credit
Dec. 01 Investment JE-1 500,000
De Leon, Capital Account No. 401
Dec 01 Investment JE-1 500,000
Page 2 of 14
FOOTING THE LEDGER
After posting the journal entries to the ledger, the amounts of debit and credit are being totaled and
usually
done at the end of each month. This is called “footing”.
FOOTING is the process of adding each of the two amount columns of an account or item in the general
ledger and finding their balances thereof.
If an account is a debit balance (debit total is bigger than the credit total), the amount of difference is
placed on the “particular” column of the debit side.
If the account, on the other hand is a credit balance (credit total is bigger than debit total), the amount
of
difference is placed on the “particular” column of the credit side.
If there is only one entry in any side of an account in the ledger, no footing is done and the entry is left
“as
is”.
Footing is merely the total of the column and if error is committed, it may be erased and corrected
easily.
Footing is not considered an entry posted in the general ledger.
The T-Accounts
The T-Account is the simplest ledger.
To continue with the transactions of YUAN Plants and Gardening Home for the month of December, 20A
as
illustrative problem in Module 4.
Dec. 1 transaction:
Rented space to be used as an office / showroom site and paid three months in advance, P24,000.
GENERAL JOURNAL
Dec. 01 Prepaid Rent GL-103 24,000
Cash GL-101 24,000
Payment of three (3) month rent
GENERAL LEDGER
Prepaid Rent Account No. 103
Dec. 01 Advance rental JE-2 24,000
Dec. 01 Rent payment JE-2 24,000
Page 3 of 14
Dec. 3 transaction:
De Leon purchased gardening tools for the business for P60,000 in cash.
GENERAL JOURNAL
Dec. 03 Gardening Tools GL-201 60,000
Cash GL-101 60,000
Purchased of gardening tools
GENERAL LEDGER
Gardening Tools Account No. 201
Dec. 03 Bought
Gardening Tools
JE-3 60,000
Dec. 03 Payment of
gardening tools
JE-3 60,000
Dec. 4 transaction:
De Leon purchased P3,000 worth of gasoline.
GENERAL JOURNAL
Dec. 04 Gasoline Expense GL-603 3,000
Cash GL-101 3,000
Payment of gasoline
GENERAL LEDGER
Gasoline Expense Account No. 603
Dec. 04 Purchase of
gasoline
JE-4 3,000

Dec. 04 Payment of
gasoline
JE-4 3,000
Page 4 of 14
Dec. 5 transaction
De Leon pays P24,000 for a one-year insurance contract that protects his business from December 1
to November 30 of the following year.
GENERAL JOURNAL
Dec. 05 Prepaid Insurance GL-104 24,000
Cash GL-101 24,000
Payment of insurance premium
GENERAL LEDGER
Prepaid Insurance Account No. 104
Dec. 05 Payment of
insurance
JE-5 24,000
Cash Account No.101
Dec. 05 Insurance
payment
JE-5 24,000
Dec. 8 transaction:
De Leon purchases P2,000 worth of office supplies on account.
GENERAL JOURNAL
Dec. 08 Office Supplies GL-602 2,000

Accounts Payable GL-301 2,000
Payment of office supplies
GENERAL LEDGER
Office Supplies Account No.602
Dec. 08 Bought office
supplies
JE-6 2,000
Accounts Payable Account No. 301
Dec. 08 Office supplies on
account JE-6 2,000
Page 5 of 14
Dec. 14 transaction
The YUAN Plants and Home Gardening receives P10,000 from customers buying various plants and
gardening supplies.
GENERAL JOURNAL
Dec. 14 Cash GL-101 10,000
Gardening Revenue GL-501 10,000
Revenues earned
GENERAL LEDGER
Cash Account No.101
Dec. 14 Revenues earned JE-7 10,000
Gardening Revenue Account No. 501
Dec. 14 Revenues earned JE-7 10,000
Dec. 22 transaction
The YYUAN Plants and Home Gardening delivers plants and garden soil to customers, billing them
P7,500 but receiving no cash.
GENERAL JOURNAL
Dec. 22 Accounts Receivable GL-102 7,500
Gardening Revenue GL-501 7,500
Revenues earned on account
GENERAL LEDGER
Accounts Receivable Account No. 102
Dec. 22 Revenues earned
on account JE-8 7,500
Gardening Revenue Account No. 501
Dec. 22 Revenues earned
on account JE-8 7,500
Page 6 of 14
Dec. 26 transaction:
De Leon pays P5,000 in salaries to a part-time employee.
GENERAL JOURNAL
Dec. 26 Salaries Expense GL-601 5,000
Cash GL-101 5,000
Payment of salaries
GENERAL LEDGER
Salaries Expense Account No. 601
Dec. 26 Salaries paid JE-9 5,000

Dec. 26 Salaries paid JE-9 5,000
De Leon pays P2,500 to print advertising fliers.
GENERAL JOURNAL
Dec. 28 Advertising Expense GL-604 2,500
Cash GL-101 2,500
Payment of advertising fliers.
GENERAL LEDGER
Advertising Expenses Account No. 604
Dec. 28 Paid advertising
expenses
JE-10 2,500
Dec. 28 Paid advertising
expenses JE-10 2,500
Page 7 of 14
De Leon withdraws P5,000 for personal use.
GENERAL JOURNAL
Dec. 29 De Leon, Drawing GL-402 5,000
Cash GL-101 5,000
Owner’s cash drawing
GENERAL LEDGER
De Leon, Drawing Account No. 402

Dec. 29 Owner’s personal
drawing JE-11 5,000
Dec. 29 Owner’s personal
drawing JE-11 5,000
Partial collection from customers amounting to P5,000 billed last December 22, 20A.
GENERAL JOURNAL
Dec. 30 Cash GL-101 5,000
Accounts Receivable GL-102 5,000
Partial collection of Accounts Receivable
GENERAL LEDGER
Cash Account No.101
Dec. 30 Partial collection of JE-12 5,000
Accounts Receivable
Accounts Receivable Account No. 102
Dec. 30 Partial collection of
Accounts Receivable
JE-12
5,000
Page 8 of 14
SUMMARIZING THE LEDGERS
The following are the balances of the ledgers:
CASH Account No. 101

Date Explanations Ref Debit Credit Balance
Dec. 1 Investment by De Leon JE-1 500,000 500,000
1 payment for rent JE-2 24,000 476,000
3 Purchased of Gardening Tools JE-3 60,000 416,000
4 Payment for gasoline expenses JE-4 3,000 413,000
5 Payment for insurance JE-5 24,000 389,000
14 Collection from customer JE-7 10,000 399,000
26 Payment of salaries JE-9 5,000 394,000
28 Payment for advertising JE-10 2,500 391,500
29 Personal drawing of De Leon J-11 5,000 386,500
30 Collection from customer J-12 5,000 391,500
ACCOUNTS RECEIVABLE Account No. 102
Dec. 22 Delivery of plants and goods JE-8 7,500 7,500
30 Partial payment JE-12 5,000 2,500
PREPAID RENT Account No. 103
Dec. 1 Payment for three months rental J-1 24,000 24,000
PREPAID INSURANCE Account No. 104
Dec. 5 Payment for one (1) year insurance JE-5 24,000 24,000
GARDENING TOOLS Account No. 201
Dec. 3 Purchased of Gardening Tools JE-3 60,000 60,000
ACCOUNTS PAYABLE Account No. 301
Dec. 8 Purchase supplies on account JE-6 2,000 2,000
Page 9 of 14
DE LEON, CAPITAL Account No. 401

Dec. 1 Initial Investment JE-1 500,000 500,000
DE LEON, DRAWING Account No. 402
Dec. 29 Personal drawing of De Leon JE-11 5,000 5,000
GARDENING REVENUE Account No. 501
Dec. 14 Delivery of various plants, etc. JE-7 10,000 10,000
22 Delivery of plants and garden soil JE-8 7,500 17,500
SALARIES EXPENSE Account No. 601
Dec. 26 Payment of salary JE-9 5,000 5,000
OFFICE SUPPLIES Account No. 602
Dec. 8 Supplies on account JE-6 2,000 2,000
GASOLINE EXPENSES Account No. 603
Dec. 4 Purchase of gasoline expense JE-4 3,000 3,000
ADVERTISING EXPENSE Account No. 604
Dec. 28 Payment for advertising JE-10 2,500 2,500
TRIAL BALANCE PREPARATION
The Trial Balance is a list of all accounts with their respective debit or credit balances. It is merely
copying
carefully of what has been footed in the ledger. It is prepared to verify the equality of debits and credits
in the
ledger at the end of each accounting period.
A trial balance does not prove that transactions have been correctly analyzed and recorded in the
proper
accounts. This report summarizes the debit and credit entries of each account in the General Ledger.
The
purpose of preparing a trial balance is to check the arithmetical or mathematical accuracy in postings,
footing of
the debit and credit entries of accounts in the General Ledger.
Page 10 of 14
A trial balance has the following headings:
a. Name of the business or proprietor
b. Title of the report
c. Period covered by the report
Procedures in Preparing the Trial Balance:
1. See to it that footing of each ledger account is properly done.
2. List down all accounts in the General Ledger with open balances following the sequence of filing the
accounts in the ledger and simultaneously write down the accounts’ amount balance in the debit and
credit column of the trial balance depending on what account balance they may have.
3. After listing the last account title, draw a single line across the two amount columns and foot the
debit
and credit money columns. The single line drawn is called single rule.
4. As the debit and credit totals are equal, draw a double line under the totals of both columns. The
double
line drawn is called Double Rule which signifies that the trial balance is already in-balance.
Shown below is the Trial Balance of YUAN Plants and Home Gardening for the month ended December
31, 20A.
YUAN Plants and Home Gardening
Trial Balance
December 31, 20A
20A Particulars F Debit Credit
Cash 391,500
Prepaid Rent 24,000

Prepaid Insurance 24,000
Gardening Tools 60,000
Accounts Payable 2,000
De Leon, Capital 500,000
De Leon, Drawing 5,000
Salaries Expense 5,000
Office Supplies 2,000
Gasoline Expenses 3,000
Advertising Expense 2,500
TOTAL 519,500 519,500
Errors in Trial Balance:
Errors and omissions are very common to occur which may result a trial balance either to be still
“inbalance” or “out-of-balance.”
Some errors and omissions committed that will result a trial balance to be “in-balance” are as follows:
1. A transaction may not have been recorded in the journal; (omission)
2. A journal entry may not have been posted in the ledger in its entirety; (omission)
3. Posting a correct amount to a wrong account; (error)
4. Wrong charging of account title in the journal entry and was carried to posting in the ledger. (error)
Page 11 of 14
Some errors and omissions committed that will result a trial balance to be “out-of-balance” are as
follows:
1. The footing of the debit and credit columns of the trial balance is wrong; (error)
2. An account with “open balance” in the General Ledger was not listed in the trial balance;
(omission)
3. The footing of the account balance in the General Ledger is wrong; (error)
4. Posting the amount of an item to the wrong side of the account or ledger; (error)
5. Omission in posting of either debit or credit entry in the journal; (omission)
6. The balance of an account is listed in the trial balance with a wrong amount, such as
transposition of the amount or sliding pf the amount or listing a different amount from a correct
one.
Locating Errors in the Trial Balance:
The following procedures is suggested to locate the errors or omissions committed that caused the trial
balance to be “out-of-balance.”
1. Add again the debit and credit columns of the trial balance. If out of balance then,
2. Go over the listed account balances and check whether they are all in its normal balances. A debit
item might have been listed in the credit column and vice versa. If found correct and the trial balance
is still out-of-balance, then,
3. Get the amount of difference between the debit and credit totals.
a. If the amount of difference is 1, 10, 100, or 1,000, it might be an error in addition;
b. If the amount of difference is 9 or a multiple of 9, the orders of figures written are reversed; for
example, 12 was written as 21 or 35 was written as 53. This is transposition error.
c. If the amount of difference is divisible by 2 it might be an error in listing the account balance.
A debit amount was listed in the credit column of the trial balance and vice versa;
d. If the amount of difference is divisible by 9 it indicates a slide or misplacement of decimal point.
For example, P25 is incorrectly written as P2 or P245 as P24.5. This is sliding error.
GENERALIZATION:
Page 12 of 14
EVALUATION:
Activity: TRUE OR FALSE:
1. Trial balance is the process of adding the debit and credit columns of an account in the general
ledger.
2. Proof that the peso amount of the debit totals equals the peso amounts of the credit totals in the
ledger means that all the information in the general journal was correctly transferred to the
general ledger.
3. The process of transferring the data from general journal to the general ledger is posting.
4. In the trial balance, if total debits are equal to total credits, it is a proof that the recording process
is accurate.
5. The purpose of a trial balance is to reconcile subsidiary ledger balances with general ledger
balances.
REINFORCEMENT:
Activity #1: Journalizing, Posting and Preparing a Trial Balance
On July 1, Laura Gonzales, business consultant, opened LTAG Business Solution Co. A range of consulting
services is provided but her expertise lies in computer system installation and program development.
The
following transactions took place:
1 Ms. Gonzales invested P50,000 cash, a P100,000 computer system, and P50,000 office equipment.
2 Lease an office space for P10,000 a month.
3 Purchased P1,500 of computer supplies on account from Office Warehouse.
5 Billed Speedy Internet P10,000 for services performed in installing a new Web server.
7 Paid in full for the computer supplies purchased from Office Warehouse.
10 Hired Hanna Go as part-time assistant for P300 per day.
11 Billed Grace Internet Shop P5,000 for computer system installation.
15 Received cash from Speedy Internet a 50% partial payment due on its account.
16 Paid P2,000 cash to repair the damage on the computer equipment.
19 Paid P2,500 cash for advertising the business.
22 Received cash from Speedy Internet for the remaining balance of its account.
25 Billed RTAC Company P10,000 for consulting services performed. A 50% down payment was received.
28 Received two bills for rent end telephone. A total of P17,500 was paid.
30 Ms. Gonzales withdraw P5,000 cash for personal use.
31 Paid Hanna Go salary for 20-day work done this month.
Required:
a) Prepare your own Chart of Accounts. Start with account no. 101 for assets, 201 for plant,
property and equipment, 301 for liabilities, 401 for equity, 501 for revenue and 601 for expenses.
b) Record in a two-column journal the business transactions.
c) Open the general ledger, post, foot and extract the balances.
d) Prepare a trial balance.

13 of 14
REFERENCES:
Suggested Textbook:
Lopez, Jr. Rafael M. (2018 Revised Edition) Basic Accounting for Non-Accountants: Simplified
Procedural Approach based on PAS: MS Lopez Printing & Publishing
Vera Cruz-Manuel, Zenaida (2017), 21st Century Accounting Process: Concepts and Procedures:
Raintress Trading & Publishing
Balatbat-Cabrera, Ma. Elenita (2019), Financial Accounting and Reporting: GIC Enterprises & Co., Inc.
Page 14 of 14

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1. Cebu Pacific Airlines _______________________

2. South Star Drugstore _______________________

3. Far Eastern University _______________________

4. Abbot Laboratories _______________________

5. Smart Philippines _______________________

6. San Miguel Corporation _______________________

7. Colgate Palmolive Philippines _______________________

8. SyCip Gorres Velayo & Co. _______________________

9. Toyota Philippines _______________________

10.Red Ribbon Bakeshop _______________________

Course Code and Title: BAEN – Fundamentals of Accounting Review (BSBA)

Lesson Number 1: Accounting and Its Environment

well as the users of financial information.

Professor: Ms. Rosario A. Calamba, CPA, MBM, PhD cand

At the end of this lesson, the student should be able to:

• Differentiate the forms, nature, and types of business organization

• Identify the users of financial / accounting information

better the financial decisions will be.

The Statement of Financial Accounting Standards (SFAS) defines accounting as:

“Accounting is a service activity. Its function is to provide quantitative information,

primarily financial in nature, about economic activities, that is intended to be useful in

making economic decisions”.

The American Institute of Certified Public Accountants (AICPA) defines accounting as

“Accounting is the art of recording, classifying, and summarizing in a significant manner

character, and interpreting the results thereof.”

The American Accounting Association (AAA) defines accounting as follows:

“Accounting refers to the process of identifying, measuring, and communicating economic

information to permit informed judgments and decisions by users of the information.”

BRIEF HISTORY OF ACCOUNTING:

of a Franciscan monk by the name of Luca Pacioli.

contained the primary principles of Mathematics and incidentally a set of accounting

which later earned him the title “Father of Accounting”

Online Reference: Read: https://wwwfacebook.com/commerceiets

TYPES OF BUSINESS OPERATION:

of business operation as follows:

c. Professionals like Medical Practitioners, Lawyers, Accountants, etc.

c. Groceries and supermarkets

3. Manufacturing Business – a business that buys raw materials and supplies to be

Revised Edition 2018)

a. Car manufacturers like Toyota, General Motors, Hyundai, etc.

b. Makers of athletic shoes like Nike, Adidas, etc.

d. Beverages companies like Coca-Cola, Pepsi-Cola, etc.

e. Manufacturers of personal products like Unilever, Lamoiyan Corp.

FORMS OF BUSINESS ORGANIZATION

There are three (3) forms of business organization as follows:

1. SOLE PROPRIETORSHIP – a business owned by only one person or individual.

another person to do so. (Lopez, 2018)

Characteristics of Sole Proprietor:

a. Single Ownership – only one person owned the business

b. One-man Control – owner manages the business

c. Less Legal Formalities – very few legal restrictions

e. Risk – owner bears all the risks

Advantages of Sole Proprietor:

a. Ease of Formation – easy to open/register and close the business

b. Prompt Decision – owner solely makes the decision

c. Secrecy – benefits of business confidentiality

d. Flexibility – easy to adjust concerning the business operation

e. Freedom – total control on the part of the owner

Disadvantages of Sole Proprietor:

a. Limited Capital – only the owner made the investment

c. Lack of Continuity – business ceases when an owner dies or incapacitated