Module 3 – Recording Business Transactions of a Service Business

Instructional Materials
in
Accounting Principles

Course Title: Accounting Principles

Couse Code: ACCO2143/ACCO20203/ACCO 014/
ACCO 001/ACCO 20263
Course Program: BSIT/BSOA/BSENTREP/ BPAPFM/BPAOUMN

Compiled by:
ROSALINDA R. MADELO
September 2023

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Module 3 – Recording Business Transactions of a Service Business

Module 3
Recording Business Transactions of a
Service Business

Learning Objective:

After studying module 3, the students should be able to:

a. Have a background on the accounting information system.

b. Analyze transactions in terms of debit and credit.
c. Use T-accounts in analyzing business transactions into its debit and credit parts.
d. Define accounting terms related to recording the transactions from the journal up to the
preparation of trial balance.
e. Learn how to record transactions to the journal, post to the ledger and prepare a trial balance.

INTRODUCTION TO ACCOUNTING INFORMATION SYSTEM

Accounting information system is the combination of personnel, records, procedures that

a business uses to provide financial data. We will start with the basic accounting system, the use
of a journal and a ledger. This simple system, however, can handle only a few transactions each
period. Businesses cope with heavy loads in two ways: computerization and specialization. We
computerize to do the accounting faster and make it more reliable. Specialization combines
similar transactions to speed the process.

FEATURES OF AN EFFECTIVE ACCOUNTING SYSTEM

1. Control. Managers must control operations, or the company will lose focus. Internal
controls safeguard assets and eliminate waste.
2. Compatibility. A compatible system is one that works smoothly with the company’s
personnel and organizational structure.
3. Flexibility. A well-designed system is flexible if it accommodates changes in the
organization. Since the organization changes over time, it develop new products, sell off
unprofitable operations and acquire new ones.
4. Good cost/benefit relationship. Managers want a system that gives the most benefit at
least cost.

COMPONENTS OF A COMPUTERIZED SYSTEM

1. Hardware is the electronic equipment that includes computers, disk drives, monitors,
printers and the network that connects them. Most systems require a network to link
different computers sharing the same information. With the networked system, the server
stores the program and the data.

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Module 3 – Recording Business Transactions of a Service Business

2. Software is the set of programs that drives the computer. Accounting software reads, edits
(alter), and stores transaction data. It also generates the report managers use to run the
business. Many software packages operate independently. Small businesses may use
software for employee payrolls. Other parts of the accounting system may not be
automated. For large enterprises, accounting software is integrated to the company’s
database, or computerized storehouse of information.
3. Company personnel. Good personnel are critical to success. Employees must be both
competent and honest.

MANUAL AND COMPUTER-BASED SYSTEMS: A COMPARISON

The concepts and procedures involve in the operation of manual and computer-based
accounting systems are essentially the same. The differences are largely a question of whether
specific procedures require human attention or whether they can be performed automatically by
a machine.

Computers can be programmed to perform mechanical tasks with great speed and
accuracy. For example, they can be programmed to read data, to perform mathematical
computations, and to rearrange data to any desired format. However, computers cannot think.
Therefore, they are not able to analyze business transactions. Without human guidance,
computers cannot determine which events should be recorded in accounting records or which
account should be debited or credited to properly record an event. With these abilities and
limitations in mind, we will explore the effects of computer-based accounting systems upon the
basic accounting cycle.

Recording business transactions. The recording of business transactions requires two

distinct steps. First, the transaction must be analyzed to determine whether it should be recorded
in the accounting records, if so, which accounts should be debited or credited and for what
amounts. Second, the transaction must be physically entered (recorded) in the accounting
system. As computers do not know what transactions must be recorded or how to record them
properly, these two functions must be performed by accounting personnel in both manual and
computerized system.

Differences do exist, however, in the manner in which data are physically entered in
manual and computer-based systems. In manual systems, data are entered in the form of
handwritten journals. In a computer-based system, data are entered through a keyboard, an
optical scanner or any other input device. Also, data entered in computer-based system need not
be arranged in the form of a journal entry. The data may be entered in a data base, instead of a
journal.

A data-base is a warehouse of information stored within a computer system. The purpose

of the data base is to allow the information that will be used for several different purposes to be
entered into the computer system only once. Data are originally entered into the data base then,
as data are needed, the computer refers to the data base, selects the appropriate data, and
arranges them in the desired format.

The information that must be entered into a database is the same as that contained in a
journal entry―the date, the accounts to be debited and credited, the amount, and a short
description of the transaction. However, this information need not be arranged in the format of a
journal entry. For example, accounts are usually identified by a number, rather than by title. Also,
abbreviations such as “D” or “C” are used to indicate whether an account should be debited or

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credited. Once information has been entered in the data base, the computer can arrange the
information into any desired format, such as journal entries, ledger accounts and financial
statements.

Posting to ledger accounts. Posting merely transfers existing information from one
accounting record to another ― a function which can easily be performed by a computer. In a
computer-based system, data posted to the ledger accounts may come directly from the
database, rather than from the journal.

Preparation of a trial balance. Preparation of a trial balance involves three steps: (1)
determining the balance of the ledger accounts, (2) arranging the account balances in the format
of a trial balance and (3) adding up the trial balance columns and comparing the column totals.
All these functions involve information already contained in the database and can be performed
by the computer.

Making appropriate disclosures to accompany financial statements, however, is a very

different matter. Determining what needs to be disclosed, wording the appropriate notes to the
financial statements, are tasks requiring professional judgment. Therefore, appropriate
disclosures cannot be automatically performed by a computer; they must be prepared carefully
by people with sound judgment, as well as extensive knowledge of generally accepted accounting
principles and financial reporting requirements.

In summary, computers can eliminate the need of copying and rearranging information
which already had been entered into the system. They can also perform mathematical
computations. In short, computers eliminate most of the “paper work” involved in the operation of
the accounting system. However, they do not eliminate the need for accounting personnel who
can analyze business transactions and explain these events in conformity with the generally
accepted accounting principles.

The manual process is the oldest and most traditional form of accounting system. Manual
process constitutes the physical events, resources and personnel that characterize the business
process. Often, manual record keeping is used to teach the principles of accounting to business
students.

There is merit in studying the manual process model before mastering computer-based
systems. First, learning manual system helps establish an important link between accounting
information course and other accounting courses. The accounting information system is the only
course in which student’s see where the data originate, how they are collected and how and where
information is used in day-to-day operations. By examining information flows, key tasks, and the
use of traditional accounting records in transaction processing, the students’ bookkeeping focus
is transformed into a business processes perspective.

Second, the logic of the business process is more easily understood when it is not
shrouded by technology. Once students understand what tasks to be performed, they are better
equipped to explore different and better ways of performing these tasks through technology.

Finally, manual procedures facilitate understanding internal control activities, including

segregation functions, supervision, independent verification, audit trails, and access controls.

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Analysis in terms of Debit and Credit

Before a transaction is recorded in the records of a business, information appearing on a

business document is analyzed to determine which item of assets, liabilities or capital has been
affected and how. An account title is used for every item of asset, liabilities, capital, revenue and
expenses. A record kept for each item is called an account.

Every business transaction affects two or more accounts comprising the accounting
equation. Account affected may either increase or decrease. Whichever account has been
affected, the equality of both sides of the equation is always maintained. In analyzing a business
transaction, the following must be determined:

a. The account/s affected by the transaction and its classification.

b. The effect of the transaction to the account; an increase or decrease

c. The side of the account where the transaction has to be recorded; a debit or a credit.

Increases and decreases in an account is recorded either in the left side (debit) or right
side (credit) of an account. In the accounting equation earlier discussed:

Assets = Liabilities + Capital

Note that assets is on the left side of the equation, while liabilities and capital are on the
right side of the equation. Based on the foregoing, increases is assets are thus recorded on the
left side of an account, while increases in liabilities and capital are recorded on the right side.
Decreases shall be recorded on the opposite side. In summary, effects of transactions will be as
follows:

Assets = Liabilities + Capital

Any Assset Account Any Liability Account Owner's Capital Account
Left side Right side Left side Right side Left side Right side
Debit Credit Debit Credit Debit Credit
Increases (+) Decreases (-) Decreases (-) Increases (+) Decreases (-) Increases (+)
Normal balance Normal balance Normal balance

Contra Asset Account Owner's Drawing Account

Left side Right side Left side Right side
Debit Credit Debit Credit
Decreases (-) Increases (+) Increases (+) Decreases (-)
Normal balance Normal balance

Revenue Account
Left side Right side
Debit Credit
Decreases (-) Increases (+)
Normal balance

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Module 3 – Recording Business Transactions of a Service Business

All Expense Account

Left side Right side
Debit Credit
Increases (+) Decreases (-)
Normal balance

Herewith are the explanation on the above illustration:

a. All accounts have left side and right side

b. The left side of an account is debit and the right side of an account is credit.
c. Debit in an account would indicate:
▪ Increase, if an asset
▪ Decrease, if a liability
▪ Decrease, if a capital
d. Credit in an account would indicate:
▪ Decrease, if an asset
▪ Increase, if a liability
▪ Increase, if a capital
e. Contra account for an assets have an opposite effect with that of the asset being a "contra"
or offset account, thus, debit is a decrease and credit is an increase.
f. Other accounts affecting capital would be
▪ Drawing and expenses decreases capital, thus effect would be opposite with that
of capital, and
▪ Revenue increases capital, thus, effect would be the same as that of capital
account.

A summary analysis of transactions is shown in the following table:

Account Account How account was affected Entered in account as

Transaction Affected Classification increase decrease debit credit
Owner invested cash Cash Asset x x
Maila Bahin, Capital Capital x x
Purchased
Equipment Asset x x
equipment
on account Accounts Payable Liability x x
Purchased supplies Supplies Asset x x
for cash Cash Asset x x
Paid creditors on Accounts Payable Liability x x
account Cash Asset x x
Returned supplies Supplies Asset x x
bought for cash Cash Asset x x
Rendered service for Cash Asset x x
cash Shop Income Revenue x x
Paid cash for an Expense Expense x x
expense Cash Asset x x
Owner withdraw Maila Bahin, Drawing Contra Capital x x
cash for personal
Cash Asset x x
use

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The accounting cycle, also commonly referred to as accounting process, is a series of

procedures in the collection, processing, and communication of financial information. The
accounting process consists of the sequence of steps that must be followed within the accounting
period. In order, these are as follows:

1. Analyzing business transactions by examining the source documents

2. Journalizing
3. Posting
4. Preparing a trial balance
5. Gathering of necessary adjustment data
6. Preparing a work sheet
7. Preparing the financial statements
8. Journalizing and posting the adjusting entries
9. Journalizing and posting the closing entries
10. Preparing the post-closing trial balance
11. Preparing the reversing entries

Analyzing business transactions (step 1), has been discussed in module 2. Journalizing,
posting, and preparing a trial balance will be discussed in this module. While steps 5‒11 are
discussed in module 4.

JOURNALIZING

Journalizing is the process of recording business transactions in the book of original

entry called the journal. Journal is called the book of original entry because it is where
transactions are first recorded. Transactions are recorded in the journal in chronological order,
that is, according to the transactions date of occurrence.

The Journal

Business transactions of a business are recorded in permanent records called books of

accounts. A journal is a permanent record where transactions are first recorded in their
chronological order. It is called as the book of original entry. A business uses the kind of journal
that best fit their needs depending on the nature of business and the number of transactions to
be recorded. Journals may be

a. Special Journals - have one or more amount columns and are used for specific purposes
like Sales Journal, Purchases Journal, Cash Receipts Journal and Cash Disbursements
Journal.

b. General Journal - has two amount columns, one for the debits and another for the credits.
It is an all-purpose journal and is used by businesses with few transactions.

A recorded transaction is called a journal entry. Information found in a complete journal

entry are:

a. Date column – here is written the date when the transaction occurred.

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• Write the year in small figures on top of the first line of the date column.
The month is written below the year on the first line.
• The day is written on the first line of the 2nd column.
• The year and the month are not written again on the same page unless the
month changes.
• The day of each transaction is written regardless of the number of
transactions that occurred on the same date.

b. Description column
• The title of the account debited is written on the first line at the extreme left
of the description column.
• The title of the account credited is written on the second line indented by
about ½ inch from the debit entry.
• A brief description of the description is written below the entry and indented
again by about ½ inch from the credit entry. A complete journal entry should
have an explanation or description of the nature of the transaction.

c. Posting Reference (P/R) column

• This column is filled up only during the posting stage. The account number
of the account debited and credited are written on this column after they
are posted to the ledger.

d. Debit column
• The amount of the account debited is written on this column.

Reminder: Do not put peso sign, comma, and decimal point when using
columnar sheets. When there are no centavos involved, a dash is placed in the
centavo column.

e. Credit column
• The amount of the account credited is written on this column.

NOTE: Always leave one space after each journal entry. Write the name of the
book as in Journal or General Journal at the upper portion of every page. Put a page
number on each sheet of journal.

TWO TYPES OF JOURNAL ENTRY

1. Compound journal entry is an accounting entry in which there are two or more accounts
debited and or two or more accounts credited. The amount of the debits should always
equal the amount of the credits.

2. A simple journal entry is an accounting entry in which just one account is debited
and one is credited. Many entries are much more complex; for example,
a payroll entry may involve several dozen accounts. The use of simple journal entries
is encouraged as a best practice, since it is easier to understand the entry.

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Recording of the debit and credit components of a transaction is called

double-entry accounting. This procedure reflects the dual effect of the transactions on
the business' records.

Illustration: (refer to the transactions discussed in module 2)

General Journal page 1

Date Description P/R Debit Credit

2019 Cash 100,000-
March 1 Maila Bahin, Capital 100,000-
Initial investment of the owner in
Dadami Lilinis Laundry Shop.

5 Laundry Supplies 20,000-

Cash. 20,000-
Laundry soap, fabric softener and
detergemts bought for cash.

8 Laundry Equipment 60,000-

Accounts Payable-Handyman Appls. Store 60,000-
Washing machines and dryers bought
on account.

POSTING PROCESS

The Ledger

Another book of account used by a business is the ledger. If only a journal is used, a
business must search through all journal pages to find items affecting a single account. A ledger
is a record that summarizes all the debits and credits affecting a single account. It is also called
as the "book of final entry". The ledger provides spaces to record the date, the debit and credit
columns and a journal page number where the transaction in the journal had been recorded. This
can be used to trace a specific entry back to where it has been recorded

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Account Title Account No.

Date Items F Debit Date Items F Credit

space for debits to the account space for credits to the account

The Chart of Accounts

A chart of accounts is a listing of all account titles with account numbers that a company
has identified and made available for recording transactions in its general ledger. An account
number is assigned to every account title for easy reference when locating recorded data.
Accounts are arranged in the same order as they appear on the financial statements. That means
that balance sheet accounts, assets, liabilities, and shareholders' equity are listed first, followed
by accounts in the income statement — revenues and expenses. A company has the flexibility
to modify its chart of accounts to best suit its needs, including adding accounts as needed.

The number of digits assigned in the chart depends on the number of accounts used by a
business. A business using three (3) digits for account number may indicate the classification,
sub-classification and order of the account in the financial statement.

a. The first digit will indicate the classification as

1 -- Assets 4 -- Revenue
2 -- Liabilities 5 -- Expenses
3 -- Capital

b. The second digit will indicate the sub-classification as

1 -- Fixed Asset 2 -- Current Asset

c. The third digit will indicate the sequence of their appearance in the financial statement.
Assets are arranged according to their liquidity or the easy conversion to cash, while
liabilities are arranged according to their maturity.

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Thus, if no. 111 would be assigned to Cash, this would mean that

↓ --- the account is the 1st under its group

↓ ----- the account is a current asset
↓ ------- the account is an asset

Dadami Lilinis Laundry Shop

Chart of Accounts

Assets (100) Capital (300)

Current Assets (10) 311 Maila Bahin, Capital
111 Cash 312 Maila Bahin , Drawing
112 Accounts Receivable 313 Income Summary Account
113 Laundry Supplies
Revenue (400)
Fixed Assets (20) 411 Laundry Shop Revenue
121 Laundry Equipment
122 Accumulated Depreciation - SE Expenses (500)
511 Salary Expense
Liabilities (200) 512 Rent Expense
Current Liabilities (10) 513 Utilities Expense
211 Accounts Payable 514 Laundry Supplies Expense
515 Depreciation Expense

Posting Transactions from Journal to Ledger

Transferring information from a journal entry to a ledger account is called posting. Posting
sorts journal entries so that all debits and credits affecting each account are brought together.
There are two rules for posting amounts from the journal namely (1) separate amounts in the
general journal are posted individually to the specific account in the ledger and (2) total of the
amount in an amount column of the special journals is posted to the ledger of the account title
appearing on top the column.

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Module 3 – Recording Business Transactions of a Service Business

Posting separate amounts:

As used for illustration purposes, transactions for Dadami Lilinis Laundry Shop will thus
be posted and the different steps are as follows:

Step 1. A ledger is prepared for every account appearing in the chart of accounts.
CASH Account No. 111

Date Items P/R Debit Date Items P/R Credit

Step 2. Opening balances, if any, are first recorded in the ledger. They are opened on the
side where such account would have the normal balance (refer to page 4, analysis in
terms of debit and credit).
▪ The 1st day of the accounting period is recorded on the date column,
▪ The word "balance" is written on the item column,
▪ A check (√) is placed on the Post Reference (P/R) or folio (F) column,
▪ The amount of the balance is then written on the amount column

Step 3. Posting journal entries: The account debited in the journal will first be recorded on
the debit side of the ledger for the account indicating the date of the transaction on the
date column, the page number of the journal where the entry was recorded on the P/R
(post reference) or F (folio), and the amount on the debit amount column. After the entry
was posted to the ledger, the account number of the account is then recorded on the P/R
(posting reference) column of the journal.

General Journal page 1

Date Description P/R Debit Credit

2019Cash 111 100,000-
March 1 Maila Bahin, Capital 100,000-
Initial investment of the
owner in Dadami Lilinis
Laundry Shop

CASH Account No. 111

Date Items P/R Debit Date Items P/R Credit

2019

March 1 J1 100,000-

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Step 4. The account credited in the journal will then be recorded on the credit side of the
ledger for the account following the same procedure done in step 3.

General Journal page 1

Date Description P/R Debit Credit

2019 Cash 111 100,000-
March 1 Maila Bahin, Capital 311 100,000-
Initial investment of the
owner in Dadami Lilinis
Laundry Shop

MAILA BAHIN, CAPITAL Account No. 311

Date Items P/R Debit Date Items P/R Credit

2019

March 1 J1 100,000-

Procedures described in steps 3 and 4 will be entries recorded during the period had been
posted.

The posting in the P/R or F column of the general ledger trace the source of the entry
recorded in the ledger. The numbers in the Post. Ref. columns of the general journal serve two
purposes: (1) the entry in the journal can be traced to the ledger where it was posted and (2) if
posting is interrupted, the accounting personnel can easily see which entries in the journal still
need to be posted. A blank P/R column in the journal would indicate that posting for that line
needs to be completed. Therefore, the posting reference is always recorded in the journal as the
last step in the posting procedure. The procedure described is called cross indexing.

Summarizing Business Transactions

The length of time for which a business summarizes and reflected in the financial
statements is called a fiscal period or an accounting period. The accounting period usually
coincides with the business' fiscal year. However, there are many business entities that follow
the accounting period of three months or six months. Internally, the accounting period is
considered to be a month or a quarter while externally it is for a period of twelve months.

Since businesses submit reports to the government for yearly tax purposes, fiscal period
usually consists of twelve-month period following the calendar year. Other businesses may start
on any date and ends on a twelfth month which is a period of low business activity.

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There are two kinds of accounting periods:

• Calendar Year – A twelve-month accounting period that begins on January 1 and ends on
December 31 of the same year.
• Fiscal Year – A twelve-month accounting period that begins on the first day of any month other
than January and ends in any month of the following year.

Preparing a trial balance:

The equality of the debits and credits as recorded in the general ledger must be proved
before financial reports are made. A proof of the equality of the debits and credits in the general
ledger is called trial balance. The following steps are followed in preparing a trial balance:

a. After posting the journal entries to the ledger, account balances are determined for each
account in the ledger. The total of the debit column is matched against the total of the
credit column for each account in the ledger. The account is said to have a debit balance
when the total debit side is greater than the credit side, and, on the other hand, the account
is said to have a credit balance when the total of the credit side is greater than the debit
side. The process of deducting debit and credit to determine the balance is called pencil
footing.

Example: Debit Total - P 20,000

Credit Total - 15,000
Balance - P 5,000 debit
The debit balance is written on the debit side of the
account. If the credit total is greater than the debit total, the
account will have a credit balance, that is,

Credit Total - P 20,000

Debit Total - 15,000
Balance - P 5,000 credit

The credit balance is written on the credit side of the account.

Normal Balances of Accounts

The normal balance of accounts are:

Assets - Debit
Liabilities - Credit
Capital - Credit
Drawing - Debit
Revenue - Credit
Expense - Debit

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The account balance must be in its normal balance. If the account balance
computed is not in its normal balance it may indicate that an error has occurred in
journalizing and/or posting transactions or an unusual situation exists. For example, a
credit balance in the office equipment account means an error has been committed
because office equipment should have a normal balance of debit.

The rules of debit and credit and the normal balances of accounts:

To To Normal
Account Increase Decrease Balance
Assets Debit Credit Debit
Liabilities Credit Debit Credit
Capital Credit Debit Credit
Drawing Debit Credit Debit
Revenue Credit Debit Credit
Expense Debit Credit Debit

b. Accounts appearing in the general ledger are then listed in the account title column. The
amount is listed in the debit column if the account has a debit balance and if the account
has a credit balance, the amount is listed in the credit column.

c. Draw a single line across the debit and credit amount columns immediately below the last
line on which an account title is written. A single line drawn in the amount column indicates
that the amounts above the line are to be added.

d. Check the equality of the totals. If the total debit equals the total credit, a double line is
drawn below the totals to indicate that the amounts had been verified as correct.

If the totals of the debit and credit does not equal, the trial balance is not in balance and
automatically indicate an error. Possible errors and what to do procedures are shown below:

Error
a. Totals of the debit and credit columns of
the trial balance incorrectly determined.
b. An account in the general ledger had been
omitted in the trial balance.
c. The balance of an account in the ledger
was incorrectly recorded in the trial
balance.
d. Error in determining the account balance
(footing).
e. Wrong posting of a journal entry to the
ledger.
f. Failing to post part of a journal entry.
To do
Check the addition of the debit and credit
columns of the trial balance.
Check the accounts in the general ledger if all
had been listed in the general ledger.
Compare account balances appearing in the
general ledger with that recorded in the trial
balance as to amount and nature of the
balance (debit or credit).
Check the addition of the debit column and
credit column and the difference between the
two.
Compare postings made to the general ledger
against the journal entry. Check that the
journal entry was posted to the right account,
the right amount and on the right side.
As described in the process in (e) above, a
journal entry may be found to have not been
posted.

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Amounts incorrectly recorded may likewise result to an incorrect trial balance. When digits
are erroneously rearranged such as writing P5,700- as P 7,500-, it is called transposition. When
amounts are erroneously moved one or more spaces to the left or right such as writing P 1,000-
as P 10,000- or P100-, it is called a slide.

However, a balanced trial balance does not necessarily indicate that no error had been
committed. Errors such as failure to record a transaction in the journal or posting a debit or a
credit entry to a wrong account will still result to a balanced trial balance.

The trial balance for Dadami Lilinis Laundry Shop will thus be:

Dadami Lilinis Laundry Shop

Trial Balance
March 31, 2019

Acct.
Account Title Debit Credit
No.
111 Cash 51,000.00
112 Accounts Receivable 20,000.00
113 Laundry Supplies 20,000.00
121 Laundry Equipment 60,000.00
211 Accounts Payable 35,000.00
311 Maila Bahin, Capital 100,000.00
312 Maila Bahin, Drawing 3,000.00
411 Laundry Shop Revenue 35,000.00
511 Wages Expense 3,000.00
512 Rent Expense 8,000.00
513 Utilities Expense 5,000.00
170,000.00 170,000.00

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Proper use of the amount columns of a journal or a ledger:

An amount column of a journal or ledger as eight (8) smaller columns each with specific
unit values for an amount. An amount column is separated from the other amount columns by a
double line on- both side

space for centavos

space for ones

space for tens

space for hundreds

space for thousands

space for millions and for P signs when necessary

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Discussion Questions

1. What is an accounting cycle?

2. Enumerate the steps in the accounting cycle.
3. What are the normal balances of accounts?
4. What is a journal? Why is it called the book of original entry?
5. What is journalizing?
6. Describe a Compound Journal Entry.
7. What is a ledger? A Chart of Accounts?
8. What is posting?
9. What is a T-account? What are its parts?
10. What is a trial balance? What purpose does it serve?
11. What are the steps in preparing a trial balance?
12. Does the equality of the trial balance an assurance of the accuracy of the accounting records?
If no, why?
13. Differentiate transposition and slide errors. Give examples.

Exercises for Understanding

1. Analyzing effects of transactions to the accounts, Journalizing, Posting, and Trial Balance

Mabini Ko established a spa service business named as Mabini’s Touch. The chart of
accounts used are as follows:

ASSETS REVENUE
Account No. Account Title Account No. Account Title
111 Cash 411 Service Income
124 Accounts Receivable
126 Spa Supplies
128 Spa Equipment EXPENSES
511 Salaries Expense
LIABILITIES 512 Utilities Expense
221 Accounts Payable 513 Advertising Expense
223 Salaries Payable 514 Rent Expense
519 Miscellaneous Expense
OWNER’S EQUITY
311 Mabini Ko, Capital
312 Mabini Ko, Drawing

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The following are the transactions of Mabini’s Touch for the month of May 2019

May 1 Mabini Ko invested P200,000 into her business that carries the name of
Mabini’s Touch.
5 Paid P10,000 for the month’s rent .
8 Bought equipment P100,000 on account.
9 Bought supplies for the operation of the business worth P50,000.
13 Paid P6,000 advertisement in the newspaper for the grand opening of Mabini’s
Touch.
15 Paid P5,000 for the balloons, ribbons, flowers and food and refreshments.
18 Paid P20,000 for the salaries of spa employees.
19 Received 30,000 cash for services rendered for the two weeks.
23 Billed a client an amount of P40,000 for the services rendered.
25 The owner withdraw P15,000 cash for Personal use.
28 Paid electricity and water bills, P4,500.
29 Paid P60,000 the supplier on account.
30 Collected an amount of P15,000 on account last May 23.
31 Unpaid salaries of P20,000.

Requirements:
a. Using the tabular form below, analyze the transactions. Answer to transaction on May 1
is given as an example.
b. Record the transactions in the T- account.
c. Record the transactions in the general journal.
d. Post the journal entry to the general ledger.
e. Prepare the trial balance as of May 31, 2019.

Answer:
a. Analysis of transactions.
Account Effect Recorded as
Date Account Affected Classification Increase Decrease Debit Credit
2019
May 1 Cash Asset √ 200,000
Mabini Ko, Capital Capital √ 200,000

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Module 3 – Recording Business Transactions of a Service Business

Account Effect Recorded as

Date Account Affected Classification Increase Decrease Debit Credit

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Module 3 – Recording Business Transactions of a Service Business

b. Recording of transactions in the T-accounts

Cash Accounts Payable Salaries Expense

Debit Credit Debit Credit Debit Credit

Utilities Expense
Debit Credit

Salaries Payable
Debit Credit

Advertising Expense
Debit Credit

Mabini Ko, Capital

Debit Credit
Accounts Receivable Rent Expense
Debit Credit Debit Credit

Mabini Ko, Drawing

Debit Credit
Spa Supplies
Debit Credit
Miscellaneous Expense
Debit Credit

Spa Equipment Service Income

Debit Credit Debit Credit

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Module 3 – Recording Business Transactions of a Service Business

c. Recording of transactions in the general Journal

General Journal Page 1

Date Description P/R Debit Credit

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Module 3 – Recording Business Transactions of a Service Business

General Journal Page 2

Date Description P/R Debit Credit

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Module 3 – Recording Business Transactions of a Service Business

d. Posting the journal entries to the general ledger

Cash Account No. 111

Date Items P/R Debit Date Items P/R Credit

Accounts Receivable Account No. 124

Date Items P/R Debit Date Items P/R Credit

Spa Supplies Account No. 126

Date Items P/R Debit Date Items P/R Credit

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Module 3 – Recording Business Transactions of a Service Business

Spa Equipment Account No. 128

Date Items P/R Debit Date Items P/R Credit

Accounts Payable Account No. 221

Date Items P/R Debit Date Items P/R Credit

Salaries Payable Account No. 223

Date Items P/R Debit Date Items P/R Credit

Mabini Ko, Capital Account No. 311

Date Items P/R Debit Date Items P/R Credit

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Module 3 – Recording Business Transactions of a Service Business

Mabini Ko, Drawing Account No. 312

Date Items P/R Debit Date Items P/R Credit

Service Income Account No. 411

Date Items P/R Debit Date Items P/R Credit

Salaries Expense Account No. 511

Date Items P/R Debit Date Items P/R Credit

Utilities Expense Account No. 512

Date Items P/R Debit Date Items P/R Credit

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Module 3 – Recording Business Transactions of a Service Business

Advertising Expense Account No. 513

Date Items P/R Debit Date Items P/R Credit

Repair Expense Account No. 514

Date Items P/R Debit Date Items P/R Credit

Miscellaneous Expense Account No. 519

Date Items P/R Debit Date Items P/R Credit

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Module 3 – Recording Business Transactions of a Service Business

e. Trial Balance

Account No. Account Title Debit Credit

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Module 3 – Recording Business Transactions of a Service Business

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