B-FNDC003

Accounting Theories, Concepts and

Principles
Professor:
Danilo V. Dumantay, CPA, MBA, CGFM, AIF
“Sir Dan”
 TOPIC:

Financial Transactions, and

Journal Entries
 TOPIC Learning Outcomes
Students can:
 Discuss financial transactions and the parties to financial
transactions.
 Explain double entry bookkeeping and increases and decreases
of accounts affecting the accounting equation.

 Illustrate the concept and preparation of journal entries on

financial transactions with owners, banks, and
vendors/creditors.
 Solve exercises relative to the preparation of journal entries.
 The Accounting Cycle
Financial Transactions Journalizing Posting
(Documents) (Books of Original (Books of Final Entry: GL
IDENTIFYING Entry: Journals)
RECORDING/MEASURING / SL
CLASSIFYING

Adjusted Trial Balance Trial Balance

Adjusting Entries
VERIFYING/SUMMARIZING

Financial Statements Post Closing Trial

(FS) Closing Entries Balance
INTERPRETING

Audited FS COMMUNICATING New

Reporting Period
 Financial Transactions
 Financial Transactions - exchange of values between two
parties in terms of money.
 Exchange of values mean something is received and something
is given of the same monetary value.

RECEIVE DEBIT

GIVE CREDIT
 Financial Transactions, continued
 Who are the parties of the business on financial transactions?
B. Financial Institutions 1. Borrow money from bank
(Banks) 2. Pay the loan

C. Suppliers / Vendors/ Creditors

A. Owner
1. Buy in cash
1. Investment
2. Buy on account 2. Withdrawal of
3. Pay the account investment

D. Employees/ Landlords/ Agencies E. Customers

1. Buy in cash 1. Providing services in cash
2. Record the account 2. Providing services on account

3. Pay the account 3. Collection of account

 Journal Entry
ASSETS = LIABILITIES + EQUITY

EXP REV
DEBIT CREDIT
 In accounting, financial transactions are first recorded in a
journal...hence the term journal entry.
 Debit and Credit are used to Increase and/or Decrease the
Accounts.
 Increases and/or Decreases (Debit and/or Credit) of accounts are
done through journal entries.
 Journal Entry, continued
 Journal Entries apply the concept of “Double Entry Bookkeeping”.
 Double Entry Bookkeeping means that every business
transaction will involve two accounts (or more) which has
equal effects of debit and credit.
 Equal effects mean that total debit is equal with total credit of
the journal entry.
 Journal entries provide the following information:
• Refer to Chart of
 Date of the transaction Accounts for the accounts
 Accounts to be debited and credited to be used
 Amounts to be debited and credited • Total debit should equal
with total credit of the
 Brief explanation of the transaction journal entry
 Illustration of Increases and Decreases By Debit and Credit
DEBIT CREDIT
LIABILITIES
ASSETS =
EQUITY

EXP REV
To INCREASE: DEBIT To INCREASE CREDIT
To DECREASE CREDIT To DECREASE DEBIT
 Illustration of Increases and Decreases By Debit and Credit, continued

DEBIT CREDIT
CREDIT
Assets = Liabilities + Equity
200,000 40,000 200,000
EXPENSE REVENUE
40,000
 DEBIT and CREDIT can be reflected in the following ways:
1. Increase Both Sides DEBIT CREDIT
Debit asset or expense
Credit liabilities or equity or revenue
Cash 200,000
Owner’s Capital 200,000
Expense 40,000
Accounts Payable 40,000
 Illustration of Increases and Decreases By Debit and Credit, continued

DEBIT CREDIT
CREDIT
Assets = Liabilities + Equity
(30,000) (30,000) (1,000)
(1,000)
EXPENSE REVENUE
2. Decrease Both Sides
DEBIT CREDIT
Debit liabilities or equity or revenue
Credit asset or expense
Accounts Payable 30,000
Cash 30,000

Owner’s Drawing 1,000

Cash 1,000
 Illustration of Increases and Decreases By Debit and Credit, continued

DEBIT CREDIT
Assets
80,000
= Liabilities + Equity
(80,000)
EXPENSE 3,000 (3,000)
REVENUE

3. Increase and decrease on one side (zero effect): Debit Side

Debit asset or expense
Credit another form of asset or expense
DEBIT CREDIT

Equipment 80,000
Cash 80,000

Utilities 3,000
Cash 3,000
 Illustration of Increases and Decreases By Debit and Credit, continued

DEBIT CREDIT
Assets = Liabilities + Equity
(8,000) 8,000
EXPENSE
REVENUE
3. Increase and decrease on one side (zero effect): Credit Side
Debit liabilities or equity or revenue
Credit in another form of liabilities or equity or revenue
DEBIT CREDIT

Accounts payable 8,000

Notes payable 8,000
 Illustration of Journal Entries
DEBIT Gym and Spa CREDIT
A. Owner
ASSETS = LIABILITIES + EQUITY 1. Investment.
 The owner invested cash of
P200,000 in the business.
Cash 200,000
A1 Cash A1 Capital Owner’s capital
200,000 200,000 200,000
2. Withdrawal of Investment.
 The owner withdrew P500 from
the business.
A2 (Cash) A2 (Capital) Owner’s drawing 500
(500) (500) Cash 500
 Journal Entry, continued
B. Financial Institutions (Banks)
1. Borrow Money DEBIT CREDIT
Gym and Spa
 The owner borrowed P100,000
ASSETS = LIABILITIES + EQUITY
from the bank for the business.
Cash 100,000 B1 Cash B1 Loans Pay
Loans payable 100,000 100,000 100,000
2. Pay the Loan.
 Paid the bank P5,000 as
partial payment.

Loans payable 5,000 B2 (Cash) B2 (Loans Pay)

Cash 5,000 (5,000) (5,000)
 Journal Entry, continued
C. With The Supplier
DEBIT Gym and Spa CREDIT
1. Buy in cash.
ASSETS = LIABILITIES + EQUITY
 Bought equipment worth P8,000 in cash.
C1 Equip.
Equipment 8,000
Cash 8,000 8,000
2. Buy on account. C1 (Cash)
 Purchased furniture amounting P5,000
(8,000)
on account.
Furniture 5,000
Accounts payable 5,000 C2 Furniture C2 Accounts Pay
5,000 5,000
3. Pay the account.

 Paid 50% of the account for furniture.

C3 (Cash) C3 (Accounts Pay)
Accounts payable 2,500
Cash 2,500 (2,500) (2,500)
 Format of Journal Entry
Date Account Title P/R Debit Credit
Date
Date Account Title
Account Title P/R
P/R Debit
Debit Credit
Credit
2015
2015
2015
June 1 Cash 5 0 0 0 0 00
June
June 1 Cash
1 Cash
Owner's capital 5 0 0
5 0 0 0
0 0 00
0 00 5 0 0 0 0 00
Owner's capitalinitial
Received
Owner's capital
Investment by the investment
owner. from owner. 5 0 0
5 0 0 0
0 0
0 00
00
Investment by the owner.
Investment by the owner.
3 Cash 1 0 0 0 0 0 00
3 Cash
3 Cash
Equipment 1 0
1 0 0 0
4 0 0 0
0 0
0 00
00
Equipment
Equipment
Owner's capital 4 0
4 0 0
0 0
0 0
0 00
00 1 4 0 0 0 0 00
Owner's
Owner's capitalby the owner.
capital
Investment 1 4 0
1 4 0 0
0 0
0 0
0 00
00
Received additional
Investment
Investment by the
by investment from owner.
the owner.
owner.
5 Cash 2 0 0 0 0 0 00
5 Cash
5 Cash
Loans Payable, short term 2 0 0
2 0 0 0
0 0
0 0 00
0 00 2 0 0 0 0 00
Loans Payable,
Loans Payable, short
short term
long - term
term 2
1 2
8 0
0 0
0 0
0 0
0 00
00
Loans
Loans Payable,
Payable,
Loan from the long
long - term
- term
bank payable 1 8
1 8 0
0 0
0 0
0 0
0 00
00
Loan
Loan
in from
ten from the
years.the bank payable
bank payable
Borrowed money from the bank.
in ten years.
in ten years.
Assignment: Prepare journal entries. Use two – column journal.
Feb 01 - The owner invested cash of P350,000, and his furniture amounting to P40,000
in the business.
Feb 02 - The owner borrowed P200,000 from the bank to be used for the business.
Feb 03 - The business bought equipment amounting to P60,000. The business paid
P20,000 and the balance was negotiated to be paid after 30 days.
Feb 04 - The business purchased school supplies of P2,000 in cash. The supplies will be
used by his child.
Feb 05 - The business bought office supplies of P3,000 on account from a friend’s store
to be used in the business.
Feb 06 - The owner made partial payment of P10,000 to the bank for the P200,000
loan using the cash of the business.

Feb 07 - The business paid 50% of the account for the office supplies bought on account
from a friend’s store.
 Questions?

“The only stupid

question is the
one that goes
unasked.”

By: Danilo “Sir Dan” Dumantay, MBA, CPA, CGFM, AIF