Chapter 3

ACCOUNTING
FUNDAMENTALS
The Accounting Equation and the Double-Entry System
1. Distinguish
accounting event and
transaction
ACCOUNTING EVENTS AND TRANSACTIONS
EVENTS
 Economic occurrence that
causes changes in an enterprise’s
assets, liabilities, and/or equity.
 Internal Event: Use of
equipment for the production of
good or services.
 External Event: Purchase of raw
materials from a supplier.
TRANSACTIONS
 Particular kind of event that
involves the transfer of something
of value between two entities.
 Examples:
- Acquiring assets from owner(s)
- Borrowing funds from creditors
- Purchasing or selling goods and
services.
 KNOWLEDGE CHECK

QUESTION START
4 1 The 1st buyer walks in and purchased 1
What is the accounting transaction
and event? unit of gold watch.

Transaction: The purchases and sales

made by Mr. Smith.

Event: The closing stock made by

Mr. Smith within the day.

Mr. Smith, a business man who wants to

The stock position of Mr. Smith. He
had purchased 15 units of gold watch
in the morning and he was able to sell
a total of 4 units, during the day.
Hence, at the end of the day he has a
closing stock of 11 units.
purchase and sell, gold watch. So, he
purchases 15 units of gold watch and
3 keeps it in a shop for sale. 2
The 2nd buyer walks in and
purchased 3 units of gold
watch.
1. Distinguish
accounting event and
transaction.

2. Explain how an
accounting
information system
helps the decision
makers.
ACCOUNTING INFORMATION SYSTEM

 The combination of personnel, records and

procedures that a business uses to meet its need
for the financial information.
 Accounting Manual – policies and procedures to
be followed in accumulating information within
the accounting information system.
 ACCOUNTING INFORMATION SYSTEM

4 Objectives of an effective accounting information:

 Cost-Benefit Principle
- To process the information efficiently at the least cost.

 Control Principle
- To protect entity’s assets, to ensure that data are reliable, and to
minimize wasted and the possibility of theft or fraud.

 Compatibility Principle
- To be in harmony with the entity’s organizational and human factors.

 Flexibility Principle
- To be able to accommodate growth in the volume of transaction and
for organizational changes.
 ACCOUNTING INFORMATION SYSTEM
John, bought a new flavor
frappe from SB. From here,
SB will be issuing a OR to
John.

SB then will The record of the

decide how to sales transaction will
maintain/improve be registered to SB’s
their sales. information system.

All the sales transaction of SB covering the month of July

2017, will be summarized. From that information, it will
show in which week has the highest/lowest sales of frappe.
The above diagram illustrates how economic activities flow into the accounting process, which
produces accounting information.
1. Distinguish
accounting event and
transaction.

2. Explain how an
accounting
information system
helps the decision
makers.

3. Define the
elements of financial
system.
 ELEMENTS OF FINANCIAL SYSTEM

FINANCIAL POSITION PERFORMANCE

 ASSET  INCOME
- Resource controlled by the enterprise; - Increase in equity.
- Resulting from past events; - Decrease in liabilities
- Expected inflow of future economic benefits
(e.g. Cash, notes receivable, inventories, *The Definition of income encompasses both
Intangible assets and etc.) revenue and gains.
Revenue - arises in the course of the
 LIABILITY ordinary activities of the enterprise.
- Present obligation of the enterprise; Gains – may or may not arise in the course
- Arising from past events; of the ordinary activities of the enterprise
- Expected outflow of future economic
benefits
 EXPENSES
- Increase in liabilities.
 EQUITY - Decrease in Equity.
- Residual interest in the assets of the
enterprise after deducting all its liabilities. *The Definition of expenses encompasses
(Assets – Liabilities) losses.
 KNOWLEDGE CHECK
ASSET, LIABILITY, or EQUITY?
• You had 3 tarpaulin made on credit.
Liability
• You paid for your car loan.
Equity
• You own a smart phone that keeps you connected with your
customers.
Assets
1. Distinguish
accounting event and
transaction.

2. Explain how an
accounting
information system
helps the decision
makers.

3. Define the
elements of financial
system.

4. Describe the nature

of the typical account
titles used in recording
transactions.
TYPICAL ACCOUNT TITLES
USED
The Components of the balance sheet equation
 ASSETS

 LIABILITIES

 OWNER’S EQUITY
 TYPICAL ACCOUNT TITLES USED

CURRENT ASSETS NON-CURRENT ASSETS

 It expects to realize the asset, or
intends to sell or consume it, in its
normal operating cycle;
 it holds the asset primarily for the
purpose of trading;
 It expects to realize the asset within
12 months after the end of the
reporting period; or
 The asset is cash or a cash equivalent
unless it is restricted from being
exchanged for atleast 12 months after
the end of the reporting period.
 TYPICAL ACCOUNT TITLES USED

CURRENT ASSETS NON-CURRENT ASSETS

 CASH  PROPERTY, PLANT,
 CASH EQUIVALENTS AND EQUIPMENT
 NOTES RECEIVABLE  ACCUMULATED
 ACCOUNTS DEPRECIATION
RECEIVABLE  INTANGIBLE ASSETS
 INVENTORIES
 PREPAID EXPENSES
 TYPICAL ACCOUNT TITLES USED

CURRENT ASSETS
 CASH
- any medium of exchange that a bank will accept for
deposit at face value.

 CASH EQUIVALENTS
- Short-term, highly liquid investment that are readily
convertible to know amounts of cash.

 NOTES RECEIVABLE
- written pledge that the customer will pay the business a
fixed amount of money on a certain date.
 TYPICAL ACCOUNT TITLES USED

CURRENT ASSETS
 ACCOUNTS RECEIVABLE
- Claims against customers arising from sale of services
or
goods on credit.

 INVENTORIES
- These are assets which are held for sale in the ordinary
course of business; in the process of production for sale;
or in the form or materials.
 PREPAID EXPENSES
- These are expenses paid for by the business in advance.
 TYPICAL ACCOUNT TITLES USED

NON-CURRENT ASSETS
 PROPERTY, PLANT, AND EQUIPMENT
- Tangible assets that are held by an enterprise for use in
the production. (e.i land, building, machinery, etc.)
 ACCUMULATED DEPRECIATION
- It is a contra account that contains the sum of the periodic
depreciation charges.
 INTANGIBLE ASSETS
- Identifiable, nonmonetary assets without physical
substance held for use in the production. (e.i copyrights,
licenses, brand names, etc.)
 TYPICAL ACCOUNT TITLES USED

NON-CURRENT
CURRENT LIABILITIES
LIABILITIES
 It expects to settle the liability in
its normal operating cycle;
 It holds the liability primarily for
the purpose of trading;
 The liability is due to be settled
within 12 months after the end of
the reporting period; or
 The entity does not have an
unconditional right to defer
settlement of the liability for at
least 12 months after the end of
 TYPICAL ACCOUNT TITLES USED

NON-CURRENT
CURRENT LIABILITIES
LIABILITIES
 ACCOUNTS PAYABLE  MORTGAGE PAYABLE
 NOTES PAYABLE  BONDS PAYABLE
 ACCURED LIABILITIES
 UNERANED
REVENUES
 CURRENT PORTION OF
LONG-TERM DEBT.
 TYPICAL ACCOUNT TITLES USED

CURRENT LIABILITIES
 ACCOUNTS PAYABLE
- represents the reverse relationship of the accounts
receivable. By accepting the goods or services, the
buyer agrees to pay for them in the near future.
 NOTES PAYABLE
- similar to a note receivable but in reverse sense.
 ACCURED LIABILITIES
- Amounts owed to others for unpaid expenses.
(e.i salaries, utilities, interest, and taxes payable).
 TYPICAL ACCOUNT TITLES USED

CURRENT LIABILITIES
 UNEARNED REVENUES
- The business entity receives payment before providing
its
customers with goods or services.
 CURRENT PORTION OF LONG-TERM DEBT.
- Portions of mortgage notes, bonds and other long-term
indebtedness which are to be paid within one year from
the balance sheet.
 TYPICAL ACCOUNT TITLES USED

NON-CURRENT
LIABILITIES
 MORTGAGE PAYABLE
- Records long-term debt of the business entity for
which
the business entity pledged certain assets as security to
the creditor.
 BONDS PAYABLE
- Business organization often obtain substantial sums of
money from lenders to finance the acquisition of
equipment and other needed assets.
 TYPICAL ACCOUNT TITLES USED

OWNER’S EQUITY
 CAPITAL
- This account is used to record the original and additional
investments of the owner of the business entity.
 WITHDRAWALS
- When the owner of a business entity withdraws cash or
other assets.
 INCOME SUMMARY
- It is a temporary account used at the end of the
accounting period to close income and expenses. Shows
the profit or loss for the period before closing to the
capital account.
 TYPICAL ACCOUNT TITLES USED

INCOME STATEMENT
 INCOME
• Service Income
- Revenues earned by performing services for a
customer or client. (e.i accounting services by a CPA
firm, laundry services by a laundry shop.)
• Sales
- Revenues earned as a result of sale of merchandise.
(e.i sale of building materials by a construction
supplies firm.)
 TYPICAL ACCOUNT TITLES USED

INCOME STATEMENT
 EXPENSES
• Cost of Sales
• Salaries or Wages Expense
• Telecommunication, Electricity, Fuel and Water Expenses.
• Supplies Expense
• Rent Expense
• Insurance Expense
• Depreciation Expense
• Uncollectible Accounts Expense
• Interest Expense
 ACTIVITY

• Divide the class into 3 groups.

• 3 sets of cards
1. Questions
2. Answer cards
3. Fun Facts
• Match the questions with the
correct answer cards and correct
fun facts
• 1 point per correct answer card,
and another for correct fun fact
card
• Team with the highest score and
fastest time wins the prize.
 QUESTIONS
Q1. When an entity pays
employees for their services, the
effect is an increase in?
Q2. The Components of the balance
sheet equation are….
Q3. An example of Intangible
Assets.
Q4. Any medium of exchange that a
bank will accept for a deposit at
face value.
Q5. Written pledge that the
customer will pay the business a
fixed amount on a certain date.
ANSWER FUN FACT
Nike spent $2.75 billion on what it calls
EXPENSES "demand creation" in fiscal 2013. That's
nearly 11 percent of Nike's 2013 revenue
($25.3 billion). The expense covers
advertising, promotion and the cost of
endorsement contracts with athletes.
Benjamin Diokno, secretary of Budget and
ASSETS, Management, said at the moment where aged
23 and below comprise half of the population
LIABILITIES millennials are considered assets and
AND OWNER’S liabilities.
EQUITY
For published works created after January 1,
1978, copyright extends for 70 years beyond the
COPYRIGHTS life of the author. If there is more than one author,
the copyright usually extends to 70 years from the
death of the last living author.
U.S. paper money is not paper. It's cloth. In Ben
Franklin’s day, people repaired torn bills with a
CASH needle and thread. 
Promissory notes have acted as a form of
privately issued currency. Flying
NOTES cash or feiqian was a promissory note used during
RECEIVABLE the Tang dynasty (618 – 907).
 QUESTIONS
Q6. These are assets which are held for
sale in the ordinary course of business;
in the process of production for sale;
or in the form or material.
ANSWER FUN FACT
The use of inventory proportionality
in the United States is thought to
have been inspired by Japanese just-
INVENTORIES in-time parts inventory management
made famous by Toyota Motors in
the 1980s.

Q7. Includes all payments as a result 13th month pay in Singapore is

SALARIES or called Annual Wage
of an employer-employee relationship.
Supplement (AWS) and is not
WAGES EXPENSE mandated by the law.

Q8. When an owner deposits cash in To franchise a starbucks coffee shop,

an account in the name of the business, CASH AND you will need to demonstrate £500k
(Php 33,085,429.22) of liquid assets.
it is an increase to? CAPITAL
Q9. The expectation of a future Michael Kors' accounts receivables
ACCOUNTS for the quarter that ended in March
payment from a customer for goods
2017 was $358 Million.
sold. RECEIVABLE
Q10. This account records long-term The earliest use of the word was in
MORTGAGE the poem Confessio Amantis, which
debt of the business entity.
was written in the 1300s. In that
PAYABLE poem, the word was used to describe
marriage, not a home loan.
 5. Understand what
is meant by the
1. Distinguish
accounting
accounting event and
equation and
transaction.
“mirror image”
concept.
2. Explain how an
accounting
information system
helps the decision
makers.

3. Define the
elements of financial
system.

4. Describe the
nature of the typical
account titles used in
recording
transactions
 THE ACCOUNTING EQUATION
 The most basic tool of accounting.
 It states that assets must always be equal to liabilities

and owner’s equity.

 The basic accounting model:

Assets = Liabilities + Owner’s Equity

*Note that the assets are on the left side of the equation
opposite the liabilities and owner’s equity. This explains
why increases and decreases in assets are recorded in the
opposite manner (“mirror image”) as liabilities and
owner’s equity are recorded.
ACCOUNTING FOR BUSINESS TRANSACTIONS

FINANCIAL TRANSACTION
BUSINESS TRANSACTION WORKSHEET

 The occurrence of an  The financial transactions

event or a condition will be analyzed by
that affects financial means of a financial
position and can be transaction worksheet
reliably recorded. which is a form used to
analyze increase and
decreases in the assets,
liabilities or owner’s
equity of a business
entity.
 ACCOUNTING FOR BUSINESS
TRANSACTIONS
 ILLUSTRATION
San Mateo Accounting Services is a
firm that provides a wide range of
bookkeeping and accounting
service.
The office is managed by Glaiza
Caballes, MBA. The firm is located
in a large office complex that has
easy public access.
This sole proprietorship business is
owned by Dr. Reynaldo San Mateo,
also a CPA.
To simplify record keeping and billing, San
Mateo permits clients to charge accounting
services that are provided by the firm. He bills
clients on monthly basis for the services they
have received during the period. Customers who
prefer may pay in cash immediately after services
 ACCOUNTING FOR BUSINESS
TRANSACTIONS

 ILLUSTRATION

During October 2016, the first month of operations and various financial
transactions took place.

When a specific asset, liability or owner’s equity item is created by a financial

transaction, it is listed in the financial transaction worksheet using the appropriate
accounts. Note that the date of the transaction is enclosed in parenthesis.
11 MINUTE
 ACTIVITY

• Divide the class into 3 groups.

1. Assets
2. Liabilities
3. Owner’s Equity
• Identify the amount and account
title that corresponds to its
financial position.
• 1 point per correct answer card.
• Team with the highest score wins
the prize.
 INITIAL TRANSACTIONS
 Starting a Business
OCTOBER 1
Reynaldo San Mateo obtained the funds to start the business by
withdrawing P800,000 from his personal savings. He deposited
the money in a new bank account that he opened in the name of
the firm, San Mateo Accounting Services.

ASSETS = LIABILITIES + OWNER’S EQUITY

CASH = + SAN MATEO, CAPITAL

(1) P800,000 = P800,000
 INITIAL TRANSACTIONS
 Purchasing Equipment on Credit
OCTOBER 3
Caballes bought a computer, a copy machine, fax machine,
calculators and other necessary equipment from M. Medina Inc.,
at a cost of 100,000. M. Medina, Inc., agreed to allow 60 days for
the firm to pay the bill.
=
ASSETS LIABILITIES + OWNER’S EQUITY
ACCOUNTS
CASH + EQUIPMENT = PAYABLE + SAN MATEO, CAPITAL

Bal. P800,000 = P800,000

(3)  P100,000 = P100,000  
Bal. P800,000 + P100,000 = P100,000 + P800,000
P900,000 = P900,000
 INITIAL TRANSACTIONS
 Purchasing Supplies for Cash
OCTOBER 5
Caballes placed an order for toner, fax paper, bond paper, CDs, pens,
folders and other supplies that had a total cost of P20,000. The entity
that sold the items, Cavite Supplies, In., requires cash payments from
businesses that are under six months old. San Mateo Accounting
Services therefore included a check with its order.
=
ASSETS LIABILITIES + OWNER’S EQUITY
ACCOUNTS SAN MATEO,
CASH + SUPPLIES + EQUIPMENT = +
PAYABLE CAPITAL

Bal. P800,000 P100,000 = P100,000 P800,000

(5) (20,000) P20,000      
Bal. P780,000 + P20,000 + P100,000 = P100,000 + P800,000
P900,000 = P900,000
 INITIAL TRANSACTIONS
 Paying a Creditor
OCTOBER 9
Caballes decided to pay P40,000 to M. Medina, Inc., to reduce
the firm’s debt to that business.

=
ASSETS LIABILITIES + OWNER’S EQUITY

CASH + SUPPLIES + EQUIPMENT = ACCOUNTS + SAN MATEO,

PAYABLE CAPITAL

Bal. P780,000 P20,000 P100,000 = P100,000 P800,000

(9) (40,000)     (40,000)  
Bal. P740,000 + P20,000 + P100,000 = P60,000 + P800,000
P860,000 = P860,000
 EFFECTS OF REVENUE AND EXPENSES

Shortly after San Mateo opened his

business on October 1, 2016. Some of the San Mateo also used his contacts in the
tenants in the office complex where the community to gain other clients. Services to
business is located became San Mateo’s clients began a stream of revue for the
first clients. business.
 EFFECTS OF REVENUE AND EXPENSES

 Selling Services on Credit

OCTOBER 13
San Mateo Accounting Services earned P70,000 of revenue from
charge accounts clients. These clients are allowed 30 days to pay.

=
LIABILITIES
ASSETS + OWNER’S EQUITY
ACCOUNTS ACCOUNTS SAN MATEO,
CASH + SUPPLIES + EQUIPMENT = +
RECEIVABLE PAYABLE CAPITAL

Bal. P740,000 P20,000 P100,000 = P60,000 P800,000

(13)   P70,000       P70,000
Bal. P740,000 + P70,000 P20,000 + P100,000 = P60,000 + P870,000
P930,000 = P930,000
 EFFECTS OF REVENUE AND EXPENSES

 Employees’ Salaries
OCTOBER 18
San Mateo Accounting Services hired an accounting staff on
October 1 to help in the business. The firm paid P25,000 in
salaries for this employee and Glaiza Caballes.

= LIABILITIES
ASSETS + OWNER’S EQUITY
ACCOUNTS ACCOUNTS SAN MATEO,
CASH + RECEIVABLE SUPPLIES + EQUIPMENT = PAYABLE + CAPITAL

Bal. P740,000 P70,000 P20,000 P100,000 = P60,000 P870,000

(18) (25,000)         (25,000)
Bal. P715,000 + P70,000 P20,000 + P100,000 = P60,000 + P845,000
P905,000 = P905,000
 EFFECTS OF REVENUE AND EXPENSES

 Collecting Receivables
OCTOBER 23
San Mateo Accounting Services received P30,000 from clients
who had previously bought services on account. This cash was
applied to their accounts.

=
LIABILITIES
ASSETS + OWNER’S EQUITY
ACCOUNTS ACCOUNTS SAN MATEO,
CASH + SUPPLIES + EQUIPMENT = +
RECEIVABLE PAYABLE CAPITAL

Bal. P715,000 P70,000 P20,000 P100,000 = P60,000 P845,000

(23) 30,000 (30,000)        
Bal. P745,000 + P40,000 P20,000 + P100,000 = P60,000 + P845,000
P905,000 = P905,000
 EFFECTS OF REVENUE AND EXPENSES

 Selling Services for Cash

OCTOBER 27
San Mateo Accounting Services earned a total of P210,000 in
revenue from clients who paid cash for accounting and
bookkeeping services.

= LIABILITIES
ASSETS + OWNER’S EQUITY
ACCOUNTS ACCOUNTS SAN MATEO,
CASH + RECEIVABLE SUPPLIES + EQUIPMENT = PAYABLE + CAPITAL

Bal. P745,000 P40,000 P20,000 P100,000 = P60,000 P845,000

(27) 210,000         210,000
Bal. P955,000 + P40,000 P20,000 + P100,000 = P60,000 + P1,055,000
P1,115,000 = P1,115,000
 EFFECTS OF REVENUE AND EXPENSES

 Utilities Expense
OCTOBER 30
San Mateo Accounting Services received a P35,000 bill for the
utilities that it had used during the month. A check was issued to
pay the bill immediately.

=
LIABILITIES
ASSETS + OWNER’S EQUITY
CASH + ACCOUNTS SUPPLIES + EQUIPMENT = ACCOUNTS + SAN MATEO,
RECEIVABLE PAYABLE CAPITAL

Bal. P955,000 P40,000 P20,000 P100,000 = P60,000 P845,000

(30) (35,000)         (35,000)
Bal. P920,000 + P40,000 P20,000 + P100,000 = P60,000 + P1,020,000
P1,080,000 = P1,080,000
 EFFECTS OF REVENUE AND EXPENSES

 Rent Expense
OCTOBER 31
San Mateo Accounting Services issued a check as payment for
office rent for October. The lease contract San Mateo signed
specified a monthly rent of P45,000.

=
LIABILITIES
ASSETS + OWNER’S EQUITY
CASH + ACCOUNTS SUPPLIES + EQUIPMENT = ACCOUNTS + SAN MATEO,
RECEIVABLE PAYABLE CAPITAL

Bal. P920,000 P40,000 P20,000 P100,000 = P60,000 P1,020,000

(31) (45,000)         (45,000)
Bal. P875,000 + P40,000 P20,000 + P100,000 = P60,000 + P975,000
P1,035,000 = P1,035,000
 EFFECTS OF REVENUE AND EXPENSES

 Effects of Owner’s Withdrawals

OCTOBER 31
Reynaldo San Mateo withdrew P150,000 in cash from the
business to pay for personal expenses.

=
LIABILITIES
ASSETS + OWNER’S EQUITY
CASH + ACCOUNTS SUPPLIES + EQUIPMENT = ACCOUNTS + SAN MATEO,
RECEIVABLE PAYABLE CAPITAL

Bal. P875,000 P40,000 P20,000 P100,000 = P60,000 P975,000

(31) (150,000)         (150,000)
Bal. P725,000 + P40,000 P20,000 + P100,000 = P60,000 + P825,000
P885,000 = P885,000
 5. Understand what
is meant by the
1. Distinguish
accounting 9. Define debits and
accounting event and
equation and credits.
transaction.
“mirror image”
concept.
2. Explain how an 10. Summarize the
6. Describe the
accounting rules of debit and credit
nature account(the
information system as applied to balance
simple T-Account)
helps the decision sheet and income
and its uses.
makers. statement accounts.

7. Understand
3. Define the
what is meant by
elements of financial
the double entry
system.
system.

8. Explain how the

4. Describe the
double-entry
nature of the typical
system follows the
account titles used in
rules of the
recording
accounting
transactions
equation.
 THE ACCOUNT
 The basic summary device of accounting.
 Detailed record of the increases, decreases and balance
of each element that appears in an entity’s financial
statements.
 T-Accounts
Account
Increase in
Title
Assets / Values Left side or Right side or
Received
Debit Side Credit Side Decrease in
Assets / Values
Parted with
RULES OF DEBIT AND CREDIT
Balance Sheet Accounts
Assets Liabilities and Owner’s
Debit Credit Equity
Debit Credit
(+) (-) (+)
(-)
Increases Decreases Increases
Decreases

Income Statement Accounts

Debit for Credit for
decrease in owner’s equity decrease in owner’s equity

Debit Credit Debit Credit

(+) (-) (-) (+)
Increases Decreases Decreases Increases
RULES OF DEBIT AND CREDIT

ACCOUNTIN INCREASE DECREASE

G ELEMENT (+) (-)
ASSET DEBIT CREDIT
LIABILITY CREDIT DEBIT
OWNER’S CREDIT DEBIT
EQUITY
EXPENSES DEBIT CREDIT
INCOME CREDIT DEBIT
 5. Understand what
is meant by the
1. Distinguish
accounting 9. Define debits and
accounting event and
equation and credits.
transaction.
“mirror image”
concept.
2. Explain how an 10. Summarize the
6. Describe the
accounting rules of debit and credit
nature account(the
information system as applied to balance
simple T-Account)
helps the decision sheet and income
and its uses.
makers. statement accounts.

11. Analyze and states

7. Understand
3. Define the the effects of business
what is meant by
elements of financial transaction and records
the double entry
system. these effects using the T-
system.
Accounts.
8. Explain how the
4. Describe the
double-entry
nature of the typical
system follows the
account titles used in
rules of the
recording
accounting
transactions
equation.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 1
Reynaldo San Mateo obtained the funds to start the business by
withdrawing P800,000 from his personal savings. He deposited
the money in a new bank account that he opened in the name of
the firm, San Mateo Accounting Services.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 3
Caballes bought a computer, a copy machine, fax machine,
calculators and other necessary equipment from M. Medina Inc.,
at a cost of 100,000. M. Medina, Inc., agreed to allow 60 days for
the firm to pay the bill.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 5
Caballes placed an order for toner, fax paper, bond paper, CDs, pens,
folders and other supplies that had a total cost of P20,000. The entity
that sold the items, Cavite Supplies, In., requires cash payments from
businesses that are under six months old. San Mateo Accounting
Services therefore included a check with its order.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 9
Caballes decided to pay P40,000 to M. Medina, Inc., to reduce
the firm’s debt to that business.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 13
San Mateo Accounting Services earned P70,000 of revenue from
charge accounts clients. These clients are allowed 30 days to pay.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 18
San Mateo Accounting Services hired an accounting staff on
October 1 to help in the business. The firm paid P25,000 in
salaries for this employee and Glaiza Caballes.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 23
San Mateo Accounting Services received P30,000 from clients
who had previously bought services on account. This cash was
applied to their accounts.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 27
San Mateo Accounting Services earned a total of P210,000 in
revenue from clients who paid cash for accounting and
bookkeeping services.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 30
San Mateo Accounting Services received a P35,000 bill for the
utilities that it had used during the month. A check was issued to
pay the bill immediately.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 31
San Mateo Accounting Services issued a check as payment for
office rent for October. The lease contract San Mateo signed
specified a monthly rent of P45,000.
ILLUSTRATION USING T-ACCOUNTS

OCTOBER 31
Reynaldo San Mateo withdrew P150,000 in cash from the
business to pay for personal expenses.
 5. Understand what
is meant by the
1. Distinguish
accounting 9. Define debits and
accounting event and
equation and credits.
transaction.
“mirror image”
concept.
2. Explain how an 10. Summarize the
6. Describe the
accounting rules of debit and credit
nature account(the
information system as applied to balance
simple T-Account)
helps the decision sheet and income
and its uses.
makers. statement accounts.

11. Analyze and states

7. Understand
3. Define the the effects of business
what is meant by
elements of financial transaction and records
the double entry
system. these effects using the T-
system.
Accounts.
8. Explain how the
4. Describe the
double-entry
nature of the typical 12. Distinguish
system follows the
account titles used in between revenue and
rules of the
recording receipts.
accounting
transactions
equation.
REVENUES AND RECEIPTS

REVENUE RECEIPTS

 amounts earned as the   usually refers to

result of business the cash that a
activities such as business receives.
selling merchandise or
performing services.
 REVENUES AND RECEIPTS
Transaction Amount Cash Sales
Receipts Revenue
1. Cash sales made this year. P200,000

2. Credit sales made last year; 300,000

cash received this year.
3. Credit sales made this year; 400,000
cash received this year.
4. Credit sales made this year; 100,000
cash to be received next year.
TOTAL
 REVENUES AND RECEIPTS
Transaction Amount Cash Sales
Receipts Revenue
1. Cash sales made this year. P200,000 P200,000 P200,000

2. Credit sales made last year; 300,000 300,000 0

cash received this year.
3. Credit sales made this year; 400,000 400,000 400,000
cash received this year.
4. Credit sales made this year; 100,000 0 100,000
cash to be received next year.
TOTAL P900,000 P700,000
 EFFECTS OF TRANSACTIONS
 9 TYPES OF TRANSACTION
1. Increase in Asset = Increase in Liability
2. Increase in Asset = Increase in Owner’s Equity
3. Increase in one Asset = Decrease in another Asset
4. Decrease in Asset = Decrease in Liability
5. Decrease in Asset = Decrease in Owner’s
6. Increase in Liability = Decrease in Owner’s Equity
7. Increase in Owner’s Equity = Decrease in Liability
8. Increase in one Liability = Decrease in another Liability
9. Increase in one Owner’s Equity = Decrease in another Owner’s Equit