Books of Accounts

Business Transactions
Fundamentals of Accountancy,
Business and Management
Objectives

• Differentiate a journal from a ledger

• Identify the nature of business transactions
• Identify the different types of business organiza
tion.
• Analyze common business transactions using t
he rules of debit and credit
• Solve problems and exercises in the analysis of
business transactions
Books of Accounts
Rules of Debit and Credit

Dual Aspect Concept

Every value received must have a corresponding

value parted with.
Rules of Debit and Credit

Debit and Credit is based on the normal balance

of an accounting element or account

Rule 1: Assets
Rule 2: Liabilities
Rule 3: Owner’s Equity
Rule 4: Revenue
Rule 5: Expenses
Rule 1: Assets
Debit to Increase the amount of Asset
Credit to Decrease its amount

Asset Account
Debit Credit
Increases Decreases
Rule 1: example

1. January 5, John services bought PHP 3,000

worth of supplies on account.

2. John used PHP 2,500 worth of supplies durin

g the month.
Rule 2: Liabilities
Credit to Increase the Liability
Debit to Decrease its amount

Liability Account
Debit Credit
Decreases Increases
Rule 2: example

1. January 5, John services bought PHP 3,000

worth of supplies on account.

2. January 18, John paid PHP 1,800 for the said

obligation.
Rule 3: Owner’s Equity
Credit to Increase the Capital Account
Debit to Decrease its amount

Liability Account
Debit Credit
Decreases Increases
Rule 3: example

1. January 1, John invested PHP 90,000 cash in

to his business

2. June 1, John withdrew PHP 60,000 cash as p

ermanent withdrawal from the business
Rule 4: Revenue
Credit to Increase Revenue Account
Debit to Decrease its amount

Liability Account
Debit Credit
Decreases Increases
Rule 4: example

1. December 1, John Service recorded service i

ncome of PHP 10,000 cash

2. December 31, John determined that the recor

ded service income should not be PHP 10,00
0. The correct amount is PHP 1,000.
Rule 5: Expense
Debit to Increase Expense Account
Credit to Decrease its amount

Liability Account
Debit Credit
Increases Decreases
Rule 5: example

1. December 15, John Service paid PHP 12,000

for rent expense.

2. December 31, John discovered that the corre

ct amount of rent expense is PHP 1,200 inste
ad of PHP 12,000.
Summary

Accounting Elements
Debit Credit
Increases: Increases:
Assets Liabilities
Expense Capital
Losses Revenue
Profit

Decreases: Decreases:
Liabilities Assets
Capital Expense
Revenue Losses
Profit
 Recording Process
(Journalizing and Posting)
Business transactions

Business transactions are economic activities of

business enterprise which affect any of the basic
accounting element

Divided into two major categories

 External business Transactions
 Internal business Transactions
External Business Transactio
ns

Arm’s length transactions (with outsid

e party) involving exchanges of econo
mic resources of a business enterpris
e with another.
Internal Business Transaction
s

Transactions or events that take place

exclusively within the enterprise.
Recording Process
1. Identifying the accountable accounting transa
ctions
2. Verifying the correctness of source document
s
3. Analyzing the accounting elements affected b
y the accountable transactions – accounts to
be debited or credited
4. Recording the debit and credit entry order in t
he journal chronologically.
5. Transferring the debit and credit values from t
he journal to the book of final entries.
Journal

Known as the “book of original entry”

Provides a chronological records of tr

ansactions with explanations and clea
r references to their supporting docum
ents with corresponding debit and cre
dits.
Journals

Two classification of journal books:

a) General Journal
b) Special Journal
General Journal
GENERAL JOURNAL
Date Descriptions PR Page Number 01
201X Debit Credit
1/2 Accounts Receivable GL-120 200,000 00
Sales GL-410 200,000 00
To record sales on account
Invoice # 1234

1/30 Cash 100,000 00

A/R 100,000 00
To record collections
Special Journal

a) Purchases on Account
b) Payment of purchases on Account
c) Selling on credit or on cash
d) Collection from the cash or credit c
ustomers
e) Miscellaneous transactions