2-1

Recording Business
Transactions
 2-2

Tools of The Recording Process


Debits and Credits


Journal Entries


Ledger Accounts
 2-3

The
Accounting
Cycle
 2-4

Steps in The Accounting Cycle

Analyze Journalize Post entries to Prepare a trial

source transactions the accounts balance.
documents. in the general in the general
journal. ledger.

Prepare financial
statements.
 2-5

Complete Steps in Accounting Cylce

1. Identifying and Analyzing

2. Journalizing
3. Posting
4. Preparing Unadjusted Trial Balance
5. Preparing the Adjusting Entries
6. Preparing the Adjusted Trial Balance
7. Preparing the Financial Statements
8. Closing the Books
9. Preparing post-closing trial balance
10. Recording reversing entries
 2-6

Identifying and Analyzing

Transactions
 First step in the accounting cycle
 Involves identifying and analyzing whether or
not the transactions affects the assets,
liabilities, equity, income or expenses.
 Transactions that should be recorded in the
books is called “accountable event” and has
an effect on the accounts while “non-
accountable event” refers to transaction which
has no effect on the accounts and should not
be recorded in the books.
 This is referred to as “source documents”
 2-7

Source Documents
 May include but not limited to the
following:
 Sales Invoices
 Official Receipts
 Purchase Orders
 Delivery Receipts
 Bank Deposit Slips
 Bank Statements
 Checks
 Statement of Account, and the like.
 2-8

Sales Invoice vs. Official Receipts

 Sales Invoice (SI) are used for the sale of goods
while Official Receipts (OR) are used for the
rendering of services.
 2-9

Purchase Orders
 A purchase order is a document issued by a
buyer to a seller indicating the types,
quantities and agreed prices for products or
services that the buyer intends to purchase.
2-10
 2-11

Delivery Receipt
 It is a document
signed by the
receiver of a
shipment
acknowledging
the receipt of goods.
 2-12

Bank Deposit and Withdrawal Slip

 A deposit slip is a paper form that a bank
customer includes when depositing funds
into a bank account.
 A withdrawal slip is a bank document on
which a person writes the date, account
number and amount of money
to withdraw from a bank.
2-13
2-14
 2-15

Bank Statement
 A report issued by the bank (on a monthly basis)
that show the deposits and withdrawals during the
period and the cumulative balance of a depositor’s
bank account.
 2-16

Statement of Account
 A statement of account, also known as an
account statement or customer statement,
is a document that outlines the
transactions between a buyer and a seller.
2-17
 2-18

What Are Debits and Credits?

 Tools used for recording transactions
 Debit (DR)
 Credit (CR)

 Debit refers to the LEFT and Credit to

the RIGHT side of the T-Account
Account Name

LEFT RIGHT
 2-19

What Are Debits and Credits?

 Tools used for recording transactions
 Debit (DR)
 Credit (CR)

 Debit refers to the LEFT and Credit to

the RIGHT side of the T-Account
Account Name

LEFT RIGHT
Used as DEBIT CREDIT
Adjectives: SIDE SIDE
 2-20

What Are Debits and Credits?

 Tools used for recording transactions
 Debit (DR)
 Credit (CR)

 Debit refers to the LEFT and Credit to

the RIGHT side of the T-Account
Account Name

LEFT RIGHT
Used as DEBIT CREDIT
Verbs:
 2-21

Types of Ledger Accounts


Assets
Assets

Liabilities
Liabilities

Owner’s
Owner’s Equity
Equity

Revenues
Revenues

Expenses
Expenses
 2-22

Using Debits and Credits

 Again, debits and credits are used to
increase or decrease account balances.
 Determining whether to use a debit or
credit to record an increase or decrease
depends on the type of account in
question.
 The Balance Sheet equation is the basis
for the determination.
 2-23

Balance Sheet Model/

BASIC ACCOUNTING EQUATION

A = L + E
 2-24

EXPANDED ACCOUNTING
EQUATION

A = L + E + Rev - Exp
 2-25

Balance Sheet Model

(Revisited)
Debits
Debits and
and credits
credits affect
affect the
the Balance
Balance Sheet
Sheet
Model
Model as
as follows:
follows:

A = L + OE
ASSETS LIABILITIES EQUITIES
Debit Credit Debit Credit Debit Credit
for for for for for for
Increase Decrease Decrease Increase Decrease Increase
 2-26

Normal Balances

Each of the 5 (Assets, Liabilities, Equity,

Revenues, Expenses) account types
has a normal balance side. It is always
the side which is used to record
increases in the account.
 2-27

Normal Balances
The normal balances for each of the FIVE
types of accounts are as follows:

Account Name
Debit Balance Credit Balance
Assets Liabilities
Expenses Owner’s

Equity
 2-28

Learning Debits and Credits

“A L O R E” Acronym
Debit Credit
A (ssets) + -
L (iabilities) - +
O (wners' equity) - +
R (evenues) - +
E (xpenses) + -
 2-29

Debits and Credits

Question 1
Which of the following accounts would
normally be expected to have a debit
(or left-side) balance?

a. Accounts Payable
b. Buildings
c. Interest Revenue
d. Capital Stock
 2-30

Debits and Credits

Solution 1
Which of the following accounts would
normally be expected to have a debit
(or left-side) balance?
BUILDINGS
BUILDINGSisisan
anasset
asset
a. Accounts Payable account
accountand
andnormally
normally
b. Buildings has
hasaaDEBIT
DEBITbalance.
balance.
c. Service Fee
The
Theother
otherthree
three
d. Capital accounts
accountsnormally
normally
have
haveCREDIT
CREDITbalances.
balances.
 2-31

Debits and Credits

Question 2
Which of the following accounts would
normally be expected to have a credit
(or right-side) balance?

a. Accounts Receivable
b. Salary Expense
c. Salary Payable
d. Land
 2-32

Debits and Credits

Solution 2
Which of the following accounts would
normally be expected to have a credit
(or right-side) balance?

a. Accounts Receivable
b. Salary Expense
c. Salary Payable
d. Land
 2-33

Debits and Credits

Solution 2
Which of the following accounts would
normally be expected to have a credit
(or right-side) balance?
SALARY
SALARYPAYABLE
PAYABLEis isaa
liability
liability account
account and
and
a.Accounts Receivable
normally
normallyhas hasaaCREDIT
CREDIT
b.Salary Expense balance.
balance.
c. Salary Payable
The
Theother
otherthree
threeaccounts
accounts
d. Land normally
normallyhave
haveDEBIT
DEBIT
balances.
balances.
 2-34

Debits and Credits

Question 3
The Cash account has three entries: a
debit for ₱1,200, a credit for ₱300, and
another credit for ₱400. What is the
balance in the Cash account?

a. ₱ 1,900 Debit.
b. ₱ 500 Credit.
c. ₱ 700 Credit.
d. ₱ 500 Debit.
 2-35

Debits and Credits

Question 3
The Cash account has three entries: a
debit for ₱1,200, a credit for ₱300, and
another credit for ₱400. What is the
balance in the Cash account?
Cash
a. ₱ 1,900 Debit.
b. ₱ 500 Credit. ₱1,200 ₱ 300
c. ₱ 700 Credit. ₱ 400
d. ₱ 500 Debit. ₱ 500
 2-36

Implications Of Debits And Credits

Debits and Credits are used to indicate
that something happened to an account.

Interpreting the implications requires an

analysis of the entire journal entry.
 2-37

Recording Transactions
 Initially, all transactions are recorded in
the General Journal.
Journal
 2-38

Recording Transactions
 Initially, all transactions are recorded in
the General Journal.
Journal
 Each transaction always affects at least
two different accounts.
 One account has a debit effect.
 The second account has a credit effect.
 This methodology was named “double
entry”
 2-39

General Journal Page

GENERAL JOURNAL
Page:

Date Description PR Debit Credit

 2-40

Journal Entries
Example 1
On January 1, 2013, Caldwell Company
borrows ₱10,000 from the bank.
Prepare the appropriate general journal
entry for the above transaction.
 2-41

Journal Entries
Solution 1
 Two accounts are affected:
 Cash is increased by ₱10,000.
 Notes Payable is increased by ₱10,000.
 2-42

Journal Entries
Solution 1
 Two accounts are affected:
 Cash is increased by ₱10,000.
 Notes Payable is increased by ₱10,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-43

Journal Entries
Solution 1
 Two accounts are affected:
 Cash is increased by ₱10,000.
 Notes Payable is increased by ₱10,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
 2-44

Journal Entries
Solution 1
Typically, accounts
Two accounts are affected:
Typically, accounts
are
are numbered.
 Cash is increased
numbered. The
Theby ₱10,000.
 Notes Payable is increased by ₱10,000.
account
account numbers
numbers are are
used
used asas references
references for
for
GENERAL JOURNAL
posting
posting toto the
the General
General Page: 1
Date Ledger.
Ledger. Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
 2-45

Journal Entries
Example 2
On January 15, 2013, Caldwell
Company purchases a truck for
₱19,500 cash.
Prepare the appropriate journal entry
for the above transaction.
 2-46

Journal Entries
Solution 2
 Two accounts are affected:
 Trucks is increased by ₱19,500.
 Cash is decreased by ₱19,500.
 2-47

Journal Entries
Solution 2
 Two accounts are affected:
 Trucks is increased by ₱19,500.
 Cash is decreased by ₱19,500.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-48

Journal Entries
Solution 2
 Two accounts are affected:
 Trucks is increased by ₱19,500.
 Cash is decreased by ₱19,500.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
15-Jan Trucks 150 19,500
Cash 100 19,500
to record purchase of truck
 2-49

Journal Entries
Example 3

On January 20, 2013, Caldwell Co. pays

the ₱400 electric bill for January.
Prepare the appropriate journal entry
for the above transaction.
 2-50

Journal Entries
Solution 3
 Two accounts are affected:
 Utility Expense is increased by ₱400.
 Cash is decreased by ₱400.
 2-51

Journal Entries
Solution 3
 Two accounts are affected:
 Utility Expense is increased by ₱400.
 Cash is decreased by ₱400.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-52

Journal Entries
Solution 3
 Two accounts are affected:
 Utility Expense is increased by ₱400.
 Cash is decreased by ₱400.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
20-Jan Utility Expense 511 400
Cash 100 400
to record payment of January
electric bill
 2-53

Journal Entries
Solution 3
 Two accounts are affected:
 Utility Expense is increased by ₱400.
 Cash is decreased by ₱400.
 2-54

Journal Entries
Solution 3
 Two accounts are affected:
 Utility Expense is increased by ₱400.
 Cash is decreased by ₱400.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-55

Journal Entries
Solution 3
 Two accounts are affected:
 Utility Expense is increased by ₱400.
 Cash is decreased by ₱400.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
20-Jan Utility Expense 511 400
Cash 100 400
to record payment of January
electric bill
 2-56

Chart of Accounts
 List of all the accounts used by a
business.
 Major Types of Accounts include Assets,
Liabilities, Equity, Revenue and Expenses
• Account numbers are assigned to the
accounts to facilitate recording, cross
referencing, and retrieval of information.
 2-57

Gray Electronic Repair Services

Chart of Accounts
 2-58

SAMPLE EXERCISES
 The transactions here pertain to Gray
Electronic Repair Services, our
imaginary small sole proprietorship
business.
 2-59

Journal Entries
Dec. 1, 2014
On December 1, 2014, Mr. Donald Gray
started Gray Electronic Repair Services
by investing ₱10,000. (Initial
Investment)
Prepare the appropriate journal entry for
the above transaction.
 2-60

Journal Entries
Dec. 1, 2014
 Two accounts are affected:
 Cash is increased by ₱10,000.
 Gray Capital is increased by ₱10,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-61

Journal Entries
Dec. 1, 2014
 Two accounts are affected:
 Cash is increased by ₱10,000.
 Gray Capital is increased by ₱10,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
Dec - 1 Cash 110 10,000
Gray Capital 410 10,000
To record initial investment
 2-62

Journal Entries
Dec. 5, 2014
On December 5, Gray Electronic Repair
Services paid registration and licensing
fees for the business, ₱370.
Prepare the appropriate journal entry for
the above transaction.
 2-63

Journal Entries
Dec. 5, 2014
 Two accounts are affected:
 Taxes & Licenses is increased by ₱370.
 Cash is decreased by ₱370.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-64

Journal Entries
Dec. 5, 2014
 Two accounts are affected:
 Taxes & Licenses is increased by ₱370.
 Cash is decreased by ₱370.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
Dec - 5 Taxes & Licenses 660 370
Cash 110 370
To record payment of license
and registration fee
 2-65

Journal Entries
Dec. 6, 2014
On December 6, the company acquired
tables, chairs, shelves, and other
fixtures for a total of ₱3,000 on cash.
Prepare the appropriate journal entry for
the above transaction.
 2-66

Journal Entries
Dec. 6, 2014
 Two accounts are affected:
 Furniture & fixtures is increased by ₱3,000.
 Cash is decreased by ₱3,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-67

Journal Entries
Dec. 6, 2014
 Two accounts are affected:
 Furniture & fixtures is increased by ₱3,000.
 Cash is decreased by ₱3,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
Dec - 6 Furniture & Fixtures 220 3,000
Cash 110 3,000
To record purchase of company
Furniture & other fixtures
 2-68

Journal Entries
Dec. 7, 2014
On December 7, the company acquired
service equipment for ₱16,000. The
company paid a 50% down payment and
the balance will be paid after 60 days.
Prepare the appropriate journal entry for
the above transaction.
 2-69

Journal Entries
Dec. 7, 2014
 Three accounts are affected:
 Service Equipment is increased by ₱16,000.
 Accounts Payable is increased by ₱8,000.
 Cash is decreased by ₱8,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-70

Journal Entries
Dec. 7, 2014
 Three accounts are affected:
 Service Equipment is increased by ₱16,000.
 Accounts Payable is increased by ₱8,000.
 Cash is decreased by ₱8,000.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
Dec - 7 Service Equipment 230 16,000
Accounts Payable 310 8,000
Cash 110 8,000
To record acquisition of service
Equipment – 50% Downpayment
 2-71

Journal Entries
Dec. 7, 2014
On December 7, Gray Electronic Repair
Services purchased service supplies on
account amounting to ₱1,500.
Prepare the appropriate journal entry for
the above transaction.
 2-72

Journal Entries
Dec. 7, 2014
 Two accounts are affected:
 Service Supplies is increased by ₱1,500.
 Accounts Payable is increased by ₱1,500.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
 2-73

Journal Entries
Dec. 7, 2014
 Two accounts are affected:
 Service Supplies is increased by ₱1,500.
 Accounts Payable is increased by ₱1,500.

GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
Dec - 7 Service Supplies 150 1,500
Accounts Payable 310 1,500
To record purchase of service
supplies on account
 2-74

 On December 9, the company received ₱1,900 for

services rendered.
 On December 12, the company rendered services on
account, ₱4,250.00. As per agreement with the
customer, the amount is to be collected after 10 days.
 On December 14, Mr. Gray invested an additional
₱3,200.00 into the business.
 Rendered services to a big corporation on December
15. As per agreement, the ₱3,400 amount due will be
collected after 30 days.
 On December 22, the company collected from the
customer on December 12 transaction.
 2-75

 On December 23, the company paid some of its

liability on December 7 by issuing a check. The
company paid ₱500 of the ₱1,500 payable.
 On December 25, the owner withdrew cash due to an
emergency need. Mr. Gray withdrew ₱7,000 from the
company.
 On December 29, the company paid rent for
December, ₱ 1,500.
 On December 30, the company acquired a ₱12,000
short-term bank loan; the entire amount plus a 10%
interest is payable after 1 year.
 On December 31, the company paid salaries to its
employees ₱ 3,500.