Blessed Christian School De Santa Rosa Inc

Rizal Blvd. Brgy. Balibago, Santa Rosa City, Laguna 4026

SY 2020-2021

Modules for

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND

MANAGEMENT 1

GRADE 11 – ABM

November 20 to December 27, 2023

CHAPTER 8: Business Transactions and Their Analysis as Applied to

the Accounting Cycle of a Service Firm

a. Identifying, Analysing and Measuring the Economic Effects of Transactions

b. Recording of Simultaneous Transactions
c. Classifying of Transactions
d. Preparing the Ledger Account
e. Preparation of Unadjusted Trial Balance
f. Preparation of Worksheet and Financial Statement
g. Income Statement Column
h. Changes in Equity Column
i. The Balance Sheet Column

Prepared by: Teacher MA. JEANNETTE G. CARAMAY

 Chapter 8 Business Transactions and Their
Analysis as Applied to the Accounting Cycle of a
Service Firm (no inventories)
Objectives:
At the end of this chapter, students must be able to:
1. Identify accountable and non- accountable events
2. Explain how to measure accountable transactions and events
3. Know to record transactions and events
4. Explain how classification transactions is done
5. Prepare journal entries, ledgers and trial balance

Recording of Simultaneous Transactions

Simultaneous transactions and events maybe recorded using either of the following two types of journal
entries.
A. Simple entry – composed of one debit and credit
B. Compound entry – composed of one or more debit or credit

Illustration
On June 30, 2019 the business collected a sum of P11,000 from a client’s promissory note with a
principal amount of P10,000 plus P1,000 interest income on the note

This maybe recorded as:

Simple entries:
Date Account Debit Credit
06/30/2019 Cash 10,000
Notes Receivable 10,000
To record the collection of promissory note principal

06/30/2019 Cash 1,000

Interest Income 1,000
To record the collection of interest on promissory note
Compound Entries:
Date Account Debit Credit
06/30/2019 Cash 11,000
Notes Receivable 10,000
Interest Income 1,000
To record the collection of promissory note principal and interest
Note: the compound entries merely lump as one entry different accountable event occurring on the
same day. This is not an implied permission to offset transactions or events occurring at different
days.

The exchange approach to journalizing

Under the exchange approach to journalizing, all accountable events or transactions are presumed to
involve a value received and a value parted with. The value received is presumed the debit while the
value parted with is presumed the credit

Illustration 1: Payment for expense for cash

On Jan 3, 2019, The business paid P10,000 interest on borrowing
 Date Account Debit Credit
3/1/2019 Interest Expense 10,000
Cash 10,000
To record payment of interest on borrowing

payment of commision to employees, 15,000

3/15/2019 Commission expense 15000
Cash 15000
to record payment of commission

payment of municipal, city permits and taxes,P11,500

xxx taxes and licenses 11500
cash 11500
Illustration 2: Payment of expense in kind
On June 30, 2019, The business paid the salary on an employee giving him equipment with book value of
P20,000

Date Account Debit Credit

06/30/2019 Salaries Expense 20,000
Equipment 20,000
To record salary expense in exchange of equipment
Date
Illustration 3: Owner’s Drawings Account Debit Credit
06/30/2019
On June 30, 2019, the owner Salaries
of the business Expense
took home certain office supplies with book value of 11,000
P4,000 Equipment 10,00
To record salary expense
Date Account Debit Credit
06/30/2019 Owner's Drawing 4000
Supplies 4000
To record office supplies taken by owner

withdrawal of owner, cash P5000

Owner's Drawing 5000
cash 5000
To record cash taken by owner

Illustration 4: Non cash Asset purchase for cash

On June 30, The enterprise purchased equipment with a fair value of P120,000 for P100,000 cash

Date Account Debit Credit

Jun-30 Equipment 100,000
Cash 100,000
To record salary expense
Datefor cash
Illustration 5: Payment of Debt Account Debit Credit
06/30/2019
On June 30, 2019, The business settledSalaries Expense
an accounts payable paying P2,500 in cash 11,000
Date Equipment
Account Debit Credit 10,00
06/30/2019 Accounts Payable To record salary expense 2,500
Cash 2,500
To record salary expense
Illustration 6: Consumption Date
of Supplies Account Debit Credit
06/30/2019 Salaries Expense
The business used office supplies with book value of P10,000 and current fair value of P12,000 11,000
Equipment 10,00
To record salary expense

Upon purchased:
Date Account Debit Credit
43615 Supplies 10000
Cash 10000
To record supplies purchased

Illustration 7: Loss of Assets due to casualty

A thief broke into the office and stole equipment with book value of P100,000. The equipment could be
sold at P150,000 in the ordinary course of the business

Date Account Debit Credit

06/30/2019 Loss on thef 100,000
Equipment 100,000
To record stole equipment
Date Account Debit
06/30/2019 Salaries Expense 11,000
Illustration 8: Purchase by non-cash consideration
Equipment
The enterprise purchased a land with fair market value of P3,000,000
To record by giving in exchange machinery
salary expense
with a book value of P2,000,000 but with fair market value of P2,500,000 at the date of exchange

Date Account Debit Credit

06/30/2019 Land 2,500,000
Machinery 2,000,000
Gain on exchange 500,000
To record purchased land in exchange of machinery
Assuming the machinery has a fair value of P1,800,000, transaction should recorded as:
Date Account Debit Credit
06/30/2019 Land 1,800,000
Loss on Exchange 200,000
Machinery 2,000,000
To record purchased land in exchane of machinery
Illustration 9: Sales of non-cash asset for cash
The business sold an old building with fair value of P2,300,000 but with book value of P2,500,000 for
P2,100,000 cash

Date Account Debit Credit

06/30/2019 Cash 2,100,000
Loss on sale of Building 400,000
Building 2,500,000
To record purchased land in exchane of machinery
Illustration 10: Receipt of Borrowings
The business received P1,000,000 cash loan from bank. The future value of the loan is P1,100,000
inclusive of future interest payments
Date Account Debit Credit
06/30/2019 Cash 1,000,000
Bank Loans Payable 1,000,000
To record bank loans
Illustration 11: Capital Contribution by owner
The business received a machine with a current fair value of P2,300,000 from the owner as an additional
investment. The machine was originally bought by the owner for P2,500,000

Date Account Debit Credit

06/30/2019 Machinery 2,300,000
Owner's Capital 2,300,000
To record machine contributed by the owner to the business
Illustration 12: Income in Cash
The business rendered services to a client who paid cash P20,000

Date Account Debit Credit

06/30/2019 Cash 20,000
Service Fees 20,000
To record cash received from rendered services
Illustration 13: Income in Kind
The enterprises rendered services which were normally priced at P2,000,000 to a client. The client gave
equipment with fair value of P2,200,000 as payment for the service
 Date Account Debit Credit
06/30/2019 Equipment 2,200,000
Service Fees 2,200,000
To record equipment received from rendered services
Illustration 14: Income on Account
The enterprises rendered services and billed the client for P30,000

Date Account Debit Credit

06/30/2019 Accrued Income 30,000
Service Fees 30,000
To record services rendered on account

Classifying of Transactions
The classifying phase of accounting involves the posting of journal entries into the ledger accounts to
determine the preliminary balance of the accounts. The posting process involves transferring journal
entry debits and credits to the same debits or credits of the ledger of the affected account. To check the
accuracy of the posting, a trial balance is used to test the equality of debit and credit. The trial balance
accounts are sequenced beginning from assets, liabilities, equity, drawing, revenue(income) to expenses

Integrated Drill
Dela Cruz Proprietorship reports financial statement every December 31. Let us assume the following
adjusted trial balance of Dela Cruz Proprietorship as of December 31, 2019

Cash
Let us assume the following recorded general journal entries for the year 2020 – current year
 General Journal Page 1
For the year Ended, December 31, 2020

Date Account PR Debit Credit

Jan-03 Cash L-2 30,000

Accounts Receivable 30,000

Jan-05 Rent Expense 15,000

Cash 15,000

Jan-12 Taxes and Licenses 10,000

Cash 10,000

Feb-21 Accounts Receivable 20,000

Professional Fees 20,000

Mar-31 Salaries Expense 10,000

Cash 10,000

Apr-01 Cash 20,000

 General Journal Page 2
For the year Ended, December 31, 2020

Date Account PR Debit Credit

May-17 Cash 18,000

Professional Fees 18,000

May-28 Accounts Receivable 8,000

Professional Fees 8,000

Jun-04 Accounts Payable 9,000

Cash 9,000

Jun-09 Cash 12,000

Professional Fees 12,000

Jun-30 Salaries Expense 10,000

Cash 10,000

Jul-02 Accounts Receivables 17,000

Professional Fees 17,000

Jul-05 Rent Expense 15,000

Cash 15,000

Jul-26 Accounts Payable 11,000

Cash 11,000

Aug-03 Dela Cruz Drawing 5,000

Cash 5,000

Aug-13 Accounts Receivable 15,000

Professional Fees 15,000

Aug-17 Cash 25,000

Accounts Receivable 25,000

Aug-29 Notes Receivable 50,000

Professional Fees 50,000

Sep-01 Interest Expense 5,000

 General Journal Page 3
For the year Ended, December 31, 2020

Date Account PR Debit Credit

Sep-30 Salaries Expense 10,000

Cash 10,000

Oct-21 Office Supplies 5,000

Payable 5,000

Nov-28 Cash 10,000

Professional Fees 10,000

Dec-30 Salaries Expense 10,000

Preparing the Ledger Account

Carefully observe the cross referencing of journal entries in the posting process:

LEDGER PAGE 2
Account No: 101
Date Description PR Debit Credit Balance
Jan-01 Beginning balance GJ-1 35,000 35,000
Jan-03 collection of AR GJ-1 30,000 65,000
Jan-05 payment of rent GJ-1 15,000 50,000
Jan-12 payment of taxes GJ-1 10,000 40,000
Mar-31 payment of salaries GJ-1 10,000 30,000
Apr-01 collection of AR GJ-1 20,000 50,000
May-17 cash received from services GJ-2 18,000 68,000
Jun-04 Payment of Accounts payable GJ-2 9,000 59,000
Jun-09 cash received from services GJ-2 12000 71,000
Jun-30 payment of salaries GJ-2 10000 61,000
Jul-05 payment of rent GJ-2 15000 46,000
Jul-26 Payment of Accounts payable GJ-2 11000 35,000
Aug-03 cash withdrawal GJ-2 5000 30,000
Aug-17 collection of AR GJ-2 25000 55,000
Sep-01 payment of interest GJ-2 5000 50,000
Sep-30 payment of salaries GJ-3 10000 40,000
Nov-28 cash received from services GJ-3 10000 50,000
Dec-30 payment of salaries GJ-3 10000 40,000
Account: Accounts Receivable
Account No: 110
Date Description PR Debit Credit Balance
Jan-01 Beginning balance 45,000.00 45,000
Jan-03 collection of AR GJ-1 30,000.00 15,000
Feb-21 Service on account GJ-1 20,000.00 - 35,000
Apr-01 collection of AR GJ-1 - 20,000.00 15,000
May-28 Service on account GJ-2 8,000.00 23,000
Jul-02 Service on account GJ-2 17,000.00 40,000
Aug-13 Service on account GJ-2 15,000.00 55,000
Aug-17 collection of AR GJ-2 25,000.00 30,000
Account: Notes Receivable
Account No: 120
Date Description PR Debit Credit Balance
Aug-29 Service on account GJ-2 50,000 - 50,000
Account: Office Supplies
Account No: 130
Date Description PR Debit Credit Balance
Jan-01 Beginning balance 10,000 10,000
Oct-21 purchases on account GJ-3 5,000 - 15,000
Account: Equipment
Account No: 140
Date Description PR Debit Credit Balance
Jan-01 Beginning balance GJ-1 40,000 40,000
Account: Accumulated Depreciation
Account No: 145
Date Description PR Debit Credit Balance
Jan-01 Beginning balance GJ-1 - 10,000 10,000
Account: Accounts Payable
Account No: 200
Date Description PR Debit Credit Balance
Jan-01 Beginning balance GJ-1 - 20,000 20,000
Jun-04 GJ-2 9,000 - 11,000
Jul-26 payment of AP GJ-2 11000 -
Oct-21 purchase of supplies on account GJ-3 5000 5,000
Account: Notes Payable
Account No: 210
Date Description PR Debit Credit Balance
Jan-01 Beginning balance GJ-1 - 30,000 30,000
Account: Dela Cruz's Capital
Account No: 300
Date Description PR Debit Credit Balance
Jan-01 Beginning balance GJ-1 - 70,000 70,000
Account No: 310
Date Description PR Debit Credit Balance
8-Mar Cash withdrawal of owner GJ-1 5,000 5,000
Account: Professional Fees
Account No: 400
Date Description PR Debit Credit Balance
Feb-21 Service on account GJ-1 - 20,000 20,000
May-17 cash receipt from services GJ-2 18000 38,000
May-28 Service on account GJ-2 8000 46,000
1-Jun cash receipt from services GJ-2 12000 58,000
Jul-02 Service on account GJ-2 17000 75,000
Aug-13 Service on account GJ-2 15000 90,000
Aug-29 Service on account GJ-2 50000 140,000
Nov-28 cash receipt from services GJ-3 10000 150,000
Account: Salaries Expense
Account No: 500
Date Description PR Debit Credit Balance
Mar-31 payment of salaries GJ-1 10,000 - 10,000
Jun-30 payment of salaries GJ-2 10000 20,000
Sep-30 payment of salaries GJ-2 10000 30,000
1-Dec payment of salaries GJ-3 10000 40,000
Account: Taxes and Licenses
Account No: 510
Date Description PR Debit Credit Balance
Dec-20 payment of salaries GJ-1 10,000 - 10,000
Account: Interest Expense
Account No: 520
Date Description PR Debit Credit Balance
Sep-01 payment of interest GJ-2 5,000 - 5,000
Account: Rent Expense
Account No: 530
Date Description PR Debit Credit Balance
Jan-05 payment of interest GJ-1 15,000 - 15,000
1-Jul payment of interest GJ-2 15000 30,000
Preparation of Unadjusted Trial Balance
When done posting to each account (ledger), get all the total balances and prepare a trial balance to
check the accuracy of the posting process

Cash
Important:
When the total debit in the trial balance is not equal to the total credit, you
must do the following:
a. Foot the balance
b. Check for the correct location of the normal balances
c. Verify figures transferred from the ledger account to the trial balance
Look for the possible transposition error or switching of an amount (e.g
P69,000 instead of P96,000)
d. Check the footings and balances of the accounts

Preparation of Worksheet and Financial Statement

The account in the adjusted trial balance will be analyzed in a spreadsheet called worksheet. The credit
has two columns each for debit and credit for:
1. Income Statement
2. Changes in Equity
3. Balance Sheet

Income Statement Column

The income statement columns shall contain income and expenses accounts lifted from the adjusted
trial balance debit and credit columns. Owner’s drawings and permanent accounts such as assets,
liabilities and capital remains
The Net balance in the income statement will indicate profit or loss
a. A net debit balance (expense exceeds income) means loss
b. A net credit balance (income exceeds expense) means profit

Changes in Equity Column

The Statement of changes in equity shall include the beginning capital, profits or loss and drawings. The
net balance in the income statement (profit or loss) must be transferred to the statement in changes in
equity
a. A net debit balance or net loss must be credited with a matching debit on the statement of
changes in equity
b. A credit balance or net profit must be debited with a matching credit on the statement of
changes in equity

The Balance Sheet Column

The balance sheet columns shall contains all permanent accounts such as assets, liabilities and the
ending capital. The assets, liabilities and their contra accounts in the adjusted trial balance are
transferred to the balance sheet column. The ending capital balance from the statement of changes in
equity is likewise transferred to the balance sheet following the same procedures done in the
transferring or profit and loss from the income statement to the statement of changes in equity column