RECORDING BUSINESS TRANSACTIONS

Accounting 101

The Double-Entry System Double

Dual aspect concept



For every business transaction, there would always be a two-sided effect two 

Value received (debit) Value parted with (credit)

Basis of modern accounting theory

Books of Accounts


Journals
 

Also called the book of original entry Used to initially record business transactions and events Also called the book of final entry because the balances of accounts contained in it are used to prepare the financial reports Where the accounts and their related amounts as recorded in the journal are posted and summarized periodically

Ledgers


The Chart of Accounts



 

Listing of all accounts used to record economic transactions Shows the account name, and account number/code Arranged in the financial statement order
    

Assets Liabilities Owners equity Revenues Expenses

MICOMP SERVICE Chart of Accounts Acct. No. Assets: 110 Cash 120 Accounts Receivable 130 Allowance for Bad Debts 140 Notes Receivable 150 Office Supplies 160 Prepaid Insurance 210 Land 220 Building 221 Accumulated Depreciation-Building 230 Furniture & Fixtures Accumulated Depreciation-Furniture & 231 Fixtures Owner's Equity: 510 Mallorca, Capital 520 Mallorca, Drawing Acct. No. Liabilities: 310 Accounts Payable 320 Interest Payable 330 Utilities Payable 340 Salaries Payable 350 Notes Payable 410 Loans Payable 420 Mortgage Payable

Expenses: 610 Salaries Expense 620 Rent Expense 630 Utilities Expense 640 Insurance expense 650 Office Supplies Expense 660 Advertising Expense 670 Taxes and Licenses 680 Interest Expense 690 Bad Debts Expense 700 Gas and Oil Expense 710 Representation Expense Revenues: 810 Service Income 820 Interest Income 830 Commission Income 840 Rent Income 850 Miscellaneous Income 720 Depreciation Expense 730 Transportation Expense Employees Benefits 740 Expense 750 Miscellaneous Expense

JOURNALIZING TRANSACTIONS


Journalizing


The process of recording the effects of economic transactions in the journal Accounting written record in the journal Consists of debit and credit account/s with their respective values

Classification of journal entries



Simple journal entry



Journal entry
 


One debit and one credit account More than one debit or more than one credit or both

Compound journal entry

Recording Transactions of Service Business

     

Initial investment Changes in assets Changes in liabilities Changes in capital Changes in income and expenses Withdrawals of owner

Steps in Journalizing a Transaction

   

Enter the date Enter the debit account title and its amount Enter the credit account title and its amount Enter the explanation

Sample Transactions
ELMA Co. had the ff. transactions for the month of June, 2011: 1 The owner invested cash, P500,000, and building, P1,000,000 in the business 2 Bought office supplies for cash, P5000 5 Acquired equipment, P25,000, paying cash and the balance on account 5 Rendered service on account, P10,000

GENERAL JOURNAL Page Number Date 2011 June 1 Cash Building Elma, Capital To record initial investment 1 5 0 0 0 0 0 0 0 0 0 0 0 1 5 0 0 0 0 0 Descriptions PR Debit Credit 1

Office Supplies Cash To record office supplies bought

0 5 0 0 0

Equipment Cash Accounts Payable To record equipment purchased

0 1 1 2 2 5 5 0 0 0 0

Accounts Receivable Service Revenue To record service revenue

0 1 0 0 0 0

Illustrative Example
JASEL Servicing completed the ff. transactions for the first month of operation in May, 2011: 1 Investment of the owner, P500,000, deposited in the bank 2 Paid for the business license, P5,000 3 Purchased office supplies for cash, P3,000 4 Purchased office equipment, P10,000, paying P6,000 in cash and issued a note for the balance

Illustrative Example
6 7

10

11

Borrowed money from the bank, P100,000 Acquired a delivery truck for P100,000, paying 60% cash and the balance on account Received P50,000 cash for services rendered Paid the note related to the office equipment bought on May 4 Billed customers for services rendered, P30,000

Illustrative Example
15 16 17 18 28 29 30

Paid for employees salaries, P30,000 Withdrew office supplies for personal use, P500 Collected half of the customers account on May 11 Paid interest on borrowed money, P1,000 Paid for utilities, P2,500, and rent, P10,000 Paid for advertising, P5,000 Paid for employees salaries, P30,000