CHAPTER - 1

THE BASIC
ACCOUNTING
ENVIRONMENT
 Learning Objectives:

• explain the importance of accounting

and relate it to your personal life.
• explain the importance of accounting
and relate it to business.
• define business and explain its motives
and role in the society.
• define management and explain its
function and roles in business.
Learning Objectives:

• Define accounting and explain why

it is called the language in business.
• Identify the users and explain why
they depend on accounting
information.
• Describe what an accounting
information system is.
• Identify the financial reports and the
financial information contained
herein.
Learning objective 1

explain relate it
the to your
importance personal
of life
Accounting
 ON A PERSONAL LEVEL

• Whether you are a student, housewife, or

worker, you will always be confronted with
financial problems. Balancing your daily
expenditures against your limited earnings or
resources (money) is a difficult feat.
Accounting will help you. You need to
prepare a budget.
you need information first before you can
make decisions.
you must know how to use information
properly so you will not make a wrong
decisions.
you must know how to properly
manage your financial resources, be it
money or property.
you must find ways to meet your daily
expenditures based on the limited
resources that you have.
ON A PROFESSIONAL LEVEL

• Few years from now you

will be graduating from
college, you will need
answers to the following
questions that will have a
financial impact such as:
• Entrepreneur: Should I set up an Internet
Shop or a Water Refilling Station
• Investor: Should I buy Jollibee shares or
Ayala bonds?
• Bank Manager: Should I approve the cash loan
of Mr. A?
• Financial manager: How many units of Product
A should our firm sell to breakeven?
• Marketing manager : Should our firm spend
money to promote this new product?
• Supplier of Flour: Should I grant Mr. King a
credit line of 2M.?
Learning objective 2

explain
the relate it
importance to
of business
Accounting
• Likewise, both business be it simple or
complicated would like to know whether they
succeeded or failed by asking the following
questions:
• Did our business make any profit?
• Did our assets or resources grow (cash)?
• What money has come in and what has gone
out?
• Are we ready to expand?
• Did the owners or investors earn a good return
on the money they invested?
• Were the creditors (bank or supplier) paid on
time?
 In all of these , Accounting
will play a vital role because
it will provide you a relevant
information that will help you
analyze and solve financial
and make sound decisions.
Learning objective 3

explain its
motives
define and role
business in the
society
 BUSINESS

• Is simply define as an economic activity

of buying and selling in order to obtain
profit

• Economic unit that obtains and controls

resources and then engages in buying and
selling of goods or services with a view of
enhancing this resources
 Major Problem in business

Is determining how best to use the

resources :
• What machines are needed
• What labor skills are required
• How many men to employ
• How much fixed capital and working
capital are needed
• What raw materials to be used
 SOURCES OF CAPITAL

The main source of capital

of a business is the investment
made by the owner or
entrepreneur.
SOURCES OF CAPITAL

He/She succeeds not only in getting

back his/her money (return of capital)
but receives additional money over
what he/she invested (return on
capital).
Aside from the entrepreneur’s own
money, other sources of capital are
relatives, friends or financing institutions
(like banks and cooperatives).
SOURCES OF CAPITAL

Entrepreneur is one who take the

risk of putting up a business to
produce and sell goods or services.

The successful entrepreneur is one

who creates or differentiates a
product that would entice customers
to buy.
 BUSINESS RISK

Putting up a business is risky

Risk is the element of uncertainty of an
outcome.
An endeavor like a business has always an
element of uncertainty.

It is not certain that the operation of a

business will turn out well.
MINIMIZING BUSINESS RISK
Any money making venture is risky. The higher the
profit you desire, the more risky the venture is.

There are ways of reducing risk such as :

1. Careful planning and control of operation
2. Making a business plan and carefully assessing the
business you want to put up.
3. Having adequate knowledge about the product or
service and
4. Choosing the right form of business and the right type
of operation.
 describe the
forms of
business
organizations
and types of
operation
FOUR (4) FORMS OF
BUSINESS
ORGANIZATION
1. SOLE PROPRIETORSHIP
2. PARTNERSHIP
3. CORPORATION
4. COOPERATIVE
Forms of Business Organization

 Sole Proprietorship
 Single individual
 Organized by one person

Sole proprietorship –the easiest to register,

through the Bureau of Internal Revenue
(BIR) , Department of Trade and Industry
(DTI) after getting a permit from the City
or Municipal Hall.
 ADVANTAGES
• Only a small amount of capital is needed.
• The operation can be easily handled by the
proprietor who gets all the profits earned
by the business.
• When the business is insolvent (cannot pay
the debt) the other personal properties of
the proprietor may be taken over by the
creditor. This is advantage from creditor’s
viewpoint, or else creditor may hesitate to
lend.
 DISADVANTAGE

• Alone, He/she may find it difficult

to expand the business or sell
different products or services as this
will entail more funds and a higher
level of skill or expertise.
Forms of Business Organization

 Partnership
 TWO OR MORE individuals who
contribute money, property and talent
in a common fund.

it is registered with the Securities and

Exchange Commission (SEC).
 ADVANTAGES

• With more people, more money and

skills are pooled.
• Managerial positions such as production
, marketing, finance, sales and human
resources can easily be filled up.
• Have unlimited liability
 DISADVANTAGES

• It can easily be dissolved because of

disagreements and petty quarrels
among themselves.
• The mere withdrawal, insolvency
and death of a partner makes it also
easy to dissolve or terminate the
partnership
 FORMS OF BUSINESS ORGANIZATION

CORPORATION

it is a business organized as a
separate legal entity from the owners

The word corporation comes from

the Latin word “corpus” meaning body.
Forms of Business Organization

 Corporation
 Numerous individuals, often strangers
 Large business
 Limited liability
 Shareholders

 managed by a Board of Directors

elected by the stockholders from among
themselves
Forms of Business Organization

 Corporation
 Numerous individuals, often strangers
 Large business
 Limited liability
 Shareholders

 managed by a Board of Directors

elected by the stockholders from among
themselves
 ADVANTAGES
• With a big number of shareholders, a
huge amount of capital can be
obtained.
• With a large amount of resources
held, large volume of products or
services could be sold. Mean high
amounts of profits.
• High profit would mean a high return
on shareholder’s investment.
 Cooperative
 Often referred to as a “co-op”
 Limited liability
 Organized for profit or non-profit
 The members share decision-making
authority
 For PROFIT

• “A for-profit organization exists primarily

to generate a profit, that is, to take in more
money than it spends. The owners can
decide to keep all the profit themselves, or
they can spend some or all of it on the
business itself. Or, they may decide to share
some of it with employees through the use of
various types of compensation plans, e.g.,
employee profit sharing.”
 For NON – PROFIT

• “A nonprofit organization exists to provide

a particular service to the community.
• The word "nonprofit" refers to a type of
business -- one which is organized under
rules that forbid the distribution of profits to
owners.
Purpose of Business Organization

•It is set up according

to the purpose or
what it intends to do.
TYPES OF BUSINESS
OPERATIONS
3 Types of Business Operations

1.Service Business
2.Merchandising Business
3.Manufacturing Business
A SERVICE BUSINESS

Is the simplest type of

business which performs
service, for a fee, to a
client or customers
SERVICE BUSINESS
 A TRADING OR
MERCHANDISING BUSINESS

is one which buys and

sells goods or
merchandise.
MERCHANDISING BUSINESS
MANUFACTURING BUSINESS

buys raw materials first

and after changing the
forms sells the product to
the customers.
 MANUFACTURING BUSINESS

Drug laboratory

Garments factory
Learning objective 5

explain its
define functions
management and roles
in business
 MANAGING THE BUSINESS
• The success of any Business depends on many
factors, one of which is good management .

• Management may be defined simply as getting things

done by using resources and directing people as
efficiency as possible to be able to accomplish the
goals of the business.

a) That resources are being used productively,

b) customers are satisfied with the product or services;
and
c) business is generating adequate profit
 MANAGEMENT

• “Management is a process or function

that mobilizes people and resources to
accomplish outlined goals and
objectives. According to Henri Fayol,
there are five functions that would
ensure the process of production is
conducted effectively and efficiently.”
• For a business to be
successful,
management should be
efficient and effective.
FOUR MANAGEMENT
FUNCTION

1. PLANNING
2. ORGANIZING
3. DIRECTING AND
4. CONTROLLING
a.) Planning starts with determining the goals of a business and
lining up activities to accomplish this goals.
• is also a management process, concerned with defining goals
for a company's future direction and determining the missions
and resources to achieve those targets. To meet
objectives, managers may develop plans, such as a
business plan or a marketing plan.”

b.)Organizing involves creating divisions, appointing managers,

hiring and defining the roles or duties of each one.
• is the function of management that involves developing an
organizational structure and allocating human resources to
ensure the accomplishment of objectives. Organizing also
involves the design of individual jobs within the
organization.”
c.) Directing means overseeing the daily operation of carrying
out the planned activities managers must act, decide, agree,
argue. Question, approve, solve.

d.) Controlling means guarding and guiding people to ensure

tasks and activities are done according to plans and some
standard of performance.
• helps managers monitor the effectiveness of their planning,
organizing, and leading activities. Controlling determines
what is being accomplished — that is, evaluating the
performance and, if necessary, taking corrective measures so
that the performance takes place according to plans.
Controlling can also be viewed as detecting and correcting
significant variations in the results obtained from planned
activities.”
Managers are hired to head
the different department of an
organization, production,
finance, marketing, sales and
human resource.
• Production Manager makes a study on what products/services to
produce, how to produce them, how much to incur, what machines will
be needed, how many workers will be hired among others, how big the
factory site should be.

• Marketing Finance Manager makes a study of the market – place,

product, price, people.

• Sales Manager is task to draw a plan on how to distribute the

products/services at the least time and cost.

• Finance manager takes charge of the company’s financial resources-

how to source it (looking for investors and creditors), and how to use it
(purchase of capital asset, new product, payments of loan).

• Personnel Manager takes charge of employees and workers – selecting,

hiring, training and overseeing them.
Learning objective 6

explain
why it is
define called the
accounting language of
business
What is Accounting?
 Definition of Accounting
• “A service activity whose function is
to provide quantitative information,
primarily financial in nature, about
economic entities that is intended to
be useful in making economic
decisions.”
• Accounting, is the process of
•identifying,
•measuring, and
•communicating the economic
information to permit informed
judgment and decision.
• Accounting is often called
the Language of Business.

It communicates vital
information to users
 COMPANY
Accumulates accounting
Information through
Its various transaction

ACCOUNTING
INFORMATION
SYSTEM
processes the financial
information and prepare
the reports

STAKEHOLDERS
Or USERS
Review the reports and
make decisions
Learning objective 7

Identify the
users and
explain why
they depend
on accounting
information
 Users of Accounting Information
Users of Accounting Information

External users Internal users

make decisions make decisions
about the entity. for the entity.
USERS OF ACCOUNTING INFORMATION

 Managers
 Lenders
 Suppliers
 Government
 Employees
 Customers
 USERS OF ACCOUNTING INFORMATION

• Managers – is responsible for

organizing, planning, directing and
controlling the operation of the
business.
• Activities such as buying, manufacturing,
promoting and distributing must be
carefully planned and controlled by the
manager.
USERS OF ACCOUNTING INFORMATION

• Lenders – assesses the ability of

the business to pay the principal
debt and the additional charge
called interest.
• Suppliers – offers goods or
merchandise on cash basis or on
credit term depending on the
paying ability of the business.
USERS OF ACCOUNTING INFORMATION

• Government – uses the

accounting reports in several ways.
It is paying the right taxes.
• As a regulatory body, it verifies if one
is complying with it’s rules and
regulations.
USERS OF ACCOUNTING INFORMATION

• Employee – wants higher wages,

benefits, good working conditions
and security of tenure.
• A review of the company’s
financial reports will enable one to
assess the ability of the business to
grant these demands.
USERS OF ACCOUNTING INFORMATION

• Customer – assesses the

company’s ability to continuously
supply the goods they need at the
right price and quality
• The fairness of the price is reflected in
the financial performance. The ability
to ensure continuous supply could be
determined from its financial position.
WHAT ARE THE TYPES OF
ACCOUNTING AND IT’s
REPORT
Managerial Report
Internal reports prepared for management use.

Financial Report
The main source of information of
Stakeholders or users.
These reports are audited with CPA who attest
to its fair presentation and validity thus making it
reliable and acceptable by the stakeholders.
 Management

(A)
Managerial
Reports

Taxing agencies Tax Regulatory

Reporting Special
such as BIR (C) Reports Agencies-
process Reports (D)
BSP, SEC
Audited
Financial
Reports
(B)

Regulatory
Suppliers Lenders Investors Employees Customers
Board
Learning objective 8

Describe
what an
accounting
information
System is.
 Accounting Information System
• How information is recorded and processed to
produce reports depends on the accounting system
• It is an orderly way of gathering and processing
data so that meaningful information will come out
and reports may be prepared.

• It involves an orderly way of accumulating and

reporting business transaction through a process
of analyzing, measuring, recording, classifying
and summarizing, and from which reports are
generated for proper communication to decision
makers.
 INPUT PROCESS OUTPUT

From the The data are Reports

source measured, come
Documents, recorded, out from
Data Are classified,
the processed
analyzed and summarized and
data
Encoded by and stored by
the employees the computer
Computerized Accounting System

The employee analyzes the data contained in

the business documents, arranges the data to be
encoded and using some software application
key-enters these into computer.

The computer processes the data input

according to the instruction up to the
preparation of financial reports
 Accounting
Information System
in
Business Organization
Six Main Components:
1. People.
2. Procedures and Instructions.
3. Data.
4. Software.
5. Information Technology
Infrastructure.
6. Internal Controls and Security
Measures.
Six Main Components

1. People – users who operate on the

systems.
2. Procedures and Instructions –
Processes involved in collecting,
managing and storing the data.
3. Data – data that is related to the
organization and its business processes
4. Software – application that processes
the data.
5. Information Technology
Infrastructure – the actual physical
devices and system that allow the AIS
to operate and perform its functions.
6. Internal Controls and Security
Measures – what is implemented to
safeguard the data.
Learning objective 9

Identify the
financial reports
and the
financial
information
contained
herein
 The Financial Statements

The financial statements are a picture

of the company in financial terms.

Each financial statement relates to a specific

date or covers a particular period.
 Financial Statements
 Income Statement/ Profit or Lost
Statement/Statement or Retained
Earnings.
 Statement of Changes in Owner’s
Equity
 Statement of Cash Flows
 Balance Sheet/Statement of Financial
Position
 Financial Statements

 Income Statement;
 Profit or Lost Statement;
 Statement of Retained Earnings.
 Reports the financial performance of the business.
This is a report which described how the business
operated or produced wealth over a given period
of time.
 Introduction to the
Income Statement

Presents the results of

operations for a
period of time
 The Income Statement

Revenues
– Expenses = Net income
(or Net loss)
Income Statement

Revenue – inflow of assets from

performing services or selling goods

Operating Expenses - use of assets or

incurrence of liabilities when earning
revenues
Income Statement

Net Income before Interest and Tax - net

income before taking interest and income
tax expenses into account.
Interest Expense - the payments made on the
company's outstanding debt.
Income Tax Expense - the amount payable to
government.
Net Income - the final profit after deducting all
expenses from revenue.
Mr. Conde got his retirement pay of ₱ 350,000 and
thought of putting up Xerox Service Center. He
invested ₱ 320,000 on June 1 and purchased and
paid ₱ 300,000 for a Xerox Machine and paper and
ink for ₱ 15,000, He set aside ₱ 5,000 cash for the
business.
During the first week of June, reproduction
of documents brought in sales of ₱ 12,000 in cash.
Forty percent of the supplies were used up and rent
was paid for ₱ 1,500.
 INCOME STATEMENT

SALES ₱ 12,000
SUPPLIES USED (6,000)
RENT (1,500)
PROFIT FOR THE WEEK(END) ₱ 4,500
 Financial Statements

 Statement of Changes in
Owner’s Equity
 shows why the net worth changed by listing
the activities that caused it to increase or
decrease.
Statement of Changes in Owner’s Equity

• Four activities affecting owner’s

equity
 Contribution,
 Withdrawal,
 Profit, or
 Loss.
 STATEMENT OF CHANGES IN
OWNERS EQUITY

CONDE CAPITAL, JUNE 1, 2012 ₱ 320,000

ADD: PROFIT FOR THE WEEK 4,500
CONDE CAPITAL, JUNE 7, 2012 ₱ 324,500
 Financial Statements

3. Balance Sheet/Statement of
Financial Position
 Shows how healthy or robust the
enterprise is.
Statement of Financial Position (Balance Sheet)
Evaluating the capital structure.
Shows how healthy the enterprise is when it shows
the accumulated resources and debts of the business
with a list of its assets (cash and properties) and
liabilities (debts or obligation to pay)
Analyze the company’s:
 Liquidity,
 Solvency, and
 Financial flexibility.
 STATEMENT OF FINANCIAL
POSITION

CASH ₱ 15,500
SUPPLIES 9,000
XEROX MACHINE 300,000
TOTAL ASSETS ₱ 324,500

CONDE, CAPITAL ₱ 324,500

 Financial Statements

4.Statement of cash flows

Statement of cash receipts
and cash payments
Statement of Cash Flows

• A financial statement which explains

why the amount of cash changed over a
period of time.

• The report makes a listing of cash

inflow activities (cash receipts) and
cash outflows activities (cash
payments) of the business.
 Business Cash Flows

Three sources of cash flows:

• Financing Activities – borrow money, pay off

loans, sell stock, pay dividends.

• Investing Activities – firm buys or sells fixed

assets that enable it to do business, long-
term purchases, and sales of financial assets.

• Operating Activities – day-to-day activities

Statement of Cash Flows

Financing Activities
Inflows:
Proceeds from borrowing
Proceeds from issuing equity securities
Outflows:
Repaying of debt (principal)
Repurchase of firm’s own shares
Payment of dividends
Statement of Cash Flows

Investing Activities
Inflows:
Sales of fixed assets
Sale of debt or equity securities of other entities
Collecting on loans (principal)
Outflows:
Acquisition of fixed assets
Purchase of debt or equity securities of other
entities
Lending money (principal)
Statement of Cash Flows

Operating Activities
Net Income
+ Depreciation and amortization
+ Decrease in current assets
+ Increase in current liabilities
- Increase in current assets
- Decrease in current liabilities
 STATEMENT OF CASH FLOWS

CASH Investment of CONDE, June 1,2012 ₱320,000

Cash receipts from Sales 12,000
Cash payment for supplies (15,000)
Cash payment for rent ( 1,500)
Cash payments for machine (300,000)
Cash, June 7, 2012 ₱ 15,500
CHAPTER
Lecture
The Accounting
Equation
and
Double Entry
System
CHAPTER OUTLINE

 The Accounting Equation

 Double Entry Bookkeeping –

Debits and Credits

 Five Major Account
Classifications and Common
Accounts within Each
Classification
The Chart of Accounts
Learning Objectives
At the end of the chapter, you will be able to:
 Identify and explain the basic accounting
equation;
 Understand the basic rules and proper
application of debits and credits;
 identify the five major account classifications;
 Describe the categories and common accounts
within each classification;
 Identify and understand the normal balances of
each account, and
 Understand the chart of accounts.
OBJECTIVES OF ACCOUNTING
To maintain accounting records.
To calculate the results of
operations
To ascertain the financial
position
To communicate the information
to the users
 The
Accounting
Equation
 The Accounting Equation

Assets = Liabilities + Owner’s Equity

 Transactions that Affect
Owner’s Equity
OWNER’S EQUITY OWNER’S EQUITY
INCREASES DECREASES

Owner Investments Owner Withdrawals

in the Business from the Business

Owner’s Equity

Revenues Expenses
Assets = Liabilities + Owner’s Equity
+ Revenues
- Expenses
+ Gains
- Losses
+ Contributions
- Withdrawals
 Double Entry Accounting
The Equality of Debits and Credits

A = L + OE
=
Debit
balances
Credit
balances

In the double-entry accounting system,

every transaction is recorded by equal
amounts of debits and credits.
 Double Entry
Bookkeeping -
Debits and Credits
 DOUBLE-ENTRY SYSTEM
• equal debits and credits made
accounts for each transaction
• total debits always equal the total
credits
• accounting equation always stays in
balance

Assets Liabilities Equity

1.Debit - A debit is
recorded on the left hand
side of a T-account.
• An account entry with a positive
value for asset and negative
value for liabilities and equity.
 Assets
Debit Credit

+ Liabilities & O.E.

Debit Credit
2. Credit. A credit balance is
recorded on the right hand
side of a T-account.
• An account entry with a
negative value for assets, and
positive value for liabilities
and equity.
 Assets
Debit Credit

Liabilities & O.E.

Debit Credit

+
3. Debit Accounts
Asset and Expenses

4. Credit Accounts
Income and Liabilities
and Owner’s Equity
NOTE :
1. ASSETS – Debit Balance

2. EXPENSES – Debit Balance

3. LIABILITIES – Credit Balance

4. EQUITY – Credit Balance

5. INCOME – Credit Balance

 NORMAL BALANCE
• every account has a
designated normal balance.
• It is either a debit or credit.

• accounts rarely have an

abnormal balance.
TABULAR SUMMARY COMPARED
TO ACCOUNT FORM
 Debit and Credit Rules
Debits and credits affect accounts as
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
 EXPANDED BASIC EQUATION AND
DEBIT/CREDIT RULES AND EFFECTS

Assets = Liabilities + Owner’s Equity

Owner’s Owner’s
Assets = Liabilities
+ Capital - Drawing
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
+ - - + - + + -

+ Revenues Expense
- s
Dr. Cr. Dr. Cr.
- + + -
Major Account and
Common Account
Under Each
Classification
• The major account
classifications used in
accounting are known as:
•Assets,
•Liabilities,
•Equity,
•Income, and
•Expenses.
These are also known as
The elements of the financial
statements such as the
Statement of Financial
Position and Income
Statement.
 CHART OF ACCOUNT

• A listing of a company’s
account titles which
guides the bookkeeper
in the recording of the
transactions.
 CHART OF ACCOUNT

• The number and the

nature of accounts
depend on the type of
business operation.
 CHART OF ACCOUNT

• NOTE: Each of account is

assigned a three-digit number
followed by the account name
• The first digit of the number
signifies if it is an asset, liability,
etc.
 CHART OF ACCOUNTS
A Chart of Accounts lists the accounts and the
account numbers which identify their location in the
ledger.
 Steps in Analyzing a Transaction
Step 1. Decide which accounts are involved.
Step 2. Classify the accounts involved (asset,
liability, capital, revenue, expense).
Step 3. Decide if the accounts involved are increased
or decreased.
Step 4. Write the transaction as a debit to one
account (or accounts) and a credit to another
account (or accounts).
Step 5. Check to see if the equation is in balance
after the transaction has been recorded.
 Analyzing the Effects of Business
Transactions
• Dave Mark opened a restaurant
business. To get started, he rents
some space, purchase an initial
inventory of supplies, and open the
shop for business. Here is a listing
of the transactions that occurred
during the first month:
 Analyzing the Effects of Business Transactions

Investment by Owner:
On September 1, Dave Mark contributes P 7,500
in cash to capitalize the business.

Owners
Transactions Assets = Liabilities + Equity

Investment by
1 the owner
 Analyzing the Effects of Business Transactions

Purchased P 2,500 of supplies on account,

payable in 30 days.

Owners
Transactions Assets = Liabilities + Equity

Purchase of assets
8 on account
 Analyzing the Effects of Business Transactions

Paid first month rent of P 1,000.

Owners
Transactions Assets = Liabilities + Equity

Payment of space
15 rental
 Analyzing the Effects of Business Transactions

Sales made for the week, P 1,100;

collected cash P400; balance on credit
P 700.

Owners
Transactions Assets = Liabilities + Equity

Sales made for

17 the week.
 Analyzing the Effects of Business Transactions

P 275 worth of supplies were used.

Owners
Transactions Assets = Liabilities + Equity

Supplies were
18 used up
 Analyzing the Effects of Business Transactions

Collected P 425 from customer

accounts

Owners
Transactions Assets = Liabilities + Equity

Collection from
customers
25 account
 Analyzing the Effects of Business Transactions

Paid P 500 to suppliers for supplies

purchased earlier in the month.

Owners
Transactions Assets = Liabilities + Equity

Paid suppliers
for supplies
28 purchased
 ASSETS = LIABILITIES + OWNER'S EQUITY
Dave Revenue
Accounts Accounts Mark's (Expense
Date Cash + Supplies + Receivables = Payable + Capital + )

Sept 1 7,500.00 = 7,500.00

Sept 8 2,500.00 = 2,500.00

Sept 15 -1,000.00 = -1,000.00

Sept 17 400.00 700.00 = 1,100.00

Sept 18 -275.00 = -275.00

Sept 25 425.00 -425.00 =

Sept 28 -500.00 = -500.00

Totals 6,825.00 + 2,225.00 + 275.00 = 2,000.00 + 7,500.00 + -175.00

9,325.00 = 9,325.00
 Owners
Transactions Assets = Liabilities +
Equity

1 Investment by the owner

2 Withdrawal of assets by the owner
3 Purchase of assets in cash
4 Bought assets for personal use
5 Purchase of assets on account
6 Settlement of liabilites in cash
7 Settlement of account with a note
Settlement of liabilities from the
8
owner's personal cash
9 Hired an employee
The owner Took home asset for his
10
own use
 IDENTIFY the normal
balances of each account
and the category of the
accounts listed.
Write if the normal balance
is a DEBIT or CREDIT
 Account Name Assets Liabilities Equity Income Expenses

Prepaid Expenses Debit

Merchandise Inventory Debit
Ticket Sales` Credit
Cash Debit
Notes Payable Credit
Mortgage Payable Credit
Interest Income Credit
Notes Receivables Debit
Loans Payable Credit
Room Sales Credit
Stockholders Equity Credit
Celestial, Capital Credit
Celestial, Drawing Debit
Land Debit
Accumulated Depreciation Debit
 Account Name Assets Liabilities Equity Income Expenses

Accrued Expenses Credit

Wages payable Credit
Supplies Expense Debit
Utilities Expense Debit
Rent Expense Debit
Advertising Expense Debit
Interest Payable Credit
Supplies Debit
Prepaid Insurance Debit
Salaries Expense Debit
Accounts Receivables Debit
Accounts Payable Credit
Unearned Revenue Credit
Depreciation Expense Debit
Telephone Expense Debit
 How to
Analyze
Transaction
 Steps in Analyzing a Transaction

Step 1. Decide which accounts are involved.

Step 2. Classify the accounts involved (asset, liability,
owner’s equity, income, expense).
Step 3. Decide if the accounts involved are increased or
decreased.

Step 4. Write the transaction as a debit to one account

(or accounts) and a credit to another account (or
accounts).

Step 5. Check to see if the equation is in balance after

the transaction has been recorded.
EFFECTS OF EACH
ACCOUNT
 CONNOR’S TRANSACTION

a. Connor deposited ₱ 90,000 in a bank account in the name of the business.

b. CWA bought equipment, paying cash, ₱ 38,000.
c. CWA bought equipment on account from Signal Products, ₱ 4,320.
d. CWA paid Signal Products, a creditor, ₱ 2,000.
e. CWA invests her personal computer in the business with fair market value of ₱5,200.
f. CWA sold rafting tours for cash, ₱ 8,000.
g. CWA paid rent for the month, ₱ 1,250.
h. CWA bought computer paper, ink cartridges, invoice pads, pens and pencils, folders, filing
cabinets, and 10-key calculators on account, ₱ 675.
i. CWA bought a three-month liability insurance policy, ₱ 1,875.
j. CWA received a bill for newspaper advertisement from the Times, ₱ 620.
k. CWA signs a contract with Crystal River Lodge to provide rafting adventures for guests.
Connor’s Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge
for ₱6,750.
l. CWA pays on account to Signal Products, ₱ 1,500.
m.CWA received and paid Solar Power, Inc. for the electric bill, ₱ 225.
n. CWA paid on account to the Times, ₱ 620.
o. CWA paid the wages of a part-time employee, ₱ 2,360.
p. CWA bought additional equipment from Signal Products, ₱3,780, paying ₱ 1,850 in cash
and placing the balance on account.
q. CWA received ₱ 2,500 cash from Crystal River Lodge to apply against the amount billed in
transaction (k).
r. CWA sold tours for cash, ₱8,570.
s. J. Conner withdrew cash for her personal use, ₱3,500.
 CONNOR’S TRANSACTION

Requirements:
1. Give the effects of each account
2. Copy clear Format
3. T – Account
4. Posting to the Ledger
5. Journal Entries
6. Trial Balance
7. Income Statement
8. Statement of Changes in Owner’s Equity
9. Balance Sheet
DATE A S S E T S = LIABILITIES OWNER'S EQUITY INCOME EXPENSES

Income
Accounts Prepaid Accounts J. Connor’s, J. Connor’s,
CASH Equipment from
Recevables Insurance Payables Capital Drawings
Tours

a
b
c
d
e
f
g

h
i
j
k
l
m
n
o
p
q
r
s
 LIABILITI
DATE A S S E T S = OWNER'S EQUITY INCOME EXPENSES
ES
Income
Accounts Prepaid Accounts J. Connor’s, J. Connor’s,
CASH Equipment from
Recevables Insurance Payables Capital Drawings
Tours
a
b
c
d
e
f
g Rent

h Supplies
i
j Advertising
k
l
m Utilities
n
o Salaries
p
q
r
s
55,890 4,250 51,300 1,875 3,425 95,200 3,500 23,320 5,130
COPY CLEAR FORMAT
 CONNOR’S TRANSACTION

Requirements:
1. Give the effects of each account
2. Copy clear Format
3. T – Account
4. Posting to the Ledger
5. Journal Entries
6. Trial Balance
7. Income Statement
8. Statement of Changes in Owner’s Equity
9. Balance Sheet
 LIABILITI
DATE A S S E T S = OWNER'S EQUITY INCOME EXPENSES
ES
J. Income
Accounts Prepaid Accounts J. Connor’s,
CASH Equipment Connor’s, from
Recevables Insurance Payables Drawings
Capital Tours
a 90,000 90,000
b (38,000) 38,000
c 4,320 4,320
d (2,000) (2,000)
e 5,200 5,200
f 8,000 8,000
g 1,250Rent
(1,250)
h
675 675Supplies
i (1,875) 1,875
j
620
620 Advertising
k 6,750 6,750
l (1,500) (1,500)
m (225) 225Utilities
n (620) (620)
o
2,360
Salaries
(2,360)
p (1,850) 3,780 1,930
q 2,500 (2,500)
r 8,570 8,570
s (3,500) 3,500
55,890 4,250 51,300 1,875 3,425 95,200 3,500 23,320 5,130
T - ACCOUNTS
ACCOUNT NAME
Transaction (a). Connor deposited ₱ 90,000 in a bank
account in the name of the business.

 Connor deposits ₱ 90,000 cash in a

separate bank account in the name of
Connor’s Whitewater Adventures.
 Treating the business
Separate
as independent from its Separate
Entity
Entity
owners, creditors, and
customers is called the
entity
concept.
 Resulting Transaction (a) in T Account Form

Transaction (a): Connor deposited

₱90,000 in a bank account in the name of
the business.

Cash
a) 90,000 a) 90,000
Transaction (b): Connor’s Whitewater
Adventures bought equipment, paying cash,
₱ 38,000.

Equipment Cash
a) 90,000 b) 38,000
b) 38,000
Transaction (c). Company bought equipment on account from Signal
Products, ₱ 4,320.

 The Equipment account shows an

increase because the business owns ₱ 4,320
more in equipment.

 The liability account Accounts Payable

is used for short-term liability or charge
accounts.
 The company to which money is owed,
Signal’s Products, is called a creditor.
Transaction (c): Connor’s Whitewater
Adventures bought equipment on account
from Signal Products, ₱4,320.

Equipment Accounts Payable

b) 38,000
c) 4,320
c) 4,320
Transaction (d). Company paid Signal
Products, a creditor, ₱ 2,000 on account.

Accounts Payable Cash

d) 2,000 d) 4,320 a) 90,000 b) 38,000
d) 2,000
Transaction (e). Owner invested
equipment with a fair market value of ₱
5,200 in the business.

Connor invested her own computer

equipment in the company. It has a
fair market value of ₱ 5,200. The
fair market value is the present
worth of an asset.
Transaction (e). Owner invested equipment
with a fair market value of ₱ 5,200 in the
business.

Equipment
b) 38,000 a) 90,000
c) 4,320
e) 5,200 e) 5,200
 Cash Accounts Payable J. Connor, Capital

a) 90,000 b) 38,000 d) 2,000 c) 4,320 a) 90,000

d) 2,000 e) 5,200
Bal. 2,320
40,000 Bal. 95,200
Bal. 50,000

Equipment
b) 38,000
c) 4,320
e) 5,200
Bal. 47,520

Summary―
Transactions (a) – (e)
Transaction (f): Connor’s Whitewater
Adventures sold rafting tours for cash,
₱ 8,000.
Cash Income from Tours

f) 8,000 f) 8,000
Transaction (g): Connor’s
Whitewater Adventures paid rent for
the month, ₱ 1,250.

Cash Rent Expense

g) 1,250 g) 1,250
Transaction (h): Connor’s Whitewater Adventures
bought computer paper, ink cartridges, invoice pads,
pens and pencils, folders, filing cabinets, and 10-key
calculators on account, ₱ 675.

Supplies Expense Accounts Payable

h) 675 h) 675
Transaction (i): Connor’s Whitewater
Adventures bought a three-month liability
insurance policy, ₱1,875.

Prepaid Insurance Cash

i) 1,875 i) 1,875
Transaction (j): Connor’s Whitewater Adventures
received a bill for newspaper advertisement from the
Times, ₱ 620.

Advertising Expense Accounts Payable

j) 620 j) 620
Transaction (k): Connor’s Whitewater Adventures
signs a contract with Crystal River Lodge to provide
rafting adventures for guests. Connor’s Whitewater
Adventures provides 27 one-day rafting tours and bills
Crystal River Lodge for ₱ 6,750.

Accounts Receivables Income from Tours

k) 6,750 k) 6,750
Transaction (l): Connor’s Whitewater
Adventures pays on account to Signal Products,
₱1,500.

Accounts Payable Cash

l) 1,500 l) 1,500
Transaction (m): Connor’s Whitewater
Adventures received and paid Solar Power, Inc.
for the electric bill, ₱225.

Utilities Expense Cash

m) 225 m) 225
Transaction (n): Connor’s Whitewater
Adventures paid on account to the Times,
₱ 620.

Accounts Payable Cash

n) 620 n) 620
Transaction (o): Connor’s Whitewater
Adventures paid the wages of a part-
time employee, ₱ 2,360.

Wages Expense Cash

o) 2,360
o) 2,360
Transaction (p): Connor’s Whitewater Adventures bought
additional equipment from Signal Products, ₱ 3,780,
paying ₱ 1,850 in cash and placing the balance on
account.

Cash
p) 1,850 Accounts Payable

p) 1,930

Equipment

p) 3,780
Transaction (q): Connor’s Whitewater Adventures
received ₱ 2,500 cash from Crystal River Lodge to
apply against the amount billed in transaction (k).

Cash Accounts Receivables

q) 2,500 q) 2,500
Transaction (r): Connor’s Whitewater
Adventures sold tours for cash, ₱ 8,570.

Cash
Income from Tours
r) 8,570
r) 8,570
Transaction (s): J. Connor withdrew cash for
her personal use, ₱ 3,500.

Cash J. Connor, Drawing

s) 3,500
s) 3,500
POSTING TO THE
LEDGER
ACCOUNT CASH NO. 101

DATE PARTICULARS P.R. DEBIT CREDIT DR CR BALANCE

a Investment made by the owner xxx xxx

Transaction (a).

Connor deposited
₱ 90,000 in a bank
account in the name of
the business.
a. Connor deposited ₱ 90,000 in a bank
account in the name of the business.
ACCOUNT CASH NO. 101

DATE PARTICULARS P.R. DEBIT CREDIT DR CR BALANCE

a Investment made by the owner 90,000 90,000

ACCOUNT J. CONNOR’S CAPITAL NO.

DATE PARTICULARS P.R. DEBIT CREDIT DR CR BALANCE

a Investment made by the owner 90,000 90,000

Transaction (b):

Connor’s Whitewater
Adventures bought
equipment, paying cash,
₱ 38,000.
ACCOUNT CASH NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000

ACCOUNT EQUIPMENT NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
b Bought equipment 38,000 38,000
Transaction (c).

Company bought equipment

on account from Signal
Products, ₱ 4,320.
ACCOUNT EQUIPMENT NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
b Bought equipment 38,000 38,000
c Bought equipment on account 4,320 42,320

ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

Transaction (d).
Company paid Signal
Products, a creditor, ₱
2,000.
ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

d Paid the account on Signal Product 2,000 2,320

ACCOUNT CASH NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
Transaction (e)

Owner invested equipment

with a fair market value of
₱ 5,200 in the business.
ACCOUNT EQUIPMENT NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
b Bought equipment 38,000 38,000
c Bought equipment on account 4,320 42,320
e Invested equipment 5,200 47,520

ACCOUNT J. CONNOR’S CAPITAL NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
a Investment made by the owner 90,000 90,000
e Invested equipment 5,200 95,200
Transaction (f):
Connor’s Whitewater
Adventures sold rafting tours
for cash, ₱ 8,000.
ACCOUNT INCOME FROM TOURS NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
f Sold rafting tours for cash. 8,000 8,000

ACCOUNT CASH NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
Transaction (g):
Connor’s Whitewater
Adventures paid rent for the
month, ₱ 1,250.
ACCOUNT RENT EXPENSE NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

g Paying rent for the month 1,250 1,250

ACCOUNT CASH NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000

d Paid the account on Signal Product 2,000 50,000

f Sold rafting tours for cash. 8,000 58,000

g Paying rent for the month 1,250 56,750

Transaction (h):
Connor’s Whitewater Adventures
bought computer paper, ink cartridges,
invoice pads, pens and pencils,
folders, filing cabinets, and 10-key
calculators on account, ₱ 675.
ACCOUNT SUPPLIES EXPENSE NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

h Bought supplies on account 675 675

ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

d Paid the account on Signal Product 2,000 2,320
h Bought supplies on account 675 2,995
Transaction (i):
Connor’s Whitewater
Adventures bought a three-
month liability insurance policy,
₱ 1,875.
ACCOUNT PREPAID INSURANCE NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
Bought a three month liability
i
insurance
1,875 1,875

ACCOUNT CASH NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i
insurance
1,875 54,875
Transaction (j):
Connor’s Whitewater Adventures
received a bill for newspaper
advertisement from the Times,
₱ 620.
ACCOUNT ADVERTISING EXPENSE NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

Received a bill for newspaper

j advertisement from the Times
620 620

ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

d Paid the account on Signal Product 2,000 2,320
h Bought supplies on account 675 2,995
Received a bill for newspaper
j advertisement from the Times 620 3,615
Transaction (k):
Connor’s Whitewater Adventures signs
a contract with Crystal River Lodge to
provide rafting adventures for guests.
Connor’s Whitewater Adventures
provides 27 one-day rafting tours and
bills Crystal River Lodge for ₱ 6,750.
ACCOUNT INCOME FROM TOURS NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

f Sold rafting tours for cash. 8,000 8,000

Provides 27 one-day rafting tours
k and bills Crystal River Lodge 6,750 14,750

ACCOUNT ACCOUNTS RECEIVABLES NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
Provides 27 one-day rafting tours
k and bills Crystal River Lodge
6,750 6,750
Transaction (l):
Connor’s Whitewater
Adventures pays on account to
Signal Products, ₱ 1,500.
ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

d Paid the account on Signal Product 2,000 2,320
h Bought supplies on account 675 2,995
Received a bill for newspaper
j
advertisement from the Times
620 3,615
l Pays the account to Signal Products 1,500 2,115
ACCOUNT CASH NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i 1,875 54,875
insurance
l Pays the account to Signal Products 1,500 53,375
Transaction (m):
Connor’s Whitewater Adventures
received and paid Solar Power,
Inc. for the electric bill, ₱ 225.
ACCOUNT UTILITIES EXPENSE NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
Received and paid Solar Power,
m
Inc. for the electric bill
225 225

ACCOUNT CASH NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i 1,875 54,875
insurance
l Pays the account to Signal Products 1,500 53,375
Received and paid Solar Power,
m 225 53,150
Inc. for the electric bill
Transaction (n):
Connor’s Whitewater Adventures
paid on account to the Times, ₱
620.
ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

d Paid the account on Signal Product 2,000 2,320
h Bought supplies on account 675 2,995
Received a bill for newspaper
j
advertisement from the Times
620 3,615
l Pays the account to Signal Products 1,500 2,115
n Paid the account to the Times 620 1,495
ACCOUNT CASH NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

a Investment made by the owner 90,000 90,000

b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i 1,875 54,875
insurance
l Pays the account to Signal Products 1,500 53,375
Received and paid Solar Power,
m Inc. for the electric bill 225 53,150
n Paid the account to the Times 620 52,530
Transaction (o):
Connor’s Whitewater Adventures
paid the wages of a part-time
employee, ₱ 2,360.
ACCOUNT SALARIES EXPENSE NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
Paid the wages of a part-time
o employee
2,360 2,360

ACCOUNT CASH NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
a Investment made by the owner 90,000 90,000
b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i 1,875 54,875
insurance
l Pays the account to Signal Products 1,500 53,375
Received and paid Solar Power,
m 225 53,150
Inc. for the electric bill
n Paid the account to the Times 620 52,530
Paid the wages of a part-time
o
employee
2,360 50,170
Transaction (p):
Connor’s Whitewater Adventures bought
additional equipment from Signal Products,
₱ 3,780, paying ₱1,850 in cash and
placing the balance on account.
ACCOUNT EQUIPMENT NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
b Bought equipment 38,000 38,000
Bought equipment on
c 4,320 42,320
account
e Invested equipment 5,200 47,520
Bought additional equipment
p 3,780 51,300
from Signal Products
ACCOUNT CASH NO.
DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
a Investment made by the owner 90,000 90,000
b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750

i Bought a three month liability 1,875 54,875

insurance
l Pays the account to Signal Products 1,500 53,375

m Received and paid Solar Power, 225 53,150

Inc. for the electric bill
n Paid the account to the Times 620 52,530
Paid the wages of a part-time
o 2,360 50,170
employee
p Bought additional equipment 1,850 48,320
from Signal Products
ACCOUNT ACCOUNTS PAYABLE NO. 101

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

c Bought equipment on account 4,320 4,320

d Paid the account on Signal Product 2,000 2,320
h Bought supplies on account 675 2,995
Received a bill for newspaper
j
advertisement from the Times
620 3,615
l Pays the account to Signal Products 1,500 2,115
n Paid the account to the Times 620 1,495
Bought additional equipment
p
from Signal Products 1,930 3,425
Transaction (q):
Connor’s Whitewater Adventures
received ₱ 2,500 cash from Crystal
River Lodge to apply against the
amount billed in transaction (k).
ACCOUNT ACCOUNTS RECEIVABLES NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

Provides 27 one-day rafting tours

k and bills Crystal River Lodge
6,750 6,750
Received P2,500 cash from
q 2,500 4.250
Crystal River Lodge
ACCOUNT CASH NO.
DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
a Investment made by the owner 90,000 90,000
b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i 1,875 54,875
insurance
l Pays the account to Signal Products 1,500 53,375
Received and paid Solar Power,
m Inc. for the electric bill
225 53,150
n Paid the account to the Times 620 52,530
Paid the wages of a part-time
o employee
2,360 50,170
p Bought additional equipment 1,850 48,320
from Signal Products
q Received P2,500 cash from
Crystal River Lodge
2,500 50,820
Transaction (r):
Connor’s Whitewater
Adventures sold tours for cash,
₱ 8,570.
ACCOUNT INCOME FROM TOURS NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

f Sold rafting tours for cash. 8,000 8,000

Provides 27 one-day rafting tours
k and bills Crystal River Lodge
6,750 14,750
r sold tours for cash 8,570 23,320
ACCOUNT CASH NO.
DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
a Investment made by the owner 90,000 90,000
b Bought equipment 38,000 52,000
Paid the account on Signal
d Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i insurance 1,875 54,875
Pays the account to Signal
l Products 1,500 53,375
Received and paid Solar Power,
m Inc. for the electric bill 225 53,150
n Paid the account to the Times 620 52,530
Paid the wages of a part-time
o employee 2,360 50,170
Bought additional equipment from
p Signal Products 1,850 48,320
Received P2,500 cash from
q Crystal River Lodge 2,500 50,820
r sold tours for cash 8,570 59,390
Transaction (s):
J. Connor withdrew cash for
her personal use, ₱ 3,500.
ACCOUNT J.CONNOR’S DRAWINGS NO.

DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE

Withdrew cash for her personal

s use
3,500 3,500
ACCOUNT CASH NO.
DR
DATE PARTICULARS P.R. DEBIT CREDIT CR BALANCE
a Investment made by the owner 90,000 90,000
b Bought equipment 38,000 52,000
d Paid the account on Signal Product 2,000 50,000
f Sold rafting tours for cash. 8,000 58,000
g Paying rent for the month 1,250 56,750
Bought a three month liability
i 1,875 54,875
insurance
l Pays the account to Signal Products 1,500 53,375
Received and paid Solar Power,
m 225 53,150
Inc. for the electric bill
n Paid the account to the Times 620 52,530
Paid the wages of a part-time
o
employee
2,360 50,170
Bought additional equipment
p 1,850 48,320
from Signal Products
Received P2,500 cash from
q
Crystal River Lodge
2,500 50,820
r sold tours for cash 8,570 59,390
Withdrew cash for her personal
s
use
3,500 55,890
JOURNALIZATION
 Recording Transactions
 J. Connor deposits ₱ 90,000 cash in a separate
bank account in the name of Connor’s
Whitewater Adventures.
What is the journal entry?

Date Particulars Debit Credit

a) DEBIT Account xxxxx

CREDIT Account xxxxx
Explanation
 Recording Transactions
a) J. Connor deposits ₱ 90,000 cash in a separate
bank account in the name of Connor’s
Whitewater Adventures.
What is the journal entry?

Date Particulars Debit Credit

a Cash 90,000
J. Connor’s Capital 90,000
To record cash deposits in the
name of the business
 Recording Transactions
b) Connor’s Whitewater Adventures bought
equipment, paying cash, ₱ 38,000.
What is the journal entry?

Date Particulars Debit Credit

b Equipment 38,000
Cash 38,000
Bought equipment in cash
 Recording Transactions
c) Company bought equipment on account
from Signal Products, ₱ 4,320.

What is the journal entry?

Date Particulars Debit Credit
c Equipment 4,320
Accounts Payable 4,320
Bought equipment on account
 Recording Transactions
d) Company paid Signal Products,
a creditor, ₱ 2,000 on account.

What is the journal entry?

Date Particulars Debit Credit
d Accounts Payable 2,000
Cash 2,000
Paid the account due to creditor.
 Recording Transactions
e) Owner invested equipment with a fair
market value of ₱5,200 in the business.

What is the journal entry?

Date Particulars Debit Credit
d Equipment 5,200
J. Connor’s Capital 5,200
Investment of equipment
for J. Connor’s business.
 Recording Transactions
f) Connor’s Whitewater Adventures
sold rafting tours for cash, ₱ 8,000

What is the journal entry?

Date Particulars Debit Credit
f Cash 8,000
Income from Tours 8,000
Sold rafting tours for cash
 Recording Transactions
g) Connor’s Whitewater Adventures paid
rent for the month, ₱ 1,250.

What is the journal entry?

Date Particulars Debit Credit
g Rent Expense 1,250
Cash 1,250
Rental Payment
 Recording Transactions
h) Connor’s Whitewater Adventures bought
computer paper, ink cartridges, invoice pads,
pens and pencils, folders, filing cabinets, and
10-key calculators on account, ₱ 675.

What is the journal entry?

Date Particulars Debit Credit
h Supplies Expense 675
Accounts Payable 675
Bought supplies on account
 Recording Transactions
i. Connor’s Whitewater Adventures bought
a three-month liability insurance policy, ₱
1,875.
What is the journal entry?
Date Particulars Debit Credit
i Prepaid insurance 1,875
Cash 1,875
Bought a three-month liability insurance
 Recording Transactions
j. Connor’s Whitewater Adventures received a
bill for newspaper advertisement from the
Times, ₱ 620.

What is the journal entry?

Date Particulars Debit Credit

j) Advertising Expense 620

Accounts Payable 620
Received a bill for newspaper
Advertisement from times
 Recording Transactions
k. Connor’s Whitewater Adventures signs a contract
with Crystal River Lodge to provide rafting
adventures for guests. Connor’s Whitewater
Adventures provides 27 one-day rafting tours and
bills Crystal River Lodge for ₱ 6,750.

What is the journal entry?

Date Particulars Debit Credit

k) Accounts Receivables 6,750

Income from Tours 6,750
Billed Crystal River Lodge for rafting adventures
 Recording Transactions
l. Connor’s Whitewater Adventures pays
on account to Signal Products, ₱1,500.

What is the journal entry?

Date Particulars Debit Credit

l) Accounts Payable 1,500

Cash 1,500
Payment of accounts due to
Signal Products.
 Recording Transactions
m. Connor’s Whitewater Adventures
received and paid Solar Power, Inc. for
the electric bill, ₱ 225.

What is the journal entry?

Date Particulars Debit Credit

m) Utilities Expense 225

Cash 225
Payment for the electric bill
 Recording Transactions
n). Connor’s Whitewater Adventures
paid on account to the Times, ₱ 620.

What is the journal entry?

Date Particulars Debit Credit

n) Accounts Payable 620

Cash 620
Payment for the accounts due
 Recording Transactions
o. Connor’s Whitewater Adventures paid the
wages of a part-time employee, ₱ 2,360.

What is the journal entry?

Date Particulars Debit Credit

o) Salaries Expense 2,360

Cash 2,360
Payment for the part-time wages.
 Recording Transactions
p. Connor’s Whitewater Adventures bought additional
equipment from Signal Products, ₱3,780, paying
₱1,850 in cash and placing the balance on account

What is the journal entry?

Date Particulars Debit Credit

p) Equipment 3,780
Cash 1,850
Accounts Payable 1,930
Bought additional equipment
 Recording Transactions
q. Connor’s Whitewater Adventures received
₱ 2,500 cash from Crystal River Lodge to apply
against the amount billed in transaction (k).

What is the journal entry?

Date Particulars Debit Credit

q) Cash 2,500
Accounts Receivables 2,500
Received from Crystal River Lodge
 Recording Transactions
r. Connor’s Whitewater Adventures sold tours
for cash, ₱ 8,570.

What is the journal entry?

Date Particulars Debit Credit

r) Cash 8,570
Income from Tours 8,570
Sold tours for cash.
 Recording Transactions
s. J. Conner withdrew cash for her
personal use, ₱ 3,500.

What is the journal entry?

Date Particulars Debit Credit
s J. Connor’s drawing 3,500
Cash 3,500
Personal withdrawals by owner
TRIAL BALANCE
 J. CONNOR’S WHITEWATER ADVENTURE
TRIAL BALANCE
DATE
CASH 55,890
ACCOUNTS RECEIVABLES 4,250
EQUIPMENT 51,300
PREPAID INSURANCE 1,875
ACCOUNTS PAYABLE 3,425
J. CONNOR’S, CAPITAL 95,200
J. CONNOR’S, DRAWINGS 3,500
INCOME FROM TOURS 23,320
RENT EXPENSE 1,250
SUPPLIES EXPENSE 675
ADVERTISING EXPENSE 620
UTILITIES EXPENSE 225
SALARIES EXPENSE 2,360

TOTALS 121,945 121,945

 INCOME
STATEMENT
VII. INCOME STATEMENT

J. CONNOR’S WHITEWATER ADVENTURE

INCOME STATEMENT
For the Month of___________

INCOME FROM TOURS ₱ 23,320

LESS: Expenses
RENT EXPENSE
₱ 1,250
SUPPLIES EXPENSE 675
ADVERTISING EXPENSE 620
UTILITIES EXPENSE 225
SALARIES EXPENSE 2,360 5,130
NET INCOME ₱ 18,190
 STATEMENT OF
CHANGES IN
OWNER’S EQUITY
STATEMENT OF CHANGES IN OWNER’S EQUITY

J. CONNOR’S WHITEWATER ADVENTURE

STATEMENT OF CHANGES IN OWNER’S EQUITY
For the Month Ended

J. Connor’s, Capital, Beginning ₱ 95,200

Net Income 18,190
Less: J. Connor’s Drawings (3,500)
J. Connor’s Capital, End ₱ 109,890
BALANCE SHEET
BALANCE SHEET

J. CONNOR'S WHITEWATER ADVENTURE

BALANCE SHEET
DATE

ASSETS
CASH ₱ 55,890
Accounts Receivables 4,250
Equipment 51,300
Prepaid Insurance 1,875
TOTAL ASSETS ₱ 113,315

LIABILITIES
Accounts Payable ₱ 3,425

OWNER’S EQUITY
J. Connor’s Capital
Total Liabilities and Owner’s Equity ₱ 109,890
₱ 113,315
ACCOUNTING
CYCLE
 ACCOUNTING CYCLE

T-Account
Posting to the ledger
Journal Entries
Adjusting Entries
Worksheet
Closing Entries
Reversing Entries
 The Accounting Cycle

The sequence of
activities beginning
with the occurrence
of a transaction
 STEP 1 STEP 2
Identify the Analyze the
Transaction
Transaction
Determine the transaction
Optional Identify the event as a amount., which accounts are
transaction and generate the affected, and in which STEP 3
Reversing Entries
source transaction direction Journal Entries
Cancel out the adjusting entries that
were made to accrue revenues and The transaction is
expenses at the end of the previous
accounting. recorded in the journal
with a debit and a credit.

STEP 10 STEP 4
After-Closing Trial Post to Ledger
Balance
A trial balance is calculated
after the closing entries are
ACCOUNTING CYCLE The journal entries are
transferred to the appropriate
made T-account in the ledger.

STEP 9 STEP 5
Closing Entries Trial Balance
Transfer the balance of the Is calculated to verify that the
temporary accounts (e.g. sum of the debits is equal to
revenues and expenses) to the sum of the credits.
owner’s equity.

STEP 6
STEP 8 STEP 7 Adjusting Entries
Adjusted Trial
Financial Statements Balance Made for accrued and deferred
items. The entries are journalized
The financial statements are A new trial balance is and posted to the T-accounts in
prepared calculated after making the the ledger.
adjusting entries.
 BASIC FORM OF ACCOUNT
• The simplest form an account consists of
1 the title of the account
2 a left or debit side
3 a right or credit side
• The alignment of these parts resembles the
letter T = T account
Title of Account
Left or debit side Right or credit side

Debit balance Credit balance

T - ACCOUNT
ACCOUNT NAME
 THE RECORDING PROCESS
1 analyze each transaction (+, -)
2 enter transaction in a journal
3 transfer journal information to ledger
accounts
 THE JOURNAL
• Transactions
• Are initially recorded in chronological order
before they are transferred to the ledger
accounts.
• A general journal has
1 spaces for dates
2 account titles and explanations
3 references
4 two amount columns
 Journal Entries
• The general journal is where double
entry bookkeeping entries are recorded
by debiting one or more accounts and
crediting another one or more accounts
with the same total amount. The total
amount debited and the total amount
credited should always be equal,
thereby ensuring that the accounting
equation is maintained. It is known as
the book of original entry.
 General Journal

Year GL
Transaction Details Debit Credit

Month Day Ref

March 30 Account Name xx xxxx

Account Name xx xxxx

Description of the transaction

Name of the Name of the

Account Debited Account Credited Amounts
Debited/Credited
Short
Description of
General Ledger
transaction
account number
 Posting to the ledger
The ledger is a book of final entry
summarizing all of a company's financial
transactions, through offsetting debit and
credit accounts.
The first column includes date,
second column – description of transaction,
Third and fourth – debit and credit columns,
and the last one – balance of the account
after the transaction has been posted.
 Posting to the ledger

Account Name (General Ledger)

Year Transaction Details Debit Credit Balance

Month Day
March xx Transaction Name xxxx xxxx
March xx Transaction Name xxxx xxxx
March xx Transaction Name xxxx xxxx
 Unadjusted Trial Balance.
• A trial balance is a bookkeeping worksheet in
which the balances of all ledgers are
compiled into debit and credit columns.
• A company prepares a trial balance
periodically, usually at the end of every
reporting period.
• The general purpose of producing a trial
balance is to ensure that the entries in a
company's bookkeeping system are
mathematically correct.
 THE TRIAL BALANCE

The Steps in preparing the Trial

Balance are:

1. List the account titles and balances

2. Total the debit and credit columns
3. Prove the equality of the two
columns
 A TRIAL BALANCE
PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2005

Debit Credit
Cash $ 15,200
Advertising Supplies 2,500
Prepaid Insurance 600
Office Equipment 5,000
Notes Payable The total debits $ 5,000
Accounts Payable must equal the 2,500
Unearned Fees 1,200
C. R. Byrd, Capital
total credits. 10,000
C. R. Byrd, Drawing 500
Fees Earned 10,000
Salaries Expense 4,000
Rent Expense 900
$ 28,700 $ 28,700
 LIMITATIONS OF A TRIAL BALANCE

• A trial balance does not prove all transactions

have been recorded or the ledger is correct.

• Numerous errors may exist even though the trial

balance columns agree. For example, the trial
balance may balance even when:
• a transaction is not journalized
• a correct journal entry is not posted
• a journal entry is posted twice
• incorrect accounts used in journalizing or
posting
• offsetting errors are made in recording
 Name of the Company
Worksheet
For the month ended month, Year
Adjusted Trial
Account Title Trial Balance Adjustments Balance Income Statement Balance Sheet
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash xxx
Accounts Receivables xxx
Supplies xxx
Salaries Payable xxx
Accounts Payable xxx
Unearned Revenue xxx
Common Stock xxx
Service Revenue xxx
Supplies Expense xxx
Salaries Expense xxx
Miscellaneous
Expense xxx

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx
Net loss xxx xxx
Totals xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx
 Adjusting Entries.
• These are bookkeeping entries posted at the end
of an accounting period (the balance sheet date)
to assign expenses to the period in which they
were incurred, and revenue to the period in
which it was earned.
• Adjusting entries are used also to correct entries
that could not be accurately made earlier.
• After adjusting entries are made in the accounting
journals, they are posted to the general ledger in
the same way as any other accounting journal
entry.
 Adjusting Entries.
1. Accrued Revenues – If you perform a
service for a customer in one month, but
don't bill the customer until the next month,
you would make an adjusting entry showing
the revenue in the month you performed the
service.

Journal Entry:
Accounts Receivables xxx
Service Revenue xxx
 Adjusting Entries.
2. Accrued Expenses – A good example of
accrued expenses is wages paid to employees.
Journal Entry:
Wages Expense xxx
Wages Payable xxx

3. Unearned Revenues – Refer to payments for

goods to be delivered in the future or services to be
performed.
Journal Entry:
Unearned Revenue xxx
Revenue xxx
 Adjusting Entries.
4. Prepaid Expenses – Assets that are paid for and
gradually get used up during the accounting period.
Journal Entry:
Office Supplies Expense xxx
Prepaid office Supplies xxx
5. Depreciation – It is the process of allocating the
cost of an asset, such as building or a piece of
equipment, over the serviceable or economic life of
the asset.
Journal Entry:
Depreciation Expense - Equipment xxx
Accumulated Depreciation xxx
 Adjusting Entries.
6. Uncollectible Accounts – Business sometimes
make transactions any extending credit to the
customers.
Journal Entry:
Uncollectible Accounts Expense xxx
Allowance for uncollectible Accounts xxx

7. Inventory Adjustment – This becomes

necessary in order to recognize the proper
amount of asset cost in order to gain or make
revenue.
Journal Entry:
Cost of Sales xxx
Inventory xxx
 Transaction/Adjustments Debit Credit
Expense Item
a. Prepaid Expenses
Prepaid Expenses
Receivables
b. Accrued Revenue
Revenue

c. Property and Equipment Depreciation Expense

Depreciation
Accumulated Depreciation
Unearned Revenue
d. Unearned Revenue
Revenue
Expense Item
e. Accrued Expenses
Accrued Item
f. Inventory Used During Expense Item
Sale Accrued Item
Uncollectible Accounts
Expense
g. Uncollectible Accounts
Allowance for
Uncollectible Accounts
 Adjusting Trial Balance
This is the trial balance after adjustments
have been made.
Rule :
• An Account is with a debit balance and debit
adjustment, the final balance is debit.
• An Account is with a credit balance and credit
adjustment, the final balance is credit.
• An Account is with a debit balance and credit
adjustment, the final balance is either a debit or
credit.
 Financial
statements
Consists of both the balance
Sheet and Income Statement.
 Closing entries
At the end of the accounting period, the balances is
temporary accounts such as the income and
expenses are transferred to an income summary
account and an equity account, (Capital-Sole
proprietorship or partnership and Retained earnings-
Corporations), thereby resetting the balance of the
temporary accounts to zero to begin the next
accounting period.
A closing entry is made also to the withdrawal
account directly against the equity account.
First, the Revenue Accounts are closed by
transferring their balances to the income
summary account.
Example : September 30 is the end of the
accounting period. If the revenue account
balance is P 2,200, then the closing journal
entry would be:
Date Accounts Debit Credit

9/30 Revenue 2,200

Income Summary 2,200
Second, the Expense Accounts are closed by
transferring their balances to the income
summary balances
If the Expense account balance is P 1,325, then
the closing entry would be:

Date Accounts Debit Credit

9/30 Income Summary 1,325

Expense 1,325
At this point, the net balance of the income
summary is a P 875 credit (means that there is
an income). The income summary account
then is closed to Capital Account (if this is a
Sole Proprietorship or Partnership):
Date Accounts Debit Credit

9/30 Income Summary 875

Capital 875
• Net Loss
Date Accounts Debit Credit

9/30 Capital 875

Income Summary 875
Finally, let us assume that P 650 was
withdrawn by the owner. The Withdrawal
Account is then closed to Capital as
follows:
Date Accounts Debit Credit

9/30 Capital 650

Withdrawal 650
 Reversing entries
At the beginning of the accounting period,
some accountants use reversing entries
(optional) to cancel out the adjusting entries
that were made to accrue revenues and
expenses at the end of the previous accounting
period.
Reversing entries make it easier to record
subsequent transactions by eliminating the
need for certain compound entries.