SUPPLEMENTARY MATERIAL (3.

1)
RECORDING BUSINESS TRANSACTIONS

The Analysis of a Transaction

Initial Investment
May 2 Gisel Ong decided to open Anime World Gallery. Gisel invested P300,000 in this
initial endeavor.
Analysis Assets increased. Owner’s equity increased.
Rules Debit increases in assets. Credit increases in owner’s equity
Entry Increase in assets is recorded by a debit to cash. Increase in owner’s equity is recorded by
a credit to Ong, Capital

Dr. Cr.
Cash (A) 300,000
Ong, Capital (OE) 300,000
Initial Investment

Issuance of Note for Cash

May 3 Gisel Ong issued a promissory note for a P100,000 loan from Allay Bank. The note carries
a 12% interest per annum. The interest and the principal are payable after one year.
Analysis Assets increased. Liabilities increased
Rules Debit increases in assets. Credit increases in liabilities.
Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a
credit to notes payable

Dr. Cr.
Cash (A) 100,000
Notes Payable (L) 100,000
Borrowed money from the bank by issuing a promissory note

Acquisition of Office Equipment for Cash

May 5 Ms. Ong acquired office equipment to be used for the office paying P180,000 in cash
Analysis An asset increased. Another Asset decreased.
Rules Debit increases in assets. Credit decreases in assets.
Entry Increase in assets is recorded by a debit to office equipment. Decrease in assets is
recorded by a credit to cash

Dr. Cr.
Office Equipment (A) 180,000
Cash (A) 180,000
Purchase office equipment for cash
Acquisition of Furniture Paying Down Payment and the Balance on Account
May 5 Ms. Ong acquired furniture from Bloom’s costing
Note: Compound entry is
P40,000, paying P12,000 and the balance at the end an entry consisting of
of the month. (Note: A compound entry is needed in three or more accounts
this transaction.)
Analysis Assets increased. Assets decreased. Liabilities increased
Rules Debit increases in assets. Credit decreases in assets. Credit increases in liabilities.
Entry Increase in assets is recorded by a debit to furniture and fixture. Decrease in assets is
recorded by a credit to cash. Increase in liabilities is recorded by a credit to accounts
payable.

Dr. Cr.
Furniture and Fixture (A) 40,000
Cash (A) 12,000
Accounts Payable (L) 28,000
Bought furniture by paying cash and the balance on account

Advance Payment of Rental

May 6 Gisel Ong rented office space and paid two months rent in advance, all consisting
P18,000
Analysis An asset increased. Another Asset decreased.
Rules Debit increases in assets. Credit decreases in assets.
Entry Increase in assets is recorded by a debit to prepaid rent. Decrease in assets is recorded
by a credit to cash.

Dr. Cr.
Prepaid Rent (A) 18,000
Cash (A) 18,000
Paid two months rent in advance

Events not Affecting the Accounting Equation (no Journal Entry)

May 8 Called National Book Store and ordered art supplies worth P7,200

There is no entry necessary at this point as the ordering of the

art supplies has no effect on the assets, liabilities, and owner’s
equity. No delivery of the supplies has been made, thereby no
liability arises
Purchase of Art Supplies on Account
May 8 The P7,200 worth of art supplies ordered from National Book Store were delivered on
account
Analysis Assets increased. Liabilities increased.
Rules Debit increases in assets. Credit increases in liabilities
Entry Increase in assets is recorded by a debit to art supplies. Increase in liabilities is recorded
by a credit to accounts payable.

Dr. Cr.
Art Supplies (A) 7,200
Accounts Payable (L) 7,200
Purchased art supplies on account

Income Earned on Account

May 11 An oil painting of Naruto and an acrylic painting of L was delivered to Mr. Ku To. Gisel
Ong billed Mr. Ku To P120,000 for the paintings delivered
Analysis Assets increased. Owner’s equity increased
Rules Debit increases in assets. Credit increases in owner’s equity
Entry Increase in assets is recorded by a debit to accounts receivable. Increase in liabilities is
recorded by a credit to painting revenue.

Dr. Cr.
Accounts Receivable (A) 120,000
Painting Revenue (OE;R) 120,000
Purchased art supplies on account

Partial Settlement of Accounts Payable

May 12 Ms. Ong paid National Book Store P3,000 of the amount owed
Analysis Assets decreased. Liabilities decreased.
Rules Debit decreases in liabilities. Credit decreases in assets
Entry Decrease in liabilities is recorded by a debit to accounts payable. Decrease in assets is
recorded by a credit to cash

Dr. Cr.
Accounts Payable (L) 3,000
Cash (A) 3,000
Made partial payment to National Book Store
Partial Collection of Accounts Receivable
May 15 Ms. Ong received P50,000 from Mr. Ku To as partial payment for the anime painting
delivered last May 11
Analysis An asset increased. Another asset decreased.
Rules Debit increases in assets. Credit decreases in assets
Entry Increase in
Dr. Cr. assets is
Cash (A) 50,000 recorded
by Accounts Receivable (A) 50,000 a debit to
Received cash as partial collection from Mr. Ku To cash.
Decrease
in assets is recorded by a credit to accounts receivable

Cash Withdrawal by Owner

Dr. Cr.
for Personal Use
Ong, Drawing (OE) 18,000
May 18 Gisel Ong
Cash (A) 18,000
Withdrew cash for personal use withdrew
P18,000 for
personal use.
Analysis Assets decreased. Owner’s Equity decreased.
Rules Debit decreases in owner’s equity. Credit decreases in assets.
Entry Decrease in owner’s equity is recorded by a debit to Ong, Drawing. Decrease in assets is
recorded by a credit to cash.

Dr. Cr.
Cash (A) 80,000
Unearned Painting Revenue (A) 80,000
Received cash for painting services to be rendered
Collection of Unearned
Income
May 20 Ms. Ong received P80,000 cash for a contract to paint Lelouch
Analysis Assets increased. Liabilities increased.
Rules Debit increases in assets. Credit increases in liabilities.
Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a
credit to unearned painting revenue.
 Dr. Cr.
Cash (A) 90,000
Painting Revenue (OE;R) 90,000
Received cash for a charcoal painting

Cash Collection from Income Earned

May 23 Gisel Ong received cash from Mr. Uto San, P 90,000, for a charcoal poster of Kirito
Analysis Assets increased. Owner’s equity increased.
Rules Debit increases in assets. Credit increases in owner’s equity.
Entry Increase in assets is recorded by a debit to cash. Increase in owner’s equity is recorded
by a credit to painting revenue.

Dr. Cr.
Salaries Expense (OE;E) 4,000
Cash (A) 4,000
Paid helper’s salary for the month

Payment of Salaries
May 25 Ms. Ong paid helper’s salary for the month, P4,000
Analysis Assets decreased. Owner’s equity decreased.
Rules Debit decreases in owner’s equity. Credit decreases in assets.
Entry Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease in assets
is recorded by a credit to cash