Business

Transactions
&
The Accounting
Cycle
Business Transactions
A transaction is an exchange of values
(money, goods, services) between two (2)
or more parties expressed in terms of
money.

WHEN IS AN EVENT ACCOUNTABLE?

- If it has an effect on assets, liabilities and
equity
The Accounting Cycle
1. Analysis of business transactions
2. Journalizing
3. Posting
4. Preparation of the trial balance
5. Preparation of the working paper with
adjustments
6. Preparation of the financial statements
7. Journalizing and posting of adjusting journal
entries
8. Preparation and posting of closing journal entries
9. Preparation of the post – closing trial balance
10. Journalizing and posting of reversing journal
entries
The Accounting Cycle
1. ANALYSIS OF BUSINESS TRANSACTIONS

Business documents
a. Official receipts – evidence of collection/ sale of
service
b. Sales invoice – evidence of sale of goods
c. Check vouchers – authorization for the preparation
and eventual payment of checks
d. Checks – evidence of payment

Dual – effect of every transaction

Value received and value given

Effects on the accounting elements

The Accounting Cycle
1. ANALYSIS OF BUSINESS TRANSACTIONS
The Basic Accounting Equation (BAE)
 The Accounting Cycle
1. ANALYSIS OF BUSINESS TRANSACTIONS
The Financial Transaction Worksheet

Effects on Remarks on Transactions

Transactions
Assets Liabilities Capital Affecting Capital
Cash investment by the owner + NE + Investment
Noncash investment by the owner + NE + Investment
Purchase of noncash asset using the cash of the business + (-) NE NE
Purchase of noncash asset using the personal cash of the owner + NE + Investment
Purchase of noncash asset on account + + NE
Payment of business liabilities using the cash of the business - - NE
Payment of business liabilities using the personal cash of the owner NE - + Investment
Payment of business liabilities through the creation of another business liability NE + (-) NE
Payment of personal liabilities using the cash of the business - NE - Withdrawal
Withdrawal of business assets for personal use by the owner - NE - Withdrawal
Rendered services to clients for cash + NE + Income/revenues
Rendered services to clients on account + NE + Income/revenues
Collection of customers' account + (-) NE NE
Incurrence of expense for cash - NE - Expenses
Incurrence of expense on account NE + - Expenses
Payment of suppliers' account - - NE
The Accounting Cycle
2. JOURNALIZING – chronological recording of transactions

Journal – book of original entry

Types of Journal
GENERAL JOURNAL - 2 column (debit and credit) journal
SPECIAL JOURNAL
Cash receipts journal – collections
Cash disbursements journal - disbursements
Sales journal – sales on account (AR)
Purchases journal – purchase on account (AP)

*All other transactions shall be recorded in the General

Journal (e.g. sales and purchases supported by a promissory
note; sales and purchase returns; noncash investment of the
owner; adjusting entries, closing entries and reversing entries
The Accounting Cycle
2. JOURNALIZING

General Journal
DATE PARTICULARS PR DEBIT CREDIT
08.18.2020 Cash P 100,000
Payabyab, Capital P 100,000

Rules of DEBIT and CREDIT

Accounting Element Normal Side Debit Credit
ASSETS Debit INC DEC
LIABILITIES Credit DEC INC
CAPITAL Credit DEC INC
DRAWINGS/PERSONAL Debit INC DEC
INCOME Credit DEC INC
EXPENSE Debit INC DEC
The Accounting Cycle
3. POSTING – classifying/ grouping of journal entries

Ledger – book of final entry

Types of Journal
GENERAL LEDGER – ledger for control accounts

SUBSIDIARY LEDGER – ledger for sub-accounts

supporting the control accounts (Accounts
receivable subsidiary ledgers; Accounts payable
subsidiary ledgers)
The Accounting Cycle
3. POSTING (General Ledger)
General Journal
DATE PARTICULARS PR DEBIT CREDIT
08.18.2020 Cash 110 P 100,000
Payabyab, Capital 310 P 100,000

General Ledgers

Account Name: CASH Account No. 110

DATE PARTICULARS PR DEBIT CREDIT BALANCE
08.18.2020 Cash investment GJ1 P 100,000 - P 100,000

Account Name: PAYABYAB, CAPITAL Account No. 310

DATE PARTICULARS PR DEBIT CREDIT BALANCE
08.18.2020 Cash investment GJ1 - P 100,000 P 100,000
The Accounting Cycle
3. POSTING (Subsidiary Ledgers)
General Journal
DATE PARTICULARS PR DEBIT CREDIT
08.18.2020 Accounts receivable 120 P 100,000
Service Income 410 P 100,000

08.20.2020 Accounts receivable 120 150,000

Service Income 410 150,000

General Ledgers

Account Name: Accounts receivable Account No. 120

DATE PARTICULARS PR DEBIT CREDIT BALANCE
08.18.2020 GJ1 P 100,000 - P 100,000
08.20.2020 GJ1 150,000 250,000

Name of Customer: Mr. Kuh Langot Account No. 120-01

DATE PARTICULARS PR DEBIT CREDIT BALANCE
08.18.2020 GJ1 P 100,000 P P 100,000

Name of Customer: Ms. Sisi Poon Account No. 120-02

DATE PARTICULARS PR DEBIT CREDIT BALANCE
08.20.2020 GJ1 P 150,000 P P 150,000
The Accounting Cycle
4. PREPARATION OF THE UNADJUSTED TRIAL BALANCE

- List of ledger accounts with open balances

- To check the equality of debits and credits
- Ledger accounts with open balances are listed in
the following order:
Assets (including contra-assets)
Liabilities
Capital
Drawing/ Personal
Income
Expense