Step 2.

RECORDING IN THE JOURNAL

To better understand the journal entries, let us discuss the following transactions:
Example: Mr. Omar decided to put up a printing business. Below are the
transactions of the business for its first month of operation.
Feb 1 – Mr. Omar invested P20, 000 to start a printing business.
Feb 2 – The company obtained a loan from a bank, P30, 000.
Feb 4 – The company purchased printers and paid a total of P1, 000.
Feb 5 – Rendered services and received the full amount in cash, P500.
Feb 7 – Rendered services on credit, P750.
Feb 10 – Purchased office supplies on account, P200.
Feb 13 – Had some equipment repaired for P400, to be paid after 15 days.
Feb 16 – Mr. Omar, the owner, withdrew P5,000 cash for personal use.
Feb 20 – Paid one-third of the loan obtained in transaction in Feb 2.
Feb 25 – Received customer payment of P550 from services in transaction in Feb 7.

TRANSACTION NO. 1

DATE PARTICULARS DEBIT CREDIT

2020
Feb 1 Cash P 20, 000
Mr. Omar, Capital P 20, 000
*to record the initial investment of Mr. Omar*

Since there is an increase in cash (cash received as investment from owner) which
normal balance is debit, DEBIT cash and since there is an increase in capital (initial
investment) which normal balance is credit, CREDIT Omar, Capital. You may notice that
for sole proprietorship, the capital account is usually in this format (Name of Owner,
Capital/Equity/)

TRANSACTION NO. 2

Feb 2 Cash P 30, 000

Loans Payable P 30, 000
*to record the loans from bank*

In this transaction, the business borrowed money from the bank. Since there will
be an increase in cash, DEBIT cash. Also, because of the loan, the liabilities of the
company increased. Since the normal balance of liability is credit, CREDIT loans payable.
Take note that loans payable is different from accounts payable. While the former pertains
to obligations arising from borrowed cash, the latter pertains to obligations arising from
purchase of goods or services on account.
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TRANSACTION NO. 3

Feb 4 Office Equipment (printer) P 1, 000

Cash P 1, 000
*to record the purchase of printer*

Both accounts affected in this transaction are assets. Since there is an increase in
the equipment which normal balance is debit, DEBIT office equipment. And because of
the payment made, there is a decrease in cash. Since the normal balance of cash is debit,
we should record it on the opposite side. Hence, CREDIT cash.

TRANSACTION NO. 4

Feb 5 Cash P 500

Service Revenue (Service Fee) P 500
*to record the service rendered to customers
in cash*

Since there is an increase in cash which normal balance is debit, DEBIT cash and
since there is an increase in income which normal balance is credit, CREDIT service
revenue. When recording income service revenue, fee or income are the same. What to
use depends only on the chart of accounts given.

TRANSACTION NO. 5

Feb 7 Accounts Receivable P 750

Service Revenue (Service Fee) P 750
*to record the service rendered to customers
on credit*

This transaction is almost the same as the previous transaction. The only
difference is that, the client has not yet paid the amount, so instead of cash, we DEBIT
accounts receivable.

TRANSACTION NO. 6

Feb 10 Office Supplies P 200

Accounts Payable P 200
*to record the purchase of office supplies on
account*

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 Due to the purchase, there is an increase in asset which normal balance is debit;
thus, DEBIT office supplies. And since it was not yet paid, there will be an increase in
liability which normal balance is credit; thus, CREDIT accounts payable.

TRANSACTION NO. 7

Feb 13 Repairs Expense P 400

Accounts Payable P 400
*to record the repairs of equipment*

The business already incurred the expense even though it was not yet paid. This
is in support of the accrual basis of accounting; thus, the expense needs to be recorded.
Since there is an increase in asset which normal balance is debit; thus, DEBIT repair
expense. And since it was still payable, there is an increase in liability which normal
balance is credit; thus, CREDIT accounts payable.

TRANSACTION NO. 8

Feb 16 Omar, Drawings P 5, 000

Cash P 5, 000
*to record the withdrawal of cash by Mr.
Omar*

This transaction is in support of the business entity concept. The business and the
owner (Mr. Omar) are treated as separate entity. Hence, whenever the owner withdraws
something for personal use, it shall be properly accounted as a withdrawal. Withdrawal
negates capital so its normal balance is debit; thus, DEBIT Omar, Drawings. And since
the owner withdrew cash, the cash account of the business had decreased. Since cash
has a normal balance of debit, CREDIT cash.

TRANSACTION NO. 9

Feb 20 Loans Payable P 10, 000

Cash P 10, 000
*to record the partial payment of bank loan*
P30,000 * 1/3 = P10,000

This transaction is related to a previous one so it is better to look into it for

reference. Since it is a payment of a previous obligation, there is a decrease in liability
which normal balance is credit. Since there is a decrease in liability, DEBIT the loans
payable account. Since there is also a decrease in cash, CREDIT cash.
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TRANSACTION NO. 10

Feb 25 Cash P 550

Accounts Receivable P 550
*to record the cash payment from customer*

TOTAL P 68,400 P 68,400

Since there is a collection of a previously billed account, there is an increase in

cash. Thus, DEBIT cash. Simultaneously, the accounts receivable will be decreased since
the amount was already received. Thus, CREDIT accounts receivable.

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