ICT 141: Principles of Accounting First Semester 2021 -2022

Course Title: Principles of Accounting

I. Module 10: Business Transactions Using Books of Accounts

Estimated Time: 6 hours (Week 13-14)
1) Analyze common business transactions using the rules of debit and credit.
2) Record journal entries.
3) Record transactions in the appropriate ledger accounts using the double-entry bookkeeping
system.

II. Module Introduction/Rationale:

This module introduces you to the rules of debit and credit, recording journal entries and posting
to the ledger accounts.

III. Module Outcomes:

At the end of the topic the students must have:
1) Analyzed common business transactions using the rules of debit and credit.
2) Recorded journal entries.
3) Recorded transactions in the appropriate ledger accounts using the double-entry bookkeeping
system.

IV. Lesson One: Rules of Debit and Credit

V. Lesson Outcomes:
1) Analyze common business transactions using the rules of debit and credit.
2) Recorded journal entries.
3) Recorded transactions in the appropriate ledger accounts using the double-entry bookkeeping
system.

Engage
Do you have an idea what are debits and credits? If yes, can you share your idea? Go to
www.menti.com and use the designated code.

Explore
Click the link https://www.youtube.com/watch?v=Mv-3AJSGGYE

Explain

The Theory of Debits and Credits

An account is an accounting device used in summarizing the changes in assets, liabilities, income
and expenses due to the occurrence of business transactions. The simplest form of the account is the T-
account. It got its name from its structure which is similar to letter T. It is presented below.

Title of the Account

Left Side Right Side

Or Or
Debit side Credit Side

Debits = Credits

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When a transaction occurs, it is recorded by debiting the value received and crediting the value
parted with.

A minimum of two accounts are affected in every business transaction and the sum of the debits
is always equal to the sum of the credits. This method of accounting is known as double-entry
bookkeeping.

Debit and Credit Accounts

The rules of debits and credits and the normal balances of the various accounts are summarized
below:

ACCOUNT NORMAL BALANCE DEBIT CREDIT

Asset Debit Increase Decrease
Liability Credit Decrease Increase
Owner’s Equity or Capital Credit Decrease Increase
Drawing Debit Increase Decrease
Income Credit Decrease Increase
Expenses Debit Increase Decrease

The rules of debits and credits are shown below using T-accounts.

Assets Liabilities Owner’s Equity/Capital

Debit Credit Debit Credit Debit Credit

Increase Decrease Decrease Increase Decrease Increase

Income Expenses Drawing

Debit Credit Debit Credit Debit Credit

Decrease Increase Increase Decrease Increase Decrease

Below is an illustrative problem.

1. Lea invested Php200,000 to a consultancy business.

Cash Lea, Capital

(1) Php200,000 (1) Php200,000

Analysis: Debit: Cash Credit: Capital

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2. Paid Php6,000 for the rental of office space for 1 month

Rent expense Cash

(2) Php6,000 (2) Php6,000

Analysis: Debit: Rent expense Credit: Cash

3. Purchased office equipment Php30,000 and office supplies for the month, Php1,500 on credit
from X Co.

Office Equipment Office supplies expense Accounts Payable

(3) Php30,000 (3) 1,500 (3) Php31,500

Analysis: Debit: Office Equipment Credit: Accounts Payable

Debit: Office Supplies expense

4. Received Php50,000 from clients for services rendered

Cash Service Income

(1) Php200,000 (2) Php6,000 (4) 50,000
(4) Php50,000

Analysis: Debit: Cash Credit: Service Income

5. Paid Php21,000 to X Co.

Accounts Payable Cash

(5) Php21,000 (3) Php31,500 (1) Php200,000 (2) Php6,000

(4) Php50,000 (5) Php21,000

Analysis: Debit: Accounts Payable Credit: Cash

6. Paid clerk Php8,000 representing salary for one month

Salary expense Cash

(6) Php8,000 (1) Php200,000 (2) Php6,000

(4) Php50,000 (5) Php21,000
(6) Php8,000

Analysis: Debit: Salary expense Credit: Cash

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The balances of the accounts are taken by subtracting the two sides (debit and credit of each
account). The resulting amounts are:

Assets:
Cash Php215,000 debit
Office equipment Php30,000 debit

Liabilities:
Accounts Payable Php10,500 credit

Capital:
Lea, Capital Php200,000 credit
Service Income Php50,000 credit
Rent expense Php6,000 debit
Salaries expense Php8,000 debit
Office supplies expense Php1,500 debit

The accounts above with their respective balances may be presented in the equation as follows:

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash Php215,000 Accounts Payable Php10,500 Lea, Capital Php200,000

Office equipment 30,000 Service Income 50,000
Rent expense (6,000)
Salaries expense (8,000)
Office supplies
Expense (1,500)

Total Php245,000 = Php10,500 + Php234,500

Analysis of Transactions

In actual practice, transactions are evidenced by business documents such as sales invoices,
official receipts, cash vouchers, bank deposit slips, etc. Based on these documents, transactions are
analyzed using rules of the debit and credit.

The Journal

A journal is an accounting book wherein business transactions are recorded for the first time. It is
called the book of original entry.

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Journalyzing

The process of recording transactions in a journal is called journalizing.

The Journal Entry

The record of the transaction or event is called the journal entry. In the double-entry method,
each journal entry is composed of two parts, namely, the debit and credit. The two types of journal
entries are:
1. Simple entry which contains one debit and one credit
2. Compound entry which contains
a. One debit and two credits
b. Two or more debits and one credit
c. Two or more debits and two or more credit

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 ICT 141: Principles of Accounting First Semester 2021 -2022

POSTING PROCESS

The Ledger

Each item is represented by an account. Group of related accounts is called a ledger. The
separate accounts in the ledger may be on ledger cards, ledger sheets or bound in book form. All
entries in the journal are ultimately recorded in the ledger. For this reason, the ledger is oftentimes
called the book of final entry.

Relationship between the Journal and the Ledger

1. Information recorded in the ledger always comes from the journal.

2. Information in the journal is grouped according to transactions while in the ledger, by accounts.
3. The journal is a book of original entry while the ledger is a book of final entry.
4. The two records are cross-referenced to each other by the use of the posting reference
columns.

Posting

The process of transferring to the ledger the same information recorded in the journal is called
posting. Debit entries in the journal are transferred to the debit side of the pertinent account in the ledger
and the credit entries are transferred to the credit side of the proper account in the ledger. While there is
no fixed rule of procedure in posting, it is well to bear in mind that to minimize error, any procedure
selected should be followed consistently.

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Posting Illustrated

Transaction: On May 2, 2010, Rose Ann invested Php500,000 cash in a trucking business.

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Elaborate

As a student, what do you think are your debits and credits?

Evaluate
Worksheet No.

Name: ____________________________________________________________
Course, Year and Section:_______________________________ Date: __________

Answer as directed. Write your answer on the space provided.

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 ICT 141: Principles of Accounting First Semester 2021 -2022

Required: Record the following above transactions on a two-column journal using the following accounts:
Cash; Accounts Receivable; Supplies Unused; Prepaid Rent; Equipment; Accounts Payable; Jalea,
Capital; Jalea, Drawing; Service Income; Wages Expense; Taxes and Licenses

References:
• Rabot, Bernabe Donato Jr. and Malco, Ma. Theresa De Francesca. Accounting Skills and
Bookkeeping Principles Workbook for K-12 Senior High School. (2019) Great Books Trading.
• Reyes, Virgilio D. The Fundamentals In Accounting 2018th Edition (2018). GIC Enterprises Co,
Inc
Online References:
https://www.youtube.com/watch?v=Mv-3AJSGGYE

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