Professional Documents
Culture Documents
Module 2
Module 2
Module 2
I. Learning Objectives
II. Introduction
CLO 1. Identify how accounts, debits, and credits are used to record business transactions.
u Record of increases and decreases in a specific asset, liability,
The owners’ equity, revenue, or expense item.
The Account
Account u Debit = “Left”
Record of increases and decreases
u Creditin= a specific asset, liability, owners’ equity,
“Right”
revenue, or expense item.
Debit = “Left”
Credit = “Right”
Account Name
An account can be Debit / Dr. Credit / Cr.
illustrated in a T-
account form.
Double-entry system
Each transaction must affect two or more accounts to keep the basic accounting
equation in balance.
Recording done by debiting at least one account and crediting at least one other
account.
DEBITS must equal CREDITS.
25
If the sum of Debit entries are greater than the sum of Credit entries, the account will have a debit
balance.
If the sum of Debit entries are greater than the sum of Credit entries, the account will have a
debit balance.
Account Name
Debit / Dr. Credit / Cr.
Transaction #1 $10,000 $3,000 Transaction #2
Transaction #3 8,000
If the sum of Credit entries are greater than the sum of Debit entries, the account will have a
credit balance. LO 1
Account Name
Debit / Dr. Credit / Cr.
Transaction #1 $10,000 $3,000 Transaction #2
8,000 Transaction #3
Balance $1,000
Normal Balance
Normal Balance
Chapter
3-23
Excerpts from 2015 John Wiley & Sons, Inc.
Chapter
3-24
Debits
Owner’s investmentsand Credits
and revenues increase owner’s equity (credit). Owner’s drawings and
expenses decrease owner’s equity (debit).
Helpful Hint Because
Owner’s Equity revenues increase owner’s
Debit / Dr. Credit / Cr.
equity, a revenue account
has the same debit/credit
rules as the Owner’s
Capital account. Expenses
have the opposite effect.
Normal Balance
Chapter
3-25
Chapter Chapter
3-25 3-23
The purpose of earning revenues is to benefit the owner(s). The effect of debits and credits on
revenue accounts is the same as their effect on Owner’s Capital. Expenses have the opposite
effect: expenses decrease owner’s equity.
Revenue Expense
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.
Chapter Chapter
Debits/Credits Rules
3-26 3-27
Liabilities
Normal Normal
Debit / Dr. Credit / Cr.
Balance Balance
Debit Credit Normal Balance
Assets Chapter
3-24
Owner’s Equity
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-23
Expense Chapter
3-25
Revenue
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-27 Chapter
3-26
LO 1
Debits/Credits Rules
= Liability + Equity
Income Statement
Revenue - Expense
Debit
equity of a business:
Relationship among the assets, liabilities and owner’s equity of a business: IllustrationLO
2-11
1
Basic
Equation Assets = Liabilities + Owner’s Equity
Expanded
Equation
Debit/Cred
it Effects
TheThe equation
equation must be in must be in
balance after balance
every after
transaction. Total every
Debits must equal total
transaction. Total Debits must equal total Credits.
Credits.
Business documents, such as a sales slip, a check, or a bill, provide evidence of the
transaction.
The Journal
o Helps to prevent or locate errors because the debit and credit amounts can be
easily compared.
Chart of Accounts
The chart of accounts is a listing of all accounts used in the general ledger of an
organization. The chart is used by the accounting software to aggregate information into
an entity's financial statements . The chart is usually sorted in order by account number,
to ease the task of locating specific accounts. The accounts are usually numeric, but can
also be alphabetic or alphanumeric.
Accounts are usually listed in order of their appearance in the financial statements, starting
with the balance sheet and continuing with the income statement.
ASSETS
Account No.Account Title
100 Cash
101 Accounts Receivable
102 Notes Receivable
103 Saloon Supplies
104 Prepaid Rent
105 Prepaid Interest
110 Equipment - Saloon
111 Accumulated Depreciation - Equipment
LIABILITIES
200 Notes Payable
201 Accounts Payable
202 Salaries & Wages Payable
OWNER'S EQUITY
300 Casabuena's, Capital
301 Casabuena's, Drawing
302 Income Summary
REVENUES
400 Service Revenues
EXPENSES
500 Salaries & Wages Expense
501 Rent Expense
502 Advertising Expense
503 Utilities Expense
504 Interest Expense
505 Depreciation Expense
506 Saloon Supplies Expense
Entry, in chronological order. It is a process initiated each time a transaction occurs. It is the crucial
first step in the accounting cycle. Journal entries serve as the building blocks for your
financial records, so it’s important to stay on top of them.
August 3. Purchase of Equipment for Cash. BeBe Saloon purchases saloon equipment for
Php 70,000 cash.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 3 Equipment - Saloon 110 70,000.00
Cash 100 70,000.00
To record purchase of saloon equipment for cash.
August 5. Purchase of Supplies on Credit. BeBe saloon purchases Php16,000 worth of beauty
care supplies on credit/account. (Asset Method was used, it will be discuss thoroughly in
Module 2)
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 5 Saloon Supplies 103 16,000.00
Accounts Payable 201 16,000.00
To record purchase of saloon supplies on credit.
August 6. Services performed for Cash. BeBe Saloon receives Php12,000 from customers for
services performed.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 6 Cash 100 12,000.00
Service Revenues 400 12,000.00
To record services rendered for cash.
August 7. Purchase of Advertising on Credit. BeBe saloon receives a bill for Php2,500 from
DYBZ which enters an agreement to air the saloon business from the opening of the saloon.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 7 Advertising Expense 502 2,500.00
Accounts Payable 201 2,500.00
To record advertising of saloon business.
August 10. Services performed for Cash and Credit. BeBe saloon performs Php35,000 for
services to De la Torre and Vinzon wedding. Php15,000 down payment and the balance on
account.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 10 Cash 100 15,000.00
Accounts Receivable 101 20,000.00
Service Revenues 400 35,000.00
To record services performed.
August 15. Obtained a loan from bank. BeBe saloon enters an agreement to loan from PNB,
face value of the note - Php50,000 with a term of 1 year at 18% interest in advance. (Expense
Method in recording prepaid interest, and it will discuss thoroughly n Module 3)
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 15 Cash 100 41,000.00
Interest Expense 504 9,000.00
Notes Payable 200 50,000.00
To record the proceeds of bank loan.
August 15. Payment of Expenses. BeBe saloon pays the following in cash: office rent
Php18,000 for three months, salaries and wages Php9,000, and utilities Php2,000. (Expense
Method was used in recording prepaid rental, and it will discuss thoroughly in Module 3)
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 15 Rent Expense 501 18,000.00
Salaries & Wages Expense 500 9,000.00
Utilities Expense 503 2,000.00
Cash 100 29,000.00
To record payment of expenses.
August 17. Payment of Accounts Payable. BeBe saloon pays Php2,500 DYBZ for the balance
(in August 7 transaction).
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 17 Accounts Payable 201 2,500.00
Cash 100 2,500.00
To record payment of account payable to DYBZ.
August18. Receipts of Cash on Account. BeBe saloon receives Php6,000 in cash from
Vinzon (in August 10 transaction).
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 18 Cash 100 6,000.00
Accounts receivable 101 6,000.00
To record cash collections.
August 20. Withdrawal of Cash by Owner. Casabuena withdraws Php13,000 in cash from the
business for personal use.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 20 Casabuena's, Drawing 301 13,000.00
Cash 100 13,000.00
To record withdrawals for personal use.
August 25. Services performed for a promissory note. BeBe Saloon perform services
amounting to Php12,000 for a non-interest bearing note.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 25 Notes Receivable 102 12,000.00
Service Revenues 400 12,000.00
To record service rendered for a non-interest bearing note.
August 27. Partial collections of notes receivable. BeBe Saloon collect Php8,000 for the
services rendered last August 25.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 27 Cash 100 8,000.00
Notes Receivable 102 8,000.00
To record partial collections of non-interest bearing note.
August 29. Return of Purchased Supplies on Credit. BeBe saloon returned Php1,000 worth of
beauty care supplies on purchased last August 5 and received debit memo from the supplier.
GENERAL JOURNAL
DATE ACCOUNT TITLE Ref. Debit Credit
August 29 Accounts Payable 201 1,000.00
Saloon Supplies 103 1,000.00
To record return of saloon supplies.
CLO 3. Explain how a ledger and posting help in the recording process.
The Ledger. A ledger is a book containing accounts in which the classified and summarized
information from the journals is posted as debits and credits. It is also called the second book
of entry.
The ledger contains the information that is required to prepare financial statements. It
includes accounts for assets, liabilities, owners’ equity, revenues and expenses. This complete
list of accounts is known as the chart of accounts. The ledger represents every active account
on the list.
A general ledger is used by businesses that employ the double-entry bookkeeping method,
which means that each financial transaction affects at least two general ledger accounts and
each entry has a debit and a credit transaction. Double-entry transactions are posted in two
columns, with debit postings on the left and credit entries on the right, and the total of all
debit and credit entries must balance. General Ledger contains all the asset, liability, and
owner’s equity accounts.
POSTING. It is the act of moving debit and credit account balances from individual
journals to their corresponding ledgers. These ledgers are later used to create a trial
balance used to generate the income statement, balance sheet, and other financial
statements. In this step of the accounting cycle an accountant takes total credits and debits
recorded in categorized sub-ledgers and posts them into the general ledger to be used for
official accounting statements. Transferring journal entries to the ledger accounts.
For further discussions, we will be using account form in posting journal entries to the
general ledger.
TRIAL BALANCE. A trial balance is a list and total of all the debit and credit accounts for
an entity for a given period – usually a month. The format of the trial balance is a two-
column schedule with all the debit balances listed in one column and all the credit balances
listed in the other. The trial balance is prepared after all the transactions for the period have
been journalized and posted to the General Ledger.
Key to preparing a trial balance is making sure that all the account balances are listed under
the correct column. The appropriate columns are as follows:
Note: All the Account Title and corresponding amount were taken from the general
ledger. The balances of the accounts whether debit or credit balance reflected in the trial
balance is reflected to their normal balances (Assets is Debit, Contra-Asset is Credit,
Liabilities is Credit, Revenue is Credit, Expenses is Debit, Owner’s Capital is Credit, and
Owner’s Drawing is Debit).
MUST DO 1. (CLO 1). Interview one of the businesses operating within your locality and
ask the owner(s) if records are maintained of the business transactions that occurred in the
business. (Yes or No answer)
After the interview, collate all the information and complete the KWL chart below. In the
first column, write what you already know about the topic. In the second column, write what
you want to know about the topic and in the Third column, write what you learned from the
topic.
MUST DO 2. (CLO 2) Fretz Abkilan engaged in the following activities in establishing her
tailoring shop:
1. Opened a bank account in the name of Tailor’s Shoppe and deposited Php 120,000 of
her own money in this account as her initial investment.
2. Purchased sewing machine on account (to be paid in 30 days) for a total cost of
Php15,000.
3. Interviewed three persons for the position of sewer.
Prepare the entries to record the transactions.
MUST DO 3. (CLO 3) From the data in MUST DO 2 above, post the entries in T-Account as
shown in The Recording Process Illustrated.
MUST DO 4. (CLO 4)
The following accounts were taken from the ledger of Artesano’s Best & Wear Shop at
December 31, 2019
127 Equipment Php352,000 301 Artesano’s, Capital Php 80,000
306 Artesano’s, Drawings 32,000 201 Accounts Payable 88,000
211 Salaries & Wages Payable 8,000 200 Notes Payable 76,000
702 Utilities Expense 12,000 701 Salaries & Wages Expense 168,000
112 Accounts Receivable 16,000 400 Service Revenue 380,000
130 Prepaid Insurance 24,000 101 Cash 28,000
Prepare a trial balance in good form.
August 3 – Paid P1,200 cash to a local newspaper for advertising the opening of the shop.
August 4 – Purchased P2,500 office supplies, P3,000 clothing materials & supplies, and
P12,000 office equipment from Tuazon Supply Trading on credit.
August 10 – Completed sewing services to Angel Marie Vestido for weeding gown and billed
P12,000.
August 17 – Paid Tuazon Supply trading for the items purchased in August 3.
August 19 – Received a check from Angel Marie Vestido as full payment of her account.
August 21 – Yra Telebrico withdrew P8,000 from the business for her personal use.
August 22 – Performed sewing services to Jaira Villa for the tailoring the gown to be used in
her debut and billed P15,000.
August 24 – Purchased P3,000 clothing materials and supplies on account to Vinzon Clothing
Supplies Trading.
August 25 – Received and paid utility bills (electricity and water) , P1,000.
August 29 – Paid P15,000 for a 3 months rental. The building premises were occupied on the
start of business, August 1.
Required:
1. Make a Chart of Accounts
2. Journalize each transaction using the general journal. In journalizing use a 2-column
columnar pad.
3. Post the Journal Entry in requirement no.2 to the general ledger. In posting use as Index
Card for each account to be made as ledger.
4. Prepare a Trial Balance on August 31, 2020. In preparing a Trial Balance use a 2-column
columnar pad.