ACCOUNTING REVIEWER - MIDTERM
ANALYZING BUSINESS TRANSACTIONS
BUSINESS TRANSACTIONS
Initial Capital
Investment
Additional investment
Loan borrowings
Acquisitions of Land,
Property, and
Equipments
Purchases by cash
Purchases by credit
Sales by Cash
Sales by Credit
Payments of Expenses
Taxes, Salaries
Utilities(water, elec, tel)
Supplies, Repairs and
Maintenance
Insurance, Interest
Miscellaneous(small
amt)
Payment of Loans
(Principal & Interest)
Collections
Issuance of supplies
and materials
Personal withdrawals
Bank deposits
Bank withdrawals
Sale of old assets
Sale of shares of
stocks
Declaration & payment
of dividends
Adjustments
Rendering services
Grants, Aid, Donations
Solicitation,
Sponsorships
BUSINESS TRANSACTIONS
SOURCE DOCUMENTS EXTERNAL - exchanges of economic resources by a
Official Receipt - OR business enterprise with another business enterprise
or seller and customer business activities
Official Receipt - OR
OR, Loan Contract, INTERNAL - transactions or events that happened
Promissory Note within the business enterprise only. Like: conversion
Supplier’s Invoice, Purchase of raw materials to finished goods, depreciation of
Order, Purchase PPE
Requisitions, Quatation/bids
Supplier’s Cash/Invoice, PO,
PR, Check Voucher, Cheque
CAPITAL ACCOUNT
Supplier’s Sales/Charge DECREASE INCREASE
invoice, PO, PR  Withdrawals  Initial and
Cash Invoice  Expenses additional
 Net Loss capital
Sales/Charge Invoice  Dividends investment
 Revenues
 Net Income
BIR Forms, Check Voucher,
cheque, payroll, DTR
Bills, CV, cheque
EFFECTS OF BUSINESS TRANSACTIONS
Statement of Account,
supplier’s invoice, petty cash A Increase in Asset, Increase in Capital (Equity)
voucher, proof of payment
SOA, CV, Cheque
B Increase in Asset, Increase in Liability
Petty Cash Voucher, cheque,
C Increase in Asset, Decrease in another Asset
bills
D Decrease in Asset, Decrease in Liability
SOA, CV, Cheque
OR, SOA
E Decrease in Asset, Decrease in Capital
Material Issuance Slip
CV, PCV, Cheque,
F Increase in Liability, Decrease in another
Withdrawal Slip
Liability
Validated Deposit Slip
Validated Withdrawal Slip G Increase in Liability, Decrease in Capital
OR, Approved list for
diposals H Increase in Capital, Decrease in Liability
OR
CV, cheque, BOD’S approval I Increase in Asset, Increase In both Liability
and Capital
Journal Voucher, JV,
Credit/Debit memo
Professional bill, SOA, OR
OR
OR, CV, Cheque, approved
solicitation letter
SIMPLE TRANSACTIONS
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 ACCOUNTING REVIEWER - MIDTERM

1.Mr. Miranda the owner of the business invested 1. The owner invests additional capital for
P500,000 to start a new business business expansion amounting P1,000,000.
2. Sold merchandise to cash customers,
Analysis: amounting P10,000
3. Paid suppliers for the accounts due,
 Increase in Assets which is cash
amounting P5,000
500,000
4. Received cash from customers for the
 Increase in Capital which is Miranda Equity
payment of their accounts, amounting
or capital 500,000
P8,000
2.Purchased supplies from supplier (on credit) on
account 20,000

Analysis:
 Increase in Assets which is supplies
20,000
 Increase in Liabilities which is Accounts
Payable 20,000

3.Sold merchandise to customers (on credit) on

account

Analysis:
 Increase in Assets which is Accounts
Receivable
 Increase in Capital which is Sales – an
income that will increase Capital

LIST OF BUSINESS TRANSACTIONS

INFLOWS OUTFLOWS

 Initial Capital  Cash Purchases

Investment  Credit Purchases
 Additional  Payment of Loan
Capital  Payment of
Investment accounts
 Cash Sales  Acquisitions of
 Credi Sales fixed assets
 Collections-  Payment of
receivables expenses
 Loan  Replacement of
borrowings old assets
 Sale of old  Payment of
assets dividends
 Cash Deposits  Personal
 Interest income withdrawals
from bank  Declaration if
deposits dividends
 Govt grants and  Bank withdrawals
subsidies  Depreciation &
 Donation amortization

EXAMPLES:

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 ACCOUNTING REVIEWER - MIDTERM

1. Amounts entered on the left side of the
account, regardless of the account tile,
are called credits or charges to the
account. - FALSE
2. If the equipment costing P93,000 is
bought by paying P30,000 as a down
payment and the remaining P63,000 in
30 days, owner’s equity is increased by
93,000. - FALSE
3. A credit signifies increases in liabilities,
capital, and revenues, and decreases in
assets, withdrawals, and expenses. -
TRUE
4. The double-entry system means that
transactions are recorded both in the
journal and the ledger. - TRUE
5. Accrued rent expense is referred to as a
a “temporary account”. - FALSE
The company collected in full account receivable.
Considering this transaction alone, then – Total
assets will remain the same
In the accounting equation, an increase in asset can
be associated with – Increase in Liabilities
A P200,000 machine is purchased by paying P50,000
cash and issuing a promissory note for the remainder.
The journal entry should include – Credit to Notes
Payable
The chart of accounts is a table of contents for a –
Ledger
Which of the following gives the correct sequence of
accounting procedures? – Journal, Ledger, Trial
Balance, Financial Statements

A common business transaction that would not affect

the amount of owner’s equity is – Signing a note
A – Increase in Asset = Increase in Owner’s
payable to purchase equipment
Equity
B – Increase in Asset = Increase in Liability
Which of the following would typically be considered a
C – Increase in Asset = Decrease in Another
source document? – Invoice received from seller
Asset
D - Decrease in Asset = Decrease in Liability
Which of the following is not among the first five steps
E – Decrease in Asset = Decrease in
in the accounting cycle? – Record closing entries
Owner’s Equity
F – Increase Liability = Decrease in another
An accrued expense can be descried as an amount –
Liability
Not paid and matched with earnings for the
X – Answer not given
current period
6. Utilized portion of supplies during the
The debit and credit analysis of a transaction normally
month amounting P2,000. – Decrease
takes place – When the entry is recorded in a
in Asset = Decrease in Owner’s
journal
Equity
DEBIT CREDIT
7. Billed customer for services rendered Mr. Ace invested Cash Ace, Capital
during the month - P8,000. - Increase in Additional capital
amounting P500,000
Asset = Increase in Owner’s Equity Cash purchased Inventory Cash
goods for sale
8. Expired portion of prepaid insurance amounting 100,000
Received Cash Accounts
during the month – P2,000. – Decrease sales of P30,000 Receivable
in Asset = Decrease in Owner’s and credit sales of
5,000 during the day
Equity Billed customers for Prepaid Expense Cash
the services
9. Depreciation of office equipment during rendered 8,000
Cost of goods sold Accounts Payable Notes Payable
the month – P7,000. – Decrease in in making the above
Asset = Decrease in Owner’s Equity sales 22,000

10. Ordered supplies for next week delivery

amounting P9,000. - Answer not given

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 ACCOUNTING REVIEWER - MIDTERM

RULES OF DEBIT AND CREDIT Double-entry system

What are Debits and Credits?  Every business transaction affects at least
two accounts (refer to the company’s chart of
Debere - “to owe”. accounts)
Credere - “to believe”  every business transaction is recorded in two
columns (sides) with at least two accounts.
Debits  One account will receive a “debit” entry,
meaning the amount will be entered on the
 represent increases in value of assets and left column or side of that account.
expenses and decreases in income,  Another account will receive a “credit” entry,
liabilities and equity meaning the amount will be entered on the
 refers to the left side of a general ledger right column or side of that account.
account  More than two accounts can be used if the
transaction is spread among them
Generally these types of accounts are increased  The initial challenge with double-entry
with a debit: accounting is to know which account should
Dividends (Draws) be debited and which account should be
Expenses credited.
Assets
 The double entry accounting system
Losses
provides a system of checks and balances.
 Thus, the use of debits and credits in a two-
Credits
column transaction recording format is the
 represent increases in liabilities, equity most essential of all controls over accounting
and income and decreases in assets and accuracy.
expenses
 refers to the right side.

Generally these types of accounts are increased

with a credit:
Gains
Income
Revenues
Liabilities
Stockholder’s(Owner’s) Equity

Debits and Credits in Common Accounting

Transactions

DEBIT CREDIT
Sale for cash Cash account Sales revenue
Sale on credit Accounts Sales revenue
receivable
Receive cash in
payment of an Cash Accounts
account receivable
receivable
Purchase
supplies from Supplies Cash
supplier for cash
Purchase
supplies from Supplies Accounts payable
supplier on credit
Purchase
inventory from Inventory Cash
supplier for cash
Purchase
inventory from Inventory Accounts payable

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 ACCOUNTING REVIEWER - MIDTERM

supplier on credit
Pay salaries of Wages expense Cash
employees and payroll
Take out a loan or
borrowing from Cash Loans payable
bank
Repayment a
loan Loans payable Cash
Made cash
withdrawal for Withdrawals Cash
personal use

What Is An Account?

 To keep a company’s financial data

organized, accountants developed a system
that sorts transactions into records

Chart of Accounts

 When a company's accounting system is set

up, the accounts most likely to be affected by
the company’s transactions are identified
and listed out
 Depending on the size of a company and the
complexity of its business operations, the
chart of accounts may list as few as thirty
accounts or as many as thousands.
 A company has the flexibility of tailoring its
chart of accounts to best meet its needs.
 Within the chart of accounts the balance
sheet accounts are listed first, followed by
 the income statement accounts. In other
words, the accounts are organized in the
chart of accounts as follows:

 Assets
 Liabilities
 Capital/Owner’s
(Stockholder’s) Equity
 Revenues or Income
 Expenses
 Gains
 Losses

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 ACCOUNTING REVIEWER - MIDTERM
A ledger is where the company initially records
transactions and selected other events – FALSE
Nominal (temporary) accounts are revenue,
expense, and dividend accounts and are
periodically closed. – TRUE
Real (permanent) accounts are revenue,
expense and dividend accounts and are
periodically closed. – FALSE
An example of an internal event would be a
flood that destroyed a portion of a companies
inventory. – FALSE
All liability and stockholders equity accounts are
increased on the credit side and decreased on
the debit side. – FALSE
In general, debits refer to increases in account
balances and credits refer to decreases. – FALSE
The first step in the accounting cycle is the
journalizing of transactions and selected other
events – FALSE
One purpose of a trial balance is to prove that
debits and credits of an equal amount are in the
general ledger – TRUE
A general journal chronologically lists
transactions and other events, expressed in
terms of debits and credits to accounts. – TRUE
If a company fails to post one of its journal
entries to its general ledger, the trial balance
will not show an equal amount of debit and
credit balance accounts. – FALSE
adjusting entries for prepayments record the
portion of the prepayment that represents the
expense incurred or the revenue earned in the
current accounting period – TRUE
an adjustment for wages expense, earned but
unpaid at year end, is an example of an accrued
expense – TRUE
the book value of any depreciable asset is the
difference between its cost and salvage value –
FALSE
the ending retained earnings balance is
reported on both the retained earnings
statement and the balance sheet. – TRUE
the post closing trial balance consists of asset,
liability, owners equity, revenue and expense
accounts – FALSE
all revenues, expenses and dividends accounts
are closed through the income summary
account – FALSE
its not necessary to post the closing entries to
the ledger accounts because new revenue and
expense accounts will be opened in the
subsequent accounting period – F
the accrual basis recognizes revenue when
earned and expenses in the period when cash is
paid – F
reversing entries are made in the end of the
accounting cycle to correct errors in the original
recording of transactions – F
an adjusted trial balance that shows equal debit
and credit columnar totals proves the accuracy
of the adjusting entries - F
a trial balance
1)proves that debits and credits are equal in the
ledger
2) supplies a listing of open accounts and their
balances that are used in preparing financial
statements
3) normally prepared three times in the
accounting cycle
goodwill and accounts receivable are examples
of _________ accounts – real (permanent)
salary expense is a _______ account - nominal
(temporary)
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 ACCOUNTING REVIEWER - MIDTERM

nominal accounts are also called - temporary

accounts

the double entry accounting system means - the

dual effect of each transaction is recoded with a
debit or a credit

when a corporation pays a note payable and

interest - they will debit notes payable AND
interest expense

stockholders equity is NOT affected by - cash

receipts

the debit and credit analysis of a transaction

normally takes place - before an entry is
recoded in a journal

the accounting equation must remain in balance

_____ - throughout each step in the accounting
cycle

an optional step in the accounting cycle is the

preparation of - post closing trial balance

a general journal ____ - chronologically lists

transactions and other events,
expressed in terms of debits and credits
a journal entry to record the sale of inventory
on account will include a _____ - debit to
accounts receivable

a journal entry to record a payment on account

will include a - debit to accounts payable

a journal entry to record a receipt of rent

revenue in advance will include ______ - a
credit to unearned rent