MALANDAG NATIONAL HIGH SCHOOL

LEARNING ACTIVITY SHEET 1 - QUARTER 4

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 1

Name: __________________________________________ Date: ____________________

Grade & Section: _________________________________ Score: _____________________

BUSINESS TRANSACTIONS AND THEIR ANALYSIS AS APPLIED TO

ACCOUNTING CYCLE OF A SERVICE BUSINESS (Part 1)
Learning Activity Title

LEARNING COMPETENCY WITH CODE:

1. Analyze common business transactions using the rules of debit and credit.
(ABM_FABM11-IIIg-j-28)
2. Solve simple problems and exercises in the analyses of business transaction.
(ABM_FABM11-IIIg-j-28)

BACKGROUND INFORMATION FOR LEARNERS:

A. THE THEORY OF DEBIT AND CREDIT
 The term DEBIT refers to the left-hand side and CREDIT refers to the right-hand side of
the accounting equation. Example, if the left weighs 75 kilos the right side must also weighs
75 kilos. If it happens to be a “seesaw”, it is in the state of equilibrium.
 The words Debit and Credit came from the Latin words “debere” and “credere”. The
former is abbreviated as Dr. and the latter as Cr.

B. THE RULES OF DEBIT AND CREDIT

 The accounting equation, A = L + OE has developed the rules to be followed. The equation
stands for the “nominal balances” or “increase sides” in each of the accounting elements.
 Normal Balances refers to the increase sides of the accounts which may either be a debit
or a credit. To illustrate:

PERMANENT ACCOUNTS

Take note:
 Factors that will cause the “Owner’s Equity” to increase are Investment by owner and
Revenues.
 Factors that will cause the “Owner’s Equity” to decrease are Withdrawals by owner and
Expenses.

DRAWING OR PERSONAL the reduction of an Owner’s Equity account arising from cash or
property withdrawal of an owner is not debited to Owner’s Equity account to effect the decrease
but instead debited to “Drawing Account”. The debit to drawing account increases the said account
with corresponding decrease in owner’s equity.

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 TEMPORARY ACCOUNTS

Take note:
 INCOME OR REVENUE are all income earned of the same nature are summarized in this
account.
 EXPENSES are all expenses incurred of the same nature are summarized in this account

To recapitulate the developed rules of debit and credit are again restated as follows:

C. WHAT ARE BUSINESS TRANSACTIONS?

 Business activities are said to be accountable and are called business transactions when
they affect the assets, liabilities and owner’s equity or we termed as accounting
elements or accounting values.
 Business transactions are exchanges of equal monetary values. This definition implies the
following concept of understanding:
 For every value received, another value is given away as an exchange;
 These values are measured in terms of pesos which are presumed to be equal.

Debit, Value Received = Credit, Value Parted With

D. ANALYSIS OF BUSINESS TRANSACTIONS

 Business transactions are analyzed from the point of view of the business.
 If the transaction is “Purchased” or “Bought”, it is the business that is buying.
 If the transaction is “Sold”, it is the business that is selling.
 If the transaction is “Paid”, it is the business that is paying.
 If the transaction is “Collected”, it is the business that is collecting.
 If the transaction is “Rendered Services”, it is the business that is rendering services.
 “Always consider yourself as the business” when making the analysis.
 The value received or DEBIT should first be determined before the value parted with or
CREDIT.
 Example:
“If I’ll give you a ball pen and you will give me a piece of paper in return as an exchange,
can you determine the value received and value parted with?
Answer: “Debit, ball pen and Credit, a piece of paper”

“If I’ll give you a an eraser and you will give me a piece of chalk in return as an
exchange, can you determine the value received and the value parted with?
Answer: “Debit, eraser and Credit, a piece of chalk”

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E. THE T-ACCOUNT
 The effect of changes in Assets, Liabilities, and Owner’s Equity are being summarized in an
accounting device called “T-account”. This device will group these accounting values with
their amounts belonging to one item only.
 An account is divided into two sides. The left-hand side which is called the debit side
(shows the value received) and the right-hand side which is called the credit side
(shows the value parted with).
 The device is commonly called T-account because it resembles a capital letter “T”.
 The amount entered on the left-hand side of the account is called a Debit Entry while the
amount entered on the right-hand side is called a Credit Entry.
 Shown below is the formation of an Account.

F. THE ACCOUNT BALANCES

 The difference between the debit total and credit total of an account is called an Account
Balance.
 If the total of the debit side exceeds the total of the credit side, the account is said to
be in a Debit Balance.
 If the total of the credit sides exceeds the total of the debit side, the account is said
to in a Credit Balance.
 If the debit total equals with that of the credit total, the account is said to be in In-
Balance or Closed Account.
 To illustrate:
Case 1: Let us assume, Cash account has the following debit and credit entries

Case 2: Let us assume, Accounts Payable has the following debit and credit
entries.

G. APPLICATION TO THE RULES:

Using the problem “Clean and Dry Laundry Services”, the application to the rules of debit
and credit are illustrated by using the T-account.

Assets are represented by Cash, Laundry Equipment and Supplies Inventory

Liability is represented by Accounts Payable
Owner’s Equity is represented by Josephine Rosete, Capital
Drawing is represented by Josephine Rosete, Drawing
Income is represented by Laundry Income
Expenses is represented by Salaries Expenses

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EXERCISES:
Direction: Using the same problem above, continue to solve the following transactions using the
rules of debit and credit. Analyze the problem carefully.

Transaction No 3: Bought shop supplies inventory on credit.

Transaction No 4: Josephine Rosete, withdrew cash of P10,000.00 from her business for
personal use.
Transaction No. 5: Received Cash of P60,000.00 for services rendered to customers.
Transaction No. 6: Paid salaries to employees, P15,000.00.

ANSWER KEY:

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 Shown below are the debit and credit balances of each account. They are “in-balance”.

ASSESSMENT:
A. Written Work: TRUE or FALSE
Direction: Choose the letter of the correct answer in each of the given question. Write your
answer on the space provided before the number.

_____ 1. A debit entry signifies an increase in –

a. revenue b. owner’s equity c. assets d. liability
_____ 2. The accounts that are used to effect reduction of capital other than drawings are __.
a. income and expenses c. only expenses
b. only income d. all of the above

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 _____ 3. An account is said to have a debit balance when –
a. total debit and total credit are equal c. total debit exceeds total credit
b. total credit exceeds to tal debit d. they are “in balance”
_____ 4. A liability account has a normal balance of a ---
a. debit balance b. credit balance c. debit entry d. credit entry
_____ 5. “Debere” and “Credere” are taken from ---
a. Japanese words b. Greek words c. Latin words d. Arabic words
_____ 6. The left-hand side of an account refers to ---
a. debit side b. credit side c. increase side d. decrease side
_____ 7. A credit entry may signify an increase in ---
a. asset b. drawing c. owner’s equity d. expense
_____ 8. A debit entry may signify a decrease in ---
a. asset b. liability c. expense d. drawing
_____ 9. When a customer’s account is collected in full ---
a. total asset increases c. total asset remained the same
b. total asset decreases d. none of these
_____ 10. A credit entry may signify a decrease in ---
a. revenue b. expense c. owner’s equity d. liability

B. Performance Task
Direction: Analyze the following business transactions. Solve the transactions using the
rules of debit and credit. Follow the format below. Write your answer in a YELLOW paper.
Observed neatness in your output.
Transaction No:
Analysis:
Rule:
T-account

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 The narrative transactions of Davao Auto Repair Services for the month of January 2021 are
shown below:

Jan 1 Mr. Al Marcus Suelan made a cash deposit with Allied Banking Corporation in the
amount of P300,000.00 to start with his auto repair shop business which he
registered with the Department of Trade and Industry under the trade name Davao
Auto Repair Services. (At this point, an entity Davao Auto Repair Services was
created separate and distinct from the owner, Al Marcus suelan.)
Jan 1 Bought 2 units of Hobart Welding Machine, P120,000.00. Paying P100,000.00min
cash and the balance is on account (utang).
Jan 1 Payment of property insurance covering the period from Jan 1, 2021 to Jan 1, 2022
in the amount of P13,800.00
Jan 1 Paid advance rental from the period January 1, 2021 to January 1, 2022 in the
amount of P24,000.00
Jan 2 Paid cash to Department of Trade and Industry for the registration fee and other
taxes and licenses to the city government, P5,600.00
Jan 5 Rendered repair services for cash, P51,000.00
Jan 6 Bought various shop supplies inventory for cash, P25,000.00
Jan 10 Rendered repair services on account to the customers, P38,000.00
Jan 19 Collected P30,000.00 from customer’s account.
Jan 21 Received cash of P5,000.00 for services not yet rendered.
Jan 23 Services rendered to customers on account, P53,000.00
Jan 24 Partial payment of 2-units Hobart welding machine of P18,000.00
Jan 27 Mr. A. Suelan withdrew cash from his capital in the amount of P10,000.00.
Jan 31 Paid salaries to mechanics and shop helpers for the month of January 2021,
P25,000.00

REFERENCES:
Lopez, R. M. (2017). Fundamentals of Accountancy, Business, and Management 1 (Vol. 2).
Davao, Philippines: MS LOPEZ Printing and Publishing, p. 104-110 and 123-134
Salazar, D. R. (2017). Fundamentals of Accountancy, Business, and Management 1 (First ed.).
Manila, Phillipines: Rex Book Store. Retrieved from www.rexpublishing.com.ph

Prepared by:

RAYMUND A. DELA CRUZ, T-III

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