Module 3

Fundamentals of
ABM 1
Content standard
The learner demonstrates an understanding of the…
a. two major types of books of accounts, namely, journal and ledger.
b. the business transactions and their analysis, to include definition and
nature of business transactions, types of source or business
documents, and the rules of debits and credits.
PERFORMANCE standard
The learner shall be able to…
a. differentiate a journal from a ledger and identify their types.
b. identify business and nonbusiness transactions
c. enumerate the types of business documents
d. recite the rules of debit and credit
e. apply these to simple cases.
accounting
Accounting as the process of
IDENTIFYING, RECORDING,
and COMMUNICATING economic
events of an organization to
interested users.
Five major accounts
A ssets
L iabilities
O wner’s
R evenue
equity
E xpenses
Five major accounts
A ssetscorporation,
a resource with economic value that an individual,
or country owns or controls with the
expectation that it will provide a future benefit.
reported on a company's balance sheet and are bought or

created to increase a firm's value or benefit the firm's
operations. An asset can be thought of as something that,
in the future, can generate cash flow, reduce expenses, or
improve sales, regardless of whether it's manufacturing
equipment or a patent.
Five major accounts
something a person or company owes, usually a sum
of money.
L iabilities
settled over time through the transfer of economic
benefits including money, goods, or services.
Recorded on the right side of the balance sheet,

liabilities include loans, accounts payable, mortgages,
deferred revenues, bonds, warranties, and accrued
expenses.
Five major accounts
Equity represents the value that would be returned to a
company’s shareholders if all of the assets were liquidated
and all of the company's debts were paid off.
We can also think of equity as a degree of residual

ownership in a firm or asset after subtracting all debts
O wner’s associated with that asset.
Equity represents the shareholders’ stake in the company,

identified on a company's balance sheet.
equity The calculation of equity is a company's total assets minus

its total liabilities, and is used in several key financial ratios
such as ROE.
Five major accounts
Revenue, often referred to as sales, is the income
received from normal business operations and other
business activities.
Operating income is income derived from normal

business operations, such as sales of good or services.
R evenue
Non-operating income is infrequent or nonrecurring
income derived from secondary sources (e.g., lawsuit
proceeds).
Five major accounts
An expense is the cost of operations that a company incurs to
generate revenue.
Businesses can write off tax-deductible expenses on their

income tax returns, provided that they meet the IRS’ guidelines.
Accountants record expenses through one of two accounting

methods: cash basis or accrual basis.
There are two main categories of business expenses in
E xpenses
accounting: operating expenses and non-operating expenses.
The chart of accounts
Assets
Current assets
R evenue
Non-Current assets
L iabilities
Current liabilities
E xpenses
Non-Current liabilities
O wner’s
journal
• A journal is a detailed record of all the transactions done by a business.
• When a journal entry is recorded into a company's journal, it's usually
recorded using a double-entry method, but can also be recorded using a
single-entry method of bookkeeping.
• Journal is also used in the financial world to refer to a trading journal that
details the trades made by an investor and why.
• Book of original entry.
Understanding Journals
• For accounting purposes, a journal is a physical record or digital
document kept as a book, spreadsheet or data within accounting
software. When a business transaction is made, a bookkeeper enters the
financial transaction as a journal entry.
• If the expense or income affects one or more business accounts, the
journal entry will detail that as well. Journalizing is an essential part of
objective record-keeping and allows for concise review and records-
transfer later in the accounting process. Journals are often reviewed as
part of a trade or audit process, along with the general ledger.
Parts of Journals
Code
Particulars Debit Credit

Date Account Titles and Description
ledger
• The general ledger is the foundation of a company's double-entry
accounting system.
• General ledger accounts encompass all the transaction data needed to
produce the income statement, balance sheet, and other financial reports.
• General ledger transactions are a summary of transactions made as
journal entries to sub-ledger accounts.
• The trial balance is a report that lists every general ledger account and its
balance, making adjustments easier to check and errors easier to locate.
What Does a General Ledger Tell
You?
• The transaction details contained in the general ledger are compiled and summarized
at various levels to produce a trial balance, income statement, balance sheet,
statement of cash flows, and many other financial reports. This helps accountants,
company management, analysts, investors, and other stakeholders assess the
company's performance on an ongoing basis.
• When expenses spike in a given period, or a company records other transactions that
affect its revenues, net income, or other key financial metrics, the financial statement
data often doesn't tell the whole story.
• In the case of certain types of accounting errors, it becomes necessary to go back to

the general ledger and dig into the detail of each recorded transaction to locate the
issue. At times, this can involve reviewing dozens of journal entries, but it is imperative
to maintain reliably error-free and credible company financial statements.
Parts of ledger
Cash 101
Particulars Debit Credit Balance

Date Description
Journal
Page
Number
Fundamentals of
ABM 1
Accounting
Service business
cycle
Accounting cycle
JS Photocopying Center
Chart of Accounts
Assets Equity
101 Cash 301 Santos, Capital
112 Accounts Receivable 302 Santos, Drawing
112b Allowance for Doubtful Accounts 399 Income Summary
113 Notes Receivable
114 Interest Receivable
122 Unused Supplies
123 Prepaid Rent Revenues
151 Photocopying Equipment 401 Photocopying Revenues
152 Accumulated Depreciation – Photocopying Equipment 402 Interest Income
153 Furniture and Fixtures 499 Other Income
154 Accumulated Depreciation – Furniture and Fixtures
199 Other Assets
Liabilities Expenses
201 Accounts Payable 501 Taxes and License Expense
202 Notes Payable 502 Salaries Expense
203 Salaries Payable 503 Supplies Expense
204 Income Tax Payable 504 Utilities Expense
205 Interest Payable 505 Rent Expense
208 Unearned Photocopying Revenues 506 Depreciation Expense
212 Mortgage Payable 507 Doubtful Accounts Expense
215 Loan Payable 512 Interest Expense
299 Other Liabilities 599 Other Expense
Nevertheless, transaction analysis only involves three simple
steps. These are:
• Classify whether the transaction is a business or a
nonbusiness transaction. If the transaction is a
nonbusiness, then there is no need to proceed to Step 2.
• Identify the major account/s and the account title/s affected
and the movements with respect to its/their normal
balance/s.
• Determine the amount/s to be debited or credited.
Transaction 1
Mr. Santos invested cash of P10,000 in his business to be known as JS Photocopying Center.
Following the three simple steps, our analysis shall be:
The transaction is a business transaction since it affects the accounting equation.
Assets : Cash (increase)
Equity : Santos, Capital (increase)
P10,000 for Cash, and P10,000 for Santos, Capital
Transaction 2
Mr. Santos invested a photocopying machine amounting to P30,000 (with sales invoice) in his business.
Assets : Photocopying Equipment (increase)
P30,000 for Photocopying Equipment, and P30,000 for Santos, Capital
Transaction 3
Mr. Santos invested the following on his business: Cash, P30,000; and Photocopying Equipment, P30,000 (with sales invoice). In
addition, his Accounts Payable of P50,000 would be assumed by the business.
Assets : Cash, Photocopying Equipment (increase)
Liabilities : Accounts Payable (increase)
P30,000 for Cash; P30,000 for Photocopying Equipment; P50,000 for Accounts Payable and
P10,000 for Santos, Capital
Transaction 4
JS Photocopying Center paid P10,000 for the purchase of bond papers (with sales invoice).
Assets : Unused Supplies (increase) ; Cash (decrease)
P10,000 for Unused Supplies ; P10,000 for Cash
Transaction 5
Mr. Santos hired one personnel with a weekly salary of P1,000 to look after the business (with employment
contract).
The transaction is a nonbusiness transaction since it does not affect the accounting equation. Mr.
Santos just hired a personnel with an agreed weekly salary of P1,000.
Transaction 6
JS Photocopying Center paid salary of the personnel for the week, P1,000 (with payroll sheet).
Expenses : Salaries Expense (increase)
Assets : Cash (decrease)
P1,000 for Salaries Expense, and P1,000 for Cash
Transaction 7
JS Photocopying Center received P8,000 cash for services rendered (with official receipt).
Assets : Cash (increase)
Equity : Photocopying Revenues (increase)
P8,000 for Cash, P8,000 for Photocopying Revenues
Transaction 8
JS Photocopying Center billed a customer for services rendered during the week, P2,000 (with billing statement.)
Assets : Accounts Receivable (increase)
Equity : Photocopying Revenues (increase)
P2,000 for Accounts Receivable, P2,000 for Photocopying Revenues

Transaction 9
Mr. Santos made a P500 cash withdrawal for personal use.
Equity : Santos, Drawing (increase)
P500 for Santos, Drawing; P500 for Cash
Transaction 10
JS Photocopying Center collected the amount billed to a customer, P2,000 (with official receipt).
Assets : Cash (increase) , Accounts Receivable (decrease)
P2,000 for Cash, P2,000 for Accounts Receivable
Transaction 11
JS Photocopying Center paid rent for two months amounting to P10,000 (with statement of account).
Expenses: Rent Expense (increase)
P10,000 for Cash, P10,000 for Rent Expense

Transaction 12
JS Photocopying Center received a bill from an electric company, P2,500 (with statement of account).
Liabilities : Accounts Payable (increase)
Expenses : Utilities Expense (increase)
P2,500 for Accounts Payable, P2,500 for Utilities Expense
Transaction 1 Mr. Santos invested cash of P10,000 in his business to be known as JS Photocopying Center.
General Journal Page 1
Date Particulars f Debit Credit
(Account Title and Explanation)
August 1 Cash P 10,000
Santos, Capital P 10,000
To record cash investment.
Transaction 2 Mr. Santos invested a photocopying machine amounting to P30,000 (with sales invoice) in his
business.
August 1 Photocopying Equipment P 30,000
To record investment of photocopying equipment.
Transaction 3 Mr. Santos invested the following on his business: Cash, P30,000; and Photocopying Equipment,
P30,000 (with sales invoice). In addition, his Accounts Payable of P50,000 would be assumed
by the business.

Photocopying Equipment P 30,000
Accounts Payable P 50,000
To record investment of cash, photocopying
equipment, and accounts payable.
Transaction 4 JS Photocopying Center paid P10,000 for the purchase of bond papers (with sales invoice).
August 2 Unused Supplies P 10,000
Cash P 10,000
To record purchase of supplies
Transaction 5 Mr. Santos hired one personnel with a weekly salary of P1,000 to look after the business (with
employment contract).
No need to journalize all nonbusiness transaction.
Transaction 6 JS Photocopying Center paid salary of the personnel for the week, P1,000 (with payroll sheet).
August 10 Salaries Expense P 1,000
Cash P 1,000
To record payment of salary
Transaction 7 JS Photocopying Center received P8,000 cash for services rendered (with official receipt).
Photocopying Revenues P 8,000
To record cash received for services rendered
Transaction 8 JS Photocopying Center billed a customer for services rendered during the week, P2,000 (with
billing statement.)
August 21 Accounts Receivable P 2,000
Photocopying Revenues P 2,000
To record customers billed for services rendered
Transaction 9 Mr. Santos made a P500 cash withdrawal for personal use.
August 27 Santos, Drawing P 500
Cash P 500
To record owner’s personal withdrawal
Transaction 10 JS Photocopying Center collected the amount billed to a customer, P2,000 (with official
receipt).
Accounts Receivable P 2,000
To record collection of customer’s account
Transaction 11 JS Photocopying Center paid rent for two months amounting to P10,000 (with statement of
account).
August 29 Rent Expense P 10,000
Cash P 10,000
To record payment of two months’ rent
Transaction 12 JS Photocopying Center received a bill from an electric company, P2,500 (with statement of
account).
August 30 Utilities Expense P 2,500
Accounts Payable P 2,500
To record receipt of electricity bill
OTHER SOURCES
To further explain this, you can also watch here the Rules of Debits
and Credits and on how to use the Journal in Youtube by Teacher
Jade.
Debits and Credits https://www.youtube.com/watch?v=cC9H86By3l8
(6:07 minutes)
Journal https://www.youtube.com/watch?v=idHLVvV5O4k
(17:59 minutes)
ACTIVITY 1. Journalize the following transactions and write your answers
in a 10-column Columnar Book or yellow pad. Harold established a service
business to be knows as Harry Photography on September 1, 2020. During
the first month, the following transactions occurred. Harry Photography uses
the following account titles:
Photography Furniture and
Cash Salaries Payable
Equipment Fixtures
Photography
Office Equipment Advertising Expense Accounts Payable
Supplies
Loan Payable Delivery Equipment Salaries Expense Accounts Receivable
Photography Service
Notes Payable Unearned Revenue Utilities Expense
Revenue
Representation
Repairs Expense Notes Receivable Interest Receivable
Expense
Harold, Drawing Harold, Captal Prepaid Rent Insurance Expense
September 1 Harold transferred cash of P300,000 from his personal bank account to an account to be used for his
business. He also invested the following: Digital Camera-P45,000; manual camera-P25,000; desktop
computer-P28,000; photo papers and ink-P14,000.
September 4 Paid six-month advance rent to Benedict Commercial Complex, P30,000.

September 6 Received a statement of account from Jan News for advertising this month, P5,500.
September 8 Bought photo enhancing and editing equipment from Marlo Outlet for P40,000. Harold paid 30% down
payment and the balance on account.
September 12 Hired office assistant with a monthly salary of P6,000. The office assistant officially started in September 16,
2020
September 13 Photography services rendered totaled P180,000. Terms: 25% cash and the balance settled on account.
September 14 Purchased office sofa set from Vanessa Designs for P30,000 on account.
September 15 Paid various operating expenses during the month: Meeting potential clients-P4,000; Electricity-P23,000;
Telephone expense-P6,000; and Repairs expense-P2,500.
September 18 Photography services rendered totaled P180,000, of which 25% was settled with an interest-bearing note
and the balance on account.
September 20 Received photography advances from a couple for prenuptial coverage to be rendered next month, P60,000.
September 22 Collected 90% of the outstanding receivable from September 13 transaction.
September 24 Paid in full the statement of account received September 6.
September 26 Paid 80% of the outstanding obligation to Marlo Outlet and for the remaining balance, he issued and
interest-bearing note.
September 28 Paid half of the outstanding obligation to Vanessa Designs.
September 30 Paid salary of the office assistant for 16 days, P3,097.
Harry Photography
Journal Entry
Code
Date Particulars Dr Cr
Account Titles and Description
2020
Sep 4 Prepaid Rent P 30000 -
Cash P 30000 -
Fundamentals of
ABM 1

Module 3

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Fundamentals of

reported on a company's balance sheet and are bought or

Recorded on the right side of the balance sheet,

We can also think of equity as a degree of residual

O wner’s associated with that asset.

Equity represents the shareholders’ stake in the company,

equity The calculation of equity is a company's total assets minus

Operating income is income derived from normal

Businesses can write off tax-deductible expenses on their

Accountants record expenses through one of two accounting

There are two main categories of business expenses in

Particulars Debit Credit

• In the case of certain types of accounting errors, it becomes necessary to go back to

Particulars Debit Credit Balance

General Journal Page 1

September 4 Paid six-month advance rent to Benedict Commercial Complex, P30,000.

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