LUCA PACIOLI OF ITALY

 “Father of Modern Accounting”

 Double-entry bookkeeping system
 DEBIT and CREDIT
LESSON NUMBER 07
DATES March 14 - 18, 2022
Fundamentals of Accountancy, Business and
SUBJECT
Management 1
Steps in Accounting Cycle of a Service Business:
ACTIVITY TITLE
Analyzing Business Transactions
 Analyze common business transactions using the
rules of debit and credit
LEARNING TARGETS
 Solve simple problems and exercises in the
analyses of business transaction
REFERENCE(S) Fundamentals of Accountancy, Business and
SOURCE(S) Management 1 by Vibal
AUTHORS Joy S. Rabo, et. Al
DEFINITION OF ACCOUNTING
CYCLE
The accounting cycle is a series of
recurring accounting steps or processes
that span from the start to the end of a
particular accounting period.
STEPS IN THE ACCOUNTING CYCLE :

5. Journalizing and posting adjusting journal entries

4. Preparing trial balance

3. Posting journal entries to the ledger

2. Journalizing the business transactions

1. Analyzing business transactions

STEPS IN THE ACCOUNTING CYCLE :

10. Journalizing and posting reversing journal entries

9. Preparing post-closing trial balance

8. Journalizing and posting closing journal entries

7. Preparing financial statements

6. Preparing adjusted trial balance

STEPS IN THE
ACCOUNTING CYCLE OF
A SERVICE BUSINESS
ANALYZING BUSINESS
TRANSACTIONS (Step 1)
STEP 1. Analyzing business transactions

Transaction analysis involves three simple steps. These are:

1. Classify whether the transaction is a financial or a non-financial

transaction. If the transaction is non-financial, then there is no need
to proceed to step 2.
2. Identify the major account/s and the specific account title/s affected
and determine its/their normal balance/s. (either debit/credit).
3. Determine its/their movement (either debited or credited).
STEP 1. Analyzing business transactions

Normal
Increase Decrease
Balance
Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner’s Equity (net) Credit Credit Debit
• Owner’s Capital Credit Credit Debit
• Owner’s Drawing Debit Debit Credit
STEP 1. Analyzing business transactions

Normal
Increase Decrease
Balance
Revenues Credit Credit Debit
Expenses Debit Debit Credit
Contra-valuation
accounts:
• Allowance for
Doubtful Credit Credit Debit
Accounts
• Accumulated Credit Credit Debit
Depreciation
 JM Photocopying Center
Chart of Accounts
Assets Owner’s Equity
101 Cash 301 Mercado, Capital

Before we proceed with 112 Accounts Receivable 302 Mercado, Drawing

the first step of the 112b Allowance for Doubtful Accounts 399 Income Summary
accounting cycle, let us
113 Notes Receivable
first establish the
following chart of 114 Interest Receivable
accounts of the business, 122 Office Supplies
which will be very helpful
123 Prepaid Rent Revenues
in identifying the affected
accounts in our transaction 151 Photocopying Equipment 401 Photocopying Revenues
analysis: 152 Accumulated Depreciation – 402 Interest Income
Photocopying Equipment
153 Furniture and Fixtures 499 Other Income
154 Accumulated Depreciation – Furniture
and Fixtures
199 Other Assets
Chart of Accounts continuation …

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
STEP 1. Analyzing business transactions

Example:
TRANSACTION 1:
Mr. Mercado invested cash of Ᵽ30,000 in his business to be known
as JM Photocopying Center.
1. The transaction is a financial transaction.
2. The major accounts affected are asset and owner’s equity. More
specifically, the account titles affected are Cash (debit) and
Mercado, Capital (credit).
3. The account to be debited is Cash and the account to be credited is
Mercado, Capital for Ᵽ30,000.
STEP 1. Analyzing business transactions

Example:
TRANSACTION 2:
JM Photocopying Center purchased bond papers, ball pen, and other
supplies to be used in their office on account amounting to Ᵽ10,000.

1. The transaction is a financial transaction.

2. The major accounts affected are asset and liability. More specifically, the
account titles affected are Office Supplies (debit) and Accounts Payable
(credit).
3. The account to be debited is Office Supplies and the account to be
credited is Accounts Payable for Ᵽ10,000.
STEP 1. Analyzing business transactions

Example:
TRANSACTION 3:
The business paid their rent for three months in advance amounting to
Ᵽ45,000.

1. The transaction is a financial transaction.

2. The major account affected is asset. More specifically, the account titles
affected are Cash (debit) and Prepaid Rent (debit).
3. The account to be debited is Prepaid Rent and the account to be credited
is Cash for Ᵽ45,000.
 EXERCISE
Instructions:
Analyze each business transaction. Use the three steps in analyzing
the business transactions.
STEP 1. Analyzing business transactions

Transaction No. 1
JM Photocopying Center bought a photocopying machine
amounting to Ᵽ30,000 in cash.

1. The transaction is a financial transaction.

2. The major account affected is asset. More specifically, the account
titles affected are Photocopying Equipment (debit) and Cash
(debit).
3. The account to be debited is Photocopying Equipment and the
account to be credited is Cash for Ᵽ30,000 .
STEP 1. Analyzing business transactions

Transaction No. 2
The business borrowed money in a bank amounting to Ᵽ100,000 to
be paid after three years.

1. The transaction is a financial transaction.

2. The major accounts affected are asset and liability. More
specifically, the account titles affected are Cash (debit) and Loan
Payable (credit).
3. The account to be debited is Cash and the account to be credited is
Loan Payable for Ᵽ100,000 .
STEP 1. Analyzing business transactions

Transaction No. 3
The business paid their accounts payable amounting to Ᵽ20,000 .

1. The transaction is a financial transaction.

2. The major accounts affected are asset and liability. More
specifically, the account titles affected are Cash (debit) and
Accounts Payable (credit).
3. The account to be debited is Accounts Payable and the account to
be credited is Cash for Ᵽ20,000 .
 Thanks!
Do you have any questions?
Feel free to contact me in the following:
● Mobile Number:
09954030228 Globe
09617716313 Smart
● Messenger: Zybel Fajardo Rosales
● Email: zyfrosales@gmail.com