Chapter 4
Recording Business Transactions
( Double- Entry System)
The accounting cycle
Simple bookkeeping
Fundamental concepts in bookkeeping
1. Support all transactions with business documents
2. Record the transactions using the two-column journal
3. Use the proper account title
4. Observe the guidelines when using the two column journal.
Debit vs. credit
Debits and credits are equal but opposite entries in your
books. If a debit increases an account, you will decrease the
opposite account with a credit.
A debit is an entry made on the left side of an account. It
either increases an asset or expense account or decreases
equity, liability, or revenue accounts. For example, you would
debit the purchase of a new computer by entering the asset
gained on the left side of your asset account.
A credit is an entry made on the right side of an account. It
either increases equity, liability, or revenue accounts or
decreases an asset or expense account. Record the
corresponding credit for the purchase of a new computer by
crediting your expense account.
Double-entry bookkeeping
is a system of bookkeeping so named because every entry to an
account requires a corresponding and opposite entry to a
different account.
The double entry has two equal and corresponding sides known
as debit and credit.
The Journal
Is a chronological record of events or business
transactions showing all the effects of each
transactions in terms of debits and credits.
It is called the book of original entry. And the
simplest journal is the general journal
And the process is called journalizing it is the
process of recording a transactions in the journal
after it has been recognized and measured.
Rules for Debit and Credit
You debit to show: You credit to show:
1. Increase in assets 1. Decrease in assets
2. Decrease in liabilities 2. Increase in liabilities
3. Decrease in owner’s equity 3. Increase in owner’s equity
Owner’s withdrawal Initial investment
Expenses Additional investment
Revenue/ income
Example:
July 1. Owner invested PHp 500,000 cash along with computer equipment
that had a market value of php. 120,000 two years ago but was now worth
Php. 100,000 only.
July 1 Cash 500,000
Computer Eqpt 100,000
Capital 600,000
Owner started business with cash and computer Eqpt.
The T-Accounts
Is a form of summarizes the increase or decreases of any
specific accounting value.
It is an informal tool used to analyze the effect of a
transactions in the assets, liabilities, owner’s equity, revenue,
and expenses.
The elements are
1. Account title
2. Debit
3. Credit
Posting Journal Entries in the Ledger
The ledger is group of the accounts used by the company. It is the book of
final entry.
The accounts in general ledger are classified into two general groups:
1. Balance sheet or real accounts (assets, liabilities, and owner’s equity)
2. Income statements or nominal accounts (revenue and expense)
Chart of Accounts
- Is a list of all account titles used by the company with their corresponding
account numbers.
- It is arranged and numbered for purposes of indexing and cross-
referencing.
Classifying- Refers to the grouping of similar business transactions and events
It is the second mechanical phase of the whole accounting process
Posting- the process of transferring the same information from the journal
ledger.
Footing is the process of adding the debit and the credit money columns of
the ledger and finding their balances.
Below is the simple T-account of the
cash
On May 15, 2020 Too Sy opens Too Sy Security
Services
May 15, Too Sy deposited 800,000 of personal funds
under the bank account of Too Sy Security Service.
May 18, Paid 18,000 office rent for the month
May 21 Purchased equipment 50,000 on account.
May 25 Paid cash for transportation equipment 500,000
for use in the business.
May 27 Paid 25,000 as partial payment for the office
equipment.
May 31 Mr Too Sy withdrew 10,000 cash for personal use.
Journal Entries
May 15 Cash 800,000
Too Sy, Capital 800,000
Initial Investment.
18 Rent Expense 18,000
Cash 18,000
Paid monthly rent.
21 Office Equipment 50,000
Account Payable 50,000
Purchased office equipment on account.
May 25 Transportation Equipment 500,000
Cash 500,000
Purchased transportation equipment for cash
27 Accounts Payable 25,000
Cash 25,000
Partial payment for office equipment
31 Too Sy, Drawing 10,000
Cash 10,000
Withdrew cash for personal use.
Too Sy, Security Services chart of Acocunts
Trial balance
is the listing of the debit and credit balances of accounts from the
ledger for the following reasons:
1. Prove the quality of debit credit
2. Determine the nominal accounts to be closed
3. Serve as a basis for making draft financial statements.
The steps in the preparation of the trial balance
1. In their proper numerical order, make a listing of all account titles.
2. Get the account balance of each ledger account and write them
under their corresponding debit or credit column
3. Foot or add the debit and credit columns of the trial balance.
4. Check whether credit and credit are equal.
Possible errors in the trial balance
1. Transposition- occurs when order of two numbers are reversed
2. Trans placement or slide- occurs when a decimal point has been moved or
misplaced.
3. Erroneous recording in the journal
4. Erroneous posting to the ledger
5. Mathematical mistakes
6. omission
1 Cash 880,000
Computer 67,000
Lok, Capital 947,000
2 Accounts Receivable 75,000
Consultancy Fee 75,000
3 Transportation Equipment 700,000
Accounts Payable 700,000
7 Cash 190,000
Consultancy Fee 190,000
15 Accounts Receivable 32,000
Consultancy Fee 32,000
16 Accounts Payable 700,000
Cash 700,000
18 Cash 15,000
Accounts Receivable 15,000
20 Utilities Expense 980
Utilities Payable 980
26 Utilities Expense 2540
Cash 2540
