CREDIT

TRANSCATION
A credit transaction is a business transaction which although has

monetary impact does not involve exchange of cash at the time

of occurrence of the transaction, but is settled in cash at a

subsequent date.

Credit transactions result in creation of asset (receivable)

or liability (payable) in the books of accounts. This asset or

liability is extinguished from the books at the time of settlement.

For example, a manufacturer sells his goods to a wholesaler

who does not pay for them immediately but is allowed a credit

period of 30 days for making payment. This is a credit sale of

goods that does not involve immediate cash exchange however

it results in recognition of income and creation of a debtor,

thus it still has monetary impact and qualifies as a credit

transaction.

Credit transactions are only recorded in books of accounts

maintained on accrual basis. These are recorded in books

maintained on cash basis only at the time of settlement.

 Difference between cash transaction
and credit transaction

1. Meaning

 A cash transaction is a business transaction that is settled with

immediate exchange of cash.

 A credit transaction is a business transaction which is not settled

in cash at the time of entering into the transaction but is settled at

a subsequent date.

2. Timing of settlement

 Cash transactions are settled immediately.

 Credit transactions are settled subsequent to the transaction at a

later date.
3. Applicable to which basis of accounting

 Cash transactions are recorded under both cash basis and

mercantile basis accounting.

 Credit transactions are only recorded in mercantile basis

accounting.

4. Entries per transaction

 Cash transactions can be recorded through fewer entries as

they impact cash or bank immediately.

 Credit transactions are recorded through multiple entries –

creation of asset/liability at the time of the transaction and

separate entries at the time of settlement.

5. Impact on cash flow

 Cash transactions have immediate impact on cash flow.

 Credit transactions do not have immediate impact on cash flow.

6. Impact on balance sheet

 Cash transactions impact the balance sheet through changes in the

cash or bank account.

 Credit transactions impact the balance sheet by creation of an asset

(receivable) or liability (payable).

7. Suitability to business types

 Cash transactions are generally found in greater numbers in smaller

businesses where value of transactions is lower.

 Cash transactions are also more prevalent in retail business

where although volume and value of transactions are higher,

they are generally immediately settled in cash.

 Credit transactions are more prevalent in larger businesses

where system of credit period is followed.

8. Examples

 Cash transactions can include over the counter sale of goods,

retail purchases etc.

 Credit transactions include accrual of utility bills which can be

paid subsequently, sale and purchase of goods on credit basis

etc.
• Cash and credit transactions both have different impact

on the balance sheet and cash flow of a business but both

have the same impact on the profit and loss statement.  It

is however important to identify whether a transaction is

cash or credit to determine the accounting treatment to

be given. The key determinant is to understand the timing

of actual payment/receipt in the transaction.

REPUBLIC ACT No. 3765

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN

CONNECTION WITH EXTENSIONS OF CREDIT.

Section 1. This Act shall be known as the "Truth in Lending Act.“

Section 2. Declaration of Policy. It is hereby declared to be the

policy of the State to protect its citizens from a lack of awareness

of the true cost of credit to the user by assuring a full disclosure of

such cost with a view of preventing the uninformed use of credit to

the detriment of the national economy.

Section 3. As used in this Act, the term

(1) "Board" means the Monetary Board of the Central Bank of the

Philippines.

(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount;

any conditional sales contract; any contract to sell, or sale or contract of

sale of property or services, either for present or future delivery, under

which part or all of the price is payable subsequent to the making of such

sale or contract; any rental-purchase contract; any contract or arrangement

for the hire, bailment, or leasing of property; any option, demand, lien,

pledge, or other claim against, or for the delivery of, property or money; any

purchase, or other acquisition of, or any credit upon the security of, any

obligation of claim arising out of any of the foregoing; and any transaction

or series of transactions having a similar purpose or effect.

(3) "Finance charge" includes interest, fees, service charges, discounts, and

such other charges incident to the extension of credit as the Board may be

regulation prescribe.

(4) "Creditor" means any person engaged in the business of extending credit

(including any person who as a regular business practice make loans or

sells or rents property or services on a time, credit, or installment basis,

either as principal or as agent) who requires as an incident to the extension

of credit, the payment of a finance charge.

(5) "Person" means any individual, corporation, partnership, association, or

other organized group of persons, or the legal successor or representative of

the foregoing, and includes the Philippine Government or any agency

thereof, or any other government, or of any of its political subdivisions, or

any agency of the foregoing.

Section 4. Any creditor shall furnish to each person to whom credit is

extended, prior to the consummation of the transaction, a clear

statement in writing setting forth, to the extent applicable and in

accordance with rules and regulations prescribed by the Board, the

following information:

(1) the cash price or delivered price of the property or service to be

acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-

in;

(3) the difference between the amounts set forth under clauses (1)
and (2);

(4) the charges, individually itemized, which are paid or to be paid by

such person in connection with the transaction but which are not
incident to the extension of credit;
(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos;

and

(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.

Section 5. The Board shall prescribe such rules and regulations as

may be necessary or proper in carrying out the provisions of this

Act. Any rule or regulation prescribed hereunder may contain such

classifications and differentiations as in the judgment of the Board

are necessary or proper to effectuate the purposes of this Act or to

prevent circumvention or evasion, or to facilitate the enforcement

of this Act, or any rule or regulation issued thereunder

Section 6. (a) Any creditor who in connection with any credit transaction

fails to disclose to any person any information in violation of this Act or any

regulation issued thereunder shall be liable to such person in the amount of

P100 or in an amount equal to twice the finance charged required by such

creditor in connection with such transaction, whichever is the greater,

except that such liability shall not exceed P2,000 on any credit transaction.

Action to recover such penalty may be brought by such person within one

year from the date of the occurrence of the violation, in any court of

competent jurisdiction. In any action under this subsection in which any

person is entitled to a recovery, the creditor shall be liable for reasonable

attorney's fees and court costs as determined by the court.

(b) Except as specified in subsection (a) of this section, nothing

contained in this Act or any regulation contained in this Act or any

regulation thereunder shall affect the validity or enforceability of

any contract or transactions.

(c) Any person who willfully violates any provision of this Act or

any regulation issued thereunder shall be fined by not less than

P1,00 or more than P5,000 or imprisonment for not less than 6

months, nor more than one year or both.

(d) No punishment or penalty provided by this Act shall apply to the

Philippine Government or any agency or any political subdivision

thereof.

(e) A final judgment hereafter rendered in any criminal proceeding

under this Act to the effect that a defendant has willfully violated

this Act shall be prima facie evidence against such defendant in an

action or proceeding brought by any other party against such

defendant under this Act as to all matters respecting which said

judgment would be an estoppel as between the parties thereto.

Section 7. This Act shall become effective upon approval.

REPUBLIC ACT NO. 386

AN ACT TO ORDAIN AND INSTITUTE THE CIVIL

CODE OF THE PHILIPPINE

TITLE XII
CONCURRENCE AND
PREFERENCE OF CREDITS
 CHAPTER 2

Classification of Credits

Article 2241. With reference to specific movable property of the

debtor, the following claims or liens shall be preferred:

(1) Duties, taxes and fees due thereon to the State or any subdivision

thereof;

(2) Claims arising from misappropriation, breach of trust, or

malfeasance by public officials committed in the performance of their

duties, on the movables, money or securities obtained by them;

(3) Claims for the unpaid price of movables sold, on said movables, so

long as they are in the possession of the debtor, up to the value of

the same; and if the movable has been resold by the debtor and the

price is still unpaid, the lien may be enforced on the price; this right

is not lost by the immobilization of the thing by destination, provided

it has not lost its form, substance and identity; neither is the right

lost by the sale of the thing together with other property for a lump

sum, when the price thereof can be determined proportionally;

(4) Credits guaranteed with a pledge so long as the things pledged

are in the hands of the creditor, or those guaranteed by a chattel

mortgage, upon the things pledged or mortgaged, up to the value

thereof;
(5) Credits for the making, repair, safekeeping or preservation of

personal property, on the movable thus made, repaired, kept or

possessed;

(6) Claims for laborers' wages, on the goods manufactured or the

work done;

(7) For expenses of salvage, upon the goods salvaged;

(8) Credits between the landlord and the tenant, arising from the

contract of tenancy on shares, on the share of each in the fruits or

harvest;

(9) Credits for transportation, upon the goods carried, for the price of

the contract and incidental expenses, until their delivery and for

thirty days thereafter;

(10) Credits for lodging and supplies usually furnished to travellers by hotel

keepers, on the movables belonging to the guest as long as such movables are

in the hotel, but not for money loaned to the guests;

(11) Credits for seeds and expenses for cultivation and harvest advanced to

the debtor, upon the fruits harvested;

(12) Credits for rent for one year, upon the personal property of the lessee

existing on the immovable leased and on the fruits of the same, but not on

money or instruments of credit;

(13) Claims in favor of the depositor if the depositary has wrongfully sold the

thing deposited, upon the price of the sale.

In the foregoing cases, if the movables to which the lien or preference

attaches have been wrongfully taken, the creditor may demand them from any

possessor, within thirty days from the unlawful seizure.

Article 2242. With reference to specific immovable property and real

rights of the debtor, the following claims, mortgages and liens shall

be preferred, and shall constitute an encumbrance on the immovable

or real right:

(1) Taxes due upon the land or building;

(2) For the unpaid price of real property sold, upon the immovable

sold;

(3) Claims of laborers, masons, mechanics and other workmen, as

well as of architects, engineers and contractors, engaged in the

construction, reconstruction or repair of buildings, canals or other

works, upon said buildings, canals or other works;

(4) Claims of furnishers of materials used in the construction,

reconstruction, or repair of buildings, canals or other works, upon

said buildings, canals or other works;

(5) Mortgage credits recorded in the Registry of Property, upon the

real estate mortgaged;

(6) Expenses for the preservation or improvement of real property

when the law authorizes reimbursement, upon the immovable

preserved or improved;

(7) Credits annotated in the Registry of Property, in virtue of a

judicial order, by attachments or executions, upon the property

affected, and only as to later credits;

(8) Claims of co-heirs for warranty in the partition of an immovable

among them, upon the real property thus divided;

(9) Claims of donors or real property for pecuniary charges or other

conditions imposed upon the done, upon the immovable donated;

(10) Credits of insurers, upon the property insured, for the insurance

premium for two years.

Article 2243. The claims or credits enumerated in the two preceding
articles shall be considered as mortgages or pledges of real or
personal property, or liens within the purview of legal provisions
governing insolvency.

Article 2244. With reference to other property, real and personal, of

the debtor, the following claims or credits shall be preferred in the

order named:
(1) Proper funeral expenses for the debtor, or children under his or
her parental authority who have no property of their own, when
approved by the court;
(2) Credits for services rendered the insolvent by employees,
laborers, or household helpers for one year preceding the
commencement of the proceedings in insolvency;
(3) Expenses during the last illness of the debtor or of his or her
spouse and children under his or her parental authority, if they have
no property of their own;
(4) Compensation due the laborers or their dependents under laws
providing for indemnity for damages in cases of labor accident, or
illness resulting from the nature of the employment;
(5) Credits and advancements made to the debtor for support of
himself or herself, and family, during the last year preceding the
insolvency;
(6) Support during the insolvency proceedings, and for three months
thereafter;
(7) Fines and civil indemnification arising from a criminal offense;
(8) Legal expenses, and expenses incurred in the administration of
the insolvent's estate for the common interest of the creditors, when
properly authorized and approved by the court;
(9) Taxes and assessments due the national government;
10) Taxes and assessments due any province;
(11) Taxes and assessments due any city or municipality;
(12) Damages for death or personal injuries caused by a quasi-delict;
(13) Gifts due to public and private institutions of charity or
beneficence;
(14) Credits which, without special privilege, appear in a public instrument; or
in a final judgment, if they have been the subject of litigation. These credits
shall have preference among themselves in the order of priority of the dates of
the instruments and of the judgments, respectively.  
Article 2245. Credits of any other kind or class, or by any other right
or title not comprised in the four preceding articles, shall enjoy no
preference.

CHAPTER 3
Order of Preference of Credits

Article 2246. Those credits which enjoy preference with respect to

specific movables, exclude all others to the extent of the value of the

personal property to which the preference refers.

Article 2247. If there are two or more credits with respect to the same

specific movable property, they shall be satisfied pro rata, after the

payment of duties, taxes and fees due the State or any subdivision
Article 2248. Those credits which enjoy preference in relation to

specific real property or real rights, exclude all others to the extent

of the value of the immovable or real right to which the preference

refers.

Article 2249. If there are two or more credits with respect to the

same specific real property or real rights, they shall be satisfied pro

rata, after the payment of the taxes and assessments upon the

immovable property or real right. (1927a)

Article 2250. The excess, if any, after the payment of the credits

which enjoy preference with respect to specific property, real or

personal, shall be added to the free property which the debtor may

have, for the payment of the other credits.

Article 2251. Those credits which do not enjoy any

preference with respect to specific property, and those

which enjoy preference, as to the amount not paid, shall be

satisfied according to the following rules:

(1) In the order established in article 2244;

(2) Common credits referred to in article 2245 shall be paid

pro rata regardless of dates.

PRESENTED BY:
ADANTE, Joan

ARRABIS, Reachelle

BALDON, Lay Anne B.

BUCAD, Ma. Glenda M.

BUFETE, Rachelle R.

CAYA, Shiela Mae

FIGURACION, Diane
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https://www.termscompared.com/difference-between-cash-t
ransaction-and-credit-transaction/

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