Government Property
Senior High School
NOT FOR SALE
Fundamentals of Accountancy,
Business and Management 1
Module 6
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
Department of Education  Republic of the Philippines
What I Need To Know
For the Learners
This is the introductory course in accounting, business and
management data analysis that will develop your appreciation of accounting
as language of business and an understanding of basic accounting
concepts and principles that will help you analyze business transactions.
“Is accounting important to you?” Accounting delivers financial
information to different users through financial statements. It gives business
owners the chance to analyze the overall efficiency and effectiveness of
their business operations.
Module Content
This module in Fundamentals of Accountancy, Business and Management 1 for the 21 st
century learners is designed to make learning more engaging and meaningful to ABM Senior High
School learners in the flexible and blended learning environments.
The module is aimed at citing specific examples in which accounting is used in making
business decisions. The motivation behind this effort are the examples of service businesses
wherein they provides intangible goods or services to customers. It usually generates profit by
charging for labor or other services rendered to customers.
Meaningful activities are given in the form of worksheets, assignments and online or virtual
activities which allow learners to work at their own pace. As you go along, you will know the
accounting cycle for service business.
Learning is fun! So enjoy your journey as you unfold the most interesting and worthwhile
activities in accounting.
These are the competencies included in this module:

analyze common business transactions using the rules of debit and credit (ABM_FABM11IIIg-j-27); and

solve simple problems and exercises in the analyses of business transaction
(ABM_FABM11- IIIg-j-28).
Lesson
The Business Transactions and their Analysis to
Include Definition and
Nature of Business Transactions, Types of Source or
Business
What’s In
Activity 1. Review
Instructions: differentiate the following terms. Write your answer on the line provided.
1.
Service business
________________________________________________________.
2.
Merchandising business
______________________________________________________.
Manufacturing business
________________________________________________________.
3.
What’s New
Activity 2. Write the analysis, rules and journal entry of the business transaction illustrated below.
The following are transactions for Anime World Gallery for the month of May. They will
be recorded using the double-entry system. To analyze each transaction the following
shall be used to show the effect on the accounts as follows: A (for Asset), L (for liability),
or OE (Owner’s Equity). The effect on owner’s equity is sub classified as follows: OE:R
(Revenue) and OE:E (expenses).
Example on May 2:
For Initial Investment
May 2
Gisel Ong loves to watch anime. She draws posters of colorful anime
characters. Sometimes she displays them in her office. To her surprise ,
many anime fans buy her drawings and paintings and place special
orders for Anime characters of their choice. Thus, Gisel decided to open
Anime World Gallery. Gisel invested P300,000 in this initial endeavor.
Analysis Assets increased. Owner’s equity increased.
Rules
Debit increases in assets. Credit increases in owner’s equity.
Entry
Increase in assets is recorded by a debit to cash. Increase in owner’s
equity is recorded by a credit to Ong, Capital.
Show entry (Journal entry):
Cash (A)
Ong, Capital
Initial Investment
Dr
300,000
Cr
300,000
Your turn
Issuance of Note for Cash
May 3
Gisel Ong Issued a promissory note for a P100,000 loan from Allay
Bank. The note carries a 12% interest per annum. The interest and the
principal are payable after one year.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________________________________________________.
____________
Acquisition of Office Equipment for Cash
May 5
Ms. Ong acquired office equipment to be used for the office paying
P180,000 in cash.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Acquisition of Furniture Paying Down Payment and the Balance on Account.
May 5
Ms. Ong acquired furniture from Bloom’s costing P40,000 paying
P12,000 and the balance at the end of the month. (Note: A compound
entry is needed in this transaction.)
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
___________
____________________
____________________________________________________.
Advance Payment of Rental
Cr
____________
May 6
Gisel Ong rented office space and paid two-month rent in advance, all
costing P18,000
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Payment of Insurance Premiums
May 7
Ms. Ong paid Asia Insurance Co. P10,800 for one year insurance of the
gallery.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Events not Affecting the Accounting Equation (no journal entry)
May 7
Hired a part-time student helper with P4,000 monthly salary. The
student helper started working on the following day.
There is no entry necessary at this point as the hiring of the student helper has
no effect on the assets, liabilities, and owner’s equity.
May 8
Called National Book Store and ordered art supplies worth P7,200.
There is no entry necessary at this point as the ordering of the art supplies has
no effect on the assets, liabilities, and owner’s equity.
Question: Why?
Answer: _________________________________________________.
Purchase of Art Supplies on Account
May 8 The P7,200. worth of art supplies ordered from National Book Store
were delivered on account.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Income Earned on Account
May 11 An oil painting of Naruto and an acrylic painting of L was delivered to Mr.
Ku To. Gisel Ong billed Mr. Ku To P120,000 for the painting delivered.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Partial Settlement of Accounts Payable
May 12
Analysis
Rules
Entry
Ms. Ong paid National Book Store P3,000 of the amount owned.
___________________________________________________.
___________________________________________________.
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Partial Collection of Accounts Receivable
May 15 Ms. Ong received P50,000 from Mr. Ku To as partial payment for the
anime painting delivered last May 11.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
May 18
Analysis
Rules
Entry
Gisel Ong withdrew P18,000 for personal use.
___________________________________________________.
___________________________________________________.
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Collection of Unearned Income
May 20
Analysis
Rules
Entry
Ms. Ong received P80,000 cash for a contract to paint Lelouch.
___________________________________________________.
___________________________________________________.
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
____________________
Cr
___________
____________
Cash Collection from Income Earned
May 23 Gisel Ong received cash from Ms. Uto San P90,000 for a charcoal poster
of Kirito.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Payment of Salaries
May 29
Analysis
Rules
Entry
Ms. Ong paid helper’s salary for the month, P4,000.
___________________________________________________.
___________________________________________________.
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________________________________________________.
____________
Payment of Expenses Incurred / Consumed
May 29 Gisel Ong paid water bill of P540 for the month.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________
____________________________________________________.
Unpaid Expenses already Consumed / Incurred (Accrued Expenses)
May 30 Ms. Ong received bill from Meralco amounting to P4,500.
Analysis ___________________________________________________.
Rules
___________________________________________________.
Entry
___________________________________________________.
____________________________________________.
Show entry:
Dr
____________________
Cr
___________
____________________
____________________________________________________.
____________
What Is It
What is a JOURNAL?
A journal is a chronological record of events and business transactions showing all the
effects of each transaction in terms of debit and credits. Because transactions are initially recorded
in the journal, it is called the book of original entry. The simplest journal is the general journal.
A journal entry should contain the following:
1. Date. Write the month on the first transaction unless there is a change in month for the
succeeding transactions or a new page is used.
2. Account titles and explanations. Write the debit account on the extreme left of the first line
and indent the credit account half- inch on the next line. The explanation describing the
transaction is written on the extreme left of the next line below the credit.
3. P.R. (Posting Reference). Write the corresponding account number here once the entry is
posted. However, it is left blank until the posting has been done.
4. Debit. Under this column, write the debit amount for each debit account.
5. Credit. Under this column, write the credit amount for each credit account.
Presume that Gisel Ong established Anime World Gallery with an initial investment of
P300,00 on May 2,2018. The journal entry is shown on the next page.
Date
2018
May 2
Account Titles
and Explanation
Cash
Ong, Capital
Initial
Investment
P.R.
Debit
Credit
300,000
300,000
The Simple and Compound Entry
When only two accounts are affected, you call this a simple entry where there is only one
debit account and one credit account. The previous example where the owner, Gisel Ong, made
an initial investment is a simple entry. In some cases, a transaction would require the use of three
or more accounts, in which case the entry is called a compound entry.
Journalizing the Transactions
Journalizing is the process of recording a transaction in a journal after it has been
recognized and measured.
In journalizing transactions, the double-entry system is used. In this case, two or more
accounts are affected by each transaction. It follows that for every debit, a corresponding credit is
made. The total debits should equal total credits for every transaction. In this way, the quality of
the accounting equation is maintained.
Rules for Debit and Credit
Your debit to show:
Your credit to show:
1. Increase in assets
2. Decrease in liability
3. Decrease in owner’s equity
- Owner’s withdrawal
- Expenses
1. Decrease in assets
2. Increase in liability
3. Increase in owner’s equity
- Initial investment
- Additional investment
-Revenue/income
THE ANALYSIS OF A TRANSACTION
Following are the steps involve in analyzing transaction:
1. From the business document, determine the kind of transaction or exchange made.
2. Analyze the transaction to determine the accounts affected. They can either affect the
assets, liabilities, owner’s equity, revenue, or expenses accounts.
3. Determine the effect of the transaction on the accounts affected. The transaction can
either increase of decrease the accounts.
4. Apply the rules of debited and credited to show the corresponding increase or decrease.
The example is given on the activity 2 exercises.
What’s More
Activity 3. Essay
Instructions. Answer the question briefly based on your own understanding. Write your
answer on the lines provided.
1. What is a journal?
________________________________________________________________
______________________.
2. What is a difference between a simple entry and a compound entry?
________________________________________________________________
________________________________________________________________
____________________________________________.
3. Discuss the analysis of a transaction.
________________________________________________________________
________________________________________________________________
________________________________________________________________
_____________________________________.
4. State the rules of debit and credit.
________________________________________________________________
________________________________________________________________
_________________________________________________.
Answer Key:
Activity 1. Review
1. Engaged in the rendering of service
2. Engaged in buying and selling goods
3. Engaged in the reproduction of items to be sold.
Activity 2: Identification
May 3
Analysis:
Asset Increase, Liabilities Increased.
Rules:
Debit increases in assets. Credit increases in liabilities.
Entry:
Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by
a credit to notes payable.
Journal entry illustration:
Dr
Cash (A)
Cr
100,000
Notes Payable (L)
100,000
Borrowed money from the bank by
Issuing a promissory note
May 5
Analysis:
An asset increased. Another asset decreased.
Rules:
Debit increases in assets. Credit decreases in assets.
Entry:
Increase in assets is recorded by a debit to office equipment. Decrease in assets is
recorded by a credit to cash.
Journal entry illustration:
Dr
Office Equipment (A)
Cr
180,000
Cash (A)
180,000
Purchased office equipment for cash
May 5
Analysis:
Asset increased. Assets decreased. Liabilities increased.
Rules:
Debit increases in assets. Credit decreases in assets. Credit increases in liabilities.
Enty:
assets
accounts
Increases in assets is recorded by a debit to furniture and fixture. Decreases in
is recorded by a credit to cash. Increase in liabilities is recorded by a credit to
payable.
Journal entry illustration:
Dr
Cr
Furniture and Fixture (A)
40,000
Cash (A)
12,000
Accounts Payable (L)
28,000
Bought furniture for paying cash and
the balance on account
May 6
Analysis:
An asset increased. Another asset decreased.
Rules:
Debit increases in assets. Credit increases in assets.
Entry:
Increase in assets is recorded by a debit to prepaid rent. Decrease in assets is
recorded by a credit to cash.
Journal entry illustration:
Dr
Prepaid Rent (A)
Cr
18,000
Cash (A)
18,000
Paid two months rent in advance
May 7
Analysis:
An asset increased. Another asset decreased.
Rules:
Debit increases in assets. Credit increases in assets.
Entry:
Increase in assets is recorded by a debit to prepaid insurance. Decrease in assets is
recorded by a credit to cash.
Journal entry illustration:
Dr
Prepaid Rent (A)
Cash (A)
Cr
10,800
10,800
Paid one year insurance premium
May 7
There is no entry necessary at this point as the hiring of the student helper has no effect on
the assets, liabilities, and owner’s equity.
May 8
There is no entry necessary at this point as the ordering of the art supplies has no effect on
the assets, liabilities, and owner’s equity. No delivery of the supplies has been made, thereby no
liability arises.
May 8
(Purchase of art supplies on account)
Analysis:
Assets increased. Liabilities increased.
Rules:
Debit increases in assets. Credit increases in liabilities.
Entry:
Increases in assets is recorded by a debit to art supplies. Increase in liabilities is
recorded by a credit to accounts payable.
Journal entry illustration:
Dr
Art Supplies (A)
Cr
7,200
Accounts Payable (L)
7,200
Purchased art supplies on account
May 11
Analysis:
Assets increased. Owner’s equity increased.
Rules:
Debit increases in assets. Credit increases in owner’s equity.
Entry:
Increase in assets is recorded by a debit to accounts receivable. Increase in owner’s
equity is recorded by a credit to painting revenue.
Journal entry illustration:
Dr
Accounts Receivable (A)
Cr
120,000
Painting Revenue (OE:R)
120,000
Anime painting on account
May 12
Analysis:
Assets decreased. Liabilities decreased.
Rules:
Debit decreases in liabilities. Credit decreases in assets.
Entry:
Decrease in liabilities is recorded by a debit to accounts payable. Decrease in assets
is recorded by a credit to cash.
Journal entry illustration:
Dr
Accounts Payable (L)
3,000
Cr
Cash (A)
3,000
Made partial payment to
National Book Store
May 15
Analysis:
An asset increased. Another asset decreased.
Rules:
Debit increases in assets. Credit decreases in assets.
Entry:
Increase in assets is recorded by a debit to cash. Decrease in assets is recorded by
a credit to accounts receivable.
Journal entry illustration:
Dr
Cash (A)
Cr
50,000
Accounts Receivable (A)
50,000
Received cash as partial collection from Mr. Ku To
May 18
Analysis:
Assets decreased. Owner’s equity decreased.
Rules:
Debit decreases in owner’s equity. Credit decreases in assets.
Entry:
Decrease in owner’s equity is recorded by a debit to Ong, Drawing. Decrease in
assets is recorded by a credit to cash.
Journal entry illustration:
Dr
Ong, Drawing (OE)
Cr
18,000
Cash (A)
18,000
Withdrew cash for personal use
May 20
Analysis:
Assets increased. Liabilities increased.
Rules:
Debit increases assets. Credit increases in liabilities.
Entry:
increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by
a credit to unearned painting revenue.
Journal entry illustration:
Dr
Cash (A)
Cr
80,000
Unearned Painting Revenue (L)
Received cash for painting services to be rendered
80,000
May 23
Analysis:
Assets increased. Owner’s equity increased.
Rules:
Debit increases in assets. Credit increases in owner’s equity.
Entry:
Increase in assets is recorded by a debit to cash. Increase in owner’s equity is
recorded by a credit to painting revenue.
Journal entry illustration:
Dr
Cash (A)
Cr
90,000
Painting Revenue (OE:R)
90,000
Received cash for a charcoal painting
May 25
Analysis:
Assets decreased. Owner’s equity decreased.
Rules:
Debit decreases in owner’s equity. Credit decreases in assets.
Entry:
Decrease in owner’s equity is recorded by a debit to salaries expense. Decrease in
assets is recorded by a credit to cash.
Journal entry illustration:
Dr
Salaries expense (OE:E)
Cr
4,000
Cash (A)
4,000
Paid helper’s salary for the month
May 29
Analysis:
Assets decreased. Owner’s equity decreased.
Rules:
Debit decreases in owner’s equity. Credit decreases in assets.
Entry:
Decrease in owner’s equity is recorded by a debit to utilities expense. Decrease in
assets is recorded by a credit to cash.
Journal entry illustration:
Dr
Utilities expense (OE:E)
Cr
540
Cash (A)
540
Paid water bill for the month
May 30
Analysis:
Liabilities increased. Owner’s equity decreased.
Rules:
Debit decreases in owner’s equity. Owner’s equity decreased.
Entry:
Decrease in owner’s equity is recorded by a debit to utilities expense. Increase in
liabilities is recorded by a credit to utilities payable.
Journal entry illustration:
Dr
Utilities expense (OE:E)
Utilities Payable (L)
Received bill from Meralco
Cr
4,500
4,500