THE ACCOUNTING EQUATION
AND BOOK OF ACCOUNTS
Presented by:
Lea M. Banting
SST-II
At the end of the lesson you
are expected to:
 recall the accounting cycle and
accounting equation;
 perform transaction analysis;
 prepare journal entries to
record business transactions.
INITIAL INVESTMENT
March 1-Maja Salvador invested 250,000 in
her bridal consultancy.
Analysis: Assets increased. Owner’s equity
increased.
Rules: Increases in assets are recorded by
debits. Increases in owner’s equity are
recorded by credits.
Entry:
Cash (A)
Salvador, Equity (OE)
Dr.
Cr.
250,000
250,000
NOTE ISSUED FOR CASH
March 2-Maja Salvador issued a
promissory note for a 210,000 loan from
BDO. This availment will be used for the
acquisition of a service vehicle. The note
carries a 20% interest per annum. The
arrangement with the bank is that both
the interest and the principal are
payable in full in one year.
Analysis: Assets increased.
Liabilities increased.
Rules: Increases in assets are recorded by
debits. Increases in liabilities are recorded
by credits.
Entry:
Cash (A)
Notes Payable (L)
Dr.
Cr.
210,000
210,000
RENT PAID IN ADVANCE
March 3 Rented office space and paid
two month’s rent in advance, P8,000.
ANALYSIS Assets increased. Assets decreased.
RULES
ENTRY
Increases in assets are recorded by
debits. Decreases in assets are
recorded by credits.
Prepaid Rent (A)
Cash (A)
8,000
8,000
SERVICE VEHICLE ACQUIRED FOR CASH
March 4- Acquired service vehicle for
420,000.
ANALYSIS Assets increased. Assets decreased.
RULES
ENTRY
Increases in assets are recorded by
debits. Decreases in assets are
recorded by credits.
Service Vehicle (A)
Cash (A)
420,000
420,000
SUPPLIES PURCHASED ON ACCOUNT
March 8- Purchased supplies on credit for
18,000 from Agustin Supplies.
ANALYSIS Assets increased. Liabilities increased.
RULES
ENTRY
Increases in assets are recorded by
debits. Increases in liabilities are
recorded by credits.
Supplies (A)
18,000
Accounts Payable (L)
18,000
ACCOUNTS PAYABLE PARTIALLY SETTLED
March 9- Paid Agustin Supplies 10,000 of
the amount owed.
ANALYSIS
RULES
Assets decreased.
Liabilities decreased.
Decreases in assets are recorded by
credits. Decreases in liabilities are
recorded by debits.
ENTRY
Accounts Payable (L)
Cash (A)
10,000
10,000
REVENUES EARNED AND COLLECTED
March 10- Coordinated and finalized simple
bridal arrangements for three couples and
collected fees of 8,000 per couple.
ANALYSIS
RULES
Assets increased.
Owner’s equity increased.
Increases in assets are recorded by
debits. Increases in owner’s equity
are recorded by credits.
ENTRY
Cash (A)
26,400
Service Revenue (OE:R)
26,400
SALARIES PAID
March 15- Paid salaries 6,600. The entity pays
salaries every two Saturdays.
ANALYSIS
RULES
Assets decreased.
Owner’s equity decreased.
Decreases in assets are recorded by
credits. Decreases in owner’s equity
are recorded by debits.
ENTRY
Salaries Expense (OE:E)
Cash (A)
6,600
6,600
GROUP ACTIVITY:
TIC-TAC -CPA
Instructions
1.Divide the class into two teams- Team X and
Team O.
2.Taking turns, each team shall answer a
question related to transaction analysis and
journal entries.
3.Once a question has been posed, the
responding team should confer amongst
themselves before sharing their final answer.
GROUP ACTIVITY:
TIC-TAC -CPA
4.If the team gets the answer correct, they get to
write in either X or an O on the board, depending
on which team they’re on.
5. If that team does not provide an accurate
answer, then the other team has a chance to
deliberate and provide the right answer.
6. The first team to get a row, column or diagonal
line filled in on the board wins.
7. NO HOMEWORK FOR THE WINNING TEAM.
X
0
0
X
X
X
X
X
0
X
0
0
0
X
0
0
On April 1, 2016 Kathryn Richards organized a
business called Hello Love Trucking. During April,
the company entered into the following
transactions:
April 1 - Kathryn deposited 500,000 cash
in a bank account in the name of the
business.
April 1 –Purchased for 250,000 a
transportation equipment to be use in the
business. Kathryn paid 50% down payment
while the balance will be paid on May 15.
April 1 –Paid rental for the month of April,
5,000.
April 5- Earned and collected trucking
income from Ryan, 8,000.
April 8- Earned trucking income from Joy,
3,000 on account. Joy will pay on May 8,
2016
April 10- Paid salaries of drivers, 10,000.
April 15- Rented the vehicle to Joshua for
35,000. Joshua paid 20,000 on that date
and the balance on April 20.
April 18- Paid electric bills for the month,
2,000.
April 20- Collected from Joshua the
balance of his April 15 account.
April 25- Purchased office supplies, 2,300.
April 29- Earned and collected trucking
income from Jay, 18,000.
Indicate in each independent case whether the
account is to be debited (DR) or to be credited (CR)
1. Increase in Accounts Payable
2. Decrease in Capital account
3. Increase in Service Revenue
4. Increase in Cash
5. Decrease in Accounts Receivable
6. Increases in Salaries Expense
7. Increase in Office Equipment
8. Increase in unpaid Salaries
9. Increase in Owner’s drawing account
10.Increase in Interest Income
ASSIGNMENT
Answer exercise 7-1,
page 124-125