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Module 8 Recording Transactions

Here are the key steps in the accounting cycle for the business transactions: 1. Journalize each transaction by recording the debits and credits in the journal. 2. Post the journal entries to the appropriate accounts in the ledger. 3. Prepare an unadjusted trial balance of debit and credit balances of accounts in the ledger. 4. Identify and record adjusting entries for any prepayments, accruals, and deferrals. 5. Prepare an adjusted trial balance after recording the adjusting entries. 6. Prepare financial statements (income statement, statement of retained earnings, balance sheet) from the adjusted trial balance data. 7. Analyze and interpret the financial statements to evaluate the business

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Airon Bendaña
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64 views

Module 8 Recording Transactions

Here are the key steps in the accounting cycle for the business transactions: 1. Journalize each transaction by recording the debits and credits in the journal. 2. Post the journal entries to the appropriate accounts in the ledger. 3. Prepare an unadjusted trial balance of debit and credit balances of accounts in the ledger. 4. Identify and record adjusting entries for any prepayments, accruals, and deferrals. 5. Prepare an adjusted trial balance after recording the adjusting entries. 6. Prepare financial statements (income statement, statement of retained earnings, balance sheet) from the adjusted trial balance data. 7. Analyze and interpret the financial statements to evaluate the business

Uploaded by

Airon Bendaña
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© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
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RECORDING

TRANSACTIONS
THE EXECUTION OF EACH PROCEDURE IN
THE BUSINESS PROCESSES IS NORMALLY
DOCUMENTED IN BUSINESS DOCUMENTS
WHICH SERVE AS TRACK RECORDS OF THE
EXECUTION OF A TRANSACTION. BUSINESS
DOCUMENTS ARE THE ORIGINAL
RECORDS OF A TRANSACTION AND ARE
THE PRIMARY SOURCE OF JOURNAL
ENTRIES IN THE ACCOUNTING BOOKS.
SAMPLE BUSINESS PROCESSES:

1. ACCEPTANCE OF SERVICE QUOTATION


REQUEST FROM PROSPECTIVE CLIENTS
2. EVALUATION OF THE CLIENT
REQUIREMENT
3. CONFIRMATION OF THE ENGAGEMENT
4. RENDERING OF SERVICES
5. BILLING FOR SERVICES RENDERED
6. COLLECTION OF CLIENT ACCOUNTS
COMMON BUSINESS DOCUMENTS:

1. DELIVERY RECEIPT – EVIDENCES


CONFIRMATION OF DELIVERY OF GOODS.
2. CHECK – AN ORDER TO A BANK TO
DISBURSE THE AMOUNTS INDICATED
THEREIN; IT IS A SUBSTITUTE FOR MONEY IN
THE BUSINESS WORLD.
3. OFFICIAL RECEIPT – AN
ACKNOWLEDGMENT FOR PAYMENT OF
MONEY
COMMON BUSINESS DOCUMENTS:

4. SALES INVOICE/BILLING STATEMENT –


A REQUEST FOR PAYMENT FOR AMOUNTS
DUE INDICATED THEREIN.
5. PURCHASE ORDER – A REQUEST TO A
SUPPLIER TO DELIVER GOODS.
6. SALES ORDER – A REQUEST FROM A
CUSTOMER FOR THE BUSINESS TO
DELIVER.
RECORDING OF TRANSACTIONS

FOR PRACTICAL CONSIDERATIONS,


ACCOUNTANTS NORMALLY DO NOT
RECORD THE TRANSACTIONS AS THEY
OCCUR IN REAL TIME. BUSINESS
DOCUMENTS ARE FIRST ACCUMULATED
AND THEN TRANSFERRED IN THE
ACCOUNTING JOURNAL BY BATCH.
HOWEVER, NOT ALL BUSINESS DOCUMENTS
ARE RECORDED IN THE JOURNALS.
RECORDING OF TRANSACTIONS

THE RECORDING PHASE OF ACCOUNTING IS


ALSO CALLED JOURNALIZING AS IT INVOLVES
CHRONOLOGICAL RECORDING OF
TRANSACTIONS IN THE ACCOUNTING
JOURNALS. THE ACT OF RECORDING A
TRANSACTION OR EVENT IS CALLED
RECOGNITION. THE MAINTENANCE OF RECORDS
OF TRANSACTIONS (BUSINESS DOCUMENTS) UP
TO THE JOURNALIZING OF BUSINESS
TRANSACTION IS CALLED BOOKKEEPING.
PROCEDURES IN RECORDING:

1. IDENTIFYING OF ACCOUNTABLE
TRANSACTIONS AND EVENTS.
2. MEASUREMENT OF ACCOUNTABLE
TRANSACTIONS AND EVENTS.
3. RECORDING ACCOUNTABLE
TRANSACTIONS AND EVENTS IN THE
ACCOUNTING JOURNAL
EXAMPLE OF NON-ACCOUNTABLE
TRANSACTIONS OR EVENTS:

1. PURE PERSONAL TRANSACTIONS OF THE BUSINESS


OWNER.
2. ISSUANCE OF A PURCHASE ORDER TO A SUPPLIER.
3. RECEIPT OF SALES ORDER FROM A CUSTOMER.
4. HIRING OF AN EMPLOYEE.
5. ENTERING INTO A CONTRACT WITH THIRD PARTIES.
6. WINNING IN A COURT CASE THAT IS APPEALED BY
THE DEFENDANT.
7. BORROWING OF A SPECIFIC THING WITH AN
OBLIGATION TO RETURN THE SAME
8. RECEIPT OF GOODS OR PROPERTIES ON AGENCY.
EXAMPLE OF ACCOUNTABLE OR RECORDABLE
TRANSACTIONS OR EVENTS:

1. PURCHASE OF SUPPLIES FOR CASH


2. ACCRUAL OF EMPLOYEE WAGES
3. ACCRUAL OF INTEREST INCOME
4. SALE OF GOODS ON CREDIT
5. PAYMENT OF DEBTS
6. CASH WITHDRAWAL BY THE OWNER
7. INCIDENCE OF FIRE THAT DESTROYED BUSINESS
PROPERTIES
8. PAYMENT OF ADVANCED DEPOSIT ON A RENTAL
AGREEMENT
9. PERSONAL TRANSACTION OF THE OWNER THAT AFFECTS
BUSINESS ACCOUNTS
10. LOSS DUE TO THEFT OR CALAMITY
BASIC RULES IN RECORDING
ACCOUNTABLE TRANSACTIONS AND
EVENTS

THE GENERAL RULE IS ONE JOURNAL


ENTRY FOR EACH ACCOUNTABLE
TRANSACTIONS OR EVENT.
RECORDING OF SIMULTANEOUS
TRANSACTIONS
SIMULTANEOUS TRANSACTIONS AND
EVENTS MAY BE RECORDED USING EITHER
OF THE FOLLOWING TWO TYPE OF
JOURNAL ENTRIES:

1. SIMPLE ENTRY – COMPOSE OF ONE DEBIT


AND ONE CREDIT
2. COMPOUND ENTRY – COMPOSED OF ONE
OR MORE DEBIT OR CREDIT
SAMPLE TRANSACTION:

ON JUNE 30, 2016, THE BUSINESS


COLLECTED A SUM OF P11,000 FROM A
CLIENT’S PROMISSORY NOTE WITH A
PRINCIPAL AMOUNT OF P10,000 PLUS P1,000
INTEREST INCOME ON THE NOTE
Definition of Terms:

1. Fair value which is also called fair market value or simply, market
value, is the price at which an independent and willing buyer and a
willing seller exchange items in an arm’s length transactions freely
away from any control imposed by other parties. Fair value is the
prevailing price for the asset when sold at its present condition in
normal business dealings.

2. Book value which is also called carrying value is the recorded value
for the item in the accounting books of the business.
Measurement Rules

1. For Transactions where the business gives asset – HISTORICAL COST PRINCIPLE
General Rule: The value received is measured at the book value of the asset given. This is
the rule when the business does not receive assets in return.

Exception Rule: If the business receives another asset in exchange


a. Non-cash asset received shall be valued at the fair value of the asset given
b. Cash received shall be measured at its fair value which is its face value

2. In a transaction where the business does not give asset – FAIR VALUE PRINCIPLE
Only Rule: The value received shall be measured at the fair value of the item received
because there is no value parted with.
1. Payment for expense for cash
The business paid P10,000 interest on a borrowing
2. Payment of expense in kind
The business paid for the salary of an employee giving him equipment with book value of
P20,000 but with a current market value of P25,000
3. Owner’s drawings
The owner of the business took home certain office supplies with book value of P4,000 but
with a fair market value of P7,500
4. Noncash asset purchase for cash
The enterprise purchased equipment with a fair value of P120,000 for P100,000 cash
5. Payment of debt for cash
The business settled an accounts payable paying P2,500
6. Consumption of supplies
The business used office supplies with book value of P10,000 and current fair value of
P12,000
7. Loss of assets due to casualty
A thief broke into the office and stole equipment with a book value of P100,000. The
equipment could be sold at a second-hand value of P150,000 in the ordinary course of
business
8. Purchase by non-cash consideration
The enterprise purchased a land with fair value of P3,000,000 by giving in exchange
machinery with a book value of P2,000,000 but with a fair value of P2,500,000 at the date
of exchange
9. Sale of non-cash assets for cash
The business sold an old building with fair value of P2,300,000 but with book value of
P2,500,000 for P2,100,000 cash
10. Receipt of borrowings
The business received P1,000,000 cash loan from the bank. The future value of the loan is
P1,100,000 inclusive of future interest payments.
11. Capital contribution by owner
The business received a machine with a current fair value of P2,300,000 from the owner as
an additional investment. The machine was originally bought by the owner for P2,500,000
12. Income in cash
The business rendered services to a client who paid P20,000 cash
13. Income in kind
The enterprise rendered services which were normally priced at P2,000,000 to a client. The
client gave equipment with a fair value of P2,200,000 as payment for the service.
1. On January 3, 2016, the owner invested P100,000 to the business
2. On January 3, 2016, the owner signed a one-year contract to leas an office space
for a P120,000 annual rental
3. On January 5, 2016, the business purchased supplies on account totaling P20,000
4. On January 6, 2016, the owner issued a purchase order for a P50,000 office
equipment
5. On January 6, 2016, the owner paid 2 months advance rent for P24,000
6. On January 7, 2016, the P50,000 ordered office equipment arrived coupled with a
sales invoice from the supplier
7. On January 10, 2016, the business paid the P50,000 account on the purchase of
equipment
8. On January 11, 2016, the business applied for P100,000 bank loan for additional
financing
9. On January 15, 2016, the bank approved and released the P100,000 loan. The bank loan
pays 12% annual interest
10. On January 15, 2016, the business paid P5,000 for the salaries of staff
11. On January 16, 2016, the business billed P45,000 for services rendered
12. On January 20, 2016, the business paid P5,000 interest on the bank loan
13. On January 20, 2016, collected P30,000 from the customer as partial payment of the
P45,000 bill for services done
14. On January 21, 2016, the business billed P40,000 to a client. The client submitted a P40,000
promissory note with a promise to pay interest
15. On January 26, 2016, the business collected the promissory note plus P2,000 interest
16. On January 26, 2016, the owner infused an additional P50,000 cash and equipment into the
business. The owner previously purchased the equipment for P100,000 but has a current
second-hand value of P60,000
17. On January 27, 2016, the owner of the business paid P10,000 for the insurance of certain
equipment of the business
18. On January 27, 2016, the owner used P20,000 cash from the business to pay off his
maturing personal loans.
19. On January 28, 2016, the business received P30,000 from a client for services rendered
20. On January 28, 2016, the business bartered its equipment with a book value of P50,000 for
a machinery with a fair value of P60,000. The equipment had a fair value of P60,000 at the
date of the barter.
21. On January 29, 2016, the business sold an old equipment with a book value of P10,000 for
P8,000 cash.
22. On January 30, 2016, an equipment with a book value of P5,000 was stolen from the office
premises.

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