Chapter 4

Accounting Fundamentals - Recording Business Transactions

ACCOUNTING CYCLE
A series of sequential steps or procedures performed to accomplish the accounting process.

Step 1 Identification of Events to be Recorded

During the
Accounting Step 2 Transactions are Recorded in the Journal
Period

Step 3 Journal Entries are Posted to the Ledger

Step 4 Preparation of a Trial Balance

Step 5 Preparation of the Worksheet including Adjusting Entries

At the end Step 6 Preparation of the Financial Statements

of the
Accounting
Period Step 7 Adjusting Journal Entries are Journalized and Posted

Step 8 Closing Journal Entries are Journalized and Posted

Step 9 Preparation of Post-Closing Trial Balance

At the start
Step 10 Reversing Journal Entries are Journalized and Posted
of the next
Period
 Standard Contents of the General Ledger

Date Account Titles and Explanation P.R. Debit

2021
Oct. 01 Cash 110 450,000
Del Mundo, Capital
Initial investment.

10

1 Date
The year and month are not rewritten for every entry unless the year or month changes or a new page is n

2 Account Titles and Explanation

The account to be debited is entered at the extreme left of the first line while the account to be credited
slightly indented on the next line. A brief description of the transaction is usually made on the line below th
Generally, skip a line after each entry.

3 P.R. (Posting Reference)

This will be used when the entries are posted, that is, until the amounts are transferred to the related ledg

4 Debit
The debit amount for each account is entered in this column.

5 Credit
The credit amount for each account is entered in this column.
 Credit

450,000

ar or month changes or a new page is needed.

st line while the account to be credited is entered

on is usually made on the line below the credit.

unts are transferred to the related ledger accounts.

Problem 1
Debits and Credits

Innovative Designs, owned by Nilo Burgos, has been operating for two years. Below is the series of
transactions. For each transaction, indicate the accounts that should be debited and credited. If no journal
entry is required, write "n/a" in the columns. Use the following account titles: Cash, Acounts receivable;
Supplies; Prepaid Expenses; Equipment; Patents; Accounts Payable; Notes Payable; Salaries Payable;
Burgos, Capital; Burgos, Withdrawals; Service Revenues and Operating Expenses.

TRANSACTIONS Debit (Dr) Credit (Cr)

Purchased equipment for use in business; paid
a one-third cash and gave a note payable for the Equipment Cash; Notes Payable
balance.
b Paid cash for salaries. Operating expenses Cash
c Collected cash for services performed this period. Cash Service Revenues
d Cash Accounts receivable
Collected cash for services performed last period.
e Performed services this period on credit. Accounts receivable Service Revenues
f Paid operating expenses incurred this period. Operating expenses Cash
Paid cash for operating expenses incurred last
g Accounts payable Cash
period.

h Incurred operating expenses this period to be paid Operating expenses Accounts payable
next month.

i Purchased supplies for inventory to be used later; Supplies Cash

paid cash.
j Used some supplies from inventory for operations. Operating expenses Supplies
k Purchased a patent (intangible asset); paid cash. Patents Cash

l Made a payment on the equipment note in (a); the Notes Payable Cash
payment was part principal and interest expense.
m Paid cash on accounts payable for expenses Accounts payable Cash
previously incurred..
Collected cash on accounts receivable for
n Cash Accounts receivable
services previously performed

o On the last day of current period, paid cash for an Prepaid Expense Cash
insurance policy covering the next twelve months.
w is the series of
d credited. If no journal
Acounts receivable;
e; Salaries Payable;

Credit (Cr)

Cash; Notes Payable

Cash
Service Revenues
Accounts receivable
Service Revenues
Cash
Cash

Accounts payable

Cash

Supplies
Cash

Cash

Cash

Accounts receivable

Cash
Problem 2:
Developing a Chart of Accounts and Recording Transactions in T-Accounts

T-Accounts

Reyes, Capital
Reyes, Withdrawals
JOURNAL ENTRIES:
Date Account Titles and Explanation
2014
Oct. 01 Cash
Reyes, Capital
Initial investment.

3 Prepaid Rent
Cash
Payment of prepaid rent.

5 Photography Equipment
Reyes, Capital
Additional investment for the business.

7 No entry.

8 Office Equipment
Cash
Purchase of office equipment.

10 Photography Equipment
Cash
Acquisition and payment for photography equipment.

12 Photography supplies
Accounts payable
Purchase of photography supplies on account.

13 Cash
Portrait Revenues
Cash collection from unbilled portraits.

17 Accounts receivable
Portrait Revenues
Billing customers for service rendered.

19 Accounts Payable
Cash
Partial payment for payables from Oct. 12

25 Telephone, Light and Electricity Expenses

Cash
Payment of electricity bill.

26 Telephone, Light and Electricity Expenses

Cash
Payment of telephone bill.

28 Cash
Accounts receivable
 Collection of accounts receivable.

29 Salaries expense
Cash
Payment of salaries to personnel.

30 Cash
Unearned Portraits Revenue
Collection of advance payment from customer.

31 Reyes, Withdrawals
Cash
Cash withdrawal from business.

Eternal Images
Trial Balance
October 31, 2021

Cash P 156,700
Accounts receivable 15,000
Photography Supplies 21,000
Prepaid Rent 40,500
Photography Equipment 204,000
Office Equipment 54,000
Accounts Payable
Unearned Portraits Revenue
Reyes, Capital
Reyes, Withdrawals 16,000
Portrait Revenues
Salaries expense 12,000
Telephone, Light and Water Expense 5,700
Totals P524,900
P.R. Debit Credit

350,000
350,000

40,500
40,500

129,000
129,000

54,000
54,000

75,000
75,000

21,000
21,000

11,400
11,400

22,500
22,500

10,500
10,500

3,600
3,600

2,100
2,100

7,500
7,500
 12,000
12,000

1,500
1,500

16,000
16,000

P 10,500
1,500
479,000

33,900

P524,900
T-Accounts

Reyes, Capital
Reyes, Withdrawals
JOURNAL ENTRIES:
Date Account Titles and Explanation
2021
a Cash
Apalisoc, Capital
Initial investment.

b Medical Equipment
Apalisoc, Capital
Additional investment for the business.

c Office Equipment
Accounts Payable
Acquired office equipment on account.

d Office Equipment
Cash
Purchase of chairs for office use.

e Office Equipment
Cash
Accounts Payable
Acquisition of office equipment partially in cash and
partially on account.

f Utilities Expense
Cash
Payment of telephone bill.

g Accounts receivable
Service Revenues
Performed service for customers on account.

h Miscellaneous expense
Cash
Payment of professional membership fee.

i Utilities expense
Cash
Payment for electric bill.

j Cash
Accounts receivable
Collection of accounts receivable.

k Accounts Payable
Cash
Payment of the remaining balance for the purchase
of cabinet.

l Rent expense
 Cash
Payment of rent.

m Cash
Service revenues
Cash collection from walk-in clients.

n Salaries expense
Cash
Payment of salaries for nurses.

o Apalisoc, Withdrawals
Cash
Cash withdrawal from business.

Cagayan Chirocpractic Clinic

Trial Balance
June 30, 2021

Cash P 145,590
Accounts receivable 9,220
Office Equipment 23,280
Medical Equipment 72,000
Accounts Payable
Apalisoc, Capital
Apalisoc, Withdrawals 11,500
Service Revenues
Salaries expense 8,250
Rent Expense 5,000
Utilities Expense 1,900
Miscellaneous Expense 1,800
Totals P278,540
P.R. Debit Credit

180,000
180,000

72,000
72,000

3,260
3,260

4,620
4,620

15,400
7,400
8,000

990
990

16,120
16,120

1,800
1,800

910
910

6,900
6,900

3,260
3,260

5,000
 5,000

2,420
2,420

8,250
8,250

11,500
11,500

P 8,000
252,000

18,540

P278,540