Course Code: ACC 102

Module #4

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Lesson title: Summarizing the Effects of Business Transactions Materials:

Lesson Objectives: Module #4

1. Develop chart of accounts.

2. Analyze business transactions.
3. Record and summarize all noted transactions. Reference:
4. Know well the process of preparing journal entries.
5. Be familiar with the errors in trial balance. Fundamentals of Financial
Accounting and Reporting by
Win Ballada

Productivity Tip:
Take care of yourself.
 Look inward for your motivation. Remembering the goal you are working toward will help you
as you work through the challenges of being a student.
 Stay healthy by getting adequate rest, nutrition and exercise. Use positive self-talk to reduce
anxiety. Schedule time to take care of yourself and spend time with your friends and family.
 Keep a growth mindset. Your success has as much to do with your effort as it have to do
with your ability. Monitor your self-talk and stay positive.

A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)

It is beneficial for the users of financial statement to have an overview of the general financial health of the
company. Keeping track of all the company’s assets moving in and out of the business can be a challenge,
but it’s important for anyone who wants an insight into it. Chart of accounts can be a beneficial addition to
the financial analytics tools of the company.

When analyzing transactions, the accountant refers to chart of accounts to identify the pertinent accounts
to be increased or decreased. If an appropriate account title is not listed in the chart, an additional account
may be added.

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Name: _____________________________________ Class number: _________________

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Section: _________ Schedule: _________________ Date: ________________________

2) Activity 1: What I Know Chart, part 1 (3 mins)

Try answering the questions below by writing your ideas under the What I Know column. You may use
key words or phrases that you think are related to the questions. Answer the What I learned section
after reading the Concept notes

What I Know Questions: What I Learned

What is chart of accounts?

What are the steps to properly

analyze business transactions?

How to properly record business

transactions?

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B. MAIN LESSON
1) Activity 2: Pre-Printed Content Notes (13 mins)

CHART OF ACCOUNTS
 It is a listing of all the accounts and their account numbers in the ledger.
 The chart is arranged in the financial statement order, that is, assets first, followed by liabilities, owner’s
equity, income and expenses.
 The accounts should be numbered in a flexible manner to permit indexing and cross referencing.
 When analyzing transactions, the accountant refers to the chart of accounts to identify the pertinent
accounts to be increased or decreased.
 If an appropriate account title is not listed in the chart, an additional account may be added.

MODESTO GRAPHICS DESIGN SERVICES

CHART OF ACCOUNTS

Balance Sheet Accounts Income Statement Accounts

Assets Income
110 Cash 410 Service Revenues
120 Accounts Receivable 420 Interest Income
130 Supplies
140 Prepaid Rent Expenses
150 Prepaid Insurance 510 Salaries Expense
160 Service Vehicle 520 Supplies Expense
165 Accumulated Depreciation 530 Rent Expense
170 Office Equipment 540 Insurance Expense
175 Accumulated Depreciation 550 Utilities Expense
Liabilities 560 Depreciation Expense-
210 Notes Payable Service Vehicle
220 Accounts Payable 570 Depreciation Expense-
230 Salaries Payable Office Equipment
240 Utilities Payable 580 Interest Expense

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250 Interest Payable 590 Miscellaneous Expense

260 Unearned Referral Revenues
Owner's Equity
310 Modesto, Capital
320 Modesto, Withdrawal
330 Income Summary

TRANSACTION ANALYSIS (STEP 1)

The analysis of transactions should follow these four basic steps:
1. Identify the transaction from source documents.
2. Indicate the accounts- either assets, liabilities, equity, income or expenses- affected by
the transaction.
3. Ascertain whether each account is increased or decreased by the transaction.
4. Using the rules of debit and credit, determine whether to debit or credit the account to record its
increase or decrease.

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THE RECORDING PROCESS

1. Identifying the accountable accounting transactions
2. Verifying the correctness of source documents
3. Analyzing the accounting elements affected by the accountable transactions- accounts to be debited or
credited
4. Recording the debit and credit entry order in the book of original entries (journal) chronologically.

THE JOURNAL
It provides a chronological record of transactions with explanations and clear references to their supporting
documents with corresponding debits and credits.

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 Explanation. Write the debit account at the extreme left of the first line while
the credit account is indented half-inch on the next line. The explanation describing the transaction is
written on the extreme left of the next line below the credit. Remember to skip one line before
proceeding to the next transaction.
3. P.R. (Posting Reference). Write the corresponding account number here once the entry is posted.
Meanwhile, 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.

FORMS OF JOURNAL ENTRY

1. A simple journal entry with one debit account and one credit account.
Ex. Modesto Graphics Design Services purchased P20,000 equipment paying cash.

Page Number J1

Date
Account Titles and Explanation PR Debit Credit
2021
Sept. 5 Equipment 20,000
Cash 20,000
To record the purchase of equipment on cash

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2. A compound journal entry is an entry with more than one debit or more than one credit or both.
Ex. Modesto Graphics Design Services purchased P20,000 equipment paying P5,000 as down
payment and the P15,000 as balance on account.

Page Number J1

Date
Account Titles and Explanation PR Debit Credit
2021
Sept. 5 Equipment 20,000
Cash 5,000
Accounts Payable 15,000
To record the purchase of equipment terms; P5,000 down, balance on account
Illustrative Problem

The following are transactions for Modesto Graphics Design Services for the month of September,
2021. 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 effects on owner’s equity are sub classified as follows: OE: R (Revenue)
and OE: E (Expenses).

Initial Investment

Sept 1 Modesto decided to put up an art services. She invested P500,000 in this initial
endeavour.
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 Modesto, Capital.
Dr Cr
Cash (A) 500,000
Modesto, Capital (OE) 500,000
Initial Investment

Acquisition of Transportation Equipment for Cash

Sept 1 Acquired transportation equipment to be used for delivery P300,000 cash

Analysis An asset increased. Another asset decreased.
Rules Debit increases in assets. Credit decreases in assets.

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Entry Increase in assets is recorded by a debit to transportation equipment. Decrease in

assets is recorded by a credit to cash.

Dr Cr
Transportation Equipment (A) 300,000
Cash (A) 300,000
Purchased transportation equipment for cash

Advance Payment of Rental

Sept 1 Rented office space and paid two months’ rent in advance, P30,000.
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 prepaid rent. Decrease in assets is
recorded by a credit to cash.

Dr Cr
Prepaid Rent (A) 300,000
Cash (A) 300,000
Paid two months’ rent in advance

Issuance of Note for Cash

Sept 2 Modesto issued a promissory note for a P200,000 loan from Metro Bank. The note carries
a 12% interest per annum. The interest and the principal are payable after one year.
Analysis An asset increased. 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.

Dr Cr
Cash(A) 300,000
Notes Payable (L) 300,000
Borrowed money from the bank issuing a promissory note

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Events not Affecting the Accounting Equation (no journal entry)

Sept 2 Hired an office salary with P5,000 monthly salary. The secretary started work on the
same day.
Analysis There is no entry necessary at this point as the hiring of the secretary has no effect on
the assets, liabilities and owner’s equity.

Sept 2 Called Huaze Art Supplies and ordered oil paints and brushes worth P12,000.
Analysis There is no entry necessary at this point as the ordering of the oil paints and brushes has
no effect on the assets, liabilities and owner’s equity. No delivery of the supplies has
been made thereby no liability arises.

Payment of Insurance Premiums

Sept 4 Paid Pru Life Insurance Co. P18,000 for one year insurance of the art gallery.
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 Prepaid Insurance. Decrease in assets is
recorded by a credit to cash.

Dr Cr
Prepaid Insurance (A) 18,000
Cash 18,000
Paid one year insurance premium

Purchase of Supplies on Account

Sept 8 The P12,000 oil paints ordered from Huaze Art Supplies were delivered on account.
Analysis An asset increased. Liabilities increased.
Rules Debit increases in assets. Credit increases in liabilities.
Entry Increase in assets is recorded by a debit to Art Supplies. Increase in liabilities is
recorded by a credit to Accounts Payable.

Dr Cr
Art Supplies (A) 12,000
Accounts Payable (L) 12,000
Purchased art supplies on account

Partial Payment of Accounts Payable

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Sept 10 Paid Huaze Art Supplies P5,000 of the amount owed.

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.

Dr Cr
Accounts Payable (L) 5,000
Cash (A) 5,000
Made a partial payment of liability

Cash Collection from Income Earned

Sept 11 Painted the portrait of Dong Shancai receiving P200,000 cash for the completed
portrait.
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.

Dr Cr
Cash (A) 200,000
Painting Revenue (OE:R) 200,000
Received cash for painting a portrait

Payment of Salaries

Sept 15 Paid secretary's salary for half month, P2,500.

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.
Dr Cr
Salaries Expense (OE:E) 2,500
Cash (A) 2,500
Paid Secretary's half monthly salary

Collection of Unearned Income

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Sept 17 Received P250,000 cash for a contract to paint the portrait of Monalisa.
Analysis Assets increased. Liabilities increased.
Rules Debit increases in assets. Credit increases in liabilities.

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Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is recorded by a

credit to unearned painting revenue.

Dr Cr
Cash (A) 250,000
Unearned Painting Revenue 250,000
Received cash for painting services to be rendered.

Income Earned on Account

Sept 21 Delivered and billed Mr. Chen P150,000 for a landscape painting. 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.
Dr Cr
Accounts Receivable (A) 150,000
Painting Revenue (OE: R) 150,000
Landscape painting on account

Cash Withdrawal by Owner for Personal Use

Sept 23 Modesto withdrew P30,000 for personal use.

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 Si, Drawing. Decrease in assets is
recorded by a credit to cash.
Dr Cr
Modesto, Drawing (OE) 30,000
Cash (A) 30,000
Modesto withdrew cash for personal use.

Unpaid Expenses already Consumed/ Incurred (Accrued Expenses)

Sept 23 Received bill from PLDT P900

Analysis Liabilities increased. Owner's equity decreased.
Rules Debit decreases in owner's equity. Credit increases in liabilities.
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.
Dr Cr
Utilities Expense (OE: E) 900
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Utilities Payable (L) 900

Received bill from PLDT

Partial Collection of Accounts Receivable

Sept 25 Received P100,000 from Mr. Chen as partial payment for landscape painting delivered
last Sept. 21
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.

Dr Cr
Cash (A) 100,000
Accounts Receivable (A) 100,000
Received cash a partial collection from Mr. Sy

Limitations of trial balance

A trial balance (TB) shows the debit or credit balance of all the general ledger accounts and the total debit
entries and the total credit entries should be the same. However, the TB does not guarantee freedom from
recording errors. It does not prove that all transactions have been recorded or that the ledger is correct.

Types of trial balance errors

1. Error in posting a transaction to the ledger:

➢ An erroneous amount was posted either in the debit or credit side

➢ A debit entry was posted as a credit or vice versa
➢ A debit or credit posting was omitted

2. Error in determining the account balances:

➢ A balance was incorrectly computed

➢ A balance was entered incorrectly either in the debit or credit column

3. Error in preparing the trial balance:

➢ Error in adding the debit or credit column of the trial balance

➢ Amount of an account balance was incorrectly recorded on the trial balance
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➢ A debit balance was recorded on the trial balance as a credit or vice versa, or a
balance was omitted entirely.

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Locating Errors
1. Recompute the addition of the trial balance columns starting from the last amount going up.
2. If addition is correct but the TB does not balance, get the exact amount of the difference between the
total debit and total credit.
3. If the difference is divisible by 9, this suggests either a transposition error (reversing the order
of numbers, 21,750 written as 21,570), or a sliding error (moving of the decimal point, 21,750 written
as 2,175).
4. Scan the trial balance columns for an amount equal exactly to one-half of the discrepancy.
5. Look over the transactions for an item of the exact amount of the discrepancy. An error may
have been made by recording the debit side of the transaction and forgetting to enter the credit
side.
6. Recompute the balance of each ledger account.
7. Trace all postings from the journal to the ledger accounts by placing a check mark for both
records after the figure is verified.

2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)
Directions: Prepare the journal entries for the December transactions. Use the template below for your
answers. Use the following account titles:

Cash Modesto, Capital

Accounts Receivable Office Supplies Modesto, Withdrawals
Office Condominium Accounting Revenues Salaries Expense
Office Equipment Rent Expense
Accounting Library Telephone Expense
Notes Payable Professional Dues Expense
Accounts Payable

Date (2021) Transactions

Dec 2 Transferred P92,500 cash from a personal savings account to a checking
account.
3 Acquired office equipment on account from Ximen Furnitures, P36,800.
4 Acquired office supplies on account from Meizuo Office Supply
Company, P17,100.
6 Performed accounting services for Ryuji Computer Company and submitted a bill
of P29,200 for those services.
7 Paid the accounting and tax books for use in the practice, P19,500. 8 Paid
Meizuo Office Supply Company, P4,100 on account.
10 Acquired a condominium unit for the accounting practice, P265,000. A
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down payment of P38,000 was made and issued a note payable for the
remaining P227,000.
12 Paid salaries, P14,200.

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13 Received P9,750 from Ryuji Computer Company, billed on May 6. 16 Paid

telephone expense, P650.
19 Received cash in the amount of P14,600 from Hifumi Book Company for
accounting services rendered for the month.
22 Acquired office supplies on account from Meizuo Office Supply Company,
P4,650.
23 Withdrew P8,150 for personal use.
25 Paid salaries, P10,300.
26 Billed Ann Exporters P31,600 for accounting services rendered.
27 Paid PICPA Makati P5,500 for professional dues.
28 Paid P3,250 rent on an office copying machine.

JOURNAL
Date Account Titles and Explanation PR Debit Credit

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JOURNAL
Date Account Titles and Explanation PR Debit Credit

3) Activity 4: What I Know Chart, part 2 (2 mins)

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Let’s check What You Know NOW by referring to the third column of the Chart contained in your
Activity 1.

4) Activity 5: Check for Understanding (5 mins)

Direction: Analyze the errors and their effect on trial balance.

The bookkeeper for Bien Services made a number of errors in journalizing and posting, as describe
below.
1. A credit posting of P4,000 to Accounts Receivable was omitted.
2. A debit posting of P7,500 for Prepaid Insurance wad debited to Insurance Expense.
3. A collection from customer of P1,000 in payment of its account owed was
journalized and posted as a debit to Cash P1,000 and a credit to Service Revenue,
P1,000.
4. A credit posting of P3,000 to Tax Payable was made twice.
5. A cash purchase of supplies for P2,500 was journalized and posted as a debit to Supplies P250
and a credit to Cash, P250.
6. A debit of P4,950 to Advertising Expense was posted as P4,590.

Instructions
For each error,
a. Indicate whether the trial balance will balance
b. If the trial balance will not balance, indicate the amount of the difference.
c. Indicate the trial balance column that will have the larger total.

Consider each error separately. Use the following form, in which error (1) is given as an example.
Error In-balance (a) Difference (b) Larger column (c)
1 No P4,000 debit
2
3
4
5
6

A. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 mins)
Let’s now shade the number of this module that you have finished.

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b) Think about your learning by filling up your “My Learning Tracker” below. Write your learning targets,
your scores, and learning experience for this session and deliberately plan for our next learning
session.

Date Learning Target/Topic Scores Action Plan

What module# did you

What were your What contributed to the quality of your
What’s the do? What were the
scores in the performance today? What will you do next session
date today? learning targets? What
activities? to maintain your performance or improve it?
activities did you do?

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