LA CONSOLACION COLLEGE BACOLOD

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[email protected] | www.lcc.edu.ph

Distance Education
Instructional Module

ABM Track 2: Fundamentals of Accountancy, Business and Management 1

Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

MY JOURNEY

In your week 4 module, you have learned about the expanded accounting equation and
the normal balance of major accounts such as assets, liabilities, owner’s equity, income and
expenses. This basic knowledge is fundamental as we move on to interpret the financial
effects of business transactions in a business. The learning objectives of this lesson will let
you demonstrate an understanding of 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.

MY TARGETS

At the end of this lesson, you will be able to:

a. Identify business and non-business transactions;
b. Enumerate the types of business documents;
c. Recite the rules of debit and credit; and
d. Apply these knowledge to simple business cases.

Day 1
1. Warm-up: Continuing Jose’s photocopying business
2. Task 8: The Rules of Debit and Credit

Day 2
1. Test Yourself: Interpreting Business Transactions
2. Connecting What You’ve Learned: Application of the Debit and Credit Rule

MY WARM-UP
Jose Mercado has the following transactions for the month of August 2020:
August 1 Bought 100 reams of long bond paper at ₱150/ream and 85 reams of short bond
paper at ₱130/ream in cash.
5 Purchased on account two units of printer-scanners worth ₱15,000, payable 30
days.

This instructional material is exclusively for LCCB only | Page 1

 ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

8 Browsed through Shopee and added one unit of laminator for ₱5,500 in his
cart.
12 Paid ¼ of the printer-scanners purchased August 5.
15 Paid his two assistants their monthly salary of ₱6,500 each.
17 Obtained additional loan from his friend amounting to ₱10,000 payable after 15
days.
19 Paid ¼ of the printer-scanners purchased August 5.
26 Paid ¼ of the printer-scanners purchased August 5.

The net asset movement for the month was an increase by ₱26,800.

Name: _______________________________________________ Date: _________________

Grade and Section: _____________________________________ Score: ________________

Question: Can you explain how the net asset movement of the business for the month of
August 2020 increased by ₱26,800?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

READ TO DISCOVER

Week 6 Day 1
THE ACCOUNTING CYCLE refers to a series of sequential steps or procedures
performed to accomplish the accounting process. The steps in the cycle and their aims follow:
Steps Aims
Step 1 Identification of events to be To gather information about transactions or
recorded events generally through the source documents
During the Step 2 Transactions are recorded in To record the economic impacts of
accounting the journal transactions on the firm in a journal, which is a
period form that facilitates transfer to the accounts
Step 3 Journal entries are posted to To transfer the information from the journal to
the ledger the ledger for classification
At the end Step 4 Preparation of trial balance To provide a listing to verify the equality of
of the debits and credits in the ledger
accounting Step 5 Preparation of the worksheet To aid in the preparation of financial
period including adjusting entries statements
Step 6 Preparation of financial To provide useful information to decision-
statements makers
Step 7 Adjusting journal entries are To record the accruals, expiration of deferrals,
ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

journalized and posted estimations, and other events from the

worksheet
Step 8 Closing journal entries are To close temporary accounts and transfer
journalized and posted profit to owner’s equity
Step 9 Preparation of post-closing T o check the equality of debits and credits
trial balance after the closing entries
Step Reversing journal entries are To simplify the recording of certain regular
10 journalized and posted transactions in the nest accounting period

This cycle is repeated each accounting period. The first four steps are going be
discussed in this module.

Shows all the effects of a

The General Journal
(Book of original entry)
transaction in terms of debits
and credits.
Office Equipment XXX Posting
CashXXX Transferring the amounts
Accounts PayableXXX Cash from the general journal to
appropriate accounts in the
Office Equipment
ledger.

Accounts
The Ledger Payable
A grouping of accounts.
Used to classify ad
summarize transactions
and to prepare data for
basic financial statements.

Listing of all ledger accounts, Trial Balance

in order, with their respective
debit or credit balances. Assets
Liabilities
Owner’s Equity
Income
Expenses

Source documents identify and describe transactions and events entering the
accounting process. The original written evidences contain information about the nature and
the amounts of the transactions.
ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

These are the bases for journal entries. Some of the most common source documents
are:
a. Sales invoices f. Checks
b. Cash register tapes g. Purchase orders
c. Official receipts h. Times cards
d. Bank deposit slips i. Statement of account
e. Bank statements j. Delivery receipt

Normal Balances and Increases and Decreases (From Week 4 Module)

Summarized below are the normal balances of major accounts and contra-asset
accounts and how they move (increase or decrease) through debit or credit.
Normal Increase Decrease
Balance Through + Through -
Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner’s Equity:
 Owner, Capital Credit Credit Debit
 Owner, Drawing Debit Debit Credit
Revenues Credit Credit Debit
Expenses Debit Debit Credit
Contra accounts:
 Allowance for Doubtful Accounts Credit Credit Debit
 Accumulated Depreciation Credit Credit Debit
 Withdrawal Debit Debit Credit

Recording Changes in Balance Sheet Accounts

Balance Sheet accounts are assets, liabilities and equity. The balance sheet proves the
accounting equation. Recording transactions into journal entries is easier when you focus on
the equal sign in the accounting equation.

Assets = Liabilities + Owner’s Equity

Assets, which are on the left of the equal sign, increase on the left side or DEBIT side.
Liabilities and stockholders’ equity, to the right of the equal sign, increase on the right or
CREDIT side.

There is an exception to this rule: Withdrawals is an equity account but it reduces

equity since the owner is taking equity from the company. This is called a contra-account
because it works opposite the way the account normally works. For withdrawals, it would be
an equity account but have a normal DEBIT balance (meaning, debit will increase and credit
will decrease).

Recording changes in Income Statement Accounts

ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

We learned that net income is added to equity. We also learned that net income is
revenues less expenses and calculated on the income statement.
Be guided by the expanded accounting equation in remembering the rules:

ASSETS = LIABILITIES + OWNER’S EQUITY

+ Revenues
- Expenses
- Withdrawals

Regardless of what elements are present in the business transaction, a journal entry
will always have AT least one debit and one credit.
ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

READ TO DISCOVER

Week 6 Day 2

SIMPLE AND COMPOUND ENTRY

In a simple entry, only two accounts are affected – one account is credited and the
other debited. However, some transactions require the use of more than two accounts. When
three or more accounts are required in a journal entry, the entry is referred to as compound
entry.

Journalizing Transactions
Note that the rules of double-entry system are observed in each transaction:
1. Two or more accounts are affected by each transaction;
2. The sum of the debits of every transaction equals the sum of the credits; and
3. The equality of the accounting equation is always maintained.
ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

REFERENCES

Ballada, Win et. al. (2011). Basic Accounting Made Easy. DomDane Publishers and Made Easy
Books.
Lumen Learning (2020). General Rules for Debits and Credits. https://courses.lumenlearning.com/sac-
finaccounting/chapter/general-rules-for-debits-and-credits/
Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach 2nd Ed.,
New York: McGraw-Hill/Irwin
Horngen, C.T, Harrison Jr., W.T, & Oliver, M. (2012). Accounting (9 th edition). Prentice Hall
Rabo, Tugas, Salendrez (2016). Fundamentals of Accountancy, Business and Management. Quezon
City, Philippines: Vibal Group Inc.
Valencia, E. and Roxas, G. (2009). Basic Accounting, 3rd ed. Valencia Education Supply
Valencia, E.G. &Roxas, G.F. (2010). Basic Accounting 3rd ed. Mandaluyong City, Philippines:
Valencia Educational Supply.
Valix, Conrado T. et.al. (2015). Financial Accounting, Vol. 1, First part. GIC E nterprises & Co. Inc.
Weygandt, J. et. al. (2012) Accounting Principles 10th ed. John Wiley & Sons (Asia) Pte. Ltd.
Wild, J. (2009). Principles of Accounting 19th ed. McGraw Hill Publishing

Icons and graphics attributed from the artists of , , and .

PRAYER FOR THE BEATIFICATION OF

VENERABLE MOTHER CONSUELO BARCELO
(Co-foundress of the Augustinian Sisters of Our Lady of Consolation in the Philippines)

God of Love and Compassion, You endowed Venerable Mother Consuelo with great love and
zeal for Your honor and glory. We commend to You her life and example of love of
God and neighbor. With faith and trust in Your gracious providence, we pray for her
beatification specially that she may continue to inspire us in seeking Your will and
living a holy life. God of mercy, we also humbly present to You our need, united with
the confirmation of the holiness of life of Venerable Mother Consuelo.
(Silently mention your intentions)
In gratitude for your boundless blessings, we praise and thank you,
Our God, Father, Son and Holy Spirit. Amen.

Our Lady of Consolation, pray for us.

Our great father, St. Augustine, pray for us.
Mother Rita, Venerable Mother Consuelo, and all deceased Sisters, Priests and Brothers,
intercede for us.
MY HEART IS RESTLESS, UNTIL IT RESTS IN YOU, O LORD.

Prepared by:

MS. CLETH A. DIZON-BULAONG, CPA

FABM1 Subject Teacher

Checked by: Approved by:

 ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

MR. RHON DAVE P. SUAREZ, MBA MR. MANUEL DELUMPA, JR., LPT, MAED
ABM Track Chair SHS Assistant Principal

Task 8
Name: _______________________________________________ Date: _________________
Grade and Section: _____________________________________ Score: ________________

Application: Write “↑” if the movement in the major account is an increase, and “ ↓” if the
movement is a decrease. Afterwards, identify if the increase or decrease is a debit or a credit
effect. #1 is an example for you.
OWNER’S
ASSET LIABILITY INCOME EXPENSE
EQUITY
1. Purchase of office ↑ ↑
supplies for the quarter on
account
Effect: Debit Credit
2. Sale of merchandise on
account, payable 15 days
Effect:
3. Received electric and
water bill, payable 20 days
Effect:
4. Paid electric and water
bill received in #3
Effect:
5. Received payment of
sale of merchandise on
account in #2
Effect:
6. Paid salaries of
employees for the cutoff
Effect:
7. Owner invested
additional equipment to the
business
Effect:
8. Sale of merchandise in
cash
Effect:
9. Owner withdraw 1/10
from his original
investment
Effect:
ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

TEST YOURSELF
Name: _______________________________________________ Date: _________________
Grade and Section: _____________________________________ Score: ________________

Use the following information to answer the questions below. The following is the trial
balance for Manuel Company:
Manuel Company
Trial Balance
January 31, 2020
DR CR
Cash ₱30,000
Accounts Receivable 20,000
Art Supplies 30,000
Office Supplies 50,000
Prepaid Rent 70,000
Prepaid Insurance 50,000
Art Equipment 50,000
Office Equipment 30,000
Accounts Payable ₱50,000
Manuel, Capital 150,000
Manuel, Withdrawals ?
Advertising Revenues ?
Salaries Expense ?
Utilities Expense 50,000
Telephone Expense 30,000
Total A B

1. If the balance of the Manuel, Withdrawals account were ₱120,000 and the balance of
the Salaries Expense account were ₱50,000, what would be the amount of B?

2. If the trial balance showed a balance of ₱70,000 in the Manuel, Withdrawals account
and a balance of ₱50,000 in the Salaries Expense account, what would be the amount
of the Advertising Revenues for the period?

3. In the trial balance, total assets

equal
4. If the trial balance showed a balance of ₱80,000 in the Salaries Expense account and a
balance of ₱350,000 in the Advertising Revenues account, what would be the amount
of A?

5. If the trial balance showed a balance of ₱40,000 in the Salaries Expense account and a
balance of ₱300,000 in the Advertising Revenues account, what would be the amount
of the Fernando, Withdrawals account?
ABM Track 2: Fundamentals of Accountancy, Business and Management 1
Subject Teacher: Ms. Cleth A. Dizon-Bulaong, CPA

Unit 3: Recording Business Transactions Week 6: Definition and Nature of Business

Transactions

CONNECTING WHAT I LEARNED

Name: _______________________________________________ Date: _________________

Grade and Section: _____________________________________ Score: ________________

In this module, you were able to make yourself familiar with the rules of debit and
credit and how each side should always balance so that accounting records are recorded
correctly and logically.

As an LCCian ABM Student, how can you apply the rules of debit and credit in your
everyday life (e.g. creating and maintaining balance in your student life)?