Transaction Analysis Journal Entry Preparation

TRANSACTION
ANALYSIS
AND
JOURNAL
ENTRY
ACCOUNT TITLE – is a word used
to describe the transaction
which is generally accepted
and understood by the
general user of a financial
statement.
CHART OF ACCOUNTS – is a list

of account titles used by the
business enterprises to describe
their transactions.
XYZ REPAIR SHOP
Ref # ASSETS Ref # REVENUE

101 Cash 400 Service Income
111 Accounts Receivable 410 Interest Income
121 Office Supplies
125 Inventories
141 Land Ref # EXPENSES
150 Equipment 501 Rent Expense
510 Salaries Expense
520 Utilities Expense
Ref # LIABILITIES 530 Depreciation
201 Accounts Payable
212 Notes Payable
Ref # EQUITY
301 X, Capital
310 X, Withdrawal
ASSET
ACCOUNT
ASSETS – resources controlled
by the entity as a result
of past transactions or
events and from which
future economic benefits
are expected to flow to
the entity.
CLASSIFICATION OF ASSETS:
1. CURRENT ASSETS – it is a cash or cash
equivalent unless the asset is restricted
from being exchanged or used to settle
a liability for at least twelve (12) months
after the reporting period.
- the entity holds the asset primarily for
the purpose of trading
- the entity expects to realize the asset
within 12 months
- the entity expects to realize the asset

or intends to sell or consume it within the
entity’s normal operating cycle
CURRENT ASSETS:
1. CASH – is a generic account. It can be on hand
or in the bank.
- it refers to any medium of exchange that a
bank will accept for deposit at face value.
It includes currency, coins, checks, bank
drafts and money order.
Did you know that cash not only includes money?

MONEY – everything composed of bills and coins,
considered as legal tender, or legal tender of
other nations (such as US Dollar).
CASH EQUIVALENTS – these are short-term and highly

liquid investments that are readily convertible
into cash and which are subject to an insignificant
risk of changes in value.
2. ACCOUNTS RECEIVABLE – oral promises to the
entity to receive cash at a later date.
- open customers’ account NOT supported

by a promissory note.
3. NOTES RECEIVABLE – refer to account receivable

or collectible of the company and is
supported by a promissory note.
4. MERCHANDISE INVENTORY – refers to the mer-

chandise of the company intended for
sale in the course of business operation.
5. PREPAYMENTS – expenses paid in advance.
Example:
The company paid rent in advance for
one year.(Prepaid rent expense)
a. Prepaid rent
b. Prepaid advertising
c. Prepaid insurance
d. Unused office supplies or unused
store supplies
6. OFFICE SUPPLIES – represents various office

supplies used by the office like coupon
bonds, pencils, ballpoint pen, papers,
paper clips, etc.
NON-CURRENT
ASSETS
1. LAND – the land owned by the company that is
being used in business. It is classified
as investment.
2. BUILDING – the infrastructure owned by the

company that is used in business.
3. FURNITURE AND FIXTURES – represents the ff.

a. chairs and tables
b. air conditioners
c. cabinets
d. electric fans
4. OFFICE EQUIPMENT - account that includes
the following:
a. computer
b. calculator
c. typewriter
d. fax machine
e. photocopier
f. telephone units
g. store equipment
5. DELIVERY EQUIPMENT – account that is used

instead of transportation equipment
sometimes.
Evaluation:
Identification.
1. The most vulnerable asset to fraud.
2. Advance payments.
3. Word used to describe a transaction
and understood by the general user.
4. Oral promises to the entity to
receive cash at a later date.
5. Liability account supported by a
promissory note.
7. Includes tables , chairs and cabinets.
8. Pertains to ballpens, bond papers,
pencils, etc.
9. Computer, photocopier, calculators,
telephone, etc.
10.Anything that is owned by the
company.
Assignment:
Define and explain the following
account titles:
- service income - rent expense
- utilities expense -
capital - salaries expense
- drawings
- advertising expense
- insurance expense
LIABILITY
ACCOUNTS
LIABILITIES – these are
obligations
of the entity arising from past
transactions or events the
settlement of which is expected to
result in an outflow from the entity of
resources embodying economic
benefits.
1. ACCOUNTS PAYABLE – represent
the liability accounts of the
company, arising from purchase of
merchandise that is intended for
sale.
2. NOTES PAYABLE – liability accounts

supported by a promissory note
issued by the company.
CAPITAL
ACCOUNTS
OWNER’S EQUITY – this
represents the residual interest on the
assets of the entity after deducting all of
its liabilities.
- it is also known as net assets.

CAPITAL - refers to the capital account of the
owner.
Example: X, Capital X, Drawing

(The letter X represents the name of the owner.)
- it is used to record the following:

a. original investments of owner/s
b. increases resulting from additional
investments by the owner/s
c. increases by the profit realized
by the entity
d. decreases arising from the loss
incurred by the entity
e. decreases by the personal withdrawals
made by the owner/s.
INCOME
ACCOUNT
NCOME – represents increases in economic
benefit during the accounting period in
form of inflow or increase or decrease
in liability that results in increase in
equity, other than contribution from
equity participants. It encompasses
both REVENUE and GAINS.
EVENUE – arises in the course of the ordinary

regular activities of an entity and not
from incidental or investment transactions.
AINS – represents increases to equity resulting from

incidental transactions not associated with
the ordinary regular activities of an entity.
1. SERVICE INCOME – can be used for companies,
which render services in order to earn
an income like the services rendered by:
a. Beauty parlor
b. Barber shop
c. Repair shop
2. INTEREST INCOME – company income earned

out of lending its money or depositing
money with banking institution.
3. SALES – a revenue account for merchandising

type of business organization that is
used in selling merchandise.
4. SALES DISCOUNT – represents cash discount
given to customers for settling their
accounts on time.
5. SALES RETURNS – represent actual returns made

by the customers due to wrong delivery,
wrong shipment, or defective merchandise.
6. SALES ALLOWANCES – represent no actual returns

but to an allowance given instead, for the
defective merchandise delivered.
EXPENSE
ACCOUNTS
1. PURCHASES – are merchandise purchase, which
are intended for sale.
2. PURCHASE DISCOUNT – is a discount given by

merchandisers when you pay your liabi-
lities on time.
3. PURCHASE RETURNS – actual returns of mer-

chandise you return to your supplier
due to wrong delivery, wrong shipment,
or defective merchandise.
4. PURCHASE ALLOWANCES – allowances given by

the supplier representing reduction of
price for purchased merchandise due to
defects.
5. SALARIES AND WAGES – represent the labor
payments to employees of the company.
6. EMPLOYEE BENEFITS – represent the labor

payments to the employees other than
the basic payment that are highly dis-
cretionary on the part of the employer.
Examples:
a. Bonuses
b. Uniforms
c. Meal allowances
d. 13th month pay
e. Vacation and sick leave benefits
7. UTILITIES EXPENSE - expenses arising from light, water,
and telephone expenses.
8. RENT EXPENSE - the rental expenses of the business.
9. ADVERTISING EXPENSE – the cost of promotion and

advertising the products of the business for
the purpose of improving its sales performance.
10. INSURANCE EXPENSE – represents fire and burglary

insurance of the various assets of the
business.
ACCOUNTING
EQUATION
Assets = Liabilities
+
Capital

Transaction Analysis Journal Entry Preparation

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TRANSACTION

CHART OF ACCOUNTS – is a list

Ref # ASSETS Ref # REVENUE

- the entity expects to realize the asset

Did you know that cash not only includes money?

CASH EQUIVALENTS – these are short-term and highly

- open customers’ account NOT supported

3. NOTES RECEIVABLE – refer to account receivable

4. MERCHANDISE INVENTORY – refers to the mer-

6. OFFICE SUPPLIES – represents various office

2. BUILDING – the infrastructure owned by the

3. FURNITURE AND FIXTURES – represents the ff.

5. DELIVERY EQUIPMENT – account that is used

2. NOTES PAYABLE – liability accounts

- it is also known as net assets.

Example: X, Capital X, Drawing

- it is used to record the following:

EVENUE – arises in the course of the ordinary

AINS – represents increases to equity resulting from

2. INTEREST INCOME – company income earned

3. SALES – a revenue account for merchandising

5. SALES RETURNS – represent actual returns made

6. SALES ALLOWANCES – represent no actual returns

2. PURCHASE DISCOUNT – is a discount given by

3. PURCHASE RETURNS – actual returns of mer-

4. PURCHASE ALLOWANCES – allowances given by

6. EMPLOYEE BENEFITS – represent the labor

8. RENT EXPENSE - the rental expenses of the business.

9. ADVERTISING EXPENSE – the cost of promotion and

10. INSURANCE EXPENSE – represents fire and burglary

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