Advance Accounting Session 3

ACCOUNTING FOR
A SERVICE
BUSINESS
Learning Objectives
◍ identify, analyze and measure a

business transaction
◍ record accountable business
transactions
◍ apply the rules of debit and credit
2
Hello!
Can you give examples of business
entities under Service Concern?
3
“
The actual sequence of events begins with the
identification of transactions are considered as
accountable and what are not. The rule is, only
transactions and events which are of financial
bearing to the business are being recognized.
4
“
The basis of identifying transactions are the supporting
documents that are on the file or yet to be filed as evidence
of transactions to assure the reliability and verifiability of
records. After identifying, follows next is analyzing. You
should analyze what is the “value received” or debit and the
“value parted with” or credit. Peso is used as the financial
denominator when it comes to measuring of transaction
5
Source Documents
Statement of Account is a formal notice to the debtor detailing the accounts
already due
Official Receipt Evidences the receipt of cash by the seller or the authorized
representative. It notes the invoices paid and other details of
payment
Deposit slips Are printed forms with depositor’s name, account number
and space for details of the deposit.
Check Is a written order to a bank by a depositor to pay the amount
specified in the check from his checking account to the
person named in the check
Purchase requisition Is a written request to the purchaser of an entity from an
employee or user department of the same entity that goods
be purchased
Purchase order Is an authorization made by the buyer to the seller to deliver
the merchandise as detailed in the form
6
Cash Basis Vs. Accrual Basis
Under cash basis, income is recorded only when cash
is actually received. Likewise, expenses are recorded
only when actually paid. This practice could not give
meaning picture of a financial statement because it could
not show the true results of business operations, as well
as its financial condition. To simplify, there is no
recognition of Accounts Receivable for income earned
when not yet collected and no recognition of Accounts
Payable for the expenses incurred when not yet paid
7
Cash Basis Vs. Accrual Basis
Under accrual basis, income is recorded even
cash in not received yet for as long as it is
earned. Likewise, expenses are recorded even
no payment has been made yet for as long as
they are incurred. This practice results to a
proper matching of income or revenue against
costs or expenses and could therefore show a
meaningful financial statements.
8
Components of Income Statements for
Service and Merchandising Entities
Service Merchandising
Revenues from services Net Sales
Minus Minus
Expenses Cost of Sales
Equals Equals
Profit Gross Profit
Add or Minus
Income or Expenses
Equals
Profit
9
Books of Accounts
Journal Book of the original entry
General Journal Refers to a book of original entries, in which accountants and
bookkeepers record raw business transactions, in order according to
the date events occur. A general journal is the first place where data
is recorded, and every page in the item features dividing columns for
dates, serial numbers, as well as debit or credit records .
Special Journal are designed as a simple way to record the most frequently occurring
transactions. There are four types of Special Journals that are
frequently used by merchandising businesses: Sales journals, Cash
receipts journals, Purchases journals, and Cash payments journals.

Ledger Book of the final entry
General Ledger The general ledger is comprised of all the individual accounts needed
to record the assets, liabilities, equity, revenue, expense, gain, and
loss transactions of a business. In most cases, detailed transactions
are recorded directly in these general ledger accounts
10
A picture is worth a thousand words
JOURNALIZING ENTRIES AND

POSTING
11
Rules of Double-Entry System
◍ Two or more accounts are affected by

each transaction
◍ The sum of the debits for every
transaction equals the sum of the
credits
◍ The equality of the accounting equation
is always maintained
12
Illustration
JOURNALIZING SERVICE CONCERN TRANSACTIONS
Maureen Cruz , who has Wedding Consultancy business, entered into the following
transactions during the month of May 2021:
May 1 -Invested in the business P250,000 cash

1 -Rented office space and paid two months’ rent in advance, P8,000
2 -Cruz issued a promissory note for a P210,000 loan from Metrobank
2 -Hired an office assistant and account executive each to receive
P300 per day for the 26-day work month

4 -Acquired service vehicle for P420,000
4 -Paid Prudential Guarantee and Assurance Inc. P14,400 for
13
Illustration
JOURNALIZING MERCHANDISING TRANSACTIONS
May 5 -Acquired office equipment from Fair and Square Emporium for
P60,000; paying P15,000 in cash and the balance next month
8 -Purchased supplies on credit for P18,000 from San Jose Mktg.
9 -Paid San Jose Mktg. P10,000 of the amount owed.
10 -Coordinated and finalized simple bridal arrangements for three
couple and collected fees of P8,000 per couple.

13 -Paid salaries, P6,600. The entity pays salaries every two Saturdays
14
Illustration
May 15 -The entity is earning additional revenues by referring consulting

clients to friendly hotels, caterers, etc. Received P10,000 advance
fees for three clients referred.

19 -Coordinated and finalized elaborate bridal arrangements for three
couples and billed fees of P12,000 per couple.

25 -Cruz withdrew P14,000 for personal expenses
27 -Paid salaries, P7,200 15
Illustration
May 30 -Received P24,000 from two clients for services billed last May 19
31 -Settled the electricity bill of P3,000 for the month
16
👍
Thanks!
Any questions?
17

Advance Accounting Session 3

Uploaded by

Copyright:

Available Formats

Advance Accounting Session 3

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Advance Accounting Session 3

Uploaded by

Copyright:

Available Formats

ACCOUNTING FOR

◍ identify, analyze and measure a

JOURNALIZING ENTRIES AND

◍ Two or more accounts are affected by

May 1 -Invested in the business P250,000 cash

P300 per day for the 26-day work month

couple and collected fees of P8,000 per couple.

May 15 -The entity is earning additional revenues by referring consulting

fees for three clients referred.

couples and billed fees of P12,000 per couple.

You might also like