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Accounting Transactions: A Step-by-Step Analysis, Schemes and Mind Maps of Business

Business

A step-by-step guide on how to analyze and record business transactions using the double-entry system. It includes an illustrative problem for anime world gallery, demonstrating how to record initial investments, loans, asset acquisitions, and various revenue and expense transactions. The rules of debit and credit, and how they apply to different types of accounts (assets, liabilities, owner's equity, revenue, and expenses). It also covers events that do not affect the accounting equation and require no journal entry. Useful for high school students learning about accounting principles and practices. (438 characters)

Typology: Schemes and Mind Maps

2024/2025

Uploaded on 08/28/2025

loraine-lansangan
loraine-lansangan 🇵🇭

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MODULE 6
THE ANALYSIS OF A TRANSACTION
Following are the steps involved in analyzing transactions:
1. From the business document, determine the kind of transaction or exchange made
2. Analyze the transaction to determine the accounts affected. They can either affect the assets,
liabilities, owner's equity, revenue, or expenses accounts.
3. Determine the effect of the transaction on the accounts affected. The transaction can either increase
or decrease the accounts.
4. Apply the rules of debit and credit to identify whether the accounts affected should be debited or
credited to show the corresponding increase or decrease.
RECORDING TRANSACTIONS IN THE JOURNAL
Illustrative Problem
Initial Investment
The following are transactions for Anime World Gallery for the month of May. 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
is sub classified as follows: OE:R (Revenue) and OE:E (Expenses).
May 2 Gisel Ong loves to watch anime. She draws posters of colorful anime characters. Sometimes
she displays them in her office. To her surprise, many anime fans buy her drawings and
paintings and place special orders for Anime cl),aracters of their choice. Thus, Gisel decided
to open Anime World Gallery. Gisel invested 7300,000 in this initial endeavor.
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 Ong, Capital.
Dr Cr
May 2 Cash (A) 300,000
Ong, Capital (OE) 300,000
Initial Investment
Issuance of Note for Cash
Gisel Ong issued a promissory note for a 100,000 loan from Allay Bank. The note carries a 12% interest
per annum. The interest and the principal are payable after one year.
Analysis Assets increased. Liabilities increased.
Rules Debit increases in assets. Credit increases in liabilities.
Entry Increase in asset is recorded by a debit to cash. Increase in liabilities is recorded by a credit
to notes payable.
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MODULE 6

THE ANALYSIS OF A TRANSACTION

Following are the steps involved in analyzing transactions:

  1. From the business document, determine the kind of transaction or exchange made
  2. Analyze the transaction to determine the accounts affected. They can either affect the assets, liabilities, owner's equity, revenue, or expenses accounts.
  3. Determine the effect of the transaction on the accounts affected. The transaction can either increase or decrease the accounts.
  4. Apply the rules of debit and credit to identify whether the accounts affected should be debited or credited to show the corresponding increase or decrease. RECORDING TRANSACTIONS IN THE JOURNAL Illustrative Problem Initial Investment The following are transactions for Anime World Gallery for the month of May. 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 is sub classified as follows: OE:R (Revenue) and OE:E (Expenses). May 2 Gisel Ong loves to watch anime. She draws posters of colorful anime characters. Sometimes she displays them in her office. To her surprise, many anime fans buy her drawings and paintings and place special orders for Anime cl),aracters of their choice. Thus, Gisel decided to open Anime World Gallery. Gisel invested 7300,000 in this initial endeavor. 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 Ong, Capital. Dr Cr May 2 Cash (A) 300, Ong, Capital (OE) 300, Initial Investment Issuance of Note for Cash Gisel Ong issued a promissory note for a 100,000 loan from Allay Bank. The note carries a 12% interest per annum. The interest and the principal are payable after one year. Analysis Assets increased. Liabilities increased. Rules Debit increases in assets. Credit increases in liabilities. Entry Increase in asset is recorded by a debit to cash. Increase in liabilities is recorded by a credit to notes payable.

Dr Cr May 3 Cash (A) 100, Notes Payable (L) 100, Borrowed money from the bank by issuing a promissory note Acquisition of Office Equipment for Cash May 5 Ms. Ong acquired office equipment to be used for the office paying P180,000 in cash. 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 office equipment. Decrease in assets is recorded by a credit to cash. Dr Cr Office Equipment (A) 180, Cash (A) 180, Purchased office equipment for cash Acquisition of Furniture Paying Down Payment and the Balance on Account May 5 Ms. Ong acquired furniture from Bloom's costing P40,000, paying P12,000 and the balance at the end of the month. ( Note : A compound entry is needed in this transaction.) Analysis Assets increased. Assets decreased. Liabilities increased. Rules Debit increases in assets. Credit decreases in assets. Credit increases in liabilities. Entry Increase in assets is recorded by a debit to furniture. Decrease in assets is recorded by a credit to cash. Increase in liabilities is recorded by a credit to accounts payable. Furniture & Fixture (A) 40, Cash (A) 12, Accounts Payable (L) 28, Bought furniture by paying cash and the Balance on account Advance Payment of Rental May 6 Gisel Ong rented office space and paid two months rent in advance, all costing P18,000. 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. Prepaid Rent (A) 18, Cash (A) 18, Paid two months rent in advance

Partial Settlement of Accounts Payable May 12 Ms. Ong paid National Book Store P3,000 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. Accounts Payable (L) 3, Cash (A) 3, Made partial payment to National Book Store Partial Collection of Accounts Receivable May 15 Ms. Ong received P50,000 from Mr. Ku To as partial payment for the anime painting delivered last May 11. 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. Cash (A) 50, Accounts Receivable (A) 50, Received cash as partial collection from Mr. Ku To Cash Withdrawal by Owner for Personal Use May 18 Gisel Ong withdrew P18,000 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 Ong, Drawing. Decrease in assets is recorded by a credit to cash. Ong, Drawing (OE) 18, Cash (A) 18, Withdrew cash for personal use Collection of Unearned Income May 20 Ms. Ong received P80,000 cash for a contract to paint Lelouch. Analysis Assets 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 unearned painting revenue. Cash (A) 80, Unearned Painting Revenue (L) 80, Received cash for painting services to be rendered

Cash Collection from Income Earned May 23 Gisel Ong received cash from Ms. Uto San, P90,000, for a charcoal poster of Kirito. 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 a painting revenue. Cash (A) 90, Painting Revenue (OE:R) 90, Received cash for a charcoal painting Payment of Salaries May 25 Ms. Ong paid helper's salary for the month, P4,000. 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. Salaries Expense (OE:E) 4, Cash (A) 4, Paid helper's salary for the month Payment of Expenses Incurred/ Consumed May 29 Gisel Ong paid water bill of P540 for the month. 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 utilities expense. Decrease in assets is recorded by a credit to cash. Utilities Expense (OE:E) 540 Cash (A) 540 Paid water bill for the month Unpaid Expenses already Consumed/Incurred. (Accrued Expenses) May 30 Ms. Ong received bill from Meralco amounting to P4,500. 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. Utilities Expense (O.E.-E) 4, Utilities Payable (L) 4, Received bill from Meralco