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Here are the answers: 1. Receivables are debited. 2. Receivables are credited. 3. Capital account is credited. 4. Liability is credited. 5. Cash is credited.

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130 views6 pages

Course Name 9

Here are the answers: 1. Receivables are debited. 2. Receivables are credited. 3. Capital account is credited. 4. Liability is credited. 5. Cash is credited.

Uploaded by

Revise Pastralis
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© © All Rights Reserved
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Week 8

Unit 3: Analyzing Transactions


Topics: Theory of Debits and Credits
Theory of Debits and Credits as Applied to Balance
Sheet.

Learning Outcomes:
1. Explain the theory of debits and credits
2. Explain the theory of debits and credits as applied to
balance sheet.

Concept Digest (Discussion)

Analyzing Transactions Affecting Balance Sheet and Income


Statement

According to Mejorada, N (2007), that as stated earlier, the


elements of accounting in measuring results of operations are
revenue, expenses, and net income or net loss. The following
equation is observed.

Revenue – Expenses = Net Income

An increase in revenue increases net income while an


increase in expenses reduces net income. Inasmuch as net income
increases owner’s equity, an increase in revenue increases
owner’s equity while an increase in expenses reduces owner’s
equity.

Generally, an increase in revenue is accompanied by increase


in assets. An increase in expenses brings about a decrease in
assets or an increase in liabilities.

Examples of the transactions that affect balance sheet and


income statement items are given and analyzed below:

1. Rommel Labanco invests cash of P30,000 in an authoritative


repair shop on January 2, 2000
Analysis:
Increase in asset: cash P30,000
Increase in owner’s equity: H. Palacio, Capital P30,000

2. Mayor’s permit and health inspection fees are paid, P150


Analysis:
Increase in expense: Taxes and licenses P150
Decrease in asset : Cash 150

3. Rommel Lobangco buys machinery and equipment costing P15,000


by paying P10,000 from the business funds and issuing a
promissory note for the balance.
Analysis:
Increase in asset: Machinery and Equipment P15,000
Decrease in asset: Cash 10,000
Increase in liability: Notes payable 5,000

4. Tools such as wrench, cutters, and jacks are bought for


P7,000 cash
Analysis:
Increase in asset: Tools P7,000
Decrease in asset: Cash 7,000

5. Rommel Lobangco authorizes the payment of rentals for the


space occupied by his shop for two years in advance at the
rate of P6,000 per annum. Accordingly, the cashier pays the
amount to the lessor.
Analysis:
Increase in asset: Prepaid rent P6,000
Increase in expense: Rent expense 6,000
Decrease in asset: Cash 12,000

6. Rommel Lobangco buys supplies such as rags, lubricants,


brooms, brushes,= and similar items for P2,000 cash.
Analysis:
Increase in expense: Shop Supplies Expense P2,000
Decrease in asset: Cash 2,000

7. The business pays P500 for the cost of a small billboard


with the sign “Lobangco Auto Repair Shop”.
Analysis:
Increase in expense: Advertising expense P500
Decrease in asset: Cash 500

8. Customers are billed for P70,000 for services rendered.


Analysis:
Increase in asset: accounts receivable P70,000
Increase in revenue 70,000

9. Customers billed for P50,000 in No. 8 above, pay their


accounts.
Analysis:
Increase in asset: Cash P50,000
Decrease in asset: Accounts receivable 50,000

10.The company collects on one-half of the remaining accounts per


billings in No. 8 above.
Analysis:
Increase in asset: cash P10,000
Decrease in asset: accounts receivable 10,000

11.The owner, Rommel Lobangco pays the P500 Mercalco bill of the
business from his own funds.
Analysis:
Increase in expense: Light and Power Expense P500
Increase in owner’s equity; R. Lobangco, Capital 500

12.Salaries and wages amounting to P30,500 are paid.


Analysis:
Increase in expense: Salaries and wages P30,500
Decrease in asset: Cash 30,500

13.At the end of 1995, salaries and wages of P5,000 are still
unpaid.
Analysis:
Increase in expense: Salaries and Wages P5,000
Increase in liability: Salaries and Wages
Payable P5,000

14. Depreciation of P3,000 is provided on machinery and equipment


Analysis:
Increase in expense

15. A Provision for bad debts of P800 is made.


Analysis:
Increase in expense: Bad Debts P800
Decrease in asset: Allowance for Bad Debts 800

Activities (Formative)
Title: Problem Solving Practice
Things to do:
1. Summarize the effects of the given transactions by
posting their effects on corresponding T-accounts.
Example:
Sept. 1 Joy Reyes invests P80,000 cash in a laundry shop.

CASH
Debit Credit
9/1 P80,000

Joy Reyes, Capital


Debit Credit
9/1 P80,000

Sept. 5 Shy buys the needed machinery and equipment for


P50,000 cash.

Debit Credit

Debit Credit

Sept. 10 Joy makes an additional investment of P25,000


cash.
Debit Credit

Debit Credit

Sept. 18 Joy pays the P5,000 tuition fees of her


children from the shop’s cash register.

Debit Credit

Debit Credit

Sept. 30 The account with OK Furniture Co. is partially


paid, P7,000

Debit Credit

Debit Credit
Assessment (Summative)
Title: Give and Take Relationship
Date of Submission:
Rubric Used: None
Things to do:
1. State whether the following highlighted accounts are debited
or credited.
_______________1. Receivables created by billing clients for
services rendered.
_______________2. Receivables are already collected.
_______________3. Capital account of the owner upon
investment of assets in a business.
_______________4. Liability upon payment of obligation by the
business.
_______________5. Cash received by the business.

References:
 Mejorada, N (2007). Bookkeeping. Quezon City, Philippines.
KATHA Publishing Co. Inc.
 https://www.thebalancesmb.com/bookkeeping-101-a-beginning-
tutorial-392961

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