MODULE 4: The following are the specific names of cash used in academic field, as well as

TRANSACTION ANALYSIS AND JOURNAL PREPARATION in industry:

ACCOUNT TITLE a. Cash on Hand – denotes money or cash substitutes representing the
is a word used to describe transaction, which is generally accepted and collection of the company awaiting deposit to the company’s depository bank
understood by the general user of a financial statement. It is a record keep following the banking day, or if the company has collection on non-banking
for each assets, liabilities, owner’s equity, income and expenses items. In day, it has no choice but to wait for the next banking day.
actual business environment, account titles can be seen in the chart of
b. Cash in Bank – denotes money of the company is in the bank awaiting
accounts.
payment. If some companies maintain several bank accounts, an additional
description representing the name of the bank appears. For example:
CHART OF ACCOUNTS
is the list of account titles used by the business enterprises to describe their Cash in Bank – Security Bank
transactions.
Is an accounting tool that tabulates all the accounts recorded in the Cash in Bank – Bank of the Philippines Islands
company’s general ledger to keep track of its financial transactions Cash in Bank - MetroBank
(https://www.wallstreetmojo.com/chart-of-accounts)
c. Cash in Fund – denotes to money placed in a specific fund for a specific
ASSET ACCOUNTS purpose.

ASSETS – per PAS NO. 1 are classified only into two, namely: current assets For Example:
and non-current assets. Petty Cash Fund – a fund intended to pay petty expense. A company cannot
Current Assets – refer to all assets that are expected to be issue a check for small expenses. For instance, you ask your employee to buy
realized, sold or consumed within the enterprise’s normal operating cycle. office supplies. In buying the office supplies, your employee spends cash for
Operating cycle is the interval time from the date of acquisition of jeepney fare. We cannot issue a check as payment to the jeepney driver;
merchandise inventory; sell the inventory to customers and the ultimate therefore, we can get cash from the petty cash fund. Other cash in fund will
collection of cash from the sale. be discussed in higher accounting, particularly in financial accounting.

1. CASH – is a generic account. Some companies that engage in simple d. Cash equivalent – PAS No. 22 defines as short-term investments, highly
transactions usually use this account, which could either be on hand or in the liquid instruments that are readily convertible to cash and they present
bank. However, for a company to be more effective in directing its business, insignificant risk of changes in values because of changes in interest rates. It
cash can be made more specific. is generally accepted that only accounts under three (3) months maturity will
be considered on this account.
the account title to describe money, either paper or in coins and money
substitute like check, postal money orders, bank drafts and treasury warrants. 2. ACCOUNT RECEIVABLE the account title for amounts collectible
When cash is within the premises of the business, the account title is Cash on arising services rendered to a customer or client on credit or sale of goods to
Hand and Cash in Bank if deposited in the bank. customers on accounts. This constitutes an oral or verbal promise to pay by a
customer or client.

3. NOTES RECEIVABLE – refer to account receivable or collectible of the

company and is supported by a promissory note. This is a promissory note
that is received by the business from the customer arising from rendering of LAND – an account title for the site where the building used
services, sale of merchandise, etc. as office or store is constructed or the land owned by the company that is
used in business.
ESTIMATED UNCOLLECTIBLE ACCOUNTS– this is an asset offset or a contra
asset account. It provides for possible losses from uncollected accounts. BUILDING – account title for a finished construction owned by
Although this is not actually an asset, it is classified as such because it is the business where operations and transactions took place.
shown as a deduction from the Accounts Receivable which is a Current Asset
EQUIPMENT – includes typewriters, adding machines,
Account.
computers, steel filing cabinets and the like. If these are used in the office,
4. ACCRUED INCOME – the amount of income earned but not yet collected. the account title is Office Equipment and if used in the store, Store
equipment. Trucks jeeps, vans, automobiles and other kinds of motor
5.ADVANCES TO EMPLOYEES – the account title for amounts collectible from
vehicles are used exclusively for delivering goods; the account title is Delivery
employees for allowing them to make cash advances which are deductible
Equipment.
against their salaries or wages.
FURNITURE & FIXTURES – includes chairs, tables, counters, display
6. MERCHANDISE INVENTORY – Per PAS NO. 4, these are assets which are (1)
cases and the like. If these are used in the office, the account title is Office
held for sale in the ordinary course of business; (2) in the process of
Furniture & Fixtures and if these are used in store, the account title is Store
production for such sale; or (3) in the form of materials or supplies to be
Furniture & Fixtures.
consumed in the production process or in the rendering of services.
Accumulated Depreciation – this is an asset offset or contra-
7. PREPAYMENTS – advance payment made by the company. This is account
asset account. This is called a Valuation Account which is shown as a
title for expenses that are paid in advance but are not yet incurred or have
deduction from property and equipment.
not yet expired such as Prepaid Rental, Prepaid Insurance, Prepaid Interest,
Prepaid Advertising, etc. For Example, the company paid rent in advance for The assets that are classified as Property & Equipment or Fixed Assets are
one year, the advance payment is called Prepaid Rent Expense. called Depreciable Assets and are subject to Depreciation except land.

8. UNUSED SUPPLIES – an account title for cost of stationery and other LIABILITY ACCOUNTS
supplies purchased for use but are left on hand and still unused. The account
Per PAS No. 1, liabilities are classified only into two, namely: current liabilities
title should be specified as to Unused Office Supplies if intended for the office,
and non-current liabilities.
Unused Shop Supplies if intended for the shop, etc.
CURRENT LIABILITIES – are financial obligations of the enterprise which are (a)
NON CURRENT ASSETS – “all other assets not classified as current should be
expected to be settled in the normal course of the operating cycle; (b) due to
classified as non-current assets”.
be settled within one year from the balance sheet date.
PROPERTY AND EQUIPMENT – the International Accounting Standards No. 16
Account Payable – an account title for a financial obligation of
defines property and equipment as “tangible assets which are held by an
an enterprise that constitutes an oral or verbal promise to pay.
enterprise for use in production or supply of goods and services, for rental to
others, or for administrative purposes, and are expected to be used during Notes Payable (short-term) – same as Accounts Payable in
more than one period,” such as: nature but only the obligation is evidenced by a promissory note. The
enterprise is the one who issued the note.
 Accrued Expenses – these are expenses incurred by the Sales Allowances – represent no actual returns but to an
enterprise but are not yet paid. This normally occurs when the accounting allowance given instead, for the defective merchandise delivered.
period ended such as rent, salaries, interest, taxes payable, etc.
SERVICE INCOME – In general, this is the account title used for all types of
Pre-collected or Unearned Income – this is an account title for an income derived from rendering of services. Sometimes the account title used
income collected or received in advance and is not yet considered as earned. is Service Revenue. Other specific income account titles used are:

NON-CURRENT LIABILITIES – are financial long term obligations of the Miscellaneous Income – for income earned by the business
enterprise which are due and payable for more than one year. This usually which is not the main line of its activity and could not be clearly classified.
occurs in a corporate form of business organization.
Professional Income - the account title generally used by
Notes Payable (Long-term) – same nature with that of Notes professionals for income earned from the practice of their profession or may
Payable (short-term) but only, this requires payment for more than a year. be specified as Accounting or Auditing Fees Income, Dental Fees Income for
Dentists, Medical Fees Income for Doctors, etc.
Mortgage Payable – a financial obligation of the enterprise
which requires a fixed or tangible property to be pledged as a collateral to Rental Income – for income earned on buildings, space or
ensure payment. other properties owned and rented out by the business as the main line of its
activity.
CAPITAL ACCOUNTS
Interest income – for income received by the business arising
1. X, Capital – this is the center of the owner’s concern because this may
from an amount of money borrowed by a customer and is usually covered by
increase or decrease at anytime as a result of business operation. In the
a promissory note. This is typical in a lending institution.
normal course of operation, Owner’s Equity will be increased by income and
decrease by expenses. The letter X, represent the name of the owner. EXPENSE ACCOUNTS
For example: J. Cuna, Capital.
Cost of Sales or Cost of Goods Sold – cost to produce and sell the goods.
2. X, Withdrawals – refers to the withdrawals made by the owner. The Interest Expense – an expense incurred from borrowed money. This is
owner’s withdrawal is likewise indicated by the use of the owner’s name with separately shown as a deduction from Operating Income before arriving as
the word Drawing or Personal written after the name which is separated by a Net Income.
comma. J. Cuna, Drawing
Rent Expense – for the amount paid or incurred for use of property, usually
REVENUE ACCOUNTS premises.
SALES - In general, this represents revenue derived from the sale of Repairs and Maintenance – for expenses incurred in repairing or servicing the
merchandise. buildings, machineries, vehicles, equipment, etc. which are owned by the
business.
Sales discount – represents cash discount given to customers
for settling their account on time Stationery and Office Supplies Expense – the stationery, envelopes, clips,
fasteners, etc., used in the office will bear the account title as Office Supplies;
Sales Returns – represents actual returns made by the
if use in the store, Store Supplies or another title may be used to describe the
customers due to wrong delivery, wrong shipment, or defective merchandise.
kind of supplies used.
Salaries Expense – for compensation given to employees of a business. It may 2. Withdrawal – the temporary withdrawal of the owner, whether cash or any
be specified as Office Salaries, Salesmen’s Salaries, etc.  other assets of the company for personal use. This will decrease capital.

Uncollectible Accounts – for the anticipated loss that the business may incur 3. Revenues – increase in economic benefit during the accounting period in
arising from uncollectible accounts. the form of inflow or increase in assets or decrease in liability that results in
increase in equity, other than contribution from equity participant. This will
Depreciation Expense – for the allocated portion of the cost of property and
increase capital.
equipment or fixed assets.
4. Expenses – decrease in economic benefits during the accounting period in
Taxes and Licenses – for the amount paid for business permits, licenses and
the form of an outflow or decrease in assets or increase in liability that results
other government dues except the Income Tax paid which is not allowable by
in decrease in equity, other than distribution to equity participants. This will
law as a deduction.
decrease capital.
Insurance Expense – account title for the expired portion of the insurance
RULE OF DEBIT AND CREDIT
premium paid.
The term debit means “left” and credit means “right”. This refers to the
Utilities Expense – account title for telephone, light and water bills. Also equation where the left side is equal to the right side. Final Rule : the “left”
included is gasoline, lubricants and oil. will always equal to the “right”.
NORMAL BALANCES OF ACCOUNT
Miscellaneous Expense – any amount paid as expense which is not significant
enough to warrant a particular classification. RULES OF DEBIT AND CREDIT
We debit to: We credit to:
Advertising Expense – the cost for promotion and advertising the products of Rule 1 Increase in Asset Decrease in Asset
the business for the purpose of improving its sales performance. Rule 2 Decrease in Liability Increase in Liability
ACCOUNTING EQUATION: Rule 3 Decrease in Owner’s Equity Increase in Owner’s Equity

ASSETS = LIABILITIES + CAPITAL TEMPORARY ACCOUNTS

Assets – resources controlled by the entity as a result of past transactions or Rule 4 Increase in Drawing Decrease in Drawing
events and from which future economic benefits are expected to flow to the Rule 5 Decrease in Income Increase in Income
entity/enterprise. Rule 6 Increase in Expense Decrease in Expense

Liabilities – present obligations of the entity arising from past transaction and Applying the Rule of Debit and Credit
events. The settlement of which is expected to result in an outflow from the Rule 1:
entity of resources embodying economic benefits. WE DEBIT: WE CREDIT:
Increase in Assets Decrease in Assets
Capital – residual interest in the assets after deducting all of its liabilities.

Capital account has four components:

1. Investment – the resources that the owner has transferred to his business
as a start up and additional. This may be in the form of cash or tangible assets
that can readily be used in the business, like land, building, furniture,
equipment and etc. This will increase capital
 WE then say, DEBIT to increase Asset, CREDIT to Increase Owner’s Equity.
Therefore, we DEBIT Cash P200,000
Examples: We CREDIT P. Dela Cruz, Capital P200,000
Bought office supplies from ABC enterprise on cash, P 10,000 Rule 4
Effect = Increase in Asset (Office Supplies) WE DEBIT: WE CREDIT:
= Decrease in Assets (Cash) Increase in Drawing Decrease in Drawing
Then we say, DEBIT to increase Assets, CREDIT to decrease Assets. So,
therefore
DEBIT – Office Supplies P10,000
CREDIT – Cash P10,000 Examples:
Rule 2: P. Dela Cruz withdraw P5,000 for personal use.
WE DEBIT: WE CREDIT: Effect = Increase in Drawing (p. Dela Cruz, Drawing)
Decrease in Liability Increase in Liability = Decrease in Assets (Cash)
Then we say, DEBIT to increase Drawing, CREDIT to decrease Cash. So,
Example: therefore
Bought office equipment from Imperial on account, P20,000 DEBIT – P. Dela Cruz, Drawing P5,000
Effect: Increase in Assets (Office Equipment) CREDIT – Cash P5,000
Increase in Liability (Account Payable) Rule 5
Then we say, DEBIT to increase Assets, CREDIT to increase Liability. So, WE DEBIT: WE CREDIT:
therefore Decrease in Revenue Increase in Revenue
DEBIT – Office Equipment P20,000
CREDIT – Account Payable P20,000 Example:
Rendered repair services to Robinsons North, P200,000
Example: Effect: Increase in Asset (Cash)
Paid account from Imperial, P20,000 Increase in Revenue (Service Income)
Effect: Decrease in Liability (Account Payable) WE then say, DEBIT to increase Asset , CREDIT to Increase Revenue.
Decrease in Assets (Cash) Therefore, we DEBIT Cash P200,000
WE then say, DEBIT to decrease Liability, CREDIT to decrease Assets. We CREDIT Service Income P200,000
Therefore, we DEBIT Account Payable P20,000 Rule 6
We CREDIT Cash P20,000
WE DEBIT: WE CREDIT:
Rule 3
Increase in Expense Decrease in Expense
WE DEBIT: WE CREDIT:
Decrease in Owner’s Equity Increase in Owner’s Equity
Examples:
Paid Salaries for the month of September, P30,000.
Example:
Effect = Increase in Expense (Salaries Expense)
P. Dela Cruz open his repair business, P200,000
= Decrease in Assets (Cash)
Effect: Increase in Asset (Cash)
Then we say, DEBIT to increase Expense, CREDIT to decrease Asset. So,
Increase in Owner’s Equity (P. Dela Cruz, Capital)
therefore
DEBIT – Salaries Expense P30,000
CREDIT – Cash P30,000