MODULE 3

Analyses of Transactions and Rules of Debit and Credit

Why Debit and Credits are Important
The most important concept to understand when dealing with debits and credits is the
total amount of debits must equal the total amount of credits in every transaction. It is vital
to balance each transaction in double-entry accounting in order to have a clear and
accurate general ledger, financial statements, and look into the financial health of your
business.

It can take time to learn which accounts to debit and which to credit, and it becomes more
complex and businesses grow and transactions accumulate. Want to learn how software
can help speed up the process of bookkeeping

Discussion
Accounting for Business Transactions

Business transaction on the other hand are exchange of equal monetary values. This
definition implies the following concept of understanding :

1. For every value received, another value is given away as an exchange.

2. These values are measured in terms of pesos which are presumed to be equal

Analysis of business transaction :

Business transactions are analyzed from the view point of the business. If the
transaction is Purchased or Brought , it is business that is buying; if the transaction is “
Sold “ , it is the business that is selling, if the transaction is “ Paid “, it is the business that
is paying, if the transaction is “ Collected “, it is the business that is collecting, if the
transaction is “ Rendered services” , it is the business that is rendering services, etc.
and not the other way around. Don`t forget this, “ always consider yourself as the
business “ when making the analysis. The value received or debit should first be
determined the value parted with or credit.

BOOKKEEPING NC III – MODULE 3 1

 The Rules of Debit & Credit

Debit - value received

Credit – value parted with

Three (3) parts of an Account:

1. Title
2. Debit side
3. Credit side

Account name

Debit side ( Dr/DR) Credit side ( Cr/CR )

( value received) ( value parted with )
( gidawat) ( gihatag )

Debit - left side of and account. It signifies increase in asset, decrease in liability,
decrease in capital, decrease in revenue, increase in expense and increase in drawing.

Credit - right side of an account. It signifies decrease in asset, increase in liability,

increase in capital, increase in revenue, decrease in expense and decrease in drawing.

BOOKKEEPING NC III – MODULE 3 2

 Diagram of DR and CR and their effects:

ACCOUNT NORMAL DEBIT CREDIT

BALANCE

ASSET DEBIT INCREASE DECREASE

ACCOUNT

CONTRA-ASSET CREDIT DECREASE INCREASE

ACCOUNTS

LIABILITY CREDIT DECREASE INCREASE

ACCOUNT

CAPITAL CREDIT DECREASE INCREASE

REVENUE CREDIT DECREASE INCREASE

ACCOUNT

EXPENSE DEBIT INCREASE DECREASE

ACCOUNT

DRAWING DEBIT INCREASE DECREASE

ACCOUNT

Let us have this illustration :

Bought a car for cash , P 850,000.00

The following question are answered for your final guide

1. Who bought the car ?
Answer : the business Identifying

2. What is the value received ?

Answer : Car

3. What is the value parted with ? Analyzing

Answer : money – cash

4. What is the peso equivalent of these exchanges ? Measuring

BOOKKEEPING NC III – MODULE 3 3

 Year Particulars Folio Debit Credit
Months
Day Debit Item xx

Credit Item xx

Explanation of the nature of

transactions

Terms
● Journal- a book of original entry wherein business transactions are first recorded in a
chronological order.

● Journalization- the process of recording business transactions in the journal.

● Ledger- a group of accounts.

● Trial Balance- proves the equality of the debits and the credits.

Accounting Equation = Assets = Liabilities + Capital

Self- Check# 1

On May 1, 2014, Mima Villanueva opened self-service laundry. During

May, The following transactions were completed:

May 1 - Villanueva deposited P250,000 in bank account in the name of the business.

May 3 - Bought chairs and a table paying cash, P6,700

May 5 - Bought laundry supplies on account from Salvador HO Supply Company, P 3,250.

May 6 - Paid rent for the month, P 5,750.

May 7 - Bought washing machines and dryers from Iloilo equipment company, P115,000,
paying P35,000 in cash and the balance on account.

May 8 - Revenues earned on cash basis for the first half of the month, P19,250.

May 10 - Bought insurance for one year , P5,600.

BOOKKEEPING NC III – MODULE 3 4

May 11 – Rendered laundry services on account Php 80,000.00

May 12 - Paid accounts to Iloilo Equipment company, P 7,000.

May 15 - Received and paid electric bill, P 2,080.

May 20 - Revenues earned on cash basis for the second half of the month,
P 12,350.

May 22 - Paid salaries of the part-time assistant, P 7,400

May 25 - Villanueva withdrew cash for the personal use, P 5,000

May 27 - Paid accounts to Salvador HO supply company, P 2,750

May 31- Paid the city government for the sidewalk repair assessment,
P 2,800

Required:

1 Establish the charts of accounts : Cash in Bank , Accounts Receivable;

Prepaid Insurance ; Equipment; Furniture and Fixtures; Accounts Payable;
Villanueva Capital; Villanueva, Withdrawals ; Laundry Revenues; Salaries
Expenses; Supplies Expense, Rent Expenses. Utilities Expense,
Miscellaneous Expense
1. Prepare the journal entry of the following transaction.
2. Prepare T – account
3. Prepare Income Statement
4. Prepare Statement of Changes in Owner`s Equity
5. Prepare Balance Sheet

Charts of Accounts – a list of all the accounts used in accounting by an enterprise. After
the business has chosen the accounts titles it prefers to use as names of its records, a
list is drawn of the accounts titles.

Account - an accounting device used to represent an individual item.

Journal entries :

May 1 – Cash in Bank Php 250,000.00

Villanueva Capital Php 250,000.00
To set up initial investment for the business
#
May 3 - Furniture & Fixtures Php 6,700.00

BOOKKEEPING NC III – MODULE 3 5

 Cash in Bank Php 6,700.00
To record purchase of chairs & table
#
May 5 – Supplies Expense Php 3,250.00
Account Payable Php 3,250.00
To record laundry supplies on accounts
#
May 6 - Rent Expense Php 5,750.00
Cash in Bank Php 5,750.00
To record rent payment for the month of May
#
May 7 – Equipment Php 115,000.00
Cash in Bank Php 35,000.00
Account Payable Php 80,000.00
To record purchased of Equipment from Iloilo Equipment Company
#
May 8 – Cash in Bank Php 19,250.00
Laundry Revenue Php 19,250.00
To record revenue collection from service rendered
#
May 10 – Prepaid Insurance Php 5,600.00
Cash in Bank Php 5,600.00
To record insurance payment for one year
#
May 11 – Account Receivable Php 80,000.00
Laundry Revenue Php 80,000.00
To record Laundry Revenue on account
#
May 12 – Account Payable Php 7,000.00
Cash in Bank Php 7,000.00
To record partial payment for accounts from Iloilo Company
#

BOOKKEEPING NC III – MODULE 3 6

May 15 – Utilities Expense Php 2,080.00
Cash in Bank Php 2,080.00
To record payment for electric bill for the month of May
#
May 20 – Cash in Bank Php 12,350.00
Laundry Revenue Php 12,350.00
To record cash sales on service rendered
#
May 22 – Salaries Expense Php 7,400.00
Cash in Bank Php 7,400.00
To record payment for salaries for the month of May
#
May 25 – Villanueva Withdrawal Php 5,000.00
Cash in Bank Php 5,000.00
To record cash withdrawal
#
May 27 – Account Payable Php 2,750.00
Cash in Bank Php 2,750.00
To record partial payment for Salvador Ho Supply
#
May 31 – Miscellaneous Expense Php 2,800.00
Cash in Bank Php 2,800.00
To record cash payment for sidewalk repairs assessment

BOOKKEEPING NC III – MODULE 3 7

 C a sh i n B a nk
1 250,000.00 6,700.00 3
8 19,250.00 5,750.00 6
20 12,350.00 35,000.00 7
5,600.00 10
7,000.00 12
2,080.00 15
7,400.00 22
5,000.00 25
2,750.00 27
2,800.00 31
281,600.00 80,080.00
201,520.00

Ac c ount R ec ei va bl e
11 80,000.00

80,000.00

Pr epa i d Insur a nc e
10 5,600.00

5,600.00

Equi pm ent
7 115,000.00

115,000.00

BOOKKEEPING NC III – MODULE 3 8

 V i l l a nue v a C a pi ta l
250,000.00 1

250,000.00
250,000.00

V i l l a nue v a W i thdr a wa l
25 5,000.00

5,000.00

BOOKKEEPING NC III – MODULE 3 9

 S uppl i e s E x pe ns e
5 3,250.00

3,250.00

S a l a r i e s E x pe ns e
22 7,400.00

7,400.00

U t i l i t i e s E x pe ns e
15 2,080.00

2,080.00

BOOKKEEPING NC III – MODULE 3 10

 Mimi Laundry Shop
Trial Balances
May 31, 2016

Account Debit Credit

Cash in Bank 201,520.00
Account Receivable 80,000.00
Prepaid Insurance 5,600.00
Equipment 115,000.00
Furnitures & Fixtures 6,700.00
Account Payable 73,500.00
Villanueva Capital 250,000.00
Villanueva Withdrawal 5,000.00
Laundry Revenue 111,600.00
Salaries Expense 7,400.00
Supplies Expense 3,250.00
Rent Expense 5,750.00
Utilities Expense 2,080.00
Miscellaneous Expense 2,800.00
4 3 5 ,1 0 0 .0 0 4 3 5 ,1 0 0 .0 0

Mimi Laundry Shop

Income Statement
For the month ended May 31, 2014

Laundry Revenue 111,600.00

Less : Salaries Expense 7,400.00
Supplies Expense 3,250.00
Rent Expense 5,750.00
Utilities Expense 2,080.00
Miscellaneous Expense 2,800.00 21,280.00
Net Income 90,320.00

BOOKKEEPING NC III – MODULE 3 11

 Mimi Laundry Shop
Statement of Changes in Owners Equity
For the month ended May 31, 2016

Villanueva Capital, Beginning 250,000.00

Add : Net Income 90,320.00
Additional Investment - 90,320.00
Total 340,320.00
Less : Withdrawal 5,000.00
Villanueva Capital, end 335,320.00

Mimi Laundry Shop

Balance Sheet
As of May 31, 2016

ASSETS LIABILITIES & CAPITAL

Current Assets Current Laibilities
Cash in Bank 201,520.00 Account Payable 73,500.00
Account Receivable 80,000.00 Total Liabities 73,500.00
Prepaid Insurance 5,600.00
Total Current Assets 287,120.00 CAPITAL

Non - Current Assets Villanueva Capital 335,320.00

Equipment 115,000.00 LIABILITIES & CAPITAL 408,820.00

Furnitures & Fixtures 6,700.00
Total Non - Current Assets 121,700.00
TOTAL ASSETS 408,820.00

BOOKKEEPING NC III – MODULE 3 12