Fundamentals

of Accountancy,
Business &
Management 1
Learner’s Activity
Sheets
Quarter 1 – Module 7
Business Transactions and Their Analysis as Applied
to the Accounting Cycle of a Service Business
 Republic of the Philippines
DEPARTMENT OF EDUCATION
Region Office No. VIII
Northern Samar Division
 POLANGI NATIONAL HIGH SCHOOL
Polangi, Catarman Northern Samar

Name: ___________________________________________ Score: _____________________

Grade Level & Section: _____________________ Parent Signature: ____________

FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT 1
Content Standard:
The learners demonstrate an understanding of the business transactions and their
analysis, to include definition and nature of business transactions, types of sources or
business documents, and the rules of debits and credits

Performance Standard:
The learners shall be able to identify business and non-business transactions,
enumerate the types of business documents, recite the rules of debit and credit, and
apply these to simple cases.

Most Essential Learning Competencies:

 Analyse common business transactions using the rules of debit and credit
 Solve simple problems and exercises in the analyses of business transaction

Less Business Transactions and their Analysis as

on Applied to the Accounting Cycle of a Service
5 Business
The Nature Of A Service Business
A service business provides a needed service for a fee. In general, service businesses
actually have no physical product sold to clients. Their services are designed to
facilitate the work of clients and in return are paid. Service businesses include salons
or barbershops, laundry services, car repairs, medical centers and services of
professionals like lawyers and doctors. The revenue of a service business is usually
realized once the service has been substantially completed. Aside from the minor
supplies, the service business does not maintain a high level of inventory as
compared to merchandising and manufacturing businesses. In relatively small service
businesses, all transactions are on cash payments. This means sales are collected
immediately while most expenses are paid outright in the form of cash or checks. The
typical financial transactions recorded for a service company include collecting a
deposit from the customer, providing the service and receiving payment.
The accounting cycle is a continuous process of accumulating, summarizing and
reporting financial information. The steps include:

Step 1 - Transactions and/or Events

Identification and measurement of external transactions and internal events. At this
stage, the documents used by the business are analyzed whether it has financial
impact or effect. Recall the rule that only financial transactions are recorded and that
the amount can be measured. These two conditions must exist in order that a
particular transaction is recognized or recorded. As defined, financial transactions are
those activities that change the value of an asset, liability or an equity.
Examples of financial transactions:
• Receipt of cash from a client as advance payment to repair a computer. In this case
(asset) will increase. At the same time, the advances from client (liability) will also
increase. The advances from client is a liability because the business has the
obligation to render future service to the client.
• Payment of electric bill is a financial transaction. This will decrease the cash (asset)
and reduce the income of the business at the same time.

Examples of non-financial transactions:

• hiring and termination of employees
• recognition from the government as most outstanding business
• death of owner

The information needed when recording transactions are taken from forms used to
document these transactions. In a typical service business, the following are the
business documents used:
1. Official Receipt or Cash Receipt
This document is used when a business receives money or a check. An Official Receipt
or Cash Receipt is a document that acknowledges that money or a check have been
received.
2. Charge Invoice or Sales Invoice
A charge invoice is a document used when a service has been rendered, but the client
will be billed only after a certain number of days from the date of service. Often, a
company will issue a statement of account to a customer, with the charge or sales
invoice attached. For example: in a laundry business, a customer may avail of the
services of the business. However, that customer and the owner of the business had a
prior agreement that all services availed by the customer will be paid only after 30
days. In this case, a charge invoice is issued on the day the client availed of the
services.
3. Check or Cash Voucher
The check voucher is a document used when a check is issued to pay a certain
supplier or vendor. For example, in a laundry business, for the payment of monthly
electricity bills, the business may pay either in cash or check. But the company must
prepare a cash or check voucher to support this payment. This document will serve as
a record of payment and, at the same time, as proof that payment has been made by
the company.

Step 2 - Preparation of Journal Entries (journalization)

Through the use of specialized journals (such as those for sales, purchases, cash
receipts, and cash disbursements) and the general journal, transactions and events
are entered into the accounting records. These are called the books of original entry.
Debits and Credits are an integral part of the journalization process. In
accounting, debits or credits are abbreviated as DR and CR respectively.
When to Debit and when to Credit: An increase in an asset account is called a
debit and an increase in a liability or equity account is called a credit. Likewise, if we
decrease an asset account we credit that account. On the other side of the equation,
if we decrease a liability or equity account we debit those accounts.
Rules on Debits and Credits
• The name of the account to be debited is always listed first. The debited account is
listed on the first line with the amount in the left side of the register.
• The credited account is listed on the second line and is usually indented. The
credited amount is recorded on the right side of the register.
• The total amount of debit should always equal the total amount of credit

Recall the discussion on the Chart of Accounts

The Chart of Accounts is a listing of all account titles used in the business to record all
the transactions. It is arranged according to the order of their appearance in the
financial statements. Refer to Table X

Chart of Accounts
Statement of Financial Position Income Statement Accounts

Account Account Title Account Account Title

Code Code
1000 Cash 4000 Service Revenue
1200 Accounts Receivable 4100 Sales
1201 Allowance for bad debts 4101 Sales Returns & Allowances
1300 Inventory 4102 Sales Discounts
1400 Prepaid Expenses 4150 Interest Income
1500 Supplies 5000 Cost of Sales
1600 Office Equipment 5100 Purchases
1601 Accum Deprn – Off Eqpt 5101 Purchase Returns &
Allowances
1650 Store Equipment 5102 Purchase Discounts
1651 Accum Deprn – Store 5103 Freight In
Eqpt
1680 Transportation 6100 Salaries Expense
Equipment
1681 Accum Deprn – Trans 6150 Supplies Expense
Eqpt
 1750 Building 6200 Utilities Expense
1751 Accum Deprn – Building 6220 Communication Expense
1800 Land 6250 Travel Expense
1900 Intangible Assets 6300 Rental Expense
2000 Accounts Payable 6350 Fuel Expense
2100 Notes Payable 6400 Advertising Expense
2200 Accrued Expenses 6401 Delivery Expense
2201 Salaries Payable 6450 Commission Expense
2202 Utilities Payable 6500 Depreciation Expense
2300 Income Taxes Payable 6600 Taxes and Licenses
3000 Owner’s Capital 6700 Interest Expense
3100 Owner’s Withdrawal

Let us take the case of Pedro Matapang, a computer technician. Pedro decided to
open his computer repair shop on February 14, 2016, naming it Matapang
Computer Repairs. Pedro knows that business transactions should be separated from
personal finances. Thus, he decided to invest PHP200,000 in this business. He
deposited the amount with Nation Bank.

Entry:
General Journal
Date Account Title & Explanation Ref Debit Credit
2/14/16 Cash 200,000
Matapang, Capital 200,000
To record the initial investment of owner P.
Matapang
Notice that we have debited Cash, an asset account and credited Matapang, Capital,
an equity account.

February 15, 2016 - Pedro purchased one computer unit from XY Computer Store to
be used for the business. He issued check number 001 amounting to PHP25,000.

Entry:
General Journal
Date Account Title & Explanation Ref Debit Credit
2/15/16 Office Equipment 25,000
Cash 25,000
To record the purchase of one computer unit
Notice that the debit to office equipment increased the asset account and the credit to
cash decreased the asset account.

February 16, 2016 - Pedro hired Juana Magaling, an experienced secretary.

Entry: No entry. This is not a financial transaction.

February 17, 2016 – Repaired the computer of Jean and collected PHP10,000
Entry:
General Journal
Date Account Title & Explanation Ref Debit Credit
2/17/16 Cash 10,000
Service Revenue 10,000
 To record receipt of cash from customer

February 18, 2016 – Repaired Mike’s computer. However, Mike will pay PHP15,000
on March 18, 2016
Entry:
General Journal
Date Account Title & Explanation Ref Debit Credit
2/18/16 Accounts Receivable 15,000
Service Revenue 15,000
To record services rendered to a customer on
account

February 19, 2016 – Pedro purchased Office Supplies from MM Merchandise

amounting to PHP5,000 on account. Pedro will pay this on March 30, 2016
Entry:
General Journal
Date Account Title & Explanation Ref Debit Credit
2/19/16 Supplies Expense 5,000
Accounts Payable 5,000
To record purchase of office supplies on account

February 25, 2016 – Paid the salary of Juana amounting to PHP4,000

Entry:
General Journal
Date Account Title & Explanation Ref Debit Credit
2/25/16 Salaries Expense 4,000
Cash 4,000
To record payment of salary of Juana

Step 3 – Posting
The summary (in specialized journals) or individual transactions (in the general
journal) are then posted from the journals to the general ledger (and subsidiary
ledgers). Nothing should ever get posted to the ledgers without first being entered in
a journal.

Recall the lesson on the general ledger. We will now post the previous transactions of
Pedro to the general ledger. For purposes of discussion, we will be using the three-
column ledger.
General Ledger
Account: Cash Account No.: 1000
Date Item Re Debit Credit Balance
f
2/14/16 Investment of owner 200,000 200,000
2/15/16 Purchase of Computer 25,000 175,000
2/17/16 Repair Income-Jean 10,000 185,000
2/25/16 Payment of Juana salary 4,000 181,000
 General Ledger
Account: Accounts Receivable Account No.: 1200
Date Item Re Debit Credit Balance
f
2/18/16 Repair Income-Mike 15,000 15,000

General Ledger
Account: Office Equipment Account No.: 1600
Date Item Ref Debit Credit Balance
2/15/16 Purchase of Computer 25,000 25,000

General Ledger
Account: Accounts Payable Account No.: 2000
Date Item Ref Debit Credit Balance
2/19/16 Purchase – office supplies 5,000 5,000

General Ledger
Account: Matapang, Capital Account No.: 3000
Date Item Ref Debit Credit Balance
2/14/16 Investment of owner 200,000 200,000

General Ledger
Account: Service Revenue Account No.: 4000
Date Item Ref Debit Credit Balance
2/17/16 Repair Income-Jean 10,000 10,000
2/18/16 Repair Income-Mike 15,000 25,000

General Ledger
Account: Supplies Expense Account No.: 6150
Date Item Ref Debit Credit Balance
2/19/16 Purchase – office supplies 5,000 5,000

General Ledger
Account: Salaries Expense Account No.: 6100
Date Item Ref Debit Credit Balance
2/25/16 Payment of Juana’s salary 4,000 4,000
Step 4 - Unadjusted Trial Balance
At the end of an accounting period (for example, one month or one year) the working trial
balance is prepared. This involves copying each account name and account balance to a
worksheet (working trial balance). The resulting first two columns of the worksheet are called
the unadjusted trial balance.
In the preparation of the unadjusted trial balance, the balances in all the general ledgers at
the end of the reporting date are forwarded to the appropriate column. The unadjusted trial
balance for the transactions in our example from Step 3 is the following:
MATAPANG COMPUTER REPAIRS
Unadjusted Trial Balance
February 29, 2016
Account Title Debit Credit
Balance Sheet Accounts
Cash 181,000
Accounts Receivable 15,000
Office Equipment 25,000
Accounts Payable 5,000
Matapang, Capital 200,000
Income Statement Accounts
Service Revenue 25,000
Supplies Expense 5,000
Salaries Expense 4,000
TOTAL 230,000 230,000
Notice that all asset accounts are presented first, followed by liabilities, equity (or capital
account), income accounts and lastly, expenses accounts.

Review of the Accounting Equation

The basic accounting equation is what drives double-entry bookkeeping. The equation
reflects the accounts reported in the balance sheet. The basic accounting equation is
as follows:
ASSETS = LIABILITIES + OWNERS' EQUITY
This is a very simple algebraic equation that reflects how the assets of an entity must
be supported by either debt or equity. As in algebra, if we add or subtract something
from one side of the equation we must add or subtract the same amount from the
other side. For example, if we were to increase cash (an asset) we might have to
increase note payable (a liability account) so that the basic accounting equation
remains in balance.

ASSETS = LIABILITIES + OWNERS' EQUITY

PHP 500 = PHP 500

Applying, the formula to our transactions in Step 3 above, the effects of these
transactions to the equation are shown below:

DATE TRANSACTIONS ASSETS = LIABILITIES+EQUITY

2/14/2016 Investment of Owner, Pedro Matapang +200,000
+200,000
2/15/2016 Purchase of computer +25,000
-25,000
2/17/2016 Repair the computer of customer Jean
and collected the payment +10,000
+10,000
2/18/2016 Repair the computer of Mike on account +15,000
+15,000
2/19/2016 Purchase of office supplies on account +5,000 -5,000
2/25/2016 Payment of salary of Juana -4,000
-4,000
Notice that at all times, the effects of the transaction to the right and left side of the
formula should be equal. If not, the journal entry is erroneous.
Activity #1 Practice Set 1 (Use a separate sheet of paper)
Mr. Laban Deyro opened his laundry business in Iloilo City on January 2, 2016. The
following transactions occurred during the month of January 2016:
Date Transactions
1/2/16 Invested Php500,000 to his business. The trade name of the business was
“MR. LABANDERO”
1/3/16 Hired Allan and Allie who will manage his business
1/4/16 Collections from various customers for the day – Php3,000
1/5/16 Purchase store supplies from Labada Store – Php10,000
1/7/16 Collections from various customers for the day – Php8,000
1/8/16 MR. LABANDERO entered into an exclusive contract with Sikat Hotel where
the business will do all the laundry of the hotel
1/9/16 Sikat Hotel availed the services of MR. LABANDERO amounting to
Php15,000. Payment will be made on January 20, 2016.
1/10/16 Collections from various customers for the day – Php12,000
1/12/16 Purchase a washing machine amounting to Php50,000
1/15/16 Collections from various customers for the day – Php20,000
1/19/16 Paid electricity bill for the month amounting to Php18,000
1/20/16 Received payment from Sikat Hotel amounting to Php15,000
1/21/16 Paid salaries of Allan and Allie – Php15,000
1/22/16 Mr. Laban Deyro needed money for the hospitalization of his son. He
withdrew Php18,000 from the business.
1/25/16 Paid airfare ticket of Php1,500 for the travel of Mr. Deyro to Manila to
negotiate a contract with Sosyal Hotel
1/26/16 Paid taxes to the City of Iloilo, Php4,000
1/27/16 Purchased office supplies amounting to Php12,500
1/28/16 Collections from various customers for the day – Php5,000
1/29/16 Sosyal Hotel availed the services of MR. LABANDERO amounting to
Php15,000 payable on Feb. 25, 2016
Required Tasks:
1. Prepare the general journal entries for the above transactions (ignore giving
explanations after every entry)
2. Post the following transactions to the general ledger
3. Prepare the unadjusted trial balance as of January 30, 2016.

Activity #2 Practice Set 2

On June 1, Maya Cruz opened the Ganda Beauty Salon. During the first month, the
following selected transactions occurred:
1. Deposited PHP5,000 cash in the City Bank in the name of the business
2. Paid PHP800 cash for beauty supplies
 3. Purchased equipment at a cost of PHP12,000 paying PHP2,000 in cash and
the balance on account
4. Received PHP1,200 cash for services rendered
5. Paid PHP500 cash as a salary to a beautician
6. Withdrew PHP400 cash for personal expenses
Required Task Using the following format, identify the effects of above transactions to
the accounting equation: ASSETS = LIABILITIES + OWNERS' EQUITY

Example: ASSETS = LIABILITIES + OWNERS' EQUITY

+200 = + 200
Activity #3 Indicate in each independent case whether the account is to be debited
(DR) or to be credited (CR)
1. Increase in Accounts Payable
2. Decrease in Capital account
3. Increase in Service Revenue
4. Increase in Cash
5. Decrease in Accounts Receivable
6. Increase in Salaries Expense
7. Increase in Office Equipment
8. Increase in unpaid Salaries
9. Increase in Owner’s drawing account
10. Increase in Interest Income
Activity #4 Prepare the entries to record the following independent transactions with
explanations.
1. On Jan 4, 2016, received PHP20,000 from a customer in payment for services
rendered.
2. Payment to X Supplier amounting to PHP4,000 for office supplies purchased on Jan
3, 2016.
3. Maria invested PHP60,000 on Jan 18, 2016 to start a barbershop in Iligan City.
4. On Jan 3, 2016 paid PHP10,000 rental amount for the month of Jan 2016,.
5. On Jan 15, 2016, Peter Pawn withdrew PHP30,000 from his business to pay for the
tuition of his son.
6. Collected PHP20,000 of the accounts receivable from Malakas Company on Jan 17,
2016.
7. Paid the salary of the office secretary amounting to PHP15,000 on Jan 18, 2016.
8. Purchased office equipment worth PHP20,000 by paying 40% down payment and
the balance on account.
9. Paid PHP2,000 of the accounts payable on Jan 28, 2016.
10. Rendered services to clients on Jan 18, 2016 amounting to PHP15,600.

Activity #5 Fill up the missing amount for each.

1. Asset = 120,000
Liabilities = 15,000
Equity = ?
2. Asset = ?
Liabilities = 18,250
Equity = 98,360
3. Asset = 1,000,000
Liabilities = 370,000
Equity = ?
4. Asset = 780,508
Liabilities = ?
Equity = 619,000

Reflections…

How was your learning experience?

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Thank you and God bless!!!

PREPARED BY:
CARESSA B. ACIBAR
Subject-Teacher