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Objectivity Materiality Disclosure Cost Revenue Recognition Matching principle (Expense Recognition)
Income earned by the business and increases capital; gives economic benefit to the business Expenses cost of goods or services used in business operation Business Transaction exchange of values which affect accounting equation
Determine items affected by what is received and given away 2. Determine the values/ elements affected in the accounting equation 3. Determine the + or effect on the values affected
1.
Transaction
1. Zeny Tuasons initial capital for her Zenith Travel business is P250,000 and computer sets worth P100,000 2. Bought office furniture and fixtures from Gensan Inc. and paid 50% downpayment of P14,000
Effect
in Equation (A=L+C)
Transaction
3. Paid 3 months rental, P45,000 4. Paid P3,500 office supplies 5. Received P15,000 cash for services to customers
Effect
in Equation (A=L+C)
Transaction
6. Z. Tuason withdrew P1,500 for personal use 7. Paid the balance owed to Gensan Inc. 8. Paid P3,000 utility bills and P1,800 computer ink
Effect
in Equation (A=L+C)
Transaction
9. Received P36,000 and a Note for P4,000 for services rendered to father-in-law 10. Paid P17,000 for employees salaries 11. Received full-payments from father-in-law
Effect
in Equation (A=L+C)
Show the effects in accounting equation 2. Record using equation format 3. Total the columns of the equation
1.
May 4- J. Cruz invested P500,000 in his JC Travel & Tours 5- Paid monthly rental of P17,000 8- Bought equipment P45,000 on account 10-Received P33,000 for local trip services 13- Purchased P50,000 furniture. P5,000 was placed in his house 15- Paid PLDT P2,000 and Maynilad P700 16- Billed AMG Co. for Tagaytay trip P18,000 18-Full payment for purchased equipment 22- Received Meralco bills P2,100 25-Received full payment from AMG Co. 28-Cash payments from clients, P15,000 30- Paid P22,000 for salaries
Cash
Equipmen t
Furniture
Notes Receivabl e
A.Payable
Utilities Payable
Capital
May 4 5 8 10 13 13 15 16 18 22 25 28 30
P500,000 (17,000) P45,000 33,000 (50,000) P50,000 5,000 (2,700) P18,000 (45,000) (45,000) 2,100 18,000 15,000 (22,000) 429,000 Assets= 45,000 P519,300 45,000 Liabilities & Capital= 2,100 P519,300 (18,000) P45,000
P500,000 (17,000)
33,000
(2,100)
43,800 P22,200
Assets
Current Assets Cash Noncurrent Assets Equipment Furniture Total Total Assets P429,000 45,000 45,000 90,000 P519,300
517,000 P519,300
J. Cruz, Capital- May 4, 2010 Less: J. Cruz, Drawing Net Investment Add: Net Income J. Cruz, Capital May 31, 2010
Cash flows from operating activities Cash collection from clients Cash paid for operating expenses Cash used in investing activities Payment for equipment and furniture Cash flow from financing activities Investment of J.Cruz Withdrawal for personal use Net increase in cash balance Cash balance, May 1, 2010 Cash balance, May 31, 2010
P 66,000 (41,700)
P 24,300
(90,000)
500,000 (5,000)
Prepared for each item of accounting values Ledger- group of items of accounting values Two sides of an account- debit (Left side) and credit (Right side)
T- Account
Accounting Equation
Assets (Debit) DR = Liabilities + Credit (CR) Capital
DR
CR
DR
CR
DR
CR
Assets
Liabilities
+
+ -
Capital
Income Expense
Example:
Withdrawal Income
-Because it decreases capital, therefore it is on the debit side of the equation -Normal balance is on the debit side -Because it increases capital, therefore it is on the credit side of the equation -Normal balance is on the credit side -Because it decreases capital, therefore it is on the debit side of the equation -Normal balance is on the debit side
Expense
END.