TRANSACTION

ANALYSIS FOR A
SERVICE ENTITY
CHAPTER 2

Transaction analysis using

the accounting equation
The following are the selected
transaction of a laundry shop
during its first month of
operations

Transaction 1: cash
investment by owner
Tessie Ramos decides to open a
laundry shop registered as
Tessie Laundry Shop on July 1,
2011.
She invested P300,000 cash

Transaction 2: Purchase of
equipment with down payment;
balance on account
On July 2, 2011, she bought
washers and dryers for
P80,000; paying P50,000 as
down payment and the balance
payable in 45 days.

Transaction 3: payment of
monthly rental

On July 3, 2011, paid the July

rental for P5,000.

Transaction 4: received a bill

for radio advertisement
On July 3, 2011, received a bill
from radio beretas for
advertising the opening of
Tessie Laundry Shop, P2,000.

Transaction 5: paid the annual fire

insurance premium in advance
On July 4, 2011, paid one-year
insurance policy effective July 1,
P2,400.

Transaction 6: purchased
laundry supplies on account
On July 5, 2011, purchased
laundry supplies on account,
P4,200.

Transaction 7: purchased
laundry supplies for cash
On July 7, 2011, purchased
laundry supplies for cash,
P4,000.

Transaction 8: payment of
salaries
On July 15, 2011, paid two weeks
salaries of employees, P7,000

Transaction 9: rendered laundry

services with down payment
On July 16, 2011, laundry services
provided to customers
amounted to P21,000. Cash of
P15,000 is received and the
balance of P6,000 is billed on
account.

Transaction 10: partial

payment of accounts
On July 20, 2011, partial payment
for the July 5 purchase of
laundry supplies, P3,000

Transaction 11: received cash in

advance for laundry services not
yet rendered
On July 21, 2011, cash advance
amounting to P3,000 is received
from customer Joil Pension
House, the laundry services are
expected to be provided by the
end of July

Transaction 12: payment of

electricity
On July 28, 2011, paid electric bill
for P3,500

Transaction 13: withdrawn

cash for personal use
On July 29, 2011, Tessie Ramos
withdraws P3,000 for personal
use.

Transaction 14: rendered

laundry services for cash
On July 30, 2011, rendered
laundry services for cash
P27,000

Transaction 15: payment of

telephone and water bill
On July 30, 2011, received and
paid telephone and water bill for
P700 and P500 respectively

Transaction 16: payment of

salaries at month-end
On July 29, 2011, paid salaries of
employees for P 7,000. there is
unpaid salaries of P1,000

Preparation of financial
statements

Statement of financial
performance or Income
statement
Statement of changes in equity
Statement of financial position
or balance sheet
Cash flow statement

Using the accounting equation,

answer each of the following
questions:

1. The liabilities of Ace Gift Shop

are P300,000 and the Owner
equity is P520,000. What is the
amount of Ace Gift Shops total
assets?

The total assets of Three

Angels Caf are P320,000 and
its owners equity is P64,000.
what is the amount of its total
liabilities?

The total assets of Uno Trading

are P610,000 and its liabilities
are equal to of total assets.
How much is the owners
equity?

The liabilities of Sky Travel

Agency are P420,000 and
owners equity is P180,000.
what is the amount of total
assets?

The total assets of Elgin

Truckers are P2,100,000 and its
owners equity is P1,500,000.
what is the amount of total
liabilities?

In the columns below indicate

whether the transactions
increased (+), decreased (-), or
had no effect (ne) on assets.
Liabilities and owners equity

Purchased supplies on account

Billed customers for services
rendered
Collections of accounts receivable
Received a bill from skycable
Proprietors cash withdrawal
Purchase of equipment on account
Payment of salaries

Payment of creditors
Incurred advertising expense on
account
Received a bill from Globe
Telecom

Transaction:

Record the transaction as they

take place
Transactions will result in an
decrease or decrease in one or
more of assets, liabilities and
equity accounts

Account:

Used to group and summarize

the changes caused by
transaction
Is a record in the general ledger
to collect debit and credit
amounts

T-ACCOUNT:

Simplified format of an account

It has 3 parts
Normal balance of an account is
on the side where an increase in
the account is recorded

DOUBLE-ENTRY
ACCOUNTING SYSTEM

Transaction is recorded with at

least 1 debit and 1 credit
Debit and credit must be equal

Rules of debit and credit and

normal balances
A
L
E
D
R
E

Debit
+
+
+

Credit
+
+
+
-

NB
dr
cr
cr
dr
cr
dr

Analyze the transaction by

entering the account in the
appropriate debit or credit
column
Make a T-ACCOUNT
COMPUTE THE ACCOUNT
BALANCES

Exercises: