FABM 1 Business Transactions PDF

FABM 1 BUSINESS TRANSACTIONS AND THEIR ANALYSIS AS APPLIED TO THE ACCOUNTING CYCLE OF A SERVICE BUSINESS OCTOBER, 2024 NOEL GARCIA TUBICE INSTRUCTOR  COURSE CONTENT...

FABM 1 BUSINESS TRANSACTIONS AND THEIR ANALYSIS AS APPLIED TO THE ACCOUNTING CYCLE OF A SERVICE BUSINESS OCTOBER, 2024 NOEL GARCIA TUBICE INSTRUCTOR  COURSE CONTENT 1st Semester, 1st Quarter CONTENT CONTENT PERFORMANCE LEARNING COMPETENCIES CODE STANDARDS STANDARDS 9. Business the business transactions identify business and 1. describe the nature and give ABM_FABM Transactions and and their analysis, to nonbusiness transactions, examples of business transactions 11- IIIg-j-25 Their Analysis include definition and enumerate the types of 2. identify the different types of ABM_FABM as Applied to the nature of business business documents, recite the business documents 11- IIIg-j-26 Accounting Cycle of a transactions, types of rules of debit and credit, and Service Business source or business apply these to simple cases 3. analyze common business ABM_FABM a. Rules of Debits documents, and the transactions using the rules of 11- IIIg-j-27 and Credits rules of debits and debit and credit b. Journalizing credits c. Posting d. Preparation of a Trial Balance  THE ACCOUNTING CYCLE 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 and internal transactions. At this stage, the documents used by the business are analyzed whether it has financial impact. Recall the rule (1) that only financial transactions are recorded and (2) that the amount can be measured. These two conditions must exist in order that a particular transaction is recorded. As defined, financial transactions are those activities that change the value of an asset, liability or an equity. Examples of financial transactions Examples of non-financial transactions: Receipt of cash from a client as advance hiring and termination of employees payment to repair a computer. Payment of electric bill recognition from the government as most outstanding business death of owner  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Through the use of specialized journals 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. 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.  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. February 14, 2016 – Pedro Matapang, a computer technician decided to open his computer repair shop, naming it Matapang Computer Repairs. He decided to invest PHP200,000 in this business and deposited the amount with Nation Bank. page 1 JOURNAL ENTRY  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. 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. page 1 JOURNAL ENTRY  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. February 16, 2016 - Pedro hired Juana Magaling, an experienced secretary. JOURNAL ENTRY No entry. This is not a financial transaction.  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. February 17, 2016 – Repaired the computer of Jean and collected PHP10,000. page 1 JOURNAL ENTRY  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. February 18, 2016 – Repaired Mike’s computer. However, Mike will pay PHP15,000 on March 18, 2016. page 1 JOURNAL ENTRY  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. February 19, 2016 – Pedro purchased Office Supplies from MM Merchandise amounting to PHP5,000 on account. Pedro will pay this on March 30, 2016. page 1 JOURNAL ENTRY  STEP 2: PREPARATION OF JOURNAL ENTRIES (JOURNALIZATION) Required: Prepare the journal entry for the following transactions of Matapang Computer Repairs. February 25, 2016 – Paid the salary of Juana amounting to PHP4,000. page 1 JOURNAL ENTRY Prepare the journal entries to record the following independent transactions (ignore giving explanations after every entry). 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. Prepare the journal entries to record the following independent transactions (ignore giving explanations after every entry). 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. Prepare the journal entries to record the following independent transactions (ignore giving explanations after every entry). 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.  STEP 3 – POSTING TO THE LEDGER The summary and individual transactions from the journals (general or special journals) are then posted to the ledgers (general and subsidiary ledgers). Nothing should ever get posted to the ledgers without first being entered in a journal.  CHART OF ACCOUNTS A chart of accounts is a listing of the accounts used by businesses in their financial records. The chart of accounts is the foundation of the financial statements.  CHART OF ACCOUNTS The following are the steps in the preparation of a basic chart of accounts: 1. Create three columns. 2. Prepare the assets first, then liabilities, then owner’s equity, then income and expenses. 3. List all assets, liabilities, owner’s equity, income and expenses account in the first column. 4. On the second column, choose an account code (discretion of the business). 5. On the third column, write the description for each account on when to use it.  EXAMPLE OF CHART OF ACCOUNTS ASSETS Account Account Code *may vary Description Cash 1000 Use for actual cash transactions Accounts Receivable 1100 Use for customers who will pay in the future Inventory 1200 Use for items held for sale Prepaid Expenses 1300 Use for expenses paid in advance Supplies 1400 Use for items to be used in the future Office Equipment 1500 Use for equipment that are used in the office Store Equipment 1600 Use for equipment that are used in the store Land 1700 Use for land used in operations  EXAMPLE OF CHART OF ACCOUNTS LIABILITIES Account Account Code *may vary Description Accounts Payable 2000 Use for the debts of the business Notes Payable 2100 Use for promissory notes issued by the business Salaries Payable 2200 Use for salaries to be paid in the future  EXAMPLE OF CHART OF ACCOUNTS OWNER’S EQUITY Account Account Code *may vary Description Owner’s, Capital 3000 Use for the debts of the business Owner’s, Withdrawal 3100 Use for promissory notes issued by the business INCOME Account Account Code *may vary Description Service Revenue 4000 Use for earnings EXPENSE Account Account Code *may vary Description Salaries Expense 5000 Use for salaries incurred, regardless of payment Utilities Expense 5100 Use for electricity and water expenses incurred  STEP 3 – PROCEDURES IN POSTING TO THE LEDGER 1. Locate the corresponding account title in the journal. (A) 2. Transfer to the ledger the following information from the journal: (B, C & D) Date Explanation Amount Debit accounts from the journal are posted on the debit side of the ledger and credit accounts are posted on the credit side of the ledger. 7  STEP 3 – PROCEDURES IN POSTING TO THE LEDGER (B) (A) (F) (C) (D) (E)  STEP 3 – PROCEDURES IN POSTING TO THE LEDGER 3. Place the page number of the journal in which the information was taken to the reference column of the ledger. (E) 4. Place in the reference column of the journal the account number of the ledger in which the information was posted. (F) Inserting the account number in the journal reference column serves two purposes: a. It serves as a cross-reference when it is desired to trace the amount from one record to another. b. Writing the account number in the journal indicates that posting is completed. 7  STEP 3 – PROCEDURES IN POSTING TO THE LEDGER (B) (A) (F) (C) (D) (E) RECALL OF JOURNALIZED TRANSACTIONS OF MATAPANG COMPUTER REPAIRS  STEP 3 – POSTING TO THE LEDGER Required: Post the journalized transactions of Matapang Computer Repairs to the general ledger. Use three-column ledger. GENERAL LEDGER GJ1 GJ1 GJ1 GJ1  STEP 3 – POSTING TO THE LEDGER Required: Post the journalized transactions of Matapang Computer Repairs to the general ledger. Use three-column ledger. GJ1 GENERAL LEDGER GJ1 GJ1  STEP 3 – POSTING TO THE LEDGER Required: Post the journalized transactions of Matapang Computer Repairs to the general ledger. Use three-column ledger. GENERAL LEDGER GJ1 GJ1 GJ1  STEP 3 – POSTING TO THE LEDGER Required: Post the journalized transactions of Matapang Computer Repairs to the general ledger. Use three-column ledger. GENERAL LEDGER GJ1 GJ1  STEP 4 – UNADJUSTED TRIAL BALANCE At the end of an accounting period the working trial balance is prepared. This involves copying each account name and account balance to a worksheet. In the preparation of the unadjusted trial balance, the accounts and its 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 shown below: STEP 4 – UNADJUSTED TRIAL BALANCE THANK YOU FOR LISTENING!