Business Transactions and Their Analysis

Business Transactions and their
Analysis
Coverage of Discussion:
•Accounting Cycle
•Steps in Accouting Cycle
•Types of Events
•Journalizing
•Drills!
The Accounting Cycle
• Represents the steps or procedures used to
record transactions and prepared financial
statements.
• The accounting cycle implements the accounting
processes of identifying, recording and
communicating economic information.
Steps in the Accounting Cycle
• Identifying and analyzing business documents or
transactions
• Journalizing
• Posting Discussion
• Preparing the Unadjusted Trial Balance
• Preparing the adjusting entries
• Preparing the adjusted trial balance (or worksheet
preparation)
• Preparing the financial statements
• Closing the books
• Preparing the post-closing trial balance
• Recording of reversing entries
Identifying and analyzing transactions and
events
• It involves identifying a business transaction and
analyzing whether or not that transaction affects
the assets, liabilities, equity, income or
expenses of the business.
▫ Accountable events – needs to be recorded in the books
▫ Non-accountable events – not recorded
• Transactions are normally identified from
“source documents”
▫ Written evidence containing information about
transactions.
Illustration for Source Documents
• Sales invoice VS Official receipt
Rendering of
Sales of Goods
Services
Purchase order – used Delivery Receipt –
by the buyer to indicate document signed by the
the types, quantities and receiver of a shipment
agreed prices for products acknowledging the
or services. receipts of goods.
Bank Statement – report issued
Bank Deposit Slip – evidences a
by the bank that shows the deposits
deposit to a bank account.
and withdrawals during the period
and the cumulative balance of the
depositor’s bank account.
Check – an instrumnent
that orders a bank to pay
the person named on the
check or the bearer thereof
for a definite amount of
money from the drawer’s
bank account.
Statement of Account –
is a report a business send
to its customers listing the
transactions with the
customers during the perid.
Types of Events:
• External Events – transactions that involves the
business and another external entity.
• Internal Events – events that do not involve an
external party.
Journalizing
• After an accountable event is identified and analyzed,
the second step is to record it in the journal by means
of a journal entry. This recording process is called
journalizing.
Date Account Title to be debited P xx
Account title to be credited P xx
short desccription of the transaction
• Date – chronological order

• Account titles and amounts to be debited and credited – each
transaction is recorded in the journal in two parts – debit and credit
• Short description of the transaction – short description of the
transaction for future reference.
Formats of Journal Entry
• Simple Journal Entry – one that contains a
single debit and a single cerdit element.
• Compound Journal Entry – one that contains
two or more debits or credits
DRILLS!!!
• A business had the following transactions during the month of October 20x1.
Oct. 1 The owner contributed P 800,000 cash to the business

Oct. 3 The business purchased inventory worth P 100,000 on cash basis
Oct. 4 The business purchased inventory worth P 400,000 on account
Oct. 8 The business sold goods for P 300,000 cash. The cost of the goods
sold is P 120,000
Oct. 12 The business sold goods for 700,000, on account. The cost of
goods sold is 280,000.
Oct. 15 The business paid P 400,000 accounts payable
Oct. 17 The business collected P 700,000 accounts receivable
Oct. 18 The business purchased equipment worth P280,000 for cash
Oct. 22 The owner withdrew P20,000 from the business
Oct. 31 The businesspaid salaries expense of P 50,000.
• Provide the journal entries to record the transactions and the effect on the accouting equation.

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Business Transactions and their

• Date – chronological order

Oct. 1 The owner contributed P 800,000 cash to the business

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