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Principles of Accounting (MGT109-1)
Module 3
RECORDKEEPING FOR A SERVICE BUSINESS

The Account
An account is an individual accounting record of increases and decreases in a specific asset, liability, or
owner's equity item
...
The alignment of these parts resembles the letter T, and there-fore the account form
is called a T-account
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a
...

b
...

In a double-entry system, equal debits and credits are made in the accounts for each trans-action
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The effects of debits and credits on assets and liabilities and the normal balances are:
Accounts
Assets
Liabilities

Debits
Increase
Decrease

Credits
Decrease
Increase

Normal Balance
Debit
Credit

Accounts are kept for each of the four subdivisions of owner's equity: capital, drawings, revenues, and
expenses
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]
The Recording Process
The basic steps in the recording process are:
a
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b
...

c
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The Journal
Transactions are initially recorded in a journal
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A journal is referred to as a book of original entry
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A general journal is the most basic form of journal
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It discloses in one place the complete effect of a transaction
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It provides a chronological record of transactions
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It helps to prevent or locate errors because the debit and credit amounts for each entry can be
readily compared
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When three or more ac-counts are
required in one journal entry, the entry is known as a compound entry
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It keeps in one place all the
information about changes in account balances and it is a source of useful data for management
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Posting is the procedure of transferring journal entries to the ledger accounts
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In the ledger, enter in the appropriate columns of the account(s) debited the date, journal page,
and debit amount
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In the reference column of the journal, write the account number to which the debit amount was
posted
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Perform the same steps in a
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for the credit amount
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The numbering system usually starts with the balance sheet accounts and follows with the
income statement accounts
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pays P3,000 cash to a creditor in full payment of
the balance due
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Debit-credit
analysis

Debits decrease liabilities: debit Accounts Payable P3,000
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Journal
entry

Posting

Sept
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4 3,000

26
1

3,000
3,000

Accounts Payable
Sept
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The primary purpose of the trial
balance is to prove the mathematical equality of the debits and credits after posting
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a transaction is not journalized
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a correct journal entry is not posted
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an entry is posted twice
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incorrect accounts are used in journalizing or posting
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offsetting errors are made in recording the amount of a transaction
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The following transactions occurred in the
month of November 2013
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DATE
November

05

01

Land
Cash
To record cash purchase of land

18
11

20,000

13
21

1,350

20,000

Supplies
Accounts payable
To record purchase of supplies on
account

1,350

Cash
Fees earned / Service revenue
To record fees received from
customers

11
41

7,500
7,500

Wages Expense
Rent Expense
Utilities Expense
Miscellaneous Expense
Cash
To record cash payment of
expenses

51
52
53
59
11

2,125
800
450
275

21
11

950

3,650

NetSolutions paid creditors on account, P950
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30

30

CREDIT

NetSolutions received cash of P7,500 from customers for services provided
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10

18

F
11
31

NetSolutions paid P20,000 for the purchase of land as a future building site
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Accounts payable
Cash
To record payment of cash to
creditors

950

Chris Clark withdrew P2,000 from NetSolutions for personal use
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Derby Co
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01
Paid rent for the month, P3,000
...

05
Paid cash for supplies, P900
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10
Received cash from customers on account, P4,100
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27
Paid cash for repairs to office equipment, P500
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31
Fees earned and billed to customers for the month, P26,800
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31
Withdrew cash for personal use, P2,000
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Journal
entry explanations may be omitted
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Presented below is the ledger for Maxim Co
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(b)
Determine the October 31 balance for each of the accounts above, and prepare a trial balance at
October 31, 2013
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The accounts in the ledger of Aznar Co
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All accounts have normal balances
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Accounts Payable
P 28,000
Notes Payable
P 60,000
Accounts Receivable
56,250
Prepaid Insurance
4,500
Cash
?
Rent Expense
90,000
Ellen Kubota, Capital
129,850
Supplies
3,150
Ellen Kubota, Drawing
30,000
Supplies Expense
11,850
Fees Earned
465,000
Accounts Payable
13,500
Insurance Expense
9,000
Utilities Expense
62,250
Land
127,500
Wages Expense
262,500
Miscellaneous Expense
13,350
Required: Prepare an unadjusted trial balance, listing the accounts in their proper order and inserting
the missing figure for cash
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During the month, she completed the
following transactions connected with her professional practice:
1 Transferred cash from a personal bank account to an account to be used for the business,
P20,000
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5 Purchased used automobile for P22,300, paying P5,000 cash and giving a note payable for the
remainder
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10 Paid cash for supplies, P1,200
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14 Received cash from client for plans delivered, P4,175
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21 Paid cash to creditors on account, P2,500
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25 Received invoice for blueprint service, due in August, P800
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29 Paid salary of assistant, P1,500
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Required: Prepare journal entries, posting entries, and a trial balance using the following account titles:
Cash (101); Accounts Receivable (114); Supplies (122); Prepaid Insurance (137); Automobiles (141);
Equipment (145); Notes Payable (202); Accounts Payable (205); Brandy Corbin, Capital (301);
Professional Fees (402); Rent Expense (508); Salary Expense (519); Automobile Expense (522);
Blueprint Expense (526); Miscellaneous Expense (531)

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