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COMPETENCY-BASED LEARNING MATERIAL

Sector: HEALTH, SOCIAL, AND OTHER COMMUNITY


DEVELOPMENT SERVICES
Qualification Title: BOOKKEEPING NC III
Unit of Competency: JOURNALIZE TRANSACTIONS
Module Title: JOURNALIZING TRANSACTIONS FOR SOLE
PROPRIETORSHIP

METRO DUMAGUETE COLLEGE


E.J BLANCO EXTENSION, BRGY. DARO DUMAGUETE CITY,6200

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 1 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
HOW TO USE THIS COMPETENCY –BASED LEARNING MATERIALS

Welcome!

The unit of competency, "Journalize Transactions", is one of the


competencies of BOOKKEEPING NC III, a course which comprises the
knowledge, skills and attitudes required for a TVET trainer to possess.
The module, Journalize Transactions, contains training materials and
activities related to identifying learner’s requirements, preparing session plan,
preparing basic instructional materials and organizing learning and teaching
activities for you to complete.
In this module, you are required to go through a series of learning activities
in order to complete each learning outcome. In each learning outcome are
Information Sheets, Self-Checks, Task Sheets and Job Sheets. Follow and perform
the activities on your own. If you have questions, do not hesitate to ask for
assistance from your facilitator.
Remember to:
 Read information sheets and complete the self-checks. Suggested
references are included to supplement the materials provided in this
module.
 Perform the Task Sheets and Job Sheets until you are confident that your
outputs conform to the Performance Criteria Checklist that follows the
sheets.
 Submit outputs of the Task Sheets and Job Sheets to your facilitator for
evaluation and recording in the Achievement Chart. Outputs shall serve
as your portfolio during the Institutional Competency Evaluation. When
you feel confident that you have had sufficient practice, ask your trainer
to evaluate you. The results of your assessment will be recorded in your
Progress Chart and Achievement Chart.
You must pass the Institutional Competency Evaluation for this
competency before moving to another competency. A Certificate of
Achievement will be awarded to you after passing the evaluation.
You need to complete this module before you can perform the module on
Journalize Transactions.

MODULE CONTENT
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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NTTA
Transactions for Sole
Proprietorship
Revision # 01
UNIT OF COMPETENCY : Journalize Transactions
MODULE TITLE
: Journalizing Transactions for Single
Proprietorship

MODULE DESCRIPTOR : This module covers the knowledge, skills, and


attitudes in preparing chart of accounts, analyze
documents and preparing journal entries for
Single Proprietorship.
NOMINAL DURATION: 72 Hours

LEARNING OUTCOMES:
At the end of this module you MUST be able to:

1.1 Prepare Chart Of Accounts


1.2 Analyze Documents
1.3 Prepare Journal Entry

ASSESSMENT CRITERIA:
1. List of asset, liability, equity, income, and expense account titles are
prepared in accordance with Generally Accepted Accounting Principles.
2. Chart of Accounts is coded according to industry practice.
3. Documents are gathered, checked and verified in accordance with
verification and validation processes.
4. Account titles are selected in accordance with standard selection
processes.
5. Journal entries are prepared in accordance with generally accepted
accounting principles.
6. Debit and credit account titles are determined in accordance with chart
of accounts.
7. Explanation to journal
entry is prepared in
accordance with the
nature of transaction.
LEARNING OUTCOME NO.
BOOKKEEPING NC III Date Developed: Document No. NTTA-TM1-07
April 02, 2018 Issued by: Page 3 of105
Journalizing Date Revised:
Transactions for Sole NTTA
Developed by:
Proprietorship
Revision # 01
1.3 Prepare Journal Entry

Contents:

1. Generally Accepted Accounting Principles


2. Accounting Equation
3. Journalizing of Proprietor account titles

Assessment Criteria

1. Journal entries are prepared in accordance with Generally Accepted


Accounting Principles.
2. Debit and Credit account titles are determined in accordance with Chart of
Accounts.
3. Explanation to Journal Entry is prepared in accordance with the nature of
transaction.

Conditions

The students/trainees must be provided with the following:


1. Calculator
2. Journal Paper
3. Learning Materials
4. Pencil
5. Eraser
6. Philippine Financial Reporting Standards

Assessment Method:

1. Written test
2. Practical/performance test
3. Interview
4. Practical exercises

Learning Experiences

Learning Outcome No. 3 Prepare Journal Entry


Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 4 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
INFORMATION SHEET 1.3-1
Learning Activities Special Instructions

Read Information Sheet 1.3-1 on In this Learning Outcome you


Generally Accepted Accounting shall prepare tools and materials
Principles needed to determine training
needs. To be able to do this, you
Answer Self-Check 1.3-1 should understand the
characteristics of your trainees
Refer to Answer Key 1.3-1
and analyze the following:
Read Information Sheet 1.3-2 on 1. Generally Accepted
Accounting Equation Accounting Principle
2. Accounting Equation
Refer to Answer Key 1.3-2
3. Journalizing of Sole
Perform Task Sheet 1.3-2 Proprietor Account Titles
Classifying the effect of the Go through the Information
transactions on Accounting Equation Sheets and answer the Self-
of Ashton Printing Shop Checks to ensure that knowledge
of the standards in Competency-
Check with Performance Criteria based training are acquired.
Checklist 1.3-2
The outputs of your practice of
Read Information Sheet 1.3-3 on this Learning Outcome are the
Journalizing of Sole Proprietor following:
Account Titles
1. Table shows the appropriate
Answer Self-Check 1.3-3 accounting tool for the effects of
the financial transactions
Refer to Answer Key 1.3-3
2. A five-column Journal Entries
Perform Job Sheet 1.3-3 to set up a business
Prepare the Journal Entries of
Ashton Printing Shop first These forms will be a part of your
month transactions portfolio for you Institutional
Competency Evaluation.
Check with Performance Criteria Show your output to your
Checklist 1.3-3 trainer for her feedback as you
accomplish them.
(Generally Accepted Accounting Principles)

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
Date Developed: Document No. NTTA-TM1-07
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1. Discuss the different kinds of principles included in the Generally Accepted
Accounting Principles (GAAP);
2. Enumerate the principles included in the GAAP;
3. Value the principles of GAAP in recording and reporting in accounting.

Time allotment: 3 hours

Introduction

Generally Accepted Accounting Principles (GAAP) refers to a widely accepted


set of rules, standards, conventions, and procedures for reporting financial
information. GAAP is an amalgamation of authoritative standards and the
usually accepted methods of recording and reporting info on accounting.

Principles included in GAAP

The principles included in


GAAP are derived from
tradition, like the concept of
matching. In any financial
report, the auditor/preparer is
supposed to indicate the
compliance of provided info
with GAAP.

The origins of GAAP or


Generally Accepted Accounting
Principles go all the way back to
1929 and the stock market
crash that caused the Great
Depression. Faith in the
economy was at an all-time low
and the government of that time
decided that something had to
be done to rebuild that faith.
BOOKKEEPING NC III Date Developed: Document No. NTTA-TM1-07
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Thus, the Securities and Exchange Commission or SEC was formed with a
mission to regulate financial practices. The SEC in turn asked the American
Institute of Accountants for help in order to examine financial statements and
1936 the concept of GAAP was spoken about for the first time.

The evolution of these accounting standards has taken more than half-a-
century and changes are being made even today. Along the way the governing
boards have changed as well and in the current era, it is the Financial Accounts
Standards Board or FASB that decide the rules of accounting. But the SEC still
continues to have enforcement powers.

There are ten (10) basic principles that make up these standards:

1. The Business as a Single Entity Concept:


A business is a separate entity in the eyes of the law. All its activities are treated
separately from that of its owners. In legal terms a business can exist long after
the existence of its promoters or owners. The personal transactions of the owner
should not be included in the business transactions. The business has its own
personality and a financial statement is prepared to report its performance, cash
flows, its resources, and claims to the resources.

Examples of The Business as a Single Entity Concept

a. Mike, a partner in Big House Realty, LLC, often uses his company credit
card for personal expenses like dry cleaning and new clothes. He insists
that these are business expenses because he must wear new clothes in
order to show houses. Unfortunately, these are not business expenses.
Clothing is a personal expense and can’t be recorded in the company
financial statements. This would violate the business entity concept.
Instead, these transactions should be accounted for as an owner
withdrawal.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
b. Assume Bob, a local landscaping business owner, decides to branch out
and buy another existing business: a concrete company. This way his
concrete company can pour footings and walkways and his landscaping
business can landscape around them. Since Bob owns both companies
personally, he thinks that he can combine both companies accounting
records into one Quickbooks file. According to the business entity concept,
both of these companies are separate entities and must be accounted for
separately even though Bob is the owner of both companies. If Bob’s
landscaping company had bought the concrete company, both companies
would have merged and could be reported together.

c. Jim, an owner of a pizza shop, decides to buy a new delivery car. Since
the company was low on cash, Jim decided to pay for the car himself out of
his personal bank account. Jim intends to add the car to the balance sheet
of the pizza shop. The economic entity principle requires Jim and his
company to keep activities separated, so the car must remain a personal
vehicle unless Jim contributes it to the company or the company buys it
from Jim personally.

2. The Specific Currency Principle:


A currency is specified for reporting the financial statements. In the Philippines
all the numbers have to be expressed in Peso. Companies who conduct parts of
their businesses in foreign currencies have to convert the amounts in Peso using
the prevalent exchange rate while reporting their financial statements.

Examples of The Specific Currency Principle

a. The company's property, plant and equipment on 2009 balance sheet


amounted to $2 billion. During 2010 inflation was 10%. The monetary unit
and stable dollar assumption prohibits any adjustment to current or prior
period figures to account for the inflation.

b. The BP oil spill in Gulf of Mexico was a natural disaster but accounting
only reports the financial impact in the form of claims paid, damages paid,
cleanup costs, etc. This is due to the limitation imposed by the monetary
unit assumption.
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Transactions for Sole
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Revision # 01
3. The Specific Time Period Principle:
Financial statements always pertain to a specific time. Income statements have a
start date and an end date. An accounting period which ends on December 31 is
called calendar year. If it does not end on December 31, then it is called Fiscal
year or Natural business year. Balance sheets are reported as on a certain date.
This way the readers know during which period the business transactions were
conducted in.
Examples:

a. The Meta company provides services valuing $2,500 to Beta company


during the first quarter of the year. The Beta company will pay the cash for
these services next quarter. According to time period assumption, if Meta
company prepares its financial statements at the end of the first quarter of
the year, it must include this service revenue of $2,500 in its income
statement for the first quarter.

b. The Meta company incurs expenses of $1,200 during the first quarter of
the year. The cash for these expenses will be paid next quarter. The time
period assumption requires Meta company to disclose these expenses on
the income statement for the first quarter of the year.

Notice that the two examples given above show that the time period assumption
is closely related to matching principle and revenue recognition principle of
accounting.

4. The Historical Cost Principle:


Historical costs are used for valuing items. The prices at which items were
brought and sold are used for the valuations. Real values do change during the
course of time due to inflation and recession, but these are not considered for
reporting purposes. Purchased assets are recorded using the invoice price and
any invested asset is recorded at its fair market value.

Example: The cost principle requires that assets be recorded at the cash
amount (or its equivalent) at the time that an asset is acquired. For
example, if equipment is acquired for the cash amount of P50,000, the
equipment will be recorded at $50,000. If the equipment will be useful for
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Revision # 01
10 years with no salvage value, the straight-line depreciation expense will
be P5,000 per year (cost of P50,000 divided by 10 years). The equipment's
market value, replacement cost or inflation-adjusted cost will not affect the
annual depreciation expense of P5,000. The company's balance sheets will
report the equipment's historical cost minus the accumulated depreciation.

5. The Full Disclosure Principle:


The full disclosure principle is always in keen focus what with all the accounting
scandals in the news nowadays. It is required that companies reveal every aspect
of the functioning in their financial statements. Any information that are
significant and relevant in the financial reporting are to be disclosed in the
financial statements.

Examples:
a. If we talk about a loan to a director provided by the company. The full
disclosure principle will require the managers of the company to disclose
all the information related to that loan arrangement like loan deed itself,
the duration of loan, any collateral liability attached and the rate of interest
the company is charging to that director etc. So in the light of this data any
new possible investors can make their decision about investing in the
company with more ease.

b. Another example could be the knowledge about the assets and liabilities
of a company. Along with the values, the rate of depreciation, the policy of
charging depreciation or amortization, the policies about revaluations of
assets, any liabilities or provisions that are contingent, any assets that fall
under fixed or floating charge, any assets leased, physical condition of the
building and machinery etc. could help external users to make more
informed decision. Like, for instance, if a bank has related covenants to
meet certain liquidity ratios (e.g. current ratio) that depict the company’s
capacity to pay its liabilities as they fall due, all the information mentioned
above will help the bank decide whether the company meets the
requirements of the covenants and based on that information the bank can
decide whether it should renew the loan or not.

c. If a company expects a change in tax rate in near future, it must disclose


this information in some appropriate manner.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 10 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
d. Every company uses certain accounting policies and methods for
preparing its financial statements. These policies and methods must be
disclosed to the users of financial statements.

6. The Recognition Principle:


There is also the recognition principle which states that companies reveal their
income and expenses in the same time period in which they were accrued. This
principle states that revenue is already earned if the performance of services has
already been done (in case of service business) or if the goods have already been
delivered to the customer (in case of merchandising business). Revenue is
recognized in the books if it is already earned whether there is a cash inflow or an
arising receivable.

Examples
1. The Gibson Guitar Company places an order for a certain type of wood
to Eastern Wood Company on January 25, 2018. The Eastern Company
ships the wood to Gibson Guitar Company on February 5, 2018. On the
same date, the Gibson Guitar Company intimates Eastern Company that it
has received the wood. The Gibson Guitar Company makes the full
payment of this order on February 20, 2018.

According to Revenue Recognition Principle, Eastern Company should record


the revenue on February 5, 2018 when the wood is received by the Gibson not at
the time of the placement of order or the time when cash is received.

2. On December 25, 2017, the John Marketing Consultants receives


P15,000 cash from SD corporation. This is an advance receipt of cash for
which the consultancy service is to be provided in the month of January,
2018. On January 05, 2018, the relevant consultancy services are provided
by John Marketing consultants to SD corporation.

According to Revenue Recognition Principle, the John Marketing Consultants


should recognize the revenue on January 05, 2018, not on December 25, 2018
when the cash is received SD from corporation.

7. The Non-Death Principle of Businesses:


The accounting principles assume that businesses will continue to function
eternally and have no end date as such.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
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Transactions for Sole
Proprietorship
Revision # 01
Examples
a. A company manufactures a chemical known as Chemical-X. Suddenly,
the government imposes a restriction on the manufacture, import, export,
marketing and sale of this chemical in the country. If Chemical-X is the
only product that company manufactures, the company will no longer be a
going concern.

b. The National company is in serious financial trouble and cannot pay its
obligations. The government gives National company a bailout and a
guarantee of all payments to creditors. The national company is a going
concern despite of its current weak financial position.

c. The Eastern company closes one of its branch and will continue with
others. The company is a going concern because the shutting down a small
part of business does not impair the ability of the company to operate as
going concern.

d. The Small company is unable to make payments to its creditors due to a


very weak liquidity position. The court grants the order of liquidating the
company upon the request of one of the company’s creditors. The company
is no longer a going concern because sufficient evidence is available to
believe that the company cannot continue its operations in future.

8. The Matching Principle:


The matching principle states that the accrual system of accounting be used and
for every debit there should be a credit and vice versa. All costs and expenses
that are incurred in the production of revenue must be recognized and reported
in the same accounting period.

Examples
a. When a company makes sales, majority of it are against credit, i.e. where
the customer receives delivery of goods or services but promises to make
the payment, say within 30 days. In accordance with revenue recognition
principle, revenue is recognized when the delivery is made. Now, there is a
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
risk that the customers may not pay the amount due against those sales,
which results in the company writing off the account receivable as bad
debts expense. The possibility of bad debts exists when the sale is made, so
expense should be recognized right at that moment when the sale is made.
Recognizing bad debts expense requires considerable estimation.

b. Company B generates P2,000,000 in revenue in 2018. Total purchases


of inventories were P1,000,000 of which P100,000 remained on hand at the
end of 2018. The cost of sales should be reflected in the income statement
at P900,000 [P1,000,000 minus P100,000]. The company’s gross profit for
2018 should be P1,100,000 (=P2,000,000 minus P900,000). The main
point is to subtract only that much expense in a particular period which is
related to the revenues earned in that period. Since P100,000 worth of
inventories are to be sold in next period, they should not be subtracted
from revenue for the current period.

c. A hospital pays P20,000 per month to 5 of its doctors. Monthly sales are
P500,000. P100,000 worth of monthly salaries should be matched with
P500,000 of revenue generated.

9. The Principle of Materiality:


Then there are a couple of principles which require the bookkeepers to use their
judgment rather than sure shot rules. There are inaccuracies in all accounting
records. After all, nobody is perfect. But when errors are made how important are
they for the bookkeeper to break his head over. A ten peso error can be ignored,
but not a thousand dollars one. This is where the principle of materiality comes
in and this is where the accountants have to use their judgments.

Example of The Principle of Materiality


a. A company controller decides that the materiality constraint of the
business is P20,000. An asset is purchased for P18,000. Since the size of
this purchase is below the materiality level, the controller decides to charge
the purchase to expense, rather than recording it as a fixed asset that will
be depreciated over many years, as per the normal company policy.

b. As another example, the controller of the same business must decide


whether to record a P50,000 medical insurance payment that applies to the
following month as a prepaid expense in the current period, or charge it to
expense. Since this amount exceeds the materiality level, the controller

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Developed by:
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Transactions for Sole
Proprietorship
Revision # 01
should record the payment as a prepaid expense, and charge it to expense
in the following period, as per the normal company policy.

c. A larger business will have a higher materiality constraint, since its


sales level is so much higher than a smaller entity. A multi-national entity
might establish of materiality threshold of P1,000,000, while a small local
hardware store might have a P1,000 threshold.

d. The materiality constraint is a key consideration in the process of


closing the books, and helps accountants by allowing them to use the
simplest transaction recordation alternatives for smaller items.

10. The Principle of Conservative Accounting:


Conservative accounting is another principle to be adopted for the good of the
company. When expenses happen they are to be recorded immediately, but
incomes are to be recorded only when the actual cash has been received. Of
course, what policies companies follow depend on their own internal strategy.

Examples
a. Big Towing, Inc. issues financial statements in January for its prior
year. These statements correct an error in the previous year’s financial
statements. The error was estimated to be P200,000. The exact error
amount is unknown and would cost approximately P50M to exactly
pinpoint. The cost benefit principle states that Big Towing does not have to
find the exact amount of the error. A reasonable estimate is acceptable due
to the high cost of researching the actual cost of the error.

b. Paul’s Retail, LLC discovered that an employee was stealing from its
cash register. The amount is suspected to be over P1,000, but Paul is not
sure. It’s estimated that Paul would pay his accountant and attorney
P5,000 to dig through his records and discover the exact amount of the
theft. In this case, it would not be beneficial for Paul to do further research
and sue his former employee.

c. Lisa’s Salad Shop, a restaurant, is under audit with the IRS. The IRS
assets that Lisa’s expenses were only P15,000– not the P30,000 that Lisa
reported on her tax return. Lisa’s accountant estimates that it will cost
P10,000 in research costs to find the receipts and documentation for these
expenses. If the tax returns are restated with only P15,000 of expenses, the
Date Developed: Document No. NTTA-TM1-07
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additional taxes will only be P1,000. The cost of researching the expenses
outweighs the benefit of lowering the potential tax bill.

Companies need
to know the GAAP rules
thoroughly. In these
times when the banking
sector and indeed the
whole financial world is
under so much scrutiny
regulators are taking
compliance issues,
accounting principles
and business practices
very seriously. That is
why it is essential that
every individual in the
organization adhere to
these rules and
principles. Having an
effective Finance and
Accounting team is
critical to ensure the
accuracy of financial
statements.

SELF-CHECK 1.3-1 (30 ITEMS)

I. TRUE OR FALSE: Write TRUE if the statement is correct and FALSE if


incorrect. (2pts each)

___________1. The GAAP refers to a widely accepted set of rules, standards,


conventions, and procedures for reporting financial info.
___________2. The things covered by GAAP include revenue recognition,
measuring outstanding share, and classification of items on balance sheet.

___________3. It is fine to make financial statements without following the


methods of GAAP.

Date Developed: Document No. NTTA-TM1-07


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___________4. GAAP are enforced on the companies to provide the investors
with least possible level of reliability in the financial statements used while
analyzing companies for investment purposes.

___________5. The bookkeeper needs not to follow the GAAP in the preparation
of financial statement.

III. MULTIPLE CHOICE. Encircle the letter of the correct answer. (1pt each)

1. The personal assets of the owner of a company will not appear on the
company's balance sheet because of which principle/guideline?

a. Cost
b. Economic Entity
c. Monetary Unit

2. Which principle/guideline requires a company's balance sheet to report its


land at the amount the company paid to acquire the land, even if the land could
be sold today at a significantly higher amount?

a. Cost
b. Economic Entity
c. Monetary Unit

3. Which principle/guideline allows a company to ignore the change in the


purchasing power of the dollar over time?

a. Cost
b. Economic Entity
c. Monetary Unit

4. Which principle/guideline requires the company's financial statements to


have footnotes containing information that is important to users of the financial
statements?

a. Conservatism
b. Economic Entity
c. Full Disclosure

5.Which principle/guideline justifies a company violating an accounting principle


because the amounts are immaterial?

a. Conservatism
Date Developed: Document No. NTTA-TM1-07
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b. Full Disclosure
c. Materiality

6. Which principle/guideline is associated with the assumption that the


company will continue on long enough to carry out its objectives and
commitments?

a. Economic Entity
b. Going Concern
c. Time Period

7. A very large corporation's financial statements have the peso amounts


rounded to the nearest P1. Which accounting principle/guideline justifies not
reporting the amounts to the penny?

a. Full Disclosure
b. Materiality
c. Monetary Unit

8. Accountants might recognize losses but not gains in certain situations. For
example, the company might write-down the cost of inventory, but will not write-
up the cost of inventory. Which principle/guideline is associated with this action?

a. Conservatism
b. Materiality
c. Monetary Unit

9. Which principle/guideline directs a company to show all the expenses related


to its revenues of a specified period even if the expenses were not paid in that
period?

a. Cost
b. Matching
c. Monetary Unit

10. When the accountant has to choose between two acceptable alternatives, the
accountant should select the alternative that will report less profit, less asset
amount, or a greater liability amount. This is based upon which
principle/guideline?

a. Conservatism
b. Cost
c. Materiality

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Developed by:
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Transactions for Sole
Proprietorship
Revision # 01
11. Public utilities' balance sheets list the plant assets before the current assets.
This is acceptable under which accounting principle/guideline?

a. Conservatism
b. Cost
c. Industry Practices

12. A large company purchases a P25 office supplies and expenses it


immediately instead of recording it as an asset. This practice may be acceptable
because of which principle/guideline?

a. Cost
b. Matching
c. Materiality

13. A sole proprietorship pays its annual property tax of approximately P12,000
in one payment each December 28. During the year, the sole proprietorship's
monthly income statements report Property Tax Expense of P1,000. This is an
example of which accounting principle/guideline?

a. Conservatism
b. Matching
c. Monetary Unit

14. A company sold merchandise of P8,000 to a customer in December. The


company's sales terms require the customer to pay the company in 30 days. The
company's income statement reported the sale in December. This is proper under
which accounting principle/guideline?

a. Full Disclosure
b. Monetary Unit
c. Revenue Recognition

15. Accrual accounting is based on this principle/guideline.

a. Cost
b. Full Disclosure
c. Matching

16. The creative chief executive of a corporation who is personally responsible for
numerous inventions and innovations is not reported as an asset on the
corporation's balance sheet. The accounting principle/guideline that prevents the
corporation for reporting this person as an asset is

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
a. Conservatism
b. Cost
c. Going Concerns

17. An asset with a cost of P120,000 is depreciated over its useful life of 10 years
rather than expensing the entire amount when it is purchased. This complies
with which principle/guideline?
a. Cost
b. Full Disclosure
c. Matching
18. Near the end of the current year, a company required a customer to pay
P200,000 as a deposit for work that is to begin in the following year. At the end of
the current year the company reported the P200,000 as a liability on its balance
sheet. Which accounting principle/guideline prevented the company from
reporting the P200,000 on its income statement for the current year?

a. Going Concern
b. Materiality
c. Revenue Recognition

19. A retailer wishes to report its merchandise inventory on its balance sheet at
its retail value. This would violate which accounting principle/guideline?

a. Cost
b. Full Disclosure
c. Monetary Unit

20. A company borrowed P100,000 in December and will make its only payment
for interest when the note comes due six months later. The total interest for the
six months will be P3,600. On the December income statement the accountant
reported Interest Expense of P600. This action was the result of which
accounting principle/guideline?

a. Cost
b. Matching
c. Revenue Recognition

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 19 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
ANSWER KEY 1.3-1 (30points)

I. TRUE OR FALSE: Write TRUE if the statement is correct and FALSE if


incorrect. (2pts each)

TRUE 1. The GAAP refers to a widely accepted set of rules, standards,


conventions, and procedures for reporting financial info.
TRUE 2. The things covered by GAAP include revenue recognition,
measuring outstanding share, and classification of items on balance sheet.

FALSE 3. It is fine to make financial statements without following the


methods of GAAP.
TRUE 4. GAAP are enforced on the companies to provide the investors
with least possible level of reliability in the financial statements used while
analyzing companies for investment purposes.

FALSE 5. The bookkeeper needs not to follow the GAAP in the preparation
of financial statement.

III. MULTIPLE CHOICE. Encircle the letter of the correct answer. (1pt each)
1. The personal assets of the owner of a company will not appear on the
company's balance sheet because of which principle/guideline?

b. Economic Entity

The owner's assets are not shown on the balance sheet of the business. This is true even if the
business is a sole proprietorship.

2. Which principle/guideline requires a company's balance sheet to report its


land at the amount the company paid to acquire the land, even if the land could
be sold today at a significantly higher amount?
a. Cost

The cost principle requires the accountant to show assets at cost and expenses at cost rather
than at higher amounts. Accountants are not allowed to recognize gains from merely holding the
land. To be able to recognize a gain on the land, the company would have to sell the land.

3. Which principle/guideline allows a company to ignore the change in the


purchasing power of the dollar over time?

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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NTTA
Transactions for Sole
Proprietorship
Revision # 01
c. Monetary Unit

The monetary unit assumption is that the dollar is stable over time—no inflation.

4. Which principle/guideline requires the company's financial statements to


have footnotes containing information that is important to users of the financial
statements?

c. Full Disclosure

The full disclosure principle requires businesses to disclose information that is relevant to the
decisions of investors and creditors.

5. Which principle/guideline justifies a company violating an accounting


principle because the amounts are immaterial?

c. Materiality

When an amount is so small/immaterial an accountant may decide to ignore an accounting


principle.

6. Which principle/guideline is associated with the assumption that the


company will continue on long enough to carry out its objectives and
commitments?

b. Going Concern

7. A very large corporation's financial statements have the peso amounts


rounded to the nearest P1. Which accounting principle/guideline justifies not
reporting the amounts to the penny?

b. Materiality

As long as the digits omitted are small in relation to the true amounts, companies will round
numbers so as to emphasize the relevant digits. The rationale is that no one will be misled by the
omission of the insignificant digits.

8. Accountants might recognize losses but not gains in certain situations. For
example, the company might write-down the cost of inventory, but will not write-
up the cost of inventory. Which principle/guideline is associated with this action?

a. Conservatism

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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NTTA
Transactions for Sole
Proprietorship
Revision # 01
Conservatism involves choosing between acceptable alternatives. In other words conservatism is
used to break a tie between two acceptable choices of how to account for something. It is also
associated with recognizing losses but not gains for certain situations.

9. Which principle/guideline directs a company to show all the expenses related


to its revenues of a specified period even if the expenses were not paid in that
period?

b. Matching

10. When the accountant has to choose between two acceptable alternatives, the
accountant should select the alternative that will report less profit, less asset
amount, or a greater liability amount. This is based upon which
principle/guideline?

a. Conservatism

Conservatism is used in order to 'break a tie'. Accountants should strive to be objective and to
use conservatism when doubt exists between two options.

11. Public utilities' balance sheets list the plant assets before the current assets.
This is acceptable under which accounting principle/guideline?

c. Industry Practices

Certain industries (usually those that are regulated by the government) have unique reporting
requirements that are followed on the financial statements as well as the reports to the
government.
12. A large company purchases a P25 office supplies and expenses it
immediately instead of recording it as an asset. This practice may be acceptable
because of which principle/guideline?

c. Materiality

Because this is a large company, P25 is considered to be an insignificant amount to record it as


an asset.

13. A sole proprietorship pays its annual property tax of approximately P12,000
in one payment each December 28. During the year, the sole proprietorship's
monthly income statements report Property Tax Expense of P1,000. This is an
example of which accounting principle/guideline?

a. Conservatism
b. Matching
c. Monetary Unit

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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NTTA
Transactions for Sole
Proprietorship
Revision # 01
The matching principle requires the company to match 1/12 of the annual property tax to each
month when revenues are earned as a result of the property.

14. A company sold merchandise of P8,000 to a customer in December. The


company's sales terms require the customer to pay the company in 30 days. The
company's income statement reported the sale in December. This is proper under
which accounting principle/guideline?

c. Revenue Recognition

The revenue recognition principle requires that revenue be reported when revenue is earned
(when goods are sold or services are provided) and not at the time when payment is received.

15. Accrual accounting is based on this principle/guideline.

c. Matching

The matching principle requires that expenses be matched to the related revenues or to the
accounting period when the expenses are incurred. When the expenses are paid for is not
relevant.

16. The creative chief executive of a corporation who is personally responsible for
numerous inventions and innovations is not reported as an asset on the
corporation's balance sheet. The accounting principle/guideline that prevents the
corporation for reporting this person as an asset is

b. Cost

The cost principle requires that assets and other transactions be recorded at cost. The chief
executive was not purchased at a cost and therefore is not reported as an asset on the
corporation's balance sheet. The monetary unit assumption is also another reason why the
executive is not recorded—we do not know how to measure the executive in peso.

17. An asset with a cost of P120,000 is depreciated over its useful life of 10 years
rather than expensing the entire amount when it is purchased. This complies
with which principle/guideline?

c. Matching

The matching principle requires that expenses be matched to the related revenues or to the
accounting period when the expenses are incurred. When the expenses are paid for is not
relevant.

18. Near the end of the current year, a company required a customer to pay
P200,000 as a deposit for work that is to begin in the following year. At the end of
the current year the company reported the P200,000 as a liability on its balance
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 24 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
sheet. Which accounting principle/guideline prevented the company from
reporting the P200,000 on its income statement for the current year?

c. Revenue Recognition

The revenue recognition principle requires that revenues be recognized when they are earned,
not when the cash is received.

19. A retailer wishes to report its merchandise inventory on its balance sheet at
its retail value. This would violate which accounting principle/guideline?

a. Cost

The cost principle requires that assets be recorded at their cost at the time they are acquired.
The cost principle prohibits increasing the cost of items in inventory before an item is sold.

20. A company borrowed P100,000 in December and will make its only payment
for interest when the note comes due six months later. The total interest for the
six months will be P3,600. On the December income statement the accountant
reported Interest Expense of P600. This action was the result of which
accounting principle/guideline?

b. Matching

The matching principle requires that expenses be matched with the related revenues or to the
appropriate period of time. In this case the company is incurring interest expense every minute
that it has the loan. For one month's use of the money, the company has Interest Expense of
P600 and it needs to be reported on the December income statement in order to be in
compliance with the matching principle and the accrual basis of accounting.

INFORMATION SHEET 1.3-2

“Accounting Equation”

Learning Objectives:

After reading this INFORMATION SHEET, YOU MUST be able to:

Understand the fundamental concepts of accounting equation;


Differentiate the debit and credit account titles in accordance with the
chart of accounts;
Value the role of accounting equation for sole proprietorship business.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 25 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Time allotment: 7 hours

Introduction

Basic Accounting Equation

Assets, liabilities and equity are the 3 elements of balance sheet (or statement of
financial position) that expresses the accounting equation (Assets = Liabilities +
Owner’s Equity), which must always be balanced. Income and Expenses are the
elements that form the income statement.

The equation that is the foundation of double entry accounting. Thus, the
accounting equation is: Assets = Liabilities + Owner’s Equity. The balance sheet
is a complex display of this equation, showing that the total assets of a company
are equal to the total of liabilities and owner’s equity.

Assets = Liabilities + Owner’s Equity


Accounting Equation for a Sole Proprietorship

A sole proprietorship is a form of business organization that is owned by one


person. The owner is referred to as a sole proprietor. In accounting, the balance
sheet of the sole proprietorship reflects the accounting equation: Assets =
Liabilities + Owner's Equity.

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
What are Debits and Credits?

Debit and Credit are the most fundamental concepts in accounting,


representing the two sides of each individual transaction recorded in any
accounting system. A Debit transaction can be used to increase a debit balance
in an asset account or to reduce a credit balance in a liability account. On the
other hand, a Credit transaction can be used to decrease a debit balance in an
asset account, or to increase a credit balance in a liability account.

Debit and Credit as Accounting Tools


The following table shows the appropriate accounting tool for the effects of
the financial transactions on Assets, Liabilities, Capital, Income, and Expense.
Debit Credit
Asset
Date Developed: Document No. NTTA-TM1-07
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Transactions for Sole
Proprietorship
Revision # 01
Liability
Capital
Income
Expense

The easy way to remember when to debit and when to credit an account is
to remember the normal balances of the five types of accounts on the Chart of
Accounts. The Chart of Accounts is list of accounting accounts, categorized
according to types of accounts (assets, liability, equity, income and expenses)
with their corresponding account numbers. The normal balance is what the
account would have if it increases or if its increases are more than its decreases.
The following are the normal balances of those account types:

Asset Accounts – Debit


Liability Accounts – Credit
Owner’s Equity – Credit
Revenue Accounts – Credit
Expense Accounts – Debit

Contra Assets Accounts, such as Allowance for Bad Debts and Accumulated
Depreciation have Credit Normal Balances.

The following is a typical example of Chart of Accounts.

ASSETS 100 INCOME 400


Cash 101 Service Income 410
Investment in Trading SEcurities 102 Dividend Income 415
Accounts Receivable 103 Interest Income 420
Allowance for Doubtful Accounts 104
Notes Receivable 105 EXPENSES 500
Advances to Employees 106 Advertising Expense 510
Prepaid Rent 107 Commission Expense 520
Office Supplies 108 Donation Expense 525
Land 109 Fringe Benefit Expense 530
Store Equipment 110 Fuel & Oil Expense 535
Office Equipment 111 Insurance Expense 540

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Proprietorship
Revision # 01
Building 120 Professional Fee 545
Accumulated Depreciation - Store 130 Rent Expense 550
Equipment
Accumulated Depreciation - Office 131 Repair & Maintenance 555
Equipment Expense
Accumulated Depreciation - Building 140 Salaries & Wages Expense 560
SSS Premium Expense 565
LIABILITIES 200 Philhealth Contributions 570
Expense
Accounts Payable 210 Pag-IBIG Contributions 575
Expense
Notes Payable 220 Subscription Expense 580
Utilities Payable 230 Tax & License Expense 585
Unearned Advertising 240 Travel Expense 590
Mortgage Payable 250 Utilities Expense 591
Bad Debts Expense 592
OWNER'S EQUITY 300 Depreciation Expense 593
Owner, Drawing 310 Interest Expense 594
Owner, Capital 320 Miscellaneous Expense 595

After you have identified the two or more accounts involved in a business
transaction, you must debit at least one account and credit at least one account.

To understand which accounts are debited or credited in order to either


increase or decrease their amounts, the following five fundamental elements of
any financial statement should be considered:

Assets – are the resources controlled by the entity as a result of past events and
from which future economic benefits are expected to flow to the entity. This
includes cash, receivables, inventories, prepayments, investments, property and
equipment.

Example for Cash:


 Whenever cash is received, Debit Cash.
 Whenever cash is paid out, Credit Cash.

Liabilities – are the present obligations of the enterprise arising from past
events, the settlement of which is expected to result in an outflow from the
enterprise of resources embodying economic benefits. This includes accounts
Date Developed: Document No. NTTA-TM1-07
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Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
payable, accrued expenses, income tax payable, unearned revenue and loans
payable.

Example for Accounts Payable:


 Whenever accounts payable is paid out, Debit Accounts Payable.
 Whenever accounts payable is incurred, Credit Accounts Payable.

Equity – this is the owner/s’ interest on the assets of the enterprise after
deducting all its liabilities. The structure of equity depends on the form of a
business: sole proprietorship (owner’s equity), partnership (partners’ equity),
stock corporation (stockholders’ equity), and nonstick – nonprofit corporation
(fund balances or members’ equity).

Example for Sole Proprietorship (Owner’s Equity):


 Whenever the owner made a withdrawal, Debit Owner, Drawing.
 Whenever the owner invested, Credit Owner, Equity.

Income – an increase in economic benefits during the accounting period in the


form of inflows or enhancements of assets or decreases of liabilities that result in
an increase in equity, other than those relating to contributions from equity
participants. Examples of income are rental income, sales from goods, service
income, commission income, and any revenue.

Example for Rental Income:


 Whenever rental income has any adjustment, Debit Rental Income.
 Whenever rental income is earned, Credit Rental Income.

Expenses– are decreases in economic benefits during the accounting period in


the form of outflows or depletions of assets or incurrence of liabilities that result
in decreases in equity, other than those relating to distributions to equity
participants. Examples of expenses are rent expense, employees’ salaries
expense, supplies expense, taxes and licenses expense.

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
Example for Rent Expense:
 Whenever rent expense is incurred, Debit Rent Expense.
 Whenever rent expense has any adjustment, Credit Rent Expense.

Withdrawals of company assets by the owner for the owner’s personal use are
known as “draws”. Since draws are not expenses, the transaction is not reported
on the company’s income statement.

SELF-CHECK 1.3-2 (30 items)


Test I INSTRUCTION: Answer the following questions below.

1. What is the accounting equation of a sole proprietorship? (5pts)

2. Determine the DEBIT and CREDIT account titles of the following


accounts in accordance with the chart of accounts (asset, liability,
owner’s equity, revenue, expense, gain or loss account): (1pt each)

_______ 1. Cash _______ 6. F. Tubog, Capital


_______ 2. Accounts Receivable _______ 7. F. Tubog, Drawing
_______ 3. Equipment _______ 8. Service Revenues
_______ 4. Notes Payable _______ 9. Advertising Expense
_______ 5. Accounts Payable _______ 10. Rent Expense

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
Journalizing Page 31 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Test II Effects of Accounts Balances: Indicate a check mark (√) as to the
effect on the balances of the following accounts. (1pt each)
Increase
d Decreased
1. Notes receivable was debited __________ ___________
2. Accounts Payable was debited __________ ___________
3. Aicel Alberto, Capital was credited __________ ___________
4. Rent Expense was debited __________ ___________
5. Petty Cash Fund account was debited __________ ___________
6. Accounts receivable account was debited __________ ___________
7. Aicel Alberto, Drawing was debited __________ ___________
8. Accounts Payable account was credited __________ ___________
9. Prepaid Insurance account was credited __________ ___________
10. Insurance expense account was debited __________ ___________
11. Notes Payable account was debited __________ ___________
12. Accounts Receivable account was credited __________ ___________
13. Cash in bank was credited __________ ___________
14. Professional Income account was credited __________ ___________
15. Unearned Service Income was credited __________ ___________

ANSWER KEY 1.3-2 (30 points)

Test I INSTRUCTION: Answer the following questions below.

1. What is the accounting equation of a sole proprietorship? (5pts)

Answer: Asset = Liability + Owner’s Equity

2. Determine the DEBIT and CREDIT account titles of the following


accounts in accordance with the chart of accounts (asset, liability, owner’s
equity, revenue, expense, gain or loss account): (1pt each)

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 32 of105
Developed by:
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Transactions for Sole
Proprietorship
Revision # 01
DEBIT 1. Cash CREDIT 6. F. Tubog, Capital

DEBIT 2. Accounts Receivable DEBIT 7. F. Tubog, Drawing

DEBIT 3. Equipment CREDIT 8. Service Revenues

CREDIT 4. Notes Payable DEBIT 9. Advertising Expense

CREDIT 5. Accounts Payable DEBIT 10. Rent Expense

Test II Effects of Accounts Balances


Increased Decreased
1. Notes receivable was debited √
2. Accounts Payable was debited √
3. Aicel Alberto, Capital was credited √
4. Rent Expense was debited √
5. Petty Cash Fund account was debited √
6. Accounts receivable account was debited √
7. Aicel Alberto, Drawing was debited √
8. Accounts Payable account was credited √
9. Prepaid Insurance account was credited √
Date Developed: Document No. NTTA-TM1-07
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Date Revised:
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Developed by:
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Transactions for Sole
Proprietorship
Revision # 01
10. Insurance expense account was debited √
11. Notes Payable account was debited √
12. Accounts Receivable account was credited √
13. Cash in bank was credited √
14. Professional Income account was credited √

15. Unearned Service Income was credited √

TASK SHEET 1.3-2

Title: Classifying the effect of the transactions on Accounting


Equation of Ashton Printing Shop

Performance Objective: Given the data, you should be able to


classify them according to the accounting
equation following the GAAP, within 30 minutes

Supplies/Materials pencil, eraser, and paper

Equipment : none

Steps/Procedure:
1. Perform the task sheet on Accounting Equation for Sole
Proprietorship using the supplies and materials provided to you
by your trainer.

2. Given the following transaction you should be to classify the


Debit and Credit:
 Let us assume that Mr. Adriano Gregorio registered a sole
proprietorship business named Ashton Printing Shop. On
December 1, 2017, Mr. Gregorio invested personal funds
of P50, 000 to start the business.
 On December 15, 2017, Mr. Gregorio acquires a printer in
the amount of P 15,000 as Accounts Payable.
 On December 20, 2017, Mr. Gregorio decided to pay the
printer.
 On December 30, 2017, Mr. Gregorio pays his employee’s
salary a total amount of P5, 000.

3. Show the effect of the transactions on Ashton Printing Shop


accounting equation.
4. Present your work to your trainer.
BOOKKEEPING NC III Date Developed: Document No. NTTA-TM1-07
Assessment Method: April 02, 2018 Issued by: Page 34 of105
Journalizing Date Revised:
 Transactions
Written Test for Sole NTTA
Developed by:
Proprietorship
 Demonstration Revision # 01
 Performance Criteria Checklist
Performance Criteria Checklist 1.3-2

CRITERIA
YES NO
The trainee…

1. Performs the task sheet on Accounting Equation


for Sole Proprietorship using the supplies and
materials provided by the trainer.

2. Determines the Debit account titles in accordance


with the chart of accounts.

3. Determines the Credit account titles in accordance

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
with the chart of accounts.

4. Show the effect of the transactions on the


Accounting Equation: the Decrease and Increase of
the Chart of Accounts.

5. Present your work to your trainer.

INFORMATION SHEET 1.3-3

“Journalizing of Proprietor Account Titles”

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:

1. Define accounting terms related to journalizing transactions;


2. Identify accounting concepts and practices related to journalizing
transactions
3. Prove and rule a five-column journal entries to set up a business.

Time allotment: 14 hours

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Introduction

As described in the previous information sheet, transactions are analyzed


into debit and credit parts before information is recorded. A form for recording
transactions in chronological order is called a journal. Recording transactions in
a journal is called journalizing.

Transactions could be recorded in the accounting equation. However, most


companies wish to create a more permanent record by recording transactions in
a journal. Each business uses the kind of journal that best fits the needs of that
business. The nature of a business and the number of transactions to be
recorded determine the kind of journal to be used.

The word journal comes from the


Latin diurnalis, meaning daily. Most
businesses conduct transactions every
day. To keep from getting overloaded, the
businesses will make entries in their
accounting journals every day.

Information recorded in a journal includes the debit and credit parts of each
transaction recorded in one place. The information can be verified by comparing the
data in the journal with the transaction data. Transactions are recorded in a
Date Developed: Document No. NTTA-TM1-07
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Transactions for Sole
Proprietorship
Revision # 01
journal in order by date. All information about a transaction is recorded in one
place, making the information for a specific transaction easy to locate.

Double-Entry Accounting

Information for each transaction recorded in a journal is called an entry. The


recording of debit and credit parts of a transaction is called Double-Entry
Accounting. In double-entry accounting, each transaction affects at least two
accounts. Both the debit and the credit parts are recorded, reflecting the dual effect
of each trans-action on the business’s records. Double-entry accounting assures
that debits equal credits.

Source Documents

A business paper from which information is obtained for a journal entry is


called a source document. Each transaction is described by a source document that
proves that the transaction did occur. For example, Encore Music prepares a check
stub for each cash payment made. The check stub describes information about the
cash payment transaction for which the check is prepared. The accounting concept,
Objective Evidence, is applied when a source document is prepared for each
transaction.

A transaction should be journalized only if it actually occurs. The amounts


recorded must be accurate and true. Nearly all transactions result in the
preparation of a source document: checks, sales invoices, receipts, and more.

Simple Entry and Compound


Entry

When recording journal entries


on the journals (General Journal and
or Special Journals), the entries may
require a more specified account. It
also includes date, reference numbers
and explanations. The examples
shown above are only Simple Entries.
A Compound Entry may be necessary
when transactions are more bulky
and complicated. When a company
has a standard chart of accounts, the
recoding of journal entries are based

Date Developed: Document No. NTTA-TM1-07


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Transactions for Sole
Proprietorship
Revision # 01
on the account titles, account numbers and other specific data stated in the chart of
accounts.

What is a business transaction?


A business transaction is an economic event or condition that directly
changes an entity’s financial condition or directly affects its results of operations.
An accounting transaction takes place when a business exchanges a thing of
value for another. Examples of business transactions are when a company
obtains loan from a bank, buys goods for sale, sell these goods to customers on
account, and collect the cash from its sale of goods.

SERVICE BUSINESS

A service is a set of one time consumable and perishable benefits


 Delivered from the accountable service provider, mostly in close coaction
with his internal and external service suppliers,

 Effectuated by distinct functions of technical systems and by distinct


activities of individuals, respectively,
 Commissioned according to the needs of his service consumers by the
service customer from the accountable service provider,
 Rendered individually to an authorized service consumer at his/her
dedicated trigger,
 and, finally, Consumed and utilized by the triggering service consumer for
executing his/her upcoming business activity or private activity.

Sample Transaction of Service Business

The following are examples of business transactions for a sole


proprietorship business and their corresponding journal entries under service
business. Take note that the amount on the left side represents Debit and the
amount on the right side represents Credit.

Transaction #1:
On April 1, 2018 Ms. Retchie Alaban invested P250,000 to start an internet café
business.

Journal entry #1:


Date Developed: Document No. NTTA-TM1-07
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Transactions for Sole
Proprietorship
Revision # 01
Debit – Cash worth P250,000 as Ms. Retchie Alaban invested cash in starting
her internet café business.
Credit – R. Alaban, Capital worth P250,000 to record the cash invested.

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Cash P250,000


R. Alaban, Capital
April 1 P250,000

To record R. Alaban initial capital.

Transaction #2:
On April 2, 2018 Alaban purchase 5 sets of computer equipment on credit
amounting to P100,000.

Journal entry #2:


Debit – Computer Equipment worth P100,000 for the computer equipment
purchased.
Credit – Accounts Payable worth P100,000 to record the acquisition of
computer equipment on account.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Computer Equipment P100,000


Accounts Payable
April 2 P100,000
To record the acquisition of 5 sets of
computer equipment on account
worth P100,000

Transaction #3
On April 3, 2018 Alaban buys computer supplies for cash worth P50,000.

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Journal entry #3:
Debit – Computer Supplies worth P50,000 for the computer supplies
purchased.
Credit – Cash worth P50,000 to record the purchased in cash.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Computer Supplies P50,000


Cash
April 3 P50,000

To record purchase of computer supplies on


cash worth P50,000

Transaction #4
On April 4, 2018 Alaban pay her taxes and licenses amounting to P20,000.

Journal entry #4
Debit – Taxes And Licenses Expense worth P20,000 for payment of taxes and
licenses.
Credit – Cash worth P20,000 to record the payment.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Taxes And Licenses Expense P20,000


Cash
April 4 P20,000

To record payment of taxes and licenses

Transaction #5
On April 10, 2018 Alaban obtain a bank loan for business use and receives
P100,000.
Date Developed: Document No. NTTA-TM1-07
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Date Revised:
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Transactions for Sole
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Revision # 01
Journal entry #5
Debit – Cash worth P100,000 of bank loan proceeds..
Credit – Loans payable worth P100,000 to record the amount of bank loan
received.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Cash P100,000


Loans payable
April 10 P100,000

To record bank loan received


amounted to P100,000

Transaction #6
On April 11 Customers pay cash for internet rental amounted to P5,000.

Journal entry #6
Debit – Cash worth P5,000 to record the cash received.
Credit – Internet Service Income worth P5,000, customers internet rental.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Cash P5,000


Internet Service Income
April 11 P5,000
To record internet rental income received
on cash

Transaction #7
On April 12, 2015 Customers render printing services on account amounted to
P4,000.

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
Journal entry #7
Debit – Accounts Receivable worth P4,000 to record the collectible income.
Credit – Internet Service Income worth P4,000, customers internet rental.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Accounts Receivable P4,000


Printing Service Income
April 12 P4,000
To record printing services income on
customers account

Transaction #8
On April 13, 2018 Alaban paid in full the computer equipment he purchased on
account (see transaction #2).

Journal entry #8
Debit – Accounts Payable worth P100,000 full payment of purchased on
account
Credit – Cash worth P100,000, to record cash payment.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Accounts payable P100,000


Cash
April 13 P100,000
To record full payment of computer
equipment purchased on account

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Transaction #9
On April 14, 2018 Alaban paid his monthly rental for the internet café shop
space amounting to P5,000.

Journal entry #9
Debit – Rental Expense worth P5,000 to record the incurred monthly rental.
Credit – Cash worth P5,000, cash payment.
GENERAL JOURNAL Page 1
Date Particulars F Debit Credit

2018 Rental Expense P5,000


Cash
April 14 P5,000
To record monthly rental expense paid

Transaction #10
On April 15, 2018 Alaban pays salaries and wages of his staff and employees,
P20,000.

Journal entry #10


Debit – Salaries and Wages worth P20,000 salaries and wages of wages.
Credit – Cash worth P20,000, paid in cash.

GENERAL JOURNAL Page 2


Date Particulars F Debit Credit

2018 Salaries and Wages P20,000


Cash
April 15 P20,000
To record salaries and wages of
employees

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Revision # 01
Note: Journal entry #10 will become different when there are withholding taxes,
SSS, PHIC, HDMF and other employees benefits or deductions involved.

Transaction #11
On April 20, 2018 collects its accounts receivables amounted to P4,000 from
customers (see transaction #7).

Journal entry #11


Debit – Cash worth P4,000 cash collection.
Credit – Accounts Receivable worth P4,000, collection of accounts.
GENERAL JOURNAL Page 2
Date Particulars F Debit Credit

2018 Cash P4,000


Accounts Receivable
April 20 P4,000
To record collection of accounts receivable

Transaction #12
On April 25, 2018 Supplies amounted to P3,000 were used in business
operation (see transaction #3).

Journal entry #12


Debit – Cash worth P3,000 cash collection.
Credit – Accounts Receivable worth P3,000, collection of accounts.
GENERAL JOURNAL Page 2
Date Particulars F Debit Credit

2018 Computer Supplies Expense P3,000


Computer Supplies
April 25 P3,000

To record used supplies

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Transactions for Sole
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Revision # 01
Transaction #13
On April 27, 2018 Alaban withdraws P25,000 cash for personal use.

Journal entry #13

Debit – R. Alaban, Drawing withdrawn P25,000 cash for personal use.


Credit – Cash worth P25,000, amount withdrawn.
GENERAL JOURNAL Page 2
Date Particulars F Debit Credit

2018 R. Alaban, Drawing P25,000


Cash
April 27 P25,000
To record cash drawn by Alaban for her
personal use

Transaction #14
On April 30, 2018 Alaban invested additional cash capital amounting P50,000.

Journal entry #14

Debit – Cash worth P50,000, amount invested.


Credit – R. Alaban, Capital worth P50,000, to record the additional investment.

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Cash P50,000


R. Alaban, Capital
April 30 P50,000

To record additional cash capital invested


to the business

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 46 of105
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Transactions for Sole
Proprietorship
Revision # 01
There you have it. You should be getting the hang of it by now. If not, then you
can always go back to the examples above. Remember that accounting skills
require mastery of concepts and practice.

MERCHANDISING BUSINESS

The following are examples of business transactions for a sole


proprietorship business and their corresponding journal entries under
Merchandising Business. Take note that the amount on the left side represents
Debit and the amount on the right side represents Credit.

Typically entity uses either of the following two systems to record changes in
inventory:

1. Periodic inventory system


2. Perpetual inventory system

1. Periodic Inventory System

Under periodic system inventory records are maintained/updated in intervals like


at the end of every week or month, accountant will sit down and determine the
inventory at hand.

Under periodic inventory system, entity maintains temporary accounts like


purchases, purchases returns, sales and sales return. At the end of the period
the amounts in these temporary accounts are added to determine the amount of
inventory available for sale. Inventory still at hand is usually found by physically
counting the units. The number of units at hand are deducted from inventory
available for sale to compute cost of goods sold and hence the formula:

CGS = Opening inventory + [Purchases – Purchases returns] – Closing inventory

But it must be understood that purchases account and Inventory account are
two different things. If entity chooses to regularly update purchases account it
does not necessarily tell how much inventory entity holds at a particular time.
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 47 of105
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Under periodic system it is the inventory account which is updated at intervals.
Accounting of periodic inventory system will be discussed later.

To emphasize again, physical inventory count (also called stock taking) at the
period end is mandatory under periodic system. Without such count, cost of
sales (or cost of goods sold) cannot be determined therefore, entities have to
conduct this activity at least once a year or at every period end.

2. Perpetual Inventory System

Under perpetual system, inventory record is updated on run-time basis i.e.


regularly after every transaction. As every purchase, return or sale transaction is
being recorded directly in inventory account, management will know the amount
of inventory at hand and cost of goods sold at any given point in time as opposed
to periodic inventory system where they have to wait until the end of the period.

Under perpetual inventory system, transactions are recorded directly in


inventory account and no separate or temporary accounts like purchases and
purchases returns are maintained. Every purchase, purchase return, sale or
sales return is recorded in inventory account as and when transaction takes
place.

Unlike periodic inventory system, physical inventory count is not required as


inventory record can tell the number of units at any given time.

3 Difference between Perpetual and Periodic Inventory System

Perpetual Inventory
Periodic Inventory System
System

Inventory records are Inventory records are


Recording
updated regularly updated periodically

Date Developed: Document No. NTTA-TM1-07


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Revision # 01
Ending inventory is Ending inventory is
Determination of
determined on the basis of determined on the basis of
ending inventory
inventory records physical stock count

Done to confirm if units held Done to determine cost of


Stock count
are as per records goods sold

High level of control as No control as management is


Control on
management knows the unaware of quantity until the
inventory
quantity at any given time end of the period

No temporary accounts are Temporary accounts like


Temporary maintained. Recording is purchases, returns and sales
accounts done directly in inventory are maintained that are
account closed at the period end.

Cheaper to maintain as it
Expensive to maintain. Need
Cost requires less work and
dedicated trained personnel
workforce

A detailed discussion on accounting under both inventory systems will be done in


another section, however, for understanding purposes lets go through a simple
example that explains the difference in record keeping under both inventory
systems

The difference between the periodic and perpetual inventory systems

The periodic and perpetual inventory systems are different methods used to
track the quantity of goods on hand. The more sophisticated of the two is the
perpetual system, but it requires much more record keeping to maintain. The
periodic system relies upon an occasional physical count of the inventory to
determine the ending inventory balance and the cost of goods sold, while the
perpetual system keeps continual track of inventory balances. There are a
number of other differences between the two systems, which are as follows:

Date Developed: Document No. NTTA-TM1-07


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 Accounts. Under the perpetual system, there are continual updates
to either the general ledger or inventory journal as inventory-related
transactions occur. Conversely, under a periodic inventory system,
there is no cost of goods sold account entry at all in an accounting
period until such time as there is a physical count, which is then
used to derive the cost of goods sold.
 Computer systems. It is impossible to manually maintain the
records for a perpetual inventory system, since there may be
thousands of transactions at the unit level in every accounting
period. Conversely, the simplicity of a periodic inventory system
allows for the use of manual record keeping for very small
inventories.
 Cost of goods sold. Under the perpetual system, there are continual
updates to the cost of goods sold account as each sale is made.
Conversely, under the periodic inventory system, the cost of goods
sold is calculated in a lump sum at the end of the reporting period,
by adding total purchases to the beginning inventory and subtracting
ending inventory. In the latter case, this means it can be difficult to
obtain a precise cost of goods sold figure prior to the end of the
reporting period.
 Cycle counting. It is impossible to use cycle counting under a
periodic inventory system, since there is no way to obtain accurate
inventory counts in real time (which are used as a baseline for cycle
counts).
 Purchases. Under the perpetual system, inventory purchases are
recorded in either the raw materials inventory account or
merchandise account (depending on the nature of the purchase),
while there is also a unit-count entry into the individual record that
is kept for each inventory item. Conversely, under a periodic
inventory system, all purchases are recorded into a purchases asset
account, and there are no individual inventory records to which any
unit-count information could be added.
 Transaction investigations. It is nearly impossible to track through
the accounting records under a periodic inventory system to
determine why an inventory-related error of any kind occurred, since
the information is aggregated at a very high level. Conversely, such
investigations are much easier in a perpetual inventory system,
where all transactions are available in detail at the individual unit
level.

This list makes it clear that the perpetual inventory system is vastly
superior to the periodic inventory system. The primary case where a periodic
system might make sense is when the amount of inventory is very small, and
where you can visually review it without any particular need for more detailed
inventory records. The periodic system can also work well when the warehouse
staff is poorly trained in the uses of a perpetual inventory system, since they
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
might inadvertently record inventory transactions incorrectly in a perpetual
system.

Following are the typical journal entries under a periodic inventory system:

Inventory Purchase:
The purchase of inventory is recorded by debiting purchases account and
crediting accounts payable.

Purchases ——
Accounts Payable ——

Purchase Discount:
Under gross method, purchase discount is recorded using the following journal
entry:

Accounts Payable ——
Purchase Discounts ——

Note: The above two journal entries are usually combined in a single entry which
is shown below:

Purchases ——
Accounts Payable ——
Purchase Discounts ——
Purchase Return:

Purchase returns are recorded as shown below

Accounts Payable/Accounts Receivable ——


Purchase Returns ——

Inventory Sale:
Unlike perpetual inventory system, the periodic inventory system records the
transaction of sale via a single journal entry:

Accounts Receivable ——
Sales ——

Sales Discounts:
A sales discount is recorded as shown below:

Sales Discount ——
Accounts Receivable ——

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
Again, the above two entries are combined in a period inventory system as shown
below:

Accounts Receivable ——
Sales Discounts ——
Sales ——

Sales Return:
Similarly, sale returns are also recorded via a single journal entry:

Sales Returns ——
Accounts Receivable/Accounts Payable ——

At the end of each accounting period, the value of ending inventory is determined
by physical count. Cost of goods sold is determined either as a balancing figure in
the closing entry shown at the end or by using the following formula:

COGS = Beginning Inventory + Purchases − Ending Inventory

The closing entry required in a periodic inventory system


Debits:

Inventory account by the value of ending inventory


Cost of Goods Sold account by the value as determined above or by the balancing
figure

and Credits:

Inventory account by beginning inventory


Purchases account

The entry is shown below:

Inventory (Ending Inventory) ——


Cost of Goods Sold (Balancing Figure) ——
Inventory (Beginning Inventory) ——
Purchases ——

Journal entries in a Perpetual Inventory System:


(1). When goods are purchased:

Date Developed: Document No. NTTA-TM1-07


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(2). When expenses such as freight-in, insurance etc. are incurred:

(3). When goods are returned to supplier:

(4). When goods are sold to customers:

(5). When goods are returned by customers:

Date Developed: Document No. NTTA-TM1-07


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(6). When a difference between the balance of inventory account and physical
count of inventory is found:

Sample Transaction of Merchandising Business

Given the following transactions of Happy Footwear, prepare the Journal Entries
for the month of January 2018 using Periodic Inventory System and Perpetual
Inventory System.

January 1 Rio Santos opened a footwear store named Happy Footwear by


investing cash of P450,000 and a delivery truck worth P350,000.

3 Borrowed P100,000 from Metrobank for use in his business

7 Bought tables and chairs and paid cash of P45,000

10 Purchased (in cash) 100 pairs of merchandise from Iloilo Weavers,


P42,560. Paid cash for freight of Folks Wear shipment, P2,240.

13 Sold merchandise to walk in customers, P17,472. The cost of


merchandise sold is P13,440.

15 Various equipment such as electric fan, computer and typewriter


were purchased on account from National Winners for P55,000.

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
Journalizing Page 54 of105
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Transactions for Sole
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Revision # 01
18 Mr. Santos made a cash withdrawal of P5,000 for personal use.

20 The account due to National Winner was paid in cash.

26 Paid telephone bill for P500.

28 Sold merchandise on account to Lucky Marketing, P11,648. The


cost of merchandise sold is P8,960.

31 Paid the rental of office space, P7,000 and salaries of employees and
workers P15,000

Journalizing Transactions: Periodic Inventory System

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Cash P450,000


Jan. 1 Delivery Truck 350,000
R. Santos, Capital P800,000
To record the investments of Rio
Date Developed: Document No. NTTA-TM1-07
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Date Revised:
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Transactions for Sole
Proprietorship
Revision # 01
Santos
3 P100,000
Cash P100,000
Loans Payable
To record the loan proceeds.
7 P45,000
Furniture and Fixtures P45,000
Cash
To record the acquisition of furniture
10 P44,800
Purchases P44,800
Cash
To record the inventory purchased
13 P17,472
Cash P17,472
Sales
To record cash sales.

GENERAL JOURNAL Page 2


Date Particulars F Debit Credit

2018 Equipment P55,000


Jan. 15 R. Santos, Capital P55,000
To record the acquisition of equipment

18 R. Santos, Drawing P5,000


Date Developed: Document No. NTTA-TM1-07
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Date Revised:
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Revision # 01
Cash P5,000
To record Rio Santos personal drawing.

20 Accounts Payable P55,000


Cash P55,000
To record the payment of account due

26 Utilities Expense P500


Cash P500
To record the payment of telephone bill

28 Accounts Receivable P11,648


Sales P11,648
To record the sales on account.

Rent Expense P7,000


Salaries and Wages Expense 15,000
31 Cash P22,000
To record the payment of rental and
salaries of employees

Journalizing Transactions: Perpetual Inventory System

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Cash P450,000


Jan. 1 Delivery Truck 350,000
R. Santos, Capital P800,000
To record the investments of Rio

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
Journalizing Page 57 of105
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Transactions for Sole
Proprietorship
Revision # 01
Santos
3 P100,000
Cash P100,000
Loans Payable
To record the loan proceeds.
7 P45,000
Furniture and Fixtures P45,000
Cash
To record the acquisition of furniture
10 P44,800
Merchandise Inventory P44,800
Cash
To record the inventory purchased
13 P17,472
Cash P17,472
Sales P13,440
P13,440
Cost of Goods Sold
Merchandise Inventory
To record cash sales.

GENERAL JOURNAL Page 2


Date Particulars F Debit Credit

2018 Equipment P55,000


Jan. 15 R. Santos, Capital P55,000
To record the acquisition of equipment

Date Developed: Document No. NTTA-TM1-07


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Date Revised:
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18 R. Santos, Drawing P5,000
Cash P5,000
To record Rio Santos personal drawing.

20 Accounts Payable P55,000


Cash P55,000
To record the payment of account due

26 Utilities Expense P500


Cash P500
To record the payment of telephone bill

28 Accounts Receivable P11,648


Sales P11,648
Cost of Goods Sold P8,960
Merchandise Inventory P8,960
To record the sales on account.

31 Rent Expense P7,000


Salaries and Wages Expense 15,000
Cash P22,000
To record the payment of rental and
salaries of employees

SELF-CHECK 1.3-3 (20 items)

INSTRUCTION: Given the following transactions of Sherry Fitness Club, prepare


the Journal Entries for the month of February 2018.

1 Sherry opened her health and fitness center with investments of various
exercise equipment worth P745, 000, tables and chairs for the reception
area costing P44, 000, and various materials and chemical supplies for the
spa worth P12, 700.

Date Developed: Document No. NTTA-TM1-07


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3 Sherry opened a bank account in the name of her business for P25, 000.

5 Paid business permits totaling P2, 100.

8 Hans, a customer, subscribed to the club by paying membership fees of


P15, 000.

10 Purchased office supplies for P7, 000 cash.

ANSWER KEY 1.3-3 (20 points)

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Exercise Equipment P754,000


Feb. 1 Furniture and Fixtures 44,000

Date Developed: Document No. NTTA-TM1-07


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SPA Supplies 12,700
Sherry, Capital P801,700
Investments of Sherry

3 Cash P25,000
Sherry, Capital P25,000
Investments of Sherry

5 Tax & License Expense P2,100


Cash P2,100
Payment of Business Permits

8 Cash P15,000
Membership Fees P15,000
Customer subscription

10 Office Supplies P7,000


Cash P7,000
Purchased supplies for cash

Date Developed: Document No. NTTA-TM1-07


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Revision # 01
JOB SHEET 1.3-3

Title: Prepare the Journal Entries of Alaban Marketing transactions

Performance Objective:
Given the materials you should be able to journalize transactions and
prepare an explanation in every journal entry in accordance with the
nature of transactions.
Supplies/Materials : pencil, eraser, calculator and paper

Equipment : NONE

Steps/Procedure:
a. Based on first month’s operation of Mr. Laureno Alaban (refer
to transactions below) prepare a journal entry under Perpetual
Inventory System.
On March 1, 2018, Mr. Laureno Alaban opened Alaban Marketing
with investments of various merchandise worth P45, 000, tables and
chairs for the store costing P4, 000, and store supplies worth P2, 700.
3 Sold merchandise on credit for P5,000, terms 3/10, n/30. The
items sold had a cost of P3,500.
5 Purchased merchandise for cash, P2,720.
9 Purchased merchandise on credit for P5,600, terms 1/20, n/30.
10 Received payment for merchandise sold March 3.
14 Received a credit memorandum for the return of faulty
merchandise purchased on March 9 for P600.
15 Paid freight charge of P200 for merchandise purchased March 9
19 Paid for the merchandise purchased March 9 less the portion
that was returned.
24 Sold merchandise on credit for P7,000, terms 2/10, n/30. The
items had a cost of P4,900.
31 Received payment for merchandise sold on March 24.

b. Apply the rule of Debit and Credit.


c. Supply an explanation of each transaction.
d. Present your work to your trainer.
Assessment Method:
♦ Written Test ♦ Demonstration
♦ Oral Questioning ♦ Performance Criteria Checklist
Performance Criteria Checklist 1.3-3

Date Developed: Document No. NTTA-TM1-07


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Revision # 01
CRITERIA
YES NO
The trainee…
1. Determine the titles of the accounts involved. 
2. Prepares journal entries under Perpetual 
Inventory System.
3. Determines the debit account titles in 
accordance with chart of accounts
4. Determines credit account titles accordance 
with chart of accounts
5. Prepared an explanation to journal entry in 
accordance dance with the nature of transaction
6. Journal entries are prepared with 100% 
accuracy

Evidence Plan

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 63 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Competency Bookkeeping NC III
standard:
Unit of Journalize transactions
competency:
Ways in which evidence will be collected:

Demonstration & Questioning


Observation & Questioning
[tick the column]

Third party Report

Portfolio

Written
The evidence must show that the trainee…

 Prepare journals in accordance with industry


practice and generally accepted accounting
principles/Philippine Financial Reporting
Standards for transactions and events.
 Determines debit account titles in accordance
with chart of accounts
 Determines credit account titles in accordance
with chart of accounts
 Prepare explanation to journal entry in
accordance with the nature of transaction
 Prepare journal entries with 100% accuracy
♦ Prepare Charts of Account
♦ Analyze transaction
♦ Prepare Journal Entry

NOTE: *Critical aspects of competency

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 64 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
TABLE OF SPECIFICATION

# of
Objectives/Content
Knowledge Comprehension Application items/
Area/Topics
% of test

Generally Accepted 30
Accounting 10 15 5
Principles (30%)

Accounting Equation 30
10 5 15
(30%)

Journalize of 50
Proprietorship Titles 20 5 25
(40%)

110
TOTAL 40 25 45
(100%)

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 65 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Written Test (110 Items)

Specific Instruction for the Candidate


Qualification Bookkeeping NC III
Unit of Competency Journalize Transactions
General Instruction:
This test is by SET. Given the necessary materials, you are
required to prepare journal entry in accordance with the nature of
the transactions.
Specific Instruction:
1. Each trainee is required to present their output to the
class.
2. The ODD numbered trainee will answer SET A and the
EVEN
numbered trainee will answer SET B.
3. Journalize the one month transaction of Happy Tour and
Travel for SET A and RAL Printing Press for SET B.

SET A

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 66 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
DATE TRANSACTION
2018
March 1 Mr. Rio Sorio opened a tour and travel agency named
Happy
Tour and Travel by investing cash of P50,000 and two
cars worth P750,000.

March 3 Borrowed P100,000 from Metrobank for use in his


business

March 7 Bought tables and chairs and paid cash of P45,000

March 10 A tourist hired the services of the agency for a tour in


Bacolod. P15,000 was received from the tourist.

March 15 Various equipment such as electric fan, computer and


typewriter were purchased on account from National
Winners for P55,000.

March 18 Sorio made a cash withdrawal of P5,000 for personal


use.

March 20 The account due to National Winner was paid in cash.

March 26 Paid telephone bill for P500.

March 28 A tourist hired the services of the agency for a tour in


Cebu.
P30,000 was received from the tourist.

March 31 Paid the rental of office space, P7,000 and salaries of


employees and workers P10,000

SET B

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 67 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
DATE TRANSACTIONS

2018
March 1 Mr. Rodrie Tubog opened a a printing business
named RAL Printing Press by investing cash of
P150,000 and two printing equipment worth
P250,000.

March 3 Borrowed P100,000 from Metrobank for use in his


business

March 7 Bought tables and chairs and paid cash of P45,000

March 10 Received P15,000 from customer for printing


calendars.

March 15 Various equipment such as electric fan, computer


and typewriter were purchased on account from
National Winners for P55,000.
March 18 Tubog made a cash withdrawal of P5,000 for
personal use.

March 20 The account due to National Winner was paid in


cash.

March 26 Paid telephone bill for P500.

March 28 Received cash worth P30,000 as advance payment


from client for printing tarpaulin.

March 31 Paid the rental of office space, P7,000 and salaries


of employees and workers P10,000

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 68 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
ANSWER KEY for SET A

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Cash P50,000


Mar. 1 Delivery Truck 750,000
R. Sorio, Capital P800,000
To record the nvestments of Rio Sorio

3 Cash P100,000
Loans Payable P100,000
To record the loan proceeds.

7 Furniture and Fixtures P45,000


Cash P45,000
To record the acquisition of furniture

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 69 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
10 Cash P15,000
Service Income P15,000
To record the cash received from
service rendered

15 Office Equipment P55,000


Accounts Payable P55,000
To record the purchased of office
equipment on account.

ANSWER KEY for SET A

GENERAL JOURNAL Page 2


Date Particulars F Debit Credit
2018
Mar. 18 R. Santos, Drawing P5,000
Cash P5,000
To record Rio Santos personal drawing.

20 Accounts Payable P55,000


Cash P55,000
To record the payment of account due

26 Utilities Expense P500


Cash P500
To record the payment of telephone bill

28 Cash P30,000
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 70 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Service Income P30,000
To record the cash received from
service rendered

31 Rent Expense P7,000


Salaries and Wages Expense 15,000
Cash P22,000
To record the payment of rental and
salaries of employees

ANSWER KEY for SET B

GENERAL JOURNAL Page 1


Date Particulars F Debit Credit

2018 Cash P150,000


Mar. 1 Printing Equipment 250,000
R. Tubog, Capital P400,000
To record the investments of Rodrie
Tubog

3 Cash P100,000
Loans Payable P100,000
To record the loan proceeds.

7 Furniture and Fixtures P45,000


Cash P45,000
To record the acquisition of furniture

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 71 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
10 Cash P15,000
Service Income P15,000
To record the cash received from
printing calendars

15 Office Equipment P55,000


Accounts Payable P55,000
To record the purchased of office
equipment on account.

ANSWER KEY for SET B

GENERAL JOURNAL Page 2


Date Particulars F Debit Credit
2018
Mar. 18 R. Tubog, Drawing P5,000
Cash P5,000
To record Rio Santos personal drawing.

20 Accounts Payable P55,000


Cash P55,000
To record the payment of account due

26 Utilities Expense P500


Cash P500
To record the payment of telephone bill

28 Cash P30,000
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 72 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Unearned Service Income P30,000
To record the advance payment from
client for printing tarpaulin

31 Rent Expense P7,000


Salaries and Wages Expense 15,000
Cash P22,000
To record the payment of rental and
salaries of employees

Performance Test

Specific Instruction for the Candidate: Record the business


transactions to the General Journal
Qualification Bookkeeping NC III
Unit of Competency Journalize Transactions
General Instruction:
Given the necessary materials, you should be able to record the
transaction to the five-column General Journal.
Specific Instruction:
1. Obtain instruction before you write down an entry.
2. Read each transaction carefully.
3. Determine the nature of business
4. Label the five-column General Journal with the following in
order: Date, Particulars, F (Polio), Debit, and Credit.
5. Gather, check and verify documents stated in the transaction
6. Analyze the problem
7. On the Date column, input the date of each transaction
chronologically.
8. Identify the two accounts that are being affected by the
transaction that to be posted to the Particulars column.
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 73 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
9. Ascertain the nature of the accounts involved as real, personal
or nominal account.
10. Determine which rule of debit and credit is applicable for
each of the accounts involved
11. Determine debit account titles.
12. Determine credit account titles.
13. Ascertain the account to be debited and the account to be
credited. The credit account name is indented.
14. Prepare Journal Entries. Write the debit account first then
put the amount to the Debit Column. Next, indent the credit
account then write the amount to the Credit Column.
15. Below the credit account, write a brief description or
explanation of the transaction. You can start the phrase or
sentence with “To record”.

Performance Criteria Checklist

CRITERIA
YES NO
Did you… ?
1. Obtain instruction before you write down an 
entry?
2. Read each transaction carefully? 
3. Determine the nature of business? 
4. Label the five-column General Journal with the 
following in order: Date, Particulars, F (Polio),
Debit, and Credit?
5. Gather, check and verify documents stated in the 
transaction?
6. Analyze the problem? 
7. Input the date of each transaction chronologically? 
8. Identify the two accounts that are being affected 
by the transaction that to be posted to the
Particulars column
9. Ascertain the nature of the accounts involved as 
real, personal or nominal account
10. Determine which rule of debit and credit is 
applicable for each of the accounts involved

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 74 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
11. Determine the debit account titles 
12. Determine the credit account titles 
13. Ascertain the account to be debited and the 
account to be credited. The credit account name
is indented
14. Write the debit account first then put the 
amount to the Debit Column?
15. Indent the credit account then write the 
amount to the Credit Column?
16. Write a brief description or explanation of 
the transaction?

QUESTIONING TOOL
Satisfactory
Questions to probe the candidate’s underpinning knowledge respon
se
Extension/Reflection Questions Yes No
1. What will you do if there is an entry having an overstated
amount?
Answer:
If there is an entry having an overstated amount, all you
need to do is to make an adjustment entry to come up
with the correct amount.
2. What is the correct accounting equation of sole
proprietorship?
Answer:
Assets = Liabilities + Owner’s Equity
Safety Questions
5. Will you record the transaction even if you have not seen yet
the original receipt of the equipment bought?
Answer:
I will not record the said transaction; I will wait for the original
receipt to arrive before I will record the transaction.
6. As a bookkeeper, what will you do if you have previous
erroneous error on your entry?
Answer:
I will correct the entry as soon as possible.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 75 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Contingency Questions
9. As a bookkeeper, what will you do if you discover a
padding of original receipts?
Answer:
I will inform my superior and ask him/her if what will I
do about the padding issue or what will be his/her
opinion before recording the transaction.
10. On your journal entry you had prepared, you noticed
that there was no date written and no explanation, what
will you do?
Answer:
I will check the original receipt and compare it to my
journal entry transaction, if there is discrepancy, I will
correct it immediately, and record the date and put an
explanation on it.

Job Role/Environment Questions


13. . What will you do if your manager has a plan of
manipulating your journal entry?
Answer:
Since my manager is my immediate supervisor, I would
ask him/her if what is his/her intentions in doing things
that is inappropriate. If I noticed that there is something
wrong, I would go directly to HR Department and ask
about their opinion about the issue.
14. What will you do if your co-employee convinces you
to make false update on your bookkeeping records?
Answer:
I will tell them that I am here to work with all honesty and
accuracy.
Rules and Regulations
17. As a bookkeeper, is Closely Monitoring Accounts
Receivable is one of responsibilities? Why?
Answer:
As a bookkeeper, I believe that I am responsible on the
transactions of the company in terms of getting in and
going out of money transactions. It is important to closely
monitor the accounts receivable to minimize the recording
of business losses. This is one of the crucial
responsibilities of a bookkeeper to ensure that customers
pay their bills on time.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 76 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
18. Will you consider this “Issue Timely, Accurate
Reports” as an important factor to follow as a
bookkeeper? Why?
Answer:
Yes, as a bookkeeper I will consider that because that’s
the way the owner can monitor the progress of his/her
business. It can also make changes easily by reducing the
flow of expenditures and by checking the cash flow
because through this, the bookkeeper can make the
financial statements and can easily analyze if the
company is on profit or loss.
The candidate’s underpinning Satisfact  Not
knowledge was: ory Satisfactory

Inventory of Training Resources


Resources for presenting instruction
 Print Resources As per TR As per Remarks
Inventory
Competency Based Learning 25 copies 20 copies For
Materials reproduction
Training Regulation 1 1 Complete
Competency Based Curriculum 1 1 Complete
 Non Print Resources As per TR As per Remarks
Inventory
Video Presentation 1 1 Complete
Power Point Presentation 1 1 Complete
Softcopies of CBLM, TR and CBC 1 1 Complete

Resources for Skills practice of Competency #1 Journalize Transaction


 Supplies and Materials As per TR As per Remarks
Inventory
Pencil 25 pcs 25 pcs Complete
Eraser 25 pcs 25 pcs Complete
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 77 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Ballpen 25 pcs 25 pcs Complete
Ruler 25 pcs 25 pcs Complete
Journal (five-column) 25 pcs 25 pcs Complete
Ledger 50 pcs 50 pcs Complete
Worksheet (assorted column) 50 pcs 50 pcs Complete
White Board Eraser 3 pcs 3 pcs Complete
White Board Marker 3 pcs 3 pcs Complete
White Board Marker (ink refill) 3 pcs 3 pcs Complete
USB Flash Drive 5 pcs 5 pcs Complete
Envelope (long and short) 30 pcs 30 pcs Complete
Registration Form 25 pcs 25 pcs Complete
Teacher’s Record Book 2 pcs 2 pcs Complete
Staple Wire 1 box 1 box Complete
 Tools As per TR As per Remarks
Inventory
Stapler 2 pcs 2 pcs Functional
Calculator 25 pcs 25 pcs Functional
Functional
 Equipment As per TR As per Remarks
Inventory
Laptop 1 unit 1 unit Functional
Aircon Unit 1 unit 1 unit Functional
LCD Projector 1 unit 1 unit Functional
Printer 1 unit 1 unit Functional
Teacher’s Table and Chair 1 pc 1 pc Functional
Arm Chairs 25 pcs 25 pcs 3 pcs for
repair
White Board 1 unit 1 unit Functional

Note: In the remarks section, remarks may include for repair, for
replenishment, for reproduction, for maintenance etc.

Date Developed: Document No. NTTA-TM1-07


BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 78 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01
Date Developed: Document No. NTTA-TM1-07
BOOKKEEPING NC III April 02, 2018 Issued by:
Date Revised:
Journalizing Page 79 of105
Developed by:
NTTA
Transactions for Sole
Proprietorship
Revision # 01