FDNACCT 04 · Transactions and Records

Recording transactions chronologically in a journal.

The journal is the first accounting record of each transaction, so date order preserves the sequence of events. Classification by individual account happens later in the ledger.

Transferring journal information to the related ledger accounts.

Each journal debit and credit is copied to its named ledger account. This gathers the effects of many transactions so the balance of Cash, Accounts receivable, or another account can be calculated.

Journal groups by transaction date; ledger groups by account.

A journal shows all accounts affected by one event together; a ledger gathers all events affecting one account. Both are needed to trace a transaction and determine account balances.

Evidence supporting the recorded business transaction.

Source documents establish what happened, the amount, and the parties involved before an entry is made. Linking an invoice or receipt to an entry supports verification instead of relying on memory.

Assets, expenses, and owner drawings.

Assets are on the debit side of the accounting equation. Expenses and drawings reduce owner equity, so their increases are also recorded as debits rather than as capital or revenue credits.

Liabilities, owner capital, and revenues.

Liabilities and owner capital are claims on assets on the credit side of the equation. Revenue increases owner equity, so an increase in revenue also uses a credit.

Record on its normal-balance side.

The normal-balance side is the side used to record increases: debit for assets, expenses, and drawings; credit for liabilities, capital, and revenue. Debit therefore does not mean increase for every account.

Record on the side opposite its normal balance.

A decrease reverses the direction of an increase. For example, Cash normally increases with debits, so a payment reduces Cash with a credit; Accounts payable normally increases with credits, so settlement reduces it with a debit.

Debit Accounts receivable; credit Service revenue.

The service has been performed, so revenue is earned even though no cash has been received. The customer owes the business an asset, Accounts receivable, which increases by debit; Service revenue increases by credit.

Debit Cash; credit Accounts receivable.

Collection converts an existing claim against the customer into cash. Cash increases and Accounts receivable decreases; crediting revenue would count the same completed service twice.

Debit Accounts payable; credit Cash.

The supplier debt already exists, so payment removes that liability by debiting Accounts payable and reduces Cash by crediting it. An expense is not created merely by settling an old debt.

Debit Cash; credit Unearned revenue.

The business has cash but still owes the customer future services. Unearned revenue is therefore a liability until the service is performed, rather than revenue earned immediately.

Debit Drawings; credit Cash.

The owner is taking business resources for personal use rather than paying a business operating cost. Drawings records this reduction of equity separately from expenses, while a Cash credit records the cash leaving the business.

One debit account and one credit account.

A simple entry affects exactly two accounts, with one debit and one credit of equal amount. An entry with several accounts on either side is compound even when total debits still equal total credits.

More than one debit account or more than one credit account.

A transaction can affect more than two accounts, such as buying furniture partly for cash and partly on credit. That entry has one debit and two credits, making it compound without breaking debit–credit equality.

References that trace transactions through documents, entries, and postings.

Source and posting references connect the original evidence, journal entry, and ledger account. Following that chain helps verify amounts and locate recording or posting errors.

The list of accounts used to record business transactions.

Using a defined list of account names and numbers keeps similar transactions classified consistently. The chart identifies the available accounts; the ledger holds their transactions and balances.

General ledger holds main accounts; subsidiary ledgers give detail whose combined balances reconcile to a control account.

The control account summarizes a category such as Accounts receivable, while individual customer accounts show who owes each amount. Their combined balances must equal the control account to reconcile the detail with the summary.

Whether total ledger debit balances equal total credit balances.

Double-entry recording gives equal debit and credit effects for each complete entry, so their ledger totals should agree. Equality checks the arithmetic of those balances, but does not establish that every event or account was recorded correctly.

Omission, a duplicated complete entry, wrong account, or equal incorrect debit and credit amounts.

Omitting or duplicating an entire balanced entry changes both sides equally, while a wrong account can keep the amount on the same side. A trial balance tests equality, so these errors can escape that test.

Swapping digits, such as recording 357 as 375.

The digits retain their values but appear in the wrong order: 357 becomes 375. A sliding error instead shifts the decimal point without changing the digit sequence.

Misplacing the decimal point, such as 375 as 37.50.

The digits stay in the same order, but moving the decimal changes the magnitude: 375 becomes 37.50. Swapping digits would be a transposition error instead.

A buyer orders goods from a seller.

A purchase order communicates the buyer’s order to the seller before the goods are received. A purchase requisition is an internal request to the purchasing department, while a receiving report records the later inspection of delivered goods.

A seller records or acknowledges returned goods or a price allowance.

The seller’s credit note acknowledges that a return or allowance reduces the amount the buyer owes. A return sends goods back; an allowance reduces their price without physically returning them.

₱58,000

All three services are earned: 16,000 + 27,000 + 15,000 = 58,000. The collection instrument changes the asset account, not whether the service was earned.

₱45,000

The contribution uses the stated current fair value. Historical personal cost is a distractor, and a noncash contribution does not change business Cash.

No change

Supplies increases 12,000 and Cash decreases 12,000: one asset replaces another.

Dr Accounts payable ₱8,400; Cr Capital ₱8,400

The business debt decreases and owner contribution increases; business cash never moved.

No change

Notes receivable increases while Accounts receivable decreases by the same 22,000; no additional service revenue or cash arises.

A chart lists account names; a trial balance lists account balances at a date

The trial balance tests debit/credit equality; the chart supplies the names used to classify transactions.

The account balance

A running-balance ledger adds/subtracts each posting immediately; the journal retains the complete chronological entry.

₱6,000

Debit is 3,000 too high and credit is 3,000 too low: difference = 2 × 3,000.

Yes; total debits equal total credits

60,000 = 12,000 + 48,000. It is a compound entry even though the counts of debit and credit accounts differ.

Yes; equal debits and credits were omitted

Cash and Accounts payable are both overstated by the unpaid recording amount; arithmetic agreement does not prove completeness.

₱33,000

New supplier credit = 30,000 − 6,000 = 24,000; payment = 12,000. Total AP = 21,000 + 24,000 − 12,000 = 33,000.

Narration or description

It explains why the accounts were debited/credited and supports the audit trail. It is not the ledger running balance.