Transactions and Records
Quiz 2 scope: Units 4.1–4.6. Read the three unit reviewers, practice each unit, then use the mixed mock for a complete rehearsal.
The cycle
Analyze source documents → journalize → post → unadjusted trial balance → optional worksheet → adjust and post → prepare statements → close and post → post-closing trial balance → optional reversing entries. A worksheet helps organize the end-of-period work, but adjustments still enter the journal and ledger.
Each stage has a different purpose: source documents support the event, the journal records its complete entry, and the ledger gathers its effects by account. A worksheet only organizes calculations; it cannot update an account until the adjustment is journalized and posted.
Start with evidence
Document | What it supports |
|---|---|
Purchase requisition | Internal request for goods |
Purchase order | Buyer order to supplier |
Receiving report | Quantity and condition of delivered goods |
Invoice | Goods/services billed |
Credit note | Seller acknowledgement of a return or allowance |
Debit note | Buyer request/notification for a return or allowance |
Statement of account | Amounts owed and request for payment |
Remittance advice | Notice that a payment was made |
Receipt | Evidence of payment received |
Promissory note | Written promise to pay at a future date |
Voucher | Authorization/support for a payment |
Inventory count sheet | Physical quantities used for ending inventory |
Match the document to the event. A purchase order authorizes an order; a receiving report verifies delivery; a receipt proves payment. A return sends goods back, while an allowance reduces the price without a physical return. Neither is the same as a new cash payment.
Debit and credit
Normal debit balance | Normal credit balance |
|---|---|
Assets | Liabilities |
Expenses | Owner’s capital |
Drawings | Revenue |
Increase on the normal side; decrease on the opposite side. Contra accounts use the opposite normal balance of the account they offset: accumulated depreciation and allowance for doubtful accounts normally have credit balances.
The direction follows the accounting equation: assets are on the debit side; liabilities and capital are on the credit side. Revenue increases equity, so it increases by credit. Expenses and drawings reduce equity, so their increases use debits. This explains why a credit increases Service revenue but decreases Cash.
For each transaction: identify accounts, classify them, decide increase/decrease, apply debit/credit, and verify equal total debits and credits. Debit does not mean increase for every account.
Common entries
Transaction | Debit | Credit |
|---|---|---|
Owner cash investment | Cash | Capital |
Owner cash drawing | Drawings | Cash |
Buy equipment on credit | Equipment | Accounts payable |
Earn service revenue on credit | Accounts receivable | Service revenue |
Collect an account | Cash | Accounts receivable |
Pay a supplier account | Accounts payable | Cash |
Receive advance for future services | Cash | Unearned revenue |
Buy unused insurance | Prepaid insurance | Cash |
Collection of an existing account does not create new revenue. Paying an existing payable does not create a new expense. A temporary personal withdrawal is drawings; a permanent withdrawal of invested capital reduces the capital account in the transaction-analysis exercise.
Ask whether the service has already been performed. Completed services create revenue even if the customer has not paid; cash received for future services creates a liability because the business still owes performance. Owner contributions and personal drawings affect capital or drawings rather than operating revenue or expense.
Faith D. Nakpil’s July exercise
The workbook starts with a ₱300,000 contribution. July transactions include three-month rent paid in advance, supplies, a laptop on account, furniture with a downpayment, services for cash and on credit, advance customer payment, drawings, salaries, settlement of the laptop account, and collection from A1.
Complete July transaction list
All amounts are Philippine pesos (₱). Faith starts an accounting-services business on July 1 with no prior balances. The following are all July transactions; no period-end adjustments have been made.
Date | Transaction |
|---|---|
July 1 | Owner contributes 300,000 cash |
July 2 | Pays 60,000 for three months of future rent |
July 4 | Buys unused office supplies for 5,000 cash |
July 7 | Buys laptop for 40,000 on account |
July 8 | Buys furniture for 80,000; pays 20% down, balance on account |
July 9 | Completes 20,000 services for cash |
July 11 | Completes 30,000 services on account for A1 Trading |
July 15 | Completes 40,000 services; receives 30%, balance receivable |
July 18 | Receives 10,000 advance for next month’s services |
July 20 | Owner withdraws 15,000 cash for personal use |
July 22 | Pays the laptop supplier account in full |
July 30 | Pays this month’s salaries of 25,000 |
July 31 | Collects A1 Trading’s account in full |
Journalize, post, and prepare the unadjusted trial balance from these transactions before comparing the balances below.
Ending unadjusted account | Balance |
|---|---|
Cash | ₱211,000 debit |
Accounts receivable | ₱28,000 debit |
Prepaid rent | ₱60,000 debit |
Supplies | ₱5,000 debit |
Equipment | ₱40,000 debit |
Furniture and fixtures | ₱80,000 debit |
Accounts payable | ₱64,000 credit |
Unearned revenue | ₱10,000 credit |
Capital | ₱300,000 credit |
Drawings | ₱15,000 debit |
Service revenue | ₱90,000 credit |
Salaries expense | ₱25,000 debit |
Trial-balance totals are ₱464,000 each. The balances are before rent/supplies or other period-end adjustments. Assets of ₱424,000 equal liabilities ₱74,000 plus equity ₱350,000 after the ₱90,000 revenue, ₱25,000 expense, and ₱15,000 drawings effects.
Why these balances follow
Cash follows payment, not performance. Receipts = ₱300,000 + ₱20,000 + (₱40,000 × 30%) + ₱10,000 + ₱30,000 = ₱372,000. Payments = ₱60,000 + ₱5,000 + (₱80,000 × 20%) + ₱15,000 + ₱40,000 + ₱25,000 = ₱161,000. Cash remaining = ₱372,000 − ₱161,000 = ₱211,000. Buying the laptop on account does not use cash until its debt is settled.
Revenue follows completed services. ₱20,000 + ₱30,000 + ₱40,000 = ₱90,000, including the unpaid portions. The ₱10,000 advance remains unearned, and collecting A1's ₱30,000 account does not earn that revenue a second time.
The remaining receivable is ₱40,000 − (₱40,000 × 30%) = ₱28,000; A1 has paid its separate account in full. The remaining payable is the furniture balance: ₱80,000 − (₱80,000 × 20%) = ₱64,000; the laptop payable has been settled.
Debit balances total ₱211,000 + ₱28,000 + ₱60,000 + ₱5,000 + ₱40,000 + ₱80,000 + ₱15,000 + ₱25,000 = ₱464,000. Credit balances total ₱64,000 + ₱10,000 + ₱300,000 + ₱90,000 = ₱464,000. Drawings and expenses appear separately before closing; equity is ₱300,000 + ₱90,000 − ₱25,000 − ₱15,000 = ₱350,000.
Journal, ledger, and trial balance
The journal records events chronologically. The ledger groups postings by account. A simple journal entry has one debit and one credit; a compound entry has more than one account on at least one side. Include date, account names, amounts, explanation/source reference, and posting reference. Subsidiary ledgers provide detail that reconciles to a general-ledger control account.
A trial balance lists account balances and checks equal debit and credit totals. It cannot prove every transaction is correct: omission, duplicate full entries, wrong account selection, and equal incorrect amounts can leave it balanced. A transposition swaps digits; a sliding error misplaces a decimal. Trace errors back through balances, totals, and postings.
Omitting an entire balanced entry removes equal debits and credits, so their totals can still agree. Recording only one side breaks that equality. The trial balance checks arithmetic; source documents and the audit trail are needed to check whether the right events, accounts, and amounts were recorded.
Quiz 2 focus: Units 4.1–4.4
This unit prepares transaction analysis, journalizing, posting and the unadjusted trial balance. Work with the entity's records, not the owner's personal cashbook. The released Quiz 2 sets repeatedly separate amounts earned from amounts collected, trade accounts from notes, and account balances from total debits and credits. End-of-period adjustments belong to a later stage unless a problem explicitly asks for them.
Four distinctions to explain before calculating
Distinction | Decision rule | Consequence |
|---|---|---|
Chart of accounts / trial balance | A chart names permitted accounts; a trial balance lists ledger balances at a date | A list of names alone is not a trial balance |
Journal / ledger | Journal: chronological entry; ledger: classified account history | Ending running balances belong in the ledger, not as a required journal column |
Cash / revenue | Ask separately whether money moved and whether the business performed | Cash advances create a liability; collection of an old receivable does not earn revenue again |
Trade receivable / note receivable | Identify the promise accepted for the current sale or old debt | A sale directly for a note increases Notes receivable; conversion of an existing account reduces Accounts receivable |
A narration explains the entry beneath the accounts. Date, account titles, debit/credit amounts and references provide the audit trail. In a running-balance ledger, update the balance after each posting. The count of debit accounts need not equal the count of credit accounts; their total amounts must agree.
Classify the owner transaction correctly
Cash invested by an owner increases Cash and Capital. A contributed noncash asset is recorded at the stated current fair value in these course cases, not automatically at the owner's old purchase cost. Paying the owner's tuition from business cash is a business-recording event: debit Drawings, credit Cash. It is not an operating salary expense. If the owner directly pays a business supplier as an additional contribution, debit Accounts payable and credit Capital; the business Cash account does not move.
Cash purchase of unused supplies exchanges one asset for another and leaves total assets unchanged. Cash paid for a consumed business license reduces Cash and equity through an expense. Three months of future rent is initially Prepaid rent under the asset method; do not charge all three months to expense in an unadjusted trial balance.
Original integrated case: Bayan Design Services
All amounts are pesos. The business starts with no balances. The transactions below are the complete month; no rent, supplies, depreciation or other adjusting entries have been made. Equipment contributed by the owner has stated fair value ₱45,000 and historical personal cost ₱70,000. An equipment purchase financed by a note is distinct from supplier trade credit.
Event | Complete journal entry |
|---|---|
Owner contributes ₱180,000 cash and the equipment | Dr Cash 180,000; Dr Equipment 45,000; Cr Capital 225,000 |
Pays ₱24,000 for three months of future rent | Dr Prepaid rent 24,000; Cr Cash 24,000 |
Buys unused supplies ₱12,000; pays 25% down | Dr Supplies 12,000; Cr Cash 3,000; Cr Accounts payable 9,000 |
Buys equipment ₱60,000; pays 20% down and signs a note for the balance | Dr Equipment 60,000; Cr Cash 12,000; Cr Notes payable 48,000 |
Completes ₱18,000 services, collected immediately | Dr Cash 18,000; Cr Service revenue 18,000 |
Completes ₱32,000 services on account | Dr Accounts receivable 32,000; Cr Service revenue 32,000 |
Completes ₱40,000 services; receives 30% now | Dr Cash 12,000; Dr Accounts receivable 28,000; Cr Service revenue 40,000 |
Receives ₱15,000 for next month's work | Dr Cash 15,000; Cr Unearned revenue 15,000 |
Collects ₱20,000 of the earlier ₱32,000 receivable | Dr Cash 20,000; Cr Accounts receivable 20,000 |
Pays ₱6,000 of the supplies supplier's account | Dr Accounts payable 6,000; Cr Cash 6,000 |
Pays current-month salaries ₱14,000 | Dr Salaries expense 14,000; Cr Cash 14,000 |
Owner withdraws ₱7,000 for personal use | Dr Drawings 7,000; Cr Cash 7,000 |
Post the accounts, then reconcile
Cash receipts = 180,000 + 18,000 + 12,000 + 15,000 + 20,000 = ₱245,000. Cash payments = 24,000 + 3,000 + 12,000 + 6,000 + 14,000 + 7,000 = ₱66,000. Ending Cash = ₱179,000 debit. The contributed equipment and the ₱48,000 note are noncash amounts; including either as cash would mix up financing and payment.
Accounts receivable = 32,000 + 28,000 − 20,000 = ₱40,000 debit. Accounts payable = 9,000 − 6,000 = ₱3,000 credit. Notes payable remains ₱48,000 credit. Service revenue = 18,000 + 32,000 + 40,000 = ₱90,000 credit. The advance is excluded, and the collection is not counted a second time.
Unadjusted account | Debit | Credit |
|---|---|---|
Cash | 179,000 | — |
Accounts receivable | 40,000 | — |
Prepaid rent | 24,000 | — |
Supplies | 12,000 | — |
Equipment | 105,000 | — |
Accounts payable | — | 3,000 |
Notes payable | — | 48,000 |
Unearned revenue | — | 15,000 |
Capital | — | 225,000 |
Drawings | 7,000 | — |
Service revenue | — | 90,000 |
Salaries expense | 14,000 | — |
Total | 381,000 | 381,000 |
Independently check the equation: assets = 179,000 + 40,000 + 24,000 + 12,000 + 105,000 = ₱360,000. Liabilities = 3,000 + 48,000 + 15,000 = ₱66,000. Ending equity = 225,000 + 90,000 − 14,000 − 7,000 = ₱294,000. Thus 360,000 = 66,000 + 294,000. The trial balance uses unclosed Capital, Revenue, Expense and Drawings separately; its ₱381,000 total is not the ₱360,000 asset total.
Repair an error without inventing an account
If Accounts payable ₱3,000 is mistakenly placed in the debit column, debit total becomes ₱384,000 and credit total becomes ₱378,000: the difference is twice ₱3,000, because the amount was added to the wrong side and removed from the correct one. Reclassify it to credit; do not plug the difference into Capital.
If the entire ₱6,000 supplier payment is omitted, both trial-balance totals are overstated by ₱6,000 and still agree: Cash and Accounts payable are both too high. If equipment is wrongly debited to Supplies but the correct cash/note credits are posted, the trial balance still agrees while account classification is wrong. A difference divisible by nine may suggest transposition or sliding; it does not prove either cause. Trace the documents, journal, posting references and ledger balances.
Targeted hard-practice method
For a running balance, write opening balance + increases − decreases for the named account only. Label the specific supplier when a problem pays “50% of that account”; do not take half of all creditors. In mixed service problems, total completed work regardless of collection method, exclude future services, and record a directly accepted note in Notes receivable. Finish by identifying whether the requested figure is Cash, revenue, total assets, one trial-balance column, or equity; these are different totals.
Sources
FDNACCT Unit 4.1-4.4_Analyzing business transactions_Study Guide.pdf, pp. 1–4
FDNACCT Unit 4.1_Analyzing business transactions_Class Exercise.xlsx, Analysis of Transactions_+ & -; Dr & Cr; Analysis of Transactions_Dr & C
FDNACCT Unit 4.2 to 4.4_Journalizing, Posting, Preparing Trial Balance_Class Exercise.xlsx, GJ_Ex; GJ; GL; TB
FDNACCT_2526_T1_Quiz #2_1_Questionnaire.pdf; question patterns and independently checked course methods
FDNACCT_2526_T1_Quiz #2_3_Solutions to PS.pdf; question patterns and independently checked course methods
FDNACCT_2526_T2_Quiz #2_1_Questionnaire.pdf; question patterns and independently checked course methods
FDNACCT_2526_T2_Quiz #2_2_Answer Key_updated.pdf; question patterns and independently checked course methods
FDNACCT_2526_T2_Quiz #2_3_Solutions to PS.pdf; question patterns and independently checked course methods
FDNACCT_2526_T3_Quiz #2_1_Questionnaire.pdf; question patterns and independently checked course methods
FDNACCT_2526_T3_Quiz #2_3_Solutions to PS.pdf; question patterns and independently checked course methods