Mastering Accounting Journal Entries

SEAT BETA SYSTEM

Lecture 1

WH COMMUNICATING financial
information.
What is being communicated? It reveals profit
or loss for a given period, and the value and
nature of a firm's assets, liabilities and owners'
equity. Business can monitor the profitability
and financial standing for business decision
making.
Meanwhile, a business SUSTAIN ECONOMY AND THE
STATE BY MEANS OF PROVIDING EMPLOYMENT BANKS
AND OTHER FINANCIAL INSTITUTIONS LEND MONEY FOR
CAPITAL THUS BUSINESSES CAN HAVE CAPITAL FOR
SUSTENANCE
EMPLOYMENT RESULTS TO THE PATRONAGE OF
BUSINESS ACTIVITIES BUSINESS SUSTENANCE CAN
SUPPORT THE GOVERNMENT THROUGH TAXES

BUSINESS AND ACCOUNTING

In order for business to sustain for further growth, there

must be a monitoring THROUGH RECORDS with regards
to its profitability and financial standing – that is where
accounting is needed.
LECTURE 2

BUSINESS EQUATION

ASSETS = LIABILITIES + OWNER’S EQUITY

SEAT BETA SYSTEM

Assets are economic resources of the business. They are
used by the business to sustain operations. Assets are
contributed by the outside investors (liabilities) and the
inside investors (owner’s equity)

ASSETS

Current assets are expected to be consumed within one

year, and commonly include the following line items:

Cash
Cash equivalents
Short-term deposits
Stock Marketable securities
Office supplies

Fixed or Non – Current Assets – considered as long term

assets:

Land

Building

Machinery Equipment Patents Trademarks

ALL ASSETS ARE PLACED AT THE LEFT SIDE OF THE

BUSINESS EQUATION IF THERE IS AN INCREASE OF THE
ASSETS LIKE FOR EXAMPLE, AN ADDITIONAL ASSET IS
PURCHASED, THE ADDITIONAL ASSET IS ALSO PLACED
AT THE LEFT SIDE OF THE EQUATION

HOWEVER, IF THE ASSET IS SOLD OR GIVEN AWAY, THE

ASSET IS CONSIDERED DECREASED THEREBY PLACING
THE ASSET AT THE RIGHT SIDE OF THE BUSINESS
EQUATION INDICATING DECREASE.

LIABILITY

It is a future sacrifice of economic benefits that the

entity is obliged to make to other entities as a result of
past transaction or other past events. The settlement of
the liability might result to the transfer of assets.

KINDS OF LIABILITIES:

Current liabilities (short-term liabilities) are liabilities

that are due and payable within one year.

Non-current liabilities (long-term liabilities) are liabilities

that are due after a year or more.

Contingent liabilities are liabilities that may or may not

arise depending on a certain event.

Examples of current liabilities:

Accounts Payable
Interest payable
Income taxes payable
Bills payable
Bank account overdrafts
Accrued expenses
Short-term loans

Examples of Non-Current Liabilities:

Bonds payable with voiceover
Long-term notes payable
Deferred tax liabilities
Mortgage payable
Capital lease
Kinds of Non-Contingent Liabilities:

Lawsuits

Product warranties with voice over

PLACEMENT OF THE LIABILITY ACCOUNT IN THE

BUSINESS EQUATION with voice over The Liability
account is placed at the right side of the business
equation. So its default side of the equation is on the
right. Any transaction that connotes an increase of
liabilities, the posting of the amount is placed on the
right side. Any transaction that depicts a decrease of
liabilities, the posting of the amount is placed on the left
side of the equation.

The owners’ equity is the residual interest of the business.

This is where we can find the contribution of the owner
through his investment. This account changes because of
the following transactions and its effect on the business
equation: 1. Initial and Additional investment of the owner
– increases the owners’ equity therefore owners’ equity
will increase. 2. Drawings of the owner – these are
withdrawals of the owner from his investment for personal
use. The effect of such transaction is decreasing the
owners’ equity. 3. Operating expenses of the business –
decreases the owner’s equity 4. Net Gain of the business-
tends to increase owners’ equity while net loss decreases
the owners’ equity.

One lacking voice over for gains and losses effect on oe

At this very slide is important for the student to stop

and concentrate on this area: The word TRANSACTION
life to the business equation as this will tend to move
the equation as an indication that the business
continues to operate. The TRANSACTIONS made by the
business affect at least two accounts or more. It might
be cash and accounts receivable and capital, that is
why, the student should analyze well in this area.

IMPORTANCE OF UNDERSTANDING TRANSACTIONAL

ANALYSIS BEFORE WORKING ON THE STATES OF
ACCOUNTING

The transactional analysis is the central component of the financial

accounting process. Every transaction must keep the accounting
equation in balance. Every time there is a transaction, the equation
moves but is kept balanced. The critical area lies in the correction of
the accounts used for the entries made with its amounts. When the
learner picks up the incorrect account and/or incorrect amount, the
business equation might not be balanced or it might be balanced but
might be incorrect which will result to incorrect information. At the
end of the flow, an incorrect balance sheet or and income statement
will be produced. The foregoing explanation is important for the
decision maker.

BEFORE WE TACKLE SAMPLES OF TRANSACTIONS AND HOW

WE ARE GOING TO MAKE THEIR BUSINESS ENTITY CONCEPT

ACCOUNTS TITLE IN NOUN FORM

NORMAL BALANCES OF ASSETS, L

LET US BEGIN THE JOURNEY……. LET US START FROM A

TRANSACTION – THE ACTIVITY THAT WILL MOVE THE
EQUATION

The Business Equation:

ASSETS = LIABILITIES + OWNERS EQUITY

100,000 = 40,000 + 60,000

WITH TWO EQUAL AMOUNTS ON THE RIGHT AND LEFT

SIDES. THE AMOUNT OF ASSETS IS 100,000 THE TOTAL
AMOUNT OF THE LIABILITIES AND OWNERS EQUITY
SHOULD ALSO BE 100,000. IF THERE IS ANY CHANGE ON
THE ASSET AMOUNT, THERE MUST BE A
CORRESPONDING EQUAL AMOUNT OF CHANGE ON THE
LIABILITIES AND OWNERS EQUITY TOTAL AMOUNTS.

EXAMPLE:

If for example, the asset increases by 10,000 (purchase of additional

equipment through a payable, the amount of liabilities shall also
indicate an increase of 10,000 or if the additional equipment is bought
by cash, then there will be two effects on the assets’ side (decrease of
cash 10,000 and a corresponding increase of equipment 10,000
without any change on the liabilities and owners equity.

The B E A T B E T A Way

1. Business Entity – the transactions are records on

the books of the business name, not the owner’s.
What did the business received? and what did
the business gave away? should always be the
questions every time transactions are recorded.
2.

3. re used for account titles. Correct - Cash,

Cash on Hand or Cash in Bank

2. Place account on its proper side in the business

equation.

Left side – Cash, Expenses and Drawings Right side –

Liabilities, Income and Capital

3. Consider the SEPARATE ENTITY PRINCIPLE.

The owner is a separate entity from the business

Accounting is a record for the business not for the
owner.

4. Bear in mind what kind of service concern business is

being recorded because there is a need to use
appropriate account title for a different kind of service
concern.

5. Think of the transactional analysis (the effect of the

transactions on the business equation.

TRANSACTION:

Mr. A invested 50,000 cash in the business.

ANALYSIS:

What did the business received from the owner? Cash

What did the business gave away in exchange for the
cash? The business gave away the owner a CLAIM
representing his ownership of the cash that was given.

SUMMARY:

1.Account titles (Nouns) Cash and Mr. A, Capital

2. Positions in the business equation Asset Cash is in the
left side Capital owner’s equity is in the right side
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 50,000 Value Parted with: Mr. A,
capital, 50,000

TRANSACTION:

Mr. A BORROWED 50,000 cash FROM THE BANK.

ANALYSIS:

What did the business received from the owner? Cash

What did the business gave away in exchange for the
cash? The business gave away the BANK a CLAIM
representing his ownership of the cash that was given.

SUMMARY:

1.Account titles (Nouns) Cash and Loans Payable

2. Positions in the business equation Asset Cash is in the
left side Loan’s Payable in the right side
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 50,000 Value Parted with: Loan’s
Payable, 50,000
TRANSACTION:
Mr. A bought Repair Equipment paying one half in cash,
60,000

ANALYSIS:

What did the business received? Repair Equipment.

What did the business gave away? The business gave
away the cash and claim from the supplier in the form of
Accounts Payable.

SUMMARY:

1.Account titles (Nouns) Repair Equipment, Cash and

Accounts Payable
2. Positions in the business equation Asset Cash is in the
left side, Accounts Payable and Cash in the right side
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 60,000 Value Parted with:
Accounts Payable, 30,000 and Cash 30,000
TRANSACTION:
Mr. A paid in full the account 30,000 resulting from the
purchase of repair equipment, 60,000.

ANALYSIS:

What did the business received? It claimed back the

equity given to the supplier. What did the business gave
away? The business gave away the cash.

SUMMARY:

1.Account titles (Nouns) Accounts Payable and Cash

2. Positions in the business equation Asset Cash is in the
right side now because it has decreased, Accounts
Payable and Cash in the right side
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 60,000 Value Parted with:
Accounts Payable, 30,000 and Cash 30,000
TRANSACTION:

Mr. A collected the 30,000 accounts receivables.

ANALYSIS:

What did the business received? Cash What did the

business gave away? The business gave back the claim
of the customer.

SUMMARY:

1.Account titles (Nouns) Cash and Accounts Receivables

2. . Positions in the business equation Asset Cash left
side because it has increased, Accounts Receivables
Repair Service Income in the right side because it has
decreased.
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 30,000 Value Parted with:
Accounts Receivables 30,000.
TRANSACTION:

Mr. A collected the 30,000 accounts receivables.

ANALYSIS:

What did the business received? Cash What did the

business gave away? The business gave back the claim
of the customer.

SUMMARY:

1.Account titles (Nouns) Cash and Accounts Receivables

2. . Positions in the business equation Asset Cash left
side because it has increased, Accounts Receivables
Repair Service Income in the right side because it has
decreased.
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 30,000 Value Parted with:
Accounts Receivables 30,000.
TRANSACTION:
Mr. A received 20,000 cash from customers who was served
for repairs.

ANALYSIS:

What did the business received? Cash What did the

business gave away? The business gave away Service in
the form of Income for the business.

SUMMARY:

1.Account titles (Nouns) Cash and Repair Service

Income
2. Positions in the business equation Asset Cash is in the
left side because it has increase, Repair Service Income
in the right side
3. We are recording for the business records (A Repair
Shop)
Value Received: Cash 20,000 Value Parted with: Repair
Service Income 20,000.

TRANSACTION:
Mr. A rendered service amounting to 30,000 on account.

ANALYSIS:

What did the business received? Claims from customers

who did not pay in cash right away. What did the
business gave away? The business gave away Service in
the form of Income for the business.

SUMMARY:

1.Account titles (Nouns) Accounts Receivable and Repair

Service Income
2. . Positions in the business equation Asset Accounts
Receivables is in the left side because it has increased,
Repair Service Income in the right side
3. We are recording for the business records (A Repair
Shop)
Value Received: Accounts Receivables 30,000 Value
Parted with: Repair Service Income 30,000.

TRANSACTION:
Mr. A was given a note in settlement of the accounts
receivables.

ANALYSIS:

What did the business received? Notes Receivables

What did the business gave away? The business gave
back the claim of the customer.

SUMMARY:

1.Account titles (Nouns) Notes Receivables and

Accounts Receivables
2. . Positions in the business equation Asset Notes
Receivable at the left side because it has increased,
Accounts Receivables in the right side because it has
decreased.
3. We are recording for the business records (A Repair
Shop)
Value Received: Notes Receivables 30,000 Value Parted
with: Accounts Receivables 30,000.
TRANSACTION:
Paid the following expenses:
Rent expense 10,000
Insurance expense 5,000

ANALYSIS:

What did the business received? Benefits in the form of

expenses. What did the business gave away? Cash

SUMMARY:

1.Account titles (Nouns) Rent Expense, Insurance

Expense and Cash
2. Positions in the business equation Benefits in the
form of expenses at the left side and cash at the right
side because it has decreased.
3. We are recording for the business records (A Repair
Shop)
Value Received: Rent Expense 10,000 Insurance
Expense 5,000 and VPW Cash 15,000

Note: all other expenses are treated this way

TRANSACTION:
What If, instead of paying cash for the settlement of the
accounts payable, Mr. A issued a note payable.

ANALYSIS:

What did the business received? It claimed back the

equity given to the supplier. What did the business gave
away? The business gave away another obligation to
pay in the form of notes payable.

SUMMARY:

1.Account titles (Nouns) Accounts Payable and Notes

Payable
2. Positions in the business equation Accounts Payable
is now at the left side because it has decreased, we put
Notes Payable at the right side in replacement of
Accounts Payable.
3. We are recording for the business records (A Repair
Shop)
Value Received: Accounts Payable Value Parted with:
Notes Payable 30,000 and Cash 30,000

Before starting to process the data for the purpose of

preparing the financial reports, it is important that the
student will analyze what to place as debit and credit on
the journal book – and to obtain what is to be regarded
as value received and value parted with after a
thorough analysis will give the student confident
answers as debit and credit entries, respectively. So
remember, student, no matter you spend sleepless
nights just to identify your VR and VPW, it is worth it
because all you have to do is to make your VR and VPW
as your debit credit entries, respectively in your journal
book

The VALUE RECEIVED and the VALUE PARTED WITH is

not a part of the accounting process. It is though the
key to the correct entries in the journal entries. The
accurate value received and value parted with, when
produced will give the learner the proper entries to be
included in the GENERAL JOURNAL, the first process in
accounting.

BEFORE GOING TO A MERCHANDISING CONCERN

ACCOUNTING WHICH IS MORE COMPLICATED THAN A
SERVICE CONCERN,
SUMMARY: WHAT ARE THE 4 THINGS TO
MASTER TO COME UP WITH AN ACCURATE
JOURNAL ENTRY?

1. Business Entity

CONGRATULATIONS!!!

YOU HAVE MASTERED

SOME OF THE
IMPORTANT VALUE
RECEIVED AND
VALUE PARTED WITH
FOR THE DIFFERENT
TRANSACTIONS FOR
A SERVICE CONCERN.
BUT WAIT, WE ARE
TALKING ABOUT
JOURNAL ENTRIES.

NO PROBLEM.

IT IS JUST VERY SIMPLE:

THE VALUE RECEIVED ACCOUNTS AND

AMOUNTS ARE THE DEBIT ENTRIES WHILE THE
VALUE PARTED ACCOUNTS AND AMOUNTS ARE
THE CREDIT ENTRIES.
 NOW, LET US
MOVE ON TO THE
MERCHANDISING
CONCERN
TRANSACTIONS.

F Mr. A established
an additional
business like
merchandising
entity, and if the
books will
encounter the
same transactions, the analysis, the value
received and value parted with will be the
same except for the transactions on cash
received for services and the services
rendered to customers on account. However,
additional transactions can be encountered
which are not present in a service concern. Let
us tackle these transactions one by one.

What are the important accounts found in a

merchandising concern?

Account Description Normal

Title Balance
Sales Revenue from Value
selling Parted
merchandise With
Sales Merchandise Value
Returns returned by Received
customers due
to wrong
specification,
damage or
other reasons
for returning.
Sales These are Value
Discounts discounts Received
given to the
customers for
early
settlement of
accounts.
Account Description Normal
Title Balance
Purchases Merchandise Value
bought for Received
resell
purposes
Purchase Merchandise Value
Returns bought but Parted
returns With
 because of
wrong
specification,
damages or
other reasons
for returning
Purchase Discounts Value
Discounts given by Parted
resellers with
because of
early
settlement of
accounts

Sales, Service income in any form and

other income reflect an increase the
Owner’s Capital while Operating
Expenses reflect an decrease in the
Owner’s Equity but these accounts are
not directly charged nor credited to the
Owner’s Equity but they have their
respective account titles.

Examples:
Owner, Drawing
Service Income
Rent Expense
Insurance Expense
TRANSACTION:

Mr. A received 50,000 representing cash

sales.

ANALYSIS:

What did the business received from the

owner? Cash What did the business gave away
additional credit for the owner because there
is a claim in the form of sales.
SUMMARY:

1.Account titles (Nouns) Cash and Sales

2. Positions in the business equation Asset
Cash is in the left side Sales in the right side
3. We are recording for the business records (A
Repair Shop)
Value Received: Cash 50,000 Value Parted
with: Sales, 50,000

TRANSACTION:
Sales on account 100,000.

ANALYSIS:

What did the business received from the

owner? Claim from customers in the form of
Accounts Receivables.

What did the business gave away additional

credit for the owner because there is a claim
in the form of sales.

SUMMARY:
1.Account titles (Nouns) Accounts Receivables and
Sales
2. Positions in the business equation Asset Acct.
Rec is in the left side Sales in the right side
3. We are recording for the business records (A
Repair Shop)
Value Received: Accounts Receivables 50,000
Value Parted with: Sales, 50,000

TRANSACTION:
From the sales of 50,000, the customer returned
10,000 worth of merchandise.

ANALYSIS:

What did the business received from the owner? Reduction of

claim from customers in the form of Sales Returns.

What did the business gave away claim from the customer
resulting to a reduction of claim from the customer which is a
reduction of accounts receivables.

SUMMARY:

1.Account titles (Nouns)Sales Returns and Accounts

Receivables
2. Positions in the business equation Sales Returns is in the
left side, Accounts Receivables in the right side
3. We are recording for the business records (A Repair Shop)
Value Received: Sales Returns 10,000 Value Parted with:
Accounts Receivables 10,000
TRANSACTION:
Sales on account 50,000 dated Jan.1, 2021 2/10 n/30
Sales Returns 10,000 Jan 5
Jan 9 Collected the amount net of returns.
What is the entry for the payment on Jan 9

ANALYSIS:

What did the business received from the owner? Cash and
sales discounts given to customer. The latter is debited or a
value received because it is a deduction from the revenues.
What did the business gave away is the additional credit for
the owner because there is a claim in the form of sales.

SUMMARY:
1.Account titles (Nouns) Accounts Receivables and Sales
2. Positions in the business equation Asset Acct. Rec is in the
left side Sales in the right side
3. We are recording for the business records (A Repair Shop)
Value Received: cash 38200 Cash discounts 800
Value Parted with: Accounts Receivables, 50,000
Journal book. It is therefore important to focus and obtain
a mastery of this topic before going through the stages of
accounting. The lack of this skill will make the whole
process useless and insignificant.

What Does Journalizing Mean? The journalizing process

starts when a business transaction occurs. Accountants or
bookkeepers must analyze each business transaction in
order to understand what accounts are affected by the
business transaction. Once the accounts are identified, the
accountant must figure out how the accounts are affected.

VALUE RECEIVED CASH 10000 VALUE PARTED

WITH MR. A CAPITAL 10000
Taxes expense are considered as expense therefore it is a
benefit having given the right to do business so the
expense is therefore a value received while the business
parted away cash