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Week-5.1-Analyzing-and-Journalizing

The document outlines the accounting cycle for service businesses, emphasizing that they provide services for fees without maintaining significant inventory. It details the types of business transactions, the importance of recording financial events, and the necessary documentation for transactions. Additionally, it explains the preparation of journal entries and the rules of debit and credit in accounting.

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Cazey Jefferson
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Download as PDF, TXT or read online on Scribd
7 views

Week-5.1-Analyzing-and-Journalizing

The document outlines the accounting cycle for service businesses, emphasizing that they provide services for fees without maintaining significant inventory. It details the types of business transactions, the importance of recording financial events, and the necessary documentation for transactions. Additionally, it explains the preparation of journal entries and the rules of debit and credit in accounting.

Uploaded by

Cazey Jefferson
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Business Transactions and Their

Analysis as Applied to the Accounting


Cycle of a Service Business
SERVICE BUSINESS
A service business provides a needed service
for a fee. In general, service businesses
actually have no physical product sold to
clients.

Their services are designed to facilitate the


work of clients and in return are paid.
The revenue of a service business is usually
realized once the service has been
substantially completed.
Aside from the minor supplies, the service
business does not maintain a high level of
inventory as compared to merchandising
and manufacturing businesses
In relatively small service businesses, all
transactions are on cash payments. This means
sales are collected immediately while most
expenses are paid outright in the form of cash or
checks.
The typical financial transactions recorded for a
service company include collecting a deposit from
the customer, providing the service and receiving
payment.
A business transaction is an activity or
event that can be measured in terms of
money and which affects the financial
position or operations of the business
entity.
1. Can be measured in terms of money
2. It has an effect on any of the
accounting elements – assets, liabilities,
equity, income, & expense.
DECISION MAKING FRAMEWORK
1. Is there a monetary amount that can be
assigned to the event?
- YES – Record in the books.
- NO – Do not record.

2. Does it affect the composition of either


assets, liabilities, equity, revenues or expense?
- YES – Record in the books.
- NO – Do not record.
SAMPLES OF
BUSINESS
TRANSACTIONS
1. The firm buys a printer for the office for ₱5,500.00.

2. The firm hires 2 employees which will be paid


₱15,000.00 monthly.
3. The firm pays rent on the land where its
building stands ₱12,300.
4. Firm signs a subscription contract for an
internet plan at ₱1,599.00 per month.
5. Firm orders 20 packs of brown envelopes from
the bookstore at ₱20.00/pack.
The accounting cycle is a continuous process of accumulating,
summarizing and reporting financial information.
Step 1 – Analysis of Transactions and/or Events
Identification and measurement of external transactions
and internal events. At this stage, the documents used by
the business are analyzed whether it has financial impact
or effect.
Recall the rule that only financial transactions are
recorded and that the amount can be measured. These
two conditions must exist in order that a particular
transaction is recognized or recorded. As defined, financial
transactions are those activities that change the value of
an asset, liability or an equity.
DOCUMENTS
SOURCE WHERE GENERATED/BY
PURPOSE AS A SOURCE DOCUMENT
DOCUMENT WHOM

Official Receipt/ To evidence the receipt of Outside, the


Cash Receipt cash for a sale seller firm
To evidence a purchase and thus the
Sales Invoice (Bill) Outside, the seller firm
recording of a liability to the seller

To evidence the bank charges for the


Outside, the depository
Bank Statement period which the firm would
bank
otherwise not know about
To evidence the number of hours
Time Card worked by employees, to be used as Within, workers
basis for determining wages
1.Official Receipt or Cash Receipt
This document is used when a
business receives money or a check.
An Official Receipt or Cash Receipt is
a document that acknowledges that
money or a check have been received.
2.Charge Invoice or Sales Invoice
A charge invoice is a document used when a service has been
rendered, but the client will be billed only after a certain number
of days from the date of service. Often, a company will issue a
statement of account to a customer, with the charge or sales
invoice attached.
For example: in a laundry business, a customer may avail of the
services of the business. However, that customer and the owner of
the business had a prior agreement that all services availed by the
customer will be paid only after 30 days. In this case, a charge
invoice is issued on the day the client availed of the services.
3. Check or Cash Voucher

The check voucher is a document


used when a check is issued to pay a
certain supplier or vendor.
For example, in a laundry business,
for the payment of monthly electricity
bills, the business may pay either in
cash or check.
3. Check or Cash Voucher
But the company must prepare a cash
or check voucher to support this
payment.

This document will serve as a record


of payment and, at the same time, as
proof that payment has been made by
the company.
Step 2 - Preparation of Journal Entries (Journalizing)

Through the use of journals (such as


those for sales, purchases, cash receipts,
and cash disbursements) and the general
journal, transactions and events are
entered into the accounting records.

These are called the books of original


entry.
THE RULES OF
DEBIT AND CREDIT
1.Increases in contra-
asset accounts are
recorded as credits.
2.Increases in contra-
liability accounts are
recorded as debits.
3.Increases in contra-
equity accounts are
recorded as debits.
Every journal entry requires:
a. At least 1 debited account
b. At least 1 credited account.
This means following the definition that
at the very least 1 account has to have a
movement in the left side of its T-account,
and another account has to have a
movement in the right side of its
T-account.
Some complications arise when we look further
into the details of accounts comprising assets,
liabilities, and equity.
1. Contra-asset account
2. Contra-liability account
3. Contra-equity account

CONTRA-ACCOUNTS
- are simply accounts that are reported in the
financial statements together with assets,
liabilities, and equity, respectively, but follow the
exact opposite rules of debit and credit as their
positive counterparts.

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