ABM 1

Fundamentals of
Accounting,
Business and
Management
 Transactions
The data that we record in the accounting
books are called transactions.
Transaction is an exchange of value for
value.
In every transaction, there is always a
value received and a value parted with.
These values received and parted with
may either be money, property, or
services.
 ILLUSTRATION
Transactions Value Received Value Parted With
1. Purchased Merchandise for cash. Merchandise Cash/money
2. Purchased equipment on credit. Equipment Obligation/Debt
3. Completed legal work for K. Taro Cash/Money Service/s
and received cash.
4. Completed legal work for J. Receivable Service/s
Gerondio on credit.
5. Paid for legal books ordered and Legal Books Cash/Money
received.
6. Paid the account in no.2. Cancellation of Cash/Money
Obligation/Debt
7. Received payment from J. Cash/Money Service/s
Gerondio.
8. Paid the secretary monthly Service/s Cash/Money
salary.
9. Received payment for Cash/Money Service/s
professional fees from various
clients
10. Paid the rent for office space Right/authority to Cash/Money
use space
 ILLUSTRATION
Transactions Value Received Value Parted With
1. Purchased tools for cash. Tools Money/Cash
2. Purchased office supplies on credit. Office Supplies Obligation or Debt
3. Completed repair work for T. Money/Cash Services
Legaspi and received cash.
4. Completed repair work for J. Receivable Services
Asuque on credit.
5. Paid for advertising in the local Advertising Services Money/Cash
paper.
6. Paid the account in no.2. Cancellation of Money/Cash
obligation
7. Received payment from T. Legaspi. Money/Cash Cancellation of
receivable
8. Paid the monthly salary of the Services Money/Cash
assistant.
9. Paid the rent of the shop space Right to occupy the Money/Cash
space
10. Paid the monthly telephone bill. Services Money/Cash
 3 accounting Elements and
Values
1. Assets – Economic resources owned by the business. They
include properties and other things of value the ownership
title of which is in name of the business. Assets can be
grouped into currents assets and fixed assets

2. Liabilities – Are debts or obligations of the business to a

party other than its owner. There are two classifications of
liabilities: Current or short-term liabilities and Fixed or long-
term liabilities.

3. Capital – Represents the owners equity or investment in the

business. Other terms which can be used synonymously are
owners equity and proprietorship.
 Kinds of ASSETS
1. Current Assets – Are those assets which can be
reasonably converted into cash within a short
period of time, usually within one accounting period
or with in the regular operation of the business or
normal operating cycle of the business. Regular
operation of the business or normal operating cycle
of the business is the period between the render of
service, in case of service concern, to the receipt of
cash, and the period between the acquisition of
materials to their conversion into cash, incase of
merchandising and manufacturing concern.
 Kinds of ASSETS
1. Fixed Assets – Which are captioned in the
balance sheet as “Plant and Equipment” are
those assets which are permanent in nature.
Permanent in such a way that their useful life
to the business exceeds beyond one year.
 These assets are used in the operation of the
business and not intended for sale.
Example:
Land, Building, equipment, Furtinure and
fixtures.
 Kinds of Liabilities
1. Current or Short-term Liabilities – Are whose
which are due for payment within a short
period of time or within one year from the
balance sheet date. This obligation require a
current asset for payment.
Included here are the following:
Accounts payable,notes payable, accrued
expenses and unearned income.
 Kinds of Liabilities
2.Fixed or long-term Liabilities - Are
whose which mature beyond one
year from the balance sheet date.
Example:
Mortgage payable, Bonds payable
and notes payable due beyond one
year.
 Accounting Equation
Importance of accounting equation
- Business transactions affects the assets, liabilities and
proprietorship of the business. These effects can be expressed in
the accounting equation:
ASSETS=EQUITIES
Equity is the right, claim or interest of a person over the
assets of the business.
Liability represents such claim in the assets of the business.
Proprietorship is the owners or owners interest in the
business.
LIABILITIES

EQUITIES

PROPRIETORSHIP
And since there are two sources of
equities, one from the creditors
(liabilities) and the other from the
owner (Proprietorship), then we can
express the accounting equation as:

ASSETS = LABILITIES + PROPRIETORSHIP/CAPITAL

 Illustrations
Transaction 1
Oct. 1 - Mr. Gil opened a motor repair shop and invested
P10,000 cash.
Equation 1
Increase in asset = Increase in Proprietorship/Capital
A = L + P/C
Cash P10,000 = 0 + Gil, capital P10,000

Analysis:
The asset, cash, is increased by P10,000.
The proprietorship/capital is also increased by P10,000.
 Illustrations
Transaction 2
Oct. 3 - He purchased repair supplies worth P5,000 on credit from De
Mesa Trading.
Equation 2
Increase in asset = Increase in Liabilities
A = L + P/C
Repair supplies P5,000 = Due to De Mesa Trading 5,000 + 0

Analysis:
The asset, repair surpplies, is increased by P5,000
The acount due to De Mesa Trading is increased by P5,000.
 Illustrations
Transaction 3
Oct. 5- Billed M. Manzano for repair work done on his authomobile,
P2,000.
Equation 3
Increase in asset = Increase in Proprietorship/Capital
A = L + P/C
Due fr. Manzano P2000 = 0 + Gil, capital P2000

Analysis:
The asset, Due fr.M.Manzano, is increased by P2000.
The proprietorship aacount is also increased by P2000 due to the
revenue from service rendered.
 Illustrations Exercises:
Transaction 4-8
Oct. 7-He purcahsed a table and chairs for the business,
P2,000, cash.
Oct.12- Issued a promissory note to De Mesa Trading to
apply on his account (Transaction 2).
Oct.15-Paid the salary of the assistant, P900.
Oct.20-Paid the note issued to De Mesa Trading
(Transaction 5).
Oct. 29-Mr. Gil withdrew P1,500 from the business for
his personal use.
 DEBIT AND CREDIT
The T-Account
Business transactions cause increases and decreases
in the accounting values. To record these changes, a
business firm makes use of accounts. An accounts is an
accounting device use to summarize the increases and
decreases in the asset, liability, and proprietorship of
the business.
A simple form of accounts looks like a big letter “T”,
thus it is called a T-Accounts. It has a left side and a
right side.
 DEBIT AND CREDIT
It appears as follows:

Name of the Item

Left Side Right Side

The left side off a T-account is the debit (Dr.) side and the right
side is the credit (Cr.) side.
“To debit” is to enter the amount on the left side of a T-account
and
“To credit” is to enter on the right side of a T-account.
The amounts entered in the left side of a T-account are “Debits”
and those on the right side are “Credits”.
 DEBIT AND CREDIT
DEBIT TO: CREDIT TO:
1. Increase in assets 1. Decrease assets
2. Decrease liabilities 2. Increase liabilities
3. Decrease 3. Increase
proprietorship due to: proprietorship due to:
a. withdrawal of a. investment by the
assets by the owner. owner.
b. increase in b. decrease in
expanses and expanses and
losses. losses.
c. decrease in c. increase in income
 ILLUSTRATION:
Transaction 1
Sept. 10 -M. Santos opened a catering service he called
“McSantos”. He invested P12,000 cash and eqyuipment,
P5,000.
Debit Credit

Cash P12,000 M. Santos, Capital P17,000

Equipment P 5,000

Analysis:
1. The assets and the proprietorship are affected.
2. The onwer put in the business cash and equipment,
thus increasing the assets and increasing the
proprietorship.
 ILLUSTRATION:
Transaction 2
Sept. 13 -He purchased kitchen utensils, tools
and additional equipment from Kent Trading on
credit, P2,000.
Debit Credit
Tools & Equipment P2000 Accounts Payable P2000

Analysis:
1. The assets and the liabilities are affected.
2. Assets, tools and equipment, are purchased by the
owner on credit basis, thus increasing the assets and
liabilities of the business.
 ILLUSTRATION:
Transaction 3
Sept. 15 - Paid for advertisement announcing the
opening of his business, P500.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 4
Sept. 17 - Paid one-half of the account due to
Kent Trading.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 5
Sept. 19 - Rendered a catering service to E. Cinco
for her son’s wedding and received cash of P 3,500.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 6
Sept. 20 - Paid for the Food Supplies used in
Cinco’s wedding party, P1,500.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 7
Sept. 22 - Billed J. Estrada, P15,000 for catering
rendered in his birthday party.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 8
Sept. 24 - Paid the salary of assistant cook,
P1,000.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 9
Sept. 24 - Received from J. Estrada (trans.#7) the
amount of 10,000 as partial payment of the account
due from him.
Debit Credit

Analysis:
1.
2.
 ILLUSTRATION:
Transaction 10
Sept. 26 - Withdraw P3,000 for his personal use.

Debit Credit

Analysis:
1.
2.
Assignments:
The folloiwng are the transactions of E. Cinco, owner of TapFive
Printing Services, for the month of December 2022.

1. E. Cinco invested cash P30,000 and computer worth 20,000.

2. Purchased supplies for cash 10,000.
3. Purchased a computer table on credit from G-store, P 4,500.
4. Received P 2,000 from various customers for photocopying
services rendered.
5. Sent bill to K. Garcia for typing services rendered, P 575.
6. Paid G-store Furniture the full amount due.
7. Received P300 from K. Garcia as partial payment of her
account.
8. Withdrew P3,000 for personal use.
9. Paid helper’s wages, P 350.
10. Received P 3,000 from L. Tapao for printing services rendered.