SAN PEDRO COLLEGE

12 C. Guzman Street, 8000 Davao City, Philippines

Master of Arts in Hospital Administration

Third Trimester, SY 2019-2020

SEMINAR IN ACCOUNTING

LESSON 1 – ANALYZING & RECORDING BUSINESS TRANSACTIONS

FINANCIAL INFORMATION

Financial information is the means by which the economic health of a business is

measured. Accounting provides this information by a systematic and continuous process
to enable internal and external users to make decisions. No business can succeed
without this information.

ACCOUNTING PROCESS

Phases (Steps) in the Accounting Process:

1. Recording phase:
a. Analysis of the business documents or transactions
b. Journalizing the business documents or transactions
c. Posting the transactions from the journal to the ledger
2. Summarizing phase:
a. Preparing the preliminary trial balance
b. Preparing the adjusting entries
c. Preparing the financial statements
d. Preparing the closing entries
e. Preparing the post-closing trial balance
f. Preparing the reversing entries (optional)
RECORDING PHASE OF THE ACCOUNTING PROCESS

Analyzing Business Transactions from Source Documents

- is essential by determining the impact of quantifiable business transactions on the
elements (assets, liabilities, equity, income and expenses) of the financial
statements.

These business transactions must be supported with documents, such as, but not
limited to the following:
▪ sales invoice
▪ official receipt
▪ statement of account
▪ cash voucher
▪ deposit slip/ checks

Business transactions
- are exchanges of monetary values. This is represented by the following
equation following the double-entry system:
Value Received = Value Parted With

- are represented by accounts that enter into the preparation of the financial
statements.

Journalizing
- is the process of recording the business transactions to the appropriate journals
by using journal entries. The double-entry system and the principle of debit and
credit are to be followed during the recording process. A chart of accounts is a
summary of all account titles to be used to represent the business transactions.

Journal (also known as the book of original entries)

- records the complete effect of a transaction in a chronological sequence.
- locates the errors because debit and credit amounts for each entry can be
readily compared.

Types of Journals:
• General journal
• Special (Sales, Purchases/ Voucher Register, Cash Receipts, Cash
Disbursements) journals
- for repetitive transactions to reduce time spend in recording
transactions.

Types of Journal Entries

• Simple journal entry – means one debit entry and one credit entry.
• Compound journal entry – means two or more debit entries and credit
entries.

Principle of Debit and Credit

- means that an account must either have a debit (left side) or credit (right
side).

The normal balance of an account is based on the basic accounting equation

which is basically expressed as:

Assets = Liabilities + Equity

Normal balances of the accounts

Debit Credit
• Asset Yes
• Liability Yes
• Equity Yes
• Income Yes
• Expenses Yes
 Chart of Accounts (sample):

Assets:
Cash
Trade Receivables
Non-trade Receivables
Inventories
Prepayments
Land
Building
Machinery and Equipment
Furniture and Fixtures
Liabilities:
Trade Payables
Non-trade Payables
Accruals
Equity (for corporation):
Share Capital
Share Premium
Retained Earnings
Income:
Service Revenues
Sales
Expenses:
Cost of Services/ Sales
Selling Expenses
General and Administrative Expenses

Posting
- is the process of transferring the journal entries from the journal to the ledger.
Again, the double-entry system and the principle of debit and credit are still to be
maintained during the process.

Ledger (also known as the book of final entries)

- records the transactions from the journal to the ledger

Types of Ledgers:
• General ledger
• Subsidiary (Cash, Receivables, Inventories, Payables) ledger
- to store details of certain general ledger accounts
QUIZ – ANALYZING & RECORDING BUSINESS TRANSACTIONS

Multiple Choice:
1. The basic accounting equation may not be expressed as:
a. Assets – owner’s equity = liabilities
b. Assets – liabilities = owner’s equity
c. Assets = liabilities + owner’s equity
d. None of these

2. Assets:
a. Are claims of the owners of the business
b. Are resources that provide future economic benefits
c. Are obligations of an entity
d. Are also called capital

3. Which of these events cannot be recorded as an business accounting transaction?

a. Election of a new set of board of directors
b. Purchase of a new computer
c. Sale of store equipment
d. Payment of income taxes

4. The list of accounts maintained by a company is called the:

a. Chart of accounts
b. General ledger
c. General journal
d. Trial balance

5. A chart of accounts usually starts with:

a. Assets accounts
b. Expense accounts
c. Liability accounts
d. Revenue accounts

6. The left hand side of an account refers to the:

a. Credit side
b. Debit side
c. Increase side
d. Decrease side

7. Credit is not the normal balance for which account listed below?
a. Capital
b. Accounts payable
c. Cash
d. Loans payable

8. The book that shows a chronological record of the entity’s transactions is the:
a. Journal
b. Ledger
c. Trial balance
d. Worksheet

9. Which will not be included in the income statement?

a. Revenues
b. Expenses
c. Net profit
d. Owner’s equity

10. Which of the following shows the correct sequence of steps in the recording process?
a. Posting, journalizing, analyzing
b. Journalizing, analyzing, posting
c. Analyzing, posting, journalizing
d. Analyzing, journalizing, posting

11. A journal provides:

a. The balances for each account
 b. Information about a transaction in several different places
c. A list of all accounts used in the business
d. A record of transactions in date order

12. After a business transaction has been analyzed and entered in the book of original entry,
the next step in the recording process is to transfer the information in the:
a. Trial balance
b. Journal
c. Ledger accounts
d. Financial statements

13. Which of the following steps in the accounting process is not required to be performed?
a. Preparation of journal entries
b. Preparation of adjusting entries
c. Preparation of closing entries
d. Preparation of reversing entries

14. The difference between the revenues and expenses is:

a. Gross income
b. Net profit
c. Owner’s capital
d. Net assets

15. Debiting an asset account will cause it to:

a. Increase
b. Decrease
c. Remain unchanged
d. None of these

Identification:
Indicate the account type (Asset, Liability, Equity, Income, or Expense) and the normal
balance (Debit or Credit) of each of the accounts on the space provided below.

Account Type Normal Balance

Sample:
Cash Asset Debit

1. Accounts payable ___________ _______

2. Rent expense ___________ _______
3. Laboratory equipment ___________ _______
4. Professional fees income ___________ _______
5. Salaries expense ___________ _______
6. Prepaid rent ___________ _______
7. Income tax payable ___________ _______
8. Fuel and oil expense ___________ _______
9. Clinic supplies inventory ___________ _______
10. Share premium ___________ _______
CASE ANALYSIS

Case 1
After briefly reading the introductory material in this course,
1. What is the relevance of accounting in your present work?
2. What are the financial reports that are usually prepared in your unit/section/
department?
3. Do you believe that these financial reports serve the needs of your organization as a
whole?

Case 2
Dr. Richards bought some recliners and treatment tables out of the cash he invested in his
clinic business. His bookkeeper, Nathan, said that this business transaction increases his
asset and decreases his capital. Agree or not? Why?

Case 3
The bookkeeper of Siga Mata Optical Clinic, Ms. Lina, is complaining about the volume of
transactions which she usually records daily in a general journal. She often has to render
overtime work at night because, in the morning, she also has to work as secretary of the
clinic’s manager. What accounting advice can you give to her?