MODULE II

Analyzing Business Transactions

Time Frame: 3 Hours

Introduction/Rationale

In accounting, the business is always assumed to be distinct and separate from its owner or
owners. Which means that the personal properties of the owner are different from the assets of the
business, liabilities of the business are different from his personal obligations, and the expense incurred
by the business are also different from his personal expenses. The transactions therefore entered into by
the owner in behalf of the business should be recorded in the books of the firm. The data that we record in
the accounting books are called transactions. As stated in Module I, not all transactions are given
accounting recognition. Only those transactions that are quantifiable or can be stated in terms of money
receive accounting recognition.

Specific Objectives

A t the end of the topic, the students should be able to:

• Interpret the transaction accounting equation and accounting equation.
• Identify, classify and analyze business transactions.
• Summarize routine transactions and prepare basic financial statements.

Business Transactions

The business operations give rise to business transactions. A business transaction is defined as an
exchange of values. One value is received in return for another value parted with. The term value, as used
in the definition, refers to a thing desirable with money’s worth. The thing of value maybe a form of
property (like land, building, a car, pencil, bond paper, ball pen, etc.) or a right and protection (such as
right to collect, franchise, copyright, etc.)

Transaction Equation: Value Received = Value Parted With

There are two values which must be considered in the analysis of a business transaction. These
two values reciprocate each other in terms of money measurement.

Summary of Service Transactions Analysis

1. Investment- transfer of anything personal to the business

Value received: Name of asset
Value given away: Right of ownership

2. Cash receipts- cash coming into the business

a. From a new client
Value received: Money
Value given away: Service rendered
 b. From a client previously billed
Value received: Money
Value given away: Right to collect

3. Cash payment- cash going out of the business

a. For the purchase of an asset
Value received: Name of the asset
Value given away: Money

b. For various services

Value received: Name of service received
Value given away Money

c. Old bill previously received

Value received: Promise to pay, oral or verbal
Value given away Money

4. Sale of services
a. For cash
Value received: Money
Value given away Service rendered

b. On credit/ account
Value received: Right to collect
Value given away: Service rendered

5. Purchase of services/ asset

a. For cash
Value received: Name of asset/service
Value given away: Money

b. On credit/account
Value received: Name of asset/service
Value given away: Promise to pay, oral or verbal

6. Withdrawal- anything business taken out for personal reasons, including the rendition of free
services for personal reasons.
Value received: Right of ownership
Value given away Name of asset given away or service
rendered
Exercises:

1. The following transactions were completed by a business. Write Yes on the space provided therefore to
indicate if the reciprocal values are to be regarded, or write No if no reciprocal values are to be
considered.

a. Bought for cash a new car, P250,000 from the united Car Company to be used in
the business. _____
b. Hired the services of a stenographer at a monthly salary of P7,000._____
c. Sold for cash the old display cases used in the store, P1,000. _____
d. The proprietor promised to a friend that he would give a special discount to him
if he would buy all his household necessities from our store. _____
e. Paid the office and store payrolls, for the first half of the month, P50,000.
f. Engaged the services of Atty. Diana Villanueva to handle the case against a
delinquent customer for a fee of P3,000.____

g. Purchased for cash stationery and supplies, P920 from Jhamas Marketing._____
h. Received cash, P5,000 from a new tenant on the fourth floor of our building in
payment of three months’ rentals in advance.______
i. The business entered into a contract with the Bayombong Land Development
Co. to rent its building in Solano for use as a warehouse at a monthly
rental of P10,000_____
j. Received cash, P30,000, from the proprietor as additional capital._____

2. Indicate the value received and the value parted for each transaction below:

TRANSACTIONS VALUE RECEIVED VALUE PARTED WITH

1. The owner invested cash to start the
business.
2. Bought tables and chairs for cash.
3. Purchase repair supplies on credit.
4. Paid monthly rental for office space.
5. Borrowed money from the bank.
6. Issued a promissory note to creditor for
supplies bought .
7. Rendered services to various customers on
account.
8. Collected the account in No. 7.
9. Received miscellaneous bills.
10. Received cash from various customers
for services rendered to them.
11. Paid the account in No. 3.
12. Received promissory note from a
customer for service rendered to him.
13. Paid salary of employees.
14. The owner withdrew cash from the
business for personal use.
15. Returned defective supplies originally
bought for cash.

3. Give the value received and the value parted with in the following transactions completed by Colette
Cruz, owner of the Cruz Machine Shop, during the month of November, last year by using the following
format illustrated herein below;

Transaction No. Value Received Value Parted With

1. Purchased for cash one machinery from Manila Industrial Machinery Corporation, P200,000.
2. Paid the rent for the month, P6,000.
3. Received cash, P3,000 from Tim Makder as payment for renting our forklift.
4. Bought on account one welding machine, P12,000. from Asian Engineering Company,
5. Sold on account one old adding machine, P6,000, which is used in the business to Kim Tan.
6. Received a bill, P950 from Golden Taxicab Co. for the use of their taxi-cabs during the first week
of the month by our salesmen which we promised to pay on the 15 th.
7. Paid in full our account with Asian Engineering Company, P12,000.
8. Received cash, P12,500 from Mikko Buen in full payment of his account with us.
9. Sent our bill, P5,000 to Atlas Consolidated Mining and Development Company for the repair of
one of their machines, which they promised to pay on the 20th.
10. Paid in full our account with Golden Taxicab Co.
11. Received cash, P3,800 from Colgate-Palmolive (Philippines), Inc. for repairing their machine.
12. Paid the office and machine shop payrolls for the first half of the month, P31,000.
13. Purchased supplies, P2,600 from Allison Supply Co., which we promised to pay next week.
14. Collected in full the account of Atlas Consolidated Mining and Development Company, P5,000.
15. Purchased for cash gasoline, oils and greases, P750, used by our delivery truck.
16. Received a jeep, P90,000, from Collette Cruz as payment for the cost of overhauling our service
truck.
17. Paid cash, P5,000, to Mac Auto Repair Shop as payment for the cost of overhauling our service
truck.