An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property

An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property of another

Illustrative example:

On June 20 20x2, AAA Trucking Services Company received a bill, P12,000.00, of Tenzai Real Estate & Development Company, owner of the big-sized lot which AAA. uses to park its delivery trucks, covering the rental for the month, which AAA promises to pay at the end of the month.  

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: hire or use of the property

• The value parted with by the company: oral promise to pay  

Explanation:

The value received by AAA Company is the use of big-sized lot of Tenzai.  In exchange, AAA Co. parted with its oral promise to pay.

Therefore, in this transaction, the value received is the use of the property of another entity and the value parted with is the oral promise to pay by the company.


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