Cancellation of oral promise to pay is the value parted with in consideration for the money received

Cancellation of oral promise to pay is the value parted with in consideration for the money received

Illustrative example:

On June 19, 20x2, AAA Trucking Services Company received P15,000.00 cash from KES Engineering Services, as full payment of their account with AAA. 

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: money

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

Explanation:

The value received by AAA Company is the money.  In exchange, AAA Co. parted with is the cancellation or deletion of debt (oral promise to pay) of KES.

Therefore, in this transaction, the value received is the money and the value parted with is the cancellation of oral promise to pay.


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