JE for An oral promise (by an individual or entity) to pay is parted with in consideration for a thing of value received

An oral promise (by an individual or entity) to pay is parted with in consideration for a thing of value received

Illustrative example:

On June 23, 20x2, AAA Company bought a brand new L200 Epson printer, P9,800.00  which the company promised to pay in 10 days. 

How to record the above transaction

Step 1

Remember the guiding principle. 

DEBIT the Value Received

CREDIT the Value Parted With 

Applicable debit and credit rules 

Rule 1
When the value received is a thing of value, an asset is increased.
Therefore, debit the asset account title of that thing of value with the amount of increase. 

Rule 5
When the value parted with is an oral promise to pay a creditor, a liability is increased.
Therefore, credit the creditor's account / liability account title with the amount of increase.

Step 2

Analyze the business transaction or economic event

• What is the value received  - a thing of value
• What is the value parted with - oral promise to pay 
• Assign the account title for the value received - Office Equipment
• Assign the account title for the value parted with - Accounts Payable 
• What is the effect of the value received in the accounting equation - Increase in Asset
• What is the effect of the value parted with in the accounting equation - Increase in Liability  
• Measure the amount equivalent of the value received - P9,800.00
• Measure the amount equivalent of the value parted with -  P9,800.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 11, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Office Equipment  P9,800.00

• Record the credit with the amount of the value parted with

 Credit the value parted with :   Accounts Payable P9,800.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record acquisition of  L200 Epson printer.

The finished journal entry of the above transaction