Business transactions of a Service Business and Journalizing the transactions in a two-column journal or general journal

Business transactions of a Service Business and Journalizing the transactions in a two-column journal or general journal 

Common business transactions which are involved in a Service Business of a Sole Proprietor :

• Initial Investment
• Changes in Assets
• Changes in Liabilities
• Changes in Capital
• Changes in Income
• Changes in Expenses
• Withdrawals of owners

Note that since each transaction has dual-effects, we can not avoid to show only one effect in one transaction and the two-fold effects will be discussed in each and every transactions.

Initial investment

The investment of the owner maybe in the form of cash or properties. 

When investment is in the form of cash, such capital must be recorded at the monetary value of cash. 

While, investments in non-cash form shall be valued at the fair market value of the non-cash asset.  PAS No. 16 defines that fair market value as the current amount by which an asset can be bought in the market. 

Illustrative example

• Assume that on June 1, 20x2, Alec A. Agustin set-up his own business which is engaged in trucking rental and services. He named his sole proprietorship business as  AAA Trucking Services Company...read more

Changes in Assets and Liabilities 

Changes in Assets happens when

• one form of asset is acquired through the use of another form of asset, or 
• increase or decrease of asset is a result of business operation, or 
• loss of asset, etc.

While, changes in liabilities occurs when

• one form of liability is converted into another form of liability, or 
• increase in liability by means of borrowings or unpaid bills, or
• decrease in liability through payments, cancellation of liability by the creditor, etc.

Following are illustrative examples of changes in assets and liabilities:

Increase in Asset and Decrease in Asset

• On June 3, 20x2, AAA Trucking Services Company bought for P890,000.00 cash a  Toyota Innova to be used as company service vehicle...read more

• On June 4, 20x2, AAA Company received cash, P250,000.00, for the sale of its old delivery truck used in the business...read more

• 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...read more 

• On June 21, 20x2, AAA Trucking Services Company sold a used 3-in-1 printer, P1,500.00 to Emy Cruz which she promised to pay at the end of the month...read more 

Increase in Asset and  Increase in Liability

• 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...read more 

Decrease in Liability and Decrease in Asset 

• On June 29, 20x2, AAA Trucking Services Company paid cash, P15,000.00 to BS Accounting Firm in full payment of AAA account with BS...read more

Changes in Capital, Income and Expenses

Changes in Capital arises from the following:

• Initial investment or capital
• Additional investment or capital contribution
• Income Transactions (increases capital)
• Expense Transactions (decreases capital)
• Withdrawal of owners

Increase in Asset and Increase in Capital (thru Increase in Income)

• On June 20, 20x2, AAA Trucking Services Company received cash, P45,000.00, from a customer for the 10-day use of its delivery truck ... read more

• On June 18, 20x2, AAA Trucking Services Company presented Bill No. 8888, P280,000.00 to Angel Martin Cakes and Ice Cream Company, a customer, for the delivery and trucking services rendered by AAA which the customer promised to pay in 15 days...read more 

• On June, 8, 20x2, AAA Trucking Services Company sent a bill, P15,000.00, to KES Engineering Services for the hire of delivery truck which they promised to pay on 20th of the month...read more

Decrease in Capital (thru Increase in Expense) and Decrease in Asset 

• 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 AAA Co. uses to park its delivery trucks, covering the rental for the month, which AAA promises to pay at the end of the month...read more

• On June 25, 20x2, AAA Trucking Services Company received Bill No. 2222, in the amount of P15,000.00 from BS Accounting Firm, for the tax services rendered which it promised to pay at the end of month...read more

• On June 30, 20x2, AAA Trucking Services Company paid cash, P10,000.00, to B & M Property Group Company, in payment for the month on the rental of shop space occupied by AAA Co...read more

Increase in Asset and Increase in Capital (thru additional investment or contribution)

• On June 22, 20x2, AAA Company received cash from Alec A. Agustin, the proprietor, P100,000.00 as additional capital of the business...read more  

• On June 13, 20x2, AAA Company received a second hand elf truck worth P400,000.00 from Alec A. Agustin, the proprietor, for use in the business...read more

Withdrawals of Owner

Decrease in Capital (thru withdrawal by owner) and Decrease in Asset 

• On June 18, 20x2, Alec A. Agustin, the proprietor of AAA Trucking Services Company, took home a laptop worth P35,000.00 for personal his use...read more

• On June 27, 20x2, AAA Company gave P3,000.00 to Alec A. Agustin, the proprietor, for his personal use...read more