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.How to record the above transaction
Step 1
Remember the guiding principle.
DEBIT the Value ReceivedCREDIT 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 4
When the value parted with is the cancellation of debtor's promise to pay, an asset is decreased.
Therefore, credit the debtor's account / asset account title with the amount of decrease.
Step 2
Analyze the business transaction or economic event
- What is the value received - money
- What is the value parted with - cancellation of oral to promise to pay
- Assign the account title for the value received - Cash
- Assign the account title for the value parted with - Accounts Receivable
- 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 - Decrease in Asset
- Measure the amount equivalent of the value received - P15,000.00
- Measure the amount equivalent of the value parted with - P15,000.00
Step 3
Record the journal entry
- Record the date of the transaction
Date of transaction: June 19, 20x2
- Record the debit with the amount of the value received
Debit the value received : Cash P15,000.00
- Record the credit with the amount of the value parted with
Credit the value parted with : Accounts Receivable P15,000.00
- Write the explanation of the transaction or events.
Brief Explanation: To record payment of receivable from KES.
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