Illustrative example for money received:
On June 22, 20x2, AAA Company received cash from Alec A. Agustin, the proprietor, P100,000.00 as additional capital of the business.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 7
When the value parted with is the implied promise to safeguard the owner's interest, the capital or proprietorship account is increased.
Therefore, debit the capital / proprietorship account with the amount of increase
Step 2
Analyze the business transaction or economic event
- What is the value received - money
- What is the value parted with - implied promise to safeguard proprietary interest
- Assign the account title for the value received - Cash
- Assign the account title for the value parted with - Capital, A.A. Agustin
- 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 Capital
- Measure the amount equivalent of the value received - P100,000.00
- Measure the amount equivalent of the value parted with - P100,000.00
Step 3
Record the journal entry
- Record the date of the transaction
Date of transaction: June 22, 20x2
- Record the debit with the amount of the value received
Debit the value received : Cash P100,000.00
- Record the credit with the amount of the value parted with
Credit the value parted with : Capital, A.A. Agustin P100,000.00
- Write the explanation of the transaction or events.
Brief Explanation: To record additional cash capital from the proprietor, A.A. Agustin
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Illustrative example for property received:
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.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 7
When the value parted with is the implied promise to safeguard the owner's interest, the capital or proprietorship account is increased.
Therefore, debit the capital / proprietorship account with the amount of increase
Step 2
Analyze the business transaction or economic event
- What is the value received - property
- What is the value parted with - implied promise to safeguard proprietary interest
- Assign the account title for the value received - Delivery Truck
- Assign the account title for the value parted with - Capital, A.A. Agustin
- 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 Capital
- Measure the amount equivalent of the value received - P400,000.00
- Measure the amount equivalent of the value parted with - P400,000.00
Step 3
Record the journal entry
- Record the date of the transaction
Date of transaction: June 13, 20x2
- Record the debit with the amount of the value received
Debit the value received : Delivery Truck P400,000.00
- Record the credit with the amount of the value parted with
Credit the value parted with : Capital, A.A. Agustin P400,000.00
- Write the explanation of the transaction or events.
Brief Explanation: To record additional capital from the proprietor, A.A. Agustin in the form of Second Hand Elf Delivery Truck.
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