JE for An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property

An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property of another

Illustrative example:

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.  

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 10
When the value received is the use, or hire, of others property or services, the capital / proprietorship account is decreased.
Therefore, debit the expense account title with the amount of decrease.
Note that income and expenses are implicit components of an equity account. That the net income or loss forms part of equity and to get the net income or loss, deduct expenses from revenue or income.  

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  - hire or use of the property
• What is the value parted with - oral promise to pay
• Assign the account title for the value received - Rent Expense
• Assign the account title for the value parted with - Accounts Payable
• What is the effect of the value received in the accounting equation - Decrease in Capital
• What is the effect of the value parted with in the accounting equation - Increase in Liability
• Measure the amount equivalent of the value received - P12,000.00
• Measure the amount equivalent of the value parted with -  P12,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 20, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Rent Expense P12,000.00

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

 Credit the value parted with :  Accounts Payable  P12,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record the use of parking space for delivery trucks which the company promises to pay at the end of the month.

The finished journal entry of the above transaction