JE for Reduction of its responsibility to safeguard the proprietary interest in consideration for money or property parted with

Reduction of its responsibility to safeguard the proprietary interest in consideration for money or property parted with

Illustrative example for money parted with:

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

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 8
When the value received is the implied reduction of responsibility to safeguard the owner's interest, the capital / proprietorship account is decreased.
Therefore, debit the capital / proprietorship account with the amount of decrease. 

Rule 2
When the value parted with is a thing of value, an asset is decreased.  Therefore, credit the asset account title of that thing of value with the amount of decrease.

Step 2

Analyze the business transaction or economic event

• What is the value received  - reduction of responsibility to safeguard proprietary interest
• What is the value parted with - money
• Assign the account title for the value received - Drawing, A.A. Agustin 
• Assign the account title for the value parted with - Cash
• 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 - Decrease in Asset
• Measure the amount equivalent of the value received - P3,000.00
• Measure the amount equivalent of the value parted with -  P3,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 27, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Drawing, A.A. Agustin   P3,000.00

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

 Credit the value parted with :  Cash   P3,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record the proprietor's cash withdrawal of capital

The finished journal entry of the above transaction

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Illustrative example for property parted with:

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.

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 8
When the value received is the implied reduction of responsibility to safeguard the owner's interest, the capital / proprietorship account is decreased.
Therefore, debit the capital / proprietorship account with the amount of decrease. 

Rule 2
When the value parted with is a thing of value, an asset is decreased.  Therefore, credit the asset account title of that thing of value with the amount of decrease. 

Step 2

Analyze the business transaction or economic event

• What is the value received  -  reduction of responsibility to safeguard proprietary interest
• What is the value parted with - property
• Assign the account title for the value received -  Drawing, A.A. Agustin
• Assign the account title for the value parted with - Office Equipment
• 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 - Decrease in Asset
• Measure the amount equivalent of the value received - P35,000.00
• Measure the amount equivalent of the value parted with - P35,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 18, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Drawing, A.A. Agustin  P35,000.00

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

 Credit the value parted with :  Office Equipment  P35,000.00

• Write the explanation of the transaction or events.

Brief Explanation: To record the proprietor's withdrawal of capital

The finished journal entry of the above transaction