Solutions for Exercises on Value Received and Value Parted With - Part 1

Solutions for Exercises on Value Received and Value Parted With - Part 1

Exercises on Value Received and Value Parted With - Part 1

Exercises on Value Received and Value Parted With - Part 1

Transactions 
1.  Investment of money and computer set by the owner, Ms. Leni Esguerra

2.  Ms. Esguerra purchases tables and chairs on cash basis.

3.  Ms. Esguerra purchase a business vehicle on credit with downpayment using check

4.  Purchase of lot on credit (promissory notes) with downpayment

5.  Paid in cash the the purchased vehicle on credit

6.  Payment of promissory notes with interest

7.  Rendered services to customer on credit with downpayment

8.  Rendered services to customer on credit with dowpayment. Customer issued written promise to pay

9.  Collection of receivables

10.  Collection of promissory notes with interest

11.  Paid salaries to employees

12.  Payment of rent

13.  Withdrawal of cash by the owner for personal use

14.  Withdrawal of laptop by the owner for personal use

Required :

a.  What are the value received and value parted with for each transactions.
b.  What are the account title to be used for the value received and value parted with.
c.  What is the accounting element affected for the value received and value parted with.

Click here for the solution / answer

Summary of Common Forms of Values Received and Value Parted With

Summary of Common Forms of Values Received and Value Parted With

1. Thing of Value (maybe a form of money or property)

2. Hire of Services or Render of Services

3.  Use of Property

4.  Promise to Pay

5.  Cancellation of Promise to Pay

6.  Implied Promise to Safeguard Proprietary Interest

7.  Reduction of Responsibility to Safeguard Proprietary Interest

JE for Initial Investment or Capital Contribution of a Proprietor

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.  His initial investments are as follows:

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

Sample Business Transactions, its Analysis and their effects on Accounting Equation

Analyzing and accounting for business transactions

Analyzing and accounting for business transactions, one has to acquire ability to recognize the dual effects of each transaction has on the accounting equation.

In analyzing business transactions, the bookkeeper must have an ample knowledge of the varied forms of values in the business transaction. And, identify the form of values received and the form of the values parted with. Then, being able to assign the account title for that form of value received or parted with; know when to debit or credit the value received or parted with; and discern the effects of business transactions in the accounting elements.

In accounting business transactions, the main task of a bookkeeper is to be able to journalize entries--identify, measure and record the business transactions and events transpired during an accounting period. Before a bookkeeper can journalize entries, he must obtain skills in analyzing the transactions.

In bookkeeping, the ultimate aim in recording transactions and events is to group the amounts of every value of similar form in order to determine the total of each classified form of value for a particular length of time.

Each value is classified according to accounting elements, namely, assets, liabilities, equity, revenue and expenses. It is important to know when to classify the expenditure whether an asset or expense.

Also, it is important to know the effects of expenses in the capital and the effects of income in the capital.

In short, below is a list of knowledge a bookkeeper must bear in mind when analyzing and accounting for business transactions:

• Varied forms of values (received and parted with) in the business transactions
• Debit the value received and Credit the value parted with
• Account and Account Titles
• Effects of business transactions in the accounting elements and accounting equation
• Expenditure is either classified as an asset or as an expense
• Effects of expenses in the capital/proprietorship
• Effects of income in the capital/proprietorship
• Journalizing and Journal Entries
• Analyzing and Journalizing  

Matrix of Varied Forms of Values, Debit and Credit Rules

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

=======================


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

JE for Implied promise to safeguard the proprietary interest in consideration for money or property received

Implied promise to safeguard the proprietary interest in consideration for money or property received

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 Received

CREDIT 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

The finished journal entry of the above transaction

==================

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 Received

CREDIT 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.

The finished journal entry of the above transaction

JE for Cancellation of oral promise to pay is the value parted with in consideration for the money received

Cancellation of oral promise to pay is the value parted with in consideration for the money received

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 Received

CREDIT 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. 

The finished journal entry of the above transaction

JE for Cancellation of oral promise to pay is the value received in consideration for the money parted with

Cancellation of oral promise to pay is the value received in consideration for the money parted with

Illustrative example:

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.

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 6
When the value received is the cancellation of oral promise to pay a creditor, a liability is decreased.
Therefore, debit the creditor's account / liability account title 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  - cancellation of oral promise to pay
• What is the value parted with - money
• Assign the account title for the value received - Accounts Payable 
• Assign the account title for the value parted with - Cash
• What is the effect of the value received in the accounting equation - Decrease in Liability
• 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 29, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Accounts Payable  P15,000.00

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

 Credit the value parted with :  Cash   P15,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record payment of on-account tax services rendered by BS Accounting Firm.

The finished journal entry of the above transaction

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

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

An oral promise (from an individual or entity) to pay is the value received in exchange for the hire (or use) of the property

Illustrative example:

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.

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 3
When the value received is an oral promise to pay from a debtor, an asset is increased.
Therefore, debit the debtor's account / asset account title with the amount of increase. 

Rule 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.
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.

Step 2

Analyze the business transaction or economic event

• What is the value received  - oral promise to pay 
• What is the value parted with - hire or use of property
• Assign the account title for the value received - Accounts Receivable
• Assign the account title for the value parted with - Rental Income
• 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 - 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 8, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Accounts Receivable  P15,000.00  

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

 Credit the value parted with :  Rental Income  P15,000.00 

• Write the explanation of the transaction or events.

Brief Explanation: To record an oral promise to pay from KES for the use of delivery truck.

The finished journal entry of the above transaction

JE for An oral promise (by an individual or entity) to pay is the value parted with in consideration for the hire of services of another

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

Illustrative example:

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.

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 of services of another
• What is the value parted with - oral promise to pay
• Assign the account title for the value received - Professional Services 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 - 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 25, 20x2

• Record the debit with the amount of the value received

Debit the value received :
Professional Services Expense  P15,000.00

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

 Credit the value parted with :  Accounts Payable  P15,000.00  

• Write the explanation of the transaction or events.

Brief Explanation: To record on-account tax services rendered by BS Accounting Firm to AAA.

The finished journal entry of the above transaction

JE for An oral promise (from an individual or entity) is received in consideration for the hire of services by the entity

An oral promise (from an individual or entity) is received in consideration for the hire of services by the entity

Illustrative example:

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. 

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 3
When the value received is an oral promise to pay from a debtor, an asset is increased.
Therefore, debit the debtor's account / asset account title with the amount of increase.  

Rule 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.
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.

Step 2

Analyze the business transaction or economic event

• What is the value received  - oral promise to pay
• What is the value parted with - hire of services
• Assign the account title for the value received - Accounts Receivable
• Assign the account title for the value parted with - Service Income
• 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 - P280,000.00
• Measure the amount equivalent of the value parted with -  P280,000.00

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 :   Accounts Receivable   P280,000.00

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

 Credit the value parted with :  Service Income   P280,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record delivery and trucking services rendered to Angel Martin Cakes and Ice Cream.

The finished journal entry of the above transaction

JE for An oral promise (by an individual or entity) to pay is parted with in consideration for a thing of value received

An oral promise (by an individual or entity) to pay is parted with in consideration for a thing of value received

Illustrative example:

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. 

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 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 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  - a thing of value
• What is the value parted with - oral promise to pay 
• Assign the account title for the value received - Office Equipment
• Assign the account title for the value parted with - Accounts Payable 
• 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 Liability  
• Measure the amount equivalent of the value received - P9,800.00
• Measure the amount equivalent of the value parted with -  P9,800.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 11, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Office Equipment  P9,800.00

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

 Credit the value parted with :   Accounts Payable P9,800.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record acquisition of  L200 Epson printer.

The finished journal entry of the above transaction

JE for An oral promise (from an individual or entity) to pay is received in consideration for a thing of value parted with

An oral promise (from an individual or entity) to pay is received in consideration for a thing of value parted with

Illustrative example:

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. 

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 3
When the value received is an oral promise to from a debtor, an asset is increased.
Therefore, debit the debtor's account / asset account title with the amount of increase. 

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  - oral promise to pay
• What is the value parted with - a thing of value
• Assign the account title for the value received - Other Receivable 
• Assign the account title for the value parted with - Office Equipment
• 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 - P1,500.00
• Measure the amount equivalent of the value parted with -  P1,500.00  

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 21, 20x2

• Record the debit with the amount of the value received

Debit the value received :   Other Receivable  P1,500.00

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

 Credit the value parted with :  Office Equipment  P1,500.00  

• Write the explanation of the transaction or events.

Brief Explanation:  To record the sale of used 3-in-1 printer to Emy Cruz.

The finished journal entry of the above transaction

JE for Use of property, or hire of services, of another person is parted with in exchange for money received

Use of property, or hire of services, of another person is parted with in exchange for money received

Illustrative example for use or hire of property (owned by the company):

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 . 

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 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 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.   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.

Step 2

Analyze the business transaction or economic event

• What is the value received  - Money
• What is the value parted with - Use of (company) property
• Assign the account title for the value received - Cash
• Assign the account title for the value parted with - Rental Fee
• 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 - P45,000.00
• Measure the amount equivalent of the value parted with -  P45,000.00 

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 :  Cash  P45,000.00

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

 Credit the value parted with :  Rental Fee  P45,000.00 

• Write the explanation of the transaction or events.

Brief Explanation:  To record the cash receipt from a customer for the 10-day use of the company delivery truck. 

The finished journal entry of the above transaction

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Illustrative example for use or hire of services:

On June 5, 20x2, AAA Trucking Services Company received cash, P2,000.00, for the item-loading services rendered to a customer.

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 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 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.  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. 

Step 2

Analyze the business transaction or economic event

• What is the value received  - Money
• What is the value parted with - Hire of services
• Assign the account title for the value received - Cash
• Assign the account title for the value parted with - Service Income
• 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 - P2,000.00
• Measure the amount equivalent of the value parted with - P2,000.00 

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 5, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Cash  P2,000.00

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

 Credit the value parted with :  Service Income  P2,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record the cash receipt from a customer for item-loading services.

The finished journal entry of the above transaction