Business Registration

Contemplating to establish and register a business?

Here are few concepts you need to know:

1. Know your business entity as to ownership and where to register the business.

• Sole Proprietorship - register at Department of Trade and Industry (DTI) 
• Partnership - register at Securities and Exchange Commission (SEC)
• Corporation - register at Securities and Exchange Commission (SEC)

DTI Registration Steps:  

1. Get a business application registration form either from downloading it from DTI website or DTI Office near you.
2. Fill-up the business application registration form. 
3. Submit duly accomplished registration form to the DTI office near you. 
4. Wait for your application to be called.
5. Once called, you will be asked of simple questions relating to the business.
6. Once questions are answered, DTI personnel will direct you to the cashier.
7. Pay the application fee and documentary stamps.
8. Get your DTI Business Registration Certificate.

SEC Registration Steps:

1. Reserve a Corporate Name.
2. Obtain SEC forms relating to application of new business. These are the cover sheet, articles of incorporation, by-laws, etc.
3. Accomplish the SEC forms.
4. Have the SEC forms notarized by a notary public.
5. Deposit an amount equivalent to 25% of the 25% of authorized capital stock thru TIT Account.
6. Obtain Bank Certificate.
7. Submit to SEC the Corporate Name Reservation, Cover Sheet, Notarized Articles of Incorporation and By-laws, Bank Certificate, Treasurer's Affidavit of Deposit 
8. Pay the registration fees and documentary stamps.
9. Present the receipt to the SEC personnel who you submitted the documents.
10. Claim the SEC Certificate Registration at the due date to be given.   

2.  Obtain Business Permit at the City or Municipality you are going to operate.

a.  Obtain Barangay Clearance,
b.  Submit the Barangay Clearance and xerox copies of your approved SEC papers and other requirements* to the City Hall.
c.  Pay required fees and documentary stamps for the application of business permit.
d.  Claim the business plate and mayor's permit on due date.
* Requirements depend on the nature/industry of business. Example are zonal clearances, fire, safety and environmental clearances, etc. For complete lists of requirements, inquire or get a list copy of requirements from City Hall. 

3. Register the business at BIR office in your district.

a.  Submit copies SEC papers and business/mayor's permit and other required documents (if any) to BIR office in your area.
b.  Pay application fees and documentary stamps
c.  Claim when due.
d.  Obtain Books of Accounts and Official Receipts.


Note:  Above are the basic steps.  Take note that there are some business applications which needs to submit additional requirements depending on the nature or industry of the business. When this happens just ask the government agencies/office concerned for the additional requirement.

Prepayments

As the prefix "pre" implies which means advance. Prepayments is advance payments.

Prepayments is advance payments of business expenses which expire through use, consumption or passage of time.

Prepayments may be initially recorded as prepaid assets or prepaid expenses.

Expiration of prepayments happens day-to-day and slowly. And, prepayments' expiration is impractical or unnecessary to record daily recurring entries. That's why its adjustments is recorded before the preparation of financial statements.

Example of business expenses which are prepaid are insurance, rentals, supplies, advertising, etc.

Methods of recording prepayments

Prepayments maybe recorded either of the following:

• Asset Method

• Expense Method

Adjusting Entries

After the preparation of unadjusted trial balance is the recording of internal events in the general journal and the posting to the ledgers.

These transactions do not involve exchanges with other entities, thus are not initiated by source document.

These transactions are recorded at the end of accounting period before the preparation of financial statements.

These transactions are the so-called adjusting entries. These entries are made to implement the accrual accounting model which means these entries satisfy the revenue recognition and matching principle.

Adjusting Entries help ensure that all revenues earned during the period are recognized in that period regardless when the cash is received.  Also, they enable the entity to recognize all expenses incurred during a period, regardless when cash is paid.

Consequently, the Income Statement of the period reflects a more complete picture of the company's performance.  The Statement of Financial Position presents a more complete assessment of assets and liabilities.

Adjusting Entries maybe thought of as a method of bringing the financial information of the entity up-to-date before preparing the financial statements.

The following are the basic adjusting entries:

• Prepayments or deferrals

• Precollections

• Accruals

• Estimates (depreciation and amortization, estimated uncollectible accounts)  

• Ending Inventories, if applicable         

Researched by

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

Nature of a Service or Servicing Business

Sole Proprietorship

A sole proprietorship business is registered at Department of Trade and Industry or DTI (for Philippines only).  A person contemplating to register a sole proprietorship has to accomplish a DTI Business Name Application Form and submit such form to DTI office and pays the corresponding registration fees and documentary stamps. Then, claim on the date due the Business Name Certification from DTI.

Service or Servicing Business

Entities engaged in providing services for a profit is said to be in a Service Business or Servicing Business.

The primary product this business sells is the "services" it offers. Service Business has no physical product to sell to clients or customers.  Those in this business normally perform or render services which aim to assist or facilitate the work of their clients or customers in exchange for a fee.

Small service business examples are laundry shop, barber shop, beauty parlor, repair shop, etc.

For big servicing business examples are law firms, accounting firms, transportation service, educational institutions, financial institutions, etc.

Operating Cycle of a Service Business

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

DTI Business Name Application Form

Dti Business Name Application Form Sole Prop Source: http://dtincr.ph/downloads.php

How to Apply for DTI Business Name Registration:

1. Download the application form here : http://dtincr.ph/downloads.php

2.  Accomplish the form

3. Submit to a DTI office and pay corresponding fee

4. Claim the DTI Certification

Source Document Sample : Check

The image is a sample of a check.

Normally, it is more convenient for business owners to issue checks when paying for safer transactions and easy tracking of transactions relating to disbursements.

A check is a draft upon a bank and it is payable on demand, signed by the maker (drawer), containing an unconditional promise to pay a certain sum of money to the order of the payee.

Source Document Sample : Official Receipts

Official Receipt is a document which serves as an evidence or proof of payment.  When, a company issues official receipt, the company acknowledges that it received money in exchange of the good it sold or service it rendered. 

This is an example of manual Official Receipt.

While, this is an example of machine-generated Official Receipt.

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  

Information Needed in Starting Bookkeeping

The purpose of recording business transactions and events is to determine the outcome of the operations of the company for a certain length of time.

The business transactions and events transpired during a certain period may cause increases and decreases in the capital account.

The diverse and various business affairs and activities mostly revolved around the capital account.

Business performance may result to profit which consequently increases capital.

Or, operations may result to losses which subsequently decreases capital.

In order to determine if there are increases or decreases in capital, there's must be a starting point where to compare or there must be a basis of comparison.  Such basis is the initial capital invested by the proprietor at the beginning.

Thus, it is necessary to determine the capital at the time the accounting records started.

There are three instances where a bookkeeper may ascertain or establish the capital at the time of starting a set of bookkeeping and accounting records.

First Instance

The business owner invests a certain amount of cash, such cash is his capital.  Say, if the proprietor puts in P1,000,000.00 cash in his business, the capital of the owner is also the same amount, the P1,000,000.00.  

Second Instance    

The business had already been in operations and may have accumulated various assets in the past. 

For example, the owner has already accumulated the below assets in his business which had already been in operations in the past. 

The capital of the proprietor is the total values of all the assets above, which amounts to P5,080,000.00.

Third Instance

Matrix of Varied Forms of Values, Debit and Credit Rules

Income and its Effect in Capital (Proprietorship)

Most of the time, when income is mentioned in accounting, it refers to the gross revenue the company generates.

Income increases a capital account. But, note that not all increases in capital account is an income account. Initial capital and additional contribution likewise increases the capital or equity.

Income increase a capital when such income is recognized as having been earned. See realization principle.

Though income increases capital account, the capital account should not be directly used or be credited when recording an income.  It is the proper revenue account which must be credited to record an income. So, for every type of revenue, a distinct account title must be assigned.  For examples, see  revenue elements.

Expenses and its Effects in the Capital (Proprietorship)

In carrying and managing the business operations, expenses are necessary in order to make profit.

Remember that net income or loss is a component of capital or equity account.

Implicitly, incurrence of expenses decreases a capital account because in order to compute for the net income or loss, the expenses are deducted from the revenue.  However, such deduction of expenses from revenues is not shown in the capital or equity section of the statement of financial position but is shown in the income statement, hence, the capital account is not used to debit expenses.

So, when expenses are incurred, the capital account is not the direct account to be used or to be debited but the appropriate expense account itself.  Various account title for expenses must be created for different types of expenses. Remember to assign one account title for a group of similar values.  The proper expense account must be debited whenever an expense is recorded.

Examples of different types of expenses are the following:

• Supplies expense
• Utilities expense
• Insurance expense
• Rent expense
• Delivery expense
• Transportation expense
• Advertising expense
• Repairs and Maintenance expense
• Salaries expense
• Wages expense

Expenditure - When an Asset? When an Expense

Expenditure is an act of disbursing cash or incurring an obligation to pay (liability) for a benefit received.

Expenditure is a complete act when there's an immediate disbursement of cash for a benefit received.

In some instances, when a company is short of cash, the expenditure is not immediately accompanied by a cash disbursement, instead, the company promises to pay the cost of benefit in some future time.

Note, that even if there's no immediate cash payment the act is still an expenditure because the benefit is received.  The subsequent payment does not result to another benefit or expenditure, just that the cash disbursement has been deferred or postponed and payment merely complements the act.

The benefit received may be a tangible or intangible form.

The benefits in tangible form are those can be seen which means those with physical or constructive forms. Examples are building, ink, pencil, truck. Notice, these benefits has color, size or form.

While, the benefits in intangible form are those which can not be seen like franchise, trademark, copyright, etc.

To determine when an expenditure is an asset or expense depends as to the length of time or when the benefit received will last.

The expenditure is classified an asset when the benefits received will last for a long period of time.

Conversely, the expenditure is classified as an expense when the benefits received last for a short time period.

Long means lasting for more than a year, in contrast to short time which is less than one year.

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