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

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

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

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

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

Illustrative example for use of property of another person or entity:

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. 

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 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  - use of property (shop space)
• What is the value parted with - money
• Assign the account title for the value received - Rent Expense 
• 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 - P10,000.00
• Measure the amount equivalent of the value parted with -  P10,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 30, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Rent Expense P10,000.00

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

 Credit the value parted with :  Cash  P10,000.00 

• Write the explanation of the transaction or events.

Brief Explanation: To record payment of shop space rental for the month of June 20x2.

The finished journal entry of the above transaction

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

Illustrative example for hire of services of another person or entity:

On June 24, 20x2, AAA Trucking Services Company paid cash P7,000.00, to Rep-Car Auto Repair Shop for the minor repair 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 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 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  - Use or hire of services
• What is the value parted with - Money
• Assign the account title for the value received - Repairs and Maintenance Expense
• 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 - P7,000.00
• Measure the amount equivalent of the value parted with -  P7,000.00  

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 24, 20x2

• Record the debit with the amount of the value received

Debit the value received :
Repairs and Maintenance Expense   P7,000.00

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

 Credit the value parted with :  Cash  P7,000.00

• Write the explanation of the transaction or events.

Brief Explanation:
To record payment for repairs of a delivery truck.

The finished journal entry of the above transaction

JE for A form of property is parted with in exchange for money received

A form of property is parted with in exchange for money received

Illustrative example:

On June 4, 20x2, AAA Company received cash, P250,000.00, for the sale of its old delivery truck used 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 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  - Money
• What is the value parted with - Form of property - Old Delivery Truck
• Assign the account title for the value received - Cash
• Assign the account title for the value parted with - Delivery Truck
• 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 - P250,000.00
• Measure the amount equivalent of the value parted with - P250,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 3, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Cash  P250,000.00

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

 Credit the value parted with :  Delivery Truck  P250,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record the sale of old delivery truck.

The finished journal entry of the above transaction.

JE for A form of property is received in exchange for money parted with

A form of property is received in exchange for money parted with

Illustrative example:

On June 3, 20x2, AAA Trucking Services Company bought for P890,000.00 cash a Toyota Innova to be used as company service vehicle.

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 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  - Toyota Innova
• What is the value parted with - Money
• Assign the account title for the value received - Service Vehicle
• Assign the account title for the value parted with - Cash
• 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 - P890,000.00
• Measure the amount equivalent of the value parted with - P890,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 3, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Service Vehicle   P890,000.00

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

 Credit the value parted with :   Cash  P890,000.00

• Write the explanation of the transaction or events.

Brief Explanation: 

To record the acquisition of Toyota Innova for company use.

The finished journal entry of the above transaction

Let's ANALYZE and JOURNALIZE…

When to Journalize 

Journalizing begins when an event or transaction took place.

When a source document is received or prepared, the staff prepares a voucher (such as check voucher, cash voucher, petty cash voucher, journal voucher, sales voucher, purchase voucher, and similar documents).

Or, when sales transaction happened, the staff prepares and issues sales invoice and/or official receipts.


How to record the business transaction or events


Step 1

Remember the debit and credit guiding principle. 

DEBIT the Value Received

CREDIT the Value Parted With 

Discern which debit and credit rules applies to the transactions or events.

Step 2

Analyze the business transaction or economic event

• Identify the value received

In other words, answer the question what is the value received. 

• Identify the value parted with 

In other words, answer the question what is the value parted with. 

• Assign the account title for the value received

Meaning, look at the chart of accounts of the company and identify the assigned account title appropriate for the value received.

Say, a coin, a paper money, a cheque, a bank draft.  All of these items belong to the cash and cash equivalent account. So, the account title to be used is cash and cash equivalent.

• Assign the account title for the value parted with

Meaning, look at the chart of accounts of the company and identify the assigned account title appropriate for the value parted with.

• What is the effect of the value received in the accounting equation 

Answer the question: What is the effect of the value received in the assets, liabilities or equity

• What is the effect of the value parted with in the accounting equation

Answer the question: What is the effect of the value parted with in the assets, liabilities or equity

• Measure the amount equivalent of the value received

The amount equivalent is normally the value of money given away in exchange of the acquired thing of value.  See Measurement concepts and principles.

• Measure the amount equivalent of the value parted with

See above explanation

Step 3

Record the journal entry

• Record the date of the transaction

• Record the debit with the amount of the value received

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

• Write the explanation of the transaction or events.

Click here to read illustrative examples in applying the above procedures in analyzing and recording business transactions and events. 

Effects of Business Transactions in the assets, liabilities and capital accounts

Effects of Business Transactions in the Assets, Liabilities and Equity 

Remember that a business transaction is exchange of values.  These values are reciprocal to each other and they are the agents which bring about the effects in the assets, liabilities and capital accounts.

Note that in analyzing business transactions or events it is important not just identifying the values received and parted with and discerning its monetary measurement, but also determining their connections with, or relations to the changes or effects that will lead to or result in the state, position or condition of the assets, liabilities and capital accounts.

Meaning, the bookkeeper must also determine the changes or effects in the accounts. These changes or effects may be an increase or decrease to an accounting element, to wit:

• Increase in an Asset and Increase in a Liability

• Decrease in a Liability and Decrease in an Asset

• Increase in an Asset and Decrease in Another Asset

• Increase in an Asset and Increase in Capital

Illustrations for these effects will be discussed in the next topics/articles. Revisit the discussions on the value received and value parted with to study the recording and JEs of the example transactions.  

DEBIT the Value Received and CREDIT the Value Parted With

Remember, that in accrual model of accounting, there's the debit and credit sides in a business transaction or events.  It is crucial that in recording we know what and when to debit or to credit the items or values in business transactions or events.

Following are the rules for recording journal entries (which are alternatively known as 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 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.


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 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.


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.


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 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


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 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.


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.

Always remember:

 Basic guiding principle in recording JEs : 

DEBIT the Value Received and 

CREDIT the Value Parted With

See illustrative matrix / chart