FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT 1
CHAPTER 9- BOOKS OF ACCOUNTS
Books of accounts- are the finance, records, ledgers and journals that compose the company’s accounts
Rules for Debit and credit
You debit to show: 1. Increase in assets
You credit to show: 1. Decrease in assets
2. Decrease in liabilities
2. Increase in liabilities
3. Decrease in owner’s equity
3. Increase in owner’s equity
- owner’s withdrawal
-initial investment
- expenses
-additional investment
- revenue/ income
JOURNAL
The Journal is referred to as the book of original entry. For each transaction the journal shows the debit and credit
effects on specific accounts. Serves as a check- and- balance tool of the company
Two types of Journal General Journal and Special Journal
1.GENERAL JOURNAL The general journal is the most basic journal. Typically, a general journal has spaces for
dates, account titles and explanations, references, and two amount columns.
The journal makes several significant contributions to the recording process:
• It discloses in one place the complete effects of a transaction.
• It provides a chronological record of transactions.
• It helps to prevent or locate errors because the debit and credit amounts for each entry can be easily compared.
General Journal
Date Account Title & Explanation
Ref
Debit
Credit
Journalizing process
Entering transaction data in the journal is known as journalizing. Companies make separate journal entries for each
transaction.
A complete entry consists of:
• The date of the transaction which is entered in the Date column.
• The debit account title (that is, the account to be debited) which is entered first at the extreme left margin of the
column headed “Account Titles and Explanation,” and the amount of the debit is recorded in the Debit column.
• The credit account title (that is, the account to be credited) which is indented and entered on the next line in the
column headed “Account Titles and Explanation,” and the amount of the credit is recorded in the Credit column.
• A brief explanation of the transaction which appears on the line below the credit account title. A space is left
between journal entries. The blank space separates individual journal entries and makes the entire journal easier to
read.
• The column titled Ref. (which stands for Reference)which is left blank when the journal entry is made. This
column is used later when the journal entries are transferred to the ledger accounts.
TIP: The total debits should always equal total credits
:The account title to be used in the column provided should coincide with the titles that are listed in the Chart of
Accounts.
:It is important to use correct and specific account titles in journalizing. The main criterion is that each title must
appropriately describe the content of the account.
Some entries involve only two accounts, one debit and one credit. An entry like these is considered a simple entry
Some transactions, however, require more than two accounts in journalizing. An entry that requires three or more
accounts is a compound entry.
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WORKSHEET_ a common tool and a summary device used by accountants to gather on a sheet of paper all the
information needed for the preparation of the financial statements- adjusting entries, closing entries and the post
closing trial balance
2.SPECIAL JOURNALS
Some businesses encounter voluminous quantities of similar and recurring transactions which may create congestion if
these transactions are recorded repeatedly in a single day or a month in the general journal. In order to facilitate
efficient and practical recording of similar and recurring transactions, a special journal is used.
The following are the commonly used special journals:
• Cash Receipts Journal – used to record all cash that has been received
• Cash Disbursements Journal – used to record all transactions involving cash payments
• Sales Journal (Sales on Account Journal) – used to record all sales on credit (on account)
• Purchase Journal (Purchase on Account Journal) – used to record all purchases of inventory on credit (or on
account)
Cash Receipts Journal is used to record transaction involving receipt or collection of cash. The following illustrate
the format of a cash receipts journal:
CASH RECEIPTS JOURNAL
Date
Description (Particulars)
REF
Debit
Cash
Credit
Sales
Credit
Accounts
Receivable
Credit
Sundry
(Note:)The format may vary depending on the nature of business and the frequency of transactions.
•The date of the transaction is entered in the date column.
• A brief explanation of the transaction is entered in the description column.
• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is made. This column
is used later when the journal entries are transferred to the ledger accounts.
• The Debit Cash column represents the amount of cash received for a particular transaction.
• Major categories of receipts, such as cash sales and collection of accounts receivable are provided with separate
columns. These transactions are frequent and repetitive items, therefore a separate column is provided.
• The column sundry is used for various miscellaneous and less regular items, such as capital investment, receipt of
loan proceeds, among others.
The source document for this journal is the Official Receipts or Cash Receipts issued by the business
Cash Disbursements Journal (CDJ) The cash disbursements journal is the opposite of the cash receipts journal.
It is the journal where all cash payments are recorded. An example of a cash disbursement journal is shown below
CASH DISBURSEMENT JOURNAL
Date Description
REF Check or Credit
Debit
Debit
Debit
Credit
(Particulars)
Voucher
Cash
Accounts
Salaries
Supplies
Sundry
no.
Payable
• The date of the transaction is entered in the date column.
• A brief explanation of the transaction is entered in the description column.
• The column titled Ref. (which stands for Reference) which is left blank when the journal entry is made. This column
is used later when the journal entries are transferred to the ledger accounts.
• The Check or Voucher number represents the identifying number of the check issued for the related cash payment.
Most of the time, a check or cash voucher accompanies the disbursement. The voucher number may be used as the
alternative for this column.
• The Debit Cash column represents the amount of cash received for a particular transaction.
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• Major categories of receipts, such cash sales and collection of accounts receivable are provided with separate
columns. These transactions are frequent and repetitive items, therefore a separate column is provided.
• The column sundry is used for various miscellaneous and less regular items, such as capital investment, receipt of
loan proceeds, among others.
The source documents used to update this journal are the check voucher or cash voucher, cash receipts or official
receipts from suppliers or vendors.
Sales Journal (Sales on Account Journal) The Sales Journal or Sales on Account Journal is used in recording several
sales transactions on account. The source document for this journal is the charge invoice or sales invoice (for credit
transactions) to various customers or clients. An example of a sales journal is shown below
SALES JOURNAL
Date
Description
(Customer P.R. Or Terms
Accounts
Sales
Output tax
Name)
Folio
Receivable
Credit
Credit
Debit
• The date of the transaction is entered in the date column.
• A brief explanation of the transaction is entered in the description column or the name of the customer.
•The column titled Ref. (which stands for Reference) which is left blank when the journal entry is made. This column
is used later when the journal entries are transferred to the ledger accounts
•The Posting Reference (PR) or Folio which is checked when the amount is posted to the subsidiary ledger
•Terms credit terms of the sales transaction
•The Debit Accounts Receivable column represents the amount of the sale transactions indicated in the charge invoice.
Amount collectible from customer due to sales made on account
•The Credit Sales column represents the amount of the sale transactions indicated in the charge invoice.
The source document for this journal is the Charge Invoice issued by the business. Sales price of merchandise sold
•The Credit Output tax- VAT applicable to the sales
Purchase Journal (Purchases on Account Journal) The Purchase journal or the Purchases on Account Journal is
used to record recurring transactions of purchases on account. The source documents for purchase journal are the
invoices from the supplier of the company. An example of a Purchase Journal is shown below:
PURCHASE JOURNAL
Date Description
(SUPPLIER’S REF Terms
Debit
Debit
Credit
Name)
Purchases
Input tax
Accounts
Payable
• The date of the transaction is entered in the date column.
• A brief explanation of the transaction is entered in the description column or the name of the supplier
•The column titled Ref. (which stands for Reference) which is left blank when the journal entry is made. This column
is used later when the journal entries are transferred to the ledger accounts.
•The Debit Purchases column represents the amount of the goods purchases as indicated in the charge invoice from
the supplier
•The debit Input tax VAT applicable to the purchases
• The Credit Accounts Payable column represents the amount of the goods or items purchased on credit from the
supplier. The amount is indicated in the charge invoice issued by the supplier.
The source document for this journal is the charge invoice from the supplier
Transactions that cannot be recorded in the special journals are recorded in the general journal. These transactions
are provision for doubtful accounts, write- offs of doubtful accounts, depreciation, non- cash investment and
withdrawal of owner, and issuance of a note in lieu of an account.
The following table shows the summary of transactions, accounts affected in terms of debit and credit, and the
special journal, general journal where the transactions are recorded.
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Owner’s Investment
Transactions
Accounts Affected
Debit
Cash investment only
Cash
Cash and non- cash asset Cash
investment
Asset account
Noncash
asset Asset account
investment only
Sale of Merchandise
Sales on cash
Cash
Accounts Receivable
Accounts Receivable
Sales with down payment Cash
and balance on account
Accounts Receivable
Sales with down payment
and receipt of a note for
the balance
Sales with down payment
and receipt of a note for
a certain amount and the
balance on account
Receipt of a note for the
sales
Receipt of a note for a
certain amount and the
balance on account
Receipt of payment for
the account
Receipt of payment for
the note
Receipt of payment for
the note and the account
Owner’s Withdrawal
Cash Withdrawal
Cash and non-cash asset
withdrawal
Fixed assets withdrawal
Merchandise withdrawal
Supplies withdrawal
Purchase of Merchandise
Purchases for cash
Purchases on account
Purchases with down
payment and the balance
on account
Purchases with down
payment and issuance of
a note for the balance
on accounts
Issuance of a note for a
certain amount and the
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Credit
Owner, Capital
Owner, Capital
Journal
Cash Receipts Journal
Cash Receipts Journal
Owner, Capital
General Journal
Sales
Sales
Sales
Sales on account
Sales Journal
Cash Receipts Journal
Cash
Notes Receivable
Sales
Cash Receipts Journal
Cash
Notes Receivable
Accounts Receivable
Sales
Cash Receipts Journal
Accounts Receivable
Notes Receivable
Accounts Receivable
Notes Receivable
Sales
Accounts Receivable
Sales
Accounts Receivable
Cash Receipts Journal
Cash
Accounts Receivable
Cash Receipts Journal
Cash
Notes Receivable
Cash Receipts Journal
Cash
Notes Receivable
Cash Receipts Journal
Owner, Drawing
Owner, Drawing
Cash
Cash
Asset account
Fixed Asset
Purchases
Supplies
Cash payments journal
Cash payments journal
Purchase
Purchase
Purchase
cash
Accounts payable
Cash
Accounts payable
Cash payments journal
Purchases journal
Cash payments journal
Purchases
Cash
Notes payable
Accounts payable
Cash payments journal
Purchases
Accounts payable
Accounts payable
Notes payable
Purchase journal
General journal
Owner, Drawing
Owner, Drawing
Owner, Drawing
General Journal
General journal
General journal
General journal
balance on account
Issuance of a note for the Purchases
purchase
Accounts payable
Payment of the account
Accounts payable
Payment of the note
Notes payable
Payment of the account Accounts payable
and the note
Notes payable
Purchase of Fixed assets or Supplies
Purchases for cash
Fixed assets/ Supplies
Purchases on account
Fixed assets/ Supplies
Accounts payable
Notes payable
Cash
Cash
Cash
Purchase journal
General journal
Cash payments journal
Cash payments journal
Cash payments journal
cash
Accounts payable
Cash payments journal
General journal
LEDGER
The ledger refers to the accounting book in which the accounts and their related amounts as recorded in the
journal are posted periodically. The ledger is also called the ‘book of final entry’ because all the balances in the
ledger are used in the preparation of financial statements. This is also referred to as the T-Account because the
basic form of a ledger is like the letter ‘T’.
POSTING- is the process of transferring information from the journal to the ledger
If an account ‘s total debit exceeds total credit, then the account ha s a debit balance. On the other hand, if the
total credit debit or credit exceeds total debit, then the account has a credit balance .
TRIAL BALANCE- is the schedule of all balances to prove the equality of the debit and credit. It is a listing of all
account titles with their respective debit or credit balances taken from the ledger.
There are two kinds of ledgers: General ledger and Subsidiary ledger
1.GENERAL LEDGER
The general ledger (commonly referred by accounting professionals as GL) is a grouping of all accounts used in the
preparation of financial statements. The GL is a controlling account because it summarizes all the activities that have
taken place as recorded in its subsidiary ledger. The format of a general ledger is shown below:
GENERAL LEDGER
Account:
Account No:
Date
Item
REF Debit
Credit
Balance
•The account portion refers to the account title for example: cash, accounts receivable.
•The account number is an assigned number for each account title to facilitate ease in recording and cross-referencing.
• The Date column identifies when the transaction happened.
• The item represents the source journal and the nature of the transactions
• The Reference identifies the page number of the general our special journal from which the information was taken.
• The Debit and Credit columns are used in recording the amount of transactions from the general journal or special
journal.
• The Balance Column represents the running balance of the Account after considering the debit and credit amounts. If
the running balance amount is positive, the account has a debit balance whereas if it has a negative running balance,
the accounts has a credit balance.
2.SUBSIDIARY LEDGER
- is a group of like accounts that contains the independent data of a specific general ledger. A subsidiary ledger is
created or maintained if individualized data is needed for a specific general ledger account.
- help in detecting errors and misstatements in posting of entries in the ledger
- provide an up-to-date information on the different individual account balances of customers in the accounts
receivable as well as, creditors in the accounts payable.
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COMMON TYPES OF SUBSIDIARY LEDGER
1.Accounts Receivable Ledger- is used mainly to track the individual accounts balances of the company’s customer.
It provides a running balance of each of the company’s customer on credit
2.Accounts Payable Ledger- provides a running balance of each of the company’s suppliers or creditors
An example of a subsidiary ledger is the individual record of various payable to suppliers. The total amount of these
subsidiary ledgers should equal the balance in the Accounts Payable general ledger.
An example of a subsidiary ledgers are shown below:
Accounts Payable
Subsidiary Ledger
Vendor/Supplier: Joy Food Corporation
Vendor No. 201
Address: Jose Sampaloc, Manila
Date
Item
Ref
Debit
Credit
Balance
•The upper portion indicates the name and address of the vendor or supplier.
•The vendor number is an assigned number for each vendor as reference in keeping the records of a supplier.
•The Date column identifies when the transaction happened.
• The description column describes the nature of transaction.
• The Reference identifies the page number of the general our special journal from which the information was taken.
• The Debit and Credit columns reflect the various effects of every transaction to the record of the supplier or vendor.
• The Balance column provides the running balance of every supplier.
Take note that the total running balance for all subsidiary ledgers should equal the Accounts payable general ledger.
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Name:_________________________________ Section: __________ Date:_______ Score:__________
ACTIVITY:
1-3 Prepayments
1.On July 31, 2016 Plush Co. Paid P49,200.00 amount of advanced office rentals for 6 months. Give the adjusting
journal entries on Dec. 31, 2016
2.On April 1, York Co. Paid P43, 200.00 amount of one year insurance for its factory. Give the adjusting journal entry
on December 31.
3. On May 31, Tee paid P93, 600.00 amount of one year rent for her apartment. Give the adjusting journal entry on
December 31
4-5Deferrals
4. On May 1. Dr.Man received P81,000.00 for medical fees to be rendered in the next 9 months. Give the adjusting
journal entry at the end of July
5. On Aug.31, 2016 Pee Com. Received P60,000.00 amount of advanced rentals for 6 months. Give the adjusting
journal entry on Dec. 31, 2016
6-7 Accrued Expenses
6. Workers salaries for the six-day week is P4, 800.00 payable every Saturday. December 31 is a Thursday
7. Water bill received December 26 in the amount of P890.00 will be paid on January 7 of the following year
8-9 Accrued Income
8. On November 16, Malunggay Co. Issued a 90-day, P120,000.00, 10% note. Record the interest due on the note at
the end of December 31
9. Squash Realty sold the house and lot of Ms. Sue Gapa for P25,000.00. According to their agreement. Squash Corp.
Is entitled to a 2% commission from Ms. Sue Gapa on the sale. As of December 31, Squash Corp. Has not received a
check for the commission from Ms. Sue Gapa. Record the accrual on the house and lot on the books of Squash Corp.
10. (Bad Debts Expense) Accounts Receivable has a balance of P78,000.00. It is estimated that 3% of this will be
uncollectible
11 -16(2 pts.each)Depreciation Expense
Given the ff. cases, prepare the adjusting journal entries on Dec. 31, 2016. Presented below are the non- current
assets of Garfield Company.
Acquisition Date
Property
Cost (p)
Salvage value (P)
Estimated life
Oct. 31, 2010
Building
20,000,000.00
1,500.000.00
20 years
June 15, 2012
Furniture
51,000.00
3,000.00
12 years
Sept. 1, 2016
machinery
108,000.00
8,000.00
20 years
Give the adjusting journal entries to record the depreciation expense for each property on Dec. 31, 2016. Show your
computation for each property in good form
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