CHAPTER 5:

Journalizing
Transactions
1st Step of the Accounting Process
 CHAPTER 5
LEARNING OBJECTIVES:
1. Understand that by knowing the source documents as the first sequential
step, we would be able to determine the value received and value parted
with, leading to the journalizing process;

2. Know what are the books of accounts, the use of a General Journal and a
General Ledger;

3. Find out that the charts are the same with the accounts that are found in
the General Ledger;

4. Increase our learning through the illustrative Problem: Laundry Services

wherein we would be able to see the actual Journalizing procedures and
the correction of an erroneous journal entry.
PURCHASE ORDER
The 1st document
that Davao Laundry
Services that should
fill-up in placing
orders.
 CHARGE INVOICE
In the 2ND document,
SM City-Davao, the
supplier, issued a charge
invoice to Davao Laundry
Services. The charge
invoice showed that Mr.
Severo Santos
acknowledged to have
received the goods.
CHECK

A check is always accompanied by a check voucher when making

payments of whatever nature. Check No. 73411 that appeared in the face of
the check was typewritten at the right top most portion of the check
voucher. top
CHECK VOUCHER or Cash Voucher

This is the 4th document to be issued

by Davao Laundry Services which is
attached for every payment made by
a check. This is the source of entry
in the Cash Disbursements Journal
as it bears the check number and the
explanation as to what payment the
check is intended for.
OFFICIAL RECEIPT

This is the fifth

document to be
prepared by SM
City- Davao
acknowledging to
have received
payments from
Davao Laundry
Services.
SOURCE DOCUMENTS:
The actual sequence of events begins with the identification of transactions. The
basis of identifying transactions are the supporting business documents that are on
the file or yet to be filed as evidence of transactions to assure the reliability and
verifiability of records.
Journal Entry:
Buyer on account Laundry Supplies …... ₱ 35,000.00
Accounts Payable … …………………. ₱ 35,000.00
To record purchase of
detergent & fabric conditioner
on Account from SM City – Davao.
Payor - Davao Laundry Services made
a partial payment to SM City.

Journal Entry:
Accounts Payable …….. ₱ 25,000.00
Cash in Bank…………….. ₱ 25,000.00
To record partial payment
to SM City – Davao.
Other Business Documents:
Service Invoice - gives evidence that a service has been rendered to a client. Information as
to the name and address of the client, date of service, kind of work done, amount due, mode of
payment and other particulars are provided in this documents.

Promissory Note - is a written promise signed by the maker to pay the payee a certain
sum of money at a fixed or determinable future time.

Bacolod City, Phils. Date:_________

₱_________________

For value received, I promise to pay __________________________ the sum of ____________________

____________________ pesos, on or before ______________, 20__ with interest at ___ % per annum.

_________________
Maker
Other Business Documents:
Statement of Account - it is bill a presented by a creditor for unpaid accounts due for
payment.

Deposit Slip - supports a transaction involving deposit of money in a bank.

Sales Invoice - supports a transaction involving sale of assets. Information as to name

and address of buyer as well as seller, date, amount, terms of sale, and other particulars are
provided in this documents. A Sales Invoice from the seller’s point of view becomes the
Purchase Invoice from the buyer’s point of view.
FIFTH AND THE LAST
ACCOUNTINGBASIS
ACCRUAL ASSUMPTION called
as
ASSUMPTION
Chapter 2 page 33

Five ( 5 ) Basic Accounting Assumptions:

1. Accounting Entity or Separate Legal Entity
2. Going – Concern
3. Time – period Assumption
4. Unit of Measure
5. Accrual Basis Assumption
 Cash versus Accrual Basis of
Recording Income and Expenses
CASH BASIS - income is recorded only when cash is actually
received. Likewise, expenses are only recorded when actually paid.

Cash Receipts
-there is no recognition of an Accounts Receivable for
income earned when not yet collected

Cash Disbursement
-no recognition of Accounts Payable for the expenses
incurred when not yet paid.

ACCRUAL BASIS on the other hand, records income even cash is

not received yet for as long as it is earned. Likewise, expenses are
recorded even no payment has been made yet as long as they are
incurred.
 SINGLE-ENTRY VERSUS
DOUBLE ENTRY SYSTEM OF
BOOKKEEPING
Single-entry bookkeeping system
usually used by small business enterprises. Only
transactions involving cash and personal accounts are
recognized.

Double-entry system of bookkeeping

recognizes the two field of a transaction; the value
received, and the value parted with. This justifies the
equality of debit and credit amounts.
Because of the two-fold effects recognition, both sides of the
fundamental equation will always be equal. They are in the
state of equilibrium.
Book of Accounts
Records that are used and kept by the business in
storing all of the accounting data

These books are with ready or prepared design to

fit the need of the business and also to provide
convenience for the accountants in pursuing the
primary objective of accounting which is
communication through the Financial Statements.
TWO SETS OF BOOKS USED BY THE BUSINESS

1. BOOK OF ORIGINAL ENTRY is called JOURNAL

- it is in this book where transactions are recorded for the
first time.
Two kinds of JOURNAL:
a. GENERAL JOURNAL
b. SPECIAL JOURNAL

2. BOOK OF FINAL ENTRY is called LEDGER

- It is in this book where transactions that were recorded
in the Journal are transferred for final recording.
GENERAL JOURNAL
DATE COLUMN
- shows the date when the transactions took place.

PARTICULARS
- shows the item or the accounts debited and credited as a result of
transaction analysis as well as a brief or concise explanation of what the
transaction is about.

FOLIO
- shows the number of an account in a ledger or page of a ledger to which
it was transferred. Folio is the Latin word for page. It is also called a
reference.

DEBIT COLUMN
- this is a money column showing the peso amount of the value received
in a transaction.

CREDIT COLUMN
- this is a money column showing the peso amount of the value parted in a
transaction.
RECORDING PROCESS

RECORDING
-the first phase of Accounting.
-involves writing down the business transactions in a systematic
and chronological manner.

JOURNALIZING
-the act of recording business transactions in the Journal.
-the first step of accounting process.
A Journal Entry may be SIMPLE or COMPOUND
Simple Journal Entry - has the presence of one debit with it's
debit amount and also one credit with it's credit amount.

Compound Journal Entry - one that may have one debit item and two
or more credit items; or may have two or more items on both sides.
General Ledger
can be formed in two ways; loose leaf or book bound form.
This book groups the accounts with the same kind, class or
nature. For this reason, a ledger is also called group of
accounts.

In determining the amount balances of an account in an

expedient manner, a general ledger in it's skeleton form or
what we call T-ACCOUNT is used. The use of T-account is
usually the same with the normal ledger, the only difference is
that the columns for folio and particulars are eliminated.
 GENERAL LEDGER:
a. to be used under manual accounting system

b. to be used under computer-based accounting system

At the end of every accounting period, the debit and credit entries of it's account in the ledger are
totaled. If the debit side is bigger that the credit side, the difference in amount is called DEBIT
BALANCE. On the other hand, if the credit side is bigger that the debit side, the difference amount is
called CREDIT BALANCE. And if both totals of debit and credit are equal, it is said to be
IN-BALANCE or CLOSED ACCOUNT.

T – ACCOUNT - it is a skeleton form of a ledger.

A general ledger has two sides; the left side or also known as
debit side and the right side which is called the credit side;
Each side has the columns for the following:

Date Column - shows the date of the transaction that

occurred as recorded in the journal.

Particulars - shows a brief concise explanation of the

transaction as presented in the Journal. Also called
Explanation, Description or Item.

Folio - shows the page number of a Journal where entries

are taken from.

Money Columns - the debit money column shows the

amounts that are transferred from debit money column while
the credit money column shows the amounts that are
transferred from the credit money columns.
 PROCEDURES IN
FILLING-UP A GENERAL
JOURNAL
1. The Date Column is divided into two sub-columns.
Enter in the first sub-column the amount and the year.
The year is written in small figures above the month in the
same space of the first line. In each leaf of a journal, the
year and the month is written in the front page but not
repeated in the back page.

Enter in in the second sub-column the date when the

transactions occurred.
2. The Particulars Column
after analyzing the transaction and have ably
determined the value received and the value parted with
as well, record this transaction in a form of Journal Entry.
Enter the debit item on the first line with transaction date
and the corresponding peso amount in the debit money
column. The credit item is intended with a reasonable
distance from the column of the debit item.

An indention is made and then enters the credit items

which will also be in block form in case of two or more
items are credited.
 A complete journal entry should have an
explanation. It must state briefly but concisely the
nature of the transaction. The first word of the
explanation should be intended with a reasonable
distance from the first letter of the account or item
credited. It usually worded “To record…”
To illustrate:
the transaction is:
“Bought a car on account, P800,000”

The explanation would be,

“To record car bought on account”
3. Leave a vacant space before recording the next
transaction. Write only the date in the second
sub-column of the date column and the same
procedure is followed.

Remember the following indentions made in

preparing the Journal Entry:
a. The credit item is indented from the debit item.
b. The first word of the explanation is indented from
the credit item.
Take note on how peso amounts were written in both debit
and credit money columns:

1. The money columns if the Journal provide the segregation

of digits for the million, thousands, hundreds, pesos and
centavos. These results to the following observations:

a. the use of comma for million and thousands and the decimal
point for the centavos are eliminated;
b. The use od peso (P) is also eliminated because the debit and
credit columns are understood to be money columns and that
peso is used as its valuation;
c. the use of the “dash” (-) indicates that there is no centavos in
the amount. The “double-zero” may also be used.
 An Opening Entry
The first entry made in the general journal is
called an Opening Entry. This constitute
either the recording of the initial investments of
a proprietor who is engaged in the business for
the first time or recording of the beginning
balances of accounts in preparation for the next
annual accounting period.
 CHART OF ACCOUNTS
-it is a list of account titles that are prepared beforehand
to guide the bookkeeper and accountant of what specific
titles are to be used in describing the exchanges of values
in a transaction.

It shows account titles which are arranged in this order:

ASSETS, LIABILITIES, OWNER’S EQUITY, INCOME
and EXPENSES. If a transaction involves an account title
which is not included in a given chart, the bookkeeper
may create an account title that he thinks more
appropriate to use the exchanges of values.
Let’s do it!
March 1 – Mr. Severo Santos opens a current account with
Allied Banking Corporation in the amount of P850,000 to
start with his laundry shop business under the trade name
Davao Laundry Services.

March 2 – Purchased laundry supplies on account,

P90,000 from the following suppliers:
SM City – Davao P35,000
Gaisano Mall P25,000
NCCC Mall P30,000
Total Payable P90,000
March 3 – Purchase of laundry machine for cash,
P150,000
March 4 – Rendered laundry services on account,
P80,000 to the following customers:
Apo View Hotel P5,000
Grand Men Seng Hotel P35,000
The Marco Polo Hotel P30,000
Royal Mandaya Hotel P10,000
Total Receivable P80,000
March 10 - Paid taxes and licenses to government, P4000.

March 12 – Mr. Santos withdrew P10,000 cash from the

business for his personal uses.

March 17 – The business borrowed money from Allied

Banking Corporation, P100,000 by issuing a 15- day note. It
was deposited to the account of Davao Laundry Services by
way of a credit Memorandum issued by the bank.

March 17 – The bank issued a debit memo, P1,000for

interest and bank charges.
March 21 – Received cash of P45,000
representing collection from the following
customer’s account:
Grand Men Seng Hotel P30,000
The Marco Polo Hotel 10,000
Royal Mandaya Hotel 5,000
Total Collection P45,0000
March 25 – Partial payment of accounts, P60,000 to
the following suppliers:
SM City Davao P 25,000
Gaisano Mall 20,000
NCCC Mall 15,000
Total Payable P 60,000

March 30 – Mr. Severo Santos hired an accountant/

manager for his business as he has plenty of things to
attain to at P10,000 per month affective April , 20A.
March 30 – the following expenses were paid by
Davao Laundry Services for the month of March
20A:
Space rental P 5,000
Telephone, light & water 12,000
Salaries of Employees 10,000
Total Expenses Paid P 27,000
 Correction of erroneous entry
Always remember:
Neatness in recording transactions must be observed. Various erasures especially in the
Journal lead to suspicions that there are manipulations done to cover-up some fraudulent
and dishonest practices. Although these may be honest mistakes, erasures destroy neatness
of records and impair their values.
Correction of errors in the Journal depends upon the following circumstances:
1. When the error was immediately discovered prior to posting of entries to the ledger.
Correction can be made by drawing a single line through the wrong account or wrong
amount and writing the correct account or amount above the cancelled one.
Example: Bought a computer on account , ₱50,000.00.

Wrong Entry Made: Office Supplies Expense ……………. ₱ 5,000.00

in the Journal Accounts Payable ……………………………. ₱ 5,000.00
To Correct:
Office Equipment 50,000.00
Office Supplies Expense ……………. ₱ 5,000.00
50,000.00
Accounts Payable ……………………………. ₱ 5,000.00
NOTE: Place a counter sign on the correction made.
Correction of erroneous entry
2. By preparing a CORRECTING JOURNAL ENTRY if the error was committed right after
posting to the ledger has been done and the impossibility of crashing over the entry is
very evident and clear.
Prepare three (3) columns for:
Wrong Entry Made - ( WEM) This is done already but erroneous in Account Title or in
amount or it could be both.
Should Be Entry - (SBE) This should be the entry to be made.

Correcting Entry – (CE) Compare the WEM vs SBE, and make the correction.
Tips on how to correct, base your correction on SBE:
1. if the account is not needed but recorded, delete or eliminate, by simple reversing
2. if the account is not recorded, but needed then record it correctly.
3. if the amount is understated, then add the difference.
4. if the amount is overstated, then deduct the difference.
5. if the account and amount is properly recorded, then leave it as is.
6. Remember : In Journal entry the Debit and Credit are always EQUAL,
so observe this in your three columns.

Examples below:
1. It was discovered that collection of ₱550.00 from
customer on account was recorded and posted as debit
Accounts Payable and credit Accounts Receivable, ₱550.00 .
Analysis:
Wrong Entry Made Accounts Payable ……………………… ₱550.00
Accounts Receivable ………. ₱550.00

Should Be Entry
Cash ………………………………………… 550.00
Accounts Receivable ………. 550.00

Correcting Entry
Cash ………………………………………… 550.00
Accounts Payable ……………………… 550.00

Reasoning: Since Accounts receivable was rightly credited, there is no need to correct (T5) .
There should have been no debit to Accounts Payable , hence it should be eliminated (T1) .
Cash is the correct account to be debited, hence, set it up by debiting it (T2).
 Errors involving erroneous amounts.
2. It was discovered that cash sales of ₱ 8,500.00 was recorded and posted as debit
Cash and Credit Sales , ₱ 8,550.00
Analysis:
Wrong Entry Made Cash …………………………………..…… ₱8,550.00
Sales……………………….………. ₱8,550.00

Should Be Entry
Cash …………………………………..…… 8,500.00
Sales……………………….………. 8,500.00

Correcting Entry
Sales …………………………………………… 50.00
Cash ………………………………… 50.00

Reasoning: The account titles were correctly debited and credited, respectively. However, the
correct amount is ₱8,500.00 instead it was recorded and posted ₱8,550.00. Since , Cash and Sales
were both overstated, reduce Cash amount, being a debit, by crediting ₱ 50.00 and reduce Sales
amount , being a credit , by debiting ₱ 50.00 . (T4)
 Errors involving erroneous account titles and erroneous amounts.
3. It was discovered that purchased of office supplies on account for ₱3,520.00
was recorded and posted as debit Office Supplies and credit Cash ₱3,250.00.
Analysis:
Wrong Entry Made Office Supplies …………………………. ₱3,250.00
Cash……………………….………. ₱3,250.00

Should Be Entry
Office Supplies …………………………… 3,520.00
Accounts Payable ……………. 3,520.00
Correcting Entry
Cash …………………………………………….. 3,250.00
Office Supplies …………………………… 270.00
Accounts Payable …………… 3,520.00
Reasoning: The debit Office Supplies should be ₱3,520.00 and not ₱3,250.00, so it is
understated by ₱270.00 , it is necessary that it will be debited by the same amount (T3).
Cash is not the correct account title to be credited, hence , it should be eliminated by
debiting it to the same amount (T1). Accounts Payable of ₱3,520.00 is the correct credit,
hence, it should be set up in the correcting entry (T2).
 Errors involving erroneous account titles and erroneous
amounts.
3. It was discovered that the return of defective office supplies of ₱1,000.00 originally
purchased in cash was recorded and posted as debit Accounts Payable and credit
Office Furniture of ₱ 100.00.
Analysis:
Wrong Entry Made Accounts Payable …………………………. ₱ 100.00
Office Furniture……………………….………. ₱ 100.00

Should Be Entry
Cash …………………………….…………… 1,000.00
Office Supplies……………. 1,000.00
Correcting Entry
Cash …………………………………………….. 1,000.00
Office Furniture …………………………… 100.00
Office Supplies …………….…… 1,000.00
Accounts Payable …………….. 100.00

Reasoning: The account titles used and the amounts are both erroneous, the Accounts Payable
and Office Furniture, hence these should be eliminated by reversing (T1). However, the
SBE was not recorded , hence, it should be set up in the correcting entry (T2).
Hope you understand
and
learned our lesson today