Quarter 3, Week 6

Learning Activity Sheets 5 (LAS_5, Qtr. 3)

for FABM 1 Grade 11

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT 1

ACTIVITY SHEET 5

The Two Major Type of Accounts: Journal & Ledger

I. Learning Competency with Code

• Illustrate the two major types of accounts, namely, journal and ledger.
(ABM_FABM11-IIIf-23)
• Illustrate the format of a general and subsidiary ledger
(ABM_FABM11-IIIf-24)

II. Activity Proper

Accounting is the process of IDENTIFYING, RECORDING, and

COMMUNICATING economic events of an organization to interested users.

From the definition, where do we record the transactions that we have

identified? What are the tools that we use to document these transactions?
How important are these records in accounting?

Activity 1: The Two major types of books: journal & ledger

JOURNAL

A journal is an accounting book wherein business transactions are

recorded for the first time. It is called book of original entry. There are
different kinds of journal. They are purchases journal, sales journal, cash
receipts journal, cash payments journal and the general journal. The number of
journals to be used depends on the size and needs of the business. A journal
may contain only one money column or two or more money columns. The
number of money columns in any journal is dependent upon the information to
be recorded therein. Journals may loose-leaf or book bound. The simplest form
of journal has only two money columns and may be used for recording all
transactions in chronological order. It is called the general journal (refer to the
sample below).

Date Description Post Debit Credit

2020 Ref.
Feb 2 Cash 1 0 0 0 -
¤ Sales 1 0 0 0 -
Cash sales for the day.

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 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.

Journalizing Process

The process of recording transactions in journal is call journalizing.

• 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 Post Ref. or Folio (which stands for Posting 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 Journal Entry

The record of the transaction or event is called the journal entry.

Literally, it is the entry of a transaction or event in the journal. In the double-
entry method, each entry is composed of two parts, namely, the debit and the
credit.

The two types of journal entries are:

1. Simple entry which contains one debit and one credit.
2. Compound entry which contains
a. One debit and two credits
b. Two or more debits and one credit
c. Two or more debits and two or more credits

Whether a simple entry or compound entry is to be used, it is optional on

the part of the recorder. Compounding entries should be used only for similar
transactions. For example, cash sales may be compounded, but an expense
cannot be compounded with sales.

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Advantages of the Journal
1. A complete record of transactions is provided in one place. The provision
for posting reference column, which contains the account number in the
ledger where the same information is recorded, facilities the re-
establishment and checking of any given transaction.
2. A chronological order of transactions and events is provided in one book.
3. The explanation given to each journal entry permits the omission of
repetitive explanation in the ledger.
4. The use of journal affords an easy check on the proper implementation of
the rules of debit and credit.
5. The journal facilitates the discovery of errors. This is in combination with
the ledger. In as much as the two records contain the same information,
a doubt on one may be resolved by referring to the other.

Illustrations

Illustration 5.1. Simple Entry

1. February 3, 2020 Mr. Huwan Reyes invested P50,000 in a restaurant

business by opening an account with BVC Bank.
2. February 5, 2020 purchased kitchen appliances for his business
amounting to P15,000, by paying cash.
3. February 6, 2020 started his operations a made a sale for that day
amounting to P5,000.

To record the above transactions in the general journal.

Date Description Post Debit Credit

2020 Ref.
Feb 3 Cash 5 0 0 0 0
¤ Huwan Reyes, Capital 5 0 0 0 0
To record investment of Mr.
Huwan Reyes.

5 Kitchen Appliances 1 5 0 0 0
Cash 1 5 0 0 0
To record purchase of Kitchen
appliances.

6 Cash 5 0 0 0
Sales 5 0 0 0
To record sales for the day.

Illustration 5.2. Compound Entry

February 10 – Mr. Reyes purchased a motorcycle costing P25,000. He pays

P15,000 cash and agrees to pay the remaining P10,000 on account.

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 Date Description PR Debit Credit
2020
Feb 10 Transportation Equipment 3 0 0 0 0
¤ Cash 1 5 0 0 0
Accounts Payable 1 0 0 0 0
To record purchased of motorcycle
by paying cash and the balance on
account.

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.

Take the case of our example above, if Mr. Reyes will record the sales per
day using the Official Receipt or Cash Sales Invoice issued, it would be
unnecessary and impractical to credit “sales” account repeatedly. 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)

Illustration 5.3 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 PR Debit Credit Credit Credit

• 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 PR (which stands for Posting 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.

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 • 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.

Illustration 5.4 Cash Disbursements Journal is the opposite of cash receipts

journal. It is the journal where all cash payments are recorded. The following
illustrate the format of a cash disbursement journal:

Cash Disbursements Journal

Date Description PR Check/ 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.
• 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.

Illustration 5.5 Sales Journal (on account).

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 as follows:
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 Sales Journal
Date Description PR Charge Debit Credit
(Customer Name) Invoice/
Accounts Sales
Sales
Invoice No. Receivable

• 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 Charge Invoice Number or Sales Invoice Number represents the
identifying number of the source document issued to the customer when
the sale was made.
• The Debit Accounts Receivable column represents the amount of the sale
transactions indicated in the charge invoice.
• 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.

Illustration 5.6 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 PR Charge Debit Credit
(Supplier’s Name) Invoice/ Sales Purchases Accounts
Invoice No.
(from Supplier) 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 Charge Invoice Number or Sales Invoice Number represents the
identifying number of the source document issued by the supplier when
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 the items, goods or merchandise were delivered to the company when the
purchase was made.
• The Debit Purchases column represents the amount of the goods
purchases as indicated in the charge invoice from the supplier.
• 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.

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’.

Two kinds of ledgers: The General Ledger & the Subsidiary Ledger.

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 general
ledger is shown as follows:

Illustration 5.7 General Ledger

General Ledger
Account: Cash Account No.: 1000
Date Item PR 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

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 is positive, the account has a debit balance whereas if it has a negative
running balance, the accounts had a credit balance.

Subsidiary Ledger

A 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.
An example of a subsidiary ledger is the individual record of various
payables to suppliers. The total amount of these subsidiary ledgers should
equal the balance in the Accounts Payable general ledger.

An example of a subsidiary is shown as follows:

Illustration 5.8 Subsidiary Ledger

Accounts Payable
Subsidiary Ledger

Vendor/Supplier: ABC Food Corp. Vendor No.: 101

Address: T.A. Fornier St., San Jose, Antique

Date Item PR 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.

Relationship Between the Journal and the Ledger

1. Information recorded in the ledger always comes from the journal.
2. Information in the journal is grouped according to transactions while in
the ledger, by accounts.

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 3. The journal is a book of original entry while the ledger is a book of final
entry.
4. The two records are crossed-referenced to each other by the use of the
posting reference.

Posting

The process of transferring to the ledger the same information recorded in

the journal is called posting. Debit entries in the journal are transferred to the
debit column of the pertinent account in the ledger and the credit entries are
transferred to the credit column of the proper account in the ledger. While there
is no fixed rule of the procedure in posting, it is well to bear in mind that to
minimize error, any procedure in posting, it is well to bear in mind that to
minimize error, any procedure selected should be followed consistently. The
following are as follows:

1. Locate the corresponding account in the ledger.

2. Transfer the entry from the journal to the ledger as follows:
a. Date (recording of dates is similar to that employed in the journal).
b. Explanation (optional)
c. Amount
3. Get the balance after each entry. Apply the rules of debits and credits
and the normal balance of each account.
4. Place the page of the journal where the information transferred is located
in the PR (Posting Reference) column of the ledger account.
5. Place the PR (Posting Reference) column of the journal the number of the
account in the ledger to which the posting is made.

The procedures presented should be followed for debits as well as for

credits. It is preferable to post the debit before the credit. A consistent
implementation of the above procedure should indicate that when the posting
reference column of the journal is filled, the posting of such item has been
completed.

Illustration 5.9 Posting

Transaction: On February 3, 2020 Mr. Huwan Reyes invested P50,000 in a

restaurant business by opening an account with BVC Bank.

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Activity 2: The theory of debit and credit

Theory of Debit & Credit

A theory to facilitate the recording of the effects of transactions on the

accounting equation had been developed. This is the theory of debit and credit.
This is discussed in relation to the accounting device called an account.

An account is an accounting device used in summarizing the changes in

the assets, liabilities, income and expenses due to the occurrence of business
transactions. The simplest form of the account is the T-account. It got its name
from its structure.

Debit and Credit Accounts

Assets represent value controlled or owned by the business. As assets are

acquired, values are received, thus further debits. Decrease in assets mean
values are given out, thus credits.

Liabilities are obligations to pay. These are values of promises given out,
thus the account is credited. When a liability is paid, the value of the promise
given out is reduced or reacquired, thus the account is debited.
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 Owner’s equity represents the right given by the business, thus a credit.
Whenever the owner invests some more, there are further credits to the
account. If the owner withdraws asset for personal use, the capital or owner’s
equity is reduced. But instead of debiting directly to the capital account, the
drawing account is debited.

Income or revenue are increase in the owner’s equity as a result of

business operations. Income represents services or goods given out, thus a
credit.

Expenses are decreases in owner’s equity as a result of profit directed

activities of the enterprise. It implies services received, thus debits.

Costs are decrease in owner’s equity resulting from acquisition of goods

that were sold. Costs like purchases presupposes goods received, thus debits.

A summary of the rules of the debits and credits normal balances are as
follows:

Account: Normal Balance Debit Credit

Asset Debit Increase Decrease

Drawing Debit Increase Decrease
Expenses Debit Increase Decrease
Income Credit Decrease Increase
Liability Credit Decrease Increase
Owner’s Equity
or Capital Credit Decrease Increase

Business transactions are analyzed on the view point of the business. If

the purchasing officer purchases equipment, it is actually the business that is
purchasing the equipment. Thus, record the transaction as a debit to
equipment and credit to cash.

Prepared by: Approved by:

NECCA T. PALCAT-BERIN SALVADOR J. SEMBRAN, PhD

Subject Teacher Asst. Principal - SHS

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 Learning Activity Sheets 5 (LAS_5, Qtr. 6)
for FABM 1 Grade 11

Name of Learner: ________________________________ Date: _______________

Grade & Section: _________________________ Score: ____________________

ACTIVITY SHEET 5
The Two Major Type of Accounts: Journal & Ledger

III. Exercises

Written Task 5.1

A. True or False. Direction: Write True if the answer is correct, and False if
otherwise.
______________ 1. A business activity is accountable once it has an effect on
assets, liabilities or capital.
______________ 2. Ledger is known as book of original entry.
______________ 3. Equity is equal to current assets less current liabilities.
______________ 4. An increase in asset may result to a decrease in another form
of an asset.
______________ 5. Debits means increases while credits means decreases.
______________ 6. The normal balances of assets, expenses and equity accounts
is credit.
______________ 7. The simplest form of an account is T-account.
______________ 8. Journal is known as book of final entry.
______________ 9. A simple entry consists of one debit and two credits.
______________ 10. The record of transaction or event is called a journal.

Performance Task 5.1

B. Classification. Direction: Classify the accounts, give the normal

balances.

Classification: Normal Balances:

A – Assets Dr - Debit
CA – Contra-Account Cr -Credit
L – Liabilities
OE – Owner’s Equity
I – Income
E – expense

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 Account Title Classification Normal Balances
1. Cash _____________ ________________
2. Service Income _____________ ________________
3. Taxes & Licenses _____________ ________________
4. Allowance for doubtful
Accounts _____________ ________________
5. Reyes, Capital _____________ ________________
6. Unearned Revenue _____________ ________________
7. Building _____________ ________________
8. Accumulated Depreciation _____________ ________________
9. Reyes, Drawing _____________ ________________
10. Salaries Expense _____________ ________________
11. Prepaid Rent _____________ ________________
12. Electricity Expense _____________ ________________
13. Advertising Expense _____________ ________________
14. Sales _____________ ________________
15. Loans Payable _____________ ________________

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