LESSON 5: BOOK OF ACCOUNTS

Accounting is the process of identifying, recording, and communicating economic events of an

organization to interested users.
The two major types of books of accounts are journal and ledger.
I. JOURNAL
GATEWAY INTEGRATED SCHOOL A journal is a chronological record of all company’s transactions listed by date. It is often referred
OF SCIENCE AND TECHNOLOGY GEN. TRIAS CAMPUS to as the book of original entry. This is because we first record the business transaction in this book.
Sitio Tinungan Brgy. Manggahan Gen. Trias City Cavite The recording of financial information into the journal is known as the process of journalizing.
There are two types of journals, the general journal and the special journal.
A. GENERAL JOURNAL
Senior High School Department The general journal is the most basic journal. Typically, displays the transaction’s date, account
titles and explanations, references, and respective amounts of corresponding accounts.

Module 5 The journal makes several significant contributions to the recording process:
 It discloses in one place the complete effects of a transaction.
FUNDAMENTALS OF ACCOUNTANCY, 

It provides a chronological record of transactions.
It helps to prevent or locate errors because the debit and credit amounts for each entry
BUSINESS, AND MANAGEMENT 1 can be easily compared.
Shown below is an example of a general journal.

General Journal
Date Account Title and Explanation Ref Debit Credit

 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
Prepared by: left margin of the column headed “Account Titles and Explanation,” and the amount of the
MS. SHIRLY S. CAÑETE debit is recorded in the Debit column.
Subject Teacher  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.
Name of Student
 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
Grade Level and Section and makes the entire journal easier to read.

Date: ________________________

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  The Reference (Ref.) column which is left blank when the journal entry is made. This column b. Cash Disbursements Journal – used to record all transactions involving cash payments
is used later when the journal entries are transferred to the ledger accounts. c. Sales Journal (Sales on Account Journal) – used to record all sales on credit (on account)
To illustrate the recording of transactions in the general journal, let us use the following d. Purchase Journal (Purchase on Account Journal) – used to record all purchases of inventory on
transactions as an example: credit (or on account)
 September 1, 2018 Mr. Dan Ramos invested PHP500,000 in a restaurant business by Cash Receipts Journal
opening an account with SuperBank.
Cash Receipts Journal is used to record transaction involving receipt or collection of cash. The
 September 5, 2018 purchased kitchen appliances for his business amounting to following illustrate the format of a cash receipts journal:
PHP100,000 by issuing a check.
 September 6, 2018 started his operations a made a sales for that day amounting to Cash Receipts Journal
PHP20,000. Date Description (Particulars) Ref Debit Credit Credit Credit
We will now record the above transactions in the general journal. Cash Sales Account Sundry
Receivable
General Journal
Date Account Title and Explanation Ref Debit Credit
9/1/18 Cash 500,000
D. Ramos, Capital 500,000
Cash investment of Mr. Dan Ramos
9/5/18 Kitchen Appliances 100,000
Cash 100,000
 The date of the transaction is entered in the date column.
Purchase of kitchen appliances
9/6/18 Cash 20,000  A brief explanation of the transaction is entered in the description column.
Sales 20,000  The column titled Ref. (which stands for Reference) which is left blank when the journal entry
Sales for the day is made. This column is used later when the journal entries are transferred to the ledger
accounts.
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  The Debit Cash column represents the amount of cash received for a particular transaction.
journalizing. An entry that requires three or more accounts is a compound entry. All of the transactions  Major categories of receipts, such as cash sales and collection of accounts receivable are
in the above examples are simple entries. An example of a compound entry is the following: provided with separate columns. These transactions are frequent and repetitive items,
On September 7, 2018, Mr. Ramos purchased a motorcycle costing PHP80,000. He pays therefore a separate column is provided.
PHP30,000 cash and agrees to pay the remaining PHP50,000 on account (to be paid later). The  The column sundry is used for various miscellaneous and less regular items, such as capital
compound entry is as follows:
General Journal

A. SPECIAL JOURNALS Date Account Title and Explanation Ref Debit Credit
Some businesses encounter voluminous quantities of similar and recurring transactions which 9/7/18 Transportation Equipment 80,000
may create congestion if these transactions are recorded repeatedly in a single day or a month in the Cash 30,000
general journal. Take the case of our example above, if Mr. Ramos will record the sales per day using Accounts Payable 50,000
the Official Receipt or Cash Sales Invoice issued, it would be unnecessary and impractical to credit To record purchase of motorcycle by paying
“sales” account repeatedly. In order to facilitate efficient and practical recording of similar and cash and the balance on account
recurring transactions, a special journal is used. The following are the commonly used special journals:
investment, receipt of loan proceeds, among others.
a. Cash Receipts Journal – used to record all cash that has been received
The source document for this journal is the Official Receipts or Cash Receipts issued by the business.

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 Cash Disbursements Journal (CDJ)
Sales Journal
The cash disbursements journal is the opposite of the cash receipts journal. It is the Date Description (Customers Name) Ref Charge Invoice Debit Credit
journal where all cash payments are recorded. An example of a cash disbursement journal is or Sales Invoice Account Sales
shown below: No. Receivable
Cash Disbursements Journal
Date Description Ref Check or Credit Debit Debit Debit Credit
(Particulars) Voucher Cash Accounts Salaries Supplies Sundry
Number 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
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 date of the transaction is entered in the date column.
 The Charge Invoice Number or Sales Invoice Number represents the identifying number of the
 A brief explanation of the transaction is entered in the description column. source document issued to the customer when the sale was made.
 The column titled Ref. (which stands for Reference) which is left blank when the journal entry  The Debit Accounts Receivable column represents the amount of the sale transactions
is made. This column is used later when the journal entries are transferred to the ledger indicated in the charge invoice.
accounts.  The Credit Sales column represents the amount of the sale transactions indicated in the charge
 The Check or Voucher number represents the identifying number of the check issued for the invoice.
related cash payment. Most of the time, a check or cash voucher accompanies the The source document for this journal is the Charge Invoice issued by the business.
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. Purchase Journal (Purchases on Account Journal)
 Major categories of receipts, such cash sales and collection of accounts receivable are The Purchase journal or the Purchases on Account Journal is used to record recurring
provided with separate columns. These transactions are frequent and repetitive items, transactions of purchases on account. The source documents for purchase journal are the
therefore a separate column is provided. invoices from the supplier of the company. An example of a Purchase Journal is shown below:
 The column sundry is used for various miscellaneous and less regular items, such as capital
investment, receipt of loan proceeds, among others. Purchase Journal
The source documents used to update this journal are the check voucher or cash voucher, cash receipts Date Description Ref Charge Invoice or Sales Debit Credit
or official receipts from suppliers or vendors. (Supplier’s Name) Invoice No. Purchases Accounts
(from supplier) Payable

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:
 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

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  The column titled Ref. (which stands for Reference) which is left blank when the journal entry  The Debit and Credit columns are used in recording the amount of transactions from the
is made. This column is used later when the journal entries are transferred to the ledger general journal or special journal.
accounts.  The Balance Column represents the running balance of the Account after considering the
 The Charge Invoice Number or Sales Invoice Number represents the identifying number of the debit and credit amounts. If the running balance amount is positive, the account has a debit
source document issued by the supplier when the items, goods or merchandise were delivered balance whereas if it has a negative running balance, the accounts has a credit balance.
to the company when the purchase was made.
B. SUBSIDIARY LEDGER
 The Debit Purchases column represents the amount of the goods purchases as indicated in the
charge invoice from the supplier 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
 The Credit Accounts Payable column represents the amount of the goods or items purchased
needed for a specific general ledger account. An example of a subsidiary ledger is the
on credit from the supplier. The amount is indicated in the charge invoice issued by the
individual record of various payables to suppliers. The total amount of these subsidiary ledgers
supplier.
should equal the balance in the Accounts Payable general ledger.
The source document for this journal is the charge invoice from the supplier or vendor.
An example of a subsidiary ledgers are shown below:
II. LEDGER
The ledger refers to the accounting book in which the accounts and their related amounts as Accounts Payable
recorded in the journal are posted periodically. The ledger is also called the ‘book of final entry’ because Subsidiary Ledger
all the balances in the ledger are used in the preparation of financial statements. This is also referred Vendor/Supplier: Joy Food Corporation Vendor No.: 201
to as the T-Account because the basic form of a ledger is like the letter ‘T’. Address: Jose St., Sampaloc, Manila
There are two kinds of ledgers, namely; the general ledger and the subsidiary ledgers. Date Item Ref Debit Credit Balance

A. 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:
 The upper portion indicates the name and address of the vendor or supplier.
General Ledger  The vendor number is an assigned number for each vendor as reference in keeping the
Account: Cash Account No.: 1000 records of a supplier.
Date Item Ref Debit Credit Balance  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.
 The account portion refers to the account title for example: cash, accounts receivable. Take note that the total running balance for all subsidiary ledgers should equal the Accounts payable
 The account number is an assigned number for each account title to facilitate ease in general ledger.
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.

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ACTIVTY 5 ASSESSMENT 5
Krizel Company started its operation on January 1, 2015 by its owner, Edi. It manufactures and Multiple Choice: Choose the letter of the correct answer. Write your answer in a piece of paper.
sells house furniture including sala sets, dining tables, etc. The following transactions took place in 1. _________________ are the finance records, ledgers, and journals that compose the
January: company’s accounts.
Jan 1 Edi invested ₱280, 000 in cash. a. Cash Payments Journals c. Cash Receipts Journal
2 Krizel Company bought materials costing ₱20, 000 from Casey Inc. on account. b. Subsidiary Ledger d. Books of Accounts
5 Krizel Company borrowed ₱50 000 from Riley Bank through a Note Payable. 2. Which of the following is a purpose/use of the books of accounts?
7 Krizel Company sold goods to Summer Inc. at ₱100 000 on account. a. Proof of the business transactions reflected in the financial statements
15 Summer Inc. paid the ₱100 000 receivable of Krizel Company. b. Analysis of a company performance
c. Ensuring regulatory compliance of the company
Match the contents of the General Journal to its correct position in the journal. Choose the correct d. All of the above
answer from the box below the General Journal. 3. Which of the following statements about the general journal is true?
a. Provides a chronological record of the company’s transactions
General Journal b. Involves the transferring of journal entries to the ledger accounts
c. Displays the transactions’ date, account titles and explanations, and outstanding
Date Account Title and Explanation Ref Debit Credit
balances of each accounts
2016
d. None of the above
January (1) 280,000
4. The journal is often referred to as the book of original entry because
1 (2) (3)
a. It is in chronological order
Owner’s investment of cash in the business
b. It involves the process of journalizing
(4) Inventories 20,000
c. the business transaction is first recorded in this book
Accounts Payable 20,000
d. none of the above
(5)
5. The Cash Receipts Journal is used in journalizing
January Cash 50,000
a. all transactions sales of merchandise on account
5 (6) 50,000
b. all cash received (including cash sales)
(7)
c. all purchases of merchandise on account
(8) Accounts Receivable (9)
d. all cash paid (including cash purchase)
Sales 100, 000
6. What is a firm’s payment to a supplier for merchandise inventory recorded?
Sale of furniture to Summer Inc.
a. Sales Journal c. Cash Payments Journal
January Cash 100, 000 b. Cash Receipts Journal d. Purchases Journal
15 Accounts Receivable 100, 000 7. Where are amounts owed by customers for credit purchases found?
( 10 ) a. Sales Journal c. Cash Payment Journal
b. General Ledger d. Accounts Receivable Subsidiary ledger
8. Which of the following transactions is NOT recorded in the cash receipts journal?
Loan from Riley Bank 100, 000
a. Payment made by customer c. Cash sales
Purchase of inventories from Casey, Inc. on account January 7 b. Receipt of cash loan d. Expensing prepaid rent
9. A _________________ represents the accumulation of all information about changes in an
January 2 Notes Payable
asset, liability, equity, revenue, or expense item in one place.
Collection of customer’s account receivable Cash a. Journal c. Accounting System
Edi, Capital 280, 000
b. Ledger d. None of the above
10. An example of an account that would normally have a subsidiary ledger associated with it is
a. Cash c. Accounts Payable
b. professional Fees d. none of the above

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