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4 Q1 FABM 1 - Fundamentals of ABM Module 4 for First

Quarter
Accountancy and Business Management (Davao Oriental State University)

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Fundamentals of
Accountancy, Business
and Management 1
Quarter 1 – Module 4
(Week 5)
The 2 Major Types of Books of
Accounts

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About the Module

This module was designed and written with you in mind. It is here to help you master
the nature of Basics in Accounting. The scope of this module permits it to be used in
many different learning situations. The language used recognizes the diverse
vocabulary levels of students. The lessons are arranged to follow the standard
sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using. Please indicate the scope in
accordance/tailored by this module created.

This module is one lesson, namely:

▪ Lesson 1 – Two Major Types of Book of Accounts

▪

After going through this module, you are expected to:

• illustrate the format of a general and special journals; and • illustrate

the format of a general and subsidiary ledger.

ii

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What I Know (Pre -Test)

Instruction: Choose the letter of the correct answer to following items. Write them on
a separate sheet of paper.

1. The company issued Official Receipt, what appropriate special journal to

be used?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

2. What special journal to be used when a company issues Charge Invoice?

A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

3. What is the appropriate special journal to be used when your receive an

official receipt from supplier as proof of payment of account?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

4. A supplier issued Charge Invoice, what appropriate special journal will be

used?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

5. This refers to the most basic journal.

A. Book of Journal C. Ledger
B. General D. Special

6. In accounting, entering transaction data in the journal is known as

_____________.
A. balancing C. journalizing
B. entering D. transacting

7. It is used in recording several sales transactions on account. The source

document for this type of journal is the Charge Invoice or Sales Invoice for
credit transactions.
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

8. A type of journal to be used to record recurring transactions of purchases

on account. The sample source documents in this type of journal are the
invoices from the supplier of the company.
A. Cash Disbursement C. Purchase
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B. Cash Receipts D. Sales

9. It is also called the ‘book of final entry’ because all the balances are used
in the preparation of financial statements.
A. General Journal C. Journal
B. General Ledger D. Ledger

10. ___________ is a controlling account as it summarizes all the activities

that have taken place as recorded in its subsidiary ledger.
A. General Journal C. Journal
B. General Ledger D. Ledger

Lesso
The Two Types Books of Accounts
n
1

What I Need t o Know

At the end of this lesson, you are expected to:

• identify the uses of the two books of accounts (journal and ledger) to record
business transactions;
• explain the use of general and special journals to record business transactions;
and
• discuss the use of general and subsidiary ledgers to record business
transactions.

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What’s In

Activity 1.1: Review

Instruction: Do what is being ask and write your answer in the separate sheet of
paper.

1. What is the definition of accounting?

2. What is the importance of the Chart of Accounts?
3. What are the steps in the preparation of a basic chart of accounts?

Rubrics:
Content – 40%
Organization – 30%
Presentation – 30%
Total - 100%

What’s New

It is essential in business to have accurate accounting records and system. It is also

known that organized bookkeeping begins with the understanding of the 5 types of
accounts and Chart of Accounts but it doesn't stop there. You also need to use the
appropriate Journals and Ledgers in keeping accurate records and transactions.

Let’s start by learning the two major types of book of accounts, so you will know how
to prepare and analyze financial reports.

What Is It

THE TWO MAJOR TYPES OF BOOKS OF ACCOUNTS

Adopted from: Commission on Higher Education K to 12 Transition Program Management
Unit, 2016. pp. 67-76.

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The two major types of books of accounts are journal and ledger. Companies initially
record transactions and events in chronological order (the order in which they occur).

Journal is referred to as the book of original entry. For each transaction, the journal
shows the debit and credit effects on specific accounts.

There are two types of journals; the general journal and the special journal.

GENERAL JOURNAL

The general journal is the most basic type. 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.

Shown below is an example of a general journal

General Journal

Date Account Title and 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 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.

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• 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.

To illustrate the recording of transactions in the general journal, let us use the
following as examples:

• September 1, 2019, Mr. Ben Mabait invested PHP500,000 in a restaurant business

by opening an account with SuperBank.

• September 5, 2019, he purchased kitchen appliances for his business amounting

to PHP100,000 by issuing a check.

• September 6, 2019, he started his operations and had a sales amounting to

PHP20,000 for that day.

We will now record the above transactions in the general journal

General Journal

Date Account Title and Explanation Ref Debit Credit

9/1/2019 Cash 500,000

B. Mabait, Capital 500,000

To record the investment of Mr.

Ben Mabait

9/5/2019 Kitchen Appliances 100,000

Cash 100,000

To record the purchase of kitchen

appliances

9/6/2019 Cash 20,000

Sales 20,000

To record the sales for the day

Some entries involve only two accounts; one debit and one credit. Entries like these
are considered simple. Some transactions, however, require more than two
accounts in journalizing. An entry that requires three or more accounts is a
compound entry. All of the transactions in the above examples are simple entries.
Below is an example of a compound entry.

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On September 7, 2019, Mr. Mabait purchased a motorcycle costing PHP80,000. He

paid PHP30,000 in cash and agreed to pay the remaining PHP50,000 on account (to
be paid later). The compound entry is as follows:

General Journal

Date Account Title and Explanation Ref Debit Credit

9/7/2019 Transportation Equipment 80,000

Cash 30,000
50,000
Accounts Payable

To record the purchase 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 they are recorded repeatedly in a single
day or a month in the general journal. Take the case of our example above. If Mr.
Mabait 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)

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Cash Receipts Journal is used to record transaction involving receipt or collection of

cash. The following illustrate the format of a cash receipts journal:
Date Ref Debit Credit Credit Credit

DESCRIPTION Account
(PARTICULARS) Receivable
Cash Sales Sundry

• 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)

Cash disbursements journal is the opposite of the cash receipts journal. It is where
all cash payments are recorded. An example of a cash disbursement journal is shown
below:

Cash Disbursements Journal

Dat DESCRIPTION Ref Check or Credit Debit Debit Debit Credit

e (PARTICULARS) Voucher
Number Cash Accounts Salaries Supplies Sundry
Payable

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•
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) 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

Sales Journal (Sales on Account Journal)

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 NAME) Ref Charge Debit Credit

Invoice or
Sales Invoice Accounts Sales
No. Receivable

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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) 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 is 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.

Purchase Journal (Purchases on Account Journal)

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 NAME Ref Charge Debit Credit

Invoice or
Sales Purchases Accounts
Invoice No. Payable
(from
supplier)

• 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) 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 the items, goods or
merchandise are delivered to the company when the purchase is made.

• The Debit Purchases column represents the amount of the goods purchased 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.

The source document for this journal is the charge invoice from the supplier or
vendor.

The Ledger

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’. There are two kinds of ledgers, namely;
the general ledger and the subsidiary ledgers.

GENERAL LEDGER

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: Cash Account No.: 1000

Date ITEM Ref Debit Credit Balance

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• 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 or 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.

SUBSIDIARY LEDGER

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 ledgers are shown below:

Accounts Payable
Subsidiary Ledger

Vendor/Supplier: Joy Food Corporation

Address: Jose St, Sampaloc, Manila Vendor No.: 201

Date ITEM Ref Debit Credit Balance

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•
• 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.

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• 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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What’s Mor e

Activity 1.2: NOW IT’S YOUR TURN!

Instruction: Based on what you have learned and understood from the topic Two
Major Types of Books of Accounts, identify what special journal is applicable for the
given transactions. Write your answer on your answer sheet.

1. Collected PHP10,000 from a customer in payment of his account.

Answer: ________________

2. Bought 100 pieces of mugs to be sold in the store amounting to PHP1,500 on

account.

Answer: ________________

3. Sold five pieces of mugs to X, PHP320 cash.

Answer: ________________

4. Sold two pieces of mugs to Y, PHP112 cash

Answer: ________________

5. Purchased office supplies for cash, PHP500.

Answer: ________________.

6. Paid PHP20,000 monthly rental.

Answer: ________________

7. Paid salary of staff, PHP15,000

Answer: ________________

8. Sold 100 pieces of mugs to Unicup, Inc., PHP5,600 on account.

Answer: ________________

9. Sold 500 pieces of mugs to Bugsmore Corp. for PHP15,300 payable one month
after delivery.

Answer: ________________

10. Purchase on account 1,000 pieces of mugs for PHP12,400 Answer:

________________

What I Need t o Remember

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• In the General Journal, 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. The main 12
criterion is that each title must appropriately describe the content of the account.
• For every journal entry, the total debits and credits should always be equal.
If not, the entry is erroneous journalizing.

What I Can Do

Activity 1.3 Questions to Ponder

Instruction: Answer the following questions on the separate sheet of papers based on
your understanding on the 2 major types of books of accounts.

1. Differentiate General Ledger from a Subsidiary Ledger

2. Differentiate General Journal from a General Ledger.

3. Why do companies use special journals?

Rubrics:
Content – 40%
Organization – 30%
Presentation – 30%
Total - 100%

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Assessment (Post Test )

Instruction: Choose the letter of the correct answer to the following items. Write them
on a separate sheet of paper.

1. Mr. Goody’s Barbershop is obligated to pay his rental for Php 27,000.
What is the appropriate special journal to be used? A.
Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

2. What is the special journal to be used if the company will pay the salary
of staff for Php 20,500?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

3. Onetop Inc., sold 200 pieces of plates to WhiteSilver Company, for

PHP15,800 on account. On the records of Onetop Inc., what special
journal is appropriate to use?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

4. Prito Co. Ltd., purchased 50 galloons of cooking oil worth of Php7000 on

account payable one month after delivery from Original Lard and Oil for
Cooking Inc. On the records of Original Lard and Oil for Cooking Inc.,
what special journal is appropriate to use?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

5. What special journal is appropriate to use when someone purchases on

cash?
A. Cash Disbursement C. Purchase
B. Cash Receipts D. Sales

6. This refers to one of the types of the books of accounts in which the
accounts and their related amounts as recorded in the journal are posted

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periodically. As well as in this book of account, all the balances are used
in the preparation of financial statements.
A. General Journal C. Journal
B. General Ledger D. Ledger

7. ___________ is a grouping of all accounts used in the preparation of

financial statements. It also serves as controlling account as it
summarizes all the activities that have taken place as recorded in its
subsidiary ledger.
A. General Journal C. Journal
B. General Ledger D. Ledger

8. What do you call in accounting, when business encodes transaction data

in the journal?
A. balancing C. journalizing
B. entering D. transacting

9. Most of the time, business encounter voluminous quantities of similar

and recurring transactions. In order to facilitate efficient and practical
recording in these kind of transactions, what type of journal is used?
A. Journal C. Special Journal
B. Ledger D. Special Ledger

10. This is referred to as the book of original entry as it shows the debit
and credit effects on specific accounts.
A. Journal C. Special Journal
B. Ledger D. Special Ledger

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Answer Key

Remember: This portion of the module contains all the answers. You HONESTY is
required.

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References

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Text Book

Commission on Higher Education K to 12 Transition Program Management Unit.

“Fundamentals of Accountancy Business, and Management Teaching Guide for
Senior High School”. 4th Floor, Commission on Higher Education, C.P. Garcia Ave.,
Diliman, Quezon City. , pp. 67-76

Congratulations!
You are now ready for the next module. Always remember the following:

1. Make sure every answer sheet has your

§ Name
§ Grade and Section
§ Title of the Activity or Activity No.
2. Follow the date of submission of answer sheets as agreed with your teacher.
3. Keep the modules with you AND return them at the end of the school year
or whenever face-to-face interaction is permitted.

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