Fundamentals of Accountancy, Business, and

Management 1
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Books of
Accounts
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Learning Objectives
At the end of this lesson, the learners will be able 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
 discuss the use of general and subsidiary ledgers
to record business transactions.
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 Aling Nena, Aling Felisa and Aling
Puring are all sari-sari store owners.
 Every day, they are engaged with
various transactions in their respective
stores cash sales, credit sales, payment
of store bills, purchase of store goods
(inventories), collection from customer’s
accounts, and other related store
activities.
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 (a) Aling Nena, owner of “Nena’s Sari-

sari store”, goes directly to the store
cash box whenever receiving or paying
cash. She keeps a notebook where she
records credit sales and collections at
her convenience.
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 (b) Aling Felisa, apart from managing her “Feling Sari-sari

Store”, also sells other seasonal products. She keeps all the
cash in one place. With that, she pays all the expenses due and
records cash-related store transactions which she
considers important in her store notebook at the end of each
day.
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 (c) Aling Puring owner of Pure Sarisari store, uses a cash

control system in her store. She separately keeps cash receipts
and organizes a payment schedule of expenses. Aling Puring
makes sure to record every store transactions to the store
notebooks at the time of transaction. She keeps several
notebooks, each for a specific purpose, to make sorting and
summarizing transactions easier.
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JOURNAL

 The journal is also referred to as the primary book or book of original

entry since it is where the business transactions are first recorded.
Advantages of Using Journal

 1.Transactions are recorded in chronological order. It provides date-

wise record of all transactions helpful for convenient locating of past
transactions;

 2.The journal provides precise explanation of recorded business

transactions;

 3. It serves as proof and legal evidence of transaction; 4. It supports

information posted to ledger.
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LEDGER

 Also referred as secondary book or book of final entry since this

will be the next step after recording all transactions in the journal
and this provides the final record of business financial
information before preparation of financial reports. This is the
group of accounts used by the business. This shows effects
(increase or decrease) of individual transactions recorded in
journal through classifying and grouping transactions of similar
nature in particular account/s. Posting is the process of
transferring entries from journal to a particular ledger account.
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 Companies initially record transactions and

events in chronological order (the order in
which they occur). Thus, 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.
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 There are two types of journals,

the general journal and the
special journal.
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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.
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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.
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Shown below is an example of a general
journal
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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.
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Journalizing process

 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.
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Journalizing process

 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.
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To illustrate the recording of transactions in the
general journal, let us use the following
transactions as an example:

 September 1, 2015 Mr. Ben Mabait invested PHP500,000 in

a restaurant business by opening an account with
SuperBank.
 September 5, 2015 purchased kitchen appliances for his
business amounting to PHP100,000 by issuing a check.
 September 6, 2015 started his operations a made a sales for
that day amounting to PHP20,000.
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We will now record the transactions in
the general journal.
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 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 practitioner or CPA uses “Description or Particulars”
instead of Account Titles and Explanation.
 every journal entry the total debits and credit should
always be equal. If not, the entry is erroneous.
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 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. All of the
transactions in the above examples are simple
entries. An example of a compound entry is the
following:
 On September 7, 2015, Mr. Mabait purchased a motorcycle
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costing PHP80,000. He pays PHP30,000 cash and agrees to
pay the remaining PHP50,000 on account (to be paid later).
The compound entry is as follows:
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SPECIAL JOURNALS

 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.
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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.
 The Need for Special Journals
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 To address the limitations of the General

Journal, businesses use Special Journals.
 Each Special Journal is designed to record
specific types of transactions.
 This system improves accuracy, efficiency,
and division of work.
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SPECIAL JOURNALS
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

 Used for recording all cash received by the

business.
 Transactions recorded involve payments from
customers, sales, and other receipts.
 Pro-Forma Entry:

 Cash (Dr.)

 Various Credits (Accounts Receivable, Sales,

etc.) (Cr.)
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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:

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SPECIAL JOURNALS

 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.
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SPECIAL JOURNALS
 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.
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SPECIAL JOURNALS

 The source document for this journal is the

Official Receipts or Cash Receipts issued by
the business. Cash Disbursements Journal
(CDJ)
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SPECIAL JOURNALS
 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:
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 The date of the transaction is entered in the date column.
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 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.
 ThezDebit 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.
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SPECIAL JOURNALS

 The source documents used to update

this journal are the check voucher or cash
voucher, cash receipts or official receipts
from suppliers or vendors.
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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.
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Sales Journal

 Used for recording credit sales of merchandise.

 Transactions recorded involve customers
purchasing on credit.
 Pro-Forma Entry:

 Accounts Receivable (Dr.)

 Sales (Cr.)
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Sales Journal (Sales on Account Journal)
 An example of a sales journal is shown below:
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Sales Journal (Sales on Account Journal)
 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.
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Sales Journal (Sales on Account Journal)
 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.
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Sales Journal (Sales on Account Journal)

 The source document for this journal is

the Charge Invoice issued by the
business.
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Purchase Journal (Purchases on Account Journal)

 The purchase journal or the Purchase

on Account Journal is used to record
recurring transactions of purchase on
account. The source document for
purchase journal are the invoice from
the supplier of the company.
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Purchase Journal (Purchases on Account Journal)
 An example of purchase journal is shown below:
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Purchase Journal (Purchases on Account Journal)

 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.
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Purchase Journal (Purchases on Account Journal)

 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 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.
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Purchase Journal (Purchases on Account Journal)

 The source document for this journal is the

charge invoice from the supplier or vendor.
 Purchases Journal
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 Used for recording credit purchases of

merchandise.
 Transactions recorded involve buying from
suppliers on account.
 Pro-Forma Entry:

 Purchases (Dr.)

 Accounts Payable (Cr.)

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Benefits of Special Journals

 Reduces workload and simplifies

transaction recording.
 Enhances accuracy and efficiency.

 Allows multiple employees to handle

different aspects of accounting.
 Facilitates better tracking of financial data.