Senior High School

Fundamentals of
Accountancy, Business and
Management 1
Module 5
Books of Accounts

Department of Education Republic of the Philippines

 What I Need To Know

For the Learners

This is an introductory course in accounting, business and management

data analysis that will develop your appreciation of accounting as language
of business and an understanding of basic accounting concepts and
principles that will help you analyze business transactions.

Good Job! Thank you for completing Module 4. You are now ready for
the next lesson which is the Books of Accounts. You need to learn more
effectively. Good luck!

Module Content

This module in Fundamentals of Accountancy, Business and Management 1

for the 21st century learners is designed to make learning more engaging and
meaningful to ABM Senior High School learners in the flexible and blended learning
environments. The objective of this module is for you to appreciate the various tools
used in recording transactions.

Learning is fun! So enjoy your journey as you unfold the most interesting and
worthwhile activities in accounting.

These are the competencies included in this module:

Illustrate the format of a general and special journals (ABM_FABM11- IIIf-23)

Illustrate the format of a general and subsidiary ledger (ABM_FABM11- IIIf-24)

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 What Is It

The two major types of books of accounts are the Journal and Ledger.

1. JOURNAL

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.

There are two types of journals, the General Journal and the Special Journal.

A. 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. 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.

Entering transaction data in the journal is known as Journalizing. Companies

make separate journal entries for each transaction. A complete entry consists of:

a. The date of the transaction which is entered in the Date Column.

b. 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.

c. The column titled P.R (which stands for Post 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.

d. The Debit Account title 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.

e. The Credit Account title 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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 A journal entry should contain the Date, Account Titles and
Explanation, Posting Reference, Debit, and Credit. Below is a sample of a
General Journal.

ACCOUNT TITLES AND

DATE P.R. DEBIT CREDIT
EXPLANATION
xxx
xxx xxx xxx
xxx xxx
xxx

To illustrate the recording of transactions in the general journal, let us use

the following transactions as an example:

August 21, 2020 Mr. J Pacs invested PHP500, 000 in a coffee shop business.
August 30, 2020 purchased equipment for his business amounting to
PHP100, 000 by cash.
September 6, 2020 started his operations and made a sales for that
day amounting to PHP20, 000.

We will now record the above transactions in the General Journal.

ACCOUNT TITLES AND

DATE P.R. DEBIT CREDIT
EXPLANATION
2020
Aug 21 Cash 500,000
J Pacs, Capital 500,000
Initial Investment

Aug 30 Equipment 100,000

Cash 100,000
Purchased equipment for cash

Sep 6 Cash 20,000

Sales 20,000
Cash sales for shop operations
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:

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 On December 25, 2020, Mr. J Pacs purchased furniture costing PHP80, 000.
He pays PHP30, 000 cash and agrees to pay the remaining PHP50,000 on
account . The compound entry is as follows:

ACCOUNT TITLES AND

DATE EXPLANATION P.R. DEBIT CREDIT
2020
Dec 25 Furniture and Fixture 80,000
Cash 30,000
Accounts Payable 50,000
Bought furniture by paying cash and the
balance on account

B. 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. These journals are
used to record specific types of high-volume information that would otherwise
be recorded in and overwhelm the general ledger.

Take the case of our example above, if Mr. J Pacs 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:

a. Cash Receipts Journal – used to record all cash that has been
received. The cash receipts journal is used to record transaction involving
receipt or collection of cash. The source document for this journal is
the Official Receipts or Cash receipts issued by the business. The following
illustrate the format of a cash receipts journal:

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.

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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.

b. Cash Disbursements Journal – used to record all transactions involving

cash payments. The cash disbursements journal is the opposite of the cash
receipts journal. It is the journal where all cash payments are recorded.
The source documents used to update this journal are the check voucher
or cash voucher, cash receipts or official receipts from suppliers or vendors.
The following illustrate the format of a cash disbursement journal:

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.

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c. Sales Journal (Sales on Account Journal) – used to record all sales on
credit (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 to various customers
or clients. The following illustrate the format of a Sales 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.
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.

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d. Purchase Journal (Purchase on Account Journal) – used to record all
purchases of inventory on credit (or on account). The Purchase journal or
the

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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. The following illustrate the
format of a Purchase 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.
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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2. 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‟.

There are two types of ledgers, the General Ledger and the Subsidiary Ledger.

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, based on the discussion

example on the general journal:

General Journal Page 1

ACCOUNT TITLES AND
DATE P.R. DEBIT CREDIT
EXPLANATION
2020
Aug 21 Cash 110 500,000
J Pacs, Capital 310 500,000
Initial Investment

General Ledger
Account Title: Cash Account No. 110
DATE EXPLANATION J.R. DEBIT CREDIT BALANCE

2020
Aug 21 Initial Investment J-1 500,000 500,000

General Ledger
Account Title: J Pacs, Capital Account No. 310
DATE EXPLANATION J.R. DEBIT CREDIT BALANCE

2020
Aug 21 Initial Investment J-1 500,000 500,000

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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 or Explanation represents the source journal and the nature
of the transactions.
The Journal 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.

Posting is the process of transferring information from the journal to the

ledger. Debits in the journal are now correspondingly posted as debits in the
ledger, and credits in the journal are likewise posted as credits in the ledger. The
steps in posting are as follows:

a. From the journal, copy the Date of the transaction to the ledger.
b. Under the Journal Reference (J.R.) column of the ledger, copy the page
number of the journal.
c. Under the Debit column in the ledger, transfer the Debit amount from the
journal. Similarly, under the Credit column in the ledger, transfer the credit
amount from the journal.
d. After posting the amount to the ledger, write the Account Number in the
Posting Reference (P.R.) column on the journal.

B. 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 an Accounts Payable Subsidiary Ledgers is shown on the

next page.

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 The upper portion indicates the name 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 Item or 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.

The purpose of keeping Subsidiary Ledgers is for accuracy and efficiency.

They aid us in keeping accurate records. Since the total of a certain subsidiary
ledger must agree with the balance shown in the general ledger account, this
system helps us find mistakes. It provides an internal control over record
keeping. Today, computerized accounting information systems use the same
method to store and total amounts, but it takes a lot less time.
5. 6.

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 What I Have Learned

Discuss the following terms based on your own understanding.

1. Cash Receipts Journal -

2. Cash Disbursements Journal -

3. Sales Journal -

4. Purchases Journal -

What I Can Do

Activity 1:

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Journalize the following transactions of Tam-is Bakeshop for the month of
December
2020. Use the provided format below.

2020
December 3 Ms. Tam-is invested Php300, 000 in the business.

5 Paid cash Php 15,000 for electricity bill for the month.

15 Purchased kitchen equipment Php50, 000 on account.

25 Paid baker‟s salary for the month, Php20, 000.

ACCOUNT TITLES AND

DATE EXPLANATION P.R. DEBIT CREDIT

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 Assessment

Let us check how much you learned from this module‟s coverage.

Essay:

1. Where do we record the transactions that we have identified in the

accounting process?

2. What are the tools that we use to document these transactions?

3. In your own understanding, how important are these records in accounting?

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Activity 1