LESSON 9: BOOKS OF ACCOUNTS

Learning Objectives

At the end of this lesson, the learners should be able to:

1. identify the uses of the two books of accounts (journal and ledger) to
2. Record business transactions.
3. explain the use of general and special journals to record business transactions
4. Discuss the use of general and subsidiary ledgers to record business
transactions.

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:

1. It discloses in one place the complete effects of a transaction.

2. It provides a chronological record of transactions.
3. 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 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.

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 P500,000 in a restaurant business

by opening an account with SuperBank.
• September 5, 2015 purchased kitchen appliances for his business amounting to
P100,000 by issuing a check.
• September 6, 2015 started his operations a made a sales for that day
amounting to P20,000.

We will now record the above transactions in the general journal.

General Journal
Date Account Title and Explanation Ref Debit Credit
2015
September 1 Cash 500,000
B. Mabait, Capital 500,000
To record investment of Mr. .
Ben Mabait

5 Kitchen Appliances 100,000

Cash 100,000
To record purchase of kitchen
appliances

6 Cash 20,000
Sales 20,000
To record sales for the day

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 costing P80,000. He pays

P30,000 cash and agrees to pay the remaining P50,000 on account. The compound
entry is as follows:
 General Journal
Date Account Title and Explanation Ref Debit Credit
2015
September 7 Transportation Equipment 80,000
Cash 30,000
Accounts Payable 50,000
To record 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 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. 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)

Cash Receipts Journal (CRJ)

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 (Particulars) Ref Debit Credit Credit Credit
Cash Sales Account Sundry
Receivable

• 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)

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:

Cash Disbursements Journal

Date Descriptions Ref Check Credit Debit Debit Debit Credit
(Particulars) or Cash Accounts Salaries Supplies Sundry
Voucher Payable
Number

• 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.

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:

Sales Journal
Date Description (Customer Ref Charge Invoice Debit Credit
Name) or Sales Invoice Accounts Sales
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.

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 REF Charge Invoice or Debit Credit
(SUPPLIER’S NAME) Sales Invoice No. Purchases Accounts
(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 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.

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

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:

General Ledger
Account: Cash Account No: 1000
Date Item Ref 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 is
positive, the account has a debit balance whereas if it has a negative running
balance, the accounts has 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 ledgers are shown below:

Accounts Payable Subsidiary Ledger

Vendor/Supplier: Joy Food Corporation Vendor No.: 201
Address: Jose St, Sampaloc, Manila
Date Item Ref 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.