4TH Reviewer (Fabm)

LESSON: BOOKS OF ACCOUNTS
STEPS IN THE ACCOUNTINF PROCESS

 Identification
 This involves selecting economic events that are relevant to a particular business
transaction
 Recording
 This involves keeping chronological diary of events that are measured in pesos.
The diary referred to in the definition are the journals and ledgers which will be
discussed in future chapters.
 Communicating
 Occurs through the preparation and distribution of financial and other accounting
reports.
TWO MAJOR OF BOOKS OF ACCOUNTS

 Journal
 General Journal
 Special Journal
 Ledger
 General Ledger
 Subsidiary Ledger
NOTE:
 The two major books of accounts are required by the law specifically by the BIR (Bureau
of Internal Revenue).
 Recording of entries starts with the journal and ends with the ledger.
JOURNAL
 Business transactions are recorded chronologically by date and details (the order in which
they occur)
 The book of original entry
 Two types of journal are the General Journal and the Special Journal.
 General Journal
 The most basic journal which typically has spaces for dates, account titles
and explanations, references, and two amount columns.
 Special Journal
 Design to facilitate the process of journalizing and positioning
transactions. They are used for most frequent transactions in a business.
 For example, in merchandising businesses, companies acquire
merchandise from suppliers frequently. To avoid repetitive journal entries
for these transactions, a special journal is used.
EXAMPLES OF SPECIAL JOURNAL

1. Cash Receipts Journal
 Used to record all cash that has been received
 The source documents for this journal is the Official
Receipts or Cash Receipts issued by the business.
2. Cash Disbursements Journal

 Used to record all transactions involving cash payments
 The source document used to update this journal are the
Check Voucher or Cash Voucher, Cash Receipts or Official
Receipts from suppliers or vendors.
3. Sales Journal (Sales on Account Journal)
 Used to record all sales on credit (on account)
 The source document for this journal is the Charge Invoice
by the business.
4. Purchase Journal (Purchase on Account Journal)

 Used to record all purchases of inventory on credit (or on
account)
 The source document for this journal is the charge invoice
from the supplier or vendor.
5. Payroll Journal
 Tracks all expenses related to staffing costs
EXERCISE
Identify the type of journal that is best suited to record the transactions below. Choose your
answer among the following: sales journal, purchase journal, cash receipts journal, or general
journal.
1. Advance payment to suppliers – Cash Disbursement Journal

2. Purchased supplies in cash – Cash Disbursement Journal
3. Rental for the store space – Cash Disbursement Journal
4. Collection of sales on credit – Cash Receipts Journal
5. Depreciation of assets – General Journal
6. Amortization of the company vehicle – Cash Disbursement Journal
LEDGER
 Is a book containing accounts in which the classified and summarized information based
on their account titles.
 It is also called the final book of entry
 Contains the information that is required to prepare financial statements. It includes
accounts for assets, liabilities, owners’ equity, revenues and expenses
DIFFERENT TYPES OF BOOKS OF ACCOUNTS THAT PASS THE REQUIREMENTS
OF THE BIR:
 Loose – leaf
 Usually uses Microsoft Excel or a similar software.
 Manual Type
 Handwritten using journal and ledger books
 Computerized Type
 Uses programs such as SunSystems, Peachtree, SAP, Quickbooks, or
MYOB
CHART OF ACCOUNTS
 Is the listing of all accounts normally used in a general ledger to capture and record the
transactions of the business entity.
 Each account has assigned account numbers or account codes (numeric or alphanumeric)
for easy sorting and tracking.
EXERCISE
Identify the appropriate special journal to be used for every source document listed below:
1. Official Receipt issued by the company – Cash Receipts Journal
2. Charge Invoice issued by the company – Sales Journal
3. Charge Invoice from supplier – Purchase Journal
4. Official Receipt from a supplier as proof of payment of accounts – Cash
Disbursement Journal
Identify what special journal is applicable for the following transactions:

1. Collected PHP10,000 from a customer in payment of his account – Cash Receipts
Journal
2. Bought 100 pieces of mugs to be sold in the storage amounting to PHP1,500 on
account – Purchase Journal
3. Sold five pieces of mugs to X, PHP320 cash – Cash Receipts Journal
4. Purchased office supplies for cash, PHP500 – Cash Disbursement Journal
5. Paid PHP20,000 monthly rental – Cash Disbursement Journal
LESSON: INTRODUCTION TO JOURNALIZING BUSINESS TRANSACTIONS
SIMPLE AND COMPOUND ENTRY
 Simple Entry
 There is only one debit account and credit account.
 Compound Entry
 It requires the use of three or more accounts.
JOURNALIZING THE TRANSACTIONS
 Journalizing
 The process of recording a transaction in the journal after it has been recognized
and measured.
 Double-entry is used.
 Total debits should equal to total credits for each transaction.
 The equality of accounting equation is maintained.
RULES OF DEBIT AND CREDIT
Debit
 Increase in assets
 Decrease in liabilities
 Decrease in owner’s equity
 Owner’s Withdrawals
 Expenses
Credit
 Decrease in assets
 Increase in liabilities
 Increase in owner’s equity
 Initial investment
 Revenue/Income
NORMAL BALANCE OF AN ACCOUNT
Debit
 Drawing
 Expenses
 Assets
Credit
 Liabilities
 Capital
 Revenue
NOTE:
 Normal balance is where increases of an account is recorded.
EXAMPLES
EXAMPLE TRANSACTION
EXAMPLE TRANSACTION

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LESSON: BOOKS OF ACCOUNTS

STEPS IN THE ACCOUNTINF PROCESS

TWO MAJOR OF BOOKS OF ACCOUNTS

EXAMPLES OF SPECIAL JOURNAL

2. Cash Disbursements Journal

4. Purchase Journal (Purchase on Account Journal)

1. Advance payment to suppliers – Cash Disbursement Journal

Identify what special journal is applicable for the following transactions:

LESSON: INTRODUCTION TO JOURNALIZING BUSINESS TRANSACTIONS

SIMPLE AND COMPOUND ENTRY

JOURNALIZING THE TRANSACTIONS

RULES OF DEBIT AND CREDIT

NORMAL BALANCE OF AN ACCOUNT

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