Lesson 10

WEEK 10: RECORDING TRANSACTIONS
SESSION 29: JOURNALIZING & POSTING
Objective:
At the end of this session, learners should be able to:
1. Familiarize oneself with the journal as a book of account and know its uses.
2. State and apply the rules of debit and credit
3. Journalize transactions in the general journal
4. Explain how a ledger and posting help in the recording process.
5. Post the journal entries in the general ledger
6. Familiarize oneself with the chart of accounts
Journal
The journal is a chronological record of events or business transactions showing all the effects of each
transaction in terms of debit and credits.
Because transactions are initially recorded in the journal, it is called the book of original entries. The
simplest journal is the general journal.
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.
A journal entry should contain the following:

1. Date. Write the month on the first transaction unless there is a change in a month for the succeeding
transactions or a new page is used.
2. Account Titles and Explanation. Write the debit account on the extreme left of the first line and indent
the credit account half-inch on the next line. The explanation describing the transaction is written on
the extreme left of the next line below the credit. Remember to skip one line before proceeding to the
next transaction. In other books, this is called Particulars.
3. P.R. (Posting Reference). Write the corresponding account number here once the entry is posted.
However, it is left blank until the posting has been done.
4. Debit. Under this column, write the debit amount for each debit account.
5. Credit. Under this column, write the credit amount for each credit account.
Note: In writing the debit and credit amounts in the journal, Peso signs, commas, and periods are not
necessary. All transactions are assumed to be in Philippine pesos. As for the commas and periods, they are
not necessary because the lines in the journal represent the place value of the numbers.
Presume that Gisel Ong established Anime World Gallery with an initial investment of P300,000 on May 2,
2018. The journal entry is shown on the next page.
Illustration 29 -1: The General Journal
J1
Date
2018 Account Titles and Explanation P.R. Debit Credit
May-02 Cash 300,000
Ong, Capital 300,000
- initial investment
NOTE: It is important to use correct and specific account titles in journalizing. Erroneous account titles
lead to incorrect financial statements. However, some flexibility exists initially in selecting account titles.
The main criterion is that each title must appropriately describe the content of the account. Once a
company chooses the specific title to use, it should record under that account title all later transactions
involving the account
The Simple and Compound Entry

When only two accounts are affected, you call this a simple entry where there is only one debit account
and one credit account. The previous example where the owner, Gisel Ong, made an initial investment is a
simple entry.
In some cases, a transaction would require the use of three or more accounts, in which case the entry is
called a compound entry.
Journalizing the Transactions

Journalizing is the process of recording a transaction in the journal after it has been recognized and
measured.
In journalizing transactions, the double-entry system is used. In this case, two or more accounts are affected
by each transaction. It follows that for every debit, a corresponding credit is made. The total debits should
equal the total credits for every transaction. In this way, the equality of the accounting equation is
maintained.
THE ANALYSIS OF A TRANSACTION

Again, remember in our session 25, the following steps involved in analyzing transactions:
1. From the business document, determine the kind of transaction or exchange made
2. Analyze the transaction to determine the accounts affected. They can either affect the assets,
liabilities, owner's equity, revenue, or expense accounts.
3. Determine the effect of the transaction on the accounts affected. The transaction can either increase
or decrease the accounts.
4. Apply the rules of debit and credit to identify whether the accounts affected should be debited or
credited to show the corresponding increase or decrease.
Rules for Debit and Credit
Debit to show: Credit to show:

1. Increase in assets 1. Decrease in assets
2. Decrease in liabilities 2. Increase in liabilities
3. Decrease in owner's equity 3. Increase in owner's equity
- Increase in Withdrawals -Initial investment
- Decrease in Revenue -Additional investment
- Increase in Expenses -Revenue/Income
THE LEDGER
The ledger is the group of the accounts· used by the company. It is the book of final entry. The
accounts in the general ledger are classified into two general groups:
1. balance sheet or real accounts (assets, liabilities, and owner's equity)
2. income statement or nominal accounts (revenue and expenses)
The ledger has a record of each account. The T-account is the basic format used to record every
account. While the journal is chronologically arranged by date, the ledger is organized by account.
The Normal Balance of an Account

The side of an account where increases are recorded is referred to as the normal balance of an
account. This can be the left side (debit) or the right side (credit). The reason for this is that account
increases usually exceed account decreases.
The following are the normal balances of accounts:
Normal Debit Balance Normal Credit Balance

Asset Contra Asset Accounts
Owner's Drawing Liability
Expense Owner's Equity
Income
CHART OF ACCOUNTS
A chart of accounts is a list of all account titles used by the company with their corresponding account
numbers. Account titles are arranged in financial statement order.
a. Balance sheet accounts which include assets, liabilities, and owner's equity come first.
b. Account titles in the income statement which include revenue and expenses follow.
The accounts are so numbered for purposes of indexing and cross-referencing.

Presented on the next page is the chart of accounts of Anime World Gallery for illustration.
Illustration 29 - 2: The Chart of Accounts
Anime World Gallery Chart of Accounts

Balance Sheet Accounts
Assets Liabilities
110 Cash 210 Accounts Payable
120 Accounts Receivable 220 Notes Payable
130 Art Supplies 230 Salaries Payable
140 Prepaid Rent 240 Utilities Payable
150 Prepaid Insurance 250 Interest Payable
160 Office Equipment 260 Unearned Painting Revenue
165 Accumulated Depreciation:
Office Equipment
170 Furniture and Fixture Owner's Equity.
175 Accumulated Depreciation 310 Ong, Capital
Furniture and Fixture 320 Ong, Drawing
330 Income Summary
Income Statement Accounts

Income Expenses
410 Painting Revenue 510 Salaries Expense
520 Art Supplies Expense
530 Rent Expense
540 Insurance Expense
550 Utilities Expense
560 Depreciation Expense: Office Equipment
570 Depreciation Expense: Furniture and Fixture
Posting to the Ledger

Posting is the process of transferring information from the journal to the ledger. Debits in the journal are
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:
1. From the journal, copy the date of the transaction to the ledger.
2. Under the journal reference (J.R.) column of the ledger, copy the page number of the journal.
3. 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.
4. After posting the amount to the ledger, write the account number in the posting reference (P.R.)
column of the journal.
Illustration 29 - 3: Posting from the General Journal to the General Ledger.
The General Journal
J1
Date
2018 Account Titles and Explanation P.R. Debit Credit
May-02 Cash 300,000
The General Ledger

CASH Account 110
Date
2018 Explanation J.R. Debit Credit Balance
May-02 Initial Investment J1 300,000 300,000
Ong, Capital Account 310

Date
STANDARD FORM OF ACCOUNT
The simple T-account form used in accounting textbooks is often very useful for illustration purposes.
However, in practice, the account forms used in ledgers are much more structured. The illustration below
shows a typical form, using assumed data from a cash account.
Illustration 29 - 4: The General Ledger
CASH Account 110

Date
The Recording Process Illustrated

The illustration below and in the succeeding pages shows the recording process, using the October
transactions of Anime World Gallery. Anime’s accounting period is a month. In these illustrations, a basic
analysis, an equation analysis, and a debit-credit analysis precede the journal entry and posting of each
transaction. For simplicity, we use the T-account form to show the posting instead of the standard account
form.
Study these transaction analyses carefully. The purpose of transaction analysis is first to identify the type
of account involved and then to determine whether to make a debit or a credit to the account.
You should always perform this type of analysis before preparing a journal entry. Doing so will help you
understand the journal entries discussed in this session as well as more complex journal entries in later
sessions.
 Use these steps to analyze the effects of the business transactions:

1. Analyze the financial event.
a. Identify the accounts affected.
b. Classify the accounts affected.
c. Determine the amount of increase or decrease for each account.
2. Apply the left-right rules for each account affected.
3. Make the entry in the T-account form.
 Remember the following questions in determining transactions.

1. What is the affected element?
2. What is the effect on the element?
3. What account title is affected?
4. Which side of the account is affected?
5. How much is the amount of change?
 On Initial Investment
May 2 Gisel Ong loves to watch anime. She draws posters of colorful anime characters. Sometimes she
displays them in her office. To her surprise, many anime fans buy her drawings and paintings and
place special orders for Anime characters of their choice. Thus, Gisel decided to open Anime World
Gallery. Gisel invested P300,000 in this initial endeavor.
Equation Analysis Assets = Liabilities + Owner's Equity

What is the affected Element?  - 
What is the effect on the element? Increase (+) - Increase (+)
What account title is affected? Cash Ong, Capital
Which side of the account is affected? Debit Credit
How much is the amount of change? 300,000 = - + 300,000
Entry: Dr. Cr.

Cash 300,000
 On Issuance of Note for a Liability
May 3 Gisel Ong issued a promissory note for a P100,000 loan from Allay Bank. The note carries a 12%
interest per annum. The interest and the principal are payable after one year.

What is the affected Element?  
What is the effect on the element? Increase (+) Increase (+)
What account title is affected? Cash Notes Payable
How much is the amount of change? 100,000 = 100,000 +
Entry: Dr. Cr.

Cash 100,000
Notes Payable -Allay Bank 100,000
- issued a note with 12% interest annually
 On Acquisition of an Asset for Cash

On May 5 Ms. Ong acquired office equipment to be used for the office paying P180,000 in cash.
Equation Analysis Assets - Assets

What is the effect on the element? Increase (+) Decrease (-)
What account title is affected? Office Equipment Cash
How much is the amount of change? 180,000 - 180,000
Entry: Dr. Cr.

Office Equipment 180,000
Cash 180,000
- bought office equipment
 On Acquisition of Asset with Partial Payment and the Balance on Account

On May 5 Ms. Ong acquired furniture from Bloom's costing P40,000, paying P12,000 and the
balance at the end of the month. (Note: A compound entry is needed in this transaction.)
Equation Analysis Assets - Assets = Liability

What is the affected Element?   
What is the effect on the element? Increase (+) Decrease (-) Increase (+)
What account title is affected? Furniture Cash Accounts Payable
Which side of the account is affected? Debit Credit Credit
How much is the amount of change? 40,000 - 12,000 = 28,000
Entry: Dr. Cr.

Furniture 40,000
Accounts Payable 28,000
Cash 12,000
-bought furniture initially paid and balance at end of month
 On Advance Payment of Expenses

May 6 Gisel Ong rented office space and paid two months’ rent in advance, all costing P18,000.

What account title is affected? Prepaid Rent Cash
How much is the amount of change? 18,000 = 18,000
Entry: Dr. Cr.

Prepaid Rent 18,000
Cash 18,000
- 2 months advance office rent
On May 7 Ms. Ong paid Asia Insurance Co. P10,800 for one-year insurance of the gallery.

What account title is affected? Prepaid Insurance Cash
Entry: Dr. Cr.

Prepaid Insurance 10,800
Cash 10,800
- one year insurance premium
 On Events not Affecting the Accounting Equation (no journal entry)

May 7 Hired a part-time student helper with a P4,000 monthly salary. The student helper started working
on the following day.
There is no entry necessary at this point as the hiring of the student helper has no effect on the assets,
liabilities, and owner’s equity. Remember in session 25, Business Transactions, this activity/event is not
considered a business transaction. NO work has been done yet by the hired employee which does not
create the obligation on the part of the employer for payment.
May 8 Called National Book Store and ordered art supplies worth P7,800.
There is no entry necessary at this point as the ordering of the art supplies has no effect on the assets,
liabilities, and owner’s equity. Remember in session 25, Business Transactions, this activity/event is not
considered a business transaction. NO delivery of the supplies has been made, thereby no liability arises or
has not been created yet.
 On Purchase of Supplies on Account

May 8 The P7,800 worth of art supplies ordered from the National Book Store were delivered on account.

What account title is affected? Art Supplies Accounts Payable
Entry: Dr. Cr.

Art Supplies 7,800
-bought art supplies on account
 On Income Earned on Account

May 11 An oil painting of Naruto and an acrylic painting oil were delivered to Mr. Ku To. Gisel Ong billed
Mr. Ku To P120,000 for the paintings delivered.

What is the affected Element?  - 
What is the effect on the element? Increase (+) - Increase (+)
What account title is affected? Accounts Receivable Painting Revenue
How much is the amount of change? 120,000 = - + 120,000
Entry: Dr. Cr.

Accounts Receivable 120,000
Painting Revenue 120,000
-delivered acrylic paiting to Mr KuTo on account.
 On Partial Settlement of Accounts Payable
On May 12 Ms. Ong paid National Book Store P3,000 of the amount owed.

What is the effect on the element? Decrease (-) Decrease (-)
What account title is affected? CASH Accounts Payable
Which side of the account is affected? Credit Debit
Entry: Dr. Cr.

CASH 3,000
- paid National Book Store account
 On Partial Collection of Accounts Receivable

On May 15 Ms. Ong received P50,000 from Mr. Ku To as partial payment for the anime painting
delivered last May 11.
Equation Analysis Asset - Asset

What account title is affected? CASH Accounts Receivable
Entry: Dr. Cr.

CASH 50,000
Accounts Receivable 50,000
-partial payment from Mr. Ku To
 On Cash Withdrawal by Owner for Personal Use

May 18 Gisel Ong withdrew P18,000 for personal use.

Wha t i s the a ffected El ement?  
Wha t i s the effect on the el ement? Decrea s e (-) Decrea s e (-)
Wha t a ccount ti tl e i s a ffected? CASH Ong, Drawings
Whi ch s i de of the a ccount i s a ffected? Credit Debit
How much i s the a mount of cha nge? 18,000 = + 18,000
Entry: Dr. Cr.

Ong, Dra wi ngs 18,000
CASH 18,000
- w/dra wa l for own us e
 On Collection of Unearned Income

On May 20 Ms. Ong received P80,000 cash for a contract to paint Lelouch.

Unearned Painting
What account title is affected? CASH
Revenue
Entry: Dr. Cr.

CASH 80,000
Unearned Painting Revenue 80,000
- received payment in advance to paint Lelouch
 On Cash Collection from Income Earned
May 23 Gisel Ong received cash from Ms. Uto San, P90,000 for a charcoal poster of Kirito.

What account title is affected? CASH Painting Revenue
How much is the amount of change? 90,000 = + 90,000
Entry: Dr. Cr.

CASH 90,000
Painting Revenue 90,000
- sold charcoal paint to Ms. Uto San
 On Payment of Salaries
On May 25 Ms. Ong paid the helper’s salary for the month, P4,000.

What is the effect on the element? Decrease (-) Decrease (-)
What account title is affected? CASH Salary Expense
How much is the amount of change? 4,000 = + 4,000
Entry: Dr. Cr.

Salary Expense 4,000
CASH 4,000
- paid helper's salary
 On Payment of Expenses Incurred/Consumed

May 29 Gisel Ong paid a water bill of P540 for the month.

Wha t i s the a ffected El ement?  
Wha t i s the effect on the el ement? Decrea s e (-) Decrea s e (-)
Wha t a ccount ti tl e i s a ffected? CASH Utilities Expense
Whi ch s i de of the a ccount i s a ffected? Credit Debit
How much i s the a mount of cha nge? 540 = + 540
Entry: Dr. Cr.

Uti l i ti es Expens e 540
CASH 540
- pa i d wa ter bi l l
 On Unpaid Expenses already consumed/incurred but not yet paid (Accrued Expenses)
On May 30 Ms. Ong received the bill from Meralco amounting to P4,500.

What account title is affected? Utilities Payable Utilities Expense
How much is the amount of change? = 3,000 + 3,000
Entry: Dr. Cr.

Utilities Expense 3,000
Utilities Payable 3,000
- received bill from Merlaco
FOOTING THE LEDGER
After posting the journal entries to the ledger, the amounts of debit and credit are totaled and usually done
at the end of each month. This balancing process is called “footing.”
Footing is the process of adding each of the two amount columns of an account or item in the general
ledger and finding their balance thereof. In a manual accounting system, a well-sharpened pencil should
be used in writing the total of the amount and account balances.
Cross-footing, on the other hand, is the horizontal adding of figures.
In using the T-account format ledger of the old ledger format, a balance can either be:
a. Debit Balance – when the debit total is bigger than the credit total
b. Credit Balance – when the credit total is bigger than the debit total
If the amount of difference between debit and credit is debit, then that amount is placed on the debit
“Particulars” column. If it is a credit balance it shall be placed on the credit’s “particular” column.
If there is only one entry on any side of an account ledger, no footing is done, and the entry is left as it is.
The accounts that remain open after posting to the ledger are called “open accounts.” If both sides of the
account have the same balance which results in zero after deducting both from the other, then it is said to
be “in balance” or “closed account”.
For illustration purposes, the sample cash ledger accounts of Anime World Gallery, after posting, are
presented as follows:
Illustration 29 - 5: Cash Account in a T-Account format General Ledger

CASH Code: 110
Date Particulars Ref Debit Date Particulars Ref Credit
5/2 Initial Investment 300,000 5/5 bought office equipment 180,000
5/3 Borrowed money from bank w/12% int. 100,000 5/5 partial payment for furniture bought 12,000
5/15 partial collection fom Mr. Kuto 50,000 5/6 rent paid 2 months advance 18,000
5/20 contract painting of lelouch 80,000 5/7 Insurance premium for the year 10,800
5/23 sale of charcoal painting 90,000 5/12 paid national book store for supplies 3,000
total 620,000 5/18 withdrew cash for personal use 18,000
5/25 paid salary of helper 4,000
5/29 paid water bill 540
5/31 373,660 total 246,340
Below is another format of a General Ledger that is commonly used now for easy monitoring of balances.
This is the same format that is being used in the NC3 Bookkeeping exam. However, in actual practice, the
old format is still being used or practiced due to its economical nature.
Illustration 29 - 6: Cash Account in a 3- column General Ledger
CASH Account 110

Date
02-May Initial Investment J1 300,000 300,000
03-May Borrowed money from bank w/12% int. 100,000 400,000
05-May Bought office equipment 180,000 220,000
05-May Partial payment for furniture bought 12,000 208,000
06-May Rent paid 2 months advance 18,000 190,000
07-May Insurance premium for the year 10,800 179,200
12-May Paid National Book Store for supplies 3,000 176,200
15-May Partial Collection from Mr. Kuto 50,000 226,200
18-May Withdrew Cash for personal use 18,000 208,200
20-May Contract painting of Lelouch 80,000 288,200
23-May Sale of Charcoal Painting 90,000 378,200
25-May Paid Salari of helper 4,000 374,200
29-May Paid water bill 540 373,660
Total 620,000 246,340 373,660
END OF SESSION PRACTICES: DRILLS
Instruction: Fill the remaining ledger accounts of Gisel Ong’s Anime World Gallery from the
previous transactions discussed earlier. Start with the Asset accounts, followed by the Liability,
Owner’s Equity, and Income and Expenses accounts. Follow the account code as stated in the
Chart of Accounts in the earlier page. The Cash account has been filled up already in the
illustration 29-6.
Ong, Capital 310

Date
Total
Notes Payable 220

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WEEK 10: RECORDING TRANSACTIONS

SESSION 29: JOURNALIZING & POSTING

The journal makes several significant contributions to the recording process:

A journal entry should contain the following:

Illustration 29 -1: The General Journal

The Simple and Compound Entry

Journalizing the Transactions

THE ANALYSIS OF A TRANSACTION

Rules for Debit and Credit

Debit to show: Credit to show:

The Normal Balance of an Account

The following are the normal balances of accounts:

Normal Debit Balance Normal Credit Balance

The accounts are so numbered for purposes of indexing and cross-referencing.

Anime World Gallery Chart of Accounts

Income Statement Accounts

Posting to the Ledger

Illustration 29 - 3: Posting from the General Journal to the General Ledger.

The General Journal

The General Ledger

Ong, Capital Account 310

Illustration 29 - 4: The General Ledger

CASH Account 110

The Recording Process Illustrated

 Use these steps to analyze the effects of the business transactions:

 Remember the following questions in determining transactions.

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.

 On Acquisition of an Asset for Cash

Equation Analysis Assets - Assets

Entry: Dr. Cr.

 On Acquisition of Asset with Partial Payment and the Balance on Account

Equation Analysis Assets - Assets = Liability

Entry: Dr. Cr.

 On Advance Payment of Expenses

Equation Analysis Assets - Assets

Entry: Dr. Cr.

Equation Analysis Assets - Assets

Entry: Dr. Cr.

 On Events not Affecting the Accounting Equation (no journal entry)

 On Purchase of Supplies on Account

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.

 On Income Earned on Account

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.

 On Partial Collection of Accounts Receivable

Equation Analysis Asset - Asset

Entry: Dr. Cr.

 On Cash Withdrawal by Owner for Personal Use

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.

 On Collection of Unearned Income

Equation Analysis Assets = Liabilities + Owner's Equity

Entry: Dr. Cr.