chapter 7 to 9.pptx

Fundamentals of
Accountancy,
Business and
Management 1 (First
Quarter)
Bureau of Curriculum Development
March 2017
Leonelson B. Corral, CPA, LPT

FUNDAMENTALS OF ACCOUNTING, BUSINESS
AND MANAGEMENT 1
FOR SENIOR HIGH SCHOOL
LEONELSON B. CORRAL, CPA, LPT
Teacher II

CHAPTER 7
THE
ACCOUNTING
EQUATION
LEARNING OBJECTIVES
At the end of the chapter, students are
expected to:
☞ Learn to familiarize the
accounting equation;
☞ Illustrate the accounting
equation;
☞ Apply the accounting equation
to simple business transactions noting
the increases and decreases on the
basic elements of the equation; and
☞ Apply the accounting equation
to simple business transactions
affecting the accounts using a tabular
format.

The Accounting Equation is the basic tool
of accounting where the left side of the equation
shows the resources owned by the business and
the right side of the equation shows the resources
that are applied to the business by the outside
creditors and the owners.

TYPES OF MAJOR ACCOUNTS
DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT
ASSETS
resources controlled by the entity as a result of past
transactions or events and from which future economic
benefits are expected to flow to the entity.
are present obligations of the entity arising from past
transactions or events the settlement of which is
expected to result in an outflow from the entity of
resources embodying economic benefits
EQUITY
residual interest in the assets of the entity after
deducting all its liabilities
INCOME
increase in economic benefit during the accounting
period in the form of inflow or increase in asset or
decrease in liability that results in increase in equity, other
than contribution from equity participants
EXPENSE
S
decrease in economic benefit during the accounting
period in the form of outflow or decrease in asset or
increase in liability that result in decrease in equity other
than distribution to equity participants
LIABILITIES

Current
- expected to be
realized within 1
year
Non Current
Current
- expected to be
realized within 1
year
Non Current
ASSETS LIABILITIES

ASSETS
Cash
Cash Equivalent
Petty Cash Fund
Notes Receivable
Accounts
Receivable
Est. Uncollectible
Accounts
Advances to
Employees
Inventories
Prepaid Expenses
Property and
Equipment
Land
CURRENT ASSETS
NON CURRENT
ASSETS
Building
Equipment
Furniture and
Fixtures
Accumulated
Depreciation

LIABILITIES
Accounts Payable
Notes Payable
Accrued Expenses
Unearned Income
Notes Payable
Mortgage Payable
CURRENT
LIABILITIES
NON CURRENT
LIABILITIES
EQUITY
Amora, Capital
Amora, Drawings
Share Capital
Share Premium
Retained Earnings
Income and
Expense Summary

INCOME EXPENSES
Service Income
Rent Income
Professional Income
Sales
Rent Expense
Repairs and Maintenance
Salaries Expense
Insurance Expense
Bad Debts
Depreciation
Supplies Expense
Transportation
Salaries and Wages
Utilities Expense
Miscellaneous Income
Other Income
Taxes and Licenses

The Accounting Equation
ASSETS = LIABILITIES + CAPITAL
ACCOUNTS ACCOUNTS ACCOUNTS
Asset accounts are: Liability accounts are: Capital accounts are:
Petty Cash Fund Accounts Payable Original Capital Investments
Cash on Hand Notes Payable Additional Investments
Cash in Bank SSS Premium Payable Owner's Withdrawals
Accounts Receivable-Trade Pag-ibig Payable Revenues/Income Earned
Accounts Receivable- Others PhilHealth Payable Gains and Losses
VAT Input VAT Output Payable
Creditable Withholding Taxes Unearned Income
Notes Receivable Customers Deposits
Prepaid Expenses Rental Deposits
Land Loans Payable
Building
Transporatation Equipment
Office Equipment
Computer, Software & Peripherals
Furniture and Fixtures
Leasehold Improvements

ACCOUNTING EQUATION
ASSETS EQUITY
LIABILITI
ES
= +
resources
controlled by
the entity
as a result of
past
transactions or
events
and from
which future
economic
benefits are
expected to
flow to the
entity.
present obligations
of the entity
arising from past
transactions or
events
settlement of which
is expected to
result in an outflow
from the entity
ofresources
embodying
economic benefits
residual
interest in
the assets
of the entity
after
deducting
all its
liabilities
OWN OWE LEFT

ACCOUNTING EQUATION
ASSETS EQUITY
LIABILITI
ES
= +
INCOME
EXPENS
ES =
--
NET
INCOME/LO
SS
increase in
economic
benefit during
the accounting
period
decrease in
economic
benefit during
the accounting
period
EARN SPEND LEFT
increase decrease increase
INCOME
decrease increase decrease
EXPENS
ES

ACCOUNTING EQUATION
ASSETS EQUITY
LIABILITIES
= +
INCOME
EXPENS
ES
--
1,000 600
400
= +

ACCOUNTING EQUATION
CAS
E
ASSETS LIABILITI
ES
CAPITA
L
1 350,000 195,000 ?
2 ? 250,000 350,000
3 680,000 ? 450,000
4 ? 650,000 320,000
ACTIVITY

ACCOUNTING EQUATION
Case 1 Case 2 Case 3 Case 4
Assets 175,000 450,000 ? 380,000
Liabilitie
s
? 100,000 120,000 ?
Equity 75,000 ? 180,000 0
ACTIVITY

USERS OF ACCOUNTING
INFORMATION
GROUP
ACTIVITY
7.3

Illustration 1: - Effects of Business Transactions in the
Accounting Equation
Business Transactions
1. The owner invested cash to an internet business for
P200,000.
2. The business purchased internet equipment in cash for
P50,000.
3. The business purchased computer printers on
account/credit for P10,000.
4. The business purchased supplies in cash for P2,000.
5. The business collected cash from the internet gamers
and users for P50,000.
6. The business paid salaries to employees for P10,000.

7. The business paid communication expenses for
P20,000.
8. The business paid electricity bills worth P2,000.
9. The owner withdraws cash for P5,000.
10. The business partially paid the payable incurred in
the purchase of computer printers for P5,000.
11. The owner invested additional cash to the business
for P100,000.
12. At the end of the month, physical count of supplies
shows consumption of supplies amount to P1,500.

Effects of Business Transaction in the Accounting Equation
Accounting Equation:
ASSETS = LIABILITIES + CAPITAL
(left side of the equation) = (right side of the equation)
Transaction 1. The owner invested cash to an internet business
for P200,000.
•Assets = increase in asset
•Liabilities = no effect
•Capital = increase in capital
Explanation: Cash, which is an ASSET, is added to the equation
for P100,000 on the left side; while the same amount is also
added to the equation on the right side, as the CAPITAL of the
owner. Take note that at both sides of the equation, the amounts
are equal. No effect to the liabilities as the transaction does not
involve a liability.

Transaction 2. The business purchased internet
equipment in cash for P50,000.
•Assets = increase in one form of asset and decrease in
another form of asset
•Capital = no effect
Explanation: The transaction involves two forms of
ASSETS – one is the internet equipment which is
added to the equation as an asset and the other one is
cash being taken out from the equation as payment.
The effect of the two assets is zero, which still makes
the accounting equation equal.

Transaction 3. The business purchased computer
printers on account/credit for P10,000.
•Assets = increase in assets
•Liabilities = increase in liabilities
Explanation: There is an increase in ASSETS
which is added on the left side of the equation in
the form of computer printers and at the same
time an increase in the LIABILITIES on the right
side of the equation as the asset is purchased on
account or on credit.

Transaction 4. The business purchased supplies in
cash for P2,000.
•Assets = increase in one form of asset and decrease
in another form of asset
• Explanation: There is an increase in one form of an
ASSET which is added on the left side of the
equation in the form of supplies and a decrease in
another form of an ASSET which is deducted on the
left side of the equation in the form of cash. The
transaction resulted to zero which make the
equation equal.

Transaction 5. The business collected cash from
the internet gamers and users for P50,000.
• Explanation: There is an increase in the ASSETS
on the left side of the equation in the form of
cash and increase in CAPITAL on the right side
of the equation in the form of revenues. Please
take note that all revenues and income increase
the capital of the owner in the accounting
equation.

Transaction 6. The business paid salaries to
employees for P10,000.
•Assets = decrease in assets
•Capital = decrease in capital
Explanation: There is a decrease of ASSETS on the left
side of the equation in the form of cash payment and
decrease of CAPITAL on the right side of the equation
in the form of salaries as expense incurred by the
business. Please take note that all expenses incurred
by a business decrease the capital account of the
owner.

Transaction 7. The business paid communication
expenses for P20,000.
Explanation: There is a decrease of ASSETS on the
left side of the equation in the form of cash
payment and decrease of CAPITAL on the right
side of the equation in the form of communication
expense. All expenses incurred by a business
decrease the capital account of the owner.

Transaction 8. The business paid electricity bills
worth P2,000.
Explanation: There is a decrease of ASSETS on the
payment and decrease of CAPITAL on the right
side of the equation in the form of electricity
expense. All expenses incurred by a business
decrease the capital account of the owner

Transaction 9. The owner withdraws cash for P5,000.
side of the equation in the form of cash payment to
the owner and decrease of CAPITAL on the right side
of the equation in the form of cash withdrawal by the
owner. Please take not that all withdrawals of assets
made by the owner from the business decrease the
capital account of the owner

Transaction 10. The business partially paid the
payable incurred in the purchase of computer
printers for P5,000.
•Assets = decrease in asset
•Liabilities = decrease in liabilities
Explanation: There is decrease of ASSETS on the
payment and decrease of LIABILITIES on the
right side of the equation in the form of partial
payment to the liability on transaction 3.

Transaction 11. The owner invested additional cash to
the business for P100,000.
Explanation: There is an increase of ASSETS in the
form of cash on the left side of the equation and
increase in CAPITAL on the right side of the equation
in the form of additional capital investment by the
owner. All investments made by the owner to the
business increase the capital account of the equation.

Transaction 12. At the end of the month, physical
count of supplies shows consumption of supplies
amount to P1,500.
side of the equation in the form of supplies being used
to the business and decrease in CAPITAL on the right
side of the equation in the form of supplies usages.
Please take note that all supplies taken from the
inventory and used by the business in the operation
will be charged as expense, thus reducing the capital
account of the owner.

Illustration 2:
Using the same transactions in illustration 1,
let’s assign the amounts of the transactions in a
tabulated sheet that shows the effects of the
amounts in the accounting equation.

Transaction (A) (B) (C) Net Effect
No. ASSETS = LIABILITIES + CAPITAL B+C=A
1 200,000.00 200,000.00 both sides equal to P200,000
2 50,000.00 both sides equal to zero (0)
(50,000.00)
4 2,000.00 both sides equal to zero (0)
(2,000.00)
6 (10,000.00) (10,000.00) both sides equal to -P10,000
Column Total 316,500.00 5,000.00 311,500.00
Equation Total 316,500.00 316,500.00 both sides equal to P316,500

Illustration 3:
Using the same previous transactions, let us
assign accounts to the amounts of the transactions
in a tabulated sheet that shows the effects of the
amounts and accounts in the accounting equation.

Transaction ASSETS (A)
LIABILITIES
(B) (C)
No. Cash Internet Computer Supplies = Accounts + CAPITAL Account Specification or
Equipment Printers Payable Breakdown for Capital
1 200,000.00 200,000.00 Capital
2 (50,000.00) 50,000.00
3 10,000.00 10,000.00
4 (2,000.00) 2,000.00
5 50,000.00 50,000.00 Service Revenue
6 (10,000.00) (10,000.00) Salaries expense
7 (20,000.00) (20,000.00) Communication expenses
8 (2,000.00) (2,000.00) Light & Water expenses
9 (5,000.00) (5,000.00) Owners drawings
10 (5,000.00) (5,000.00)
11 100,000.00 100,000.00 Capital
12 (1,500.00) (1,500.00) Supplies expenses
Column Total 254,500.00 50,000.00 10,000.00 2,000.00 5,000.00 311,500.00
Equation Total 316,500.00 316,500.00 both sides equal to P315,500

CHAPTER 8
TYPES OF
MAJOR
ACCOUNTS
LEARNING OBJECTIVES
At the end of the chapter, students
are expected to:
☞ Discuss the five major
accounts;
☞ Know the basic types of
accounts, its elements and their
classifications; and
☞ Familiarize the chart of
accounts for service and
merchandising business.

There are five (5) major or basic types of accounts as
components in the financial statements, namely:
1. Assets
2. Liabilities
3. Capital or Owner’s Equity
4. Revenue or Income
5. Expenses
The accounts in the assets, liabilities and capital
(except for the drawings account) are called real or
permanent accounts. This is because these
accounts are carried forward to the next accounting
period.

The accounts in the revenues or income and
expenses , including the drawing account, are
called nominal or temporary accounts as
these are not carried over to the next accounting
period but are closed to the capital account at the
end of the accounting period. (8-5)
Accounts have its normal balances. When we
say normal balances, it means how it will appear
when it is summed up in the books of accounts
and presented in the trial balance and financial
statements.

There are only two normal balances of an
account in the books of accounts - it is either a DEBIT
or it is a CREDIT.
When an account is presented in the trial
balance not on its normal balance, it may have the
following reasons that an accountant should correct or
make adjusting entries:
1. there is an unrecorded transaction.
2. there is an error in the entries.
3. there is a transaction or items in the transactions
needing reconciliation.
4. a transaction may have been recorded twice.
5. there are errors in the posting process.

The following are major types of accounts and its
normal balances:
a. Assets – the accounts classified in this type have
normal balances of a DEBIT, except for their contra-
assets account like Allowance for Uncollectible
Accounts and Accumulated Depreciation which have
normal balances of a CREDIT but are presented in the
asset portion.
A DEBIT entry will increase an asset while a
CREDIT entry reduces it. It is the other way around
when it comes to contra-asset accounts that have
normal credit balances.

b. Liabilities – the accounts classified in this type
have normal balances of a CREDIT. A CREDIT entry
will increase a liability while a DEBIT entry will
reduce it.
c. Capital – this account is normally a CREDIT while
the Drawings Account is a DEBIT. When the capital
account becomes a debit balance, it is termed as
CAPITAL DEFICIT.
A CREDIT entry increases the capital account
while a DEBIT entry will reduce it and a DEBIT entry
will increase the drawings account while a CREDIT
entry will reduce it.

d. Revenues/Income – accounts that are classified under this
type have normal balances of a CREDIT. On merchandising
transactions, the SALES account which is classified under this
type is a CREDIT, while the Sales Discounts account is a DEBIT
and the Sales Returns and Allowances account is also a DEBIT.
This will be emphasized in chapter 5.
A CREDIT entry increases the revenues/income account
while a DEBIT entry will reduce it.
e. Expenses – all expenses have normal balances of a DEBIT.
On merchandising transactions, the PURCHASE account has a
normal DEBIT balance, while the Purchase Discount account is
a CREDIT balance and the Purchase Returns and Allowances
account is also a CREDIT balance.
A DEBIT entry will increase the expenses account while a
CREDIT entry reduces it. (8-1)

THE ASSETS ACCOUNT
Assets are defined as tangible and intangible
items, maybe objects or entities, that the company
owns and have economic value. These assets are also
the resources of the company that bring in revenues
or income for the business.
Assets are also grouped according to either their
life span/useful life or liquidity – how quick they can
be converted into cash.
Assets can be used to: 1. Settle obligations; 2. Produce
goods and services for sale; 3. Barter or exchange with
another form of asset; 4. Pay off capital investment in
the form of drawings.

Assets are classified as:
1. Current Assets- items that are completely consumed,
sold, or converted into cash within one year or 12 months.
These are presented in the trial balance or balance sheet
according to its liquidity- the most liquid comes first like
cash.
Examples are:
a. Cash and its equivalents
b. Accounts Receivable
c. Notes Receivable
d. Merchandise Inventory
e. Supplies Inventory
f. Prepaid expenses

2. Non-Current Assets- are tangible or intangible assets
with a life span of more than one year and usually longer
which typically not very liquid. The purchase costs of
assets such as machinery, buildings and other equipment
are not expensed out as incurred, but rather depreciated,
or expensed out or “written off,” over a number of years
according to its estimate lifespan or useful life.
Examples are:
a. Land
b. Building
c. Vehicles
d. Office and Computer Equipment
e. Furniture & Fixtures
f. Goodwill, Copyrights, Patents, Franchises

Tangible assets are those assets with
physical forms such as land, buildings, vehicles,
equipment, and inventory. Intangible assets are
things that represent money or value; things such
as Accounts Receivables, patents, contracts, and
certificates of investments.

Typical assets in its form as tangible or intangible, whether current or
noncurrent, are as follows:
Tangible Assets
1. Cash – this is the most liquid form of asset in a business organization.
This may represents cash on hand, cash in bank, petty cash fund and
revolving funds. Short-term marketable securities or instruments are
also classified as cash.
2. Merchandise Inventory – these are purchases of various goods or
products intended for sale.
3. Supplies Inventory - these are purchases of various supplies intended
for office or operations use. Once these supplies are put into use for the
business, these are eventually classified as expense.
4. Land, Building, Equipment, Furniture and Vehicles are long-
term resources of the business that serve as support to the day-to-day
activities of the business

Intangible Assets
1. Accounts Receivable – these are amounts due from customers
who have purchased goods or services from the seller through
sales invoices. This is common commonly paired with the
allowance for doubtful accounts (a contra-asset account), as
reserve for bad debts. The combined balances in the accounts
receivable and allowance accounts represent the net carrying
value of accounts receivable.
2. Notes Receivable – this account represents indebtedness of a
customer who purchases goods or services from a seller by way of
a promissory note.
3. Prepaid Expenses- these are future expenses paid in advance
and the amount that has not yet expired are reported in the
company’s balance sheet as an asset. Examples of this are prepaid
insurance, prepaid taxes and prepaid advertising.
4. Goodwill, Copyrights, Patents, Franchises - Intangibles

LIABILITIES
Liabilities are debts or financial obligations of an
individual or company to other individuals or
companies.
The settlement of these debts or obligations is
through:
1. Payment in the form of cash.
2. Payment in the form of any asset other than cash.
3. Payment in the form of rendering services.
4. Replacement by another debt or obligation.
5. Conversion of the debt into capital.
6. The creditor may simply waive his right to collect
the existing obligation.

Liabilities are classified as:
1. Current Liabilities – this consists of short-term
debts that require payment in one year or less.
Examples are:
a. Accounts Payable – these are amounts owed by
the individual or company to creditors or suppliers
for the purchase of goods and services
b. Unearned Income – amount received from
customer in advance, either as deposit or down-
payment for services that has yet to be performed
by the company

c. Output Vat Payable – this amount represents
the tax added to the sale of goods or services being
billed to customers, be it cash or on account.
d. Withholding Tax Payable – this is a payroll
liability in which an amount is withheld as taxes from
the salaries of officers and employees for remittance
to the BIR
e. SSS Payable – the amount of contribution by
employees which is deducted from their salaries,
including the employer share for remittance to the
Social Security Services (SSS).

f. Pag-IBIG Payable – the amount of contribution by
employees which is deducted from their salaries, including the
employer share for remittance to Pag-ibig Fund
g. PhilHealth Payable – the amount of contribution by
employees which is deducted from their salaries, including
employer share for remittance to Philhealth
h. Salaries or Wages Payable – these are salaries of
employees that are already incurred but only paid on the next
payroll cut-off
i. Taxes Payable – these are obligations to the governments
subsequently paid the following period.
j. Accrued Expense Payable – these amounts representing
expenses already incurred during the period but not yet paid.

2. Non-Current Liabilities – these are long-term
debts that will be settled or paid beyond one year
Examples are:
a. Notes Payable – this amount is owed by an
individual or company to creditors or suppliers for
goods or services purchased and is evidenced by a
written promissory note to pay the debt in a
specified period normally longer than one year.
b. Loans Payable – this amount owed by an
individual or company to creditors or banks and
other financial institutions for amount borrowed,
normally for a longer period of time. (8-2 & 3)

CAPITAL OR OWNER’S EQUITY
Equity represents the value of assets after deducting the total
of liabilities from the total of assets.
This is also called the residual value or interest of the
owner from the business. These are contributions of the owner to the
business, either in cash or non-cash assets like equipment, vehicles,
furniture, etc..
In a sole-proprietorship business, the capital’s components
within the accounting period are as follows:
Original investment or capital contribution Pxxx
Add: Additional investment/contribution xxx
Net income xxx
Total P xxx
Less: Drawings ( xxx)
Net Capital, end P xxx

REVENUES OR INCOME
The income or revenue account comprises the
actual money earned over a period of time from a job,
sale of goods or products and services, either in cash
or on account.
Examples are:
a. Revenue or income generated from the sale of a
commodity or rendering of services
b. Interests received on a bank deposit
c. Gain on the sale of assets
d. Rental received on a leased property e.
Professional fees earned

EXPENSES
An expense is a cost incurred as part of a company’s
operating activities during a specified accounting period
which are necessary in the conduct of the business.
Examples are:
a. the cost of goods sold
b. commissions earned by the sales employees
c. rent for the office space
d. the cost of the electricity used
e. advertising that took place
f. wages and salaries that were incurred
g. depreciation expenses for the amortization of fixed
assets
h. Losses (8-4)

CHART OF ACCOUNTS
A chart of accounts is a created list of the
accounts used by an organization to define each class of
items for which money or the equivalent is spent or
received.
It is used to organize the finances of the entity and to
segregate assets, liabilities, capital, revenue and
expenditures in order to give interested parties a better
understanding of the financial activities of the business.
Accountants and bookkeepers will refer to the chart
of accounts list as reference for all the transactions that
they will record in the books of accounts as a form of
classification.

What is an ACCOUNT in accounting?
It is a record in the general ledger that is used to
collect and store debit and credit amounts from a
transaction. To summarize the same transactions into
one, a specific account is assigned to it.
The accounts used in accounting are commonly
and generally accepted in the accounting practice.
The T-Account is the simplest form of an
account because you can summarize transactions
through this without using the general ledger book
and can already prepare a trial balance.

The T-account is literally a broad and very wide
letter “T” with the debit on the left side and the
credit on the right side:
Account Title
Debit Credit

CHAPTER 9
THE BOOKS
OF
ACCOUNTING
LEARNING OBJECTIVES
At the end of the chapter, students are
expected to:
☞ Identify the uses of the two
books of accounts;
☞ Illustrate the format of the
general and special journals;
☞ Illustrate the format of the
general and subsidiary ledgers; and
☞ Learn to record and post simple
business transactions to different
types of books of accounts.

The Books of Accounts are used to record
events transpiring in the course of the business.
These events or transactions are inflows and
outflows of monetary activities that a business
normally does in its day-to-day operations. These
events are then summarized, analyzed and converted
into financial reports termed as financial statements.
These books of accounts are registered with the
Bureau of Internal Revenue (BIR) for compliance and
monitoring purposes.

There are two major types of books of
accounts, namely: (1) journal, and (2) ledger.
Journalizing is the process of recording the
business transactions to the general journal, and
posting is the process of transferring or
summarizing the transactions from the general
journal to the general ledger.

Journal – the journal is referred to as the book of
original entry.
It records business transaction in chronological
order or order of date using the principle of “debit and
credit”.
In recording the business transactions to a
journal, the bookkeeper or accountant will use the
Journal Entry. This journal entry will also include a
short explanation on the nature of the transaction.

When a transaction has one debit and one credit,
it is called simple journal entry.
When a transaction has one debit and two or
more credits or two or more debits and one credit or
two or more debits and two or more credits, it is called
compound journal entry.
A double entry accounting is a method of
accounting that involves recording of transactions
wherein two accounts are affected, one is debited and
the other is credited. This method maintains the
accounting equation that both sides of the equation
remain equal.

Example of a simple journal entry is:
Debit Credit
Cash 100,000
Capital – B. Abarquez 100,000
To record initial capital contribution of B.
Abarquez to the business.

Example of a compound journal entry is:
Debit Credit
Cash 11,200
Accounts Receivable 44,800
Vat Output Payable 6,000
Service Revenue 50,000
To record professional services to
customer with cash down payment and balance 7
days term.

In the previous examples, take note that
when you write the credit entry, it should be
indented to the right few spaces from the debit
entry; while the short explanation of the
transaction is also indented to the right few spaces
from the credit entry.

There are the two types of journal: (1). Special
Journal, (2). General Journal .
Special Journals – these are designed to simplify
the process of classification and summarization of
accounts from transactions.
a. Sales journal – this is a special journal that is used
to record sales of goods or services on credit
(which are receivables from customers).
b. Purchase journal – this is a special journal that is
used to record all purchase transactions which are
on credit (payable to suppliers).

c. Cash disbursement journal – this is a special
journal that is used to record cash payment of
expenses and payables.
d. Cash receipts journal – this is a special journal
that is used to record cash sales of goods or
services and cash collections of receivables from
customers.
General Journal – this journal is used to record
transactions using the Journal Voucher System
that cannot be recorded in the special journals.

Ledger - is a book of financial accounts that
reflects the financial effects of the business
organization’s transactions after they are posted
or recorded to the various journals. This is also
called the book of final entry. While journals
show the chronological effect of business activity,
ledgers show activity by account type.

Two basic types of ledgers:
a. General ledger- this summarizes the activity for each
of the organization’s accounts from the journals. This
is the book where the entries from various journals are
being posted.
b. Subsidiary ledgers- these are details of various
accounts like accounts receivable and accounts payable
that are kept separately to provide better control of
accounts in the general ledger that need extensive
monitoring. These are records that breaks-down the
total amount reflected in the general ledger into parts;
per customer for the accounts receivable and per
supplier for the accounts payable.

A service business keeps the following books of accounts:
1. General journal
2. General ledger
3. Cash receipt journal
4. Cash disbursement journal
A merchandising business keeps the following books of
accounts:
1. General journal
2. General ledger
3. Cash receipt journal
4. Cash disbursement journal
5. Sales journal
6. Purchase journal

Basic Format of Books of Accounts
General Journal
The format used for the various journals
takes from the basic format of a general journal,
which has two columns. In actual practice, it is up
for the bookkeeper or accountant to revise the
format into several columns when it suits their
needs.
Date. The first entry will require the month, date
and the year. On succeeding entries, only the
month and date is written.

Account Title & Explanation. The first line to
be written is the account debited and the second
line, which is indented to the right, is the account
credited. The third line which is also indented to
the right from the account credited will be brief
explanation of the nature of the transaction.

Posting Reference (PR). This is filled up when the
account entry is posted or transferred to the general
ledger. What is written here is normally the account
number that is assigned to the specific account in the
general ledger as listed in the chart of accounts.
Let’s say if a CASH entry on page 1 of this
general journal will be posted to the general ledger
and the CASH has an assigned account number in the
chart of accounts as 100-01, then what is written here
next to the cash entry is PR is 100-01. Debit. This is
the column where the amount of the account being
debited is written. Credit. This is the column where
the amount of the account being credited is written

General Journal Format
COMPANY'S NAME: Page No.
GENERAL JOURNAL
DATE Account Title & Explanation PR DEBIT CREDIT

General Ledger
There are two types of general ledger format
that are being used: (1) a two-column general
ledger and, (2) a three-column general ledger.
Format of a two-column general ledger:
COMPANY'S NAME: GENERAL LEDGER
Account Title: Account No.
DATE EXPLANATION PR DEBIT DATE EXPLANATION PR CREDIT

Format of a three-column general ledger:
COMPANY'S NAME: GENERAL LEDGER
Account Title: Account No.
DATE EXPLANATION PR DEBIT CREDIT BALANCE

Date. What is written here is the date of the journal entry.
Explanation. You can write here a brief description of the
account being posted.
Post Reference (PR). This is filled up by the page
number where the account entry in the general journal is
recorded.
Let us say if a CASH entry that is recorded on Page 1
of the general journal will be posted in this ledger and the
general ledger is for Cash, then GJ1 is written. Debit. Write
in this column the debit amount from the general journal.
Credit. Write in this column the credit amount from the
general journal. Balance. This is the difference between the
debit transactions and the credit transactions.

Format of a subsidiary ledger:
SUBISDIARY LEDGER
NAME: Account Title:
DATE Particulars Ref No. DEBIT CREDIT BALANCE

Date. This is the date of the transaction
Particulars. The details of the transactions
Reference No. The source document or accountable
document being used in the transaction. This source
documents and accountable documents will be discussed
in the next chapter.
Debit. The amount of the transaction being debited.
Credit. The amount of the transaction being credited
Balance. The difference between the debit transactions
and the credit transactions.

Illustration 4.
Below are business transactions of an Accounts
Receivable and their effect to the books of accounts:
2016
June 1 – XYZ Merchandising sold computer
equipment for P50,000 to Mr. Perez, P25,000 cash
and the balance on credit per Inv# 1005.
June 5- The company sold printers to ABC Company
for P10,000 on credit per Inv# 1006.
June 10- The company partially collected from Mr.
Perez P10,000 per OR#125.

Step 1. Recording of business transactions to the
general journal.
Company Name: XYZ MERCHNADISING COMPANY Page No. 0 1
GENERAL JOURNAL
DATE Account Title & Explanation PR DEBIT CREDIT
2016
June 1 Cash 100-01 2 5 0 0 0
Accounts Receivable 100-03 2 5 0 0 0
Sales 400-01 5 0 0 0 0
To record sale of computer equipt
to Mr. Peres
June 5 Accounts Receivable 100-03 1 0 0 0 0
Sales 400-01 1 0 0 0 0
To record sale of printers to
ABC Company on credit
June 10 Cash 100-01 1 0 0 0 0
Accounts Receivable 100-03 1 0 0 0 0
To record partial collectioh from
the account of Mr. Perez

Step 2. Posting of journal entries from the general
journal to the general ledger.
COMPANY'S NAME: XYZ COMPANY GENERAL LEDGER
Account Title: CASH Account No. 100-01
2016
June 1 Sale to Mr. Perez GJ 1 2 5 0 0 0
10 Collection from Mr. Perez GJ 1 1 0 0 0 0 3 5 0 0 0
Account Title: ACCOUNTS RECEIVABLE Account No. 100-03
2016
5 Sale to ABC Company GJ 1 1 0 0 0 0 3 5 0 0 0
10 Collection from Mr. Perez GJ 1 1 0 0 0 0 2 5 0 0 0
Account Title: SALES Account No. 400-01
2016
5 Sale to ABC Company GJ 1 1 0 0 0 0 6 0 0 0 0

Step 3. Posting of receivable entries to the
subsidiary ledgers
SUBISDIARY LEDGER
NAME: Mr. PEREZ Account Title: Accounts Receivable
2016
June 1 Sale of Computers Inv1005 2 5 0 0 0
10 Payment of account OR125 1 0 0 0 0 1 5 0 0 0
NAME: ABC COMPANY Account Title: Accounts Receivable
2015
June 5 Sale of printers Inv1006 1 0 0 0 0 1 0 0 0 0

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