Lesson 3

• Process of recording business transactions in the book of original entry called Journal. Transactions are recorded in the journal in chronological order (transactions’ date of occurrence)
• What is the first column in a 2-column journal used for?

  Date Column
• What should be written in the Date Column of a 2-column journal?

  The day of each transaction, regardless of the number of transactions on that date
• What is the second column in a 2-column journal called?

  Description Column
• How should the Description Column be formatted in a 2-column journal?

  The title of the account debited comes first, followed by the credited account indented ½ inch, and a short description indented an inch
• What is the purpose of the Posting Reference Column?

  It is filled up during the posting stage
• How should amounts be recorded in the Debit Column?

  Do not put peso sign, comma, or decimal point, and put a dash if there are no centavos
• How should amounts be recorded in the Credit Column?

  Do not put peso sign, comma, or decimal point, and put a dash if there are no centavos
• What should be done after each journal entry in a 2-column journal?

  Always leave one row as space
• What should be written on each sheet of a 2-column journal?

  The name of the book and the page number
• Simple journal entries – one debit and one credit only
• Compound journal entry – if there are more than two accounts involved
• Double-entry bookkeeping - method of recording business transactions which recognizes dual effect of transactions.
• Account – record of each asset, liability, owner’s equity, revenue and expense items
• T-Account – useful tool that is used for illustrations, analyzing transactions and in problem solving. Resembles a big letter T.
• Debit – from Latin word “debere” meaning to owe (abbreviated as “Dr.”)
• Credit – from Latin word “credere” meaning to trust or believe (abbreviated as “Cr.”)
• Posting is the process of transferring the entries from the journal to the accounts in the ledger.
• Ledger is a group of accounts. It provides a summary of transactions for each account for an accounting period.
• The general ledger contains the entire set of accounts used by a business which are arranged in the following order: Assets, Liabilities, Capital, Revenue and Expense Accounts. This is called the book of final entry.
• After posting the journal entries to the ledger, the amounts of the debit and credit columns of the accounts are totaled and the difference between the amount of debit and credit totals are determined which is called pencil footing.
• A trial balance is a summary listing of the account titles and the balance of each account. It is prepared to test the equality of the debit and credit balances of the accounts in the ledger. If the trial balance does not balance, it is an indication that error has been committed.
• What should be done if the trial balance totals do not balance?

  First, determine the difference between the debit an credit totals of the trial balance columns.

  1. If the difference is a matter of 1,10,100 or 1000, it’s an error in addition. Re-add the trial balance columns and recompute the ledger account balances.
  2. If the difference is divisible by 2, look for a balance equal to one half of the amount erroneously entered in the wrong column of the trial balance.
• 3. If the difference is divisible by 3 or 9, a transposition or a slide error may exist. If either such error exists, retrace the account balances on the trial balance to determine if they are transferred incorrectly from the ledger.

  4. If the difference is not divisible by 2 or 9, let’s say P 265. This may result to the omission of an account balance in the trial balance or omission in the posting of journal entry. Compare the balances in the trial balance with that of the ledger and the postings in the ledger with the entry in the journal
• Correcting Entries

  A) Draw line and correct the title

  B) Draw a line and post correctly

  C) Journalize and post a correcting entry

  
• What is in the picture?

  A) Charts of Accounts

  
• Normal Balances

  A) Assets

  B) Drawing

  C) Expense

  D) Liability

  E) Capital

  F) Revenue

  
• What is in the picture?

  A) General Journal

  
• Rules of Credit and Debit

  A) Asset

  B) Drawing

  C) Expense

  D) Liability

  E) Capital

  F) Revenue

  
• Slide – wrong decimal placing 520,52,5.2
• Pencil footing - which means to add together the figures in a column and write the result in small pencil figures at the bottom of the column.
• Accounting Cycle

  1. Analyzing
  2. Journalizing
  3. Posting
  4. Preparing a trial balance
  5. Data for Adjusting Entries
  6. Preparing a Worksheet
  7. Preparation of Financial Statements
  8. Journalizing & Posting of Ajusting Entries
  9. Journalizing & Posting of Closing Entries
  10. Post-closing trial balance preparation
  11. Journalizing & Posting of Reversing Entries (1-2 Recording) (3 Classifying) (4-10 Summarizing) (11 Beginning of Next Accounting Period)
• When an erroneous journal entry has been posted already, it’s not proper practice to correct the error by drawing a line across the error. Various erasures might lead to suspicions of fraud or dishonest practice in the company. A correcting entry must be prepared to correct this type of error. HOW? 1. Prepare the erroneous entry made 2. Prepare the should be entry 3. Journalize and post the correcting entry.
• Transposition – order of digits are rearranged 1,381-1,831,1,318