Accounting-LEC-5-6

• BOOKS OF ACCOUNTS

  These are set of books used to record all the transactions or past events occurred in the business especially those financial in nature and those that have monetary values.
• Accountant is the one who is keeping the books for updating day to day activities of the business.
• There were two major types of books of accounts namely, 

  1. General Journal

  2. General Ledger
• Books of accounts are the manual instruments use for record keeping all accounting transactions. This is only prescribed recording device to recognized business transactions and events.
• When you have registered the business, the Bureau of Internal Revenue (BIR) will require you to have books of accounts to update the day-to-day transactions of the business.
• The general journal is called the book of original entry because all the business transactions are recorded in this book for the first time. After analyzing the transactions of the business, the journal implies that there is a daily recording of current events because it accounts for the day- to- day quantifiable and measurable business transactions or activities. The business documents like invoice, vouchers, receipts and others are the sources of information in recording transaction in the journal. In the journal, business activities are processed for the first time.
• Simultaneously after analyzing the accounting elements, the bookkeeper records the transactions in the book of accounts; first in the Journal and then in the Ledger. The journal provides a chronological record of transactions with explanations and clear references to their supporting documents with corresponding debits and credits while the ledger provides a classified record of accounts with their respective running balances
• The process of recording transactions in the journal is called “journalizing”. It is recorded in the chronological order of their actual happening. Earlier dates of transactions are recorded first before transactions of latest date would be recorded. The two kinds of journal:

  1. General Journal

  2. Special Journals
• General Journal - In a small business, having only a few business transactions only one book of original entry has been used to record the transactions and it is called the General Journal. General Journal is the simplest form of journal. It is a two – column journal that provides the following information:

  ·The date of transaction

  ·The account titles affected, and the brief explanation of transactions

  ·The post reference or page number of the ledger where the debit or credit value is posted

  The debit and the credit amount of the entries
• 1. Date Column – shows the date of the occurrence of the transactions. The same year and month for every entry should not be rewritten unless there will be changes in the year and month or a new page is needed. Check (√) mark can be used for the transaction with the same day.
• 2. Particulars – shows the account debited and credited as well as brief explanation of the transactions.  The account debited is entered at the extreme left of the first line. The credit account is entered slightly indented on the next line. The brief explanation of the transaction is entered on the next line slightly indented from the credit account. 
• 3. Posting Reference (PR) – is used when the entries are posted and the amounts are transferred to the related ledger account.
• 4. Debit Column – the first money column wherein the amount of the debit account is entered.
• 5. Credit Column – the second money column wherein the amount of the credit account is entered.
• Steps in journalizing a transaction

  To affect the recording of economic transactions and events in the general journal, the following procedures are generally observed:

  1. Enter the date

  2. Enter the debit account title and its amount

  3. Enter the credit account title and its amount

  4. Enter the explanation

  5. Enter the post reference
• Advantages of using a journal

  • Reduces potential error such as the omission of a debit or credit which would have a material effect if directly recorded in the ledger
  • If entries are first encoded in the general journal and later on transferred to the general ledger, any error committed in the ledger can be traced back to the entries made in the journals
  • Provides a complete record of transaction in one place by recording the net balance of the same account. A good example of this is the use of compound entry
  • Shows all the pertinent facts about the transactions in their chronological order
• Ledger

  The journalizing process implies that business activities, regardless of the nature of transactions, whether it is for realization of income, purchase of merchandise, payment of expenses or acquisition of assets, are recorded in a chronological order and journal is a mixture of several types of transactions
• Journal does not reflect information like the account balance of the total balance of an account. And it only gives importance to the value received and value given out. Posting basically is a sorting process. It groups similar accounts according to its nature and type. Posting is the method of shifting the recorded transaction in the general journal to the general ledger. The grouping of transactions follows the accounting elements –assets, liabilities, capital, income and expenses.
• Transactions involving cash are grouped together, so with the same manner in transactions involving purchases on accounts and payment of payables. Information found in the general journal are transferred to the ledger.
• The following guidelines should be observed in transferring the information from the general journal to the ledger

  ·No changes should be made in the accounts used and the amount entered.

  ·Debit entries in the journal should be transferred on the debit side of the ledger.

  ·Credit entries in the journal should be transferred on the credit side of the ledger.
• Ledger is a book of final entry. It accumulated all data necessary prior to the preparation of financial statements. All similar transactions in the journal are grouped together in the ledger. While the journal records the transactions in their chronological order, the ledger organizes the information by account. The ledger compliments the journal by providing the running balance of an account.
• The T- account is the basic form of a ledger. On the right side of the T account is the debit column and the left side is the credit column. The arrangement of ledger is in accordance with the chart of accounts. The ledger has the following major parts:

  The account title and account number

  1. The debit side

  2. The credit side
• Account title and Account Number

  The account title – defines the nature of the ledger. For example, a ledger with an account title Accounts Receivable is a summary of all transactions involving sales in accounts only during the period. This means that transactions affecting accounts payables should not be transferred to this account. The account title is usually written at the center of the ledger
• The Account Number indicates the account number of the account titles listed in the chart of accounts. It is very important and necessary in cross- referencing of recorded transactions. The Account Number is written in the rightmost corner of the ledger in line with the account title.
• Debit and Credit Side of the Ledger

  The body of the ledger is divided into debit and credit sides. Both the debit and credit sides have the following sections:

  1. Date column

  2. Particular column

  3. Folio or post reference

  4. Amount column
• Special journals are also book of original entry where transactions are recorded for the first time. The special journals are designed to record special types of business transactions or activities. The design of the special journals will depend on the need of the business. Special journals are used by business enterprises which has various business transactions.

  Kinds of Special Journals are:

  1. Sales Journal

  2. Purchase Journal

  3. Cash Receipts Journal

  4. Cash Payment Journal

  5. General Journal
• Sales Journal


  Also known as "sales on account journal" because this journal is used as a book of original entries in recording several sales on account
• Sales Journal


  • The sales invoice to the several customers is the source document
  • At the end of the day or month, the money column of sales journal is totaled
  • This daily or monthly total amount is then posted to the sales and account receivable general ledgers
• If sales are made on cash


  The cash receipts journal shall be used instead of sales journal
• Customer's name


  Entered individually in the column to know which subsidiary account is affected by the sales transactions
• Sales Journal is also known as “sales on account journal” because this journal is used as a book

  The amounts in the journal are footed or added together. The totals are transferred to the General Ledger. The bookkeeper enters the account numbers beneath the totals in the sales journal. The totals are double- ruled           

  The business with many customers will find it difficult to monitor the account of its customer, keeping all the customers in the ledger will make it voluminous and will be inconvenient to the bookkeeper.
• Purchase Journal

  The posting of the columns, purchases account and accounts payable account of the Purchase Journal is done monthly. These are transferred to the General Ledger. The columns are footed and ruled. The bookkeeper enters the account number beneath the totals. The check mark column indicates the posting to the subsidiary ledger.
• The Cash Receipts Journal is used to record receipts of cash from all sources. The receipts of cash usually come from the following transactions

  1. Collection of accounts

  2. Initial and additional investment of the owner

  3. Sales in cash

  4. Loans from financing  
• Cash Payment Journal

  Records all payments whether in cash or by check. Cash purchases are recorded here, the following transactions are recorded in the Cash Payment Journal:

  1. Payments of accounts

  2. Cash withdrawals by the owner

  3. Other payments

  4. Costs and expenses payments made
• At the end of the month all the columns, Cash on Hand, Cash in Bank, Purchases Discount, Accounts Payable, Purchases and the Sundry accounts are totalled, footed and ruled.

  Check the equality of the debits and the credits total. Then the totals of each column are transferred to the General Ledger and the account number is placed beneath the column total.

  Post the sundry accounts individually filling up the folio column with the account numbers. To indicate that posting has been completed, checkmarks are placed beneath the totals of each column.