Accounting Books -

Journal , Ledger and

Trial Balance
The journal is a chronological record (day-by-day) of business
transactions. It is called the book of original because it is the accounting
record in which financial transactions are first recorded.

There are two types of journals

 General journal

 Special journal
 The general journal is the most basic journal. Typically, a general journal has spaces for dates,
account titles and explanations, references, and two amount columns. The journal makes several
significant contributions to the recording process:

• It discloses in one place the complete effects of a transaction.

• It provides a chronological record of transactions.
• It helps to prevent or locate errors because the debit and credit amounts for each entry can be easily
compared.
To illustrate the recording of transactions in the general journal, let us use
the following transactions as an example:

• September 1, 2015 Mr. Ben Mabait invested PHP500,000 in a

restaurant business by opening an account with SuperBank.

• September 5, 2015 purchased kitchen appliances for his business

amounting to PHP100,000 by issuing a check.

• September 6, 2015 started his operations a made a sales for that day
amounting to PHP20,000.
We will now record the above transactions in the general journal.
SPECIAL JOURNALS

Some businesses encounter voluminous quantities of similar and recurring transactions which may create congestion if these
transactions are recorded repeatedly in a single day or a month in the general journal.
The following are the commonly used special journals:

 Cash Receipts Journal – used to record all cash that has been received

 Cash Disbursements Journal – used to record all transactions involving cash payments

 Sales Journal (Sales on Account Journal) – used to record all sales on credit (on account)

 Purchase Journal (Purchase on Account Journal) – used to record all purchases of inventory on credit (or on account)
Cash Receipts Journal is used to record transaction involving receipt or collection of cash. The
following illustrate the form of a cash receipts journal:
 The cash disbursements journal is the opposite of the cash receipts journal. It is the journal
where all cash payments are recorded. An example of a cash disbursement journal is shown below:
• The date of the transaction is entered in the date column.
Sales Journal (Sales on Account Journal)

The Sales Journal or Sales on Account Journal is used in recording several sales transactions on
account. The source document for this journal is the charge invoice or sales invoice (for credit
transactions) to various customers or clients. An example of a sales journal is shown below:
Purchase Journal (Purchases on Account Journal)

The Purchase journal or the Purchases on Account Journal is used to record recurring transactions
of purchases on account. The source documents for purchase journal are the invoices from the
supplier of the company. An example of a Purchase Journal is shown below:
The ledger refers to the accounting book in which the accounts and their related amounts as recorded
in the journal are posted periodically. The ledger is also called the ‘book of final entry’ because all
the balances in the ledger are used in the preparation of financial statements. This is also referred to
as the T-Account because the basic form of a ledger is like the letter ‘T’.

There are two kinds of ledgers, namely;

 general ledger

 Subsidiary ledgers.
GENERAL LEDGER
The general ledger (commonly referred by accounting professionals as GL) is a grouping of
all accounts used in the preparation of financial statements. The GL is a controlling account
because it summarizes all the activities that have taken place as recorded in its subsidiary
ledger.

The format of a general ledger is shown below:

A general ledger is often called a T-Account because of its resemblance to the letter T. A T-
Account is a simplified form of general ledger.

A sample of a T-account is shown below:

SUBSIDIARY LEDGER

A subsidiary ledger is a group of like accounts that contains the independent data of a specific
general ledger. A subsidiary ledger is created or maintained if individualized data is needed for a
specific general ledger account. An example of a subsidiary ledger is the individual record of various
payables to suppliers. The total amount of these subsidiary ledgers should equal the balance in the
Accounts Payable general ledger.

An example of a subsidiary ledgers are shown below:

Business Transactions and Their Analysis as
Applied to the Accounting Cycle of a Service
Business
Types of Businesses

 service business
 merchandising business
 manufacturing business
1.car mechanic / repair - service
2. car parts store - merchandising
3. car making - manufacturing
 five major accounts, namely:
 Assets are resources owned by a business.
 Liabilities are claims against the assets of the business.
 Equity (capital) is the claim of the owner or owners.
 Income are increases in the equity or capital resulting from business
activities entered into.
 Expenses are decreases in the equity or capital resulting from business
activities. It may include assets or services consumed in the process of
earning income .

A service business provides a needed service for a fee. In general, service businesses actually
have no physical product sold to clients. Their services are designed to facilitate the work of
clients and in return are paid.
THE ACCOUNTING CYCLE for SERVICE
BUSINESS
Step 1 - Transactions and/or Events Identification and measurement of external
transactions and internal events.

At this stage, the documents used by the business are analyzed whether it has
financial impact or effect.

Examples of financial transactions: •

 Receipt of cash from a client as advance payment to repair a computer
Paying the electric bill.

Examples of non-financial transactions:

 hiring and termination of employees

 recognition from the government as most outstanding business
 death of owner
The information needed when recording transactions are taken from forms used to
document these transactions. In a typical service business, the following are the business
documents used:

1. Official Receipt or Cash Receipt This document is used when a business receives
money or a check. An Official Receipt or Cash Receipt is a document that acknowledges
that money or a check have been received
2. Charge Invoice or Sales Invoice

A charge invoice is a document used when a service has been rendered, but the client will be billed only after a
certain number of days from the date of service. Often, a company will issue a statement of account to a
customer, with the charge or sales invoice attached. For example: in a laundry business, a customer may avail of
the services of the business. However, that customer and the owner of the business had a prior agreement that all
services availed by the customer will be paid only after 30 days. In this case, a charge invoice is issued on the
day the client availed of the services.
3. Check or Cash Voucher

The check voucher is a document used when a check is issued to pay a certain supplier or vendor. For
example, in a laundry business, for the payment of monthly electricity bills, the business may pay either in
cash or check. But the company must prepare a cash or check voucher to support this payment. This
document will serve as a record of payment and, at the same time, as proof that payment has been made by
the company.
Step 2 - Preparation of Journal Entries (journalization) Through the use of specialized journals (such
as those for sales, purchases, cash receipts, and cash disbursements) and the general journal, transactions
and events are entered into the accounting records. These are called the books of original entry.

Debits and Credits are an integral part of the journalization process. In accounting, debits or credits are
abbreviated as DR and CR respectively.

When to Debit and when to Credit: An increase in an asset account is called a debit and an increase in a
liability or equity account is called a credit.

Rules on Debits and Credits

 The name of the account to be debited is always listed first. The debited account is listed on the first
line with the amount in the left side of the register.
 •The credited account is listed on the second line and is usually indented. The credited amount is
recorded on the right side of the register.
 The total amount of debit should always equal the total amount of credit.
Step 3 – Posting

The summary (in specialized journals) or individual transactions (in the general journal)
are then posted from the journals to the general ledger (and subsidiary ledgers). Nothing
should ever get posted to the ledgers without first being entered in a journal.
Recall the lesson on the general ledger. We will now post the previous transactions of Pedro
to the general ledger. For purposes of discussion, we will be using the three-column ledger.
Step 4 - Unadjusted Trial Balance

At the end of an accounting period (for example, one month or one year) the working trial balance is
prepared. This involves copying each account name and account balance to a worksheet (working trial
balance). The resulting first two columns of the worksheet are called the unadjusted trial balance. In the
preparation of the unadjusted trial balance, the balances in all the general ledgers at the end of the reporting
date are forwarded to the appropriate column.

The unadjusted trial balance is the listing of general ledger account balances at

the end of a reporting period, before any adjusting entries are made to the
balances to create financial statements.

The unadjusted trial balance is used as the starting point for analyzing account
balances and making adjusting entries.
The unadjusted trial balance for the transactions in our example from Step 3 is the
following:
Review of the Accounting Equation

The basic accounting equation is what drives double-entry bookkeeping. The equation reflects the
accounts reported in the balance sheet. The basic accounting equation is as follows:

ASSETS = LIABILITIES + OWNERS' EQUITY

This is a very simple algebraic equation that reflects how the assets of an entity must be supported by
either debt or equity. As in algebra, if we add or subtract something from one side of the equation we
must add or subtract the same amount from the other side. For example, if we were to increase cash (an
asset) we might have to increase note payable (a liability account) so that the basic accounting equation
remains in balance.

ASSETS = LIABILITIES + OWNERS' EQUITY

PHP 500 = PHP 500 .
Applying, the formula to our transactions in Step 3 above, the effects of these transactions to the equation
are shown below: