Books of Accounts

Lesson 9
At the end of this lesson, the learners will be able to:

• identify the uses of the two books of accounts

(journal and ledger) to record business transactions.

• explain the use of general and special journals to

record business transactions

• discuss the use of general and subsidiary ledgers

to record business transactions.
Motivation

1.Define Accounting.

2. From the definition of accounting, where do we

record the transactions that we have identified?
What are the tools that we use to document these
transactions? How important are these records in
accounting?
Lesson Proper
The two major types of books of accounts are
journal and ledger.

Companies initially record transactions and events

in chronological order (the order in which they
occur). Thus, the journal is referred to as the book of
original entry. For each transaction the journal
shows the debit and credit effects on specific
accounts.

There are two types of journals, the general journal

and the special journal.
GENERAL 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.
Shown below is an example of a general journal
Journalizing process

Entering transaction data in the journal is known as journalizing.

Companies make separate journal entries for each transaction. A
complete entry consists of:

• The date of the transaction which is entered in the Date column.

• The debit account title (that is, the account to be debited) which is
entered first at the extreme left margin of the column headed
“Account Titles and Explanation,” and the amount of the debit is
recorded in the Debit column.

• The credit account title (that is, the account to be credited) which is
indented and entered on the next line in the column headed “Account
Titles and Explanation,” and the amount of the credit is recorded in
the Credit column.
Journalizing process

• A brief explanation of the transaction which appears on the line

below the credit account title. A space is left between journal entries.
The blank space separates individual journal entries and makes the
entire journal easier to read.

• The column titled Ref. (which stands for Reference) which is left
blank when the journal entry is made. This column is used later when
the journal entries are transferred to the ledger accounts.
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 sale for that day
amounting to PHP20,000.
We will now record the above transactions in the
general journal.
Some entries involve only two accounts, one debit
and one credit. An entry like these is considered a
simple entry. Some transactions, however, require
more than two accounts in journalizing. An entry
that requires three or more accounts is a compound
entry. All of the transactions in above examples are
simple entries. An example of a compound entry is
the following:
On September 7, 2015, Mr. Mabait purchased a
motorcycle costing PHP80,000. He pays
PHP30,000 cash and agrees to pay the remaining
PHP50,000 on account (to be paid later). The
compound entry is as follows:
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 format of a
cash receipts journal:
• The date of the transaction is entered in the date column.

• A brief explanation of the transaction is entered in the description

column.

• The column titled Ref. (which stands for Reference) which is left
blank when the journal entry is made. This column is used later when
thejournal entries are transferred to the ledger accounts.

• The Debit Cash column represents the amount of cash received for a
particular transaction.
Cash Disbursements Journal (CDJ)

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

•A brief explanation of the transaction is entered in the description

column.

• The column titled Ref. (which stands for Reference) which is left
blank when the journal entry is made. This column is used later when
the journal entries are transferred to the ledger accounts.

• The Check or Voucher number represents the identifying number of

the check issued for the related cash payment. Most of the time, a
check or cash voucher accompanies the disbursement. The voucher
number may be used as the alternative for this column.
• The Debit Cash column represents the amount of cash received for a
particular transaction.

• Major categories of receipts, such cash sales and collection of

accounts receivable are provided with separate columns. These
transactions are frequent and repetitive items, therefore a separate
column is provided.

• The column sundry is used for various miscellaneous and less

regular items, such as capital investment, receipt of loan proceeds,
among others.

The source documents used to update this journal are the check
voucher or cash voucher, cash receipts or official receipts from
suppliers or vendors.
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:
• The date of the transaction is entered in the date column.

• A brief explanation of the transaction is entered in the description

column or the name of the customer.

• The column titled Ref. (which stands for Reference) which is left
blank when the journal entry is made. This column is used later when
the journal entries are transferred to the ledger accounts.

• The Charge Invoice Number or Sales Invoice Number represents the

identifying number of the source document issued to the customer
when the sale was made.
• The Debit Accounts Receivable column represents the amount of the
sale transactions indicated in the charge invoice.

• The Credit Sales column represents the amount of the sale

transactions indicated in the charge invoice.

The source document for this journal is the Charge Invoice issued by
the business.
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 Debit Purchases column represents the amount of the goods
purchases as indicated in the charge invoice from the supplier

• The Credit Accounts Payable column represents the amount of the

goods or items purchased on credit from the supplier. The amount is
indicated in the charge invoice issued by the supplier.

The source document for this journal is the charge invoice from the
supplier or vendor.
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; the general ledger and the
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:
• The account portion refers to the account title for example: cash,
accounts receivable.

• The account number is an assigned number for each account title to

facilitate ease in recording and cross-referencing.

• The Date column identifies when the transaction happened.

• The item represents the source journal and the nature of the
transactions
• The Reference identifies the page number of the general our special
journal from which the information was taken.

• The Debit and Credit columns are used in recording the amount of
transactions from the general journal or special journal.

• The Balance Column represents the running balance of the Account

after considering the debit and credit amounts. If the running balance
amount is positive, the account has a debit balance whereas if it has a
negative running balance, the accounts has a credit balance.
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 is shown below:

• The upper portion indicates the name and address of the vendor or
supplier.

• The vendor number is an assigned number for each vendor as

reference in keeping the records of a supplier.

•The Date column identifies when the transaction happened.

• The description column describes the nature of transaction.

• The Reference identifies the page number of the general our special
journal from which the information was taken.
• The Debit and Credit columns reflect the various effects of every
transaction to the record of the supplier or vendor.

• The Balance column provides the running balance of every supplier.

Activity 1
Identify what special journal that is applicable for the following transactions:
6. Paid PHP20,000 monthly rental.
1. Collected PHP10,000 from a customer Answer: _________________
in payment of his account.
Answer: _________________ 7. Paid salary of staff, PHP15,000
Answer: _________________
2. Bought 100 pieces of mugs to be sold
in the store amounting to PHP1,500 on 8. Sold 100 pieces of mugs to Unicup,
account. Inc., PHP5,600 on account.
Answer: _________________ Answer: _______________

3. Sold five pieces of mugs to X, PHP320 9. Sold 500 pieces of mugs to Bugsmore
cash. Corp. for PHP15,300 payable one month
Answer: __________________ after delivery.
Answer: _______________
4. Sold two pieces of mugs to Y, PHP112
cash 10. Purchase on account 1,000 pieces of
Answer: _______________ mugs for PHP12,400
Answer: ________________
5. Purchased office supplies for cash,
PHP500.
Answer: _______________
Activity 2

1. Differentiate General Ledger from a Subsidiary Ledger.

2. Differentiate General Journal from a General Ledger.