BOOKS OF ACCOUNTS

A. JOURNAL

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.

1. 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.

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.
 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 sales for that day amounting to PHP20,000.

General Journal
Date Account Title and Explanation Ref Debit Credit
  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:

General Journal
Date Account Title and Explanation Ref Debit Credit

2. 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. Take the case of our example above, if Mr.
Mabait will record the sales per day using the Official Receipt or Cash Sales Invoice issued, it would be unnecessary and impractical
to credit “sales” account repeatedly. In order to facilitate efficient and practical recording of similar and recurring transactions, a
special journal is used.

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:
 B. LEDGER

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.

1. 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.
2. 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:

 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.

o Take note that the total running balance for all subsidiary ledgers should equal the Accounts payable general ledger.