PROPHET’S PEN ACADEMY, INC.

MODULE 7

GRADE 12
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

Name: _____________________________ Date:____________

PRE-TEST

1. What is the definition of Accounting?

2. From the definition, 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?
BOOKS OF ACCOUNTS

2 major types of book of accounts are journal and ledger.

➢ 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.

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

General Journal
Date Account Title and Explanation Ref Debit Credit

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:
o September 1, 2015 Mr. Ben Mabait invested PHP500,000 in a restaurant business by
opening an account with SuperBank.
o September 5, 2015 purchased kitchen appliances for his business amounting to PHP100,000
by issuing a check.
o 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.
General Journal
Date Account Title and Explanation Ref Debit Credit
9/1/15 Cash 500,000 500,000

B. Mabait, Capital

To record investment of Mr. Ben Mabait

9/5/15 Kitchen Appliances 100,000 100,000

Cash

To record purchase of kitchen appliances

9/6/15 Cash 20,000 20,000

Sales

To record sales for the day

*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 the 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:

General Journal
Date Account Title and Explanation Ref Debit Credit
9/7/15 Transportation Equipment 80,000 30,000
Cash 50,000
Accounts Payable

To record purchase of motorcycle by

paying cash and the balance on account

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:

Cash Receipts Journal

Date Description (Particulars) Ref Debit Credit Credit Credit
Cash Sales Accounts Sundry
Receivable

➢ 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 Debit Cash column represents the amount of cash received for a particular transaction.
➢ Major categories of receipts, such as 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 document for this journal is the Official Receipts or Cash Receipts issued by the
business.

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:

Cash Disbursements Journal

Description Check or
Date Ref Credit Debit Debit Debit Credit
(Particulars) Voucher
Number Cash Accounts Salaries Supplies Sundry
Payable

➢ 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:

Sales Journal
Date Description (Customer Name) Ref Charge Invoice Debit Credit
or Sales Invoice Account Sales
No. Receivable

➢ 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:

Purchase Journal
Date Description (Suppliers Name) Ref Charge Invoice Debit Credit
or Sales Invoice Purchases Accounts
No. (from Payable
Supplier)

➢ 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 supplier
➢ 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 by the supplier when the items, goods or merchandise
were delivered to the company when the purchase was made.
➢ 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.
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.

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:

General Ledger
Account: Cash Account No.: 1000
Date Item Ref Debit Credit Balance

➢ 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 are shown below:

Accounts Payable
Subsidiary Ledger
Vendor/Supplier: Joy Food Corporation Vendor No.: 201
Address: Matangad, Git. Mis. Or.
Date Item Ref Debit Credit Balance

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

POST-TEST

Directions: Identify what special journal that is applicable for the following
transactions:

1. Collected PHP10,000 from a customer in payment of his account

2. Bought 100 pieces of mugs to be sold in the store amounting to PHP1,500 on
account.
3. Sold five pieces of mugs to X, PHP320 cash.
4. Sold two pieces of mugs to Y, PHP112 cash.
5. Purchased office supplies for cash, PHP500.
6. Paid PHP20,000 monthly rental.
7. Paid salary of staff, PHP15,000.
8. Sold 100 pieces of mugs to Unicup, Inc., PHP5,600 on account.
9. Sold 500 pieces of mugs to Bugsmore Corp. for PHP15,300 payable one month after
delivery.
10. Purchase on account 1,000 pieces of mugs for PHP12,400.