Book of Accounts
Book of Accounts
Book of Accounts
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
1. Date column. For the first journal entry on a page, the year, the month and the date
are entered here, the year is written in small figures on top of the first line of this column
while the month is written just below the year on the same first line. The date is written
on the first line of the Date’s second column.
2. Description column. The first line of an entry shows the account debited and the
second line is the account credited, which is indented to the right. A brief description
is written below the entry to understand the nature of transaction.
3. Posting Reference column. This column is filled out only during the transferring of
entries to the ledger. In this column, the account numbers of the debited and credited
accounts are written right after they are posted to the ledger.
4. Debit column. This is where the debit amount is written in line with the account
debited.
5. Credit column. This is where the credit amount is written in line with the account
credited.
a. The name of the book, General Journal, is written at the upper portion of every page. A
page number is also written on each sheet of journal.
b. The first entry is called a compound journal entry since there are more than two accounts
involved. A compound entry involves one or more debits and one or more credits.
c. Peso sign, comma, and decimal point are not used in columnar sheets. A dash is placed
when there are no centavos involved.
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. 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:
1. Cash Receipts Journal – used to record all cash that has been received. It is used to record
transaction involving receipt or collection of cash. The following illustrate the format of a cash
receipts journal:
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.
The source document for this journal is the Official Receipts or Cash Receipts
issued by the business.
2. Cash Disbursements Journal – used to record all transactions involving cash payments.
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 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 Credit Cash column represents the amount of cash payment for a particular
transaction.
The column sundry is used for various miscellaneous and less regular items, such
as payment of rent, utility bills, 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.
3. Sales Journal (Sales on Account Journal) – used to record all sales on credit (on account.
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
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.
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.
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.
The general ledger is a complete set of all the accounts used by a business. It provides a complete
record of the transactions entered in every single account for a specific accounting period. The
accounts are arranged in the following order: Assets, Liabilities, Capital, Revenue, and Expense
accounts. This is called the book of final entry.
2. Enter the page number of the journal from which each transaction is posted in the Posting
Reference column.
3. Enter the amount of each transaction in the Debit or Credit column as they appear in the
journal.
4. All balances at the end of the accounting period are written on the Items column to
easily prepare the trial balance.
In the journal:
1. Enter the account number in the Posting Reference column of the journal for each
transaction that is posted.
The process of entering the page number of the journal in the posting reference of the ledger
and the entering of account number in the posting reference of the journal is known as cross-
referencing or cross-indexing
After posting the all journal entries to the ledger, the difference between the debit total and the
credit total of each ledger account is to be computed. This process is known as pencil footing.
The account has a debit balance if the debit total is greater than the credit total – hence, the
balance is written on the debit side of the account. On the other hand, the account has a credit
balance if the credit total is greater than the debit total – hence, the balance is written on the
credit side of the account. It can be recalled that the normal balances of accounts are debit for
asset, credit for liability, credit for capital, debit for drawing, credit for revenue, and debit for
expense.
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 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.
Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach,
2nd ed. New York: McGraw-Hill/Irvin
Valencia, E.G.& Roxas, G.F. (2010). Basic Accounting 3rd ed., Mandaluyong City, Philippines:
Valencia Educational Supply.