FABM 1 Handout 7 Chapter 7
FABM 1 Handout 7 Chapter 7
FABM 1 Handout 7 Chapter 7
CHAPTER 7
BOOKS OF ACCOUNTS
Introduction:
The Bureau of Internal Revenue (BIR), the taxing authority in the Philippines, mandates that all
businesses or persons, required by law, to pay internal revenue taxes shall keep permanently-
bound books of accounts for registration or stamping.
The books of accounts are records in which all accounts and transactions of a business are
maintained on a regular basis.
These books of accounts are typically a journal or ledger or their equivalents such as subsidiary
ledgers and simplified books of accounts.
JOURNAL
A journal functions as a financial diary .
It is used to record chronologically all transactions of a business as they occur. Since, it provides
the first evidence of a formally-recorded transaction, it is commonly referred to as the book of
original entry.
GENERAL JOURNAL
The General Journal (GJ) which looks like a two-column columnar notebook, is the journal used to
record all other business transactions not recorded in the special journal.
Examples of these transactions are the purchase and sale of equipment on account, owner’s
withdrawal and investment of non-cash assets and the incurrence of expenses.
Adjusting entries, correcting entries and closing entries are also recorded in this journal.
The GJ includes the following information:
1. the title “General Journal”
2. page number
3. date of the transaction
4. particular column
5. reference column
6. debit money column
7. credit money column
GENERAL JOURNAL G1
Date Particulars Reference Debit Credit
The Particular column is used to record the journal entry itself which includes the account/s
debited, the account/s credited, and the explanation for the journal entry.
The Reference column is used for posting purposes. This is more commonly known as the Folio (F)
column or the posting reference column.
The amounts written in the debit and credit money column should be aligned with the accounts
debited and credited. This means that the amount for account debited is written in the debit money
column, while the amount for account credited is written in the credit money column.
SPECIAL JOURNALS
Special journals are journals used to record recurring transactions.
The Sales Journal (SJ) is a journal used to record sale of merchandise on account.
This is typically used by merchandising businesses which have many credit sales transactions.
Only the transactions which involve a debit to Accounts Receivable and credit to Sales are recorded
in this journal.
Sales of other items, such as equipment, even if on account basis are not recorded in this journal
because these types of transactions are not normal occurrence in the business. Sales of
merchandise on cash basis or with downpayment are also not recorded in this journal. Although,
these are recurring transactions, these are recorded in another special journal.
The SJ typically includes the following information:
1. the title “Sales Journal”
2. page number
3. date of transaction
4. invoice number
5. name of the customer
6. reference number for posting purposes
7. special money column for Accounts Receivables debit/ Sales credit.
SALES JOURNAL S1
Customer Name Dr: Accounts Receivable
Date Invoice No. Reference
(Account Debited) Cr: Sales
The Purchases Journal (PJ) is a journal used to record purchase of merchandise on account. This
is typically used by merchandising businesses which have many credit purchases.
Only the transactions involving a debit to Purchases and credit to Accounts Payable are recorded in
this journal.
The source documents for recording in the PJ are the purchase invoices received from various
suppliers.
Like a sales journal, the credit purchase of items other than merchandise is not recorded in this
journal, unless the business sets up a special money column for these types of purchases.
PURCHASES JOURNAL P1
Accounts Purchases Office
Sundry Accounts (Dr)
Account Payable Supplies
Date PR
Credited Account
(Cr) (Dr) (Dr) PR Amount
Titles
The Cash Receipt Journal (CRJ) is a journal used to record receipts of cash from whatever source.
All business transactions which include a debit to Cash are recorded in this journal.
For merchandising business, these include the sale of merchandise on cash basis, the sale of
merchandise with downpayment, collection of customer account, and even cash investment made
by the owner.
For a service business, these include the receipt of cash for service rendered, collection of customer
account and cash investment made by owner.
For the “Other Account” the business may set up columns for commonly used account titles to
maximize the benefits received from the use of special journal.
The Cash Disbursement Journal (CDJ) or sometimes known as the cash payment journal (CPJ) is
a journal used to record payment of cash for whatever purpose.
All business transactions which include a credit to Cash are recorded in this journal. These include
the purchase of item on cash basis, purchase of items with downpayment, payment of account with
supplier, payment of expenses and cash withdrawal made by the owner.
Special journals and general journals provide evidence of the business transaction and its
related impact on the financial statements of a business.
Both journals show the accounts affected and the related amounts in money columns. The use of
money columns in journal encourage a stricter way of entering amounts by ensuring the digits are
properly placed in the centavos, ones, tens, hundreds, thousands, and even million columns.
Peso signs, commas and decimal points are omitted when recording in the journal. However, for
purposes of clearer illustration, commas can be used in recording.
The use of special journals provides the following advantages:
1. It promotes division of labor
2. It saves time in journalizing transactions
3. It saves time in posting transactions
4. It aids in decision-making.
LEDGER
A ledger is a collective record of individual accounts used by a business. It is used to sort all entries
made in the journal in chronological order and to group all transactions that affect individual
accounts in order to facilitate the preparation of financial statements.
Since the basis of information in the ledger comes from the journal, the ledger is commonly referred
to as the book of final entry as it where the recorded transaction can be seen next after going
through the journal.
It provides the last record of financial information before financial reports are prepared.
The account number is based from the chart of accounts of the business which is a listing of all
account titles used in the business together with the related account numbers.
The item column includes details of the transaction which may be in the form of explanation or
customer/supplier name.
The reference column refers to the reference number of the source of information.
SUBSIDIARY LEDGER
The Account Receivable subsidiary ledger is also known as customer subsidiary ledger, gives more
detailed information on the transactions of each credit customers and provides information on
which customers owe money to the business and how much.
The Accounts Payable subsidiary ledger is also known as the supplier subsidiary ledger, gives
details on the transactions of the business with each account supplier and provides information on
which suppliers the business owes money to and how much.
Accounts Receivable and Accounts Payable are therefore control (controlling) accounts because
these are general ledger accounts supported by detailed information in the subsidiary ledger.
The heading “Accounts Payable – Martinez” refers to the control account and the name of the
supplier which implies that the subsidiary ledger is a supplier subsidiary ledger.
The Reference Column refers to the reference number of the source of information.
The Account Balance column makes the feature of subsidiary ledger a running balance type because
the balance is determined after every posting to the subsidiary ledger of a particular customer or
supplier.