BOOKS OF ACCOUNTS

To keep track of its transactions more efficiently, companies keep and maintain a set of books and/or records called books of accounts.
Books of accounts are the finance records, ledgers, journals that compose the company’s accounts. These serves as a company’s financial
memory and comprise of every single business transactions and financial information of a company. Aside from decision-making and
analysis of a business’ performance, books of accounts are also crucial in ensuring regulatory compliance as they also serve as proof of
the business transactions reflected in the financial statements.

There are two major books of accounts – the journals and ledgers. A company usually has two kinds of journals. First is the general
journal wherein all business transactions are recorded in chronological order and special journals which are used by large companies for
recurring transactions such as sales on account and purchases of merchandise on account. Ledgers, on the other hand, also have two types.
The general ledger is a grouping of all accounts ( assets, liabilities, and equity) with their balances and the subsidiary ledgers which are
also used as an expansion of the general ledger. The subsidiary ledger provides more detailed individual balances of accounts such as
accounts receivable and accounts payable.

JOURNALS

A journal is a chronological record of all company’s transactions listed by date. It is often referred to as the book of original entry. This
is because we first record the business transaction in this book. The recording of financial information into the journal is known as the
process of journalizing.

GENERAL JOURNAL typically displays the transactions date, accounts title and explanations, references, and respective amounts of
corresponding accounts. A sample format of a journal is shown as follows.

YEAR ACCOUNTS TITLE AND EXPLANATION 2 REF 3 DEBIT (Dr.) 4 CREDIT (Cr.) 5
1

MONTH DAY Debit Item xx

Credit Item xx

Explanation of the nature of transactions

1. Date: The date at which the transaction occurred

Date Column: the date column is divided into two sub-columns. Enter in the first sub-column, the amount and the year. The year is
written in small figures above the month in the same space of the first line. In each leaf of a journal, the year and the month is written
in the front page but not repeated in the back page. Enter in the second sub-column the date when the transactions occurred.

2. Accounts Titles and Explanation : The account to be debited and the account to be credited are recorded. The account titles are
referenced to the Chart of Accounts. Correct and proper usage of the account titles are necessary for a clear and accurate presentation
of amounts in the financial statements.

PARTICULARS Column: After analyzing a transaction and have ably determined the value received and the value parted with as
well, record this transaction in a form of Journal Entry. Enter the debit item first in the same line (first line) with the transaction date
and the corresponding peso amount in the debit money column. The credit item is indented with a reasonable distance from the
column of the debit item. The amount of the debit must equal with the amount of the credit. In the case of a compound journal entry,
debit, items are entered in a block form occupying the first, second or third line depending on the number of items debited. An
indention is made and then enters the credit items which will also be in block form in case of two or more items are credited.

A complete journal entry should have an explanation. The explanation must state briefly but concisely the nature of the transaction.
The first word of the explanation should be indented with a reasonable distance from the first letter of the account or item credited. It
is usually worded “ To record…”
 To illustrate:
The transaction is:
“Bought a car on account, P 8000,000”

The explanation would be, “To record car bought on account”

Some bookkeepers and accountants prefer to cut short the explanation by eliminating the words “To record” instead,
“Bought a car on account” to economize the space of the journal which becomes widely acceptable

Note: Leave a vacant space before recording the next transactions. Write only the date in the second sub- column of the date column
and the same procedure is followed.

Remember the following indentions made in preparing the Journal Entry:

1. The credit item is indented from the debit item;
2. The first word of the explanation is indented from the credit item

3. Reference Number: Reference number of each account journalized: The Ref column is left blank during the journalizing process
and is filled out during the posting process.
4. Debit: Corresponding amount of the account debited is entered. This is a money column showing the peso amount of the value
received in a transaction
5. Credit: Corresponding amount of the account credited is entered. This is a money column showing the peso amount of the value
parted with in a transaction

Take note on how peso amounts were written in both debit and credit money columns:

a. The money columns of the Journal provide the segregation of digits for the million, thousands, hundreds, pesos and centavos.
These results to the following observations:
 The use of comma for million and thousands and the decimal point for the centavos are eliminated;
 The use of peso (P) is also eliminated because the debit and credit columns are understood to be money
columns and that peso is used as its valuation;
 The use of the “dash” (-) indicates that there is no centavo in the amount. The “double-zero” may also be
used.

LEDGERS

After journalizing the business transactions in the general journal and special journals, the company will now proceed to the process of
posting. Posting involves the transferring of journal entries to the ledger accounts to bring together the effect of the transactions to the
individual accounts of the company.

The ledger is the grouping of all accounts of a company showing its respective outstanding balances. It is also called the book of final
entry of accounting transactions. It presents the changes in specific account balances like cash, accounts receivable, accounts payable,
etc. All account balances presented in the final reports of the company are derived from the ledger. The two kinds of ledgers are the
general ledger and the subsidiary ledgers.

GENERAL LEDGER

The general ledgers contains all the asset, liability, and owners equity accounts of the company. Unlike journals that are arranged
chronologically (regardless of the accounts), the ledgers are usually grouped according to their chart of accounts and arranged according
to the order on how they appear on the financial statements, starting from the asset accounts, followed by the liability accounts, and
finally, the equity accounts including the revenues and expenses accounts as shown in the figure. Each account is numbered based on the
chart of accounts for easier and faster reference. The general ledger shows the amount outstanding on each of the company’s accounts as
of certain date.
 ASSET ACCOUNTS LIABILITY ACCOUNTS OWNER’S EQUITY ACCOUNTS

Equipment Loans Payable Cost of Goods Sold

Inventory Salaries Payable Sales
Account Drawing
Interest Payable
Receivable
Capital
Cash Accounts Payable
Salaries
Expense

A general ledger has two sides; the left- hand side which is called debit side and right-hand side which is called a credit side.

Account No. ____

YEAR PARTICULARS Ref. DEBIT YEAR PARTICULARS Ref. CREDIT

Month Day Month Day

At the end of the accounting period, the debit and credit entries of its item or account in the ledger are totaled. If the debit side total is
bigger than the credit side total, the difference in amount is called DEBIT BALANCE. We then say, the account is a debit balance. On
the other hand, if the credit side total is bigger that the debit side total, the difference in amount is called CREDIT BALANCE. We then
say, the account is a credit balance. If both totals of debit and credit sides are equal, the account is said to be IN-BALANCE or
CLOSED ACCOUNT.
CHART OF ACCOUNTS

When transactions are recorded in the general journal, account titles are being used. A list of account titles are prepared beforehand to
guide bookkeeper and accountant of what specific titles are to be used in describing the exchange of values in a transaction. This list of
account titles is called Chart of Accounts.

ABM LAUNDRY SERVICES

Chart of Account

BALANCE SHEET ACCOUNTS INCOME STATEMENT ACCOUNTS

Assets Income

Ref. No. Ref. No.

111 Cash in Bank 441 Laundry Income
112 Accounts Receivable
112-A Estimated Uncollectible Accounts
113 Laundry Supplies Expenses
114 Laundry Equipment
114-A Accumulated Depreciation 551 Uncollectible Accounts
552 Depreciation Expense
Liabilities 553 Salaries Expense
554 Rent Expense
221 Notes Payable 555 Utilities Expense
222 Accounts Payable 556 Laundry Supplies Expense
223 Accrued Advertising 557 Taxes & Licenses
558 Advertising Expense
Owner’s Equity 559 Interest Expense

331 R. Dagatan, Capital

332 R. Dagatan, Drawing
333 Income & Expense Summary
 JOURNALIZING A SERVICE CONCERN TRANSACTIONS

Rhea May Dagatan opened a laundry services with its business name ABM Laundry Services located at Rizal Avenue, Sta. Cruz, Davao
del Sur. With the use of a two column General Journal, record the completed transactions during the first month of its operation using the
given charts of accounts.

January 04, 2017 - R. Dagatan opens a current account with Development Bank of the Philippines (DBP) in the amount of P
850,000 to start
with her laundry shop business under the trade name “ABM Laundry Services”.

January 06- Purchased laundry supplies on account, P 90,000 from NCCC Sta. Cruz

January 09- Purchase of laundry machine for cash, P 150,000.

January 11- Rendered laundry services on account, P 80,000 to the customers.

January 12- Paid taxes and licenses due to government, P 4,000

January 14- Ms. Rhea May Dagatan withdrew P 10,000 cash from the business for her personal use.

January 17- The business borrowed money from Development Bank of the Philippines, P 100,000 by issuing a 15- day note. It was
deposited to
the account of ABM Laundry Services by way of a Credit Memorandum issued by the bank

January 17- The bank issued a debit memo, P 1,000 for interest and bank charges.

January 21- Received cash of P 45,000 representing collection from the customers, transactions dated January 11.

January 25- Partial payment of accounts, P 60,000 to NCCC Sta. Cruz.

January 30- Ms. Dagatan hired an accountant/manager for her business as she has plenty of things to attain to at P 10,000 per month
effective
February 01, 2017.

January 30- The following expenses were paid by ABM Laundry Services for the month of January 2017.
Space rental P 5,000
Telephone, light & water 12,000
Salaries of employees 10,000
Total expenses paid P 27,000