FUNDAMENTALS OF ACCOUNTING, BUSINES & MANAGEMENT 1 Self -Learning

Module 5 – 2nd Semester (3rd Quarter) SY 2020-2021 Message for the learner:
This module is intended to introduce Fundamentals of Accounting, prerequisite to Fundamentals of
Accounting 2. It is hoped that this will help you appreciate the reading contexts of the subject and
will allow you to practice the lessons presented. Likewise, this will provide a venue for you
to enhance your critical and analytical skills in solving problems on basic accounting. Your skills
being developed in this module will prepare you for more business-related subject you are currently
taking in the SHS curriculum.

In the beginning of each lesson, you will find the topics to be discussed. You will then be asked to
answer the pretest to assess how much do you know about the subject. There will be a short review
of your previous lessons related to the topic. Then, you will discover what the learning episode is
about. Once the concepts were presented, you will do self-check exercise that will lead to an
application task. Finally, you will be guided in managing your takeaways.

Please read this module ahead of the scheduled online classes and prepare questions on topics where
you encounter difficulties. Please feel free to send in your questions through our group chat or through
private message. All relevant questions will be discussed during online classes. Suggestions on how
we can improve our new normal classes are also welcome.

Please use the Answer sheets provided and send it back to me for checking and validation.

Enjoy learning the Basics of Accounting!

Lesso Two Major Types of Books of

ns 5 Accounts: Journals and
Ledgers

Content Standards: The learners demonstrate an understanding of the two major types of
books of accounts, namely, journal and ledger.
Performance Standards: The learners are able to…
• differentiate a journal from a ledger and identify the types of journals and ledgers Most
Essential Learning Competencies: The learner…
• illustrate the format of a general and special journals ABM_FABM11-IIIf-23 •
illustrate the format of a general and subsidiary ledger ABM_FABM11- IIIf-24

Multiple Choice
D 1. All of these are Books of Accounts for Service Business except:
a. General journal c. General ledger
b. Cash receipt journal d. Cash Flow Statement

A 2. Following are Books of Accounts for businesses engaged in sales of goods or properties.
Which are not?
a. Income Statement and Balance Sheet
b. General journal & General ledger
c. Cash receipt journal & Cash disbursement journal
d. Sales journal & Purchase journal

A 3. These are the traditional journals, ledger and columnar books you can buy in the book and
office supplies store. Recording in of transactions are done manually / handwritten. These
are the most of popular type of books of account for small enterprises since it is less costly.
a. Manual books of account c. Loose-leaf Books of Account
b. Computerized Books of Account d. None of these

C 4. These are printed and bounded journals and ledgers. Recording can be done using
Microsoft Excel.
a. Manual books of account c. Loose-leaf Books of Account
b. Computerized Books of Account d. None of these

B 5. An accounting program that facilitates efficient and fast record keeping. a.

Manual books of account c. Loose-leaf Books of Account b. Computerized Books
of Account d. None of these

There are four basic phases of accounting: recording, classifying, summarizing and interpreting
financial data. The recording phase of accounting requires the use of the chart of accounts.

A chart of accounts is an accounting tool to organize the important accounts that help create
business’s financial statements. Chart of accounts is a useful document that allows to present all
the financial information about the business in one place, giving a clear picture of the company’s
financial health.

Another important tool needed in the recording phase of accounting aside from the chart of
accounts is the books of account. Books of account is where business transactions are
recorded initially.

The next topics will help you better understand the recording phase of the accounting process.

When it comes to tracking the finances of a business, a double-entry accounting system that
uses both a general ledger and a general journal is the best method for tracking a company's
overall financial data and keeping operations running smoothly and profitably.

In order to truly understand how such a system of accounting record works, one must first
appreciate the different functions associated with these two key components: General Ledgers and
General Journals.

General Journal

Simply defined, the general journal refers to a book of original entries, in which accountants and
bookkeepers record raw business transactions chronologically and in order according to the date
when the events occur. A general journal is the first place where data is recorded, and every page
in the item features dividing columns for dates, reference numbers, as well as debit or credit
accounts.

Some organizations keep specialized journals, such as purchase journals or sales journals,
that only record specific types of transactions.

In cases wherein specialized journals are used, General Journal is where miscellaneous or non
routine transactions are recorded for which no special journal exists. This means general journal
shows non cash transactions excluding purchases, sales discounts and sales returns of goods,
purchase of assets on credit, correcting entries, adjusting entries and closing entries etc.

Majority of all business transactions pass through books of original entry before being posted to
ledgers. General journals are sometimes called journal proper or simply a journal. Example of a
General Journal

General Journal
Date Account Title and Description Ref Debit Credit

General Ledger - General Ledger or Book of Final Entry

A ledger is a book containing accounts in which the classified and summarized information
from the journals is posted as debits and credits. It is also called the second book of entry.

The ledger contains the information that is required to prepare financial statements. It includes
accounts for assets, liabilities, owners’ equity, revenues and expenses. This complete list of
accounts is known as the chart of accounts. The ledger represents every active account on the list.
Example of General ledger

Account Title: ________________________

Account Code : _______________________
Date Balance

Item Ref Debit Credit Debit Credit

What Is a Ledger Account?

The accounting ledger contains a listing of all general accounts in the accounting system’s
chart of accounts.

Here are the primary general ledger accounts:

− Asset accounts include Property, Plant and Equipment, prepaid expenses, accounts
receivable and cash
− Liability accounts which include notes payable, loan payable, mortgage payable, accounts
payable, etc.
− Capital Accounts
− Revenue accounts
− Expense accounts

How Do You Write a Ledger?

A general ledger is used by businesses that employ the double-entry bookkeeping method, which
means that each financial transaction affects at least two general ledger accounts and each entry
has a debit and a credit transaction. Double-entry transactions are posted in two columns, with
debit postings on the left and credit entries on the right, and the total of all debit and credit entries
must balance.

Ledgers break up the financial information from the journals into specific accounts such as Cash,
Accounts Receivable and Sales, on their own sheets. This allows you to see the details of all your
transactions.

What’s the Difference Between a Journal and a Ledger?

The journal and ledger both play an important role in the accounting process. The business
transactions are primarily recorded in the journal and thereafter posted into the ledger under
respective heads. While many financial transactions are posted in both the journal and ledger,
there are significant differences in the purpose and function of each of these accounting books.

The financial transactions are summarized and recorded as per the double entry system in a
journal. It’s also known as the primary book of accounting or the book of original entry.
The ledger, on the other hand, is known as the principal book of accounting. It records the
information from the journal in the “T” format. It is used to create the trial balance which is also
the source of the financial statements such as the income statement and the balance sheet

Recording transactions

The process of recording transactions in a journal is called journalizing while the process of
transferring the entries from the journal to the ledger is known as posting.

The transactions in a journal are recorded in a chronological order making it easy to identify the
transactions are associated with a given business day, week, or another billing period. By
contrast, the arrangement of entries within a ledger has more to do with grouping like
transactions together into specific accounts for purposes of assessing the data for internal
financial and accounting purposes.

Unlike a journal, some ledger accounts start with an opening balance that is the closing
balance of the previous year. Also, in the end, the ledger amounts should be balanced.

Preparing a ledger is important as it serves as a master document for all your financial
transactions. Since it reports revenue and expenses in real time, it can help you stay on top of
your spending. The general ledger also helps you compile a trial balance, spot unusual
transactions and aids in the creation of financial statements.

Special journals

The larger the business, the greater the likelihood that that business will have a large volume of
transactions that need to be recorded in and processed by the company’s accounting information
system.

Instead of having just one general journal, companies group transactions of the same kind together
and record them in special journals rather than in the general journal. This makes it easier and
more efficient to find a specific type of transaction and speeds up the process of posting these
transactions. In each special journal, all transactions are totaled at the end of the month, and these
totals are posted to the general ledger. In addition, instead of one person entering all of the
transactions in all of the journals, companies often assign a given special journal’s entries to one
person.

The relationship between the special journals, the general journal, and the general ledger can be
seen in figure below.
Special and General. Transaction summaries form the special journals, and all transactions in the general journal are posted to the general
ledger. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Most companies have four special journals, but there can be more depending on the business
needs. The four main special journals are the sales journal, purchases journal, cash
disbursements journal, and cash receipts journal. These special journals were designed
because some journal entries occur repeatedly.

For example, selling goods for cash is always a debit to Cash and a credit to Sales recorded in the
cash receipts journal. Likewise, we would record a sale of goods on credit in the sales journal, as
a debit to accounts receivable and a credit to sales.

Purchase Journal

A book of original entry maintained to record credit purchases. Purchases of inventory on credit
would be recorded in the purchases journal with a debit to Merchandise Inventory and a credit to
Accounts Payable. It must be noted that cash purchases will not be entered in Purchase Journal
because entries in respect of cash purchases must be entered in the Cash Book. At the end of each
month, the purchases book is totaled. The total shows the total amount of goods purchased on
credit. Purchases book is written up daily from the invoices received. The invoices are consecutively
numbered. Each invoice number is noted in the purchases journal.
Example:
Purchase Journal
Date Invoice No. PR DR: Purchases /
Inventory CR: Accounts
Payable
 2020 Account

JAN 4 ABC Co. 1516 2,500

15 DEF Co. 1517 7,000

25 MNO Co. 1518 12,000

30 XYZ Co. 1519 5,000

Sales Journal

A Sales Journal is also known as Sales Book in which the details of credit sales are recorded.
Total of sales book shows the total credit sales of goods during the period concerned. Usually, the
sales book is totaled every month.

Sales Journal
Date Account Invoice No. PR DR: Accounts
Receivable CR: Sales

2020

FEB 5 GHI Co. 2285 3,500

10 JKL Co. 2286 6,000

20 PQR Co. 2287 10,000

28 STU Co. 2288 4,000

Cash Receipt Journal

The cash receipts journal is used to record all receipts of cash for any reason. Anytime money
comes into the company, the cash receipts journal should be used. For making entries in a cash
receipts journal, the receipt of cash is usually divided into the following categories:

− Receipt of cash from cash sales

− Receipt of cash from credit customers or receivables and
− Receipt of cash from other sources
− The cash receipts journal, under the perpetual inventory would, would also contain a
column to Debit cost of goods sold and Credit inventory used for any cash sales.

Cash Receipts Journal

DATE ACCOUNT PR CASH A/R SALES OTHER
ACCOUNTS
 DR CR CR CR

Cash Disbursement Journal

The Cash Disbursement Journal is used to record all payments of cash regardless of the
reason. Anytime cash leaves the company, it should be recorded in the cash disbursement
journal.

The usual examples of cash outflows in a business are given below:

− Payment of cash for cash purchases.

− Payment of cash for previous credit purchases i.,e. payment to accounts payable or
creditors
− Payment of cash for various expenses like rent, advertisement, carriage, wages and
salaries etc.
− Payment of cash for the purchase of a tangible or intangible asset.
− Cash refunds for goods returned by customers.

Cash Disbursement Book

DATE CHE PAYEE PR CASH ACCOUNT OTHER
CK S ACCOUNTS
NO. PAYABLE

CR DR DR

Subsidiary Ledgers and Control Accounts

In addition to the four special journals, another important book of account is the subsidiary
ledger. It provides a detailed list to support a control account.

Control Account
A control account is a general ledger account containing only summary amounts. The details for
each control account will be found in a related (but separate) subsidiary ledger.

The control account keeps the general ledger free of details, but still has the correct balance for
preparing the company's financial statements.

Example of Control Accounts

A common example of a control account is the general ledger account entitled Accounts
Receivable. When it is used as a control account, it will contain only summary amounts, such as
total credit sales for a day, total collections from customers for a day, total returns and allowances
for a day, and the total amount owed by all customers.

Hence, if you want to find the amount that a specific customer still owes for its purchases on
credit, it will not be shown in the control account. To find the amount that a specific customer
owes, its recent payments, and its recent purchases on credit, you will quickly get that
information from the Accounts Receivable Subsidiary Ledger.

Control accounts could also be used for accounts payable, equipment, and inventory. A control
account appears on the balance sheet in summary or total, and are accounts like accounts
receivable, accounts payable, and inventory.

Subsidiary Ledger

The subsidiary ledger provides the date of the transaction and a reference column to link the
transaction to the same information posted in one of the special journals (or general journal if
special journals are not used)—this reference is usually a code that references the special journal
such as SJ for the sales special journal, as well as the amounts owed in the debit column and the
payments made in the credit column.

There are two special ledgers, the accounts receivable subsidiary ledger and the accounts payable
subsidiary ledger. The accounts receivable subsidiary ledger gives details about each person or
entity who owes the company money.

The amounts owed by all of the individuals, as indicated in the subsidiary ledger, are added
together to form the accounts receivable control total, and this should equal the Accounts
Receivable balance reported in the general ledger.

Accounts Receivable Subsidiary Ledger

Accounts Receivable in the general ledger is the total of all of the individual account totals that are
listed in the Accounts Receivable subsidiary ledger.

All of the amounts owed to the company in the Accounts Receivable subsidiary ledger must equal
the amounts in the Accounts Receivable general ledger account. Subsidiary ledgers have to balance
and agree with the general ledger.

At the end of the period, a schedule is prepared to verify (or prove) the Accounts Receivable
(control account) balance reported on the balance sheet. This schedule is a listing of all
customers with the ending amounts owed and should always match the ending balance in
Accounts Receivable.

Accounts Payable Subsidiary Ledger

The Accounts Payable Subsidiary Ledger holds the details about all of the amounts a company
owes to people and/or companies. In the Accounts payable subsidiary ledger, each vendor (the
person or company from whom you purchased inventory or other items) has an account that
shows the details of all transactions.

The accounts payable subsidiary ledgers work the same way as accounts receivable with the
control account of accounts payable and the subsidiary ledger a vendor ledger to provide a listing
of everyone we owe. The purchases, payments, returns and allowances are recorded in the
individual vendor accounts as well as in the accounts payable account.
Below are examples of how a subsidiary ledger would look like.

The use of Subsidiary ledgers is not limited to Account Receivable and Accounts Payable. It may
also be used with other accounts depending on the need of the business.

Key Concepts and Summary

− We use special journals to keep track of similar types of transactions. − We use special
journals to save time because the same types of transactions occur over and over.
− To decide which special journal to use, first ask, “Is cash involved?” If the answer is “Yes,”
then use either the cash receipts or cash disbursements journal.
− The cash receipts journal always debits cash but can credit almost anything (primarily sales,
Accounts Receivable, or a new loan from the bank).
− The cash disbursements journal always credits cash but can debit almost anything
(Accounts Payable, Notes Payable, sales returns and allowances, telephone expense,
etc.).
− The sales journal always debits Accounts Receivable and always credits Sales. If the
company uses a perpetual inventory method, it also debits cost of goods sold and
credits inventory.
− The purchases journal always debits Purchases (if using the periodic inventory method) or
Inventory (if using the perpetual inventory method) and credits Accounts Payable. − We post the
monthly balance from each of the special journals to the general ledger at the end of the month.
− We post from all journals to the subsidiary ledgers daily.
− We use the general journal for transactions that do not fit anywhere else—generally, for
adjusting and closing entries, and can be for sales returns and/or purchase returns. − The
accounts receivable subsidiary ledger contains all of the details about individual accounts.
− The total of the accounts receivable subsidiary ledger must equal the total in the
Accounts Receivable general ledger account.
− The accounts payable subsidiary ledger contains all of the details about individual
accounts payable accounts.
− The total of the accounts payable subsidiary ledger must equal the total in the Accounts
 Payable general ledger account.

Activity 1

Prepare examples of the following:

1. General journal
2. General ledger
3. Sales journal
4. Purchase journal
5. Cash receipts journal
6. Cash disbursement journal
Remember
Fill in the blanks.

1. The General Journal consists of raw accounting entries that record business transactions, in
sequential order by date.
2. The General Journal is referred to as the book of original entry. It records business transaction in
order of date using the principle of “debit and credit”.
3. The General Ledger is more formalized and tracks five key accounting items: assets, liabilities,
owner’s capital, revenues, and expenses.
4. The Sales Journal is for recording credit sales. For example, customers (debtors) who bought on
credit or account.
5. The Purchase Journal is for recording credit purchases by your business. Examples are supplies and
equipment.
6. The Cash Receipt Journal is for recording all cash inflows / receipts, such as cash for services
rendered.
7. The Cash Disbursement Journal is for recording all cash outflows / payments.
8. A Subsidiary Ledger is a detailed list to support a control account.
9. A Control Account is a summary or total of all the subsidiary accounts related to it.
10. All business establishments are required to keep a record of their day-to-day business transactions in
order to know the result of their operations. They are the Books of Original Entry and the Books of
Final Entry. The said record is referred to as Book of Accounts.

Check Your Understanding

Indicate the journal where to record the following transactions assuming that special journals are in used.

1. Your company paid rent of ₱10,000 for the month with check number 1245. Which journal would the
company use to record this? Cash Disbursement Journal
2. On January 1, Incredible Infants sold goods to Babies Inc. for ₱15,400, terms 30 days, and received
payment on January 18. Which journal would the company use to record this transaction on the 18th?
Cash Receipts Journal
3. Sold goods for ₱6,500 cash. Which journal would the company use to record this transaction? Cash
Receipts Journal
4. Zandre & Co. purchased inventory on credit from Acto Supply Co. for ₱14,000. Zandre & Co. would
record this transaction in the Purchase Journal
5. Sold inventory for cash Cash Receipts Journal
6. Sold inventory on account Sales Journal
7. Received cash a week after selling items on credit Cash Receipts Journal
8. Paid cash to purchase inventory Cash Disbursement Journal
9. Bought equipment for cash Cash Disbursement Journal
10. Recorded an adjusting entry for supplies General Ledger
11. Purchase of inventory on account. Purchase Journal
12. Paid for a purchase of inventory on account after the discount period has passed Cash Disbursement
Journal
13. Paid utility bill Cash Disbursement Journal
14. Received but did not pay phone bill General Ledger
15. Approve loan from a bank Cash Receipts Journal

Multiple Choice
A 1. There are two books of account, they are:
a. Journal and ledger c. Journal and trial balance
b. Trial balance and ledger d. Ordinary journal and special journal

C 2. A bookkeeper discovers that an amount paid to a supplier has been wrongly entered in
another’s supplier’s account. Which book of original entry will the bookkeeper use when
correcting this error?
a. Cash receipts books c. General journal
b. Purchase journal d. Sales journal

3. Which of the following are books of original entry?

a. Sales journal and trial balance
b. Petty cash voucher and accounts receivable ledger
c. Petty cash voucher and journal
d. Sales journal and Cash receipts journal

4. Transactions are initially recorded in the:

a. Journal c. General ledger
b. Subsidiary ledger d. None of these

5. If a company uses special journals, purchase of supplies on account should be recorded in

which journal?
a. Cash receipts journal c. Purchase journal
b. Cash disbursement journal d. General journal

6. Adjustment to depreciation at the end of the month is to be recorded in:

a. Cash receipts journal c. Cash disbursement journal

b. General journal d. General ledger

B 7. If a company uses special journals, credit sales should be recorded in which journal?
 a. General journal c. Purchase journal
b. Sales journal d. Cash receipts journal

8. Receipts of cash from sale of office equipment should be recorded in:

a. Cash disbursement journal c. Cash receipts journal

b. Purchase journal d. General journal
9. If a company users special journals, purchase of building financed by a mortgage payable should
be recorded in which journal?
a. Sales journal c. General journal
b. Cash receipts journal d. Purchase journal

10. Payment to a supplier for merchandise bought for cash is recorded in the:

a. Sales journal c. Cash receipt journal

b. Purchases journal d. Cash disbursement journal

11. Where are amounts owed by customers for credit purchases found?

a. accounts receivable subsidiary ledger c. sales journal

b. accounts receivable journal d. general ledger

12. Where would a debit posted to accounts payable in the general ledger come from?

a. sales journal c. cash disbursement journal

b. purchases journal d. cash receipts journal

C 13. General journal is a book of _______ entries.

a. First c. Original
b. Secondary d. Generic

D 14. Not a book of original entry.

a. Sales journal c. Cash receipts journal
b. Purchase journal d. General ledger

A 15. Not a book of final entry.

a. General journal c. General ledger
b. Accounts receivable subsidiary ledger d. Accounts payable subsidiary ledger

References
https://www.accountancyknowledge.com/books-of-accounts/
https://www.investopedia.com/ask/answers/030915/whats-difference-between-general-ledger-and-general
journal.asp
https://www.freshbooks.com/hub/accounting/what-is-a-ledger
https://opentextbc.ca/principlesofaccountingv1openstax/chapter/describe-and-explain-the-purpose-of-special
journals-and-their-importance-to-stakeholders/
https://courses.lumenlearning.com/suny-finaccounting/chapter/subsidiary-ledgers-and-control-

accounts/