FUNDAMENTALS

OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 2

UNIT III - Lesson 1: Accounting Books – Journal Ledger

 Accounting Books – Journal Ledger

Learning Objectives:

1. Learn the use of journal and general ledger;

2. Prepare journal entries to record business transactions;
3. Post the transactions in the general ledger, and;
4. Determine the normal balances of the accounts using the t-accou
nt.
Accounting Books – Journal Ledger

General Journal
The simplest type of journal.

The process of recording a transaction is called journalizing the trans

actions.

This type of journal is unique among journals because it may be use

d to record any type of business transactions.

Recording all transactions in the general journal is not cost effective

and time consuming.
Accounting Books – Journal Ledger

Special Journals
To speed up and simplify the recording process, most businesses ma
ke use of special journals.

Each special journal is designed to records a particular type of transa

ction efficiently and quickly.
Accounting Books – Journal Ledger

Special Journals
Examples of special journals and their use are the following:

a. Cash Receipts Journal – is used to record all cash that had been r
eceived.
b. Cash Disbursement Journal – is used to record all transactions invo
lving cash payments.
c. Sales Journal (Sales on Account Journal) – is used to record all sale
s on credit (on account).

Purchase Journal (Purchase on Account Journal) – is used to record a

ll purchases of inventory (or on account).
Accounting Books – Journal Ledger

Importance of using a journal

Using of journal is important because it shows all information concer

ning a particular transaction. It also provides a chronological record
of all the financial events in the business over time.

If we want to know about a certain transactions of years or months

back, we can trace the said transactions as long as we have the date
of the said transaction. The entries in the journal are arranged by dat
e that makes it necessary to locate a particular event.
Accounting Books – Journal Ledger

The use of General Ledger

A ledger is a means of accumulating in one place all the information
about changes in an asset, liability, equity, income, and expense acc
ounts. A sample of the general ledger is shown below:

General Ledger
Account: Cash Account No.: 1000
Date Item Ref Debit Credit Balance
           
           
           
           
           
Accounting Books – Journal Ledger

The use of General Ledger

A general ledger is often called a T- Account because of its resembla
nce to the letter T. A T- Account is a simplified form of general ledge
r. A sample of a T- account is shown below:

Account Title (Ex. Cash)

Left Side or Debit Side | Right Side or Credit Side

 Below is the Chart of Accounts
ACCOUNT CODE ACCOUNT TITLE ACCOUNT CODE ACCOUNT TITLE
CLASSIFIED BY TYPE OF MAJOR CLASSIFIED BY TYPE OF MAJOR
ACCOUNTS ACCOUNTS
Income Statement Accounts
Statement of Financial Position Accounts
4000 Service Revenue
1000 Cash
4100 Sales
1200 Accounts Receivable
INCOME
1201 Allowances for Bad Debts 4101
Sales Returns and Allowances
1300 Inventory
4102 Sales Discounts
1400 Prepaid Expenses
4150 Interest Income
1500 Supplies
5000 Cost of Sales
1600 Office Equipment
5100 Purchases
1601 AccumDeprn - Off Eqpt
ASSETS
1650 Store Equipment 5101
Purchase Retruns and Allowances
1651 AccumDeprn - Store Eqpt 5102 Purchase Discounts
1680 Transportation Equipment 5103 Freight In
1681 AccumDeprn - Trans Eqpt 6100 Salaries Expense
1750 Building 6150 Supplies Expense
1751 AccumDeprn - Building 6200 Utilities Expens
EXPENSES
1800 Land 6220 Communication Expense
1900 Intangible Assets 6250 Travel Expense
2000 Accounts Payable 6300 Rental Expense
2100 Notes Payable 6350 Fuel Expense
2200 Accrued Expenses 6400 Advertising Expense
LIABILITIES
2201 Salaries Payable 6410 Delivery Expense
2202 Utilities Expenses 6450 Commission Expense
2300 Income Taxes Payable 6500 Depreciation Expense
3000 Owner's, Capital 6600 Taxes and Licenses
EQUITY
3100 Owner's, Withdrawal 6700 Interest Expense
Accounting Books – Journal Ledger

Determining the Balance of a T - account

To determine the ending balance of each account using the “T – acc
ount”, the beginning balance is plot in the appropriate debt or credit
side, then total debts and credits are then determined.

If the account has a beginning balance on the debt side, all the debt
s during the period is added to the beginning then all the credits are
deducted.

There is a debt balance of the account if the sum of the beginning b

alance and the total debits exceeds the total credits.
Accounting Books – Journal Ledger

The normal balances of these accounts are listed below:

a. Asset Accounts – Debit Balance; however the normal balance of a
contra asset account is credit.
In the above chart, the contra asset accounts are:
Allowance for Bad Debts,
Accumulated Depreciation (Accum Deprc.) – Store Equipment
Accum. Deprn. – Off Eqpt
Accum. Deprn. – Trans Eqpt
Accum. Deprn. – Building

b. Liability Accounts – Credit Balance

Accounting Books – Journal Ledger

The normal balances of these accounts are listed below:

c. Equity Accounts – Owner’s Capital account has a normal balance o
n the credit side while the Owner’s Withdrawal account has a norma
l balance on the debit side.

d. Income – Credit Balance

e. Expense – Debit Balance

Accounting Books – Journal Ledger

The normal balances of these accounts are listed below:

A summary of the normal balance of the account is shown below:

  Increase (Normal Balance) Decrease

Statement of Financial Position Accounts
Asset Debit Credit
Liability Credit Debit
Owner's Capital Credit Debit
Owner's Withdrawal Debit Credit
Income Credit Debit
Expense Debit Credit
Accounting Books – Journal Ledger

The normal balances of these accounts are listed below:

When an account that normally has a credit balance actually has a d
ebit balance, it may mean that an error has occurred or that an unus
ual situation may exist.

For example the account receivable account normally have a debit b

alance, if at the end of the period the actual balance is on the credit
side, it may mean that there was overpayment of the customer or an
error in the recording processed as occurred.
Accounting Books – Journal Ledger

Series of transaction for the month of February 2016:

On February 1, 2016, the following beginning balances were correct
ly determined from previous accounting period of Vicente Repair Sh
op:
Accounting Books – Journal Ledger

Transactions during February 2016:

Rendered service to X Company for Php 15, 000 and received cash payment on the
 Feb 2 same date
 Feb 4 Paid Rental for the month amounting to Php 3,500.00

Collected accounts receivable from Y Company amounting to Php 30, 000. The amount
 Feb 5 was included in the beginning balance as of February 1, 2016 stated above.

 Feb 10 Rendered service to Jose on account, Php 18, 000 to be collected on March 2016.
 Feb 15 Paid Salaries of staff, Php 7,000

Paid accounts payable to Marine Company amounting to P5, 000. The amount was
 Feb 18 included in the beginning balance as of February 1, 2016 stated above
 Feb 20 Rendered service to Maria Company for Php 23, 000, cash
Accounting Books – Journal Ledger
The General Journal entries to record the above transactio
ns are:
GENERAL JOURNAL
Date Account Title & Explanation Ref Debit Credit
02-Feb Cash   15, 000  
  Service Revenue     15, 000
04-Feb Rental Expense   3, 500  
  Cash     3, 500
05-Feb Cash   30, 000  
  Accounts Receivable     30, 000
10-Feb Accounts Receivable   18, 000  
  Service Revenue     18, 000
15-Feb Salaries Expense   7, 000  
  Cash     7, 000
18-Feb Accounts Payable   5, 000  
  Cash     5, 000
20-Feb Cash   23, 000  
  Service Revenue     23, 000
Accounting Books – Journal Ledger
The T – accounts for the transactions journalized above are sh
own below:

15-Feb

20-Feb
Accounting Books – Journal Ledger
After posting to the ledger or to the T- account, the trial b
alance for the above transaction is:
Account Title & Explanation Debit Credit
Cash 77, 500
Accounts Receivable 88, 000
Office Equipment 50, 000
Accounts Payable 30, 000
Vicente, Capital 140, 000
Service Revenue 56, 000
Rental Expense 3, 500
Salaries Expense 7, 000
Total 226, 000 226, 000

Take note that the total debit and credit balances should always be equal.
The entries prepared above involves one debit and one credit account, howev
er there are instances wherein more than one account are debited to credite
d. These are called compound journal entries.
Accounting Books – Journal Ledger

Compound Journal Entry

An entry that involved two accounts only, one debit and one
credit is called a simple journal entry. Some transactions, ho
wever, require more than two accounts in journalizing. An e
ntry that requires three or more accounts is a compound ent
ry.
Accounting Books – Journal Ledger

Compound Journal Entry

To illustrate:
Ariel Garden Supply Store acquires a land for P800, 000. Ariel, paid
P300, 000 cash and issued a promissory note for the balance.

To record the above transaction using simple entry:

Accounting Books – Journal Ledger

Compound Journal Entry

To record the above transactions using a compound entry:

Land 800, 000

Cash 300, 000
Notes Payable 500, 000

To record purchased of land by paying cash and issuance of a

promissory note.
- End of Lesson 1 -
FUNDAMENTALS
OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 2

UNIT III - Lesson 2: Basic Documents and Transactions Related to Bank

Deposits
 Basic Documents and Transactions Related to Bank Dep
osits

Learning Objectives:

1. Differentiate a savings account from a current or chec

king account;
2. Prepare bank deposit, withdrawal slips and checks; an
d
3. Understand the contents of a bank statement.
Basic Documents and Transactions Related t
o Bank Deposits

Businesses usually maintain two types of acco

unt:

(1 ) savings account, and

(2) checking or current account.

Basic Documents and Transactions Related t
o Bank Deposits
A. Savings Accounts
 These are intended to provide an incentive for the depositor t
o save money.
 The depositor can make deposits and withdrawals using the f
orm provided by the bank.
 Banks usually pay an interest rate that is higher than a checkin
g account or a current account.
 Some savings accounts have a passbook, in which transaction
s are logged in a small booklet that the depositor keep.
 Some savings accounts charges a fee if the balance falls belo
w a specified minimum.
Basic Documents and Transactions Related t
o Bank Deposits
B. Checking or Current Accounts
 Money held under a checking account can be withdrawn thro
ugh issuance of a check.
 Banks usually allows numerous withdrawals and unlimited de
posit under this type of account.
 The interest rate for checking account is usually lower as com
pared to a savings account.
 The account holder or depositor of a checking account is nor
mally provided at the end of the month a bank statement sho
wing all the deposits made, checks paid by the bank, and the
balance of the account.
 The depositor is given easy access to the funds as compared t
o a savings account.
Basic Documents and Transactions Related t
o Bank Deposits
Time deposit account

Banks also offered time deposit account (or a certificate of depos

it account) which is a type of a savings account that is held for a
fixed – term and can be withdrawn only after the lapse of the agr
eed period and by giving notice to the bank.

The account may be withdrawn also anytime however the bank

usually charges penalties. This type of account yield high interest.
Basic Documents and Transactions Related t
o Bank Deposits
Automated Teller Machine

Another type of savings account that is popularly used nowadays

is an ATM (Automated Teller Machine) account wherein withdra
wals can be made through designated machines.

This is a 24 hour teller machine and the funds can be withdrawn

anytime.

The advantage of this account is that even if the banks are close
d, you can withdraw your funds.
Basic Documents and Transactions Related t
o Bank Deposits
Withdrawal Slip

A withdrawal slip and deposit slip are written orders to the bank.
These slips are used to take out money or to put money to the d
epositors account.

Without a withdrawal slip, the bank will not allow you to get mo
ney from your account. The required information in the withdra
wal slip are the following:

 Account Name – the name of the depositor

 Account Number – the unique identifier given by the bank for
every account maintained
Basic Documents and Transactions Related t
o Bank Deposits
Withdrawal Slip
 Date of the withdrawal
 Type of account – savings or current
 Currency
 Amount to be withdrawn – the amount that the depositor wis
hes to withdraw from his account. The amounts in words and
in figures are indicated.
 Signature of the depositor – this is the most important part in
the withdrawal slip. The signature is a proof that the deposito
r is authorizing the bank to get money from his account.
Basic Documents and Transactions Related t
o Bank Deposits
Deposit Slip

The bank provides deposit slip that the depositor will fill – out ev
ery time the depositor will put in money to his account. They mo
st common required information in a deposit slip are:

 Account Name – this is the complete name of the depositor th

at is reflected in the records of the bank. If it has a pass book,
the account name is indicated on first page inside the passbo
ok.
 Account Number – this is the unique identifier of the account
maintained by the depositor
Basic Documents and Transactions Related t
o Bank Deposits
Deposit Slip
 Date of Deposit
 Type of Account
 Currency
 Amount in words and in figures – the amount that the deposit
or wishes to put into his account. The amount to be deposited
maybe in the form of cash or check. If it is a cash deposit, the
breakdown of the cash is usually listed in the deposit slip, if it i
s a check deposit; the details of the checks are indicated in the
deposited slip.
Basic Documents and Transactions Related t
o Bank Deposits
Check

A check is a document that orders a bank to pay a specific amou

nt of money from a person’s account to the person’s account in
whose name the cheque has been issued.

Checks are a type of a bill of exchange and were developed as a

way to make payments without the need to carry large amounts
of money.

The check number is usually indicated in the upper right portion

of the check.
Basic Documents and Transactions Related t
o Bank Deposits
The following are the parties involved in a transaction that
uses check as medium of exchange:

 Drawer, the person or entity who makes the c

heck
 Payee, the receipt of the money
 Drawee, the bank or other financial institution
where the unique can be presented for payme
nt.
Basic Documents and Transactions Related t
o Bank Deposits
Sample of a Bank Statement
Basic Documents and Transactions Related t
o Bank Deposits
Samples of Debit transaction
 Bank service charges – monthly fee charged by the bank fir its
services (Ex. Cost of printing checks writing funds to other loc
ations and other fees).

 NSF (Not sufficient fund) – Banks also use a debit memorandu

m when a deposited check from a customer “bounces” becaus
e of insufficient funds. Nowadays bank refer to this as DAIF (D
rawn Against Insufficient Fund) or DAUD (Drawn Against Uncl
eared Deposits).
Basic Documents and Transactions Related t
o Bank Deposits
Samples of Credit transactions
 Collection of cash proceeds from notes receivables
 Interest income earned by the deposit

Bank Reconciliation
- It is a process where the bank statement received from the ban
k is compared with the accounting records of the business.

- Together with the bank statements, the banks will include the c
opies of checks cleared or paid by the bank for that particular m
onth.
Basic Documents and Transactions Related t
o Bank Deposits
Seatwork:
Get a copy of a blank withdrawal slips, deposit slips and check.
Write your answer in a sheet of paper or encode it in MS Word.
Share your answer to the class.
- End of Lesson 2 -
FUNDAMENTALS
OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 2

UNIT III - Lesson 3: Basic Reconciliation Statement

 Basic Reconciliation Statement

Learning Objectives:

1.Describe the nature of a bank reconciliation statement

;
2. Identify the common reconciling items and describe e
ach of them, and;
3. Analyze the effects of the identified reconciling items.
Basic Reconciliation Statement

Nature of Bank Reconciliation Statement

It is normal for a company’s bank balance as per accounting reco
rds to differ from the balance as per bank statement. The differe
nce between these figures is the reason why companies prepare
a bank reconciliation statement.

Bank Reconciliation statement

is a report which compares bank balance as per company’s accou
nting records with the balance stated in the bank statement.
Basic Reconciliation Statement

The two common causes of the discrepancy in figures are:

Time Lags - that prevent one of the parties (company or the ban
k) from recording the transaction in the same period as the other
party.

Example:
A bank statement that ends in January 30, 2015 and then the co
mpany were able to collect cash of P20, 000 at 5:00 pm. Bank us
ually closes at 3:00 pm because of this, the cash collected will no
t be reflected in the bank as deposit but it is however recorded in
accounting records of the company.
Basic Reconciliation Statement

The two common causes of the discrepancy in figures are:

Errors by both parties in recording transactions.

Example:
A check was issued to Meralco by the company amounting to P
1, 000.00. The company recorded this as P100. When the check
presented, the bank paid Meralco P1, 000.00. In the records of t
he company it was P100 while in the records of the bank it’s P1,
000.00. There is in the case an error that will cause the differenc
e between the company’s records and the bank records.
Basic Reconciliation Statement

The importance of Bank Reconciliation are as follows:

 Preparation of bank reconciliation helps in the identification of err
ors in the accounting records of the company or the bank.
 Bank reconciliations provide the necessary control mechanism to h
elp protect the valuable resource through uncovering irregularities
such as unauthorized bank withdrawals.
 If the bank balance appearing in the accounting records can be co
nfirmed to be correct by comparing it with the bank statement bal
ance, it provides added comfort that the bank transactions have b
een recorded correctly in the company records.
 Monthly preparation of bank reconciliation of bank reconciliation
assists in the regular monitoring of cash flows of a business.
Basic Reconciliation Statement

Three methods of preparing bank reconciliation statement:

 Adjusted Method wherein the balances per bank and per book ar
e separately determined.

 Book to Bank Method wherein the book balances is adjusted to ag

ree with the bank balance.

 Bank to Book Method wherein the bank balance is adjusted to agr

ee with book balance.
Basic Reconciliation Statement
The most common format of a bank reconciliation statement
is shown below:
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Deposit in transit – are the amounts already received and recorded
by the company, but are not yet recorded by the bank.

They need to be listed in the bank reconciliation as an increase to the

balance per bank in order to report the true amount of cash. A depo
sit in transit is on the company’s books, but it isn’t on the bank state
ment.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Outstanding checks – are checks that have been written and recor
ded in the company’s Cash account but have not yet cleared the b
ank account or presented to the bank by the payee

Checks written during the last few days of the month plus a few olde
r checks are likely to be amount the outstanding checks.

Because all checks that have been written are immediately recorded i
n the company’s Cash account, there is no need to adjust the compa
ny’s records for the outstanding checks. It is listed on the bank reconc
iliation as a decrease in the balance per bank.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Bank errors – are mistakes made by the bank. Bank errors could in
clude the bank recording an incorrect amount, entering an amoun
t that does not belong on a company’s bank statement, or omittin
g from a company’s bank statement.

Depending on the error, the correction could increase or decrease th

e balance shown on the bank statement.

Since the company did not make the error, the company’s records ar
e not changed.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Bank service charges – are fees deducted from the bank statement
for the bank’s processing of the checking account activity.

Other types of bank service charges include the fee charged when a c
ompany overdraws its checking account and the bank fee for process
ing a stop payment order in a company’s check. The bank might ded
uct these charges or fees on the bank statements without notifying t
he company.

The company’s Cash account will need to be decreased by the amou

nt of the service charges.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 NSF check – is a check that was not honoured by the bank of the p
erson or company writing the check because that account did not
have a sufficient balance. As a result, the check is returned withou
t being honoured or paid.
NSF Check is a check that was not honored by the bank of the perso
n on company writing the check because the account did not have a
sufficient balance.

NSF is the acronym for not sufficient funds. When the NSF check co
mes back to the bank in which it was deposited, the bank will decrea
se the checking account of the company that had deposited the chec
k.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Check printing charges – occur when a company arranges its bank
to handle the reordering of its checks.

The cost of the printed checks will automatically be deducted from th

e company’s checking account.

Because the check printing charges have already been deducted on t

he bank statement, these is no adjustment to the balance per bank.
However, check printing charges need to be an adjustment on the co
mpany’s book. There will be a deduction to the company’s Cash acco
unt.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Interest earned – will appear on the bank statement when a bank
gives a company interest on its account balance.

The amount is added to the checking account balance and is autom

atically on the bank statement. Hence there is no need to adjust the
balance per the bank statement.

However, the amount of interest earned will increase the balance in t

he company’s Cash account on its books.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Notes receivable – are assets of a company. When notes come du
e, the company might ask its bank to collect notes receivable.

For this service, the bank will charge a fee. The bank will increase the
company’s checking account for the amount it collected (the principa
l and interest) and will decrease the account by the collection fee it c
harges.

Since these amounts are already on the bank statement, the compan
y must be certain that the amounts appear on the company’s books i
n its Cash account.
Basic Reconciliation Statement
The key terms to be aware if when dealing with a bank recon
ciliation are:
 Errors in the company’s Cash account result from the company ent
ering an incorrect amount, entering a transaction that does not be
long in the account, or omitting a transaction that should be in th
e account.

Since the company made these errors, the correction of the error will
be either an increase or decrease to the balance in the Cash account
on the company’s book.
Basic Reconciliation Statement
The bank reconciliation process:

Step 1: Adjusting the Balance per bank

The first step is to adjust the balance on the bank statement to the true, a
djusted or corrected balance. The items necessary for this step are listed in
the following schedule:

Step 1. Balance per Bank Statement on August 31, 2014

Adjustments:
Add: Deposit in transit
Deduct: Outstanding Checks
Add or Deduct: Bank errors
Adjusted/ Corrected Balance per Bank
Basic Reconciliation Statement
The bank reconciliation process:

Step 2: Adjusting the Balance per Books

The second step of the bank reconciliation is to adjust the balance in the c
ompany’s Cash account so that it is the true, adjusted, or corrected balanc
e. Examples of the items involved in the following schedule:
Basic Reconciliation Statement
The bank reconciliation process:

Step 3: Comparing the Adjusted Balances

After adjusting the balance per bank (Step 1) and after adjusting the bala
nce per books (Step 2), the two adjusted amounts should be equal. If the
y are not equal, you must repeat the process until the balances are identic
al.

The balances should be the true, correct amount of cash as of the date of
the bank reconciliation. The adjusted cash balance will appear as the Cash
in Bank in the Statement of Financial Position (Balance Sheet).
- End of Lesson 3 -