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CMBE 2 - Lesson 4 Module
CMBE 2 - Lesson 4 Module
Topics:
Accounting process and accounting cycle
Books of Accounts
Recording Process – Journalizing business transactions
Learning Objectives
Analyze common business transaction using the rules of debit and credit.
Journalize simple problems and exercises in analyzing business transactions.
Discuss the uses of the books of account.
Prepare the format of a general journal.
Prepare the format of a general ledger.
In the previous lesson, we analyzed the dual aspect of every business transactions using the rules
of debit and credit. Also, we have identified the various account titles which comprises the five
major accounts that forms the financial statements. In this module, we are going to take up the
steps in the accounting process, focus on the analysis of business transactions and preparation of
journal entries.
Accounting Process
Before an entity can prepare the financial statements, business transactions have to be analyzed,
recorded, classified and summarized. The accounting process refers to the different activities
performed in order to produce the financial statements. This process continues to repeat each
accounting period; it is commonly referred to as the accounting cycle. (Salosagcol, 2018)
Analytical Steps
It involves the recording of the transactions in the journal and the preparation of adjusting
entries. These steps are described as analytical in nature because the preparer must use his
professional judgment to identify which transactions to record and how they will be recorded.
Procedural Steps
Other steps in the cycle not stated in the aforementioned are considered procedural in nature and
does not require analytical skills. The procedures performed in classifying and summarizing the
transactions do not normally require significant application of professional judgment.
Books of Account
The records that are used and kept by the business in storing all of the accounting data are called
books of accounts. These books are with ready or prepared format to fit in the need of the
business and also to provide convenience for the preparer in communicating to various users
through the financial statements. (Lopez, 2016)
There are two sets of books that are used by the business:
Journal – The book of original entry. It is in this book where transactions are recorded for the
first time. There are two kinds of journal namely general journal and special journal.
Ledger – The book of final entry. It is in this book where transactions that were recorded in the
journal are transferred for final recording.
1. The date column – shows the date when the transaction took place.
2. Particulars – shows the item or the accounts debited and credited as a result of a
transaction analysis as well as a brief or concise explanation of what the transaction is
about.
3. A folio (f) column – shows the number of an account in a ledger or page of a ledger to
which it was transferred.
4. Debit and Credit columns – shows the value received and value given up respectively.
1. The date column – shows the date when the transaction took place as recorded in the
journal.
2. Particulars – shows a brief or concise explanation of what the transaction as shown in the
journal.
3. A folio (f) column – shows the page number of a journal where entries are taken from.
4. Debit and Credit columns – shows the amount of the transactions as indicated in the
journal.
Recording Process
Recording is the first phase of accounting. This involves the writing down of business
transactions in a systematic manner and in order of their occurrence in the journal.
Journalizing – it is the act of recording business transactions in the journal. The entry that is
being made in the journal is called journal entry. A journal entry may be simple or compound.
A simple journal entry consists one debit item and one credit item.
Note that the journal entry only consists of one debit item and one credit item.
A compound journal is one that may have one debit item and two or more credit item; two or
more debit item and one credit item; or may have two or more items in both sides.
or
or
Opening Entry
The first entry made in the general journal is called an opening entry. This constitute either the
recording of the initial investments of the owner or the recording of the beginning balances of
accounts in preparation for the next annual accounting period.
Chart of Accounts
When transactions are recorded in the general journal, account titles are being used. A list of
account titles is prepared beforehand to guide the preparer of what specific account titles are to
be used in describing the exchanges of values in a transaction.
Before we proceed with journalizing, do not forget our discussion in module 3 about the effects
of the transactions when an account is debited or credited.
The following are sample transactions that would help us further understand and apply the
journalizing process:
1. On March 01, Mr. Loyola, the proprietor, started his business by investing ₱25,000 cash.
2. On March 05, Mr. Loyola contributed his computer worth ₱50,000 into the business.
4. On March 10, the entity bought tables and chairs worth ₱8,000.
5. On March 12, the entity purchased bond papers, pencils and folders for office use amounting
to ₱2,000.
6. On March 15 the entity purchased stationaries and envelopes from Art Depot payable at the
end of the month. The total amount purchased is ₱5,000.
9. On March 24, utilities including water and electricity was paid for ₱10,000.
Analysis:
10. On March 30, paid our accounts with Art Depot, ₱5,000.
March 30 Accounts Payable ₱5,000
Cash ₱5,000
To record payment of our accounts.
Analysis:
11. On March 31, Mr. Loyola withdrew ₱10,000 cash for his personal use.
Analysis:
Review Questions
1. What are the two sets of books that are used and kept by the business?
2. Why is a journal referred to as book of original entry?
3. Why is a ledger referred to as book of final entry?
4. What is the difference between a simple journal entry from a compound journal entry?
5. What is the purpose of a chart of account?
Name: Score:
Block: Date:
Exercise 1. Identification. Fill in the missing account debited to complete the journal entries.
1. Jan-03
Cruz, Capital
To record the initial cash investment.
2. Jan-07
Accounts Payable
To record the laundry equipment bought on account.
3. Jan-10
Accounts Payable
To record the laundry supplies bought on account.
4. Jan-13
Service Income
To record the laundry services rendered for cash.
5. Jan-14
Service Income
To record the laundry services rendered on account.
6. Jan-18
Service Income
To record the laundry services rendered on account.
7. Jan-22
Cash on hand
To record the withdrawal made by Mr. Cruz.
8. Jan-24
Cash on hand
To record the payment of taxes and licenses.
9. Jan-26
Cash on hand
To record the payment of previous accounts in no. 3.
10. Jan-28
Accounts Receivable
To record the collection of accounts in no. 5.
Name: Score:
Block: Date:
Exercise 2. Identification. Fill in the missing account credited to complete the journal entries.
Exercise 3. Application. Prepare the necessary journal entries to record the following
transactions of Mrs. Novelyn Trias for the month of June. Make use of the given chart of
accounts as guide.
Chart of Accounts
Cash Trias, Capital
Accounts Receivable Trias, Drawing
Furniture and Fixtures
Office Equipment Service Income
Salaries Expense
Accounts Payable Telecommunication Expense
Notes Payable Utilities Expense
References:
Lopez, R. M. Jr. (2016). Fundamentals of Accounting. Davao City: MS Lopez Printing and
Publishing.