Accounting books – journals and ledgers

After the learning process, you will record transactions in corresponding special
journals and subsidiary ledgers.

In simple terms, accounting books are columnar books used for recording
transactions. There are two basic accounting books – the journal and the ledger.
The journal is known as the book of original entry where transactions are
recorded chronologically, accountants make use of journal entry format. The
journal, however, does not show the balances of accounts. For the purpose of
organizing and classifying the entries in the journal into separate accounts, we need
the General Ledger. “T-accounts” is a rough representation of a general ledger
account.

Posting means transferring of amounts from the journal to the appropriate accounts
in the ledger. Debits in the journal are posted as debits in the ledger, and credits in
the journal as credits in the ledger. The steps are illustrated as follows:
1. Transfer the date of the transaction from journal to ledger.
2. Transfer the page number from the journal to the journal reference (J.R.)
column on the ledger.
3. Post the debit figure from the journal as a debit figure in the ledger and the
credit figure from the journal as a credit figure in the ledger.
4. Enter the account number in the posting reference column of the journal once
the figure has been posted to the ledger.

The balance of each account is computed based on its normal balance. Accounts with
normal debit balances are assets and expenses. For these accounts, ending balance
is computed as beginning balance + debit entries – credit entries. In contrast, accounts
with normal credit balances are liabilities, equities and income. Ending balances are
therefore computed as beginning balance – debit entries + credit entries. The ending
balances of the general ledger accounts are reported on the financial statements.
The Journal Entry

Simple and Compound Entry

In simple entry, only two accounts are affected – one account is debited and the other
account credited. On the other hand some transactions require the use of more than
two accounts. When three or more accounts are required journal entry, the entry is
called compound entry. The process of recording a transaction is called journalizing.

Note that the rules of double-entry system are observes in each transaction:
1. Two or more accounts are affected by each transaction.
2. The sum of debits for every transaction equals the sum of the credits.
3. The equality of the accounting equation is always maintained.

The following is the list of rules of debits and credits:

First Rule: Increases in assets are recorded as debits; decreases are recorded as
credits.
Second Rule: Increases in liabilities are recorded as credits; decreases are
recorded as debits.
Third Rule: Increases in equity are recorded as credits; decreases are recorded as
debits.

Now that you all know about when to use the debit and credit, you can start
journalizing entries. We will illustrate the recording of some of Aliwalas Dormitory’s
transactions that we have already analyzed, and add some new transactions as well.
For each recording, we will illustrate how the transaction will affect which accounts and
how, so, how will impact the accounting equation, and finally how transaction will be
journalized.

Transaction 1: Investment of capital. Ms. Pujeda invested P9 000 000 into the
business on January 1, 2019. This is recorded as follows:
Analysis: Assets increased. Owner’s equity increased.
Rules: First Rule
Entry: Increase in assets is recorded by a debit to Cash. Increase in owner’s equity are
recorded by a credit to Pujeda, Capital

2019
Jan 1 Dr. Cash 9 000 000
Cr. Pujeda, Capital 9 000 000
To record initial investment of owner.

Transaction 2. Purchase of building. On January 2, 2019. Ms. Pujeda purchased a

building costing P12.35 million. She pays P5 million in cash and signs a note with a
bank for a balance.
Analysis: Assets and liabilities increased. Assets decreased.
Rules: First and second rule.
Entry: Increase in assets is recorded by a debit to Building. Decrease in assets is
recorded by a credit to Cash. Increase in liabilities is recorded by a credit to Accounts
Payable.
2019
Jan 2 Dr. Building 12 350 000
Cr. Note Payable 5 000 000
Cr. Cash 7 350 000
To record purchase of building

The Need for Special Journals

Special journals are journals designated for recording specific types of transactions of
similar nature. Most entities use the following types of special journals.
Journal Specific Transactions Recorded Posting
Abbreviation
Sales Journal Sales of merchandise on account S
Purchases Journal Credit purchases of merchandise and P
other items
Cash Receipts Receipts of cash CR
Journal
Cash Disbursement Payments of cash CD
Journal
General Journal Entries that do not fit in the other GJ
journals

Sales Journal
Date Account Invoic Ref Dr. Accounts Receivable Dr. Cost of Goods
Debited e No. . Cr. Sales Sold
Revenue Cr.
Inventory
Feb. 3, XYZ 00123 P 56 000 45 000
2020 Company
TOTAL 56 000 45 000

The entry above dated January 1, 2020 was for a sale made to customer ABC
Company as documented in Sales Invoice #00123. The “P” means posted on the
general ledger (indicated only after entry is posted in the appropriate accounts in the
general ledger. The last two columns refer to the following journal entries.

Feb.3, 2020 Accounts Receivables P56 000

Sales P56 000
Cost of goods sold P45 000
Inventory P45 000
Purchases Journal
Date Account Credited Invoice Ref. Dr. Inventory
No. Cr. Accounts Payable
Mar. 2, 2020 ABC Company 0001 P 30 000
TOTAL 30 000

Feb.1, 2020 Inventory P30 000

Accounts Payable P30 000

Cash Receipts Journal

 Date Accoun Ref Dr. Dr. Cr. Cr. Cr. Other Dr. COGS
t . Cas Sales Sales A/R Accounts Cr.
Debited h Discoun Revenu Inventory
t e
3/3/2020 XYZ P 54 1 120 56
Co. 880 000
3/15/202 HMN P 10 10 000 7 000
0 Co. 000
4/1/2020 MBTC P 5 Interest 5
000 Income 000
4/5/2020 QRS P 9 N/R 9
Co. 000 000
TOTAL 78 1 120 10 000 56 14 7 000
880 000 000

The journal entry of on the above cash receipts journal follows:

Date Account Title and Explanation Dr. Cr.
2020 Cash P54 880
Mar.2, Sales Discount 1 120
Accounts Receivable 56 000
Collection of A/R from XYZ Co.
Mar.15, Cash P10 000
Sales 10 000
COGS 7 000
Inventory 7 000
Cash sales made to customer
Apr.1 Cash P5 000
Interest Income 5 000
Cash received from interest on
investment
Apr.5 Cash P9 000
Notes Receivable 9 000
Cash Disbursements Journal
Date Account Ref. Dr. Other Accounts Dr. Dr. Cr.
Debited A/P Inventory Cash
3/3/2020 ABC Co. P 30 000 30 000
4/15/202 JKL Co. P 4 500 4 500
0
5/16/202 QUEZELC Utilities 7 800 7 800
0 O Expense
5/20/202 MBTC Interest 4 000 4 000
0 Expense
TOTAL 11 800 30 000 4 500 46
300
The journal entry of on the above cash disbursements journal follows:
The Need for Subsidiary Ledger
A subsidiary ledger is established when it is necessary for the business to keep a
separate record of similar accounts. For an instance, a business may have a
numerous transaction involving accounts receivable and accounts payable and would
set up subsidiary ledger for them. The subsidiary ledger is represented by a control
account in the general ledger (AR Control or AP Control).
Subsidiary Ledger Subsidiary Ledger
Accounts Receivable Accounts Payable

Customer A Customer B General Ledger Creditor A Creditor B General Ledger

3 000 7 000 Accounts Receivable 3 000 6 000 Accounts Payable
15 000 18 000

Customer A Creditor C
5 000 9 000

Control Account
Source: Salazar, D.R, C. (2017) Accounting p.149-161
Further Discussions: https://www.youtube.com/watch?v=9ertk4If3gY