BATANGAS COLLEGE OF ARTS & SCIENCES, INC.

Banaybanay Concepcion, Lipa City, Batangas

HIGH SCHOOL DEPARTMENT
SY 2020 - 2021

Lecture in Nature of Transaction, Journalizing Business Transactions, Posting in the Ledger and Preparing Trial Balance:

Accountants will analyze business documents whether they have a financial impact or none in the business. The transactions which are only
financial in nature and have an economic benefit to the business and those which may change assets, liabilities, and equity will be recorded.

Examples of financial transactions:

• Payment of salaries of employees
• Payment of electric, water, and telecommunication bills
• Received payment from customers
• Received payment from customers on account
• Payment for purchasing furniture, equipment, and supplies

Examples of non-financial transactions:

• Orientation of newly-hired employees
• Posting of advertisements in the city
• Awarding of recognition to the business
• Hiring and terminating of employees

The following are examples of source documents:

1. Official receipt or cash receipt
2. Charge invoice or Sales invoice
3. Check or Cash voucher
4. Deposit slips

The journal is the accountant’s tool in recording the day-to-day transactions. It is called the book of original entry, where the accountant records
first the business transactions that occurred in the business. The recording of business transactions is in sequential form.

Format
The journal consists of the following information:
1. Date. Enter the date when the transaction occurred. The year and month may be omitted if the transaction occurred in the same year and
month.
2. Account Titles and Explanation. First, enter the account to be debited. It must be located at the extreme left of the first line, while the
account to be credited must be located at the next line which is slightly indented. A brief description of the transaction is usually made on the line
below the credit. Generally, skip the line after each entry.
3. P.R. (Posting Reference). The chart of accounts provides account numbers for each account title. The accountant will enter those account
numbers in this column once the account titles are used in a journal entry.
4. Debit. The amount to be debited is entered in this column.
5. Credit. The amount to be credited is entered in this column.

The example below shows a journal entry.

A simple journal entry is a journal entry which has one debit account and one credit account.

The example below shows a simple journal entry.

A compound journal entry is a journal entry with more than one debit account or more than one credit account, or both.

The example below is a compound journal entry.

After the identification and measurement of the transactions or events, the next step is to record them in a journal. The chart of accounts will be
provided for reference in P.R. portion of the journal. For you to better understand the lesson, an analysis is provided below.

Always remember that for each journal entry, two or more accounts are always affected by each transaction. The sum of the debits must be equal
to the sum of the credits for each transaction and the equality of the accounting equation must always be maintained.

For better understanding, look at these examples:

The transaction covered the month of July 2019 of Pamilya Services, a photocopying business by Mahal K. Pamilya.

July 1 Mr. Pamilya invested P30,000 cash and service equipment worth P30,000 in the business.
Analysis:
Increase in Asset: Cash P30,000 Debit
Increase in Asset: Service Equipment P30,000 Debit
Increase in Owner’s Equity: Pamilya, Capital P60,000 Credit

July 1 The business obtained a loan from RDS Bank worth P50,000.

Analysis:
Increase in Asset: Cash P50,000 Debit
Increase in Liability: Loans Payable P50,000 Credit

July 2 He bought office supplies for P10,000 cash.

Analysis:
Increase in Asset: Supplies P10,000 Debit
Decrease in Asset: Cash P10,000 Credit

July 3 He paid P2,000 for business permits and licenses.

Analysis:
Decrease in Owner’s Equity: Taxes and Licenses P2,000 Debit
Decrease in asset: Cash P2,000 Credit

July 10 Mr. Pamilya hired one personnel with a weekly salary of P1,000 to look after the business.

There is no need to journalize this transaction since this is a non-business transaction. It does not have an effect on assets, liabilities, equity,
revenues or on expenses.

July 10 The business paid P1,000 for the weekly salary of the employee.

Analysis:
Decrease in Owner’s Equity: Salaries Expense P1,000 Debit
Decrease in Asset: Cash P1,000 Credit
July 16 He received P8,000 cash for services rendered.

Analysis:
Decrease in Owner’s Equity: Salaries Expense P1,000 Debit
Decrease in Asset: Cash P1,000 Credit

July 21 He billed a customer P2,000 for services rendered on account.

Analysis:
Increase in Asset: Accounts Receivable P2,000 Debit
Increase in Owner’s Equity: Service Revenue P2,000 Credit

July 24 The business paid P1,000 for the weekly salary of an employee.

Analysis:
Decrease in Owner’s Equity: Salaries Expense P1,000 Debit
Decrease in Asset: Cash P1,000 Credit
July 27 Mr. Pamilya withdrew P500 from the business.

Analysis:
Decrease in Owner’s Equity: Pamilya, Drawings P500 Debit
Decrease in Asset: Cash P500 Credit

July 28 He collected P2,000 which is the amount billed to a customer.

Analysis:
Increase in asset: Cash P2,000 Debit
Decrease in asset: Accounts Receivable P2,000 Credit

July 29 He paid P10,000 for the monthly rent of the place.

Analysis:
Decrease in Owner’s Equity: Rent Expense P10,000 Debit
Decrease in Asset: Cash P10,000 Credit
July 30 He had to pay P2,500 for the electric bill.

Analysis:
Decrease in Owner’s Equity: Utilities Expense P2,500 Debit
Increase in Liability: Accounts Payable P2,500 Credit

July 31 The business paid P1,000 for the weekly salary of the employee.

Analysis:
Decrease in Owner’s Equity: Salaries Expense P1,000 Debit
Decrease in Asset: Cash P1,000 Credit

After recording transactions in the journal, the next step is to transfer them to the general ledger. You must post every transaction from your
journal into the ledger.

The ledger is the book of final entry. It is used to organize and classify transactions on which the journal entries will be transferred into their
specific account. The line items are called ledger entries.

From the journal, the debit and credit amounts will be transferred to the ledger account. Next is to compute the balance of each account after
posting entries to the ledger. Read the following:
• Calculate the running balance of each transaction in the ledger account by adding if the amounts are in the same column and subtracting if
the amounts are in different columns.
• After all the transactions have been posted, the last running balance will be the ending balance.
This is how you are going to post transactions from the general journal to the ledger.

Here are the simple steps in posting journal entries to the ledger:

1. Choose the proper column from which you will enter the information. If the journal entry for the particular account is debited, then you
have to fill in the debit side of the ledger.

2. Fill in these necessary data:

• Date of the journal entry
• Explanation (explanation written on the journal entry)
• J.R. or Journal Reference (the page number of the journal from which the journal entry was entered)
• Amount (amount of the transaction)

3. After you posted all the journal entries, the account balance will be determined by transferring the amount to the balance column. If the
amount of the succeeding transactions is in the same column, you have to add it to the balance. If the amount of the succeeding
transaction is in the other column, you must subtract the amount to the balance.
For a deeper knowledge regarding the posting of transactions in the ledger, we will take Pamilya Services as an example.

The illustration below shows the journal entries.

Make sure that you have posted all the transactions in the general journal. This will ensure that you will have a balanced
amount in the trial balance.

After posting transactions in their corresponding ledger accounts, its debit and credit balances must be reflected in a trial balance. The
preparation of this statement will serve as the basis for the final accounts of the business. This is important because it can determine the
accuracy of the accounts.

If both columns of the trial balance tally, we can reasonably assure that the accounts are accurate. It does not mean that they
are free of all errors, but it can at least establish mathematical accuracy.

After computing the balance of each ledger account, the next step is the preparation of trial balance.

The trial balance is a list of all accounts with their respective debit and credit balances. It shows the equality of the debits and credits at a given
time. The accounts are listed in the same manner they appear in the ledger. In the trial balance, they will have either a debit or credit
balance following their balances in the ledger. Those accounts having zero balances are skipped. Look at the table below.
Example of a trial balance.

The following are the simple steps in preparing the trial balance:

1. Indicate in the heading (centered) the details of the trial balance (name of the business, the term “Trial Balance”, and the date).
2. List the open accounts and their balances.
3. Total the debit and credit columns.
4. Double rule the total of the debit and credit columns. It means that you must put two lines after the amounts have been equaled and
balanced.
 For a deeper understanding of the lesson, look at the ledger accounts of Pamilya Services as an example. Take note of the following:
• listings of accounts (same order as presented in the ledger accounts and account chart)
• debit and credit amounts (taken from the account balances)

This is how the trial balance of Pamilya Services will look like.

• The account titles are arranged based on their order in the chart of accounts, starting from the asset accounts to expense accounts.
• The total debit balance and credit balance are equal.
• Accounts Receivable was skipped because it has zero balance. The peso sign shall only be seen on the first figure of debit and credit
columns, and on the total amounts.
• Take note that the debit and credit balances per account are in their normal account balances.
• Total must be double ruled.
Output: Do the task listed below using the transactions of Matapang Company for December 2019.

1. Prepare the journal entries.

2. Post each transaction to its ledger account.
3. Prepare the trial balance.
4. Use the provided account numbers.

101 Cash 302 Matapang, Drawings

102 Accounts Receivable 401 Service Revenue
103 Supplies 501 Salaries Expense
104 Office Equipment 502 Rent Expense
201 Accounts Payable 503 Utilities Expense
301 Matapang, Capital 504 Other Expense

Ralph Matapang established Happy Repair Business. The following are the transactions for the month of December 2019.

Dec. 1 He invested P150,000 in the firm.

2. He paid P8,000 for monthly rent.
2. He bought supplies on account amounting to P7,200.
3. He purchased office equipment amounting to P75,000, paid
P37,000 and the balance on account.
8. He paid accounts payable for supplies purchased worth P7,200.
14. He paid P6,000 for the salary of an employee.
20. He received P20,000 for services rendered.
28. He billed clients P48,000 for services on account.
31. Matapang withdrew P12,000 for his personal use.

Prepared By:

KASSANDRA KAY K. DE ROXAS, MMT

ABM Teacher