MOUNT CAM MOUNT CARMEL COLLEGE

Bler, 1 Baler, Aurora

Hi Higher Education Department

BASIC ACCOUNTING

Module 3: ACCOUNTING EQUATION, CHART OF ACCOUNTS

AND BOOKS OF ACCOUNTS
LESSON 3: BOOKS OF ACCOUNTS

INTRODUCTION

This lesson discusses the major types of books of accounts, the journals and ledgers. This books
of accounts are required by the government particularly the Bureau of Internal Revenue to all businesses
operating in the Philippines. Books of accounts are records of all accounts and transactions of a business
and maintained on a regular basis.

There are two types of books, the book of original entry or the journals and final book of entry
which is the ledger.

JOURNAL

It is used to record chronologically all transactions of a business as they occur. The use of journal
provides the following advantages:
1) It provides a systematic and chronological record of business transactions;
2) It simplifies the ledger as some details in the journal need not be written in the ledger;
3) It provides adequate explanation of each entry and presents necessary information about the
transactions such as the account debited and credited and related amounts;
4) It ensures that the double entry-bookkeeping system is observed when recording transactions; and
5) It helps in solving misunderstanding in business because it serves as proof and legal evidence of
transactions.
There two types of journals, the special journals and the general journal.

Special Journals
Special journals are journals used to record recurring transactions. There are four common types
of special journals:
1. Sales journal
2. Purchase journal
3. Cash receipts journal
4. Cash disbursements journal

Sales journals (SJ) is a journal used to record sale of merchandise on account. This is typically
used by merchandising business which have many credit sales transactions. Only the transactions
which involve a debit to Accounts Receivable and a credit to Sales are recorded in this journal.

Sample Sales Journal Form

Sales Accounts Receivable Dr.

Date Invoice Customer's Name Terms
Number Sales Cr.
MOUNT CAM MOUNT CARMEL COLLEGE
Bler, 2 Baler, Aurora
Hi Higher Education Department

BASIC ACCOUNTING

Purchase journal (PJ) is a journal used to record purchase of merchandise on account. This is
also typically used by merchandising businesses which have many credit purchases. Only the
transactions involving a debit to Purchases and a credit to Accounts Payable are recorded in this
journal.

Sample Purchase Journal Form

Purchase Purchases Dr.
Date Supplier' Name Terms
Invoice No.
Accounts Payable Cr.

The cash receipts journal (CRJ) is a journal used to record receipts of cash from whatever source.
All business transactions which include a debit to Cash are recorded in this journal. Transactions
include:
a) Sale of merchandise on cash basis or receipt of cash for services rendered;

b) Collection of customer accounts; and

c) Cash investment made by the owner

Sample Cash Receipt Journal Form

Sales Accounts Other

Cash
Official
Date Received from Ref. Discount Receivable Sales Accounts
Receipt No.
(Dr.) (Dr.) Dr. (Cr) (Cr.) (Cr.)
MOUNT CAM MOUNT CARMEL COLLEGE
Bler, 3 Baler, Aurora
Hi Higher Education Department

BASIC ACCOUNTING

The cash disbursements journal (CDJ) or cash payments journals (CPJ), is a journal used to
record payments of cash for whatever purpose. All business transactions with a credit to Cash are
recorded in this journal, such as:

a) Purchase of items on cash basis;

b) Purchase of items with down payment;

c) Payment of account to supplier;

d) Payment of expenses, and

e) Cash withdrawal by the owner

Sample Cash Disbursements/Payments Journal Form

Accounts
Accounts
Purchases Purchase Cash
Check Payable
Date Paid To Ref. Accounts Discount
Voucher No.
Dr. (Cr) (Dr.) (Dr.) (Cr.) (Cr.)

General Journal

It is a two-column journal used to record all types of transactions. For merchandising type
of business using special journals, it is used to record all other business transactions not recorded
in the special journals. Other transactions are:
a) Purchase and sales of property, plant and equipment on account
b) Owner’s withdrawal and investment of non-cash assets;
c) Incurrence of expenses;
d) Adjusting entries;
e) Correcting entries, and
f) Closing entries
MOUNT CAM MOUNT CARMEL COLLEGE
Bler, 4 Baler, Aurora
Hi Higher Education Department

BASIC ACCOUNTING

Sample General Journal

LEDGER
A ledger is a collective record of individual accounts used by a business. It is used to sort al
entries made in the journal in chronological order and to group all transactions that affect individual
accounts in order to facilitate the preparation of financial statements.

The use of ledger has the following advantages:

1) It provides detailed information about revenues and expenses in place, hence results of business
operations can be easily determined.
2) It provides detailed information about assets, liabilities and owner’s equity of the business, thus,
the business’s financial position can easily be known;
3) It assists management in monitoring business performance through information in individual ledger
accounts; and
4) It serves as a too for auditors to track the flow of business transactions for a given period of time.

There are two types of ledgers, the general ledger and the subsidiary ledger.

General Ledger
It is used to accumulate and classify individual transactions from the journal. It divides the account
into two sides: the left side and the right side. Debit information is listed on the left side and the credit
information on the right side.

Sample General Ledger Form

Date Items Ref. Debit Date Items Ref. Credit

MOUNT CAM MOUNT CARMEL COLLEGE
Bler, 5 Baler, Aurora
Hi Higher Education Department

BASIC ACCOUNTING

Subsidiary Ledger

It is used to provide detailed information about a specific ledger account. It follows a running
balance type of ledger because it adds a column to determine the account balance after posting each
transaction. This means that just by looking at the subsidiary ledger, the business knows at a glance
how much it owes others and how much others owe to it.

Subsidiary ledgers are normally set up for Accounts Receivable and Accounts Payable.
Accounts Receivable subsidiary ledger, gives more detailed information on the transactions of each
credit customer and provides information on which customers owe money to the business and how
much. The Accounts Payable subsidiary ledger, also known as the supplier subsidiary ledger, givers
details on the business’s transactions with each account supplier and provides information on which
suppliers the business owes money to and how much.

Accounts Receivable and Accounts Payable are therefore control (or controlling) accounts
because these are general ledger accounts supported by detailed information in the subsidiary
ledger.

Sample Accounts Receivable Subsidiary Ledger (ARSL)

Customer's
Name

Address Page

Sales Invoice Official

Date Debit Credit Balance
No. Receipt No.
MOUNT CAM MOUNT CARMEL COLLEGE
Bler, 6 Baler, Aurora
Hi Higher Education Department

BASIC ACCOUNTING

Sample Accounts Payable Subsidiary Ledger (APSL)

Supplier's
Name

Address Page

Check Purchase
Date Debit Credit Balance
Voucher No. Invoice No.