UNIVERSITY OF SAINT LOUIS

Tuguegarao City

SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

First Semester
Academic Year 2021-2022

ONLINE LEARNING MODULE

ACCT 1026- Financial Accounting and Reporting

Lesson 2: The Major Accounts, Books of Accounts

And Double-Entry Bookkeeping

REMINDERS:

 Lessons will be uploaded every Monday, and submission will be every Friday of the week.
 Comply with all requirements (written outputs, projects/performance tasks examinations and the like.)
 Turn in learning tasks on time to avoid backlogs.
 For this week, the following shall be your guide for the different lessons and tasks that you need to
accomplish. Be patient, read them carefully before proceeding to the tasks expected of you.

Date Topics Activities or Tasks

August 23 I. Types of major accounts Read Lessons from books and handouts
August 24 A. The Account Online discussion
August 25 B. The Five Major Accounts Accomplish the drills and exercises
C. Chart of accounts
August 27 Submission of Assessments
D. Common account titles
E. Drills on account titles Participate in the scheduled Quiz

II. Books of accounts and double-entry

system
A. The books of accounts
B. Journal
C. Ledger
D. Formats of the books of accounts
E. Double-entry system
F. Normal balances of accounts
G. Rules of debits and credits
H. Ending balance of account
I. Contra and adjunct accounts

Learning 1. Explain briefly and give examples of the five (5) major accounts
Outcomes: 2. Describe the nature of typical account titles used in recording business
transactions
3. Explain the uses and contents of the Books of Accounts and what purpose they
serve.
4. Analyze business transactions using the double entry system
5. State the role of source documents in the analyzing process
6. Apply the rules of debit and credit in analyzing business transactions

ACCT 1026 – Financial Accounting and Reporting | 1

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LEARNING CONTENT

Last week, you learned what the accounting equation is. We also had same drills on how the accounting
equation works.

We can now proceed on the discussion on the different accounts found in the accounting equation, the
different books of accounts and the double entry bookkeeping.

Let us start.

Account is defined as a basic summary device in accounting. The account is also defined as a record of
increases and decreases in assets, liabilities, equity, income or revenues and expenses. Incidentally, these
are also our five major accounts and also called the elements of financial statements.

The account resembles the letter ‘T’ as it also being depicted as a T-account.

An account has three (3) parts:

1. Account Title
2. Debit
3. Credit

Stated differently, a T-account is an informal term for a set of financial records that uses double-entry
bookkeeping. ... The title of the account is then entered just above the top horizontal line, while underneath
debits are listed on the left and credits are recorded on the right, separated by the vertical line of the letter T.

For better appreciation, here is a sample of entries using the T-account

https://www.pinterest.ph/pin/664562488742605626/

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 https://www.facebook.com/Accmondeifrs/photos/ifrs-sets-a-conceptual-framework-that-serves-as-a-base-for-the-overall-recording/1205966129570997/

Classification of the Five (5) Major Accounts

The five (5) major accounts are further classified based on the financial statement where they appear:

Statement of Financial Position Accounts Statement of Income Accounts

1. ASSETS 1. INCOME
2. LIABILITIES 2. EXPENSES
3. EQUITY

The Statement of Financial Position is one of the components of a complete set of financial statements. It
shows the financial position of the business as of a given period of time.

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The Income Statement is a sub-component of the Statement of Comprehensive Income, is also one of the
major components of a complete set of financial statements. It is also known as statement of Profit or Loss,
shows financial performance for a given period of time.

The Financial Statement is thoroughly discussed in Intermediate Accounting 3.

Chart of Accounts
A chart of accounts is a list of all accounts used by the business.

Sample chart of accounts is presented below:

Notes on the Chart of Accounts:

1. It follows a certain order of presentation, such that the Assets are presented first followed by the other
Statement of financial Position accounts and then the income statement accounts;
2. All the asset accounts are preceded by the number 1, liabilities by the number 2 and so on.
3. The chart of accounts may be accompanied with a handbook containing the account titles, their
definition and uses, a sample is presented below;
4. You can design your own chart of accounts; and formulate the account titles to be used.

ACCT 1026 – Financial Accounting and Reporting | 4

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COMMON ACCOUNT TITLES USED

Statement of Financial Position - ASSETS

CASH Includes money or equivalent that is unrestricted . example is cahd on

hand and cash in bank
ACCOUNTS RECEIVALBE Oral or written promises to pay sums of money
ALLOWANCE FOR BAD DEBTS Estimated losses on uncollectible accounts receivable
NOTES RECEIVABLE Promises to pay supported by a promissory note
INVENTORY Goods held by the business intended for sale
PREPAID SUPPLIES Unused office and other supplies
PREPAID RENT Rent paid in advance
PREPAID INSURANCE Insurance paid in advance
BUILDING Structures owned by the business used in operations
ACCUMULATED Total amount of depreciation expenses recognized since the fixed asset
DEPRECIATION was made available for use
EQUIPMENT Consists of machineries, transportation equipment, office equipment like
table, chairs, cabinets, computer equipment like server, laptops, desktop
and furniture and fixtures

Statement of Financial Position - LIABILITIES

ACCOUNTS PAYABLE
NOTES PAYABLE
INTEREST PAYABLE
SALARIES PAYABLE
UTILITIES PAYABLE
UNEARNED INCOME
Obligations to pay sums of money oral or informal.
Obligations to pay sums of money supported by a promissory note
Interest already due but not yet paid. Most common example is interest on bank
loan
Already earned by employees but not yet paid as of balance sheet date
Electric, water, telephone, cable, internet already used but not yet paid
Income already collected but the related services will be done in the future

ACCT 1026 – Financial Accounting and Reporting | 5

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Statement of Financial Position - EQUITY
OWNER’S CAPITAL What is remaining after deducting liabilities from capital (A-L = OE)
OWNER’S DRAWING Record temporary withdrawals by the owner and it is closed to the
owner’s capital at the end of the accounting period

Income Statement Accounts - INCOME

SERVICE FEES Revenue earned after rendering services
SALES Revenue earned from selling goods
INTEREST INCOME Arises from interest bearing receivables
GAINS Income earned from the sale of assets other than Inventory.

Income Statement Accounts - EXPENSES

COST OF SALES or COST OF Value of inventories sold for a certain accounting period
GOODS SOLD
FREIGHT OUT or Seller’s expenses for delivering goods to customers
DELIVERY EXPENSE
SALARIES EXPENSE Amounts paid to employees for services rendered
RENT EXPENSE Cost of rentals used during the accounting period
UTILITIES EXPENSE Cost of power and electricity, used during the accounting period
DEPRECIATION EXPENSE A portion of the cost of a depreciable fixed asset for the accounting period
BAD DEBTS EXPENSE or Estimated business losses arising from uncollected accounts receivables
DOUBTFUL ACCOUNTS
EXPENSE
TAXES AND LICENSES Cost of local and business taxes required by the government for operating a
business. Examples are mayor’s permit, cedula, DTI permit, percentage taxes
TRANSPORTATION and TRAVEL Transportation expense is within the locality like tricycle and taxi fares while
EXPENSES Travel expenses are incurred by employees while going outside of the place
of business like plane fares, bus fares, hotel accommodations and food
allowances while on business trip
INTEREST EXPENSE Represents the cost of borrowing money. This is the amount paid to the banks
when availing of a loan.
ADVERTISING EXPENSE Cost of promotional activities intended to increase product awareness of the
public
LOSSES Come from sale of assets other than inventory that is lesser than book value or
decreases in the value of assets due to damages due to natural calamities or
other causes. An example of an ordinary loss is the decrease in the market
value of foreign currencies.
MISCELLANEOUS EXPENSE Small expenditures that are not required to be presented separately

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We continue with the discussion.

The books of accounts is where we make a permanent record of our business transactions. It is a
requirement for tax audit purposes to keep a permanent file of these books.

There are two types of books:

1. The Journal-is also known as the book of original entry. It is a record of the day-to-day transaction called
journal entries that follows a chronological order (by date). The act of recording in the journal is called
“Journalizing”.
ACCT 1026 – Financial Accounting and Reporting | 6
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There are also different kinds of journals, depending on needs of business.

1. Special Journal which is used to record transactions of similar items come in many forms:
 Sales Journal – is used to record sales on credit terms
 Purchases Journal – is used to record purchases on account
 Cash Receipts Journal – is used to record all transactions involving receipts of cash
 Cash Disbursements Journal – is used to record all transactions involving the payments of
cash

2. The General Journal is the simplest form of the journal. It is a record of all transactions that can
not be recorded in all of the other transaction journals. In the absence of special journals, the
General Journal is used to record all journal entries.

2. The Ledger – also known as the book of final entry is used to record all transactions after the journalizing
process is done. The process of transferring amounts from the journal to the ledger is called “Posting”

The General Ledger (G/L) comes in two (2) different forms.

a) General Ledger is a record of all accounts appearing in the trial balance, a sample manual
ledger is shown below:

b) Subsidiary Ledger provides a breakdown of the balances of some controlling accounts.

Some of the most common subsidiary ledgers are the Accounts Receivable, Accounts
Payable, Fixed Assets and other S/Ls that maybe set up by the business according to its needs.

ACCT 1026 – Financial Accounting and Reporting | 7

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As you can see from the sample, the amount appearing on the General Ledger is transferred to the Subsidiary
ledger that with breakdown. The account and amount in the G/L is the controlling account. In the S/L entries
we come to know that the amount of P4,000 has 2 accounts of P2,000 each.

The Double-Entry System – Let me explain the double entry system by way of a diagram. A journal entry
always has two sides, the DEBIT and the CREDIT side. At all times, we maintain the equality of the debit
and credit. In layman’s terms, for every value that we give, we receive the same value in return. The key is
give and receive.

Stated in another way, a debit entry always has a corresponding credit entry.

https://www.asiabookkeeping.com/double-entry-system/

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Understanding Normal Balances of Accounts:

TIP: Hone your mastery of the rules of debit and credit. This is where your strong basic foundation
should start.

Ending Balance of an Account

Depending on the type of account, whether asset, liability or equity account, the balance is always written on
its normal balance side. It is computed as a difference between total credits and total credits.

The diagram below analyzes normal balances of accounts based on its position in the accounting equation.
If you have observed, ASSETS are on the left side of the accounting equation, so increases in assets are
recorded on the debit side and decreases on the debit side.

ACCT 1026 – Financial Accounting and Reporting | 9

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Contra and Adjunct Accounts:

Contra accounts are deductions from the related account. Example: Allowance for Doubtful Accounts is a
contra account to Accounts Receivable.

Adjunct Accounts – are additions to the related account. Example: Premium on Bonds Payable is an
adjunct of Bonds Payable because it is added to the carrying amount of the Bonds.

*** END of LESSON 1***

REFERENCES:

Textbook:
Millan, Z. V. (2020). Financial Accounting and Reporting (Fundamentals). Baguio City: Bandolin
Enterprise.

References:
1. Ballada, W. (2019). Basic Financial Accounting and Reporting. Manila: DomDane Publishers.
2. Cabrera, E.(2017) Fundamentals of Accounting Volume I, GIC Enterprises & Co., Inc., Manila
3. Financial Reporting Standard Council (2017). Philippine Financial Reporting Standards. PICPA
4. Valencia, E. and Roxas, G. (2017), Basic Accounting, Valencia Educational Supply
5. Valix, C. and Peralta, J. (2018). Financial Accounting Volume I GIC Enterprises & Co., Inc., Manila
6. Valencia, E. and Roxas, G. (2017), Partnership and Corporation Accounting, Valencia Educational
Supply

Electronic Resource:
1. Accounting Basic https://www.accountingcoach.com/accounting-basics/explanation
2. Basic Accounting. https://www.bizfilings.com/toolkit/research-topics/finance/basic-accounting/the-
accounting-system-and-accounting-basics
3. Basic accounting and bookkeeping lessons, http://www.moneyinstructor.com/accounting.asp
4. Financial Accounting. https://www.accountingcoach.com/financial-accounting/explanation
5. Accounting Tutorials for Beginners. https://www.guru99.com/accounting.html
6. https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounting-equation/

ACCT 1026 – Financial Accounting and Reporting | 10

This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced
nor transmitted in any form, in whole or in part, without expressed written permission.
 7. https://bobsteelecpa.com/accounting-equation-account-types-and-the-double-entry-accounting-
equation/
8. https://www.bookstime.com/what-is-the-accounting-equation
9. https://www.accountingcoach.com/blog/expanded-accounting-equation
10. https://accounting-simplified.com/equity.html
11. https://www.investopedia.com/
12. https://courses.lumenlearning.com/sac-finaccounting/chapter/the-basic-accounting-equation/

ASSESSMENTS:

PARTICIPATION (for recitation purposes)

DRILLS/ ACTIVITIES/ APPLICATION

EVALUATION (Quiz)

ASSIGNMENT

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