Lesson 5 – DOUBLE-ENTRY BOOKKEEPING AND JOURNALIZING

I. T-Account

The T Account is the simplest tool used to analyze the effects of the transactions on each account,
hence it has two sides: one side for recording increases and the other side for recording decreases. Its
shape comes from the letter T hence it is called a T account.

The left part of the T account is called DEBIT, and the right part is called the CREDIT side. The title
of the account is placed on top.

To summarize, the following rules for debit and

credit should be observed in processing
transactions:

1. Increases in assets are recorded on the

debit side of the account, while decreases
in assets are recorded on the credit side of
the account.
2. Increases in liabilities are recorded on the
credit side of the account, while decreases
in liabilities are recorded on the debit side if
the account.
3. Increases in owner’s equity are recorded
on the credit side of the account, while
decreases in owner’s equity are recorded
on the debit side.

II. Double Entry Bookkeeping

Double Entry Bookkeeping System or the Venetian Model was introduced by Luca Pacioli, which
means that every business transaction must always affect two accounts and at least one or two accounting
elements. The reason is that a transaction is an exchange of value: the giving of a benefit and the receiving
of a benefit.

The difference between the debit total and the credit total is called an account balance. If the debit
total is higher than the credit total of the account balance is called a debit balance. If the credit total is
higher than the debit totals the account balance is called a credit balance.
 III. The Journal

Managers or owners need to go over complete transaction entries for analysis purposes, and this is
possible only when the transaction entries are recorded in one place. For these reasons, the transactions are
initially recorded in the journal which is also called the book of original entry.

Journal book is the book of original entry. It is the book where transactions are first entered.

The simplest form of journal is the two-column general journal, and the process of recording in this
book is called journalization. Every entry made is called a journal entry.

A journal entry with one debit and one credit is called a simple journal entry. When an entry has more
than one debit or more than one credit is called a compound journal entry.

How to use a Journal Sheet:

Each journal entry contains the following items:

1. Date
2. The account title and the amount to be debited
3. The account title and the amount to be credited
4. Explanation

The following rules should be observed per page:

1. Enter the column headings: dates, accounts and explanation, F, debit, credit.
2. Enter on the date column the year and the month. The month is written only once until you move to the
next month. Enter the date on a smaller column beside the month.
3. Enter the debit account on the accounts and explanations column and the amount on the debit column.
4. Enter the credit account on the account and explanations column but indent it so it will not fall on the
debit account margin. Enter the amount on the credit money column.
5. Enter a brief explanation on the accounts and explanations column. Indent it further so it will not fall on
the debit or credit column. This is made easy for ready.
6. The money column consists of eight spaces where, starting from the right, the centavos, tens,
hundreds, thousands, and ten thousands are placed. There is no need to place a comma separating
the hundreds from the thousands or a decimal point separating the tens from the centavos.
7. If a complete journal entry cannot be accommodated at the bottom of the page, then transfer all data to
the next page. A journal entry must be completely recorded in one place for easy reading and analysis.
8. A line or space is provided in between the entries to clearly separate one from the other.
9. If an error is committed either in figure or word, cross out the error with one horizontal line and write the
correct figure or word above it.
10. Note that the transactions are recorded chronologically and that the debit entry is recorded first. Also
note that the reference column (F) is not filled up since this is part of the posting procedure which is the
next step to be illustrated in the accounting cycle.
T- Account

CASH ACCOUNTS RECEIVABLE CARS

EQUIPMENT FURNITURE & FIXTURES ACCOUNTS PAYABLE

LOANS PAYABLE GOMEZ, CAPITAL GOMEZ, DRAWING

SERVICE INCOME GAS & OIL EXPENSES RENT EXPENSE

REPAIR EXPENSE SALARIES EXPENSE UTILITIES EXPENSE