BOOK OF ACCOUNTS

Book of Accounts are records in which accounts and

transactions of business are maintained on a regular basis.
These books of accounts are typically a journal and a ledger or
their equivalents such as subsidiary ledgers and simplified
books of accounts.
Journal
A journal functions as a financial diary. It is used to record-
chronologically all transactions of a business as they occur. It is
commonly referred to as the book of original entry.

Advantages of using a journal:

(1)it provides a systematic and chronological record of
transactions
(2)it simplifies the ledger
(3)it provides adequate explanation of each entry and presents
necessary information about the transactions
(4)it ensures that the double-entry bookkeeping system is
observed when recording transaction and
(5)it serves as proof and legal evidence of transactions.
Two types of journals:
(1) the special journals
(2) the general journal

Special Journals are journals used to record recurring transactions.

Four common types of special journals

(3)sales journal
(4)purchase journal
(5)cash receipts journal
(6)cash disbursements journal
Sales journal is a journal used to record sale of merchandise on account. This is
typically used by merchandising businesses 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.
• Sales of other items, such as equipment, even if on account basis are not
recorded in this journal
• Sales of merchandise on cash basis or with downpayment are not recorded in
this journal.
Sales Journal includes the following information
(a)the title “Sales Journal”
(b)page number
(c)date of transaction
(d)invoice number
(e)name of the customer
(f) reference number for posting purposes
(g)a special money column for Accounts Receivable debit/Sales credit

SAMPLE FORMAT
  SALES JOURNAL   S1

Date Invoice Number Customer Name Ref. Dr. Accounts Receivable

Cr. Sales

       

         
Purchase journal is a journal used to record purchase of merchandise on
account. This is typically used by merchandising businesses which have
many credit purchases. Only the transactions involving a debit to purchase
and a credit to Accounts Payable are recorded in this journal.
Purchase Journal includes the following information
(a)the title “Purchases Journal”
(b)page number
(c)date of the transaction
(d)name of the supplier
(e)reference number for posting purposes
(f) a special money column for purchases debit/accounts payable credit.
The source documents for recording in a purchase journal are the purchase
invoices received from various suppliers. Similar to a sales journal, the credit
purchase of items other than merchandise is not recorded in this journal, unless
the business sets up a special money column for these types of purchases.

Sample format
  PURCHASE JOURNAL P1

Date Supplier Name Ref. Dr. Purchases

Cr. Accounts Payable

       

       
Cash receipts journal is a journal used to record receipts of cash from
whatever source. All business transactions which include a debit to cash
recorded in this journal.
For merchandising business, these include the sale merchandise on cash
basis, the sales of merchandise with downpayment, collection of customer
account, and even cash investment made by the owner.
For the service business, these include the receipt of cash for service
rendered collection of customer account, and cash investment made by the
owner.
Cash Receipt Journal includes the following information
(a) the title “Cash Receipts Journal”
(b) page number
(c) date of the transactions
(d) official receipt number
(e) name of the party from which the cash is received
(f) reference number for posting purposes
(g) a special money column for cash debit
(h) a special money column for Sales Discount debit
(i) a special money column for Accounts Receivable debit and credit
(j) a special money column for Sales credit
(k) a special money column for other account credit
Sample format

      CASH RECEIPT JOURNAL     CR1

Date Official Receipt Received from Ref. Cash Sales Discount Dr Accounts Receivable Sales Cr Other Accounts
Number Dr. Dr (Cr) Cr

               

                 

Cash disbursements journal, or sometimes known as the cash

payments journal, is a journal used to record payments of cash for
whatever purpose. All business transactions which include the purchase
of item on cash basis, purchase of items with downpayment, payment of
expense, and cash withdrawal made by the owner.
The Cash Disbursement Journal includes the following information
(a) the title “ Cash Disbursement Journal”
(b) page number
(c) date of transaction
(d) check voucher number or the reference number of other source
documents
(e) name of the party to whom cash is paid
(f) reference number for posting purposes
(g) a special column for cash credit
(h) a special money column for purchases debit
(i) a special column for accounts payable debit and credit
(j) a special column for purchase discount credit and
(k) a special money column for other accounts debit.
Sample format
      CASH DISBURSEMENT JOURNAL     CD1

Date Check Voucher Paid No. Ref. Accounts Payable Cr Purchases Dr Other Accounts Purchase Cash Cr
Number Dr Discount Cr

               

                 

General Journal

The General Journal which looks like a two-column columnar

notebook, is the journal used to record all other business
transactions not recorded in the special journals.
Examples of these transactions are the purchase and sale equipment on
account, owner’s withdrawal and investment of non-cash assets, and the
incurrence of expenses. Adjusting entries, correcting entries and closing
entries are also recorded in this journal.

The General Journal includes the following information

(a) the title “General Journal”
(b) page number
(c) date of transaction
(d) particulars column
(e) reference column
(f) debit money column and
(g) credit money column.
Sample format
  GENERAL JOURNAL    

Date Accounts Payable Cr Ref Dr Cr

         

         

 Particulars column is used to record the journal entry itself which

includes the account/s debited, the account/s credited, and the
explanation for the journal entry.
 Reference column is used for posting purposes. This is more
commonly known as folio (F) column or the posting reference (P/R)
column.
 The amounts written in the debit and credit money columns should be
aligned with the accounts debited and credited.
 Ledger
A ledger is a collective record of individual accounts used by a business. It
is used to sort all entries made in the journal chronological order and to
group all transactions that affect individual accounts in order to facilitate
the preparation of financial statements.

Advantages of using a Ledger

(1)it provides detailed information about revenue an expenses in one 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 financial position of the business can easily be known
 (3) it assists management in monitoring business performance through information
in individual ledger accounts and
(4) it serves a tool for auditors to track the flow of business transactions for a given
period of time.

Two common types of ledgers

1. general ledger
2. subsidiary ledger.

General Ledger

The general ledger is used to accumulate and classify individual

transactions from the journal. It divides the account into two sides: the
left side and right side. Debit information is listed on the left side, while
credit information is listed on the right side.
 A typical general ledger includes the following information
(a) account title
(b) account number
(c) date of the transaction
(d) items column
(e) reference column
(f) debit money column
(g) credit money column.
Sample format
      ACCOUNT TITLE      

Date Items Ref. Dr Date Items Ref. Cr

             

               
Subsidiary Ledger
The subsidiary ledger 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.
Subsidiary ledgers are normally set up for Accounts Receivable and
Accounts Payable.
 The Accounts Receivable subsidiary ledger, gives more detailed
information on which customers owe money to the business and how
much.
 The Accounts Payable subsidiary ledger, also known as the supplier
subsidiary ledger, gives details on the transactions of the business 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.
 Examples of less commonly-used control accounts are Cash in Bank (for
different bank accounts), Notes Receivable (for different promissory
notes received), and Notes Payable (for different promissory notes
issued).
A typical subsidiary includes the following information
(a) the related control accounts
(b) name of the customer/supplier
(c) page number
(d) date of transaction
(e) items column
(f) reference column
(g) debit money column
(h) credit money column and
(i) account balance column. A sample subsidiary ledger is
presented below:
 Sample format
ACCOUNTS PAYABLE-A AP1

DATE ITEMS REF. DR CR BALANCE

           

           

 Accounts Payable-A refers to the control account and name of supplier

which implies that the subsidiary ledger is a supplier subsidiary ledger.
 The items column refers to the explanation of the transaction.
 The reference column refers to the reference number of the source of
information.
 The account balance column makes the feature of subsidiary ledger a
running-balance type because the balance is determined after every posting
to the subsidiary ledger of a particular customer or supplier.