Books of Account

Journal
• Book of original entry.
• For each transaction the journal shows the debit and
credit effects on specific accounts.
• General and Special Journal
 General Journal
• The most basic journal
 General Journal
• It discloses in one place the complete effects of
transaction.
• It provided a chronological record of transaction.
• It helps to prevent or locate errors because the debit and
credit amounts for each entry can be easily compared.
 Journalizing Process
1. The date of the transaction which is entered in the Date
column.
2. The debit account title which is entered first at the
extreme left margin of the column headed “ Account
Titles and Explanation,” and the amount of the debit is
recorded in the Debit column.
 Journalizing Process
3. The credit account title which is intended and enter on
the next line in the column headed “Account Titles and
Explanation,” and the amount of the credit is recorded in the
Credit column.
4. A brief explanation of the transaction which appears on
the line below the credit account title. A space is left
between journal entries. The blank space separates
individual journal entries and makes the entire journal
easier to read.
 Journalizing Process
5. The column titled Ref. (which stands for Reference)which
is left blank when the journal entry is made. This column is
used later when the journal entries are transferred to the
ledger accounts.
 Rules on Debit and Credit
When to Debit and when to Credit:
An increase in an asset account is called a debit
An increase in a liability or equity account is called a
credit
 Rules on Debits and Credits
• The name of the account to be debited is always listed
first. The debited account is listed on the first line with the
amount in the left side of the register.
• The credited account is listed on the second line and is
usually indented. The credited amount is recorded on the
right side of the register.
• The total amount of debit should always equal the total
amount of credit.
 Example (Simple Transactions)
• September 1, 2015 Mr. Ben Mabait invested PHP500,000
in a restaurant business by opening an account with
SuperBank.
• September 5, 2015 purchased kitchen appliances for his
business amounting to PHP100,000 by issuing a check.
• September 6, 2015 started his operations a made a sales
for that day amounting to PHP20,000.
 Example (Compound Transactions)
• On September 7, 2015, Mr. Mabait purchased a
motorcycle costing PHP80,000. He pays PHP30,000 cash
and agrees to pay the remaining PHP50,000 on account
(to be paid later).
 General Ledger
• Refers to the accounting book in which the accounts and
their related amounts as recorded in the journal are
posted periodically.
• ‘book of final entry’
 Business Transactions and
Their Analysis as Applied to the
Accounting Cycle
of a Service Business
Pedro Matapang, a computer technician decided to open
his computer repair shop on February 14, 2016, naming it
Matapang Computer Repairs. Pedro knows that business
transactions should be separated from personal finances.
Thus, he decided to invest PHP200,000 in this business.
He deposited the amount with Nation Bank.
 Matapang Computer Repairs
February 15, 2016 - Pedro purchased one computer unit
from XY Computer Store to be used for the business. He
issued check number 001 amounting to PHP25,000.
 Matapang Computer Repairs
February 16, 2016 - Pedro hired Juana Magaling, an
experienced secretary.

Entry: No entry. This is not a financial transaction.

 Pedro Matapang
February 17, 2016 – Repaired the computer of Jean and
collected PHP10,000
 Pedro Matapang
February 18, 2016 – Repaired Mike’s computer. However,
Mike will pay PHP15,000 on March 18, 2016
 Pedro Matapang
February 19, 2016 – Pedro purchased Office Supplies from
MM Merchandise amounting to PHP5,000 on account.
Pedro will pay this on March 30, 2016.
 Pedro Matapang
February 25, 2016 – Paid the salary of Juana amounting to
PHP4,000
 Posting
• The individual transactions (in the general journal) are
then posted from the journals to the general ledger.
Nothing should ever get posted to the ledgers without first
being entered in a journal.
 Adjusting Entries
- The journal entries that bring the accounts up to date
- One purpose of adjusting entries is for income and
expenses to be reported in the correct period
 Revenue Recognition
Accounting standards require that revenue is recognized
when it is earned and the amount can be measured reliably.
 Revenue Recognition
Assume that you are preparing the financial statements for
Feb 2016. Matapang Computer Repairs rendered services
amounting to PHP25,000 for the repair of the computer
units of Mr. Tamad on Feb 26, 2016. However, the payment
for these services of Matapang will be made on Mar 15,
2016.
 Revenue Recognition
Question: when should you recognize the PHP25,000 as
revenue or income, in February or March?
 Revenue Recognition
Assume that you are preparing the financial statements for
February 2016. On February 28, 2016, Matapang Repairs
received payment from Mr. Tamad amounting to
PHP25,000. This payment is for the repair of the computer
units of Mr. Tamad on March 5, 2016.
 Revenue Recognition
• Question: when should you recognize the PHP25,000 as
revenue or income, in February or March?
 Five basic sources of adjusting entries:
1. Depreciation expense
2. Deferred expenses or prepaid expenses
3. Deferred Income or unearned income
4. Accrued expenses or accrued liabilities
5. Accrued income or accrued assets
 Depreciation
- is a method of allocating the cost of an asset to an
expense over the accounting periods that make up the
asset’s useful life.
- Examples of assets subject to depreciation are:
Store, Office, Building, and Transportation equipment.
 Depreciation
Recall that Matapang acquired office equipment on
February 15, 2016 for his repair shop business. The cost of
the equipment is PHP25,000. It was estimated to have a
useful life of five years. It is estimated that after five years,
the office equipment can be sold at a scrap value of
PHP1,000. The company uses the straight line method of
depreciation.
 Depreciation
The simplest is the straight line method.
Asset Cost XXX
Less: Estimated Savage Value XXX
Depreciable cost XXX
Divided by: Estimated useful life XXX
Depreciation Expense for each time period XXX
Acquisition Cost- the amount an entity paid to acquire the
depreciable asset.
Salvage Value- is the amount that the asset can probably
be sold for at the end of its estimated useful life.
Useful Life-  the estimated number of periods that an entity
can make use of the asset.
 Deferred Expenses/ Prepaid Expenses
These are items that have been initially recorded as assets
but are expected to become expenses over time or through
the operations of the business.
 Deferred Expenses/ Prepaid Expenses
Recall that on February 19, 2016 Matapang purchased
PHP5,000 worth of office supplies on account. By the end
of the month, PHP2,000 worth of these supplies are still
unused.
 Deferred Income or Unearned Income
These are items that have been initially recorded as
liabilities but are expected to become income over time or
through the operations of the business.
 Deferred Income or Unearned Income
On February 15, 2016 Matapang entered into a contract
with Makisig to maintain the computers of Makisig for two
months starting on February 15, 2016 up to April 15, 2016.
On the same date, Makisig paid the total contract amount of
PHP40,000 in full. The entries to record and adjust the
books are:
In the February 29, 2016 entry above, as of end of February
2016, Matapang has already earned the service revenue for
the first 15 days, thus an adjusting entry is recorded.
 Accrued Expenses or Accrued Liabilities
These are items of expenses that have been incurred but
have not been recorded and paid.
 Accrued Expenses or Accrued Liabilities
On February 29, 2016, Matapang received the electric bill
for the month of February amounting to PHP3,800.
Matapang will pay this bill on March 2016.
 Accrued Income or Accrued Assets
These are income items that have been earned but have
not been recorded and paid by the customer. In short, these
are receivables of the business.
 Accrued Income or Accrued Assets
On February 28, 2016, Matapang repaired the computer of
Pedro for PHP15,000. Pedro was on an out-of-town trip so
he could not pay Matapang . He told Matapang that he will
pay for their services on March 1, 2016.