BOOKS OF ACCOUNTS

AND
DOUBLE-ENTRY SYSTEM
Learning Objectives
1. Identify the uses of the two books of
accounts.
2. Illustrate the format of general and special
journals.
3. Illustrate the format of general and
subsidiary ledgers.
 The Books of Accounts

• These are books where you record all the

financial transactions of the business.
• Entries in the books of accounts are
required to be supported by documents
such as invoices, official receipts, vouchers,
and other related documents
• One of the requirements of the Bureau of
Internal Revenue for your business
registration is the books of accounts.
 Types of Books of Accounts

1. Manual Books of Accounts

This is the traditional journal, ledger and columnar
book. Recording in these books is handwritten, so you
typically use this in small businesses.
2. Loose-leaf Books of Accounts
You print and bound these journals and ledgers.
Recording can be done using the Microsoft Excel.
3. Computerized Books of Accounts
It is an accounting program that facilitates fast and
efficient record keeping. You use this for businesses
with voluminous transactions.
 List of the books of accounts that a business must maintain

1. Journal (General and Special)

2. Ledger (General and Subsidiary)
 Journal

The journal, also called the “book of original

entries,” is the accounting record where business
transactions are first recorded.
• Special Journal – is used to record transactions
with similar nature (e.g., Sales journal,
Purchases journal, Cash receipts journal, and
Cash disbursements journal)
• General Journal – All other transactions that
cannot be recorded in the special journals are
recorded in the general journal.
 Journal

• Combination Journal- to record multiple

transactions in one journal.
 This assigns columns for accounts
frequently used by the business e.g. cash,
accounts receivable, accounts payable,
income; while assigning the sundry
columns for infrequently used accounts.
 This journal commonly for service
businesses with limited type of
transactions.
 Types of Special Journals
• Sales Journal – is used to record sales on
account.
• Purchase Journal – is used to record
purchases of goods held for sale on account.
• Cash receipts journal – is used to record all
transactions involving receipt of cash.
• Cash disbursements/payments journal – is
used to record all transactions involving
payments of cash.
Which Special Journal should be used?

1. You sold barbeque to a customer who promised orally to pay

the sale price next week.

2. You sold barbecue to a customer who immediately paid the

sale price.

3. You sole barbecue to a customer who promised in writing to

pay the sale price next week.

4. The business is a buy and sell of commodity items type. The

business is situated in a public market. Voluminous and
repetitive transactions happen regularly everyday.
Sales Journal
Invoice Accounts Sales Output
Date Particulars Terms No. Receivable (Dr.) (Cr.) Tax (Cr.)
 Cash Receipts Journal
Date Particulars Explanation Doc Cash Accounts Sales Sundry
Receivables

        Dr. Cr. Cr. Acct. Dr. Cr.

Name
                   

                   

                   

                   

                   

                   

                   

                   
General Journal
Date Particulars PR Debit Credit
 Combination Journal
Doc. Cash Accounts Accounts SUNDRY
Date Particulars Explanation No. Dr. (Cr.) Receivable Dr. (Cr.) Payable Dr. (Cr.) Account Name Amount
 Ledger

• The ledger is used to classify the effects of

business transactions on the accounts. It is
also called the “book of final entries.”
1. General ledger – contains all the accounts
appearing in the trial balance.
2. Subsidiary ledger – provides a breakdown
of the balances of controlling accounts.
Formats of the Ledgers
 Double-entry System
• Concept of duality – each transaction is
recorded in two parts – debit and credit
• Concept of equilibrium – each transaction is
recorded in terms of equal debits and
credits.
Normal balances of accounts
Rules of Debits and Credits
 Ending Balances of an Account
• Debits to a specific asset or expense account should be
greater than (or equal) to the credits in those accounts.
• Credits to liabilities, equity and income should be greater
than (or equal to) the debits in those accounts.
•  The difference between the values of debits and credits
to an account represents the ending balance of that
account. The minimum balance of an account should be
zero. 
• When an asset account results in an ending credit
balance (debit amount is less than credit amount). This
means that the said asset account has an abnormal
balance.
 Ending Balances of an Account
Illustration:
The company received cash of P10,000 from owner’s
investment and P5,000 from collections. It also paid P12,000
of its expenses. How much is the cash balance at the end?
10,000 + 5,000 – 12,000 = 3,000
• Using the T-account approach and the rules of debit and
credit:
Cash
10,000 12,000
5,000
15,000 12,000
End. Balance 3,000
Illustration 1
At the beginning of the period, you have a cash balance of P2,000
During the period, you had total cash collections amounting to
P10,000 and made total cash payments of P8,000.

Required: Using "T-account" approach, compute for the

ending balance of cash

Illustration 2
At the beginning of the period, you have a note payable of P1,200
During the period, you obtained an additional loan amounting to
P800 and made total payments of P500.

Required: Using "T-account" approach, compute for the

ending balance of note payable.
 Contra and Adjunct accounts
• Contra accounts are presented in the
financial statements as deduction to their
related accounts.
• Adjunct accounts are presented in the
financial statements as addition to their
related accounts.