UNIVERSITY OF CEBU LAPU LAPU AND MANDAUE

SENIOR HIGH SCHOOL DEPARTMENT

COMPILATION NOTES FOR ABM 2

Review of Journal Entries, T-Accounts, General Ledger, and Trial Balance

Learning Objectives:
After studying, we should be able to:
1. determine the value received and value parted with, leading to journalizing process;
2. know what are the books of accounts, the use of a General Journal and a General
Ledger;
3. explore different transaction using T-accounts.
4. increase our learning through illustrative problem.

The Journal

The Journal is a chronological record of events or business transactions showing all the
effects of each transaction terms of debits and credits. Because transactions are initially recoded in
the journal, it is called the book of original entry. It is called the book of original entry because it
is in this book where the transactions are recorded for the first time. The two kinds of journal are
General Journal and the Special Journal. The book of final entry is called the LEDGER which is also
of two kinds, the General Ledger and the Subsidiary Ledger. This is called the book of final
entry because it is in the book where transactions that were recorded in the journal are transferred
for final recording.

General Journal
A General Journal can that be of a loose-leaf or book-bound form. It has the following
columnar headings:

Date Column – shows the date when the transactions took place.
Particulars – shows the item or the accounts debited and credited as a result of a transaction
analysis as well as a brief or concise explanation of what the transaction is about.
Folio – shows the number of an account in a ledger or page of a ledger to which it was transferred.
Folio is the Latin word for page. It is also called a reference.
Debit Column – this is a money column showing the peso amount of the value received in a
transaction.
Credit Column – this is the money column showing the peso amount of the value parted with in a
transaction.

General Ledger
A general ledger can that also be of a loose leaf or book bound form. This book will group
items or accounts of the same kind, class or nature. Each item or account is being provided with a
leaf of a ledger. For this reason, a ledger is also called group of accounts. A general ledger in its
skeleton form is a T-ACCOUNT. The use of a T-ACCOUNT is the same with that of a ledger, except
that the columns for folio and particulars are eliminated.
RECORDING PROCESS
Recording is the first phase of Accounting. This involves the writing down of business
transactions in a systematic manner and in order of their occurrence in the book of original entry
called Journal.

Journalizing is the act of recording business transactions in the journal. It is the first step of the
accounting process. The entry that is made in the journal is called Journal Entry.
A general ledger has two sides; the left-hand side which is called a debit side and right hand
side which is called a credit side. Each side has the column.
At the end of the accounting period, the debit and credit entries of its item or account in the
ledger are totalled. If the debit side total is bigger than the credit side total, the difference is called
DEBIT BALANCE. We then say, the account is a debit balance. On the other hand, if the credit side
total is bigger that the debit side total, the difference in amount is called CREDIT BALANCE. We
then say, the account is a credit balance. If both totals of debit and credit sides are equal, the
account is said to be IN-BALANCE or CLOSED ACCOUNT.

Remember the following indentions made in preparing the Journal Entry:

1. The Credit item is indented from the debit item;

2. The first word of the explanation is indented from the credit item.

Take note on how peso amounts were written in both debit and credit money columns:
1. The money columns of the journal provide the segregation of digits of the million, thousands,
hundreds, pesos and centavos. These results to the following observations:

a. the use of comma for million and thousands and the decimal point for the centavos are eliminated;
b. the use of peso (P) is also eliminated because the debit and credit columns are understood to be
money columns and that peso is used as its valuation.
c. the use of the “dash” (-) indicates that there is no centavos in the amount. The “double-zero” may
also be used.

CHART OF ACCOUNTS

When transactions are recorded in the general journal, account titles are being used. A list of
accounts titles are prepared beforehand go guide bookkeeper and accountant of what specific titles
are to be used in describing the exchanges of values in a transaction. This list of account titles is
called Chart of Accounts.

ILLUSTRATIVE PROBLEM: DAVAO LAUNDRY SERVICES

 DAVAO LAUNDRY SERVICES
Chart of accounts

Balance Sheet Accounts Income Statement Accounts

Assets Income

Page Account Page Account

No. No. No. No.

1 111 Cash in Bank 13 441 Laundry Income

2 112 Accounts Receivable
3 112-A Estimated Uncollectible Accounts Expenses
4 113 Laundry Supplies Inventory
5 114 Laundry Equipment 14 551 Uncollectible Accounts
6 114-A Accu. Depreciation 15 552 Depreciation Expense
16 553 Salaries Expense
Liabilities 17 554 Rent Expense
18 555 Utilities Expense
7 221 Notes Payable 19 556 Taxes and Licenses
8 222 Accounts Payable 20 557 Advertising Expense
9 223 Accrued Advertising 21 558 Interest Expense

Owner’s Equity

10 331 S. Santos, Capital

11 332 S. Santos, Drawing
12 333 Income & Expense Summary

The chart of accounts shows account titles which are arranged in this order. ASSETS, LIABILITIES,
OWNER’S EQUITY, INCOME and EXPENSES. If a transaction involves an account title which is not
included in a given chart, the bookkeeper may create an account title that he thinks more appro-
priate to use in describing the exchanges of values. Additional page of the ledger will also be
provided.

Rules for Debit and Credit

You debit to show: You credit to show:

1. Increase in assets
2. Decrease in liabilities
3. Decrease in owner’s equity
- Owner’s Withdrawal
- Expenses
1. Decrease in assets
2. Increase in liabilities
3. Increase in owner’s equity
- Initial Investment
- Additional Investment
- Revenue/Income

ILLUSTRATIVE PROBLEM:
Investment by Owner

March 1 – Mr. Severo Santos opens a current account with Allied Banking Corporation in the amount
of P850,000 to start with his laundry shop business under the trade name Davao Laundry Services.
(At this point, an entity, Davao Laundry Services was created separate and distinct from
the owner, Mr. Santos)

Analysis: There is an increase in Asset-Cash in Bank of P850,000 and a corresponding increase in

Owner’s Equity, Santos, Capital of P850,000.
Rule: Debit, increase in Asset and Credit, increase in Owner’s Equity.
Journal Entry
20A
March 1
Cash in Bank P 850,000
Santos, Capital P 850,000
Initial Investment

Purchase of Supplies on Credit

March 2 – Purchased laundry supplies on account, P90,000 from the following suppliers:
SM City - Davao P 35,000
Gaisano Mall 25,000
NCCC Mall 30,000
Total Payable P 90,000
======

Analysis: There is an increase in Asset-Laundry Supplies Inventory of P90,000 and a corresponding

increase in Liability, Accounts Payable of P90,000.
Rule: Debit, increase in Asset and Credit, increase in Liability.
Journal Entry

March 2
Laundry Supplies P 90,000
Accounts Payable P 90,000
Laundry supplies on credit

Purchase of Equipment for Cash

March 3 – Purchase of laundry machine for cash, P150,000.
Analysis: there is an increase in one form of an Asset – Laundry Equipment P150,000 and a corres-
ponding decrease in another form of an Asset – Cash in Bank of P150,000.
Rule: Debit, increase in Asset and Credit, decrease in Asset
Journal Entry
March 3
Laundry Equipment P 150,000
Cash in Bank P 150,000
Purchase machine for cash
Services Rendered for Credit
March 4 - Rendered laundry services on account, P80,000 to the following customers:

Apo View Hotel P 5,000

Grand Men Seng Hotel 35,000
The Marco Polo Hotel 30,000
Royal Mandaya Hotel 10,000
Total Receivable P80,000
=====

Analysis: There is an increase in Asset - Accounts Receivable of P80,000 and corresponding

increase in Owner's Equity - Santos, Capital (increase in Income) of P80,000.
Rule: Debit, increase in Asset and Credit, increase in Owner's Equity.
Journal Entry

March 4
Accounts Receivable P 80,000
Laundry Income P 80,000
Services on credit.

Payment of Taxes, Licenses and Other Government Dues

March 10 - Paid taxes and licenses due to government, P4,000.

Analysis: There is a decrease in Owner's Equity (increase in expense) of P4,000 and a decrease in
Asset-Cash in Bank of P4,000.
Rule: Debit, increase in Expense and Credit, decrease in Asset.
Journal Entry
March 10
Taxes & Licenses P 4,000
Cash in Bank Paid taxes and licenses. P 4,000
Paid Taxes and licenses

Withdrawal by Owner
March 12 - Mr. Santos withdrew P10,000 cash from the business for his personal use.

Analysis: There is a decrease in Owner's Equity-Santos, Capital of P10,000 (increase in drawing)

and a corresponding decrease in Asset-Cash in Bank of P10,000.
Rule: Debit, increase in Drawing and Credit, decrease in Asset.
Journal Entry
March 12
S. Santos, Drawing P 10,000
Cash in Bank P10,000
Withdrawal by owner
Issuance of a Note for Borrowed Money
March 17 - The business borrowed money from Allied Banking Corporation, P100,000 by issuing a 15-
day note. It was deposited to the account of Davao Laundry Services by way of a Credit
Memorandum issued by the bank.

Analysis: There is an increase of in Asset-Cash in Bank of P 100,000 and a corresponding increase

in Liability-Notes Payable of P100,000.
Rule: Debit, increase in Asset and Credit, increase in Liability.
Journal Entry
March 17
Cash in Bank P 100,000
Notes Payable P 100,000
Issued a 15-day note for borrowed

Payment of Interest on Bank Loan

March 17 - The bank issued a debit memo, P1,000 for interest and bank charges.

Analysis: There is a decrease in Owner's Equity-Santos, Capital of P1,000 (increase in Expense) and
a corresponding decrease in Asset-Cash in Bank of P1,000.
Rule: Debit, increase in Expense and Credit, decrease in Asset.
Journal Entry
March 17
Interest Expense P 1,000
Cash in Bank P 1,000
Bank interest payment

Partial Collection of Accounts Receivable

March 21 – Received cash of P45,000 representing collection from the following customer’s account:

Grand Men Seng Hotel P 30,000

The Marco Polo Hotel 10,000
Royal Mandaya Hotel 5,000
Total Collection P 45,000
======
Analysis: There is an increase in one form of an Asset – Cash in Bank of P 45,000 and a correspond-
ding decrease in another form of an Asset – Accounts Receivable of P 45,000.
Rule: Debit, increase in Asset and Credit, decrease in Asset
Journal Entry
March 21
Cash in Bank P 45, 000
Accounts Receivable P 45,000
Partial collection of accounts.
Partial Payment of Accounts Payable
March 25 – Partial payments of accounts, P60,000 to the following suppliers:

SM City – Davao P 25,000

Gaisano Mall 20,000
NCCC Mall 15,000
Total Payable P 60,000
======
Analysis: There is a decrease in Liability – Accounts Payable of P 60,000 and a corresponding
decrease in Asset – Cash in Bank of P 60,000.
Rule: Debit, decrease in Liability and Credit, decrease in Asset.
Journal Entry
March 25
Accounts Payable P 60,000
Cash in Bank P 60,000
Partial payment of accounts

Hiring of an Accountant/Manager
March 30 – Mr. Severo Santos hired an accountant/manager for his business as he has plenty of
things to attain to at P10,000 per month affective April 1, 20A.
(No entry is necessary, Non-Financial data)

Payment of Expenses
March 30 – The following expenses were paid by Davao Laundry Services for the month of March
20A:
Space rental P 5,000
Telephone, light & Water 12,000
Salaries of Employees (contractual) 10,000
Total Expenses Paid P 27,000
=====
Analysis: There is a decrease in Owner’s Equity – Santos, Capital of P27,000 (increase in Expense)
and a corresponding decrease in Asset – Cash in Bank of P 27,000.
Rule: Debit, increase in Expense and Credit, decrease in Asset
Journal Entry
March 30
Rent Expense P 5,000
Utilities Expense 12,000
Salaries Expense 10,000
Cash in Bank P 27,000
Payment for expenses

GENERAL JOURNAL
20A Particulars Folio Debit Credit
Mar. 1 Cash in Bank GL- 1 850,000
S. Santos, Capital GL- 10 850,000
Initial Investment

2 Laundry Supplies GL - 4 90,000

Accounts Payable GL - 8 90,000
Laundry Supplies on credit

3 Laundry Equipment GL - 5 150,000

Cash in Bank GL - 1 150,000
Purchased laundry equipment for cash

4 Accounts Receivable GL - 2 80,000

Laundry Income GL - 13 80,000
Service on credit

10 Taxes & Licenses GL - 20 4,000

Cash in Bank GL - 1 4,000
Paid taxes and licenses

12 S. Santos, Drawing GL - 11 10,000

Cash in Bank GL - 1 10,000
Withdrawal by owner

17 Cash in Bank GL - 1 100,000

Notes Payable GL - 7 100,000
Issued a 15-day note for borrowed money

Interest Expense GL - 22 1,000

Cash in Bank GL - 1 1,000
Bank interest payment

21 Cash in Bank GL - 1 45,000

Accounts Receivable GL - 2 45,000
Partial collection of accounts

25 Accounts Payable GL - 8 60,000

Cash in Bank GL - 1 60,000
Partial payment of accounts

30 Rent Expense GL - 17 5,000

Utilities Expense GL - 18 12,000
Salaries Expense GL - 16 10,000
Cash in Bank GL - 1 27,000
Payment for Expenses

EXERCISE 1
Identification of What Transactions are “Accountable”
Instruction: On the space provided, write “Yes” if the transactions is accountable and “No” if not
accountable.
___ 1. Payment of family’s medical expense
___ 2. Received cash for services rendered to clients
___ 3. Payment of rice and fish for family’s consumption
___ 4. Withdrawal of cash from the business
___ 5. Enters into advertising contract with GMA
___ 6. Investment of computer equipment to the business
___ 7. Payment of government taxes and licenses
___ 8. Registration of business name to Department of Trade and Industry
___ 9. To employ an accountant with a salary of P35,000 per month
___ 10. Death of the owner within the premise of the business
___ 11. Salaries paid to house helpers
___ 12. Gives support to an election candidate
___ 13. Loss incurred due to theft and robbery
___ 14. The commercial building was razed by fire
___ 15. Vacation and sick leave paid to employees
___ 16. Personal accident insurance of the manager
___ 17. Payment of company’s vehicle registration
___ 18. Payment of company’s car insurance
___ 19. Received a purchase order document from customer
___ 20. Registration of government vehicle

EXERCISE 2

Instruction: Write letter “T” if the statement is correct and “F” if incorrect.

__ 1. A journal entry is said to be complete even without an “explanation”.

__ 2. Erasures in the journal may impair accounting records and can create suspicion that there are
manipulation done.
__ 3. An erroneous journal entry cannot be corrected anymore.
__ 4. Entries in the journal are transferred to the ledger for final recording.
__ 5. A journal like that of a ledger can also be “loose-leaf” or “book bound” form.
__ 6. The bookkeeper has the option to indicate a double zero or dash in the centavo column if there
is no centavo.
__ 7. There is no indention for the accounts debited and credited in a journal entry.
__ 8. The use of a peso sign is eliminated specially in the journal because the debit and credit
columns are understood to be money columns and that we use peso as valuation
__ 9. In the journal, the use of comma for the millions and thousands and the decimal points for the
centavo are eliminated.
__ 10. When the journal entry is erroneous, the best thing to do is to leave it because the owner has
no knowledge about accounting.

__ 11. Recording is the first phase of accounting.

__ 12. An opening entry will once in the life of the business.
__ 13. Folio is the other term for “post reference”.
__ 14. Folio in the ledger shows the page number of a journal where the entries are taken from.
__ 15. The book of original entry is called ledger.
__ 16. The book of final entry is called journal.
__ 17. The skeleton form of a general ledger is a T- account.
__ 18. A general ledger like that of a general journal can also have a simple or compound entry.
__ 19. Journalizing is the first step of the accounting process.
__ 20. Double-entry system of bookkeeping recognizes the two-fold effect of a transaction.

EXERCISE 3
Multiple Choice: Encircle the letter of the correct answer in each of the given question.

1. The first step in the accounting process is –

a. record transactions in the journal
b. post journal entries to the ledger
c. correcting a journal entry
d. prepare a trial balance.

2. Transactions and events happened or took place within the business enterprise best describe the –
a. external transactions c. occurrence of a transaction
b. internal transactions d. eventual transactions

3. The source document evidencing that goods have been delivered by the supplier to the customer-
a. supplier’s sales invoice c. vale slip
b. customer’s sales invoice d. customer’s delivery receipt

4. The source document issued by the supplier acknowledging that payment has been received from
the customer –
a. official receipt c. check
b. deposit slip d. voucher

5. A source document which accompanies a check when payment is made –

a. cash voucher c. purchase voucher
b. check voucher d. all of the above

6. Which is not true concerning a Journal?

a. journal is a book of original entry c. recording is done chronologically
b. a journal is similar to ledger d. a journal entry may be simple or compound

7. What function doo accounting journal serve in the accounting process?

a. classifying c. reporting
b. recording d. summarizing

8. Which is not true concerning compound journal entry?

a. contains two items in both sides c. contains two credit items and three credit items
b. contains one debit item and one credit item d. contains one debit items and two credit items

9. Which of the following account titles that is differently classified from the others listed?
a. Unearned Service Income c. Notes Payable
b. Accounts Payable d. Prepaid Expense

10. Which of the following account titles that is differently classified from the others listed?
a. Cash in Bank c. Supplies Inventory
b. Accounts Receivable d. Prepaid Expenses

11. Which of the following account titles that is differently classified from the others listed?
a. Service Income c. Supplies Inventory
b. Depreciation Expense d. Uncollectible Account

12. A chart of accounts begins with –

a. Owner’s Equity c. Assets
b. Liabilities d. Expense

13. Explanation of what transactions are all about is found in the –

a. Journal c. Chart of Accounts
b. Ledger d.. Trial Balance

14. To guide a bookkeeper of the correct description of an account title –

a. Journal c. Ledger
b. Chart of accounts d. Trial Balance

15. Unearned Service Income account ia a/an –

a. Asset c. Income
b. Liability d. Owner’s Equity

EXERCISE 4A
Unknown Accounts to be Debited
Instruction: Fill in the missing Debited to complete the journal entries.

Jan. 3- _____________________________
J. Alegado, Capital
Initial cash investment.

7- _____________________________
Accounts Payable
Video equipment on account

10 - _____________________________
Accounts Payable
Various video supplies inventory on account.

13 - _____________________________
 Service Income
Services on account.

15 - _____________________________
Cash on Hand
Withdrawal of the owner.

19 - _____________________________
Accounts Receivable
Collection of account.

23 - _____________________________
Notes Payable
Issued a note for borrowed money.

27 - _____________________________
Cash on Hand
Payment of taxes and license.
30 - _____________________________
Service Income
Received a note for services rendered.

31 - _____________________________
Cash on Hand
Payment of accounts.

EXERCISE 4B
Unknown Accounts to be Credited
Instruction: Fill in the missing accounts credited to complete the journal entries of Sergio
Columbres, owner of Toril Refrigeration Services.

Dec. 3- Cash in Bank

_____________________________
Initial Investment.

10 - Shop Supplies Inventory

_____________________________
Various supplies on account.

15 - Accounts Receivable
_____________________________
Rendered refrigeration service on account.

17 - Accounts Payable
_____________________________
Payment on account.

18 - Shop Equipment
 _____________________________
Issued a 60-day note for Shop equipment on account.

19 - Taxes and Liceses

_____________________________
Payment of taxes and licenses.

20 - S. Columres, Drawing
_____________________________
Withdrawal of owner.

28 - Cash on Hand
_____________________________
Rendered refrigeration service for cash.

30 - Notes Receivable
_____________________________
Rendered refrigeration service on account.

EXERCISE 4C

Unknown Accounts to be Debited andCredited

Instruction: Fill in the blanks with accounts debited and credited in the following transactions of
Evangeline Jamili, owner of Butuan Auto Repair Shop

Feb. 1- _____________________________
_____________________________
Mrs. Jamili invested cash on account.

8- _____________________________
_____________________________
Bought supplies inventory on account.

11 - _____________________________
_____________________________
Withdrew cash from her business.

18 - _____________________________
_____________________________
Rendered services for cash.

20 - _____________________________
_____________________________
Billed a customer for services rendered.

24 - _____________________________
 _____________________________
Received cash in advance for services to be rendered.

25 - _____________________________
_____________________________
Paid the account of Feb. 8

28 - _____________________________
_____________________________
Collected cash from customer’s account on Feb. 20.

29 - _____________________________
_____________________________
Paid rental for the month.