FUNDAMENTALS OF ACCOUNTING

AND REPORTING

Chapter 4 Accounting Information System

Double-Entry System

The double-entry system of accounting is based on the dual aspect concept that for every change in
financial set up (transaction), there would always be a two-sided effect to the extent of the same
amount in the accounting books. The first is the assets of the business and the second is the claims
against the assets. From this, the basic accounting equation, “Assets=Liabilities+Capital” was derived.

Debit—(Lat. Debitum, a “debtor” or “borrower”) is the value received in a business. The place of debit in
the equation is on the left-hand side.

Credit—(Lat. Creditum, a “creditor” or “lender” is the value parted with or value given in a transaction.
In every value received, there must be a corresponding value parted with.

Examples of double-entry system

GENERAL JOURNAL
Date Descriptions PR Page Number 01
20xx Debit Credit
10/14 Cash 100,000
Service income 100,000
To record cash receipt from services rendered
per OR # 0025

10/15 Salary expense 60,000

Cash 60,000
To record payment of salary for the period
October 1 to 15, 20xxx. Left-side Right-side

The Account and the Books of Accounts

Account—is an accounting form of record in which the effect of similar business transactions are
grouped or classified. This is an accounting device to record the increases and decreases of a specific
asset, liability, owner’s equity, revenue or expense.

The Journals and the Ledgers are the books of accounts that are commonly used in recording economic
transactions and events.

The Journal, which is also called the “Books of original entry”, is an accounting book that is used to
initially record business transactions and events.

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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition
 FUNDAMENTALS OF ACCOUNTING
AND REPORTING

The Ledger, is an accounting book in which the accounts and their related amounts recorded in the
journal are posted and summarized periodically. This accounting book is known as the “book of final
entry” because the balances of accounts contained in it are used to prepare financial reports.

There are two kinds of ledgers: general ledger and subsidiary ledger. General Ledger is a grouping of all
accounts used in preparing financial statements. It is generally called a controlling account because it
reports in summarized form the activities that have taken place as recorded in its subsidiary ledger.
Subsidiary Ledger is a group of like accounts that contains the independent data of a specific general
ledger. An example is the various receivables from customers.

The Chart of Accounts

The increases and decreases in an accounting element as affected by a business transaction are
recorded in a device called account name, account title, or account.

MICOMP SERVICE
Chart of Accounts

Acct. Acct.
No. No.
Assets: Liabilities:
110 Cash in Bank 310 Accounts Payable
111 Cash on Hand 320 Notes Payable-Short-term
112 Petty Cash 330 Interest Payable
120 Accounts Receivable 340 Accrued Salary Payable
130 Allowance for Uncollectible Accounts 350 Accrued Rent Payable
140 Notes Receivable-Short-term 360 Banks Loans Payable-Short-term
150 Interest Receivable 370 Income Tax Payable
160 Supplies 380 Withholding Tax Payable
170 Prepaid Rent 390 SSS Contribution Payable
180 Prepaid Insurance 400 Philhealth Contribution Payable
190 Trading Securities 410 Pag-ibig Contribution Payable
200 Notes Receivable-Long-term 420 Insurance Payable
210 Land 430 Unearned Service Income
220 Building 440 Notes Payable-Long-term
221 Accum. Depreciation-Building 450 Banks Loans Payable-Long-term
240 Furniture & Fixtures
241 Accum. Depreciation-Fur. & Fixture Owner's Equity:
250 Office Equipment 510 Juan Cruz, Capital
251 Accum. Depreciation-Off. Equip. 520 Juan Cruz, Drawing

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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition
 FUNDAMENTALS OF ACCOUNTING
AND REPORTING

Expenses: Revenues:
810 Salary Expense 610 Service Income
820 Rent Expense 620 Interest Income
830 Utilities Expense 630 Rent Income
840 Uncollectible Accounts Expense 640 Dividend Income
850 Advertising Expense 650 Gain on Sale of Land
860 Insurance Expense 660 Unrealized Holding Loss-Trading
870 Taxes and Licenses 670 Gain on Sale of Trading Sec
880 Supplies Expense 690 Miscellaneous Income
890 Interest Expense
900 Depreciation Expense
910 Employees Benefits Expense

Loss on Sale of Land (Building, Furniture

920 & Fixtures or Office Equipment)
930 Unrealized Holding Loss-Trading Sec
940 Loss on Sale of Trading Securities
950 Miscellaneous Expense

The account number is assigned to each account. It is used to facilitate recording, arranging, and cross-
referencing of the accounts. Assets start with 1 and 2; liabilities start with 3 and 4; owner’s equity starts
with 5; revenues start with 6 and 7; and expenses with 8 and 9.

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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition