The Chart of Accounts

The specific account titles and codes to use in recording transactions are maintained in
a Chart of Accounts. It is a list of the account codes and titles that are used in recording
entries in the Journal. It shall be maintained and updated for necessary changes, like
additions of new accounts, change of titles and codes and removal of accounts that will
no longer be used.

The accounts are normally listed in the order in which they appear in the financial
statements. An account code identifies the account which will serve as its cross-
reference in the journal and ledger.

A sample is as follows:
Identifying Accountable Transactions

Business transactions or events are analyzed whether they are accountable or not. Only
transactions which are identified to be accountable transactions are recorded in the
accounting records. A transaction or event is accountable when it meets the following
criteria:

1. It involves the business entity.

2. It can be measured in terms of money.
3. It occurred on a specific date or for a specific period.
4. It affects the assets, liabilities or equity of the business.
5. It is supported by a document.

Examples of accountable transactions:

Mr. Luca Pacioli established Pacioli General Services and had the following transactions
for the month of January:

Jan 2 Investment of P100,000 capital funds by Mr. Pacioli into the business
Receipt of a Charge Invoice from a supplier for the purchase of a desktop
Jan 7
computer amounting to P30,000.
Jan 9 Purchase of supplies amounting to P8,000 in cash.
Jan Issuance of a Service Invoice for an amount of P40,000 to a customer for services
15 rendered on account.
Jan
Receipt of P28,000 cash from customers in payment of their account.
17
Jan Payment in cash and receipt of an official receipt from supplier for payment of
22 accounts, P22,000.
Jan
Cash payment of P12,000 for the salary of an employee.
31
Jan
Mr. Pacioli withdrew P10,000 cash from the business.
31

Examples of non-accountable transactions:

 The owner of the business spent P80,000 for his wedding.

 The owner spent transportation and representation expenses amounting to
P5,000.
  A secretary was hired for P15,000 monthly salary.
 The company received from a customer a sales order amounting to P100,000
worth of goods.
 The company issued to a supplier a purchase order amounting to P200,000 worth
of inventory.
 The company entered into a contract to provide services for the next 5 years, at
an amount of P500,000 per year.
 The company has been using the electricity for the first month of its operations
but has not yet received the electric bill.
 The company has been recognized by the local government unit as the best
service provider in the locality. It is foreseen to grow into a P10 million company
in the next few years.

Business Documents
The business documents forms serve as evidence to support the accountable
transactions or events. These documents provide the data concerning the parties
involved, the exchange made, the date and the money value of the exchange made.
Some of the common business documents include the following:

1. Sales Invoice – document issued to customer for specific materials or supplies

furnished or services rendered. It is called Purchase Invoice from the point of view
of the customer.
2. Delivery Receipt – document signifying delivery of goods and receipt of
inventory.
3. Official Receipt – document issued to acknowledge receipt of cash.
4. Deposit Slip – document used to deposit cash and cheques to a bank.
5. Purchase Invoice – a bill from a vendor for specific materials or supplies
furnished or services rendered. It is called Sales Invoice from the point of view of
the supplier.
6. Disbursement Voucher – a written, approved record of payment of cash.
7. Withdrawal Slip – document used to withdraw cash from a bank.
8. Cheque Issuance Record – a record of cheques issued by the company.
9. Promissory Notes – a written promise to pay a certain sum of money to the
payee. It may sometimes bear an interest over a period of time.
10. Bank Statement – a document listing the bank transactions of the depositor.
11. Billing Statement or Statement of Account – document listing the unpaid
invoices of a customer. Oftentimes, it lists chronologically the invoices, payments
and adjustments to the account of the company.
 12. Business Letters – correspondences to other companies, organizations or
government entities which may serve as a basis in recording an accountable
transaction or event.

Recording Transactions in the General Journal

Recording Transactions in the General Journal

Business transactions are chronologically recorded in the General Journal. The
transactions are recorded through a journal entry. A journal entry shows the record of
the effects of a transaction or an event expressed in terms of debit and credit. An entry
with one debit and one credit is a simple journal entry, while an entry with one or more
debits and credits is a compound journal entry. A journal entry has the following
elements:
1. The date of the transaction
2. The accounts debited and credited
3. The monetary values of the accounts debited and credited
4. The posting reference code of the destination ledger account
5. A brief and clear explanation of the transaction

The accountable transactions are recorded in the general journal following the Basic
Accounting Equation:

Assets = Liabilities + Equity

This equation will guide the bookkeeper in recording the transaction. Under the double-
entry accounting system, at least two accounts will be recorded for each accountable
transaction. After the recording of each transaction using a journal entry, the accounting
equation will maintain its equality.

Effect of Accounting Entries to the Accounts

General Journal

The General Journal is the books of original entry. The journal entries transactions are recorded
chronologically with the appropriate accounts and amounts. It contains columns to contain the
five elements of journal entries. A sample General Journal is as follows:

Posting
Date Account Title / Explanation Debit Credit
Reference

Exercise:
Record the following transactions in a General Journal:

Mr. Luca Pacioli established Pacioli General Services and had the following transactions
for the month of January:

Jan 2 Investment of P100,000 capital funds by Mr. Pacioli into the business

Receipt of a Charge Invoice from a supplier for the purchase of a desktop

Jan 7
computer amounting to P30,000.

Jan 9 Purchase of supplies amounting to P8,000 in cash.

Jan Issuance of a Service Invoice for an amount of P40,000 to a customer for services
15 rendered on account.

Jan
Receipt of P28,000 cash from customers in payment of their account.
17

Jan Payment in cash and receipt of an official receipt from supplier for payment of
22 accounts, P22,000.

Jan
Cash payment of P12,000 for the salary of an employee.
31

Jan
Mr. Pacioli withdrew P10,000 cash from the business.
31

Posting to the General Ledger

After the entries are recorded in the journal, the entries are posted into the ledger. A
ledger is a collection of all of the accounts of the company. It is the book of final entry.
Each account has an assigned account number and the individual accounts are properly
arranged.

Each journal entry is posted into the related ledger account, indicating the date,
description debits and credits, and the posting reference. The posting reference serves
as the cross-reference between the journal entry and the ledger account posting.

Illustration: Post the following transactions into the General Ledger:

Postin
Date Account Title and Explanation Debit Credit
g

202
1

Jan P100,00
Cash 101
2 0

P100,00
Pacioli, Capital 301
0

To record capital investment.

 7 Equipment 151 30,000

Accounts Payable 201 30,000

To record purchase of computer equipment on

account.

121 7,000

9 Supplies 101 7,000

Cash

To record purchase of supplies in cash.

15 Accounts Receivable 111 40,000

Service Income 401 40,000

To record income from services rendered to customers.

17 Cash 101 28,000

Accounts Receivable 111 28,000

To record collection from customers.

22 Accounts Payable 201 22,000

Cash 101 22,000

To record payment to supplier.

31 Salaries Expense 601 12,000

Cash 101 12,000

To record payment of employee salaries.

31 Pacioli, Drawing 311 10,000

Cash 101 10,000

To record withdrawal of capital.

Sample posting to the General Ledger:
Trial Balance

The trial balance is a listing of all the balances of the different accounts as of a given
date. The total of all accounts with debit balances must equal to the total of all accounts
with credit balances.

Purpose of Trial Balance:

 To check the accuracy of posting in the ledger by testing the equality of the debits and
credits.
 It aids in locating errors in posting.
 It serves as the basis in the preparation of the financial statements.

Errors in The Accounting Process

When the total debits and total credits are not equal, this automatically signify that there is an
error in the recording or posting of entries. Some of the errors that could occur are the
following:

 Journal entry with unequal debit and credit.

 Posting to the incorrect debit or credit of an account.
 Incorrectly footing the account balance, or trial balance.
 Forwarding the wrong amount from the ledger to the trial balance.
 Listing the account balance to the wrong side of the trial balance.

The following errors will not be detected by the preparation of a trial balance, but on a careful
review of the records:

 Failing to record a transaction or event.

 Multiple recording and posting of a transaction or event.
 Entries or posting to the wrong account.
 Reversed entries and posting.
 Recording and posting of amounts with transposition and trans-placement errors.

Types of Trial Balance

1. Unadjusted Trial Balance

2. Adjusted Trial Balance
3. Post-Closing Trial Balance
 Started on Tuesday, 15 November 2022, 8:45 AM

State Finished

Completed on Tuesday, 15 November 2022, 9:00 AM

Time taken 14 mins 29 secs

Grade 19.00 out of 20.00 (95%)

Question 1
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Question text
A business of two or more persons who bind themselves to contribute money, property
or industry to a common fund, with the intention of dividing the profits among
themselves

a.

Corporation

b.

Sole proprietorship

c.

Partnership

d.

Cooperative
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The correct answer is:

Partnership

Question 2
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Question text
The following are examples of service businesses except

a.

Azina Water Refilling Station

b.

Spendmore Supermarket

c.

Cagayan River Hotel and Resorts

d.

Philippine Airlines
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The correct answer is:

Spendmore Supermarket
Question 3
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Question text
Which transaction decreased both total assets and total liabilities by P10,000?
Select one:

a.

Payment of accounts payable, P10,000

b.

Collection of accounts receivable, P10,000

c.

Payment of salaries, P10,000

d.

Purchase of equipment for cash, P10,000

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The correct answer is: Payment of accounts payable, P10,000

Question 4
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 Flag question

Question text
It contains the specific titles and codes to be used in recording transactions
Select one:

a.

Trial Balance

b.

General Ledger

c.

Chart of Accounts

d.

General Journal
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The correct answer is: Chart of Accounts

Question 5
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Question text
Which is not one of the legal requirements of a business?

a.

Maintain accounting records

b.

Conduct profitable activities

c.

Issue receipts and invoices

d.

Secure business registration certificates and permits

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The correct answer is:

Conduct profitable activities

Question 6
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Posting is the process of
Select one:
a.

Transferring entries from the general ledger to the general journal

b.

Reconciling entries from the general ledger to the general journal

c.

Reconciling entries from the general journal to the general ledger

d.

Transferring entries from the general journal to the general ledger

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The correct answer is: Transferring entries from the general journal to the general ledger

Question 7
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Question text
The recording phase of financial accounting covers the following except
Select one:

a.

Transactions are recorded in the journal

b.

Posting to the ledger

c.

Source documents are gathered and analyzed

d.

Financial statements are prepared

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The correct answer is: Financial statements are prepared

Question 8
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Question text
Which of the following cannot be recorded into the company’s books of accounts?
Select one:

a.

Invoices for supplies purchased have been received but not yet paid.

b.

The proprietor withdrew a certain amount of cash from the business.

c.

One month telephone services have been utilized but the bill has not yet arrived.

d.

Repair services have been rendered to a customer but not yet collected.
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The correct answer is: One month telephone services have been utilized but the bill has not yet
arrived.

Question 9
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Question text
Which is not a form of business organization?

a.

Corporation

b.

Sole proprietorship

c.

Partnership

d.
Business association
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The correct answer is:

Business association

Question 10
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Question text
A transaction or event is accountable when it meets the following criteria, except:
Select one:

a.

It affects the business entity

b.

It is supported by a document

c.

It can be measured in terms of money

d.

It is a personal transaction of the owner

e.
If affects the assets, liabilities or equity of the business
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The correct answer is: It is a personal transaction of the owner

Question 11
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Question text
It is a type of business that buys goods and commodities then sells the same for profit
without changing its form

a.

Service business

b.

Merchandising business

c.

Manufacturing business

d.

All of the above

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The correct answer is:

Merchandising business

Question 12
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Which of the following is true about debits and credits?
Select one:

a.

Decreases in assets and increases in liabilities are always credited.

b.

Increases in assets and liabilities are always debited.

c.

Increases in owner’s equity and decreases in liabilities are always credited.

d.

Decreases in owner’s equity and drawing are always debited.

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The correct answer is: Decreases in assets and increases in liabilities are always credited.

Question 13
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 Flag question

Question text
The bookkeeper is

a.

the process of recording, classifying and summarizing business transactions for the
proper determination of correct tax declarations and payments.

b.

the person who keeps and maintains the books of accounts of the business
organization, and is responsible for recording the transactions of the business.

c.

the artist of recording, classifying, and summarizing in a significant manner and in terms
of money, transactions and events which are, in part at least of financial character, and
interpreting the results thereof.

d.

the recording of financial transactions and is part of the process of accounting in

business.
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The correct answer is:

the person who keeps and maintains the books of accounts of the business
organization, and is responsible for recording the transactions of the business.

Question 14
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 Flag question

Question text
Which is not one of the legal requirements of a business?

a.

File and pay taxes

b.

Withhold taxes on certain payments

c.

Pay business permits and licenses

d.

Maintain profitability
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The correct answer is:

Maintain profitability

Question 15
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Question text
It is the simplest form of business organization

a.

Service entity

b.

Merchandising entity

c.

Sole proprietorship

d.

Partnership
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The correct answer is:

Sole proprietorship

Question 16
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Question text
Which of the following is a simple journal entry?
Select one:
a.

An entry of one debit only

b.

An entry with one debit and one credit

c.

An entry with two or more debits and one credit

d.

An entry with one debit and two or more credits

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The correct answer is: An entry with one debit and one credit

Question 17
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Question text
Which may not be a function of a bookkeeper?

a.

Record purchases and payments

b.
Record inventory movements

c.

Record sales and collections

d.

Approve transactions
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The correct answer is:

Approve transactions

Question 18
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Which of the following entries record the purchase of an equipment by issuing a
promissory note?
Select one:

a.

Debit equipment and credit notes receivable

b.

Debit equipment and credit notes payable

c.

Debit notes payable and credit equipment

d.

Debit notes receivable and credit equipment

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The correct answer is: Debit equipment and credit notes payable

Question 19
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Accounting is

a.

the recording of financial transactions.

b.

the art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least of financial character, and
interpreting the results thereof.

c.

the person who keeps and maintains the books of accounts of the business
organization. The bookkeeper is responsible for recording the transactions of the
business.
d.

the process of recording, classifying and summarizing business transactions for the
proper determination of correct tax declarations and payments.
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The correct answer is:

the art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least of financial character, and
interpreting the results thereof.

Question 20
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A trial balance will not disclose that an error has been made in
Select one:

a.

Transferring an account balance from the ledger to the trial balance

b.

Posting amount to the wrong ledger account

c.

Computing the balance of an account

d.

Entering an amount on the wrong side of an account

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The correct answer is: Posting amount to the wrong ledger account