SENIOR HIGH SCHOOL – SPECIALIZED SUBJECT

General Academic Strand: Accountancy, Business and Management (ABM)

Grade Level: Grade 11
Specialized Subject: FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1
(FABM 1)
Quarter / School Term: Fourth Quarter / Second Semester
Prepared by: RICARDO R. MARTINEZ JR. – Senior High School Teacher

Name: ____________________________________________ Date: _________________________

Grade and Section: ____________________________________________

CHAPTER 7
BOOKS OF ACCOUNTS

Introduction:
The Bureau of Internal Revenue (BIR), the taxing authority in the Philippines, mandates that all
businesses or persons, required by law, to pay internal revenue taxes shall keep permanently-
bound books of accounts for registration or stamping.

The books of accounts are records in which all accounts and transactions of a business are
maintained on a regular basis.

These books of accounts are typically a journal or ledger or their equivalents such as subsidiary
ledgers and simplified books of accounts.

JOURNAL
A journal functions as a financial diary .

It is used to record chronologically all transactions of a business as they occur. Since, it provides
the first evidence of a formally-recorded transaction, it is commonly referred to as the book of
original entry.

The use of a journal provides the following advantages:

1. It provides a systematic and chronological record of transactions.
2. It simplifies the ledger as some details in the journal need not to be written in the
ledger.
3. It provides adequate explanation of each entry and present necessary information
about the transactions such as the account debited and credited and related
amounts.
4. It ensures that the double entry bookkeeping system is observed when recording
transactions.
5. It helps in solving misunderstanding in business because it serves as proof and legal
evidence of transactions.

There are two types of journals:

1. The General Journal
2. The Special Journal

GENERAL JOURNAL
The General Journal (GJ) which looks like a two-column columnar notebook, is the journal used to
record all other business transactions not recorded in the special journal.
Examples of these transactions are the purchase and sale of equipment on account, owner’s
withdrawal and investment of non-cash assets and the incurrence of expenses.
Adjusting entries, correcting entries and closing entries are also recorded in this journal.
The GJ includes the following information:
1. the title “General Journal”
2. page number
3. date of the transaction
4. particular column
5. reference column
6. debit money column
 7. credit money column

GENERAL JOURNAL G1
Date Particulars Reference Debit Credit

The Particular column is used to record the journal entry itself which includes the account/s
debited, the account/s credited, and the explanation for the journal entry.

The Reference column is used for posting purposes. This is more commonly known as the Folio (F)
column or the posting reference column.

The amounts written in the debit and credit money column should be aligned with the accounts
debited and credited. This means that the amount for account debited is written in the debit money
column, while the amount for account credited is written in the credit money column.

SPECIAL JOURNALS
Special journals are journals used to record recurring transactions.

There are four common types of special journals:

1. Sales Journal
2. Purchases Journal
3. Cash Receipts Journal
4. Cash Disbursement Journal

The Sales Journal (SJ) is a journal used to record sale of merchandise on account.
This is typically used by merchandising businesses which have many credit sales transactions.
Only the transactions which involve a debit to Accounts Receivable and credit to Sales are recorded
in this journal.
Sales of other items, such as equipment, even if on account basis are not recorded in this journal
because these types of transactions are not normal occurrence in the business. Sales of
merchandise on cash basis or with downpayment are also not recorded in this journal. Although,
these are recurring transactions, these are recorded in another special journal.
The SJ typically includes the following information:
1. the title “Sales Journal”
2. page number
3. date of transaction
4. invoice number
5. name of the customer
6. reference number for posting purposes
7. special money column for Accounts Receivables debit/ Sales credit.

A sample format of Sales Journal

SALES JOURNAL S1
Customer Name Dr: Accounts Receivable
Date Invoice No. Reference
(Account Debited) Cr: Sales

The Purchases Journal (PJ) is a journal used to record purchase of merchandise on account. This
is typically used by merchandising businesses which have many credit purchases.

Only the transactions involving a debit to Purchases and credit to Accounts Payable are recorded in
this journal.

The PJ typically includes in the following information:

1. the title “Purchases Journal’
2. page number
3. date of transaction
 4. name of the supplier
5. reference number for posting purposes
6. special money column for Purchases debit/ Accounts Payable credit.

The source documents for recording in the PJ are the purchase invoices received from various
suppliers.
Like a sales journal, the credit purchase of items other than merchandise is not recorded in this
journal, unless the business sets up a special money column for these types of purchases.

A sample format of a Purchase Journal is shown below:

PURCHASES JOURNAL P1
Accounts Purchases Office
Sundry Accounts (Dr)
Account Payable Supplies
Date PR
Credited Account
(Cr) (Dr) (Dr) PR Amount
Titles

The Cash Receipt Journal (CRJ) is a journal used to record receipts of cash from whatever source.
All business transactions which include a debit to Cash are recorded in this journal.

For merchandising business, these include the sale of merchandise on cash basis, the sale of
merchandise with downpayment, collection of customer account, and even cash investment made
by the owner.
For a service business, these include the receipt of cash for service rendered, collection of customer
account and cash investment made by owner.

The CRJ typically includes the following information:

1. the title “Cash Receipt Journal”
2. page number
3. date of transaction
4. official receipt number
5. name of the party from whom cash is received
6. reference number for posting purposes
7. special money column for Cash debit
8. special money column for Sales Discount debit
9. special money column for Accounts Receivable debit and credit
10. special money column for Sales credit
11. special money column for Other Accounts credit

For the “Other Account” the business may set up columns for commonly used account titles to
maximize the benefits received from the use of special journal.

A sample format of a CRJ is shown below:

CASH RECEIPT JOURNAL CR1

Accounts
Official Sales Other
Received Cash Receivabl Sales
Date Receipt Reference Discount Accounts
from Dr e Cr
No. Dr Cr
Dr (Cr)

The Cash Disbursement Journal (CDJ) or sometimes known as the cash payment journal (CPJ) is
a journal used to record payment of cash for whatever purpose.

All business transactions which include a credit to Cash are recorded in this journal. These include
the purchase of item on cash basis, purchase of items with downpayment, payment of account with
supplier, payment of expenses and cash withdrawal made by the owner.

The CDJ typically includes the following information:

1. the title “Cash Disbursement Journal”
2. page number
 3. date of transaction
4. check voucher or reference number of other source documents
5. name of the party to whom cash is paid
6. reference number for posting purposes
7. special money column for Cash credit
8. special money column for Purchases debit
9. special money column for Accounts Payable debit and credit
10. special money column for Purchase Discount credit
11. special money column for Other Accounts debit

A sample format of a CDJ is shown below:

CASH DISBURSEMENT JOURNAL CD1
Check Accounts Other Purchase
Purchase Cash
Date Voucher Paid to Reference Payable Accounts Discount
Dr Cr
No. (Dr) Cr Dr Cr

SPECIAL JOURNAL VS. GENERAL JOURNAL

Special journals and general journals provide evidence of the business transaction and its
related impact on the financial statements of a business.

Both journals show the accounts affected and the related amounts in money columns. The use of
money columns in journal encourage a stricter way of entering amounts by ensuring the digits are
properly placed in the centavos, ones, tens, hundreds, thousands, and even million columns.

Peso signs, commas and decimal points are omitted when recording in the journal. However, for
purposes of clearer illustration, commas can be used in recording.
The use of special journals provides the following advantages:
1. It promotes division of labor
2. It saves time in journalizing transactions
3. It saves time in posting transactions
4. It aids in decision-making.

LEDGER

A ledger is a collective record of individual accounts used by a business. It is used to sort all entries
made in the journal in chronological order and to group all transactions that affect individual
accounts in order to facilitate the preparation of financial statements.

Since the basis of information in the ledger comes from the journal, the ledger is commonly referred
to as the book of final entry as it where the recorded transaction can be seen next after going
through the journal.

It provides the last record of financial information before financial reports are prepared.

The use of ledger has the following advantages:

1. It provides detailed information about revenues and expenses in one place, hence
results of business operations can be easily determined.
2. It provides detailed information about assets, liabilities and owner’s equity of the
business, thus the financial position of the business can easily be known.
3. It assists management in monitoring business performance through information in
individual ledger accounts.
4. It serves as tool for auditors to track the flow of business transactions for a given
period of time.

There are two common types of ledgers and these are:

1. General Ledger
2. Subsidiary Ledger
GENERAL LEDGER

It is used to accumulate and classify individual transaction from the journal.

It divides the accounts into two sides: the left side and the right side. Debit information is listed on
the left side while credit information is listed on the right side.

A typical general ledger includes the following information:

1. account title
2. account number
3. date of the transaction
4. item column
5. reference column
6. debit money column
7. credit money column

A sample general ledger is presented below:

ACCOUNT TITLE No.____

Date Item Reference Dr Date Item Reference Dr

PAGE NUMBER _________

ACCOUNT _____ ____________________________________
Date BALANCE
Item Post DEBIT CREDIT
DEBIT CREDIT

The account number is based from the chart of accounts of the business which is a listing of all
account titles used in the business together with the related account numbers.

The item column includes details of the transaction which may be in the form of explanation or
customer/supplier name.

The reference column refers to the reference number of the source of information.

SUBSIDIARY LEDGER

It is used to provide detailed information about the specific ledger account.

It follows a running balance type of ledger because it adds a column to determine the account
balance after posting each transaction.

It normally set up for Account Receivables and Accounts Payable.

The Account Receivable subsidiary ledger is also known as customer subsidiary ledger, gives more
detailed information on the transactions of each credit customers and provides information on
which customers owe money to the business and how much.

The Accounts Payable subsidiary ledger is also known as the supplier subsidiary ledger, gives
details on the transactions of the business with each account supplier and provides information on
which suppliers the business owes money to and how much.

Accounts Receivable and Accounts Payable are therefore control (controlling) accounts because
these are general ledger accounts supported by detailed information in the subsidiary ledger.

A typical subsidiary ledger includes the following information:

1. the related control accounts
2. name of the customer/suppliers
3. page number
4. date of transaction
 5. item column
6. reference column
7. debit money column
8. credit money column
9. account balance column

Sample format of Subsidiary Ledger

ACCOUNTS PAYABLE – MARTINEZ AP1

Date Items Reference Dr Cr Balance

The heading “Accounts Payable – Martinez” refers to the control account and the name of the
supplier which implies that the subsidiary ledger is a supplier subsidiary ledger.

The Item column refers to the explanation of the transaction.

The Reference Column refers to the reference number of the source of information.

The Account Balance column makes the feature of subsidiary ledger a running balance type because
the balance is determined after every posting to the subsidiary ledger of a particular customer or
supplier.