DOUBLE ENTRY

BOOKKEEPING FOR A
SERVICE PROVIDER

CHAPTER 5
 Learning Outcomes
a. Explain the accounting cycle.
b. Describe the documents supporting business transactions.
c. Explain the importance of accounts.
d. State the rules of debit and credit.
e. Analyze transactions in T accounts using debit and credit.
f. Prepare journal entries.
g. Post from the journal to the subsidiary and general ledgers.
h. Prepare a trial balance and explain its use.
 ACCOUNTING CYCLE
Three ways of Recognizing Expenses in Generating Income:
Step 1: Collecting data based on various documents or business
papers.
Step 2: Analyzing and recording these documents in a book called
journal.
Step 3: Classifying and posting from the journal to another book
called the ledger.
Step 4: Extracting the balances of each of the accounts found in
the ledger and preparing a trial balance.
 ACCOUNTING CYCLE
First Four Steps in an Accounting Cycle

OFFICIAL
RECEIPT GENERAL GENERAL TRIAL
JOURNAL LEDGER BALANCE
record post prepare
CHECK
VOUCHER
 BUSINESS PAPERS
Invoice
• Issued when service or merchandise is given
to a customer or client.
 Name of the entity
 TIN
 address and phone number
 invoice number
 date,
 customer’s name and address
 description of service or merchandise given
 amount
 signature of employee preparing the document
Invoice
 BUSINESS PAPERS
Official Receipt
• Issued when cash is received by the entity.
 Name of the entity
 TIN
 Address
 phone number
 business number
 VAT number (if VAT registered)
 Official receipt number
 date,
 Name of the party given cash
 Amount of cash and reason for giving cash
 Form of payment
 signature of the cashier.
Official
Receipt
 BUSINESS PAPERS
Cash or Check Voucher
• Document used when cash is paid or a check is issued.
 Name of the entity
 Address
 phone number
 voucher number
 date
 Name of the payee
 Amount paid
 Check number if a check is issued
 Description of payment
 It is signed by the employee preparing it and the officer authorizing
the payment.
 It is also signed by the payee or the person who received the cash
payment.
Cash or Check Voucher
 BUSINESS PAPERS
Check
• Negotiable instrument used as a substitute for cash,
the payment for which is drawn against the entity’s or
individual’s current account.
Promissory Note
• A written promise to pay a certain sum of money at a
future date. The maker is the debtor who makes the
promise, addressing it to the payee or creditor.
Statement of Account
• A bill presented to a customer for service rendered or
merchandise given for which payment is demandable.
THE CHART OF ACCOUNTS
• A listing of account titles that
guides the bookkeeper in the
recording of the transactions.
• The number and nature of
accounts depend on the type of
business operation.
• The accounts are properly
arranged with the assets listed
first, followed by the liabilities
and lastly by the owner’s equity.
• Account numbers are easily
assigned for each account for
easy reference.
 THE VENETIAN MODEL
• Take note that every transaction entry must have a debit
equal to credit no matter how many accounts are affected.
• This is called Double Entry Bookkeeping System or
Venetian Model.
• The transactions must always affect two accounts.
• The reason is that a transaction is an exchange of value:
one value received and another value parted with.
 THE JOURNAL
• Considering the huge volume of transactions that occur in a
day for a business, it would be very difficult to see the effect
of a transaction at one glance because of the separate ledger
accounts maintained.
• For these reasons, the transactions are initially recorded in
the journal which is also called the book of original entry.
• The debits and credits of each account are recorded
chronologically by day.
• The process of recording in this book is called
journalization.
 THE LEDGER
GENERAL LEDGER
• A formal book of accounts which is used in actual practice.
• Separate page is maintained for each account.
• Each page is called a ledger.
 THE T ACCOUNT
• Simplest tool used to analyze the effects of the transactions
on each account.
• It has 2 sides:
 one side for recording increase
 other side for recording decreases
• Shapes comes from the letter T.
• Left part is called debit side.
• Right part is called credit side.
• The title of the account is placed on top.
CASH
Debit side Credit side
 THE T ACCOUNT
ACCOUNT
Debit side Credit side

• Since the assets are on the left side or debit side, increases are
therefore on the debit side and decreases are on the credit side.
• Since liabilities and owner’s equity are on the right side or
credit side, increases therefore are on the credit side and
decreases are on the debit side.
ASSETS LIABILITIES OWNER’S EQUITY
Debit Credit Debit Credit Debit Credit
+ - - + - +
 THE T ACCOUNT
Rules for debit and credit
1. Increases in assets are recorded on the debit side of the
account, while decreases in assets are recorded on the credit
side of the account.
2. Increases in liabilities are recorded on the credit side of
the account, while decreases in liabilities are recorded on
the debit side of the account.
3. Increases in owner’s equity are recorded on the credit side
of the account, while decreases in owner’s equity are
recorded on the debit side of the account.
 Demonstration Problem 1
March 1 May Gomez opened a tour and travel service by
investing cash of P50,000 and two cars worth
P750,000.
CASH
March 1 50,000

CARS
March 1 750,000
GOMEZ, CAPITAL
March 1 800,000
 Demonstration Problem 1
March 3 Borrowed P100,000 from the Citibank for business
use.

CASH
March 1 50,000
March 3 100,000

LOANS PAYABLE
March 3 100,000
 Demonstration Problem 1
March 7 Bought tables and chairs from Blim’s. Paid Cash of
P45,000

CASH
March 1 50,000 March 7 45,000
March 3 100,000

FURNITURE & FIXTURES

March 7 45,000
 Demonstration Problem 1
March 10 Purchased from National Winner two aircon units
for P50,000 and an electric fan for P5,000, all on
account.
EQUIPMENT
March 10 55,000

ACCOUNTS PAYABLE
March 10 55,000
 Demonstration Problem 1
March 18 Gomez made a cash withdrawal of P5,000 for
personal use.

CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000

GOMEZ, DRAWING
March 18 5,000
 Demonstration Problem 1
March 20 Paid the account due to National Winner

CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
March 20 55,000

ACCOUNTS PAYABLE
March 20 55,000 March 10 55,000
 Demonstration Problem 1
March 21 P15,000 was received from a tourist for a tour
package for three person in Baguio.

CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
March 21 15,000 March 20 55,000

Service Income
March 21 15,000
 Demonstration Problem 1
March 22 Paid for gas and oil P500 and repair of car P1,000.
CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
March 21 15,000 March 20 55,000
March 22 1,500

Gas and Oil Expense

March 22 500

Repair Expense
March 22 1,000
 Demonstration Problem 1
March 24 Mr. Gray hired the services of the agency for his
visitors and promised to pay P16,000 on March 31.

Accounts Receivable
March 24 16,000

Service Income
March 21 15,000
March 24 16,000
 Demonstration Problem 1
March 25 Paid PLDT for telephone service, P500.
CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
March 21 15,000 March 20 55,000
March 22 1,500
March 25 500

Utilities Expense
March 25 500
 Demonstration Problem 1
March 27 Billed Angelicum Faculty Club P20,000 for a tour of
Metro Manila.

Accounts Receivable
March 24 16,000
March 27 20,000

Service Income
March 21 15,000
March 24 16,000
March 27 20,000
 Demonstration Problem 1
March 30 Collected P8,000 from the customer, Mr. Gray
CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
March 21 15,000 March 20 55,000
March 30 8,000 March 22 1,500
March 25 500

Accounts Receivable
March 24 16,000 March 30 8,000
March 27 20,000
 Demonstration Problem 1
March 31 Paid for office rent P10,000 and salaries of workers
P9,000.
CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
March 21 15,000 March 20 55,000
March 30 8,000 March 22 1,500
March 25 500
March 31 19,000
Rent Expense Salaries Expense
March 31 10,000 March 31 9,000
 THE VENETIAN MODEL
• The difference between debit total and the credit total is
called an account balance.
• If debit total is higher than the credit total = debit balance
• If credit total is higher than the debit total = credit balance
CASH
March 1 50,000 March 7 45,000
March 3 100,000 March 18 5,000
173,000 - 126,000 = 47,000
March 21 15,000 March 20 55,000
 Debit is higher than credit
March 30 8,000 March 22 1,500
 debit balance
March 25 500
March 31 19,000
173,000 126,000
 TRIAL BALANCE
• The double entry bookkeeping rule extends to the trial balance
– ensure that the debit total is the same as the credit total.
 TRIAL BALANCE
Observe the following rules in preparing the trial balance:
1. Heading consists of three line:
• Name of the business
• Title of the report
• Date
2. Account titles are arranged in the
following order: Assets, Liabilities,
Capital, Revenue and Expenses.
3. Note that even the accounts payable,
although it is zero, still appears in the
trial balance. It may be omitted but
the readers may wonder what
happened to this account.
 TRIAL BALANCE
Observe the following rules in preparing the trial balance:
4. The peso sign is placed only
on the first debit amount, first
credit amount and on the
totals.
5. The totals are ruled (one
horizontal line drawn under
the last amounts of the debit
and credit columns) and
double ruled (two horizontal
lines are drawn under the
total figures).
 TRIAL BALANCE
Observe the following rules in preparing the trial balance:
6. If the total debit do not equal the total credit, then error(s) must have
been committed which should be located before ruling and double
ruling the totals. It is possible that any of the following errors may
have been committed:

a. Posting from the journal to the ledger on the wrong side (cash debit
posted to cash credit).
b. Posting a wrong amount (cash debit P40,000 posted to cash debit
P400,000).
c. Ledger footing (debit or credit) side is wrong.
d. Wrong balances were copied from the general ledger.
 Demonstration Problem 2
Given below are selected transactions for October 2018 for a Juanita Jabagat, interior
designer. Open T accounts. Then using T accounts extract the balances and prepare a trial
balance.
Oct. 2 Invested P200,000 cash to start the business.
3 Paid cash P6,000 for advertising and P10,000 for rent.
5 Purchased equipment amounting to P60,000. 50% was paid
in cash for downpayment the remaining balance will be a
notes payable in two installments.
11 Billed customers P25,000 for services performed.
Collected 50% from them.
16 Purchased materials and supplies on account for P15,000.
20 Received P10,000 cash from customers billed on Jan. 11.
25 Paid for the first installment due on the note.
28 Withdrew P5,000 for food spent in entertaining friends.
30 Used up P5,000 of the materials and supplies purchased.
31 Received bills from PLDT, P2,000 and Meralco, P3,000.
1. Cash
2. Accounts Receivable
3. Materials and Supplies
4. Equipment
5. Accounts Payable
6. Notes Payable
7. Utilities Payable
8. Jabagat, Capital List of Accounts
9. Jabagat, Drawings
10. Service Income
11. Advertising Expense
12. Rent Expense
13. Supplies Expense
14. Utilities Expense