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Acc1 Lesson Week9
Acc1 Lesson Week9
Acc1 Lesson Week9
AND MANAGEMENT 1
TOPIC 9:
BOOKS OF ACCOUNTS
Objectives:
Identify the uses of the two books of accounts (journal and ledger) to record
business transactions
Explain the use of general and special journals to record business transactions
Discuss the use of general and subsidiary ledgers to record business transactions
DEFINITION OF ACCOUNTING REVIEW:
It is the process of identifying, measuring and communicating
economic information to permit informed judgements and
decisions by users of the information.” (AAA) American
Accounting Association)
Definition that stood the test of time
1) Identifying- It is the process of analyzing events to determine
whether or not they will be recognized. Always remember that
only accountable events are being recognized (i.e journalized).
When you identify, you also verify the legitimacy of the
business transactions.
2) Measuring- It is the process of determining the monetary amounts at which the elements of the financial statements
are to be recognized and carried in the balance sheet and income statement. It involves calculation of amount how
much to be recognized in the books of accounts. It uses 4 common mathematical operations MDAS.
3)Communicating- It is the process of preparing and distributing accounting reports to potential users of accounting
information. Implicit in the communication process are the recording, classifying and summarizing aspects of
accounting.
QUESTIONS:
2 TYPES OF JOURNALS:
1) General Journals- this is the most basic journal. It records all business transactions in chronological order. The
general journal typically displays the transaction’s date, account titles, explanations, references and respective
amounts of corresponding accounts.
• The journal narrates the different business dealings of the company by date of occurrence.
• The journal serves as a check-and-balance tool of the company. It provides the transactions corresponding debits and credits.
GENERAL JOURNAL
To summarize, in every transaction, there is Value Received, we call a Debit and Value Parted With, we call a Credit. This is the ‘
give and take’ process of accounting as expressed in an equation;
Debit, Value Received = Credit, Value Parted With
We then say,
Simple entry- journal entries which requires two accounts, one debit and one credit.
Example: On September 6, 2015, started his operations and made sales for that day amounting to P20,000.
To record:
Cash (debit, value received) P20,000
one debit
Sales (credit, value parted with)
P20,000 one credit
Compound Entry- journal entries which requires more than two accounts in journalizing.
Example: On September 7, 2015, Mr. Mabait purchased a motorcycle costing P80,000, He pays P30,000 cash and
agrees to pay the remaining P50,000 on account (to be paid later).
To record:
Transportation Equipment (debit) P80,000
2 TYPES OF JOURNALS:
2) SPECIAL JOURNALS
Some businesses encounter voluminous quantities of similar and recurring transactions which may create congestions if
these transactions are recorded repeatedly in a single day or a month in the general journal. Thus, large companies used
specialized journals to monitor recurring transactions like sales on account, purchase on account, cash disbursements and
cash receipts in order to facilitate efficient and practical recording of similar and recurring transactions. These are called
SPECIAL JOURNALS.
credit paid
After journalizing the business transactions in the general journal and special journals, the company will now proceed
to the process of POSTING. Posting involves the transferring of journal entries to the ledger accounts to bring
together the effect of the transactions to the individual accounts of the company.
The ledger is the grouping of all accounts of a company showing its respective outstanding balances. It presents the
changes in specific account balances like cash, accounts receivable, accounts payable, etc. All account balances
presented in the financial reports of the company are derived form the ledger.
2 kinds of Ledgers:
General Ledgers
Subsidiary Ledgers
2 KINDS OF LEDGERS
1) GENERAL LEDGERS
General Ledger (GL)- contains all the asset, liability, and owner’s equity accounts of the company. They are usually
grouped according to their chart of accounts and arranged according to the order on how they appear on the financial
statements, starting from the asset accounts, followed by liability accounts and finally, the equity accounts including
the revenues and expense accounts. Each account is numbered based on the chart of accounts for easier and faster
reference.
2 KINDS OF LEDGERS
2) SUBSIDIARY LEDGERS
Large companies have thousand of transactions form the their hundreds of customers who buy goods and
merchandise on credit. If the company only utilizes a general ledger, imagine the time it will take to determine the
outstanding balances of each of its individual customers. The same is also true when it comes to the company’s
individual creditors.
To ease the burden, large companies used Subsidiary Ledgers. A Subsidiary ledger is a group of accounts with a
similar characteristics (ex. Accounts receivable and accounts payable). It is an additional record to the general ledger
utilized by the company to track the per-individual accounts of the company’s customers, creditors, and the like.
2 KINDS OF SUBSIDIARY LEDGERS