FUNDAMENTALS OF ACCOUNTANCY, BUSINESS

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:

A)From the definition of Accounting, how do we record the transactions

that we have identified and measured?
B)What are the tools that we use to document these transactions?
C)How important are these records in accounting?
BOOKS OF ACCOUNTS:
In a single day, company engages in hundreds and thousands of business transactions. Some of these include cash and
credit sales, purchase of inventories, payment of expenses, acquisition of equipment, and many more. A company
should be able to collect and process these financial information in order to summarize them at year-end and to be able
to prepare its financial statements for its internal and external users.
To keep track of its transactions more efficiently, companies keep and maintain a set of books and/or record called
Books of Accounts.
Books of Accounts- are the finance records, ledgers, and journals that compose the company’s accounts. These serve
as a company’s financial memory and comprise of every single business transactions and financial information of a
company. Aside from decision-making and analysis of a business performance, books of accounts are also crucial in
ensuring regulatory compliance as they also serve as proof of the business transactions reflected in the financial
statements.
2 MAJOR BOOKS OF ACCOUNTS:
 Journals
 General journal and Special journals
 Ledgers
 General ledgers and Subsidiary ledgers
 2 MAJOR BOOKS OF ACCOUNTS:
1) JOURNALS
Journal- is chronological record of all company’s transactions listed by date. It is often referred to as “book of original
entry”. Companies initially record transaction and events in chronological order (the order in which they occur.)

Journalizing- is process of recording financial information into the journal.

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

Accounts titles are referenced to the

Chart of Accounts as discussed in the
previous chapter.
EXAMPLE OF RECORDING IN JOURNALS:
 REMEMBER HOW TO RECORD BUSINESS EVENTS?

1. For every value received, another value is given away as an exchange;

2. These values are measured in terms of pesos which are presumed to be equal.

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

Let us have this September 5 transaction:

• Purchased of Kitchen Appliances by issuing check amounting to,P100,000.
1. Who purchased the Kitchen Appliances?
Answer: the business ------------------------------------ Identifying

2. What is the value received? Analyzing

Answer: Kitchen Appliances
3. What is the value parted with
Answer: money: cash
4. What is the peso equivalent of these exchanges
Measuring
Answer: P100,000
REMEMBER HOW TO RECORD BUSINESS EVENTS?

Debit, Value Received = Credit, Value Parted With

We then say,

Debit, value received – Kitchen Appliances P1000,000 Journalizing

Credit, value parted with – money cash p 100,000

Let us have this September 5 transaction:

• Purchased of Kitchen Appliances by issuing check amounting to,P100,000.
1. Who purchased the Kitchen Appliances?
Answer: the business ------------------------------------ Identifying

2. What is the value received? Analyzing

Answer: Kitchen Appliances
3. What is the value parted with
Answer: money: cash
4. What is the peso equivalent of these exchanges
Measuring
Answer: P100,000
GENERAL JOURNALS:

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.

Common Special Journals:

Special Journal Purpose
Cash Receipts Journal Used in journalizing all cash received (including cash sales)
Cash Disbursements Journal Used in journalizing all cash paid (including cash purchases and all
payments)
Sales Journal Used in journalizing all sales on account or on credit (merchandise)
Purchase Journal Used in journalizing all purchases on account or on credit (merchandise)
SPECIAL JOURNALS
1)CASH RECEIPTS JOURNAL

The source document for this journal is the OFFICIAL

RECEIPTS or CASH RECEIPTS issued by the company.
SPECIAL JOURNALS
2)CASH DISBURSEMENT JOURNAL

credit paid

The source documents used to updated this journal

are the check vouchers, official receipts from
suppliers or vendors, PO’s and others.
SPECIAL JOURNALS
3)SALES JOURNAL
SPECIAL JOURNALS
4)PURCHASE JOURNAL
 2 MAJOR BOOKS OF ACCOUNTS:
2) LEDGERS
The ledger refers to the accounting book in which the accounts and their related amounts as recorded in the journal are
posted periodically. The ledger is also called the ‘book of final entry’ because all the balances in the ledger are used in
the preparation of financial statements. This is also referred to as the T-Account because the basic form of a ledger is
like the letter ‘T’.

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

Subsidiary Ledger Purpose

Accounts Receivable Ledger Used in tracking individual accounts receivable balances of company’s
customers
Accounts Payable Ledger Used in tracking individual accounts payable balances of company’s
creditors.