Lesson-7-The-Book-of-Accounts accounting.pdf

accounting

1. Lesson 7: The Book of
Accounts
Adrian Rey O. De Guzman, LPT, Ph.D.
ACCTG
FUNDAMENTALS OF ACCOUNTING

2. ACCTG: The Book of Accounts
LESSON 7
Lesson 7-The Book of Accounts
“If life is worth living, it is worth recording”
-Shay Carl

3. LESSON 7
OpeningCase
•JoseMercadoneedstopresenthisfinancialinformationthroughfinancial
statementstointerestedusersofJMPhotocopyingCenter.Todothis,thebusiness
needstomaintainbooksofaccountswhichareusedtorecordallbusiness
transactionsandclassifytheaccountsaccordinglysothatfinancialreportscanbe
prepared.Thisimpliesthatincreasesanddecreasesinthebasicaccounting
equation,asdiscussedinthepreviouslesson,shouldbereflectedinJM
PhotocopyingCenter’sbooksofaccountsandareusedasareferenceinpreparing
financialstatements.
•HowmanybooksofaccountsdoyouthinkJMPhotocopyingCenterneeds?What
willbethepurposeofeachbookofaccount?
ACCTG: The Book of Accounts

4. ACCTG: The Book of Accounts
LESSON 7
Attheendofthislesson,thelearnersshouldbeableto:
❑Identifytheusesofthetwobooksofaccounts;
❑Illustratetheformatofgeneralandspecialjournals;and
❑Illustratetheformatofgeneralandsubsidiaryledgers;

5. LESSON 7
ACCTG: The Book of Accounts
Introduction
Accountingrecordsareachronologicalhistoryofthebusinesstransactionsforacompany.
Theyareusedtorecordandclassifybusinesstransactionsandfromwherefinancialstatements
areprepared.Booksofaccountsarerecordsinwhichallaccountsandtransactionsofa
businessaremaintainedonaregularbasis.Thesebooksofaccountantsaretypicallyajournal
andaledgerortheirequivalentssuchassubsidiaryledgersandsimplifiedbooksofaccounts.
TheBureauofInternalRevenue,thetaxingauthorityinthePhilippines,mandatesthatall
businessesorpersonsrequiredbylawtopayinternalrevenuetaxesshallkeeppermanently
boundbooksofaccountsforregistrationorstamping.Thislessondiscussesthemajortypesof
booksofaccountswhicharejournalsandledgers.

6. LESSON 7
ACCTG: The Book of Accounts
Book of Accounts
Journal–Itactsasafinancialdiary.Itisusedtorecordchronologicallyalltransactionsofabusinessasthey
occur.Sinceitprovidesthefirstevidenceofaformallyrecordedtransaction,itiscommonlyreferredtoas
thebookoforiginalentry.
Theuseofajournalprovidesthefollowingadvantages:
1.Itprovidesasystematicandchronologicalrecordoftransactions;
2.Itsimplifiestheledgerassomedetailsinthejournalneednotbewrittenintheledger.
3.Itprovidesanadequateexplanationofeachentryandpresentsnecessaryinformationaboutthe
transactionssuchasdebitedandcreditedandrelatedaccounts
4.Itensuresthatthedouble-entrybookkeepingsystemisobservedwhenrecordingtransactions
5.Ithelpsinsolvingmisunderstandingsinbusinessbecauseitservesasproofandlegalevidenceof
transactions.

7. LESSON 7
ACCTG: The Book of Accounts

8. LESSON 7
ACCTG: The Book of Accounts
2 Types of Journal
GeneralJournal
Thisjournallookslikeatwo-columncolumnarnotebook,isthejournalusedtorecordallother
businesstransactionsnotrecordedinthespecialjournals.Itincludesthefollowinginformation:
–Thetitle“GeneralJournal”
–PageNumber
–DateofTransaction
–ParticularsColumn
–ReferenceColumn(folio)
–DebitColumn
–CreditColumn

9. LESSON 7
ACCTG: The Book of Accounts
SpecialJournal
Thesearejournalsthatareusedtorecordrecurringtransactions.Thereare4common
typesofspecialjournalsanditscontents:
1.SalesJournal
2.PurchasesJournal
3.CashReceiptsJournal
4.CashDisbursementsJournal

10. LESSON 7
ACCTG: The Book of Accounts
SalesJournal
–Thetitle“SalesJournal”
–PageNumber
–DateofTransaction
–InvoiceTransaction
–NameoftheCustomer
–ReferenceNumber
–SpecialcolumnforAccountsReceivableDebit
–SpecialcolumnforSalesCredit

11. LESSON 7
ACCTG: The Book of Accounts
PurchaseJournal
–The title “Purchases Journal”
–Page Number
–Date of Transaction
–Name of the Supplier
–Reference Number
–Special column for Purchases Debit
–Special column for Accounts Payable Credit

12. LESSON 7
ACCTG: The Book of Accounts
CashReceiptsJournal
–The title “Cash Receipts Journal”
–Page Number
–Date of Transaction
–Official Receipt Number
–Name of the party whom cash is received
–Reference Number
–Special column for Cash Debit
–Special column for Sales Discount Debit
–Special column for Accounts Receivable Debit and (Credit)
–Special column for Sales Discount
–Special column for Other Accounts Credit

13. LESSON 7
ACCTG: The Book of Accounts
CashDisbursementJournal
–The title “Cash Disbursements Journal”
–Page Number
–Date of Transaction
–Check Voucher number or Reference Number of other source documents
–Name of the party whom cash is paid
–Reference Number
–Special column for Accounts Payable (Debit) and Credit
–Special column for Purchases Debit
–Special column for Other Accounts Debit
–Special column for Purchase Discount Credit
–Special column for Cash Credit

14. LESSON 7
ACCTG: The Book of Accounts
•Special Journal VS. General Journal
Sincebotharejournals,specialjournalsandthegeneraljournalprovideevidenceofthebusinesstransactionand
itsrelatedimpactonthefinancialstatementsofthebusiness.Bothjournalsshowtheaccountsaffectedandthe
relatedamountsinmoneycolumns.Theuseofmoneycolumnsinjournalsencourageastricterwayofentering
amountsbyensuringthedigitsareproperlyplacedinthecentavos,ones,tens,hundreds,thousands,andeven
millionscolumns.
Theuseofspecialjournals,inadditiontothegeneraljournals,providesthefollowingadvantages:
1.Itpromotesdivisionoflabor
2.Itsavestimeinjournalizingtransactions
3.Itsavestimeinpostingtransactions;
4.Itaidsindecisionmaking.
SpecialJournalsalsoaidindecision-makingbecauseofitsfeatureofclassifyingtransactionsofthesamenature.A
manager,forexample,wouldjusthavetorelyoninformationinSJforthecreditsalesofthebusinesstomonitor
salestrendsandtoanalyzeifthenewpromotionalcampaignhadanimpactonthecreditsalesofthebusiness.This
isespeciallytrueiffinancialreportshavenotyetbeenmade.Incontrast,itwouldbemoredifficultforamanager
tobrowsethroughtheGJtochecktrendsincreditsalessinceitinvolvesvariouskindsofrecordtransactions.

15. LESSON 7
ACCTG: The Book of Accounts
•Book of Accounts
Ledger–itisacollectiverecordofindividualaccountsusedbyabusiness.Itisusedtosortall
entriesmadeinthejournalinchronologicalorderandtogroupalltransactionsthataffect
individualaccountstofacilitatethepreparationoffinancialstatements.Sincethebasisof
informationintheledgercomesfromthejournal,itiscommonlyreferredtoasthebookoffinal
entryasitiswheretherecordedtransactionscanbeseennextaftergoingthroughthejournal,
andbecauseitprovidesthelastrecordoffinancialinformationbeforefinancialreportsare
prepared.

16. LESSON 7
ACCTG: The Book of Accounts
•2 Types of Ledger
General Ledger
Thisisusedtoaccumulateandclassifyindividual
transactionsfromthejournal.Itincludesthe
followinginformation:
•Accounttitle
•AccountNumber
•Dateoftransaction
•ItemsColumn
•ReferenceColumn
•DebitMoneyColumn
•CreditMoneyColumn

17. LESSON 7
ACCTG: The Book of Accounts
SubsidiaryLedger
Thisisusedtoprovidedetailedinformationaboutaspecificledgeraccount.Itfollowsarunning-balancetype
ofledgerbecauseitaddsacolumntodeterminetheaccountbalanceafterpostingeachtransaction.It
includesthefollowinginformation:
•RelatedControlAccount
•NameofCustomer/Supplier
•PageNumber
•Dateoftransaction
•ItemsColumn
•ReferenceColumn
•DebitMoneyColumn
•CreditMoneyColumn