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JOURNALIZATION-SERVICES CONCERN
BUSINESS
OBJECTIVES:
1. To be able to learn the process of recording business transaction in the books
of account
2. To be able to learn the uses of the books of account such as journal and
ledger
3. To be able to learn the principle of debit and credit
4. To be able to learn to record business transaction in the books of account
Journalization
Posting to the general ledger
Preparation of the trial balance
Preparation of worksheet
Preparation of financial statement
Preparation of closing entries
Preparation of post-closing trial balance
Reversing entry
describe the owners equity, because whatever the diffence of these two
accounts will be transferred to the equity accounts.
The chart of accounts is listing of account titles which guides the
bookkeeper and the accountant to choose the correct account title to be
used for recording transactions in the books of account. The use of the chart
of accounts is necessary to have a better understanding on recording
business transactions. The number and the nature of accounts would 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 owners
equity. Account numbers are assigned for each account for easy reference.
Assigning of account number bears no industry standards; it depends on the
accountants point of view. Accounts which are not written on the chart of
accounts cannot be used to avoid conflict and to enhance understanding.
Each account has explanation to determine the proper account to be used a
certain transaction to avoid misuse of account.
Accou
Account
nt
Title
Numbe
r
100
Cash on Hand
101
Cash in Bank
102
Petty Cash
Fund
103
Notes
Receivable
104
Accounts
Receivable
Explanation of Account
105
Prepaid Rent
106
Prepaid
Insurance
107
Office
Supplies
108
Other Asset
201
Accounts
Payable
202
Notes Payable
203
Loans Payable
204
Mortgage
Payable
205
Salary
Payable
206
Interest
Payable
Long-Term
Notes Payable
Service
Income
Gain on Sale
207
301
302
303
Interest
Income
304
Miscellaneous
Income
401
Salary
Expense
402
Rent Expense
403
Light and
Power
Expense
Water
Expense
404
405
406
Telephone and
Communication
Expense
Advertising
407
Expense
Office Supplies
Expense
408
Insurance
Expense
409
Repair and
Maintenance
Expense
410
Taxes and
Licenses
Expense
Membership
Fees Expense
Contribution
and Donation
Expense
Gas Oil Expense
411
412
413
414
The T-Account
The simplest form of a ledger is called the T-Account. It has two sides to
record the increase and decreases of an account. The left side is for recording of
increases in ASSET and EXPENSE account, while the right is used to record the
increase of LIABILITY, INCOME, and CAPITAL. At the center of the T-Account is the
title of the account. To illustrate:
Cash
Left side or
Debit side
Right side or
Credit side
Right Side
Credit
decrease
LIABILITIES
Left side
Debit
decrease
Right Side
Credit
increase
OWNERS EQUITY
Left side
Debit
decrease
Right Side
Credit
increase
The Ledger
The T-Account form (skeleton form of a ledger) is widely used in schools and
universities to demonstrate the analysis of ledger with easiness. While in actual
business practice a formal book of account is used containing not only the account
title, date, and the amount but also the page reference (to identify the entry
source), the account number, and the balance of the account. All accounts are
compiled in one book called the general ledger wherein a separate page is
maintained for each account; each page is called a ledger. Figure 1 below shows a
ledger account for cash. F stands for reference that identifies the source of the
entry such as journal page 1 (J1). The particulars column indicates the explanation
and the balance of the account.
Figure No. 1: the ledger
Name of the account: CASH
Date
Particulars
Debit
Date
Particular
Credit
This is the ledger form with eight columns that shows the date; the particular;
the folio, and the debit and credit columns. The T-Account form ledger could be a
replacement of this illustrated general ledger.
The Particulars is the explanation column that describes the transaction. The
amount of the transaction is placed on the debit or credit column as the case may
be, the difference of the two columns is called the debit o credit balances of the
account. For purposes of discussions an illustrations, only the T-Account format will
be used in this book. If the company has 20 accounts, the company should also
maintain 20 general ledgers.
ILLUSTRATION 1-A
Date
2009
Particulars
Debit
Credit
Jan. 1
Note: the above illustration is a two-column journal which is called the book
of original entry, where journal entries are recorded in a chronological order. The
journal or book itself has five columns which are composed of the date, particulars,
f or folio, debit and credit columns. Each column has distinguished rules to be
followed in recording.
The following rules should be observed per page:
1. Each transaction has a date composed of month and year which is written
only once in each page, while the date is written for every transaction and
only one date for two or more transactions if these happened in a day. (See
the illustrations below.)
Date
Particulars
Debit
Credit
2008
Jan. 1
Cash
P xxx
P xxx
Perez,
Capital
2. After writing the date. Write the debit and credit accounts in the particular
columns; the debit account is written on the extreme left margin, while the
credit account is written with five spaces indention from the extreme left
margin (assuming Mr. Perez invested P300,000 in the business). (See the
illustrations, take note of the presentation.
3. The debit column and credit column contain the amount of the transaction
and they are expected to be balanced. In writing the amount in the columns,
a peso sign is written once in each page and is optional. A money column is
used properly to correctly identify centavos, one-peso, tenths, hundredths,
thousandths, ten thousandths, one hundred thousandths up to millionths
worth of recording. (See the illustration)
200
8
Jan.
1
PARTICULARS
Cash
Perez, Capital
DEBIT
CREDIT
P 300,000
P 300,000
4. After writing the peso amounts in the debit and credit columns, write a
brief explanation under the particulars column. The explanation must be
located ten spaces from the left margin or five spaces from the credit
account. The next line of explanation must be five spaces from the left
margin. (See illustration.)
200
8
Jan.
1
PARTICULARS
Cash
Perez, Capital
To record the initial
investment.
DEBIT
CREDIT
P 300,000
P 300,000
PARTICULARS
Cash
Perez, Capital
To record the initial
investment.
DEBIT
CREDIT
P 300,000
P 300,000
150,000
2
Cash in bank
Cash on hand
To record the deposit in a
bank.
150,000
6. The money column consists of eight spaces where, starting from the right,
centavos, tens, hundreds, thousands, and ten thousands are placed. There is
no need to place a comma separating the hundreds from the thousands or a
decimal point separating the whole amount from the centavos. Writing 00 as
centavos is optional. Remember that any amount written on the money
column is expressed in terms of peso value that is why a peso sign is
optional. If a peso sign is written, be sure to write it only once, on the
beginning amount for every page of a journal.
How do we write peso amounts in the money columns? Each amount has a
respective place in the money column as illustrated below:
H 1
1
0
1
0
0
1
0
0
0
D e
1
0
0
0
0
F
1
0
0
0
0
0
0
0
0
0
0
0
G
5
0
A journal entry with one debit and one credit is called a simple journal entry. When
an entry has more than one debit or more than one credit, it is called a compound
journal entry. Note that the transactions are recorded chronologically and the debit
entry is recorded first followed by the credit entry. Also take note that the reference
column (F) is not yet filled-up in the journalization process because it can be used in
the posting which is the next step in the accounting cycle.
Illustration:
Albert Auto Repair Center had the following transactions on the first month of
operation in October 2008:
October 1. Albert invested P 250, 000 and deposited the amount under the current
account of the business
1. Bought 10 computer units under the terms P100, 000 down payment and the
balance of P 100, 000 is to be paid in four equal monthly installment starting
October 31, 2008.
2. Paid P8, 500 mayors permit, P 500 BIR registration fees, and DTI registration
of business name P140.
3. Paid P45, 000 to the shop leased covering advance payment for two months
and one month security deposit.
4. Paid P60, 000 for the construction of computer tables and chairs for the
computer shop.
5. Spent P 5, 000 for the purchase of electric wires and other electrical wirings
for the computers. (Shop expenses)
6. Spent P8, 000 for the neon light bearing the name of the shop. (Shop
expenses)
7. Hired two shop assistants with a salary of P5, 000 per month each. (Not a
business transaction)
8. Spent P3, 000 for advertisement such as flyers and tarpaulin. (Advertisement
expense)
9. After a week of preparation, Albert formally opened the business and spent
P7, 000 for food and other things for the ceremony. (Shop expenses)
10.On the first day of the operation, he received P8, 000 from his costumers.
(Service income)
15. Paid salary of the assistant P2, 500 for one week
20. Paid P2, 000 for shop supplies.
22. For the last week he received P120, 000 from customers
30. Paid salary of the shop workers, P4, 750, net of SSS premium of P120.
30. Paid the first monthly installment of the computer, P25, 000.
Use the following accounts to record the above transactions: Cash in bank (No.
101); Shop and supplies (No. 102); Rent deposit (No. 103); Shop computer (No.104);
Shop furniture and fixture (No. 105); Accounts payable (No. 201); SSS Premium
payable (202); Shop expenses (No. 301); Advertisement expense (No. 302); Salary
expense (No. 303); Taxes and license expense (No. 304); and Service income (401);
Albert capital (No. 501); and Albert drawing (No. 502).
Required:
1. Prepare the require journal entries in a two-column journal.
2. Post the journal entries to the general ledger.
3. Prepare the trial balance.
Answer:
Requirement No.1 Journal entries
DATE
2008
Oct.
1
1
PARTICULARS
DEBIT
Cash in bank
Albert Capital
To record initial investment.
101
501
P250,000
Shop computer
Cash in bank
Accounts payable
Terms: 50% down balance
in four equal payments
104
101
201
200,000
CREDIT
P250,000
100,000
100,000
7
8
10
15
304
101
9,140
Rent deposit
Cash in bank
To record two-month deposit
and one month advance.
103
101
45,000
Shop furniture
Cash in bank
To record construction of
computer table and chairs.
105
101
60,000
Shop expenses
Cash in bank
To record purchase of electric
wirings.
301
101
5,000
Shop expenses
Cash in bank
To record the cost of neon
light.
No journal entry
Advertisement expense
Cash in bank
To record the cost of flyers and
tarpaulin.
Shop expenses
Cash in bank
To record the cost of food and
other expenses on the opening
day.
Cash in bank
Service income
To record the income
received form services.
Salary expense
Cash in bank
To record payment of salary
301
101
8,000
302
101
3,000
301
101
7,000
101
401
8,000
303
101
2,500
9,140
45,000
60,000
5,000
8,000
3,000
7,000
8,000
2,500
20
22
30
30
Shop supplies
Cash in bank
To record payment supplies.
Cash in bank
Service income
To record cash receipts for
services rendered.
Salary expense
Cash in bank
SSS premium payable
To record payment of salary
for the period Oct. 16-30, 2008.
Accounts payable
Cash in bank
To record first installment of
computer.
102
101
2,000
101
401
120,000
303
101
202
5,000
201
101
25,000
2,000
120,000
4,750
250
25,000
December 1. Jericho invested P200, 000 and deposited the amount under the
current account of the business. He also invested his own car with current fair value
of P300, 000. (Use compound journal entry in recording this transaction.)
1. Bought one unit computer and printer for P30, 000, cash for office use.
2. Paid the following regulatory fees: P6, 500 for mayors permit, P500 for
BIR registration fees and DTI registration fees of P140. (Debited to Taxes
and licenses expense)
3. Paid P21, 000 for the advance payment for one month and two months
security deposit of security guards.
4. Bought computer table, office table, chairs, filing cabinet, and other
furniture for office use for cash, P 50, 000.
5. Bought office supplies, stapler, puncher, and other office supplies for cash
P4, 000 for office use.
6. Paid P8, 000 for the neon light bearing the name of the shop. (Advertising
Expenses)
7. Hired office clerk with a salary of P12, 000 per month and two errand boys
with a starting salary of P12, 000 per month. (Non-business transaction)
8. Purchased two motorcycles. Terms P50, 000 down payment with monthly
amortization of P10, 000. Amortization will start on January 2, 2010 for 12
months.
9. Paid P30, 000 for cost of advertisement such as flyers , tarpaulin, and
radio advertisement. (Advertisement expense)
10.After a week of preparation, Jericho Lance formally opened the business
and spent P10, 000 for food in the opening ceremony. (Advertisement
expense)
11.On the first day of the operation, Jericho received P18, 000 from clients
15. Paid salary of employees P7, 500 for one week, net of withholding tax of
P1,200; paid
P2, 000 for the office supplies
20. For the last two weeks he received P120, 000 from customers.
30. Spent total amount for gasoline, P3, 000
31. Paid salary of the personnel, P18, 000, net of P300 SSS premium, and
P200 PhilHealth premiums.
Use the following accounts to record the transaction: Cash in bank (No.101);
Office supplies(No. 102); Prepaid rent (No. 103); Office equipment (No. 104); Office
furniture and fixture (No. 105); Car and vehicle (No. 106); Motorcycles (No. 107);
Accounts payable (No. 201); SSS premium payable (No. 202); PhilHealth premium
payable (No. 203); Withholding tax payable (No 204); Office expense (No. 301);
Office supplies expense (No. 302); Advertisement expense (No. 303); Salary
expense (No. 304); Taxes and licenses expense (No. 305); Gas and oil expense (No.
306); Errand fees revenue (No. 401); Jericho Lance, capital (No. 501); Jericho Lance,
drawing (No. 502).
Required:
Prepare the journal entries using the general journal below: (You are required
to observe the rules in journalization such as the date, the writing of the debit and
credit accounts, and the debit and credit accounts and the rules in writing the brief
explanation. Spacing is quite material in writing the journal entries). December 1,
2008 transaction is prepared as an example:
Date
PARTICULARS
F
DEBIT
CREDIT
Dec. 1
Cash in bank
10
P
2009
1
200,000
Car and vehicle
10
300,000
6
Jericho Lance, capital
50
P
1
500,000
To record initial investment.
10
11
12
15
20
30
31
PARTICULARS
Debit
Credit
Oct. 1
Cash in back
Albert, capital
To record initial investment.
101
501
P250,00
P
250,000
The account number 101 will be placed in the journal to inform the auditor of
the or the bookkeeper that the amount is already posted in the ledger. P1 means
page 1 look GL
#101. To illustrate:
General Ledger (GL)
Name of the account: Cash in bank
DAT
Particulars
F
Debit
E
Oct.
Cash investment
P1 P250,00
1
Date
No. 101
Particulars
F
Credit
Date
Particulars
Credit
P
1
P250,00
0
Oct.
1
Original
Investment
The Account number 501 will be placed in the journal to inform the auditor or
the bookkeeper that the amount is already posted in the ledger.
The process will be continued until the entire posting is done to summarize
the transaction in the month, because bookkeeping is a routine job. In posting, the
information or explanation of the transaction is copied such as the explanation
original investment or initial investment will be written in the ledger to keep
track of the recording.
To illustrate:
The process is from the business transaction to T-account.
Fabulous Face Center presented the following transaction below and record
Directly to the T-Account in 2011:
Jan. 1. Lemie, the owner invested P2,000,00 to open a beauty face clinic and
deposit the money
deposit the money in the bank.
2. Purchased furniture and fixtures nad P30,00 on cash basis.
8. Purchased medical equipments from NNN medical Equipment worth
P1,000,000 cash
9. Paid P200,000 rental deposit on clinic leased.
10. Purchased medical supplies from Abot Drugs, P40,000 on account.
11. Paid the corresponding taxes and registration fees, P30,000
13. Received P300,000 medical fees from patients.
15. Paid salary of medical staff, P30,000
20. Paid 50% of account of purchased of medical supplies on January 10.
20. Return P5,000 worth of supplies to Abot Drugs.
21. Applied P50,000 rental deposit to monthly rental.
Required:
Prepared T-Accounts using the following accounts: Cash in bank; Funiture and
Fixtures; Medical equipment; Rental deposit; Medical supplies; Accounts payable;
Taxes and licenses expense; Salary expense; Medical supplies: Rent expense Lemie,
capita; Medical fees revenue.
Jan.
2,000,000
Jan.
30,000
13
300,000
2
8
1,000,000
9
200,000
11
30,000
15
2,300,000
Bal.
30,000
20
20,000
1,310,000
990,000
Furniture
Jan. 2 30,000
Medical Equipment
Jan. 8
1,000,000
Accounts Payable
Jan. 20 20,000
21 5,000
25,000
Jan. 10 40,000
40,000
Bal. 15,000
Lemie, capital
Jan. 13 30,000
Medical Supplies
Jan. 10 40,000
50,000
Jan.1 2,000,000
Rental Deposit
Jan.21
Bal. 30,000
5,000
Jan. 9 200,000
Bal. 150,000
Jan. 11 30,000
Rent Expense
Jan. 50,000
Salary Expense
Jan. 15 32,000
Jan. 30
of
of
of
of
of
of
of
of
of
of
of
cash in bank
______________________
Lemie capital
______________________
Account payable
______________________
Medical supplies
______________________
Medical fees revenue
______________________
Rental deposit
______________________
Medical equipment
______________________
expense
______________________
Salary
______________________
Taxes and license expense ______________________
Furniture & fixture
______________________
Particular
Cash
Investment
Service
rendered
Services
rendered
Total debit
Cash in bank
debit balance
Debit
P200,00
0
18,000
Date
Dec.
1
2
120,000
338,000
P
97,360
5
6
8
Particular
Purchase cost of
computer
Payment of mayors
permit
Rental deposit and
advances
Computer table and
chairs
Office supplies
Cost of neon lights
Down payment
Credit
P
30,000
7,140
21,000
50,000
4,000
8,000
50,000
9
10
15
15
30
31
Advertising
Office expense
Payment of salary
Payment of supplies
Gasoline
Payment of salary
Totals credit
30,000
10,000
7,500
2,000
3,000
18,000
240,64
0
Particular
Investment
Debit
Date
Particular
Credit
Particular
Credit
P300,00
0
Particular
Debit
Date
2010
Dec.
1
Investment
500,000
Particular
Purchased of
computer &
printer
Debit
Date
Particular
Credit
Particular
Credit
P 30,000
Particular
Mayors permit
Debit
P 7,140
Date
Particular
Deposit on
security guard 2
months deposit
and one month
advance
Debit
Date
Particular
Credit
Particular
Credit
Particular
Credit
Particular
Credit
21,000
Particular
Purchase of
office furniture
Debit
Date
50,000
10
Food for
opening day
10,000
48,000
Name of the Account: Motorcycle
No.
Date
201
0
Dec.
8
Particular
Purchas of two
motorcycles
Debit
Date
Particular
Credit
Particular
Credit
170,000
Particular
Debit
Date
Dec.
8
Purchase of motorcycles
120,000
Particular
Debit
Date
2010
Dec.
11
20
Particular
Service rendered
Credit
18,000
Services rendered
120,000
138,000
Particular
Salary for one
week
Salary (Dec. 1631)
Debit
8,700
18,500
27,200
Date
2010
Particular
Credit
Particular
Purchase of
gasoline
Debit
Date
2010
Particular
Credit
Particular
Credit
3,000
Particular
Debit
Date
2010
Dec.
31
Payment of Salary
300
Particular
Debit
Date
2010
Dec.
31
Particular
Credit
Payment of Salary
200
Particular
Debit
Date
2010
Dec.
15
Particular
Salary for one week
Credit
1,200
every page of the books of account. The summary of account will be based
on the transaction affecting the account. Can you determine the balance of
cash from the journal? The answer is no. To make this possible the debit and
credit of a particular account should be summarized in one account called
the ledger and this individual ledger are filed in a book called general ledger
as illustrate above.
Preparation of Trial Balance (Third Stage of the Accounting Cycle)
At this point, the summary will again be grouped into normal balance
to test the equality of the debit and credit amounts. The accuracy of
choosing the correct account will not be part of the checking procedure in
the preparation of the trial balance. The accuracy of the amount involved in
the journalizing portion and posting process will be checked in the
preparation of a trial balance. A trial balance is a list of accounts derived
from ledger balances. The following are the steps in determining the
balances of the ledgers:
1. Total the debit column in pencil. This is called pencil footing. It is done in
pencil and the amount is written as a small figure to distinguish it from the
regular entries. Erasure is allowed if the figures are found incorrect. Do the
same with the credit total. Extract the balance and place the debit balance in
the explanation column while the credit side in line with the last credit
posting.
To illustrate: (ALBERT AUTO Repair Center)
Name of the Account: Cash in Bank
No. 101
Date
Oct. 1
10
22
Particular
Cash
investment
Service
rendered
Services
rendered
Total debit
Cash in bank
debit balance
Debit
P250,00
0
8,000
Date
2010
Oct. 1
2
5
6
8
Payment of mayors
permit
Rental deposit and
advances
Computer table and
chairs
Cost of shop wiring
Cost of neon lights
Cost of advertisement
120,00
378,00
P
106,610
Particular
Credit
P100,00
0
9,140
45,000
60,000
5,000
8,000
3,000
7,000
15
20
30
30
Payment of salary
Payment of shop supplies
Payment of salary
First payment on
computer
Total credit
2,500
2,000
4,750
25,000
271,390
Particular
Construction of
computer table
and chairs
Debit
P 60,000
Date
2010
Particular
Credit