FUNDAMENTALS OF ACCOUTANCY, BUSINESS AND MANAGEMENT 1

Module 9
Books of Accounts

Name : ___________________________________ Date: __________________

Section : __________________________________ Teacher: _______________

In this module, you will be able to:

• Identify the use of the two books of accounts;
• Illustrate the format of a general and special journal, and;
• Illustrate the format of a general and subsidiary ledger.

THE TWO MAJOR BOOK OF ACCOUNTS

In monitoring and tracking the daily transactions in a business, the two
major books of accounts are required by law, especially by the Bureau of
Internal Revenue (BIR).The recording of entries starts with the journal and
ends with the ledger. How are they the same or different then?
A journal is where business transactions are recorded chronologically by
date and details of each transaction. A ledger is where all accounts of the
business (for example, Cash, Accounts Receivable, Accounts Payable, etc)
are placed or summarized do determine the ending balance. In terms of
timing of the entries, the journal is considered as the book of first entry
and the ledger is considered as the book of final entry.After learning how
to analyze transactions using the accounting equation, one is now ready to
learn the Double-entry bookkeeping system. To recall, this system uses the
tools of debit and credit in recording transactions. This concept dictates
that for every debit, there is at least one credit and vice-versa.
There are different types of accounting entries that pass the requirements
of BIR. It can be loose-leaf, manual, or computerized. The loose-leaf type
usually uses Microsoft Excel or similar software. The manual type is
handwritten using journal and ledger books. The computerized type uses
programs such as SunSystem, Peachtree, SAP, Quickbooks, or MYOB. BIR
does not specify which type of accounting entries needs to be applied but
depending on the size of the business, business owners decide the choice
of a particular type.
Different Types of Special Journals
The following are the different types of journals used in recording
transactions:
• Sales Journal – used to tract all the sales transactions made on credit
or as a receivable on a certain day.
• Purchase Journal – used to tract all purchases that are made on
credit from suppliers or as a payable over a given period.
• The Cash Receipt Journal – used to tract all sales made in cash and
any collection of receivable that has been paid in cash.
• Cash Disbursement Journal – used to tract any payments made in
cash including settlement of payables.
• Payroll Journal – used to tract expenses related to staffing costs.

Transactions that are not recorded in the special journals mentioned above
are recorded in a General Journal. One example of which is recording
of depreciation of an asset. Depreciation Expense is that portion of a fixed
asset that has been considered consumed in the accounting period. The
most common method of computation is straight line method which is total
cost of the asset divided by the estimated useful life of the asset.
JOURNALIZING IN THE GENERAL JOURNAL
This refers to the process of recording the financial transactions in the
General Journal or in the Books of Original Entry. Generally, a journal
entry includes”
• The date of the transaction
• The amount and the specific account(s) from which the transaction will
be debited
• The amount and the specific account(s) from which the transaction will
be credited
• The description or the explanation of the transaction, and;
• Any reference such as check number of the payment or voucher
number of the transaction.
The following are examples of Journal Entries:
Given the following transactions of Ironman Fitness Club, prepare the
journal entries for the month of April 2020.
 1 Tony Spark opened his health and fitness center with investments of
various equipment worth P 745,000, tables and chairs for reception area
costing P 44,000, and various stationaries as office supplies for the spa
worth P 12,700.
2 Tony opened a bank account under the name of his business making an
initial deposit of P 25,000.00 at Marvel Universal Bank.
3 Paid business permit amounting to P 2,100.
4 Clark Kent, a customer, used the facilities of the health club including the
services of a fitness instructor and his total bill amounted to P 15,000 and
he paid in cash.
5 Purchased office supplies for P 7,000.00

GENERAL JOURNAL Page 1

Date Particulars PR Debit Credit

2020
Apr 1 Equipment 110 745,000.00
Furniture and Fixtures 111 44,000.00
Office Supplies 108 12,700.00
Tony Spark, Capital 320 801,700.00
To record investments of Tony Spark in
Ironman Fitness Club
2 Cash 101 25,000.00
Tony Spark, Capital 320 25,000.00
To record investment of Tony Spark in the
form of a cash deposit at Marvel
Universal Bank
3 Tax and License Expense 585 2,100.00
Cash 101 2,100.00
To record payment of business permit
4 Cash 101 15,000.00
Service Income 410 15,000.00
To record service income rendered to Mr.
Clark Kent
5 Office Supplies 108 7,000.00
Cash 101 7,000.00
To record purchase of office supplies
Have you noticed the PR Column? PR means posting reference. Now,
where to you think the numbers in the PR column alongside the account
title came from? Is the Total Debits equal to the Total Credits?
SINGLE AND COMPOUND JOURNAL ENTRY
Simple entry is a journal entry with only one debit and only one credit.
On the other hand, Compound Entry is a journal entry with at least two
debits or at least two credits. Going back to the example above, “identify”
the journal entry date that falls under simple entry and which fall under
compound entry.
Reflect Upon
A journal is where we record the financial transactions. What do you think
will happen if transactions are not accurately recorded in a journal? Wat
would ensure that transactions are properly recorded?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

GENERAL LEDGER
A general ledger reflects the totality of the financial transaction of a
business organization. With the individual accounts reflecting all the
major transactions made in double entries of debits and credits which
when summarized are equal to each other, the general ledger is considered
to be the main source document that shows the financial management of a
company. It is from the general ledger entries that financial report details
are taken from.In an organization with complex business operations, there
can be more than one ledger. There can be subsidiary legers to reflect
the transactions in a particular account such as Accounts Receivable and
Accounts Payable.

POSTING IN THE GENERAL LEDGERS

This refers to the process of transferring the debit and credit amounts in
the general journal to the appropriate ledger accounts or T-accounts.
Ledger accounts are placed in a financial book called the General Ledger.
This is also known as the “Book of Final Entry.” After the amounts has
been posted, one should post the ledger account number back to the
general journal. This process is known as “cross-referencing.”Below is the
ledger posting for an Equipment, after posting in the general ledger, the
bookkeeper needs to cross-reference by writing the account number back
to the general journal. Account numbers in the Posting Reference (PR)
column of the general journal are the proof that the entries have been
posted. Another name for Posting Reference is Folio (F).
Account title
Account Number
General Ledger 110
Equipment
Date Particulars PR Debit Date Particulars PR Credit

2020
Apr 1 GJ1 745,000.00

Page Number
from the General Journal
GENERAL JOURNAL Page 1

Date Particulars PR Debit Credit

2020
Apr 1 Equipment 110 745,000.00
Furniture and Fixtures 0 44,000.00
Office Supplies 12,700.00
Tony Spark, Capital 801,700.00
To record investments of Tony Spark in
Ironman Fitness Club

Using the Ironman Fitness Club journal entries, we can prepare a General
Ledger as follows:
General Ledger
(In Peso Amount)
Cash
Debit Credit
4/1 Opening Balance 0.00
4/2 Cash Investment 25,000.00
4/3 Business Permit 2
4/4 Service Income 15,000.00

4/30 Ending Balance 37,900.00

General Ledger
(In Peso Amount)
Tony Spark, Capital
Debit Credit
4/1 Opening Balance 801,700.00
4/1 Investment in the
form of Equipment,
Furniture & Fixtures
and Supplies
4/2 Investment in the 25,000.00
form of Cash
4/30 Ending Balance 826,700.00

General Ledger
(In Peso Amount)
Equipment
Debit Credit
Opening Balance 0.0.
4/1 Investment in the 745,000.00
form of Gym Equipment
4/30 Ending Balance 745,000.00

General Ledger
 (In Peso Amount)
Furniture and Fixtures
Debit Credit
Opening Balance 0.0.
4/1 Investment in the 44,000.00
form of Gym Furniture
nd Fixtures
4/30 Ending Balance 44,000.00

General Ledger
(In Peso Amount)
Office Supplies
Debit Credit
Opening Balance 0.0.
4/1 Investment in the 12,700.00
form of Office Supplies
4/30 Ending Balance 12,700.00

General Ledger
(In Peso Amount)
Service Income
Debit Credit
Opening Balance
4/4 Service Income 15
4/30 Ending Balance 15

General Ledger
(In Peso Amount)
Taxes and Licenses
Debit Credit
Opening Balance 0.00
4/3 Business permit 2,100.00
4/30 Ending Balance 2,100.00

From the Book of original entry, it would be difficult for us to determine the
Ending Balance for each of the accounts. But from the General Ledger, it
would be easy for us to pick up the ending balance for each of the
accounts that has been posted in the General Journal.

SUBSIDIARY LEDGER
Since a ledger will reflect the transaction posted from the journal entries,
subsidiary ledger are done for complex transactions. Supposing in the
Ironman Fitness Club there are customers who have outstanding accounts
receivable. A subsidiary ledger for the accounts receivable of each
customer with outstanding account can be made as follows:
Subsidiary Ledger – Accounts Receivable
(In Peso Amount)
Customer 1
Debit Credit
Opening Balance 2,500.00
Income from Service 1,000.00
Receipt of payment Collection 2
Ending Balance 1,300.00

Subsidiary Ledger – Accounts Receivable

(In Peso Amount)
Customer 2
Debit Credit
Opening Balance 0.00
Income from Service 5,000.00
Receipt of payment Collection 1
Ending Balance 3,800.00

If in your subsidiary ledger, Customer 1 and Customer 2 have an

outstanding balance of PhP 1,300.00 and 3,800.00, in the General Ledger,
the Accounts Receivable Account should have and ending balance of PhP
5,100.00, the sum of the outstanding balance of customers with
outstanding receivable per subsidiary ledger.

Reflect Upon
The subsidiary ledgers effectively constitute the general ledger. If your are
the company’s accountant, how will you ensure that the total amount in
the General Ledger matches the details in the subsidiary ledgers and vise
versa?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________

Essential Learning
In this module, you gained knowledge on two major book of accounts –
journal and ledger. You have also learned the difference between the
general journal and the special journal and between the general ledger and
subsidiary ledgers as well as what entries go to each.
Proper entries are important in recording and posting te financial
transactions of the business. It is also important to be able to capture the
events that have financial consequences for te business regardless of he
type of business. Doing so will appropriately show the financial state of
the business.

You did it! You have completed Module 9. You may proceed in answering the Quiz
on-line. For students under the Modular Learning System, after accomplishing the
Quiz, you may send it to your teacher via school drop off. The “Reflect Upon”
questions included in this module are for self-check and need not be submitted to
the teacher.

References:

• Fundamentals of Accountancy, Business, & Management 1 by

Benedict Manalaysay

• Fundamentals of Accountancy, Business, & Management 1 by Danilo

S. Camerino, CPA