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Book of Accounts

Week 5

Book of Accounts

Introduction

The bureau of internal revenue, the taxing authority in the Philippines, mandates that all business or persons,

required by law, to pay internal revenue taxes shell keep permanently-bound books of accounts for registration or

stamping. Books of accounts are records in which all accounts and transactions of a business are maintained on a

regular basis.

Journal

A journal functions as a financial diary. It is used to record chronologically all transactions of a business as they

occur. Since it provides the first evidence of formally-recorded transactions, it is commonly referred to as the book

of original entry. There are two types of journals: (1) the special journals and (2) the general journal.

Special Journals

Special Journals are journals used to record recurring transactions. There are four common types of special

journals, namely: (1) sales journal; (2) purchases journal; (3) cash receipts journal; (4) cash disbursement journal.

The sales journal (SJ) is a journal used to record sale of merchandise on account

SALES JOURNAL

Date Invoice No. Customer Name Ref. Dr: Accounts receivable Cr: Sales 2/1/2000 00001 Rolly Pacilan 001 5,000.

The purchase journal (PJ) is a journal used to record purchase of merchandise on account.

The Cash receipts Journal (CRJ) is a journal used to records receipt of cash from whatever source. All business

transactions which include a debit to cash are recorded in this journal.

PURCHASE JOURNAL

Date Supplier Name Ref. Dr: Purchase Cr: Accounts Payable 2/1/2000 K3 Centerpoint 00001 10,000. CASH RECEIPT JOURNAL Date Official Receipt No. Receive from Ref. Cash Dr Sales Discount Dr Accounts Receivable Dr (Cr) Sales Cr Other Accounts Cr 2/1/2000 00001 R. Pacilan 001 5,000.00 0 5,000 0 0 3/1/2000 00002 J. Ventura 6,500.00 0 0 6,5000 0 Accounts receivable Dr 5,000 5,000 Cr

The cash disbursements journal (CDJ), or sometimes known as the cash payment journal (CPJ), is a journal used to

record payments of cash for whatever purpose. All business transactions which include a credit to Cash are

recorded in this journal.

General Journal

The general journal (GJ) which looks like a two-column columnar notebook, is the journal used to record all other

business transactions not recorded in the special journals.

CASH DISBURSEMENT JOURNAL

Date Check Voucher No. Paid to Ref. Accounts Payable (Dr) Cr Purchases Dr Other Accounts Dr Purchase Discount Cr Cash Cr 2/2/2000 123456 K3 centerpt 00001 10,000 0 0 10, GENERAL JOURNAL Date Particulars Ref. Dr Cr 1/1/2000 Cash 0001 100,000. Kaisser Magno, Capital 0001 100,000. To record investment

Accounts Payable DR 10,000 CR 10, x

date Particulars Ref debit credit 1/2/2000 Equipment 0002 150,000. ABC Corporation/ Accounts Payable 0002 150,000. To record the equip’t. bought on account. 1/2/2000 Permits and Licenses 0003 12,000. Cash 0003 12,000. To record payment of Permits and licenses. 1/5/2000 Cash 0004 5,000. Service Revenue/ Photocopying Revenue 0004 5,000. To record service rendered.

Special Journal Vs. General Journal

Since both are journals, special journals and general journal provide evidence of the business transaction and its

related impact on the financial statement of a business. Both journals show the account affected and the related

amounts in the money column.

Ledger

A Ledger is a collective record of individual accounts used by a business. It is used sort of all entries made in the

journal in chronological order and to group all transactions that affect individual accounts in order to facilitate the

preparation of the statement.

General Ledger

The general ledger is used to accumulate and classify individual transactions from the journal. It divides the

account into two side: the left side and the right side. Debt information is listed on the left side, while credit

information listed on the right side.

Cash Date Title Ref. Dr. Date Items Ref. Cr. 1/1/2000 investment 0001 100,000 1/2/2000 Permits and licenses

0003 12,000.

1/5/2000 Service revenue

0004 5,000.

105,000.00 12,000.

totals Debit balance 93,000.

date items ref debit date items ref credit 1/2/2000 ABC Corp 0002 150,000. ========= Accounts Payable Date items ref debit date items ref credits 1/2/2000 On account 0002 150, ======= Equipment

date items ref debit date items ref credit 1/1/2000 investment 0001 100,000. ========= Kaisser Magno , Capital datei item ref debit date items ref credit 1/5/2000 Service rendered

0004 5,000.

=======

Service Revenue date items ref debit date items ref credit 1/2/2000 Cash payment

======

Permits and licenses

Particulars Ref Debit Credit Cash 0001 93,000. Equipment 0002 150,000. Account Payable 0002 150,000. Kaisser Mg=agno, Capital 0001 100,000. Service Revenue 0004 5,000. Permits and Licenses 0003 12,000. TOTAL 255,000. =========

255,000.

=========

Kaisser Magno Photocopying services Trial Balance January 31, 2000

Service Revenue 5,000. Less: Expenses: Permits and Licenses 12,000. NET INCOME / LOSS (7,000.00) ========= Kaisser Magno , Photocopying Services Income Statement For the month January 31, 2000

Add: Capital Kaisser Magno, Capital 100,000. Add: Service Revenue(net Loss) (7,000.00)

---

Net Capital 93,,000.

Kaisser Magno, Photocopying Services Statement of Owner’s Equity January 31, 2000

Assets: Liabilities and Capital Cash 93,,000.00 Accounts Payable 150,000. Equipment 150,000.

---

Add: Kaisser Magno, net capital 93,000.

Total assets 243,000.

Total Liab and Capital 243,000.

Kaisser Magno, photocopying services Balance Sheet As of January 31, 2000

Subsidiary Ledger

The subsidiary ledger is used to provide detailed information about a specific ledger account. It follows a running

–balance type of ledger because it adds a column to determine the account balance after posting each

transaction.

Accounts Payable - A Date Items Ref. Dr Cr Balance

Accounting Cycle of a Service Business

Definition of Accounting Cycle

The accounting Cycle is a series of recurring accounting steps or processes within one span accounting period. The

accounting cycle composed of the following steps:

1. Analyzing business transactions from source documents

2. Journalizing the business transactions

3. Posting journal entries to the ledger

4. Preparing trial balance

5. Journalizing and posting adjusting journal entries

6. Preparing adjusted trial balance

7. Preparing financial statements

8. Journalizing and posting closing journal entries

9. Preparing post-closing trial balance

10. Journalizing and posting reversing journal entries

Transactions in a service business

Transaction in a service business are usually straightforward. The business render service to clients or customers

to generate revenues. This is a the reason why the main revenue account used for service business is a Service

Revenue account.