DEBIT AND CREDIT PRINCIPLES AND JOURNALIZATION-SERVI JOURNALIZA TION-SERVICES CES CONCERN BUSINESS OBJECTIVES: 1. To be able to learn learn the process process of recording recording business business transactio transaction n in the books of account 2. To be able able to learn learn the uses of th the e bo book oks s of accou account nt such as jo jour urna nall an and d ledger 3. To be able to learn learn the principle principle of debit debit and credit credit 4. To be able able to learn to record record business transaction in the books of of account
untting cycle st The Accoun star arts ts wi with th th the e rec ecor ordi ding ng of bu busi sine ness ss transa tra nsacti ction ons s of a ser servic vice e co conce ncern rn bu busin siness ess af after ter do docu cumen mentat tation ion of the transaction transactio n with the proper perspective, complying complying with the standards under the objectivity principle and reliability of the accounting information. The accounting cycle is composed of the following
a. b. c. d. e. f. g. h.
!ourna !our nali li"a "ati tion on #ostin #o sting g to the the general general ledg ledger er #repar #r eparatio ation n of the trial trial bala balance nce #repar #r eparatio ation n of of work worksheet sheet #repar #r eparatio ation n of $nanci $nancial al stateme statement nt #repa #r epara ratio tion n of clos closing ing en entri tries es #repar #r eparatio ation n of post%closin post%closing g trial balance balance &ev evers ersing ing en entry try
ACCOUNTIN ACCOUN TING G C CCLE CLE !th the e in initi itial al ste steps ps of acc accou ount nting ing cy cycle cle dur durin ing g the recording phase of a business transaction is called journali"ation by which the th e bu busin siness ess tr tran ansac sactio tion n is reco ecord rded ed in the bo book ok of or origi igina nall en entry try cal called led journal. journ al. 'f 'fter ter the transactio transaction n is recor recorded ded in the book of accoun accountt (!ourn (!ournal), al), posting to the ledger is done by segreg segregating ating the transaction to its respecti respective ve acco ac coun untt wh wher ere e ba bala lanc nces es of th the e ac acco coun untt ca can n be de dete terrmi mine ned d fo forr th the e preparation of the trial balance. Trial balance is a schedule of e*uality of the debit and credit balance. +f the debit and credit accounts are balanced, the correctness of the trial balance is initially achieved, but there is no assurance of the correctness of the account and amount, because some accounts may achieve correctness only in the computation of the $nal balance of accounts. 'fter the preparation of the trial balance, a worksheet will be prepared by
incorporating the adjusting entries. 'n adjusting entry is also a journal entry that th at sep separa arates tes the e epir pired ed po porti rtion on fr from om the theune unep pir ired ed po porti rtion on of ass asset et account, the recognition of unearned income from income and to recogni"e ep pen ense ses s an and d rev even enue ues s to ma matc tch h th the e rev even enue ues s an and d e epe pens nses es.. 'ft fter er incorporating the adjusting entries, the adjusted balance may be prepared prior to the preparation of $nancial statement. The $nancial statement is based on adjusted accounts prior to the preparation of closing entries. ' closing entry is also a journal entry, used to close the nominal accounts and to bring the balance to the e*uity account. #reparation #reparation of closing entries is a way wa y of rec ecor ordi ding ng th the e res esul ultt of op oper erat atio ion n in th the e bo book ok of ac acco coun unts ts.. Th This is accounting cycle consists of a series of steps or procedures performed in a systematic manner within a year or an accounting period. DOCU"ENTATION -' pr proce ocess ss of ga gathe therin ring g do docum cumen ents ts pe perti rtinen nentt to the form fo rmal al rec ecor ordi ding ng of th the e bu busi sine ness ss tr tran ansa sact ctio ioss-th the e do docu cume ment nt ref efer ers s to business paper. The necessity of having documents in recording, the data is a must to achieve objectivity. The accountant is duty bound to keep the record so that the auditor may have the basis for auditing. 's the general rule, a business transaction will be formally recorded in the books upon approving ocers in the company. +t is natural that proper documentation is needed before an entry is made in the books. Bu#ine## P$% Bu#ine## P$%e&# e&#-th -these ese ar are e doc docume uments nts in invo volvi lving ng tr tran ansac sactio tions ns of the business which are used for recording. /ome of the typical business papers are the following O'ci$l Recei%t-is business document where receipt of cash is recorded from the transaction involving cash sales on collection of receivable, sale of asset, collection of loans, selling of shares of stock and cash investment of owner. This document is issued upon receipt of cash from customer, owner, and other concerned. This receipt contains the name of the company, T+0 or 'T number, and the address and telephone number of the company. The receipt are seriali"ed with the +& registration number. +t is an evidence that the company has received cash from the payees. S$le# In(oi S$le# In(oice ce-is iss issue ued d wh when en ser servic vice e or me merc rcha hand ndise ise is de deliv liver ered ed to a customer or client. The invoices itself bear the name of the business, address and phone number, business number, invoice number, date, and T+0 or 'T number, cust sto ome merrs nam ame e and ad add dres ess, s, desc scrript ptiion of ser erv vic ice e or merchandise, amount, and signature of the employee.
B$n) Docu*ent# $n+ C,ec)#-these documents are important and composed of monthly bank statements, unused check, paid check given by the bank to its depositor inlcuding memorandum of charges, interest and transfer of deposit from other accounts. OTER NECESSAR DOCU"ENTS
'. ontract-contract is an evidence of an agreement entered into by two entities for a certain agreement con$rming legal rights for some business undertakings and obligation to ful$ll at a speci$c period of time. oth parties agreed with certain limitations attached to the contract. The best eample of a contract is 5emorandum of 'greement known as 56'. . Deli(e&y In(oice $n+ In(ento&y Log .o&* -7elivery invoices are issued by the suppliers as evidence of delivered goods or supply supported by a stamped 8receipt9 and the signature of personnel receiving the deliveries. The log form is a record of the warehousing department wherein the receipt of deliveries is recorded in the list of receipts deliveries. This serves as an evidence of actual receipt of goods by the company. . O&+e& .o&*-this is to be accomplished by the buyer of goods to be given to the supplier for con$rmation and armation of the order: on the part of the buyer such form is an evidence of the intention to purchase goods or supplies as armed by the delivery receipts. 7. Aut,o&ity to P$y .o&*-'n authority to pay form must be secured and accomplished before actual payment is done by the accounting division. This form is necessary for the preparation of voucher and check for payment. T,e C,$&t o/ Account#
The term 8account9 has been discussed in the previous chapters. This is a device used to record the increases and decreases a;ecting assets, liabilities and owners e*uity, income and epense accounts. The hart of 'ccounts is used to limit the accounts used by the business as suggested by the accountant on the basis that the accounts are easy to comprahend and are acceptable in the industry. The chart of accounts would depend on the industry of a certain business. The accounts used by the banking industry are *uite di;erent from the accounts used by the airline or shipping industry. +n other words, there is an account used by the school that can never be used by banks and other industries. <penses and income accounts better
describe the owners e*uity, because whatever the di;ence of these two accounts will be transferred to the e*uity 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 $rst, followed by the liabilities, and lastly, by the owners e*uity. 'ccount numbers are assigned for each account for easy reference. 'ssigning of account number bears no industry standards: it depends on the accountants point of view. 'ccounts which are not written on the chart of accounts cannot be used to avoid con=ict and to enhance understanding.
> ash on ?and
1>1
ash in ank
1>2
#etty ash @und
1>3
0otes &eceivable
1>4
'ccounts &eceivable
E1%l$n$tion o/ Account
To record cash collected from sale or collection of receivables and other sources of cash presently in the hands of the business under the custodianship of the cashier To record the amount of money deposited under the savings and current account which is used without restriction to the business. This amount of cash is made available for current operation. The business normally uses petty cash account to take care of the small epenses. +ssuing a check is impractical for small epenses. ' custodian of the petty cash fund is appointed separate from the general fund cashier. These are claims of the owner from its customers or other stakeholders evidenced by promissory notes under the control of the business. +t may be interest or non%interest These are claims from the customers not evidenced by a promissory note usually from sale on account or making advance payments to
1>A
1>B
1>C
1>D
2>1
2>2 2>3
2>4
2>A
2>B 2>C 3>1 3>2 3>3
clients. 'lso called open%account receivable. #repaid &ent The account prepaid rent is used to record advance payment and security deposit paid in advance to occupy the rented premises. 'n asset account until the epired portion is changed to epense. #repaid The account prepaid insurance applies to the +nsurance insurance premium paid in advance for more than a year. 'n asset account until applied to the epenses portion. 6ce This account is used to record the purchase of /upplies oce supplies such as worksheet, computer ink and paper, pencil, ball pen, coupon bond, and other supplies used in the oce. 6ther 'sset #roperty which are not grouped under the standard accounts because the account deems it impractical to do so. 'ccounts 'n account used to record the liability from #ayable ac*uiring materials, goods and suppplies from the creditor on account 0otes #ayable 'n account used to record issuance of promissory note with a term less than a year Eoans #ayable 'n account used to record the liability from receiving a loan from a bank and other $nancial institutions 5ortgage 'n account used to record a liability from obtaining #ayable large amounts of loan using some collateral properties /alary 'n account used to record unpaid salary #ayable +nterest #ayable Eong%Term 0otes #ayable /ervice +ncome Fain on /ale +nterest +ncome
'n account used to record accrued interest from loan and mortgage payables 'n account used to record issuance of promissory notes with a term of more than a year 'n account used to record revenue received from client from rendering of services 'n account used to record the gain on sale of old asset 'ccount used to record the interest earned from penalty imposed on delayed customers and from
3>4
4>1
4>2
4>3
4>4
4>A 4>B
receipt of payment of interest%bearing promissory notes 5iscellaneous 'n account used to record revenue from selling +ncome other assets like retaso, old newspapers, and the like /alary To record payment of salary to oce employee, <pense factory worker, and ordinary worker. +t includes payment of 13th month pay, sick leave, and vacatio leave &ent <pense To record payament of rent on leased premises whether store or space, or warehouse. +t includes vehicle and e*uipment rental. Eight and 'n account used to record electricity cost for the #ower month <pense Gater 'n account used to pay water consumption for the <pense month
Telephone and ommunication <pense 'dvertising
'n account used to record cost of communications for the month. 'ccount used to record the cost of advertisement,
4>C
<pense 6ce /upplies <pense
4>D
+nsurance <pense
4>H
&epair and 5aintenance <pense
41>
Taes and Eicenses <pense 5embership @ees <pense ontribution and 7onation <pense Fas 6il <pense
411 412
413 414
pamphlet, tarpaulin, radio time, and airtime. 'n account to record the cost of supplies used in the oce such as computer ink and paper, pencil, pen, photocopying epense and other oce supplies. 'n account to record the cost of insurance premiums paid to insurance company for the safety and insurance of company%owned asset and property. 'n account used to record the cost of maintaining e*uipment and vehicle of the company. +t is used to record the repair of e*uipment, vehicles and furniture. 'n account to record the cost of mayors permit and registration fees to government agencies. 'n account used to record membership fees paid to accredited institution. 'n account used to record contribution and donation made by the company such as religious and charitable donations. 'n account used to record gasoline and oil epense used by the company. 'n account used to record freight or transportation fares incurred in rendering of service, and other fare epenses.
T,e T-Account The simplest form of a ledger is called the T%'ccount. +t has two sides to record the increase and decreases of an account. The left side is for recording of increases in '//
ash &ight side or redit side
ash is the account title of the ledger. The left side is the debit side and the right side is the credit side. Ghen an amount is recorded on the left side it simply means debiting the account and when it is to be recorded on the right side, it is crediting the account. 7ebit is accounting term, which simply means left side of an account, while redit simply means the right side of an account. /ome accounts are increased on the debit side while some accounts are increased on the credit side depending on its position in the accounting e*uation 'sset K Eiabilities L 6wners <*uity /ince asset and epense account has two sides M the left and the right M asset and epense increase on debit side and decrease are on the credit side. The accounts liability, income and owners e*uity are increased on the right side and decrease on the left side. Thus, the table below eplained the rules of debit and credit ASSET
Eeft side 7ebit increase
&ight /ide redit decrease
LIABILITIES
Eeft side 7ebit decrease
&ight /ide redit increase
O2NER3S E4UIT
Eeft side 7ebit decrease
&ight /ide redit increase
Rule o/ De0it $n+ C&e+it To summari"e, the following rule for debit and credit should be observed in processing, recording and posting business transaction 1. 'n increase in asset is to be recorded on the debit side, while a decrease will be recorded on the credit side. 2. 'n increase in liability is to be recorded in the credit side, while the decrease will be recorded on the debit side of the account. 3. 'n increase in owners e*uity is to be recorded on the credit side, while a decrease will be recorded on the debit side of the account Take note that every transaction must have a debit amount with a corresponding credit amount, no matter how many accounts are a;ected. This process is called the Dou0le Ent&y Boo))ee%ing Sy#te*5 Eet us take a look at the T%account M a kind of ledger that summari"es the increase and decrease of an account. Transactions are posted for each particular account at any point in time: the balance of each could be determined and computed. The di;erence between the debit total and the credit total is called the account balance. +f the debit total is higher than the credit total, the account balance is called debit balance. +f the total credits are higher than the debit total, the account balance is called credit balance. 0ormally the assets, owners drawing , and the epense accounts have a debit balance, while the liabilities, revenues and the owners capital have a credit balance.
T,e Le+ge& The T%'ccount form (skeleton form of a ledger) is widely used in schools and universities to demonstrate the analysis of ledger with easiness. Ghile in actual business practice a formal book of account is used containing n ot 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. 'll 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. @igure 1 below shows a ledger account for cash. @ stands for reference that identi$es the source of the entry such as journal page 1 (!1). The particulars column indicates the eplanation and the balance of the account. @igure 0o. 1 the ledger 0ame of the account CAS D$te
P$&ticul$&#
.
De0it
D$te
P$&ticul$&
.
C&e+it
This is the ledger form with eight columns that shows the date: the particular: the folio, and the debit and credit columns. The T%'ccount form ledger could be a replacement of this illustrated general ledger. The #articulars is the eplanation column that describes the transaction. The amount of the transaction is placed on the debit or credit column as the case may be, the di;erence of the two columns is called the debit o credit balances of the account. @or purposes of discussions an illustrations, only the T%'ccount format will be used in this book. +f the company has 2> accounts, the company should also maintain 2> general ledgers.
Jou&n$li6$tion (@irst step in the accounting cycle) TE JOURNAL The journal refers to the two%column general journal used to formally record the business transaction by way of a journal entry. This process is called journali"ation, a process of recording business transaction to the book of original entry. The journal refers to general journal speci$cally the two%column journal and special journals used by other business. The preparation of the journal entry is made after the documentation process of transaction is $nished. The transactions are initially recorded chronologically in the journal. &ecording the transaction
chronologically means the transaction is recorded when it happens, the transaction that happened $rst will be recorded $rst and the transaction that happened last will be recorded last. The simplest form of journal is the two%column general journal.
+EEN/T&'T+60 1%' D$te 2>>H
P$&ticul$&#
Two%olumn !ournal @ormat .
De0it
C&e+it
!an. 1
0ote 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 $ve columns which are composed of the date, particulars, f or folio, debit and credit columns.
#articulars
@
7ebit
redit
2>>D !an. 1
ash
# #
#ere", apital
2. 'fter writing the date. Grite the debit and credit accounts in the particular columns: the debit account is written on the etreme left margin, while the credit account is written with $ve spaces indention from the etreme left margin (assuming 5r. #ere" invested #3>>,>>> in the business). (/ee the illustrations, take note of the presentation.
3. The debit column and credit column contain the amount of the transaction and they are epected to be balanced. +n writing the amount in the columns, a peso sign is written once in each page and is optional. ' 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. (/ee the illustration) 2>> D !an. 1
#'&T+NE'&/
@
ash #ere", apital
7<+T
&<7+T
# 3>>,>>> # 3>>,>>>
4. 'fter writing the peso amounts in the debit and credit columns, write a brief eplanation under the particulars column. The eplanation must be located ten spaces from the left margin or $ve spaces from the credit account. The net line of eplanation must be $ve spaces from the left margin. (/ee illustration.) 2>> D !an. 1
#'&T+NE'&/
@
ash #ere", apital To record the initial investment.
7<+T
&<7+T
# 3>>,>>> # 3>>,>>>
A. +f there is another transaction to be recorded, leave one space to record the subse*uent transaction. ('ssume on the second day, #1A>>,>>> cash is deposited in a bank under the business name.) 2>> D !an. 1
#'&T+NE'&/ ash #ere", apital To record the initial investment.
@
7<+T
&<7+T
# 3>>,>>> # 3>>,>>>
1A>,>>> 2
ash in bank ash on hand To record the deposit in a bank.
1A>,>>>
B. 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. Griting >> as centavos is optional. &emember that any amount written on the money column is epressed in terms of peso value that is why a peso sign is optional. +f a peso sign is written, be sure to write it only once, on the beginning amount for every page of a journal. ?ow do we write peso amounts in the money columnsO
1
A
1 >
0
c
D e
.
1
1 >
1
1 >
1 > >
> > >
> > >
> >
> >
> >
> >
> >
orrect place for peso amount g. centavos column f. one peso column e. ten peso column d. one hundred peso column c. one thousand pesos column
G
A >
b. ten thousand pesos column a. one hundred thousand pesos column 1. one million pesos column
' journal entry with one debit and one credit is called a simple journal entry. Ghen an entry has more than one debit or more than one credit, it is called a compound journal entry. 0ote that the transactions are recorded chronologically and the debit entry is recorded $rst followed by the credit entry. 'lso take note that the reference column (@) is not yet $lled%up in the journali"ation process because it can be used in the posting which is the net step in the accounting cycle.
+llustration
'lbert 'uto &epair enter had the following transactions on the $rst month of operation in 6ctober 2>>D 6ctober 1. 'lbert invested # 2A>, >>> and deposited the amount under the current account of the business 1. ought 1> computer units under the terms #1>>, >>> down payment and the balance of # 1>>, >>> is to be paid in four e*ual monthly installment starting 6ctober 31, 2>>D. 2. #aid #D, A>> mayors permit, # A>> +& registration fees, and 7T+ registration of business name #14>. 3. #aid #4A, >>> to the shop leased covering advance payment for two months and one month security deposit. 4. #aid #B>, >>> for the construction of computer tables and chairs for the computer shop. A. /pent # A, >>> for the purchase of electric wires and other electrical wirings for the computers. (/hop epenses) B. /pent #D, >>> for the neon light bearing the name of the shop. (/hop epenses) C. ?ired two shop assistants with a salary of #A, >>> per month each. (0ot a business transaction) D. /pent #3, >>> for advertisement such as =yers and tarpaulin. ('dvertisement epense) H. 'fter a week of preparation, 'lbert formally opened the business and spent #C, >>> for food and other things for the ceremony. (/hop epenses) 1>.6n the $rst day of the operation, he received #D, >>> from his costumers. (/ervice income)
1A. #aid salary of the assistant #2, A>> for one week 2>. #aid #2, >>> for shop supplies. 22. @or the last week he received #12>, >>> from customers 3>. #aid salary of the shop workers, #4, CA>, net of /// premium of #12>. 3>. #aid the $rst monthly installment of the computer, #2A, >>>.
Nse the following accounts to record the above transactions ash in bank (0o. 1>1): /hop and supplies (0o. 1>2): &ent deposit (0o. 1>3): /hop computer (0o.1>4): /hop furniture and $ture (0o. 1>A): 'ccounts payable (0o. 2>1): /// #remium payable (2>2): /hop epenses (0o. 3>1): 'dvertisement epense (0o. 3>2): /alary epense (0o. 3>3): Taes and license epense (0o. 3>4): and /ervice income (4>1): 'lbert capital (0o. A>1): and 'lbert drawing (0o. A>2).
&e*uired 1. #repare the re*uire journal entries in a two%column journal. 2. #ost the journal entries to the general ledger. 3. #repare the trial balance. 'nswer &e*uirement 0o.1 !ournal entries 7'T< 2>>D
#'&T+NE'&/
@
7<+T
6ct. 1
ash in bank 'lbert apital To record initial investment.
1>1 A>1
#2A>,>>>
1
/hop computer ash in bank 'ccounts payable Terms A>P down balance in four e*ual payments
1>4 1>1 2>1
2>>,>>>
&<7+T
#2A>,>>>
1>>,>>> 1>>,>>>
2
3
4
A
B
C D
H
1>
1A
Taes and licenses epense ash in bank To record payment of mayors permit and +& registration and 7T+ registration.
3>4 1>1
H,14>
&ent deposit ash in bank To record two%month deposit and one month advance.
1>3 1>1
4A,>>>
/hop furniture ash in bank To record construction of computer table and chairs.
1>A 1>1
B>,>>>
/hop epenses ash in bank To record purchase of electric wirings.
3>1 1>1
A,>>>
/hop epenses ash in bank To record the cost of neon light. 0o journal entry 'dvertisement epense ash in bank To record the cost of =yers and tarpaulin. /hop epenses ash in bank To record the cost of food and other epenses on the opening day. ash in bank /ervice income To record the income received form services. /alary epense ash in bank To record payment of salary
3>1 1>1
D,>>>
3>2 1>1
3,>>>
3>1 1>1
C,>>>
1>1 4>1
D,>>>
3>3 1>1
2,A>>
H,14>
4A,>>>
B>,>>>
A,>>>
D,>>>
3,>>>
C,>>>
D,>>>
2,A>>
2>
22
3>
3>
/hop supplies ash in bank To record payment supplies. ash in bank /ervice income To record cash receipts for services rendered. /alary epense ash in bank /// premium payable To record payment of salary for the period 6ct. 1B%3>, 2>>D. 'ccounts payable ash in bank To record $rst installment of computer.
1>2 1>1
2,>>>
1>1 4>1
12>,>>>
3>3 1>1 2>2
A,>>>
2>1 1>1
2A,>>>
2,>>>
12>,>>>
4,CA> 2A>
2A,>>>
>H with a plan of establishing the errand service business. The errand business is established to answer the calls of establishment in aloocan city to do their errands for a fee. The business had the following transactions on the $rst month of operation in 7ecember 2>>H.
7ecember 1. !ericho invested #2>>, >>> and deposited the amount under the current account of the business. ?e also invested his own car with current fair value of #3>>, >>>. (Nse compound journal entry in recording this transaction.) 1. ought one unit computer and printer for #3>, >>>, cash for oce use. 2. #aid the following regulatory fees #B, A>> for mayors permit, #A>> for +& registration fees and 7T+ registration fees of #14>. (7ebited to Taes and licenses epense) 3. #aid #21, >>> for the advance payment for one month and two months security deposit of security guards. 4. ought computer table, oce table, chairs, $ling cabinet, and other furniture for oce use for cash, # A>, >>>. A. ought oce supplies, stapler, puncher, and other oce supplies for cash #4, >>> for oce use.
B. #aid #D, >>> for the neon light bearing the name of the shop. ('dvertising <penses) C. ?ired oce clerk with a salary of #12, >>> per month and two errand boys with a starting salary of #12, >>> per month. (0on%business transaction) D. #urchased two motorcycles. Terms #A>, >>> down payment with monthly amorti"ation of #1>, >>>. 'morti"ation will start on !anuary 2, 2>1> for 12 months. H. #aid #3>, >>> for cost of advertisement such as =yers , tarpaulin, and radio advertisement. ('dvertisement epense) 1>.'fter a week of preparation, !ericho Eance formally opened the business and spent #1>, >>> for food in the opening ceremony. ('dvertisement epense) 11.6n the $rst day of the operation, !ericho received #1D, >>> from clients 1A. #aid salary of employees #C, A>> for one week, net of withholding ta of #1,2>>: paid #2, >>> for the oce supplies 2>. @or the last two weeks he received #12>, >>> from customers. 3>. /pent total amount for gasoline, #3, >>> 31. #aid salary of the personnel, #1D, >>>, net of #3>> /// premium, and #2>> #hil?ealth premiums. Nse the following accounts to record the transaction ash in bank (0o.1>1): 6ce supplies(0o. 1>2): #repaid rent (0o. 1>3): 6ce e*uipment (0o. 1>4): 6ce furniture and $ture (0o. 1>A): ar and vehicle (0o. 1>B): 5otorcycles (0o. 1>C): 'ccounts payable (0o. 2>1): /// premium payable (0o. 2>2): #hil?ealth premium payable (0o. 2>3): Githholding ta payable (0o 2>4): 6ce epense (0o. 3>1): 6ce supplies epense (0o. 3>2): 'dvertisement epense (0o. 3>3): /alary epense (0o. 3>4): Taes and licenses epense (0o. 3>A): Fas and oil epense (0o. 3>B): 1): !ericho Eance, capital (0o. A>1): !ericho Eance, drawing (0o. A>2). &e*uired #repare the journal entries using the general journal below (Jou are re*uired to observe the rules in journali"ation 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 eplanation. /pacing is *uite material in writing the journal entries). 7ecember 1, 2>>D transaction is prepared as an eample 7ate #'&T+NE'&/ @ 7<+T &<7+T 7ec. 1 ash in bank 1> # 2>>H 1 2>>,>>> ar and vehicle 1> 3>>,>>> B !ericho Eance, capital A> # 1 A>>,>>> To record initial investment.
2
3
4
A
B
C
D
H
1>
11
12
1A
2>
3>
31
Po#ting to t,e Le+ge& (/econd /tep in the 'ccounting ycle) +n the journal, transactions are provided chronologically based on the dates when they happen. The transaction which happens $rst will be recorded $rst, while subse*uent transactions are recorded net to the $rst transaction. The transaction the happened on !uly 1 will be recorded $rst, before the transaction on !uly 2. 'fter recording in a journal, the entries are transferred to the ledger. The process is called Po#ting5 Po#ting to t,e le+ge& is done to sort%out the accounts and to summari"e the balances on the last day of the accounting period. The journal is the source of data recorded in the general ledger and posting is mad to summari"e the business transactions based on the classi$cation of accounts. 'll transactions a;ecting cash account must be summari"ed in the cash account ledger. +n posting for eample, all cash transactions a;ecting the increase and decrease of cash will be summari"ed in tow columns the debit and the credit, and the ending balance of the account is determined. 'll accounts that would increase the cash including the beginning balance will be computed to get the sum of the cash available for use and deduct any amount of cash paid during the period. The remaining cash balances is called +e0it 0$l$nce to be presented in the balance sheet. /uch balance is supported by the statement of cash =ow. Po#ting is actually the transfer of the debit and credit balances from the journal to the ledger. ILLUSTRATION O. POSTING PROCEDURES
0ormally each account has its repective ledger written on every page of the book of account. ash in bank as an account has ageneral ledger: 'lbert, capital also has a ledger and all the accounts used have a ledger. Eooking back at the journal where the journal entry is recorded, the recorded will be posted to the general ledger in order to summari"e the account. 'ssuming the $rst entry in the journal debiting cash of #2A>,>>> on 6ctober 1, 2>>D and rediting 'lbert, capital of the same amount will be posted to the ledger. @or the journal entry on 6ctober 1, 2>>D, the placement of original investment of the owner, cash in bank account will be the name of the ledger and 'lbert, apital account. To post the account, #2A>,>>> cash in bank will be recorded in the ledger bearing the same account in the debit column, because it is an asset account. To illustrate DATE 899
PARTICULARS
.
De0it
C&e+it
6ct. 1
ash in back 'lbert, capital To record initial investment.
1>1 A>1
#2A>,>> # 2A>,>>>
The account number 1>1 will be placed in the journal to inform the auditor of the or the bookkeeper that the amount is already posted in the ledger. #1 means page 1 look FE Q1>1. To illustrate Feneral Eedger (FE) 0ame of the account C$#, in 0$n) DAT P$&ticul$&# . De0it E 6ct. ash investment #1 #2A>,>> 1
0ame of the 'ccount Al0e&t; C$%it$l DAT P$&ticul$&# . De0it E
D$te
No5 797 P$&ticul$&# .
C&e+it
D$te
P$&ticul$&#
.
C&e+it
# 1
#2A>,>> >
6ct. 1
6riginal +nvestment
The 'ccount number A>1 will be placed in the journal to inform the auditor or the bookkeeper that the amount is already posted in the ledger. The process will be continued until the entire posting is done to summari"e the transaction in the month, because bookkeeping is a routine job. +n posting, the information or eplanation of the transaction is copied such as the eplanation 8original investment9 or initial investment9 will be written in the ledger to keep track of the recording. To illustrate T,e %&oce## i# /&o* t,e 0u#ine## t&$n#$ction to T-$ccount5 @abulous @ace enter presented the following transaction below and record 7irectly to the T%'ccount in 2>11 !an. 1. Eemie, the owner invested #2,>>>,>> to open a beauty face clinic and deposit the money deposit the money in the bank. 2. #urchased furniture and $tures nad #3>,>> on cash basis. D. #urchased medical e*uipments from 000 medical <*uipment worth
#1,>>>,>>> cash H. #aid #2>>,>>> rental deposit on clinic leased. 1>. #urchased medical supplies from 'bot 7rugs, #4>,>>> on account. 11. #aid the corresponding taes and registration fees, #3>,>>> 13. &eceived #3>>,>>> medical fees from patients. 1A. #aid salary of medical sta;, #3>,>>> 2>. #aid A>P of account of purchased of medical supplies on !anuary 1>. 2>. &eturn #A,>>> worth of supplies to 'bot 7rugs. 21. 'pplied #A>,>>> rental deposit to monthly rental. &e*uired #repared T%'ccounts using the following accounts ash in bank: @uniture and @itures: 5edical e*uipment: &ental deposit: 5edical supplies: 'ccounts payable: Taes and licenses epense: /alary epense: 5edical supplies &ent epense Eemie, capita: 5edical fees revenue. !an. 2,>>>,>>> 3>>,>>>
1 !an. 3>,>>> 13 1,>>>,>>>
2 D H
2>>,>>> 11 3>,>>> 1A
2,3>>,>>> B$l5
3>,>>> 2> 2>,>>> 1,31>,>>> <<9;999
.u&nitu&e !an. 2 3>,>>>
5edical <*uipment !an. D
1,>>>,>>> Account# P$y$0le
!an. 2> 2>,>>> 21 A,>>> 2A,>>> "e+ic$l .ee# Re(enue#
!an. 1> 4>,>>> 4>,>>> B$l5 7=;999
Le*ie; c$%it$l
!an. 13 3>,>>>
"e+ic$l Su%%lie#
!an. 1> 4>,>>> A>,>>>
!an.1 2,>>>,>>>
Rent$l De%o#it
!an.21
B$l5 >9;999
T$1e# $n+ Licen#e#
A,>>>
!an. H 2>>,>>> B$l5 7=9;999
"e+ic$l Su%%lie# E1%en#e#
!an. 11 >9;999
Rent E1%en#e
!an. =9;999
!an. 3>
S$l$&y E1%en#e
!an. 1A >8;999
@rom the above T%account presentation compute the following balances 1. alance of cash in bank RRRRRRRRRRRRRRRRRRRRRR 2. alance of Eemie capital RRRRRRRRRRRRRRRRRRRRRR 3. alance of 'ccount payable RRRRRRRRRRRRRRRRRRRRRR 4. alance of 5edical supplies RRRRRRRRRRRRRRRRRRRRRR A. alance of 5edical fees revenue RRRRRRRRRRRRRRRRRRRRRR B. alance of &ental deposit RRRRRRRRRRRRRRRRRRRRRR C. alance of 5edical e*uipment RRRRRRRRRRRRRRRRRRRRRR D. alance of epense RRRRRRRRRRRRRRRRRRRRRR H. alance of /alary RRRRRRRRRRRRRRRRRRRRRR 1>.alance of Taes and license epense RRRRRRRRRRRRRRRRRRRRRR 11.alance of @urniture S $ture RRRRRRRRRRRRRRRRRRRRRR
F<0<&'E E<7F<& 6@ !<&+?6 E'0< <&&'07 /<&+< 65#'0J C$#, in B$n)# D$te 7ec. 1 11
12
P$&ticul$& ash +nvestment /ervice rendered /ervices rendered Total debit
C$#, in 0$n) +e0it 0$l$nce
.
De0it #2>>,>> > 1D,>>>
D$te 7ec. 1 2
12>,>>>
3
33D,>>>
4
P @9
A B D
P$&ticul$& #urchase cost of computer #ayment of mayors permit &ental deposit and advances omputer table and chairs 6ce supplies ost of neon lights 7own payment
.
C&e+it # 3>,>>> C,14>
21,>>> A>,>>> 4,>>> D,>>> A>,>>>
H 1> 1A 1A 3> 31
'dvertising 6ce epense #ayment of salary #ayment of supplies Fasoline #ayment of salary Totals credit
3>,>>> 1>,>>> C,A>> 2,>>> 3,>>> 1D,>>> 89;@ 9
0ame of the 'ccount C$& $n+ Ve,icle No5 D$te 897 9 7ec. 1
P$&ticul$&
.
+nvestment
De0it
D$te
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
#3>>,>> >
0ame of the 'ccount Je&ic,o L$nce; C$%it$l No5 798 D$te
P$&ticul$&
.
De0it
D$te 8979 7ec. 1
+nvestment
A>>,>>>
0ame of the 'ccount O'ce Eui%*ent No5 D$te 897 9 7ec. 2
P$&ticul$&
.
#urchased of computer S printer
De0it
D$te
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
# 3>,>>>
0ame of the 'ccount T$1e# $n+ Licen#e No5 D$te 897 9 7ec.
P$&ticul$&
5ayors permit
.
De0it
# C,14>
D$te
3
and +&, 7T+ registrations
0ame of the 'ccount Secu&ity Se&(ice De%o#it No5 D$te 897 9 7ec. 4
P$&ticul$&
.
7eposit on security guard 2 months deposit and one month advance
De0it
D$te
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
21,>>>
0ame of the 'ccount O'ce .u&nitu&e $n+ .i1tu&e No5 D$te 897 9 7ec. 4
P$&ticul$&
#urchase of oce furniture
.
De0it
D$te
A>,>>>
0ame of the 'ccount O'ce Su%%lie# No5 D$te 897 P$&ticul$& . De0it D$te 9 7ec. #urchase of 4,>>> A oce supplies 1A #urchas of oce 2,>>> supplies B,>>> 0ame of the 'ccount A+(e&ti#ing E1%en#e No5 D$te 897 P$&ticul$& . De0it D$te 9 7ec. 0eon lights D,>>> B H ost of tarpaulin 3>,>>>
1> @ood for opening day
1>,>>>
4D,>>> 0ame of the 'ccount "oto&cycle No5 D$te 897 9 7ec. D
P$&ticul$&
.
#urchas of two motorcycles
De0it
D$te
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
1C>,>>>
0ame of the 'ccount Account P$y$0le No5 D$te 897 9
P$&ticul$&
.
De0it
D$te
7ec. D
#urchase of motorcycles
12>,>>>
0ame of the 'ccount Se&(ice Inco*e No5 D$te
P$&ticul$&
.
De0it
D$te 8979 7ec. 11 2>
P$&ticul$&
.
/ervice rendered
C&e+it
1D,>>>
/ervices rendered
12>,>>> 13D,>>>
0ame of the 'ccount S$l$&y E1%en#e No5 D$te
7ec. 1A 31
P$&ticul$&
/alary for one week /alary (7ec. 1B% 31)
.
De0it
D,C>> 1D,A>> 2C,2>>
D$te 8979
P$&ticul$&
.
C&e+it
0ame of the 'ccount G$# $n+ Oil No5 D$te
7ec. 3>
P$&ticul$&
.
#urchase of gasoline
De0it
D$te 8979
P$&ticul$&
.
C&e+it
P$&ticul$&
.
C&e+it
3,>>>
0ame of the 'ccount SSS P&e*iu* P$y$0le No5 D$te
P$&ticul$&
.
De0it
D$te 8979 7ec. 31
#ayment of /alary
3>>
0ame of the 'ccount P,ile$lt, P&e*iu* P$y$0le No5 D$te
P$&ticul$&
.
De0it
D$te 8979 7ec. 31
P$&ticul$&
.
C&e+it
#ayment of /alary
2>>
0ame of the 'ccount 2it,,ol+ing T$1 P$y$0le No5 D$te
P$&ticul$&
.
De0it
D$te 8979 7ec. 1A
P$&ticul$&
/alary for one week
.
C&e+it
1,2>>
The journal provides the recording of a transaction completely in one or two pages in a month, while a ledger is usually written one account in
every page of the books of account. The summary of account will be based on the transaction a;ecting the account. an you determine the balance of cash from the journalO The answer is no. To make this possible the debit and credit of a particular account should be summari"ed in one account called the ledger and this individual ledger are $led in a book called general ledger as illustrate above. P&e%$&$tion o/ T&i$l B$l$nce (Third /tage of the 'ccounting ycle)
't this point, the summary will again be grouped into normal balance to test the e*uality 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 journali"ing portion and posting process will be checked in the preparation of a trial balance. ' 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. +t is done in pencil and the amount is written as a small $gure to distinguish it from the regular entries.
6ct. 1 1> 22
P$&ticul$&
ash investment /ervice rendered /ervices rendered Total debit
ash in bank debit balance
.
De0it
#2A>,>> > D,>>>
D$te 8979 6ct. 1
2
7own payment computer
A B D
#ayment of mayors permit &ental deposit and advances omputer table and chairs ost of shop wiring ost of neon lights ost of advertisement
H
@ood on the opening day
12>,>>
3
3CD,>>
4
# 1>B,B1>
P$&ticul$&
.
C&e+it
#1>>,>> > H,14> 4A,>>> B>,>>> A,>>> D,>>> 3,>>> C,>>>
1A 2> 3> 3>
#ayment of salary #ayment of shop supplies #ayment of salary @irst payment on computer Total credit
2,A>> 2,>>> 4,CA> 2A,>>> 2C1,3H>
2. @ooting is no longer needed if there is a single debit or credit amount: eamples of this accounts are shop furniture, shop e*uipment and rent deposit accounts which have single entry, and the balances of these accounts will no longer be etracted nor placed in the eplanation column if posting is on one side only. To illustrate 0ame of the 'ccount S,o% .u&nitu&e No5 79@ D$te
6ct. 4
P$&ticul$&
onstruction of computer table and chairs
.
De0it
# B>,>>>
D$te 8979
P$&ticul$&
.
C&e+it
