Lesson 1 : Accounting Books

Two Major types of accounting books :

1. Journal
2. Ledger
A journal is a book of accounts wherein business transactions are recorded for the first time. It is
also called “ books of original entry “.
The simplest form of journal wherein two-column form may be used is called the general journal.
The process of recording a transaction is called journalizing the transactions.
To speed up and simplify the recording process, most businesses make use of special journals. Each
special journal is designed to record a particular type of transaction efficiently and quickly.

Examples of special journals and their use :

1. Cash Receipts Journal – is used to record all cash that had been received.
2. Cash Disbursements / Payment Journal – is used to record all transactions involving cash
payments.
3. Sales Journal ( Sales on Account Journal ) – is used to record all sales on credit or
(on account ).
4. Purchase Journal ( Purchase on Account Journal ) – is used to record all purchases of
inventory on credit or ( on account ).

A general ledger is often called a T - Account because of its resemblance to the letter T. A T-
Account is a simplified form of general ledger. A sample of a T-account is shown below :

Account Title ( Example - Cash )

Left Side or Right Side or

Debit Side Credit Side

Increases Decreases

(+) (-)

Account Title ( Ex. - Accounts Payable ) Account Title ( Ex. - Gil, Capital )

Left Side Right Side Left Side Right Side

Debit Credit Debit Credit
Decreases Increases Decreases Increases
(-) (+) (-) (+)

Account Title ( Ex. Gil, Drawing )

Left Side Right Side
Debit Credit
Increases Decreases
(+) (-)
 Account Title ( Ex. Service Income ) Account Title ( Ex. Rent Expense )
Left Side Right Side Left Side Right Side
Debit Credit Debit Credit
Decreases Increases Increases Decreases
(-) (+) (+) (-)

4. The normal balances of an account

1. Asset Accounts – Debit Balance; however the normal balance of a contra asset account is
credit.
The contra asset accounts are:
Allowance for Bad Debts
Accumulated Depreciation – Store Equipment
Accumulated Depreciation. – Office Equipment
Accumulated Depreciation – Transportation Equipment
Accumulated Depreciation – Building
2. Liability Accounts – Credit Balance
3. Capital account or Owner’s Equity account has a normal credit balance while the Owner’s
withdrawal account has a normal debit balance.
4. Income – Credit Balance
5. Expense – Debit Balance
A summary of the normal balance of the account is shown below

Increase ( Normal Balance ) Decrease

Asset Debit Credit

Liability Credit Debit

Owner’s Capital Credit Debit

Owner’s Debit Credit

Drawing

Income Credit Debit

Expense Debit Credit

Illustration 1
To illustrate the determination of balances in the T-Account, let us take the following series of
transaction for the month of February 2016:

On February 1, 2016, the following beginning balances were correctly determined from previous
accounting period of Vicente Repair Shop:
Cash P25,000.00 Debit Balance

Accounts Receivable - X Company 100,000.00 Debit Balance

Office Equipment 50,000.00 Debit Balance

Accounts Payable-Marine Company 35,000.00 Credit Balance

Vicente, Capital 140,000.00 Credit Balance

Transactions during February 2016 are:

Feb 2 - Rendered service to X Company for P50,000 for cash.

4- Paid rental for the month amounting to P3,500.
5- Collected accounts receivable from X Company amounting to P30,000.
10 - Rendered service to X Company on account, P18,000 to be collected on
March 2016.
15 - Paid salaries of staff, P7,000.
18 - Paid accounts payable to Marine Company amounting to P5,000.
20 - Rendered service to Marine Company for P23,000, cash.

The General Journal entries to record the above transactions are:

General Journal

Date Account Title and Explanation PR Debit Credit

Feb. 2 Cash P50,000
Service Income P50,000
4 Rent Expense P3,500
Cash P3,500
5 Cash P30,000
Accounts Receivable - X Company P30,000
10 Accounts Receivable - X Company P18,000
Service Income P18,000

Date Account Title and Explanation Reference Debit Credit

Feb. 15 Salaries Expense P7,000

Cash P7,000
18 Accounts Payable - Marine Co. P5,000
 Cash P5,000
20 Cash P23,000
Service Income P23,000

Posting is the process of transferring the records from the journal to the ledger.

A ledger constitutes a group of accounts. It is also called “ the book of final entry “.

The simpler form of a ledger is the “ T-account “.

And the modified T-account is called the general ledger.

Illustration of the T - Account to get the final balances of each account.

Cash Accounts Receivable - X Company

Beg. bal. P25,000 Feb. 4 - P3,500 Beg. bal. P100,000 Feb. 5 - P30,000
Feb. 2 - 50,000 15 - 7,000 Feb.10 - 18,000
5- 30,000 18 - 5,000
20 - 23,000 P118,000 P30,000
P128,000 P15,500 P88,000
P112,500

Office Equipment Accounts Payable-Marine Co.

Beg. bal. P50,000 Feb. 18 - P5,000 Beg. bal. P35,000
P30,000

Vicente, Capital Service Income

Beg. bal. P140,000 Feb. 2 - P50,000
10 - 18,000
20 - 23,000
P91,000
Rent Expense Salaries Expense
Feb. 4 - P3,500 Feb. 15 - P7,000

Vicente Repair Shop

Trial Balance
February 28, 2016

Account Title Debit Credit

Cash P112,500
Accounts Receivable - X Company 88,000
Office Equipment 50,000
Accounts Payable - Marine Company P30,000
Vicente, Capital 140,000
Service Income 91,000
Rent Expense 3,500
Salaries Expense 7,000 __________
Total P261,000 P261,000

Illustration 2
Transactions

2010
Sept. 1 - G. Alajar, opened a television repair shop he called “ Sure Repair Shop “.
He began business by investing P2,500 in cash and the following assets:
repair tools, P1,200; repair supplies, P1,500 and a service truck, P20,000.
2 - Paid P250 for newspaper advertising announcing the opening of his
shop.
3 - Purchased office tables and chairs and filing cabinets from Cruz Furniture
on credit, P6,500.
5 - Completed repair work for R. Gil on credit, P1,200.
9 - Completed repair work for M. Soriano, P2,200. Accepted P1,000 in cash
and a promised to pay the balance after five days.
15 - Paid the salaries of the shop helper, P450.
18 - Paid one-half of the account due to Cruz Furniture and issued a promissory
note for the other half.
20 - R. Gil paid his account.
25 - Withdrew cash for P750 for personal use.
28 - Received P2,500 from S. Serna for repair service rendered.
30 - Paid the monthly utility bills, P150.
30 - Paid the month’s rent of the shop, P1,000.
30 - Paid the salaries of the shop helper, P450.

Instructions:
a. Journalize the above transactions using the general journal.
b. Prepare Chart of Account
c. Post to general ledger.
d. Prepare the unadjusted trial balance, as of September 30, 2010.

Preparation of Chart of Accounts

A chart of accounts is a list of account titles used by the business. It serves as a guide to the
bookkeeper. Such accounts are divided into sections and each title has a given code number or
account number which is usually a three digit code.
Sure Repair Shop
Chart of Accounts
 September 30, 2010
Assets Owner’s Equity
111 Cash 311 G. Alajar, Capital
112 Accounts Receivable - R. Gil 312 G. Alajar, Drawing
113 Accounts Receivable - M. Soriano
114 Repair Supplies Income
115 Repair Tools 411 Service Income
116 Furniture and Fixtures
117 Service Truck Expenses
511 Advertising Expense
Liabilities 512 Salaries Expense
211 Accounts Payable - Cruz Furniture 513 Utility Expense
212 Notes Payable - Cruz Furniture 514 Rent Expense

General Journal
Date Account Titles and Explanation PR Debit Credit
2010
Sept. 1 Cash 111 P2,500
Repair Tools 115 1,200
Repair Supplies 114 1,500
Service Truck 117 20,000
G. Alajar, Capital 311 P25,200
To record the initial investment of G. Alajar.

2 Advertising Expense 511 P 250

Cash 111 P250
Payment for newspaper advertisement.

3 Furniture and Fixtures 116 P6,500

Accounts Payable-Cruz Furniture 211 P6,500
Purchased of tables, chairs and filing cabinet on credit.
Date Account Titles and Explanation PR Debit Credit
Sept. 5 Accounts Receivable-R. Gil 112 P1,200
Service Income 411 P1,200
Repair services rendered on account.

9 Cash 111 P1,000

Accounts Receivable-M. Soriano 113 1,200
Service Income 411 P2,200
Repair services rendered.

15 Salaries and Wage 512 P450

Cash 111 P450
Payment of the shop helper for the first-half of the month.

18 Accounts Payable-Cruz Furniture 211 P6,500

Cash 111 P 3,250
Notes Payable 212 3,250
 Payment of the account due to Cruz Furniture.

Date Account Titles and Explanation PR Debit Credit

Sept. 20 Cash 111 P1,200
Accounts Receivable-R. Gil 112 P1,200
Full payment of R. Gil

25 G. Alajar, Drawing 312 P750

Cash 111 P750
Drawing of the owner for personal use.

28 Cash 111 P2,500

Service Income 411 P2,500
Amount received for services rendered.

30 Utility Expense 513 P150

Cash 111 P150
Payment of monthly utility bills.
Date Account Titles and Explanation PR Debit Credit
Sept. 30 Rent Expense 514 P1,000
Cash 111 P1,000
Payment of monthly rental.

30 Salaries and Wages 512 P450

Cash 111 P450
Payment of wages of the helper for the second-half of the month.
General Ledger
CASH Account No.111
Date Explanation JR Debit Credit Balance
2010
Sept.1 Initial investment J-1 P2,500 P2,500
2 Newspaper advertisement J-1 P250 2,250
9 Service income J-1 1,000 3,250
15 Salaries of shop helper J-1 450 2,800
18 Partial Payment to Cruz Furniture J-1 3,250 -450
20 Payment of R. Gil J-1 1,200 750
25 Drawing account J-1 750 0
28 Service rendered J-1 2,500 2,500
30 Utility expense J-1 150 2,350
30 Rent expense J-1 1,000 1,350
30 Salaries expense J-1 450 900

Accounts Receivable - R. Gil Account No. 112

Date Explanation JR Debit Credit Balance
Sept.5 Service rendered J-1 P1,200 P1,200
20 Full payment of account J-1 P1,200 0
Accounts Receivable - M. Soriano Account No. 113
Date Explanation JR Debit Credit Balance
Sept. 9 Service rendered J-1 P1,200 P1,200
 Repair Supplies Account No. 114
Date Explanation JR Debit Credit Balance
Sept.1 Initial investment J-1 P1,500 P1,500
Repair Tools Account No. 115
Date Explanation JR Debit Credit Balance
Sept. 1 Initial investment J-1 P1,200 P1,200
Furniture and Fixtures Account No. 116
Date Explanation JR Debit Credit Balance
Sept. 3 Purchased furniture J-1 P6,500 P6,500
and fixtures on account.
Service Truck Account No. 117
Date Explanation JR Debit Credit Balance
Sept. 1 Initial investment J-1 P20,000 P20,000
Accounts Payable - Cruz Furniture Account No. 211
Date Explanation JR Debit Credit Balance
Sept. 3 Purchased on account J-1 P6,500 P6,500
18 Payment of account. J-1 P6,500 0
Notes Payable - Cruz Furniture Account No. 212
Date Explanation JR Debit Credit Balance
Sept. 18 Partial settlement of J-1 P3,250 P3,250
account due to Cruz Furniture
G. Alajar, Capital Account No. 311
Date Explanation JR Debit Credit Balance
Sept. 1 Initial investment J-1 P25,200 P25,200
G. Alajar, Drawing Account No. 312
Date Explanation JR Debit Credit Balance
Sept.25 Drawing of the owner J-1 P750 P750

Service Income Account No. 411

Date Explanation JR Debit Credit Balance
Sept. 5 Service rendered on J-1 P1,200 P1,200
account to R. Gil.
9 Service rendered. J-1 2,200 3,400
28 Service rendered. J-1 2,500 5,900
Advertising Expense Account No. 511
Date Explanation JR Debit Credit Balance
Sept. 2 Newspaper advertisement. J-1 P250 P250

Salaries Expense Account No. 512

Date Explanation JR Debit Credit Balance
Sept. 15 Salaries of the shop J-1 P450 P450
helper - first half.
30 Salaries of the shop J-1 P450 P900
helper - second half.
Utility Expense Account No. 513
Date Explanation JR Debit Credit Balance
Sept.30 Monthly utility. J-1 P150 P150

Rent Expense Account No. 514

Date Explanation JR Debit Credit Balance
Sept.30 Monthly rent. J-1 P1,000 P1,000

Preparation of Trial Balance

A trial balance is a list of accounts with open balances in the general ledger. It proves the equality of
the debits and the credits in the general ledger.

Sure Repair Shop

Trial Balance
September 30, 2010

Account Debit Credit

Cash P900
Accounts Receivable -M. Soriano 1,200
Repair Supplies 1,500
Repair Tools 1,200
Furniture and Fixtures 6,500
Service Truck 20,000
Notes Payable - Cruz Furniture P3,250
G. Alajar, Capital 25,200
G. Alajar, Drawing 750
Service Income 5,900
Advertising Expense 250
Salaries Expense 900
Utility Expense 150
Rent Expense 1,000 _______
P34,350 P34,350
ACTIVITY 1
Jan. 1 - R. Moore opened a TV repair shop by investing P20,000 in the business.
5 - Purchased shop supplies for cash, P480.
8 - Purchased additional shop supplies P250 and shop equipment P750 on credit
from Electronic Supplies, Inc.
12 - Repaired the TV set of C. Karen and collected P150 cash.
18 - Paid Electronic Supplies, Inc. P500 as partial settlement of the account due to it.

21 - Repaired the TV set of K. Hepburn on credit, P180.

25 - Paid the monthly rent, P900.
28 - Received P800 from various customers for repair service done on their TVs.
30 - Withdrew P500 from the business for personal use.
Required :
1. Journalize the above transactions using the general journal.
2. Prepare Chart of Account
3. Post to general ledger.
4. Prepare the unadjusted trial balance, as of January 31, 2010.

ACTIVITY 2
Oct. 1 - The owner, J. De Vega, invested P5,000 to start a business.
3 - Bought on account from ABC Trading sewing machines worth P1,900.
7 - Bought sewing supplies P550 for cash.
10 - Received P120 cash from a customer for dresses made.
12 - Sent a bill to A. Alegre P250 for the dresses made.
15 - Paid the salaries of the shop helper, P800.
20 - Bought additional sewing supplies from ABC Trading on credit, P350.
25 - Received P550 from various customers for dresses made.
28 - Paid P900 to ABC Trading as partial settlement of its account.
29 - Received P250 from A. Alegre as full settlement of its account.
30 - Paid the monthly utility bills, P250.

ACTIVITY 3
Atty. Evangelista , a young lawyer, completed the following transactions during January 2024.
Jan. 1- Began the practice of law by investing P50,000 in cash.
2 - Purchased P3,200 office equipment from ABC Trading paying P1,200 down
payment and giving a promissory note for the balance.
4 - Purchased P250 office supplies and P1,000 office equipment from Herman
Trading on credit.
5 - Completed legal work and received P6,000 cash.
10 - Paid P1,500 for insurance premium.
15 - Completed legal work for M. Cruz on credit and billed him P6,000.
18 - Paid Herman Trading the full amount.
25 - Received P4,000 from M. Cruz as partial settlement of his account.
28 - Atty. Evangelista withdrew P1,000 cash for personal use.
30 - Billed M. Cruz P6,000 for additional legal services rendered.
30 - Paid the salaries of the secretary P30,000.
Required :
1. Journalize the above business transactions.
2. Prepare a T - account.
3. Prepare a Trial Balance

ACTIVITY 4
April 1 - Dr. Chavez, a practicing physician established the Alvarez Medical and
Surgical
Clinic by investing P80,000 cash and medical equipment worth P30,000.
4 - Professional fees of P500 were received in cash from a client.
7 - Bought medical supplies worth P8,000 from NBS Bookstore by paying P2,000
 cash and promise to pay the balance in 30 days.
10 - Paid P2,000 for medical supplies bought.
12 - Received P6,000 for general check-up performed on a patient.
15 - Sent a bill to A. Ruzano for surgical services rendered, P48,000.
20 - Paid the rent for the month, P6,000.
24 - Bought medical equipment from L.A. Trading P4,000 on credit.
27 - Paid P2,000 to NBS Bookstore as partial settlement of his account.
30 - Billed a patient A. Santos P48,000 for surgical services rendered.
Required :
1. Journalize the above business transactions.
2. Prepare a T - account.
3. Prepare a Trial Balance

ACTIVITY 5
Mr. Leo Cruz opened a car rental business. Transactions for the first month of operation are the
following :
Oct. 1 - Mr. Leo Cruz, invested P40,000 cash and five automobiles worth P20,
each notes payable to Grand Prix Motor Co. worth P60,000 were due on the
three cars.
3 - Paid a local newspaper for advertising the opening of the business, P150.
4 - Paid office rent for the month, P3,000.
7 - Cash received from customers for the week, P9,000.
9 - Gas and oil bills paid, P400.
10 - Partial payments on notes payable, P40,000.
14 - Car rentals received, P3,000.
19 - Office supplies bought for cash, P580.
20 - Car rentals received, P3,000.
Oct. 21 - Sent a bill to M. De Mesa, P6,000 for car services rendered at his wedding.
25 - Paid P500 for repair and maintenance of automobile.
28 - Cash received from customers, P6,000.
29 - Collected P4,000 from M. De Mesa as partial settlement of his account.
30 - Paid the attendant’s salary. P5,000.
31 - Leo Cruz withdrew P800 from the business for personal use.
Required :
1. Journalize the above business transactions.
2. Prepare a T - account.
3. Prepare a Trial Balance