Module : – Journalizing (5)

LO a Parts of the Journal

After analyzing and preparing business documents, the transactions are then recorded in the books of the company.
In double-entry accounting, transactions are recorded in the journal through journal entries.

A journal, also known as Books of Original Entry, keeps records of business transactions in a systematic order.
Transactions are recorded in the journal in chronological order, i.e. as they occur; one after the other.
A simple journal looks like this:

Date
Particulars Debit Credit
yyyy
mm dd Account debited amount
Account credited amount

dd Account debited amount

Account credited amount

A column for posting reference (PR)or folio may also be included to facilitate easier tracking and cross-referencing
with the ledger (next module). Also, an explanation of the transaction may be included below the entry. The journal would
then look like this:
Date
Particulars PR Debit Credit
yyyy
ref
mm dd Account debited amount
.
ref
Account credited amount
.
 Date
Particulars PR Debit Credit
yyyy
Short explanation or annotation.

LO b. Journalizing

What is journalizing – is the act of recording the transactions in the journal. An entry in the journal with have one
debit and one credit is called simple journal entry. When an entry contains more than one debit and/or more than one credit, it is
called compound journal entry.
Simple Journal Entry
Let's try to prepare the journal entry for this transaction: On June 3, 2020, the company purchased computer
equipment for its main office and paid P20,000.00 in cash.
When we analyze that transaction, it would show that the accounting effects would be an increase in an asset
account (Computer Equipment), and a decrease in another asset (Cash) since we paid for the equipment.
We would then increase Computer Equipment by debiting it and decrease Cash by crediting it. The journal entry
would be:

Date
Particulars Debit Credit
2020
Jun 3 Computer Equipment 20,000.00
20,000.0
Cash
0
To record purchase of
computer.
You will have no trouble in recording a transaction using a journal as long as you know how to use debits and credits
and what accounts to record. (Please see module 4)
 In the above example, computer equipment is an asset account. To increase an asset account, you debit it. Thus,
we debited Computer Equipment. Cash is also an asset account. However, there is a decrease in cash, which is an asset
account too, because we paid for the computer equipment. And so, we credited Cash

Compound Journal Entries

Let's take the previous transaction and change it up a bit. Here's the new transaction: On June 3, 2020, the company
purchased computer equipment for P20,000.00. Our company paid P15,000.00 and the P5,000.00 balance will be paid after
30 days.
The journal entry would be:

Date
Particulars Debit Credit
2020
Jun 3 Computer Equipment 20,000.00
15,000.0
Cash
0
Accounts Payable 5,000.00
To record purchase of
computer.
The journal entry shows that the company received computer equipment worth P20,000. Cash is decreased by
P15,000, the amount paid. In addition, the company incurred in an obligation to pay P5,000 after 30 days. The liabilities of the
company increased. When we increase liabilities, we credit it. That is why we credited Accounts Payable (a liability account) in
the above entry.
Notice that the total amount debited is equal to the total amount credited.

Let's start journalizing. Please note that we will also be using this set of transactions and journal entries in the
next module when we discuss the other steps of the accounting process
 Transaction #1: On December 1, 2020, Mr. Kobi started Electronic Repair Services by investing P100,000. The journal
entry should increase the company's Cash, and increase (establish) the capital account of Mr. Kobi; hence:
Date
Particulars Debit Credit
2020
100,000.0
Dec 1 Cash
0
Kobi, Capital 100,000.00
Transaction #2: On December 5, Kobi Electronic Repair Services paid registration and licensing fees for the business,
P3,750.
First, we will debit the expense (to increase an expense, you debit it); and then, credit Cash to record the decrease in
cash as a result of the payment.
5 Taxes and Licenses 3,750.00
Cash 3,750.00

Transaction #3: On December 6, the company acquired tables, chairs, shelves, and other fixtures for a total of 30,000. The
entire amount was paid in cash.
There is an increase in an asset account (Furniture and Fixtures) in exchange for a decrease in another asset (Cash).
30,000.0
6 Furniture and Fixtures
0
Cash 30,000.00

Transaction #4: On December 7, the company acquired service equipment for P80,000. The company paid a 50% down
payment and the balance will be paid after 60 days.
This will result in a compound journal entry. There is an increase in an asset account (debit Service Equipment,
P80,000), a decrease in another asset (credit Cash, P40,000, the amount paid), and an increase in a liability account
(credit Notes Payable, P40,000, the balance to be paid after 60 days).
7 Service Equipment 80,000.0
 0
Cash 40,000.00
Notes/Account Payable 40,000.00

Transaction #5: Also on December 7, Kobi Electronic Repair Services purchased service supplies on account amounting to
P15,000.
The company received supplies thus we will record a debit to increase supplies. By the terms "on account", it means that the
amount has not yet been paid; and so, it is recorded as a liability of the company.
15,000.0
7 Service Supplies
0
Accounts Payable 15,000.00

Transaction #6: On December 9, the company received P19,000 for services rendered.
We will then record an increase in cash (debit the cash account) and increase in income (credit the income account).
19,000.0
9 Cash
0
Service Revenue 19,000.00

Transaction #7: On December 12, the company rendered services on account, P42,500.00. As per agreement with the
customer, the amount is to be collected after 10 days. Under the accrual basis of accounting, income is recorded when earned.
In this transaction, the services have been fully rendered (meaning, we made an income; we just haven't collected it
yet.) Hence, we record an increase in income and an increase in a receivable account.
42,500.0
12 Accounts Receivable
0
Service Revenue 42,500.00

Transaction #8: On December 14, Mr. Kobi invested an additional P30,000.00 into the business.
 The entry would be similar to what we did in transaction #1, i.e. increase cash and increase the capital account
of the owner.
30,000.0
14 Cash
0
Mr. Kobi, Capital 30,000.00

Transaction #9: Rendered services to a big corporation on December 15. As per agreement, the P34,000 amount due will be
collected after 30 days.
The entry would be similar to what we did in transaction #7.
34,000.0
15 Accounts Receivable
0
Service Revenue 34,000.00

Transaction #10: On December 22, the company collected from the customer in transaction #7.

We will record an increase in cash by debiting it. Then, we will credit accounts receivable to decrease it. We are
reducing the receivable since it has already been collected.
42,500.0
17 Cash
0
Accounts Receivable 42,500.00
Actually, we simply transferred the amount from receivable to cash in the above entry.
Transaction #11: On December 23, the company paid some of its liability in transaction #5 by issuing a check. The company
paid P5,000 of the P15,000 payable.
To record this transaction, we will debit Accounts Payable for P5,000 to decrease it by the said amount. Then, we will
credit cash to decrease it as a result of the payment. The entry would be:
23 Accounts Payable 5,000.00
Cash 5,000.00
 Accounts payable would now have a credit balance of P10,000 (P15,000 initial credit in transaction #5 less P5,000 debit in the
above transaction).

Transaction #12: On December 25, the owner withdrew cash due to an emergency need. Mr. Kobi withdrew P70,000 from
the company.
We will decrease Cash since the company paid Mr. Kobi P50,000. And, we will record withdrawals by debiting the
withdrawal account – Mr. Kobi, Drawings.
50,000.0
25 Mr. Kobi, Drawings
0
Cash 50,000.00

Transaction # 13: On December 29, the company paid rent for December, P 15,000.
Again, we will record the expense by debiting it and decrease cash by crediting it.
15,000.0
29 Rent Expense
0
Cash 15,000.00

Transaction #14: On December 30, the company acquired a P120,000 short-term bank loan; the entire amount plus a 10%
interest is payable after 1 year.

Again, the company received cash so we increase it by debiting Cash. The company now has a liability. We will record
it by crediting the liability account – Loans Payable.
120,000.0
30 Cash
0
Loans Payable 120,000.00

Transaction #15: On December 31, the company paid salaries to its employees, P18,500.
 For this transaction, we will record/increase the expense account by debiting it and decrease cash by crediting it.
(Note: This is a simplified entry to present the payment of salaries. In actual practice, different payroll accounting methods are
applied.)
18,500.0
31 Salaries Expense
0
Cash 18,500.00
There you have it. You should be getting the hang of it by now. If not, then you can always go back to the examples
above. Remember that accounting skills require mastery of concepts and practice.

Combination Journal

The two-column general journal illustrated above is the simplest form of journal. It is applicable for business with few
customers and few transactions. For a business who have large volume of transactions everyday, a two-column journal would
not be advissable to record its transactions. Another form of journal may be used called the combination journal. This
journal has special column headings for accounts that are frequently used by the business. The column headings depend on
the needs and activities of a particular business. The combination journal minimizes the bookkeeping work of recording and
posting specially of certain transactions that occur often.

A combination journal using the illustarion of Electronic Repair Service would look like this.
 Service
Date Explanation Ref Cash Accounts Receivable Accounts Payable Income Sundry
Debit Credit F Debit Credit F Debit Credit Credit Accounts F Debit Credit
2020
Dec 1 Investment OR 100,000 Kobi, Capital 100,000
5 License CV1 3,750 Taxes & Licenses 3,750
6 Purchases CV2 30,000 Furniture & Fix 30,000
7 Purchases CV3 40,000 40,000 Equipment 80,000
7 Purchases INV 15,000 Service Supplies 15,000
9 Sales OR 19,000 19,000
12 Sales INV 42,500 42,500
14 Investment OR 30,000 Kobi, Capital 30,000
15 Sales INV 34,000 34,000
22 Collection OR 42,500 42,500
23 Payment CV 4 5,000 5,000
25 Withdrawals CV 5 70,000 Kobi, Drawings 70,000
29 Rental CV6 15,000 Rent Expense 15,000
30 Loan OR 120,000 Loan Payable 120,000
31 Salaries CV6 18,500 Salaries Expense 18,500
Total 311,500 182,250 76,500 42,500 5,000 55,000 95,500 232,250 250,000

Take note of the following:

1. The transactions are entered per line on its specific money column, otherwise it is entered in the “Sundry” column.

2. The “Sundry” column is where accounts with no specific money column are entered for transactions that seldom occur.

3. Each account in the sundry column has folio column for posting to general ledger purposes.

4. The folio column on Accounts receivable and Accounts Payable are used in posting to the subsidiary ledger.
 5. The accounts with special column headings (in this illustration are Cash, Accounts Receivable, Accounts Payable and
Service Income) are posted to the general ledger on a total basis. Hence, the reference are placed below the totals in
parenthesis.

6. Before the postings to the general ledger, cross foot the totals and prove the equality of debit and credit recording. To
cross foot, take the sum of the debit totals and the sum of the credit totals.

Summary.

Journal is the book of the original entry in the accounting information system. A business may have a simple journal
entry transactions or a compound jornal entry transactions. Businesses have different size of transaction being recorded a
day depending on their operation and size. A business may use the two column journal for businesses with lesser
transactions to record. Combination journal offers a lesser bookkeeping job for business with huge volume transactions.

True or False
1. All journal entries affect at least two accounts and are recorded in both debit and credit format.

2. In some instances, a journal entry can be recorded only through a debit and no credit, or vice-versa.

3. A compound journal entry is one that contains two or more debits or two or more credits.

4. A business owner contributes cash to the business. This transaction increases only the ‘owner’s equity’ account of the business.

5. A journal is also called the books of original entry.