DEBIT AND CREDIT PRINCIPLES AND
JOURNALIZATION-SERVICES CONCERN
BUSINESS
OBJECTIVES:
1. To be able to learn the process of recording business transaction in the books
of account
2. To be able to learn the uses of the books of account such as journal and
ledger
3. To be able to learn the principle of debit and credit
4. To be able to learn to record business transaction in the books of account
The Accounting cycle starts with the recording of business
transactions of a service concern business after documentation of the
transaction with the proper perspective, 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.
Journalization
Posting to the general ledger
Preparation of the trial balance
Preparation of worksheet
Preparation of financial statement
Preparation of closing entries
Preparation of post-closing trial balance
Reversing entry
ACCOUNTING CYCLE the initial steps of accounting cycle during the
recording phase of a business transaction is called journalization by which
the business transaction is recorded in the book of original entry called
journal. After the transaction is recorded in the book of account (Journal),
posting to the ledger is done by segregating the transaction to its respective
account where balances of the account can be determined for the
preparation of the trial balance. Trial balance is a schedule of equality of the
debit and credit balance. If 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 final balance of accounts.
After the preparation of the trial balance, a worksheet will be prepared by
incorporating the adjusting entries. An adjusting entry is also a journal entry
that separates the expired portion from theunexpired portion of asset
account, the recognition of unearned income from income and to recognize
expenses and revenues to match the revenues and expenses. After
incorporating the adjusting entries, the adjusted balance may be prepared
prior to the preparation of financial statement. The financial statement is
based on adjusted accounts prior to the preparation of closing entries. A
closing entry is also a journal entry, used to close the nominal accounts and
to bring the balance to the equity account. Preparation of closing entries is a
way of recording the result of operation in the book of accounts. This
accounting cycle consists of a series of steps or procedures performed in a
systematic manner within a year or an accounting period.
DOCUMENTATIONA process of gathering documents pertinent to the
formal recording of the business transactiosthe document refers 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. As the general
rule, a business transaction will be formally recorded in the books upon
approving officers in the company. It is natural that proper documentation is
needed before an entry is made in the books.
Business Papersthese are documents involving transactions of the
business which are used for recording. Some of the typical business papers
are the following:
Official Receiptis 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, TIN or
VAT number, and the address and telephone number of the company. The
receipt are serialized with the BIR registration number. It is an evidence that
the company has received cash from the payees.
Sales Invoiceis issued when service or merchandise is delivered to a
customer or client. The invoices itself bear the name of the business, address
and phone number, business number, invoice number, date, and TIN or VAT
number, customers name and address, description of service or
merchandise, amount, and signature of the employee.
Bank Documents and Checksthese 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.
OTHER NECESSARY DOCUMENTS
A. Contractcontract is an evidence of an agreement entered into by two
entities for a certain agreement confirming legal rights for some
business undertakings and obligation to fulfill at a specific period of
time. Both parties agreed with certain limitations attached to the
contract. The best example of a contract is Memorandum of Agreement
known as MOA.
B. Delivery Invoice and Inventory Log FormDelivery invoices are
issued by the suppliers as evidence of delivered goods or supply
supported by a stamped receipt 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.
C. Order Formthis is to be accomplished by the buyer of goods to be
given to the supplier for confirmation and affirmation of the order; on
the part of the buyer such form is an evidence of the intention to
purchase goods or supplies as affirmed by the delivery receipts.
D. Authority to Pay FormAn 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.
The Chart of Accounts
The term account has been discussed in the previous chapters. This
is a device used to record the increases and decreases affecting assets,
liabilities and owners equity, income and expense accounts. The Chart of
Accounts 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 quite different from the accounts used by the airline or shipping industry.
In other words, there is an account used by the school that can never be
used by banks and other industries. Expenses and income accounts better
describe the owners equity, because whatever the diffence of these two
accounts will be transferred to the equity 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 first, followed by the liabilities, and lastly, by the owners
equity. Account numbers are assigned for each account for easy reference.
Assigning of account number bears no industry standards; it depends on the
accountants point of view. Accounts which are not written on the chart of
accounts cannot be used to avoid conflict and to enhance understanding.
Each account has explanation to determine the proper account to be used a
certain transaction to avoid misuse of account.
Accou
Account
nt
Title
Numbe
r
100
Cash on Hand
101
Cash in Bank
102
Petty Cash
Fund
103
Notes
Receivable
104
Accounts
Receivable
Explanation of 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 expenses. Issuing a check is
impractical for small expenses. A 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. It 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
105
Prepaid Rent
106
Prepaid
Insurance
107
Office
Supplies
108
Other Asset
201
Accounts
Payable
202
Notes Payable
203
Loans Payable
204
Mortgage
Payable
205
Salary
Payable
206
Interest
Payable
Long-Term
Notes Payable
Service
Income
Gain on Sale
207
301
302
303
Interest
Income
clients. Also called open-account receivable.
The account prepaid rent is used to record
advance payment and security deposit paid in
advance to occupy the rented premises. An asset
account until the expired portion is changed to
expense.
The account prepaid insurance applies to the
insurance premium paid in advance for more than
a year. An asset account until applied to the
expenses portion.
This account is used to record the purchase of
office supplies such as worksheet, computer ink
and paper, pencil, ball pen, coupon bond, and
other supplies used in the office.
Property which are not grouped under the standard
accounts because the account deems it
impractical to do so.
An account used to record the liability from
acquiring materials, goods and suppplies from the
creditor on account
An account used to record issuance of promissory
note with a term less than a year
An account used to record the liability from
receiving a loan from a bank and other financial
institutions
An account used to record a liability from obtaining
large amounts of loan using some collateral
properties
An account used to record unpaid salary
An account used to record accrued interest from
loan and mortgage payables
An account used to record issuance of promissory
notes with a term of more than a year
An account used to record revenue received from
client from rendering of services
An account used to record the gain on sale of old
asset
Account used to record the interest earned from
penalty imposed on delayed customers and from
304
Miscellaneous
Income
401
Salary
Expense
402
Rent Expense
403
Light and
Power
Expense
Water
Expense
404
405
406
receipt of payment of interest-bearing promissory
notes
An account used to record revenue from selling
other assets like retaso, old newspapers, and the
like
To record payment of salary to office employee,
factory worker, and ordinary worker. It includes
payment of 13th month pay, sick leave, and
vacatio leave
To record payament of rent on leased premises
whether store or space, or warehouse. It includes
vehicle and equipment rental.
An account used to record electricity cost for the
month
An account used to pay water consumption for the
month
Telephone and
Communication
Expense
Advertising
An account used to record cost of communications
for the month.
Account used to record the cost of advertisement,
407
Expense
Office Supplies
Expense
408
Insurance
Expense
409
Repair and
Maintenance
Expense
410
Taxes and
Licenses
Expense
Membership
Fees Expense
Contribution
and Donation
Expense
Gas Oil Expense
411
412
413
414
pamphlet, tarpaulin, radio time, and airtime.
An account to record the cost of supplies used in the
office such as computer ink and paper, pencil, pen,
photocopying expense and other office supplies.
An account to record the cost of insurance
premiums paid to insurance company for the safety
and insurance of company-owned asset and
property.
An account used to record the cost of maintaining
equipment and vehicle of the company. It is used to
record the repair of equipment, vehicles and
furniture.
An account to record the cost of mayors permit and
registration fees to government agencies.
An account used to record membership fees paid to
accredited institution.
An account used to record contribution and donation
made by the company such as religious and
charitable donations.
An account used to record gasoline and oil expense
used by the company.
An account used to record freight or transportation
fares incurred in rendering of service, and other fare
expenses.
The T-Account
The simplest form of a ledger is called the T-Account. It has two sides to
record the increase and decreases of an account. The left side is for recording of
increases in ASSET and EXPENSE account, while the right is used to record the
increase of LIABILITY, INCOME, and CAPITAL. At the center of the T-Account is the
title of the account. To illustrate:
Cash
Left side or
Debit side
Right side or
Credit side
Cash is the account title of the ledger.
The left side is the debit side and the right side is the credit side.
When 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.
Debit is accounting term, which simply means left side of an account, while Credit
simply means the right side of an account. Some accounts are increased on the
debit side while some accounts are increased on the credit side depending on its
position in the accounting equation:
Asset = Liabilities + Owners Equity
Since asset and expense account has two sides the left and the right asset
and expense increase on debit side and decrease are on the credit side. The
accounts liability, income and owners equity are increased on the right side and
decrease on the left side. Thus, the table below explained the rules of debit and
credit:
ASSET
Left side
Debit
increase
Right Side
Credit
decrease
LIABILITIES
Left side
Debit
decrease
Right Side
Credit
increase
OWNERS EQUITY
Left side
Debit
decrease
Right Side
Credit
increase
Rule of Debit and Credit
To summarize, the following rule for debit and credit should be observed in
processing, recording and posting business transaction:
1. An increase in asset is to be recorded on the debit side, while a
decrease will be recorded on the credit side.
2. An 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. An increase in owners equity 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 affected. This
process is called the Double Entry Bookkeeping System.
Let us take a look at the T-account a kind of ledger that summarizes 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 difference between the debit total and the credit total is called the
account balance. If the debit total is higher than the credit total, the account
balance is called debit balance. If the total credits are higher than the debit total,
the account balance is called credit balance. Normally the assets, owners
drawing , and the expense accounts have a debit balance, while the liabilities,
revenues and the owners capital have a credit balance.
The Ledger
The T-Account form (skeleton form of a ledger) is widely used in schools and
universities to demonstrate the analysis of ledger with easiness. While in actual
business practice a formal book of account is used containing not 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. All 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. Figure 1 below shows a
ledger account for cash. F stands for reference that identifies the source of the
entry such as journal page 1 (J1). The particulars column indicates the explanation
and the balance of the account.
Figure No. 1: the ledger
Name of the account: CASH
Date
Particulars
Debit
Date
Particular
Credit
This is the ledger form with eight columns that shows the date; the particular;
the folio, and the debit and credit columns. The T-Account form ledger could be a
replacement of this illustrated general ledger.
The Particulars is the explanation column that describes the transaction. The
amount of the transaction is placed on the debit or credit column as the case may
be, the difference of the two columns is called the debit o credit balances of the
account. For purposes of discussions an illustrations, only the T-Account format will
be used in this book. If the company has 20 accounts, the company should also
maintain 20 general ledgers.
Journalization (First step in the accounting cycle)
THE 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
journalization, a process of recording business transaction to the book of original
entry. The journal refers to general journal specifically 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 finished. The transactions
are initially recorded chronologically in the journal. Recording the transaction
chronologically means the transaction is recorded when it happens, the transaction
that happened first will be recorded first and the transaction that happened last will
be recorded last. The simplest form of journal is the two-column general journal.
Each entry made is called a journal entry, each journal entry contains the date, the
debit account, debit amount, credit account, credit amount, and a brief
explanation. A general journal is illustrated as follows:
ILLUSTRATION 1-A
Date
2009
Particulars
Two-Column Journal Format
F
Debit
Credit
Jan. 1
Note: 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 five columns which are composed of the date, particulars,
f or folio, debit and credit columns. Each column has distinguished rules to be
followed in recording.
The following rules should be observed per page:
1. Each transaction has a date composed of month and year which is written
only once in each page, while the date is written for every transaction and
only one date for two or more transactions if these happened in a day. (See
the illustrations below.)
Date
Particulars
Debit
Credit
2008
Jan. 1
Cash
P xxx
P xxx
Perez,
Capital
2. After writing the date. Write the debit and credit accounts in the particular
columns; the debit account is written on the extreme left margin, while the
credit account is written with five spaces indention from the extreme left
margin (assuming Mr. Perez invested P300,000 in the business). (See the
illustrations, take note of the presentation.
3. The debit column and credit column contain the amount of the transaction
and they are expected to be balanced. In writing the amount in the columns,
a peso sign is written once in each page and is optional. A 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. (See the illustration)
200
8
Jan.
1
PARTICULARS
Cash
Perez, Capital
DEBIT
CREDIT
P 300,000
P 300,000
4. After writing the peso amounts in the debit and credit columns, write a
brief explanation under the particulars column. The explanation must be
located ten spaces from the left margin or five spaces from the credit
account. The next line of explanation must be five spaces from the left
margin. (See illustration.)
200
8
Jan.
1
PARTICULARS
Cash
Perez, Capital
To record the initial
investment.
DEBIT
CREDIT
P 300,000
P 300,000
5. If there is another transaction to be recorded, leave one space to record
the subsequent transaction. (Assume on the second day, P1500,000 cash is
deposited in a bank under the business name.)
200
8
Jan.
1
PARTICULARS
Cash
Perez, Capital
To record the initial
investment.
DEBIT
CREDIT
P 300,000
P 300,000
150,000
2
Cash in bank
Cash on hand
To record the deposit in a
bank.
150,000
6. 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. Writing 00 as
centavos is optional. Remember that any amount written on the money
column is expressed in terms of peso value that is why a peso sign is
optional. If a peso sign is written, be sure to write it only once, on the
beginning amount for every page of a journal.
How do we write peso amounts in the money columns? Each amount has a
respective place in the money column as illustrated below:
H 1
1
0
1
0
0
1
0
0
0
D e
1
0
0
0
0
F
1
0
0
0
0
0
0
0
0
0
0
0
Correct 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
5
0
b. ten thousand pesos column
a. one hundred thousand pesos column
1. one million pesos column
A journal entry with one debit and one credit is called a simple journal entry. When
an entry has more than one debit or more than one credit, it is called a compound
journal entry. Note that the transactions are recorded chronologically and the debit
entry is recorded first followed by the credit entry. Also take note that the reference
column (F) is not yet filled-up in the journalization process because it can be used in
the posting which is the next step in the accounting cycle.
Illustration:
Albert Auto Repair Center had the following transactions on the first month of
operation in October 2008:
October 1. Albert invested P 250, 000 and deposited the amount under the current
account of the business
1. Bought 10 computer units under the terms P100, 000 down payment and the
balance of P 100, 000 is to be paid in four equal monthly installment starting
October 31, 2008.
2. Paid P8, 500 mayors permit, P 500 BIR registration fees, and DTI registration
of business name P140.
3. Paid P45, 000 to the shop leased covering advance payment for two months
and one month security deposit.
4. Paid P60, 000 for the construction of computer tables and chairs for the
computer shop.
5. Spent P 5, 000 for the purchase of electric wires and other electrical wirings
for the computers. (Shop expenses)
6. Spent P8, 000 for the neon light bearing the name of the shop. (Shop
expenses)
7. Hired two shop assistants with a salary of P5, 000 per month each. (Not a
business transaction)
8. Spent P3, 000 for advertisement such as flyers and tarpaulin. (Advertisement
expense)
9. After a week of preparation, Albert formally opened the business and spent
P7, 000 for food and other things for the ceremony. (Shop expenses)
10.On the first day of the operation, he received P8, 000 from his costumers.
(Service income)
15. Paid salary of the assistant P2, 500 for one week
20. Paid P2, 000 for shop supplies.
22. For the last week he received P120, 000 from customers
30. Paid salary of the shop workers, P4, 750, net of SSS premium of P120.
30. Paid the first monthly installment of the computer, P25, 000.
Use the following accounts to record the above transactions: Cash in bank (No.
101); Shop and supplies (No. 102); Rent deposit (No. 103); Shop computer (No.104);
Shop furniture and fixture (No. 105); Accounts payable (No. 201); SSS Premium
payable (202); Shop expenses (No. 301); Advertisement expense (No. 302); Salary
expense (No. 303); Taxes and license expense (No. 304); and Service income (401);
Albert capital (No. 501); and Albert drawing (No. 502).
Required:
1. Prepare the require journal entries in a two-column journal.
2. Post the journal entries to the general ledger.
3. Prepare the trial balance.
Answer:
Requirement No.1 Journal entries
DATE
2008
Oct.
1
1
PARTICULARS
DEBIT
Cash in bank
Albert Capital
To record initial investment.
101
501
P250,000
Shop computer
Cash in bank
Accounts payable
Terms: 50% down balance
in four equal payments
104
101
201
200,000
CREDIT
P250,000
100,000
100,000
7
8
10
15
Taxes and licenses expense
Cash in bank
To record payment of
mayors permit and BIR
registration and DTI registration.
304
101
9,140
Rent deposit
Cash in bank
To record two-month deposit
and one month advance.
103
101
45,000
Shop furniture
Cash in bank
To record construction of
computer table and chairs.
105
101
60,000
Shop expenses
Cash in bank
To record purchase of electric
wirings.
301
101
5,000
Shop expenses
Cash in bank
To record the cost of neon
light.
No journal entry
Advertisement expense
Cash in bank
To record the cost of flyers and
tarpaulin.
Shop expenses
Cash in bank
To record the cost of food and
other expenses on the opening
day.
Cash in bank
Service income
To record the income
received form services.
Salary expense
Cash in bank
To record payment of salary
301
101
8,000
302
101
3,000
301
101
7,000
101
401
8,000
303
101
2,500
9,140
45,000
60,000
5,000
8,000
3,000
7,000
8,000
2,500
20
22
30
30
Shop supplies
Cash in bank
To record payment supplies.
Cash in bank
Service income
To record cash receipts for
services rendered.
Salary expense
Cash in bank
SSS premium payable
To record payment of salary
for the period Oct. 16-30, 2008.
Accounts payable
Cash in bank
To record first installment of
computer.
102
101
2,000
101
401
120,000
303
101
202
5,000
201
101
25,000
2,000
120,000
4,750
250
25,000
EXERCISE WITH THE PROFESSOR
Jericho Lance Errand Service Company started on December 2009 with a plan
of establishing the errand service business. The errand business is established to
answer the calls of establishment in Caloocan city to do their errands for a fee. The
business had the following transactions on the first month of operation in December
2009.
December 1. Jericho invested P200, 000 and deposited the amount under the
current account of the business. He also invested his own car with current fair value
of P300, 000. (Use compound journal entry in recording this transaction.)
1. Bought one unit computer and printer for P30, 000, cash for office use.
2. Paid the following regulatory fees: P6, 500 for mayors permit, P500 for
BIR registration fees and DTI registration fees of P140. (Debited to Taxes
and licenses expense)
3. Paid P21, 000 for the advance payment for one month and two months
security deposit of security guards.
4. Bought computer table, office table, chairs, filing cabinet, and other
furniture for office use for cash, P 50, 000.
5. Bought office supplies, stapler, puncher, and other office supplies for cash
P4, 000 for office use.
6. Paid P8, 000 for the neon light bearing the name of the shop. (Advertising
Expenses)
7. Hired office clerk with a salary of P12, 000 per month and two errand boys
with a starting salary of P12, 000 per month. (Non-business transaction)
8. Purchased two motorcycles. Terms P50, 000 down payment with monthly
amortization of P10, 000. Amortization will start on January 2, 2010 for 12
months.
9. Paid P30, 000 for cost of advertisement such as flyers , tarpaulin, and
radio advertisement. (Advertisement expense)
10.After a week of preparation, Jericho Lance formally opened the business
and spent P10, 000 for food in the opening ceremony. (Advertisement
expense)
11.On the first day of the operation, Jericho received P18, 000 from clients
15. Paid salary of employees P7, 500 for one week, net of withholding tax of
P1,200; paid
P2, 000 for the office supplies
20. For the last two weeks he received P120, 000 from customers.
30. Spent total amount for gasoline, P3, 000
31. Paid salary of the personnel, P18, 000, net of P300 SSS premium, and
P200 PhilHealth premiums.
Use the following accounts to record the transaction: Cash in bank (No.101);
Office supplies(No. 102); Prepaid rent (No. 103); Office equipment (No. 104); Office
furniture and fixture (No. 105); Car and vehicle (No. 106); Motorcycles (No. 107);
Accounts payable (No. 201); SSS premium payable (No. 202); PhilHealth premium
payable (No. 203); Withholding tax payable (No 204); Office expense (No. 301);
Office supplies expense (No. 302); Advertisement expense (No. 303); Salary
expense (No. 304); Taxes and licenses expense (No. 305); Gas and oil expense (No.
306); Errand fees revenue (No. 401); Jericho Lance, capital (No. 501); Jericho Lance,
drawing (No. 502).
Required:
Prepare the journal entries using the general journal below: (You are required
to observe the rules in journalization 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
explanation. Spacing is quite material in writing the journal entries). December 1,
2008 transaction is prepared as an example:
Date
PARTICULARS
F
DEBIT
CREDIT
Dec. 1
Cash in bank
10
P
2009
1
200,000
Car and vehicle
10
300,000
6
Jericho Lance, capital
50
P
1
500,000
To record initial investment.
10
11
12
15
20
30
31
Posting to the Ledger (Second Step in the Accounting Cycle)
In the journal, transactions are provided chronologically based on the dates
when they happen. The transaction which happens first will be recorded first, while
subsequent transactions are recorded next to the first transaction. The transaction
the happened on July 1 will be recorded first, before the transaction on July 2. After
recording in a journal, the entries are transferred to the ledger. The process is called
Posting. Posting to the ledger is done to sort-out the accounts and to
summarize 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 summarize the
business transactions based on the classification of accounts. All transactions
affecting cash account must be summarized in the cash account ledger. In posting
for example, all cash transactions affecting the increase and decrease of cash will
be summarized in tow columns: the debit and the credit, and the ending balance of
the account is determined. All 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 debit balance to be presented in the balance sheet. Such balance is
supported by the statement of cash flow. Posting is actually the transfer of the
debit and credit balances from the journal to the ledger.
ILLUSTRATION OF POSTING PROCEDURES
Normally each account has its repective ledger written on every page of the
book of account. Cash in bank as an account has ageneral ledger; Albert, capital
also has a ledger and all the accounts used have a ledger. Looking back at the
journal where the journal entry is recorded, the recorded will be posted to the
general ledger in order to summarize the account. Assuming the first entry in the
journal debiting cash of P250,000 on October 1, 2008 and Crediting Albert, capital
of the same amount will be posted to the ledger.
For the journal entry on October 1, 2008, the placement of original
investment of the owner, cash in bank account will be the name of the ledger and
Albert, Capital account. To post the account, P250,000 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
2008
PARTICULARS
Debit
Credit
Oct. 1
Cash in back
Albert, capital
To record initial investment.
101
501
P250,00
P
250,000
The account number 101 will be placed in the journal to inform the auditor of
the or the bookkeeper that the amount is already posted in the ledger. P1 means
page 1 look GL
#101. To illustrate:
General Ledger (GL)
Name of the account: Cash in bank
DAT
Particulars
F
Debit
E
Oct.
Cash investment
P1 P250,00
1
Name of the Account: Albert, Capital
DAT
Particulars
F
Debit
E
Date
No. 101
Particulars
F
Credit
Date
Particulars
Credit
P
1
P250,00
0
Oct.
1
Original
Investment
The Account number 501 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 summarize
the transaction in the month, because bookkeeping is a routine job. In posting, the
information or explanation of the transaction is copied such as the explanation
original investment or initial investment will be written in the ledger to keep
track of the recording.
To illustrate:
The process is from the business transaction to T-account.
Fabulous Face Center presented the following transaction below and record
Directly to the T-Account in 2011:
Jan. 1. Lemie, the owner invested P2,000,00 to open a beauty face clinic and
deposit the money
deposit the money in the bank.
2. Purchased furniture and fixtures nad P30,00 on cash basis.
8. Purchased medical equipments from NNN medical Equipment worth
P1,000,000 cash
9. Paid P200,000 rental deposit on clinic leased.
10. Purchased medical supplies from Abot Drugs, P40,000 on account.
11. Paid the corresponding taxes and registration fees, P30,000
13. Received P300,000 medical fees from patients.
15. Paid salary of medical staff, P30,000
20. Paid 50% of account of purchased of medical supplies on January 10.
20. Return P5,000 worth of supplies to Abot Drugs.
21. Applied P50,000 rental deposit to monthly rental.
Required:
Prepared T-Accounts using the following accounts: Cash in bank; Funiture and
Fixtures; Medical equipment; Rental deposit; Medical supplies; Accounts payable;
Taxes and licenses expense; Salary expense; Medical supplies: Rent expense Lemie,
capita; Medical fees revenue.
Jan.
2,000,000
Jan.
30,000
13
300,000
2
8
1,000,000
9
200,000
11
30,000
15
2,300,000
Bal.
30,000
20
20,000
1,310,000
990,000
Furniture
Jan. 2 30,000
Medical Equipment
Jan. 8
1,000,000
Accounts Payable
Jan. 20 20,000
21 5,000
25,000
Medical Fees Revenues
Jan. 10 40,000
40,000
Bal. 15,000
Lemie, capital
Jan. 13 30,000
Medical Supplies
Jan. 10 40,000
50,000
Jan.1 2,000,000
Rental Deposit
Jan.21
Bal. 30,000
5,000
Jan. 9 200,000
Bal. 150,000
Taxes and Licenses
Medical Supplies Expenses
Jan. 11 30,000
Rent Expense
Jan. 50,000
Salary Expense
Jan. 15 32,000
From the above T-account presentation compute the following balances:
1. Balance
2. Balance
3. Balance
4. Balance
5. Balance
6. Balance
7. Balance
8. Balance
9. Balance
10.Balance
11.Balance
Jan. 30
of
of
of
of
of
of
of
of
of
of
of
cash in bank
______________________
Lemie capital
______________________
Account payable
______________________
Medical supplies
______________________
Medical fees revenue
______________________
Rental deposit
______________________
Medical equipment
______________________
expense
______________________
Salary
______________________
Taxes and license expense ______________________
Furniture & fixture
______________________
GENERAL LEDGER OF JERICHO LANCE ERRAND SERVICE COMPANY
Cash in Banks
Date
Dec.
1
11
12
Particular
Cash
Investment
Service
rendered
Services
rendered
Total debit
Cash in bank
debit balance
Debit
P200,00
0
18,000
Date
Dec.
1
2
120,000
338,000
P
97,360
5
6
8
Particular
Purchase cost of
computer
Payment of mayors
permit
Rental deposit and
advances
Computer table and
chairs
Office supplies
Cost of neon lights
Down payment
Credit
P
30,000
7,140
21,000
50,000
4,000
8,000
50,000
9
10
15
15
30
31
Advertising
Office expense
Payment of salary
Payment of supplies
Gasoline
Payment of salary
Totals credit
30,000
10,000
7,500
2,000
3,000
18,000
240,64
0
Name of the Account: Car and Vehicle
No.
Date
201
0
Dec.
1
Particular
Investment
Debit
Date
Particular
Credit
Particular
Credit
P300,00
0
Name of the Account: Jericho Lance, Capital
No. 102
Date
Particular
Debit
Date
2010
Dec.
1
Investment
500,000
Name of the Account: Office Equipment
No.
Date
201
0
Dec.
2
Particular
Purchased of
computer &
printer
Debit
Date
Particular
Credit
Particular
Credit
P 30,000
Name of the Account: Taxes and License
No.
Date
201
0
Dec.
Particular
Mayors permit
Debit
P 7,140
Date
and BIR, DTI
registrations
Name of the Account: Security Service Deposit
No.
Date
201
0
Dec.
4
Particular
Deposit on
security guard 2
months deposit
and one month
advance
Debit
Date
Particular
Credit
Particular
Credit
Particular
Credit
Particular
Credit
21,000
Name of the Account: Office Furniture and Fixture
No.
Date
201
0
Dec.
4
Particular
Purchase of
office furniture
Debit
Date
50,000
Name of the Account: Office Supplies
No.
Date
201
Particular
F
Debit
Date
0
Dec. Purchase of
4,000
5
office supplies
15 Purchas of office
2,000
supplies
6,000
Name of the Account: Advertising Expense
No.
Date
201
Particular
F
Debit
Date
0
Dec. Neon lights
8,000
6
9 Cost of tarpaulin
30,000
10
Food for
opening day
10,000
48,000
Name of the Account: Motorcycle
No.
Date
201
0
Dec.
8
Particular
Purchas of two
motorcycles
Debit
Date
Particular
Credit
Particular
Credit
170,000
Name of the Account: Account Payable
No.
Date
201
0
Particular
Debit
Date
Dec.
8
Purchase of motorcycles
120,000
Name of the Account: Service Income
No.
Date
Particular
Debit
Date
2010
Dec.
11
20
Particular
Service rendered
Credit
18,000
Services rendered
120,000
138,000
Name of the Account: Salary Expense
No.
Date
Dec.
15
31
Particular
Salary for one
week
Salary (Dec. 1631)
Debit
8,700
18,500
27,200
Date
2010
Particular
Credit
Name of the Account: Gas and Oil
No.
Date
Dec.
30
Particular
Purchase of
gasoline
Debit
Date
2010
Particular
Credit
Particular
Credit
3,000
Name of the Account: SSS Premium Payable
No.
Date
Particular
Debit
Date
2010
Dec.
31
Payment of Salary
300
Name of the Account: PhilHealth Premium Payable
No.
Date
Particular
Debit
Date
2010
Dec.
31
Particular
Credit
Payment of Salary
200
Name of the Account: Withholding Tax Payable
No.
Date
Particular
Debit
Date
2010
Dec.
15
Particular
Salary for one week
Credit
1,200
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 affecting the account. Can you determine the balance of
cash from the journal? The answer is no. To make this possible the debit and
credit of a particular account should be summarized in one account called
the ledger and this individual ledger are filed in a book called general ledger
as illustrate above.
Preparation of Trial Balance (Third Stage of the Accounting Cycle)
At this point, the summary will again be grouped into normal balance
to test the equality 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 journalizing portion and posting process will be checked in the
preparation of a trial balance. A 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. It is done in
pencil and the amount is written as a small figure to distinguish it from the
regular entries. Erasure is allowed if the figures are found incorrect. Do the
same with the credit total. Extract the balance and place the debit balance in
the explanation column while the credit side in line with the last credit
posting.
To illustrate: (ALBERT AUTO Repair Center)
Name of the Account: Cash in Bank
No. 101
Date
Oct. 1
10
22
Particular
Cash
investment
Service
rendered
Services
rendered
Total debit
Cash in bank
debit balance
Debit
P250,00
0
8,000
Date
2010
Oct. 1
2
Down payment computer
5
6
8
Payment of mayors
permit
Rental deposit and
advances
Computer table and
chairs
Cost of shop wiring
Cost of neon lights
Cost of advertisement
Food on the opening day
120,00
378,00
P
106,610
Particular
Credit
P100,00
0
9,140
45,000
60,000
5,000
8,000
3,000
7,000
15
20
30
30
Payment of salary
Payment of shop supplies
Payment of salary
First payment on
computer
Total credit
2,500
2,000
4,750
25,000
271,390
2. Footing is no longer needed if there is a single debit or credit amount;
examples of this accounts are shop furniture, shop equipment and rent
deposit accounts which have single entry, and the balances of these accounts
will no longer be extracted nor placed in the explanation column if posting is
on one side only. To illustrate:
Name of the Account: Shop Furniture
No. 106
Date
Oct. 4
Particular
Construction of
computer table
and chairs
Debit
P 60,000
Date
2010
Particular
Credit
