Chapter 5

1st Step of the Accounting Process

Prepared by :
Ceniza Bianca
Flores Jhon Michael
Gadores Dhynnie Lysly
Api Ricky
Learning Objectives:

• 1. understand that by knowing the source documents as the first

sequential step, we would be able to determine the value recieved
and value parted with, leading to the journalizing process;
• 2. know what are the books of accounts , the use of a general
journal and a general ledger;
• 3. find out that the chart of accounts are the same with the
accounts that are found in the general ledger;
• 4.increase our learning through the illustrative problem:Cebu Car-
Tech Center wherein we would be able to see the actual
journalizing procedures with the use of general journal,
combination journal and special journals as well.
Business Documents 1st document--non-financial data

• The basis of identifing transactions

are the supporting business Requisition Slip
documents that are on file or yet to
be filed as a evidence of trasactions
to assure the reliability and
verifability of records. The most
common documents of a
merchandising business are
customers and suppliers' sales
invoices, official receipts,
purchases orders, receiving reports
delivery receipts, cash vouchers,
checks,etc.
2nd document--- non-financial data

Purchase Requisition
This is usually
3rd document--non-financial data
prepared in a
quadruplicate to be
Purchase
sent to prospective order- The
suppliers. The one document is
who can quote the to be sent to
lowest price, accept
the terms and manila car
payment and agree corporation.
to deliver the goods This serves
on the specified
time and place is
as avalid
considered as the contract
winning bidder. between the
This document management
serves also “
canvass sheet”. Let of cebu car-
us assume that tech center
Manila Car and manila
Corporation is the
winning bidder.
car
corporation.
4th document---financial data 5th document---non-financial data

Delivery Receipt- This confirms that

Sales Invoice-This document formulats the the goods have been delivered to cebu
transaction between cebu car-tech center and car-tech center. This is prepared by
manila car corporation.This will show the list of manila car corporation as accompany
items ordered as biled the physical delivery of goods.
6th document-- non-financial data 7th document-- non-financial data

Stock card- this is an internal

document which shows the
receipt , issued and balance.
This is added to the cost of
goods available for sale.

8th document -non-financial data

Receiving report- this document
acknoledging the receipt of goods Statement of Account- this
delivered by cebu car-tech center and document is to be prepared
immediately entered into the 'stock by manila car corporation in
card' by the incharge.The incharge showing the billing to the
should see to it that what has been cebu car-tech center, the
delivered are all received and note original copy of the sales
down any discrepancy. invoice, receiving report
and delivery receipt are
attached to the statement of
account
9th document non-financial data 10th document- financial data

Check Voucher- this is

prepared by cebu car-tech
center and is used to Check- payment by means
accompany whenever a check to a supplier must
check is issued. In the indicate an account payee
narrative transaction this at the upper left hand
could be interpreted as full portion of the check.
payment of account with
manila car corporation.

12th document financial data

11th document financial data Petty cash voucher-
Official receipt- to be a supporting
prepared by manila car document which
corporation to shows that the petty
acknowledge receipt of expenses have been
payment from cebu car paid of the fund.
tech center.
 Cash vs Accrual Basis of Recording Income & Expenses

• Under cash basis, income is recorded only when cash is actually received;LIkewise expenses are recorded
only when actually paid.There is no recognition of an accounts receivable for earned when not yet colleted and
no recognition of accounts payable for the expenses incurred when not yet paid. In other words , this is merely
a comparison of cash receipts & cash disbursement.
• Accrual basis - records income even cash is not received yet for a long aas it is earned.Likewise , expenses are
recorded even no payment has been made yet for along as they are incurrred.This practice results to a proper
matching of income / revenue againts costs / expenses and could therefore show a meaningful financial
statements . This is the accrual basis assumption and the fifth and the last accounting assumption that we
have studied.
• Single -Entry vs Double- Entry System of Bookkeeping
• Single -entry bookkeeping system is usually used by small business enterprises. under this systm, only
transactions involving cash and personal accounts are recognized.
• Double -entry system of bookkeeping recognizes the two-fold effects of a transactions , the value received and
the value parted with.This justfies the equality of debit and credit amounts.

They are in the state of equilibrium.

• Books of Accounts
• The records that are used and kept by the business in storing all of the accounting data are called Books of
Accounts.

Two sets of books that are used by business

1. The book of original entry this book called JOURNAL which is of two kinds; the General Journal & the
Special Journal.This is called the book of original entry because it is in this book wher transactions are recorded
for the first time.

2.The book of final entry this called the LEDGER which is also of two kinds; the General Ledger and the
Subsidiary Ledger . This called the book of final entry because it is in this book where transactions that were
recorded in the journal are transferred for recording. Special journal & Subsidiary ledgers are discussed in the
succeeding chapters.
General Journal
It can be loose-leaf or book- bound form. It has the ff. columnar headings:
• Date- showsnthe date when the transactions took place.
• Particulars- shows the item / the accounts debited and credited as a esult of a transaction analysis as
well as a brief or concise explanation of what the transaction is about.
• Folio- shows the numbers of an account in a ledger / page of ledger to which it was transferred. Folio is
the latin for page. It is also called a reference.
• Debit column- this is amoney column showing the peso amount of the value received in a transsaction.
• Credit column- this is the money column showing the peso amount of the value parted wh in a
transaction.

Note: Amount entered in the general journal are not totaled.

General Ledger

A general ledger can that also be of a loose leaf or book

bound form. This book is group items or accounts of the
same kind , class or nature. Each item or account is Manual accounting system
being provided with a leaf of a ledger. Ledger is also
called group of accounts.
General ledger has two slides, the left- hand which is
called a debit side and the right hand side is the credit
side.Each side has the column for the ff.
• Date column- shows the date of the transaction that
occurred as recorded in the journal.
• Particulars- shows a brf but a concise explanation of
the transaction as shown in the journal. Sometimes computer- based accounting system
called Explanation, Description or Item.
• Folio- shows the number of a journal where entries
are taken from.
• Money Column- te debit money column shows the
amounts that are transferred from the debit money
column of the journal while the credit money column
shows the amounts that are transferred from one
credit money column of the journal.
Recording Process
• Recording is the first phase of accounting.This involves the writing down of business transactions in a
systematic manner and in order of their occurrence in the back of original entry called journal. The act of
recording business transactions in the journal is called JOURNALIZING which is the first step of the
accounting process.The entry that is made in the journal is called journal entry. A journal entry may be
Simple or Compound.
• Simple journal entry- is one that has one debit item with a debit amount and one credit item with a credit
amount.

Compound journal entry is one that may have one debit item and two or more credit items;
two or more debit items and one credit item; or may have two or more items on both sides.
Procedures in filling -up a General Journal
• 1. The date column is divided oto two sub-columns. Enter in the first sub-column, the amount and the
year. Year is written in small figures above the month is written in the same space of the first line .In
each leaf of a journal, the year and the month is written in the front page but not repeated in the back
page . Enter the second sub column the date when the transactions occurred.
• 2. Particulars column- After analyzing a transaction and have ably determined the value received and
the value parted with as well, record this transaction in a form of journal entry.
A Complete journal entry should have an explanation. The explanation must state briefly but
concisely the nature of the transaction. The first word of the explanation should be indented with a
reasonable distance from the first letter of the account or item credited. It is usually worded “To record..”

To illustrate:
The transaction is: “Bought a car on account, P900,000”.
The explanation would be, “To record car bought on account”. Some bookkeepers and accountants prefer
to cut short the explanation by eliminating the words” To record” instead , “Bought a car on account” to
economize the space of the journal which becomes widely acceptable.
Procedures in filling up a General journal

3. Leave a vacant space before recording the next transaction. Write only the
date in second sub-column of the date column and the same procedure is
followed.

>. The credit item is indented from the debit item

> The first word of the explanation is indented from the credit item.
Opening entry
• The first entry made in the general journal is
called Opening Entry. This contribute either
the recording of the itial investments of a
proprietor who is engaged in the business for
the first time or the recording of the beginning
balances of accounts in preparation for the next
annual accounting period.

CHART OF ACCOUNTS
When transactions are recorded in the general
journal, accounts tittles being used a list of account
ttles are prepared beforehand to guide bookkeeper
and accountant of what specific titles are to be
used in describing the exchanges of values in a
trasaction.
 Illustrative Problem
Cebu Car -Tech Center
(A Complete Accounting Cycle for a Hybrid Company)
Background:
• When Mr. Edgar Detoya ended-up his joint venture
business with Mr. Claro Ventic, he thought of gog
alone as a sole proprietor. With his share in the
returned capital and merchandise plus loan from a
bank, he can already start to engage in a business of
buying and selling of car accessories and at the same
time offers installation services to his customers. He
rented a fully- furnised buling at minimal amount of
rental. He then registered his business with the
department of trade and industry under the firm name
Cebu Car-Tech Center.

• Investment by Owner:
Feb.1- Mr. Edgar Detoya opens a current account with
phillipine national bank in the amount of P1,000,000 and
merchandise worth P45,000 to start with his business.
General Journal
 Cebu Car -Tech Center
Combination Jounal
February 28, 20A
Special Journals

• When special journals are used, however , there cn be division of bookkeeping works because each
book or journal can record a specific transaction and therefore, one person can be assigned to do the
recording in the cash receipts journals, the other can be assigned to handle the cash disbursements
journal, the purchases journal, sales journal and so on and so forth.
Uses of Special Journals

Sales Journal- only transactions involving sale of merchandise on account or on credit terms are recorded
in this book.
Accounts Receivable Pxx
Sales Pxx
Output Tax xx
 Purchases Journal- only transactions involving purchase of merchandise on account or on credit
terms are recorded in this book.
• Purchases Pxx
• Input Tax xx
Accounts Payable Pxx
Cash Receipts Journal- only transactions involving receipts of cash are recorded in the book such as, sale of
merchandise in cash, collection from customer's account, investment of the owner in terms of cash, cash
received from a bank loan, refund m supplier for return of merchandise purchased in cash, etc.
Cash Pxx
Various credits(as mentioned above) Pxx
Cash received from sale of merchandise:
(Pro-forma Journal Entry)
Cash Pxx
Sales Pxx
Output Tax xx
Cash Disbursements Journal- only transactions involving cash payments are recorded
in this book such as, purchase of merchandise in cash, payment of suppliers' account,owners withdrawal in
cash, cash refund to customers whose merchandise purchased in cash was returned , cash payment of
fixed assets, payment of expenses,etc.
Various debits (as mentioned above) Pxx
Cash Pxx
Purchase of merchandise in cash:
(Pro-forma Journal Entry)
Purchases Pxx
Input Tax xx
Cash Pxx
 • General Journal- Even Special Journals are used, a General Journal will still be used but it is
limited to recording of transactions which cannot be recorded in the above mentioned books.

Correcting an erroneous entry

Neatness - in recording transactions must be observed. Various erasures especially in the Journal
might lead to suspicions that there are manipulations done to cover-up some fraudulent and dishonest
practices. although these may be honest mistakes.
Reference:

Chapter 5:pg.143-178