Quipper Lesson 6: Books of Account PDF

# Quipper Lesson 6: Books of Account ## Fundamentals of Accountancy, Business, and Management 2 ### Learning Objectives At the end of this lesson, you should be able to do the following: - Differentiate the journal from the ledger. - Illustrate the format of a general journal and a special journ...

# Quipper Lesson 6: Books of Account ## Fundamentals of Accountancy, Business, and Management 2 ### Learning Objectives At the end of this lesson, you should be able to do the following: - Differentiate the journal from the ledger. - Illustrate the format of a general journal and a special journal. - Illustrate the format of a general ledger and a subsidiary ledger. ### Accounting Books - Accounting books are important in ensuring that all transactions are recorded promptly and summarized accordingly to facilitate the creation of financial statements. #### Accounting Books - Journals - Ledgers ## Journal - The book of original entry - The first book used to enter valid business transactions. - Transaction analyzed accordingly to the rules of debit and credit. - An image depicting a long receipt - the book of original entry is pictured. ### Accounting Books - Accounting is a process, and every step of the process corresponds to a particular accounting book or report. #### Analyzing and Recording: Journal #### Classifying and Summarizing: Ledger ## Journal - Records business transactions that are not repetitive - The following information must be recorded in each entry: - Date of the transaction - Account number and reference number - Amount to be debited and credited - A brief description of the transaction ### General Journal ## Journal - Records business transactions that are repetitive, such as those involving cash, sales, and purchases. - To better monitor and manage specific transactions and accounts. - All recorded transactions are of similar nature ### Special Journal - Examples of special journals include the following: - Cash receipts journal - used to record all transactions involving receipts of cash. - Cash disbursement journal - used to record all transactions involving payments of cash. - Purchases journal - used to record purchases of inventory on account. ## Ledger - The book of final entry - Transactions that cannot be recorded in the special journals. - An image depicting a computer screen and a hand with a wrench adjusting a gear - The book of final entry is pictured. ### Ledger - General ledger - contains all the accounts appearing in the trial balance. - Subsidiary ledger - provides a breakdown of the controlling accounts in the general ledger. ## Normal Balances of Accounts - A particular transaction that is financial in nature will affect at least two accounts: one will be debited, and the other will be credited. - The total debit should be equal to the total credit so that the accounting equation is balanced. | (Increase) Normal Balance | Account | | -------------------------- | ------------------ | | Debit | Assets | | Credit | Liabilities | | Credit | Equity | | Credit | Revenue/Income | | Debit | Expense/Loss | ## T-Account - A visual representation of a ledger account, showing debits on the left and credits on the right. - An image depicting a "T" account template where the account name is "Cash". ## Difference Between a T-Account and a Ledger | T-Account | Ledger | | -------------------------------------------- | -------------------------------------------------- | | Represents only one account | Contains all of the company's accounts. | | | Contains many T-accounts. | ## Basic Business Transactions Transaction | Accounts Affected | | ------------------- | ------------------------------------------------------ | | Purchase of assets | Inventory/Supplies/Equipment/Furniture/Property (depends on what asset is purchased) and cash. | | Borrowing Funds | Cash, Notes Payable | | Provision of Services | Cash/Accounts receivable (if on account), Service Revenue | | Collection of Account | Cash, Accounts Receivable | | Payment of Salaries | Salaries Expense, Cash | | Payment of Utilities | Utilities Expense, Cash | ## Journalizing - The process of recording business transactions in the journal. ### Transactions | Effect on Accounts | Transactions | | ----------------------------------- | ------------------------------------------------------------ | | Debit to an asset account | Increase in Asset | | Credit to an asset account | Decrease in an asset | | Credit to a liability/equity account | increase in liabilities/equities | | Debit to a liability/equity account | Decrease in liabilities/equities | | Credit to a revenue account | Increase in revenues | | Debit to a revenue account | Decrease in revenues | | Debit to an expense account | Increase in expenses | | Credit to an expense account | Decrease in expenses | ### Preparation of a Journal Entry - Transactions are listed according to their dates. They should be done chronologically. - The accounts are debited or credited depending on their normal balances and movement. An asset's normal balance is debit, while that of the liabilities and equity is credit. - Total debits shall always equal the total credits. ### One Transaction at a Time - **Transaction 1**: On January 2, ABC Company bought 3,000 worth of office supplies. It was paid in cash. - **What happened?**: Purchase of office supplies - **When did it occur?**: January 2 - **What accounts are affected?**: Office Supplies and Cash - **Where is the effect (increase or decrease) of the transaction on the accounts?**: Since there is an increase in office supplies, an asset shall be debited. On the other hand, there is a decrease in cash, an asset. Thus, a credit. - ** How much shall be recorded?**: 3,000 - The journal entry to record this transaction would look like this: | Date | Description | Debit | Credit | | ----- | ----------------- | ------ | ------- | | Jan. 2 | Office Supplies | 3,000 | | | | Cash | | 3,000 | | | Purchase of Supplies | | | - **Transaction 2**: On January 3, ABC Company rendered services to Customer Ibarra on account amounting to 10,547. - **What happened?**: Rendering of Services on account - **When did it occur?**: January 3 - **What accounts are affected?**: Accounts Receivable and Service Revenue - **Where is the effect (increase or decrease) of the transaction on the accounts?**: Since there is an increase in accounts receivable, an asset, it shall be debited. Service revenue is also increased. Being an equity account, it shall be credited. - **How much shall be recorded?**: 10,547 - The journal entry to record this transaction would look like this: | Date | Description | Debit | Credit | | ----- | ----------------------- | ------- | -------- | | Jan. 3 | Accounts Receivable | 10,547 | | | | Service Revenue | | 10,547 | | | Rendering Services on Account | | | **Transaction 3**: On January 20, the company rendered 9,543 worth of services to Customer Damaso in exchange for cash. - **What happened?**: Rendering of services for cash. - **When did it occur?**: January 20. - **What accounts are affected?**: Cash and Service Revenue. - **Where is the effect (increase or decrease) of the transaction on the accounts?**: Since there is an increase in cash, an asset, it shall be debited. Service revenue is also increased. Being a revenue account, it shall be credited. - **How much shall be recorded?**: 9,543 - the journal entry to record this transaction would look like this: | Date | Description | Debit | Credit | | ----- | ---------------------- | ------- | -------- | | Jan. 20| Cash | 9,543 | | | | Service Revenue | | 9,543 | | | Rendering services for cash | | |