FABM1-Q4-1.pdf

CHART OF ACCOUNTS CHART OF ACCOUNTS A chart of accounts is a listing of all accounts used by companies in their financial records. Here are the five steps in preparing a basic chart of accounts: 1. Make two columns. 2. Prepare the assets, liabilities, equity, revenue, and expenses, respectively. 3....

CHART OF ACCOUNTS CHART OF ACCOUNTS A chart of accounts is a listing of all accounts used by companies in their financial records. Here are the five steps in preparing a basic chart of accounts: 1. Make two columns. 2. Prepare the assets, liabilities, equity, revenue, and expenses, respectively. 3. List all assets, liabilities, equity, revenue, and expenses account in the first column. 4. In the second column, choose an account code (this may vary depending on the company). 5. In the third column, write the description of each account title. EXAMPLE OF CHART OF ACCOUNTS EXAMPLE OF CHART OF ACCOUNTS BOOKS OF ACCOUNTS TYPES OF BOOKS 1. Journal General Journal Special Journals o Cash Receipts Journal o Cash Disbursements Journal o Sales Journal or Sales on Account Journal o Purchase Journal or the Purchase on Account Journal 2. Ledger General Ledger Subsidiary Ledger JOURNALIZING The journal is the accountant’s tool in recording the day-to-day transactions. It is called the book of original entry, where the accountant records first the business transactions that occurred in the business. The recording of business transactions is in sequential form. GENERAL JOURNAL and LEDGER The general journal is the “book of original entry” where you can find initial record of the transactions of a firm while the ledger which is also known as the “book of final entry” contains the total or balance of each account.  THE JOURNAL CONSISTS OF THE FOLLOWING INFORMATION: 1. Date 2. Account Titles and Explanation 3. P.R. (Posting Reference) 4. Debit Amount 5. Credit Amount JOURNALIZING 1. A simple journal entry is a journal entry which has one debit account and one credit account. JOURNALIZING 2. A compound journal entry is a journal entry with more than one debit account or more than one credit account, or both. JOURNALIZING BUSINESS TRANSACTIONS The transaction covered the month of July 2019 of Pamilya Services, a photocopying business by Mahal K. Pamilya. JOURNALIZING BUSINESS TRANSACTIONS July 1 Mr. Pamilya invested P30,000 cash and service equipment worth P30,000 in the business. JOURNALIZING BUSINESS TRANSACTIONS July 1 The business obtained a loan from RDS Bank worth P50,000. JOURNALIZING BUSINESS TRANSACTIONS July 2 He bought office supplies for P10,000 cash. JOURNALIZING BUSINESS TRANSACTIONS July 3 He paid P2,000 for business permits and licenses. JOURNALIZING BUSINESS TRANSACTIONS July 10 Mr. Pamilya hired one personnel with a weekly salary of P1,000 to look after the business. There is no need to journalize this transaction since this is a non-business transaction. It does not have an effect on assets, liabilities, equity, revenues or on expenses. JOURNALIZING BUSINESS TRANSACTIONS July 10 The business paid P1,000 for the weekly salary of the employee. JOURNALIZING BUSINESS TRANSACTIONS July 16 He received P8,000 cash for services rendered. JOURNALIZING BUSINESS TRANSACTIONS July 17 The business paid P1,000 for the weekly salary of the employee. JOURNALIZING BUSINESS TRANSACTIONS July 21 He billed a customer P2,000 for services rendered on account. JOURNALIZING BUSINESS TRANSACTIONS July 24 The business paid P1,000 for the weekly salary of an employee. JOURNALIZING BUSINESS TRANSACTIONS July 27 Mr. Pamilya withdrew P500 from the business. JOURNALIZING BUSINESS TRANSACTIONS July 28 He collected P2,000 which is the amount billed to a customer. JOURNALIZING BUSINESS TRANSACTIONS July 29 He paid P10,000 for the monthly rent of the place. JOURNALIZING BUSINESS TRANSACTIONS July 30 He had to pay P2,500 for the electric bill. JOURNALIZING BUSINESS TRANSACTIONS July 31 The business paid P1,000 for the weekly salary of the employee. SPECIAL JOURNALS Cash Receipts Journal This is used to record all the cash that has been received. The Sundry column is used for various miscellaneous and less regular items such as capital investment and receipt loan proceeds. The Official Receipts or Cash Receipts issued by the business is the source document for this journal. SPECIAL JOURNALS Cash Disbursements Journal This is used to record all the transactions involving cash payments. SPECIAL JOURNALS Sales Journal or the Sales on Account Journal This is used to record all sales on credit or on account. SPECIAL JOURNALS Purchase Journal or the Purchase on Account Journal This is used to record all purchases of inventory on credit or on account. GENERAL LEDGER The general ledger is grouping of all accounts used in the preparation of financial statements. The GL, as accounting professionals call it, summarizes all the activities that have taken place as recorded in its subsidiary ledger that is why it is known as the controlling account. SUBSIDIARY LEDGER A subsidiary ledger is a group of similar accounts that consists of an independent data of a specific general ledger. It is officially created or maintained if individualized data is needed for a specific general ledger account. Individual record of various payables to suppliers is the best example of a subsidiary ledger. When we total the amount of all subsidiary ledgers it should equal the balance in the Accounts Payable of the general ledger. POSTING TO THE LEDGER POSTING TO THE LEDGER For a deeper knowledge regarding the posting of transactions in the ledger, we will take Pamilya Services as an example. Page 1 of the General Journal POSTING TO THE LEDGER Page 2 of the General Journal POSTING TO THE LEDGER Page 3 of the General Journal POSTING TO THE LEDGER POSTING TO THE LEDGER POSTING TO THE LEDGER POSTING TO THE LEDGER POSTING TO THE LEDGER POSTING TO THE LEDGER POSTING TO THE LEDGER PREPARATION OF TRIAL BALANCE PREPARATION OF TRIAL BALANCE The trial balance is a list of all accounts with their respective debit and credit balances. It shows the equality of the debits and credits at a given time. The accounts are listed in the same manner they appear in the ledger. In the trial balance, they will have either a debit or credit balance following their balances in the ledger. Those accounts having zero balances are skipped. Look at the table below. This is how the trial balance of Pamilya Services will look like.