LEARNING MODULE NO.

3
(BASIC ACCOUNTING)

Courses: Competencies:
A. Basic Accounting -Different Book of Accounts
-Journalizing Business Transactions
B. Government Accounting and Budgeting -Recording Government Transactions in
different journals/book of accounts
C. Government Auditing -Documentation of Audit Working Papers

Learning Outcomes:
1. Understand the nature and concept of every book of accounts. Categorize suitable books of
accounts for a certain business and differentiate the book of accounts used on the business.
2. Understand and apply the proper way of journalizing business transactions. Recognized the
importance of systematic way of recording and journaling business transactions
3. Categorize the different transaction of the government and the appropriate books it will be
recorded.
4. Analyze the different business transaction of the government. And categorize the content of each
ledgers.
5. Analyze the components of every book of accounts subject in the preparation of working papers
to be audited.
6. Determine the considerations in analyzing the content of the book of accounts in thepreparation
of an audit working papers.

Learning Competencies:
*THE ACCOUNTAND THE BOOKS OF ACCOUNTS
An Account is an accounting form of record in which the effect of similar business
transactions are grouped or classified. This is an accounting device to record the increases and decreases
of specific asset, liability, owner’s equity, revenue or expenses.
An account could be in the form of a column on a spreadsheet, a separate card or piece of
paper, or a specified location in a computer memory.
The ‘Journals” and the “ledgers” are the books of accounts that are commonly used in
recording economic transactions and events.
The journal, which is also called the “books of original entry”, is an accounting book that is
used to initially record business transactions and events. The Ledger, on the other hand, isan accounting
book in which the accounts and their related amounts recorded in the journal are posted and summarized
periodically. This accounting book is known as the “book of final entry” because the balances of accounts
contained in it are used to prepare financial reports.
THE T-ACCOUNT
An account may be expressed in a “T” device from where the debits are recorded on the left-hand side
and the credits are recorded on the right-hand side of the letter “T”. as simplified in its form, this device is
called “T-account”.
To debit is to record the value received in an economic transaction.
To credit is to record the value parted with in an economic transaction.
For every transaction, the value of debit is always equal to the value of credit.
Basically, a T-account has three parts, the account title (name), the debit side, and the credit side.
The difference between the total debits and credits in the accounts is called the account balance. If the
total debit exceed the total credits, the account has a debit balance; if the total credit exceed the total
debits, the account has credit balance.

THE CHART OF ACCOUNTS

The increases and decreases in an accounting element as affected by a business transaction are
recorded in a device called account name, account title, or account.
Each accounting element is composed of several accounts which describe the related
economic transactions and events. To maintain a uniform account name, the business must have a listing
of all the accounts it uses to record economic transactions. This listing of all the accounts is called “Chart
of Accounts”.
The chart of accounts is usually arranged in the financial statement order – that is, asset
accounts, followed by liability accounts, owner’s equity, revenue and expenses accounts.

An example of chart of accounts of a sole proprietor engaged in the service business is a follows:
The account number is assigned to each account. It is used to facilitate recording, arranging, and cross-
referencing the accounts. Assets start with 1 and 2; and liabilities start with 3 and 4; owner’s equity starts
with 5; revenues starts with 6 and 7; and expenses starts with 8 and 9.

CLASSIFIACTION OF JOURNAL BOOKS

There are two classifications of journal books – the general journal and the special journal.
The parts of the general journal are described as follows:

STEPS IN JOURNALIZING A TRANSACTION

To affect the economic transactions and events in the general journal, the following
procedures are generally observed:
1. Enter the date
2. Enter the debit account title and its amount
3. Enter the credit account title and its amount
4. Enter the explanation
Note that the posting reference column is not yet used at the time transactions are recorded in the journal.
Journalizing is the process of recording the effects of economic transactions in the journal.
The accounting record written in the journal is called “Journal Entry”. A journal entry consists of debit
account(s) and credit account(s) with their respective values.

THE LEDGER
A Ledger refers to the accounting book in which the accounts and their related amounts as recorded in
the journal are posted periodically . this book is known as the “ book of final entry” because the balance
of accounts in the ledger is used to prepare financial statements.
The basic form of a ledger account is the T-account. Hence, it is sometimes called the “modified T-
account”.
There are two kinds of ledgers: general ledger and subsidiary ledger.
A General Ledger is a grouping of all accounts used in preparing the financial statements. It is generally
called a controlling account because it reports is summarized form the activities that have taken place as
recorded in its subsidiary ledger.
A subsidiary ledger is a group of like accounts that contains the independent data of a specific general
ledger. Whenever individualized data must be maintained for a specific general ledger account, a
subsidiary ledger is created.
An example of subsidiary ledger is the respective individual record of various receivables from
customers. The total amount of this record is the controlling account – that is the general ledger.
POSTING TO THE LEDGER
After transactions are recorded initially in the journal books, they are transferred to the general ledger, a
process referred by the accountants as “posting”.
While the journal records the transactions in their chronological order, the ledger organizes the
information by account.
Using the general journal for the purpose of knowing the balance of an account could be very
inconvenient because accounts are not recorded as a group in the journal. In order to gather information
about a particular account, one would need to scan all the pages of the journal. Accordingly, the ledger
complements the journal by providing the running balance of an account.
Examples of the different forms of a ledger are: Two-money column ledger, three-money column
ledger ,and four-money column ledger.
STEPS IN POSTING FROM THE JOURNAL TO THE LEDGER
To affect the posting opf economic transactions from the general journal to the general ledger, the
following procedures are generally observed:

In the ledger:
1. Locate the corresponding account in the ledger.
2. Transfer the following information from the journal to the respective account ledger:
 Date
 Explanation
 Debit or Credit Amount
3. Place the page of the journal where the information transferred is located in the post-reference
column of the ledger account.
In the Journal:
4. Place the number of the account as indicated in the ledger in the post-reference column of the
journal.
Posting to the ledger is usually made periodically. The transactions recorded in the general
journal are posted to the general ledger at the end of each day, week, or month depending on the
needs of the business for updated account balances.

I. Learning Activities:
I.1 Journalize the following business transactions.
1. J.lee invested P20,000.00 in shop business.
2. Paid salaries, P2,000.00
3. Rendered services on account P5,000.00
4. Bought a cash register, p5,000.00
5. Bought furniture on account, P4,000.00
6. Paid rent P2,500.00
7. paid taxes and licenses, P600
 8. Bought shop supplies for cash, P3,000,00
9. Rendered services on account receiving a note therefore P4,000.00
10. Paid light and water, P3,000.00
11. Paid account on no.5
12. Collected account on no.3
13. Additional cash investment P10,000.00
14. the owner withdrew cash for P5,000.00
15. The owner received payment from customer

II. Learning Evaluation:

Scores will be taken from the journal entry which is equivalent to two points each journal
entry with the total of 30 points.

III. Enrichment/ Application Activities

III.1 On your own point of view, discuss the importance of having knowledge of the charts of
account.
III.2 Compare and differentiate journal and ledger and its important features.

--You have to understand accounting and you have to understand the nuances of accounting. It’s an
imperfect language, but unless you are willing to put in the effort to learn accounting – how to
read and interpret financial statements – you really shouldn’t select stocks yourself--
--Warren Bufet--