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Notebook 2

The document outlines the process of recording transactions in accounting, emphasizing the importance of a Chart of Accounts and identifying accountable transactions. It details the necessary business documents that support these transactions and explains how to record them in the General Journal and post to the General Ledger. Additionally, it discusses the purpose of a trial balance and common errors that may occur in the accounting process.

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Maricar Dimayuga
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16 views7 pages

Notebook 2

The document outlines the process of recording transactions in accounting, emphasizing the importance of a Chart of Accounts and identifying accountable transactions. It details the necessary business documents that support these transactions and explains how to record them in the General Journal and post to the General Ledger. Additionally, it discusses the purpose of a trial balance and common errors that may occur in the accounting process.

Uploaded by

Maricar Dimayuga
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Notebook 2.

Recording Transactions
The Chart of Accounts

The specific account titles and codes to use in recording transactions are maintained in a Chart of Accounts. It is
a list of the account codes and titles that are used in recording entries in the Journal. It shall be maintained and
updated for necessary changes, like additions of new accounts, change of titles and codes and removal of
accounts that will no longer be used.

The accounts are normally listed in the order in which they appear in the financial statements. An account code
identifies the account which will serve as its cross-reference in the journal and ledger.
A sample is as follows:

Identifying Accountable Transactions

Business transactions or events are analyzed whether they are accountable or not. Only
transactions which are identified to be accountable transactions are recorded in the
accounting records. A transaction or event is accountable when it meets the following
criteria:
1. It involves the business entity.
2. It can be measured in terms of money.
3. It occurred on a specific date or for a specific period.
4. It affects the assets, liabilities or equity of the business.
5. It is supported by a document.

Examples of accountable transactions:


Mr. Luca Pacioli established Pacioli General Services and had the following transactions
for the month of January:

Jan 2 Investment of P100,000 capital funds by Mr. Pacioli into the business
Receipt of a Charge Invoice from a supplier for the purchase of a desktop
Jan 7
computer amounting to P30,000.
Jan 9 Purchase of supplies amounting to P8,000 in cash.
Jan Issuance of a Service Invoice for an amount of P40,000 to a customer for services
15 rendered on account.
Jan
Receipt of P28,000 cash from customers in payment of their account.
17
Jan Payment in cash and receipt of an official receipt from supplier for payment of
22 accounts, P22,000.
Jan
Cash payment of P12,000 for the salary of an employee.
31
Jan
Mr. Pacioli withdrew P10,000 cash from the business.
31

Examples of non-accountable transactions:

 The owner of the business spent P80,000 for his wedding.


 The owner spent transportation and representation expenses amounting to P5,000.
 A secretary was hired for P15,000 monthly salary.
 The company received from a customer a sales order amounting to P100,000
worth of goods.
 The company issued to a supplier a purchase order amounting to P200,000 worth
of inventory.
 The company entered into a contract to provide services for the next 5 years, at an
amount of P500,000 per year.
 The company has been using the electricity for the first month of its operations but
has not yet received the electric bill.
 The company has been recognized by the local government unit as the best
service provider in the locality. It is foreseen to grow into a P10 million company in
the next few years.

Business Documents
The business documents forms serve as evidence to support the accountable
transactions or events. These documents provide the data concerning the parties
involved, the exchange made, the date and the money value of the exchange made.
Some of the common business documents include the following:

1. Sales Invoice – document issued to customer for specific materials or supplies


furnished or services rendered. It is called Purchase Invoice from the point of view
of the customer.
2. Delivery Receipt – document signifying delivery of goods and receipt of
inventory.
3. Official Receipt – document issued to acknowledge receipt of cash.
4. Deposit Slip – document used to deposit cash and cheques to a bank.
5. Purchase Invoice – a bill from a vendor for specific materials or supplies
furnished or services rendered. It is called Sales Invoice from the point of view of
the supplier.
6. Disbursement Voucher – a written, approved record of payment of cash.
7. Withdrawal Slip – document used to withdraw cash from a bank.
8. Cheque Issuance Record – a record of cheques issued by the company.
9. Promissory Notes – a written promise to pay a certain sum of money to the
payee. It may sometimes bear an interest over a period of time.
10. Bank Statement – a document listing the bank transactions of the
depositor.
11. Billing Statement or Statement of Account – document listing the
unpaid invoices of a customer. Oftentimes, it lists chronologically the invoices,
payments and adjustments to the account of the company.
12. Business Letters – correspondences to other companies, organizations or
government entities which may serve as a basis in recording an accountable
transaction or event.

Recording Transactions in the General Journal

[Reading Notes only, no recording]

Recording Transactions in the General Journal

Business transactions are chronologically recorded in the General Journal. The


transactions are recorded through a journal entry. A journal entry shows the
record of the effects of a transaction or an event expressed in terms of debit
and credit. An entry with one debit and one credit is a simple journal entry,
while an entry with one or more debits and credits is a compound journal
entry. A journal entry has the following elements:
1. The date of the transaction
2. The accounts debited and credited
3. The monetary values of the accounts debited and credited
4. The posting reference code of the destination ledger account
5. A brief and clear explanation of the transaction

The accountable transactions are recorded in the general journal following


the Basic Accounting Equation:
Assets = Liabilities + Equity

This equation will guide the bookkeeper in recording the transaction. Under the
double-entry accounting system, at least two accounts will be recorded for
each accountable transaction. After the recording of each transaction using a
journal entry, the accounting equation will maintain its equality.

Effect of Accounting Entries to the Accounts

General Journal
The General Journal is the books of original entry. The journal entries transactions are recorded chronologically with the
appropriate accounts and amounts. It contains columns to contain the five elements of journal entries. A sample General
Journal is as follows:

Exercise:

Record the following transactions in a General Journal:


Mr. Luca Pacioli established Pacioli General Services and had the following transactions
for the month of January:
Jan 2 Investment of P100,000 capital funds by Mr. Pacioli into the business
Receipt of a Charge Invoice from a supplier for the purchase of a desktop computer amounting to
Jan 7
P30,000.
Jan 9 Purchase of supplies amounting to P8,000 in cash.
Jan
Issuance of a Service Invoice for an amount of P40,000 to a customer for services rendered on account.
15
Jan 17 Receipt of P28,000 cash from customers in payment of their account.
Jan 22 Payment in cash and receipt of an official receipt from supplier for payment of accounts, P22,000.
Jan
Cash payment of P12,000 for the salary of an employee.
31
Jan
Mr. Pacioli withdrew P10,000 cash from the business.
31
Posting to the General Ledger

After the entries are recorded in the journal, the entries are posted into the ledger. A
ledger is a collection of all of the accounts of the company. It is the book of final entry.
Each account has an assigned account number and the individual accounts are properly
arranged.

Each journal entry is posted into the related ledger account, indicating the date,
description debits and credits, and the posting reference. The posting reference serves
as the cross-reference between the journal entry and the ledger account posting.

Illustration: Post the following transactions into the General Ledger:


Trial Balance

The trial balance is a listing of all the balances of the different accounts as of a given date. The total of all accounts with
debit balances must equal to the total of all accounts with credit balances.

Purpose of Trial Balance:

 To check the accuracy of posting in the ledger by testing the equality of the debits and credits.

 It aids in locating errors in posting.

 It serves as the basis in the preparation of the financial statements.

Errors in The Accounting Process

When the total debits and total credits are not equal, this automatically signify that there is an error in the recording or
posting of entries. Some of the errors that could occur are the following:

 Journal entry with unequal debit and credit.

 Posting to the incorrect debit or credit of an account.

 Incorrectly footing the account balance, or trial balance.

 Forwarding the wrong amount from the ledger to the trial balance.

 Listing the account balance to the wrong side of the trial balance.

The following errors will not be detected by the preparation of a trial balance, but on a careful review of the records:

 Failing to record a transaction or event.

 Multiple recording and posting of a transaction or event.

 Entries or posting to the wrong account.

 Reversed entries and posting.

 Recording and posting of amounts with transposition and trans-placement errors.

Types of Trial Balance

1. Unadjusted Trial Balance

2. Adjusted Trial Balance

3. Post-Closing Trial Balance

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