FUNDAMENTALS OF

ACCOUNTANCY,
BUSINESS, and
MANAGEMENT 1
Presented by:
Kim Rodulph O. Soriano
ACCOUNTING FOR
THE SERVICE
BUSINESS
Part 2
Recording Business Transactions
(Double-Entry System)
Chapter 4
THE ACCOUNTING CYCLE
Lesson 4-1
Lesson Objectives

At the end of the lesson, students should be able to:

• define the double-entry system of recording transactions

• familiarize oneself with the accounting cycle

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THE DOUBLE-ENTRY SYSTEM OF
RECORDING TRANSACTION

Recording transactions in accounting is based on the double-entry

systems. The Transaction has a dual effects at least two accounts. For
every debit, there is a corresponding credit. The total amount of the
accounts debited must equal to the total amount of the accounts credit.

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1. Identifying and analyzing the events to be recorded
- Business documents are forms containing evidence to support a business
transaction. These documents provide the data concerning the parties
involved in the transaction, the exchange made, the value received by the
business and the value parted with are translated into debit and credit
components.

2. Recording transactions in the journal

- known as journalizing. It is the process of recording the transaction in
he first book of account known as the journal.

3. Posting journal entries to the ledger.

- known as posting. The process of transferring the information found in
the journal into the book of final entry known as ledger. It summarizes the
increases or decreases of individual accounts.

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4. Preparing the trial balance
- the trial balance is a list of accounts found in the ledger together with
the account’s balance or total. This is a proof that for every debit, there is a
corresponding credit. Hence, it is also a proof that the ledger is in balance.

5. Preparing the worksheet and adjusting entries

- the worksheet is a common tool used by accountants to assemble on a
sheet of paper all the information needed to prepare the financial statements,
adjusting entries, closing entries, and the post-closing trial balance.

6. Preparing the financial statements

- a statement of financial position, income statement, statement of
changes in owner’s equity, and a statement of cash flows are prepared to provide
useful information to parties interested in the financial information of the
business.

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7. Journalizing and posting of adjusting journal entries
- adjusting entries are prepared at the end of the accounting period to
update the accounts for internal transactions because they affect more than one
accounting period. This will record the accruals, expiration of deferrals,
estimation, and other events from the worksheet.

8. Journalizing and posting of closing journal entries

- closing entries are prepared at the end of the accounting period to
update the owner’s capital account. This will also eliminate the balances of the
normal accounts so that they may be ready for the next period.

9. Preparing the post-closing trial balance

- after the closing entries have been posted, the post-closing trial balance is
prepared from the general ledger accounts. This is necessary to assure that these
entries have been correctly posted. This will also check the equality of the debits
and credits after the closing entries.

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10. Journalizing and posting of reversing journal entries
- reversing entries are prepared to simplify the accounting process. The
adjusting entries are simply reversed on the first day of the accounting period.
Not all adjusting entries are reversed, only accruals and deferrals that use the
nominal accounts.

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RECORDING TRANSACTIONS IN
THE JOURNAL
Lesson 4-2
Lesson Objectives

At the end of the lesson, students should be able to:

• familiarize oneself with the journal as a book of account and

know its uses
• state and apply the rules of debit and credit
• journalize transactions in the general journal

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THE JOURNAL

▪ It is a chronological records of events or business transactions

showing all the effects of each transaction in terms of debits and
credits.
▪ It is called the book of original entry because transactions are
initially recorded in the journal
▪ The simplest journal is the general journal.

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A journal entry should contain the following:

1. Date
- write the month on the first transaction unless there is a change in month for the
succeeding transactions or a new page is used.

2. Account Titles and Explanation

- write the debit account at the extreme left of the first line while the credit
account is indented half-inch on the next line. The explanation describing the
transaction is written on the extreme left of the next line below the credit.
Remember to skip one line before proceeding to the next transaction.

3. P.R. (Posting Reference)

- write the corresponding account number here once the entry is
posted. Meanwhile, it is left blank until the posting date has been done.
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A journal entry should contain the following:

4. Debit
- under this column, write the debit amount for each debit account

5. Credit
- under this column, write the credit amount for each credit
account

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The Simple and Compound Entry

When only two accounts are affected, we call this a simple

entry where there is only one debit account and one credit
account. In some cases, a transaction would require the use of
three or more accounts in which case entry is called compound
entry.

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Journalizing the Transactions

Journalizing is the process of recording transactions in the

journal after it has been recognized and measured.

In journalizing transactions, the double entry system is used. In

this case, two or more accounts are affected by each transaction.
It follows that for every debit, a corresponding credit is made.
The total debits should equal total credits for every transaction.
In this way, the equality of the accounting equation is
maintained.

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 RULES FOR DEBIT AND CREDIT

You debit to show: You credit to show:

1. Decrease in assets
1. Increase in assets
2. Increase in liabilities
2. Decrease in liabilities
3. Increase in owner’s equity
3. Decrease in owner’s equity
- initial investment
- owner’s withdrawal
- additional investment
- expenses
- revenue / income
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Golden Rules of Accountancy:
• First: Debit what comes in, Credit what
goes out
• Second: Debit all expenses and losses,
Credit all income and gains
• Third: Debit the receiver, Credit the giver

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THE T-ACCOUNT
Lesson 4-3
Lesson Objectives

At the end of the lesson, students should be able to:

• analyse transactions with the use of debit and credit in T-accounts

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THE USE OF T-ACCOUNTS
▪ An account is form of records that summarizes the increases or
decreases of any specific accounting value.
▪ The simplest form of an account is the T-Account because the
accounting equation is represented by the capital letter T.
▪ It is an informal tool used to analyse effects of a transaction in
the assets, liabilities, owner’s equity, revenue, and expenses.

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The T-Account and the Rules of Debit and Credit:
The three elements of an account are:
1. Account Title
2. Debit
3. Credit

Account Title

Debit Credit

1. increase in assets 1. decrease in assets

2. decrease in liability 2. increase in liability
3. decrease in owner’s equity 3. Increase in owner’s equity
(withdrawals and expenses) (investment, additional
investment, revenue/income) 25
KEY TAKEAWAYS:

▪ A T-account is an informal term for a set of financial records

that use double-entry bookkeeping.
▪ It is called a T-account because the bookkeeping entries are
laid out in a way that resembles a T-shape.
▪ The account title appears just above the T. Underneath, debits
are listed on the left and credits are recorded on the right,
separated by a line.
▪ The T-account guides accountants on what to enter in a ledger
to get an adjusting balance so that revenues equal expenses.
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POSTING JOURNAL ENTRIES ON
THE LEDGER
Lesson 4-4
Lesson Objectives

At the end of the lesson, students should be able to:

• post the journal entries in the general ledger

• familiarize oneself with the chart of accounts

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THE LEDGER
▪ It is a group of the accounts used by the company.
▪ It is the book of final entry
▪ The accounts in the general ledger are classified into two general groups:

1. balance sheet or real accounts

- assets, liabilities, and owner’s equity
2. Income statement or nominal account
- revenue and expenses

The ledger has a record of each account. The T-account is the basic format used to
record every account. While the journal is chronologically arranged by date, the 29
ledger is organized by account.
CHART OF ACCOUNTS

▪ The chart of accounts is a list of all account titles used by the

company with their corresponding account numbers.
▪ Account titles are arranged in financial statement order. Balance sheet
accounts which includes assets , liability, owner’s equity comes first.
▪ Account titles in the income statement which include revenue and
expenses follow. The account are numbered for purpose of indexing
and cross-referencing.

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The Normal Balance of Account
The side of an account where increase are recorded is referred to as the
normal balance of an account. This can be the left side (debit) or the right
side (credit). The reason for this is account increases usually exceed
account decreases. The following are the normal balances of account:

Normal Debit Balance Normal Credit Balance

Asset Liability
Owner’s Drawing Owner’s Equity
Expense Income
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Posting to the Ledger
Posting is the process of transferring information from the journal to the
ledger. Debits in the journal are correspondingly posted as debits in the
ledger, and credits in the journal are likewise posted as credit in the ledger.
The steps in posting are as follows:

1. From the journal, copy the date of the transaction to the ledger.
2. Under the journal reference (J.R.) column of the ledger, copy the page
number of the journal.
3. Under the debit column in the ledger, transfer the debit amount from
the journal. Under the credit column in the ledger, transfer the amount
in the journal.
4. After posting the amount to the ledger, write the account number in
the posting reference (P.R.) column in the journal. 34
The Ledger Account after Posting

The Debit or Credit balance of each account is determined at the

end of the accounting period in order to prepare the trial
balance. The debit column and the credit column of each
account are added to get the balance of each account. If an
account’s total debit exceeds total credit, the account has a debit
balance. If total credit exceeds total debit, the account has a
credit balance.

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THE TRIAL BALANCE
Lesson 4-5
Lesson Objectives

At the end of the lesson, students should be able to:

• Define a trial balance

• Prepare the trial balance and appreciate its use

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THE TRIAL BALANCE

- It is the schedule of all balances to prove the equality of all debit

and credit.

- It is a listing of all account titles with their respective debit or

credit balances taken from the ledger. However, it does not
check or vouch for the accuracy of the report.

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Possible Errors in the Trial Balance

1. Transposition 2. Transplacement or Slide

– this error occurs when order - this occurs when a decimal

of two numbers are reversed. point has been removed or
Ex: misplaced.
• 48 was erroneously written as Ex:
84 • 100 was erroneously written
• 234 was erroneously written as as 10
432 • 67.89 was erroneously written
as 678.9 39
The following are the steps in the preparation of a trial balance.

1. In their proper numerical order, make a listing of all account tiles.

2. Get he account balance of each ledger account and write them
under their corresponding debit or credit column.
3. Foot or add the debit and the credit columns of the trial balance.
4. Check whether the debit totals and credit totals are equal. They
must be equal, other wise your trial balance has error.

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THANKS!
Any questions?

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