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COMPETENCY-BASED LEARNING

MATERIAL

Sector:
Health, Social and Other Community Development Services
Qualification:
Bookkeeping NC III
Unit of Competency:
Journalize transactions
Module Title:
Journalizing Transaction for Single Proprietorship

ASIAN INSTITUTE OF COMPUTER STUDIES


2/F East Gate City Walk Commercial Center Jose Abad Santos Avenue
San Jose, City of San Fernando, Pampanga

MODULE OF INSTRUCTION

Unit of Competency:
1 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
JOURNALIZE TRANSACTIONS

Module Title:
JOURNALIZE TRANSACTIONS

Module Description: This unit covers the knowledge, skills, and attitudes
in logging/recording business transactions in an
accounting journal.
Nominal Duration 72 hours
Certification Level: BOOKKEEPING NC III
Summary of Learning LO1. Prepare chart of accounts
Outcomes: LO2. Analyze documents
LO3. Prepare journal entry

2 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
MODULE CONTENT

UNIT OF COMPETENCY : JOURNALIZE TRANSACTIONS

MODULE TITLE
JOURNALIZING TRANSACTIONS FOR SINGLE PROPRIETORSHIP

MODULE DESCRIPTOR:
This module covers the knowledge, skills, and attitudes in preparing chart of accounts,
analyze documents and preparing journal entries for Single Proprietorship.

NOMINAL DURATION:
72 hours

LEARNING OUTCOMES:
At the end of this module you MUST be able to:
1. Prepare chart of accounts
2. Analyze documents
3. Prepare journal entry

3 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
LEARNING OUTCOME # 1 PREPARE CHART OF ACCOUNT

Contents:

1. Definition and functions of Bookkeeping and Accounting


2. Types of business organization
3. Types of business activities
4. Basic Accounting Equation
5. Basic Financial Statement

Assessment Criteria

1. List of asset, liability, equity, income and expense account titles are prepared in
accordance with Generally Accepted Accounting Principles.
2. Chart of Accounts is coded according to industry practice.

Conditions

The students/trainees must be provided with the following:

1. Calculator
2. Paper
3. Learning Materials
4. Pencil
5. Eraser

Assessment Method:

1. Written examination
2. Demonstration
3. Observation

4 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Learning Activities
Learning Outcome #1

1. Prepare Chart of Accounts

Learning Activities Special Instructions

1. Read information sheet on1.1-1

2. Answer self check for 1.1-1 Compare your answer to the answer key.

3. Read information sheet on


Types of Business
Organization (1.1-2)
4. Read information sheet on
Types
of Business Activities (1.1-3)
5. Answer self check for 1.1-2 Compare your answer to the answer key.
6. Answer self check for 1.1-3
7. Read information sheet on
Basic Accounting Equation (1.1-4)

8. Read information sheet on


Basic Fiancial Statement (1.1-5)
9. Answer self check for 1.1-4 Compare your answer to the answer key.
10. Answer self check for 1.1-5
Perform Operation Sheet 2.2-3 Seek assistance from your trainer if
you are not sure of your work.
Evaluate your own work using the
Performance Criteria.
Document all your activities
Present your work to your trainer for
evaluation.
Seek feedback from your trainer

5 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
INFORMATION SHEET 1.1-1

Definition and Functions of Bookeeping and Accounting

Learning Objective: After reading this INFORMATION SHEET, YOU MUST be able to
differentiate Bookkeeping from Accounting.
HISTORY OF ACCOUNTING

Once upon a time, Luca Pacioli wrote a math book. It was just a little survey and should
have been treated like ordinary books of the time and read and then disappeared into
historical archives and forgotten. A few brief chapters on practical mathematics made this
one special.

The time was 1494. Columbus had discovered America just two years before. The author
was a Franciscan monk.

The chapter on practical mathematics addressed mathematics in business. He said that


the successful merchant needs three things: sufficient cash or credit, an accounting
system that can tell him how hes doing, and good bookkeeper to operate it. His
accounting system consisted of journals and ledgers. It rested on the invention of double-
entry bookkeeping. Debits were on the left side because thats what debit meant, the
left. The numbers on the right were named credits.

If everything was done right, then the bookkeeper could do a trial balance (summa
summarium). Add up all the debits and then add up all the credits, he said. If everything
had been done right, the totals should match. If not, that would indicate a mistake in your
Ledger, which mistake you will have to look for diligently with the industry and intelligence
God gave you. He wrote.
Double-entry bookkeeping was so simple and met the needs of business so well that it
caught on immediately.

Basic Accounting Concepts

Accounting is the art of recording, classifying, and summarizing, in a significant


manner and in terms of money, transactions and events which are in part at least, of a
financial character, and interpreting the results thereof. (AICPA)
- Is both a science and an art, science because of the existence of body of
knowedge governing practice called accounting theory; art because of the necessity of
applying creative skill and ability.

6 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
- Is a service entity. Its function is to provide quantitative information primarily
financial in nature, about economic entities that is intended to be useful in making
economic decisions. (ASC SFAS No. 1)

WHAT IS ACCOUNTING?

The Committee on Terminology of the American Institute of Accountants defines


accounting as an art of recording; classifying; summarizing, in a significant manner and
in terms of money, transactions, and events which are in part, at least, of a financial
character; and interpreting the results thereof.

The preceding definition covers four distinct functions, namely,

1. Recording the process of putting into writing the financial activities of the
enterprise chronologically. The term chronologically would mean that financial
activities are recorded in the order of their actual happening. This is technically
referred to as BOOKKEEPING. Bookkeeping is defined as the systematic and
chronological recording of business transactions and events.
2. Classifying the process of grouping into specific classifications similar or alike
transactions.
3. Summarizing the process of preparing financial reports (interchangeably used
to means financial statements) from the recorded and classified transactions and
events of the enterprise.
4. Interpreting the process that supplies answers to questions about the
profitability, stability, solvency and liquidity of an enterprise.
a. Profitability the ability of the enterprise to generate profit from its
operations.
b. Stability refers to the ability of the enterprise to stay viable, i.e.; generate
profit for the owners, sustain operations and pay for long term financial
obligations.
c. Solvency should mean that the enterprise is capable of paying its short
term obligations.
d. Liquidity refers to the enterprise having sufficient cash.

Basic Purpose of Accounting


The purpose or function of accounting is to provide quantitative financial
information about economic entities that is intended to be useful in making economic
decisions.

FIELDS OF ACCOUNTING

The specialized areas or branches of accounting may be enumerated as follows:

7 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
1. Financial Accounting or General Accounting the area of accounting which is
concerned with the proper recording of the transactions and events of an
enterprise and the eventual preparation of financial reports. Financial accounting
is called general accounting because this is the primary area of accounting.
2. Accounting systems installation the design and putting into place an orderly
arrangement of procedures, records, equipment and devices that will be utilized
by the organization for the logical and orderly gathering, processing and reporting
of financial and other information essential to the efficient conduct and evaluation
of the activities of the same organization. An accounting system can be initially
installed for newly started business. For businesses with existing accounting
systems, a review thereof may be warranted so that improvements, if any, are
effected into the system.
3. Management advisory services this area of accounting refers to services )
generally consultancy) extended to clients on matters of wide array of
management interests like accounting, finance, purchasing, production, marketing
and other aspects of the operations. The thrust of management of advisory
services is to aid management to come up with sound decisions given the
available resources of the business and choice of alternative course of action.
4. Government accounting accounting for all transactions and events involving
receipt and disposition of government funds and property. This specialized area
of accounting is used by the government and its political instrumentalities like
cities and municipalities.
5. Accounting education concerned with the teaching of accounting as a field of
study. The curriculum for the accounting education in business schools and
universities basically includes topical discussions on all the specialized areas or
branches of accounting as well as subjects on income and business taxation,
management and finance.
6. Cost accounting emphasis is accounting for costs of manufacturing goods.
(The costs to manufacture goods or merchandise are raw materials, direct labor
and factory overhead). Cost accounting seeks to assign values to a manufacturing
enterprise finished and unfinished inventories and cost of sales as well. Cost
accounting data is used by management for planning and control.
7. Tax services and tax accounting accountants are frequently asked to prepare
income and business tax returns for employers and clients. Tax accounting would
also include consultancy services on the impact of taxation on business projects.
8. Internal auditing the examination and evaluation of the different activities of the
organization by their own particular personnel who are called internal auditors.
The purposes of such examination are to determine compliance to prescribe
policies of the organization and seek necessary revisions to ensure reliability and
accuracy of accounting information and promote efficiency of operations. Internal
auditing furnishes management with the results of the examination in terms of
details, analyses and recommendations regarding the activities that were
reviewed.

8 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
ACCOUNTING AS A LANGUAGE
Accounting, often called the language of business, provides essential information about
the economic activities of an entity. It plays an important role in our economic and social
system.

BOOKKEEPING DEFINED

Bookkeeping the process of recording and classifying transactions and events of an


enterprise with a prescribed set of procedures or methods for the purpose of establishing
a basis for communicating financial information about the enterprise. Technically, the said
processes are the first two functions of accounting.

The term bookkeeping literally means keeping of the books. The books being
referred to are the journal and the general ledger.
Hence, bookkeeping is basically the recording of the transactions and events in
the journal, and these transactions and events being classified in the general ledger.
Bookkeeping Versus Financial Accounting
Bookkeeping is just a part of accounting as the latter encompasses the entire
process of recording, classifying, summarizing and interpreting transactions and events.

Reasons why the financial activities of a business enterprise must be committed


to writing:
1. Future reference man is unfortunately not biologically gifted with an unfallible
capacity to remember. He needs a record of his activities for future recall or
reference.
2. Basis for decision making the recorded financial activities of an economic
entity would serve as a basis for decision making.
3. Required by law the law requires that businesses must put into record their
transactions and events for taxation and regulatory purposes.

9 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Self- Check 1.1.1

Definition and Functions of Bookkeeping and Accounting

Matching Type (1 Point Each). Match Column A with Column B. Write the Letter of the
correct answer in column B to the space provided in column A.

Column A Column B

A. Bookkeeping
_____ 1.The recording and reporting of financial
transactions, including the origination of the transaction,
its recognition, processing, and summarization in the
Financial Statement.

B. Accounting
_____ 2. The recording of all financial transactions
undertaken by a business (or an individual). A
bookkeeper (or book-keeper), sometimes called an
accounting clerk; a person who keeps the books of an
organization. The organization might be a business, a
charity or even a local sports club.

C. Summarizing
_____ 3. Technically called bookkeeping.

D. Classifying
_____ 4. Items are sorted and group.

E. Recording
_____ 5. These reports are submitted to the
management at the end of each accounting period or as
the need arise.

10 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
ANSWER KEY 1.1.1

Definition and functions of Bookkeeping and Accounting

1. B
2. A
3. E
4. D
5. C

11 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
TASK SHEET 1.1.1
Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

1.
2.
3.
4.

Assessment Method:

12 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
1. Can the student define Accounting

2. Does the student understand the Functions of Bookkeeping

3.

4.

INFORMATION SHEET 1.1-2


13 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Types of Business Organization

Accountants need to understand the three basic forms of business


organization:

According to Ownership
1. Single or Sole Proprietorship.
A sole proprietorship is a business formed by one person. This form od business
gives individual a means of controlling the business apart form his ot her personal
interest. Legally however, the proprietorship is the same economic unit as the
individual received all profits or losses and is liable for all obligations of the
proprietorship. The life of a proprietorship ends when the owner wishes it to, or at
the owners death or incacity.

2. Partnership.
This is a business organization with two or more owners. The owners, called
partners, agree on the capital contributions, managemement or the firm,
distribution of profit or losses, anfd other matters pertaining to the operation of the
firm.

3. Corporation.
This is a business organization of not less than five persons. It is organized by
operation of law. A corporation is a business unit that is legally separate from its
owner. The owners whose ownership is represented by shares or stocks in the
corporation, do not directly control the operations of the corporation. Instead they
elect a board of directors who run the corporation for the benefit of the
stockholders. In exchange for limited involvement in the corporations actual
operations, stockholders enjoy limited liability. That is, they are liable only for the
amount paid for their shares. If they wish, stockholders can sell their shares to
other persons without affecting corporate operations. Because of this limited
liability, stockholders are often willing to invest in riskier, but potentially profitable
activities. Also because ownership can be transferred without dissolving the
corporation, the life of corporation is unlimited and not subject to the whims or
health of a proprietor or partner.

According to Nature of Business:


1. Service Concern. This deals with the rendering of services to the customers.
14 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
2. Trading or Merchandising. This type of business deals with te buying of goods
and selling the same goods in the same form for a profit.

3. Manufacturing Concern. This involves purchase of raw materials and converting


these raw materials into finished products.

TRANSACTION

Transaction is the exchange of goods and services for a certain sum of money. It
is an exchange of monetary values. In everytranscation, there is value received and
value parted with.

Value is anything susceptible of pecuniary estimation. It may represent money


itself, property other than money, services or rights. Every transaction should be
authenticated by a genuine business form. Examples of such are the following

a. Sales invoices
b. Purchase invoices
c. Official receipts
d. Cash vouchers
e. Journal vouchers

The following tabulation explains some common types of business transactions and the values involved:

TRANSCATIONS VALUE RECEIVED VALUE PARTED


WITH
1. Bought typewriter for office use, Typewriter
paying cash therefore. Cash
2. Received cash as payment of Cash
professional service rendered. Service
3. Payment of debt owing to a creditor.
Cancellation of
4. Payment of office rent. amount owed Cash
5. Bought merchandise on credit. Right to use property
6. Payment of cash for wages of Merchandise Cash
employees. Services rendered by Debt or obligation to
7. Purchase of merchandise for cash. the employees pay the seller
8. Sale of merchandise on credit. Merchandise Cash
Obligation or debt Cash
9. Sale of merchandise for cash. collectible. Merchandise
10. Receipt of cash as payment of debt Cash Merchandise
owing to the business. Cash Release of debt
collectible from a
debtor.

15 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
16 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Self- Check 1-1.2

Differentiate the Types of Business Organization

Identification: Encircle the Letter on the correct answer.


1. Which of the following is not a Business Organization?
a. Sole Proprietorship
b. Partnership
c. Corporation
d. Cooperative
e. None of the Above

2. Is the social science of managing people to organize and maintain collective


productivity toward accomplishing particular productive goals, which is usually to
generate profit.
a. Sole Proprietorship
b. Partnership
c. Corporation
d. Business
e. None of the Above

3. It is a form of entity with one owner and the simplest possible form of

Business.

a. Sole Proprietorship
b. Partnership
c. Corporation
d. Business
e. None of the Above

17 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
ANSWER KEY 1.1-2

Differentiate the Types of Business Organization

1. E
2. D
3. A

TASK SHEET 1.1.1


Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

5.
6.
7.
18 Date Developed: Document No. BPPNCII - 001
8. CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF

Journalize Transactions
Assessment Method: Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
5. Can the student define Accounting

6. Does the student understand the Functions of Bookkeeping

7.

8.

INFORMATION SHEET 1.1-3


19 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Types of Business Activities

ACTIVITIES IN BUSINESS ORGANIZATIONS

Many types of decisions are made in business organizations. Accounting provides


important information to make these decisions. The three types of organizational
activities are as follows: financing, investing and operating.

Financing Activities

Organizations require financial resources to obtain other resources used to produce


goods and services. They compete for these resources in financial markets. Financing
activities are the methods an organization uses to obtain financial resources from
financial markets and how it manages its resources. Primary sources of financing for
most businesses are owners and creditors, such as banks and suppliers. Repaying the
creditors and paying a return to the owners are also financing activities.

Investing Activities

Managers use capital from financing activities to acquire other resources used in the
transformation process that is, to transform resources from one form to a different form,
which is more valuable, to meet the needs of the people. Having the right mix of
resources is essential to efficient and effective operations.

An efficient business is one that provides goods and services at low costs relative to their
selling prices. An effective business is one that is successful in providing goods and
services demanded by the customers.

Investing activities involve the selection and management including disposal and
replacement of long-term resources that will be used to develop, produce, and sell goods
and services. Investing activities include buying of land, equipment, buildings, and other
resources that are needed in the operation of the business, and selling these resources
when they are no longer needed.

Operating Activities

Operating activities involve the use of resources to design, produce, distribute, and
market goods and services. Operating activities include research and development,
design and engineering, purchasing, human resources, production, distribution,
marketing and selling, and servicing. Organizations compete in supplier and labor
markets for resources used in these activities. Also, they compete in product markets to
sell the goods and services created by operating activities.

20 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
FUNDAMENTAL CONCEPTS

Several fundamental concepts underlie the accounting process. In recording business


transactions, accountants should consider the following:

1. Entity Concept. The most basic concept in accounting is the entity concept. An
accounting entity is an organization or a section of an organization that stands
apart from other organizations and individuals as a separate economic unit.
Simply put, the transactions of different entities should not be accounted for
together. Each entity should be evaluated separately.

2. Periodicity Concept. An entitys life can be meaningfully subdivided into equal


time periods for reporting purposes. It will be aimless to wait for the actual last day
of operations for perfectly measure the entitys net income. This concept allows
the users to obtain timely information to serve as a basis on making decisions
about future activities.

For the purpose of reporting to outsiders, one year is the usual accounting
period Pacioli, the first author of an accounting text, wrote in 1494: Books
should be closed each year, especially in a partnership, because frequent
accounting makes for long friendship.

3. Stable Monetary Concept. The Philippine peso is a reasonable unit measure and
that its purchasing power is relatively stable. It allows accountants to add and
subtract peso amounts as though each peso has the same purchasing power as
any other peso at any time. This is the basis for ignoring the effects of inflation in
the accounting records.

Self- Check 1-1.3


21 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Types of Business Activities

Matching Type (1 Point Each). Match Column A with Column B. Write the Letter of the
correct answer in column B to the space provided in column A.

Column A Column B

________ Is the simplest type of business which A. Merchandising


renders service to a client or customer for a fee
sample are the schools airlines barbershop parlors.

_______ Is which buys goods and merchandise B. Service


and sells these at higher prices sample of this are
bookstore groceries boutiques.

_____ Is one which buys materials in its raw form, C. Manufacturing


processes this into a finished products, then sells
this at a price higher than its cost sample of this are
garment factories, laboratories food processing
companies.

ANSWER KEY 1.1-3

22 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Types of Business Activities

1. B
2. A
3. C

TASK SHEET 1.1.1


Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

9.
10.
11.
23 Date Developed: Document No. BPPNCII - 001
12. CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF

Journalize Transactions
Assessment Method: Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
9. Can the student define Accounting

10. Does the student understand the Functions of Bookkeeping

11.

12.

INFORMATION SHEET 1.1-4


24 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Basic Accounting Equation

Accounting Elements or Values


There are three accounting elements or values, namely: assets, liabilities and capital.
1. Assets. Assets are economic resources owned by the business. They include
propertires and other things of value the ownership title of which is in the name of
the business. Assets can be grouped into current assets and noncurrent assets.
a. Current Assets are those which can be reasonably converted into cash
within a short period of time, usually within one accounting period or within
the regular operation of the business or normal operating cycle of the
business. Regular operation of the business or normal operating cycle of
the business is the period between the render of service, in case of service
concern, to the receipt of cash, and the period between the acquisition of
materials to their conversion into cash, in case of merchandising and
manufacturing concern. The following are among the current assets used
by the business:
i. Cash or Cash on Hand and In Banks. This includes currency of cash
items on hand, peso or foreign currency deposits in banks which are
unretricted and immediately available for use int eh current
operations of the business. (SFAS)
ii. Receivables represent amounts collectible from customers arising
from sales of merchandise, claims fro money lent, or the
performance of services. (SFAS) such is presented in the balance
sheet as account receivables. If the receivable is supported by a
promissory note, it is presented as note receivable.
iii. Inventories constitute items of tangible personal property (SFAS)
which are:
1. Merchandise inventory/finished goods held for sale int eh
ordinary course of business.
2. Goods-in-process in the process of production for such
sale.
3. Raw materials to be currently consumed in the production of
goods or services to be available for sale.
iv. Prepaid Expenses are those which are already paid before they are
used or consumed.
b. Noncurrent Assets are those assets not classified as current. They include,
among others, property, plant and equipment. Property, plant and
equipment are tangible assets used in te operation of the business, have
useful life that exceeds beyond one year, and are not intended for sale.
Examples are land, building, equipment, furniture and fixtures. Other
noncurrent assets are long-term investments, intangible assets, and other
noncurrent assets.

25 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
2. Liabilities. Liabilities are debts or obligations of the business to a party other than
its owner. There are two classifications of liabilities: current or short-term liabilities
and fixed or long-term liabilities.
a. Current or short-term liabilities are those which are due for payment within
a short period of time or within one year from the balance sheet date.
These obligations require a current assets for payment. Included here are
accounts payable, notes payable accrued expenses and unearned income.
i. Accounts Payable are indebtedness arising from purchase of goods
and services in the ordinary course of business.
ii. Notes Payable are short-term indebtedness supported by written
promises to pay.
iii. Accrued Expenses are expenses already incurred but are not yet
paid as of the balance sheet date.

Unearned income arises when payment for undelivered goods or


services not yet rendered are received. This item is included among
current liabilities because it requires current assets for its liquidation,
say the delivery of merchandise inventory.

b. Fixed or Long-term Liabilities are those which mature beyond one year
from the balance sheet date.
3. Capital. Capital represents the owners equity or investment in the business. Other
terms which can be used synonymously are Owners Equity and Proprietorship.

THE ACCOUNTING EQUATION

The resources controlled by a business are referred to as its assets. For a new business,
those assets originate from two possible sources:

Investors who buy ownership in the business


Creditors who extend loans to the business

Those who contribute assets to a business have legal claims on those assets. Since the
total assets of the business are equal to the sum of the assets contributed by investors
and the assets contributed by creditors, the following relationship holds and is referred to
as the accounting equation :

Assets = Liabilities + Owners' Equity

Resources Claims on the Resources

Initially, owner equity is affected by capital contributions such as the issuance of stock. Once
business operations commence, there will be income (revenues minus expenses, and gains minus
26 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
losses) and perhaps additional capital contributions and withdrawals such as dividends. At the end
of a reporting period, these items will impact the owners' equity as follows:

Assets = Liabilities + Owners' Equity

+ Revenues

- Expenses

+ Gains

- Losses

+ Contributions

- Withdrawals

These additional items under owners' equity are tracked in temporary accounts until the
end of the accounting period, at which time they are closed to owners' equity.

The accounting equation holds at all times over the life of the business. When a
transaction occurs, the total assets of the business may change, but the equation will
remain in balance. The accounting equation serves as the basis for the balance sheet, as
illustrated in the following example.

The Accounting Equation - A Practical Example

To better understand the accounting equation, consider the following example. Mike Peddler
decides to open a bicycle repair shop. To get started he rents some shop space, purchases an initial
inventory of bike parts, and opens the shop for business. Here is a listing of the transactions that
occurred during the first month:

Date Transaction

Sep 1 Owner contributes P7500 in cash to capitalize the business.


Sep 8 Purchased P2500 in bike parts on account, payable in 30 days.
Sep 15 Paid first month's shop rent of P1000.
Sep 17 Repaired bikes for P1100; collected P400 cash; billed customers for the P700
balance.
Sep 18 P275 in bike parts were used.
Sep 25 Collected P425 from customer accounts.
Sep 28 Paid P500 to suppliers for parts purchased earlier in the month.

These transactions affect the accounting equation as shown below.


27 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Assets = Liabilities + Owner's Equity

Bike Accounts Accounts Peddler, Revenue


Cash + + = + +
Parts Receivable Payable Capital (Expenses)

Sep 1 7500 = 7500

Sep 8 2500 = 2500

Sep 15 (1000) = (1000)

Sep 17 400 700 = 1100

Sep 18 (275) = (275)

Sep 25 425 (425) =

Sep 28 (500) = (500)

Totals: 6825 + 2225 + 275 = 2000 + 7500 + (175)

P9325 = P9325

Note that for each date in the above example, the sum of entries under the "Assets"
heading is equal to the sum of entries under the "Liabilities + Owner's Equity" heading. In
most of these cases, the transaction affected both sides of the accounting equation.
However, note that the Sep 25 transaction affected only the asset side with an increase
in cash and an equal but opposite decrease in accounts receivable.

At the end of the month of September, the net income (revenues minus expenses) is
closed to capital and the balance sheet for the business would appear as follows:

Peddler's Bikes
Balance Sheet
September 30, 20xx
Liabilities &
Assets
Owner's Equity
Cash 6825 Accounts Payable 2000
Accounts Receivable 275 Peddler, Capital 7325
Bike Parts 2225

Total Assets P9325 Total Liabilities P9325

28 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
The bike parts are considered to be inventory, which appears as an asset on the balance
sheet. The owner's equity is modified according to the difference between revenues and
expenses. In this case, the difference is a loss of P175, so the owner's equity has
decreased from P7500 at the beginning of the month to P7325 at the end of the month.

Summary

The foregoing illustrations show the most common effects of transactions in the
accounting equation. They emphasize the fact that transactions do not affect the equality
of the sides of the equation.
In as much as there are only three major items (assets, liabilities and
proprietorship) in the accounting equation, and knowing that all transactions may affect
or involve only these values, then, it may be concluded that all transactions can be
grouped into nine (9) types of effects as follows:
a. Increase in Assets = Increase in Proprietorship
b. Increase in Assets = Increase in Liabilities
c. Increase in Some form of Assets = Decrease in other forms of Assets
d. Decrease in Assets = Decrease in Proprietorship
e. Decrease in Assets = Decrease in Liabilities
f. Increase in Liabilities = Decrease in Proprietorship
g. Increase in some form of Liabilities = Decrease in other form of Liabilities
h. Increase in Proprietorship = Decrease in Liabilities
i. Increase in some from of Proprietorship = Decrease in other form of
Proprietorship

Self- Check 1.1-4

Basic accounting equation

State the accounting equation in the following selected transactions of Dr. J. Alvares

a. Dr. Alvarez established the Alvarez Medical Clinic by investing P 80,000


cash.

29 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
b. Professional fees of P 1,000 were received in cash from a client.

c. Paid P 2,000 for medical supplies ordered and received.

d. Received P 750 from a patient for a general check-up performed on him.

e. Paid the rent for the month, P 5,000.

TASK SHEET 1.1.1


Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

13.
14.
15.
30 Date Developed: Document No. BPPNCII - 001
16. CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF

Journalize Transactions
Assessment Method: Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
13. Can the student define Accounting

14. Does the student understand the Functions of Bookkeeping

15.

16.

INFORMATION SHEET 1.1-5


31 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Basic Financial Statement

Nature of Financial Statements


Financial Statements are the means by which the information accumulated and
processed in financial accounting is periodically communicated to those who use it. They
are designed to serve te needs of a variety of users, particularly owners and creditors.
Through the financial accounting process, the myriad and complex effects f the economic
activities of an enterprise are accumulated, analyzed, quantified, classified, recorded,
summarized, and reported as information of two basic types: (a) financial position, which
relates to a point in time, and (b) changes in financial position, whoich relate to a period
of time. notes to the statements, which may explain headings, captions or amounts in the
statements or present information that cannot be expressed in money terms, and
descriptions of accounting policies are an integral part of the statements.

Financial statements are accounting reports used to summarize and


communicate financial information about a business.

BASIC FINANCIAL STATEMENTS

6. THE BALANCE SHEET


A balance sheet (or statement of financial position) presents three major
categories (a) assets, (b) liabilities, and (c) owners equity, the difference between total
assets and total liabilities. A balance sheet at any date presents an indication in
conformity with generally accepted accounting principles of the financial status of the
enterprise at a particular point of time.

Balance Sheet summarizes a companys financial position on a given date. It is


alternative called a statement of financial position.

Note that the balance sheet has a heading consisting of three lines, the name of
the company, the title of the financial statement, and the date for which it was prepared.
Note also that the balance sheet consists of three segments, the assets section, the
liabilities section, and the owners equity section. Finally observe that the information is
expressed in monetary terms and that the total (indicated by a double ruled line) of the
assets(P200,000) is equal to the sum of the liabilities (P77,000 plus the owners equity
(P123,000). The balance sheet is so named, in fact, because both sides must be in
balance (equal to each other).

RCA LAUNDRY SERVICES


Balance Sheet
December 31, 2013

32 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Assets Liabilities
Cash P 10,000 Accounts Payable P 25,000
Accounts Receivable 20,000 Notes Payable 42,000
Laundry Supplies 8,000 Total Liabilities P 77,000
Prepaid Insurance 1,500
Land 82.000 Owners Equity
Building 45,000 R. Addatu, Capital P 123,000
Laundry Equipment 33,500 Total Liabilities and
Total Assets P 200,000 Owners Equity 200,000

Assets: Assets are economic resources of a company that are expected to provide
future benefit to the company. A business may own many assets, some of which are
cash, accounts receivable, merchandise inventory, prepaid supplies, prepaid insurance,
land, building, and investment made in other companies.

Liabilities: Liabilities are economic obligations (debts) of the company. The external
parties to whom the economic obligations are owed are referred to as the creditors of the
company. Usually, although not exclusively, a legal documents serve as evidence of
liabilities. These documents establish a claim (equity)by the creditors (the creditors
equity)against the assets of the company. Liabilities include such items as amounts owed
to suppliers (accounts payable), taxes payable, and mortgages owed on the companys
property. A company may also borrow money from the bank on a short or long-term
basis by legal document called a note, which specifies the terms of the loan. Amounts of
loan would be listed as notes payable.

Owners Equity: the owners equity of a company is the owners current investment in
the assets of the company. (For partnership, the owners might be referred to as the
partners equity, for corporation, stockholders equity). The owners equity is affected by
the capital invested into the business by the owner, by the companys earnings from its
operations, and by withdrawals of capital by the owner from the business. For a sole
proprietorship, the owners equity is shown by listing the owners name, the word capital,
and the amount of the creditors have first legal claim to a companys assets. Once the
creditors claims have been satisfied, the owner is entitled to the remainder (residual) of
the assets. Sometimes the total of the liabilities (creditors equity) is combined with the
owners equity and the result is referred to as the total equity of the company.

7. THE INCOME STATEMENT


The income statemnt for a period presents the revenue, expenses, gains, losses,
and net income (lnet loss) recognized during the period and thereby presents an
indication in conformity with generally accepted accounting principles of the results of the
enterprises profit-directed activities during the period.

33 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Income Statement is a financial statement summarizing the results of a companys
income (profit) making activities for a specific time period.

RCA ADVERTISING AGENCY


Income Statement
For the Month Ended January 1, 2014

Revenues:
Advertising Revenues P 88,000

Expenses
Rent Expense P 19,200
Salaries Expense 23,400
Office Supplies Expense 4,600
Utilities Expense 3,600
Total Expenses 50,800
Net Income P 37,200

8. CHANGES IN OWNERS EQUITY


An income statement is usually not sufficient to describe the total changes in
owners equity during a period because changes arise from sources other than profit-
directed activities. The total change in owners equity is described by three statements:
an income statement, a statement of retained earnings, and a statement of other
changes in owners equity.

Statement of Retained Earnings presents net income (as shown in the income
statement) and items such as dividends and adjustments of the net income of prior
periods.

Statement of other changes in owners equity presents additional investments by


owners, retirements of owners interest (except for the part considered to be a distribution
of earnings), and similar events. If these other changes are simple and few in number,
they are often presented in notes to the financial statements rather than in a separate
statement.

9. STATEMENT OF CASH FLOWS (ASC SFAS #2)


The primary purpose of cash flows is to provide relevant information about the
cash receipts and cash payments of an enterprise during the period.
34 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
The information provided in a statement of cash flows, if used with related
disclosures and information in the other financial statements, should help investors, and
other to:

1. Assess the enterprises ability to generate positive future net cash plows.
2. Assess the enterprises ability to meet its obligations, its ability to pay dividends,
and its needs for external financing.
3. Assess the reasons for differences between net income and associated cash
receipts and payments.
4. Assess the effects of an enterprises financial position of both its cash and
noncash investments and financing transactions during the period.

BASIC ELEMENTS OF FINANCIAL STATEMENTS

Financial Position
The basic elements of the financial position of an enterprise are assets, liabilities and
owners equity.
a. Assets economic resources of an enterprise that are recognized and measured
in conformity with generally accepted accounting principles. Assets also include
certain deferred charges that are not resources but that are recognized and
measured in conformity with GAAP.
b. Liabilities economic obligation of an enterprise that, are recognized and
measured n conformity with GAAP. Liabilities also include certain deferred credits
that are not obligations but that are recognized and measured in conformity with
GAAP.
c. Owners Equity the interest of owners in an enterprise which is the excess of
an enterprises assets over its liabilities.

Owners equity is defined in terms of assets and liabilities, just as residual interest
is defined in terms of economic resources and obligations. The relationship among
assets, liabilities and owners equity implicit in the definition of owners equity is:

Assets Liabilities = Owners Equity

The financial position of an enterprise at a particular time comprises its


assets, liabilities and owners equity and the relationship among them, plus those
contingencies, commitments, and other financial matters that pertain to the
enterprise at that time and are required to be disclosed under GAAP. The financial
position of an enterprise is presented in the balance shhet and in notes to the
financial statements.

Results of Operations

35 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
The basic element of the results of operations of an enterprise are revenue,
expenses, and net income:

a. Revenue gross increase in assets or gross decrease in liabilities recognized


and measured in conformity with GAAP that result from those types of profit-
directed activities of an enterprise that can change owners equity.
b. Expenses gross decreases in assets or gross increases in liabilities recognized
and measured in conformity with GAAP that result from those types of profit-
directed activities of an enterprise that can change owners equity.
c. Net Income (Net Loss) the excess (deficit) of revenue over expenses for an
accounting period, which is the net increase (net decrease) in owners equity
(assets minus liabilities) of an enterprise for an accounting period from profit-
directed activities that is recognized and measured in conformity with GAAP.

Self Check 1.1-5

Financial Statements

The Following data were taken from the adjusted trial balance columns of the business of
Ana Reyes
36 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
A. Reyes
Adjusted trial balance
December 31, 2013

Cash P 500.00
Accounts Receivable 200.00
Office supplies 100.00
Accounts Payable P 100.00
A. Reyes, capital 500.00
A. Reyes, drawing 100.00
Service Income 500.00
Rent expense 100.00
Wages expense 100.00 _________
Total P 1,100.00 P 1,100.00
======== ========

ANSWER KEY 1.1-5

Financial Statements

A. Reyes
37 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Income Statement
For the month ended December 31, 2013

Service Income P 500.00


Less: Rent expense P 100.00
Wages expense 100.00 200.00
Net Income P 300.00
========

A. Reyes
Balance Sheet
December 31,2013

Current Assets:
Cash P 500.00
Accounts Receivable 200.00
Office supplies 100.00
Total current assets P 800.00

Liabilities

Current liabilities
Accounts Payable P 100.00

Owners Equity

A.Reyes, capital P 500.00


Less: A. Reyes, drawing 100.00
Net capital P 400.00
Add Net income 300.00 700.00
Total liabilities and owners equity P 800.00
=======

38 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
TASK SHEET 1.1.1
Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

17.
18.
19.
20.

Assessment Method:

39 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
17. Can the student define Accounting

18. Does the student understand the Functions of Bookkeeping

19.

20.

40 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
LEARNING OUTCOME # 2 ANALYZE DOCUMENTS

Contents:

1. Types of Business Documents


2. Account Title Selection

Assessment Criteria

1. Document are gathered, checked and verified in accordance with verification and
validation processes.
2. Account titles are selected in accordance with standard selection process.

Conditions

The students/trainees must be provided with the following:

1. Calculator
2. Paper
3. Learning Materials
4. Pencil
5. Eraser
6. Sample Business Documents

Assessment Method:

1. Written test
2. Practical/performance test
3. interview

41 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Learning Activities
Learning Outcome #2

1. Analyse Documents

Learning Activities Special Instructions

1. Read information sheet on


1.2-1

2. Answer self check for 1.2-1 Compare your answer to the answer key.

3. Read information sheet on


Type of Business
Organization (1.2-2)

4. Answer self check for 1.2-2 Compare your answer to the answer key.

5. Perform Operation Sheet Seek assistance from your trainer if


1.2-2
you are not sure of your work.
Evaluate your own work using the
Performance Criteria.
Document all your activities
Present your work to your trainer for
evaluation.
Seek feedback from your trainer

INFORMATION SHEET 1.2-1

42 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Types of Business Documents

Source Documents
Merchandising businesses use various business forms and documents to help
identify the transactions tat should be recorded in the books. These source documents
contain vital information about the nature and amount of te transactions. The more
common source documents along with their descriptions are shown.
1. Sales Invoice is prepared by the seller of goods and sent to the buyer. This
document contains the name and address of the buyer, the date of sale and
information quantity, description and price about the goods sold. It also
specifies the amount of sales, and te transportation and payment terms.
2. The bill of lading is a document issued by the carrier a trucking, shippig or
airline that specifies contractual conditions and terms of delivery such as freight
terms, time, place, and the person named to receive the goods.
3. The statement of account is a formal notice to the debtor detailing the accounts
already due.
4. The oficial receipt evidences the recipt of cash by the seller or the authorized
representative. It notes te invoices paid and other details of payment.
5. Deposit slips are printed forms with depositors name, account number and
space for the details of the deposit. A validated deposit slip indicates that cash and
checks with the supplied details were actually deposited or credited to the account
holder.
6. A check is a written order to a bank by a depositor to pay the ampount specified
in the check from his checking account to the person named in the check. The
entity issuing the check is the payos while the receiver is the payee.
7. The purchase requisition is a written request to the purchaser of an entity from
an employee or user department of the same entity that goods are to be
purchased.
8. The purchase order is an authorization is a document containing information
about goods received from a vendor. It formally records the quantities and
description of the goods delivered.
9. Receiving report is a document containing information about goods received
from a vendor. It formally records the quantities and description of the goods
delivered.
10. A credit memorandum is a form used by the seller to notify the buyer that his
account is being decreased due to errors or other factors requiring adjustments.

Self- Check 1-2.1

43 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Types of Business Documents

TRUE OR FALSE. Put A if the statement is TRUE, Put B if the statement is


FALSE
1. Invoice Is issued when service is given to a customer
2. Cash Voucher are Documents used when cash is paid by the business
3. Checks are Negotiable instruments used as a substitute for cash payments drawn
against the companys current account
4. Statement of Accounts are bill presented to a customer for service rendered given
for which payment is demandable
5. Promissory Notes are written promise to pay for a certain sum of money at a
future date. The maker is the debtor and it is addressed to the payee or creditor

44 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
ANSWER KEY 1.2-1

Types of Business Documents

1. A
2. A
3. A
4. A
5. A

TASK SHEET 1.1.1


Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

21.
22.
23.
45 Date Developed: Document No. BPPNCII - 001
24. CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF

Journalize Transactions
Assessment Method: Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
21. Can the student define Accounting

22. Does the student understand the Functions of Bookkeeping

23.

24.

INFORMATION SHEET 1.2-2


46 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Account Title Selection

USE OF ACCOUNT TITLES

Account titles are the terms used to identify the specific elements of accounting to
be used in the recording process. Appropriate identification is necessary right at the
recording phase because they are to be brought forward to accounting reports. When
wrong accounts are used, the users of accounting reports are apt to be misled and
consequently, make wrong decisions. Examples of accounts titles are given below:

ASSET TITLES
1. Cash currency (bills and coins), checks, postal money orders and treasury
warrants received by the business.
2. Notes Receivable amounts collectible from customers for goods and services
rendered on credit or from others for loans granted. Such claims are evidenced
by promissory note.
A promissory note is a written promise to pay a certain amount of money
on a specified or determinable future date.
3. Accounts Receivable claims from customers arising from goods sold or
services rendered on credit. It represents the debtors oral promises to pay.
4. Allowance for bad debts is a contra asset account to provide for uncollectible
amounts. It is deducted from Account Receivable to present the amount still
collectible from debtors.
5. Merchandise Inventory goods purchased by the business to be sold at a
profit.
6. Interest Receivable interest earned on notes on hand which has not been
received in cash.
7. Supplies Unused miscellaneous supplies which have been bought for office
use but are still unused as of the balance sheet date. Other account titles which
can be used are Supplies on Hand, Office Supplies, Store Supplies and Factory
Supplies.
8. Prepaid Insurance already paid insurance premiums which are applicable in
the future periods.
9. Furniture and Fixtures it includes tables, chairs, showcases, counters and
other similar assets owned and used by the business in its operation.
10. Office Equipment heavy metallic and movable items in an office that are
capable of performing certain functions. Examples are typewriters, posting
machines and fax/copier/printer/scanner machines other similar assets.
11. IT Equipment - computers
12. Delivery Equipment includes assets used for transporting merchandise.
13. Tools handy, small and usually metallic items used in performing certain
functions such as saws, hammers, pliers, scissors, screw drivers and jacks.
Tools, in general, have long useful life but do not have significant value.
47 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
14. Accumulated Depreciation it is a valuation account that reduces the total cost
of the fixed asset. It is another contra-asset account that represents the total
amount of depreciation expenses charged in the past and current periods.
15. Land land owned by the business used for building sites and other business
purposes.
16. Building building owned and used by the business in its operation.

LIABILITY TITLES
1. Notes Payable amounts due to the creditors which are supported by a
promissory note.
2. Accounts Payable amounts used for the creditors for the goods or services
bought on credit and supported by promissory notes. It is often referred to as
arising from purchases on open account
3. Expenses Payable (accrued expenses) obligations for expenses already
incurred but not yet paid. Examples are taxes payable, salaries payable, and
accrued power and light expense.
4. Loans Payable obligations arising from loans obtained.

OWNERS EQUITY TITLES


1. Owners Capital amount of capital contributions of the owner or owners to the
business.
2. Owners Drawing amount withdrawn by the owner form the assets of the
business for personal use.

INCOME TITLES
1. Sales total sales of merchandise sold
2. Professional Fee Income amounts earned by professionals such as CPAs,
doctors, lawyers, etc. for services render.
3. Rent Income amounts of rental earned for the period.
4. Service Income amounts of income earned from services rendered of a service
concern business.
5. Interest Income amounts earned for lending money.

EXPENSE TITLES
1. Cost of Sales cost of goods purchased and sold or materials manufactured and
sold.
2. Advertising Expense expenses incurred to promote the product of the
business.
3. Salesmens Salaries compensation given to sales agents.
4. Salesmens Commissions compensation given to sales agents based on the
amount of their sales.
5. Salesmens Travelling Expenses travelling allowance given to sales agents.
6. Office Salaries compensation of administrative employees.

48 Date Developed: Document No. BPPNCII - 001


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Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
7. Supplies Expense amount of supplies used.
8. Taxes duties incurred in the current period.
9. Utilities Expense amount of light and water consumed by the business,
10. Repair and Maintenance expenses incurred for repairing the assets of the
business.
11. Bad Debts estimated amount of losses from uncollectible accounts of the
business.
12. Depreciation Expense allocated cost of fixed asset in the current period.

49 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Self- Check 1.2-2

Account Title Selection

Identify what Element does the following Account title belongs


Put A if it an ASSET
Put B if it a LIABILITY
Put C if it a OWNERS EQUITY

1. Notes Receivables
2. Building
3. Capital
4. Drawing
5. Prepaid Expense
6. Notes Payable
7. Accounts Receivables
8. Cash
9. Accounts Payable
10. Office Supplies

50 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
ANSWER KEY 1.2-2

Account Title Selection

1. A
2. A
3. C
4. C
5. A
6. B
7. A
8. A
9. B
10. A

51 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
TASK SHEET 1.1.1
Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

25.
26.
27.
28.

Assessment Method:

52 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
25. Can the student define Accounting

26. Does the student understand the Functions of Bookkeeping

27.

28.

53 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
54 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
LEARNING OUTCOME # 3 PREPARE JOURNAL ENTRY

Contents:

1. Generally Accepted Accounting Principles


2. Accoutning Equation
3. Journalizing of Partnerships account titles

Assessment Criteria

1. Journal entries are prepared in accordance with generally accepted accounting


principles.
2. Debit and credit account titles are determined in accordance with chart of
accounts.
3. Explanation to jounal entry is prepared in accordance with the nature of
transaction.

Conditions

The students/trainees must be provided with the following:

1. Calculator
2. Jouranl Paper
3. Learning Materials
4. Pencil
5. Eraser
6. Philippine Financial Reporting Standards

Assessment Method:

1. Written test
2. Practical/performance test
3. interview

Learning Activities
55 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Learning Outcome

3. Prepare Journal Entry

Learning Activities Special Instructions

1. Read information sheet on


1.3-1
2. Answer self check for 1.3-1 Compare your answer to the answer key.

3. Read information sheet on


Type of Business Organization
(1.3-2)
4. Answer self check for 1.3-2 Compare your answer to the answer key.

5. Read information sheet on


Type of Business Organization
(1.3-3)
6. Answer self check for 1.3-3 Compare your answer to the answer key.

7. Perform Operation Sheet 1.3- Seek assistance from your trainer if


3
you are not sure of your work.
Evaluate your own work using the
Performance Criteria.
Document all your activities
Present your work to your trainer for
evaluation.
Seek feedback from your trainer

INFORMATION SHEET 1.3-1


Generally Accepted Accounting Principles
56 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Generally Accepted Accounting principles (GAAP)
- Encompass the conventions, rules and procedures necessary to define accepted
accounting practice at a particular time. the satandard generally accepted
accounting principles includes not only broad guidelines of general application, but
also detailed practices and procedures.

GAAP are conventional that is, they become generally accepted by agreement (often
tacit agreement) rather than by formal derivation from a set of postulates or basic
concepts. The principles have developed on the basis of experience, reason, custom,
usage, and to a significant extent, practical necessity.

In recent years, the accounting principles bulletins of the PICPA Committee on


Accounting Principles have been considered as the major source of generally accepted
accounting principles have been considered as the major source of GAAP. In October
1982 a new body, the Accounting Standards Council (ASC) has been designated to take
over the accounting standard-setting functions. The pronouncements of the ASC, after
duly approved by the Professional Regulatory Commission (PRC), will constitute
generally accepted accounting principles in the Philippines. Certified Public Accountants
in the Philippines are governed by the Code of Professional Ethics promulgated by the
board of Accountancy and approved by the PRC which among other things, requires a
CPA to see to t that financial statements, not otherwise restricted for special or internal
purposes, of his client or employer are presented in conformity with GAAP. In case of any
departure from such principles, he shall indicate the nature of the departure, the
approximate effects thereof, and the reasons why compliance with the principles would
result in misleading statement, if such is a fact.

GAAP is divided into three sections:


1. Pervasive Principles, which relate to financial accounting as a whole and
provide a basis for the other principles.
2. Broad operating principles, which guide the recording, measuring, and
communicating processes of financial accounting, and
3. Detailed principles, which indicate the practical application of the pervasive
and broad operating principles

UNDERLYING PRINCIPLES AND BASIC CONCEPTS OF ACCOUNTING


1. Relevance
The accounting information communicated to users must be relevant to
their decision-making process. Relevance is the capacity to influence a users
decision. Relevance is a very important concept to be considered in
accumulating and communicating accounting information.
2. Entity Concept
Individuals may own several types of business, including sole
proprietorship, partnership or corporations. Furthermore, one individual may own
57 Date Developed: Document No. BPPNCII - 001
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MARY-ANN VILLAR REVISION # OI
all or part of several businesses. From an accounting standpoint, each business is
treated as a separate economic entity. An entity is considered to be separate
from its owners and from any other business. Thus each business has its own
accounting system and accounting records for identifying, measuring, recording,
retaining, and communicating its accounting information. An owners personal
financial activities are not included within the accounting records of the business
owned unless this activity has a direct impact upon the business.
3. Going Concern Concepts
To meet its goal, a company enters into many transactions that require it to
carry out future commitments. The going concern is the general assumption
made by accountants that the company will continue to operate long
enough to meet these commitments. It is also called the continuity assumption.
The going concern concept is necessary for many of the accounting procedures.
Obviously not all businesses are successful, but the going concern concept is
valid in most cases. If the business appears on the verge of bankruptcy, this
assumption should be discarded.
4. Monetary Unit
In the exchange of property or services, a unit of exchange value is used.
Accounting information about these transactions must be recorded and
communicated in a form that is understood by both external and internal users.
This requirement has led to the concept of the monetary unit. The monetary unit
concept means that the results of transactions are recorde and
communicated in monetary terms. The monetary unit is peso, and therefore
financial statements are expressed in peson. In other countries the monetary unit
is the national currency of the particular country. The use of a monetary unit does
not stop accountants from showing other important, but nonmonetary information.

5. Historical Cost
Another important concept related to the monetary concept is the historical
cost or simply, the cost concept. The historical cost concept means that
transactions are recorded on the basis of the peso exchange (i.e. the cost)
in the transaction. Once a transaction is recorded, the cost involved in the
transaction is retained in the accounting records regardless of whether the value
of the property or services owned increases (or decreases). For instance, a
company may acquire land for P100,000. Several years later the land may have
increased in value to P130,000. Under the historical cost concept, the company
would continue to show the land in its accounting records at P100,000, the
acquisition cost.

The increase in the value of any item may be due to the effects of inflation.
It may also be due to specific changes in the supply of and the demand for the
type of item. In the past the peso has been a relatively stable measuring unit. With
the recent high rates on inflation, however, everyone has experienced the
58 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
reduction in the purchasing power of the peso. There has also been rapid
technological changes that have affected the supply of the demand for many
items. Inflation and technological changes have been so great in recent years that
accountants have modified both the monetary unit and the historical cost concept,
although not in the financial statements.
6. Materiality
Materiality is like relevance in that both concepts are defined in terms of
what influences or makes difference to a user of accounting information.
Materiality is the concept that accounting information is useful when the
monetary amount involved is large enough to make a difference in a users
decision. Only material accounting information should be accumulated and
communicated to users.
7. Accrual
Determination of periodic income and financial position depends on
measurement of economic resources and obligations and changes in them as the
changes occur rather than simply on recording receipts and payments of money.
Enterprise economic activity in a short period seldom follows the simple form of a
cycle from money to productive resources to product to money. Instead,
continuous production, extensive use of credit and long-lived resources, and
overlapping cycles of activity complicate the evaluation of periodic activities. As a
result, noncash resources and obligations change in time periods other than those
in which money is received or paid. Recording these changes is necessary to
determine periodic income and to measure financial position. This is the essence
of accrual accounting.
8. Matching Concept
the term matching is often used in the accounting literature to describe the entire process
of income determination. The term is also often applied in accounting, however, in a
more limited sense to the process of expense recognition or in an even more limited
sense to the recognition of expenses by associating costs with revenue on a cause and
effect basis.

Self- Check 1.3-1

Generally Accepted Accounting Principles

Identify the Assumption of GAAP according to its division


59 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Put A if the assumption is a Accounting Assumption
Put B if the assumption is a Accounting Principles

1. Measurement in Money Assumption


2. Going Concern Assumption
3. Business Entity Assumption
4. Cost Principle
5. Accrual or Matching Principle or expense recognition Principle

60 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
ANSWER KEY 1.3-1

Generally Accepted Accounting Principles

1. A
2. A
3. A
4. B
5. B

61 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
TASK SHEET 1.1.1
Title: Definition and functions of Bookkeeping and Accounting

Performance Objective: Given (condition), you should be able to (performance)


following (standard).

Supplies/Materials:

Calculator
Paper
Learning Materials
Pencil
Eraser
Equipment :

Steps/Procedure:

29.
30.
31.
32.

Assessment Method:

62 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Performance Criteria Checklist 1.1.1

Definition and functions of Bookkeeping and Accounting

CRITERIA YES NO
Did you.
29. Can the student define Accounting

30. Does the student understand the Functions of Bookkeeping

31.

32.

INFORMATION SHEET 1.3-2

63 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Accounting Equation

Learning Objectives:

After reading this INFORMATION SHEET, YOU MUST be able to:

1. Understand the Basic Accounting Equation.

2. List the assets, liabilities, proprietorship, income and expenses

3. Understand the rules of debit and credit

Accounting Equation and Double Entry Rule

In the balance sheet, the total of the assets is equal to the total of the liabilities
plus the capital or owners equity. This I true for any balance sheet because a companys
economic resources are financed either by its creditors or by its owners.
This equality may be shown in equation form. The basic accounting equation
(sometimes referred to as the balance sheet equation) is a follows:

Assets = Liabilities + Capital/Owners Equity


The accounting equation must always remain in balnce the two sides
mustalways be equal. This rule is one of the basic rules in accounting. Since
transactions normally begins the accounting process, each transaction must be recorded
so that this equality is maintained.

Doubel Entry Rule


A second rule, which complements the equaltiy rule, is the double entry rule. The
double entry rule means that in recording a transaction at least two changes must
be made ib the assets, liabilities, or capital. These changes are made as entries in
the accounting records thus a double entry must always be made.

For instance, if the owner invested P50,000 into the business, assets (cash) would
be increased by P50,000 and owners capital (owners equity would be increased by
P50,000. The double entry rule is observed and the accounting equation is balanced.

The Use of Accounts


An account is a business document that is used to record and retain the
monetary information from business transactions. Separate accounts are used for
each asset, liabilities, and owners equity item. The number, types and names of the
accounts for each company depend upon the particular companys operations, whether it
is a sole proprietorship, partnership, or corporation, and the types of asset it owns and
liabilities it has incurred. A general ledger is the entire set of accounts for a company.
For this reason, sometimes accoutns are reerred to as ledger accounts.
64 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Nature and Elements of a T-Account
A simple format for the accounts in a manual system is called a T-Account
because it looks like the capital letter T. As shown below, each T-account has three basic
parts: (1) a place at the top for the title of the particular asset, liability, or owners equity
item, (2) a left side, calleds debit side, and (3) a right side, called the credit side. The title
of each account describes the nature f the account. The left (debit) and the right (credit)
sides of each account are used for recording and retaining the monetary information from
business transactions. A debit entry is a monetary amount recorded (debited) in the
left sife of an account. A credit entry is a monetary amount recorded (credited) in
the right side of an account.

Title of Accounts

Left (debit) side Right (credit) side

To illustrate, look at the Cash account shown below:

Cash No. 141

2/01/2014 Balance P10,000 2/02/2014 P 4,500


2/04/2014 25.000 2/10/2014 15.000

P35,000 P
23,000

2/28/2014 Balance P12,000

Important Rules
We have stated several important rules that must be followed in an aactual
accountingsystems. These rules are summarized as follows to help you remember them
and their relationship:
1. The accounting equation (assets equal liablities plus pwners equity) must always
remain in balance.
2. All increases in an account are recorded on one side of the account; all decreases
are reecorded on the other side of the account.
3. The debit and credit rule states that:
a. Asset accounta are increased by debit entries and decreased by credit
entries;
b. Liabilities and owners equity accounts are increased by credit entries and
decreased by debit entries.
4. The double entry rule states that for all recorded transactions, the total amount od
the debit entries must be equal to the total amount of the credit entries.

65 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Rules of Debit and Credit
Debit means the left side of an account or to enter an amount on the left side of
the account.
Credit means the right side of an account or to enter an amount on the right side
of an account.

Debit to: Credit to:

1. Increase assets 1. Decrease assets


2. Decrease liabilities 2. Increase liabilities
3. Decrease proprietorship due to: 3. Increase proprietorship due to:
a. withdrawal of assets by the owner a. investment by the owner
b. increase in expenses and losses b. decrease in expense
and losses
c. decrease in income c. increase in income

Balance of an Account
The balance of an account is the difference between the total increases and
decreases recorded in the account. Usually the balance of each account is computed
when the accounting information is to be communicated in an accounting report. Each
asset account normally has a debit balance because the total increases (debits) exceed
the total decreases credits) in the account. Each liability and owners equity account has
a credit balance because the total credits (increases) exceed the total debits (decreases)
in each account.

Normal Balance of an Account


The normal balance of any account refers to the side of the account debit or
credit where increrases are recorded. Asset, owners withdrawal and expense accounts
normally have debit balances; liability, owners equity and income accounts normally
have credit balances. This result occurs because increases in an account are usually
greater than or equal to decreases.

INFORMATION SHEET 1.3-3


66 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Journalizing Transactions

Concepts of Journalization
Once the information provided on business documents has been analyzed,
transactions are recorded in chronological order in the appropriate journals. In some
small business, all transactions are recorded in a single journal.
Journalization (or journalizing) is the act of recording transactions for the first time
in an accounting recordbook called the journal. The journal is often referred to as book
of original entry.
Journalizing is the first step in the accounting cycle. It is the process of recording
business transactions in a journal.
A journal is a book of accounts wherein business transactions are recorded for the
first time
Functions of Journals
1. To show al information about an accountable event in one place.
2. To provide a chroinological record of accoutnable events.
3. To facilitate posting transactions data to the ledger.

Types of Journals
1. General Journal is a business document in which transactions are recorded,
the date of transaction, the accounts to be debited and credited, thte amount of
debit or credit, entries and explanation of each transaction.
2. Special Journal a chronological recording of transactions possessing common
characteristics. Examples are:
a. Sales Journal
b. Purchases Journal
c. Cash Receipts Journal
d. Cash Disbursement Jopurnal

Advantages of Special Journals


1. Eliminate repetitive work.
2. Makes possible division of labor and hence, timely reports
3. Results in higher degree of control.
4. Results in greater efficiency.

Journal Entries are the formal written record of transactions

Voucher System is a special arrangement of journals (Sales Journal, Purchases


Journal, Voucher Register, Check Register, and General Journal) revolving around the
use of voucher (a formal written authorization for an expenditure). The voucher register
and check register take the place of the purchases journal and cash disbursement
journal.

67 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
A register is an accounting recordbook in which transactions of the same nature are
recorded; may be used either as journal or as subsidiary ledger, or both.

Procedures of Journalizing
It is important that you understand the form of the general journal and carefully
learn procedures for journalizing each transaction. Shown below is a partial page form of
a general journal.

GENERAL JOURNAL
Page No
Date Account Titles and Explanation F Debit Credit

Self- Check 1.3-3

Journalizing of Proprietor Account Titles


68 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Problem:

Journal the following selected transactions of A. Dela Cruz Repair Shop.

Jan 1 - A. Dela Cruz established the A. Dela Cruz Repair Shop by investing P 50,000
cash.
Jan 5 - Purchased repair supplies on account P 1,000.

Jan 10 - Rendered service to customer of P 1,000 were received in cash.

Jan 15 - Rendered service to customer on account for P 3,000..

Jan 25 - Paid the rent for the month, P 5,000.

INFORMATION SHEET 2.2-2


Chart of Accounts

69 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Learning Objective: After reading this INFORMATION SHEET, YOU MUST be able to
identifythe different account titles to be used in recording process.
Chart of Accounts
- Is a list of all the accounts to be used in recording a companys transactions. It
serves as a guide to the bookkeeper. The accounts are so arranged based on
their positions in the financial statements. The same arrangement is observed
in opening accounts in the ledger. This makes it easier for anybody using the
books of accounts to locate a particular account. Such accounts are divided
into sections and each title has a given code number.
Coding this refers to the systematic assignment of symbols to the different
accounts based on classification and position in the financial statements.
Numbers or letters or combinations of these two are often used in coding. The
following is an example of chart of accounts with codes in the form of numbers.

Illustration

ABC REPAIR SHOP


Chart of Accounts
Assets Owners Equity

011 Cash 211 Santos, Capital


012 Notes Receivable 212 Santos, Drawing
013 Interest Receivable 213 Revenue and Expense
014 Accounts Receivable Summary
014a Allowance for bad debts
015 Supplies Unused
016 Prepared Insurance Income
017 Furniture and Fixtures 311 Service Income
018a Accumulated Depreciation- 312 Rent Income
Furniture and Fixtures
019 Equipment
019a Accumulated Depreciation-
Equipment

Liabilities Expenses
111 Notes Payable 511 Salary Expenses
112 Accounts Payable 512 Supply Expenses
113 Interest Payable 513 Rent Expenses
114 Taxes Payable 514 Advertising Expense
115 Salaries Payable 516 Bad Debt
517 Depreciation
518 Light, Water and Telephone
519 Taxes and Licenses
520 Miscellaneous Expense
70 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
USE OF ACCOUNT TITLES

Account titles are the terms used to identify the specific elements of accounting to
be used in the recording process. Appropriate identification is necessary right at the
recording phase because they are to be brought forward to accounting reports. When
wrong accounts are used, the users of accounting reports are apt to be misled and
consequently, make wrong decisions. Examples of accounts titles are given below:

ASSET TITLES
Cash currency (bills and coins), checks, postal money orders and treasury
warrants received by the business.
Notes Receivable amounts collectible from customers for goods and services
rendered on credit or from others for loans granted. Such claims are evidenced by
promissory note.
A promissory note is a written promise to pay a certain amount of money
on a specified or determinable future date.
Accounts Receivable claims from customers arising from goods sold or
services rendered on credit. It represents the debtors oral promises to pay.
Allowance for bad debts is a contra asset account to provide for uncollectible
amounts. It is deducted from Account Receivable to present the amount still collectible
from debtors.
Merchandise Inventory goods purchased by the business to be sold at a
profit.
Interest Receivable interest earned on notes on hand which has not been
received in cash.
Supplies Unused miscellaneous supplies which have been bought for office
use but are still unused as of the balance sheet date. Other account titles which can be
used are Supplies on Hand, Office Supplies, Store Supplies and Factory Supplies.
Prepaid Insurance already paid insurance premiums which are applicable in
the future periods.
Furniture and Fixtures it includes tables, chairs, showcases, counters and
other similar assets owned and used by the business in its operation.
Office Equipment heavy metallic and movable items in an office that are
capable of performing certain functions. Examples are typewriters, posting machines
and fax/copier/printer/scanner machines other similar assets.
IT Equipment - computers
Delivery Equipment includes assets used for transporting merchandise.
Tools handy, small and usually metallic items used in performing certain
functions such as saws, hammers, pliers, scissors, screw drivers and jacks. Tools, in
general, have long useful life but do not have significant value.
Accumulated Depreciation it is a valuation account that reduces the total cost
of the fixed asset. It is another contra-asset account that represents the total amount of
depreciation expenses charged in the past and current periods.
71 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
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MARY-ANN VILLAR REVISION # OI
Land land owned by the business used for building sites and other business
purposes.
Building building owned and used by the business in its operation.

LIABILITY TITLES
Notes Payable amounts due to the creditors which are supported by a
promissory note.
Accounts Payable amounts used for the creditors for the goods or services
bought on credit and supported by promissory notes. It is often referred to as arising
from purchases on open account
Expenses Payable (accrued expenses) obligations for expenses already
incurred but not yet paid. Examples are taxes payable, salaries payable, and
accrued power and light expense.
Loans Payable obligations arising from loans obtained.

OWNERS EQUITY TITLES


Owners Capital amount of capital contributions of the owner or owners to the
business.
Owners Drawing amount withdrawn by the owner form the assets of the
business for personal use.

INCOME TITLES
Sales total sales of merchandise sold
Professional Fee Income amounts earned by professionals such as CPAs,
doctors, lawyers, etc. for services render.
Rent Income amounts of rental earned for the period.
Service Income amounts of income earned from services rendered of a
service concern business.
Interest Income amounts earned for lending money.

EXPENSE TITLES
Cost of Sales cost of goods purchased and sold or materials manufactured
and sold.
Advertising Expense expenses incurred to promote the product of the
business.
Salesmens Salaries compensation given to sales agents.
Salesmens Commissions compensation given to sales agents based on the
amount of their sales.
Salesmens Travelling Expenses travelling allowance given to sales agents.
Office Salaries compensation of administrative employees.
Supplies Expense amount of supplies used.
Taxes duties incurred in the current period.
72 Date Developed: Document No. BPPNCII - 001
CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI
Utilities Expense amount of light and water consumed by the business,
Repair and Maintenance expenses incurred for repairing the assets of the
business.
Bad Debts estimated amount of losses from uncollectible accounts of the
business.
Depreciation Expense allocated cost of fixed asset in the current period.

REFERENCES AND FURTHER READING

1. Accounting Principles, Third Edition by Amelia M. Arganda, Teresa


Cardenas-Atis, Bernardo G. Del Rosario, Jr., 2005 Reprint

2. 21th Century Accounting Process. Basic Concepts and Procedures,


International Edition 2008, Zenaida Vera Cruz-Manuel

3. Training Regulations. Health, Social, and other Community Development


Services, Technical Education and Skills Development Authority

4. Computer-Based Curriculum. Health, Social, and other Community


Development Services, Technical Education and Skills Development
Authority

73 Date Developed: Document No. BPPNCII - 001


CBLM August 2013 Issued by:
Date Revised:
BOOKKEEPING NC III AICS-SF
Journalize Transactions Developed by:
MARY-ANN VILLAR REVISION # OI