DEBIT AND CREDIT PRINCIPLES AND

JOURNALIZATION-SERVICES CONCERN
BUSINESS

OBJECTIVES:
1. To be able to learn the process of recording business transaction in the books
of account
2. To be able to learn the uses of the books of account such as journal and
ledger
3. To be able to learn the principle of debit and credit
4. To be able to learn to record business transaction in the books of account

The Accounting cycle starts with the recording of business

transactions of a service concern business after documentation of the
transaction with the proper perspective, complying with the standards under
the objectivity principle and reliability of the accounting information. The
accounting cycle is composed of the following:

a. Journalization
b. Posting to the general ledger
c. Preparation of the trial balance
d. Preparation of worksheet
e. Preparation of financial statement
f. Preparation of closing entries
g. Preparation of post-closing trial balance
h. Reversing entry

ACCOUNTING CYCLE –the initial steps of accounting cycle during the

recording phase of a business transaction is called journalization by which
the business transaction is recorded in the book of original entry called
journal. After the transaction is recorded in the book of account (Journal),
posting to the ledger is done by segregating the transaction to its respective
account where balances of the account can be determined for the
preparation of the trial balance. Trial balance is a schedule of equality of the
debit and credit balance. If the debit and credit accounts are balanced, the
correctness of the trial balance is initially achieved, but there is no assurance
of the correctness of the account and amount, because some accounts may
achieve correctness only in the computation of the final balance of accounts.
After the preparation of the trial balance, a worksheet will be prepared by
incorporating the adjusting entries. An adjusting entry is also a journal entry
that separates the expired portion from theunexpired portion of asset
account, the recognition of unearned income from income and to recognize
expenses and revenues to match the revenues and expenses. After
incorporating the adjusting entries, the adjusted balance may be prepared
prior to the preparation of financial statement. The financial statement is
based on adjusted accounts prior to the preparation of closing entries. A
closing entry is also a journal entry, used to close the nominal accounts and
to bring the balance to the equity account. Preparation of closing entries is a
way of recording the result of operation in the book of accounts. This
accounting cycle consists of a series of steps or procedures performed in a
systematic manner within a year or an accounting period.

DOCUMENTATION—A process of gathering documents pertinent to the

formal recording of the business transactios—the document refers to
business paper. The necessity of having documents in recording, the data is
a must to achieve objectivity. The accountant is duty bound to keep the
record so that the auditor may have the basis for auditing. As the general
rule, a business transaction will be formally recorded in the books upon
approving officers in the company. It is natural that proper documentation is
needed before an entry is made in the books.

Business Papers—these are documents involving transactions of the

business which are used for recording. Some of the typical business papers
are the following:

Official Receipt—is business document where receipt of cash is recorded

from the transaction involving cash sales on collection of receivable, sale of
asset, collection of loans, selling of shares of stock and cash investment of
owner. This document is issued upon receipt of cash from customer, owner,
and other concerned. This receipt contains the name of the company, TIN or
VAT number, and the address and telephone number of the company. The
receipt are serialized with the BIR registration number. It is an evidence that
the company has received cash from the payees.

Sales Invoice—is issued when service or merchandise is delivered to a

customer or client. The invoices itself bear the name of the business, address
and phone number, business number, invoice number, date, and TIN or VAT
number, customer’s name and address, description of service or
merchandise, amount, and signature of the employee.
Bank Documents and Checks—these documents are important and
composed of monthly bank statements, unused check, paid check given by
the bank to its depositor inlcuding memorandum of charges, interest and
transfer of deposit from other accounts.

OTHER NECESSARY DOCUMENTS

A. Contract—contract is an evidence of an agreement entered into by two

entities for a certain agreement confirming legal rights for some
business undertakings and obligation to fulfill at a specific period of
time. Both parties agreed with certain limitations attached to the
contract. The best example of a contract is Memorandum of
Agreement known as MOA.
B. Delivery Invoice and Inventory Log Form—Delivery invoices are
issued by the suppliers as evidence of delivered goods or supply
supported by a stamped “receipt” and the signature of personnel
receiving the deliveries. The log form is a record of the warehousing
department wherein the receipt of deliveries is recorded in the list of
receipts deliveries. This serves as an evidence of actual receipt of
goods by the company.
C. Order Form—this is to be accomplished by the buyer of goods to be
given to the supplier for confirmation and affirmation of the order; on
the part of the buyer such form is an evidence of the intention to
purchase goods or supplies as affirmed by the delivery receipts.
D. Authority to Pay Form—An authority to pay form must be secured
and accomplished before actual payment is done by the accounting
division. This form is necessary for the preparation of voucher and
check for payment.

The Chart of Accounts

The term “account” has been discussed in the previous chapters. This
is a device used to record the increases and decreases affecting assets,
liabilities and owner’s equity, income and expense accounts. The Chart of
Accounts is used to limit the accounts used by the business as suggested by
the accountant on the basis that the accounts are easy to comprahend and
are acceptable in the industry. The chart of accounts would depend on the
industry of a certain business. The accounts used by the banking industry
are quite different from the accounts used by the airline or shipping industry.
In other words, there is an account used by the school that can never be
used by banks and other industries. Expenses and income accounts better
describe the owner’s equity, because whatever the diffence of these two
accounts will be transferred to the equity accounts.

The chart of accounts is listing of account titles which guides the

bookkeeper and the accountant to choose the correct account title to be
used for recording transactions in the books of account. The use of the chart
of accounts is necessary to have a better understanding on recording
business transactions. The number and the nature of accounts would depend
on the type of business operation. The accounts are properly arranged with
the assets listed first, followed by the liabilities, and lastly, by the owner’s
equity. Account numbers are assigned for each account for easy reference.
Assigning of account number bears no industry standards; it depends on the
accountant’s point of view. Accounts which are not written on the chart of
accounts cannot be used to avoid conflict and to enhance understanding.
Each account has explanation to determine the proper account to be used a
certain transaction to avoid misuse of account.

Account Account Explanation of Account

Number
Title

100 Cash on Hand To record cash collected from sale or collection of

receivables and other sources of cash presently in
the hands of the business under the custodianship
of the cashier
101 Cash in Bank To record the amount of money deposited under
the savings and current account which is used
without restriction to the business. This amount of
cash is made available for current operation.
102 Petty Cash The business normally uses petty cash account to
Fund take care of the small expenses. Issuing a check is
impractical for small expenses. A custodian of the
petty cash fund is appointed separate from the
general fund cashier.
103 Notes These are claims of the owner from its customers
Receivable or other stakeholders evidenced by promissory
notes under the control of the business. It may be
interest or non-interest
104 Accounts These are claims from the customers not
Receivable evidenced by a promissory note usually from sale
on account or making advance payments to
 clients. Also called open-account receivable.
105 Prepaid Rent The account prepaid rent is used to record
advance payment and security deposit paid in
advance to occupy the rented premises. An asset
account until the expired portion is changed to
expense.
106 Prepaid The account prepaid insurance applies to the
Insurance insurance premium paid in advance for more than
a year. An asset account until applied to the
expenses portion.
107 Office This account is used to record the purchase of
Supplies office supplies such as worksheet, computer ink
and paper, pencil, ball pen, coupon bond, and
other supplies used in the office.
108 Other Asset Property which are not grouped under the standard
accounts because the account deems it
impractical to do so.
201 Accounts An account used to record the liability from
Payable acquiring materials, goods and suppplies from the
creditor on account
202 Notes Payable An account used to record issuance of promissory
note with a term less than a year
203 Loans Payable An account used to record the liability from
receiving a loan from a bank and other financial
institutions
204 Mortgage An account used to record a liability from obtaining
Payable large amounts of loan using some collateral
Properties
205 Salary An account used to record unpaid salary
Payable

206 Interest An account used to record accrued interest from

Payable loan and mortgage payables
207 Long-Term An account used to record issuance of promissory
Notes Payable notes with a term of more than a year
301 Service An account used to record revenue received from
Income client from rendering of services
302 Gain on Sale An account used to record the gain on sale of old
Asset
303 Interest Account used to record the interest earned from
Income penalty imposed on delayed customers and from
 receipt of payment of interest-bearing promissory
notes
304 Miscellaneous An account used to record revenue from selling
Income other assets like retaso, old newspapers, and the
like
401 Salary To record payment of salary to office
Expense employee, factory worker, and ordinary worker.
It includes payment of 13th month pay, sick
leave, and
vacatio leave
402 Rent Expense To record payament of rent on leased premises
whether store or space, or warehouse. It includes
vehicle and equipment rental.
403 Light and An account used to record electricity cost for the
Power month
Expense
404 Water An account used to pay water consumption for the
Expense Month

Telephone and An account used to record cost of communications

405 Communication for the month.
Expense
406 Advertising Account used to record the cost of advertisement,
Expense pamphlet, tarpaulin, radio time, and airtime.
 407 Office Supplies An account to record the cost of supplies used in the
Expense office such as computer ink and paper, pencil, pen,
photocopying expense and other office supplies.
408 Insurance An account to record the cost of insurance
Expense premiums paid to insurance company for the safety
and insurance of company-owned asset and
property.
409 Repair and An account used to record the cost of maintaining
Maintenance equipment and vehicle of the company. It is used to
Expense record the repair of equipment, vehicles and
furniture.
410 Taxes and An account to record the cost of mayor’s permit and
Licenses registration fees to government agencies.
Expense
411 Membership An account used to record membership fees paid to
Fees Expense accredited institution.
412 Contribution An account used to record contribution and donation
and Donation made by the company such as religious and
Expense charitable donations.
413 Gas Oil Expense An account used to record gasoline and oil expense
used by the company.
414 An account used to record freight or transportation
fares incurred in rendering of service, and other fare
expenses.

The T-Account
The simplest form of a ledger is called the T-Account. It has two sides to
record the increase and decreases of an account. The left side is for recording of
increases in ASSET and EXPENSE account, while the right is used to record the
increase of LIABILITY, INCOME, and CAPITAL. At the center of the T-Account is the
title of the account. To illustrate:

Cash

Left side or Right side or

Debit side Credit side
 Cash is the account title of the ledger.
The left side is the debit side and the right side is the credit side.

When an amount is recorded on the left side it simply means debiting the
account and when it is to be recorded on the right side, it is crediting the account.
Debit is accounting term, which simply means left side of an account, while Credit
simply means the right side of an account. Some accounts are increased on the
debit side while some accounts are increased on the credit side depending on its
position in the accounting equation:

Asset = Liabilities + Owner’s Equity

Since asset and expense account has two sides – the left and the right – asset
and expense increase on debit side and decrease are on the credit side. The
accounts liability, income and owner’s equity are increased on the right side and
decrease on the left side. Thus, the table below explained the rules of debit and
credit:

ASSET LIABILITIES OWNER’S EQUITY

Left side Right Side Left side Right Side Left side Right Side
Debit Credit Debit Credit Debit Credit
increase decrease decrease increase decrease increase

Rule of Debit and Credit

To summarize, the following rule for debit and credit should be observed in
processing, recording and posting business transaction:

1. An increase in asset is to be recorded on the debit side, while

a decrease will be recorded on the credit side.
2. An increase in liability is to be recorded in the credit side, while
the decrease will be recorded on the debit side of the account.
3. An increase in owner’s equity is to be recorded on the credit side,
while a decrease will be recorded on the debit side of the account

Take note that every transaction must have a debit amount with a
corresponding credit amount, no matter how many accounts are affected. This
process is called the Double Entry Bookkeeping System.
Let us take a look at the T-account – a kind of ledger that summarizes the
increase and decrease of an account. Transactions are posted for each particular
account at any point in time; the balance of each could be determined and
computed. The difference between the debit total and the credit total is called
the account balance. If the debit total is higher than the credit total, the account
balance is called debit balance. If the total credits are higher than the debit total,
the account balance is called credit balance. Normally the assets, owner’s
drawing , and the expense accounts have a debit balance, while the liabilities,
revenues and the owner’s capital have a credit balance.
The Ledger
The T-Account form (skeleton form of a ledger) is widely used in schools and
universities to demonstrate the analysis of ledger with easiness. While in actual
business practice a formal book of account is used containing not only the account
title, date, and the amount but also the page reference (to identify the entry
source), the account number, and the balance of the account. All accounts are
compiled in one book called the general ledger wherein a separate page is
maintained for each account; each page is called a ledger. Figure 1 below shows a
ledger account for cash. F stands for reference that identifies the source of the
entry such as journal page 1 (J1). The particulars column indicates the explanation
and the balance of the account.

Figure No. 1: the ledger

Name of the account: CASH

Date Particulars F Debit Date Particular F Credit

This is the ledger form with eight columns that shows the date; the particular;
the folio, and the debit and credit columns. The T-Account form ledger could be a
replacement of this illustrated general ledger.

The Particulars is the explanation column that describes the transaction. The
amount of the transaction is placed on the debit or credit column as the case may
be, the difference of the two columns is called the debit o credit balances of the
account. For purposes of discussions an illustrations, only the T-Account format will
be used in this book. If the company has 20 accounts, the company should also
maintain 20 general ledgers.

Journalization (First step in the accounting cycle)

THE JOURNAL
The journal refers to the two-column general journal used to formally record
the business transaction by way of a journal entry. This process is called
journalization, a process of recording business transaction to the book of original
entry. The journal refers to general journal specifically the two-column journal and
special journals used by other business. The preparation of the journal entry is
made after the documentation process of transaction is finished. The transactions
are initially recorded chronologically in the journal. Recording the transaction
chronologically means the transaction is recorded when it happens, the transaction
that happened first will be recorded first and the transaction that happened last
will be recorded last. The simplest form of journal is the two-column general
journal.
Each entry made is called a journal entry, each journal entry contains the date, the
debit account, debit amount, credit account, credit amount, and a brief
explanation. A general journal is illustrated as follows:

ILLUSTRATION 1-A Two-Column Journal Format

Date Particulars F Debit Credit

2009

Jan. 1

Note: the above illustration is a two-column journal which is called the book
of original entry, where journal entries are recorded in a chronological order. The
journal or book itself has five columns which are composed of the date, particulars,
f or folio, debit and credit columns. Each column has distinguished rules to be
followed in recording.

The following rules should be observed per page:

1. Each transaction has a date composed of month and year which is

written only once in each page, while the date is written for every
transaction and only one date for two or more transactions if these
happened in a day. (See the illustrations below.)

Date Particulars F Debit Credit

2008

Jan. 1 Cash P xxx

P xxx
Perez,
Capital

2. After writing the date. Write the debit and credit accounts in the
particular columns; the debit account is written on the extreme left margin,
while the credit account is written with five spaces indention from the
extreme left margin (assuming Mr. Perez invested P300,000 in the
business). (See the illustrations, take note of the presentation
3. The debit column and credit column contain the amount of the
transaction and they are expected to be balanced. In writing the amount in
the columns, a peso sign is written once in each page and is optional. A
money column is used properly to correctly identify centavos, one-peso,
tenths, hundredths, thousandths, ten thousandths, one hundred
thousandths up to millionths worth of recording. (See the illustration)

200 PARTICULARS F DEBIT CREDIT

8
Jan. Cash P 300,000
1 Perez, Capital P 300,000

4. After writing the peso amounts in the debit and credit columns, write
a brief explanation under the particulars column. The explanation must
be located ten spaces from the left margin or five spaces from the credit
account. The next line of explanation must be five spaces from the left
margin. (See illustration.)

200 PARTICULARS F DEBIT CREDIT

8
Jan. Cash P 300,000
1 Perez, Capital P 300,000
To record the initial
investment.

5. If there is another transaction to be recorded, leave one space to record

the subsequent transaction. (Assume on the second day, P1500,000 cash
is deposited in a bank under the business name.)

200 PARTICULARS F DEBIT CREDIT

8
Jan. Cash P 300,000
1 Perez, Capital P 300,000
To record the initial
investment.
 150,000
2 Cash in bank 150,000
Cash on hand
To record the deposit in a
bank.

6. The money column consists of eight spaces where, starting from the right,
centavos, tens, hundreds, thousands, and ten thousands are placed. There is
no need to place a comma separating the hundreds from the thousands or a
decimal point separating the whole amount from the centavos. Writing 00 as
centavos is optional. Remember that any amount written on the money
column is expressed in terms of peso value that is why a peso sign is
optional. If a peso sign is written, be sure to write it only once, on the
beginning amount for every page of a journal.

How do we write peso amounts in the money columns? Each amount has a
respective place in the money column as illustrated below:

H 1 A b c D e F G
1
1 0 5
0
1 0 0
1 0 0 0
1 0 0 0 0
1 0 0 0 0 0
1 0 0 0 0 0 0

Correct place for peso amount

g. centavos column
f. one peso column
e. ten peso column
d. one hundred peso column
c. one thousand pesos column
 b. ten thousand pesos column
a. one hundred thousand pesos column
1. one million pesos column

A journal entry with one debit and one credit is called a simple journal entry. When
an entry has more than one debit or more than one credit, it is called a compound
journal entry. Note that the transactions are recorded chronologically and the debit
entry is recorded first followed by the credit entry. Also take note that the reference
column (F) is not yet filled-up in the journalization process because it can be used in
the posting which is the next step in the accounting cycle.

Illustration:

Albert Auto Repair Center had the following transactions on the first month of
operation in October 2008:

October 1. Albert invested P 250, 000 and deposited the amount under the current
account of the business

1. Bought 10 computer units under the terms P100, 000 down payment and the
balance of P 100, 000 is to be paid in four equal monthly installment starting
October 31, 2008.
2. Paid P8, 500 mayor’s permit, P 500 BIR registration fees, and DTI registration
of business name P140.
3. Paid P45, 000 to the shop leased covering advance payment for two months
and one month security deposit.
4. Paid P60, 000 for the construction of computer tables and chairs for the
computer shop.
5. Spent P 5, 000 for the purchase of electric wires and other electrical wirings
for the computers. (Shop expenses)
6. Spent P8, 000 for the neon light bearing the name of the shop. (Shop
expenses)
7. Hired two shop assistants with a salary of P5, 000 per month each. (Not a
business transaction)
8. Spent P3, 000 for advertisement such as flyers and tarpaulin. (Advertisement
expense)
9. After a week of preparation, Albert formally opened the business and spent
P7, 000 for food and other things for the ceremony. (Shop expenses)
10.On the first day of the operation, he received P8, 000 from his costumers.
(Service income)
 15. Paid salary of the assistant P2, 500 for one week

20. Paid P2, 000 for shop supplies.

22. For the last week he received P120, 000 from customers

30. Paid salary of the shop workers, P4, 750, net of SSS premium of P120.

30. Paid the first monthly installment of the computer, P25, 000.

Use the following accounts to record the above transactions: Cash in bank (No.
101); Shop and supplies (No. 102); Rent deposit (No. 103); Shop computer (No.104);
Shop furniture and fixture (No. 105); Accounts payable (No. 201); SSS Premium
payable (202); Shop expenses (No. 301); Advertisement expense (No. 302); Salary
expense (No. 303); Taxes and license expense (No. 304); and Service income (401);
Albert capital (No. 501); and Albert drawing (No. 502).

Required:

1. Prepare the require journal entries in a two-column journal.

2. Post the journal entries to the general ledger.
3. Prepare the trial balance.

Answer:

Requirement No.1 Journal entries

DATE PARTICULARS F DEBIT CREDIT

2008
Oct. Cash in bank 101 P250,000
1 Albert Capital 501 P250,000
To record initial investment.
1 Shop computer 104 200,000
Cash in bank 101 100,000
Accounts payable 201 100,000
Terms: 50% down balance
in four equal payments
2 Taxes and licenses expense 304 9,140
Cash in bank 101 9,140
To record payment of
mayor’s permit and BIR
registration and DTI registration.

3 Rent deposit 103 45,000

Cash in bank 101 45,000
To record two-month deposit
and one month advance.

4 Shop furniture 105 60,000

Cash in bank 101 60,000
To record construction of
computer table and chairs.
5 Shop expenses 301 5,000
Cash in bank 101 5,000
To record purchase of electric
wirings.

6 Shop expenses 301 8,000

Cash in bank 101 8,000
To record the cost of neon
light.
7 No journal entry
8 Advertisement expense 302 3,000
Cash in bank 101 3,000
To record the cost of flyers and
tarpaulin.
9 Shop expenses 301 7,000
Cash in bank 101 7,000
To record the cost of food and
other expenses on the opening
day.
10 Cash in bank 101 8,000
Service income 401 8,000
To record the income
received form services.
15 Salary expense 303 2,500
Cash in bank 101 2,500
To record payment of salary
 20 Shop supplies 102 2,000
Cash in bank 101 2,000
To record payment supplies.
22 Cash in bank 101 120,000
Service income 401 120,000
To record cash receipts for
services rendered.
30 Salary expense 303 5,000
Cash in bank 101 4,750
SSS premium payable 202 250
To record payment of salary
for the period Oct. 16-30, 2008.
30 Accounts payable 201 25,000
Cash in bank 101 25,000
To record first installment of
computer.

EXERCISE 1

Jericho Lance Errand Service Company started on December 2009 with a plan
of establishing the errand service business. The errand business is established to
answer the calls of establishment in Caloocan city to do their errands for a fee. The
business had the following transactions on the first month of operation in December
2009.

December 1. Jericho invested P200, 000 and deposited the amount under the
current account of the business. He also invested his own car with current fair value
of P300, 000. (Use compound journal entry in recording this transaction.)

1. Bought one unit computer and printer for P30, 000, cash for office use.
2. Paid the following regulatory fees: P6, 500 for mayor’s permit, P500 for
BIR registration fees and DTI registration fees of P140. (Debited to
Taxes and licenses expense)
3. Paid P21, 000 for the advance payment for one month and two months
security deposit of security guards.
4. Bought computer table, office table, chairs, filing cabinet, and
other furniture for office use for cash, P 50, 000.
5. Bought office supplies, stapler, puncher, and other office supplies for cash
P4, 000 for office use.
 6. Paid P8, 000 for the neon light bearing the name of the shop.
(Advertising Expenses)
7. Hired office clerk with a salary of P12, 000 per month and two errand boys
with a starting salary of P12, 000 per month. (Non-business transaction)
8. Purchased two motorcycles. Terms P50, 000 down payment with monthly
amortization of P10, 000. Amortization will start on January 2, 2010 for
12 months.
9. Paid P30, 000 for cost of advertisement such as flyers , tarpaulin, and
radio advertisement. (Advertisement expense)
10.After a week of preparation, Jericho Lance formally opened the
business and spent P10, 000 for food in the opening ceremony.
(Advertisement expense)
11.On the first day of the operation, Jericho received P18, 000 from clients

15. Paid salary of employees P7, 500 for one week, net of withholding tax
of P1,200; paid P2, 000 for the office supplies

20. For the last two weeks he received P120, 000 from customers.

30. Spent total amount for gasoline, P3, 000

31.Paid salary of the personnel, P18, 000, net of P300 SSS premium, and
P200 PhilHealth premiums.

Use the following accounts to record the transaction: Cash in bank (No.101);
Office supplies(No. 102); Prepaid rent (No. 103); Office equipment (No. 104); Office
furniture and fixture (No. 105); Car and vehicle (No. 106); Motorcycles (No. 107);
Accounts payable (No. 201); SSS premium payable (No. 202); PhilHealth premium
payable (No. 203); Withholding tax payable (No 204); Office expense (No. 301);
Office supplies expense (No. 302); Advertisement expense (No. 303); Salary
expense (No. 304); Taxes and licenses expense (No. 305); Gas and oil expense (No.
306); Errand fees revenue (No. 401); Jericho Lance, capital (No. 501); Jericho Lance,
drawing (No. 502).

Required:
Prepare the journal entries using the general journal below: (You are required
to observe the rules in journalization such as the date, the writing of the debit and
credit accounts, and the debit and credit accounts and the rules in writing the brief
explanation. Spacing is quite material in writing the journal entries). December 1,
2008 transaction is prepared as an example:
Date PARTICULARS F DEBIT CREDIT
Dec. 1 Cash in bank 10 P
2009 1 200,000
Car and vehicle 10 300,000
6
Jericho Lance, capital 50 P
1 500,000
To record initial investment.
2

10

11

12

15
 20

30

31

Posting to the Ledger (Second Step in the Accounting Cycle)

In the journal, transactions are provided chronologically based on the dates
when they happen. The transaction which happens first will be recorded first, while
subsequent transactions are recorded next to the first transaction. The transaction
the happened on July 1 will be recorded first, before the transaction on July 2. After
recording in a journal, the entries are transferred to the ledger. The process is called
Posting. Posting to the ledger is done to sort-out the accounts and to
summarize the balances on the last day of the accounting period. The journal is the
source of data recorded in the general ledger and posting is mad to summarize the
business transactions based on the classification of accounts. All transactions
affecting cash account must be summarized in the cash account ledger. In posting
for example, all cash transactions affecting the increase and decrease of cash will
be summarized in tow columns: the debit and the credit, and the ending balance of
the account is determined. All accounts that would increase the cash including the
beginning balance will be computed to get the sum of the cash available for use
and deduct any amount of cash paid during the period. The remaining cash
balances is called debit balance to be presented in the balance sheet. Such
balance is supported by the statement of cash flow. Posting is actually the transfer
of the debit and credit balances from the journal to the ledger.

ILLUSTRATION OF POSTING PROCEDURES

Normally each account has its repective ledger written on every page of the
book of account. Cash in bank as an account has ageneral ledger; Albert, capital
also has a ledger and all the accounts used have a ledger. Looking back at the
journal where the journal entry is recorded, the recorded will be posted to the
general ledger in order to summarize the account. Assuming the first entry in the
journal debiting cash of P250,000 on October 1, 2008 and Crediting Albert, capital
of the same amount will be posted to the ledger.

For the journal entry on October 1, 2008, the placement of original

investment of the owner, cash in bank account will be the name of the ledger and
Albert, Capital account. To post the account, P250,000 cash in bank will be recorded
in the ledger bearing the same account in the debit column, because it is an asset
account. To illustrate:

Oct.
DATE1 Cash in back PARTICULARS 101
F P250,00
Debit Credit
2008 Albert, capital 501 P
To record initial investment. 250,000
The account number 101 will be placed in the journal to inform the auditor of the or the
bookkeeper that the amount is already posted in the ledger. P1 means page 1 look GL
#101. To illustrate:
General Ledger (GL)
Name of the account: Cash in bank No. 101
DATE Particulars F Debit Date Particulars F Credit

Oct. Cash investment P1 P250,00

1

Name of the Account: Albert, Capital

DATE Particulars F Debit Date Particulars F Credit

Oct. Original P P250,000

1 Investment 1

The Account number 501 will be placed in the journal to inform the auditor or
the bookkeeper that the amount is already posted in the ledger.

The process will be continued until the entire posting is done to summarize
the transaction in the month, because bookkeeping is a routine job. In posting, the
information or explanation of the transaction is copied such as the explanation
“original investment” or initial investment” will be written in the ledger to keep
track of the recording.

To illustrate:
The process is from the business transaction to T-account.
Fabulous Face Center presented the following transaction below and record
Directly to the T-Account in 2011:

Jan. 1. Lemie, the owner invested P2,000,00 to open a beauty face clinic and
deposit the money
deposit the money in the bank.
2. Purchased furniture and fixtures nad P30,00 on cash basis.
8. Purchased medical equipments from NNN medical Equipment worth
P1,000,000 cash
 9. Paid P200,000 rental deposit on clinic leased.
10. Purchased medical supplies from Abot Drugs, P40,000 on account.
11. Paid the corresponding taxes and registration fees, P30,000
13. Received P300,000 medical fees from patients.
15. Paid salary of medical staff, P30,000
20. Paid 50% of account of purchased of medical supplies on January 10.
20. Return P5,000 worth of supplies to Abot Drugs.
21. Applied P50,000 rental deposit to monthly rental.

Required:
Prepared T-Accounts using the following accounts: Cash in bank; Funiture and
Fixtures; Medical equipment; Rental deposit; Medical supplies; Accounts payable;
Taxes and licenses expense; Salary expense; Medical supplies: Rent expense
Lemie, capita; Medical fees revenue.

Jan. Jan.
2,000,000 30,000

300,000 1,000,000

200,000
11
30,000
15
30,000
20
20,000
2,300,000 1,310,000
Bal. 990,000

Furniture
Jan. 2 30,000
Medical Equipment
Jan. 8 1,000,000

Accounts Payable

Jan. 20 20,000 Jan. 10 40,000

21 5,000 40,000

25,000 Bal. 15,000

 Jan. 13 30,000 Jan.1 2,000,000

Medical Supplies Rental Deposit

Jan. 10 40,000 Jan.215,000 Jan. 30 Jan. 9 200,000

50,000

Bal. 30,000 Bal. 150,000

Taxes and Licenses Medical Supplies Expenses

Jan.11 30,000

Rent Expense Salary Expense

Jan. 50,000 Jan.15 32,000

From the above T-account presentation compute the following balances:

1. Balance of cash in bank

2. Balance of Lemie capital
3. Balance of Account payable
4. Balance of Medical supplies
5. Balance of Medical fees revenue
6. Balance of Rental deposit
7. Balance of Medical equipment
8. Balance of expense
9. Balance of Salary
10.Balance of Taxes and license expense
11.Balance of Furniture & fixture
 GENERAL LEDGER OF JERICHO LANCE ERRAND SERVICE COMPANY

Cash in Banks

Date Particular F Debit Date Particular F Credit

Dec. Cash P200,00 Dec. Purchase cost of P
1 Investment 0 1 computer 30,000
11 Service 18,000 2 Payment of mayor’s 7,140
rendered permit
12 Services 120,000 3 Rental deposit and 21,000
rendered advances
Total debit 338,000 4 Computer table and 50,000
chairs
5 Office supplies 4,000
6 Cost of neon lights 8,000
Cash in bank P 8 Down payment 50,000
debit balance 97,360
 9 Advertising 30,000
10 Office expense 10,000
15 Payment of salary 7,500
15 Payment of supplies 2,000
30 Gasoline 3,000
31 Payment of salary 18,000
Totals credit 240,640

Name of the Account: Car and Vehicle

No.

Date
201 Particular F Debit Date Particular F Credit
0
Dec. Investment P300,000
1

Name of the Account: Jericho Lance, Capital

No. 102

Date
Date Particular F Debit Particular F Credit
2010
Dec. Investment 500,000
1

Name of the Account: Office Equipment

No.

Date
2010 Particular F Debit Date Particular F Credit

Dec. Purchased of P 30,000

2 computer &
printer

Name of the Account: Taxes and License

No.

Date
2010 Particular F Debit Date Particular F Credit

Dec. Mayor’s permit P 7,140

3 and BIR, DTI
registrations

Name of the Account: Security Service

Deposit No.

Date
2010 Particular F Debit Date Particular F Credit

Dec. Deposit on 21,000

4 security guard 2
months deposit
and one month
advance

Name of the Account: Office Furniture and Fixture

No.

Date
2010 Particular F Debit Date Particular F Credit

Dec. Purchase of 50,000

4 office furniture

Name of the Account: Office Supplies

No.
Date
2010 Particular F Debit Date Particular F Credit

Dec. Purchase of 4,000

5 office supplies
15 Purchas of office 2,000
supplies
6,000

Name of the Account: Advertising

Expense No.
Date
2010 Particular F Debit Date Particular F Credit

Dec. Neon lights 8,000

6
9 Cost of tarpaulin 30,000
 10 Food for 10,000
opening day
48,000

Name of the Account: Motorcycle

No.

Date
2010 Particular F Debit Date Particular F Credit

Dec. Purchas of two 170,000

8 motorcycles

Name of the Account: Account Payable

No.

Date
2010 Particular F Debit Date Particular F Credit

Dec. Purchase of motorcycles 120,000

8

Name of the Account: Service Income

No.

Date
Date Particular F Debit Particular F Credit
2010
Dec. Service rendered 18,000
11
20 Services rendered 120,000

138,000

Name of the Account: Salary Expense

No.

Date
Date Particular F Debit Particular F Credit
2010
Dec. Salary for one 8,700
15 week
31 Salary (Dec. 16- 18,500
31)
27,200
 Name of the Account: Gas and Oil
No.

Date
Date Particular F Debit Particular F Credit
2010
Dec. Purchase of 3,000
30 gasoline

Name of the Account: SSS Premium Payable

No.

Date
Date Particular F Debit Particular F Credit
2010
Dec. Payment of Salary 300
31

Name of the Account: PhilHealth Premium Payable

No.

Date
Date Particular F Debit Particular F Credit
2010
Dec. Payment of Salary 200
31

Name of the Account: Withholding Tax Payable

No.

Date
Date Particular F Debit Particular F Credit
2010
Dec. Salary for one week 1,200
15

The journal provides the recording of a transaction completely in one

or two pages in a month, while a ledger is usually written one account in
 every page of the books of account. The summary of account will be based
on the transaction affecting the account. Can you determine the balance of
cash from the journal? The answer is no. To make this possible the debit and
credit of a particular account should be summarized in one account called
the ledger and this individual ledger are filed in a book called general ledger
as illustrate above.

Preparation of Trial Balance (Third Stage of the Accounting Cycle)

At this point, the summary will again be grouped into normal balance
to test the equality of the debit and credit amounts. The accuracy of
choosing the correct account will not be part of the checking procedure in
the preparation of the trial balance. The accuracy of the amount involved in
the journalizing portion and posting process will be checked in the
preparation of a trial balance. A trial balance is a list of accounts derived
from ledger balances. The following are the steps in determining the
balances of the ledgers:

1. Total the debit column in pencil. This is called pencil footing. It is done in
pencil and the amount is written as a small figure to distinguish it from the
regular entries. Erasure is allowed if the figures are found incorrect. Do the
same with the credit total. Extract the balance and place the debit balance in
the explanation column while the credit side in line with the last credit
posting.

To illustrate: (ALBERT AUTO Repair Center)

Name of the Account: Cash in Bank

No. 101

Date
Date Particular F Debit Particular F Credit
2010
Oct. 1 Cash P250,00 Oct. 1 Down payment computer P100,00
investment 0 0
10 Service 8,000 2 Payment of mayor’s 9,140
rendered permit
22 Services 120,00 3 Rental deposit and 45,000
rendered advances
Total debit 378,00 4 Computer table and 60,000
chairs
5 Cost of shop wiring 5,000
6 Cost of neon lights 8,000
Cash in bank P 8 Cost of advertisement 3,000
debit balance 106,610
9 Food on the opening day 7,000
 15 Payment of salary 2,500
20 Payment of shop supplies 2,000
30 Payment of salary 4,750
30 First payment on 25,000
computer
Total credit 271,390

2. Footing is no longer needed if there is a single debit or credit amount;

examples of this accounts are shop furniture, shop equipment and rent
deposit accounts which have single entry, and the balances of these accounts
will no longer be extracted nor placed in the explanation column if posting is
on one side only. To illustrate:

Name of the Account: Shop Furniture

No. 106

Date
Date Particular F Debit Particular F Credit
2010
Oct. 4 Construction of P 60,000
computer table
and chairs