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Senior High School

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2 QUARTER 2: Module 1

Accounting Books – Journal and Ledger

Department of Education ● Republic of the Philippines

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Fundamentals of Accountancy, Business and Management 2 Senior High School Alternative Delivery Mode First Edition, 2020

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Allen Joy A. Vedra

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Introductory Message

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Dear Teachers and Learners! The writer welcomes you all to this Fundamentals of Accountancy, Business and Management 2 Modules. This material tries to bring you with the preparation and analysis of financial statements of a service business and merchandising business using horizontal and vertical analyses and financial ratios. Knowledge and skills in the analysis of financial statements will aid the future entrepreneurs in making sound economic decisions. As your partner in learning, I hope that you will not miss out every detail that the writer would like you to learn in this material. Do enjoy as there are challenging and interesting activities inside this learning modules. Congratulations in advance for this will make you the master of your own learning. Ops! you wait for a while, for an easy use of this material take note of some few reminders 1. Take your time to read every detail that this module contains. 2. This material contains Module 1 and each of which is provided with activities/tests that will surely lead you to learn. 3. Here are the Icons used as your guide in every part of the lesson.

Icons of this Module What I Need to Know

This part contains learning objectives that are set for you to learn as you go along the module.

What I know

This is an assessment as to your level of knowledge to the subject matter at hand, meant specifically to gauge prior related knowledge. This part connects previous lesson with that of the current one.

What’s In

What’s New

This is an introduction of the new lesson through various activities before it will be presented to you

What is It

This is a discussion of the activities as a way to deepen your discovery and understanding of the concept.

What’s More

This is a follow-up activity that is intended for you to practice further in order to master the competencies. This activity is designed to process what you have learned from the lesson

What I Have Learned

What I can do

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This is a task that is designed to showcase your skills and knowledge gained, and applied into real-life concerns and situations.

4. Please do follow the directions given per activity so your experience to the use of this material will be meaningful and fruitful. 5. Answer all the tests in this material. 6. As a courtesy to the future users, PLEASE DO NOT WRITE ANYTHING ON ANY PART OF THIS MODULE. Write your answer/s on a separate sheet of paper, notebook, workbook or whichever is specified by your facilitator

Special Reminders for you learners; 1. Answer every activity intelligently and diligently. 2. Write your answer as directed by your facilitator. 3. Feel free to approach or communicate your teacher/facilitator whenever you need help. 4. Don’t forget to put a smiley face if you finish the activity within the allotted time.

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Table of Contents Page What This Module is About………………………………………………….. Icons of this Module………………………………………………………….. QUARTER 2

Introduction to Fundamentals of Accounting and Business Management What I Need To Know………………………………

Module 1

Accounting Books – Journal and Ledger ………..

Activity 1.1.1 1.1.2 1.1.3 1.1.4

Friendly Trucking Dayana Merchandising Identify Me T-accounts I Can Do This!

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Module 1 Introduction to Fundamentals of Accountancy and Business Management 2 What I Need To Know Beloved student, This module will guide you as future successful entrepreneurs and you will know the preparation and analysis of financial statements of a service business and merchandising business using horizontal and vertical analyses and financial ratios. Knowledge and skills in the analysis of financial statements will aid the future entrepreneurs in making sound economic decisions. In this module you are going to have an appreciation of what the overall objective of accounting should be, the preparation of basic business forms and documents, including bank transactions and a simple bank reconciliation statement. Integration of information technology in accounting will also be introduced. Lastly, you will prepare an accounting practice set that requires the application of learning in the first three accounting courses. This module begins with questioning mind about the accounting books is going on. After learning more about being financial analyst and accountant individuals, you will prepare your own accounting books on your business. The primary goal of this module is to engage you in accounting activities so that business transactions are journalized, analyzed and interpreted. Basically, the module has five lessons: Lesson 1: Accounting Books – Journal and Ledger Lesson 2: Basic Documents and Transactions related to Bank Deposits Lesson 3: Bank Reconciliation Statement Lesson 4: Accounting Practice Set Lesson 5: Income and Business Taxation Hence, at the end of this module, you are expected to: 1. differentiate the journal from the general ledger (ABM_FABM12-IIa-b1) 2. determine the normal balance of an account (ABM_FABM12-IIa-b2) 3. prepare journal entries to record basic business transaction (ABM_FABM12IIa-b3) 4. determine balances of accounts using the t-account (ABM_FABM12-IIa-b4) 5. identify the types of bank accounts normally maintained by a business (ABM_FABM12-IIc-5)

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6. differentiate a savings account from a current or checking account (ABM_FABM12-IIc-6) 7. prepare bank deposit and withdrawal slips (ABM_FABM12-IIc-7) 8. identify and prepare checks (ABM_FABM12-IIc-8) 9. identify and understand the contents of a bank statement (ABM_FABM12-IIc9) 10. describe the nature of a bank reconciliation statement (ABM_FABM12-IId10) 11. identify common reconciling items and describe each of them (ABM_FABM12-IId11) 12. analyze the effects of the identified reconciling items (ABM_FABM12-IId12) 13. prepare a bank reconciliation statement (ABM_FABM12-IId13) 14. perform the steps in the accounting cycle, from preparation of documents to the preparation, analysis, and interpretation of financial statements (ABM_FABM12-IIe-g14) 15. define income and business taxation and its principles and processes (ABM_FABM12-IIh-j15) 16. prepare the list of sources of gross income from compensation and gross income from business, and the corresponding personal and additional deductions (ABM_FABM12-IIh-j16) 17. explain the procedure in the computation of gross taxable income and tax due (ABM_FABM12-IIh-j17) 18. prepare the BIR forms (ABM_FABM12-IIh-j18) 19. explain the principles and purposes of taxation (ABM_FABM12-IIh-j19) 20. distinguish individual from business taxation (ABM_FABM12-IIh-j20) 21. compute the gross taxable income and tax due (ABM_FABM12-IIh-j21)

Icons of this Module

What I Need to Know

This part contains learning objectives that are set for you to learn as you go along the module.

What I know

This is an assessment as to your level of knowledge to the subject matter at hand, meant specifically to gauge prior related to knowledge

What’s In

This part connects previous lesson with that of the current one.

What’s New

An introduction of the new lesson through various activities, before it will be presented to you

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What is It

These are discussions of the activities as a way to deepen your discovery and understanding of the concept.

What’s More

These are follow-up activities that are intended for you to practice further in order to master the competencies.

What I Have Learned

Activities designed to process what you have learned from the lesson

What I can do

These are tasks that are designed to showcase your skills and knowledge gained, and applied into real-life concerns and situations.

What I Know Multiple Choice Directions: Read the questions carefully and encircle the best answer. 1. The accounting equation is: a. Asset – Liabilities = Owner’s Equity b. Assets = Liabilities + Owner’s Equity c. Liabilities + Assets = Owner’s Equity d. Liabilities = Assets + Owner’s Equity 2. It is an item that is listed either as an asset, liabilities, or capital. a. Ledger b. Journal c. Debit and credit d. Account 3. It is the process of recording the business transaction in a chronological order in the book of original entry through journal entries. a. Journalizing b. Posting c. Accounting cycle d. Columnar 4. It refers to an accounting process or steps of a series of activities of the business during the fiscal period.

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a. Journalizing b. Posting c. Accounting cycle d. Columnar 5. The lefthand side of the account is called___________. a. Increase b. Debit c. Credit d. Decrease 6. The righthand side of the account is called ______________. a. Increase b. Debit c. Credit d. Decrease 7. It is daily collection of business transactions entered into by an entity. a. General journal b. Special journal c. Journalizing d. General ledger 8. It presents transactions in relation to the accounts they affect. a. General journal b. Special journal c. Journalizing d. General ledger 9. Paid the monthly water bill for P445. a. Increase in assets = increase in capital b. Increase in assets = increase in liabilities c. Decrease in assets = decrease of capital d. None of the above 10. These are the steps or process of the accounting cycle, except a. Recording or journalizing b. Preparing the trial balance c. Closing entries d. None of the above

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Accounting Books – Journal and Ledger

What’s In You have personal diaries to record to all your daily routine, schedule, task list, stories, and expenses everyday. Journals and ledgers can be compared to a personal diary because they are used to record the day-to day transactions of the business. After all, as entrepreneur, it is important to keep record all your activities for you to track your desired goals in life. Each transaction a company makes throughout the year is recorded in its accounting system. There are many different journals that are used to track categories of transactions like the sales journal. All company transactions are recorded in the general journal. The general journal is the master journal that all company transactions and journal entries are recorded. A typical general journal has at least five columns: one for the date, account titles, posting reference, debit, and credits columns. It is a company’s main accounting record. It is a complete record of financial transactions over the life of a company. The ledger holds account information that is needed to prepare financial statements. It includes accounts for assets, liabilities, owner’s equity, revenues, and expenses. A ledger is used to summarized and classify transaction in preparation for financial statements.

What’s New To achieve the objectives of this lesson, you must put on your mind the following terms:    

Accounting cycle Accounting equation Credit Debit

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General journal General ledger Normal balance T-accounts

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What Is It

As discussed in your previous accounting course, accounting uses a double entry mechanism in capturing economic transactions. This means that in every business transaction, at least two accounts are affected and always be kept in balance. Companies initially record transactions and events in chronological order (the order in which they occur). Thus, the journal is referred to as the book of original entry. For each transaction the journal shows the debit and credit effects on specific accounts. The journal is a chronological record (day-by-day) of business transactions. It is called the book of original because it is the accounting record in which financial transactions are first recorded. The general ledger (commonly referred by accounting professionals as GL) is a grouping of all accounts used in the preparation of financial statements. The GL is a controlling account because it summarizes all the activities that have taken place as recorded in its subsidiary ledger. The ledger refers to the accounting book in which the accounts and their related amounts as recorded in the journal are posted to periodically. The ledger is also called the “book of final entry” because all the balances in the ledger are used in the preparation of financial statements. This is also referred to as the T-Account because the basic form of a ledger is like the letter “T”. Since accounting is the process of identifying, recording, and communicating economic events of an organization to interested users according to Weygandt et.al. Journals and ledgers can be compared to a personal diary because they are used to record the day-to day transactions of the business. The two major types of books of accounts are journal and ledger. 1. The General Journal and Special Journal Many businesses maintain several types of journals. The nature of the business operations and the volume of transactions determine the type and number of journals needed. The simplest type of journal is called the general journal. The process of recording a transaction is called journalizing the transactions. This type of journal is unique among journals because it may be used to record any type of business transactions. Recording all transactions in the general journal is not cost effective and time consuming. To speed up and simplify the recording process, most businesses make use of special journals. Each special journal is designed 6

to record a particular type of transaction efficiently and quickly. Examples of special journals and their use are the following: a. Cash Receipts Journal – is used to record all cash that had been received. b. Cash Disbursements Journal – is used to record all transactions involving cash payments. c. Sales Journal (Sales on Account Journal) – is used to record all sales on credit (on account) d. Purchase Journal (Purchase on Account Journal) – is used to record all purchases of inventory on credit (or on account) The importance of using a journal is to show all information concerning a particular transaction. It also provides a chronological record of all the financial events in the business over time. If we want to know about a certain transaction of years or months back, we can trace the said transactions as long as we have the date of the said transaction. The entries in the journal are arranged by date that makes it necessary to locate a particular event. 2. The Use of General Ledger A ledger is a means of accumulating in one place all the information about changes in an asset, liability, equity, income, and expense accounts. A sample of the general ledger is shown below: GENERAL LEDGER Account: Cash Date Item

Ref

Debit

Credit

Account No.: 1000 Balance

A general ledger is often called a T-Account because of its resemblance to the letter T. A T-Account is a simplified form of general ledger. A sample of a T-account is shown below: ACCOUNT TITLE (Ex. Cash) Left Side or Debit Side

Right Side or Credit Side

A T-Account for each of the account titles listed on the said chart is prepared to determine the balance at the end of the period of each account. Shown below is the Chart of Accounts discussed in ABM1 Chapter 8 (Types of Major Accounts). 7

ACCOUNT CODE ACCOUNT TITLE Statement of Financial Position Accounts 1000 Cash 1200 Accounts Receivable 1201 Allowance of Bad Debts

CLASSIFIED BY THE TYPE OF MAJOR ACCOUNTS

ACCOUNT CODE ACCOUNT TITLE Statement of Financial Position Accounts 1300 Inventory 1400 Prepaid Expenses 1500 Supplies 1600 Office Equipment

CLASSIFIED BY THE TYPE OF MAJOR ACCOUNTS

1601 1650 1651 1680 1681 1750 1751 1800 1900 2000 2100 2200 2201 2202 2300 3000 3100

AccumDeprn- Off Eqpt Store Equipment AccumDeprn – Store Eqpt Transportation Equipment AccumDeprn – Trans Eqpt Building AccumDeprn – Building Land Intangible assets Accounts Payable Notes Payable Accrued Expenses Salaries Payable Utilities Payable Income Taxes Payable Owner’s, Capital Owner’s, Wthdrawal

ACCOUNT ACCOUNT TITLE CODE Income Statement Accounts 4000 Service Revenue 4100 Sales 4101 Sales Returns and Allowances 4102 Sales Discounts 4150 Interest Income 5000 Cost of Sales 5100 Purchases 5101 Purchase Returns & Allowances 5102 Purchase Discounts 5103 Freight in 6100 Salaries Expense 6150 Supplies Expense 6200 Utilities Expense 8

ASSETS

ASSETS

LIABILITIES

EQUITY

CLASSIFIED BY TYPE OF MAJOR ACCOUNTS

INCOME

EXPENSES

6220 6250 6300 6350 6400 6410 6450 6500 6600 6700

Communication Expense Travel Expense Rental Expense Fuel Expenses Advertising Expense Delivery Expense Commission Expense Depreciation Expense Taxes and Licenses Interest Expense

In order to determine the ending balance of each account using the “Taccount”, the beginning balance is plot in the appropriate debit or credit side, then total debits and credits are then determined. If the account has a beginning balance on the debit side, all the debits during the period is added to the beginning then all the credits are deducted. There is a debit balance of the account if the sum of the beginning balance and the total debits exceeds the total credits. The normal balances of these accounts are listed below: a. Asset Accounts – Debit Balance; however, the normal balance of a contra asset account is credit. In the above chart, the contra asset accounts are: Allowance for Bad Debts, Accumulated Depreciation (Accum. Deprn.) – Store Equipment Accum. Deprn. – Off Eqpt Accum. Deprn – Trans Eqpt Accum. Deprn – Building b. Liability Accounts – Credit Balance c. Equity Accounts – Owner’s, Capital account has a normal balance on the credit side while the Owner’s, Withdrawal account has a normal balance on the debit side. d. Income – Credit Balance e. Expense – Debit Balance A summary of the normal balance of the account is shown below: Increase (Normal Balance) Statement of Financial Position Accounts Asset Debit Liability Cre...