INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
MODULE II
Journalizing and Posting Transactions of
a Service-Oriented Business
Accountancy Department
College of Business Administration and Accountancy
De La Salle University – Dasmariñas
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
Course Learning Outcome
• Demonstrate acquired skills by accounting for transactions of a sole proprietorship business
engaged in service-oriented operations.
Topic Learning Outcomes
• Analyze and journalize the business transactions of a Service-Oriented Business by applying the
rules of the Double Entry Bookkeeping System using a General Journal
• Classify journalized transactions by posting to general and subsidiary ledgers.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
EFFECT OF TRANSACTIONS ON ACCOUNTING ELEMENTS
Using Exercise 8 on page 115 of your textbook 21st Century Accounting Process, let us analyze the effect
of business transactions on accounting elements and each account.
On October 1, Sancho Dy, business consultant, opened Business Solutions Company. A range of
consulting services is provided but his expertise lies in computer system installation and customer
program development. The following transactions took place:
1 Mr. Dy invested P50,000 cash, a P20,000 computer system, and P80,000 office equipment.
2 Signed a contract with Peter Lee, lessor, to lease an office space for P15,000 a month.
3 Purchased P8,420 of computer supplies on credit from Office Warehouse.
6 Billed Easy Internet P4,800 for services performed in installing a new Web server.
8 Paid in full for the computer supplies purchased from Office Warehouse
10 Hired Adel Po as a part-time assistant for P250 per day starting immediately.
12 Billed Fast Internet Shop P14,000 for computer system installation.
15 Received cash from Easy Internet 50% of its account.
17 Paid P1,500 cash to repair the damage on the computer equipment when it was relocated.
20 Paid P1,750 cash for advertising brochures.
22 Received cash from Easy Internet to apply on the balance of its account.
28 Billed IMC Company P15,200 for consulting services performed. A 50% down payment was
received.
29 Received two bills rent and utilities for a total of P22,200. The rent bill was paid.
30 Mr. Dy withdrew P3,000 worth of computer supplies. Only P2,020 worth of supplies
remained on hand.
31 Paid Adel’s wages for a 20-day work done this month.
Refer to tabular solution approach on next page for the summary of effect on accounting elements.
Oct 1 Mr. Dy invested P50,000 cash, a P20,000 computer system, and P80,000 office equipment.
Analysis: Increase in assets cash P50,000, computer system P20,000, and office equipment
P80,000 and increase in owner's equity Dy, Capital P800,000.
Oct 2 Signed a contract with Peter Lee, lessor, to lease an office space for P15,000 a month.
Analysis: As discussed, the mere signing of lease contract does not constitute a financial
transaction, therefore, no effect on the accounting elements.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
Oct 3 Purchased P8,420 of computer supplies on credit from Office Warehouse.
Analysis: On credit or on account means not yet paid; therefore, the effect would be increase in
assets Computer Supplies P8,420 and increase in Accounts Payable P8,420.
Oct 6 Billed Easy Internet P4,800 for services performed in installing a new Web server.
Analysis: Easy Internet is a client, remember that the nature of the business is to render its
expertise in computer system installation and customer program development. The
term performed denotes that the services has been rendered, thus a billing statement
or statement of account is given. It did not mentioned that the cash was received from
the customer. In applying the revenue recognition principle discussed in module 1
where revenue is recognized when the services has been rendered or performed
regardless of when cash is received. The effect would be increase in assets Accounts
Receivable for P4,800 and Revenue Service Income for the same amount.
Oct 8 Paid in full for the computer supplies purchased from Office Warehouse
Analysis: This is in reference to Oct 3 transaction where the business purchased supplies on
credit. The effect would be decrease in assets Cash for P8,420 and decrease in liability
Accounts Payable for P8,420.
Oct 10 Hired Adel Po as a part-time assistant for P250 per day starting immediately.
Analysis: Again, this is not yet a financial transaction since there is no monetary exchange
between the two parties.
Oct 12 Billed Fast Internet Shop P14,000 for computer system installation.
Analysis: Same with Oct 6 transaction, the effect would be an increase in asset: Accounts
Receivable for P14,000 and revenue: Service Income for the same amount.
Oct 15 Received cash from Easy Internet 50% of its account.
Analysis: This is in reference to Oct 6 transaction to which the business rendered its service to
Easy Internet but have not received the cash from the customer. This transaction is a
collection and since the revenue was already recognized or recorded last Oct 6 when
the service has been completed, the effect would be increase in assets Cash for P2,400
and decrease in another asset Accounts Receivable for half of the outstanding balance.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
Oct 17 Paid P1,500 cash to repair the damage on the computer equipment when it was relocated.
Analysis: The effect would be decrease in assets Cash for P1,500 and increase in expense
account Repairs Expense for the same amount.
Oct 20 Paid P1,750 cash for advertising brochures.
Analysis: The effect would be decrease in assets Cash for P1,750 and increase in expense
account Advertising Expense for the same amount.
Oct 22 Received cash from Easy Internet to apply on the balance of its account.
Analysis: This is a collection for the remaining balance, remember that the customer has only
paid for half of the amount last Oct 15. The effect would be increase in assets Cash for
P2,400 and decrease in another asset Accounts Receivable equivalent to the remaining
balance.
Oct 28 Billed IMC Company P15,200 for consulting services performed. A 50% down payment was
received.
Analysis: The effect would be increase in assets Cash for P7,600 for the 50% down payment,
Accounts Receivable for P7,600 for the unpaid portion and increase in revenue Service
Income for P15,200.
Oct 29 Received two bills rent and utilities for a total of P22,200. The rent bill was paid.
Analysis: The business received a billing statement for its rental and use of utilities but only the
rent was paid. In applying the expense recognition principle mentioned in module 1
where an expense must be recorded when incurred regardless of when payment was
made, effect would be increase in expense Rent Expense for P15,000 (based on signed
lease contract per Oct 2 transaction) and Utilities Expense for P7,200; and decrease in
Cash P15,000 for payment made on the rental and increase in liability Accrued
Expenses P7,200 for the unpaid utilities.
Oct 30 Mr. Dy withdrew P3,000 worth of computer supplies. Only P2,020 worth of supplies remained
on hand.
Analysis: The owner, Mr. Dy took P3,000 worth of supplies for personal use. Applying the
business entity concept where it says that the business and its owner should be
treated as separate entity, the equivalent amount of assets taken by Mr. Dy should
have a corresponding decrease on his investment. Therefore, the effect to asset is
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
decrease in the form of Computer Supplies P3,000 and increase in drawing account Dy,
Drawing for P3,000. Remember that drawings are deducted from owner’s total net
worth or equity.
It was also mentioned that after Mr. Dy withdrawn P3,000 worth of supplies, there
remain P2,020. Referring to Oct 3 transaction, the business had purchased a total of
P8,420 supplies, if Mr. Dy took P3,000 and the supplies at the end of the month is only
P2,020, it means that the business had used up P3,400 worth of supplies during the
month of October. The effect would be is to update the balance of computer supplies:
decrease in computer supplies for P3,400 and increase in supplies expense for the
same amount.
Oct 31 Paid Adel’s wages for a 20-day work done this month.
Analysis: Refer to Oct 10 transaction where Adel was hired for P250 per day. If the employee
had worked for 20 days, his total salary pay-out is P5,000. The effect is to decrease
asset Cash for P5,000 and increase in Salary Expense P5,000.
Tabular analysis of the effect of transactions for Business Solutions Company
Note that the accounting equation was maintained all throughout the presentations made. This is so
because of the dual effect of the transactions in the accounting elements. Recall that this Venetian
Model or Double Entry Bookkeeping requires that for every value received there is an equal value
parted with.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
JOURNAL ENTRIES
The transactions are initially recorded in the journal which is also called the book of original entry. The
debits and credits of each account are recorded chronologically by day. The simplest form of journal is
the two-column general journal and the process of recording in this book is called journalization. Every
entry made is called a journal entry. Each journal entry contains the following items:
1. Date
2. The account title and the amount to be debited.
3. The account title and the amount to be credited.
4. Explanation
An illustration on how to record transactions using the general journal based on the Business Solutions
Company problem is presented on the succeeding pages.
The following rules should be observed per page:
1. Enter the column headings: date, accounts and explanation, F, debit and credit.
2. Enter on the date column the year and the month. The month is written only once until you
move to the next month. Enter the date on a smaller column beside or below the month.
3. Enter the debit account on the accounts and explanations column and the amount on the debit
column.
4. Enter the credit account on the account and explanations column but indent it so it will not fall
on the debit account margin. Enter the amount on the credit money column.
5. Enter a brief explanation on the accounts and explanations column. Indent it further so it will
not fall on the debit or credit column. This is made for easy reading.
6. The money column consists of eight spaces where, starting from the right, the centavos, tens,
hundreds, thousands, ten thousands, hundred thousands and millions are placed. There is no
need to place a comma separating the hundreds from the thousands or a decimal point
separating the tens from the centavos, thus P12,345,678.90 will appear as follows:
7. If a complete journal entry cannot be accommodated at the bottom of the page, then transfer
all data to the next page. A journal entry must be completely recorded in one place for easy
reading and analysis.
8. A line or space is provided in between the entries to clearly separate one from the other.
9. If an error is committed either in figure or word, cross out the error with one horizontal line and
write the correct figure or word above it.
1000 car
For example: 100 or cash
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
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, like entry no.1, it is called a compound journal entry.
Note that the transactions are recorded chronologically and that the debit entry is recorded first. Also
note that the reference column (F) is not filled up since this is part of the posting procedure which is the
next step to be illustrated in the accounting cycle.
Let us satisfy the requirements of the problem.
a) Prepare your own Chart of Accounts. Start with account no.1 for assets, 11 for plant, property
and equipment, 20 for liabilities, 30 for equity, 40 for revenue, and 50 for expenses.
Take note that the chart of accounts is designed and customized according to the nature of business and
the accounts that will be used in recording its transactions.
b) Record in a two-column journal.
Remember the rules of debit and credit and
normal balances of each accounts. We will be
using these rules in preparing the journal
entries. Use the chart of accounts prepared for
the choice of account titles. Refer to tabular
solution for the ease of recording.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
POSTING TO THE LEDGER
The journal does not replace the ledger. The journal provides a complete recording of a transaction in
chronological order while a ledger shows in one page all the changes (increases or decreases) that took
place for a particular account. Look at the general journal illustrated above. Can you determine the
balance of the cash or of the service income? To make this possible the debits and credits of a particular
account, such as cash, should be summarized in one place so you can extract its balance. Each ledger
carries a particular account, so we have the cash ledger, accounts receivable ledger, computer supplies
ledger, and so on. These ledgers are filed in a book called general ledger which is also called the book of
final entry. If there are 20 accounts then you will need 20 ledgers to be compiled in the general ledger.
Each ledger contains the account title, the date, amount, page reference (to identify the entry source),
account number and the balance of the account. Each page is called a ledger. F or page reference
identifies the source of the entry such as journal, page 1 (J1). Particulars column describes the
transaction, followed by either a debit or credit posting copied from the journal. The last money column
gives a running balance after every posting made. Since there are three money columns involved, this
format is called the Three Column General Ledger. The process of transferring the debits and credits
from the journal to the ledger is called posting.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
POSTING PROCEDURE ILLUSTRATED
A. Based on the first debit entry in the journal, look for the account in the general ledger.
B. On the debit side date column, copy the date.
C. Copy the amount in the debit column extend the balance in the last column.
D. Insert the journal page number in the folio column or posting reference column of the ledger.
E. Insert the ledger account number in the folio column or posting reference of the journal.
F. The next account to be posted is the Cars account. Repeat steps A to E. The third account to
be posted is the capital account and so on until all the accounts have been posted or transferred from
the journal to the ledger.
Steps D and E, called cross reference, facilitates the tracing of an entry to and from the journal and
ledger. Also, if the F columns of the journal and the ledger are both filled up, it signifies that an entry has
already been posted. The folio column in the journal will be gradually filled up as the postings are made.
Let us continue the illustrative example.
c) Open the general ledger, post, insert appropriate posting references as each item is posted, foot and
extract the balances.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
The requirement (d) which asks you to prepare the trial balance will be discussed in module 4.
SUBSIDIARY LEDGERS AND CONTROL ACCOUNTS
A business has a number of account customers and creditors. If an account is maintained for each, the
general ledger would be very crowded, more postings will be made, the trial balance will be longer, and
it will be more difficult to locate errors. In the Business Solutions Company, although there are two
account customers only one accounts receivable is maintained in the general ledger. The same rule is
applicable for accounts payable. You may have five or ten creditors, but only one accounts payable is
maintained in the general ledger. The accounts receivable and accounts payable in the general ledger
are called control accounts. How do you keep track of each of your customer’s account or of each of
your supplier’s account? An individual record is kept for each one of them called subsidiary ledger or
customer’s card and creditor’s card. This is where details of their accounts are entered.
Using the statement of account or sales invoice, the accountant will post this on the debit side of the
customer's card. Using an official receipt representing collection from the customer, this is posted on
the credit side of the customer’s card. In other words, posting is done twice: 1) from the business paper
to the journal then to the general ledger and 2) again from the business paper to the subsidiary ledger.
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
The same rules are applicable for the account of a creditor/supplier, except that since this is a liability,
using a supplier’s invoice, this will be posted on the credit side of the supplier’s card, and then when
payment is made, this is posted on the debit side.
The folio column in the journal is divided into two parts. The upper part of the slant is for the account
number to indicate that it has been posted to the general ledger. The lower part of the slant is checked
to indicate that it has been posted to the subsidiary ledger.
From the balances coming from the cards, a schedule of accounts receivable or accounts payable is
prepared, the total of which should reconcile with the balance of the control account found in the
general ledger. Using the Business Solutions illustration, postings to the general ledger and subsidiary
ledgers as well as the schedule of accounts receivable will appear as below:
INTENSIVE BASIC ACCOUNTING
Module II: Journalizing and Posting Transactions of a Service-Oriented Business
To continue with the illustrative example, let us answer problem 9.
Using the journal entries prepared in no. 8, do the following: Open two customer’s cards, make
postings, and prepare a schedule of accounts receivable. Refer to your general ledger Accounts
Receivable. Did the balance tally with the balances of the accounts receivable ledgers you prepared here
in no. 10?
Note that the total is the same as the control account in the Accounts Receivable general ledger #2.