Source Documents identify and describe transactions and events entering the accounting process.

These contain information about the nature and amounts of the transactions. These are the bases for
the journal entries.
Journal is a chronological record of the entitys transactions. It is the book of original entry. Journal
Entry shows all the effects of a business transaction in terms of debits and credits.
All transactions must be recorded through a journal entry that provides specific instructions in
a line-by-line sequence. Each line names a specific account and an amount designated as a debit
or credit function to be posted to each named account:
1. The journal entry must identify at least two accounts.
2. The journal entry must show at least one debit and one credit entry.
3. Last but not least, the sum of the debits and credits must be equal.
Ledger a grouping of the entitys accounts. A general ledger is the reference book of the
accounting system and is used to classify and summarize transactions, and to prepare for basic
financial statements.
The accounts in the general ledger are classified into two groups:
1. Balance sheet or permanent accounts
2. Income statement or temporary accounts or nominal accounts.
Trial Balance - is a list of all accounts with their respective debit or credit balances. It is prepared to
verify the equality of debits and credits in the ledger at the end of each accounting period or any time
the postings are updated.
It is a control device that helps minimize accounting errors. When the totals are equal, the trial
balance is in balance.
Procedures in the preparation of a trial balance follow:
1. List the account titles in numerical order
2. Obtain the account balance of each account from the ledger and enter the debit
balances in the debit column and the credit balances in the credit column
3. Add the debit and credit columns
4. Compare the totals.
Account Type Debit / Credit
Asset accounts
debits increase account balances
credits decrease account balances
Liability accounts:
debits decrease account balances
credits increase account balances
Equity accounts,
debits decrease account balances
credits increase account balances
Income accounts
debits decrease account balances
credits increase account balances
Expense accounts
debits increase account balances
credits decrease account balances
Normal Balances
Asset - Debit
Liability - Credit
Equity - Credit
Revenue - Credit
Expense - Debit
EXAMPLE:
1. May 1, 2015. Yacapin invested 250,000 into a business
2. May 1, 2015. She rented office space and paid two months rent in advance, 8,000
3. May 2, 2015. Yacapin issued a promissory note for a 210,000 loan from metrobank. This
availment will be used for the acquisition of a service vehicle. The note carries a 20% interest
per annum.
4. May 2, 2015. Hired an office assistant and an account executive each with a 7800 monthly
salary. Or each is to receive 300 per day for the 26-day work immediately
5. May 4, 2015. Acquired service vehicle for 420,000.
6. May 4, 2015. Paid Prudential Guarantee and Assurance, Inc. 14,400 for a one-year
comprehensive insurance coverage on the service vehicle.
7. May 5. Acquired office equipment from Fair and Square Emporium for 60,000; paying
15,000 in cash and the balance next month.
8. May8. Purchased supplies on credit for 18,000 from San Jose Merchandising.
9. May 9. Paid San Jose Merchandising 10,000 of the amount owed.
10. May 10. Coordinated and finalized simple bridal arrangement for three couples and collected
fees of 8800 per couple. Services include prospecting and selecting the church and
reception location.
11. May 13. Paid salaries 6600. The entity pays salaries every two Saturdays
12. May 15. The entity is earning additional revenues by referring consulting clients to friendly
hotels, caterers. Received 10,000 advance fees for three clients referred.
13. May 19. Coordinated and finalized elaborate bridal arrangements for three couples and billed
fees of 12,000 per couple.
14. May 25. Yacapin withdrew 14,000 for personal expenses.
15. May 27. Paid salaries, 7200
16. May 30. Received the ICC-Bayan telephone bill, 1400
17. May 30. Received 24,000 from two clients for services billed last Amy 19.
18. May 31. Settled the electricity bill of 3000 for the month

Summary
Five account types:
Assets, Liabilities, Equity, Income, Expense
All accounts have a Debit Side and a Credit Side
Debit Side is the Left Side (Left Column)
Credit Side is the Right Side (Right Column)
Asset and Expense Accounts
Debits increase, Credits decrease
Liability, Equity, and Income Accounts
Debits decrease, Credits increase