Module 3 The Accounting Cycle - 1

In this module, the students will learn how to identify events to be

recorded by gathering information about transactions or events through
source documents, record these events in a general journal by preparing
journal entries, post these entries to a general ledger or to a “T”-
Account, and check the equality of the accounting equation by preparing the
trial balance.

Learning Outcomes:
After studying this module, the students should be able to:
1. List and explain in brief the sequential steps in the accounting
cycle;
2. Identify the general journal as the book of original entry;
3. Detail the standard contents of the general journal;
4. Outline the steps in analysing transactions and state the role of
source documents;
5. Analyse the impact of transactions on the elements and the
specific accounts;
6. Apply the rules of debits and credits in analysing business
transactions;
7. Journalize the transactions in proper form;
8. Describe the general ledger and understand what purpose it serves;
9. Post entries from the general journal to the general ledger;
10. Distinguish between permanent and temporary accounts;
11. Develop a chart of accounts;
12. Prepare and explain the use of a trial balance;
13. Perform steps in locating and correcting errors.

Lesson 1
Recording Business Transactions in the Journal

I. Learning Outcomes

In this lesson, you should be able to:

1. analyse transactions of a business entity;
2. gather hard copies of source documents sample in businesses in
Surigao City;
3. solve and record the transactions in the general journal paper.

II. Pre-Assessment

Name: ________________________________________ Time: ___________________

Instruction: Before each statement, write TRUE if the statement is correct

or FALSE if the statement is incorrect.

1. Analyzing is the first step in the accounting cycle.

2. During the process of posting, information from the journal
are being transferred to the ledger.
3. Closing is the last step in the accounting cycle.
4. Source documents are written evidences containing
information about transactions that comes in various forms.
5. Journal entries are not recorded in the journal
chronologically.

1
 6. Prepaid supplies is debited to record the cost of the
supplies used as expense.
7. A journal entry has a date, accounts and amounts to be
debited or credited and short description of the
transaction.
8. Transactions are normally identified from source documents.
9. Reversing entries are optional
10. There are 9 steps in an accounting cycle.

III. Lesson Map

Step 2 Step 3
Step 1 Step 4
Transactions are Journal Entries are Posted
Identification of Events to to Preparation
Recorded in the Journal
be Recorded of a Trial Balance
the Ledger

The topics discussed in this lesson are accounting cycles number 1 to 4 in

priority order.

IV. Core Content

ENGAGE
Name: ________________________________________ Time: ___________________

Case.

Suppose Mr. Chan lends P500,000 to the entity. At the same time, the entity
uses part of the money to repay the amount owed to a creditor and holds the
remaining amount of P400,000 in the bank account. What is the effect of the
transactions to the accounting equation on the part of the entity? (use the
format below)

Assets = Liabilities + Capital

= +

= +

= +

2
EXPLORE
Name: ________________________________________ Time: ___________________

Gather hard copies of source documents sample in businesses in Surigao

City. (only 1 copy for each type of source document discussed in this
lesson.

EXPLAIN
TRANSACTION ANALYSIS (Step 1)

The analysis of transactions should follow these four basic steps:

1. Identify the transaction from source documents.
2. Indicate the accounts—either assets, liabilities, equity, income or
expenses— affected by the transaction.
3. Ascertain whether each account is increased or decreased by the
transaction.
4. Using the rules of debit and credit, determine whether to debit or
credit the account to record its increase or decrease.

Video Reference:

https://www.youtube.com/watch?v=2j_Lj2HBVIc&list=PLl-
IwImaCVm7FDTaw6Xh5urQM9HYWFRau&index=8

SOURCE DOCUMENTS

Transactions and events are the starting points in the accounting cycle. By
relying on source documents, transactions and events can be analyzed as to
how they will affect performance and financial position. Source documents
identify and describe transactions and events entering the accounting
process. These original written evidences contain information about the
nature and the amounts of the transactions. The actual sequence of events
begins with the identification of transactions. What transactions are
considered as accountable and what are not. The rule is, only transactions
and events which are of financial bearing to the business are being
recognized.

The basis of identifying transactions are the supporting documents that are
on file or yet to be files as evidence of transactions to assure the
reliability and verifiability of accounting records. The most common
documents of a service concern business are sales invoice, official receipt,
purchase order, receiving report, delivery receipt, cash voucher, check,
statement of account, bill of lading, validated deposit slip, debit and
credit memorandum, etc.

After identifying, follows next is analyzing. By analyzing, we have to ask

this questions to ourselves. “what is the value received and the value
parted with in this particular transactions?

3
Customers’ and suppliers’ sales invoices are used for the sale of goods.

Official receipts are used for the sale of services.

Purchase orders is a document issued by a buyer to a seller indicating the

tyoes, quantities and agreed prices fro products or services that the buyer
intends to purchase.

4
Receiving Report is a document containing information about goods received
from a vendor, it formally records the quantities and description of the
goods delivered.

Delivery Receipt is a document signed by the receiver of a shipment

indicating the fact that the goods were actually received by the intended
recipient.

Cash Voucher/check voucher is used to accompany a check whenever payment is

made to a seller or service provider.

5
Petty Cash Voucher is a standard form used as a receipt whenever cash is
withdrawn from a petty cash box. The voucher is typically purchased from an
office supply store. It is a physically small form, since it must fit
within the petty cash box or drawer. Disbursements from this are in petty
amounts only depending on the petty cash amount established by the company
for the purpose.

Check is a written order to a bank by a depositor to pay the amount

specified in the check from his checking account to the person named in the
check. The entity issuing the check is the payor or drawer, the receiver is
the payee and the bank is called the drawee bank.

Validated Deposit Slip a deposit slip evidences a deposit to a bank account.

It shows the teller’s machine validation which should show the date of
deposit, the bank account name and number, and the amount deposited.

6
Bill of Lading is a document issued by the carrier—a trucking, shipping or
airline—that specifies contractual conditions and terms of delivery such as
freight terms, time, place and the person named to receive the goods.

Statement of Account is a report a business sends to its customer listing

the transactions with the customer during a period, the payments made by the
customer (if there were prior payments) and states the remaining balance due
from the customer. A statement of account also serves as a notice of
billing.

7
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.

Bank Statement is a report by a bank (on a monthly basis) which shows the
deposits and withdrawals during the period and the cumulative balance of
depositor’s account.

8
THE ACCOUNTING CYCLE

The accounting cycle refers to a series of sequential steps or procedures

performed to accomplish the accounting process. The steps in the cycle and
their aims follow:

Step 1 Identification of Events to be Recorded

Aim: To gather information about transactions or events.

During the Step 2 Transactions are Recorded in the Journal

Accounting Aim: To record the economic impact of transactions
period on the firm in a journal, which is a form
that facilitates transfer to the accounts

Step 3 Journal Entries are Posted to the Ledger

Aim: To transfer the information from the journal to the
ledger for classification.

Step 4 Preparation of a Trial Balance

Aim: To provide a listing to verify the equality of
debits and credits in the ledger.

Step 5 Preparation of the Worksheet including Adjusting Entries

Aim: To aid in the preparation of financial statements.

Step 6 Preparation of the Financial Statements

At the end Aim: To provide useful information to decision-makers.
of the
accounting Step 7 Adjusting Journal Entries are Journalized and Posted
period Aim: To record the accruals, expiration of deferrals,
estimations and other events from the worksheet.

Step 8 Closing Journal Entries are Journalized and Posted

Aim: To close temporary accounts and transfer profit to
owner’s equity.

Step 9 Preparation of a Post-Closing Trial Balance

Aim: To check the equality of debits and credits
after the closing entries.

At the start Step 10 Reversing Journal Entries are Journalized and Posted
of the next Aim: To simplify the recording of certain regular
period transactions.

This cycle is repeated each accounting period. The first three steps in the
accounting cycle are accomplished during the period. The fourth to the
ninth steps generally occur at the end of the period. The last step is
optional and occurs at the beginning of the next period. Refer to the
following diagram for steps 2, 3, and 4.

9
 The General Journal Shows the effects of a transaction in terms of
(the book of original entry) debits and credits

Offi ce Equipment xxx

Cash xxx
Accounts Payable xxx
The Ledger

Posting (Step 3)
Cash
Transferring the amounts from the
general journal to appropriate accounts
in the ledger.
The Ledger Offi ce Equipment

A grouping of accounts. Used to

classify and summarize transactions
and to prepare data for basic Accounts Payable
financial statements.

Trial Balance
Listing of all ledger accounts, in order, Assets
with their respective debit or credit Liabilities
balances. Owner's Equity
Income
Expenses

THE JOURNAL

The journal is a chronological record of the entity's transactions. A

journal entry shows all the effects of a business transaction in terms of
debits and credits. Each transaction is initially recorded in a journal
rather than directly in the ledger. A journal is called the book of
original entry. The nature and volume of transactions of the business
determine the number and type of journals needed. The general journal is
the simplest journal.

Format

The standard contents of the general journal are as follows:

1. Date. The year and month are not rewritten for every entry unless the
year or month changes or a new page is needed.
2. Account Titles and Explanation. The account to be debited is entered
at the extreme left of the first line while the account to be
credited is entered slightly indented on the next line. A brief
description of the transaction is usually made on the line below the
credit. Generally, skip a line after each entry.
3. P. R. (posting reference). This will be used when the entries are
posted, that is, until the amounts are transferred to the related
ledger accounts. The posting process will be described later.

10
 4. Debit. The debit amount for each account is entered in this column.
5. Credit. The credit amount for each account is entered in this column.

Assume that Maria Concepcion Jennifer Perez-Manalo established her own

wedding consultancy with an initial investment of P250,000 on May 1.

The journal entry is shown below:

Date Account titles and Explanation P . R. Debit Credit

1 2018 1
2 May 1 Cash 2 5 0 0 0 0 2
3 Perez-Manalo, Capital 2 5 0 0 0 0 3
4 Initial investment. 4
5 5
6 6
7 7
8 8

Simple and Compound Entry

In a simple entry, only two accounts are affected—one account is debited

and the account credited. An example of this is the entry to record the
initial of Perez-Manalo. However, some transactions require the use of more
than two accounts. When three or more accounts are required in a journal
entry, the entry is referred to a compound entry.

Example of a Simple Entry:

Dr. Cash 100,000

Cr. Tuozo, Capital 100,000

Note: for a simple entry there is only one (1) debit (Dr.) and one (1)
Credit (Cr.)

Example of Compound Entry:

Dr. Office Equipment 50,000

Dr. Office Supplies 5,000
Cr. Cash 2,000
Cr. Accounts Payable 53,000

Note: the compound entry has three or more accounts are affected in one (1)
transaction.

TRANSACTIONS ARE JOURNALIZED (Step 2)

After the transaction or event has been identified and measured, it is

recorded in the journal. The process of recording a transaction is called
journalizing. The following are the transactions for Weddings "R" Us during
the month of May. The double-entry system will be used.

To understand the nature of the affected accounts, the letter A (for

asset), L (liability) or OE (owner's equity) is inserted after each entry.
In addition, owner's equity is further classified into OE: I (income) and
OE: E (expenses).

11
Note that the rules of double-entry system are observed in each
transaction:
1. Two or more accounts are affected by each transaction.
2. The sum of the debits for every transaction equals the sum of the
credits.
3. The equality of the accounting equation is always maintained at all
times.

Video Reference:

https://www.youtube.com/watch?v=vOGuOpkpBW8&list=PLl-
IwImaCVm7FDTaw6Xh5urQM9HYWFRau&index=9

Initial Investment (Source of Assets)

May 1 Maria Concepcion Jennifer Perez-Manalo is a social entrepreneur

from the South. She is into a lot of interesting causes. Her
fine taste is preeminent such that she is considered an
authority in planning weddings. Upon the advice and prodding of
an esteemed colleague, Bendalyn Landicho, Perez-Manalo decided
to organize her wedding consultancy. She invested P250,000 into
this entity.

Analysis Assets increased. Owner's equity increased.

Rules Increases in assets are recorded by debits. Increases in
owner's equity are recorded by credits.
Entry Increase in assets is recorded by debit to cash. Increase in
owner's equity is recorded by credit to Perez-Manalo, Capital.

Page 1

Date Account titles and Explanation P .R. Debit Credit

1 2018 1
2 May 1 Cash (A) 2 5 0 0 0 0 2
3 Perez-Manalo, Capital (OE) 2 5 0 0 0 0 3
4 Initial investment. 4

The capital account of a proprietor is recorded as follows:

Initial Investment and Additional Investment of the proprietor is credited

to the family name of the proprietor succeeded by a comma and the word
capital.

e.g. Perez-Manalo, Capital

Personal Withdrawals of the proprietor is debited to the family name of the

proprietor succeeded by a comma and the word withdrawals.

e.g. Perez-Manalo, Withdrawals

Rent Paid in Advance (Exchange of Assets)

May 1 Rented office space and paid two months' rent in advance,
P8,OOO.

Analysis Assets increased. Assets decreased.

Rules Increases in assets are recorded by debits. Decreases in assets
are recorded by credits.

12
Entry Increase in assets is recorded by a debit to prepaid rent.
Decrease in assets is recorded by a credit to cash.
6 1 Prepaid Rent (A) 8 0 0 0 6
7 Cash (A) 8 0 0 0 7
8 Advance rental payment. 8
9 9

Note Issued for Cash (Source of Assets)

May 2 Maria Concepcion Jennifer Perez-Manalo issued a promissory note

for a P210,000 loan from Metrobank. This availment will be used
for the acquisition of a service vehicle. The note carries a
20% interest per annum. The arrangement with the bank is that
both the interest and the principal are payable in full in one
year.

Analysis Assets increased. Liabilities increased.

Rules Increases in assets are recorded by debits. Increases in
liabilities are recorded by credits.
Entry Increase in assets is recorded by a debit to cash. Increase in
liabilities is recorded by a credit to notes payable.

2 Cash (A) 2 1 0 0 0 0 10
Notes Payable (L) 2 1 0 0 0 0 11
Loan proceeds from Metrobank. 12
13

May 2 Hired an office assistant and an account executive each with a

P7,800 monthly salary. Or, each is to receive P300 per day for
the 26-day work month. No entry is necessary at this point.
They started work immediately.

2 No Entry 14
15

The transaction has nothing to record because the employee was just hired
and no economic value can be assigned to the event.

Service Vehicle Acquired for Cash (Exchange of Assets)

May 4 Acquired service vehicle for P420,000.

Analysis Assets increased. Assets decreased.

Rules Increases in assets are recorded by debits. Decreases by
credits.
Entry Increase in assets is recorded by a debit to service vehicle.
Decrease in assets is recorded by a credit to cash.

13
 4 Service Vehicle (A) 4 2 0 0 0 0 16
Cash (A) 4 2 0 0 0 0 17
Acquisition of service vehicle. 18
19

Insurance Premiums Paid (Exchange of Assets)

May 4 Paid Prudential Guarantee and Assurance, Inc. P14,400 for a

one-year comprehensive insurance coverage on the service
vehicle.

Analysis An asset increased. Another asset decreased.

Rules Increases in assets are recorded by debits. Decreases in assets
are recorded by credits.
Entry Increase in asset' is recorded by a debit to prepaid insurance.
Decrease in assets is recorded by a credit to cash.

4 Prepaid Insurance (A) 1 4 0 0 0 20

Cash (A) 1 4 0 0 0 21
Acquisition of insurance policy. 22
23

Office Equipment Acquired on Account (Exchange and Source of Assets)

May 5 Acquired office equipment from Fair and Square Emporium for
P60,000; paying P15,000 in cash and the balance next month.
Note: A compound entry is needed for this transaction.

Analysis Assets increased. Assets decreased. Liabilities increased.

Rules Increases in assets are recorded by debits. Decreases in assets
are recorded by credits. Increases in liabilities are recorded
by credits.
Entry Increase in assets is recorded by a debit to office equipment.
Decrease in assets is recorded by a credit to cash. Increase in
liabilities is recorded by a credit to accounts payable.

5 Offi ce Equipment (A) 6 0 0 0 0 24

Cash (A) 1 5 0 0 0 25
Accounts Payable (A) 4 5 0 0 0 26
Acquisition of offi ce equipment. 27

Note:

The entry shown has one debit entry and has two credit entries, but the sum
of the debits equal to the sum of the total credits.

Supplies Purchased on Account (Source of Assets)

May 8 Purchased supplies on credit for P18,000 from San Jose

Merchandising.

Analysis Assets increased. Liabilities increased. Rules Increases in

assets are recorded by debits. Increases in liabilities are
recorded by credits.

14
Entry Increase in assets is recorded by a debit to supplies. Increase
in liabilities is recorded by a credit to accounts payable.

8 Supplies (A) 1 8 0 0 0 29
Accounts Payable (A) 1 8 0 0 0 30
Acquisition of offi ce equipment. 31
32

Accounts Payable Partially Settled (Use of Assets)

May 9 Paid San Jose Merchandising P1O,OOO of the amount owed.

Analysis Assets decreased. Liabilities decreased.

Rules Decreases in assets are recorded by credits. Decreases in
liabilities are recorded by debits.
Entry Decrease in liabilities is recorded by a debit to accounts
payable. Decrease in assets is recorded by a credit to cash.

9 Accounts Payable (A) 1 0 0 0 0 33

Cash (A) 1 0 0 0 0 34
Payment of accounts. 35
36

Revenues Earned and Cash Collected (Source of Assets)

May 10 Coordinated and finalized simple bridal arrangements for three

couples and collected fees of P8,800 per couple. Services
include prospecting and selecting the church and reception
location, couturier, caterer, car service, flowers, souvenirs
and invitations.

Analysis Assets increased. Owner's equity increased.

Rules Increases in assets are recorded by debits. Increases in
owner's equity are recorded by credits.
Entry Increase in assets is recorded by a debit to cash. Increase in
owner's equity is recorded by a credit to consulting revenues.

10 Cash (A) 2 6 4 0 0 37
Consulting Revenues (OE:I) 2 6 4 0 0 38
Performed services. 39
40

Salaries Paid (Use of Assets)

May 13 Paid salaries, P6,600. The entity pays salaries every two
Saturdays (refer to the calendar in Chapter 4).

Analysis Assets decreased. Owner's equity decreased.

Rules Decreases in assets are recorded by credits. Decreases in
owner's equity are recorded by-debits.
Entry Decrease in owner's equity is recorded by a debit to salaries
expense. Decrease in assets is recorded by a credit to cash.

15
 13 Salaries Expense (OE:I) 6 6 0 0 41
Cash (A) 6 6 0 0 42
Payment of employees salaries. 43
44

Unearned Revenues Collected (Source of Assets)

May 15 The entity is earning additional revenues by referring

consulting clients to friendly hotels, caterers, printers, and
couturiers. Received P1O,OOO advance fees for three clients
referred.

Analysis Assets increased. Liabilities increased.

Rules Increases in assets are recorded by debits. Increases in
liabilities Rules are recorded by credits.
Entry Increase in assets is recorded by a debit to cash. Increase in
liabilities is recorded by a credit to unearned referral
revenues.

15 Cash (A) 1 0 0 0 0 45
Unearned Referral Revenues (L) 1 0 0 0 0 46
Received advance payment for 47
for clients referred. 48

Revenues Earned on Account (Source of Assets)

May 19 Coordinated and finalized elaborate bridal arrangements for

three couples and billed fees of P 12,000 per couple.
Additional services include documents preparation, consultation
with a feng Shui expert as to the ideal wedding date for
prosperity and harmony, provision for limousine service and
honeymoon trip.

Analysis Assets increased. Owner's equity increased.

Rules Increases in assets are recorded by debits. Increases in
owner's equity are recorded by credits.
Entry Increase in assets is recorded by a debit to accounts
receivable. Increase in owner's equity is recorded by a credit
to consulting revenues.

19 Accounts Receivable (A) 3 6 0 0 0 50

Consulting Revenues (OE:I) 3 6 0 0 0 51
Performed services. 52
53

Withdrawal of Cash by Owner (Use of Assets)

May 25 Perez-Manalo withdrew P 14,000 for personal expenses.

Analysis Assets decreased. Owner's equity decreased.

Rules Decreases in assets are recorded by credits. Decreases in
owner's equity are recorded by debits.

16
Entry Decrease in owner's equity is recorded by a debit to Perez-
Manalo, Withdrawals. Decrease in assets is recorded by a credit
to cash.

25 Perez-Manalo, Withdrawals (OE) 1 4 0 0 0 54

Cash (A) 1 4 0 0 0 55
Personal drawings. 56

Salaries Paid (Use of Assets)

May 27 Paid salaries, P7,200.

Analysis Assets decreased. Owner's equity decreased.

Rules Decreases in assets are recorded by credits. Decreases in
owner's equity are recorded by debits.
Entry Decrease in owner's equity is recorded by a debit to salaries
expense. Decrease in assets is recorded by a credit to cash.

Page 2

Date Account titles and Explanation P .R. Debit Credit

1 1
2 May 27 Salaries Expense (OE:I) 7 2 0 0 2
3 Cash (A) 7 2 0 0 3
4 Payment of employees salaries. 4

Expenses Incurred but Unpaid (Exchange of Claims)

May 30 Received the ICC-BayanTel telephone bill, P1,400.

Analysis Liabilities increased. Owner's equity decreased.

Rules Increases in liabilities are recorded by credits. Decreases in
owner's equity are recorded by debits.
Entry Decrease in owner's equity is recorded by a debit to utilities
expense. Increase in liabilities is recorded by a credit to
utilities payable.

30 Utilities Expense (OE:E) 1 4 0 0 6

Utilities Payable (L) 1 4 0 0 7
Telephone bill for the month. 8
9

The credit to utilities payable may be used instead of the account Accounts
Payable. But in actual practice, the appropriate account title used is
either Accounts Payable or Accrued Expenses.

Accounts Receivable Partially Collected (Exchange of Assets)

May 30 Received P24,000 from two clients for services billed last May
19.

17
Analysis An asset increased. Another asset decreased.
Rules Increases in assets are recorded by debits. Decreases as
credits.
Entry Increase in assets is recorded by a debit to cash. Decrease in
assets is recorded by a credit to accounts receivable.

30 Cash (A) 2 4 0 0 0 10
Accounts Receivable (A) 2 4 0 0 0 11
Collection of accounts. 12
13

Expenses Incurred and Paid (Use of Assets)

May 31 Settled the electricity bill of P3,000 for the month.

Analysis Assets decreased. Owner's equity decreased.

Rules Decreases in assets are recorded by credits. Decreases in
owner's equity are recorded by debits.
Entry Decrease in owner's equity is recorded by a debit to utilities
expense. Decrease in assets is recorded by a credit to cash.

31 Utilities Expense (OE:E) 3 0 0 0 14

Cash (A) 3 0 0 0 15
Payment for electric bill for the 16
month. 17

The summary of the journal entries recorded in the general journal is as

follows:

18
 Page 1

Date Account titles and Explanation P .R. Debit Credit

1 2018 1
2 May 1 Cash (A) 2 5 0 0 0 0 2
3 Perez-Manalo, Capital (OE) 2 5 0 0 0 0 3
4 Initial investment. 4
5 5
6 1 Prepaid Rent (A) 8 0 0 0 6
7 Cash (A) 8 0 0 0 7
8 Advance rental payment. 8
9 9
10 2 Cash (A) 2 1 0 0 0 0 10
11 Notes Payable (L) 2 1 0 0 0 0 11
12 Loan proceeds from Metrobank. 12
13 13
14 2 No Entry 14
15 15
16 4 Service Vehicle (A) 4 2 0 0 0 0 16
17 Cash (A) 4 2 0 0 0 0 17
18 Acquisition of service vehicle. 18
19 19
20 4 Prepaid Insurance (A) 1 4 0 0 0 20
21 Cash (A) 1 4 0 0 0 21
22 Acquisition of insurance policy. 22
23 23
24 5 Offi ce Equipment (A) 6 0 0 0 0 24
25 Cash (A) 1 5 0 0 0 25
26 Accounts Payable (A) 4 5 0 0 0 26
27 Acquisition of offi ce equipment. 27
28 28
29 8 Supplies (A) 1 8 0 0 0 29
30 Accounts Payable (A) 1 8 0 0 0 30
31 Acquisition of offi ce equipment. 31
32 32
33 9 Accounts Payable (A) 1 0 0 0 0 33
34 Cash (A) 1 0 0 0 0 34
35 Payment of accounts. 35
36 36
37 10 Cash (A) 2 6 4 0 0 37
38 Consulting Revenues (OE:I) 2 6 4 0 0 38
39 Performed services. 39
40 40
41 13 Salaries Expense (OE:I) 6 6 0 0 41
42 Cash (A) 6 6 0 0 42
43 Payment of employees salaries. 43
44 44
45 15 Cash (A) 1 0 0 0 0 45
46 Unearned Referral Revenues (L) 1 0 0 0 0 46
47 Received advance payment for 47
48 for clients referred. 48
49 49
50 19 Accounts Receivable (A) 3 6 0 0 0 50
51 Consulting Revenues (OE:I) 3 6 0 0 0 51
52 Performed services. 52
53 53
54 25 Perez-Manalo, Withdrawals (OE) 1 4 0 0 0 54
55 Cash (A) 1 4 0 0 0 55
56 Personal drawings. 56
19
 Page 2

Date Account titles and Explanation P .R. Debit Credit

1
May 27 Salaries Expense (OE:I) 7 2 0 0 2
Cash (A) 7 2 0 0 3
Payment of employees salaries. 4
5
30 Utilities Expense (OE:E) 1 4 0 0 6
Utilities Payable (L) 1 4 0 0 7
Telephone bill for the month. 8
9
30 Cash (A) 2 4 0 0 0 10
Accounts Receivable (A) 2 4 0 0 0 11
Collection of accounts. 12
13
31 Utilities Expense (OE:E) 3 0 0 0 14
Cash (A) 3 0 0 0 15
Payment for electric bill for the 16
month. 17
18

Notice how recording process is made in a general journal:

 The debit account title is placed on the left margin of the Account
Titles and Explanation Column, while the credit account title is
recorded on the next row and is indented at least 5 spaces from the
debit account title.
 The explanation is also recorded after the credit account title row
and is indented at least 5 spaces from the credit account title.
 All debit and credit entries are aligned from the first entry to the
succeeding entries.
 The debit amount is recorded on the row where the debit entry is
located and under the Debit Column.
 The credit amount is recorded on the row where the credit entry is
located and under the Credit Column.
 Note the amounts has designated place value in the general journal.
Amounts are recorded from the left going to the right. Each figure
(number) is written on its assigned column value, starting from
centavos, ones, tens, hundreds, thousand, ten-thousands, hundred-
thousands, to millions.
 After the first set of entries, leave one row blank before the second
set of entries are recorded.
 The entries are chronologically recorded.

Another Example: (This problem will be used as an example for the 10

Accounting cycles)

Dr. Nick Marasigan, upon completing a residency program at Harvard Medical

Center, established a medical practice in San Pablo, Laguna. During
October 2018, the first month of operations, the following transactions
occurred:

20
Oct 1 Dr. Marasigan transferred P250,000 from his personal checking account
to a bank account, Dr. Nick Marasigan, M. D.

1 A medical clinic, P1,000,000 and land, P250,000 were acquired by

paying P50,000 in cash and issuing a 5-year, 20% notes payable
(interest is payable every 6 months) for the P1,200,000 balance.

1 Acquired medical equipment costing P420,000 and medical supplies

amounting to P39,000 by paying P59,000 cash and issuing a 24% notes
payable, maturing in 6 months, for the P400,000 balance.

2 Acquired "all-in-one" insurance for a year, P20,000.

4 Received cash from patients amounting to P117,000.00

7 Bought medical supplies on account from San Pablo Supply, P17,000.

10 Paid salaries of nurses and office staff, P73,000.

12 Received P90,000 from the Laguna Experimental Drug Center for

research to be conducted by Dr. Marasigan over the next 3 months.

18 Billed patients P317,000 for services rendered.

21 Paid P23,000 for repairs to the medical equipment.

23 Paid the telephone bill, P3,000.

24 Bought medical equipment on account from Dr. De Leon, P45,000.

25 Collected P113,000 from patients billed on the 18th.

27 Paid P13,000 on account to San Pablo Supply.

30 Withdrew P200,000 in cash from the medical practice.

30 Paid P15,000 dues to the Laguna Medical Association.

Required:
1. Establish the following accounts and account numbers in a ledger:

Cash 110 Marasigan, Capital 310

Accounts Receivable 120 Marasigan, Withdrawals 320
Medical Supplies 130 Income Summary 330
Prepaid Insurance 140 Medical Revenues 410
Land 150 Research Revenues 420
Medical Building 160 Salaries Expense 510
Accumulated Depreciation- 165 Insurance Expense 520
Medical Building Repairs Expense 530
Medical Equipment 170 Supplies Expense 540
Accumulated Depreciation- 175 Association Dues Expense 550
Medical Equipment Telephone Expense 560
24% Notes Payable 210 Depreciation Expense- 570
20% Notes Payable 220 Medical Building
Accounts Payable 230 Depreciation Expense- 580
Salaries Payable 240 Medical Equipment
Interest Payable 250 Interest Expense 590
Unearned Research Revenues 260

21
 2. Record the transactions for the month of October in a journal (page
1) and post the entries to the ledger. Use balance sheet accounts to
record those transactions that will later require adjustments.

3. Prepare a trial balance on a worksheet and record the following

adjustments on the worksheet:

a. Insurance for one month has expired.

b. Medical supplies on hand at month-end amounted to P21,000.
c. Depreciation on the medical building and on the medical
equipment is P5,000 and P9,000, respectively.
d. Unearned research revenues in the amount of P30,000 have been
earned.
e. Salaries of P51,000 have accrued,
f. Interest on the 20% and 24% notes are P20,000 and P8,000
respectively.

4. Complete the worksheet and prepare an income statement, statement of

changes in equity, and a balance sheet.

5. Record the adjusting and closing entries in the journal (page 2) and
post the entries to the ledger.

6. Prepare a post-closing trial balance.

7. Prepare the salaries and interest reversing entries in the journal

(page 3) and post them to the ledger.

Solution:

Page 1
Date Account T itles and Explanation P. R. Debit Credit
1 2019 1
2 Oct 1 Cash GL1 2 5 0 0 0 0 2
3 Marasigan, Capital GL36 2 5 0 0 0 0 3
4 Initial investment. 4
5 5
6 1 Medical Building GL19 1 0 0 0 0 0 0 6
7 Land GL18 2 5 0 0 0 0 7
8 Cash GL1 5 0 0 0 0 8
9 20% Notes Payable GL24 1 2 0 0 0 0 0 9
10 Acquisition of land and medical clinic. 10
11 11
12 1 Medical Equipment GL21 4 2 0 0 0 0 12
13 Medical Supplies GL16 3 9 0 0 0 13
14 Cash GL16 5 9 0 0 0 14
15 24% Notes Payable GL23 4 0 0 0 0 0 15
16 Acquisition of equipment and supplies. 16
17 17

22
 2 Prepaid Insurance GL18 2 0 0 0 0 18
Accounts Payable GL25 2 0 0 0 0 19
Acquired insurance policy. 20
21
4 Cash GL1 1 1 7 0 0 0 22
Medical Revenues GL39 1 1 7 0 0 0 23
Performed medical services. 24
25
7 Medical Supplies GL16 1 7 0 0 0 26
Accounts Payable GL25 1 7 0 0 0 27
Acquisition of medical supplies. 28
29
10 Salaries Expense GL46 7 3 0 0 0 30
Cash GL1 7 3 0 0 0 31
Payment for employees salaries. 32
33
12 Cash GL1 9 0 0 0 0 34
Unearned Revenues GL35 9 0 0 0 0 0 35
Advance payment for research services. 36
37
18 Accounts Receivable GL10 3 1 7 0 0 0 38
Medical Revenues GL39 3 1 7 0 0 0 39
Performed medical services. 40
41
Page 2
Date Account T itles and Explanation P. R. Debit Credit
1 Oct 21 Repairs Expense GL48 2 3 0 0 0 1
2 Cash GL1 2 3 0 0 0 2
3 Payment for repairs. 3
4 4
5 23 T elephone Expense GL51 3 0 0 0 5
6 Cash GL1 3 0 0 0 6
7 Payment for telephone usage. 7
8 8
9 24 Medical Equipment GL21 4 5 0 0 0 9
10 Accounts Payable GL10 4 5 0 0 0 10
11 Acquisition of equipment. 11
12 12

23
 25 Cash GL1 1 1 3 0 0 0 13
Accounts Receivable GL10 1 1 3 0 0 0 14
Collection of accounts. 15
16
27 Accounts Payable GL25 1 3 0 0 0 17
Cash GL1 1 3 0 0 0 18
Payment of accounts. 19
20
30 Marasigan, Withdrawals GL37 2 0 0 0 0 0 21
Cash GL1 2 0 0 0 0 0 22
Personal drawings. 23
24
30 Association Dues Expense GL50 1 5 0 0 0 25
Cash GL1 1 5 0 0 0 26
Payment for association dues. 27
28

V. Topic Summary
 The steps in the accounting cycle are: 1) identifying and analysing
of transactions; 2) journalizing; 3) posting; 4) preparation of
unadjusted trial balance; 5) preparation of adjusting journal
entries; 6) preparation of adjusted trial balance; 7) preparation of
financial statements; 8) preparation of closing entries; 9)
preparation of post-closing trial balance; and 10) preparation of
reversing entries.
 A source document is an original record which contains the detail
that supports or substantiates a transaction that will be (or has
been) entered in an accounting system. In the past, source documents
were printed on paper. Today, the source documents may be an
electronic record.
 The journal is a chronological record of the entity’s transactions.
 A journal entry shows all the effects of a business transaction in
terms of debits and credits.
 The general journal is the simplest journal.
 In a simple entry, only two accounts are affected—one account is
debited and the other account is credited.
 When an entry has three or more accounts affected, the entry is
referred to as a compound entry.
 Journalizing is the process of recording a transaction.

VI. References
Ballada, Win and Susan Ballada. (2018). Basic Accounting Made Easy 21st
Edition. Manila: Domdane Publishers and Made Easy Books.
Ballada, Win and Susan Ballada. (2019). Accounting Fundamentals Made East 2019
Issue- 5th Edition. Manila: Domdane Publishers and Made Easy Books.
Lopez, Rafael M. Jr. (2008). Fundamentals of Accounting Millennial Edition. Davao
City: MS Lopez Printing and Publishing.
Ledesma, Ester L. (2014). Financial Accounting Theory Review Booklets. Manila: CRC-
Ace The Professional CPA Review School.

24
Rante, Gloria Aradaniel. (2013). Accounting for Service Entities. Mandaluyong
City: Millenium Books, Inc.
Ferrer, Rodiel C. and Millan, Zeus Vernon B. (2017). Fundamentals of Accountancy,
Business and Management Part 1. Baguio City: Bandolin Enterprise.

25
 Lesson 2
Posting the Journal Entries to the Ledger

I. Learning Outcomes
In this lesson, you should be able to:
1. illustrate the posting to the ledger process; and
2. solve problems on posting to the ledger.

II. Pre-Assessment

Name: ________________________________________ Time: ___________________

Instruction: Before each statement, write TRUE if the statement is correct

or FALSE if the statement is incorrect.

1. The accounts in the general ledger are classified into two

general groups.
2. If equipment costing P93,000 is bought by paying P30,000 as a
down payment and the remaining P63,000 in 30 days, owner’s
equity is increased by P93,000.
3. A transaction with more than one debit and/or more than one
credit is called a compound entry.
4. Each account has two records in the ledger.
5. The left side of a “T”-Account is always debit.
6. Accounts receivable is an asset account whose normal balance
is a credit.
7. A general ledger is the “reference book” of the accounting
system and is used to classify and summarize transactions, and
to prepare data for basic financial statements.
8. Every account in the ledger does not maintains the basic
format of the “T”-Account.
9. Each ledger account balance is determined by subtracting the
sum of all debits from the sum of all credits.
10. If the normal balance of the account is credit, the account
balance in the ledger should be debit.

III. Lesson Map

Posted General Journal Entries

Foot the debit and
credit sides of the
account
General Ledger
Prepares for the
preparation of
financial
statements
Trial Balance
From the book of original entry, the general journal, the entries recorded
are posted to the respective ledger account.

26
IV. Core Content

ENGAGE
Name: ________________________________________ Time: ___________________

The General Journal

Page 1

Date Account titles and Explanation P .R. Debit Credit

24 5 Offi ce Equipment (A) 6 0 0 0 0 24
25 Cash (A) 1 5 0 0 0 25
26 Accounts Payable (A) 4 5 0 0 0 26
27 Acquisition of offi ce equipment. 27
28 28

The Ledger

110 Cash Page 1

Date Particulars P . R. Debit Credit Balance

0
1 2018 Balance Fowarded previous year/Month 1
2 May 1 2 5 0 0 0 0 2 5 0 0 0 0 2
3 1 8 0 0 0 2 4 2 0 0 0 3
4 2 2 1 0 0 0 0 4 5 2 0 0 0 4
5 4 4 2 0 0 0 0 3 2 0 0 0 5
6 4 1 4 4 0 0 1 7 6 0 0 6
7 5 1 5 0 0 0 2 6 0 0 7

220 Accounts Payable Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 5 4 5 0 0 0 4 5 0 0 0 2

Instructions:

Based on the above general journal and ledger accounts encircle the item
listed below with its corresponding number. (answer on the face of the
journal shown above)
Example:
1. The applicable year of recording for cash account in the ledger.

Ledger Questions:

2. The account code for accounts payable

3. The credit amount to accounts payable on May 5
4. The debit entry to cash on May 2
5. What should be the P.R. (posting reference for May 7 transaction in
cash account?
6. What is the beginning balance of accounts payable account?

General Journal Questions:

1. Complete Date of the first transaction.

2. What is the account classification of accounts payable?
3. What is the account classification of office equipment?
4. What is the brief explanation of the entry?
5. What are the credit entries account titles?
EXPLORE

27
Name: ________________________________________ Time: ___________________

Search from the internet at least one (1) example of a ledger of an

existing company. (Attach pictures here)

EXPLAIN
THE LEDGER

A grouping of the entity's accounts is referred to as a ledger. Although

some firms may use various ledgers to accumulate certain detailed
information, all firms have a general ledger. A general ledger is the
"reference book" Of the accounting system and is used to classify and
summarize transactions, and to prepare data for basic financial statements.

The accounts in the general ledger are classified into two general groups:
1. balance sheet or permanent accounts (assets, liabilities and owner's
equity).
2. income statement or temporary accounts (income and expenses).
Temporary or nominal accounts are used to gather information for a
particular accounting period. At the end of the period, the balances
of these accounts are transferred to a permanent owner's equity
account.

Each account has its own record in the ledger. Every account in the ledger
maintains the basic format of the T-account but offers more information
(e.g. the account number at the upper right corner and the journal
reference column). Compared to a journal, a ledger organizes information by
account:

Below is the sample of a Ledger:

28
 Date Particulars P . R. Debit Credit Balance
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10

CHART OF ACCOUNTS

A listing of all the accounts and their account numbers in the ledger is
known as the chart of accounts. The chart is arranged in the financial
statement order, that is, assets first, followed by liabilities, owner's
equity, income and expenses. The accounts should be numbered in a flexible
manner to permit indexing and cross-referencing.

When analyzing transactions, the accountant refers to the chart of accounts

to identify the pertinent accounts to be increased or decreased. If an
appropriate account title is not listed in the chart, an additional account
may be added. Presented below is the chart of accounts for the
illustration:

Weddings "R" Us
Chart of Accounts
Statement of Financial Position/ Statement Income/
Balance Sheet Accounts Income Statement Accounts
Assets Income
110
Cash 410 Consulting Revenues
120
Accounts Receivable 420 Referral Revenues
130
Supplies
140
Prepaid Rent Expenses
150
Prepaid Insurance 510 Salaries Expense
160
Service Vehicle 520 Supplies Expense
165
Accumulated Depreciation - 530 Rent Expense
Service Vehicle 540 Insurance Expense
170 Offi ce Equipment 550 Utilities Expense
175 Accumulated Depreciation - 560 Depreciation Expense -
Offi ce Equipment Service Vehicle
Liabilities 570 Depreciation Expense -
210 Notes Payable Offi ce Equipment
220 Accounts Payable 580 Miscellaneous Expense
230 Salries Payable 590 Interest Expense
240 Utilities Payable
250 Interest Payable
260 Uneared Referral Revenues
Owner's Equity
310 Perez-Manalo, Capital
320 Perez-Manalo, Withdrawals
330 Income Summary
POSTING (Step 3)

29
Posting means transferring the amounts from the journal to the appropriate
accounts in the ledger. Debits in the journal are posted as debits in the
ledger, and credits in the journal as credits in the ledger. The steps are
illustrated as follows:

1. Transfer the date of the transaction from the journal to the ledger.
2. Transfer the page number from the journal to the journal reference
(J.R.) column of the ledger.
3. Post the debit figure from the journal as a debit figure in the
ledger and the credit figure from the journal as a credit figure in
the ledger.
4. Enter the account number in the posting reference column of the
journal once the figure has been posted to the ledger.

The General Journal

2

4
1

The General Ledger 3

3

110 Cash Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 1 2 5 0 0 0 0 2 5 0 0 0 0 2

LEDGER ACCOUNTS AFTER POSTING

At the end of an accounting period, the debit or credit balance of each

account must be determined to enable us to come up with a trial balance.

 Each account balance is determined by footing (adding) all the debits

and credits.
 If the sum of an account's debits is greater than the sum of its
credits, that account has a debit balance.
 If the sum of its credits is greater, that account has a credit
balance.

30
110 Cash Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 1 2 5 0 0 0 0 2 5 0 0 0 0 2
3 1 8 0 0 0 2 4 2 0 0 0 3
4 2 2 1 0 0 0 0 4 5 2 0 0 0 4
5 4 4 2 0 0 0 0 3 2 0 0 0 5
6 4 1 4 4 0 0 1 7 6 0 0 6
7 5 1 5 0 0 0 2 6 0 0 7
8 9 1 0 0 0 0 - 7 4 0 0 8
9 10 2 6 4 0 0 1 9 0 0 0 9
10 13 6 6 0 0 1 2 4 0 0 10
11 15 1 0 0 0 0 2 2 4 0 0 11
12 25 1 4 0 0 0 8 4 0 0 12
13 27 7 2 0 0 1 2 0 0 13
14 30 2 4 0 0 0 2 5 2 0 0 14
15 31 3 0 0 0 2 2 2 0 0 15
16 16
120 Accounts Receivable Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 19 3 6 0 0 0 3 6 0 0 0 2
3 31 2 4 0 0 0 1 2 0 0 0 3
130 Supplies Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 8 1 8 0 0 0 1 8 0 0 0 2
140 Prepaid Rent Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 1 8 0 0 0 8 0 0 0 2

31
150 Prepaid Insurance Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 4 1 4 4 0 0 1 4 4 0 0 2
160 Service Vehicle Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 4 4 2 0 0 0 0 4 2 0 0 0 0 2
165 Accumulated Depreciation-Service Vehicle Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
170 Offi ce Equipment Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 5 6 0 0 0 0 6 0 0 0 0 2
175 Accumulated Depreciation-Offi ce Equipment Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
210 Notes Payable Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 2 2 1 0 0 0 0 2 1 0 0 0 0 2
220 Accounts Payable Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 5 4 5 0 0 0 4 5 0 0 0 2
3 8 1 8 0 0 0 6 3 0 0 0 3
4 9 1 0 0 0 0 5 3 0 0 0 4
230 Salries Payable Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
240 Utilities Payable Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 30 1 4 0 0 1 4 0 0 2
250 Interest Payable Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
260 Unearned Referral Revenues Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 15 1 0 0 0 0 1 0 0 0 0 2
310 Perez-Manalo, Capital Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 1 2 5 0 0 0 0 2 5 0 0 0 0 2
320 Perez-Manalo, Withdrawals Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 25 1 4 0 0 0 1 4 0 0 0 2
330 Income Summary Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2

32
410 Consulting Revenues Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 10 2 6 4 0 0 2 6 4 0 0 2
3 19 3 6 0 0 0 6 2 4 0 0 3
420 Referral Revenues Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
510 Salaries Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 Balance Fowarded previous year/Month 1
2 May 13 6 6 0 0 6 6 0 0 2
3 27 7 2 0 0 1 3 8 0 0 3
520 Supplies Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
530 Rent Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2
540 Insurance Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 Balance Fowarded previous year/Month 1
2 2

550 Utilities Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 2018 1
2 May 30 1 4 0 0 1 4 0 0 2
3 31 3 0 0 0 4 4 0 0 3
560 Depreciation Expense-Service Vehicle Page 1

Date Particulars P . R. Debit Credit Balance

1 1
2 2
570 Depreciation Expense-Offi ce Equipment Page 1

Date Particulars P . R. Debit Credit Balance

1 1
2 2
580 Miscellaneous Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 1
2 2
590 Interest Expense Page 1

Date Particulars P . R. Debit Credit Balance

1 1
2 2

Video Reference:
https://www.youtube.com/watch?v=BFli545A4Jg&list=PLl-
IwImaCVm7FDTaw6Xh5urQM9HYWFRau&index=10

33
Posting to the Ledger Solution for Dr. Nick Marasigan:

110 Cash Page 1

Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 2 5 0 0 0 0 2 5 0 0 0 0 2
3 1 GJ1 5 0 0 0 0 2 0 0 0 0 0 3
4 1 GJ1 5 9 0 0 0 1 4 1 0 0 0 4
5 4 GJ1 1 1 7 0 0 0 2 5 8 0 0 0 5
6 10 GJ1 7 3 0 0 0 1 8 5 0 0 0 6
7 12 GJ1 9 0 0 0 0 2 7 5 0 0 0 7
8 21 GJ2 2 3 0 0 0 2 5 2 0 0 0 8
9 23 GJ2 3 0 0 0 2 4 9 0 0 0 9
10 25 GJ2 1 1 3 0 0 0 3 6 2 0 0 0 10
11 27 GJ2 1 3 0 0 0 3 4 9 0 0 0 11
12 30 GJ2 2 0 0 0 0 0 1 4 9 0 0 0 12
13 30 GJ2 1 5 0 0 0 1 3 4 0 0 0 13

120 Accounts Receivable Page 10

Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 18 GJ1 3 1 7 0 0 0 3 1 7 0 0 0 2
3 25 GJ2 1 1 3 0 0 0 2 0 4 0 0 0 3
4 4

130 Medical Supplies Page 16

Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 3 9 0 0 0 3 9 0 0 0 2
3 7 GJ1 1 7 0 0 0 5 6 0 0 0 3
4 4
140 Prepaid Insurance Page 18
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 2 GJ1 2 0 0 0 0 2 0 0 0 0 2
3 3

150 Land Page 18

Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 2 5 0 0 0 0 2 5 0 0 0 0 2
3 3
160 Medical Building Page 19
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 1 0 0 0 0 0 0 1 0 0 0 0 0 0 2
3 3
165 Accumulated Depreciation - Medical Building Page 20
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2

34
170 Medical Equipment Page 21
Date Account Titles and Explanation P. R. Debit Credit Credit
1 Balacnce Forwarded 1
2 Oct 1 GJ1 4 2 0 0 0 0 4 2 0 0 0 0 2
3 24 GJ2 4 5 0 0 0 4 6 5 0 0 0 3
4 4
175 Accumulated Depreciation - Medical Equipment Page 22
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
210 24% Notes Payable Page 23
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 4 0 0 0 0 0 4 0 0 0 0 0 2
3 3
220 20% Notes Payable Page 24
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 1 2 0 0 0 0 0 1 2 0 0 0 0 0 2
3 3
230 Accounts Payable Page 25
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 2 GJ1 2 0 0 0 0 2 0 0
0 0 2
3 7 GJ1 1 7 0 0 0 3 7 0
0 0 3
4 24 GJ2 4 5 0 0 0 8 2 0
0 0 4
5 27 GJ2 1 3 0 0 0 6 9 0
0 0 5
240 Salaries Payable Page 30
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
250 Interest Payable Page 33
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
260 Unearned Research Revenues Page 35
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 12 9 0 0 0 0 9 0 0 0 0 2
3 3

310 Marasigan, Capital Page 36

Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 1 GJ1 2 5 0 0 0 0 2 5 0 0 0 0 2
3 3
320 Marasigan,Withdrawals Page 37
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 30 GJ2 2 0 0 0 0 0 2 0 0 0 0 0 2
3 3

35
330 Income Summary Page 38
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
410 Medical Revenues Page 39
Date Account Titles and Explanation P. R. Debit Credit Credit
1 Balacnce Forwarded 1
2 Oct 4 GJ1 1 1 7 0 0 0 1 1 7 0 0 0 2
3 18 GJ1 3 1 7 0 0 0 4 3 4 0 0 0 3
4 4
420 Research Revenues Page 45
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
510 Salaries Expense Page 46
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 10 GJ1 7 3 0 0 0 7 3 0 0 0 2
3 3
520 Insurance Expense Page 47
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
530 Repairs Expense Page 48
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 21 GJ2 2 3 0 0 0 2 3 0 0 0 2
3 3
540 Supplies Expense Page 49
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
550 Association Dues Expense Page 50
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 Oct 30 GJ2 1 5 0 0 0 1 5 0 0 0 2
3 3
560 Telephone Expense Page 51
Date Account T itles and Explanation P. R. Debit Credit
1 Balacnce Forwarded 1
2 Oct 23 GJ2 3 0 0 0 3 0 0 0 2
3 3
570 Depreciation Expense - Medical Building Page 52
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
580 Depreciation Expense - Medical Equipment Page 53
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2
590 Interest Expense Page 54
Date Particulars P. R. Debit Credit Balance
1 Balacnce Forwarded 1
2 2

V. Topic Summary

36
 A grouping of the entity’s accounts is referred to as a ledger
 A General Ledger is the “reference book” of the accounting system and is
used to classify and summarize transactions, and to prepare data for
basic financial statements
 Balance sheet accounts are permanent accounts. Permanent accounts are
not closed at the end of the accounting period.
 Income statement accounts are temporary accounts; these accounts are
closed at the end of an accounting period.
 Each account has its own record in the ledger.

VI. References
Ballada, Win and Susan Ballada. (2018). Basic Accounting Made Easy 21st
Edition. Manila: Domdane Publishers and Made Easy Books.
Ballada, Win and Susan Ballada. (2019). Accounting Fundamentals Made East 2019
Issue- 5th Edition. Manila: Domdane Publishers and Made Easy Books.
Lopez, Rafael M. Jr. (2008). Fundamentals of Accounting Millennial Edition. Davao
City: MS Lopez Printing and Publishing.
Ledesma, Ester L. (2014). Financial Accounting Theory Review Booklets. Manila: CRC-
Ace The Professional CPA Review School.
Rante, Gloria Aradaniel. (2013). Accounting for Service Entities. Mandaluyong
City: Millenium Books, Inc.
Ferrer, Rodiel C. and Millan, Zeus Vernon B. (2017). Fundamentals of Accountancy,
Business and Management Part 1. Baguio City: Bandolin Enterprise.

Lesson 3

37
 Preparation of the Trial Balance

I. Learning Outcomes
In this lesson, you should be able to:
1. solve problems on trial balance preparation; and
2. solve problems on locating errors in the trial balance.

II. Pre-Assessment

Name: ________________________________________ Time: ___________________

True or false

1. The sequence of the account title in a trial balance depends upon the
size of the account balances. __________
2. An expense may be recognized and recorded although no cash outlay has
been made. __________
3. Balance Sheet accounts are non-temporary accounts. __________
4. The normal balance of any account refers to the side of the account—
debit or credit—where decreases are recorded. __________
5. A recording error caused by the erroneous rearrangement of digits,
such as writing P627 as P672 is called a transposition. __________
6. The process of recording a transaction in a journal is called
journalizing. __________
7. A trial balance may balance but may not be correct. __________
8. A trial balance with equal debit and credit totals proves that all
transactions have been correctly journalized and posted to the proper
ledger accounts. __________
9. Double posting of a transaction causes the debits and credits not to
balance. __________
10. A group of accounts in a ledger is called a chart of accounts.
__________
11. A transposition error means a journal entry is posted to the wrong
ledger account. __________
12. Debit means decrease and credit means increase. __________
13. Normally, income accounts have debit balances. __________
14. Income statement accounts are temporary accounts. __________
15. In some transactions, the accounting equation may not be maintained.
__________

III. Lesson Map

38
 Step 1 Step 2 Step 3 Step 4
Identification Journalizing Posting Trial Balance

This lesson is the fourth step of the accounting cycle.

IV. Core Content

ENGAGE
Name: ________________________________________ Time: ___________________

A student in basic accounting was requested by his uncle to prepare a trial

balance for his business because his bookkeeper got sick. The trial
balance prepared by the student is presented below:

Debit Credit
Accounts Payable 30,000
Accounts Receivable 10,000
Building 100,000
Capital 85,000
Cash 20,000
Drawing 5,000
Salaries Expense 3,000
Service Income 25,000
Supplies Used 2,000
140,000 140,000

Questions:
1. Was the arrangement of the account correct?

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

2. Do you agree that when a trial balance is “in-balance”, the work is

presumably correct?

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

39
EXPLORE
Name: ________________________________________ Time: ___________________

A newly hired bookkeeper of a certain company was in trouble. His trial

balance was out of balance and he was looking for a ten-centavo amount of
difference. When his supervisor learned that he was not able to locate the
difference for a day, he was being told arrogantly that the company is
losing because of this, while he was paid P200.00 a day, he was only
looking for that ten-centavo difference in his trial balance.

What he did later was to add that unlocated difference to one of the
accounts, so then, the trial balance appeared to be “in-balance”.

Questions:
1. What was he trying to do with the trial balance?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

2. Do you think this error will be discovered? How? When? And Who?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

EXPLAIN
TRIAL BALANCE (Step 4)

The 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 at any time
the postings are updated. The 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.

The trial balance is a control device that helps minimize accounting

errors. When the totals are equal, the trial balance is in balance. This
equality provides an interim proof of the accuracy of the records but it
does not signify the absence of errors. For example, if the bookkeeper
failed to record payment of rent, the trial balance columns are equal but
in reality, the accounts are incorrect since rent expense is understated
and cash overstated.

The trial balance for the illustration follows is arranged accordingly:

40
Assets

Liabilities

Capital

Income

Expense

Video Reference:
https://www.youtube.com/watch?v=l_UfmkmlzUM&list=PLl-
IwImaCVm7FDTaw6Xh5urQM9HYWFRau&index=11

Trial Balance Solution for Dr. Nick Marasigan:

41
 Harvard Medical Center
T rial Balance
For the Year Ended October 31, 2019

Cash 134,000
Accounts Receivables 204,000
Medical Supplies 56,000
Prepaid Insurance 20,000
Land 250,000
Medical Building 1,000,000
Accumulated Depreciation - Medical Building
Medical Equipment 465,000
Accumulated Depreciation - Medical Equipment
24% Notes Payable 400,000
20% Notes Payable 1,200,000
Accounts Payable 69,000
Salaries Payable
Interest Payable
Unearned Research Revenues 90,000
Marasigan, Capital 250,000
Marasigan, Withdrawals 200,000
Income Summary
Medical Revenues 434,000
Research Revenues
Salaries Expense 73,000
Insurance Expense
Repairs Expense 23,000
Supplies Expense
Association Dues Expense 15,000
T elephone Expense 3,000
Depreciation Expense - Medical Building
Depreciation Expense - Medical Equipment
Interest Expense
T otals 2,443,000 2,443,000

LOCATING ERRORS

An inequality in the totals of the debits and credits would automatically

signal the presence of an error. These errors include:

1.Error in posting a transaction to the ledger:

 an erroneous amount was posted to the account.

 a debit entry was posted as a credit or vice versa.
 a debit or credit posting was omitted.

2.Error in determining the account balances:

42
  a balance was incorrectly computed.
 a balance was entered in the wrong balance column.

3.Error in preparing the trial balance:

 one of the columns of the trial balance was incorrectly added.

 the amount of an account balance was incorrectly recorded on the
trial balance.
 a debit balance was recorded on the trial balance as a credit or vice
versa, or a balance was omitted entirely.

What is the most efficient approach in locating an error? The following

procedures when done in sequence may save considerable time and effort in
locating errors:

1. Prove the addition of the trial balance columns by adding these

columns in the opposite direction.

2. If the error does not lie in addition, determine the exact amount by
which the trial balance is out of balance. The amount of the
discrepancy is often a clue to the source of the error. If the
discrepancy is divisible by 9, this suggests either a transposition
(reversing the order of numbers) error or a slide (moving of the
decimal point). For example, assume that the cash account balance is
P21,750, but in copying the balance into the trial balance the
figures are transposed and written as P21,570. The resulting error
amounted to P180 and is divisible by 9. Another common error is the
slide, or incorrect placement of the decimal point, as when
P21,750.OO is copied as P2,175.OO. The resulting discrepancy in the
trial balance will also be an amount divisible by 9.
Assume that the office equipment account has a debit balance of
P42,000 but it is erroneously listed in the credit column of the
trial balance. This will cause a discrepancy of two times P42,000 or
P84,OOO in the trial balance totals. Since such errors as recording a
debit in a credit column are common, it is advisable, after
determining the discrepancy in the trial balance totals, to scan the
columns for an amount equal to exactly one-half of the discrepancy.

It is also advisable to look over the transactions for an item of the

exact amount of the discrepancy. An error may have been made by
recording the debit side of the transaction and forgetting to enter
the credit side.

3. Compare the accounts and amounts in the trial balance with that in
the ledger. Be certain that no account is omitted.

4. Recompute the balance of each ledger account.

5. Trace all postings from the journal to the ledger accounts. As this
is done, place a check mark in the journal and in the ledger after
each figure is verified. When the operation is completed, look
through the journal and the ledger for unchecked amounts. In tracing
postings, be alert not only for errors in amount but also for debits
entered as credits, or vice versa.

Note that even when a trial balance is in balance, the accounting records
may still contain errors. A balanced trial balance simply proves that, as
recorded, debits equal credits. The following errors are not detected by a
trial balance:

43
 1. Failure to record or post a transaction.
2. Recording the same transaction more than once.
3. Recording an entry but with the same erroneous debit and credit
amounts.
4. Posting a part of a transaction correctly as a debit or credit but to
the wrong account.

V. Topic Summary

 The preparation of a trial balance is the 4th step of the accounting

cycle.
 Trial balance preparation proves only one aspect of the ledger, that is
the equality of debits and credits.
 Trial balance report summarizes the debit and credit entries of each
account in the General Ledger.
 The account titles in the trial balance are arranged as: assets (current
assets followed by noncurrent assets), liabilities (current assets
followed by noncurrent assets), capital (capital followed by withdrawals
and income summary), income accounts then expense accounts.
 A transaction that is not recorded in the journal is called omission.
 Posting a correct amount to a wrong account is an error.
 Transposition is the reversing of the order of numbers.
 A slide is moving of the decimal point.
 When the debit and credit column totals of the trial balance is equal,
then the trial balance is said to be “in-balance”, and when they are not
equal, then the trial balance is “out-of-balance”.

VI. References
Ballada, Win and Susan Ballada. (2018). Basic Accounting Made Easy 21st
Edition. Manila: Domdane Publishers and Made Easy Books.
Ballada, Win and Susan Ballada. (2019). Accounting Fundamentals Made East 2019
Issue- 5th Edition. Manila: Domdane Publishers and Made Easy Books.
Lopez, Rafael M. Jr. (2008). Fundamentals of Accounting Millennial Edition. Davao
City: MS Lopez Printing and Publishing.
Ledesma, Ester L. (2014). Financial Accounting Theory Review Booklets. Manila: CRC-
Ace The Professional CPA Review School.
Rante, Gloria Aradaniel. (2013). Accounting for Service Entities. Mandaluyong
City: Millenium Books, Inc.
Ferrer, Rodiel C. and Millan, Zeus Vernon B. (2017). Fundamentals of Accountancy,
Business and Management Part 1. Baguio City: Bandolin Enterprise.

44