Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Learning Objectives

1. Describe the nature, and give examples of business transactions.

2. Identify the different types of business documents.
3. Identify the accounts affected by common business transactions.
4. Post transaction in the ledger
5. Prepare the unadjusted trial balance

The Accounting Cycle

The accounting cycle represents the steps or procedures used to record transactions and
prepare financial statements. The accounting cycle implements the accounting processes of
identifying, recording and communicating economic information.

Steps in the Accounting Cycle

1. Identifying and analyzing business documents or transactions. The accountant gathers

information from source documents and determines the effect of the transactions on
the accounts
2. Journalizing – the identified accountable events are recorded in the journals.
3. Posting - information from the journal are transferred to the ledger.
4. Preparing the unadjusted trial balance – the balances of the general ledger accounts
are proved as to the equality of debits and credits. The unadjusted trial balance serves
as basis for adjusting events
5. Preparing the adjusting entries – the accounts are updated as of the reporting date on
an accrual basis by recording accruals, expiration of deferrals, estimations, and other
events often not signaled by new sources documents.
6. Preparing the adjusted trial balance (or worksheet preparation) – the equality of debits
and credits are rechecked after adjustments are made. The adjusted trial balance serves
as basis for the preparation of the financial statements.
7. Preparing the Financial Statements – these are the means by which the information
processed is communicated to users.
8. Closing the books – this involves journalizing and posting closing entries and ruling the
ledger. Temporary accounts (or nominal accounts) are closed and the resulting profit or
loss is transferred to an equity account.
9. Preparing the post-closing trial balance - the equality of debits and credits are again
rechecked after the closing process.
10. Recording of reversing entries – reversing entries are usually made at the beginning of
the next accounting period and are made to simplify the recording of certain
transactions in the next accounting period

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Identify and analyzing transactions and events

 Accountable events – transactions that has effect on the accounts, which should be
recorded in the books of accounts.
 Non-accountable event – transactions that has no effect on the accounts, which is not
recorded in the books of accounts.

Source Documents

a. Sales invoice (SI) are used for the sale of goods

b. Official receipts (OR) are used for the sale of services.
c. Purchase order (PO) is a document issued by buyer to a seller indicating the types,
quantities and agreed prices for the products or services that the buyer intends to
purchase. Purchase orders are prepared as internal control over purchases.
d. Delivery receipt is a document signed by the receiver of a shipment acknowledging
the receipt of the goods.
e. Bank deposit slip evidences a deposit to a bank account. It shows the date of
deposit, the bank account name and number, and the amount deposited.
f. Bank statement is a report issued by a bank (on a monthly basis) which shows the
deposits and withdrawals during the period and the cumulative balance of a
depositor’s bank account.
g. Check is an instrument that orders a bank (drawee) to pay the person named on the
check or bearer thereof (payee) a definite amount.
h. Statement of account is a report that business sends to its customer listing the
transactions with the customer during a period, the payments made by the
customer and any remaining balance due from customer. A statement of account
also serves as a notice of billing.

Types of events

1. External events – are transactions that involve the business and another external party.
2. Internal event - are events that do not involve an external party.

Journalizing

The following are the parts of a journal entry:

 Date – journal entries are recorded in the journal chronologically, i.e., arranged
according to the dates they are recorded.
 Account titles and amounts to be debited and credited – under the double-entry
system, each transaction is recorded in the journal in two parts.
 Short description of the transaction – is provided for future reference.

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Simple and Compound journal entries.

o Simple journal entry – one which contains a single debit and a single credit element.
o Compound journal entry – one which contains two or more debits and credits.

Pro-forma Journal Entries

1. Owner's investment in cash

Date Cash xx
Owner's Capital xx
to record the owner's initial
investment to the business

2. Acquisition of equipment on cash basis

Date Equipment xx
Cash xx
to record acquisition of
equipment in cash

3. Acquisition of inventory on cash basis

Date Inventory xx
Cash xx
to record acquisition of inventory
on cash basis

4. Acquisition of inventory on account

Date Inventory xx
Accounts Payable xx
to record acquisition of inventory
on credit

5. Payment (settlement) of accounts payable

Date Accounts Payable xx
Cash xx
to record settlement of accounts
payable

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

6. Sale of inventory on Cash Basis

Date Cash xx
Sales xx
to record cash sale
Date Cost of Sale (or Cost of Good Sold) xx
Inventory xx
to charge the cost of inventories sold
as expense

7. Sale of inventory on Credit

Date Cash xx
Sales xx
to record sale on credit
Date Cost of Sale (or Cost of Goods Sold) xx
Inventory xx
to charge the cost of inventories sold
as expense

8. Collection of accounts receivable

Date Cash xx
Accounts receivable xx
to record collection of accounts
receivable

9. Payment of an (advertising) expense

Date Advertising Expense xx
Cash xx
to record payment of advertisement
in cash

10. Owner's drawings (owner's withdrawal of cash from the business

Date Owner's Drawings xx
Cash xx
to record payment of advertisement
in cash

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Posting

The third step in the accounting cycle, is the process of transferring data from journal to
the appropriate accounts in the ledger. More specifically, posting is done by transferring the
amounts of debits and credits in a recorded journal entry to the ledger accounts.
The purpose of posting is to classify the effects of transactions on specific asset, liability,
equity, income and expense accounts in order to provide more meaningful information.

Mr. Fake starts his own a business that sells beauty products to the public. The following are the
transactions of the business

Date Transactions
Jan 2, 20xx Invested Php 500,000 on his business PureMore Beauty Products
Jan 8, 20xx Bought beauty products from a foreign retailer worth Php 200,000
Jan 15, 20xx Hired Mr. Gooh Lang as his cashier with a salary of Php 23,000 per month, salary
would be given bi-monthly
Jan 18, 20xx Sold 1/4 of the beauty products bought last Jan 8 for Php 80,000 on account.
Jan 20, 20xx Recorded cash sale of Php 112,000, beauty products are sold with a mark-up of
60% of the cost of inventory
Jan 21, 20xx Incurred Php 8,000 worth of electricity for the month.
Jan 22, 20xx Paid water bill for the month worth Php 500
Jan 30, 2020 Salary of Mr. Gooh Lang for the month was paid

Journal
Date Account Titles Debit Credit
Jan. 2, 20xx Cash 500,000
Fake's Capital 500,000
to record investment for the business

Jan. 8, 20xx Inventory 200,000

Cash 200,000
to record the purchase of beauty product

Jan. 18, 20xx Accounts Receivable 80,000

Sale 80,000
to record the sale of beauty product on credit

Jan. 18, 20xx Cost of Goods Sold 50,000

Inventory 50,000
to record the sale of inventory

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Jan. 20, 20xx Cash 112,000

Sale 112,000
to record the sale of beauty product on cash

Jan. 20, 20xx Cost of Goods Sold 70,000

Inventory 70,000
to record the sale of inventory

Jan. 21, 20xx Utility Expense - Electricity 8,000

Utility Payable 8,000
to record electricity incurred for the month

Jan. 22, 20xx Utility Expense - Water 500

Cash 500
to record payment of water bill

Jan. 30, 20xx Salary Expense 11,500

Cash 11,500
to record payment of salary cashier

General Ledger
Cash Account No. 110
Date Description Ref. Debit Credit Bal
Jan. 2, 20xx to record investment for the business J1 500,000 500,000
Jan. 8, 20xx to record the purchase of beauty products J1 200,000 300,000
Jan. 20, 20xx to record sale of beauty products on cash J1 112,000 412,000
Jan. 22, 20xx to record payment of water bill J1 500 411,500
Jan. 30, 20xx to record payment of salary J1 11,500 400,000
End Balance 400,000 400,000

Accounts Receivable Account No. 120

Date Description Ref. Debit Credit Bal
Jan. 18, 20xx to record sale of beauty products on credit J1 80,000 80,000
End Balance 80,000 80,000

Inventory Account No. 130

Date Description Ref. Debit Credit Bal
Jan. 8, 20xx to record the purchase of beauty products J1 200,000 200,000
Jan. 18, 20xx to record sale of beauty products on credit J1 50,000 150,000
Jan. 20, 20xx to record sale of beauty products on cash J1 70,000 80,000
End Balance 80,000 80,000

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Utility Payable Account No. 210

Date Description Ref. Debit Credit Bal
Jan. 21, 20xx to record electricity incurred for the month J1 8,000 8,000
End Balance 8,000 8,000

Fake's Capital Account No. 310

Date Description Ref. Debit Credit Bal
Jan. 21, 20xx to record electricity incurred for the month J1 500,000 500,000
End Balance 500,000 500,000

Sales Account No. 410

Date Description Ref. Debit Credit Bal
Jan. 18, 20xx to record sale of beauty product on credit J1 80,000 80,000
Jan. 20, 20xx to record sale of beauty products on cash J1 112,000 192,000
End Balance 192,000 192,000

Cost of Goods Sold Account No. 510

Date Description Ref. Debit Credit Bal
Jan. 18, 20xx to record sale of beauty product on credit J1 50,000 50,000
Jan. 20, 20xx to record sale of beauty products on cash J1 70,000 120,000
End Balance 120,000 120,000

Utility Expense Account No. 520

Date Description Ref. Debit Credit Bal
Jan. 20, 20xx to record electricity incurred for the month J1 8,000 8,000
Jan. 22, 20xx to record payment of water J1 500 500
End Balance 8,500 8,500

Salary Expense Account No. 530

Date Description Ref. Debit Credit Bal
Jan. 30, 20xx to record payment of salary J1 11,500 11,500
End Balance 11,500 11,500

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Preparing the Unadjusted Trial Balance

A trial balance is a list of general ledger accounts and their balances. It is prepared to
check the equality of the total debits and total credits in the ledger. The preparation of the trial
balance creates a starting point for the preparation of the financial statements.

Types of Trial Balance

a. Unadjusted trial balance - this is prepared before adjusting entries are made. Adjusting
entries, and consequently financial statements cannot be prepared unless total debits
and credits in the unadjusted trial balance are equal.
b. Adjusted trial balance – this is prepared after adjusting entries but before the financial
statements are prepared.
c. Post-closing trial balance – this is prepared after the closing process

Although optional, a trial balance shall nevertheless be prepared because it helps in

revealing some errors.

Errors revealed by a trial balance

1. Journalizing or posting one-half of an entry, i.e., a debit without a credit or vice versa
2. Recording one part of an entry for a different amount than the other part.
3. Errors of transplacement (slide error) on one side of an entry. This is committed when
the number of digits in an amount is incorrectly increased or decreased, for example
Php 2,000 recorded as Php 200 or Php 20,000
4. Error of transposition on once side of an entry. This is committed when digits in an
amount are interchange for example, a Php 15,932 is recorded as Php 15,239 or Php
15,329

Errors not revealed by a trial balance

1. Omitting entirely the entry for a transaction

2. Journalizing or posting entry twice
3. Using wrong account with the same normal balance as the correct account
4. Wrong computation with the same erroneous amounts posted to debit and credit sides.

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

PureMore Beauty Products

Unadjusted Trial Balance
January 31, 20xx

Accounts Debit Credit

Cash 400,000.00

Accounts Receivable 80,000.00

Inventory 80,000.00

Utility Payable 8,000.00

Fake's Capital 500,000.00

Sales 192,000.00

Cost of Goods Sold 120,000.00

Utility Expense 8,500.00

Salary Expense 11,500.00

Totals 700,000.00 700,000.00

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

Activity

I. Identify the account titles that are affected by the transactions described below. The first item
is given as an example

Transaction Account Title Affected

Ex. Owner's Cash Investment to the business Cash Owner's Capital
1. Sale of goods on account (disregard cost of sales)
2. Purchase of inventory for cash
3. Obtaining a Loan
4. Payment of utility expense
5. Payment of accounts payable
6. Collection of accounts receivable
7. Charging of cost of goods sold to the inventory
8. Payment of loan obtain
9. Drawings of the owner from the business
10. Purchase of equipment on cash basis
11. Purchase of equipment on note
12. Payment of rent in advance
13. Payment of supplies expense
14. The dog of the business owner personal expense
15. Removal of equipment in the business by the
owner

II. Journal Entries: Provide journal entries to record the transactions describe
below.

1. Business Owner provides Php 60,000 capital to the business.

2. The business sells goods costing Php 60,000 for Php 400,000 on cash basis
3. The business pays advanced rent amounting to Php 78,000
4. The business pays utilities expense Php 16,000
5. The business obtain a loan of Php 750,000
6. Purchase inventory on cash basis with a selling price of Php 360,000 subject for 12% discount
7. Purchase of inventory on account worth Php 200,000
8. Payment as settlement of accounts payable.
9. Collection of Php 700,000 accounts receivable.
10. Owner's Drawing amounting Php 76,000
11. Incurred salaries of employee Php 150,000
12. Incurred interest on loans payable Php 16,550
13. Earned interest on notes Php 18,725

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan

Handout #4 Journalizing, Posting and Unadjusted Trial Balance

14. Purchase of land worth 1,000,000, 35% of which was secured by notes payable with 10%
interest

15. Hiring of new manager with salary of Php 67,000 per month

III Unadjusted Trial Balance, Korean travel and Tours have the following account
balances on December 31, 20XX

Accounts Balances
Accounts Payable 300,000
Accounts Receivable 100,000
Accumulated Depreciation - Building 600,000
Accumulated Depreciation - Equipment 200,000
Advertising Expense 35,000
Allowance for bad debts 20,000
Bad Debt Expense 10,000
Building 2,000,000
Cash 280,000
Depreciation Expense 100,000
Equipment 1,800,000
Land 1,000,000
Miscellaneous Expense 2,000
Owner's Capital 2,000,000
Owner's Drawing 40,000
Prepaid supplies 20,000
Salaries Expense 630,000
Salaries Payable 60,000
Service Fees 3,000,000
Supplies Expense 30,000
Taxes and Licenses 60,000
Transportation and Travel Expense 70,000
Utilities Expense 23,000
Utilities Payable 20,000

Requirement: Prepare the unadjusted Trial Balance

Reference: Financial Accounting and Reporting (Fundamentals) Zeus Vernon B. Millan