Unit VI – Part 1

General Journal, General Ledger, Trial Balance

Overview

Background The work for each accounting period follows a cycle, which is called the
accounting cycle. This refers to a series of sequential steps or procedures
performed to accomplish the accounting process.
1. Journalizing
2. Posting to the General Ledger
3. Trial Balance Preparation
4. Adjusting the Books
5. Preparing Financial Statements
6. Closing the Books
7. Preparing Post Closing Trial Balance
8. Reversing Entries

Purpose The purpose of Unit IV “General Journal, General Ledger, Trial Balance ” is
to introduce the student on the use of a general journal, general ledger and the
preparation of the trial balance.

In this unit This unit contains the following topics:

Topics See Page
Journalizing (Step 1) 2 of D
Journal Rules 4 of D
Journal Entries 6 of D
The General Ledger 9 of D
The Chart of Accounts 11 of D
Posting to the General Ledger (Step 2) 13 of D
Balancing Accounts 16 of D
Trial Balance 17 of D
Limitations of the Trial Balance 19 of D

Marivic D. Valenzuela-Manalo Page 1of D

Journalizing (Step 1)

Overview Bookkeeping is the systematic and chronological recording of transactions in

books of accounts following a series of steps and procedures commonly
referred to as the accounting cycle. This bookkeeping procedure begins with
journalizing which is the first part of this unit.

Journal Accounting is based on double-entry bookkeeping, which means that

accountants record the dual effects of a business transaction. The basic
recording procedure in accounting involves a device called a journal. A
journal is a daily record of business transactions that shows in one place the
complete debit and credit effect of each transaction on the accounts of the
business in chronological order. The general journal is also known as the
book of original entries.

Journalizing The chronological recording of the business transactions in the book of

original entry.

Illustration Below is an example of a typical journal.

JOURNAL
PAGE
Date P A RTICULA RS P/R DEBIT CREDIT

Continued on next page

Marivic D. Valenzuela-Manalo Page 2of D

Journalizing (Step 1), Continued

Legend The definitions below illustrate the legend:

• Date, is used to show the day of the month on which each transaction takes
place.
• Particulars column or sometimes called the Account Titles and Explanation
column, is used to show every account title affected by each transaction and
to give some explanation or justification of the debits and credits being made
to the accounts.
• P/R (Posting Reference) column is important because it indicates the
numbers of the accounts in the ledger to which the debits and credits
recorded in the journal have been transferred. In manual systems, these
account numbers are inserted at the proper time in the P/R column of the
journal.
• Debit and credit columns indicate the amounts to be debited or credited to
the account titles written in the particulars column.

Marivic D. Valenzuela-Manalo Page 3of D

Journal Rules

Overview The following guidelines will be useful when recording transactions in a

general journal.

Journal Rules The recording process follows these five steps:

• 1. Transactions are first analyzed, identifying the transaction from business
source documents, e.g., official receipts, cash vouchers, etc. All transactions
recorded in journals must be based upon some objective verifiable evidence.
Business documents are formal written records that provide information to
everyone with an understanding of accounting to measure the amount of the
transaction and to analyze it in the same way. The data used for the journal
entry are verifiable if it is possible to trace the transaction to its point of
origin.
• 2. The day on which the transaction took place is written in the Date
column.
• 3. The account titles affected by the transactions are put into the particulars
column. It is an accepted practice to list first in each transaction the account
title/s being debited, followed by the account title/s being credited. The
debited account titles are written against the left margin of the particulars
column. The accounts being credited are indented from the left margin of
the particulars column. If any single transaction requires several debits and
credits, all account titles receiving the debits will be listed first, followed by
the indented account titles receiving the credits. At the same time each
account title is written in the journal, the peso amount is inserted in the
appropriate Debit or Credit column. For each journal entry, the total debits
must equal the total credits.

Continued on next page

Marivic D. Valenzuela-Manalo Page 4of D

Journal Rules, Continued

Journal Rules, Continuation of the steps:

con’t.
• 4. A brief explanation is written immediately below the last account title
credited. This gives the reason why the accounts are being debited or
credited and verifies the amounts used. The explanations follow no rigid
rules. The accountant uses his own wording in every explanation. He must
keep in mind, however, that other readers must understand the transaction
and the manner in which it was recorded.
• 5. It is advisable to leave a blank line following the explanation to help
distinguish one journal entry from the next. Thus, each journal entry
consists basically of four parts:
• Transaction date
• Debit entry
• Credit entry
• Explanation

Marivic D. Valenzuela-Manalo Page 5of D

Journal Entries

Journal Entries The following transactions of Joseph Labrador, CPA will show the ways in
which the rules mentioned in the previous section are applied to a general
journal. The transactions are described first and the proper method of
recording the transactions follows in the illustrative journal form.
Transaction
Date Description of Transaction
September 1 Mr. Joseph Labrador began his accounting firm by
investing cash of P300,000 and furniture of
P50,000.
2 Paid the business tax to the City Treasurer, P5,000.
3 Purchased a computer from CompuCenter for
P40,000 on account
4 Purchased various office supplies from National
Bookstore, P7,000.
5 Sent charge bills to ABC Co. for accounting
services rendered, P10,000.
6 Made a partial payment of P10,000 to
CompuCenter
7 Received P5,000 in cash for services rendered to
XYZ Co.
8 Mr. Labrador withdrew P8,000 cash for personal
use.
9 Paid repairman for repair service on the office
furniture, P500.
10 Paid in cash the following:
Secretary’s salary P3,500
PLDT & MWSS Bills 1,500

Continued on next page

Marivic D. Valenzuela-Manalo Page 6of D

Journal Entries, Continued

Example of Below is a typical journal with journal entries:

Journal entries
Pa g e 1
DATE P A RTICULA RS P/R D E BI T C R EDI T
Sept. 1 Cash 3 0 0 0 0 0
Labrador, Capital 3 0 0 0 0 0
To record initial investment

1 Office Furniture and Fixtures 5 0 0 0 0

Labrador, Capital 5 0 0 0 0
To record initial investment

2 Taxes and Licenses Expense 5 0 0 0

Cash 5 0 0 0
Tax paid to City Treasurer.

3 Office Equipment 4 0 0 0 0
Accounts payable-CompuCenter 4 0 0 0 0
Bought computer on credit

4 Office Supplies 7 0 0 0
Cash 7 0 0 0
Purchased various office supplies

5 Accounts Receivable 1 0 0 0 0
Services Income 1 0 0 0 0
Services delivered on credit

6 Accounts Payable-CompuCenter 1 0 0 0 0
Cash 1 0 0 0 0
Made partial payment

7 Cash 5 0 0 0
Service Income 5 0 0 0
Service income in cash.

8 Labrador, Drawing 8 0 0 0
Cash 8 0 0 0
Wit hdrawal of cash by the owner

9 Repairs and Maintenance 5 0 0

Cash 5 0 0
Paid for the repair of furniture

10 Salaries & Wages Expense 3 5 0 0

Cash 3 5 0 0
Paid secretary's salary.

10 Utilities Expense
Cash 1 5 0 0
Paid bills of PLDT & MWSS 1 5 0 0
Continued on next page

Marivic D. Valenzuela-Manalo Page 7of D

Journal Entries, Continued

Compound A compound entry (i.e., entry with more than one debit or more than one
Journal Entry credit or more than one debit and credit) is optional to be used on the part of
the recorder. Compounding an entry, however, is not to be used to serve
laziness at the sacrifice of clarity. Compound entries should be used only for
similar transactions.
The event in September 1 and 10 may be journalized by two simple journal
entries as shown in the illustration. But it can also be recorded by one
compound journal entry as follows:
Sept. 1 Cash 300,000
Office furniture & fixture 50,000
Joseph, Capital 350,000
To record initial investment

Sept. 10 Salaries & wages expense 3,500

Utilities expense 1,500
Cash 5,000
Paid salary of secretary & PLDT
& MWSS bill

Marivic D. Valenzuela-Manalo Page 8of D

The General Ledger

Overview Since transactions are recorded in the journal according to their dates of
occurrences, items of similar nature are not grouped together. Information in
the general journal is spread among the various transactions recorded. If
information regarding an item is desired, say, cash, for example, it is still
necessary to gather the information from the scattered pages of the journal.
Due to this inconvenience, there is a need for another record in which data
appearing in the journal may be summarized to show the status of each item.
Each item is represented by an account. A group of accounts constitutes a
ledger. The general ledger is also known as the book of final entry (Punzalan,
J., Santos, M., 1969).

Forms of There are two possible forms of general ledger account. These are:
General Ledger
• Standard Form
The standard form of the account looks like this:
ACCOUNT NO.
Date ITE M S P/R DEBIT Date ITE M S P/R CREDIT

The headings in each column of this form indicate the type of

information that is recorded. There is a complete set of columns,
Date, Items or Explanation, P/R, Amount, for each side (debit and
credit of the account). The Date column shows the day each
transaction affecting the account took place. The Item column,
which is rarely used, gives information about unusual transactions
recorded in the account. The P/R column is called a posting
reference column and tells the source of the debit or the credit being
entered in the account. The debit and credit columns show the peso
amount for each transaction recorded in the account.

Continued on next page

Marivic D. Valenzuela-Manalo Page 9of D

The General Ledger, Continued

Forms of a The other account form is

ledger
• Running Balance Form
ACCOUNT NO.
Date ITE M S P/R DEBIT CREDIT BALANCE

This type of account permits an analysis of transactions in terms of

debits and credits, but the arrangement of the columns is different
from the standard account form. The sample shows this running
balance form of account; its use will be deferred until you have
become more familiar with recording transactions in the standard
account format.

Marivic D. Valenzuela-Manalo Page 10of D

The Chart of Accounts

Overview An accountant usually prepares a chart of accounts, which is the listing of all
the account titles being used by the business in its operations including their
respective account numbers, at the time the business is organized. At that
time, he considers the nature of the business, the kinds of transactions, which
are likely, and the names of the accounts needed to record the information.
He prepares the chart of accounts in a ledger order, which is also the financial
statement order. Whenever necessary, the accountant or a newly trained
employee may refer to the chart for specific account titles and for the position
of such accounts in the ledger or in the statements.

Illustration The chart of accounts prepared for Joseph Labrador, CPA follows:
Account No. Account Title
ASSETS
101 Cash
102 Marketable Securities
103 Notes Receivable
104 Accounts Receivable
104-A Allowance For Doubtful Accounts
105 Interest Receivable
106 Advances To Employees
107 Office Supplies
108 Prepaid Rent
109 Prepaid Insurance
201 Land
202 Building
202-A Accumulated Depreciation-Building
203 Office Equipment
203-A Accumulated Depreciation-Office Equipment
204 Office Furniture And Fixture
204-A Accumulated Depreciation-Office Furniture & Fixture

Continued on next page

Marivic D. Valenzuela-Manalo Page 11of D

The Chart of Accounts, Continued

Illustration (continued)

LIABILITIES
301 Accounts Payable
302 Notes Payable
303 Interest Payable
304 Salaries & Wages Payable
305 Withholding Taxes Payable
306 SSS & Medicare Premium Payable
307 Pag-Ibig Contributions Payable
321 Mortgage Payable
PROPRIETORSHIP
401 Labrador, Capital
401-A Labrador, Drawing
402 Income & Expense Summary
REVENUES
501 Service Income
502 Interest Income
503 Dividend Income
EXPENSES
601 Advertising Expense
602 Depreciation Expense
603 Doubtful Accounts Expense
604 Gas & Oil Expense
605 Insurance Expense
606 Interest Expense
607 Miscellaneous Expense
608 Office Supplies Expense
609 Postage & Telegraph Expense
610 Rent Expense
611 Repair & Maintenance Expense
612 Salaries & Wages Expense
613 SSS & Medicare Premium Expense
614 Taxes & Licenses Expense
615 Transportation Expenses
616 Utilities Expense

Marivic D. Valenzuela-Manalo Page 12of D

Posting to the General Ledger (Step 2)

Overview Journals are called books of original entry because the information from the
underlying business papers, i.e., receipts, invoices, etc., is recorded here first.
In most businesses, accounting transactions seldom go to the ledger accounts
without first having been recorded in a journal. The journalized transactions
must, however, be transferred to the ledger accounts so that the changes in
individual asset, liability, proprietorship, revenue and expense items may be
accumulated. The process of transferring the data from journal entries to the
individual account in the ledger is called posting. Posting simply involves
transferring the journalized debit and credit data to each account name in the
journal entry. The amounts are written on the side of the accounts as specified
in the journal entry.

Journal Entry The journal entry and the procedure for posting the debit portion of this
transaction to the proper account are illustrated below:

PAGE 1
Date P A RTICULA RS P/R DEBIT CREDIT
20X1
Sept. 1 Cash 101 1 5 0 0 0 0
Labrador , Capital 1 5 0 0 0 0
Initial Investment

Debit Posting On the debit side of the account, in the ledger:

procedure
1. Enter the year (where needed), the month (where needed), and the day in
the Date column of the account affected.
2. Enter the amount in the debit column of the amount affected.
3. Enter the journal posting reference (journal symbol, e.g., GJ for general
journal and page number) in the P/R column to show the source of the
data posted.
4. In the journal, enter the ledger posting reference (account number) in the
P/R column for the debit part of the transaction, indicating the completion
of the posting.

Continued on next page

Marivic D. Valenzuela-Manalo Page 13of D

Posting to the General Ledger (Step 2), Continued

Illustration Below is the illustration of the debit posting procedure.

Debit Posting Illustrated

CASH ACCOUNT NO. 101

Date ITEMS P/R DEBIT Date ITE M S P/R CREDIT
20X1
Sept. 1 GJ1 1 5 0 0 0 0

Journal Entry The journal entry and the procedure for posting the credit portion of the given
transaction follow:
PAGE 1
Date PA RT I CUL A RS P/R DEBIT CREDIT
20X1
Sept. 1 Cash 101 1 5 0 0 0 0
Labrador , Capital 401 1 50 0 0 0
Initial Investment

Credit Posting On the credit side of the account in the ledger:

Procedure
1. Enter the year (where needed), the month (where needed), and the day in
the Date column of the account affected.
2. Enter the amount in the credit column of the account affected.
3. Enter the journal posting reference (journal symbol and page number) in
the P/R column to show the source of the data posted.
4. In the journal, enter the ledger posting reference (account number) in the
P/R column for the credit part of the transaction, indicating the completion
of the posting.

Continued on next page

Marivic D. Valenzuela-Manalo Page 14of D

Posting to the General Ledger (Step 2), Continued

Illustration Below is the illustration of the credit posting procedure.

Credit Posting Illustrated
Labrador, Capital ACCOUNT NO. 401
Date I T EM S P/R DEBIT Date I T EM S P/R CREDIT
20X1
Sept. 1 GJ1 15 0 0 0 0

Marivic D. Valenzuela-Manalo Page 15of D

Balancing Accounts

Overview The general ledger accounts provide a means for determining the amount for
each of these items that exist at the end of each accounting period or at any
other time. This information is obtained by balancing the accounts.
Balancing accounts in the general ledger is a simple procedure. First, the debit
and credit sides of each account are footed (totaled) whenever more than one
figure appears in a column, and the totals are inserted in small penciled figures
immediately below the last entry on each side of the account. Second, the total
of the debits in each account is compared with the total of the credits. Third,
when the total of the debits is greater than the total of the credits, the
difference between the two totals is inserted in pencil on the debit side of the
account following the line with the penciled footing. If the total of the credits
is more than the total of the debits, the difference is inserted in pencil on the
credit side next to the penciled footing. Asset and expense accounts will
normally have debit balances. Liability capital and revenue accounts will
normally have credit balances.

Illustration Below is an illustration of Posting the Cash Account transactions of J.

Labrador from September 1 to 10:

CASH ACCOUNT NO. 101

Date ITE MS P/R DEBIT Date ITE M S P/R CREDIT
20X1
Sept. 1 GJ1 3 0 0 0 0 0 Sept. 2 GJ1 5 0 0 0
7 GJ1 5 0 0 0 4 GJ1 7 0 0 0
6 GJ1 1 0 0 0 0
8 GJ1 8 0 0 0
9 GJ1 5 0 0
10 GJ1 3 5 0 0
10 GJ1 1 5 0 0
3 0 5 0 0 0 3 5 5 0 0

10 Balance 2 6 9 5 0 0

Marivic D. Valenzuela-Manalo Page 16of D

Trial Balance

Overview The trial balance is a list of schedule of open accounts in the general ledger
with their corresponding account balances, i.e., the difference between the
total debits and total credits of an account in the ledger. 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 previous section has shown the procedure for entering transactions
directly in the ledger accounts and the way to determine the balances of
accounts after the transactions for an accounting period has been recorded. At
this point in the sequence, it is advisable to check the work for arithmetic
accuracy. Preparing the trial balance does this. The trial balance summarizes
all the accounts in the general ledger and thus, provides a check on the
equality of the debits and credit entries in the ledger. This schedule has the
following characteristics:
• It is a list of accounts.
• The list of accounts is unclassified; it does not attempt to state whether
accounts listed are assets or liabilities, current or long term.
• The accounts listed are normally those with open balances, that is, they have
peso amount balances.
• The accounts are listed in ledger orders.
If the accounts have been debited and credited with equal amounts for each
transaction during the accounting period, and if the balances of all accounts
have been accurately calculated, the sum of the debit balance accounts (the
assets and the expenses) will equal the sum of the credit balance accounts (the
liabilities, proprietor’s capital and revenues).
It is important to note that the trial balance is a list prepared for all accounts
with open (debit or credit) balances. Accounts with zero balances are
excluded.

Continued on next page

Marivic D. Valenzuela-Manalo Page 17of D

Trial Balance, Continued

Reminder The trial balance is not a complete proof of the correctness of the accounting
entries recorded. It is possible to debit on asset account instead of an expense
account, credit a revenue account instead of a liability account, make
compensating arithmetic errors (errors that offset each other), or debit and
credit the appropriate accounts but for the incorrect amount, and still produce
a trial balance in which the debit balances equal the credit balances. All that the
trial balance really proves is that the transactions were recorded so that debits
and credits are equal in amount. In spite of the limitations of the trial balance,
it is nevertheless an important tool in checking the equality of the debit and
credit balances in the general ledger. In addition to providing a kind of proof
of work done the trial balance may also be used as a source of information for
the preparation of balance sheet and income statement.

Illustration Below is the trial balance of Joseph Labrador, CPA:

Joseph Labrador, CPA
Trial Balance
September 10, 20X1

ACCOUNT TITLES DEBIT CREDIT

Cash 269,500
Accounts Receivable 10,000
Office Supplies 7,000
Office Equipment 40,000
Office Furniture & Fixture 50,000
Accounts Payable 30,000
Labrador, Capital 350,000
Labrador, Drawing 8,000
Service Income 15,000
Taxes & Licenses Expense 5,000
Repair & Maintenance Expense 500
Salaries & Wages Expense 3,500
Utilities Expense 1,500 __________
395,000 395,000
========= =======

Marivic D. Valenzuela-Manalo Page 18of D

Limitations of the Trial Balance

Overview The Trial Balance provides proof that the ledger is in balance. The agreement
of the debit and credit totals of the trial balance gives assurance that
• Equal debits and credits have been recorded for all transactions.
• The debit or credit balance of each account has been correctly computed.
• The addition of the account balances in the trial balance has been correctly
performed.

Limitations Experience proves that not all the trial balances that we prepare are balanced.
There are many instances that the debit total is not similar to that of the credit
total. The following are the steps in locating errors in the trial balance:
• Prove the addition of the trial balance by adding columns in the opposite
direction from that previously followed.
• If the error does not lie in the 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 difference is divisible by 9, this suggests either a:
• Transposition Error. An interchange in the order of the digits of a number,
e.g., 87 for 78; 453 for 354; 1234 for 4231; etc. The first is called a one-
column transposition, the second, a two-column transposition and the
third, a three-column transposition. An error caused by a one-column
transposition is divisible by 9, by a two column transposition by 99, by a
three-column transposition by 999, and so on.

Continued on next page

Marivic D. Valenzuela-Manalo Page 19of D

Limitations of the Trial Balance, Continued

Limitations, Below is the continuation of steps in locating errors in the trial balance:
cont.
• Transplacement Error. Also known as sliding error, occurs when some or
all the digits of a number are moved one or more places to the left or right,
e.g., 450.00 written as 45.00 or as 4.50 or as 4005.00. The first is called a
one-column slide, and the next two as two column slides. The error
caused by a one-column slide is divisible by 9, by a two column slide by
99, and soon. After the division is performed, the quotient always indicates
the figure transplaced.
If the difference is an even number, divide it by 2. The quotient could be
•
the balance of an account that is erroneously copied to the trial balance on
the wrong side or the amount of a journal entry that is posted on the
wrong side of the ledger.
• Compare the amounts in the trial balance with the balances in the ledger. Be
sure that no account is omitted.
• Recompute the balance of each ledger account.
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.

Marivic D. Valenzuela-Manalo Page 20of D