Financial Accounting and Reporting (Finacre) De La Salle Lipa

Module 3
POSTING IN THE GENERAL LEDGER
AND PREPARATION OF THE UNADJUSTED TRIAL BALANCE

The Ledger

The ledger is the entire group of accounts maintained by a company. It keeps in one place all the
information about changes in account balances and it is a source of useful data for management.

The standard form of a ledger account has three money columns and the balance in the account is
determined after each transaction.

Posting is the procedure of transferring journal entries to the ledger accounts. The following steps are
used in posting:
a. In the ledger, enter in the appropriate columns of the account(s) debited the date, journal page,
and debit amount.
b. In the reference column of the journal, write the account number to which the debit amount was
posted.
c. Perform the same steps in a. and b. for the credit amount.

Below is an illustration which shows how to post a journal entry.

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The Chart of Accounts

A chart of accounts is a listing of the accounts and the account numbers which identify their location in
the ledger. The numbering system usually starts with the balance sheet accounts and follows with the
income statement accounts. (See page 8 of Kashato Shirts.)

Illustrative Example

Pioneer Advertising Agency, Inc.

Chart of Accounts

Assets Owner’s Equity

101 Cash 301 Owner’s Capital
112 Accounts Receivable 306 Owner’s Drawings
126 Supplies 350 Income Summary
130 Prepaid Insurance
157 Equipment Revenues Revenues
158 Accumulated Depreciation—Equipment 400 Service revenue

Liabilities Expenses
200 Notes payable 631 Supplies expense
201 Loans payable 711 Depreciation expense
209 Accounts payable 722 Insurance expense
212 Salaries payable 726 Salaries expense
230 Interest payable 729 Rent expense
732 Utilities expense
905 Interest expense

The Trial Balance

A trial balance is a list of accounts and their balances at a given time. The primary purpose of the trial
balance is to prove the mathematical equality of the debits and credits after posting. (See page 9 of
Kashato Shirts.)

A trial balance does not prove that all transactions have been recorded or that the ledger is correct
because the trial balance may still balance when
a. a transaction is not journalized.
b. a correct journal entry is not posted.
c. an entry is posted twice.
d. incorrect accounts are used in journalizing or posting.
e. offsetting errors are made in recording the amount of a transaction.

Use of Currency Symbols

Note that the currency symbols do not appear in journals or ledgers. Currency symbols are typically used
only in the trial balance and the financial statements. Generally, it is shown only for the first item in the
column and for the total of that column.

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Illustrative Example

The following accounts come from the ledger of SnowGo Company at December 31, 2018.

157 Equipment $88,000 301 Owner’s Capital $20,000

306 Owner’s Drawings 8,000 212 Salaries and Wages Payable 2,000
201 Accounts Payable 22,000 200 Notes Payable 19,000
726 Salaries and Wages Expense 42,000 732 Utilities Expense 3,000
112 Accounts Receivable 4,000 130 Prepaid Insurance 6,000
400 Service Revenue 95,000 101 Cash 7,000

Instruction: Prepare a trial balance in good form.

Snowgo Company
Trial Balance
December 31, 2018

Debit Credit
101 Cash $ 7,000
112 Accounts Receivable 4,000
130 Prepaid Insurance 6,000
157 Equipment 88,000
200 Notes Payable $ 19,000
201 Accounts Payable 22,000
212 Salaries and Wages Payable 2,000
301 Owner’s Capital 20,000
306 Owner’s Drawings 8,000
400 Service Revenue 95,000
732 Utilities Expense 3,000
726 Salaries and Wages Expense 42,000 __ ____
$158,000 $158,000

Illustrative Example

On October 1, the owner invests $10,000 cash in an advertising company to be known as Pioneer
Advertising Agency, Inc.

General Journal Page J1

Date Account Titles Ref. Debit Credit
Oct. 1 Cash 101 0 1 0 0 0 0
Owner’s capital 301 0 1 0 0 0 0

On October 1, Pioneer purchases office equipment costing $5,000 by signing a promissory note.

Oct. 1 Equipment 157 0 1 5 0 0 0

Notes payable 200 0 1 5 0 0 0

On October 2, Pioneer receives a $1,200 cash advance from R. Knox, a client, for advertising services
that are expected to be completed by 31 December.

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Oct. 2 Cash 101 0 1 1 2 0 0

Unearned service 0 1
revenue 209 1 2 0 0

On October 3, Pioneer pays office rent for October in cash, $900.

Oct. 3 Rent Expense 729 0 1 1 9 0 0

Cash 101 0 1 1 9 0 0

On October 4, Pioneer pays $600 for a one-year insurance policy that will expire next year on 30
September.

Oct. 4 Prepaid insurance 130 0 1 1 6 0 0

Cash 101 0 1 1 6 0 0

On October 5, Pioneer purchases an estimated 3-month supply of advertising materials on account from
Aero Supply for $2 500.

Oct. 5 Supplies 126 0 1 2 5 0 0

Accounts payable 201 0 1 2 5 0 0

On October 9, Pioneer hires four employees to begin work on October 15. Each employee is to receive a
weekly salary of $500 for a 5-day work week, payable every 2 weeks—first payment made on October
26.

-- no journal entry --

On October 20, the owner withdrew $500 cash for personal use.

Oct. 20 Owner’s drawings 306 0 1 1 5 0 0

Cash 101 0 1 1 5 0 0

On October 26, Pioneer owes employee salaries of $4,000 and pays them in cash.

Oct. 20 Salaries expense 726 0 1 4 0 0 0

Cash 101 0 1 4 0 0 0

On October 31, Pioneer receives $10,000 in cash from Copa Company for advertising services
performed in October.

Oct. 31 Cash 101 0 1 0 0 0 0

Service revenue 400 0 1 0 0 0 0

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Below is the trial balance prepared from Pioneer Advertising’s ledger.

Pioneer Advertising Agency, Inc.

Trial Balance
October 31, 2014
Ref. Account Titles Debit Credit
101 Cash 0 1 5 2 0 0
126 Supplies 2 5 0 0
130 Prepaid insurance 6 0 0
157 Equipment € 5 0 0 0
200 Notes payable 5 0 0 0
201 Accounts payable 2 5 0 0
209 Unearned service revenue 1 2 0 0
301 Share capital € 1 0 0 0 0
306 Dividends 5 0 0
400 Service revenue 1 0 0 0 0
726 Salaries and Wages Expense 4 0 0 0
729 Rent expense 9 0 0
Total € 2 8 7 0 0 € 2 8 7 0 0
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Exercise

Presented below is the ledger for Maxim Co.

Cash 101 Maxim, Capital 301

10/1 5,000 10/4 400 10/1 5,000
10/10 650 10/12 1,500 10/25 2,000
10/10 3,000 10/15 250
10/20 500 10/30 300 Maxim, Drawing 306
10/25 2,000 10/31 500 10/30 300

Accounts Receivable 112 Service Revenue 407

10/6 800 10/20 500 10/6 800
10/20 940 10/10 650
10/20 940

Supplies 126 Store Wages Expense 628

10/4 400 10/31 500

Furniture 149 Rent Expense 729

10/3 2,000 10/15 250

Notes Payable 200

10/10 3,000

Accounts Payable 201

10/12 1,500 10/3 2,000

Required:
a. Reproduce the journal entries for the transactions that occurred on October 1, 6, 10, 20, and 25.
b. Determine the October 31 balance for each of the accounts above, and prepare a trial balance at
October 31, 2018.