BASIC ACCOUNTING

CHAPTER 3
The Recording Process
(Journalizing, Posting and Trial Balance)

D. Nicart, CPA

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 Transaction Analysis

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

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 Source Documents

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.

By relying on source documents,

transactions and events can be analyzed
as to how they will affect performance and
financial position.

Examples : sales invoice, cash register tape, official receipt, bank deposit slips,
bank statements, checks, purchase orders, time cards and statement of
accounts.
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 The Accounting Cycle
The accounting cycle refers to a series of sequential steps or procedures performed to
accomplish the accounting process.
1. Identification of events to be recorded

2. Transactions are recorded in the journal

3. Journal entries are posted to the ledger

4. Preparation of a Trial Balance

5. Preparation of the Worksheet including

Adjusting Entries

6. Adjusting journal entries are journalized

and posted

7. Preparation of the Financial Statements

8. Closing Journal Entries are journalized

and posted

9. Preparation of a Post-Closing Trial

Balance

10. Reversing Journal Entries are Journalized

The
2-4 cycle is repeated each accounting period. and Posted.
 Steps in the Recording Process

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.

◆ Called the book of original entry.

◆ General journal is the simplest journal.

◆ Contributions to the recording process:

1. Discloses the complete effects of a transaction.

2. Provides a chronological record of transactions.

3. Helps to prevent or locate errors because the debit and credit amounts
can be easily compared.

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 Steps in the Recording Process
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.

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.

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 General Journal
Journalizing – the process of recording a transaction

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 Steps in the Recording Process
Simple and Compound Entry
In a simple entry, only two accounts are affected – one account is debited and
the other account is credited.

Illustration: On September 1, the owner invested Php15,000 cash in the business,

and also purchased computer equipment for Php7,000 cash.

General Journal
Date Account Title Ref. Debit Credit
Sept. 1 Cash 15,000
Owner’s, Capital 15,000

Equipment 7,000
Cash 7,000
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 Steps in the Recording Process
Simple and Compound Entry
When three or more accounts are required in a journal entry, the entry is referred
to as a compound entry.

Illustration: On July 1, Butler Company purchases a delivery truck costing P14,000.

It pays P8,000 cash now and agrees to pay the remaining P6,000 on account.

General Journal
Date Account Title Ref. Debit Credit
July 1 Equipment 14,000
Cash 8,000
Accounts payable 6,000

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 Journalizing : Exercise
Prepare the journal entries for the transactions of Weddings R Us company for
the month of May:

May 1 Elisa Diaz decided to open her wedding consultancy business. She invested
P700,000 cash into this entity

She rented office space and paid 2 months’ rent in advance, P40,000

May 2 E. Diaz issued a promissory note for a P300,000 loan from Metrobank.
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.

May 4 Acquired a second hand service vehicle for P500,000 paid in cash.

Paid insurance company a P26,000 for a one-year comprehensive insurance

coverage on the service vehicle

May 5 Acquired office equipment for P120,000, paying 20,000 in cash and the balance
to be paid next month.
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 Journalizing : Exercise
Prepare the journal entries for the transactions of Weddings R Us company for
the month of May:

May 8 Purchased office supplies on credit for P28,000 from San Jose Merchandising

May 12 Paid San Jose Merchandising half of the amount owed

May 14 Coordinated and finalized simple bridal arrangements for three couples and
collected fees of P150,000 per couple.

May 15 Paid salaries for a total of P50,000 to her staff.

May 18 The entity is attracting additional clients by referring consulting clients and
received P100,000 advance fees for three clients referred.

May 20 Coordinated and finalized elaborate bridal arrangements for three couples
and billed fees of P300,000 per couple.

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 Journalizing : Exercise
Prepare the journal entries for the transactions of Weddings R Us company for
the month of May:

May 24 E Diaz withdrew P50,000 for personal expenses

May 27 Paid salaries , P70,000

May 30 Received the internet and telephone bill, P3,500, and electricity bill, P6,500,

May 30 Received P80,000 from a client for services billed last May 20.

May 31 Settled the electricity bill of P6,500 for the month

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 The Accounting Cycle
The accounting cycle refers to a series of sequential steps or procedures performed to
accomplish the accounting process.
1. Identification of events to be recorded

2. Transactions are recorded in the journal

3. Journal entries are posted to the ledger

4. Preparation of a Trial Balance

5. Preparation of the Worksheet including

Adjusting Entries

6. Adjusting journal entries are journalized

and posted

7. Preparation of the Financial Statements

8. Closing Journal Entries are journalized

and posted

9. Preparation of a Post-Closing Trial

Balance

10. Reversing Journal Entries are Journalized

The
2-14 cycle is repeated each accounting period. and Posted.
 Steps in the Recording Process

Transfer journal information to

Analyze each transaction Enter transaction in a journal ledger accounts

Source documents, such as a sales slip, a check, a bill, or a

cash register tape, provide evidence of the transaction.

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 The Ledger
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.

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 The Ledger
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.

Compared to a journal, a ledger organizes information by account.

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 Chart of Accounts
▪ A listing of all the accounts are their account numbers in the ledger

• Accounts and account numbers arranged in sequence in which they are

presented in the financial statements.

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.

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 Posting
Posting – process of transferring amounts from the journal to the ledger accounts. Debits in the
journal are posted as debits in the ledger, and credits in the journal as credits in the ledger.

Steps:

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.

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 Posting

Activity: Post the Weddings R Us journal entry to the ledger. Maintain the following Chart of
Accounts (note: correct your journal entry as needed)

101 Cash
102 Accounts Receivable 301 Diaz, Capital
103 Office Supplies 302 Diaz, Withdrawals
104 Prepaid Rent 401 Interest Expense
105 Prepaid Insurance 402 Salaries & Wages
106 Office Equipment 403 Utilities Expense
107 Vehicle Equipment 501 Service Revenue
201 Accounts Payable
202 Unearned Service Revenue
203 Interest Payable
203 Notes Payable

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 Ledger Accounts After Posting
At the end of the accounting period, the debit or credit balance of each account must be
determined to enable us to come up with a trial balance.

o Each account balance is determined by footing (adding) all the debits and credits.

o If the sum of an account’s debits is greater than the sum of its credits, that account has a
debit balance

o If the sum of its credits is greater, that account has a credit balance

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 The Accounting Cycle
The accounting cycle refers to a series of sequential steps or procedures performed to
accomplish the accounting process.
1. Identification of events to be recorded

2. Transactions are recorded in the journal

3. Journal entries are posted to the ledger

4. Preparation of a Trial Balance

5. Preparation of the Worksheet including

Adjusting Entries

6. Adjusting journal entries are journalized

and posted

7. Preparation of the Financial Statements

8. Closing Journal Entries are journalized

and posted

9. Preparation of a Post-Closing Trial

Balance

10. Reversing Journal Entries are Journalized

The
2-22 cycle is repeated each accounting period. and Posted.
 Trial Balance
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

March 31, 2023
preparation of a trial balance:

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
columns.

3. Add (foot) the debit and

credit columns.

4. Compare the totals.

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 Trial Balance
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.

Locating Errors
An inequality in the totals of the debits and credits would automatically signal the presence of an error.
These errors include:
Error in posting a transaction to the ledger: Error in preparing the trial balance:
▪ An erroneous amount was posted to the account ▪ One of the columns of the trial
balance was incorrectly added
▪ A debit entry was posted as a credit or vice versa
▪ The amount of an account balance
▪ A debit or credit posting was omitted
was incorrectly recorded on the trial
balance
Error in determining the account balances:
▪ A debit balance was recorded on the
▪ A balance was incorrectly computed
trial balance as a credit or vice
▪ A balance was entered in the wrong balance column versa, or a balance was omitted
entirely
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 Trial Balance

Limitations of a Trial Balance

The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or posting, or
5. offsetting errors are made in recording the amount of a
transaction.

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 The Recording Process Illustrated

Follow these steps:

1. Determine what
type of account is
involved.
2. Determine what
items increased or
decreased and by
how much.
3. Translate the
increases and
decreases into
debits and credits.

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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 The Recording Process Illustrated

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