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Accounting Cycle Upto Trial Balance
Accounting Cycle Upto Trial Balance
BY
DELFA G CASTILLA
CTU-DANAO
CHART OF ACCOUNTS
2-52
Chapter 2
Assets are resources owned by the business entity.
2-1
• Cash
• Supplies
Liabilities are debts owed to
• Accounts receivable
outsiders (creditors).
• Prepaid expenses
• Buildings • Accounts payable
• Notes payable
• Wages payable
3
Revenues are increases in owner’s
equity as a result of selling 2-1
services or products to customers.
• Fees earned
• Commission revenue or earned
• Rent revenue
Post-closing
trial balance
Prepare Journalize
Prepare
Journalize and financial and post
adjusted trial
post closing statements. adjusting
balance.
entries entries
Analysis and Recording Business Transactions
ASSETS = EQUITIES
Assets
+ -
debit credit
Behavior of Accounts cont…
Liabilities and Owners’ Equity accounts increase
on the credit side, decrease on the debit side
Liabilities or Owners’ Equity Accounts
- +
debit credit
Transaction Analysis and The Duality Concept
Accounting Is Fun!
What’s in a Journal Entry?
1. Date
2. At least one debit entry
Debit account, use exact account title, do not indent
titles
3. At least one credit entry
Credit account, use exact account title, indent titles
4. An explanation of the transaction:
Check number
Invoice number
DR=CR
Accounts receivable customer name
Many other elements OR details as appropriate…
Remember: the accountant must leave a good audit trail
so that users of accounting information can understand
what occurred with each transaction
DEBIT AND CREDIT
17-
52
18
Income Statement Accounts 2-2
Revenue Accounts
Debit for Credit for
decreases increases
(–) (+)
Expense Accounts
Debit for Credit for
increases decreases
(+) (–)
19
Owner’s Withdrawals - Drawing Account 2-2
Drawing Account
Debit for Credit for
increases decreases
(+) (–)
20
2-2
Increase
(Normal Bal.) Decreases
Balance sheet accounts:
Asset Debit Credit
Liability Credit Debit
Owner’s Equity:
Capital Credit Debit
Drawing Debit Credit
Income statement accounts:
Revenue Credit Debit
Expense Debit Credit
21
Journalizing 2-2
Note
22
Journalizing requires the following steps: 2-2
1. Record the date. If this is the first entry on the page, the
year is inserted above the month. As long as the month
does not change, the rest of the journal entries on the same
page only require the day be recorded.
2. The title of the account debited is listed in the Description
column.
3. Enter the amount in the Debit column.
4. Record the credit account in the Description column.
5. Enter the amount in the Credit column.
Watch these steps take place as the entry to record
23
Chris Clark’s deposit is presented in the next slide.
Balance Sheet Accounts
JOURNAL Page 1
Date Description P.R Debit Credit
1
2
3
4
24
2-2
25
(b) On November 5, NetSolutions 2-2
bought land for $20,000, paying
cash.
26
(c) On November 10, NetSolutions 2-2
purchased supplies on account for
$1,350.
10 Supplies 1 350 00
Accounts Payable 1 350 00
Purchased
supplies on
account.
27
(f) On November 30, 2-2
NetSolutions paid creditors on
account, $950.
28
Income Statement Accounts
2-2
(d) On November 18, NetSolutions received fees of
$7,500 from customers for services provided.
30 Cash 7 500 00
Fees Earned 7 500 00
Received fees
from customers.
29
(e) Throughout the month, NetSolutions incurred the 2-2
following expenses: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
30
(g) On November 30, a count revealed that 2-2
$800 of the supplies inventory had been
used during the month.
31
Drawings Account
2-2
(h) On November 30, Chris Clark withdrew $2,000 in
cash from NetSolutions for personal use.
2007
32
Summary – Analysis of Transactions
2-2
1. Determine whether an asset, liability, owner’s equity,
revenue, expense, or drawing account is affected by the
transaction.
2. For each account affected by the transaction, determine
whether the account increases or decreases.
3. Determine whether each increase or decrease should be
recorded as a debit or a credit.
4. Record the transaction using a journal entry.
5. Periodically post journal entries to the accounts in the
ledger. (Objectives 3)
6. Prepare an unadjusted trial balance at the end of the
33 period. (Objective 4)
Objective 3 –Describe and illustrate the journalizing and
posting of transactions to accounts.
2-2
The process of transferring the debits and credits from
the journal entries to the accounts is called posting.
35
2-3
36
2-3
37
2-3
38
2-3
40
2-3
41
2-3
42
2-3
16 Cash 11 3 100 00
Fees Earned 41 3 100 00
Received fees
from customers.
43
2-3
21 Cash 11 650 00
Accounts Receivable 12 650 00
Received fees
from customers
on account.
46
2-3
23 Supplies 14 1 450 00
Cash 11 1 450 00
Purchased
supplies.
47
2-3
48
2-3
49
2-3
Post.
Date
2007
Description Ref. Debit Cred
Dec 31 Utilities Expense 54 it
225 00 Cash 11 225 00
Paid for electric
usage.
50
2-3
31 Cash 11 2 870 00
Fees Earned 41 2 870 00
Received fees
from customers.
51
2-3
53
Illustration of the accounting process
1. On Jan 1 2010 Ms.Farida invested $100,000 at the
inception of the business, Express Travel Agency
Revenue Accounts
Left or Debit Side Right or Credit Side
Decrease Incre a se
Expense Accounts
Left or Debit Side Right or Credit Side
Increase Decrease
Steps:
1. Determine the effects of transactions on
three components of the accounting
equation,
2. Determine which specific accounts are
affected, and
3. Assure that total of the increases should be
equal to either increases on the other side of
the equation or to decreases on the same
side, or a combination there of.
Behavior of Accounts- Summary
Assets = Liabilities + Owners’ Equity
+ - - + - +
Dr Cr Dr Cr Dr Cr
Expense Revenue
+ - - +
Dr Cr Dr Cr
Withdrawals/Dividends
+ -
Dr Cr
Accounting Cycle-Revisited
Adjust the
Analyze and accounts
Post the
record the and prepare
transactions and
transactions trial balance
prepare trial
balance
Prepare the
Close the financial
accounts and statements
prepare trial
balance
Posting -Defined
Ledger Account
Complete listing of business transactions for an
individual account
Where you look if you want to find the balance of any
given account
General Ledger
A loose-leaf book or computer file containing all the
Ledger Accounts
Each account from the chart of accounts has its own
ledger account in the general ledger
Complete listing of all account tittles and account
names/codes used by an entity is called the chart of
accounts - It is like a table of content in a book
Forms of Ledgers
Two-Column Account
Account Account No:
Posting
Date Item Post. Ref. * Debit Date Item Reference Credit
Left-hand or Right-hand or
86
Posting to The Ledger illustrated
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004
Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
Shareholders’ Equity
Introduction:
In the previous exercise , you have learned the principles
of double entry and how to post to the ledger accounts. The
next step in our progress towards the financial statements is
the trial balance.
Before transferring the relevant balances at the year end to the
financial statements, it is usual to test the accuracy of the
double entry bookkeeping records by preparing a trial balance.
This is done by taking all the balances on every account. Due
to the nature of double entry, the total of the debit balances
will be exactly equal to the total of the credit balances.
The Balancing of Accounts & The Trial Balance
• Question: Once you have closed all the accounts, what would
do?
• Answer: Prepare a Trial Balance
• Question: What is a Trial Balance then? What is it for? How
does it look like?
• Answer: A Trial Balance is a list of nominal ledger account
and their balances at a given date. It is usually
prepared on the last day of the accounting period.
It consists of a Debit and a Credit balance.
• Its purposes:
• (1) It is prepared to check that the total of debit balances is the
same as the total of credit balances and offer reassurance that the
double entry recording from day books has been done correctly.
• (2) For preparation of statement of income and the statement of
financial position
The Balancing of Accounts & The Trial Balance
Debit Credit
Assets Income/ Revenue
Expenses Liabilities
Drawings Capital
The Balancing of Accounts & The Trial Balance
2) List all the Debit balances on the debit side and add them up.
3) List all the Credit balances on the credit side and add them up.
1) Errors of omission
Complete omission of a transaction, because neither a
debit nor a credit is made.
2) Errors of commission
This happens when original figure incorrectly
entered. (Correct double entries but incorrect amounts
were recorded)
The Balancing of Accounts & The Trial Balance
3) Compensating errors
This happens where errors cancel out each other. (eg an
error of £100 is exactly cancelled by another £100 error
elsewhere).
4) Errors of principles
This happens when the wrong type of account had been
used (eg the purchase of a motor van is debited to a
expense account, such as motor expenses, rather than a
fixed asset account)
5) Complete reversal of entries
This happens when an account should be debited but was
credited (and vice versa)
The Trial Balance
Expre s s Trave l Age ncy
Trial Balance
31-Jan-10
in $
Accounts De bit Cre dit
Cash 102,280
Accounts Receivable 7,500
Office Supplies 2,500
Prepaid Rent 600
Prepaid Insurance 120
Office Furniture and Equipment 15,000
Bank Loan 15,000
Accounts Payable 5,000
Unearned Revenues 7,500
Capital 100,000
Withdrawal 3,000
Commission Revenues 12,500
Salary Expenses 9,000
Total 140,000 140,000
THE END
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