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 edger
!. Trial "alance Preparation
#. $orksheet Preparation
%. &d'usting the "ooks
(. Preparing )inancial *tatements
+. ,losing the "ooks
-. Preparing Post ,losing Trial "alance
.. /e0ersing 1ntries

Purpose The purpose of 2nit 345Part 1 6General Journal, General Ledger, Trial
Balance is to introduce the student on the use of a general 'ournal, general
ledger and the preparation of the trial 7alance.

In this unit This unit contains the following topics8
Topics See Page
Journalizing 9*tep 1: 2 of ;
Journal /ules # of ;
Journal 1ntries ( of ;
The General edger . of ;
The ,hart of &ccounts 11 of ;
Posting to the General edger 9*tep 2: 1! of ;
"alancing &ccounts 1( of ;
Trial "alance 1+ of ;
imitations of the Trial "alance 1. of ;

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Journalizing (Ste 1!

Overview "ookkeeping is the systematic and chronological recording of transactions in
7ooks of accounts following a series of steps and procedures commonly
referred to as the accounting cycle. This 7ookkeeping procedure 7egins with
'ournalizing which is the first part of this unit.

Journal &ccounting is 7ased on dou7le5entry 7ookkeeping, which means that
accountants record the dual effects of a business transaction. The 7asic
recording procedure in accounting in0ol0es a de0ice called a journal. &
'ournal is a daily record of 7usiness 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 'ournal is also known as the
book of original entries.

Journalizing The chronological recording of the 7usiness transactions in the 7ook of
original entry.

Illustration "elow is an e<ample of a typical 'ournal.
JOURNAL
PAGE
Date P A R T I C U L A R S P/R DEBIT CREDIT

Continued on next page
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Journalizing (Step 1), Continued

Legend The definitions 7elow illustrate the legend8
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 e0ery account title affected 7y each
transaction and to gi0e some e<planation or 'ustification of the de7its and
credits 7eing made to the accounts.
P/R (Posting Reference) column is important 7ecause it indicates the
num7ers of the accounts in the ledger to which the de7its and credits
recorded in the 'ournal ha0e 7een transferred. 4n manual systems, these
account num7ers are inserted at the proper time in the P=/ column of the
'ournal.
Debit and credit columns indicate the amounts to 7e de7ited or credited to
the account titles written in the particulars column.

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Journal "ule#

Overview The following guidelines will 7e useful when recording transactions in a
general 'ournal.

Journal Rules The recording process follows these fi0e steps8
1. Transactions are first analyzed, identifying the transaction from 7usiness
source documents, e.g., official receipts, cash 0ouchers, etc. &ll
transactions recorded in 'ournals must 7e 7ased upon some objectie
erifiable eidence. !usiness documents are formal written records that
pro0ide information to e0eryone 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 'ournal entry are 0erifia7le if it is possi7le to trace
the transaction to its point of origin.
2. The day on which the transaction took place is written in the ;ate
column.
!. The account titles affected 7y the transactions are put into the
particulars column. 4t is an accepted practice to list first in each
transaction the account title=s 7eing de7ited, followed 7y the account title=s
7eing credited. The de7ited account titles are written against the left
margin of the particulars column. The accounts 7eing credited are
indented from the left margin of the particulars column. 4f any single
transaction requires se0eral de7its and credits, all account titles recei0ing
the de7its will 7e listed first, followed 7y the indented account titles
recei0ing the credits. &t the same time each account title is written in the
'ournal, the peso amount is inserted in the appropriate ;e7it or ,redit
column. )or each 'ournal entry, the total de7its must equal the total
credits.
Continued on next page
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Journal Rules, Continued
Journal Rules,
cont
.
,ontinuation of the steps8
#. & 7rief e<planation is written immediately 7elow the last account title
credited. This gi0es the reason why the accounts are 7eing de7ited or
credited and 0erifies the amounts used. The e<planations follow no rigid
rules. The accountant uses his own wording in e0ery e<planation. >e
must keep in mind, howe0er, that other readers must understand the
transaction and the manner in which it was recorded.
%. 4t is ad0isa7le to lea0e a 7lank line following the e<planation to help
distinguish one 'ournal entry from the ne<t. Thus, each 'ournal entry
consists 7asically of four parts8
Transaction date
;e7it entry
,redit entry
1<planation

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Journal $ntrie#
Journal !ntries The following transactions of Joseph a7rador, ,P& will show the ways in
which the rules mentioned in the pre0ious section are applied to a general
'ournal. The transactions are descri7ed first and the proper method of
recording the transactions follows in the illustrati0e 'ournal form.
Transaction
"ate "escription o# Transaction
*eptem7er 1 ?r. Joseph a7rador 7egan his accounting firm 7y
in0esting cash of P!@@,@@@ and furniture of
P%@,@@@.
2 Paid the 7usiness ta< to the ,ity Treasurer, P%,@@@.
! Purchased a computer from ,ompu,enter for
P#@,@@@ on account
# Purchased 0arious office supplies from Aational
"ookstore, P+,@@@.
% *ent charge 7ills to &", ,o. for accounting
ser0ices rendered, P1@,@@@.
( ?ade a partial payment of P1@,@@@ to
,ompu,enter
+ /ecei0ed P%,@@@ in cash for ser0ices rendered to
BCD ,o.
- ?r. a7rador withdrew P-,@@@ cash for personal
use.
. Paid repairman for repair ser0ice on the office
furniture, P%@@.
1@ Paid in cash the following8
*ecretaryEs salary P!,%@@
P;T F ?$** "ills 1,%@@
Continued on next page
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Journal Entries, Continued

!$a%ple o#
Jour
nal
entri
es
"elow is a typical 'ournal with 'ournal entries8
P a g e 1
DATE P A R T I C U L A R S P/R D E B I T C R E D I T
Sept. 1 Cash 3 0 0 0 0 0
Labra!r" Cap#ta$ 3 0 0 0 0 0
T! re%!r #&#t#a$ #&'est(e&t
1 O))#%e *+r&#t+re a& *#,t+res - 0 0 0 0
Labra!r" Cap#ta$ - 0 0 0 0
T! re%!r #&#t#a$ #&'est(e&t
. Ta,es a& L#%e&ses E,pe&se - 0 0 0
Cash - 0 0 0
Ta, pa# t! C#t/ Treas+rer.
3 O))#%e E0+#p(e&t 1 0 0 0 0
A%%!+&ts pa/ab$e2C!(p+Ce&ter 1 0 0 0 0
B!+ght %!(p+ter !& %re#t
1 O))#%e S+pp$#es 3 0 0 0
Cash 3 0 0 0
P+r%hase 'ar#!+s !))#%e s+pp$#es
- A%%!+&ts Re%e#'ab$e 1 0 0 0 0
Ser'#%es I&%!(e 1 0 0 0 0
Ser'#%es e$#'ere !& %re#t
4 A%%!+&ts Pa/ab$e2C!(p+Ce&ter 1 0 0 0 0
Cash 1 0 0 0 0
5ae part#a$ pa/(e&t
3 Cash - 0 0 0
Ser'#%e I&%!(e - 0 0 0
Ser'#%e #&%!(e #& %ash.
6 Labra!r" Dra7#&g 6 0 0 0
Cash 6 0 0 0
8#thra7a$ !) %ash b/ the !7&er
9 Repa#rs a& 5a#&te&a&%e - 0 0
Cash - 0 0
Pa# )!r the repa#r !) )+r&#t+re
10 Sa$ar#es : 8ages E,pe&se 3 - 0 0
Cash 3 - 0 0
Pa# se%retar/;s sa$ar/.
10 Ut#$#t#es E,pe&se
Cash 1 - 0 0
Pa# b#$$s !) PLDT : 58SS 1 - 0 0

Continued on next page
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Journal Entries, Continued

&o%pound
Jour
nal
!ntr
'
& compound entry 9i.e., entry with more than one de7it or more than one
credit or more than one de7it and credit: is optional to 7e used on the part of
the recorder. ,ompounding an entry, howe0er, is not to 7e used to ser0e
laziness at the sacrifice of clarity. ,ompound entries should 7e used only for
similar transactions.
The e0ent in *eptem7er 1 and 1@ may 7e 'ournalized 7y two simple 'ournal
entries as shown in the illustration. "ut it can also 7e recorded 7y one
compound 'ournal entry as follows8
*ept. 1 ,ash !@@,@@@
Gffice furniture F fi<ture %@,@@@
Joseph, ,apital !%@,@@@
To record initial in0estment
*ept. 1@ *alaries F wages e<pense !,%@@
2tilities e<pense 1,%@@
,ash %,@@@
Paid salary of secretary F P;T
F ?$** 7ill

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T%e General Ledger
Overview *ince transactions are recorded in the 'ournal according to their dates of
occurrences, items of similar nature are not grouped together. 4nformation in
the general 'ournal is spread among the 0arious transactions recorded. 4f
information regarding an item is desired, say, cash, for e<ample, it is still
necessary to gather the information from the scattered pages of the 'ournal.
;ue to this incon0enience, there is a need for another record in which data
appearing in the 'ournal may 7e summarized to show the status of each item.
1ach item is represented 7y an account. & group of accounts constitutes a
ledger" The general ledger is also known as the book of final entry 9Punzalan,
J., *antos, ?., 1.(.:.

(or%s o#
)ene
ral
Ledg
er
There are two possi7le forms of general ledger account. These are8
*tandard )orm
The sta&ar )!r( !) the a%%!+&t $!!<s $#<e th#s=
ACCOUNT NO.
Date I T E 5 S P/R DEBIT Date I T E 5 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,
;ate, 4tems or 1<planation, P=/, &mount, for each side 9de7it and
credit of the account:. The ;ate column shows the day each
transaction affecting the account took place. The 4tem column,
which is rarely used, gi0es information a7out unusual transactions
recorded in the account. The P=/ column is called a posting
reference column and tells the source of the de7it or the credit 7eing
entered in the account. The de7it and credit columns show the peso
amount for each transaction recorded in the account.
Continued on next page
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The General Ledger, Continued

(or%s o# a
ledge
r
The other account form is
/unning "alance )orm
ACCOUNT NO.
Date I T E 5 S P/R DEBIT CREDIT BALANCE
This type of account permits an analysis of transactions in terms of
de7its and credits, 7ut the arrangement of the columns is different
from the standard account form. The sample shows this running
7alance form of accountH its use will 7e deferred until you ha0e
7ecome more familiar with recording transactions in the standard
account format.

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T%e &%art o' (ccount#

Overview &n accountant usually prepares a chart of accounts, which is the listing of all
the account titles 7eing used 7y the 7usiness in its operations including their
respecti0e account num7ers, at the time the 7usiness is organized. &t that
time, he considers the nature of the 7usiness, the kinds of transactions, which
are likely, and the names of the accounts needed to record the information.
>e prepares the chart of accounts in a ledger order, which is also the financial
statement order. $hene0er 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 a7rador, ,P& follows8
*ccount +o. *ccount Title
*SS!TS
1@1 ,ash
1@2 4n0estments in Trading *ecurities
1@! Aotes /ecei0a7le
1@# &ccounts /ecei0a7le
1@#5& &llowance )or ;ou7tful &ccounts
1@% 4nterest /ecei0a7le
1@( &d0ances To 1mployees
1@+ Gffice *upplies
1@- Prepaid /ent
1@. Prepaid 4nsurance
2@1 and
2@2 "uilding
2@25& &ccumulated ;epreciation5"uilding
2@! Gffice 1quipment
2@!5& &ccumulated ;epreciation5Gffice 1quipment
2@# Gffice )urniture &nd )i<ture
2@#5& &ccumulated ;epreciation5Gffice )urniture F )i<ture
Continued on next page
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The Chart of Accounts, Continued

Illustration 9continued:
LI*BILITI!S
!@1 &ccounts Paya7le
!@2 Aotes Paya7le
!@! 4nterest Paya7le
!@# *alaries F $ages Paya7le
!@% $ithholding Ta<es Paya7le
!@( *** F ?edicare Premium Paya7le
!@+ Pag547ig ,ontri7utions Paya7le
!21 ?ortgage Paya7le
PROPRI!TORS,IP
#@1 a7rador, ,apital
#@15& a7rador, ;rawing
#@2 4ncome F 1<pense *ummary
R!-!+.!S
%@1 *er0ice 4ncome
%@2 4nterest 4ncome
%@! ;i0idend 4ncome
!/P!+S!S
(@1 &d0ertising 1<pense
(@2 ;epreciation 1<pense
(@! ;ou7tful &ccounts 1<pense
(@# Gas F Gil 1<pense
(@% 4nsurance 1<pense
(@( 4nterest 1<pense
(@+ ?iscellaneous 1<pense
(@- Gffice *upplies 1<pense
(@. Postage F Telegraph 1<pense
(1@ /ent 1<pense
(11 /epair F ?aintenance 1<pense
(12 *alaries F $ages 1<pense
(1! *** F ?edicare Premium 1<pense
(1# Ta<es F icenses 1<pense
(1% Transportation 1<penses
(1( 2tilities 1<pense

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Po#ting to t%e General Ledger (Ste )!
Overview Journals are called 7ooks of original entry 7ecause the information from the
underlying 7usiness papers, i.e., receipts, in0oices, etc., is recorded here first.
4n most 7usinesses, accounting transactions seldom go to the ledger accounts
without first ha0ing 7een recorded in a 'ournal. The 'ournalized transactions
must, howe0er, 7e transferred to the ledger accounts so that the changes in
indi0idual asset, lia7ility, proprietorship, re0enue and e<pense items may 7e
accumulated. The process of transferring the data from 'ournal entries to the
indi0idual account in the ledger is called posting. Posting simply in0ol0es
transferring the 'ournalized de7it and credit data to each account name in the
'ournal entry. The amounts are written on the side of the accounts as specified
in the 'ournal entry.

Journal !ntr' The 'ournal entry and the procedure for posting the de7it portion of this
transaction to the proper account are illustrated 7elow8
PAGE 1
Date P A R T I C U L A R S P/R DEBIT CREDIT
.0>1
Sept. 1 Cash 101 1 - 0 0 0 0
Labra!r " Cap#ta$ 1 - 0 0 0 0
I&#t#a$ I&'est(e&t


"e0it Posting
proc
edur
e
Gn the de7it side of the account, in the ledger8
1. 1nter the year 9where needed:, the month 9where needed:, and the day in
the ;ate column of the account affected.
2. 1nter the amount in the de7it column of the amount affected.
!. 1nter the 'ournal posting reference 9'ournal sym7ol, e.g., GJ for general
'ournal and page num7er: in the P=/ column to show the source of the
data posted.
#. 4n the 'ournal, enter the ledger posting reference 9account num7er: in the
P=/ column for the de7it part of the transaction, indicating the
completion of the posting.
Continued on next page
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Posting to the General Ledger (Step 2), Continued

Illustration "elow is the illustration of the de7it posting procedure.
"e0it Posting Illustrated
CAS? ACCOUNT NO. 101
Date I T E 5 S P/R DEBIT Date I T E 5 S P/R CREDIT
.0>1
Sept. 1 GJ1 1 - 0 0 0 0


Journal !ntr' The 'ournal entry and the procedure for posting the credit portion of the gi0en
transaction follow8
PAGE1
Date PARTICULARS P/R DEBIT CREDIT
20X1
Sept. 1Cash 101 1 50000
LabradorCap!ta" #01 150000
I$!t!a"I$%est&e$t

&redit Posting
Proc
edur
e
Gn the credit side of the account in the ledger8
1. 1nter the year 9where needed:, the month 9where needed:, and the day in
the ;ate column of the account affected.
2. 1nter the amount in the credit column of the account affected.
!. 1nter the 'ournal posting reference 9'ournal sym7ol and page num7er: in
the P=/ column to show the source of the data posted.
#. 4n the 'ournal, enter the ledger posting reference 9account num7er: in the
P=/ column for the credit part of the transaction, indicating the completion
of the posting.
Continued on next page
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Posting to the General Ledger (Step 2), Continued

Illustration "elow is the illustration of the credit posting procedure.
&redit Posting Illustrated
LabradorCap!ta" ACC'U(T('. #01
Date ITE)S P/R DEBIT Date ITE)S P/R CREDIT
20X1
Sept. 1 G*1 150000

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Balancing (ccount#

Overview The general ledger accounts pro0ide a means for determining the amount for
each of these items that e<ist at the end of each accounting period or at any
other time. This information is o7tained 7y balancing the accounts.
"alancing accounts in the general ledger is a simple procedure. )irst, the de7it
and credit sides of each account are footed 9totaled: whene0er more than one
figure appears in a column, and the totals are inserted in small penciled
figures immediately 7elow the last entry on each side of the account. *econd,
the total of the de7its in each account is compared with the total of the credits.
Third, when the total of the de7its is greater than the total of the credits, the
difference 7etween the two totals is inserted in pencil on the de7it side of the
account following the line with the penciled footing. 4f the total of the credits
is more than the total of the de7its, the difference is inserted in pencil on the
credit side ne<t to the penciled footing. &sset and e<pense accounts will
normally ha0e de7it 7alances. ia7ility capital and re0enue accounts will
normally ha0e credit 7alances.

Illustration "elow is an illustration of Posting the ,ash &ccount transactions of J.
a7rador from *eptem7er 1 to 1@8
CAS? ACCOUNT NO. 101
Date I T E 5 S P/R DEBIT Date I T E 5 S P/R CREDIT
.0>1
Sept. 1 GJ1 3 0 0 0 0 0 Sept. . GJ1 - 0 0 0
3 GJ1 - 0 0 0 1 GJ1 3 0 0 0
4 GJ1 1 0 0 0 0
6 GJ1 6 0 0 0
9 GJ1 - 0 0
10 GJ1 3 - 0 0
10 GJ1 1 - 0 0
3 0 - 0 0 0 3 - - 0 0
1 0 Ba$a&%e . 4 9 - 0 0

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Trial Balance
Overview The trial balance is a list of schedule of open accounts in the general ledger
with their corresponding account 7alances, i.e., the difference 7etween the
total de7its and total credits of an account in the ledger. 4t is prepared to
0erify the e#ualit$ of debits and credits in the ledger at the end of each
accounting period or at any time the postings are updated.
The pre0ious section has shown the procedure for entering transactions
directly in the ledger accounts and the way to determine the 7alances of
accounts after the transactions for an accounting period has 7een recorded. &t
this point in the sequence, it is ad0isa7le to check the work for arithmetic
accuracy. Preparing the trial 7alance does this. The trial 7alance summarizes
all the accounts in the general ledger and thus, pro0ides a check on the
equality of the de7its and credit entries in the ledger. This schedule has the
following characteristics8
4t is a list of accounts.
The list of accounts is unclassifiedH it does not attempt to state whether
accounts listed are assets or lia7ilities, current or long term.
The accounts listed are normally those with open 7alances, that is, they
ha0e peso amount 7alances.
The accounts are listed in ledger orders.
4f the accounts ha0e 7een de7ited and credited with equal amounts for each
transaction during the accounting period, and if the 7alances of all accounts
ha0e 7een accurately calculated, the sum of the de7it 7alance accounts 9the
assets and the e<penses: will equal the sum of the credit 7alance accounts 9the
lia7ilities, proprietorEs capital and re0enues:.
4t is important to note that the trial 7alance is a list prepared for all accounts
with open 9de7it or credit: 7alances. &ccounts with zero 7alances are
e<cluded.
Continued on next page
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Trial Balance, Continued

Re%inder The trial 7alance is not a complete proof of the correctness of the accounting
entries recorded. 4t is possi7le to de7it on asset account instead of an e<pense
account, credit a re0enue account instead of a lia7ility account, make
compensating arithmetic errors 9errors that offset each other:, or de7it and
credit the appropriate accounts 7ut for the incorrect amount, and still produce
a trial 7alance in which the de7it 7alances equal the credit 7alances. &ll that the
trial 7alance really pro0es is that the transactions were recorded so that de7its
and credits are equal in amount. 4n spite of the limitations of the trial 7alance,
it is ne0ertheless an important tool in checking the equality of the de7it and
credit 7alances in the general ledger. 4n addition to pro0iding a kind of proof
of work done the trial 7alance may also 7e used as a source of information for
the preparation of *tatement of )inancial Position and income statement.

Illustration "elow is the trial 7alance of Joseph a7rador, ,P&8
Joseph a7rador, ,P&
Trial "alance
*eptem7er 1@, 2@B1
&,,G2AT T4T1* ;1"4T ,/1;4T
,ash 2(.,%@@
&ccounts /ecei0a7le 1@,@@@
Gffice *upplies +,@@@
Gffice 1quipment #@,@@@
Gffice )urniture F )i<ture %@,@@@
&ccounts Paya7le !@,@@@
a7rador, ,apital !%@,@@@
a7rador, ;rawing -,@@@
*er0ice 4ncome 1%,@@@
Ta<es F icenses 1<pense %,@@@
/epair F ?aintenance 1<pense %@@
*alaries F $ages 1<pense !,%@@
2tilities 1<pense 1,%@@ IIIIIIIIII
Total !.%,@@@
JJJJJJJJJ
!.%,@@@
JJJJJJJ

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Li*itation# o' t%e Trial Balance

Overview The Trial "alance pro0ides proof that the ledger is in 7alance. The agreement
of the de7it and credit totals of the trial 7alance gi0es assurance that
1qual de7its and credits ha0e 7een recorded for all transactions.
The de7it or credit 7alance of each account has 7een correctly computed.
The addition of the account 7alances in the trial 7alance has 7een correctly
performed.
Li%itations 1<perience pro0es that not all the trial 7alances that we prepare are 7alanced.
There are many instances that the de7it total is not similar to that of the credit
total. The following are the steps in locating errors in the trial balance8
Pro0e the addition of the trial 7alance 7y adding columns in the opposite
direction from that pre0iously followed.
4f the error does not lie in the addition, determine the e<act amount 7y
which the trial 7alance is out of 7alance. The amount of the discrepancy is
often a clue to the source of the error.
4f the difference is di0isi7le 7y ., this suggests either a8
Transposition Error. &n interchange in the order of the digits of a
num7er, e.g., -+ for +-H #%! for !%#H 12!# for #2!1H etc. The first is
called a one5column transposition, the second, a two5column transposition
and the third, a three5column transposition. &n error caused 7y a one5
column transposition is di0isi7le 7y ., 7y a two column transposition 7y
.., 7y a three5column transposition 7y ..., and so on.

Continued on next page
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Limitations of the Trial Balance, Continued

Li%itations,
cont.
"elow is the continuation of steps in locating errors in the trial 7alance8
Transplacement 1rror. &lso known as sliding error, occurs when some or
all the digits of a num7er are mo0ed one or more places to the left or right,
e.g., #%@.@@ written as #%.@@ or as #.%@ or as #@@%.@@. The first is called a
one5column slide, and the ne<t two as two column slides. The error
caused 7y a one5column slide is di0isi7le 7y ., 7y a two column slide 7y
.., and soon. &fter the di0ision is performed, the quotient always indicates
the figure transplaced.
4f the difference is an e0en num7er, di0ide it 7y 2. The quotient could 7e
the 7alance of an account that is erroneously copied to the trial 7alance on
the wrong side or the amount of a 'ournal entry that is posted on the
wrong side of the ledger.
,ompare the amounts in the trial 7alance with the 7alances in the ledger.
"e sure that no account is omitted.
/ecompute the 7alance of each ledger account.
Trace all postings from the 'ournal to the ledger accounts. &s this is done,
place a check mark in the 'ournal and in the ledger after each figure is 0erified.
$hen the operation is completed, look through the 'ournal and the ledger for
unchecked amounts. 4n tracing postings, 7e alert not only for errors in amount
7ut also for de7its entered as credits, or 0ice 0ersa.
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