THE ACCOUNTING

CYCLE
2

LEARNING OBJECTIVES:

▸ Familiarize oneself with the accounting cycle.

▸ State and apply the rules of debit and credit.
▸ Analyze transactions with the use of the debit and credit
T- accounts.
▸ Journalize transactions in the general journal.
▸ Post the journal entries in the general ledger.
▸ Prepare the trial balance and appreciate its use.
3
THE DOUBLE- ENTRY SYSTEM OF
RECORDING TRANSACTIONS

▸ Recording transactions in accounting is based

on double- entry system. The transaction has a
dual effect which means that every transaction
affects at least two accounts. For every debit,
there is a corresponding credit. The total amount
of the accounts debited must equal to the total
amount of the accounts credited.
 4

THE ACCOUNTING CYCLE

1. Identifying and analyzing the 6. Preparing the financial statements

events recorded 7. Journalizing and posting of
2. Recording transactions in the adjusting entries
journal 8. Journalizing and posting of closing
3. Posting journal entries to the ledger journal entries
4. Preparing the trial balance 9. Preparing the post closing trial
5. Preparing the worksheet and balance
adjusting entries 10. Journalizing and posting of
reversing journal entries
5
1. IDENTIFYING AND ANALYZING THE
EVENTS RECORDED
▸ Identifying and analyzing the transactions to be
recorded through the business documents.
▸ Business documents- are forms containing
evidence to support a business transaction.
These provide data concerning the parties
involved in the transaction (the exchange
made, the date and the money value for the
exchange)
6
2. RECORDING TRANSACTIONS IN THE
JOURNAL

▸ Also known as journalizing.

▸ This is the process of recording the
transaction in the first book of account
known as the journal.
7
3. POSTING JOURNAL ENTRIES TO THE
LEDGER

▸ Also known as posting.

▸ It is the process of transferring the
information found in the journal into the
book of final entry known as the ledger.
▸ Ledger- summarizes the increases or
decreases of individual accounts.
8

4. PREPARING THE TRIAL BALANCE

▸ Trial balance- is a list of accounts found in

the ledger together with the account’s
balance or total. This is a proof that for every
debit, there is a corresponding credit. It also
proves that the ledger is in balance.
9
5. PREPARING THE WORKSHEET AND
ADJUSTING ENTRIES

▸ Worksheet- a common tool used by

accountants to assemble on a sheet of paper
all the information needed to prepare the
financial statements, adjusting entries,
closing entries and the post- closing trial
balance.
10

6. PREPARING THE FINANCIAL STATEMENTS

▸ Four financial statements should be prepared to

provide useful information to parties interested
in the financial information of the business.
▸ Financial Statements: Statement of Financial
Position, Income Statement, Statement of
Changes in Owner’s Equity and a Statement of
Cash Flows.
11
7. JOURNALIZING AND POSTING OF
ADJUSTING JOURNAL ENTRIES

▸ Adjusting entries are prepared at the end of the

accounting period to update the accounts for
internal transactions because they affect more
than one accounting period. This will record the
accruals, expiration of deferrals, estimation and
other events from the worksheet.
12
8. JOURNALIZING AND POSTING OF CLOSING
TRIAL BALANCE

▸ Closing entries are prepared at the end of the

accounting period to update the owner’s
capital account. This will also eliminate the
balances of nominal accounts so that they
may be ready for the next period.
13
9. PREPARING THE POST CLOSING TRIAL
BALANCE

▸ After the closing entries have been posted, the

post closing trial balance is prepared from the
general ledger accounts. This is necessary to
assure that these entries have been correctly
posted. This will also check the equality of the
debits and credits after the closing entries.
14
10. JOURNALIZING AND POSTING OF
REVERSING JOURNAL ENTRIES

▸ Reversing entries are prepared to simplify

the accounting process. The adjusting entries
are simply reversed on the first day of the
accounting period. Not all adjusting entries
are reversed, only accruals and deferrals that
use the nominal accounts.
15

THE ANALYSIS OF TRANSACTION

1. From the business document, determine the kind of transaction or
exchange made.
2. Analyze the transaction to determine the accounts affected. They can
either affect the assets, liabilities, owner’s equity, revenue or
expenses accounts.
3. Determine the effect of the transaction on the accounts affected. The
transaction can either increase or decrease the accounts.
4. Apply the rules of debit and credit to identify whether the accounts
affected should be debited or credited to show the corresponding
increase or decrease.
16

THE JOURNAL

▸ The Journal is a chronological record of events

or business transactions showing all the effects
of each transaction in terms of debits and
credits. Because transactions are initially
recorded in the journal, it is called the book of
original entry. The simplest form is the general
entry.
17

▸ A journal entry should contain the ff:

1. Date. Write the month on the first transaction unless there is a
change in month for the succeeding transactions or a new page is
used.
2. Account Titles and Explanation. Write the debit account at the
extreme left of the first line while the credit account is indented
half- inch on the next line. The explanation describing the
transaction is written on the extreme left of the next line below the
credit. Remember to skip one line before proceeding to the next
transaction.
18

3. P.R. (Posting Reference). Write the corresponding account

number here once the entry is posted. Meanwhile, it is left blank
until the posting has been done.
4. Debit. Under this column, write the debit amount for each debit
account.
5. Credit. Under this column, write the credit amount for each credit
account.
19 NIKO ONG ESTABLISHED AN ART GALLERY WITH AN
INITIAL INVESTMENT OF P500,000 ON SEPTEMBER 1,
2014.
DATE ACCOUNT TITLES AND EXPLANATION P.R. DEBIT CREDIT

2014

Sept. 1 Cash 500, 000

Ong, Capital 500, 000

Initial Investment
20

THE SIMPLE AND COMPOUND ENTRY

▸ Simple entry - only two accounts are affected

(only one debit account and one credit account)
▸ Compound entry - require the use of three or
more accounts for every business transaction.
21

JOURNALIZING THE TRANSACTIONS

▸ Journalizing- the process of recording

transaction in the journal after it has been
recognized and measured.
▸ The total debits should equal to the total
credits for every transaction.
22

RULES FOR DEBIT AND CREDIT

▸ You debit to show: ▸ You credit to show:

1. Increase in assets 1. Decrease in assets
2. Decrease in liabilities 2. Increase in liabilities
3. Decrease in owner’s equity 3. Increase in owner’s equity
- Owner’s Withdrawal - initial investment
- Expenses - revenue/income
23

SAMPLE BUSINESS
TRANSACTIONS
24

Below are the following transactions for Niko Ong Art

Gallery for the month of September. They will be recorded
using the double entry system. To analyze each transaction,
the following shall be used to show the effect on the
accounts as follows: A(for Assets), L (for Liabilities) or OE
(for Owner’s Equity). The effects on owner’s equity is sub-
classified as follows: OE:R (Revenue) and OE:E (Expenses.
25

INITIAL INVESTMENT
Sept. 1 Niko Ong has a talent for painting. He is into charcoal, water colour, acrylic, and
oil painting. Having the flair for it , he started studying painting under a private
tutor at the age of 10. Because of the many requests for job paintings Niko is
getting from prospective customers, he decided to put up an art gallery. He
invested P500, 000 in this initial endeavour.
Analysis Assets increased. Owner’s Equity increased.

Rules Debit increases in assets. Credit increases in owner’s equity.

Entry Increase in assets is recorded by a debit to cash. Increase in owner’s equity is

recorded by a credit to Ong, Capital.

Debit (Dr.) Credit (Cr.)

Cash (A) 500, 000
Ong, Capital (OE) 500, 000
Initial Investment
26
ACQUISITION OF TRANSPORTATION
EQUIPMENT FOR CASH
Sept. 1 Acquired transportation equipment to be used for delivery P300, 000 cash

Analysis An asset increased. Another asset decreased.

Rules Debit increases in assets. Credit decreases in assets.

Entry Increase in assets is recorded by a debit to transportation equipment. Decrease

in assets is recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Transportation Equipment 300, 000
(A)
Cash (A) 300, 000
Purchased transportation equipment for cash
27

ADVANCE PAYMENT OF RENTAL

Sept. 1 Rented office space and paid two months rent in advance, P30, 000

Analysis An asset increased. Another asset decreased.

Rules Debit increases in assets. Credit decreases in assets.

Entry Increase in assets is recorded by a debit to prepaid rent. Decrease in assets is

recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Prepaid Rent (A) 30, 000
Cash (A) 30, 000
Paid two months rent in advance
28

ISSUANCE OF NOTE FOR CASH

Sept. 2 Niko Ong issued a promissory note for a P200, 000 loan from Metro Bank. The
note carries a 12% interest per annum. The interest and the principal are
payable after one year.
Analysis Asset increased. Liabilities increased.

Rules Debit increases in assets. Credit increases in liabilities.

Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is

recorded by a credit to notes payable.

Debit (Dr.) Credit (Cr.)

Cash (A) 200, 000
Notes Payable (L) 200, 000
Borrowed money from the bank issuing a promissory note
29
EVENTS NOT AFFECTING THE ACCOUNTING
EQUATION (NO JOURNAL ENTRY)
Sept. 2 Hired an office secretary with P5, 000 monthly salary. The secretary started
work on the same day.
Analysis There is no entry necessary at this point as the hiring of the secretary has no
effect on the assets, liabilities and owner’s equity.

Sept. 2 Called Enriquez Art Supplies and ordered oil paints and brushes worth P12,
000
Analysis There is no entry necessary at this point as the ordering of the oil paints and
brushes has no effect on the assets, liabilities, and owner’s equity. No delivery
of the supplies has been made thereby no liability arises.
30

PAYMENT OF INSURANCE PREMIUMS

Sept. 4 Paid Insular Life Insurance Co. P18, 000 for one year insurance of the art
gallery.
Analysis An asset increased. Another asset increased.

Rules Debit increases in assets. Credit decreases in assets.

Entry Increase in assets is recorded by a debit to Prepaid Insurance. Decrease in

assets is recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Prepaid Insurance (A) 18, 000
Cash (A) 18, 000
Paid one year insurance premium
31 ACQUISITION OF OFFICE EQUIPMENT
PAYING DOWN PAYMENT AND THE BALANCE
Sept. 5
ON ACCOUNT
Acquired office equipment from Abenson’s P50, 000 paying P20, 000 and the
balance at the end of the month. Note: a compound entry is needed in this
transaction.
Analysis Assets increased. Assets decreased. Liabilities increased.

Rules Debit increases in assets. Credit decreases in asset. Credit increased in

liabilities.
Entry Increase in assets is recorded by a debit to office equipment. Decrease in
assets is recorded by a credit to cash. Increase in liabilities is recorded by a
credit to Accounts Payable.

Debit (Dr.) Credit (Cr.)

Office Equipment (A) 50, 000
Cash (A) 20,000
Accounts Payable (L) 30, 000
Bought office equipment paying cash and the balance on account
32

PURCHASE OF SUPPLIES ON ACCOUNT

Sept. 8 The P12, 000 oil paints ordered from Enriquez Art Supplies were delivered on
account.
Analysis Assets increased. Liabilities increased.

Rules Debit increases in assets. Credit increases in liabilities.

Entry Increase in assets is recorded by a debit to Art Supplies. Increase in liabilities is

recorded by a credit to Accounts Payable.

Debit (Dr.) Credit (Cr.)

Art Supplies (A) 12, 000
Accounts Payable (L) 12, 000
Purchased art supplies on account
33
PARTIAL SETTLEMENT OF ACCOUNTS
PAYABLE
Sept. 10 Paid Enriquez Art Supplies P5, 000 of the amount owed.

Analysis Assets decreased. Liabilities decreased.

Rules Debit increases in liabilities. Credit decreases in assets.

Entry Decrease in liabilities is recorded by a debit to accounts payable. Decrease in

assets is recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Accounts Payable (L) 5, 000
Cash (A) 5, 000
Made partial payment of liability
34

CASH COLLECTION FROM INCOME EARNED

Sept. 11 Painted the portrait of Don Enrique Zobel receiving P200, 000 cash for the
completed portrait.
Analysis Assets increased. Owner’s equity increased.

Rules Debit increases in assets. Credit increases in owner’s equity.

Entry Increase in assets is recorded by debit to cash. Increase in owner’s equity is

recorded by a credit to Painting Revenue.

Debit (Dr.) Credit (Cr.)

Cash (A) 200, 000
Painting Revenue (OE:R) 200, 000
Received cash for painting a portrait
35

PAYMENT OF SALARIES
Sept. 15 Paid secretary’s salary for half month, P2, 500

Analysis Assets decreased. Owner’s equity decreased.

Rules Debit decreases in owner’s equity. Credit decreases in assets.

Entry Decrease in owner’s equity is recorded by a debit to salaries expense.

Decrease in assets is recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Salaries Expense (OE:E) 2, 500
Cash (A) 2, 500
Paid secretary’s half month salary
36

COLLECTION OF UNEARNED INCOME

Sept. 17 Received P250, 000 cash for a contract to paint the portrait of Dona Susana

Analysis Assets increased. Liabilities increased.

Rules Debit increases in assets. Credit increases in liabilities.

Entry Increase in assets is recorded by a debit to cash. Increase in liabilities is

recorded by a credit to unearned painting revenue.

Debit (Dr.) Credit (Cr.)

Cash (A) 250, 000
Unearned Painting Revenue (L) 250, 000
Received cash for painting services to be rendered
37

INCOME EARNED ON ACCOUNT

Sept. 21 Delivered and billed Mr. Sy P150, 000 for a landscape painting

Analysis Assets increased. Owner’s equity increased.

Rules Debit increases in assets. Credit increases in owner’s equity.

Entry Increase in assets is recorded by a debit to accounts receivable. Increase in

owner’s equity is recorded by a credit to painting revenue.

Debit (Dr.) Credit (Cr.)

Accounts Receivable (A) 150, 000
Painting Revenue (OE:R) 150, 000
Landscape painting on account
38
CASH WITHDRAWAL BY OWNER FOR
PERSONAL USE
Sept. 23 Niko Ong withdrew P30, 000 for personal use

Analysis Assets decreased. Owner’s equity decreased.

Rules Debit decreases in owner’s equity. Credit decreases in assets.

Entry Decrease in owner’s equity is recorded by a debit to Ong, Drawing. Decrease in

assets is recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Ong, Drawing (OE) 30, 000
Cash (A) 30, 000
Niko Ong withdrew cash for personal use
39
UNPAID EXPENSE ALREADY CONSUMED/
INCURRED (ACCRUED EXPENSES)
Sept. 23 Received bill from PLDT P900

Analysis Liabilities increased. Owner’s equity decreased.

Rules Debit increases in owner’s equity. Credit increases in liabilities.

Entry Decrease in owner’s equity is recorded by a debit to utilities expense. Increase

in liabilities is recorded by a credit to utilities payable.

Debit (Dr.) Credit (Cr.)

Utilities Expense (OE:E) 900
Utilities Payable (L) 900
Received bill from PLDT
40
PARTIAL COLLECTION OF ACCOUNTS
RECEIVABLE
Sept. 25 Received P100, 000 from Mr. Sy as partial payment for landscape painting
delivered last Sept 21
Analysis As asset increased. Another asset decreased.

Rules Debit increases in assets. Credit decreases in assets.

Entry Increase in assets is recorded by a debit to cash. Decrease in assets is

recorded by a credit to accounts receivable.

Debit (Dr.) Credit (Cr.)

Cash (A) 100, 000
Accounts Receivable (A) 100, 000
Received cash as partial collection from Mr. Sy
41
PAYMENT OF EXPENSES
INCURRED/CONSUMED
Sept. 30 Paid electricity bill for the month, P4, 000

Analysis Assets decreased. Owner’s equity decreased.

Rules Debit decreases in owner’s equity. Credit decreases in assets.

Entry Decrease in owner’s equity is recorded by a debit to utilities expense. Decrease

in assets is recorded by a credit to cash.

Debit (Dr.) Credit (Cr.)

Utilities Expense (OE:E) 4, 000
Cash (A) 4, 000
Paid electric bill for the month
42 ACTIVITY 1: Mr. Boo Lah Gah opened :The Party Services”
business. Presented below are his transactions for the month of
September 2012. Journalize the transactions.

Sept 5 Mr. Boo invested 200, 000 in the business. He also invested a
van originally costing P500, 000 but with fair market value of 350,
000
Sept 7 Bought supplies for the shop from ABC Co. on account, P25, 000
Sept 8 Purchased furniture from Sturdy merchandising for cash, P9,000
Sept 14 Made 20% partial payment to ABC Co.
Sept 16 Mr. Boo withdrew P55, 000 for personal use
Sept 25 Paid utilities for the month P3, 000
Sept 29 Paid secretary’s salary, P5,000
Sept 30 Full settlement of account with ABC Co.
43

USE OF T- ACCOUNTS

▸ Account- a form of record that summarizes the

increases or decreases of any specific accounting value.
▸ T- Account- the simplest form of an account because
the accounting equation is represented by a big T.
- An informal tool used to analyze the effect of a
transaction in the assets, liabilities, owner’s equity, revenue
and expenses.
44

▸ The three (3) elements of an account are:

▹ Account title
▹ Debit
▹ Credit
45
THE T- ACCOUNT AND THE RULES OF DEBIT
AND CREDIT

Account Title
Debit Credit
1. Increase in Asset 1. Decrease in Asset
2. Decrease in Liabilities 2. Increase in Liability

3. Increase in Owner's Equity

3. Decrease in Owner's Equity (Investment, Additional
(Withdrawals and Expenses) Investment, Revenue/Income)
46

ILLUSTRATIVE PROBLEMS
47

Sept 1 Niko Ong opened an art gallery. He invested P500, 000 in this initial endeavor.

Rules: Debit increases in assets. Credit increases in owner’s equity.

Cash Ong, Capital

Debit Credit Debit Credit
9-1 500, 000 9-1 500, 000
48

Sept 1 Acquired transportation equipment fro P300, 000

Rules: Debit increases in assets. Credit decreases in assets.

Transportation Equipment Cash

Debit Credit Debit Credit
9-1 300, 000 9-1 500, 000 9-1 300, 000

Note: The P500, 000 debit to cash is from the first September 1 transaction where Nikko Ong invested
cash. We shall record all transactions continuously as they transpire.
49

Sept 1 Rented office space and paid two months rent in advance, P30, 000

Rules: Debit increases in assets. Credit decreases assets.

Prepaid Rent Cash

Debit Credit Debit Credit
9-1 30, 000 9-1 500, 000 9-1 300, 000
9-1 30, 000
50

Sept 2 Niko Ong issued a promissory note for a P200, 000 loan from MetroBank. The note
carries a 12% interest per annum. The interest and the principal are payable after
one year.
Rules: Debit increases in assets. Credit increases in liabilities.

Cash Notes Payable

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-2 200, 000
9-2 200, 000 9-1 30, 000
51

Sept 4 Paid Insular Life Insurance Co. P18, 000 for a one- year insurance of the art gallery.

Rules: Debit increases in assets. Credit decreases in assets.

Cash Prepaid Insurance

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-4 18, 000
9-2 200, 000 9-1 30, 000
9-4 18, 000
52

Sept 5 Acquired office equipment from Abenson’s, P50, 000 paying P20, 000 and the
balance at the end of the month.
Rules: Debit increases in assets. Credit decreases in assets. Credit increases in liabilities.

Office Equipment
Cash Debit Credit
Debit Credit 9-5 50, 000
9-1 500, 000 9-1 300, 000
9-2 200, 000 9-1 30, 000
9-4 18, 000 Accounts Payable
9-5 20, 000 Debit Credit
9-5 30, 000
53

Sept 8 The P12, 000 oil paints ordered from Enriquez Art Supplies were delivered on
account.
Rules: Debit increases in assets. Credit increases in liabilities.

Art Supplies Accounts Payable

Debit Credit Debit Credit
9-8 12, 000 9-5 30, 000
9-8 12, 000
54

Sept 10 Paid Enriquez Art Supplies P5, 000 of the amount owed.

Rules: Debit decreases in liabilities. Credit decreases in assets.

Cash Accounts Payable

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-10 5, 000 9-5 30, 000
9-2 200, 000 9-1 30, 000 9-8 12, 000
9-4 18, 000
9-5 20, 000
9-10 5, 000
55

Sept. 11 Painted the portrait of Don Enriquez Zobel receiving P200, 000 cash for the
completed portrait.
Rules: Debit increases in assets. Credit increases in owner’s equity.

Cash Painting Revenue

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-11 200, 000
9-2 200, 000 9-1 30, 000
9-11 200, 000 9-4 18, 000
9-5 20, 000
9-10 5, 000
56

Sept. 15 Paid secretary’s salary for half month, P2, 500

Rules: Debit decreases in owner’s equity. Credit decreases in assets.

Cash Salaries Expense

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-15 2, 500
9-2 200, 000 9-1 30, 000
9-11 200, 000 9-4 18, 000
9-5 20, 000
9-10 5, 000
9-15 2, 500
57

Sept. 17 Received P250, 000 cash for a contract to paint the portrait of Dona Susana

Rules: Debit increases in assets. Credit increases in liabilities.

Cash Unearned Painting Revenue

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-17 250, 000
9-2 200, 000 9-1 30, 000
9-11 200, 000 9-4 18, 000
9-17 250, 000 9-5 20, 000
9-10 5, 000
9-15 2, 500
58

Sept. 21 Delivered and billed Mr. Sy P150, 000 for a landscape painting.

Rules: Debit increases in assets. Credit increases in owner’s equity.

Accounts Receivable Painting Revenue

Debit Credit Debit Credit
9-21 150, 000 9-11 200, 000
9-21 150, 000
59

Sept. 23 Niko Ong withdrew P30, 000 for personal use

Rules: Debit decreases in owner’s equity. Credit decreases in assets.

Cash Ong, Drawing

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-23 30, 000
9-2 200, 000 9-1 30, 000
9-11 200, 000 9-4 18, 000
9-17 250, 000 9-5 20, 000
9-10 5, 000
9-15 2, 500
9-23 30, 000
60

Sept. 23 Received bill from PLDT P900

Rules: Debit decreases in owner’s equity. Credit increases in liability.

Utilities Expense Utilities Payable

Debit Credit Debit Credit
9-23 900 9-23 900
61

Sept. 25 Received P100, 000 from Mr. Sy as partial payment for landscape painting delivered
last Sept. 21
Rules: Debit increases in assets. Credit decreases in assets.

Cash Accounts Receivable

Debit Credit Debit Credit
9-1 500, 000 9-1 300, 000 9-21 150, 000 9-25 100, 000
9-2 200, 000 9-1 30, 000
9-11 200, 000 9-4 18, 000
9-17 250, 000 9-5 20, 000
9-25 100, 000 9-10 5, 000
9-15 2, 500
9-23 30, 000
62

Sept. 30 Paid electricity bill for the month, P4, 000

Rules: Debit decreases in owner’s equity. Credit decreases in assets.

Cash
Debit Credit
Utilities Expense
9-1 500, 000 9-1 300, 000
Debit Credit
9-2 200, 000 9-1 30, 000
9-23 900
9-11 200, 000 9-4 18, 000
9-30 4, 000
9-17 250, 000 9-5 20, 000
9-25 100, 000 9-10 5, 000
9-15 2, 500
9-23 30, 000
9-30 4, 000
63

THE LEDGER

▸ Ledger – is a group of the accounts used by the company. It

is the book of final entry. An account is an accounting device
or form of record that summarizes the increases or decreases
of any specific accounting value. The accounts in the general
ledger are classified into two general groups:
1. Balance Sheet or Real Account (Assets, Liabilities, and
Owner’s Equity)
2. Income Statement or Nominal Accounts (Revenue and
Expenses)
64

CHART OF ACCOUNTS

▸ Chart of Accounts – list of all account titles used by the

company with their corresponding accounting number.
Account titles are arranged in financial statement order.
▸ Balance Sheet accounts – assets, liabilities and owner’s
equity
▸ Income Statement accounts – revenue and expenses
▸ The accounts are so numbered for purposes of indexing and
cross- referencing.
65

Sample Chart
of Accounts
66

THE NORMAL BALANCE OF AN ACCOUNT

▸ Normal balance of an account- the side of

an account where increases are recorded (can
be left or right).
Normal Debit Balance Normal Credit Balance
Asset Liability
Owner’s Drawing Owner’s Equity
Expense Income
67

POSTING TO THE LEDGER

▸ Posting – the process of transferring

information from the journal to the ledger.
Debits in the journal are correspondingly
posted as debits in the ledger and credits in
the journal are likewise posted as credits in
the ledger.
68

STEPS IN POSTING
1. From the journal, copy the date of the transaction to the ledger.
2. Under the journal reference (J.R.) column of the ledger, copy the
page number of the journal.
3. Under the debit column in the ledger, transfer the debit amount
from the journal. Under the credit column in the ledger, transfer
the credit amount from the journal.
4. After posting the amount to the ledger, write the account number
in the posting reference (P.R.) column of the journal.
69

Transferring
from Journal to
Ledger
70

THE LEDGER ACCOUNTS AFTER POSTING

▸ Debit/Credit Balance – is determined at the
end of the accounting period in order to prepare
the trial balance of each account.
▸ Debit and Credit columns of each account are
added to get the balance of each account.
▸ IF:
▹ Total debit exceeds total credit – debit balance
▹ Total credit exceeds total debit – credit balance
71
72
73
74

THE TRIAL BALANCE

▸ Trial balance – the schedule of all balances to

prove the equality of the debit and credit.
▸ A listing of all account titles with their
respective debit or credit balances taken from
the ledger. However, it does not check or vouch
the accuracy of the report.
75

POSSIBLE ERRORS IN THE TRIAL BALANCE

1. Transposition – occurs when order of two number

are reversed.
Example:
48 was erroneously written as 84
1234 was erroneously written as 4321
2. Transplacement or Slide – occurs when a decimal
point has been moved or misplaced.
Example:
100 was erroneously written as 10
67.89 was erroneously written as 678.9
76

Sample
Trial
Balance
77 SAMPLE EXERCISE: Journalize all the transactions with
explanation, post it to the ledger, create T- Accounts, prepare a chart of
accounts and trial balance.
78

END
Prepared by:

JOVITO P. BOLACOY,
JR.