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Beginning the Accounting Cycle –

Journalizing, Posting,and the Trial Balance

Chapter 3

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Journalizing: analyzing and

recording businesstransactions into a journal.

Learning Objective 1

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The Accounting Cycle

� Accounting procedures are performed over a period of time.

� Procedures are performed in a definite order in the accounting cycle.

� The accounting period is a period of time covered by the income statement.

� Usually this is a twelve month period.� The accounting cycle has sequential steps to

be performed again each year.

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The Accounting Cycle

� Accounting is the process that...– analyzes, – records,– classifies,– summarizes,– reports, and...– interprets.

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The Accounting Cycle

A sole proprietorship:– has one owner– begins with a monthly accounting cycle– owner has a capital and withdrawals

account

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Business Organizations

� All three types of business entities use the same basic accounting system.

Sole proprietorship

Partnerships

Corporations

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Recording Business Transactions

The Accounting Period

One YearCalendar year

Fiscal year

Less than One YearQuarterlyMonthly

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Learning Unit 3-1

� The Accounting Cycle:1 Analyzing2 Recording transactions – journalizing3 Posting to the ledger accounts4 Preparing the trial balance� The accounting cycle has some variations in

a computerized accounting system.

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Learning Unit 3-1

What is the general journal? � It is the book of original entry.� Transactions are written in a journal in

chronological order.� The format of the journal is important.� Journalizing is the process of entering

information as debits and credits to the correct accounts.

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Learning Unit 3-1

What is the general ledger?� It is the book of final entry.� The information from the journal is

transferred to the ledger in the posting process.

� Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger.

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Learning Unit 3-1

What is the chart of accounts?� It is the list of accounts used by a business.� Each business entity has its unique chart

of accounts.� Every chart of accounts has the same

numbered account categories:– Assets, Liabilities, Owner’s Equity– Revenues, Expenses

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Learning Unit 3-1

Journalizing� Debits are always recorded first.� Indent, then record the credit below the

debit.� A short explanation is included on the

second line.� Leave a space between journal entries.

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Learning Unit 3-1

� Debits must always equal credits.� Amounts incurred for items that benefit

future accounting periods are recorded as assets.

� What are some examples?– prepaid rent– prepaid insurance

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Learning Unit 3-1

� Amounts for items used (expenses incurred) in the current accounting period are recorded as expenses.

� What are some examples?– supplies used– rent for the month– expired insurance

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Learning Unit 3-1

� Amounts are recorded as revenue on the date in which they are earned.

� When are revenues earned?� When services are performed, not

necessarily when cash is paid.

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Learning Objective 2

Posting: transferring information

from a journal to a ledger.

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Learning Unit 3-2

Posting� All transactions are recorded in the journal,

then amounts are copied to the ledger accounts named on the journal line.

� Once the amounts are entered into the accounts, a posting reference (PR) must be entered in the journal.

� New balances are computed in the running ledger accounts.

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Learning Unit 3-2

Posting

Balance

Account: Cash Account: 1000

Insert the number of the journal page.

Date ref. debit credit debit credit

June 1 jr1 5,000 5,000

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Example

Journal Page 1

Date Account and Explanation Post Ref. debit credit

Initial investment

June 1 Cash 1000 5,000 Clara J. Capital 3010 5,000

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Example

Journal Page 1

Date Account and Explanation Post Ref. debit credit

Paid phone bill

July 3 Phone Expense 5040 155 Accounts Payable 2000 155

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Example

Journal Page 1

Date Account and Explanation Post Ref. debit credit

Paid insurance bill

July 6 Insurance Expense 5060 150 Cash 1000 150

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Example

Journal Page 1

Date Account and Explanation Post Ref. debit credit

Paid Accounts Payable

July 8 Accounts Payable 2000 200 Cash 1000 200

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Example

Journal Page 1

Date Account and Explanation Post Ref. debit credit

Performed Services

July 8 Accounts Receivable 1020 850 Service Revenue 4000 850

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Learning Objective 3

Preparing a trial balance.

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Learning Unit 3-3

Preparing the Trial Balance� The trial balance lists the accounts that have

balances in the same order as they appear in the chart of accounts.

� The trial balance will show if debits/credits have been interchanged, or if amounts have been transposed, or if a debit/credit was omitted or recorded twice.

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Learning Unit 3-3

� Some errors do not show, such as omissions or recording to the wrong account.

� Corrections before posting are made in the journal.

� An audit trail must be left.� Do not erase – cross out errors and enter

corrections.

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Learning Unit 3-3

� What about corrections after posting?� This means that errors are also in the ledger

accounts.� Cross out incorrect amounts, change to

corrected amounts, and record balance changes.

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End of Chapter 3