An account is a part of the accounting system used to classify and summarize the increases,

decreases, and balances of each asset, liability, stockholders’ equity item, dividend, revenue,
and expense. Firms set up accounts for each different business element, such as cash,
accounts receivable, and accounts payable. Every business has a Cash account in its
accounting system because knowledge of the amount of cash on hand is useful information.

Accountants may differ on the account title (or name) they give the same item. For example,
one accountant might name an account Notes Payable and another might call it Loans
Payable. Both account titles refer to the amounts borrowed by the company. The account title
should be logical to help the accountant group similar transactions into the same account.
Once you give an account a title, you must use that same title throughout the accounting
records.

A journal is a chronological (arranged in order of time) record of business transactions. A

journal entry is the recording of a business transaction in the journal. A journal entry shows
all the effects of a business transaction as expressed in debit(s) and credit(s) and may include
an explanation of the transaction. A transaction is entered in a journal before it is entered in
ledger accounts. Because each transaction is initially recorded in a journal rather than directly
in the ledger, a journal is called a book of original entry.

A ledger (general ledger) is the complete collection of all the accounts and transactions of a
company. The ledger may be in loose-leaf form, in a bound volume, or in computer memory.
The chart of accounts is a listing of the titles and numbers of all the accounts in the ledger.
The chart of accounts can be compared to a table of contents. The groups of accounts usually
appear in this order: assets, liabilities, equity, dividends, revenues, and expenses. Think of the
chart of accounts as a table of contents of a textbook. It provides direction as to what exactly
will be found in the financial statement preparation.

Individual accounts are in order within the ledger. Each account typically has an
identification number and a title to help locate accounts when recording data. For example, a
company might number asset accounts, 100-199; liability accounts, 200-299; equity accounts,
300-399; revenue accounts, 400-499; and expense accounts, 500-599. We use this numbering
system in this text. The uniform chart of accounts used in the first 11 chapters appears in a
separate file at the end of the text. You should print that file and keep it handy for working
certain problems and exercises. Companies may use other numbering systems. For instance,
sometimes a company numbers its accounts in sequence starting with 1, 2, and so on. The
important idea is that companies use some numbering system.

A trial balance is a listing of all accounts (in this order: asset, liability, equity, revenue,
expense) with the ending account balance. It is called a trial balance because the information
on the form must balance.
Q: Juan de la Cruz began professional practice as a system analyst on July 1. He plans to
prepare a monthly financial statement. During July, the owner completed these transactions
(PHP = Philippine Peso, currency of Philippines):

July 1. Owner invested PHp 500,000 cash along with computer equipment that had a market
value of php. 120,000 two years ago but was now worth Php. 100,000 only.
July 2. Paid php. 15,000 cash for the rent of office space for the month.
July 4. Purchased php. 12,000 of additional equipment on credit (due within 30 days).
July 8. Completed awork for a client and immediately collected the php. 32,000 cash.
July 10. Completed work for a client and sent a bill for php. 27,000 to be paid within 30 days.
July 12. Purchased additional equipment for php. 8,000 in cash.
July 15. Paid an assistant php. 6,200 cash as wages for 15 days.
July 18. Collected php. 15,000 on the amount owed by the client.
July 25. Paid php. 12,000 cash to settle the liability on the equipment purchased.
July 28. Owner withdrew php. 500 cash for personal use.
July 30. Completed work for another client who paid only php. 40,000 for 50% of the system
design.
July 31. Paid salary of assistant php. 700.
July 31. Received PLDT bill, php. 1,800 and Meralco bill php. 3,800.

Required:
Prepare the journal entries, T accounts and trial balance for this business.

A: This is a really good question to practice.

Journal entries for the above transactions:

July 1 Dr Cash 500,000
Dr Computer Eqpt 100,000
Cr Capital 600,000
Owner started business with cash and computer Eqpt.

2 Dr Rent Exp 15,000

Cr Cash 15,000
Paid rent of office for the month of July.

4 Dr Equipment 12,000
Cr Creditors 12,000
Equipment purchased for business use.

8 Dr Cash 32,000
Cr Services rendered (income) 32,000
Services rendered for a client.

10 Dr Debtors 27,000
Cr Services rendered (income) 27,000
Services rendered for a client.

12 Dr Equipment 8,000
Cr Cash 8,000
Additional equipment purchased.

15 Dr Salaries & Wages 6,200

Cr Cash 6,200
Paid wages to assistant for 15 days.

18 Dr Cash 15,000
Cr Debtors 15,000
Received cash from debtor.

25 Dr Creditors 12,000
Cr Cash 12,000
Creditors of Eqpt purchased, settled.

28 Dr Drawings 500
Cr Cash 500
Owner withdrew cash for personal use.

30 Dr Cash 40,000
Dr. Debtors 40,000
Cr Services rendered (income) 80,000
50% amount received by a client on a/o work completed.

31 Dr Salaries & Wages 700

Cr Cash 700
Paid salary to the assistant.

31 Dr Utilities Exp (PLDT) 1,800

Dr Utilities Exp (Meralco) 3,800
Cr Creditors 5,600
PLDT and Meralco have been assumed to be the utility companies.

Note: In this example we have combined salaries and wages into one account, but sometimes
in real life these are kept separate - one account for wages and another account for salaries.

T-ACCOUNTS:
TRIAL BALANCE:
Hope you enjoyed the solutions we provided here for this exercise on journals, T-accounts
and the trial balance!