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TRAINING
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
Business transaction is an economic event that causes a
change in the financial position
Financial Position:
What the entity controls
How the entity controls them (claims)
FUNDAMENTAL ACCOUNTING
EQUATION
ASSETS = EQUITIES
Posting
Date Item Post. Ref. * Debit Date Item Reference Credit
Left-hand or Right-hand or
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
Double entry system states that every transactions
affects at least two accounts.
Therefore
• If an asset account increases (decreases), because of
duality concept there must be a corresponding:
1. increase(decrease) in a specific liability account
2. or a decrease(increase) in a another asset
account
3. or an increase(decrease) in owners' equity
account.
WHAT IS A GENERAL JOURNAL?
Thebook in which a person enters the original
record of a business transaction
Commonly referred to as a book of original entry
Chronological listing of all the business
transactions for the company
Each listing records the debits and credits associated
with that business transaction
A book or a location on a hard drive where all
business transactions are listed
Like a diary
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 DR=C
Invoice number
Accounts receivable customer name R
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
ILLUSTRATION OF THE ACCOUNTING
PROCESS
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
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
• The process of transferring figures from
the journal to the ledger accounts
• It simply involves transferring data from
one accounting entry into another
• The purpose is to classify and
summarize transactions and events
affecting specific elements of the
financial statements
FOUR-STEP POSTING PROCESS
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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