Accounting Cycle Upto Trial Balance

THE ACCOUNTING CYCLE
BDA 602 BOOKKEEPING AND

ACCOUNTING PRESENTATION
BY
DELFA G CASTILLA
CTU-DANAO
CHART OF ACCOUNTS
2-52
Chapter 2
Assets are resources owned by the business entity.
2-1
• Cash
• Supplies
Liabilities are debts owed to
• Accounts receivable
outsiders (creditors).
• Prepaid expenses
• Buildings • Accounts payable
• Notes payable
• Wages payable
Owner’s equity is the owner’s right to the assets of the

business. A drawing account represents the amount of
withdrawals by the owner.
3
Revenues are increases in owner’s
equity as a result of selling 2-1
services or products to customers.
• Fees earned
• Commission revenue or earned
• Rent revenue
The using up of assets or consuming

services in the process of generating
revenues results in expenses.
• Wages expense
• Rent expense
• Supplies expense
4 • Miscellaneous expense
The Accounting Cycle
 For a new business, it begin by setting up ledger

accounts.
 For an established business, begin with account
balances carried over from the previous period.
The Steps In The Accounting Cycle
1. Analyze source documents & record business
transactions in a journal
2. Post journal entries to the ledger accounts
3. Prepare unadjusted trial balance (TB)
4. Journalize and post end of period
adjustments (EOPA)
5. Prepare adjusted Trial Balance
6. Prepare /Create financial statements &
reports from data in adjusted TB
7. Journalize and post the closing entries
8. Prepare the post-closing trial balance
9. Prepare and post reversing entries
Detailed Steps in the Accounting Cycle
Analyze Journalize Prepare

Business Post entries
transactions to the unadjusted
Transactions in the trial
. accounts in
journal. the ledger. balance.
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
ASSETS = LIABILITIES + OWNERS' EQUITY
ASSETS = LIABILITIES + OWNERS' EQUITY +

(REVENUE – EXPENSES)
How do we use the “Accounting” equation?
 Recall the Basic Accounting Equation:

 Assets = Liabilities + Shareholders’ Equity
 Implications:
 Total Asset=Claims against the assets
 Therefore :
 If assets increase : either Liabilities and/or
Shareholders’ should also increase and vice versa
 For example: borrow cash, cash (asset) will
increase and Liabilities will increase
 when it is paid back: cash (asset) will decrease
and liabilities will decrease
How do accounts behave?
Assets = Liabilities + Shareholders’ Equity

+ + +
So Assets increase on the left hand or debit side then

they decrease on the credit side
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?
 The book 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
 Invoice number
DR=CR
 Accounts receivable customer name
 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
DEBIT AND CREDIT
17-
52
Mugan-Akman 2007 Chapter 2

Objective 2 – Describe and illustrate journalizing
transactions using the double-entry accounting system.
2-2
Balance Sheet Accounts

Asset Accounts Liability Accounts
Debit for Credit for Debit for Credit for
increases decreases decreases increases
(+) (–) (–) (+)
Owner’s Equity Accounts
Debit for Credit for
decreases increases
(–) (+)
18
Income Statement Accounts 2-2
Revenue Accounts
decreases increases
(–) (+)
Expense Accounts
increases decreases
(+) (–)
19
Owner’s Withdrawals - Drawing Account 2-2
The owner of a proprietorship may

withdraw cash from the business for
personal use. Such withdrawals have the
effect of decreasing owner’s equity.
Drawing Account
increases decreases
(+) (–)
20
2-2
Increase
(Normal Bal.) Decreases
Balance sheet accounts:
Asset Debit Credit
Liability Credit Debit
Owner’s Equity:
Capital Credit Debit
Drawing Debit Credit
Income statement accounts:
Revenue Credit Debit
Expense Debit Credit
21
Journalizing 2-2
A transaction is initially entered in a record called a journal.

The process of recording a transaction in the journal is called
journalizing.
Note
Every transaction affects

at least two accounts.
22
Journalizing requires the following steps: 2-2
1. Record the date. If this is the first entry on the page, the
year is inserted above the month. As long as the month
does not change, the rest of the journal entries on the same
page only require the day be recorded.
2. The title of the account debited is listed in the Description
column.
3. Enter the amount in the Debit column.
4. Record the credit account in the Description column.
5. Enter the amount in the Credit column.
Watch these steps take place as the entry to record
23
Chris Clark’s deposit is presented in the next slide.
Balance Sheet Accounts
(a) On November 1, Chris Clark opens a new 2-2

business and deposits $25,000 in a bank
account in the name of NetSolutions.
JOURNAL Page 1
Date Description P.R Debit Credit
1
2
3
4
24
2-2
The effect of this entry is shown in the

accounts of NetSolutions as follows:
Cash Chris Clark, Capital
Nov. 1 25,000 Nov. 1 25,000
25
(b) On November 5, NetSolutions 2-2
bought land for $20,000, paying
cash.
26
(c) On November 10, NetSolutions 2-2
purchased supplies on account for
$1,350.
10 Supplies 1 350 00
Accounts Payable 1 350 00
Purchased
supplies on
account.
27
(f) On November 30, 2-2
NetSolutions paid creditors on
account, $950.
30 Accounts Payable 950 00

Cash 950 00
Paid creditors on
account.
28
Income Statement Accounts
2-2
(d) On November 18, NetSolutions received fees of
$7,500 from customers for services provided.
30 Cash 7 500 00
Fees Earned 7 500 00
Received fees
from customers.
29
(e) Throughout the month, NetSolutions incurred the 2-2
following expenses: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
30
(g) On November 30, a count revealed that 2-2
$800 of the supplies inventory had been
used during the month.
30 Supplies Expense 800 00

Supplies 800 00
Supplies used
during
November.
31
Drawings Account
2-2
(h) On November 30, Chris Clark withdrew $2,000 in
cash from NetSolutions for personal use.
2007
32
Summary – Analysis of Transactions
2-2
1. Determine whether an asset, liability, owner’s equity,
revenue, expense, or drawing account is affected by the
transaction.
2. For each account affected by the transaction, determine
whether the account increases or decreases.
3. Determine whether each increase or decrease should be
recorded as a debit or a credit.
4. Record the transaction using a journal entry.
5. Periodically post journal entries to the accounts in the
ledger. (Objectives 3)
6. Prepare an unadjusted trial balance at the end of the
33 period. (Objective 4)
Objective 3 –Describe and illustrate the journalizing and
posting of transactions to accounts.
2-2
The process of transferring the debits and credits from
the journal entries to the accounts is called posting.
Dec. 1 NetSolutions paid a premium of

$2,400 for a comprehensive
insurance policy covering
liability, theft and fire. The
policy covers a one-year period.
34
2-3
As an alternative, the rent may be due at

the beginning of the month e.g. Rent for
$800 due on December 1.,
35
2-3
Dec. 1 NetSolutions paid rent for December, $800.

The company from which NetSolutions is
renting its store space requires the payment of
rent on the first of each month, rather than at the
end of the month.
1 Rent Expense 52 800 00

Cash 11 800 00
Paid rent for
December.
36
2-3
NetSolutions received an offer from a

local retailer to rent the land purchased
on November 5. The retailer plans to use
the land as a parking lot for its employees
and customers. NetSolutions agreed to
rent the land to the retailer for three
months, with the rent payable in advance.
37
2-3
Dec. 1 NetSolutions receives $360 for

three month’s rent for use of its
land beginning December 1.
38
2-3
Dec. 4 NetSolutions purchased office

equipment on account from
Executive Supply Co. for $1,800.
4 Office Equipment 18 1 800 00

Accounts Payable 21 1 800 00
Purchased office
equipment on
account.
39
2-3
Dec. 6 NetSolutions paid $180 for a

newspaper advertisement.
6 Advertisement Expense 59 180 00

Cash 11 180 00
Paid for
newspaper ad.
40
2-3
Dec. 11 NetSolutions paid

creditors $400.
11 Accounts Payable 21 400 00

Cash 11 400 00
Paid creditors on
account.
41
2-3
Dec. 13 NetSolutions paid a receptionist

and part-time assistant $950 for
two weeks’ wages.
13 Wages Expense 51 950 00

Cash 11 950 00
Paid two weeks’
wages.
42
2-3
Dec. 16 NetSolutions received

$3,100 from fees earned for
the first half of December.
16 Cash 11 3 100 00
Fees Earned 41 3 100 00
Received fees
from customers.
43
2-3
Dec. 16 Fees earned on account

totaled $1,750 for the first
half of December.
16 Accounts Receivable 12 1 750 00

Recorded fees
earned on
account.
44
2-3
Dec. 20 NetSolutions paid $900 to Executive

Supply Co. on the $1,800 debt owed
from the December 4 transaction.
20 Accounts Payable 21 900 00
Cash 11 900 00
Paid part of
amount owed to
Executive Supply
Co.
45
2-3
Dec. 21 NetSolutions received $650

from customers in payment
of their accounts.
21 Cash 11 650 00
Accounts Receivable 12 650 00
Received fees
from customers
on account.
46
2-3
Dec. 23 NetSolutions paid

$1,450 for supplies.
23 Supplies 14 1 450 00
Cash 11 1 450 00
Purchased
supplies.
47
2-3
Dec. 27 NetSolutions paid the receptionist

and part-time assistant $1,200 for
two weeks’ wages.
27 Wages Expense 51 1 200 00

Cash 11 1 200 00
Paid two weeks’
wages.
48
2-3
Dec. 31 NetSolutions paid $310 for

telephone charges for the month.
31 Utilities Expense 54 310 00

Cash 11 310 00
Paid telephone
charges.
49
2-3
Dec. 31 NetSolutions paid $225 for

electric usage for the month.
Post.
Date
2007
Description Ref. Debit Cred
Dec 31 Utilities Expense 54 it
225 00 Cash 11 225 00
Paid for electric
usage.
50
2-3
Dec. 31 NetSolutions received $2,870

from fees earned for the
second half of December.
31 Cash 11 2 870 00
Received fees
from customers.
51
2-3
Dec. 31 NetSolutions earned $1,120

on account for the second
half of December.
31 Accounts Receivable 12 1 120 00

Recorded fees
earned on
account.
52
2-3
Dec. 31 Chris Clark withdrew

$2,000 for personal use.
31 Chris Clark, Drawing 32 2 000 00

Cash 11 2 000 00
Chris Clark
withdrew cash
for personal use.
53
Illustration of the accounting process
1. On Jan 1 2010 Ms.Farida invested $100,000 at the
inception of the business, Express Travel Agency
Event Assets Liabilities Owners’

No Equity
1 +100.000 No change +100.000
Total 100.000 0 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004
Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
2. On 1 January employed a full time secretary
and a sales representative.
Event No Assets Liabilities Owners’ Equity

1 +100.000 No change +100.000
2 No change No change No change
Total 100.000 0 100.000
3. On 1 January rented an office building and paid 3 months
rent of $600.

1 +100.000 No change +100.000
3 +600 No change No change
-600 No change No change
Total 100.000 0 100.000

1 Jan 2004
Prepaid Rent 180 600
Cash 100 600
Payment of 3 months of rent in advance
4. On 2 January office furniture and equipment is purchased for
$ 15,000 , for which $ 5,000 is paid in cash and the rest would be
paid later in January and February 2010.

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
Total 110.000 10.000 100.000

Date Account Title and Description Acct.No Debit Credit
2 Jan 2004
Furniture and Equipment 255 15.000
Cash 100 5.000
Accounts Payable 320 10000
Purchase of furniture and equipment
5. On 3 January insured the office building and the equipment
effective from 1 January to 31 December 2010 and paid $ 120
for the whole period.

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
Total 110.000 10.000 100.000

3 Jan 2004
Prepaid Insurance 180 120
Cash 100 120
Purchase of insurance policy
6. On 5 January the company signed an agreement with
Keya Airline to sell their airline tickets and receive
commissions in return.

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
Total 110.000 10.000 100.000
7. On 10 January Express Travel Agency borrowed $15,000 from the
bank at an annual interest rate of 24% for six months. The principal
and the interest of the loan will be paid together on 10 July 2010.

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
7 +15.000 +15.000 No change
Total 125.000 25.000 100.000
7. On 10 January Express Travel Agency borrowed $ 15,000 from the
bank at an annual interest rate of 24% for six months. The principal and
the interest of the loan will be paid together on 10 July 2010.

10 Jan 2004
Cash 100 15.000
Bank Loan 300 15.000
Borrowing from the bank
8. On 10 January purchased office supplies for $2.500 in cash.

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
Total 125.000 25.000 100.000
8. On 10 January purchased office supplies for $2,500 in cash.

10 Jan 2004
Office Supplies 136 2.500
Cash 100 2.500
Purchase of office supplies
9. During the first half of January the agency sold tickets to various customers
and on 16 January issued a commission invoice to clients amounting to
$5,000 that will be collected later in January 2010.

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
7 +15.000 +15.000 No change
-2.500
9 +5.000 No change +5.000
Total 130.000 25.000 105.000
9. During the first half of January the agency sold tickets to various customers
and on 16 January issued a commission invoice to clients amounting to $
5,000 that will be collected later in January 2010.
Revenue Accounts
Left or Debit Side Right or Credit Side
Decrease Incre a se

16 Jan 2004
Accounts Receivable 120 5.000
Commission Revenue 600 5.000
Recognition of commission on ticket sales
10. On 20 January the company paid $5,000 for the furniture and equipment
that were purchased on 2 January.
1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
7 +15.000 +15.000 No change
-2.500
9 +5.000 No change +5.000
10 -5000 -5000 No change
Total 125.000 20.000 105.000
10. On 20 January the company paid $5.000 for the furniture and equipment
that were purchased on 2 January.

20 Jan 2004
Accounts Payable 320 5.000
Cash 100 5.000
Payment for an accounts payable
11. On 22 January received $7,500 from a customer for organizing the
accounting conference that will be held on February 2, 2010.
1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
7 +15.000 +15.000 No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
Total 132.500 27.500 105.000
11. On 22 January the company received $7.500 from a customer for organizing
the accounting conference that will be held on 2 February 2010.

22 Jan 2004
Cash 100 7.500
Unearned Revenues 340 7.500
Receipt of advance payment from a customer
12. The company received the full payment of commission charged to
Kenya Airlines of $ 5.000 on 23 January.
Event No As s ets Liabilities Owners ’ Equity

1 +100.000 No change +100.000
4 +15.000 +10.000 No change
-5.000
-120
7 +15.000 +15.000 No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
-5.000
Total 132.500 27.500 105.000
12. The company received the full payment of commission charged to
Kenya Airline s of $ 5,000 on 23 January.

23 Jan 2004
Cash 100 5.000
Receipt of payment from a customer
13. On 24 January paid salaries of $ 9,000 employees in cash.

7 +15.000 +15.000 No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
-5.000
13 -9.000 No change -9.000
Total 123.500 27.500 96.000
13. On 24 January paid salaries of $ 9,000 employees in cash.
Expense Accounts
Increase Decrease

24 Jan 2004
Salary Expense 770 9.000
Cash 100 9.000
Payment of salaries
14. During the second half of January the agency sold tickets to various
customers and on 31 January issued a commission invoice to Kenya
Airline amounting to $ 7,500 which will be collected in February 2010.

-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
-5.000
13 -9.000 No change -9.000
14 +7.500 No change +7.500
Total 131.000 27.500 103.500
14. During the second half of January the agency sold tickets to various
customers and on 31 Jan sent an invoice to Kenya Airline amounting to
$7,500 which will be collected in February 2010

Date Account Title and Description Acct.No.Debit Credit
31 Jan 2004
Commission Revenues 600 7.500
Recognition of commission on ticket sales
15. Ms. Farida ( the proprietor) withdrew $ 3,000 on 31 January for
her personal use.
7 +15.000 +15.000 No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
-5.000
13 -9.000 No change -9.000
14 +7.500 No change +7.500
15 -3.000 No change -3.000
Total 128,000 27,500 100,500
15. Ms. Farida withdrew $ 3.000 on 31 January for personal use.
Owners' Withdrawals or Dividends

Increase Decrease

31 Jan 2004
Withdrawals XXX 3,000
Cash 100 3,000
Withdrawal by the owner
Summary of Journalizing
Steps:
1. Determine the effects of transactions on
three components of the accounting
equation,
2. Determine which specific accounts are
affected, and
3. Assure that total of the increases should be
equal to either increases on the other side of
the equation or to decreases on the same
side, or a combination there of.
Behavior of Accounts- Summary
Assets = Liabilities + Owners’ Equity
+ - - + - +
Dr Cr Dr Cr Dr Cr
Expense Revenue
+ - - +
Dr Cr Dr Cr
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
1. Transfer transaction date to account’s date column

2. Transfer the debit/credit amount and calculate the
new balance
3. Write journal page number in posting reference
column of ledger as a cross-reference
4. Go back to journal and write account number in
posting reference column of journal as a cross-
reference
 Cross-reference
 The ledger account number in the Post. Ref. column
of the journal and the journal page number in the
Post. Ref. column of the ledger account
How do we record/Account?
 An ACCOUNT (ledger Account) : is an

accounting device used to record changes in a
of a specific asset, liability or owners’ equity
item
 Has 3 elements: title, debit side and credit side
(also called the “T-Account”)
 Changes in the accounts are entered manually
into a book called a ledger or computerized
ledger
 Basic forms of book ledgers: the two-column
account format, and the running format
account
 Chart of accounts
Definition of Ledger Account
 Ledger Account
 Complete listing of business transactions for an
individual account
 Where you look if you want to find the balance of any
given account
 General Ledger
 A loose-leaf book or computer file containing all the
Ledger Accounts
 Each account from the chart of accounts has its own
ledger account in the general ledger
 Complete listing of all account tittles and account
names/codes used by an entity is called the chart of
accounts - It is like a table of content in a book
Forms of Ledgers
Two-Column Account
Account Account No:
Posting
Date Item Post. Ref. * Debit Date Item Reference Credit
T-Account form that depicts the two-column account:

Account Name Account No:
Left-hand or Right-hand or
Debit Side Credit Side

2-3
2-2
86
Posting to The Ledger illustrated
1 Jan 2004
Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
LEDGER - Cash Acc. No. 100
Date Description Ref Debit Credit Debit Credit

Balance Balance
1 Jan 2004
Capital P1 100,000 100,000
LEDGER - Capital Acc. No. 500
Date Description Ref Debit Credit Debit Credit

Balance Balance
1 Jan 2004
Cash P1 100,000 100,000
Posting illustrated
LEDGER - Cash Acc. No. 100
Date Description Debit Credit

1 Jan Capital 100,000
1 Jan Office rent 600
2 Jan Office furniture and equipment 5,000
3 Jan insurance expense 120
10 Jan Bank loan 15,000
10 Jan Office supplies 2,500
20 Jan Accounts payable 5,000
22 Jan Unearned Revenue 7,500
23 Jan Acccounts Recievable 5,000
24 Jan salaries expense 9,000
31 Jan Withdrawal 3,000
Exercise
 Post all the above transactions (journal entries)

to the following ledger accounts:
 Prepaid Rent, Office supplies, Prepaid insurance, Office
Furniture & Equipment, Bank loan, Accounts Payable,
Unearned Revenue, Capital, Withdrawals, Commission
Revenue, & Salary Expense
 Cast the ledger accounts
 Determine the balances carried down (Bal c/d)
and balances brought down (b/d)
 Prepare a summary of the ledger balances in a two
columnar listing to derive the Trial Balance( TB)
SUMMARY -Normal Balances of Accounts
Category of the Account Increase Recorded Normal Balance
By
Assets Debits Debit
Liabilities Credits Credit
Shareholders’ Equity
Capital Credits Credit
Dividends or Withdrawals Debits Debit
Revenues Credits Credit
Expenses Debits Debit

Preparing a Trial Balance
List the ledger account balances

in two columns on the trial
balance
Left column = Debits
Right column = Credits
Trial balance proves DR = CR

The Balancing of Accounts, The Trial Balance &
Financial statements
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 rules to prepare the Trial Balance:
Total Debit Entries = Total Credit Entries
Debit Credit
Assets Income/ Revenue
Expenses Liabilities
Drawings Capital
Steps to preparing the Trial Balance:
1) Balance/cast ALL the ledger accounts in the books.
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.
4) Ideally the trial balance should balance after step 3

What if the trial balance shows unequal debit and credit

balances?
If the columns of the trial balance are not equal, there must be
an error in recording or processing the transactions.
4 Errors revealed by the trial balance:
The errors revealed are those errors which cause the Trial
Balance totals to disagree. (i.e do not balance)
There are FOUR types of errors revealed by a trial balance:
1) Posting to the wrong side of an account.
2) Errors in calculation and balancing
3) Incorrect amounts entered on one entry
4) Omission of one entry.
Question: How do we locate all of the above errors?
Answers: 1) Check day-book (journal) totals

2) Check additions of Ledger accounts, ensure
each balance is correct
3) Check all ledger account balances have been
recorded in the Trial Balance.
4) Check all balances have been entered in the
Trial Balance on the correct side.
5) Check additions have been done correctly
The Balancing of Accounts,& The Trial Balance
Question: Once you are sure there is no mistake made in the

Trial Balance, what do you do in the next step?
Answers: Prepare End of Period Adjustment & then prepare

the following statements:
1) Statement of Income
2) Statement of Financial Position
In short, these are the steps:

1) Trial Balance
2) End of Period Adjustments
3) Statement of Income
4) Statement of Financial position
However, a trial balance will not disclose the following types

of errors: (Errors not revealed by the trial balance)
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)
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
THANK YOU

Accounting Cycle Upto Trial Balance

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Accounting Cycle Upto Trial Balance

Hochgeladen von

Copyright:

Verfügbare Formate

THE ACCOUNTING CYCLE

BDA 602 BOOKKEEPING AND

Owner’s equity is the owner’s right to the assets of the

The using up of assets or consuming

 For a new business, it begin by setting up ledger

Analyze Journalize Prepare

 Business transaction is an economic event that

ASSETS = LIABILITIES + OWNERS' EQUITY

ASSETS = LIABILITIES + OWNERS' EQUITY +

 Recall the Basic Accounting Equation:

Assets = Liabilities + Shareholders’ Equity

So Assets increase on the left hand or debit side then

 Double entry system states that every transactions

 The book in which a person enters the original

Mugan-Akman 2007 Chapter 2

Balance Sheet Accounts

The owner of a proprietorship may

A transaction is initially entered in a record called a journal.

Every transaction affects

(a) On November 1, Chris Clark opens a new 2-2

The effect of this entry is shown in the

30 Accounts Payable 950 00

30 Supplies Expense 800 00

Dec. 1 NetSolutions paid a premium of

As an alternative, the rent may be due at

Dec. 1 NetSolutions paid rent for December, $800.

1 Rent Expense 52 800 00

NetSolutions received an offer from a

Dec. 1 NetSolutions receives $360 for

Dec. 4 NetSolutions purchased office

4 Office Equipment 18 1 800 00

Dec. 6 NetSolutions paid $180 for a

6 Advertisement Expense 59 180 00

Dec. 11 NetSolutions paid

11 Accounts Payable 21 400 00

Dec. 13 NetSolutions paid a receptionist

13 Wages Expense 51 950 00

Dec. 16 NetSolutions received

Dec. 16 Fees earned on account

16 Accounts Receivable 12 1 750 00

Dec. 20 NetSolutions paid $900 to Executive

Dec. 21 NetSolutions received $650

Dec. 23 NetSolutions paid

Dec. 27 NetSolutions paid the receptionist

27 Wages Expense 51 1 200 00

Dec. 31 NetSolutions paid $310 for

31 Utilities Expense 54 310 00

Dec. 31 NetSolutions paid $225 for

Dec. 31 NetSolutions received $2,870

Dec. 31 NetSolutions earned $1,120

31 Accounts Receivable 12 1 120 00

Dec. 31 Chris Clark withdrew

31 Chris Clark, Drawing 32 2 000 00

Event Assets Liabilities Owners’

Event No Assets Liabilities Owners’ Equity

Event No Assets Liabilities Owners’ Equity

GENERAL JOURNAL Page 1

Event No Assets Liabilities Owners’ Equity

GENERAL JOURNAL Page 1

Event No Assets Liabilities Owners’ Equity

GENERAL JOURNAL Page 1

Event No Assets Liabilities Owners’ Equity

Event No Assets Liabilities Owners’ Equity

GENERAL JOURNAL Page 1