CHAPTER 4

Journalizing and Preparation of the Trial Balance

Definition of terms:

1. General journal – book of original entry.

2. General ledger – book of final entry.
3. Footing – means adding all the debits and credits vertically.
4. Cross-footing – adding the amounts horizontally.
5. Trial balance – is a list of all accounts with open balances.
6. Asset – is a resource owned and/or controlled by the enterprise. An asset is
expected to provide future economic benefits to the enterprise (that is, it is
expected to continue to be useful to the enterprise).
7. Liability – is a present obligation of the entity, arising from past events, which are
to be settled in the future.
8. Equity – is the residual interest in the assets of the entity after deducting all its
liabilities. The owner’s equity refers to the claims of the owner(s) of the firm to
the assets of the business after all the claims of creditors have been settled or paid.
9. Income – refers to increases in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of liabilities that result
in increase in equity, other than those a relating contributions from equity
participants. The definition of income encompasses both revenue and gains.
10. Revenue – arises in the course of the ordinary activities of an enterprise and is
referred to by a variety of different names including sales, fees, interest, etc.
11. Gains – represent other items that meet the definition of income and may, or may
not, arise in the course of the ordinary activities of an enterprise. Examples
include gain on sale of assets not for regular sale (old equipment).
12. Expenses – refer to decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incidences of liabilities that
result in equity, other than those relating to distributions to equity participants.
13. Losses – represent other items that meet the definition of expenses and may, or
may not, arise in the course of the ordinary activities of the entity. Examples
include loss on sale of assets not for regular sale (old equipment).
14. Business transaction – is an exchange of values (expressed in terms of money)
involving two parties (in the case of external transactions) or within the enterprise
(in the case of internal transactions). It is an economic activity that causes
increases and/or decreases in the elements of the financial statements. In every
transaction, there is value received and value parted with (debit and credit).
15. Prepaid expenses – expenses not yet incurred (consumed) but paid in advance.
16. Accrued expenses – expenses already incurred but not yet paid.
17. Accrual basis of Accounting – the effects of transactions and other events are
recognized when they occur (and not as cash or its equivalent is received or paid)
and they are recorded in the accounting records and reported in the financial
statements of the periods to which they relate.

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CHAPTER 4

EXERCISE 1
True or False.
1. The accounting cycle starts with the analysis of business transactions and ends
with the recording of adjusting entries. False
2. All transactions should be recorded by the firm. False
3. Journalizing comes before posting. True
4. After all entries have been journalized in the journal, the next step is footing, that
is transferring the entries from the journal to the ledger. False
5. The ledger is sometimes called the book of final entry. True
6. Once a chart of accounts is used, it must never be changed or modified. False
7. A trial balance that is balance is a guarantee that the accounting record is correct.
False
8. Some errors may remain even if a trial balance is in balance. True
9. The financial accounting process is guided by broad operating principles of
accounting. True
10. The term footing means you add the numbers horizontally. False
11. A trial balance is a list of accounts with open balances at a given time. True
12. A journal entry erroneously debited advertising expense to cash will still make the
trial balance in balance. True
13. When a customer is billed for services performed, the cash account should be
debited. False
14. A credit entry to assets will decrease its balance. True
15. The normal balance of liabilities, revenues, and equity is credit. True
16. Net income will result during a time period when revenues exceed expenses.
True
17. In every entry, the difference between total debits and total credits should be zero.
True
18. Payment of liability will not affect total assets but will make total liabilities to
decrease. False
19. A decrease in asset may decrease a liability. True
20. A compound entry happens when there are two or more accounts debited or
credited even if one account has been correspondingly debited or credited. True

EXERCISE 2
Multiple choice . Select the letter of the best answer.
1. Which of the following is not considered as a business transaction?
a. Purchase of supplies on account.
b. Withdrawal of cash by the owner.
c. Provision of services for which fees are not yet received.
d. All of these are business transactions.
2. A journal entry that consists one debit and one credit is called
a. compound entry
b. multiple entry
c. simple entry

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 d. memorandum entry
3. This is called the book of final entry
a. general journal
b. general ledger
c. t-account
d. general voucher
4. The recording phase of financial accounting covers the following steps, except
a. business documents are received
b. transactions are journalized
c. financial statements are prepared
d. debit and credit are entries are recorded
5. A ledger
a. contains only assets and liability accounts
b. should show accounts in alphabetical order
c. is a collection of the entire group of accounts maintained by a company
d. is a book of final entry
6. A chart of accounts is
a. a subsidiary ledger
b. a general ledger
c. a general journal
d. a listing of all account titles
7. The term footing refers to the:
a. process of posting
b. addition of column figures
c. the process of obtaining the bottom number in an account
d. the process of obtaining the top number in an account
CROSS FOOT HORIZANTALLY
8. Which of the following statements is false?
a. Communicating is the process of preparing and distributing accounting
reports to potential users of accounting information.
b. An event is accountable or quantifiable when it has an effect on assets,
liabilities, and equity.
c. Only economic activities are emphasized and recognized in financial
accounting.
d. Historical cost is identified as the current selling price.
9. In recording transactions
a. the word “debit” means increase and the word “credit” means decrease.
b. asset, expense, and drawing accounts are debited for increases.
c. liabilities, revenues, and drawing accounts are debited for increases.
d. assets, expenses, and capital accounts are debited for increase.
10. This refers to optional journal entries that are intended to make recording
transactions easier in the next accounting period.
a. simple entries
b. compound entries
c. reversing entries
d. multiple entries

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11. The basic elements directly related to the performance or results of operations
are
a. assets, liabilities, revenues, and expenses
b. assets, liabilities, and equity
c. revenues and expenses
d. assets and revenues
12. The following are the possible effects of business transactions on the
accounting equation, except:
a. increase in liabilities; decrease in owner’s equity
b. increase in one liability; decrease in another liability
c. increase in assets; decrease in liabilities
13. Which of the following transactions does not affect the balance sheet totals?
a. Purchasing supplies on account.
b. Additional investment by the owner.
c. Paying of a notes payable.
d. Collection from customers on account.
14. A credit to revenue account will
a. decrease the expense account
b. increase the liability account
c. increase the asset account
d. decrease the drawing account
15. From the point of view of the company receiving the cash, an item that
represents services that have been paid for by the customer, but have not been
provided to the customer by the firm which received the cash, is called
a. an accrued expense
b. a prepaid expense
c. an accrued revenue
d. an unearned revenue
UNEARNED REVENUE – is revenue received in advance but not yet
earned (LIABILITY)
16. Accrued expenses
a. decrease assets
b. increase assets
c. increase liabilities
d. decrease liabilities
ACCRUED EXPENSE – is an expense already incurred but not yet
paid (LIABILITY) OPPOSITE OF PREPAID EXP
17. Posting refers to the process of transferring information from
a. Journal to the general ledger accounts.
b. Journals to source documents.
c. General ledger accounts to the journal.
d. Source documents to journal.
18. Which of the following is an essential characteristic of an asset?
a. The claims to an asset’s benefits are legally enforceable.
b. An asset is tangible.
c. An asset is recorded at invoice price.

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 d. An asset provides future benefit.
19. If the cash account has a debit balance of P72,000 as of December 31, 2019
with a debit posting of P148,000 and credit posting of P172,400, what is its
beginning balance?
a. 47,600
b. 24,400
c. 73,600
d. 96,400

Beg bal ?
148,000 172,400
Ending bal 72,000

20. The Accounts receivable had a total debits for the month of P30,000 and total
credits for the month of P14,000. If the beginning balance of Accounts
receivable was P24,000. What was the change in Accounts receivable?
a. a decrease of P16,000
b. an increase of P64,000
c. an increase of P16,000
d. a decrease of P 64,000

Beg bal 24,000 14,000

30,000
End bal 40,000

EXERCISE 3
Juanito Guttierez, an architect, obtained a business permit and opened a business
called Guttierez Architectural Services. During the month of April, he completed the
following transactions:

Apr 3 Began his business by contributing equipment valued at P126,500

and placing P250,000 in a business checking account in the name of the
company. Compound entry
4 Purchased a used truck costing P78,000. Paid P28,000 in cash and signed
a note for the balance.
5 Purchase supplies on account for P6,500. Simple entry
6 Completed an architectural design and billed the customer for P30,000.
10 Received P25,000 in designing a house.
12 Hired an assistant to work with him at P20,000 a month.
13 Purchased supplies for cash P7,400.
14 Received a P15,000 check from the customer billed last April 6.
15 Paid P8,000 for an insurance policy for 1 year coverage.
16 Billed a customer P30,000 for an architectural job.

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 17 Paid the assistant one half of his monthly salary.
19 Paid P1,200 for a tune up for the truck.
20 Paid the supplies purchased on April 5.
21 Purchased a new equipment for P24,000 and architectural supplies for
P6,000, on account. Compound entry
23 Received a telephone bill for P3,200, due next month.
24 Received P16,600 in cash from customer billed on April 16.
26 Received P7,500 in cash for an architectural design in a six-room
apartment.
28 Paid P20,000 on the note signed for the truck.
29 Paid the assistant on half of his monthly salary.
30 Mr. Guttierez withdrew P22,000 for personal use.
REQUIRED:
1. Record these transactions in the general journal. Use the accounts
listed below.
2. Set up the following T-accounts and post all the journal entries:
Cash,; Accounts receivable; Architectural Supplies; Office supplies;
Prepaid insurance; Equipment; Truck; Notes payable; Accounts
payable; Guttirez capital; Guttirez, drawing; Architectural fees;
Wages expense; Telephone expense; Truck expense.

Apr 3 Cash 250,000

Equipment 126,500
Guttierez, capital 376,5000

4 Truck 78,000
Cash 28,000
Notes payable 50,000

5 Office Supplies 6,500

Accounts payable 6,500

8 Accounts Receivable 30,000

Architectural Fees 30,000

10 Cash 25,000
Architectural Fees 25,000

13 Office Supplies 7,400

Cash 7,400

14 Cash 15,000
Accounts Receivable 15,000

15 Prepaid Insurance 8,000

Cash 8,000

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 16 Accounts Receivable 30,000
Architectural Fees 30,000

17 Wages Expense 10,000

Cash 10,000

19 Truck Expense 1,200

Cash 1,200

20 Accounts Payable 6,500

Cash 6,500

21 Equipment 24,000
Architectural Supplies 6,000
Accounts Payable 30,000

23 Telephone Expense 3,200

Accounts Payable 3,200

24 Cash 16,600
Accounts Receivable 16,600

26 Cash 7,500
Architectural Fees 7,500

28 Notes payable 20,000

Cash 20,000

29 Wages Expense 10,000

Cash 10,000

30 Guttierez, drawing 22,000

Cash 22,000
TRIAL BALANCE 532,200

EXERCISE 4

The account balances for Aquino Lawn Service, Inc. at the end of September, 2019 are
presented in the trial balance.

During October 2019, Aquino Lawn Service, Inc. completed the following transactions:

Oct 3 Paid for supplies purchased on credit last month, P4,000.

5 Billed customers for services rendered, P12,500.
6 Paid for one month’s lease on a pick up truck, P7,500.

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 7 Purchased supplies on credit, P5,400.
7 Received cash from customers not previously billed, P10,800.
8 Purchased new equipment from Roxas Manufacturing Company on
account, P45,000.
9 Received a bill for a change oil on the truck, P1,300.
10 Returned a portion of the equipment that was purchased on October 8 for
credit, P15,000.
14 Received payments from customers previously billed, P8,200.
15 Paid the bill received on October 9.
19 Paid for supplies purchased on October 7.
20 Purchased equipment on account, P12,000.
25 Received payments from customers previously billed, P5,400.
25 Purchased gasoline for the truck, P2,500.
30 Made a payment to reduce the principal on the note payable, P20,000.
31 Withdrew P 10,000 for personal use.

Aquino Lawn Service, Inc.

Trial Balance
September 30, 2019
Cash (111) P62,000
Accounts receivable (113) 4,400
Supplies (115) 9,200
Prepaid insurance (116) 8,000
Equipment (141) 88,000
Notes payable (211) P 60,000
Accounts payable (212) 15,700
Aquino, capital (311) 84,000
Aquino, withdrawal (312) 8,400
Service revenue (411) 29,800
Lease expense (412) 7,500
Truck expense (413) 2,000 _______
TOTAL P189,500 P189,500
====== =======
REQUIRED:
1. Record the October transactions in the general journal.
2. Open the ledger accounts for the accounts shown in the trial
balance. Enter the September 30 trial balance amounts in
the ledger accounts.
3. Post the entries to the ledger accounts.
4. Prepare a trial balance as of October 31, 2019.
Oct 3 Accounts payable 4,000
Cash 4,000

5 Accounts receivable 12,500

Service revenue 12,500

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6 Lease expense 7,500
Cash 7,500

7 Supplies 5,400
Accounts payable 5,400

Cash 10,800
Service revenue 10,800

10 Equipment 45,000
Accounts payable 45,000

11 Truck expense 1,300

Accounts payable 1,300

12 Accounts payable 15,000

Equipment 15,000

14 Cash 8,200
Accounts receivable 8,200

15 Accounts payable 1,300

Cash 1,300

19 Accounts payable 5,400

Cash 5,400

22 Equipment 12,000
Accounts payable 12,000

25 Cash 5,400
Accounts receivable 5,400

27 Truck expense 2,500

Cash 2,500

30 Notes payable 20,000

Cash 20,000

31 Aquino, withdrawal 10,000

Cash 10,000

Aquino Lawn Service, Inc.

Trial Balance
October 31, 2019

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 Debit Credit
Cash 35,700
Accounts receivable 3,300
Supplies 14,600
Prepaid insurance 130,000
Equipment 8,000
Notes payable 40,000
Accounts payable 53,700
Aquino, capital 84,000
Aquino, withdrawal 18,400
Service revenue 53,100
Lease expense 15,000
Truck expense 5,800
TOTAL 230,800 230,800

EXERCISE 5
Which of the following errors would cause a trial balance to have unequal totals?
1. A payment to a creditor was recorded as a debit to Accounts Payable
for P2,450 and a credit to Cash for P4,250. YES
(transposition/transplacement error)
2. A payment of P3,500 to a creditor for an Accounts Payable was
debited to Accounts Receivable and credited to Cash. NO
3. A purchase of Office Supplies of P5,600 was recorded as a debit to
Office Supplies for P3,200 and a credit to Cash for P5,600. YES
4. A purchase of Equipment for P10,000 was recorded as a debit to
Supplies for P10,000 and a credit to Cash for P10,000. NO
5. A receipt of P6,500 from an Account Receivable was journalized and
posted as a debit of P6,500 to Cash and a credit of P6,500 to Service
Income. NO
6. Payment of a cash withdrawal of P25,000 was journalized and posted
as a debit of P52,000 to Utilities Expense and a credit of P25,000 to
Cash. YES
7. A fee of P16,900 earned and due from a client was not debited to
Accounts Receivable or credited to a revenue account, because the
cash had not been received. NO
8. A payment of P72,500 for Computer Equipment purchased was
posted as a debit of P27,500 to Computer Equipment and a credit of
P27,500 to Cash. NO

EXERCISE 6

The following errors occurred in posting from a two-column journal.

1. An entry debiting Accounts Receivable and crediting Professional fee

for P28,000 was not posted. Y
2. A debit of P7,300 to Taxes expense was posted as P3,700.

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 3. A debit of P32,000 to Cash was posted to A. Luis, withdrawal. Y
4. A debit of P44,900 to Accounts Receivable was posted twice.
5. A credit of 54,000 to Cash was posted as P45,000.
6. A credit of P88,000 to Accounts Payable was not posted.
7. A debit of P35,000 to Accounts payable was posted as a credit.
8. An entry with a debit to AFB, drawing of P20,800 was debited to
AFB, capital. Y
9. A debit to Office Equipment of P12,000 was recorded as P10,000.
10. A debit to Cash of P6,000 was posted as a credit to Cash.

REQUIRED:
Consider each case independently. For each error, determine if the trial balance would
still be in balance(YES) or would be out of balance (NO).

EXERCISE 7
This was the trial balance for Allaina General Services at the end of October:

ALLAINA GENERAL SERVICES

Trial Balance
October 31, 2019

Cash P 38,400 + 4,000 – 1,800

Accounts receivable 56,600
Supplies 1,200 + 1,200
Prepaid insurance 1,800
Equipment 84,000
Accounts payable P 45,400
Allaina, capital 115,600
Allaina, withdrawals 7,000
Revenues 59,200
Salaries expense 26,000
Rent expense 6,000
Advertising expense 3,400
Utilities expense 260
TOTAL P217,660 P227,200

The trial balance does not balance because of a number of errors. Allaina’s accountant
compared the amounts in the trial balance with the ledger, recomputed the account
balances, and compared the postings. She found the following errors:
a. The balance of Cash was understated by P4,000. +4,000
b. A cash payment of P4,200 was credited to Cash for P2,400. – 1,800
c. A debit of P1,200 to Accounts receivable was not posted. +1,200
d. Supplies purchased for P600 were posted as a credit to Supplies.
+1,200
Supplies
1,200 600

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 600

e. A debit of P1,800 to Prepaid insurance was not posted. +1,800

f. The Accounts Payable account had debits of P53,200 and credits of
P91,800. 38,600
g. The Notes Payable account, with a credit balance of P24,000, was not
included in the trial balance. INCLUDE
h. The debit balance of Allaina, withdrawals was listed in the trial
balance as a credit. DEBIT
i. A P2,000 debit to Allaina, withdrawals was posted as a credit. DEBIT
4,000
j. The actual balance of Utilities Expense, P2,600 was listed as P260 in
the trial balance. SLIDE error

Required: Prepare a corrected trial balance. P237,400

Allaina General Services

Corrected Trial Balance
October 31, 2019

Debit Credit
Cash 40,600
Accounts Receivable 57,800
Supplies 2,400
Prepaid Insurance 3,600
Equipment 84,000
Accounts Payable 38,600
Notes Payable 24,000
Allaina, Capital 115,600
Allaina, Withdrawals 11,000
Revenues 59,200
Salaries Expense 26,000
Rent Expense 6,000
Advertising Expense 3,400
Utilities Expense 2,600
TOTAL 237,400 237,400

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