Preparation of Journal Entries

Analysis & Posting to the Ledger of T-Accounts

Trial Balance
Financial Statement
a. Prepare journal entries, analyze and post it to the ledger or “T-Account” then,
prepare trial balance and financial statement.

1. THE ACCOUNTING CYCLE

STEP 1. IDENTIFICATION OF EVENTS TO BE RECORDED

TRANSACTION ANALYSIS
The transactions are analyzed in four basic steps.
1. Identify the transacton from the source documents.
2. Indicate the accounts from the elements that are affectedby the transaction
3. Ascertain whether each account is decreased or increased by the transaction.
4. Using the debit and credit rule, determine whether the account are to be credited
or to be debited to record for each increase or decrease.

Source Documents
Some of the common source documents are the following: Official Receipts,
Charge Invoice, Sales Invoice, bank deposit slip, cash register tapes, checks, bank
statements, purchase orders, receiving reports, time crads, time tickets, statement of
accounts, specimens and others.

This is also the steps in which the transactions are recordable or not as this step is
the decision on recognition or non recognition of the transactions.

2. THE JOURNAL (STEP 2)

• This is the book of original entry and shows the effect of the transaction in terms
of debits and credits and record the transaction in a chronological order.
• Journalizing is the process of recoding transactions to the journal in terms of debit
and credit effect of the account.
• General Journal is the simplest form of journal.
• There are two types of journal entries:
1. the Simple Journal Entries that compose of one debit account and one
credit account; and
2. the Compound Journal Entries that are composed of multiple debit or
credit acounts.
The balance of each account is transferred to the trail balance for the verification the
amount balances of the debit and the credit are equal. This is the listing of all ledger
accounts in order, with the respecting debit or credit balances.

The standard contents in the format of the general journal are as follows:
• Date.
• Account Titles and Explanation.
• P.R. or Posting Reference.
• Debit.
• Credit.

Sample Problem

Nelosencio Desadado formed a business named Lamyon Ramen Restaurant on

January 1, 2020. He deposited P 390,000 amount to Moi Money Banking the name of the
business.

Sample Format for Simple Journal Entry

Date Account Titles and Explanation P.R. Debit Credit
1 2020
2 Jan. 1 Cash 390,000
3 Desadado, Capital 390,000
4 Initial investment

Sample problem
Acquired a service vehicle for P 195,000 on account, Patent of P 160,000 by issuing
promissory note and furniture of P 75,000 for cash on January 2, 2020.

Sample format of Compound Journal Entry

Date Account Titles and Explanation P.R. Debit Credit
1 2020
2 Jan. 2 Service Vehicle 195,000
3 Furniture and Fixtures 75,000
4 Patent 160,000
5 Accounts Payable 195,000
6 Cash 75,000
7 Notes payable 160,000
Purchase of vehicle , patent and
furniture.
Simple Entry :

SV 195,000
Accounts payable 195,000

Patent ………. 160,000

Notes payable……..160,000

Furniture & Fixture … P75,000

Cash……………………………….P75,000

PROBLEM ILLUSTRATION:

Prepare journal entries. Using the following accounts: Cash; Accounts

Receivables; Office Supplies; Service Vehicle; Furniture and Fixtures; Accounts
payable; Accrued Expenses; Dagantino, Capital; Dagantino, Withdrawals; Service
Income; Rental Expense; Salaries Expense; Utilities Expense; Advertising
Expense.

Solution:
Date Account Titles and Explanation P.R. Debit Credit
1 2020
2 Jan. 1 Cash 470,000
3 Dagantino, Capital 470,000
4 Initial investment
5
6 2 Service Vehicle 195,000
7 Furniture and Fixture 60,000
8 Cash 60,000
9 Accounts Payable 195,000
10 Purchase service vehicle, furniture
11
12 3 Office Supplies 65,000
13 Cash 65,000
14 Purchase of supplies
15
16 9 Cash 95,000
17 Service Income 95,000
18 Receive cash from customers
19
20 10 Rental Expense 30,000
21 Cash 30,000
22 Paid rental expense

24 11 Cash 29,000
 25 Accounts Receivable 170,000
26 Service Income 199,000
27 Render Catering Services
28
29 12 Accounts Payable 97,500
30 Cash 97,500
31 Payment of accounts
32
33 19 Cash 100,000
34 Accounts Receivables 100,000
35 Collection of accounts
36
37 24 Dagantino, Withdrawals 27,000
38 Cash 27,000
39 Withdrawal for personal use
40
41 28 Salaries Expense 66,000
42 Cash 66,000
43 Payment of salaries
44
45 30 Utilities Expense 29,600
46 Cash 29,600
47 Payment of utilities expense
48
49 31 Advertising Expense 36,500
50 Accrued Expense 36,500
51 Receipt of bill from advertising
52

2. THE LEDGER (STEP 3)

This is the grouping of all entity’s accounts. The reference book of the accounting
system and is used to classify and summarize effects of transactions and to prepare data
for basic financial statements.
Posting is transferring the amount in the journal to the specific account of the
company. The debit in the journal entries shall be debited to the “T” accounts or the ledger
of that particular account and the same with the credit journal entries. Each account has
its own ledger record and this organizes the transaction per account.

There are two (2) general groups of general ledger:

• Permanent or Real accounts or Balance sheet accounts or Financial Position
Accounts (Assets, Liabilities and Owner’s Equity).
• Temporary or Nominal accounts or Income statement accounts or
Comprehensive Income accounts (Income and Expenses)

The balance of each account is determined by (footing) or adding all the debits and
credits. If the sum of debits are higher than the sum of the credits then the account has
debit balance and if the sum if debits are lesser than the sum of credits then the account
has credit balance.
The steps in posting are as follows:
1. Transferred the date of the transaction.
2. Transfer the page number of the journal to the journal reference (J.R.).
3. Transfer the debit journal figure to the debit ledger figure and the credit journal
figure to the credit ledger figure.
4. Enter the account number in the posting reference column to the account
number of the account in the ledger.

Sample “T” accounts for transaction illustration above:

CASH
Dr. Cr.
P/ 390,000.00

DESADADO, CAPITAL
Dr. Cr.
P/ 390,000.00

The Chart of Accounts

This is the listing of all accounts and their account number in the ledger. This are arranged
in the financial statement order that follows the order as follows: assets, liabilities, owner’s
equity, income and expenses. The account should be numbered in flexible manner to
permit indexing and cross-referencing. This is used for referencing the correct account
titles used in the journal entries and if the account title is not listed in the chart, an
additional account may be added.

Illustration:
The same information of Illustration 1 post the transactions in the ledger using the “T
accounts” format of presenting the ledger.

CASH
Dr. Cr.
1/1 470,000.00 60,000.00 1/2
1/9 95,000.00 65,000.00 1/3
1/11 29,000.00 30,000.00 1/10
1/19 100,000.00 97,500.00 1/12
27,000.00 1/24
66,000.00 1/28
29,600.00 1/29
694,000.00 375,100.00
318,100.00
 ACCOUNTS RECEIVABLES
Dr. Cr.
1/11 170,000.00 100,000.00 1/19
170,000.00 100,000.00
70,000.00

OFFICE SUPPLIES
Dr. Cr.
1/3 65,000.00
65,000.00

SERVICE VEHICLE
Dr. Cr.
1/2 195,000.00
195,000.00
FURNITURE AND FIXTURES
Dr. Cr.
1/2 60,000.00
60,000.00

ACCOUNTS PAYABLE
Dr. Cr.
1/12 97,500.00 195,000.00 1/2
97,500.00 195,000.00
97,500.00

ACCRUED EXPENSES
Dr. Cr.
36,500.00 1/31
36,500.00

DAGANTINO, CAPITAL
Dr. Cr.
470,000.00 1/1
470,000.00

DAGANTINO, WITHDRAWALS
Dr. Cr.
1/24 27,000.00
27,000.00
 SERVICE INCOME
Dr. Cr.
95,000.00 1/9
199,000.00 1/11
294,000.00

RENTAL EXPENSES
Dr. Cr.
1/10 30,000.00
30,000.00

SALARIES EXPENSES
Dr. Cr.
1/28 66,000.00
66,000.00

UTILITIES EXPENSES
Dr. Cr.
1/30 29,600.00
29,600.00

ADVERTISING EXPENSES
Dr. Cr.
1/31 36,500.00
36,500.00

5. TRIAL BALANCE

List of all accounts with the corresponding debit or credit balances from the ledger. This
is to verify the equality of debits and credits in the ledger at the end of each accounting
period or at any time after posting are updated.

Steps in preparing trial balance are as follows:

1. List the account titles in numerical order
2. Get the account balance of each account from the ledger and enter the debit
balances of the ledger to the debit column of the trial balance and the credit
balances in the ledger to the credit column of the trial balance.
3. Add the debit and credit columns
4. Compare the total
ILLUSTRATION:
Using the same information from Illustration 1 prepare Trial balance

Lamyon Ramen Restaurant (Nelosencio Dagantino)

Trial balance
January 2020

Account Titles Debit Credit

Cash 318,900.00
Accounts Receivables 70,000.00
Supplies 65,000.00
Service Vehicle 195,000.00
Furniture and Fixtures 60,000.00
Accounts Payable 97,500.00
Accrued Expenses 36,500.00
Dagantino, Capital 470,000.00
Dagantino, Withdrawals 27,000.00
Service Income 294,000.00
Rental Expense 30,000.00
Salaries Expense 66,000.00
Utilities Expense 29,600.00
Advertising Expense 36,500.00
TOTAL 898,000.00 898,000.00

5. PREPARATION OF INCOME STATEMENT AND BALANCE SHEET

A= L+ E
Lamyon Ramen Restaurant (Nelosencio Dagantino)
Balance Sheet
January 2020
ASSETS
Current Assets
Cash 318,900.00
Accounts Receivables 70,000.00
Supplies 65,000.00
Total current Assets 453,900.00
Non-Current Assets
Service Vehicle 195,000.00
Furniture and Fixtures 60,000.00
Total Non Current Assets 255,000.00
Total Assets 708,900.00
LIABILITIES AND OWNER’S EQUITY
LIABILITIES
Current Liabilities
Accounts Payable 97,500.00
Accrued Expenses 36,500.00
Total Current Liabilities 134,000.00
Total Liabilities 134,000.00
OWNE’S EQUITY
Dagantino, Capital, beg 470,000.00
Add: Net Income 131,900.00
Less: Dagantino, Withdrawals (27,000.00)
Dagantino, Capital, end 574,900.00
Total Liabilities and Owner’s Equity 708,900.00

Lamyon Ramen Restaurant (Nelosencio Dagantino)

Income Statement
January 2020

Total Revenue:
Service Income P 294,000.00

Less: Expenses
Rental Expense 30,000.00
Salaries Expense 66,000.00
Utilities Expense 29,600.00
Advertising Expense 36,500.00 162,100.00
Net Income P 131,900.00
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