CHAPTER 3.

BALANCING-OFF ACCOUNTS AND

TRIAL BALANCE

Tran The Nu, Ph.D

Vice Dean, Faculty of Accounting and Auditing
VNU, University of Economics and Businiess
Email: [email protected],
PART 1. RECORDING BASIC ECONOMIC
TRANSACTIONS
 Same side

Closing balance = Opening balance + total increasing - total decreasing

Business Transaction Analysis

1. Analyze the transaction

Analyze the transaction to determine which

Five-step process for analyzing

accounts are affected and how (increased or Step 1

and applying transactions

decreased).
2. Apply the rules of double entry
Apply the rules of double-entry accounting using T
accounts to show how the transaction affects the Step 2
accounting equation.
3. Record the entry
Show the transaction in journal form.
Step 3

4. Post the entry

Transfer dates and amounts from journal to proper
accounts in ledger
Step 4

5. Prepare the trial balance

Confirms that accounts are still in balance
Step 5
Investment In Company

Business July 1: Joan Miller invests $20,000 to

Transaction start her own advertising agency

Step 1 Increase in assets

Analyze Increase in owner’s equity

Debits increase assets (Cash)

Step 2
Apply rules Credits increase owner’s equity (Joan
Miller, Capital)
Dr. Cr.
Step 3
July 1 Cash 20.000
Record Joan, Capital 20.000
Purchases Assets

Business July 2: Rents office and pays first months’ rent

Transaction in advance, $1,600

Step 1 Increase in Administration expenses

Analyze Decrease in assets

Step 2 Debits increase Administration expenses

Apply rules Credits decrease assets (Cash)

Dr. Cr.
Step 3 July 2 Administration expenses 1,600
Record Cash 1,600
Purchases

Business July 3: Purchases art equipment for cash,

Transaction $4,200

Step 1 Increase in assets

Analyze Decrease in assets

Step 2 Debits increase assets (Art Equipment)

Apply rules Credits decrease assets (Cash)

Step 3
Dr. Cr.
July 3 Art Equipment 4,200
Record Cash 4,200
Purchases

Business July 4: Orders art supplies, $1,800, and office

Transaction supplies, $800

Step 1
No entry because transaction has not occurred
Analyze

Step 2
Apply rules

Step 3
Record
Purchases

July 5: Purchases office equipment, $3,000. Pays $1,500 in

Business
cash and the remaining amount on credit
Transaction

Increase in assets
Step 1
Decrease in assets
Analyze
Increase in liabilities

Step 2 Debits increase assets (Office Equipment)

Apply rules Credits decrease assets (Cash)
Credits increase liabilities (Accounts Payable)
Dr. Cr.
Step 3 July 5 Office Equipment 3,000
Record Cash 1,500
Accounts Payable 1,500
Investment In Company

Business July 9: Pays Taylor Supply Company $1,000 of amount owed

Transaction

Step 1 Decrease in liabilities

Analyze Decrease in assets

Step 2 Debits decrease liabilities (Accts. Payable)

Apply rules Credits decrease assets (Cash)

Dr. Cr.
Step 3 July 9 Accounts Payable 1,000
Record Cash 1,000
 Inventory: goods, tools,
materials…

Assets Fixed asset: machine, cars,…

BUY
Product costs
Expenses
Selling expenses

Administration expenses
Buying transaction

Increase in Assets
Decrease in Cash or
Assets
Increase in liabilities (Trade Payables)
Buying transaction
BUY

Increase in expenses
Expenses
Decrease in Cash or
Increase in liabilities (Trade Payables)
 Increase in Cash in hand/cash in bank
Increase Cash
Decrease in Trade Receivables,…

Payment
Decrease in liabilities: Trade Payables,
Payable to employees,…..
Decrease Cash
Decrease in Cash in hand/cash in bank
 Increase in Cash, Trade Receivables
Revenues Decrease in Revenues

Selling
transaction

Costs of goods Increase in Costs of goods sold

sold Decrease in goods/inventories

Selling expenses
Increase in expenses
Decrease in Cash or
Increase in liabilities (Trade Payables)
 Increase in Equity
+ Equity Increase in Cash, asset

Equity

- Equity Decrease in owner's equity

(Withdrawals) Decrease in Cash

EX: July 31: Joan Miller withdraws $1,400 from

the business for personal living expenses
Dr. Cr.
July 31 Joan Miller, Withdrawals 1,400
Cash 1,400
 Increase: direct labor costs, Production
Wage expense overheads, selling expenses,
administration expenses
Increase: Payable to employees

Wage

Decrease: Payable to employees

Expenses
Decrease: Cash
In theory, the debit entry should be made in the capital account (as drawings decrease
capital). However, to prevent the capital account becoming full of lots of small transactions,
drawings are not entered in the capital account. Instead, a drawings account is opened, and
the debits are entered there rather than in the capital account. The following example
illustrates the entries for drawings:
On 25 August, the owner takes £50 cash out of the business for his own use

adjusted
account
PART 2. BALANCING-OFF ACCOUNTS
AND TRIAL BALANCE
Closing balance = Opening balance + total increasing - total decreasing

CLOSING
BALANCE
The Trial Balance

vTrial Balance is a source of locating errors of the ledger. Trial Balance is the third phase of the

accounting cycle. Before processing for further accounting it is necessary to check the accuracy of

the work being done. So trial balance provides the basis to check the accuracy of a ledger.

vA Trial Balance is an informal accounting statement which is prepared with the help of ledger

account balances on a particular date to summarize the records and to check the arithmetical

accuracy of the books of accounts.

 Trial Balance

Opening Debit Opening Credit Debit Credit

Account Debit total Credit total
balance balance balance balance
xxxx
xxxx
xxxx

……
…..
Total A A B B C C
 RECORDING BASIC ECONOMIC TRANSACTIONS
Buying
Selling
Payment
Equity

CHAPTER 3 Wage

BALANCING-OFF ACCOUNTS AND TRIAL

BALANCE
Balancing off accounts
Trail balance
Question 1

Cookie Lapp Travel design, Inc

Cookie Lapp starts her new business as a corporation named Cookie Lapp Travel Design, Inc. (The
Inc, in the company name abbreviates Incorporated, which lets people know the business is a
corporation)

Requirements:

1. Record the preceding transactions in the journal of Cookie Lapp Travel Design, Inc.

2. Post to the ledger.

3. Prepare the trial balance of Cookie Lapp Travel Design, Inc. at April 30, 20xx
1- Cookie Lapp Travel Design received $30,000 cash from Lapp the stockholder.

2- Lapp Paid $20,000 cash for land.

3- Lapp purchased $500 of office supplies on account agreeing to pay within 30 days.

4- Lapp collected cash of $5,500 for service revenue that she earned by providing travel services for
clients.

5- Lapp performs service for clients and lets then pay later. She earned $3,000 of service revenue or
account.
 Date Accounts and Explanation Debit Credit
1 Apr. 1 Cash 500
Owner’s Equity 500
Issued Stock.
2 Land 20,000
Cash 20,000
Paid Cash for Land.
3 Office supplies 500
Accounts Payable 500
Performed service and receive cash.
4 Cash 5,500
Service Revenue 5,500
Performed service and receive cash.
5 Accounts Receivable 3,000
Service Revenue 3,000
Performed service on account.
6- Lapp paid the following cash expenses: Rent expense on a computer, $600; Office rent, $1,100; Employee salary,
$1,200; and Utilities expense, $400.

7- Lapp paid $300 on the account payable created in transaction 3.

8- Cookie Lapp remodeled her home with personal funds.

9- Lapp collected $2,000 cash from the client in transaction 5.

10- Lapp sells a parcel of land owned by the travel agency. The sale price, $9,000, equals her cost.

11- Lapp received a telephone bill for $100 and will pay this expense next month.
---------------------
6 Rent Expense, Computer 600
Rent Expense, office 1,000
Salary Expense 1,200
Utilities Expense 400
Cash 3,200
Paid cash expenses.
7 Accounts Payable 300
Cash 300
Paid cash on account.
9 Cash 2,000
Accounts Receivable 2,000
Received cash on account.
10 Cash 9,000
Land 9,000
Sold land at cost.
11 Utilities Expenses 100
Accounts Payable 100
Received utility bill.
Question 1

Frank Wood's Business Accounting, 10th Edition, Pg 64

Question 2

Frank Wood's Business Accounting, 10th Edition, Pg 64

Question 3

Frank Wood's Business Accounting, 10th Edition, Pg 64