Unit 5

Journalizing, Posting and Trial Balance

Recording in a Two-Column Journal

Journalizing is the 1st step in the accounting process. It refers to the recording of business
transactions in the books of original entry called the journal. An accounting journal works
like a diary for the business.

The accountant is provided with a list of account titles to be used in recording transactions.
The list is called “chart of accounts”.

The standard journal entry format puts the debit entry on top and the credit entry at the
bottom. The credit entry is also indented in terms of account title and amount.

There are two types of presenting journal entries:

a. Simple journal entry -- having only 1 debit and 1 credit entry
b. Compound journal entry -- having more than 1 entries in either debit or credit
side.

Example:
simple journal entry

Cash 2,000 debit

Accounts Receivable 2,000 credit
Collection of customer accounts description

Notice how the credit entry is indented (both the account title and the amount). Also
take note that the amount from the debit side is equal to the amount on the credit
side. If the amounts are not equal, the journal entry is WRONG.

The description must briefly describe what is being recorded.

compound journal entry

Notes Payable 10,000

Accounts Payable 5,000 debit
Cash
15,000 credit
Payment to suppliers description

Notice that the total amount on the debit side (15,000) is equal to the total amount
on the credit side.

Illustrative Problems:

Use the transactions from the preceding unit (Mireio Motor Servicing), but this time, you
have to arrange the account titles in their journal entry format with amounts inserted.

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1/ 3 The owner (Mireio) invested money amounting to ₱1,000,000 as initial capital for his
business.

Cash 1,000,000
M, Capital 1,000,000
Initial investment by the owner

1/12 The owner pulled out a portion of his cash investment from his business, ₱25,000.

M, Drawing 25,000
Cash 25,000
Withdrawal by the owner

1/13 In the name of the business, a new machine was acquired for the store that is being
operated. Said purchase was paid ₱35,000.

Machinery 35,000
Cash 35,000
Acquisition of machine on cash basis

1/14 The business acquired a computer set costing ₱15,000 to be used in the office. The
purchase was on account/on credit.

Office Equipment 15,000

Accounts payable 15,000
Acquisition of equipment on account

1/15 Supplies worth ₱5,000 were bought on account.

Supplies 5,000
Accounts payable 5,000
Purchase of supplies on account

1/23 Refer to the transaction from January 14. This time, assume that the business paid for
the computer set that was purchased on credit/ on account.

Accounts payable 15,000

Cash 15,000
Payment of account

1/24 Services were rendered to clients but they haven’t paid yet (without promissory note)
₱45,000.

Accounts Receivable 45,000

Service Revenue 45,000
Rendered services on account

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1/27 In relation to the transaction from January 24, assume that the clients paid.

Cash 45,000
Accounts Receivable 45,000
Collection of customer accounts

1/28 The business received the electricity bill amounting to ₱3,000 and payment has been
made immediately.

Utilities Expense 3,000

Cash 3,000
Payment of electric bill

1/30 The business paid for an insurance premium in advance worth ₱500,000.

Prepaid Insurance 500,000

Cash 500,000
Advance payment of insurance

1/31 For business use, the business owner borrowed a sum of ₱800,000 from the bank.

Cash 800,000
Loans Payable 800,000
Money borrowed from the bank

***When journal entries are recorded in a formal two-column general journal, it will appear
like the one below:

Dates PARTICULARS f Debit Credit

3-Jan Cash gl-1 1 0 0 0 0 0 0
M, Capital gl-10 1 0 0 0 0 0 0
Initial investment

Notice that there is a column for the date when the transactions take place. Transactions
are recorded in a chronological order.

The Particulars column is where you write the account titles. As a standard format, the
credit entry is placed below the debit entry and is indented.

The ƒ symbol stands for “folio”. It is used for cross-referencing between the journal and
the ledger. This helps the accountant locate on what page in the journal an account is
recorded and on what page of the ledger an account is posted.

The debit and credit columns both have 8 boxes where amounts are filled in. The 8th box is
for the decimal place/s. When there are no decimal places in the amounts, the 8th box is
not used.

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Filling the boxes with amounts (whole numbers) will start from the right side going to
the left, meaning from the 7th box. By doing this, all the last digits in the journal (except if
there are decimal places) will be aligned.

Posting to the Ledger/ T-Accounts

Posting is the 2nd step in the accounting process next to journalizing. Through posting, the
amounts of the accounts from the journal are simply shifted or transferred to the general
ledger. This is where the classifying function of accounting comes in.

An account title will have its own ledger account. This means that posting is done on a per
account basis and the amounts for any account will not be mixed with that of the others.

A T-Account is a skeletal form of a ledger.

Example A: Prepare a T-account for CASH based on the following journal entries.
Assume that there is a beginning balance of ₱1,000.

Jan. 4

Cash 1,000
Accounts Receivable 1,000
Collection of customer account

Jan. 7

Cash 20,000
J, Capital 20,000
Additional investment

Jan. 11

Accounts Payable 800

Cash 800
Payment of account

Jan. 30

J, Drawing 5,000
Cash 5,000
Withdrawal of investment

Observe the position of cash in every journal entry above. Some are on the debit and
some are on the credit side.

On the January 4 journal entry, cash account amounting to 1,000 is on the debit
side. If transferred to the t-account, it should also be on the debit side (left). The
same goes for the cash account from the January 7 journal entry.

On the January 11 and January 30 journal entry, the cash account is on the credit
side. If transferred to the t-account, they should also be on the credit side (right).

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 Therefore, you just have to follow the account’s position from the journal in
transferring its balance to the ledger/ t-account.

increase decrease
CASH
dr cr
1/1 Beginning Balance 1,000 1/11 Payment 800
1/4 Collection 1,000 1/30 Withdrawal 5,000
1/7 Addt'l investment 20,000
22,000 5,800
16,200
difference of 22,000 and 5,800

The amounts found on the debit side (left) represent the increase in cash (because
CASH is an asset). The figures found on the credit side (right) represent the
decrease in cash.

Notice that there is a “beginning balance”. This refers to the remaining balance
from the previous period which is carried over to the present. In the example above, it
is placed on the debit side because the normal balance of cash is debit. Therefore,
beginning balances are found on the account’s normal balance. If there is no
beginning balance, there is nothing to put on the t-account.

The 22,000 and the 5,800 are called the footing of balances.

The 16,200 which is the difference between 22,000 and 5,800 is placed on the debit
side (left) because the debit footing is bigger than the credit footing. The 16,200 is
also the ending balance or remaining balance of the cash account.

The double line under the 16,200 figure is called the double rule.

Example B: Prepare a T-account for Accounts Payable based on the following

journal entries. Assume that there is a beginning balance of ₱2,500.

Jan. 6

Office supplies 15,000

Accounts Payable 15,000
Purchase of supplies on account
Withdrawal of investment

Jan. 29

Accounts Payable 8,000

Cash 8,000
Payment of account

Similar to what we did with the cash account, the position of accounts payable has to
be followed from the journal to the ledger/ t-account.

The January 6 entry (purchase on account) causes an increase of accounts payable

so it is on the credit side while the entry from January 29 (payment of account)
causes a decrease so it is on the debit side.

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 decrease increase

ACCOUNTS PAYABLE
Dr cr
1/29 Payment 8,000 1/1 Beginning Balance 2,500
1/6 Purchase on account 15,000
8,000 17,500
9,500

difference of 17,500 and 8,000

The beginning balance in this case is positioned on the credit side since we are
dealing with a liability. Remember that beginning balances are placed on the
normal balance of the account.

The amounts on the credit side (right) represent increase on accounts payable
while the figure on debit side (left) represents the decrease on the account. This is
so because accounts payable is a liability. Liabilities increase on the credit side
and decrease on the debit side.

The 9,500 is the remaining balance of the accounts payable after getting the
difference between 17,500 and 8,000. Such remaining balance (9,500) is placed on
the credit side (right) because the credit footing of 17,500 is greater than the debit
footing of 8,000.

Illustrative Problems:

Using the journal entries from the preceding unit (Mireio Motor Servicing), the following are
the t-accounts for each account titles used. The t-accounts start with asset accounts followed
by liabilities, capital (and drawing), income, and lastly, the expense accounts.

The journal entries are on page 32-34 (Unit 6)

CASH
Dr Cr
3-Jan Initial investment 1,000,000 12-Jan Withdrawal 25,000
27-Jan Collection 45,000 13-Jan Purchase on cash 35,000
31-Jan loan 800,000 23-Jan Payment of acct. 15,000
28-Jan Payment of bills 3,000
30-Jan Insurance 500,000
1,845,000 578,000
1,267,000

ACCOUNTS RECEIVABLE
Dr Cr
24-Jan Services on acct. 45,000 27-Jan Collection of acct. 45,000

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 SUPPLIES
Dr Cr
24-Jan Purchase on acct. 5,000

5,000

PREPAID INSURANCE
Dr Cr
30-Jan Advance
payment 500,000

500,000

MACHINERY
Dr Cr
13-Jan Acquisition 35,000

35,000

OFFICE EQUIPMENT
Dr Cr
14-Jan Acquisition 15,000

15,000

ACCOUNTS PAYABLE
Dr Cr
23-Jan Payment 15,000 14-Jan Equipment on acct. 15,000
15-Jan Supplies on acct. 5,000
15,000 20,000
5,000

LOANS PAYABLE
Dr Cr
31-Jan Borrowings 800,000

800,000

M, CAPITAL
Dr Cr
3-Jan Investment 1,000,000

1,000,000

M, DRAWING
Dr Cr
12-Jan Withdrawal 25,000

25,000

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 SERVICE REVENUE
Dr Cr
24-Jan Rendered services 45,000

45,000

UTILITIES EXPENSE
Dr Cr
28-Jan Payment of exp. 3,000

3,000

The amounts with the double rule (double line) will be the ones to be
presented on the face of the trial balance.

Trial Balance Preparation

This is the 3rd step in the accounting process. To complete this, the balances from the
ledger are summarized in an organized fashion beginning with assets then followed by
liabilities, capital, drawings, income and expenses.

The account balances are placed on either the debit or credit side depending on where
their ledger balances are positioned. When an account’s ledger balance is on the debit
side, the amount appearing on the trial balance will be on the same side.

Below is a sample of a trial balance:

A&D Delivery Express

Unadjusted Trial Balance Heading
January 31, 2020

PARTICULARS Debit Credit

Cash 105,000
Accounts Receivable 20,000
Office Supplies 9,000
Land 2,500,000
Machinery and Equipment 100,000
Building 2,000,000
Accounts Payable 15,000
Loans Payable 100,000
J, Capital 4,470,000
J, Drawing 10,000
Service Revenue 197,000
Salaries Expense 20,000
Utilities Expense 8,000
Taxes and Licenses 10,000
4,782,000 4,782,000
footing
*Notice that the total debits and credits are equal. The double line under the footing
of debits and credits is called “double rule”.

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The accounts in the particulars column are arranged in the following order:
1. Assets
1.1 Current assets -- these are short-term assets
1.2 Non-current assets -- these are assets that can be used for more than 1
year (long-term).

2. Liabilities
2.1 Current liabilities -- these are short-term liabilities and are expected to
be paid within 1 year.
2.2 Non-current liabilities -- these are liabilities expected to be settled for a
period beyond 1 year.
3. Capital (and Drawing)
4. Income accounts
5. Expenses

The total debit footing and the total credit footing on the trial balance MUST BE EQUAL.
Otherwise, something isn’t right. However, having a balanced trial balance doesn’t
guarantee the report’s correctness. The reason is that the source of the balances may be
erroneous from the start. Remember that journalizing and posting come first before trial
balance preparation. Any error/misstatement from those two will cause a misstatement in
the trial balance.

When your trial balance isn’t balanced, you may try to trace back to your ledger then
lastly, to your journal.

Illustrative Problem:

Using the t-accounts for Mireio Motor Servicing (page 37-39), you can now prepare your
unadjusted trial balance by extracting the ledger balances (those figures with double rule).

MIREIO MOTOR SERVICING

Unadjusted Trial Balance
January 31, 2020

PARTICULARS Debit Credit

Cash 1,267,000
Prepaid Insurance 500,000
Supplies 5,000
Machinery 35,000
Office Equipment 15,000

Accounts Payable 5,000

Loans Payable 800,000

M., Capital 1,000,000

M., Drawing 25,000

Service Revenue 45,000

Utilities Expense 3,000

Total 1,850,000 1,850,000

** The accounts receivable is no longer included in the trial balance because its
balance is already zero (0). (refer to the t-accounts)

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The cash balance of ₱1,267,000 is placed on the debit side of the trial balance because its
balance from the ledger is also found on the debit side. The same goes for the rest of the
assets, expense and the drawing account.

For the liability, capital and income accounts, their ledger balances appear on the credit
side. Hence, when forwarded to the trial balance, the figures will follow the same
placement.

The process of journalizing, posting to the ledger, and trial balance preparation are related
to each other.

The following are points that you need to remember.

✓ Journalizing is the first step in the accounting process. This represents the making of
initial entries on the company’s books. The journal entries are recorded in the
journal.

✓ There are two types of journal entries: simple and compound.

✓ Posting is the second step in the accounting process. Under this step, each account
title must have its own ledger account. Amounts appearing on the journal are simply
transferred to the ledger following the same position (debit/credit). Then, the
balances per account are computed by getting the difference between the total
debit footing and total credit footing and highlighted using the double rule.

The difference between the total debit and credit footing shall be placed on the side
with the bigger amount.

✓ The accounts and their balances appearing on the face of the ledger (with the double
rule) shall be summarized in a report called trial balance. The total footings on the
two sides of the trial balance (debit and credit) must be equal. The preparation of
the unadjusted trial balance is the 3rd step in the accounting process.

✓ The trial balance must have details like the heading, the 3 main columns for the
particulars, debit and credit.

Reference:

HBL Module by Chavez & Malquisto

********** Nothing Follows**********

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