Journal-Ledger-Trial Balance

Mohammed Moin Uddin Reza Nadim

Bangladesh University of Professionals (BUP)
 Journal
Companies initially record transactions in chronological order. Thus, the
journal is referred to as the book of original entry. For each transaction
the journal shows the debit and credit effects on specific accounts.
The journal makes several significant contributions to the recording
process:
1. It discloses in one place the complete effects of a transaction.
2. It provides a chronological record of transactions.
3. It helps to prevent or locate errors because the debit and credit
amounts for each entry can be easily compared.
 Example of Debit Credit
1. Owner Invested 50,000 Taka in the business.
Date Particulars Ref Debit Credit
Cash Account – Debit 50,000
Capital Account – Credit 50,000
(Owner invested cash in the business)

2. Purchase of Furniture on cash 10,000 Taka.

Date Particulars Ref Debit Credit
Furniture Account – Debit 10,000
Cash Account – Credit 10,000
(Purchase of Furniture on cash)
 Example of Debit Credit
3. Payment to accounts Payable (A/P) 5,000 Taka.
Date Particulars Ref Debit Credit
Accounts Payable Account – Debit 5,000
Cash Account – Credit 5,000
(paid accounts payable cash)

4. Received 8,000 Taka from Accounts Receivable (A/R).

Date Particulars Ref Debit Credit
Cash Account – Debit 8,000
Accounts Receivable Account – Credit 8,000
(Received cash from Accounts Receivable)
 Example of Debit Credit
5. Owner withdrew 5,000 Taka from the business.
Date Particulars Ref Debit Credit
Drawings Account – Debit 5,000
Cash Account – Credit 5,000
(Owner withdrew cash)

6. Paid Salary to an employee 10,000 Taka.

Date Particulars Ref Debit Credit
Salary Account – Debit 10,000
Cash Account – Credit 10,000
(Paid salary to an employee)
 Example of Debit Credit
7. Receive cash 5,000 Taka by selling inventory/merchandise/goods.
Date Particulars Ref Debit Credit
Cash Account – Debit 5,000
Sales Revenue Account – Credit 5,000
(cash sales of inventory)

8. Paid office rent 7,000 Taka.

Date Particulars Ref Debit Credit
Rent Account – Debit 7,000
Cash Account – Credit 7,000
(Payment of rent)
 Example of Debit Credit
9. Sold 5,000 Taka inventory/merchandise/goods on credit.
Date Particulars Ref Debit Credit
Accounts Receivable Account – Debit 5,000
Sales Revenue Account – Credit 5,000
(Sold inventory on credit)

10. Provided 10,000 Taka service on cash.

Date Particulars Ref Debit Credit
Cash Account – Debit 10,000
Service Revenue Account – Credit 10,000
(Provided service on cash)
 Ledger
A ledger in accounting refers to a book that contains different
accounts where records of transactions pertaining to a specific
account is stored. It is also known as the book of final entry or principal
book of accounts.
 Trial Balance
• A trial balance is a list of accounts and their balances at a given time.
• Companies prepare a trial balance at the end of an accounting period.
• The trial balance proves the mathematical equality of debits and
credits after posting.
• A trial balance may also uncover errors in journalizing and posting.
• In addition, a trial balance is useful in the preparation of financial
statements.
 Limitation of Trial Balance
Trial balance may balance even when:
1. a transaction is not journalized
2. a correct journal entry is not posted
3. a journal entry is posted twice
4. incorrect accounts are used in journalizing or posting
5. offsetting errors are made in recording the amount of a transaction.
Hence, The trial balance does not prove that the company has recorded
all transactions or that the ledger is correct.
 Problem
P&C Hall is a licensed dentist. During the first month of the operation of her business, the following events and
transactions occurred.
April 1 Invested $20,000 cash in her business.
1 Hired a secretary-receptionist at a salary of $700 per week payable monthly.
2 Paid office rent for the month $1,100.
3 Purchased dental supplies on account from Smile Company $4,000.
10 Provided dental services and billed insurance companies $5,100.
11 Received $1,000 cash advance from Trudy Borke for an implant.
20 Received $2,100 cash for services completed and delivered to John Carl.
30 Paid secretary-receptionist for the month $2,800.
30 Paid $2,400 to Smile Company for accounts payable due.
 Problem
P&C uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies,
No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 301 Owner’s Capital, No. 400 Service
Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.

Instructions:
(a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on April 30, 2012.
 General Journal
Date Particulars Ref Debit Credit
Cash Account – Debit 1 20,000
April 1 Owner’s Capital Account – Credit 2 20,000
(Cash investment by the owner)
April 1 Not a transaction, hence no journal is required
Rent Expense Account– Debit 3 1,100
April 2 Cash Account – Credit 1,100
(Paid office Rent)
Supplies Account – Debit 4 4,000
April 3 Accounts Payable Account – Credit 5 4,000
(Purchase of supplies on credit)
Accounts Receivable Account – Debit 6 5,100
April 10 Service Revenue Account – Credit 7 5,100
(Provided service on credit)
Cash Account – Debit 1,000
April 11 Unearned Service Revenue Account – Credit 8 1,000
(Receive cash in advanced)
 Date Particulars Ref Debit Credit
Cash Account – Debit 2,100
April 20 Service Revenue – Credit 2,100
(Received cash for rendering service)
Salaries and wages expense account – Debit 9 2,800
April 30 Cash Account – Credit 2,800
(Payment of salary)
Accounts Payable Account – Debit 2,400
April 30 Cash Account – Credit 2,400
(Payment to accounts payable)
38,500 38,500
 General Ledger

Cash Account
Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 1 Owner’s Capital Account 20,000 20,000
2 Rent Expense Account 1,100 18,900
11 Unearned Service Rev. Account 1,000 19,900
20 Service Revenue Account 2,100 22,000
30 Salaries & Wages Exp Account 2,800 19,200
30 Accounts Payable Account 2,400 16,800
 General Ledger

Owner’s Capital Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 1 Cash Account 20,000 20,000
 General Ledger

Rent Expense Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 2 Cash Account 1,100 1,100
 General Ledger

Supplies Account
Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 3 Accounts Payable Account 4,000 4,000
 General Ledger

Accounts Payable Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 3 Supplies Account 4,000 4,000
30 Cash Account 2,400 1,600
 General Ledger

Accounts Receivable Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 10 Service Revenue Account 5,700 5,700
 General Ledger

Service Revenue Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 10 Accounts Receivable Account 5,700 5,700
20 Cash Account 2,100 7,800
 General Ledger

Unearned Service Revenue Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 11 Cash Account 1,000 1,000
 General Ledger

Salaries and Wages Expense Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
April 30 Cash Account 2,800 2,800
 Trial Balance

Serial Accounts Ref Debit Credit

1 Cash Account 16,800
2 Owner’s Capital Account 20,000
3 Rent Expense Account 1,100
4 Supplies Account 4,000
5 Accounts Payable Account 1,600
6 Accounts Receivable Account 5,100
7 Service Revenue Account 7,200
8 Unearned Service Revenue Account 1,000
9 Salaries and Wages Expense Account 2,800
Total 29,800 29,800
 Quick Note
What is Debit and What is Credit?
Answer:
• The Left side of an account is called Debit.
• The right side of an account is called Credit.
• Debit increases Assets and Expenses.
• Debit decreases Liabilities, Owner’s Equity and Revenues.
• Credit increases Liabilities, Owner’s Equity and Revenues.
• Credit decreases Assets and Expenses.
 Comprehensive Problem
Bob Sample opened the Campus Laundromat on September 1, 2012. During the first
month of operations, the following transactions occurred.
Sept. 1 Bob invested $20,000 cash in the business.
2 The company paid $1,000 cash for store rent for September.
3 Purchased washers and dryers for $25,000, paying $10,000 in cash and
signing a $15,000, 6-month, 12% note payable.
4 Paid $1,200 for a one-year accident insurance policy.
10 Received a bill from the Daily News for advertising the opening of the
laundromat $200.
20 Bob withdrew $700 cash for personal use.
30 The company determined that cash receipts for laundry services for the
month were $6,200.
 Comprehensive Problem
Bob Sample uses the following chart of accounts:
Cash, Supplies, Prepaid Insurance, Equipment, Advertising Expense, Accounts
Payable, Unearned Service Revenue, Owner’s Capital, Owner’s Drawings, Service
Revenue, Salaries and Wages Expense, Rent Expense, Notes Payable
Instructions:
(a) Journalize the September transactions.
(b) Open ledger accounts and post the September transactions.
(c) Prepare a trial balance at September 30, 2012.
 General Journal
Date Particulars Ref Debit Credit
Cash Account - Dr 20,000
Sept. 1
Owner’s Capital Account - Cr 20,000
Rent Expense Account – Dr 1,000
2
Cash Account - Cr 1,000
Equipment Account – Dr 25,000
3 Cash Account – Cr 10,000
Notes Payable Account – Cr 15,000
Prepaid Insurance Account – Dr 1,200
4
Cash Account – Cr 1,200
Advertising Expense Account – Dr 200
10
Accounts Payable Account - Cr 200
Owner’s Drawings Account – Dr 700
20
Cash Account - Cr 700
Cash Account – Dr 6,200
30
Service Revenue - Cr 6,200
 General Ledger

Cash Account
Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 1 Owner’s Capital Account 20,000 20,000
2 Rent Expense Account 1,000 19,000
3 Equipment Account 10,000 9,000
4 Prepaid Insurance Account 1,200 7,800
20 Owner’s Drawings Account 700 7,100
30 Service Revenue Account 6,200 13,300
 General Ledger

Owner’s Capital Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 1 Cash Account 20,000 20,000
 General Ledger

Rent Expense Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 2 Cash Account 1,000 1,000
 General Ledger

Equipment Account
Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 3 Cash Account 10,000 10,000
Notes Payable Account 15,000 25,000
 General Ledger

Notes Payable Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 3 Equipment Account 15,000 15,000
 General Ledger

Prepaid Insurance Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 4 Cash Account 1,200 1,200
 General Ledger

Advertising Expense Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 10 Accounts Payable Account 200 200
 General Ledger

Accounts Payable Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 10 Advertising Expense Account 200 200
 General Ledger

Owner’s Drawings Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 20 Cash Account 700 700
 General Ledger

Service Revenue Account

Balance
Date Particulars Ref. Debit Credit
Debit Credit
2012
Sept. 30 Cash Account 6,200 6,200
 Trial Balance

Serial Accounts Ref Debit Credit

1 Cash Account 13,300
2 Owner’s Capital Account 20,000
3 Rent Expense Account 1,000
4 Equipment Account 25,000
5 Notes Payable Account 15,000
6 Prepaid Insurance Account 1,200
7 Advertising Expense Account 200
8 Accounts Payable Account 200
9 Owner’s Drawings Account 700
10 Service Revenue Account 6,200
Total 41,400 41,400
 Quick Check
1. What’s the Net Profit?
Net Profit = Revenues – Expenses
= 6,200 – 1,200
= 5,000
2. What’s the closing Owner’s Equity?
Closing Owner’s Equity = Opening Capital + Profit – Drawings
= 20,000 + 5,000 – 700
= 24,300
 Quick Check
3. What’s the Total Asset and Liabilities?
Total Assets = 13,300 + 25,000 + 1,200
= 39,500
Total Liabilities = 15,000 + 200
= 15,200
4. Prove the Accounting Equation-
Assets = Liabilities + Owner’s Equity
39,500 = 15,200 + 24,300
 DO IT
Fantasy Golf Course was opened on March 1 by Matt Forte. The following selected events and transactions
occurred during March.
Mar. 1 Invested $20,000 cash in the business.
3 Purchased Heeren’s Golf Land for $15,000 cash. The price consists of land $12,000, shed $2,000,
and equipment $1,000. (Make one compound entry.)
5 Paid advertising expenses of $700.
6 Paid cash $600 for a one-year insurance policy.
10 Purchased golf discs and other equipment for $1,050 from Innova Company payable in 30 days.
18 Received $1,100 in cash for golf fees earned (Fantasy records golf fees as service revenue).
19 Sold 150 coupon books for $10 each. Each book contains 4 coupons that enable the holder to play
one round of disc golf.
 DO IT
25 Withdrew $800 cash for personal use.
30 Paid salaries of $250.
30 Paid Innova Company in full.
31 Received $2,100 cash for fees earned.

Fantasy uses the following chart of accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts
Payable, Unearned Service Revenue, Owner’s Capital, Owner’s Drawings, Service Revenue, Advertising Expense, and
Salaries and Wages Expense.

Requirements: 1. Prepare Journal for the month of March.

2. Prepare Ledger Accounts for the month of March.
3. Prepare Trial Balance for the month ending March.
 Assignment - 2

Do All the problems from Chapter 2 and submit in the next class.