CHAPTER 4
Journalizing and Preparation of the Trial Balance
Definition of terms:
1.
2.
3.
4.
5.
6.
General journal – book of original entry.
General ledger – book of final entry.
Footing – means adding all the debits and credits vertically.
Cross-footing – adding the amounts horizontally.
Trial balance – is a list of all accounts with open balances.
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.
All of these are business transactions.
d.
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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3.
4.
5.
6.
7.
8.
9.
10.
d.
memorandum entry
This is called the book of final entry
a.
general journal
b.
general ledger
c.
t-account
d.
general voucher
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
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
is a book of final entry
d.
A chart of accounts is
a.
a subsidiary ledger
b.
a general ledger
c.
a general journal
d.
a listing of all account titles
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
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.
In recording transactions
a.
the word “debit” means increase and the word “credit” means decrease.
asset, expense, and drawing accounts are debited for increases.
b.
c.
liabilities, revenues, and drawing accounts are debited for increases.
d.
assets, expenses, and capital accounts are debited for increase.
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.
12.
13.
14.
15.
16.
17.
18.
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
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
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.
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
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)
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
Posting refers to the process of transferring information from
Journal to the general ledger accounts.
a.
b.
Journals to source documents.
c.
General ledger accounts to the journal.
d.
Source documents to journal.
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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19.
d.
An asset provides future benefit.
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
Ending bal
20.
?
148,000
72,000
172,400
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
an increase of P16,000
c.
d.
a decrease of P 64,000
Beg bal
End bal
24,000
30,000
40,000
14,000
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
Equipment
Guttierez, capital
4 Truck
250,000
126,500
376,5000
78,000
Cash
Notes payable
28,000
50,000
5 Office Supplies
Accounts payable
6,500
8 Accounts Receivable
Architectural Fees
30,000
10 Cash
25,000
6,500
30,000
Architectural Fees
25,000
13 Office Supplies
Cash
14 Cash
7,400
7,400
15,000
Accounts Receivable
15,000
15 Prepaid Insurance
Cash
8,000
8,000
0
0
16 Accounts Receivable
Architectural Fees
30,000
30,000
17 Wages Expense
Cash
19 Truck Expense
Cash
10,000
10,000
1,200
1,200
20 Accounts Payable
Cash
6,500
21 Equipment
Architectural Supplies
Accounts Payable
24,000
6,000
23 Telephone Expense
Accounts Payable
3,200
24 Cash
16,600
6,500
30,000
3,200
Accounts Receivable
16,600
26 Cash
7,500
Architectural Fees
7,500
28 Notes payable
Cash
20,000
29 Wages Expense
Cash
10,000
20,000
10,000
30 Guttierez, drawing
Cash
TRIAL BALANCE 532,200
22,000
22,000
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
5
6
Paid for supplies purchased on credit last month, P4,000.
Billed customers for services rendered, P12,500.
Paid for one month’s lease on a pick up truck, P7,500.
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0
7
7
8
9
10
14
15
19
20
25
25
30
31
Purchased supplies on credit, P5,400.
Received cash from customers not previously billed, P10,800.
Purchased new equipment from Roxas Manufacturing Company on
account, P45,000.
Received a bill for a change oil on the truck, P1,300.
Returned a portion of the equipment that was purchased on October 8 for
credit, P15,000.
Received payments from customers previously billed, P8,200.
Paid the bill received on October 9.
Paid for supplies purchased on October 7.
Purchased equipment on account, P12,000.
Received payments from customers previously billed, P5,400.
Purchased gasoline for the truck, P2,500.
Made a payment to reduce the principal on the note payable, P20,000.
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
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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
Service revenue
12,500
12,500
0
0
6
7
10
11
12
14
15
19
22
25
27
30
31
Lease expense
Cash
7,500
Supplies
Accounts payable
5,400
7,500
5,400
Cash
Service revenue
10,800
Equipment
Accounts payable
45,000
Truck expense
Accounts payable
1,300
10,800
45,000
1,300
Accounts payable
Equipment
15,000
15,000
Cash
Accounts receivable
8,200
Accounts payable
Cash
1,300
Accounts payable
Cash
5,400
8,200
1,300
5,400
12,000
Equipment
Accounts payable
12,000
Cash
Accounts receivable
5,400
Truck expense
Cash
2,500
Notes payable
Cash
20,000
Aquino, withdrawal
Cash
10,000
5,400
2,500
20,000
10,000
Aquino Lawn Service, Inc.
Trial Balance
October 31, 2019
0
0
Debit
35,700
3,300
14,600
130,000
8,000
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Notes payable
Accounts payable
Aquino, capital
Aquino, withdrawal
Service revenue
Lease expense
Truck expense
TOTAL
Credit
40,000
53,700
84,000
18,400
53,100
15,000
5,800
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.
0
0
3.
4.
5.
6.
7.
8.
A debit of P32,000 to Cash was posted to A. Luis, withdrawal. Y
A debit of P44,900 to Accounts Receivable was posted twice.
A credit of 54,000 to Cash was posted as P45,000.
A credit of P88,000 to Accounts Payable was not posted.
A debit of P35,000 to Accounts payable was posted as a credit.
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
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accounts payable
Allaina, capital
Allaina, withdrawals
Revenues
Salaries expense
Rent expense
Advertising expense
Utilities expense
TOTAL
P 38,400 + 4,000 – 1,800
56,600
1,200 + 1,200
1,800
84,000
P 45,400
115,600
7,000
59,200
26,000
6,000
3,400
260
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
0
0
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
40,600
57,800
2,400
3,600
84,000
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accounts Payable
Notes Payable
Allaina, Capital
Allaina, Withdrawals
Revenues
Salaries Expense
Rent Expense
Advertising Expense
Utilities Expense
TOTAL
Credit
38,600
24,000
115,600
11,000
59,200
26,000
6,000
3,400
2,600
237,400
0
0
237,400