UNIT-3
Acct - 103
College of Business Administration,
Al-Kharj
Salman Bin Abdulaziz University
KINGDOM OF SAUDI ARABIA
Syllabus
Trial Balance: Meaning, Importance
and Preparation of Trial Balance.
Dr Masharique Ahmad
Asst. Prof, Deptt. of Accounting,
CBAK
2
Objective of This Unit
1 Explain what an account is and how it helps in the
recording process
2 Define debits and credits and explain how they are
used to record business transactions
3 Identify the basic steps in the recording process
4 Explain what a journal is and how it helps in the
recording process
5 Explain what a ledger is and how it helps in the
recording process
6 Explain what posting is and how it helps in the
recording process
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
3
THE RECORDING PROCESS
1 Analyze each transaction (+, -)
2 Enter transaction in a journal
3 Transfer journal information to
ledger accounts
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
4
THE JOURNAL
Transactions
Are initially recorded in chronological order
before they are transferred to the ledger
accounts.
Steps in journal;
o
o
o
o
Spaces for dates
Account titles and explanations
References
Two amount columns
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
5
THE JOURNAL
A journal makes several contributions to recording
process:
1 discloses in one place the complete effect of a
transaction
2 provides a chronological record of transactions
3 helps to prevent or locate errors as debit and credit
amounts for each entry can be compared
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
6
JOURNALIZING
• Entering transaction data in the journal is
known as journalizing.
• Separate journal entries are made for each
transaction.
• A complete entry consists of:
1 the date of the transaction,
2 the accounts and amounts to be debited and
credited,
3 a brief explanation of transaction.
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
7
EXPANDED BASIC EQUATION &
RULES OF DEBIT (Dr) /CREDIT (Cr) & EFFECTS
Assets
= Liabilities +
Assets
Liabilities
Dr.
+
Cr.
-
=
Dr.
-
+
Cr.
+
Owner’s Equity
Owner’s
Capital
Dr.
-
+
Cr.
+
Revenues
Dr.
-
-
Cr.
+
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Owner’s
Drawing
Dr.
+
-
Cr.
-
Expense
s
Dr. Cr.
+
8
TECHNIQUE OF JOURNALIZING
The date of the transaction is entered into the date
column.
J1
GENERAL JOURNAL
Date
2005
Sept. 1
1
Account Titles and Explanation
Ref.
Debit
Cash
R. Neal, Capital
(Invested cash in business)
15,000
Computer Equipment
Cash
(Purchased equipment for
cash)
7,000
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Credit
15,000
7,000
9
TECHNIQUE OF JOURNALIZING
The debit account title is entered at the extreme left
margin of the Account Titles and Explanation column. The
credit account title is indented on the next line.
J1
GENERAL JOURNAL
Date
2005
Sept. 1
1
Account Titles and Explanation
Ref.
Debit
Cash
R. Neal, Capital
(Invested cash in business)
15,000
Computer Equipment
Cash
(Purchased equipment for
cash)
7,000
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Credit
15,000
7,000
10
TECHNIQUE OF JOURNALIZING
The amounts for the debits are recorded in the Debit
column and the amounts for the credits are recorded in
the Credit column.
J1
GENERAL JOURNAL
Date
2005
Sept. 1
Account Titles and Explanation
Cash
R. Neal, Capital
(Invested cash in business)
1 Computer Equipment
Cash
(Purchased equipment for
cash)
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Ref.
Debit
Credit
15,000
15,000
7,000
7,000
11
TECHNIQUE OF JOURNALIZING
A brief explanation of the transaction is given.
J1
GENERAL JOURNAL
Date
2005
Sept. 1
Account Titles and Explanation
Cash
R. Neal, Capital
(Invested cash in business)
1 Computer Equipment
Cash
(Purchased equipment for
cash)
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Ref.
Debit
Credit
15,000
15,000
7,000
7,000
12
TECHNIQUE OF JOURNALIZING
A space is left between journal entries. The blank space
separates individual journal entries and makes the
entire journal easier to read.
J1
GENERAL JOURNAL
Date
2005
Sept. 1
1
Account Titles and Explanation
Ref.
Debit
Cash
R. Neal, Capital
(Invested cash in business)
15,000
Computer Equipment
Cash
(Purchased equipment for
cash)
7,000
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Credit
15,000
7,000
13
TECHNIQUE OF JOURNALIZING
The column entitled Ref. is left blank at the time journal
entry is made and is used later when the journal entries
are transferred to the ledger accounts.
J1
GENERAL JOURNAL
Date
2005
Sept. 1
Account Titles and Explanation
Ref.
Debit
Cash
R. Neal, Capital
(Invested cash in business)
15,000
1 Computer Equipment
Cash
(Purchased equipment for
cash)
Dr Masharique Ahmad Asst. Prof, Deptt. of
7,000
Accounting, CBAK
Credit
15,000
7,000
14
THE ACCOUNT OR THE LEDGER
An account is an individual accounting recording of
increase and decrease in a specific asset, liability,
expenses revenue, or owner’s equity item.
A Group of accounts maintained by a company is called the ledger.
There are separate accounts for the items we used in
transactions such as Cash, Salaries Expense, Sales Purchase
etc.
A ledger contains all the assets, liabilities, and owner’s
equity, cash, salaries accounts
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
15
BASIC FORM OF ACCOUNT
STUDY OBJECTIVE 2
• The simplest form an account consists of
 The title of the account
 Left or debit side
 Right or credit side
• The alignment of these parts resembles the letter T = T
account
Title of Account
Left or debit side
Right or credit side
Debit balance
Credit balance
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
16
DEBITS AND CREDITS




Debit indicates left and Credit indicates right
Recording SR. on the left side of an account is debiting (Dr) the account
Recording SR. on the right side is crediting (Cr) the account
If the total of debit amounts is bigger than credits, the account has a debit
balance
 If the total of credit amounts is bigger than debits, the account has a
credit balance
Balance of Accounts:
Either will be; Dr OR Cr
Debit (Dr) = Excess of DEBIT balance over CREDIT balance,
Gives Debit Balance of the concern accounts.
Example; Debit ˃ Credit = Debit (Dr) Balance
Credit (Cr) = Excess of CREDIT balance over DEBIT balance,
Gives Credit balance of the concern accounts.
Example; Credit ˃ Debit = Credit (Cr) Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
17
DOUBLE-ENTRY SYSTEM
• Equal debits and credits made accounts
for each transaction
• Total debits always equal the total
credits
• Accounting equation always stays in
balance
Assets
Liabilities
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Equity
18
DEBIT AND CREDIT EFFECTS —
ASSETS AND LIABILITIES
Debits
Increase assets
Decrease liabilities
Credits
Decrease assets
Increase liabilities
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
19
NORMAL BALANCES — ASSETS
AND LIABILITIES
Assets
Increase
Debit
Decrease
Credit
•Normal
Balance
Liabilities
Decrease Increase
Debit
Credit
Normal
Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
20
DEBIT AND CREDIT EFFECTS —
OWNER’S CAPITAL
Debits
Decrease owner’s capital
Credits
Increase owner’s capital
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
21
NORMAL BALANCE — OWNER’S
CAPITAL
Owner’s Capital
Decrease
Debit
Increase
Credit
Normal
Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
22
DEBIT AND CREDIT EFFECTS —
OWNER’S DRAWING
Debits
Increase owner’s drawing
Credits
Decrease owner’s
drawing
Remember, Drawing is a contra-account – an account that is
backwards from the account it accompanies (the Capital
account).
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
23
NORMAL BALANCE — OWNER’S
DRAWING
Owner’s Drawing
Increase
Debit
Normal
Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Decrease
Credit
24
DEBIT AND CREDIT EFFECTS —
REVENUES AND EXPENSES
Debits
Decrease revenues
Increase expenses
Credits
Increase revenues
Decrease expenses
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
25
NORMAL BALANCES —
REVENUES AND EXPENSES
Revenues
Decrease
Debit
Increase
Credit
Normal
Balance
Expenses
Increase
Debit
Decrease
Credit
Normal
Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
26
POSTING A JOURNAL ENTRY
J1
GENERAL JOURNAL
Date
Account Titles and Explanation
2005
Sept. 1 Cash
R. Neal, Capital
(invested cash in business)
Ref.
10
25
Debit
Credit
15,000
15,000
GENERAL LEDGER
CASH
Date
2005
Sept. 1
Explanation
Ref.
NO. 10
Debit
J1 15,000
R. NEAL, CAPITAL
Date
2005
Sept. 1
Credit Balance
Explanation
Ref.
J1
Debit
15,000
NO. 25
Credit Balance
15,000
In the ledger, enter in the appropriate
columns of the account(s) debited the
Dr Masharique Ahmad Asst. Prof, Deptt. of
date, journal page, and debit amount
shownCBAK
in the journal.
Accounting,
15,000
27
POSTING A JOURNAL ENTRY
J1
GENERAL JOURNAL
Date
Account Titles and Explanation
2005
Sept. 1 Cash
R. Neal, Capital
(invested cash in business)
Ref.
10
25
Debit
Credit
15,000
15,000
GENERAL LEDGER
CASH
Date
2005
Sept. 1
Explanation
Ref.
NO. 10
Debit
Credit Balance
J1 15,000
15,000
NO. 25
R. NEAL, CAPITAL
Date
2005
Sept. 1
Explanation
Ref.
J1
Debit
Credit Balance
15,000
In the reference column
of theAhmad
journal,
write
Dr Masharique
Asst. Prof,
Deptt.the
of account number to
which the debit amount wasAccounting,
posted.CBAK
15,000
28
POSTING A JOURNAL ENTRY
J1
GENERAL JOURNAL
Account Titles and Explanation
Date
2005
Sept. 1 Cash
R. Neal, Capital
(invested cash in business)
Ref.
Debit
Credit
10 15,000
15,000
25
GENERAL LEDGER
CASH
Date
2005
Sept. 1
Explanation
NO. 10
Ref.
J1
Debit
Credit
Balance
15,000
15,000
Debit
NO. 25
Balance
R. NEAL, CAPITAL
Date
2005
Sept. 1
Explanation
Ref.
J1
Credit
15,000
In the ledger, enter in the appropriate columns
of the account(s)
credited
the date,
Dr Masharique
Ahmad Asst.
Prof, Deptt.
of journal page, and credit amount
shown in the journal.
Accounting, CBAK
15,000
29
POSTING A JOURNAL ENTRY
J1
GENERAL JOURNAL
Date
Account Titles and Explanation
2005
Sept. 1 Cash
R. Neal, Capital
(invested cash in business)
Ref.
10
25
Debit
Credit
15,000
15,000
GENERAL LEDGER
CASH
Date
2005
Sept. 1
Explanation
Ref.
J1
Debit
15,000
R. NEAL, CAPITAL
Date
2005
Sept. 1
Explanation
Ref.
J1
Credit
Debit
NO. 10
Balance
15,000
NO. 25
Credit Balance
15,000
Dr Masharique
Ahmad
Prof,number
Deptt. ofto which the credit amount
In the reference column of the
journal, write
the Asst.
account
was posted.
Accounting, CBAK
15,000
30
PAYMENT OF MONTHLY
RENT
Transaction
Basic
Analysis
Debit-Credit
Analysis
October 3, office rent for October is paid in cash,
SR.900.
The expense Rent is increased SR.900
Payment pertains only to the current month
Asset Cash is decreased SR.900.
Debits increase expenses: debit Rent Expense
SR.900. Credits decrease assets: credit Cash
SR.900.
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
31
PAYMENT FOR INSURANCE
Transaction
October 4, SR.600 Paid one-year insurance policyexpires next year on September 30.
-Asset Prepaid Insurance increases SR.600
-Payment extends to more than the current month
Basic
Analysis
Debit-Credit
Analysis
-Asset Cash is decreased SR.600.
-Payments of expenses benefiting more than one
period are prepaid expenses or prepayments.
Debits increase assets: debit Prepaid Insurance
SR.600. Credits decrease assets:credit Cash
Dr
Masharique Ahmad Asst. Prof, Deptt. of
SR.600.
Accounting, CBAK
32
WITHDRAWAL OF CASH BY OWNER
Transaction
Basic
Analysis
Debit-Credit
Analysis
October 20, C. R. Byrd withdraws SR.500 cash
for personal use.
The owner’s equity account C. R. Byrd, Drawing is
increased SR.500.
The asset Cash is decreased SR.500.
Debits increase drawings: debit C. R. Byrd,
Drawing SR.500. Credits decrease assets:
credit Cash SR.500.
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
33
WITHDRAWAL OF CASH BY OWNER
JOURNAL ENTRY
Date
Oct. 20
Account Titles and Explanation
C. R. Byrd, Drawing
Cash
(Withdrew cash for personal
use)
Ref.
306
101
Debit Credit
500
500
POSTING
Oct. 1
2
Cash
10,000 Oct. 3
1,200
4
20
101
900
600
500
C. R. Byrd, Drawing
Oct. 20
500
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
306
34
PAYMENT OF SALARIES
Transaction
Basic
Analysis
Debit-Credit
Analysis
October 26, employee salaries of SR.4,000 are
owed and paid in cash. (See October 9
transaction.)
The expense account Salaries Expense is increased
SR.4,000; the asset Cash is decreased SR.4,000.
Debits increase expenses: debit Salaries Expense
SR.4,000. Credits decrease assets: credit Cash
SR.4,000.
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
35
PAYMENT OF SALARIES
JOURNAL ENTRY
Date
Oct. 26
Account Titles and Explanation
Salaries Expense
Cash
(Paid salaries to date)
Ref.
726
101
Debit Credit
4,000
4,000
POSTING
Oct. 1
2
Cash
10,000 Oct. 3
1,200
4
20
26
101
900
600
500
4,000
Salaries Expense
Oct. 26
4,000
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
726
36
RECEIPT OF CASH FOR FEES
EARNED
Transaction
October 31, received SR.10,000 in cash from
Copa Company for advertising services
rendered in October.
Basic
Analysis
The asset Cash is increased SR.10,000; the
revenue Fees Earned is increased SR.10,000.
Debit-Credit
Analysis
Debits increase assets: debit Cash SR.10,000.
Credits increase revenues: credit Fees Earned
SR.10,000.
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
37
RECEIPT OF CASH FOR FEES
EARNED
JOURNAL ENTRY
Date
Oct. 31
Account Titles and Explanation
Cash
Fees Earned
(Received cash for fees
earned)
Ref.
101
400
Debit Credit
10,000
10,000
POSTING
Oct. 1
2
31
Cash
10,000 Oct. 3
1,200
4
10,000
20
26
101
900
600
500
4,000
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Fees Earned
Oct. 31
400
10,000
38
Practical Problems
: Journalise the following transactions:
On September 1, Mr.Fahad invested SR.15,000 cash in the business, and Soft byte purchased
computer equipment for SR.7,000 cash.
Solution:
General Journal
Account Titles and Explanation
Date
2008
Sept. 1
1
Cash
Ref.
Debit
15000
Fahad , Capital
(Owner’s investment of cash in business)
Computer Equipment
Cash
(Purchase of equipment for cash)
Credit
15000
7000
7000
on July 1, Butler Company purchases a delivery truck costing SR.14,000. It pays
SR.8,000 cash now and agrees to pay the remaining SR.6,000 on account (to be
paid later). Make a compound entry for the above transactions.
Solution:
General Journal
Date
2008
July 1
Account Titles and
Explanation
Delivery
Equipment
Cash
Accounts Payable
Ref.
Debit
Credit
14,000
8,000
6,000
(Purchased truck for cash
with balance on account)
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
40
Kashif engaged in the following activities in establishing his salon, Hair It Is:
1. Opened a bank account in the name of Hair It Is and deposited SR.20,000 of her own
money in this account as her initial investment.
2. Purchased equipment on account (to be paid in 30 days) for a total cost of
SR.4,800.
Prepare the entries to record the transactions.
Solution:
General Journal
Date
1
2
Account Titles and Explanation
Ref.
Debit
Cash
Kashif, Capital
(Owner’s investment of cash in business)
20,000
Equipment
Accounts Payable
(Purchase of equipment on account
4,800
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Credit
20,000
4,800
41
On October 1, C. R. Byrd invests SR.10,000 cash in an advertising company called Pioneer
Advertising Agency. Make Journal entry of this transaction and post it in the ledger.
Solution:
Journal Entry
Oct 1 Cash
C. R. Byrd, Capital
(Owner’s investment of
cash in business
101
301
10,000
10,000
Posting
Cash
CR.Byrd Capital
Oct.1 10,000
Oct.1 10.000
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
42
On October 2, Pioneer receives a SR.1,200 cash advance from R. Knox, a client, for
advertising services that are expected to be completed by December 31.
Oct 2
Cash
101
Unearned Revenue
209
(Received cash from R. Knox for future
service)
Cash
Oct 2
1,200
1,200
Unearned Revenue
1,200
Oct 2
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
1,200
43
On October 3, Pioneer pays office rent for October in cash, SR.900.
On October 4, Pioneer pays SR.600 for a one-year insurance policy that will expire next
year on September 30.
Make Journal entries of above transactions and post then into ledger.
Solution:
Journal Entries
Date
Oct 3
Oct 4
Account Titles and Explanation
Rent Expense
Cash
(Paid October rent)
Prepaid Insurance
Cash
(Paid one-year policy;effective date
October 1)
Ref.
Debit
729
101
900
130
101
600
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
Credit
900
600
44
Cash
Rent Expense
Oct 3
Oct 4
900
600
Oct 3
900
Prepaid Insurance
Oct 4
600
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
45
Which one of the following represents the expanded basic
accounting equation?
– Assets = Liabilities + Owner’s Capital + Owner’s
Drawings – Revenue - Expenses.
– Assets + Owner’s Drawings + Expenses =
Liabilities + Owner’s Capital + Revenue.
– Assets – Liabilities – Owner’s Drawings =
Owner’s Capital + Revenue – Expenses.
– Assets = Revenue + Expenses – Liabilities.
Deptt. of Accounting, CBAK
46
HOME ASSIGNMENT - 3
Mr. Bob opened a shop on September 1, 2010. During the first month of operations
the following transactions occurred.
Sept. 1 Invested SR.20,000 cash in the business.
2 Paid SR.1,000 cash for store rent for September.
3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and
signing a SR.15,000, 6-month, 12% note payable.
4 Paid SR.1,200 for a one-year accident insurance policy.
10 Received a bill from the Daily News for advertising the opening of the
Laundromat SR.200.
20 Withdrew SR.700 cash for personal use.
30 Determined that cash receipts for laundry services for the month were SR.6,200.
30 Instructions
(a) Journalize the September transactions. (Use J1 for the journal page number.)
(b) Open ledger accounts and post the September transactions
Dr Masharique Ahmad Asst. Prof, Deptt. of
Accounting, CBAK
47