Beginning the Accounting Cycle –
Journalizing, Posting,
and the Trial Balance
Chapter 3
3-1
Learning Objective 1
Journalizing: analyzing and
recording business
transactions into a journal.
3-2
The Accounting Cycle
Accounting procedures are performed over
a period of time.
 Procedures are performed in a definite order
in the accounting cycle.
 The accounting period is a period of time
covered by the income statement.
 Usually this is a twelve month period.
 The accounting cycle has sequential steps to
be performed again each year.
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3-3
The Accounting Cycle
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–
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–
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Accounting is the process that...
analyzes,
records,
classifies,
summarizes,
reports, and...
interprets.
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The Accounting Cycle
A sole proprietorship:
– has one owner
– begins with a monthly accounting cycle
– owner has a capital and withdrawals
account
3-5
Business Organizations

All three types of business entities use the
same basic accounting system.
Sole proprietorship
Partnerships
Corporations
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Recording Business Transactions
The Accounting Period
One Year
Calendar year
Fiscal year
Less than One Year
Quarterly
Monthly
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Learning Unit 3-1
The Accounting Cycle:
1 Analyzing
2 Recording transactions – journalizing
3 Posting to the ledger accounts
4 Preparing the trial balance
 The accounting cycle has some variations in
a computerized accounting system.

3-8
Learning Unit 3-1
What is the general journal?
 It is the book of original entry.
 Transactions are written in a journal in
chronological order.
 The format of the journal is important.
 Journalizing is the process of entering
information as debits and credits to the
correct accounts.
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Learning Unit 3-1
What is the general ledger?
 It is the book of final entry.
 The information from the journal is
transferred to the ledger in the posting
process.
 Debits and credits in the journal remain
exactly the same when posted to the
accounts in the ledger.
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Learning Unit 3-1
What is the chart of accounts?
 It is the list of accounts used by a business.
 Each business entity has its unique chart
of accounts.
 Every chart of accounts has the same
numbered account categories:
– Assets, Liabilities, Owner’s Equity
– Revenues, Expenses
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Learning Unit 3-1
Journalizing
 Debits are always recorded first.
 Indent, then record the credit below the
debit.
 A short explanation is included on the
second line.
 Leave a space between journal entries.
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Learning Unit 3-1
Debits must always equal credits.
 Amounts incurred for items that benefit
future accounting periods are recorded as
assets.
 What are some examples?
– prepaid rent
– prepaid insurance

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Learning Unit 3-1
Amounts for items used (expenses incurred)
in the current accounting period are
recorded as expenses.
 What are some examples?
– supplies used
– rent for the month
– expired insurance

3 - 14
Learning Unit 3-1
Amounts are recorded as revenue on the
date in which they are earned.
 When are revenues earned?
 When services are performed, not
necessarily when cash is paid.

3 - 15
Learning Objective 2
Posting: transferring information
from a journal to a ledger.
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Learning Unit 3-2
Posting
 All transactions are recorded in the journal,
then amounts are copied to the ledger
accounts named on the journal line.
 Once the amounts are entered into the
accounts, a posting reference (PR) must be
entered in the journal.
 New balances are computed in the running
ledger accounts.
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Learning Unit 3-2
Posting
Account: Cash
Account: 1000
Balance
Date
June 1
ref.
debit
jr1
5,000
credit
debit
credit
5,000
Insert the number of the journal page.
3 - 18
Example
Journal
Account and
Explanation
June 1 Cash
Clara J. Capital
Initial investment
Page 1
Date
Post Ref. debit
1000
5,000
3010
credit
5,000
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Example
Journal
Account and
Explanation
July 3 Phone Expense
Accounts Payable
Paid phone bill
Page 1
Date
Post Ref. debit
5040
155
2000
credit
155
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Example
Journal
Account and
Explanation
July 6 Insurance Expense
Cash
Page 1
Date
Post Ref. debit
5060
150
1000
credit
150
Paid insurance bill
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Example
Journal
Page 1
Date
Account and
Explanation
Post Ref. debit
July 8 Accounts Payable
2000
200
Cash
1000
Paid Accounts Payable
credit
200
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Example
Journal
Account and
Explanation
July 8 Accounts Receivable
Service Revenue
Performed Services
Page 1
Date
Post Ref. debit
1020
850
4000
credit
850
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Learning Objective 3
Preparing a trial balance.
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Learning Unit 3-3
Preparing the Trial Balance
 The trial balance lists the accounts that have
balances in the same order as they appear in
the chart of accounts.
 The trial balance will show if debits/credits
have been interchanged, or if amounts have
been transposed, or if a debit/credit was
omitted or recorded twice.
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Learning Unit 3-3
Some errors do not show, such as omissions
or recording to the wrong account.
 Corrections before posting are made in the
journal.
 An audit trail must be left.
 Do not erase – cross out errors and enter
corrections.

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Learning Unit 3-3
What about corrections after posting?
 This means that errors are also in the ledger
accounts.
 Cross out incorrect amounts, change to
corrected amounts, and record balance
changes.

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End of Chapter 3
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