COURSE
:
ACC 232 - FINANCIAL ACCOUNTING I
CREDIT HOURS
:
3 CREDITS
SEMESTER/SESSION
:
2nd SEMESTER, 2024/2025 SESSION
PREPARED BY
:
ZEQUEL MICHAEL
STUDENT ID
:
998474209
REFERENCE
:
FINANCIAL ACCOUNTING by CHRISTINE JONICK, ED.D.
ACCOUNTING CYCLE FOR THE SERVICE BUSINESS – CASH BASIS
Financial events are assessed and translated into accounting terminology through the
process of journalizing. Begin by selecting two accounts and, using the rules of debits and
credits for cash, revenue, and expense accounts, determine which account will be debited
(recorded in the left column) and which will be credited (recorded in the right column).
Remember, the debit entry is always listed first, and there is no need to include dollar signs in
the journal.
The steps for journalizing are as follows:
1. Identify two (or more) accounts that are affected by a transaction.
2. Ascertain the dollar amounts for each account involved. These amounts may be
provided, or you may need to calculate them based on the information available.
3. Apply the rules of debit and credit to decide which account(s) to debit and which
to credit.
4. Record the date on the first line of the transaction only.
5. Write the name of the account being debited on the first line and indicate the
amount in the Debit column.
6. On the second line, write the name of the account being credited and enter its
amount in the Credit column. Remember to indent the credit account name by
three spaces.
Ledger
The ledger serves as the second accounting record, providing a comprehensive list of a
company's individual accounts organized by category. While the journal captures all
transactions chronologically, the ledger categorizes this information by account and maintains
a running balance for each one.
Each account has its own dedicated ledger page, with the account name displayed at
the top. The ledger format includes six columns: Date, Item, Debit, Credit, Debit, and Credit.
The first pair of Debit and Credit columns is used to transfer amounts from the journal
transactions, while the second pair is reserved for tracking the account’s running total.
Typically, the running balance for an account appears in either the Debit or the Credit column,
but not in both.
COURSE
:
ACC 232 - FINANCIAL ACCOUNTING I
CREDIT HOURS
:
3 CREDITS
SEMESTER/SESSION
:
2nd SEMESTER, 2024/2025 SESSION
PREPARED BY
:
ZEQUEL MICHAEL
STUDENT ID
:
998474209
REFERENCE
:
FINANCIAL ACCOUNTING by CHRISTINE JONICK, ED.D.
Posting
The act of transferring information from the journal to the ledger is referred to as
posting. This process is carried out line by line from the journal. Below are the detailed steps
to guide you through this procedure:
1. Begin by identifying the account name on the first line of the journal, and locate
the corresponding account in the ledger.
2. Next, transcribe the date from the journal to the first available row in the ledger.
3. At this stage, you may leave the Item column in the ledger blank.
4. Pay attention to the amount listed on the first line of the journal and note which
column it occupies.
5. Transfer this amount to the same column in the ledger, aligning it with the row
where you recorded the date.
6. Now, it’s time to update the account's running balance. Refer to the last two
columns in the ledger to check the previous balance, if available. Based on the
situation, proceed with one of the following actions:
a. If there is no previous balance and the entry is a debit, simply enter that
amount in the Debit balance column.
b. If there is no previous balance and the entry is a credit, record the entire
amount in the Credit balance column.
c. If the previous balance is in the Debit column and you are making a debit
entry, add the two amounts together and input the total in the Debit
balance column.
d. If the previous balance is in the Debit column and you are making a
credit entry, subtract the credit amount from the existing balance and
document the result in the Debit balance column.
e. If the previous balance is in the Credit column and you are making a
credit entry, combine the two amounts and place the total in the Credit
balance column.
f. If the previous balance is in the Credit column and you are making a
debit entry, subtract the debit amount from the balance and note the
difference in the Credit balance column. By following these steps, you
can ensure accurate posting from the journal to the ledger.
The calculations mentioned earlier yield a negative number, which should not appear
in the ledgers. Instead, the balance will be displayed in the opposite balance column.Next,
return to the journal and mark an “x” or a checkmark in the PR column to indicate that you
have posted that particular line item. After that, repeat this process for the subsequent line in
the journal.
Whenever an account is recorded in the journal, the corresponding amount should be
transferred to the appropriate column in that account's ledger. Each account maintains a running
total that is updated every time an amount is posted.
COURSE
:
ACC 232 - FINANCIAL ACCOUNTING I
CREDIT HOURS
:
3 CREDITS
SEMESTER/SESSION
:
2nd SEMESTER, 2024/2025 SESSION
PREPARED BY
:
ZEQUEL MICHAEL
STUDENT ID
:
998474209
REFERENCE
:
FINANCIAL ACCOUNTING by CHRISTINE JONICK, ED.D.
The following example illustrates a journal containing five transactions that involve
Cash. For every row in which Cash is listed in the journal, the corresponding amount is
recorded in the same column of the Cash ledger, either in the first Debit or the first Credit
column. Superscripts are used to link each Cash amount in the journal to its respective entry in
the ledger. For instance, the first debit of $6,000 for Cash in the journal is copied into the
ledger's debit column. The next appearance of Cash in the journal is a credit for $2,000, which
is consequently recorded in the first credit column of the ledger.
Normal Balance
The last two columns in the ledger—Debit and Credit—serve as the space for
maintaining each account's running total or balance. An account’s running balance will
accumulate in either the Debit balance column or the Credit balance column (located at the far
right), although it is uncommon for both to reflect a balance simultaneously. The "normal
balance" for an account corresponds to the type of entry that would typically increase its
balance, whether Debit or Credit. This normal balance indicates where the running total for
that account is recorded.
Following this text, you will find an example of a journal and ledgers. Pay attention to
how the numbers from the journal (on the left) translate into the ledgers (on the right) and how
the running balances in the ledgers are calculated.
The first entry made in each ledger—whether it be Debit or Credit—determines the
column in which the running balance will be recorded. If the first entry is a Debit, the
subsequent running balance will accumulate in the Debit balance column. A debit serves as the
"positive" for that type of account; consequently, any following debit entries are added, while
credit entries are subtracted from this balance. Conversely, if the first entry is a Credit, the
running balance will accumulate in the Credit balance column. Here, a credit acts as the
"positive," meaning that subsequent credit entries are added while debit entries are deducted
from the balance.
The grayed-out column in each ledger represents the balance column that typically
remains empty.It is important to note that the total of all Debit balances in the ledgers must
equal the total of all Credit balances. If there is a discrepancy, it indicates a recording error that
needs to be identified and rectified. For instance, in the example provided, the ledgers balance
as follows: 3,000 (Debit balances) + 900 (Debit balances) = 3,900 (Credit balance).
These ledgers continue across accounting periods, meaning you do not create new
ledgers for each new month or year; instead, you carry them forward.In summary, the journal
serves as the chronological record of all types of transactions in order of occurrence, while the
ledgers categorize this information by individual accounts and maintain a balance for each
account. If there is an error in the journal, it should be systematically reflected in the ledgers
and subsequently in the financial statements.
Trial Balance
The total of all debit balances in a company's ledger must always match the total of all
credit balances. A trial balance serves as a comprehensive list of all the accounts within a
COURSE
:
ACC 232 - FINANCIAL ACCOUNTING I
CREDIT HOURS
:
3 CREDITS
SEMESTER/SESSION
:
2nd SEMESTER, 2024/2025 SESSION
PREPARED BY
:
ZEQUEL MICHAEL
STUDENT ID
:
998474209
REFERENCE
:
FINANCIAL ACCOUNTING by CHRISTINE JONICK, ED.D.
business, along with their current ledger balances, which are transcribed from the ledger
accounts. This document can be prepared at any time to verify that total debits equal total
credits. Essentially, it functions as a worksheet to ensure accuracy before finalizing financial
statements. If the totals in both columns do not align, it indicates that there is an error that needs
to be identified and rectified.
The following example illustrates a company with only four accounts. The trial balance
on the left displays these accounts along with their respective balances at the end of the month,
which are taken directly from the ledgers on the right.
