Journalizing Transactions and Trial Balance: Study Notes
Journalizing Transactions and Trial Balance: Comprehensive Notes
The goal of journalizing is to record business transactions in a journal, the book of original entry where each transaction is recorded for the first time.
A journal entry records a transaction with at least one debit and one credit account.
Simple journal entry: exactly one debit and one credit.
Compound journal entry: multiple debits and/or credits (e.g., one debit with two or more credits; or two or more debits with one credit; or two or more debits with two or more credits).
A journal entry captures the economic events of the business and provides a chronological record of all transactions.
Need for the Journal
To provide a complete, chronological record of each transaction in one place, consolidating the debits and credits.
To help trace debits and credits when errors are suspected, enabling error detection and correction.
Entries for Specific Transactions (Illustrative Examples)
Investment by the owner
Concept: Owner invests cash to start the business.
Journal entry (from the business perspective):
Debit Cash; Credit Owner’s Capital.
Example: If the owner invests P100,000, record as:
Debit Cash ${100{,}000}$
Credit Cruz, Capital ${100{,}000}$
Withdrawal by the Owner
Concept: Owner withdraws cash or assets for personal use. Reduces owner’s equity.
Example: If the owner withdraws P3,000, record as:
Debit Cruz, Withdrawals ${3{,}000}$
Credit Cash ${3{,}000}$
If non-cash assets are withdrawn, credit the appropriate asset account instead of Cash.
Purchase of non-merchandise assets (assets used in operation)
Acquisition can be:
Cash basis: cash paid at purchase.
On account: liability created (Accounts Payable).
By issuing a promissory note: liability created (Notes Payable).
Combinations: multiple credits (e.g., cash, notes payable, accounts payable).
Examples:
Acquisition on cash basis: Debit Equipment (or Office Equipment); Credit Cash.
Acquisition on account: Debit Asset; Credit Accounts Payable.
Issuance of a promissory note: Debit Asset; Credit Notes Payable.
Down payment + note + balance on account: Debits to Asset; Credits to Cash, Notes Payable, and Accounts Payable as applicable.
Payment of expenses
Expenses are costs of operating the business (e.g., rent, salaries, utilities).
Two methods to record expense payments:
Expense method (nominal method): Debit the expense account when paid.
Asset method (prepaid method): Debit Prepaid/Prepaid Rent; credit Cash.
Example: Paying rent of P2,000.
Expense method: Debit Rent Expense ${2{,}000}$; Credit Cash ${2{,}000}$
Collection of income
Income from services rendered or other sources.
Example: Receiving payment for services rendered:
Debit Cash; Credit Consulting Revenues or Service Revenue.
Interest-bearing notes
At maturity, the maker pays the maturity value: Principal + Interest.
Interest calculation (simple interest):
Example: If a note of P5,000, 60 days, 6% is issued, interest = .
Maturity value:
Non-interest bearing notes
On maturity, the principal is paid; the interest is implicit in the reduced cash received at maturity. The analysis involves recognizing the principal and any implied interest separately if needed.
Collection of accounts (receivables)
When cash is collected on account, recognize cash receipt and cancel the right to collect.
Example: If on Feb 20 the client pays the full amount, Debit Cash; Credit Accounts Receivable.
Posting to the Ledger and Trial Balance Preparation
General Ledger
A complete record of daily business transactions; transfers from the journal to individual accounts in the ledger.
The ledger shows changes in each account over time and enables the calculation of each account balance.
The collection of all ledger accounts is the General Ledger (the book of final entry).
Subsidiary Ledger
Some accounts (e.g., Accounts Payable, Accounts Receivable) have many sub-ledger accounts (one per creditor or customer).
Purpose: to provide detailed information for management without cluttering the general ledger.
Common subsidiary ledgers: Accounts Receivable Ledger, Accounts Payable Ledger; other examples include Notes Receivable Ledger, Notes Payable Ledger, Expense Ledger.
T-Accounts (visual tool)
Used in teaching and understanding double-entry bookkeeping.
Structure: a “T” with the debit side on the left and the credit side on the right.
Helps visualize how a transaction affects each account.
Getting the Balance of the Accounts (Footing and Balances)
Footing: determine the totals of each column (debits and credits) in the ledger for an individual account.
Steps to get balances for an account: 1) Add the debits; place the total under the last debit posting. 2) Add the credits; place the total under the last credit posting. 3) Compute the difference between debit total and credit total.
If the debit total exceeds the credit total, the difference goes on the debit side.
If the credit total exceeds the debit total, the difference goes on the credit side.
Normal Balances of Accounts
Normal balance is the side of the account (debit or credit) on which increases are recorded.
Asset accounts: increases are debits → normal debit balance.
Liability and Capital accounts: increases are credits → normal credit balance.
Revenues: increases are credits (normal credit balance).
Expenses: increases are debits (normal debit balance).
Trial Balance
In double-entry bookkeeping, debits must equal credits after posting:
The trial balance is a listing of all general ledger balances at a given date.
Types:
Trial Balance of Balances: shows the balance (debit or credit) for each account.
Trial Balance of Totals: shows the total debits and total credits for all accounts (useful to check equality).
Observations for preparing a trial balance: 1) Heading: include business name, statement name, and date.
Example heading: Triple “J” REPAIR SHOP — Trial Balance — July 31, 2025
2) Copy accounts from the general ledger with their balances into two money columns: Debit and Credit.
3) Total both columns; they must be equal. A double rule across the money columns indicates completion.
Preparation of the Trial Balance (ALCRE Sequence)
ALCR E sequence (Assets, Liabilities, Capital, Revenues, Expenses) guides the arrangement of accounts on the trial balance for readability and consistency.
Problem 1: Practice Transactions and T-Accounts (Summary of Approach)
Given a set of 16 transactions (a–p) involving cash, accounts receivable, office furniture, office equipment, accounts payable, owner’s capital, withdrawals, consulting revenues, salaries expense, rent expense, utilities expense.
Accounts to use: Cash; Accounts Receivable; Office Furniture; Office Equipment; Accounts Payable; Cruz, Capital; Cruz, Withdrawals; Consulting Revenues; Salaries Expense; Rent Expense; Utilities Expense; Miscellaneous Expense.
Steps to complete:
Record each transaction in the appropriate T-accounts with debits and credits.
Compute the ending balance for each account.
Example summary of final balances (after posting all 16 transactions):
Cash: Debit balance ${51{,}150}$
Accounts Receivable: Debit balance ${15{,}400}$
Office Furniture: Debit balance ${15{,}000}$
Office Equipment: Debit balance ${61{,}500}$
Accounts Payable: Credit balance ${27{,}000}$
Cruz, Capital: Credit balance ${100{,}000}$
Cruz, Withdrawals: Debit balance ${7{,}000}$
Consulting Revenues: Credit balance ${41{,}800}$
Salaries Expense: Debit balance ${10{,}000}$
Rent Expense: Debit balance ${5{,}000}$
Utilities Expense: Debit balance ${3{,}750}$
Verification of the double-entry balance:
Total Debits = Total Credits = ${168{,}800}$
(Detailed breakdown comes from summing each side as shown above.)
Problem 2: Practice Transactions and T-Accounts (Summary of Approach)
Given a second set of transactions for Ella Tan, Systems Consultant, including investments, rent, furniture, cash and credit service revenues, equipment purchases, accounts payable, collections, and withdrawals.
Accounts to use: Cash; Accounts Receivable; Office Furniture; Office Equipment; Accounts Payable; Tan, Capital; Tan, Withdrawals; Consulting Revenues; Salaries Expense; Rent Expense; Utilities Expense; Miscellaneous Expense.
Steps to complete:
Record each transaction in the T-accounts with debits and credits.
Compute the ending balance for each account.
Example summary of final balances (as posted, before closing entries):
Cash: Debit balance ${62{,}000}$
Accounts Receivable: Debit balance ${18{,}250}$
Office Furniture: Debit balance ${34{,}000}$
Office Equipment: Debit balance ${94{,}500}$
Accounts Payable: Credit balance ${61{,}500}$
Tan, Capital: Credit balance ${150{,}000}$
Tan, Withdrawals: Debit balance ${10{,}000}$
Consulting Revenues: Credit balance ${45{,}000}$
Salaries Expense: Debit balance ${32{,}500}$
Rent Expense: Debit balance ${7{,}500}$
Utilities Expense: Debit balance ${4{,}750}$
Note on balances and closing:
Revenues and expenses create a net effect on equity, which, after closing entries, would flow into Tan, Capital and reflect the year-end equity position.
If you were to close Revenues and Expenses to Capital (and Close Withdrawals to Capital), the final Capital balance would reflect net income and withdrawals. For the given data, the running balance before closing shows a net income of ${250}$ and withdrawals of ${10{,}000}$, yielding an adjusted capital balance after closing of ${140{,}250}$ (subject to the specific closing method used by your course).
Important Formulas and Concepts (Recap)
Interest on a note:
Maturity value of a note:
Trial Balance validation:
Debits must equal Credits across all ledgers.
A trial balance of balances lists each account with its ending debit or credit balance.
Normal balances quick reference:
Asset accounts: Debit
Liability accounts: Credit
Owner’s capital / Equity: Credit
Revenues: Credit
Expenses: Debit
// The notes above cover the process of journalizing, posting to ledgers, understanding subsidiary ledgers, preparing a trial balance, and applying these concepts to the two practice problems included in the transcript.