Books of Account
Journal – is the book where transactions are initially recorded in systematic order that is why it is called the “book of original entry”. The process of recording a transaction in the journal is called journalizing.
Procedures for recording journal entries
1. Analyze the business transactions.
2. Write the date of the entry in the date column.
3. Record the debit part of the entry.
4. Record the credit part of the entry.
5. Provide a brief description of the transaction to explain the journal entry made.
Ledger- a group of accounts. A general ledger contains the entire set of accounts used by a business. Each account has an individual record in the ledger. It is in this individual record that we summarize all the effects of business transaction affecting each and every account. Posting is the process of transferring the entries from the journal to the accounts in a ledger. If the account title is debited in the journal, the posting will be on the debit side of the account.
Procedures for posting journal entries
1. Locate the account title in the ledger using the account number as provided by the chart of accounts.
2. Write the date of the journal entry in the date column of the ledger.
3. Write in the post reference (PR) column the page of the journal where the journal entry came from.
4. Transfer the debit amount from the journal entry to the debit amount per ledger, and the credit amount per journal entry to the credit column per ledger.
5. Enter the account number in the post reference column of the journal the account number to which the amount was posted.
The Chart of Accounts
Chart of Accounts – is a list of all the accounts of the business and their respective account numbers. The accounts are arranged in the following order: Assets, Liabilities, Equity, Income and Expenses. Usually, asset accounts are numbered starting with 1, liabilities starting with 2, equity starting with 3, revenue starting with 4, and expenses starting with 5.
An example of a chart of accounts is provided below:
Chart of Accounts
Accounts Receivable 102
Office Supplies 103
Printing Equipments 104
Accounts Payable 201
Dela Cruz, Capital 301
Service Income 401
Utilities Expense 501
Repairs Expense 502
Salaries Expense 503
The Trial Balance
Trial Balance – is a summary of accounts with open balances. The equality of debit and credit balances in the ledger should be tested periodically by preparing trial balance.
Open account – account with a debit or credit balance.
Closed account -if the debits equal the credits.
Procedures in preparing trial balance:
1. Determine the balance of each account in the ledger. The debit and credit columns of the accounts are totaled, this process is called pencil footing.
2. List each ledger account that has a balance, with the debit balances in the left column and the credit balance in the right column. Accounts are listed in the order they appear in the ledger.
3. Add each column
4. Compare the totals of each column. Normally, the two totals are equal.
What if the Trial Balance did not balance?
1. Columns of the trial balance may be incorrectly added.
2. Amounts from the ledger may be incorrectly entered on the trial balance.
3. Balance may be entered in the wrong column of the trial balance or may be omitted.
4. Balance may be incorrectly computed in the ledger.
5. Balance is entered in the wrong column of the account in the ledger.
6. While posting, wrong amount may be posted to an account.
7. Credit is posted as debit.
8. Debit or credit posting may be omitted.
Errors that will not result to an unequal trial balance
1. Recording the same transaction more than once.
2. Failure to journalize a transaction.
3. Failure to post a transaction.
4. Posting a part of transaction correctly as a debit or credit but to the wrong account title.
5. Recording the same transaction whose debit and credit amounts are erroneous more than once.
Other Types of errors:
Transposition – occurs when the order of the digits is changed mistakenly. Example 914 is written as 941.
Slide – the entire number is erroneously moved one or more spaces to the rightor to the left. Example, P914.00 as P91.40 or P9,140.00
Working Back Method
The working back method proves effective in locating the error. If an error is not revealed by the trial balance, then the best approach is to work back. This means that you start rechecking the correctness of the accounting procedures you performed in reverse chronological order that is start with the trial balance and work backwards the entries in the journal.