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. 3-3
 The Accounting Cycle

 Accounting is the process that...

– analyzes,
– records,
– classifies,
– summarizes,
– reports, and...
– interprets.
3-4
 The Accounting Cycle

A sole proprietorship:
– has one owner
– begins with a monthly accounting cycle
– owner has a capital and withdrawals
account

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 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 Less than One Year

Calendar year Quarterly
Fiscal year 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.

3 - 10
 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

3 - 11
 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.

3 - 12
 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

3 - 13
 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. 3 - 17
 Learning Unit 3-2
Posting
Account: Cash Account: 1000
Balance
Date ref. debit credit debit credit
June 1 jr1 5,000 5,000

Insert the number of the journal page.

3 - 18
 Example

Journal Page 1
Date Account and
Explanation Post Ref. debit credit
June 1 Cash 1000 5,000
Clara J. Capital 3010 5,000
Initial investment

3 - 19
 Example

Journal Page 1
Date Account and
Explanation Post Ref. debit credit
July 3 Phone Expense 5040 155
Accounts Payable 2000 155
Paid phone bill

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 Example

Journal Page 1
Date Account and
Explanation Post Ref. debit credit
July 6 Insurance Expense 5060 150
Cash 1000 150
Paid insurance bill

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 Example

Journal Page 1
Date Account and
Explanation Post Ref. debit credit
July 8 Accounts Payable 2000 200
Cash 1000 200
Paid Accounts Payable

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 Example

Journal Page 1
Date Account and
Explanation Post Ref. debit credit
July 8 Accounts Receivable 1020 850
Service Revenue 4000 850
Performed Services

3 - 23
 Learning Objective 3

Preparing a trial balance.

3 - 24
 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.

3 - 25
 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.

3 - 26
 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.

3 - 27
End of Chapter 3

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