Lesson 1.

2: Journalizing, Posting, and Trial Balance Preparation

Lesson Summary
All transactions in a journal are recorded in chronological order which shows the transaction
date, name of accounts debited and credited, its corresponding amount, and a concise
explanation of each transaction. Recording of each transaction requires debit and credit entries
to be of equal amounts.
After transactions have been entered in the journal, the debits and credits from that journal are
transferred to the ledger account. While the general journal organizes transactions in
chronological order, the ledger is organized by account.
A trial balance is then created at the end of the accounting period to ensure the equality of the
debit and credit accounts. A trial balance lists all ledger accounts, with debits in the left column
and credits in the right column.

Learning Outcome
At the end of this lesson, you should be able to: (1) record transactions in the general journal
and ledger, and (2) prepare the trial balance.

Motivation Questions
Does a balanced column in a trial balance guarantee that there are no recording errors?

Discussion
Source documents serve as evidence and provide data for recording transactions. Based on
these documents, the business can determine how to record the transaction. Source
documents include cash receipts, credit card receipts, cash register tapes, supplier invoices,
purchase orders, etc.
After reviewing the source documents, transactions are recorded in a journal, a chronological
record of the entity's transactions. Amounts are then transferred to the ledger, which is termed
as posting. The ledger is the "reference book" of the accounting system and is used to
summarize transactions by account. Debits in the journal are posted as debits in the ledger and
credits as credits. The following figure shows this process:
 Date Dr Cr Cash Capital
9/1 Cash 75000 Sep 1 75000 Sep 1 75000
Capital 75000

Invested cash in the business

Information is posted
Transactions
(transferred) are recorded in the journal.
to the ledger.

Figure 1. Journalizing and posting transactions in t-accounts

The journalizing and posting process has the following steps:

Step 1: Determine the accounts and the account type (asset, liability, or equity).
Step 2: Analyze whether each account increases or decreases, and then apply the rules of
debits and credits.
Step 3: Record the transactions in the journal.
Step 4: Post the journal entry to the ledger.
Transactions in the general journal is organized in chronological order while the ledger is
organized by account.
To show you the posting of transactions in the general ledger, consider the following
transactions taken from the general journal entries:
 GENERAL JOURNAL LEDGER (T-ACCOUNTS)
Date Account Names Dr Cr
9/1 Cash 75000 Cash Accounts Receivable

Capital 75000 Sep 1 75000 Sep 15 1000 Sep 17 700 Sep 25 425
17 400 28 500
9/8 Supplies inventory 2500 25 425
Accounts payable 2500
Supplies Inventory Accounts Payable

9/15 Misc. Expense 1000 Sep 8 2500 Sep 18 275 Sep 28 500 Sep 8 2500

Cash 1000

9/17 Cash 400 Capital Revenue

Accounts Receivable 700 Sep 1 75000 Sep 17 1100

Revenue 1100

9/18 Supplies expense 275 Supplies Expense Miscellaneous Expense

Supplies inventory 275 Sep 18 275 Sep 15 1000

9/25 Cash 425

Accounts receivable 425

9/28 Accounts payable 500

Cash 500

Figure 2. Posting transactions from the general ledger

As you might notice, this process may appear redundant since the transactions are already
recorded in the general journal. However, the ledger serves an important function: it allows you
to view each account’s activity and balance at a glance.
After journalizing and posting the transactions, a trial balance can be prepared. The trial balance
summarizes the ledger by listing all the accounts with their balances. Assets are written first,
followed by liabilities, and then equity.
To prepare the trial balance, you need first to determine the balance of each ledger account, as
shown in the following example:
 LEDGER (T-ACCOUNTS) Once the account balances are computed,
the trial balance can be calculated as
shown below

Cash Accounts Receivable

Sep 1 75000 Sep 15 1000 Sep 17 700 Sep 25 425 TRIAL BALANCE
17 400 28 500
25 425 Account Title Dr Cr
Bal. 74325 Bal. 275 Cash 74325
Accts. Receivable 275
Supplies Inventory 2225
Supplies Inventory Accounts Payable Accounts Payable 2000
Sep 8 2500 Sep 18 275 Sep 28 500 Sep 8 2500 Capital 75000
Revenue 1100
Bal. 2225 Bal. 2000 Supplies expense 275
Misc. expense 1000 ____
Capital Revenue 78100 78100
Sep 1 75000 Sep 17 1100

Bal. 75000 Bal. 1100

Supplies Expense Miscellaneous Expense

Sep 18 275 Sep 15 1000

Bal. 275 Bal. 1000

Figure 3. The trial balance preparation