Journalizing, Posting, and Preparing a Trial Balance

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Okay, let's start with the problem that's gonna kinda walk us through the first couple of steps of the accounting cycle here.

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First thing we're gonna have to do is analyze transactions.

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And what you can see right now is that we have our transactions right here.

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I have some of them hidden.

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We'll get to those on the next couple of slides.

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So we have our transactions here.

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We're gonna have to analyze what's going on.

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We have our general journal, which is right here.

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I have it somewhat covered up, but you can see the date column, the accounts column, posting reference, and debits and
credits column.

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Now, when we do our journal entries, it's important to note that our debits always have to equal our credits.

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So let's keep that in mind.

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Number one thing is that our debits always have to equal our credits.

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If our debits don't equal our credits, we made a mistake.

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So when we're doing these transactions, we know we're gonna need at least one debit and one credit.

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Sometimes we can have more debits or more credits.

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As long as our debits equal our credits, that's a quick indicator that everything looks okay.

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If they don't, we definitely did something wrong.
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So I've also posted up here for you, our basic accounting equation, assets equal liabilities plus equity, remember
[UNKNOWN].

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And then, I've also broken down for you the breakdown for debits and credits.

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So remember, assets increase with the debit, hence the plus sign here.

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Assets increase with the debits.

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It should carry a debit normal amount.

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Liabilities, common stock, retained earnings and revenues all increase with credits.

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They're on the other side of the accounting equation.

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The only difference here are dividends and expenses, which actually increase on the debit side like assets do.

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So that's important to keep in mind when we're analyzing these transactions, okay?

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So let's start with this first one here.

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We paid rent expense, $1,600.

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So we know we need at least a debit and credit, and it's pretty easy to see something's gonna happen to rent expense.

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So if we're paying that, our expenses are going up.

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Well, if I'm gonna increase my expenses, I need to debit my expenses.

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So I'm gonna go ahead and move this down, hopefully.

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Oops, wrong one.

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There we go.

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So you can see here that our rent expense has been debited for $1,600.

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That had the effect of actually increasing our rent expense.

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And cash is credited for $1,600.

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Anytime we pay our expenses, cash is gonna go down.

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And let's see here.

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Cash is an asset.

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If I wanna decrease my assets, I need to credit that.

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So that has, again, the effect of decreasing my asset cash.

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So my expenses are going up, which is decreasing my equity.

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And my cash is going down.

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Now, in all cases, will we not have a something going up and something going down.

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Let's let's do some more of these.

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Okay, on the fourth we performed service for a customer and received cash of $900.

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And received cash.

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Okay, well this is good, we know we got cash, $900.

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Cash is an asset.

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My asset cash is gonna go up.

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Anytime we bring money into the business or into our personal lives, that asset goes up.
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So cash is gonna increase.

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And then, we performed a service.

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We performed a service here.

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Sorry.

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And that's how companies earn their money, by performing services or delivering product.

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That's revenue.

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And lookit here, how do we increase revenue?

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With a credit.

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So my debit is gonna be to cash for $900.

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And my credit is going to be to service revenue for $900.

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And then, let's again write what effect that's having.

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A debit to cash, which is an asset, will increase my cash account.

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And a credit to revenue, which will increase my equity and my revenue, will both be going up for $900.

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All right, let's look at the next one.

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It says purchase supplies on account, 225.

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Okay, well, we purchase supplies, so let's think about that.

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What kind of account are supplies?
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Assets, liabilities, or equity?

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Well, it's an asset, it's something that we own.

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And if buying supplies, bringing them into the business, that means my asset, supplies, is going to go up.

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So I need to debit my asset supplies.

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And I didn't pay cash this time, I bought it on account.

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Means I'm gonna have to pay for it later.

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It's like using your credit card.

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And we call that accounts payable, which is a liability.

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So to increase my liabilities accounts payable, I'm gonna have to credit that.

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And there we go.

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Oh, doesn't wanna go away.

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All right, so my supplies go up, which is an asset.

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Accounts payable, which is a liability, is also going up.

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All right, let's move to a clear slide and we'll start over and we'll do the next three.

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Okay, on the 11th, we purchased cash from credit customers on account.

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I'm sorry, we received cash from credit customers on account.

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So customers that we have previously billed are now paying us.
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Anytime we receive cash, we get to debit our asset, cash, because that's gonna increase that asset.

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And then, from customers on account.

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So we had previously billed these customers.

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When we bill our customers, we call that accounts receivable.

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And we would debit our accounts receivable at the time.

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So in order to remove that balance on their account, we're gonna have to credit the customer's account.

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Which you may have heard people say that before.

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So we'll go ahead and move that down.

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So we would debit cash, which has the effect of increasing our cash account, which is an asset.

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And we're gonna credit our accounts receivable, which is also an asset.

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But that will decrease that balance.

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So that's good.

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Let's look at the 15th.

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We sold and additional $5,000 of common stock.

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Okay, so we raised some more money by issuing stock.

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Again, we're gonna receive $5,000.

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This is just like the last problem that we were working on.

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Any time we receive cash, we know we're gonna have to debit our cash account.
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And then, let's take a quick look at what happens to common stock here.

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My common stock is gonna go up cuz I'm issuing more of it.

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In order to increase my common stock, I need to credit it.

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So let's go ahead and debit our cash, credit our common stock.

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Cash will go up by $5,000 with that debit.

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And common stock will also go up with a credit.

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Remember, credits increase common stock, which is part of our equity.

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And then, on the 19th, we paid $375 on account.

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Any time we make a payment, we know cash is going away, and cash is an asset.

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So in order to decrease my assets, I need to credit them.

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I'm gonna credit cash, I know that.

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And then, that was for a payment on account.

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So remember up here, when we purchased supplies on account?

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Now, we're gonna make a payment on that, which we said was a liability.

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In order to reduce my liabilities, I need to debit them.

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So let's go ahead and debit accounts payable $375, and we'll credit cash.

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Accounts payable is going to go down.

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Our liabilities, we're paying them off, that's a good thing.

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My cash goes down at the same time, though.

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Cash is an asset.

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All right, next one.

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Last two, performed service for customers on account for $1,640 on the 27th.

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Performed service for customers on account.

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So we performed a service, we did something similar here before.

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We performed a service, and we're going to bill our customers.

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They're not gonna pay us right away.

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So once we perform a service, that will be revenue.

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In order to increase our revenue, I'm going to need to credit my revenue account, and then I'm going to send them a bill.

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They're not gonna pay me cash, I'm gonna have to send them a bill, which is gonna be accounts receivables.

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So I'm gonna debit my accounts receivable, credit my service revenue here for $1,640.

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Means my revenue's gonna go up,

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$1,640.

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And my receivables, my assets, are also gonna go up $1,640.

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Last one, on the 28th, we made a payment on the notes payable.

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Okay, any time we make a payment, remember cash is gonna go down.
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Your checking account goes down every time you write a check.

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That is an asset, cash is an asset.

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In order to reduce that, I need to credit my asset.

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So my cash will be credited.

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And we made a payment on our liability, notes payable, $2,500.

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I need to reduce that liability, so I'm gonna debit it.

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So notes payable is going to go down.

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Cash will go down.

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Okay, so that's the journal entries that we have for that particular business here.

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And I've gone ahead and I've posted and nice clean copy of those journal entries.

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And the next step in the accounting cycle, then, is gonna be to post those into the ledger.

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So this blue area is what a ledger would look like.

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These are basic T-accounts.

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This is a really simplified way of what a ledger would look like.

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And remember, the left side here is gonna be our debit side.

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The right side is gonna be the credit side.

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Debit and credit only means left and right.

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Now, depending on what type of account, a debit will increase, or credit will decrease.

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So for example, remember, cash, which is an asset, increases on the debit side, decreases on the credit side.
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But if we look next door here to accounts payable, which is a liability, liabilities increase on the credit side, decrease on the
debit side.

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Now, they've already gone ahead and put in the balances here for us.

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And you can see those posted as of December 1st, and those are all on the normal balance side.

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So these are the sides that these accounts should carry balances.

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If you see balances on the other side, sometimes you may have made a mistake.

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For example, it would be pretty difficult to have a negative buildings.

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I don't think that's really possible.

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[LAUGH] So if you see a credit in a building, that's a problem.

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Now, you may run a credit in your cash account, which is a negative balance.

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We're not suppose to do that, though.

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Okay, so let's turn to the next slide, and we're gonna go ahead and see if we can post those transactions from the journal.

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All right, I'll do my best here to write these in.

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Or I may just have to do a couple and then flip to the answers.

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But when we're taking our journal entries, which is what we have here, these are our journal entries.

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And we're gonna basically copy them into each of the individual ledger accounts.

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So let's start with the first one.

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Again, I'm just recopying, I did all the hard work earlier.

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I already know what's a debit, what's a credit, what's accounts.
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I just need to find those accounts and copy them over.

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So rent expense is debited for $1,600 on the second.

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So way down here, at the bottom, I'm gonna write in the 2nd.

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And that was $1,600.

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It's hard to get a really fine line.

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Okay, so I just recopied that over, that's good.

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And then, you would write the posting reference.

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So this particular account should have an account number.

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Let's see, I don't know, 50.

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And that's what you would write in the posting reference column once you actually posted it.

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Cash is credited for $1,600.

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So that would be on the 2nd, $1,600 credit.

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And again, you have to forgive that things aren't perfect, but you can kinda get the idea there.

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All right, and then, you would write on this account number as well.

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We don't know what those are, they're not given to us, so I won't do any more of those.

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On the 4th, cash was debited for $900.
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So we'll come over here, we'll just find the cash ledger account.

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We'll write in the date and the amount as either a debit or credit.

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In this case, it's a debit for 900.

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Service revenue gets credited for $900.

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So that will be on the 4th, $900 credit.

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So it gets a little tedious here.

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We'll do one more.

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Supplies has a debit of $225.

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So I'll come over here to the debit side of supplies, and write in 225.

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That will be on the 8th.

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And then, I need my credit, which is accounts payable.

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Accounts payable account is right up here in the top, and that's a credit for to 225.

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So again, we're just popping exactly what we've already done from

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The journal into the ledger.

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Let's skip to the next page which is a little cleaner, I think.

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All right, so here, we have our completed ledger.

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I've copied all of my journal entries into my ledger.

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And you can see them all listed here.
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And then, I've calculated the balance.

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And the way you calculate a balance is you add up all of the debits, add up all the credits, and you subtract the debits from
the credits.

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Which ever side carries a larger balance, will end up carrying the balance.

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So the debits will offset the credits.

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Let's see, this is a pretty straightforward example here.

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I had a balance of 17, 5 credit in my notes payable.

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And remember, we made a payment.

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So my new balance is now 15,000.

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Take the credit, which is a larger, minus the smaller.

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2,500 gives me a new balance.

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And we do that for all of our individual accounts.

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Then, the last step in this process that we're gonna discuss right now is to prepare our trial balance.

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And it's quite easy to prepare your trial balance.

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Again, we're really just recopying.

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We're gonna take all of our accounts that have balances, and all of these accounts seem to have a balance.

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So we would list them all out.

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So I would see cash here.

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I'm just gonna write cash down.

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And then, I'm gonna copy the balance.

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What kind of balance does cash have?
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Well, it has a $7,250 debit balance.

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So I'm gonna copy that down into my trial balance.

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We would do the same thing for accounts receivable.

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We'll write the account title, accounts receivable.

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And then, I will take that balance, 2,340, and I'm gonna copy it.

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It was a debit, I'll copy it into the credit column.

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Supplies has a $675 debit balance.

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Office furniture, $3,100.

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Buildings is 42,000.

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We'll carry that over.

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Okay, so accounts payable carries a credit balance of $725.

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So again, I'm gonna take that balance and I'm gonna copy it into my trial balance.

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The trial balance will be pretty much blank except for the account title debit and credit.

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So you'll have to copy in all of the account titles from your ledger, along with the appropriate debit and credit columns.

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And then, the very last step in our trial balance here, sorry, it looks like it's cut off maybe a little bit, is to total out my debit
and credit columns.

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These two columns have to equal when we get done.

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If my debits and credits column don't equal when we get done, then we made a mistake, and we need to go back and try
and figure that out.

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So again, I'm just gonna add up my debit column here, add up my credit column.

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And when we're all said and done, those two need to equal.
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If they don't, we've made a mistake, and we need to go back and figure that out.

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Thank you.

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