CHAPTER 3 Recording Business Transactions

CHAPTER 3 Recording Business estimations and other events
Transactions from the worksheet.

8. Closing Journal Entries are
STEP 1- TRANSACTION ANALYSIS
Journalized and Posted
Accounting Cycle – refers to a series of - To close temporary accounts
sequential steps or procedures performed to and transfer profit to owner's
accomplish the accounting process. equity.
9. Preparation of a Post-Closing
1. Identification of Events to be Trial Balance
Recorded - To check the equality of
- To gather information about debits and credits after the
transactions or events closing entries.
generally through the source 10. Reversing Journal Entries are
documents. Journalized and Posted
2. Transactions are recorded in the - To simplify the recording of
Journal certain regular transactions in
- To record the economic the next accounting period.
impact of transactions on the
firm in a journal, which is a JOURNAL
form that facilitates transfer
- The journal is a chronological
to the accounts.
record of the entity's
3. Journal Entries are Posted to the
transactions.
Ledger
- A journal entry shows all the
- To transfer the information
effects of a business
from the journal to the ledger
transaction in terms of debits
for classification.
and credits.
4. Preparation of a Trial Balance
- A journal is called the book
- To provide a listing to verify
of original entry.
the equality of debits and
- The general journal is the
credits in the ledger.
simplest journal.
5. Preparation of the Worksheet
including Adjusting Entries
- To aid in the preparation of
Simple and Compound Entry
financial statements.
6. Preparation of the Financial - In a simple entry, only two
Statements accounts are affected-one
- To provide useful account is debited and the
information to decision- other account credited.
makers. - When three or more accounts
7. Adjusting Journal Entries are are required in a journal
Journalized and Posted entry, the entry is referred to
- To record the accruals, as a compound entry.
expiration of deferrals,
STEP 2- TRANSACTIONS ARE transactions, and to prepare data for
JOURNALIZED basic financial statements.
- The accounts in the general ledger
- After the transaction or event
are classified into two general
has been identified and
groups:
measured, it is recorded in
the journal. 1. Balance sheet or permanent
- The process of recording a accounts (assets, liabilities and
transaction is called owner's equity).
journalizing.
2. Income statement or temporary
Note that the rules of double-entry accounts (income and expenses).
system are observed in each Temporary or nominal accounts are
transaction: used to gather information for a
particular accounting period. At the
1. Two or more accounts are
end of the period, the balances of
affected by each transaction.
these accounts are transferred to a
2. The sum of the debits for
permanent owner's equity account.
every transaction equals the
sum of the credits. CHART OF ACCOUNTS
3. The equality of the
- A listing of all the accounts and their
accounting equation is always
account numbers in the ledger is
maintained.
known as the chart of accounts.
LEDGER - The chart is arranged in the financial
statement order, that is, assets first,
- A grouping of the entity's accounts is
followed by liabilities, owner's
referred to as a ledger.
equity, income, and expenses.
- A general ledger is the "reference
- The accounts should be numbered in
book" of the accounting system and
a flexible manner to permit indexing
is used to classify and summarize
and cross-referencing.
CHART OF ACCOUNTS
Balance Sheet Accounts
Assets
110 Cash
120 Accounts Receivable
130 Supplies
140 Prepaid Rent
150 Prepaid Insurance
160 Service Vehicle
165 Accumulated Depreciation
170 Office Equipment
175 Accumulated Depreciation
Liabilities
210 Notes Payable
220 Accounts Payable
230 Salaries Payable
240 Utilities Payable
250 Interest Payable
260 Unearned Referral Revenues
Owner's Equity
310 Besario, Capital
320 Besario, Withdrawals
330 Income Summary
Income Statement Accounts
Income
410 Consulting Revenues
420 Referral Revenues
Expenses
510 Salaries Expense
520 Supplies Expense
530 Rent Expense
540 Insurance Expense
550 Utilities Expense
560 Depreciation Expense- Service Vehicle
570 Depreciation Expense- Office Equipment
580 Miscellaneous Expense
590 Interest Expense
STEP 3- POSTING
- Posting means transferring the amounts from the journal to the appropriate accounts in
the ledger.
- Debits in the journal are posted as debits in the ledger, and credits in the journal as
credits in the ledger.
STEP 4- TRIAL BALANCE
- The trial balance is a list of all accounts with their respective debit or credit balances.
- It is prepared to verify the equality of debits and credits in the ledger at the end of
each accounting period or at any time the postings are updated.
The procedures in the preparation of a trial balance follow:
1. List the account titles in numerical order.
2. Obtain the account balance of each account from the ledger and enter the debit
balances in the debit column and the credit balances in the credit column.
3. Add the debit and credit columns.
4. Compare the totals.
- The trial balance is a control device that helps minimize accounting errors.
- When the totals are equal, the trial balance is in balance.
- This equality provides an interim proof of the accuracy of the records but it does not
signify the absence of errors.

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CHAPTER 3 Recording Business Transactions

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CHAPTER 3 Recording Business estimations and other events

Transactions from the worksheet.

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