1. College of Business Administration, Al-Kharj
UNIT-3 Acct - 103
College of Business Administration, Al-Kharj
Salman Bin Abdulaziz University
KINGDOM OF SAUDI ARABIA

2. Asst. Prof, Deptt. of Accounting, CBAK
Syllabus
Trial Balance: Meaning, Importance and Preparation of Trial Balance.
Dr Masharique Ahmad
Asst. Prof, Deptt. of Accounting, CBAK

3. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
Objective of This Unit
1 Explain what an account is and how it helps in the recording process
2 Define debits and credits and explain how they are used to record business transactions
3 Identify the basic steps in the recording process
4 Explain what a journal is and how it helps in the recording process
5 Explain what a ledger is and how it helps in the recording process
6 Explain what posting is and how it helps in the recording process
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

4. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
THE RECORDING PROCESS
1 Analyze each transaction (+, -)
2 Enter transaction in a journal
3 Transfer journal information to ledger accounts
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

5. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
THE JOURNAL
Transactions
Are initially recorded in chronological order before they are transferred to the ledger accounts.
Steps in journal;
Spaces for dates
Account titles and explanations
References
Two amount columns
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

6. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
THE JOURNAL
A journal makes several contributions to recording process:
1 discloses in one place the complete effect of a transaction
2 provides a chronological record of transactions
3 helps to prevent or locate errors as debit and credit amounts for each entry can be compared
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

7. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
JOURNALIZING
Entering transaction data in the journal is known as journalizing.
Separate journal entries are made for each transaction.
A complete entry consists of: 1 the date of the transaction, 2 the accounts and amounts to be debited and credited, 3 a brief explanation of transaction.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

8. EXPANDED BASIC EQUATION & RULES OF DEBIT (Dr) /CREDIT (Cr) & EFFECTS
Liabilities
Assets
Owner’s Equity = + -
Dr.
Cr.
Owner’s Drawing
Revenues
Expenses
Owner’s Capital
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

9. TECHNIQUE OF JOURNALIZING
The date of the transaction is entered into the date column.
GENERAL JOURNAL J1
Date
Account Titles and Explanation
Ref.
Debit
Credit
2005
Sept. 1
Cash
15,000
R. Neal, Capital
(Invested cash in business) 1
Computer Equipment
7,000
Cash
7,000
(Purchased equipment for
cash)
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

10. TECHNIQUE OF JOURNALIZING
The debit account title is entered at the extreme left margin of the Account Titles and Explanation column. The credit account title is indented on the next line.
GENERAL JOURNAL J1
Date
Account Titles and Explanation
Ref.
Debit
Credit
2005
Sept. 1
Cash
15,000
R. Neal, Capital
(Invested cash in business) 1
Computer Equipment
7,000
Cash
7,000
(Purchased equipment for
cash)
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

11. TECHNIQUE OF JOURNALIZING
The amounts for the debits are recorded in the Debit column and the amounts for the credits are recorded in the Credit column.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

12. TECHNIQUE OF JOURNALIZING
A brief explanation of the transaction is given.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

13. TECHNIQUE OF JOURNALIZING
A space is left between journal entries. The blank space separates individual journal entries and makes the entire journal easier to read.
GENERAL JOURNAL J1
Date
Account Titles and Explanation
Ref.
Debit
Credit
2005
Sept. 1
Cash
15,000
R. Neal, Capital
15,000
(Invested cash in business) 1
Computer Equipment
7,000
Cash
7,000
(Purchased equipment for
cash)
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

14. TECHNIQUE OF JOURNALIZING
The column entitled Ref. is left blank at the time journal entry is made and is used later when the journal entries are transferred to the ledger accounts.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

15. THE ACCOUNT OR THE LEDGER
An account is an individual accounting recording of increase and decrease in a specific asset, liability, expenses revenue, or owner’s equity item.
A Group of accounts maintained by a company is called the ledger.
There are separate accounts for the items we used in transactions such as Cash, Salaries Expense, Sales Purchase etc.
A ledger contains all the assets, liabilities, and owner’s equity, cash, salaries accounts
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

16. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
BASIC FORM OF ACCOUNT
STUDY OBJECTIVE 2
The simplest form an account consists of
The title of the account
Left or debit side
Right or credit side
The alignment of these parts resembles the letter T = T account
Left or debit side
Title of Account
Right or credit side
Debit balance
Credit balance
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

17. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
DEBITS AND CREDITS
Debit indicates left and Credit indicates right
Recording SR. on the left side of an account is debiting (Dr) the account
Recording SR. on the right side is crediting (Cr) the account
If the total of debit amounts is bigger than credits, the account has a debit balance
If the total of credit amounts is bigger than debits, the account has a credit balance
Balance of Accounts:
Either will be; Dr OR Cr
Debit (Dr) = Excess of DEBIT balance over CREDIT balance, Gives Debit Balance of the concern accounts.
Example; Debit ˃ Credit = Debit (Dr) Balance
Credit (Cr) = Excess of CREDIT balance over DEBIT balance, Gives Credit balance of the concern accounts.
Example; Credit ˃ Debit = Credit (Cr) Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

18. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
DOUBLE-ENTRY SYSTEM
Equal debits and credits made accounts for each transaction
Total debits always equal the total credits
Accounting equation always stays in balance
Fix the Equation Assets = Liabilities + Equity.
Assets
Liabilities
Equity
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

19. DEBIT AND CREDIT EFFECTS — ASSETS AND LIABILITIES
Debits
Credits
Increase assets Decrease assets
Decrease liabilities Increase liabilities
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

20. NORMAL BALANCES — ASSETS AND LIABILITIES
Increase Decrease Debit Credit
Decrease Increase Debit Credit
Liabilities
Normal Balance
Normal
Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

21. DEBIT AND CREDIT EFFECTS — OWNER’S CAPITAL
Debits
Credits
Decrease owner’s capital Increase owner’s capital
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

22. NORMAL BALANCE — OWNER’S CAPITAL
Decrease Increase Debit Credit
Normal Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

23. DEBIT AND CREDIT EFFECTS — OWNER’S DRAWING
Debits
Credits
Increase owner’s drawing Decrease owner’s drawing
Remember, Drawing is a contra-account – an account that is backwards from the account it accompanies (the Capital account).
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

24. NORMAL BALANCE — OWNER’S DRAWING
Increase Decrease Debit Credit
Normal Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

25. DEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSES
Debits
Credits
Decrease revenues Increase revenues
Increase expenses Decrease expenses
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

26. NORMAL BALANCES — REVENUES AND EXPENSES
Increase Decrease Debit Credit
Expenses
Revenues
Decrease Increase Debit Credit
Normal Balance
Normal Balance
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

27. POSTING A JOURNAL ENTRY
In the ledger, enter in the appropriate columns of the account(s) debited the date, journal page, and debit amount shown in the journal.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

28. POSTING A JOURNAL ENTRY
In the reference column of the journal, write the account number to which the debit amount was posted.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

29. POSTING A JOURNAL ENTRY
GENERAL LEDGER
CASH
NO. 10
Date
Explanation
Ref.
Debit
Credit
Balance
2005
Sept. 1 J1
15,000
This needs some rework.
In the ledger, enter in the appropriate columns of the account(s) credited the date, journal page, and credit amount shown in the journal.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

30. POSTING A JOURNAL ENTRY
In the reference column of the journal, write the account number to which the credit amount was posted.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

31. PAYMENT OF MONTHLY RENT
Basic
Analysis
Debit-Credit
Transaction
October 3, office rent for October is paid in cash, SR.900.
The expense Rent is increased SR.900
Payment pertains only to the current month
Asset Cash is decreased SR.900.
Debits increase expenses: debit Rent Expense SR Credits decrease assets: credit Cash SR.900.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

32. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
PAYMENT FOR INSURANCE
-Asset Prepaid Insurance increases SR.600
-Payment extends to more than the current month
-Asset Cash is decreased SR.600.
-Payments of expenses benefiting more than one period are prepaid expenses or prepayments.
Transaction
October 4, SR.600 Paid one-year insurance policy-expires next year on September 30.
Debit-Credit
Analysis
Debits increase assets: debit Prepaid Insurance SR Credits decrease assets:credit Cash SR.600.
Basic
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

33. WITHDRAWAL OF CASH BY OWNER
Basic
Analysis
Debit-Credit
Transaction
October 20, C. R. Byrd withdraws SR.500 cash for personal use.
The owner’s equity account C. R. Byrd, Drawing is increased SR.500.
The asset Cash is decreased SR.500.
Debits increase drawings: debit C. R. Byrd, Drawing SR Credits decrease assets: credit Cash SR.500.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

34. WITHDRAWAL OF CASH BY OWNER
JOURNAL ENTRY
POSTING
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

35. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
PAYMENT OF SALARIES
Basic
Analysis
Debit-Credit
Transaction
October 26, employee salaries of SR.4,000 are owed and paid in cash. (See October 9 transaction.)
The expense account Salaries Expense is increased SR.4,000; the asset Cash is decreased SR.4,000.
Debits increase expenses: debit Salaries Expense SR.4,000. Credits decrease assets: credit Cash SR.4,000.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

36. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
PAYMENT OF SALARIES
JOURNAL ENTRY
POSTING
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

37. RECEIPT OF CASH FOR FEES EARNED
Basic
Analysis
Debit-Credit
Transaction
October 31, received SR.10,000 in cash from Copa Company for advertising services rendered in October.
The asset Cash is increased SR.10,000; the revenue Fees Earned is increased SR.10,000.
Debits increase assets: debit Cash SR.10,000. Credits increase revenues: credit Fees Earned SR.10,000.
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

38. RECEIPT OF CASH FOR FEES EARNED
JOURNAL ENTRY
POSTING
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

39. Practical Problems : Journalise the following transactions:
On September 1, Mr.Fahad invested SR.15,000 cash in the business, and Soft byte purchased computer equipment for SR.7,000 cash.
Solution:
General Journal
Date
Account Titles and Explanation
Ref.
Debit
Credit
2008
Sept. 1 1
Cash
Fahad , Capital
(Owner’s investment of cash in business)
Computer Equipment
(Purchase of equipment for cash)
15000
7000

40. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
on July 1, Butler Company purchases a delivery truck costing SR.14,000. It pays SR.8,000 cash now and agrees to pay the remaining SR.6,000 on account (to be paid later). Make a compound entry for the above transactions.
Solution:
General Journal
Date
Account Titles and Explanation
Ref.
Debit
Credit
2008
July 1
Delivery Equipment
Cash
Accounts Payable
(Purchased truck for cash with balance on account)
14,000
8,000
6,000
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

41. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
Kashif engaged in the following activities in establishing his salon, Hair It Is:
1. Opened a bank account in the name of Hair It Is and deposited SR.20,000 of her own money in this account as her initial investment.
2. Purchased equipment on account (to be paid in 30 days) for a total cost of
SR.4,800.
Prepare the entries to record the transactions.
Solution:
General Journal
Date
Account Titles and Explanation
Ref.
Debit
Credit 1 2
Cash
Kashif, Capital
(Owner’s investment of cash in business)
Equipment
Accounts Payable
(Purchase of equipment on account
20,000
4,800
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

42. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
On October 1, C. R. Byrd invests SR.10,000 cash in an advertising company called Pioneer Advertising Agency. Make Journal entry of this transaction and post it in the ledger.
Solution:
Journal Entry
Posting
Cash
CR.Byrd Capital
Oct Oct.1 10,000
Oct 1
Cash
C. R. Byrd, Capital
(Owner’s investment of
cash in business
101
301
10,000
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

43. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
On October 2, Pioneer receives a SR.1,200 cash advance from R. Knox, a client, for advertising services that are expected to be completed by December 31.
Cash Unearned Revenue
Oct 2
Cash
Unearned Revenue
(Received cash from R. Knox for future service)
101
209
1,200
Oct ,200
Oct ,200
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

44. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
On October 3, Pioneer pays office rent for October in cash, SR.900.
On October 4, Pioneer pays SR.600 for a one-year insurance policy that will expire next year on September 30.
Make Journal entries of above transactions and post then into ledger.
Solution:
Journal Entries
Date
Account Titles and Explanation
Ref.
Debit
Credit
Oct 3
Oct 4
Rent Expense
Cash
(Paid October rent)
Prepaid Insurance
(Paid one-year policy;effective date October 1)
729
101
130
900
600
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

45. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
Cash Rent Expense
Oct Oct
Oct
Prepaid Insurance
Oct
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

46. Deptt. of Accounting, CBAK
Which one of the following represents the expanded basic accounting equation?
Assets = Liabilities + Owner’s Capital + Owner’s Drawings – Revenue - Expenses.
Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenue.
Assets – Liabilities – Owner’s Drawings = Owner’s Capital + Revenue – Expenses.
Assets = Revenue + Expenses – Liabilities.
Deptt. of Accounting, CBAK

47. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
HOME ASSIGNMENT - 3
Mr. Bob opened a shop on September 1, During the first month of operations the following transactions occurred.
Sept Invested SR.20,000 cash in the business.
2 Paid SR.1,000 cash for store rent for September.
3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and signing a SR.15,000, 6-month, 12% note payable.
Paid SR.1,200 for a one-year accident insurance policy.
10 Received a bill from the Daily News for advertising the opening of the Laundromat SR.200.
20 Withdrew SR.700 cash for personal use.
30 Determined that cash receipts for laundry services for the month were SR.6,200.
Instructions
(a) Journalize the September transactions. (Use J1 for the journal page number.)
(b) Open ledger accounts and post the September transactions
Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK