University of Central Punjab

THE ACCOUNT,
THE JOURNAL AND THE LEDGER AND TRIAL BALANCE
An account is the detailed record of all the changes that have occurred in an individual asset, liability,
or owner’s equity or stock holder equity during a specific period?
Accountant record transactions first in a JOURNAL
JOURNAL
The word journal has been derived from the French word "jour" which means day.
The first book in which transactions of a business are recorded in chronological order or by order of
date is called journal or book of original entry.
After recording transactions in journal
Accountants then post the data to the book of accounts called ledger.
LEDGERS
The book in which all the transactions of a business concern are finally recorded in the concerned
accounts in summarized and classified form is called ledger.
TRIAL BALANCE
(The list of all the ledger accounts with their balances.)
A trial balance is an informal accounting statement which is prepared with the help of ledger account
balances on a particular date.
DIFFERENT TERMS
ASSETS
Assets are the things having certain valued, owned and possessed by the business and receivable by
the business.
Or
Assets are economic resources that owned by a business and are expected to benefit the future
operations.
Most firms use the following assets accounts:
Cash
The cash account is a record of the cash effects of transactions. Cash includes money, such as bank
balance, paper currency, coins, and Cheques.
Account receivable
Most business sells goods or services in exchange for a promise of future cash receipts. Such sale is
made on credit “on account”, and account receivable is the account that holds these amounts.
Accounts receivable is the right to receive cash in the near future.
The person to whom goods or services are sold on credit or the persons from whom money is to be
received in near future are called debtors / account receivables.
Notes Receivable
A business may sell goods or services on credit and receive a note receivable or promissory note.
A note receivable is a written pledge that the customer will pay a fixed amount of money and interest
by certain date.
Prepaid expenses
A business often pays certain expenses, such as rent and insurance, in advance.
A prepaid expenses is considered an asset because the prepayment provides a future benefits.
Prepaid expenses: the company pays for the expenses before it is used.

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Land
The land account shows the cost of land a business holds for use in operations. Its cost is an
investment.
Building
The cost of building – an office or a warehouse—appears in the buildings account.
Equipment, Furniture and fixture
A business has for a separate asset account for each type of equipment—for example
The furniture account shows the cost of this asset. Similarly, the Fixture account shows the cost of
light, fixture and shelving etc.
LIABILITIES
Liability is a debt—
That is something you owe.
A business generally has few liability accounts than assets accounts.
Account payable
Account payable is the opposite of account receivable.
The promise to pay a debt arising from a credit purchase is an Account payable.
An account payable is an obligation to pay cash in the near future.
Note Pay able
Note payable is opposite of Note Receivable. Note payable is an obligation to pay where as a note
receivable is a right to receive. Notes payable represents debts the business owes because it signed
promissory notes to borrow money or to purchase something.
Accrued liabilities
The term "accrued liability" refers to an expense incurred but not yet paid for by a business. These
are costs for goods and services already delivered to a company for which it must pay in the future.
A company can accrue liabilities for any number of obligations and are recorded on the
company's balance sheet. They are normally listed on the balance sheet as current liabilities and are
adjusted at the end of an accounting period.
STOCK HOLDER’S EQUITY
Stockholders' equity, also referred to as shareholders' or owners' equity, is the remaining amount of
assets available to shareholders after all liabilities have been paid. It is calculated either as a firm's
total assets less its total liabilities or alternatively as the sum of share capital and retained earnings
less treasury shares. Stockholders' equity might include common stock, paid-in capital, retained
earnings, and treasury stock.
Common stock
Common stock is a security that represents ownership in a corporation. Holders of common stock
elect the board of directors and vote on corporate policies. This form of equity ownership typically
yields higher rates of return long term. However, in the event of liquidation, common shareholders
have rights to a company's assets only after bondholders, preferred shareholders, and other debt
holders are paid in full.
Common stock is reported in the stockholder's equity section of a company's balance sheet.
Preferred stock
• Preferred stock is a different type of equity that represents ownership of a company and the
right to claim income from the company's operations.

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• Preferred stockholders have a higher claim on distributions (e.g. dividends) than common
stockholders.
• Preferred stockholders usually have no or limited, voting rights in corporate governance.
In the event of liquidation, preferred stockholders' claim on assets is greater than common
stockholders but less than bondholders.
• Preferred stock has characteristics of both bonds and common stock which enhances its
appeal to certain investors.

Retained earnings
• Retained earnings (RE) are the amount of net income left over for the business after it has
paid out dividends to its shareholders.
• The decision to retain the earnings or distribute them among shareholders is usually left to
company management.
• A growth-focused company may not pay dividends at all or pay very small amounts because it
may prefer to use retained earnings to finance expansion activities.
• Companies may choose to use their retained earnings for increasing production capacity,
hiring more sales representatives, launching a new product, or share buybacks, among
others.
• Retained earnings are an important variable for assessing a company’s financial health
because it shows the net income that a company has saved over time, and therefore has the
ability to reinvest in the business or distribute to shareholders.

Dividends
A dividend is the distribution of a company's earnings to its shareholders and is determined by the
company's board of directors. Dividends are often distributed quarterly and may be paid out as cash
or in the form of reinvestment in additional stock.
The dividend yield is the dividend per share and is expressed as dividend/price as a percentage of a
company's share price, such as 2.5%.
REVENUES
• Revenue often referred to as sales or the top line is the money received from normal business
operations.
• Operating income is revenue (from the sale of goods or services) less operating expenses.
• Non-operating income is infrequent or nonrecurring income derived from secondary sources
(e.g., lawsuit proceeds).
• Non-business entities such as governments, nonprofits, or individuals also report revenue,
though calculations and sources for each differ.
• Revenue is only sale proceeds, while income or profit incorporates the expenses to generate
revenue and report the net (not gross) earnings.

EXPENSES
An expense is the cost of operations that a company incurs to generate revenue. It is simply defined
as the cost one is required to spend on obtaining something. As the popular saying goes, “it costs
money to make money.”
Common expenses include payments to suppliers, employee wages, factory leases, and
equipment depreciation. Businesses are allowed to write off tax-deductible expenses on their
income tax returns to lower their taxable income and thus their tax liability; however, the Internal

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Revenue Service (IRS) has strict rules on which expenses businesses are allowed to claim as a
deduction.
CHART OF ACCOUTNS
(1). Assets
(2). Liabilities
(3). Stock holder equity
(4). Revenue
(5). Expenses
What Is Double Entry, Debits And Credits?
The T—Accounts
Normal balances of accounts
Common stock A credit balance
Retained earnings A credit balance
Dividends A debit balance
Revenue A credit balance
Expenses A debit balance
Assets A debit balance
Liabilities A credit balance

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1). Match the accounting terms on the left with corresponding definitions on the
right.
G 1 Posting A Using up assets in the course of operating a business
C 2 Receivable B Books of accounts
E 3 Debit C An asset
D 4 Journal D Record of transactions
A 5 Expenses E Left side of an account
I 6 Net income F Side of an account where increases are recorded
F 7 Normal balance G Copying data from the journal to the ledger
B 8 Ledger H Always a liability
H 9 Payable I Revenue – expenses=
J 10 Equity J Assets – liabilities =

2). The accounting equation includes three basic types of accounts: assets, liabilities, and
stockholders ‘Equity. In turn stockholders equity holds the following types: common stock, retained
earnings, dividends, revenues and expenses.
Requirement
Identify which type of accounts has a normal debit balance and which types have normal credit
balance.

3). Ned brown opened a medical practice in San Diego, California.

Jan 1 the business received $29000 cash and issued common stock
2 purchased medical supplies on account $14000
2 paid monthly office rent of $2600
3 Recorded $8000 revenue for services rendered to patient on account.
Requirement
Record the preceding transactions in the journal of Ned Brown, M.D, P.C,.
Include an explanation with each entry.

4). Show Time Amusements Company owns movie theaters. Showing engaged in the following
business transactions in 2012.
Sep 1 Don cougliato invested $370000 personal cash in the business by depositing that
amount in a bank account titled Showtime Amusements. The business issued common
2 stock to Cougliato
5 Paid $360000 cash to purchase a theater building
Borrowed $260000 from the bank. Cougliato signed a note payable to the bank in the
10 name of show time.

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15 Purchased theater supplies on account, $1400
15 Paid $1200 on account
16 Paid property tax expenses on theater building $1500
28 Paid employees salaries $2500, and rent on equipment $1400 (make a single
30 compound entry)
Paid cash dividends of $7000
Received $21000 cash from service revenue and deposited that amount in the bank
Requirement:
Create a list of accounts that Show time Amusements will use to record these transactions.
5). Requirements:
use the facts given problem no.4
Journalize each transaction of Showtime as show for September
6). Post the transactions to the T-accounts using transaction dates as posting reference in ledger
accounts. Problem 5
Prepare trial balance.

7). Texas Sales Consultants completed the following transactions during the latter part of January:
Jan 22 Performed service for customers on account $8000.
30 Received cash on account from customers $7000
31 Received a utility bill $180, which will be paid during February.
31 Paid monthly salary to salesman, $2000
31 Paid advertising expense of $700.
Use the January transaction data for Ned brown, M.D., P.C., given in short exercise
Requirement
a. Open the following T-accounts: Cash, accounts receivable , Medical supplies, Accounts
payable, Common stock, Service revenue, and Rent expense
b. After making the journal entries, post to the T-accounts. No or posting references are
required. Compute the balance of each account, and denote it as BAL.
c. Prepare the trial balance, complete with a proper headings, at January 3,2012

8). The journal of ward Technology solutions, Inc,. Includes the following entries for May, 2012.
May 1 The business received cash of $75000 and issued common stock
2 Purchased supplies of $500 on account
4 Paid $53000 cash for a building
6 Performed service for customers and received cash, $2600
9 Paid $400 on account payable
17 Performed service for customers on account, $2500
23 Received $1900 cash on account from a customer
31 Paid the following expenses
Salary, $1100, rent $900
(1). Open T-accounts using the following account numbers: cash, 110, account receivable, 120,
supplies, 130; building, 140; account payable, 210; common stock , 310; service revenue, 410;
rent expenses, 510; salary expenses, 520;
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(2). Pass journal entries
(3). Post to the accounts. Write dates and compute the balance of each account after posting
(4). Prepare the trial balance of Ward Technology solutions, at May 31, 2012.

9). Oakland Floor Coverings Inc., reported the following summarized data at December 31, 2012.
Accounts appear in no particular order
Revenue $34000 Other liabilities $18000
Equipment 45000 Cash 12000
Account payable 2000 expenses 19000
Common stock 22000
Requirements:
Prepare the trial balance of Oakland Floor Coverings at December 31, 2012

10). The accounts of Atkins Moving Company follow with their normal balances at August 31, 2012.
The accounts are listed in no particular order.
Common stock $72000 Trucks $132000
Insurance expenses 600 Fuel Expenses 3000
Account payable 4000 Dividends 5400
Service revenue 80000 Utilities expenses 500
Building 48000 Account receivable 8800
Supplies expenses 400 Note payable 54000
Cash 4000 supplies 300
Salary expense 7000
Requirements:
Prepare Atkins Trial balance at August 31, 2012

11). Brenda Longval Travel Design, inc., prepared its trial balance, suppose Longval made an error:
she erroneously listed common stock of $30600 as a debit rather than a credit.
BRENDA LONGVAL TRAVEL DESIGN, INC.
Trial balance
April 30, 2012
Balance
Account title Debit Credit
Cash $18000
Account receivable 1000
Office supplies 500
Land 14000
Account payable 400
Common stock 30600
Dividends 3000
Service revenue 8800
Rent expenses, computer 700
Rent expense, office 900
Salary expense 1100

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Utilities expense 600

Requirements:
Compute the incorrect trial balance totals for debits and credits. Then show how to correct this error.

12). Review Francis Nangle Travel Design’s trial balance. Assume that Nangle accidently listed
dividends as $300 instead of the correct amount of$3000.
FRANCIS NANGLE TRAVEL DESIGN
Trial balance
January 31, 2012
Balance
Account title Debit Credit
Cash $20000
Account receivable 1000
Office supplies 500
Land 12000
Account payable $100
Common stock 31000
Dividends 300
Service revenue 8700
Rent expenses, computer 700
Rent expense, office 1200
Salary expense 1200
Utilities expense 200

Requirements:
Compute the incorrect trial balance totals for debits and credits. Then show how to correct this error.

13). JOURNALIZE THE transactions

(a). Smart touch received $30000 cash on April 1 from Sheena Bright and issued common stock to
her.
(b). On April 2 smart touch paid $20000 cash for land.
(c). Smart touch purchased $500 of office supplies on account on April 3.
(d). On April 8, smart touch collected cash $5500 for services revenue that the business earned by
providing e-earned by providing e-learning services for clients.
(e). On April 10, smart Touch performed services for clients, for which the client pay the company
later.
(f). Smart Touch paid the following cash expense on April 15,
(g). Rent expenses on a computer, $600, office rent $1000, salary expenses $1200, utilities
expenses $400
(h). On April21, smart touch paid $300 on the account payable created in transaction 3.
(i). Sheena Bright remolded her home with personal funds.
(j). On April 22, smart Touch collected $2000 cash from the client in transaction 5.

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(k). On April 24, smart touch sold a parcel of land owned by business.
(l). On April 30, smart touch received a telephone bill for $100 and will pay this expense next
month.
(m). On April 30, the business paid cash dividends of $2000 to Sheena Bright, the stock holder.
Required:
(1). Post all above transactions in ledgers.(T-Accounts)
(2). Prepare the Trial balance

14). The trial balance of Harper Service Center inc. on March 1, 2014. Lists the entity’s assets,
liabilities and equity on that date.
Balance
Account title Debit Credit
Cash $26000
Account receivable 4500
Account payable $2000
Common stock 28500
30500 30500
During March, the business engaged in the following transactions:
(a). Borrowed $45000 from the bank and signed a note payable in the name of business.
(b). Paid cash $40000 to acquire land
(c). Performed service for a customer and received cash of $5000
(d). Purchase supplies on account $300
(e). Performed customer service and earned revenue on account $2600
(f). Paid $1200 on account
(g). Paid the following cash expenses
(h). Salaries $3000, rent $1500, and interest $400.
(i). Received $3100 on account
(j). Received utility bill that will be paid next week
(k). Paid cash dividend of $1800
Required:
1) Open the following accounts with the balance indicated in the ledger of Harper service Center.
Assets
Cash, $26000, Account Receiveable,$4500, supplies, no balance, land no balance
Liabilities
Account payable$2000, note payable no balance
Stock holder’s equity
Common stock $28500, dividends no balance
Revenue
Service revenue no balance
Expenses (none—have balance) salary expenses, rent expenses, utilities expenses, interest expenses
2) Journalize each transaction.
3) Post to ledgers
4) Prepare the trial balance of Harper service Center at March 31, 2014

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15). On September 1, 2014 Michael Moe incorporated Moe’s Mowing. Inc. a company that
provides mowing and land scaping services. During the month of September, the business incurred
the following transactions.
(a). To begin operations, Michael deposited $10000 cash in business’s bank account. The business
received the cash and issued common stock to Michael.
(b). The business purchased equipment for $3500 on account
(c). The business purchased office supplies for $800 cash
(d). The business provided $2600 of service to a customer on account
(e). The business paid $500 cash toward the equipment previously purchased on account in
transaction b.
(f). The business received $2000 in cash for services provided to a new customer.
(g). The business paid $200 cash to repair equipment.
(h). The business paid $900 cash in salary expenses
(i). The business received $2100 cash from customers on account
(j). The business paid cash dividends of $1500
Requirements:
(1). Create blank T account for the following accounts:
Cash, accounts receivable, supplies, equipments, account payable, common stock, dividends,
service revenue, salary expenses, and repaid expense.
(2). Journalize the transactions and show how they are recorded in T-accountants.
(3). Total all of the T-accounts to determine their balances at the end of the month

16). Doris Stewart started her practice as a design consultant on Nov. 1, 2022. During the first
month of operations the business completed the following transactions
Nov. 1 Received $42000 cash and issued a common stock
4 Purchase supplies $700 and furniture $1900 on account
6 Performed services for a law firm and received $1400 in cash
7 Paid $24000 cash to acquire land for future office site.
10 Performed service for a hotel and received its promise to pay $1000 within one week
14 Paid for the furniture purchased September 4 on account
15 Paid secretary’s bi-monthly salary $490
17 Received cash on account $400
20 Prepared a design for a school on account 4700
28 Received $2100 cash for consulting with Plummer and Gorden.
30 Paid secretary’s bi-monthly salary $490
30 Paid rent expenses $650
30 Paid cash dividends of $3000
Requirements:
1). Open the following—accounts:
Cash, Accounts receivable, Supplies, Furniture, Land, Accounts, payable, common stock,
Dividends,
Service revenue, Salary expense, and Rent expense.

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2). Record each transaction in journal, using the accounts titles given. Key each transaction by
date. Explanations are not required
3). Post the transaction to the T-accounts, using transaction dates as posting references in the
ledger accounts. Label the balance of each account Balance show in the chapter.
4). Prepare the trail balance of Doris Stewart, Designer, P.C, at September 30, 2012.

17). The trial balance of Sharon Silver, Registered Dietician, P.C. at June 30 2012, follows
SHAROON SILVER, REGISTERED DEITICIAN,P.C.
Trial balance
June 30, 2012
Account no. Account title Debit Credit
11 Cash $7000
12 Account receivable 8500
13 Supplies 800
14 Equipment 13000
21 Account payable $4800
31 Common stock 24500
32 Dividends
41 Service revenue
51 Salary expenses
52 Rent expenses
Total 29300 29300
During July, Silver or her business completed the following transactions:
July 4 Collected $6000 cash from a client on account
7 Performed a nutritional analysis for a hospital on account $6600
12 Silver used personal funds to pay for the renovation of her private residence, $5500
16 Purchased supplies on account $1000
19 Paid cash dividends of $2300
20 Paid business debt on account $2500
24 Received $2200 cash for consulting with Natural Goods
25 Paid rent $500
31 Paid employee salary $1700
Requirement
(1). Record the July transactions in the business’s journal.
(2). Post the transactions to four column accounts in the ledger, using dates.
(3). Prepare the trial balance of Sharon silver Registered Dietician, P.C. at July 31,2012.

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