FABM1 - Chapter 3

Correction of error: 1. Journal entry is incorrect but not posted yet 2. Journal entry is correct but posted erroneously 3. Journal entry is incorrect and posted already

1. Draw a line across the error and write the correct account title or amount above the wrong title or amount. 2. Draw a line across the error and post correctly. 3. Journalize and post a correcting entry.

there are errors which do not affect the equality of the trial balance. Some of these error are:

1. Failure to journalize a transaction. 2. Failure to post a transaction. 3. Recording the same transaction more than once. 4. Posting part of a transaction correctly as a debit or credit but to the wrong account title. For example, a debit to supplies has been posted to the account equipment. A credit to accounts payable has been credited to notes payable. 5. Recording a transaction whose debit and credit amounts are erroneous. For instance, the amount of P 1,000 has been erroneously debited and credited for P 100. Slide and transposition

What should be done if the trial balance totals do not balance? First, determine the difference between the debit and credit totals of the trial balance columns. After determining the difference, the following steps can be made:

1. If the difference of the trial balance totals is a matter of P 1,P 10, P 100, or P 1,000, thus is an error in addition, therefore, re-add the trial balance columns and re-compute the ledger account balances. 2. If the difference of the trial balance totals is divisible by two, look for a balance equal to one half of the amount erroneously entered in the wrong column of the trial balance. 3. If the difference of the trial balance totals is divisible by three or nine, a transposition or a slide error may exist. If either of such error exists, retrace the account balances on the trial balance to determine if they are transferred incorrectly from the ledger. 4. If the difference of the trial balance column is not divisible by two or nine, let us say P 265. This may result to the omission of an account balance in the trial balance or omission in the posting a journal entry. Compare the balances in the trial balance with that of the ledger and the postings in the ledger with the entry in the journal. 5. If there was no error in transferring the ledger balances in the trial balance, re-compute the account balances to determine whether error exists in balance determination. 6. If the ledger balances are correct, pencil foot again or re-add the debit and credit entries to each of the accounts in the ledger. 7. If there was no error in mathematical operation, the last resort is to work back

steps in preparing trial balance

1. Write the heading of the trial balance as follows: Name of the business or proprietor Trial Balance Date 2. List the accounts with corresponding balances. Accounts should be arranged according to financial statement appearance. 3. Write down the account balance on either the debit or credit column of the trial balance. If the account balance is debit, it is written on the debit column. If the account balance is credit, it is placed on the credit column of the trial balance. Note: The balances of accounts are taken from the ledger. 4. Add the debit and credit columns of the trial balance. Normally, the debit and credit totals are equal. 5. Double Rule or draw a double line under the totals of both columns.

Normal Balances of accounts

Assets, Drawing, Expense - Debit Liabilities, Capital, Revenue - Credit

Right side of T-account

Credit

The placing of (1) the account number of the ledger account in the general journal and (2) the general journal page number in the ledger account.

Cross indexing

Left side of T-account

Debit

_____________ is a method of recording business transactions which recognizes the dual effect of a transaction. This means that, for every value received there is a corresponding value parted with or given up.

Double-entry bookkeeping

TRUE OR FALSE: Each element of the financial statements is given specific account title.

FALSE

TRUE OR FALSE: In debit and credit, do not apply the concept of value received and value given away.

FALSE

TRUE OR FALSE: T-account does not resemble letter T

FALSE

Debit signifies increase in ________, _________, and _________, and signifies decrease in ________, _________, and _________.

Increase: Assets, Drawing, Expense Decrease: Liabilities, Capital, Revenue

Credit signifies increase in ________, _________, and _________, and signifies decrease in ________, _________, and _________.

Increase: Liabilities, Capital, Revenue Decrease: Assets, Drawing, Expense

_________ is called the book of original entry because it is where transactions are first recorded.

Journal

_____________ is the process of recording business transactions in the hook of original entry called the fournal.

Journalizing

1. If the difference of the trial balance totals is a matter of ________________, thus is an error in addition, therefore, re-add the trial balance columns and re-compute the ledger account balances.

P 1,P 10, P 100, or P 1,000

__________ is the process of transferring the entries from the journal to the accounts in the ledger.

Posting

A ____________ is a very useful tool that is used for illustrations, analyzing transactions and in problem solving.

T-account

TRUE OR FALSE: If the account balance computed is not in its normal balance it may indicate that an error has occurred journalizing and/or posting transactions or an unusual situation exists.

TRUE

TRUE OR FALSE: When an account is debited, it does not mean that such account increased, because debit may increase or decrease the balance of an account Likewise, when an account is credited it does not mean that such account is is decreased, because credit may also increase or decrease the balance of an account.

TRUE

TRUE OR FALSE: If there are only two accounts affected in the transaction, one is to be debited and the other one is to be credited. The two accounts cannot be both debited or credited.

TRUE

Posting Reference (P/R) column

This column is filled up only during the posting stage. The account number of the account debited and credited are written on this column after they are posted to the ledger.

____________ occurs when the order of the digits is changed mistakenly, or the digits are erroneously rearranged like writing P 352 as P 532 or P 523.

Transposition

It is prepared to test the equality of the debit and credit balances of the accounts in the lodger. However, even if it is equal, it does not provide a complete proof of the accuracy of the accounting records because there are errors which do not affect the equality of it.

Trial balance

An ___________ is a record of each asset, liability, owner's equity, revenue and expense items in which the effects of business transactions are recorded.

account

The ____________ is the difference between the total debits and the total credits of an account. If the total of the debits is greater than the credits, the account will have a debit balance.

account balance

To debit an account also mean to ____________________.

charge the account

A ____________ is one where in there are two or more accounts debited and or two or more accounts credited.

compound journal entry

The third entry is a ________________ because there are more than two accounts involved.

compound journal entry

The word credit came from the Latin word ________ which means _________, and is abbreviated by _______.

credere; to trust or believe; Cr

The word debit came from the Latin word ________ which means _________, and is abbreviated by _______.

debere; to owe; Dr

3. If the difference of the trial balance totals is ___________________, a transposition or a slide error may exist. If either of such error exists, retrace the account balances on the trial balance to determine if they are transferred incorrectly from the ledger.

divisible by three or nine

2. If the difference of the trial balance totals is _____________, look for a balance equal to one half of the amount erroneously entered in the wrong column of the trial balance.

divisible by two

In ________________, each transaction is recorded by debiting and crediting accounts.

double-entry bookkeeping

Each account has as individual record in the ___________ wherein the effects of business transactions are summarized.

general ledger

The ___________ contains the entire set of accounts used by a business which are arranged in the following order _________, _________, _________, _________, and _________ accounts.

general ledger; Assets, Liabilities, Capital, Revenue, and Expense

If ___________ is called the book of original entry, ____________ is called the book of final entry.

journal; ledger

A group of accounts is called as _________.

ledger

The __________ provides a story of transactions for an accounting period.

ledger

Transactions are classified and summarized in the __________.

ledger

The account balance must be in its _____________.

normal balance

After posting the journal entries to the ledger, the amounts of the debit and credit columns of the accounts are totaled and the difference between the mount of debit and credit totals is determined. This process is called _____________.

pencil footing

adding of debits and or credits for each ledger account into temporary totals

pencil footing

A ___________ is a summary listing of the account titles and the balance of each account.

trial balance

The most basic form of journal

two-column journal

Description column

- The title of the account debited is written on the first line at the extreme left of the description column. - The title of the account credited is written on the second line indented by about ½ inch from the debit entry. - A brief description of the transaction is written below the entry and indented again by about ½ inch from the credit entry. A complete journal entry should have an explanation or description of the nature of the transaction.

Date column

- Write the year in small figures on top of the first line of the date column. The month is written below the year on the first line. - The day is written on the first line of the 2nd column. - The year and the month are not written again on the same page unless the month changes. - The day of each transaction is written regardless of the number of transactions that occurred on the same date.

The 11 accounting process or accounting cycle (service)

1. Analysing business transactions by examining the source documents 2. Journalizing 3. Posting 4. Preparing a trial balance 5. Gathering of necessary adjustment data 6. Preparing a worksheet 7. Preparing the financial statements 8. Journalizing and posting the adjusting entries 9. Journalizing and posting the closing entries 10. Preparing the Post-closing trial balance 11. Preparing the reversing entries

When the trial balance is out of balance, it might be due to any of the following reasons.

1. Columns of the trial balance may be incorrectly added. 2. Account balance might have been entered in the wrong column. That is, a debit balance erroneously listed in the credit column or vice versa. Go over with the listed balances and check whether they are all in their normal balances. 3. Amounts from the ledger may be incorrectly entered on the trial balance or may be omitted in the trial balance. 4. While posting, a wrong amount might have been posted to an account. 5. While posting, a debit is erroneously posted to the credit or vice versa.

4 steps in posting

1. Locate in the ledger the debit and credit accounts in the journal entry. 2. Enter the data of the transaction, and in the posting reference column of the ledger, the page of the journal from which the entry originates. 3. Record the debit and credit amounts in their respective accounts they appear in the journal. 4. Enter in the posting reference column of the journal the account as number to which the amount was posted.

Asset accounts are usually numbered starting with _____, liabilities starting with _____, capital starting with _____, revenue starting with _____, and expenses starting with _____

1; 2; 3; 4; 5

Steps or procedures (5) in journalizing transactions using a 2-column journal (manual system)

Date column Description column Posting Reference (P/R) column Debit Column Credit Column

TRUE OR FALSE: The amount of the debits is not always equal the amount of the credits.

FALSE, should always equal

_____________ are journals designed for transactions that are repetitive and recurring, in which the use of a general journal would be inefficient.

Special journals

___________ are ledgers that support the main general ledger account.

Subsidiary ledgers

all account has corresponding __________

T-account

TRUE OR FALSE: Always leave one space after each journal entry. Write the name of the book as in Journal or General Journal at the upper portion of every page. Put a page number on each sheet of journal.

TRUE

TRUE OR FALSE: Do not put peso sign, comma, and decimal point when using columnar sheets. When there are no centavos involved, a dash is placed in the centavo column.

TRUE

TRUE OR FALSE: If an account is debited in the journal, it will also be posted on the debit side of the account in the ledger, and vice versa

TRUE

A ____________ is a list of all the accounts of the business and their corresponding account numbers.

chart of accounts

_______ are list of account titles are prepared beforehand to guide bookkeepers and accountants as to what specific account titles are to be used in recording transactions.

chart of accounts

When an erroneous journal entry has been posted already, it is not a proper practice to correct the error by drawing a line across the error. Various erasures might lead to suspicions of fraud or dishonest practice in the company. A _____________ must be prepared to correct this type of error.

correcting entry

4. If the difference of the trial balance column is ______________, let us say P 265. This may result to the omission of an account balance in the trial balance or omission in the posting a journal entry. Compare the balances in the trial balance with that of the ledger and the postings in the ledger with the entry in the journal.

not divisible by two or nine

The first and second entries are _______________ since there is only one debit and one credit in the entry.

simple journal entries

In a ___________, the number is erroneously moved one or more spaces to the right or left like writing P 352.00 as P 35.20 or P 3,520.

slide