assignment 1 journals ledgers and financial statements

Double-entry Accounting

Accounting Journals, Ledgers, And Double Entry Explained

When it comes to journals, ledgers, and double entries in general, it’s often paramount to get the basics right. Therefore, we will highlight all the basics you need to know about the above, and more, through easy-to-understand examples—read on to find out more.

Everything To Know About Journal And Ledger Entries

You might have noticed that every transaction we recorded immediately impacted two accounts if you had taken a quick look at the one-page financial statements from our last post on the balance sheet and income statement. 

For instance, we used (reduced) funds from our bank account (an asset account) to pay the Rent, and we logged the payment to Rent (an expense account). 

_Review what we published before about The Use Of Double-Entry Accounting   

The Flow Of Funds Needs To Be Tracked

Money, or value more generally, doesn't just exist or vanish in a firm. It must originate from somewhere (you, the owner; loans; revenue; or another source) and be put to use or invested in some manner 

(in bank accounts and other assets; back to you, the owner; to settle liabilities; or to pay expenses). 

As a result, it becomes common practice to record every transaction as an exchange between two accounts, just as we did in our specific instances. 

Use Wafeq - an accounting system to keep track of debits and credits, manage your inventory, payroll, and more.

The Origins Of Accounting In A Nutshell

The practice of recording each transaction in a day book, or "journal," and cross-posting the identical transactions into two different Accounts inside a Ledger was developed by merchants as early as the mid-15th century. 

When accounting started going from paper to computers, software developers used the same principles and techniques due to how successfully this process withstood the test of time. 

There is no reason you should ever need to be able to complete double-entry bookkeeping by hand, on paper. However, it's helpful to be aware of the components of a traditional bookkeeping system, so you can comprehend what Wafeq is doing in the background. 

The Accounting Process Breakdown

Let's examine the conventional accounting procedure. 

- The Source Records of the company's financial activities are provided by invoices, purchase orders, bills, receipts, petty cash slips, bank transaction histories, and other potentially relevant data. 

Transactions should be recorded in a Journal to be viewed chronologically.

- Journals: Books of a daily record where each transaction is documented in chronological order with a note of which account received value in the transaction and which contributed value (much like a personal diary that you write every day).

- Journal transactions are "posted" (copied out) into the appropriate Ledger Accounts. The above is known as a double entry. Every Journal entry, or "double entry," records an Account that receives value and an Account that delivers value, resulting in two postings to the affected Ledger Accounts.

- Ledgers: Summative record books that typically have a page for each account. Transactions first recorded in the Journals are repeated in the Ledgers, where they are categorized and summed up by account as opposed to Date.

- Financial reports: A Trial Balance is performed as of the reporting date to ensure there have been no mistakes in posts to the Ledger. The Financial Statements pull ledger balances and re-present them.

- Financial Statements : Totals from the asset, liability, and owner's equity-type ledger accounts are shown on the balance sheet as of the balance date. Totals from the Income and Expense-type accounts for the reporting period are included in the P&L. 

 Accounting Software To The Rescue

Thankfully, you don’t have to do all this manually, like in the old times. Instead, Wafeq does the heavy lifting and completes almost all relevant accounting transactions automatically and reliably. 

With our cutting-edge accounting software, we can aid you through the entire accounting process and help your business see its results clearer than ever. Despite that, there are still a few things that you should be aware of about journal and ledger entries, so we listed them below. 

Understand The General Ledger At Its Core

The General Ledger, which is just a list of every transaction you've ever made, arranged by account, is still present in Wafeq, even though it's no longer pages in a large, leather-bound book. 

You Will Never Need To Post A Journal Transaction To A Ledger

Everything now sits in an extensive database, ready for you to view from any aspect you need, unlike the paper-based, manual accounting of the past, when transactions were typed into journals, copied into ledgers, checked, and aggregated into financial statements that you could use.

The Above Is All The Ledgers You Need To Know

Back in the day, large companies with a high volume of sales and purchases would record their sales in specific ledgers like the sales ledger after posting them to journals like the sales journal. 

Periodically, the transactions in separate ledgers would be added up, and the total for the time would be reported to General Ledger. 

You don't need to worry about any of this, but now you'll understand if your accountant mentions your sales ledger or purchases ledger to you.  

   Use Wafeq to keep all your expenses and revenues on track to run a better business. 

Module 3: Recording Business Transactions

Introduction to journals and ledgers, what you’ll learn to do: identify the accounting books of record.

As you’ve seen, after recognizing a business event as a business transaction, we analyze the event to determine its increase or decrease effects on the assets, liabilities, owner’s (stockholder’s) equity items, dividends, revenues, or expenses of the business. After the analysis, we translate these increase or decrease effects into debits and credits.

In each business transaction we record, the total dollar amount of debits must equal the total dollar amount of credits. When we debit one account (or accounts) for $100, we must credit another account (or accounts) for a total of $100. Double-entry accounting requires that each transaction is recorded by an entry that has equal debits and credits.

Now, the question we must answer is, where and how exactly do we record these transactions?

In step two of our 10-step process, we see that the first place to record a transaction is called a journal. Even if you are using a computer system (which is likely), you’ll be entering transactions as debits and credits into a journal. Let’s find out what a journal is, what it looks like, and how it is related to the ledger and the trial balance.

• Introduction to Journals and Ledgers. Authored by : Joseph Cooke. Provided by : Lumen Learning. License : CC BY: Attribution
• Accounting Cycle: The first four steps in the accounting cycle. Authored by : Rice University,. Provided by : OpenStax. License : CC BY-NC-SA: Attribution-NonCommercial-ShareAlike

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4.4 Preparing Journal Entries

Learning objectives.

At the end of this section, students should be able to meet the following objectives:

• Describe the purpose and structure of a journal entry.
• Identify the purpose of a journal.
• Define “trial balance” and indicate the source of its monetary balances.
• Prepare journal entries to record the effect of acquiring inventory, paying salary, borrowing money, and selling merchandise.
• Define “accrual accounting” and list its two components.
• Explain the purpose of the revenue realization principle.
• Explain the purpose of the matching principle.

Question : In an accounting system , the impact of each transaction is analyzed and must then be recorded . Debits and credits are used for this purpose . How does the actual recording of a transaction take place?

Answer: The effects produced on the various accounts by a transaction should be entered into the accounting system as quickly as possible so that information is not lost and mistakes have less time to occur. After analyzing each event, the financial changes caused by a transaction are initially recorded as a journal entry . A list of all recorded journal entries is maintained in a journal (also referred to as a general journal ), which is one of the most important components within any accounting system. The journal is the diary of the company: the history of the impact of the financial events as they took place.

A journal entry is no more than an indication of the accounts and balances that were changed by a transaction.

Question : Debit and credit rules are best learned through practice . In order to grasp the use of debits and credits , how should the needed practice begin?

Answer: When faced with debits and credits, everyone has to practice at first. That is normal and to be expected. These rules can be learned quickly but only by investing a bit of effort. Earlier in this chapter, a number of transactions were analyzed to determine their impact on account balances. Assume now that these same transactions are to be recorded as journal entries. To provide a bit more information for this illustration, the reporting company will be a small farm supply store known as the Lawndale Company that is located in a rural area. For convenience, assume that the company incurs these transactions during the final few days of Year One, just prior to preparing financial statements.

Assume further that this company already has the account balances presented in Figure 4.3 “Balances Taken From T-accounts in Ledger” in its T-accounts before making this last group of journal entries. Note that the total of all the debit and credit balances do agree ($54,300) and that every account shows a positive balance. In other words, the figure being reported is either a debit or credit based on what makes that particular type of account increase. Few T-accounts contain negative balances.

This current listing of accounts is commonly referred to as a trial balance . Since T-accounts are kept together in a ledger (or general ledger), a trial balance reports the individual balances for each T-account maintained in the company’s ledger.

Figure 4.3 Balances Taken From T-accounts in Ledger

Question : Assume that after the above balances were determined , several additional transactions took place . The first transaction analyzed at the start of this chapter was the purchase of inventory on credit for $2,000 . This acquisition increases the record of the amount of inventory being held while also raising one of the company’s liabilities , accounts payable . How is the acquisition of inventory on credit recorded in the form of a journal entry?

Answer: Following the transactional analysis, a journal entry is prepared to record the impact that the event has on the Lawndale Company. Inventory is an asset that always uses a debit to note an increase. Accounts payable is a liability so that a credit indicates that an increase has occurred. Thus, the following journal entry is appropriate 2 .

Figure 4.4 Journal Entry 1: Inventory Acquired on Credit

Notice that the word “inventory” is physically on the left of the journal entry and the words “accounts payable” are indented to the right. This positioning clearly shows which account is debited and which is credited. In the same way, the $2,000 numerical amount added to the inventory total appears on the left (debit) side whereas the $2,000 change in accounts payable is clearly on the right (credit) side.

Preparing journal entries is obviously a mechanical process but one that is fundamental to the gathering of information for financial reporting purposes. Any person familiar with accounting procedures could easily “read” the above entry: based on the debit and credit, both inventory and accounts payable have gone up so a purchase of merchandise for $2,000 on credit is indicated. Interestingly, with translation of the words, a Venetian merchant from the later part of the fifteenth century would be capable of understanding the information captured by this journal entry even if prepared by a modern company as large as Xerox or Kellogg.

Question : As a second example , the Lawndale Company pays its employees their regular salary of $300 for work performed during the past week . If no entry has been recorded previously , what journal entry is appropriate when a salary payment is made?

Answer: Because no entry has yet been made, neither the $300 salary expense nor the related salary payable already exists in the accounting records. Apparently, the $1,000 salary expense appearing in the above trial balance reflects earlier payments made during the period by the company to its employees.

Payment is made here for past work so this cost represents an expense rather than an asset. Thus, the balance recorded as salary expense goes up by this amount while cash decreases. Increasing an expense is always shown by means of a debit; decreasing an asset is reflected through a credit.

Figure 4.5 Journal Entry 2: Salary Paid to Employees

In practice, the date of each transaction could also be included here. For illustration purposes, this extra information is not necessary.

Question : Assume $9,000 is borrowed from a local bank when officials sign a new note payable that will have to be repaid in several years . What journal entry is prepared by a company’s accountant to reflect the inflow of cash received from a loan?

Answer: As always, recording begins with an analysis of the transaction. Here, cash increases as the result of the incurred debt (notes payable). Cash—an asset—increases $9,000, which is shown as a debit. The company’s notes payable balance also goes up by the same amount. As a liability, the increase is recorded through a credit. By using debits and credits in this way, the financial effects are entered into the accounting records.

Figure 4.6 Journal Entry 3: Money Borrowed from Bank

Link to multiple-choice question for practice purposes: http://www.quia.com/quiz/2092610.html

Question : In Transaction 1 , inventory was bought for $2,000 . That entry is recorded above . Assume now that these goods are sold for $5,000 to a customer on credit . How is the sale of merchandise on account recorded in journal entry form?

Answer: As discussed previously, two events really happen when inventory is sold. First, the sale is made and, second, the customer takes possession of the merchandise from the company. Assuming again that a perpetual inventory system is in use, both the sale and the related expense are recorded immediately. In the initial part of the transaction, the accounts receivable balance goes up $5,000 because the money from the customer will not be collected until a later date. The increase in this asset is shown by means of a debit. The new receivable resulted from a sale. Revenue is also recorded (by a credit) to indicate the cause of that effect.

Figure 4.7 Journal Entry 4A: Sale Made on Account

At the same time, inventory costing $2,000 is surrendered by the company. The reduction of any asset is recorded through a credit. The expense resulting from the asset outflow has been identified previously as “cost of goods sold.” Like any expense, it is entered into the accounting system through a debit.

Figure 4.8 Journal Entry 4B: Merchandise Acquired by Customers

Question : In the above transaction , the Lawndale Company made a sale but the cash will not be collected until some later date . Why is revenue reported at the time of sale rather than when the cash is eventually collected? Accounting is conservative . Thus , delaying recognition of sales revenue (and the resulting increase in net income) until the $5,000 is physically received might have been expected .

Answer: This question reflects a common misconception about the information conveyed through financial statements. As shown above in Journal Entry 4A, recognition of revenue is not tied directly to the receipt of cash. One of the most important elements comprising the structure of U.S. GAAP is accrual accounting , which serves as the basis for timing the reporting of revenues and expenses. Because of the direct impact on net income, such recognition issues are among the most complicated and controversial in accounting. The accountant must always determine the appropriate point in time for reporting each revenue and expense. Accrual accounting provides standard guidance (in the United States and throughout much of the world).

Accrual accounting is really made up of two distinct components. The revenue realization principle provides authoritative direction as to the proper timing for the recognition of revenue. The matching principle establishes guidelines for the reporting of expenses. These two principles have been utilized for decades in the application of U.S. GAAP. Their importance within financial accounting can hardly be overstated.

Revenue realization principle . Revenue is properly recognized at the point that (1) the earning process needed to generate the revenue is substantially complete and (2) the amount eventually to be received can be reasonably estimated. As the study of financial accounting progresses into more complex situations, both of these criteria will require careful analysis and understanding.

Matching principle . Expenses are recognized in the same time period as the revenue they help create. Thus, if specific revenue is to be recognized in the year 2019, any associated costs should be reported as expenses in that same time period. Expenses are matched with revenues. However, when a cost cannot be tied directly to identifiable revenue, matching is not possible. In those cases, the expense is recognized in the most logical time period, in some systematic fashion, or as incurred—depending on the situation.

For the revenue reported in Journal Entry 4A, assuming that the Lawndale Company has substantially completed the work required of this sale and $5,000 is a reasonable estimate of the amount that will be collected, recognition at the time of sale is appropriate. Because the revenue is recognized at that moment, the related expense (cost of goods sold) should also be recorded as can be seen in Journal Entry 4B.

Accrual accounting provides an excellent example of how U.S. GAAP guides the reporting process in order to produce fairly presented financial statements that can be understood by all decision makers around the world.

Link to multiple-choice question for practice purposes: http://www.quia.com/quiz/2092642.html

Key Takeaway

After the financial effects are analyzed, the impact of each transaction is recorded within a company’s accounting system through a journal entry. The purchase of inventory, payment of a salary, and borrowing of money are all typical transactions that are recorded by means of debits and credits. All journal entries are maintained within the company’s journal. The timing of this recognition is especially important in connection with revenues and expenses. Accrual accounting provides formal guidance within U.S. GAAP. Revenues are recognized when the earning process is substantially complete and the amount to be collected can be reasonably estimated. Expenses are recognized based on the matching principle, which holds that they should be reported in the same period as the revenue they help generate.

1 In larger organizations, similar transactions are often grouped, summed, and recorded together for efficiency. For example, all cash sales at one store might be totaled automatically and recorded at one time at the end of each day. To help focus on the mechanics of the accounting process, the journal entries recorded for the transactions in this textbook will be prepared individually.

2 The parenthetical information is included here only for clarification purposes and does not appear in a true journal entry.

Financial Accounting Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

Accounting Ledger

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on April 11, 2024

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Table of Contents

What is an accounting ledger.

An accounting ledger refers to a financial record book where accounting transactions are recorded.

A ledger holds the accounts for a business or individual so that they can keep track of their financial situation. It is considered to be the single source of truth when it comes to finances.

Basically, a ledger is where all journal entries are being summed up with the specific account names drawn from the chart of accounts used as a heading.

Financial transactions posted into the ledger are broken down by type into specific accounts whether they are classified as assets, liabilities, equity , expenses, and revenues .

What Is the Purpose of an Accounting Ledger?

The purpose of an accounting ledger is to provide users with a record of financial transactions as well as a means to generate key business reports such as balance sheets, cash flow statements, and income statements .

Preparing a Ledger

The accounting ledger provides users with the ability to keep tabs on their finances. It is broken down into several different accounts that show what assets are, liabilities and equity, revenues/ income , and expenses/costs.

This helps give insight into how much profit or loss is being made within a certain time period. Ledgers also provide the ability to enter financial transactions so that they may be posted up into various accounts.

Here’s how to prepare a ledger:

Transactions: On April 12, 2021, Ayra’s Merchandise sold inventory amounting to $1000 to its customer for cash.

On April 23, 2021, Ayra’s Merchandise received cash in the amount of $400 as payment from one of its customers. On April 30, 2021, Ayra’s Merchandise paid rent in cash for $250.

The journal entries for these transactions will look like this:

To post the same transactions into the ledger, we draw the same details from the journal. The ledgers will look like this:

Types of Ledgers

Below are the three types of ledgers:

Sales Ledger

A sales ledger is a type of accounting ledger that is used in businesses to keep track of all their sales and revenue. This ledger shows the total amount collected from each customer.

This will be helpful when it comes time to prepare reports such as cash flow statements and income statements which require users to provide information on the money they’ve brought in from customers through sales.

Purchase Ledger

A purchase ledger is used to keep track of all the purchases made by a business. This may include parts, supplies, equipment, and inventory for their products.

This will be helpful when it comes time to prepare reports such as cash flow statements and balance sheets which require users to provide information on their expenses.

General Ledger

A general ledger is used in businesses that sell services or products. It’s considered to be the heart of all their business transactions since it provides users with the ability to gather information on sales, purchases, and cash flow.

This single ledger holds all financial transactions for a business so that it may prepare relevant reports easily. A general ledger has two types: nominal and private ledger.

• Nominal Ledger

A nominal ledger is what its name implies-it’s a ledger that uses only nominal accounts. These are accounts that do not hold any real cash balance but mostly show transactions for revenues, costs, and expenses.

This type of general ledger can be used by sole traders who sell their own services or products to customers.

• Private Ledger

A private ledger is where accounts of confidential nature are recorded. These accounts may include capital , salaries, drawings, etc. A private ledger may only be accessed by selected individuals.

Final Thoughts

A ledger provides users with the ability to keep track of their financial transactions. It is divided into several different accounts that show what assets are, liabilities and equity, revenues/income, and expenses/costs.

This helps give insight into how much profit or loss is being made within a certain time period.

Ledgers also provide the ability to prepare reports such as balance sheets and cash flow statements which can be used by business owners, managers, and employees for decision-making purposes.

With the help of ledgers, users can gain a better idea of what is going on inside their company so they may make more informed decisions and effectively manage their finances.

Accounting Ledger FAQs

What is the purpose of an accounting ledger.

The main purpose of an accounting ledger is to keep track of all financial transactions that have taken place within a business. It allows users to gather information on sales, purchases, and cash flow which can be used for reports such as balance sheets and income statements.

How to prepare an accounting ledger?

Users can prepare an accounting ledger by first gathering all their financial transaction details from journals and then drawing the same details into separate columns on the ledgers. To gather journal information, users must understand debits and credits. Once they have done so, it will be much easier for them to post transactions correctly onto ledgers.

What are the types of accounting ledgers?

There are three main types of accounting ledgers: sales, purchase, and general. Sales ledgers are used to keep track of all the money being collected from customers. Purchase ledgers are used to keep track of all expenses made by a business. General ledgers are what their name implies-a summary ledger that provides information on all transactions made by a business.

What is the difference between the types of accounting ledgers namely nominal and private ledger?

A nominal ledger houses all nominal accounts such as rent, depreciation, sales, etc. A private ledger has access restricted to specific individuals only for confidentiality purposes.

Is it mandatory for businesses to prepare an accounting ledger?

No, businesses don’t need to prepare an accounting ledger. However, they can provide users with more insight into their financial transactions which may give them the ability to make better decisions as managers or owners of a business.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Accounting 302 - Assignment 1: Journal Entry Problem Set

Table of contents, about this assignment, problem set, related lessons, grading rubric, before you submit, how to submit your assignment.

In accounting systems, business transactions are first recorded in a journal. A journal entry that is recorded in a company's general journal will consist of the date, the amount/s and account/s that will be debited, the amount/s and account/s that will be credited, and a brief description/memo. This assignment will measure your understanding of the double entry system in accounting and will focus on the content of Chapters 1-3 in the Study.com course and the corresponding learning outcomes. Before beginning the assignment, please read the rubrics carefully to understand the expectations and how your work will be graded. Please note that you are required to utilize correct formatting, including headings and sub-headings, and show how calculations are done.

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Problem # 1: Dino's After School purchased 50 textbooks from the local publisher, about career readiness, to resell to clients. The total cost of the transaction, including shipping and handling, was $552. The textbooks were purchased on account. Use a journal entry to record this transaction, using the perpetual inventory system.

Problem # 2: Dino's After School returned 8 severely damaged books to the publisher. The total value of the returned merchandise was $94. Use a journal entry to record this transaction, using the perpetual inventory system.

Problem # 3: Examine the invoice below. If Dino's After School paid the invoice of 5/30/17 on 6/6/17, record the journal entry that would be made for the payment of the invoice. Explain in 100-150 words the effect of discounts on merchandise inventory.

Problem # 4: Dino's After School sold 3 books to Sandy Mason on account for a total of $60. The total cost of the books sold was $34. Record the journal entries that would be made for this transaction using a perpetual inventory system. Why are two journal entries required to record the sale of merchandise in a perpetual inventory system? (100-150 words)

Problem #5: Use the information from (D) above. Sandy Mason returned 1 book. Record the journal entries for this transaction in a perpetual inventory system. Explain why two journal entries are required to record a sales return. (100-150 words)

The following lessons from the course may also help you with this assignment.

• Perpetual Inventory System: Definition, Advantages & Examples
• Accounting for Inventory Sales
• Accounting for Inventory Purchases

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4.4: Use the Ledger Balances to Prepare an Adjusted Trial Balance

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Once all of the adjusting entries have been posted to the general ledger, we are ready to start working on preparing the adjusted trial balance. Preparing an adjusted trial balance is the sixth step in the accounting cycle. An adjusted trial balance is a list of all accounts in the general ledger, including adjusting entries, which have nonzero balances. This trial balance is an important step in the accounting process because it helps identify any computational errors throughout the first five steps in the cycle.

As with the unadjusted trial balance, transferring information from T-accounts to the adjusted trial balance requires consideration of the final balance in each account. If the final balance in the ledger account (T-account) is a debit balance, you will record the total in the left column of the trial balance. If the final balance in the ledger account (T-account) is a credit balance, you will record the total in the right column.

Once all ledger accounts and their balances are recorded, the debit and credit columns on the adjusted trial balance are totaled to see if the figures in each column match. The final total in the debit column must be the same dollar amount that is determined in the final credit column.

Let’s now take a look at the adjusted T-accounts and adjusted trial balance for Printing Plus to see how the information is transferred from these T-accounts to the adjusted trial balance. We only focus on those general ledger accounts that had balance adjustments.

For example, Interest Receivable is an adjusted account that has a final balance of $140 on the debit side. This balance is transferred to the Interest Receivable account in the debit column on the adjusted trial balance. Supplies ($400), Supplies Expense ($100), Salaries Expense ($5,100), and Depreciation Expense–Equipment ($75) also have debit final balances in their adjusted T-accounts, so this information will be transferred to the debit column on the adjusted trial balance. Accumulated Depreciation–Equipment ($75), Salaries Payable ($1,500), Unearned Revenue ($3,400), Service Revenue ($10,100), and Interest Revenue ($140) all have credit final balances in their T-accounts. These credit balances would transfer to the credit column on the adjusted trial balance.

Once all balances are transferred to the adjusted trial balance, we sum each of the debit and credit columns. The debit and credit columns both total $35,715, which means they are equal and in balance.

After the adjusted trial balance is complete, we next prepare the company’s financial statements.

THINK IT THROUGH

Cash or accrual basis accounting.

You are a new accountant at a salon. The salon had previously used cash basis accounting to prepare its financial records but now considers switching to an accrual basis method. You have been tasked with determining if this transition is appropriate.

When you go through the records you notice that this transition will greatly impact how the salon reports revenues and expenses. The salon will now report some revenues and expenses before it receives or pays cash.

How will change positively impact its business reporting? How will it negatively impact its business reporting? If you were the accountant, would you recommend the salon transition from cash basis to accrual basis?

CONCEPTS IN PRACTICE

Why is the adjusted trial balance so important.

As you have learned, the adjusted trial balance is an important step in the accounting process. But outside of the accounting department, why is the adjusted trial balance important to the rest of the organization? An employee or customer may not immediately see the impact of the adjusted trial balance on his or her involvement with the company.

The adjusted trial balance is the key point to ensure all debits and credits are in the general ledger accounts balance before information is transferred to financial statements. Financial statements drive decision-making for a business. Budgeting for employee salaries, revenue expectations, sales prices, expense reductions, and long-term growth strategies are all impacted by what is provided on the financial statements.

So if the company skips over creating an adjusted trial balance to make sure all accounts are balanced or adjusted, it runs the risk of creating incorrect financial statements and making important decisions based on inaccurate financial information.

Assignment 1: Journals, Ledgers, and Financial Statements

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Problem Set B

LO 7.2 On June 30, Isner Inc.’s bookkeeper is preparing to close the books for the month. The accounts receivable control total shows a balance of $550, but the accounts receivable subsidiary ledger shows total account balances of $850. The accounts receivable subsidiary ledger is shown here. Can you help find the mistake?

LO 7.4 Piedmont Inc. has the following transactions for the month of July.

• Record the transactions for Piedmont Inc. in the proper special journal, and post them to the subsidiary ledger and general ledger account.
• Record the same transactions using QuickBooks, and print the special journals and subsidiary and general ledger. Your solution done manually should match your solution using QuickBooks.

LO 7.4 Use the journals and ledgers that follow. Total and rule (draw a line under the column of numbers) the journals. Post the transactions to the subsidiary ledger and (using T-accounts) to the general ledger accounts. Then prepare a schedule of Accounts Payable.

LO 7.4 Comprehensive Problem: Manual Accounting Information System versus QuickBooks

The following problem is a comprehensive problem requiring you to complete all of the steps in the accounting cycle, first manually and then by entering the same transactions and performing the same steps using QuickBooks. This will demonstrate the important point that a manual accounting information system (AIS) and a computerized AIS both allow the user to perform the same steps in the accounting cycle, but they are done differently.

In a manual system, every step must be performed by the user. In contrast to this, in a computerized system, for each transaction, the user determines the type of transaction it is and enters it in the appropriate data entry screen. The computer then automatically places the transactions in transaction files (the equivalent of journals in a manual system). The user then instructs the system to post the transaction to the subsidiary ledger and at the end of the month to the general ledger. The computer can do the posting automatically.

Other steps done automatically by the computer are preparing a trial balance, closing entries, and generating financial statements. The user would have to provide the computer with information about adjusting entries at the end of the period. Some adjusting entries can be set up to be done automatically every month, but not all. When we say the computer can do a specific step “automatically,” this presumes that a programmer wrote the programs (i.e., detailed step-by-step instructions in a computer language) that tell the computer how to do the task. The computer can then follow those instructions and do it “automatically” without human intervention.

Assume there is a small shoe store in your neighborhood with a single owner. The owner started the business on December 1, 2018, and sells two types of shoes: a comfortable sneaker that is something athletes would purchase, and a comfortable dress shoe that looks dressy but has the comfort of a sneaker. The name of the business is The Shoe Horn . Complete tasks A and B that follow, using the detailed instructions for each. Following is a list of all transactions that occurred during December 2018.

• Enter all of the transactions and complete all of the steps in the accounting cycle assuming a manual system. Follow the steps to be performed using a manual system .
• Enter the transactions into QuickBooks, complete all of the steps in the accounting cycle, and generate the same reports (journals trial balances, ledgers, financial statements). Follow the steps to be performed using a manual system. Follow the steps to be performed using QuickBooks .

Steps to be performed using a manual system

• For each of the transactions listed for the month of December 2018, identify the journal to which the entry should be recorded. Your possible choices are as follows: general journal (GJ), cash receipts journal (CR), cash disbursements journal (CD), sales journal (SJ), or purchases journal (PJ). Templates for the journals and ledgers have been provided.
• Accounts Receivable
• Merchandise Inventory
• Prepaid Insurance
• Prepaid Rent
• Office Supplies
• Accounts Payable
• Purchases Discounts
• Utilities Expense Payable
• Jack Simmons, Capital
• Sales Returns and Allowances
• Sales Discounts
• Cost of Goods Sold
• Rent Expense
• Advertising Expense
• Telephone Expense
• Utilities Expense
• Office Supplies Expense
• Insurance Expense
• Compute balances for each general ledger account and for each Accounts Receivable and Accounts Payable subsidiary ledger account.
• Prepare a trial balance.
• Prepare an accounts receivable schedule and an accounts payable schedule.
• There were $100 worth of office supplies remaining at the end of December.
• Make an adjusting entry relative to insurance.
• There was an additional bill received in the mail for utilities expense for the month of December in the amount of $100 that is due by January 10, 2019. Jack Simmons intends to pay it in January.
• Prepare an adjusted trial balance
• Prepare an Income statement, Statement of Owner’s Equity, and Balance Sheet.

Steps to be performed using QuickBooks. You can access a trial version of QuickBooks (https://quickbooks.intuit.com/pricing/) to work through this problem.

• Set up a new company called The Shoe Horn using easy step interview.
• You will be adding a bank account, customizing preferences, adding customers, adding vendors, adding products, and customizing the chart of accounts. You will not need to enter opening adjustments since you are entering transactions for a new company, so there are no opening balances. QuickBooks should automatically create a chart of accounts, but you can customize it, and you will need to enter information for a customer list, vendor list, and (inventory) items list.
• Use “QB transactions” to enter each of the following transactions for the month of December 2018. You can use Onscreen Journal to enter transactions into the general journal, and Onscreen Forms to enter transactions that will end up in the special journals. Identify the type of transaction it is: a sale, a purchase, a receipt of cash, or a payment by check. The categories QuickBooks uses are banking and credit card, customers and sales, vendors and expenses, employees and payroll (not needed in this problem), and other. Note: there is no need to identify the journal as in a manual system or to enter a journal entry, because in an AIS like QuickBooks, you enter the transaction information, and behind the scenes, QuickBooks creates a journal entry that gets added to a transaction file (the equivalent of a journal). After the transactions for the month have been entered, you can print out each of the five journals.

• Generate and print a trial balance. Use QB reports to print this and other reports.
• Make an adjusting entry relative to insurance
• Generate and print an adjusted trial balance.
• QuickBooks will automatically prepare closing journal entries.
• Print the financial statements: the Income Statement (same as Profit and Loss Statement) and the Balance Sheet.
• Print all of the five journals. After the transactions for the month have been entered, you can print out each of the five journals (general journal, cash receipts journal, cash disbursements journal, sales journal, purchases journal).
• Print the general ledger and the accounts receivable and accounts payable subsidiary ledgers.
• Compare the items you printed from QuickBooks to what you have manually prepared. The content should be identical, although the format may be slightly different. Note: while the results are the same, the QuickBooks software did many of the steps for you automatically.

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• Authors: Mitchell Franklin, Patty Graybeal, Dixon Cooper
• Publisher/website: OpenStax
• Book title: Principles of Accounting, Volume 1: Financial Accounting
• Publication date: Apr 11, 2019
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters
• Section URL: https://openstax.org/books/principles-financial-accounting/pages/7-problem-set-b

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