ACT2111

Introductory
Financial Accounting
Dr. Lu yifei 卢一飞
 The Help you can get
⚫ Prof. Lu Yifei:
• Location: Zhiren 610
• Office Hours: Tuesdays 9-12 noon & 2-5 pm
• WeChat: 17317244663
⚫ Teaching Assistants:
• Q&A session during onsite tutorials (starting week 3)
⚫ USTF:
• Location: Start-up zone Library L103
• First Two Week’s Onsite Office Hours:
Monday
Tuesday 18:30-20:30
Wednesday 15:30-17:30, 19:30-21:30
Thursday 15:30-17:30, 19:30-21:30
Friday 14:30-16:30
 Practice: basic concepts
Indicate whether each of the five statements presented below is true or false. If false, indicate
how to correct the statement.

1. The three steps in the accounting process are identification, recording, and communication.
√
2. Bookkeeping encompasses all steps in the accounting process.
X
Only the recording step
3.
X Accountants prepare, but do not interpret, financial reports.
and
4. The two most common types of external users are investors and company officers.
X
creditors
5. Managerial accounting activities focus on reports for internal users.
√
 Practice: blocks of accounting
Indicate whether each of the five statements presented below is true or false. If false, indicate
how to correct the statement.
√1. Ethics are the standards of conduct by which actions are judged as right or wrong, honest or
dishonest, fair or not fair.
√2. The primary accounting standard-setting body headquartered in London is the International
Accounting Standards Board (IASB).
3. An asset recorded using the historical cost basis results in recording assets at their cost. In later
X
periods, however, the current value of the asset must be used if current value is higher than its cost.
Not adjusted for current value

4. Relevance means that financial information matches what really happened; the information is
X
factual. Faithful representation
√
5. A business owner’s personal expenses must be separated from expenses of the business to comply
with accounting’s economic entity assumption.
 Practice: Corporate Organization
Indicate whether each of the following statements is true or false. If false, indicate how to correct
the statement.

X 1. Similar to partners in a partnership, shareholders of a corporation have unlimited liability.

____
limited
√ 2. It is relatively easy for a corporation to obtain capital through the issuance of shares.
____

X 3. The separation of ownership and management is an advantage of the corporate form of

____
business. disadvantage

X 4. The journal entry to record the authorization of ordinary shares includes a credit to the
____
appropriate share capital account. No accounting entry for the authorization
 Practice: equity
Classify the following items as issuance of shares (I), dividends (D), revenues (R), or expenses (E).
Then indicate whether each item increases or decreases equity.

a. Rent Expense. E, decrease

b. Service Revenue R, increase
c. Dividends. D, decrease
d. Salaries and Wages Expense. E, decrease
 Practice: transaction analysis
Transactions made by Virmari & Co., a public accounting firm in France, for the month of August are
shown below. Prepare a tabular analysis which shows the effects of these transactions on the expanded
accounting equation, similar to that Illustrated earlier.
1. The company issued ordinary shares for €25,000 cash.
2. The company purchased €7,000 of office equipment on credit.
3. The company received €8,000 cash in exchange for services performed.
4. The company paid €850 for this month’s rent.
5. The company paid a dividend of €1,000 in cash to shareholders.

1. +€25,000 +€25,000
2. +€7,000 +€7,000
3. +8,000 +€8,000
4. -850 -€850
5. -1,000 -€1,000
€38,150 €38,150
 Practice: transaction analysis
Presented below is selected information related to Li Fashions at December 31, 2025. Li reports financial
information monthly.
Equipment HK $10,000 Utilities Expense HK$ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Dividends 5,000
a. Determine the total assets of Li at December 31, 2025.
b. Determine the net income that Li reported for December 2025.
c. Determine the equity of Li at December 31, 2025.

a. Assets=equipment +cash + accounts receivable: 10,000+8,000+9,000=HK$27,000

b. Net income=revenue-expense: 36,000-4,000-7,000-11,000=HK$14,000
c. Equity=assets –liabilities: 27,000-16,500-2,000=HK$8,500
(Note that it is not possible to determine the company’s equity in any other way because the beginning
total for equity is not provided.)
 Financial
statements
Summary of softbyte sa. Transactions
 Financial statements

⚫ Income Statement
• The income statement reports the success or profitability of the company’s
operations over a specific period of time.
• The income statement lists revenues first, followed by expenses. Then, the statement
shows net income (or net loss).
• Note that the income
statement does NOT
include investment
and dividend
transactions between
the shareholders and
the business in
measuring net income.
Summary of softbyte sa. Transactions
 Financial statements

⚫ Retained Earnings Statement

• Retained earnings statement reports the changes in retained earnings for a specific
period of time. The time period is the same as that covered by the income statement
• The first line of the statement shows the beginning retained earnings amount. Then
come net income and dividends.
• The retained earnings ending balance is the final amount on the statement.
Summary of softbyte sa. Transactions
 Financial statements

⚫ Statement Of Financial Position (Balance Sheet)

• Statement of financial
position reports the
assets, liabilities, and
equity at a specific
date (a snapshot).
• Statement of financial
position lists assets at
the top, followed by
equity and then
liabilities.
Financial statements

⚫ Ten business transactions of Softbyte:

1. Investment by Shareholders financing activity
2. Purchase of Equipment for Cash investing activity
3. Purchase of Supplies on Credit no cash
4. Services Performed for Cash operating activity
5. Purchase of Advertising on Credit no cash
6. Services Performed for Cash & Credit operating activity
7. Payment of Expenses operating activity
8. Payment of Accounts Payable in #5 operating activity
9. Receipt of Cash on Account in #6 operating activity
10. Dividends financing activity
 Financial statements

⚫ Statement Of Cash Flows

 Financial statements

⚫ These statements provide relevant financial

data for internal and external users, and
they are interrelated!
1. Net income of €2,750 on the income
statement is added to the beginning balance
of retained earnings in the retained earnings
statement.
2. Retained earnings of €1,450 at the end of
the reporting period shown in the retained
earnings statement is reported on the
statement of financial position.
3. Cash of €8,050 on the statement of financial
position is reported on the statement of cash
flows.
 Financial statements
⚫ Comprehensive Income Statement (not required)
• In some cases, a company must prepare a comprehensive income statement in addition
to its income statement, if it has other comprehensive income items.
• Other comprehensive income items are Not part of net income but are considered
important enough to be reported separately.
• Example of other comprehensive incomes:
• Unrealized gain or loss on bonds
• Unrealized gain or loss on investments that are available for sale
• Foreign currency translation gains or loss
 Reflection of chapter 1

⚫ The Accounting Equation

Assets = Liabilities + Equity

⚫ And the expanded account equation

Assets = Liabilities + Equity

Share Capital-Ordinary Retained Earnings

(invested capital) (earned capital)

Revenue - Expense - Dividends

 Assets = Liabilities + Equity

⚫ What’s the difference between equipment/supply?

• An asset is anything that has value and can be used to generate revenue.
• Supplies: a current asset usually used up within the year they are purchased.
• Equipment: a long-term asset that will last and be used longer than a year, and
often depreciates.

⚫ How about expenses?

• Expenses are money spent or costs incurred by a business.
• Supplies: after they are used, they will be converted to expense.
Details in
Chap. 4•. Equipment: the equipment will be converted to expense gradually through
depreciation.
 Practice: double-entry
Selected transactions for Fabulous Flora are listed below.
1. Issued ordinary shares for cash to start a business. 2. Purchased equipment on account.
3. Paid salaries. 4. Billed customers for services performed.
5. Received cash from customers billed in (4). 6. Paid dividends.
7. Incurred advertising expense on account. 8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Instructions:
List the numbers of the above transactions and describe the effect of each transaction on assets,
liabilities, and equity. For example, the first answer is: (1) Increase in assets and increase in equity.
 Practice: double-entry
Su Feng opened her own law office, Legal Services Ltd., on July 1, 2020. During the first month of
operations, the following transactions occurred (NT$ in thousands).
Instructions:
Describe each transaction.
Chapter 2
 Accounts,
Debits, and credits
 Account, Debits, and credits

⚫ How to record transactions more efficiently? Double-entry Book Keeping System

• “Each business transaction calls for at least two changes in the accounts (using
debit and credit).”

⚫ An account is an individual accounting record of increases and decreases in a

specific asset, liability, or equity item.
• In the example of Softbybe, the accounts used are: Cash, Accounts Receivable,
Accounts Payable, Service Revenue, Salaries and Wages Expense, and so on
⚫ An account consists of three parts:
(1) a title, (2) a left or debit side, and (3) a right or credit side.
 Account, Debits, and credits

⚫ The term debit indicates the left side of an account, and credit indicates the right
side.
• The language of “double-entry” accounting. Debit means “on the left”, Credit means
“on the right”.
• They are commonly abbreviated as Dr. for debit and Cr. for credit.
• They do not mean increase or decrease, as is commonly thought.
• The act of entering an amount on the left side of an account is called debiting the
account. Making an entry on the right side is crediting the account.
 Account, Debits, and credits
⚫ Debit and Credit
• We record numbers in two columns (to avoid using +/-).
• We use the left/right column to increase/decrease assets.
• We use the left/right column to decrease/increase liabilities and equity.
• In this way, if the accounting equation holds: each transaction has numbers recorded
in the left and right columns, with the same amount on both sides!

Assets = Liabilities + Equity

The left side of the equation: The right side of the equation:
The left side is Plus (Increase) The right side is Plus (Increase)
The other side is minus (decrease) The other side is minus (decrease)
Assets = Liabilities + Equity

Share Capital-Ordinary Retained Earnings (earned

(invested capital) capital)

Revenue - Expense - Dividends

Assets = Liabilities + Equity

 Account, Debits, and credits

⚫ Let’s try this:

⚫ For the transactions affecting the Cash account
of Softbyte SA:

⚫ Notice that in the account form, we record the

increases in cash as debits and the decreases in cash
as credits. Because…...?
Reflection of last lecture

⚫ Let’s use Softbyte to practice:

• Transaction 1 in the case of Softbyte SA: On
September 1, 2025, the founders invest
€15,000 cash in the business in exchange for
€15,000 of ordinary shares.
 Reflection of last lecture

⚫ Ten business transactions (in September):

1. Investment by Shareholders
2. Purchase of Equipment for Cash (7,000)
3. Purchase of Supplies on Credit (1,600)
4. Services Performed for Cash (1,200)
5. Purchase of Advertising on Credit (250)
6. Services Performed for Cash & Credit (3,500)
7. Payment of Expenses (1,700)
8. Payment of Accounts Payable (250)
9. Receipt of Cash on Account (600) 7 Expenses 1,700
Cash 1,700
10. Dividends payment (1,300) 8 Acc. Payable 250
Cash 250
9 Cash 600
Acc. Receivable 600
10 Dividend 1,300
Cash 1,300
Summary of Debit and credit rules

⚫ Summary:
• Each transaction must affect two or more accounts to keep the basic accounting
equation in balance. In other words, for each transaction, debits must equal credits.
• The equality of debits and credits provides the basis for the double-entry system of
recording transactions.
• Under the double-entry system, the dual (two-sided) effect of each transaction is
recorded in appropriate accounts.

⚫ Accounts Balances:
⚫ Asset accounts normally show debit balances. That is, debits to a specific asset account
should exceed credits to that account.
⚫ Likewise, liability accounts normally show credit balances.
⚫ How about equity accounts? Well, it is a little bit complicated…
Summary of Debit and credit rules

⚫ Accounts Balances:
⚫ How about equity accounts? Well, it is a little bit complicated…
Except for “retained
earnings”, the
balance usually is on
Assets = Liabilities + Equity the increase side.

Share Capital-Ordinary Retained Earnings

(invested capital) (earned capital)

Revenue - Expense - Dividends

Summary of Debit and credit rules
⚫ The effects that debits and credits have on equity are:
⚫ Shareholders’ investments and revenues increase equity. Dividends and expenses
decrease equity.

• Share Capital—Ordinary

• Retained Earnings.

• Dividends.

• Revenues and Expenses (net income or net loss).

Summary of Debit and credit rules

⚫ To summarize:
 Practice: account balance
Julie Loeng has just rented space in a shopping mall. In this space, she will open a hair salon to be
called “Hair It Is.” A friend has advised Julie to set up a double-entry set of accounting records in
which to record all of her business transactions.
Identify the statement of financial position accounts that Julie will likely need to record the
transactions needed to open her business. Indicate whether the normal balance of each account is
a debit or a credit.
The journal
 Recording process

Post-
Journalize Adjusted
Trial Adjusting Financial Closing Closing
Analyze the Post Trial
Balance entries Statements Entries Trial
Transactions Balance
Balance

⚫ The Journal
• Companies initially record transactions in chronological order (the order in which they
occur).
• The journal is referred to as the book of original entry.
• For each transaction, the journal shows the debit and credit effects on specific accounts.
• Companies may use various kinds of journals, but every company has the most basic
form of a journal, a general journal.
 The journal

⚫ The Journal
• Example: On September 1, Softbyte SA shareholders invested €15,000 cash in the
corporation in exchange for ordinary shares, and Softbyte purchased computer
equipment for €7,000 cash.

1. Date of transaction

2. Debit account

3. Credit account

4. Brief explanation

Reference No.
 Practice: account balance
As president and sole shareholder, Julie Loeng engaged in the following activities in establishing
her beauty salon, Hair It Is.
1. Opened a bank account in the name of Hair It Is and deposited €20,000 of her own money in
this account in exchange for ordinary shares.
2. Purchased equipment on account (to be paid in 30 days) for a total cost of €4,800.
3. Interviewed three applicants for the position of beautician.
In what form (type of record) should Hair It Is record these three activities? Prepare the entries
to record the transactions.
The ledger & posting
 The ledger
Post-
Journalize Post to Adjusted
Trial Adjusting Financial Closing Closing
Analyze the ledger Trial
Balance entries Statements Entries Trial
Transactions account Balance
Balance

⚫ Companies may use various kinds of ledgers, but every company has a general ledger. A
general ledger contains all the asset, liability, and equity accounts.
⚫ In this course, whenever the term “ledger” is used, the general ledger is referred to, unless
specified otherwise.

General Ledger
Accounts
The journal & the ledger
⚫ The journal (a list of transactions, the
book of original entries)
• Companies initially record transactions ⚫ The ledger (a collection of accounts)
in chronological order. • The ledger provides the balance in
# Account Debit Credit each of the accounts as well as
1 Cash 15,000 keeps track of changes in these
Share Capital – Ordinary 15,000 balances.
2 Equipment 7,000
Cash 7,000
Cash Accounts Payable
3 Supplies 1,600
Accounts Payable 1,600
4 Cash 1,200
Revenue 1,200 Share Capital - Ordinary
5 Expense 250
Accounts Payable 250 Equipment
6 Cash 1,500 Revenue
Accounts Receivable 2,000
Revenue 3,500
Supplies
7 Expense 1,700
Cash 1,700 Expense
8 Accounts Payable 250
Cash 250 Accounts Receivable
9 Cash 600 Dividend
Accounts Receivable 600
10 Dividends 1,300
Cash 1,300
 Standard form of accounts: Three-column account

⚫ Three-column form of account ⚫ T-account

• It has three money columns—debit, • It has two money columns—debit,
credit, and balance. credit.
• The balance in the account is • The balance in the account is
determined after each transaction. determined after all transactions.
• Companies use the explanation space • We will see this simplified format in
and reference columns to provide some assignments.
special information about the
transaction.
Cash
25,000 8,000
4,200 11,700
7,500 250
7,300
36,700 27,250
9,450
 Standard form of accounts: Three-column account

⚫ Chart of accounts
• The number and type of accounts
differ for each company.
• There may be gaps in the
numbering system of the chart of
accounts.
 The Recording process: a simple example

⚫ Example of Softbyte SA
• General Journal vs. General Ledger
GENERAL LEDGER
GENERAL JOURNAL
Cash
Date Account Titles and Explanation Ref. Debit Credit
Date Explanation Ref. Debit Credit Balance

Share Capital--Ordinary
 The Recording process: a simple example

⚫ Example of Softbyte SA
• On September 1, shareholders invested €15,000 cash in the corporation in exchange for
ordinary shares.
GENERAL LEDGER

Cash No.101
Date Explanation Ref. Debit Credit Balance
GENERAL JOURNAL J1
2025
Date Account Titles and Explanation Ref. Debit Credit Sept. 1 J1 15,000 15,000
2025
Sept. 1 Cash 101 15,000
Share Capital--Ordinary 311 15,000 Share Capital--Ordinary No.311
Date Explanation Ref. Debit Credit Balance
(Issued shares for cash)
2025
Sept. 1 J1 15,000 15,000
 The Recording process: a simple example

⚫ The recording process

Step 1: Analyzing
Step 2: Journaling
Step 3: Posting
• Post to debit account–date,
journal page number, and
amount.
• Enter debit account number in
journal reference column.
• Post to credit account–date,
journal page number, and
amount.
• Enter credit account number in
journal reference column.
Chap. 12 Corporations:
Organization, Share
Transactions, and
Equity
Share Issue Considerations

⚫ When a corporation decides to issue shares, it must resolve a number of basic

questions:
• How many shares should it authorize for sale? -> number of shares to issue
• How should it issue the shares? Direct to investors or through investment banker?
• At what price should it issue the shares?
• What value should the corporation assign to the shares after they were issued?

Entry recording required

No formal accounting entry

 Issuance of Shares
⚫ Factors in setting the price for a new issue of shares:
• Company’s anticipated future earnings
• Expected dividend rate per share
• Current financial position • Out of issuing company’s
• Current state of the economy hand
• Current state of the securities market • A pure market activity
• No accounting entry
recording
⚫ Market Price of Shares
• Shares of publicly held companies are traded on organized exchanges.
• Interaction between buyers and sellers determines the prices per share.
• Prices tend to follow the trend of a company’s earnings and dividends.
• Factors beyond a company’s control may cause day-to-day fluctuations
in market prices.
 Par and No-Par Value Shares

⚫ Par Value: (or nominal value) of a company’s shares is the legal capital per share of
stock that’s assigned when the corporation is first established。
• It is an artifact that exists for historical and technical purposes.
• Years ago, par value determined legal capital per share that a company must retain in
business for protection of corporate creditors.
• Par value is the same for each share (example: ￥0.01/share, HK$1/share)
• Par has no relationship with market price.

⚫ No-Par Value Shares: are ordinary shares to which the charter has not assigned a
value
• Today many governments do not require a par value.
• No-par value shares are fairly common now.
• In many countries, the board of directors assigns a stated value to no-par shares.
 Accounting for Ordinary Shares

⚫ Issuing Par Value Ordinary Shares for Cash

• Example (Price = Par value): Hydro-Slide SA issues 1,000 shares of €1 par value
ordinary shares at par for cash.

• Example (Price > Par value): Hydro-Slide issues an additional 1,000 shares of the €1 par
value ordinary shares for cash at €5 per share.
 Accounting for Ordinary Shares

⚫ Issuing Par Value Ordinary Shares for Cash

• The total capital from these two transactions is €6,000, and the legal capital is €2,000.
Assuming Hydro-Slide has retained earnings of €27,000,
 Accounting for Ordinary Shares

⚫ Issuing No-Par Ordinary Shares for Cash

• When no-par ordinary shares have a stated value, the entries are similar to those
illustrated for par value shares.
• Example (no-par shares with stated value): Hydro-Slide SA has €5 stated value no-par
shares and the company issues 5,000 shares at €8 per share for cash.

• Example (no-par shares without a stated value): Assume that Hydro-Slide does not
assign a stated value to its no-par shares.
 Issuing Ordinary Shares for Services or Non-Cash
Assets
⚫ Corporations also may issue shares for services (compensation to attorneys or
consultants) or for non-cash assets (land, buildings, and equipment).

⚫ Cost is recorded at the fair market value of the consideration.

⚫ Example 1: Attorneys have helped Jordan Company incorporate. They have billed the company
€5,000 for their services. They agree to accept 4,000 shares of €1 par value ordinary shares in
payment of their bill. At the time of the exchange, there is no established market price for the shares.
 Issuing Ordinary Shares for Services or Non-Cash
Assets
⚫ Corporations also may issue shares for services (compensation to attorneys or
consultants) or for non-cash assets (land, buildings, and equipment).

⚫ Example 2: Athletic Research AG is an existing publicly held corporation. Its €5 par value
shares are actively traded at €8 per share. The company issues 10,000 shares to acquire
land recently advertised for sale at €90,000. The most clearly evident value in this non-
cash transaction is the market price of the consideration given, €80,000.
 The Recording Process
Post-
Journalize Post to Adjusted
Trial Adjusting Financial Closing Closing
Analyze the ledger Trial
Balance entries Statements Entries Trial
Transactions account Balance
Balance

⚫ Let’s give it a try~ (Yazici Advertising A.S.)

⚫ Nine transactions (in October)
1. Investment of cash by shareholders ⚫ For each transaction, we do the
2. Purchase of office equipment following four steps
3. Receipt of cash for future service • Analyzing its impact on the
4. Payment of monthly rent accounting equation
5. Payment for insurance • Debit-Credit analysis
6. Purchase of supplies on credit • Journalizing
7. Declaration and payment of dividend • Posting to ledger accounts
8. Payment of salaries
9. Receipt of cash for services provided
 The Recording Process

⚫ Nine transactions
1. Investment of cash by
shareholders
 The Recording Process
⚫ Nine transactions
1.
2. Purchase of office
equipment
The Recording Process
1.
2.
3. Receipt of cash for
future service
The Recording Process
1.
2.
3.
4. Payment of monthly rent
The Recording Process
1.
2.
3.
4.
5. Payment for insurance
The Recording Process
1.
2.
3.
4.
5.
6. Purchase of supplies on
credit
The Recording Process
1.
2.
3.
4.
5.
6.
7. Declaration and
payment of dividend
 dividends

⚫ Companies with large expansion plans, called growth companies, prefer to reinvest
earnings in the growth of the company rather than distribute earnings back to
investors in the form of cash dividends.
⚫ As companies mature and their growth opportunities diminish, they tend to pay
out more dividends.
⚫ A dividend is a corporation’s distribution of cash or shares to its shareholders on a
pro rata (proportional to ownership) basis.
• Cash dividend: pay cash
• Share dividend: pay shares
⚫ To pay a cash dividend, a company must have:
• Retained earnings—Payment of cash dividends from retained earnings is legal in all
jurisdictions.
• Adequate cash
• A declaration of dividends by Board of Directors
 Cash dividends
⚫ Three dates related to cash dividends
• Declaration date: date on which board of directors declares the cash dividend to be
paid Commitment to a legal obligation, Accounting entry recorded
• Record date: specific date on which the company will determine who will receive the
dividend (registered owners of shares) Determine the ownership, no entry
• Payment date: date of the actual cash distribution Accounting entry recorded
 Entries for Cash Dividends

⚫ Cash dividends
• An example: On December 1, 2025 (Declaration date), the directors of Media General
declare a €0.50 per share cash dividend on 100,000 shares of €10 par value ordinary
shares. The dividend is payable on January 20, 2026 (Payment date) to shareholders of
record on December 22, 2025 (Record date)
Declaration date

Record date
Closing entry
(year-end)

Payment date
The Recording Process
1.
2.
3.
4.
5.
6.
7.
8. Payment of salaries
The Recording Process
1.
2.
3.
4.
5.
6.
7.
8.
9. Receipt of cash for
services provided
 Summary of Journalizing and Posting

⚫ Summarize all the entries in the general journal

 The Recording Process

⚫ Summarize all the entries in the general journal

 Practice: posting

Como SpA recorded the following transactions in a general journal during the month of March.

Mar.4 | Cash | 2,280 |

Service Revenue | | 2,280
15 | Salaries and Wages Expense | 400 |
Cash | | 400
19 | Utilities Expense | 92 |
Cash | | 92

Post these entries to the Cash account of the general ledger to determine the ending balance in
cash. The beginning balance in Cash on March 1 was €600.
The trial balance
 The trial balance
Post-
Journalize Adjusted
Trial Adjusting Financial Closing Closing
Analyze the Post Trial
Balance entries Statements Entries Trial
Transactions Balance
Balance

⚫ The Trial Balance

• The trial balance proves the mathematical equality of debits and credits after Posting:
the sum of the debit account balances equals the sum of the credit account balances.
• A trial balance may uncover errors in journalizing and posting.
• A trial balance is useful in the preparation of financial statements.

⚫ Three steps for preparing a trial balance are:

1. List the account titles and their balances in the appropriate debit or credit column.
2. Total the debit and credit columns.
3. Verify the equality of the two columns.
 The trial balance
Post-
Journalize Adjusted
Trial Adjusting Financial Closing Closing
Analyze the Post Trial
Balance entries Statements Entries Trial
Transactions Balance
Balance
 Practice: trial balance

The following accounts come from the ledger

of Bali Beach Supply on December 31, 2025.

157 Equipment R$88,000

332 Dividends 8,000
201 Accounts Payable 22,000
726 Salaries and Wages Expense 42,000
112 Accounts Receivable 4,000
400 Service Revenue 95,000
311 Share Capital—Ordinary 20,000
212 Salaries and Wages Payable 2,000
200 Notes Payable (due in 3 months) 19,000
732 Utilities Expense 3,000
130 Prepaid Insurance 6,000
101 Cash 7,000
Prepare a trial balance in good form.
 The trial balance
⚫ Limitations of a trial balance
• The trial balance can not identify an error when (the trial balance may balance when) :
1. A transaction is not journalized.
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting.
5. Off setting errors are made in recording the amount of a transaction.
• The trial balance does not prove that the company has recorded all transactions or that
the ledger is correct.

⚫ Currency Signs and Underlining

• Note that currency signs do not appear in journals or ledgers.
• Currency signs are typically used only in the trial balance and the financial statements.
• Generally, a currency sign is shown only for the first item in the column and for the
total of that column.
 More Practice: multiple choice question

Accounts that normally have debit balances are:

a. assets, expenses, and revenues.
b. assets, expenses, and share capital—ordinary.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.

Which of the following statements about a journal is false?

a. It is not a book of original entry.
b. It provides a chronological record of transactions.
c. It helps to locate errors because the debit and credit amounts for each entry can be
readily compared.
d. It discloses in one place the complete effect of a transaction.
More Practice: multiple choice question

Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.

A trial balance:
a. is a list of accounts with their balances at a given time.
b. proves the journalized transactions are correct.
c. will not balance if a correct journal entry is posted twice.
d. proves that all transactions have been recorded.
More Practice: multiple choice question

The trial balance of Jeong Company had accounts with the following normal balances:
Cash $5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries
and Wages Expense $40,000, Rent Expense $10,000, Share Capital—Ordinary $42,000,
Dividends $15,000, and Equipment $61,000. In preparing a trial balance, the total in the
debit column is:
a. $131,000. Jeong Company
Trial Balance, (date)
b. $216,000. Debit Credit
c. $91,000. Cash
d. $116,000. Service Revenue
Salaries and Wages Payable
Salaries and Wages Expense
Rent expense
Share Capital-Ordinary
Dividends
Equipment
 Practice: journaling, posting and trial balance
A group of student-investors in Hong Kong opened Campus Laundromat Ltd. On September 1, 2025.
During the first month of operations, the following transactions occurred.
Sept. 1 Shareholders invested HK$20,000 cash in the business in exchange for ordinary shares.
2 The company paid HK$1,000 cash for store rent for September.
3 Purchased washers and dryers for HK$25,000, paying HK$10,000 in cash and signing a
HK$15,000, 6-month, 12% note payable.
4 Paid HK$1,200 for a one-year accident insurance policy.
10 Received a bill from the Daily News for online advertising of the opening of the
laundromat HK$200.
20 Declared and paid a cash dividend to shareholders of HK$700.
30 The company determined that cash receipts for laundry services for the month were
HK$6,200.
The chart of accounts for the company is the same as that for Yazici Advertising A.Ş. in Illustration 2.19
plus No. 610 Advertising Expense.
Instructions
a. Journalize the September transactions. (Use J1 for the journal page number.)
b. Open ledger accounts and post the September transactions.
c. Prepare a trial balance at September 30, 2025.
More Practice: multiple choice question

Before posting a payment of €5,000, the Accounts Payable of Green Grocers had a
normal balance of €16,000. The balance after posting this transaction was:
a. €21,000. c. €11,000.
b. €5,000. d. cannot be determined.

A trial balance will not balance if:

a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to Supplies and credited to Cash.
c. a ￡100 dividend is debited to Dividends for ￡1,000 and credited to Cash for
￡100.
d. a ￡450 payment on account is debited to Accounts Payable for ￡45 and
credited to Cash for ￡45.
 More Practice: balance the trial balance

The trial balance of De Bortoli Co. shown below does not balance.
Each of the listed accounts has a normal balance per the general ledger. An
examination of the ledger and journal reveals the following errors.
1. Cash received from a customer in payment of its account was debited for $580,
and Accounts Receivable was credited for the same amount. The actual collection
was for $850.
2. The purchase of a computer on account for $710 was recorded as a debit to
Supplies for $710 and a credit to Accounts Payable for $710.
3. Services were performed on account for a client for $980. Accounts Receivable
was debited for $980, and Service Revenue was credited for $98.
4. A debit posting to Salaries and Wages Expense of $700 was omitted.
5. A payment of a balance due for $306 was credited to Cash for $306 and credited
to Accounts Payable for $360.
6. A dividend of $600 cash was debited to Salaries and Wages Expense for $600
and credited to Cash for $600.
 More Practice: balance the trial balance

The trial balance of De Bortoli Co. shown below does not balance.
Each of the listed accounts has a normal balance per the general ledger. An examination of the ledger
and journal reveals the following errors.

1. Cash debit 270, Accounts Receivable

credit 270
2. Supplies credit 710; Equipment debit 710
3. Service Revenue credit 882
4. Salaries and Wage Expense debit 700
5. Accounts Payable debit 666
6. Salaries and Wage Expense credit 600;
Dividend debit 600
Currency symbols
glossary

➢ Accounting Cycle (会计循环) ➢ Prepaid insurance (预付保险)

➢ Debit (v. 借/ noun. 借方) ➢ Supplies (低值易耗品)
➢ Credit (v. 贷/ noun. 贷方) ➢ Accounts receivable (应收账款)
➢ Account (会计科目) ➢ Accounts payable (应付账款)
➢ Chart of accounts (会计科目表) ➢ Notes payable (应付票据)
➢ Journal (日记帐) ➢ Unearned revenue (未实现的收入)
➢ Journal entry (会计分录)
➢ General journal (普通日记账)
➢ General ledger (总分类账)
➢ Journalizing (记日记账)
➢ Posting (过账)
➢ Trial balance (试算平衡)