Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 4 Accounting Information Systems 161

Balance Sheet Accounts Income Statement Accounts

Assets Revenue

Cash Fees Earned

Accounts Receivable Rent Revenue

Supplies Expenses

Prepaid Insurance Wages Expense

Office Equipment Rent Expense

Accumulated Depreciation Depreciation Expense

Land Utilities Expense

Liabilities Supplies Expense

Accounts Payable Insurance Expense

Wages Payable Miscellaneous Expense

Unearned Rent

Stockholders’ Equity

Capital Stock

Retained Earnings

Dividends

Exhibit 4

Chart of Accounts for

Online Solutions

Exhibit 5

Posting a Journal

Entry

Nov. 1 Cash 25,000

Capital Stock 25,000

CASH

Nov. 1 25,000

CAPITAL STOCK

Nov. 1 25,000

The debits and credits for each journal entry are posted to the accounts in the order in

which they occur in the journal. In posting to the accounts, the date is entered followed

by the amount of the entry. After the journal entries are posted, the ledger becomes a

chronological history of transactions by account. The posting of Online Solutions’ re-

maining journal entries is shown in Exhibit 6. Posting is performed automatically in

computerized systems. In Exhibit 6, however, we illustrate the concept by posting

manually.

Trial Balance

How can you be sure that you have not made an error in posting the debits and credits

to the ledger? One way is to make sure that the total of the debit account balances in the

ledger equals the total of the credit account balances. This equality should be proved at

the end of each accounting period, if not more often. Such a proof, called a trial balance,

may be in the form of a computer printout or in the form shown in Exhibit 7, which lists

the balances shown in Exhibit 6.

The trial balance does not provide complete proof of accuracy of the ledger. It in-

dicates only that the debits and the credits are equal. This proof is of value, however,

because errors often affect the equality of debits and credits. If the two totals of a trial

balance are not equal, an error has occurred. In such a case, the error must be located

and corrected before financial statements are prepared.

Q.Cash of $450 was
received on account, but
was recorded as a $540
debit to Cash and a $540
debit to Accounts
Receivable. Would the
trial balance totals be
equal?

A.No. The debit total
would exceed the credit
total by $1,080.