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ANALYZING
TRANSACTIONS

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1. Describe the characteristics of an account and
record transactions using a chart of accounts
and journal.
2. Describe and illustrate the posting of journal
entries to accounts.
3. Prepare an unadjusted trial balance and
explain how it can be used to discover errors.
4. Discover and correct errors in recording
transactions.
2

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Objective
Objective 11

2-1

Describe the characteristics of an account and

record transactions using a chart of accounts
and journal

Definitions

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2-1

T Account
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Title
Debit
(left side)

Credit
(right side)

T Account
example
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Cash
Date Capital
Fees

25,000
5,000
.

Bal b/d

30,000
9,050

Date Equipment 20,000

Rent exp
800
Wages exp
150
Bal c/d
9,050
30,000

Balance
Balanceof
ofthe
the
account
account

Types of accounts

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2-1

Balance
Sheet
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Income
Statement
Accounts
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2-1

IMPORTANT NOTE

Every transaction would

affect at least
2 accounts
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Journal
entries
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2-1

Every transaction would first be recorded

in a journal
The process of recording a transaction in
the journal is called journalizing
Date
1

Description

Journal

PR

Debit

Credit

Pg

2
3

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Journalizing
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2-1

1. Record the date.

2. Record the title of the account debited in the
Description column.
3. Enter the amount in the Debit column.
4. Record the title of the account credited in the
Description column.
5. Enter the amount in the Credit column.
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Journal entries Balance Sheet

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2-1

(a) On November 1, Idris Ismail opens a new

business and deposits RM25,000 in a bank
account in the name of NetSolutions.

Date

Journal

Description

Nov 1 Cash
Idris Ismail, Capital

PR

Debit

Pg

Credit

25,000
25,000

Invested cash in NetSolutions.

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Effect of the entry on the accounts

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Cash

Nov 1 25000

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Idris Ismail, Capital

Nov 1 25000

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Journal entries Balance Sheet

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(b) On November 5, NetSolutions bought land for

RM20,000, paying cash.

Journal
Date

Description

Nov 5 Land
Cash
Purchased land for cash.

Pg
PR

Debit

Credit

20,000
20,000

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Journal entries Balance Sheet

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Accounts

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2-1

(c) On November 10, NetSolutions purchased

supplies on account for RM1,350.

Journal
Date

Description

Nov 10 Supplies
Accounts Payable
Purchased supplies on
account.

Pg
PR

Debit

Credit

1,350
1,350

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Journal entries Balance Sheet

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Accounts

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(f) On November 30, NetSolutions paid creditors

on account , RM950.
Journal
Date

Description

Nov 30 Accounts Payable

Cash

Pg
PR

Debit

Credit
950
950

Paid creditors on account.

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BS accounts
debit
& credit
rule
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Debit

Credit

Asset accounts

Increase (+)

Decrease (-)

Liability accounts

Decrease (-)

Increase (+)

Owners equity (capital)

accounts

Decrease (-)

Increase (+)

Owners equity (drawing)

accounts

Increase (+)

Decrease (-)

2-1

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BS accounts debit & credit rule

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Liabilities & OE (Capital)

Assets
Debit for
increases (+)

2-1

Credit for
decreases (-)

Debit for
decreases (+)

Credit for
increases (-)

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Example
exercise
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2-1

Prepare a journal entry for the purchase of a

truck on June 3 for RM42,500, paying RM8,500
cash and the remainder on account.
Journal
June 3

Truck
Cash
Accounts Payable

PG
42,500
8,500
34,000

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Journal entries income statement

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accounts

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(d) On November 18, NetSolutions received fees

of RM7,500 from customers for services
provided during the month.
Journal
Date

Description

Nov 18 Cash
Fees Earned
Received fees from
customers.

Pg
PR

Debit

Credit

7,500
7,500

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Journal entries income statement

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(e) Throughout the month, NetSolutions incurred the

following expenses: wages RM2,125; rent RM800;
utilities RM450; and miscellaneous RM275.
Journal
Pg
Date

Description

Nov 30 Wages expense

PR

Debit

Credit
2,125

Rent expense

800

Utilities expense

450

Miscellaneous expense

275

Cash
Paid expenses for the month.

3,650

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Journal entries income statement

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(g) On November 30, a count revealed

that RM800 of the supplies inventory had
been used during the month.
Journal
Pg
Date

Description

Nov 30 Supplies expense

Supplies

PR

Debit

Credit
800
800

Supplies used during the

month.

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IS accounts debit & credit rule

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Debit

Credit

Revenue accounts

Decrease (-)

Increase (+)

Expenses accounts

Increase (+)

Decrease (-)

Revenues
Debit for
decreases (+)

Credit for
increases (-)

2-1

Expenses
Debit for
increases (+)

Credit for
decreases (-)

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Net income
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Revenues Expenses = Net income or Net loss

Revenues > Expenses = Net income

increases Owners equity (capital)
Revenues < Expenses = Net loss
decreases Owners equity (capital)
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Example
exercise
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2-1

Prepare a journal entry on August 7 for

the fees earned on account, RM115,000.
Journal
Aug 7 Accounts Receivable
Fees earned

Pg
115,000
115,000

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Drawing account

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2-1

When owner of a proprietorship withdraws cash

from the business for personal use
Decreases owners equity (capital)

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Drawing account - example

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2-1

On November 30, Idris Ismail withdrew

RM2,000 in cash from NetSolutions for
personal use.
Nov 30 Idris Ismail, Drawing
Cash

Journal
Owner withdrew cash for

2,000
2,000

personal use.

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Example
exercise
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2-1

Prepare a journal entry on December 29

for the payment of RM12,000 to the
owner of Smart Consulting Services,
Danny Wong, for personal use.
Dec 29 Danny Wong, Drawing
Cash

12,000
12,000

Owner withdrew cash for

personal use.

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Debit & credit rule and normal

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balance
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Decrease

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Normal
balance

BS accounts:
Asset

Debit

Credit

Debit

Liability

Credit

Debit

Credit

Capital

Credit

Debit

Credit

Drawing

Debit

Credit

Debit

Revenue

Credit

Debit

Credit

Expense

Debit

Credit

Debit

Owners equity

IS accounts:
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Example
exercise
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to 2-4
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2-1

State for each account whether it is likely to have (a) debit

entries only, (b) credit entries only, or (c) both debit and
credit entries. Also, indicate its normal balance.
1.
2.
3.
4.
5.
6.

Amber, Drawing
Accounts Payable
Cash
Fees Earned
Supplies
Utilities Expense
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2-1

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Accounting equation

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2-1

ASSETS = LIABILITIES + OWNERS EQUITY

The accounting system is known as the double entry

accounting system
Each transaction would affect at least 2 accounts
Total debits would always equal total credits
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Transaction analysis

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2-1

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Objective
Objective 22

2-2

Describe and illustrate the posting of journal

entries to the accounts

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Posting
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2-2

The process of transferring the debits and credits

from the journal entries to the accounts

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example
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2-2

Dec.1 NetSolutions paid a premium of RM2,400 for a

comprehensive insurance policy covering a one-year
period.

Dec 1

Prepaid Insurance
Cash

2,400
2,400

The entry would then be posted to the accounts (using

the 3-column account) refer Exhibit 5
Refer to the text book for the full example

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Example exercise 2-5

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2-2

On March 1, the cash account balance was RM22,350. During

March, cash receipts totaled RM241,880 and the March 31 balance
was RM19,125. Determine the cash payments made during March.
Refer to the text book to solve using T-account
Alternatively:

Opening balance + Cash receipts Cash payments

= Closing balance
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Objective
Objective 33

2-3

Prepare an unadjusted trial balance and explain

how it can be used to discover errors

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Trial balance
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2-3

A list of all the accounts maintained by

the business entity, along with their
respective balances
Refer Exhibit 7 for an example of a Trial
Balance

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Example exercise 2-6

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2-3

Indicate whether the errors would cause the TB totals to be

unequal. If so, indicate whether the Dr or Cr total is
higher and by how much.
a. Cash withdrawal of RM5,600 was journalized and
posted as a debit of RM6,500 to Salary Expense and a
credit of RM6,500 to Cash.

The totals are equal since both the debit and credit
entries were journalized and posted for RM6,500.
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2-3

b.A fee of RM2,850 earned from a client

was debited to Accounts Receivable for
RM2,580 and credited to Fees Earned for
RM2,850.

The totals are unequal. The credit total is higher by

RM270 (RM2,850 RM2,580).
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2-3

c. A payment of RM3,500 to a creditor was

posted as a debit of RM3,500 to Accounts
Payable and a debit of RM3,500 to Cash.

The totals are unequal. The debit total is higher by

RM7,000 (RM3,500 + RM3,500).

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Objective
Objective 44

2-4

Discover and correct errors in recording

transactions

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TypesClick
of errorsto

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2-4

Refer Exhibit 8
Transposition - occurs when the order of
the digits is changed mistakenly, such as
writing RM542 as RM452 or RM524.
Slide - the entire number is mistakenly
moved one or more spaces to the right or
the left, such as writing RM542.00 as
RM54.20.

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Example
exercise
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2-4

Prepare correcting entries for the following errors:

a. A withdrawal of RM6,000 by Cheri Ramey,
owner of the business, was recorded as a debit to
Office Salaries Expense and a credit to Cash.
b. Utilities Expense of RM4,500 paid for the
current month was recorded as a debit to
Miscellaneous Expense and a credit to Accounts
Payable.

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(a) A withdrawal was debited to Office Salaries

Expense and credited to Cash.
The wrong entry:

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Office Salaries Expense

6,000

Cash

6,000

The correct entry:

Cherie Ramey, Drawing

6,000

Cash

2-4

6,000

The correcting entry:

Cheri Ramey, Drawing

Office Salaries Expense

6,000
6,000

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2-4

(b) Utilities Expense for the current month was debited to Miscellaneous
Expense and credited to Accounts payable.

The wrong entry:

Miscellaneous Expense

4,500

Accounts Payable
The correct entry:

Utilities Expense
Cash

4,500

4,500
4,500

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2-4

The correcting entry:

Accounts Payable

4,500

Miscellaneous Expense
Utilities Expense
Cash

4,500
4,500
4,500

The first entry reverses the incorrect entry, and the

second entry records the correct entry
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