CACI-U1-L03 · Canadian Accounting Common Core I
Journal, ledger, and trial balance
Learning goals
- Use normal balances to journalize transactions.
- Post entries to ledger accounts with references.
- prepare and interpret an unadjusted trial balance.
- Trace a number backward from trial balance to source evidence.
- Identify errors that a trial balance does and does not reveal.
Prerequisite check
Aurora Repair earns $900 on account. State the two accounts, their directions, and the equation effect before thinking about debits and credits.
Vocabulary
- Debit (Dr): left side of an account.
- Credit (Cr): right side of an account.
- Normal balance: side on which an account normally increases.
- General journal: chronological record of entries.
- General ledger: collection of accounts with balances.
- Posting reference: cross-reference connecting journal and ledger.
- Trial balance: list of ledger balances used to test debit-credit equality.
- Chart of accounts: organized account list and numbering system.
Core idea
Debits are not “bad” and credits are not “good.” They are directions.
| Element/account | Increase | Decrease | Usual balance |
|---|---|---|---|
| Assets | Debit | Credit | Debit |
| Liabilities | Credit | Debit | Credit |
| Equity/contributed capital | Credit | Debit | Credit |
| Revenue | Credit | Debit | Credit |
| Expenses | Debit | Credit | Debit |
| Distributions/dividends | Debit | Credit | Debit |
Every entry has total debits equal total credits. The journal explains when and why; the ledger answers how much is in each account; the trial balance tests arithmetic equality at a date.
Why this treatment makes sense
The rules mirror the accounting equation. Assets sit on the left and normally increase with debits. Liabilities and equity sit on the right and normally increase with credits. Expenses and distributions reduce equity, so their temporary accounts increase on the debit side. Revenue increases equity, so it normally carries a credit.
A repeatable method
Use ANALYZE–ENTER–POST–PROVE–TRACE:
- Analyze evidence and equation effects.
- Enter the date, debit account(s), credit account(s), amounts, and explanation.
- Post each amount to the correct ledger side with a journal reference.
- Prove ledger arithmetic and trial-balance equality.
- Trace unusual balances to entries and source documents.
Worked example
Spruce Studio has opening Cash $10,000 and Owner Capital $10,000. During June it:
- June 3: buys supplies on account from North Paper, invoice NP44, $1,600.
- June 10: earns $3,200 cash from design work, receipts R18–R21.
- June 16: pays $900 wages, payroll record P06.
- June 25: pays North Paper $1,000, electronic payment E77.
Journal:
| Date | Account and explanation | Debit | Credit |
|---|---|---|---|
| Jun 3 | Supplies | $1,600 | — |
| Accounts Payable—North Paper | — | $1,600 | |
| Bought supplies on account, NP44 | |||
| Jun 10 | Cash | 3,200 | — |
| Service Revenue | — | 3,200 | |
| Jun 16 | Wages Expense | 900 | — |
| Cash | — | 900 | |
| Jun 25 | Accounts Payable—North Paper | 1,000 | — |
| Cash | — | 1,000 |
Selected ledger balances after posting:
| Account | Debit postings | Credit postings | Ending balance |
|---|---|---|---|
| Cash | 10,000 + 3,200 | 900 + 1,000 | Dr 11,300 |
| Supplies | 1,600 | — | Dr 1,600 |
| A/P—North Paper | 1,000 | 1,600 | Cr 600 |
| Service Revenue | — | 3,200 | Cr 3,200 |
| Wages Expense | 900 | — | Dr 900 |
| Owner Capital | — | 10,000 | Cr 10,000 |
Unadjusted trial balance totals: debits $11,300 + $1,600 + $900 = $13,800; credits $600 + $3,200 + $10,000 = $13,800.
Journal, ledger, and statement connection
NP44 can be traced to the June 3 journal line, then to Supplies and the North Paper payable ledger, then to the trial balance. After adjustment, Supplies will appear as an asset only for the amount remaining; supplies used will be an expense. Revenue and wages will flow to the income statement. Cash, supplies, and the payable flow to the statement of financial position.
Common mistakes
- Choosing debit/credit from whether cash rises instead of the account type.
- Crediting Accounts Payable when paying a supplier; payment decreases it with a debit.
- Posting one side, the wrong amount, or the right amount to the wrong account.
- Omitting dates, explanations, document numbers, or posting references.
- Believing equal trial-balance totals prove completeness. A fully omitted entry, wrong-account entry, or equal overstatement can remain balanced.
- Forcing a difference into Suspense without investigating.
Guided practice
Journalize and compute ending account balances:
- Opening Cash $8,000 and Common Shares $8,000.
- Buy equipment for $2,500 cash.
- Earn $1,100 on account.
- Receive a $600 utility invoice for this month, unpaid.
- Collect $700 from the customer.
Then state which transactions change profit and which change cash.
Independent practice
Harbour Pet Care begins with Cash $15,000 and Common Shares $15,000. It buys $2,100 supplies on account; pays $3,600 for equipment; earns $4,800 services, receiving $3,000 cash and billing $1,800; pays $750 wages; collects $1,200 from customers; pays suppliers $900; and receives a $300 customer deposit for next month. Prepare journal entries, ledger balances, and an unadjusted trial balance.
Self-check and solutions
Guided entries/effects: Equipment Dr 2,500 / Cash Cr 2,500 (no profit); A/R Dr 1,100 / Revenue Cr 1,100 (profit +1,100, no cash); Utilities Expense Dr 600 / A/P Cr 600 (profit −600, no cash); Cash Dr 700 / A/R Cr 700 (cash +700, no profit). Ending: Cash Dr $6,200; Equipment Dr $2,500; A/R Dr $400; Utilities Expense Dr $600; A/P Cr $600; Revenue Cr $1,100; Common Shares Cr $8,000. Debits and credits both $9,700.
Independent ending balances: Cash Dr $14,250; A/R Dr $600; Supplies Dr $2,100; Equipment Dr $3,600; Wages Expense Dr $750; A/P Cr $1,200; Customer Deposits Cr $300; Service Revenue Cr $4,800; Common Shares Cr $15,000. Trial-balance totals are $21,300 each.
Reasoning check: The $300 deposit increases cash and a liability, not revenue. No supplies-used adjustment was provided, so all $2,100 remains in Supplies on this unadjusted trial balance.
Retrieval practice
- Rebuild the normal-balance table from the accounting equation.
- List three errors that can survive a balanced trial balance.
- What evidence connects the journal to the ledger?
- Why does paying Accounts Payable not create an expense?
Exam-style application
A trial balance is out by $540. Equipment was purchased for $5,400 cash; the debit was posted as $4,860 and the credit correctly as $5,400. Explain a fast diagnostic, correct the ledger, and state whether a new journal entry is needed.
Target: The $540 difference equals the posting error. Correct the Equipment ledger posting to $5,400 and document the correction; the original journal entry was correct, so do not create a second transaction. Recalculate the account and trial balance. A difference divisible by 9 can also suggest transposition, but that clue does not replace tracing.
Lesson summary
Analyze first, then journalize, post, prove, and trace. Debit and credit rules express equation logic. A trial balance is an arithmetic control, not proof that the records faithfully represent the business.