GB518 Unit 2 Journal Entries and Trial Balance Example

From Journal to Trial Balance at a Spice Blender: A Unit 2 Journal Entry Set With a Memo to the Owner

[Student Name]

Purdue University Global

GB518: Financial Accounting Principles and Analysis

Unit 2 Journal Entry Set

[Instructor Name]

[Date]

The spice blender, its customers and every figure are composite and illustrative; the sources cited are real.

The Business and Its Opening Balances

Saffron Hill Spice Co. blends and packs spices for grocery chains and restaurants. It opened October with cash of $18,000, accounts receivable of $12,400, inventory of $22,600, packaging supplies of $1,800, equipment of $48,000, accounts payable of $9,800 and owner's capital of $93,000. The company uses a perpetual inventory system, so each sale records both the revenue and the cost of the goods sold. The owner, who handles sales and blending, asked for a short explanation of what the month's books do and do not show.

Exhibit 1: General Journal

Each entry shows the debit, the credit and a short narration, with the statement each account lands on.

Entry 1. Debit inventory $14,200; credit accounts payable $14,200. Raw spices bought on credit from an importer. Balance sheet.

Entry 2. Debit accounts receivable $26,800; credit sales revenue $26,800. A shipment billed to a grocery chain. Balance sheet and income statement.

Entry 3. Debit cost of goods sold $15,100; credit inventory $15,100. Cost of the grocery shipment. Income statement and balance sheet.

Entry 4. Debit cash $40,000; credit notes payable $40,000. A five-year term loan drawn. Balance sheet.

Entry 5. Debit equipment $52,000; credit cash $52,000. A new blending and filling line, paid largely with the loan. Balance sheet.

Entry 6. Debit wages expense $11,600; credit cash $11,600. Monthly payroll. Income statement.

Entry 7. Debit cash $7,500; credit unearned revenue $7,500. A customer deposit for a December holiday gift-box order not yet shipped. Balance sheet.

Entry 8. Debit cash $21,300; credit accounts receivable $21,300. Collections from customers. Balance sheet.

Entry 9. Debit accounts payable $12,900; credit cash $12,900. Payments to suppliers. Balance sheet.

Entry 10. Debit utilities expense $1,450; credit cash $1,450. Electricity and gas. Income statement.

Entry 11. Debit packaging supplies $2,300; credit accounts payable $2,300. Jars and labels on account. Balance sheet.

Entry 12. Debit cash $6,200; credit sales revenue $6,200. Cash sales to restaurants. Income statement.

Entry 13. Debit cost of goods sold $3,400; credit inventory $3,400. Cost of the restaurant sales.

Entry 14. Debit owner's drawings $3,000; credit cash $3,000. Owner withdrawal. Statement of owner's equity.

Robert Libby, Patricia Libby and Frank Hodge describe the journal as the chronological record that shows each transaction's full effect in one place before it is posted (Libby et al., 2023).

Exhibit 2: T Accounts

Each entry was posted to its accounts, with a reference to the entry number. Cash, for example, began at $18,000, received $40,000, $7,500, $21,300 and $6,200, and paid $52,000, $11,600, $12,900, $1,450 and $3,000, ending at $12,050. Inventory began at $22,600, received $14,200 and released $15,100 and $3,400, ending at $18,300.

Exhibit 3: Unadjusted Trial Balance

Debit balances: cash $12,050; accounts receivable $17,900; inventory $18,300; packaging supplies $4,100; equipment $100,000; owner's drawings $3,000; cost of goods sold $18,500; wages expense $11,600; utilities expense $1,450. Total debits $186,900.

Credit balances: accounts payable $13,400; unearned revenue $7,500; notes payable $40,000; owner's capital $93,000; sales revenue $33,000. Total credits $186,900.

A balanced trial balance shows that the two columns match; it says nothing about whether the right accounts were used or whether anything was left out.

Memo to the Owner

To: Priya Raman, Owner. From: Bookkeeper. Subject: What October's trial balance tells you.

October's trial balance is in balance: debits and credits both total $186,900. That tells us each entry had matching debit and credit amounts and that the postings carried through in total. It does not confirm that the books are right.

Two kinds of error would leave the totals equal. Recording the jars and labels under equipment instead of supplies, for instance, would leave both totals unchanged while misstating both accounts. And a transaction never recorded at all, such as a supplier invoice left in a drawer, would be missing from both sides, so the totals would still match. Donald Kieso and colleagues note that the trial balance cannot detect errors of omission, wrong-account postings or equal errors on both sides (Kieso et al., 2022). A monthly comparison of supplier statements with our payables ledger, one of the control activities described in the COSO internal control framework (Committee of Sponsoring Organizations of the Treadway Commission, 2013), would catch the missing invoice that the trial balance cannot.

Two figures also need attention before the month is closed. The $7,500 holiday deposit is a liability, not revenue, until the gift boxes ship in December. And the trial balance is unadjusted: it includes no depreciation on the new $52,000 line and no interest on the $40,000 loan, which month-end adjustments will add. Once they are recorded, October's profit will be smaller than the trial balance suggests, and the adjusted figures, not these, should guide decisions about the holiday season's purchasing.

References

Committee of Sponsoring Organizations of the Treadway Commission. (2013). Internal control: Integrated framework.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate accounting (18th ed.). Wiley.

Libby, R., Libby, P. A., & Hodge, F. (2023). Financial accounting (11th ed.). McGraw Hill.