Financial Accounting: Journal Entries, Ledger Posting, and Adjusting Entries for Service Companies

Company Transactions and Financial Accounting Cycle

Introduction

This study guide covers the accounting cycle for a service company, focusing on journalizing transactions, posting to the ledger, preparing trial balances, and making adjusting entries. The context is a fictional interior design company, Side, with a fiscal year ending December 31. The guide includes definitions, examples, and step-by-step procedures relevant to Financial Accounting students.

Chart of Accounts and Opening Balances

Understanding the Chart of Accounts

• Chart of Accounts: A list of all accounts used by a company, each with a unique number and name.

• Accounts are grouped as Assets, Liabilities, Owner's Equity, Revenue, and Expenses.

• Each account has a normal balance (debit or credit) and a balance as of a specific date.

Example: The company has cash (Kas) of Rp58,340,000, accounts receivable (Piutang usaha) of Rp59,200,000, and so on, as of November 30, 2025.

Journalizing Transactions

General Journal Entries

Each business transaction is recorded in the general journal as a journal entry, showing the accounts affected, amounts, and a brief description.

• Debit: Increases assets and expenses; decreases liabilities, equity, and revenue.

• Credit: Increases liabilities, equity, and revenue; decreases assets and expenses.

Example Journal Entry:

• December 1: Purchased a vehicle (Rp36,000,000) and office equipment (Rp12,000,000). Paid Rp38,000,000 cash; the rest is accounts payable.

• Journal Entry:

  • Debit: Kendaraan (Vehicle) Rp36,000,000

  • Debit: Peralatan kantor (Office Equipment) Rp12,000,000

  • Credit: Kas (Cash) Rp38,000,000

  • Credit: Utang usaha (Accounts Payable) Rp10,000,000

Repeat this process for each transaction listed for December.

Posting to the Ledger

Ledger Accounts (Buku Besar)

After journalizing, entries are posted to the ledger, which organizes transactions by account.

• Each account shows all increases and decreases, with running balances.

• Helps in preparing the trial balance and financial statements.

Example: The cash account will show all cash receipts and payments for December, updating the balance after each entry.

Trial Balance Preparation

Unadjusted Trial Balance (Neraca Saldo Sebelum Penyesuaian)

A trial balance lists all ledger account balances at a specific date, ensuring total debits equal total credits.

• Prepared before adjustments to check for recording errors.

• Used as a basis for making adjusting entries.

Example: After posting December transactions, list all account balances as of December 31, 2025, before adjustments.

Adjusting Entries (Ayat Jurnal Penyesuaian)

Purpose and Types of Adjusting Entries

Adjusting entries are made at the end of the period to update account balances for accruals and deferrals, ensuring compliance with the accrual basis of accounting.

• Prepaid Expenses: Allocate used portion to expense (e.g., supplies, insurance).

• Unearned Revenues: Recognize earned portion as revenue.

• Accrued Expenses: Record expenses incurred but not yet paid (e.g., wages, interest).

• Depreciation: Allocate cost of fixed assets over useful life.

Examples of Adjusting Entries

• Supplies Used: If office supplies used by December 31 are Rp6,000,000, record as:

  • Debit: Beban perlengkapan kantor (Supplies Expense) Rp6,000,000

  • Credit: Perlengkapan kantor (Supplies) Rp6,000,000

• Prepaid Insurance: Insurance paid for 6 months from October 1. By December 31, 3 months have expired.

  • Monthly expense: $\frac{Rp9,000,000}{6} = Rp1,500,000$

  • Total expense for 3 months: $3 \times Rp1,500,000 = Rp4,500,000$

  • Debit: Beban asuransi (Insurance Expense) Rp4,500,000

  • Credit: Asuransi dibayar di muka (Prepaid Insurance) Rp4,500,000

• Prepaid Advertising: Only 1 out of 6 ads placed by December 31.

  • Cost per ad: $\frac{Rp5,400,000}{6} = Rp900,000$

  • Debit: Beban iklan (Advertising Expense) Rp900,000

  • Credit: Iklan dibayar di muka (Prepaid Advertising) Rp900,000

• Depreciation: Annual rate is 20% of acquisition cost. For assets bought December 1, prorate for 1 month.

  • Formula: $\text{Depreciation Expense} = \text{Cost} \times 20\% \times \frac{1}{12}$

  • Apply to both new and existing assets.

• Accrued Interest: Bank loan interest at 18% per year, unpaid for 30 days.

  • Formula: $\text{Interest Expense} = \text{Principal} \times \text{Rate} \times \frac{\text{Days}}{360}$

  • Example: $Rp40,000,000 \times 18\% \times \frac{30}{360} = Rp600,000$

  • Debit: Beban bunga (Interest Expense) Rp600,000

  • Credit: Utang bunga (Interest Payable) Rp600,000

• Accrued Wages: Daily wage is $\frac{Rp2,400,000}{6} = Rp400,000$. December 31 is Thursday, so 4 days accrued: $4 \times Rp400,000 = Rp1,600,000$.

  • Debit: Beban gaji dan upah (Wages Expense) Rp1,600,000

  • Credit: Utang gaji dan upah (Wages Payable) Rp1,600,000

Posting Adjusting Entries and Adjusted Trial Balance

Ledger Posting and Adjusted Trial Balance

• Post all adjusting entries to the relevant ledger accounts.

• Prepare an adjusted trial balance as of December 31, 2025, listing all updated balances.

• This forms the basis for preparing financial statements.

Summary Table: Types of Adjusting Entries

Type	Account Affected	Adjusting Entry	Example
Prepaid Expense	Asset, Expense	Debit Expense, Credit Asset	Supplies used, Insurance expired
Unearned Revenue	Liability, Revenue	Debit Liability, Credit Revenue	Services performed for advance payment
Accrued Expense	Expense, Liability	Debit Expense, Credit Liability	Wages owed, Interest payable
Depreciation	Expense, Contra-Asset	Debit Depreciation Expense, Credit Accumulated Depreciation	Depreciation on vehicles, equipment

Key Formulas

• Depreciation Expense (Straight-Line):

  • $\text{Depreciation Expense} = \text{Cost} \times \text{Depreciation Rate} \times \frac{\text{Months Used}}{12}$

• Interest Expense (Simple Interest):

  • $\text{Interest Expense} = \text{Principal} \times \text{Annual Rate} \times \frac{\text{Days}}{360}$

• Supplies Used:

  • $\text{Supplies Used} = \text{Beginning Balance} + \text{Purchases} - \text{Ending Balance}$

Conclusion

Understanding the full accounting cycle—from journalizing transactions to preparing adjusted trial balances—is essential for accurate financial reporting. Mastery of these steps ensures that financial statements reflect the true financial position and performance of a business.