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Chapter

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4 Journalizing and

Posting Transactions

Learning Objective


1

Describe the flow of data from source documents through the trial balance.


Flow of Data

INPUT

Analyze transactions using

SOURCE DOCUMENTS and CHART OF ACCOUNTS

STEP #1


Flow of Data (cont.)

PROCESSING Enter business transactions in

the GENERAL JOURNAL

“Journalizing”

Post the entries in the journal to

the GENERAL LEDGER

“Posting”

From the general ledger,

prepare a TRIAL

BALANCE

Learning Objective


2

Describe and explain the purpose of source documents.


Trigger the analysis of what happened Begin the process of entering transactions in the accounting system Serve as objective evidence of business transactions Filed for possible future reference

Source Documents


Check stubs or copies of checks Receipt stubs, copies Copies of sales tickets or sales invoices Purchase invoiced received from suppliers

Source Documents (cont.)

Learning Objective


3

Describe the chart of accounts as a means of classifying financial information.


A list of ALL accounts used by a business In numeric order Used to determine which accounts are affected by a given transaction

The Chart of Accounts


Assets (100–199) 101 Cash 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq.

Damon’s Campus Delivery Chart of Accounts

Assets begin with 1



Assets (100–199) 101 Cash 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Liabilities (200–299) 202 Accts. Pay.

Liabilities begin with 2



Assets (100–199) 101 Cash 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Liabilities (200–299) 202 Accts Pay. Owner’s Eq. (300–399) 311 D. Williams, Capital 312 D. Williams, Drawing



Assets (100–199) Revenues (400–499) 101 Cash 401 Delivery Fees 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Liabilities (200–299) 202 Accts Pay. Owner’s Eq. (300–399) 311 D. Williams, Capital 312 D. Williams, Drawing



Assets (100–199) Revenues (400–499) 101 Cash 401 Delivery Fees 122 Accts. Rec. 141 Supplies Expenses (500–599) 145 Prepaid Ins. 511 Wages Exp. 185 Delivery Eq. 521 Rent Exp. 525 Tele. Exp. Liabilities (200–299) 202 Accts Pay. Owner’s Eq. (300–399) 311 D. Williams, Capital 312 D. Williams, Drawing

Learning Objective


4

Journalize transactions.


A day-by-day listing of transactions Purpose: To provide a record of all transactions completed by the business Commonly referred to as a book of original entry The simplest journal form is a two-column general journal The act of entering transactions in a journal is called journalizing

The Journal


Damon invested $2,000 in the business on June 1, 20--.

Example

NEW!

DATED TRANSACTIONS


Debits = Credits

DR. D. Williams, CAPITAL

2,000

CR. CASH

DR. CR.

2,000

NOW WE WILL “JOURNALIZE”

THIS TRANSACTION

+ + – –

General Journal

20-- JUNE 1

DATE DESCRIPTION PR DEBIT CREDIT 1 2

Step #1 ENTER THE DATE

The year and month are only written on the first line of each page.


CASH 20--

JUNE 1


Step #2a ENTER THE NAME OF THE ACCOUNT BEING DEBITED Align with the left margin


General Journal

2000 00 CASH 20--

JUNE 1


Step #2b ENTER THE AMOUNT

OF THE DEBIT


General Journal

DATE DESCRIPTION PR DEBIT CREDIT 20-- JUNE 1 CASH

D. Williams, CAPITAL 2000 00 2000 00 1

2

Step #3 ENTER THE ACCOUNT

NAME AND THE AMOUNT OF THE CREDIT


General Journal


D. Williams, CAPITAL 2000 00 2000 00

Owner’s original investment in business

Step #4 ENTER THE EXPLANATION

Indent even further

1

2 3 4


General Journal



Owner’s original

investment in business

Step #5 SKIP A LINE

Leave a blank line between transactions

1 2

3 4 5


General Journal


An entry requiring more than one debit and/or more than one credit All debits come before any credits

Compound Entry


On June 10, 20--, purchased a $1,500 scooter for $300 cash and $1,200 on account.

Compound Entry Example


T Account Analysis

CASH DELIVERY EQUIP.

Both are asset accounts

DR. CR. DR. CR. + + – –


T Account Analysis (cont.)

ACCOUNTS PAYABLE DR. CR.

A liability account

+ –



Example

Each account?

Increase or Decrease?



Example (cont.)

DELIVERY EQUIPMENT DR. CR.

INCREASED

1,500 + –



Example (cont.)

CASH DR. CR.

DECREASED

300 + –



Example

ACCOUNTS PAYABLE DR. CR.

INCREASED

1,200 + –


1 Debit And 2 Credits But Debit $ = Credit $

DELIVERY EQUIP. CASH

ACCOUNTS PAYABLE

DR. CR.

DR. CR.

DR. CR.

1,500 300

1,200

+ + – –

– +


Now Let’s Journalize The Transaction

DATE DESCRIPTION PR DEBIT CREDIT 20-- JUNE 10 DELIVERY EQUIPMENT

ACCOUNTS PAYABLE 1500 00

CASH Purchased scooter with down payment; balance on account

The order of the credits does not matter, but ALL credits must

come after any debits

1

2 3 4

5

300 00

1200 00

General Journal


Learning Objective


5

Post to the general ledger and prepare a trial balance.


A complete set of all accounts used by a business Similar to T accounts Used to keep a complete record of the debits and credits made to each account as a result of entries made in the journal Numbered and arranged in the same order as the chart of accounts

The General Ledger Account


The process of copying debits and credits from the journal to the ledger accounts Done daily or at frequent intervals Five-step process

Posting To The General Ledger

General Journal DATE DESCRIPTION PR DEBIT CREDIT

20-- JUNE 1 CASH



LET’S POST THE DEBIT PORTION OF THIS ENTRY

TO THE GENERAL LEDGER

1 2

3 4 5


General Ledger

Account: Account No.

DATE ITEM PR DR. CR. BALANCE

DR. CR.

CASH 101

ACCOUNT NAME

EACH ACCOUNT IS NUMBERED


Posting A Debit



DR. CR.

CASH 101

20-- June 1

STEP #1 RECORD THE DATE The year and month are only written for

the first entry


Posting A Debit



DR. CR.

CASH 101

20--

LEAVE “ITEM” COLUMN BLANK Used for special transactions only

June 1


Posting A Debit



DR. CR.

CASH 101

20--

STEP #2 ENTER THE

DEBIT AMOUNT

2,000 June 1


Posting A Debit



DR. CR.

CASH 101

20--

STEP #3 ENTER THE NEW BALANCE OF THE

ACCOUNT

2,000 2,000 June 1


Posting A Debit



DR. CR.

CASH 101

20--

STEP #4 ENTER THE JOURNAL

PAGE NUMBER “J” for journal and “1” for page 1

2,000 2,000 J1 June 1


Posting A Debit DATE DESCRIPTION PR DEBIT CREDIT

20-- JUNE 1 CASH



STEP #5 ENTER THE LEDGER

ACCOUNT NUMBER IN THE GENERAL JOURNAL

1 2

3 4 5

101



Used to prove the equality of the debits and credits in the ledger accounts Can be prepared daily, weekly, monthly, or whenever desired Prepared after all transactions have been journalized and posted

The Trial Balance

Damon’s Campus Delivery Trial Balance June 30, 20--

Account Title Acct No. Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accounts Payable D. Williams, Capital D. Williams, Drawing Delivery Fees Wages Expense Rent Expense Telephone Expense

101 122 141 145 185 202 311 312 401 511 521 525

370 00 650 00

200 00 3600 00

1800 00 2000 00

80 00

150 00 2150 00

650 00 200 00 50 00

5950 00 5950 00

Learning Objective


6

Explain how to find and correct errors.


Finding and Correcting Errors in the Trial Balance

Sloppy Steve’s Trial Balance December 31, 20--

Account Title Acct No. Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Office Equipment Accounts Payable Steve, Capital Steve, Drawing Delivery Fees Wages Expense Rent Expense Telephone Expense

101 122 141 145 185 202 311 312 401 511 521 525

850 00 1650 00

600 00 6300 00

1800 00 3500 00

230 00

500 00 5550 00

450 00 200 00

70 00 10580 00 10700 00

Help!! My Trial Balance Doesn’t

Balance



Double check your addition Review balances:

See if any are too large or small, relative to other accounts, or entered in the wrong column

Step #1


Find the difference between the debits and the credits

Is the difference the amount of a specific transaction?

Step #2

Perhaps I forgot to post the debit or credit part of that

transaction?


Divide the difference by 2 Is this number the amount of a specific transaction?

Step #2 (cont.)


Step #2 (cont.)

Did I post the debit or credit twice, OR post the debit as a credit or vice

versa?


Divide the difference by 9 If the difference is evenly divisible by 9, you could have a slide error or a transposition error

Step #2 (cont.)


Occur when the decimal point is “slid” a digit or two to the right or left For example:

The amount was $250, but recorded as $25 The difference is $225 ($250 ÷ $25) The difference is evenly divisible by 9 ($225 ÷ 9 = 25)

Slide Errors


Occur when two digits are reversed For example:

The amount was $520, but recorded as $250 The difference is $270 ($520 – $250) The difference is evenly divisible by 9 ($270 ÷ 9 = 30)

Transposition Errors


If steps #1 and #2 don’t work: Double check your addition for the ledger accounts Trace all postings

Step #3


Two methods: Ruling method Correcting entry method

Erasing is NOT acceptable It may suggest that you are trying to hide something

Correcting Errors


Used for two types of errors: When an incorrect journal entry has been made, but not yet posted When a proper entry has been made but posted to the wrong account or for the wrong amount

Ruling Method

Ruling Method Of Making A Correction

DATE DESCRIPTION PR DEBIT CREDIT 20-- SEPT 17 Entertainment Expense

Cash 650 00 650 00

Paid employees

1 2

3 4 5 18 6

Prepaid Insurance Cash

7 Paid premium for 8 8-month insurance 9 policy

Wages Expense



Used when an incorrect entry has been: Journalized and Posted to the wrong account

A whole new entry must be made to correct the accounts

Correcting Entry Method


Assume that a $400 payment for rent was incorrectly debited to Repair Expense but correctly credited to Cash.

Example


I need to get $400 out of Repair Expense and into Rent Expense

Example

Correcting Entry Method DATE DESCRIPTION PR DEBIT CREDIT

20-- Sept. 25 Rent Expense 400 00 1

2

3 4 5 6 7 8 9

To put the $400 spent on rent into the

proper account



20-- Sept. 25 Rent Expense

Repair Expense 400 00 400 00 1

2

3 4 5 6 7 8 9

To remove the $400 put in Repair Expense

by error



20-- Sept. 25 Rent Expense

Repair Expense 400 00 400 00

To correct error in which

1 2

3 4 5 6 7 8 9

payment for rent was debited to Repair Expense

To explain that this entry was made to correct an error in a prior transaction


Effects Of Correcting Entry On Ledger Accounts



DR. CR.

Rent Expense 521

20-- Sept. 25 400 400 J6 Correcting

Indicates this came from a correcting entry in the

general journal


Effects Of Correcting Entry On Ledger Accounts



DR. CR.

Repair Expense 537

20-- Sept. 10 50 50 J5

Correcting 15

25

J5 J6

400 450

400 50

The balance is now correct; the $400 error has been

removed © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapterhorowitk/documents/Chapter_04.pdfChapter © 2014 Cengage Learning. All Rights Reserved. May...

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