Journalizing transactions

Journalizing TransactionsChapter 3

the American Institute of Public Accountants (AICPA ) (p. 55)• Founded in 1887, the AICPA represents the CPA profession nationally

regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the profession’s technical and ethical standards.• The AICPA’s founding established accountancy as a profession

distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.

Mission

• Powering the success of global business, CPAs, CGMAs and specialty credentials by providing the most relevant knowledge, resources and advocacy, and protecting the evolving public interest.

3.1 Journals, Source Documents, and Recording Entries in a

Journal

Journals and Journalizing• Journal – a form for recording transactions in chronological

order

• Journalizing – recording transactions in a journal

Why use journals?• More permanent recording than the accounting equation

• Can be specialized according to the needs of the company

• The nature of the business and the number of transactions to be recorded determine the kind of journal to be used.

A Five- Column Journal

1 2 3 4 5

DEBIT CREDIT DEBIT CREDIT

1 12 23 34 4

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

A Journal amount column headed with an account title is called a special amount column.These columns are used for transactions that occur frequently.

A Journal amount column not headed with an account title is called a general amount column.

Accuracy• Information recorded must include DT and CT parts of each

transaction.

• Verified by comparing data in journal with transaction data.

Chronological Order• Recorded in order by date• i.e. 1st, then 3rd, then 5th etc.

• Makes the information for a specific transaction easy to find

Double-Entry Accounting• Entry – the information for each transaction that is recorded in

a journal

• Double-entry accounting – recording of the DEBIT and the CREDIT parts of a transaction.

• This ensures DEBIT = CREDIT

Source Document• Source document – a business paper from which information is

obtained for a journal entry.

• Example:• Check stub

This part goes to the person you are paying

Check Stub• Source document fro CASH payments

Accounting Concept :Objective Evidence• This concept is applied when a source document is prepared for

each transaction.

More examples of source documents

• Sales Invoices(also sales ticket or sales slip)

• This is prepared in duplicate• Original to customer• Copy used as source document

• Receipts

• For cash received other than sales

• Must be prenumbered

• Calculator Tapes

• End of day – Must be dated and numbered

• Memorandums

• Used when no othersource documents is prepared for transaction

Or

• When an additional explanation is needed about a transaction

Receiving Cash from the owner as an investment• August 1. Received cash from owner as an investment, $

5000.00. Receipt No. 1

5000.00

5000.00

CASH (asset)

Kim Park, Capital (O.E.)

Receiving Cash from the owner as an investment

1 2 3 4 5


12015

Aug 1 Kim Park, Capital R1 5 000.00 5 000.00 1

2 23 34 4

JOURNAL

DateSALES

CREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Source document – Receipt No. 1(Objective evidence)

Capital (Owner’s Equity)

Paid Cash For Supplies• August 3. Paid cash for supplies, $ 275.00. Check No. 1

275.00

275.00

CASH (asset)

Suppliesl (asset)

Paid Cash For Supplies

1 2 3 4 5


12015

Aug 1 Kim Park, Capital R1 5 000.00 5 000.00 1

2 3 Supplies C1 275.00 275.00 2

3 3

4 4

JOURNAL

DateSALES

CREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Source document – Check No. 1(Objective evidence)

Supplies (asset)

Work Together 3.1

• Apr. 1, Received cash from owner as an investment, $1500.00. R1

1500.00

1500.00

CASH (asset)

Norm Derner, Capital (O.E.)

1 2 3 4 5


12015

Apr 1 Norm Derner, Capital R1 1500.00 1500.00 1

2 2

3 3

4 4

JOURNAL

DateSALES

CREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Work Together 3.1

• Apr. 2, Paid cash for supplies, $375.00. C1

375.00

375.00

CASH (asset)

Supplies (asset)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 3

4 4

JOURNAL

DateSALES

CREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Complete On your Own 3.1 and Workbook p. 33 nr. 1 – 12; p. 34 nr. 1 - 7

1 2 3 4 5


12015

Jun 1 Lou James, Capital R1 3000.00 3000.00 1

2 3 Supplies C1 950.00 950.00 2

3 3

4 4

JOURNAL

Date Account TitleDOC.NO.

POST.REF.

GENERALSALES

CREDIT

CASH

3.2 Journalizing Buying Insurance, Buying on Account, and Paying on Account

Paid cash for insurance

• August 4, Paid cash for insurance, $ 1200.00, Check No. 2

1200.00

1200.00

CASH (asset)

Prepaid Insurance (asset)

1 2 3 4 5


12015

Aug 1

2 23 4 Prepaid Insurance C2 1200.00 1200.00 3

4 4

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Source document is Check No. 2 (C2)[CONCEPT: Objective Evidence

Bought supplies on account

• August 7. Bought supplies on account from Supply Depot. $ 500.00. Memorandum No. 1

500.00

500.00

Supplies (asset)

Acc. Pay. Supply Depot (liability)

1 2 3 4 5


4 7 Supplies M1 500.00 4

5 Accounts Payable - Supply Depot 500.00 5

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Source document is Memorandum No. 1 (M1)[CONCEPT: Objective Evidence

Paid Cash on Account

• August 11. Paid cash on account to Supply Depot, $300.00. Check No. 3

300.00

300.00

Cash (asset)

Acc. Pay. Supply Depot (liability)

1 2 3 4 5


5 11 Accounts Payable - Supply Depot C3 300.00 300.00 5

6 6

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH


Work Together 3.2

• April 5. Bought supplies on account from Palm Supply. $ 500.00. M1

500.00

500.00

Supplies (asset)

Acc. Pay. Palm Supplyl (liability)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3

4 Account payble - Palm Supply 500.00 4

JOURNAL

DateSALES

CREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

• Apr. 7. Paid cash for Insurance, $300.00. C2

300.00

300.00

Cash (asset)

Insurance (asset)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3

Account payble - Palm Supply 500.004 7 Insurance C2 300.00 300.00 4

JOURNAL

DateSALES

CREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

• Apr. 9, Paid cash on account to Palm Supply, $250.00. C3

250.00

250.00

Cash (asset)

Acc. Pay. Palm Supply (liability)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5

6 9 Account payble - Palm Supply C3 250.00 250.00 6

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Complete work on your own 3.2

5-Jun 9-Jun 10-Jun

400.00 300.00 300.00

400.00 300.00 300.00

Cash (asset)

Insurance (asset)

Supplies (asset)

Acc. Pay. - OK Supplies (liability)

Cash (asset)

Acc. Pay. - OK Supplies (liability)

1 2 3 4 5


12015


2 3 Supplies C1 950.00 950.00 2

3 5 Insurance C2 400.00 400.00 3

4 9 Supplies M1 300.00 4

5 Acc. Pay. - OK Supplies 300.00 5

6 10 Acc. Pay. - OK Supplies C3 300.00 300.00 6

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

3.3 Journalizing Transactions That Affect Owner’s Equity and Receiving Cash on Account.

Receiving Cash From Sales

• August 12. Received cash from Sales; $295.00. Tape No. 12

295.00

295.00

Cash (asset)

Sales (O.E)

Source document is Tape No. 12 (T12)[CONCEPT: Objective Evidence

1 2 3 4 5


7 12 Sales T12 295.00 295.00 7

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Sold Services on Account

• August 12. Sold services on account to Oakdale School, $350.00. Sales Invoice No. 1

350.00

350.00

Acc. Rec. - Oakdale School (Asset)

Sales (O.E)

1 2 3 4 5


8 12 Acc. Rec. - Oakdale School S1 350.00 350.00 7

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Source document is Sales Invoice No. 1 (S1)[CONCEPT: Objective Evidence

Paid Cash for Expenses

• August 12. Paid cash for rent, $300.00. Check no. 4

300.00

300.00

Cash (Asset)

Rent Expense (O.E)

1 2 3 4 5


9 12 Rent Expense C4 300.00 300.00 9

10 12 Utilities Expense C5 40.00 40.00 10

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Source document is Check No. 4 (C4) and Check No. 5 (C5)[CONCEPT: Objective Evidence

Received Cash on Account

• August 18. Received cash on account from Oakdale, $200.00. Receipt no. 2

200.00

200.00

Cash (Asset)

Acc. Rec. - Oakdale School (asset)

1 2 3 4 5


11 18 Acc. Rec. Oakdale School R2 200.00 200.00 11

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Source document is Receipt No. 2 (R2)[CONCEPT: Objective Evidence

Paid cash to owner for personal use

• August 18. Paid cash to owner for personal use, $125.00. Check No. 6

125.00

125.00

Cash (Asset)

Kim Park, Drawing (O.E.)

1 2 3 4 5


12 18 Kim Park, Drawing C6 125.00 125.00

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH


Work Together 3.3

• April 12. Paid cash for rent, $ 1000.00. C4

1000.00

1000.00

Cash (Asset)

Rent Expense (O.E.)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5


7 12 Rent Expense C4 1000.00 1000.00 7

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Work Together 3.3

• April 13. Received cash from sales, $ 2500.00. T13

2500.00

2500.00

Cash (Asset)

Sales (asset)( Owner’s Equity)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5


7 12 Rent Expense C4 1000.00 1000.00 7

8 13 Sales T13 2500.00 2500.00 8

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Work Together 3.3

• April 14. Sold services on account to L. Rohe, $ 510.00. S1

510.00

510.00

Acc. Rec. - L. Rohe (Asset)

Sales (asset)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5


7 12 Rent Expense C4 1000.00 1000.00 7

8 13 Sales T13 2500.00 2500.00 8

9 14 Acc. Rec. - L. Rohe S1 510.00 510.00 9

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Work Together 3.3

• April 19. Paid cash for electric bill, $ 148.00. C5

148.00

148.00

Cash (asset)

Utilities (O.E.)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5


7 12 Rent Expense C4 1000.00 1000.00 7

8 13 Sales T13 2500.00 2500.00 8

9 14 Acc. Rec. - L. Rohe S1 510.00 510.00 9

10 19 Utilities C5 148.00 148.00 10

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Work Together 3.3

• April 20. Received cash on account from L. Rohe, $ 225.00. R2

255.00

255.00

Cash (asset)

Acc. Rec. - L. Rohe (Asset)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5


7 12 Rent Expense C4 1000.00 1000.00 7

8 13 Sales T13 2500.00 2500.00 8

9 14 Acc. Rec. - L. Rohe S1 510.00 510.00 9

10 19 Utilities C5 148.00 148.00 10

11 20 Acc. Rec. - L. Rohe R2 255.00 255.00 11

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Work Together 3.3

• April 21. Paid cash to owner for personal use, $ 1000.00. C6

1000.00

1000.00

Cash (asset)

Norm Derner, Drawing (O.E)

1 2 3 4 5


12015


2 2 Supplies C1 375.00 375.00 2

3 5 Supplies M1 500.00 3


5 7 Insurance C2 300.00 300.00 5


7 12 Rent Expense C4 1000.00 1000.00 7

8 13 Sales T13 2500.00 2500.00 8

9 14 Acc. Rec. - L. Rohe S1 510.00 510.00 9

10 19 Utilities C5 148.00 148.00 10

11 20 Acc. Rec. - L. Rohe R2 255.00 255.00 11

12 21 Norm Derner, Drawing C6 1000.00 1000.00 12

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Complete On your Own 3.311-Jun 12-Jun 16-Jun

525.00 700.00 2300.00

525.00 700.00 2300.00

Cash (asset)

Rent Expense (O.E.)

Sales (O.E)

Acc. Rec. - C. Lord (asset)

Cash (asset)

Sales (O.E.)

17-Jun 19-Jun 20-Jun

37.00 350.00 850.00

37.00 300.00 850.00

Cash (asset)

Misc. Expense (O.E.)

Cash (asset)

Acc. Rec. - C. Lord (asset)

Cash (asset)

Lou James, Drawing (O.E)

1 2 3 4 5


12015


2 3 Supplies C1 950.00 950.00 2

3 5 Insurance C2 400.00 400.00 3

4 9 Supplies M1 300.00 4

5 Acc. Pay. - OK Supplies 300.00 5

6 10 Acc. Pay. - OK Supplies C3 300.00 300.00 6

7 11 Rent Expense C4 525.00 525.00 7

8 12 Acc. Rec. - C. Lord S1 700.00 700.00 8

9 16 Sales T16 2300.00 2300.00 9

10 17 Miscellaneous Expense C5 37.00 37.00 10

11 19 Acc. Rec. - C. Lord R2 350.00 350.00 11

12 20 Lou James, Drawing C6 850.00 850.00 12

13 13

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

3.4 Proving and Ruling a Journal

Proving a journal page

• Step 1: Add each column in the Journal

• Step 2: Write the total in the Proving Table

• Step 3: Add up all the totals in the Credit column

• Step 4: Add up all the totals in the Debit column

• Step 5: Check that the totals are equal – if not, go back and redo!

1 2 3 4 5


JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Debit CreditColumn Column Totals Column TotalsGeneral $ 3 543.00 $ 5 750.00Sales 1 960.00Cash 6 710.00 2 543.00

Totals $ 10 253.00 $ 10 253.00

Totals Equal

Ruling a Journal Page

• After a journal page has been proved, it is ruled.

1 2 3 4 5


12015

Aug 1 Kim Park, Capital R1 5000.00 5000.00 1

2 3 Supplies C1 275.00 275.00 2

3 4 Prepaid insurance C2 1200.00 1200 3

23 20 Supplies M2 50.00 23

24 Account payble - Thomas Supply Co. 50.00 24

25 20 Carried Forward P 3543.00 5750.00 1960.00 6710.00 2543.00 25

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Single line after last entry

Date

Carried Forward Tick mark Column TotalsDouble Rule

Page 1

Starting a new Journal Page

1 2 3 4 5


12015

Aug 20 Brought Forward P 3543.00 5750.00 1960.00 6710.00 2543.00 1

2 2

JOURNAL page 2


POST.REF.

GENERALSALES

CREDIT

CASH

Proving and Ruling a Journal at the end of the Month

• Always prove and rule at the end of the month.

• Proved using the same steps as shown earlier.

• Then – cash is proved

• Then – journal is ruled.

Debit CreditColumn Column Totals Column TotalsGeneral $ 3 543.00 $ 5 750.00Sales 1 960.00Cash 6 710.00 2 543.00

Totals $ 10 253.00 $ 10 253.00

Totals Equal

Proving a Journal

Proving cash

• Determining that the amount of cash agrees with the accounting records is called proving cash.

• Cash can be proved at any time to verify the accuracy of the cash records

• Cash is ALWAYS proved at the end of the month.

• There are two steps to proving cash

Step 1: Calculate the cash Balance

• Cash on hand at the beginning of the month………………………. SDG 150.00

• Plus total cash received during the month …………………………. SDG 850.00• This amount is the total of the journal’s Cash Debit Column

• Equals total ……………………………………………………………………….. SDG 1000.00

• Less total cash paid during the month …………………………………. SDG 500.00• This amount is the total of the journal’s Cash Credit Column

• Equals cash balance at the end of the month ………………......... SDG 500.00

Step 2:

• Verify that the cash balance equals the checkbook balance on the next unused check stub in the check stub

• Checkbook balance on the next unused check stub ……………… SDG 500.00

• Since the cash balance = checkbook balance – CASH is PROVED

• We’ll look at checkbooks and check stubs in greater detail in Chapter 5

Proving and Ruling a Journal at the end of the Month

• Exactly the same as ruling a journal page, with two exceptions:

1 2 3 4 5


12015

Aug 20 Brought Forward P 3543.00 5750.00 1960.00 6710.00 2543.00 1

2 2

15 31 Totals 4351.00 5750.00 3565.00 8315.00 3351.00 15

JOURNAL page 2


POST.REF.

GENERALSALES

CREDIT

CASH

Standard accounting Practices

• Errors – correct by neatly drawing a line through the incorrect item.• Write the correct item immediately above the cancelled time.

1 2 3 4 5


125.001250.00 125.0012 18 Kim Park, Drawing C6

JOURNAL page 2


POST.REF.

GENERALSALES

CREDIT

CASH

• Sometimes an entire entry is incorrect and is discovered before the next entry is journalized. • Draw a neat line through all parts of the correct entry.• Journalize the correct entry in the next blank line

1 2 3 4 5


12 18 Rent Expense C15 5.00 5.0018 Repair Expense C15 50.00 50.00

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

• Sometimes several correct entries are recorded after an incorrect entry is made.• The next blank line is several entries away.• Draw a neat line through all incorrect parts of the entry.• Neatly record the correct times on the same line as the incorrect times,

directly above the cancelled parts.1 2 3 4 5


Suppl ies

Repair Expense18 C15 50.00 50.0012

JOURNAL


POST.REF.

GENERALSALES

CREDIT

CASH

Some more Rules

• Words are written in full when space permits• Abbreviations may ONLY be used when space is limited

• All items are legibly written (anyone can read it correctly)

• Monetary units ($ / SDG / etc) and decimal points are NOT used when writing amounts on ruled accounting paper

• Two zeros are written in the cents column when an amount is even • For example: SDG 50.00 or $ 40.00

• A single line is ruled across the amount columns to indicate a calculation such as addition.

• A double line is rules across the amount columns to indicate that the amounts are totals.

• In a journal, the double line also indicated that the debits = credits.

• NEATNESS IS VERY IMPORTANT IN ACCOUNTING RECORDS

Work Together 3.4

13 23 Acc. Rec. - L. Rohe S2 375.00 13

14 27 Norm Derner, Drawing C7 500.00 500 14

1 2 3 4 5

DEBIT CREDIT DEBIT CREDITDate

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Debit CreditColumn Column Totals Column TotalsGeneral 4958.00 2255.00Sales 3385.00Cash 4255.00 3573.00

Totals 9213.00 9213.00

1 2 3 4 5

DEBIT CREDIT DEBIT CREDITDate

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

13 23 Acc. Rec. - L. Rohe S2 375.00 13

14 27 Norm Derner, Drawing C7 500.00 500 14

27 Carried Forward P 4958.00 2255.00 3385 4225 3573

1 2 3 4 5


12015

Apr 27 Brought Forward P 4958.00 2255.00 3385.00 4255.00 3573 1

2 29 Acc. Re. - L. Rohe R3 300.00 300.00 2

3 30 Sales T30 544.00 544.00 3

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Debit CreditColumn Column Totals Column TotalsGeneral 4958.00 2555.00Sales 3929.00Cash 5099.00 3573.00

Totals 10057.00 10057.00

Prove the cash0.00

5099.005099.003573.001526.001526.00

Cash on hand at the beginning of the month………….Plus total cash received during the month……………..Equals Total……………………………………………………………..Less total cash paid during the month…………………….Equals cash balance at the end of the month………….Checkbook balance on the next unused check stub..

1 2 3 4 5


12015

Apr 27 Brought Forward P 4958.00 2255.00 3385.00 4255.00 3573 1

2 29 Acc. Re. - L. Rohe R3 300.00 300.00 2

3 30 Sales T30 544.00 544.00 3

4 30 Totals 4958.00 2555.00 3929.00 5099.00 3573.00 4

Date

JOURNAL

SALESCREDIT

GENERAL CASHDOC.NO.

POST.REF.

Account Title

Class work / Homework

• Complete On Your Own 3.4

• In the workbook, complete p. 33 – 35

• Complete the exercises that are on p. 80 - 84

Journalizing transactions

Business

Transcript of Journalizing transactions