Part 1 - Cabrillo College - Breakthroughs Happen Herecabrillo.edu/~mbooth/acct151a/Price 14th...
Transcript of Part 1 - Cabrillo College - Breakthroughs Happen Herecabrillo.edu/~mbooth/acct151a/Price 14th...
Slide 2
The General Journal and
the General Ledger
The General Journal
Section Objectives
1. Record transactions in the
general journal.
2. Prepare compound journal
entries.
McGraw-Hill © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 3 explained T accounts and the trial balance, and their usefulness in the preparation of financial statements. Chapter 4 introduces accounting journals, the general ledger, and shows how to use both. In the real world, transactions are not recorded using the accounting equation, nor are they recorded using T-accounts. Instead, businesses use a Journal to record business transactions. The first objective of this chapter introduces the general journal.
Slide 3
The accounting cycle is a series of steps
performed during each accounting
period to classify, record, and
summarize data for a business and to
produce needed financial information.
ANSWER:
QUESTION:
What is the accounting cycle?
This chapter introduces the steps in the accounting cycle, a series of steps performed each accounting period.
Slide 4
The Accounting Cycle
Step 1
Analyze
transactions
Step 2
Journalize the
data about
transactions
Step 7
Record
closing
entries
Step 3
Post the
data about
transactions
Step 4
Prepare
a
worksheet
Step 5
Prepare
financial
statements
Step 6
Record
adjusting
entriesStep 8
Prepare a
postclosing
trial balance
Step 9
Interpret
the financial
information
Step 1
Analyze
transactions
Step 2
Journalize the
data about
transactions
Here step 1 is to analyze transactions and step 2 is to journalize the data about transactions.
Slide 6
A journal is a record of original entry.
ANSWER:
QUESTION:
What is a journal?
Let’s begin with the business’s journal. . .A record of the original entry
Slide 7
A journal is a diary of business activities.
There are different types of journals.
Transactions are entered in the journal in
chronological order.
Journal
Just like in school when you kept a “diary” or “journal” of your activities, a business journal does the same thing.
Slide 8
Chronological order is the order in
which events occur.
ANSWER:
QUESTION:
What is chronological order?
The journal keeps a record of the business’s financial events in the order that they occurred.
Slide 10
Record transactions in the
general journal.
Our first objective is to learn how to record financial transactions in the general journal.
Slide 11
A general journal is a financial record for
entering all types of business
transactions.
ANSWER:
QUESTION:
What is a general journal?
The journal is the book of original entry where we first record business transactions.
Slide 12
Journalizing is the process of recording
transactions in a journal.
ANSWER:
QUESTION:
What is journalizing?
Journalizing, the verb, means to “record” transactions in the journal.
Slide 13
Enter the account to be debited.
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
2016
Nov. 6
Enter the account to be credited.
Enter the amount on the same line in the Debit column.
Enter the amount on the same line in the Credit column.
Cash
Carolyn Wells, Capital
100,000.00
100,000.00
Take a look at a journal entry. Carolyn Wells, Owner, invested $100,000 cash into the business on November 6. Let’s look at each part of the journal entry. First you should enter the year and the date of the transaction, then enter the name of the account debited flush against the line, then place the dollar amount in the debit column. Next drop down a line and indent ¼ to ½ inch and write the name of the account credited. Place the dollar amount of the credit in the credit column.
Slide 14
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
2016
Nov. 6 Cash 100,000.00
Carolyn Wells, Capital 100,000.00
Then enter a complete but concise description of the transaction.
Investment by owner
Whenever possible, the journal entry should refer to the source of the
information.
Document numbers are part of the audit trail.
, Memo 01
Once the transaction has been journalized, we need to indent a little and add an explanation of the event.
Slide 15
An audit trail is a chain of references
that makes it possible to trace
information, locate errors, and prevent
fraud.
ANSWER:
QUESTION:
What is an audit trail?
It is important to leave an audit trail so that you can follow what happened in a transaction—check numbers, invoice numbers, customer names, etc are all pieces of information which can be placed in the explanation.
Slide 17
1. Analyze the financial event.
Recording a
Business Transaction
2. Apply the rules of debit and credit.
3. Make the entry in T-account form.
4. Record the complete entry in general journal form.
Identify the accounts affected.
Classify the accounts affected.
Determine the amount of increase or decrease for each account
affected.
a. Which account is debited? For what amount?
b. Which account is credited? For what amount?
Here are the steps to begin a journal entry. It is critical at this point that you have memorized and can apply the analysis process.
Slide 18
Business Transaction
1. Analyze the financial event.
On November 6 Carolyn Wells withdrew $100,000 from
personal savings and deposited it in a new business
checking account for Wells’ Consulting Services.
Let’s journalize this initial investment by the owner in the general journal.
Slide 19
Cash Investment by Owner
Which account is debited?
For what amount?
Which account is credited?
For what amount?
2. Apply the rules of debit and credit.
Do you remember using T accounts? We need to Debit Cash for $90,000 and Credit Carolyn Wells, Capital for the same amount.
Slide 20
Cash
100,000
Carolyn Wells, Capital
100,000
Cash Investment by Owner
3. Make the entry in T-account form.
This is what it looks like in T-account form.
Slide 21
Cash Investment by Owner
•Identify the accounts affected.
•Classify the accounts affected.
•Determine the amount of increase or decrease for each
account affected.
4. Record the complete entry in general journal form.
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
2016
Nov. 6 Cash 100,000.00
Carolyn Wells, Capital 100,000.00
Investment by owner
Here is the general journal entry.
Slide 22
Business Transaction
1. Analyze the financial event.
On November 7 Wells’ Consulting Services issued
Check 1001 for $5,000 to purchase a computer and
other equipment.
Let’s journalize the purchase of new equipment.
Slide 23
Equipment
5,000
Cash
5,000
Cash Purchase of Equipment
3. Make the entry in T-account form.
Here is what the transaction looks like in T-account form.
Slide 24
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Nov. 7 Equipment 5,000.00
Cash 5,000.00
Purchased equip., Check 1001
Cash Purchase of Equipment
4. Record the complete entry in general journal form.
Here is the general journal. Note; the third indent is a small description of the event
Slide 25
Business Transaction
1. Analyze the financial event.
On November 10, Wells’ Consulting Services purchased
office equipment on account for $6,000.
Our next transaction is the purchase of equipment on account.
Slide 26
Credit Purchase of Equipment
Equipment
6,000
Accounts Payable
6,000
3. Make the entry in T-account form.
Here is the transaction in T-account form.
Slide 27
Credit Purchase of EquipmentGENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Nov. 10 Equipment 6,000.00
Accounts Payable 6,000.00
Purchased equipment on
account from Office Plus,
Inv. 2223, due in 60 daysAll required information
should be included
in the explanation.
4. Record the complete entry in general journal form.
Here is the journal entry. Remember to include all important information in the explanation, the third indent after the credit entry. This improves the audit trail.
Slide 28
Business Transaction
Which account is debited? Which account is credited?
For what amount? For what amount?
2. Apply the rules of debit and credit.
1. Analyze the financial event.
On November 28, Wells’ Consulting Services
purchased supplies for $1,500, Check 1002.
Next, we purchased supplies for $1,500 cash, so we need to debit Supplies for $1,500 and credit Cash for the same amount.
Slide 29
Cash Purchase of Supplies
Supplies
1,500
Cash
1,500
3. Make the entry in T-account form.
Here is the transaction in T-account form.
Slide 30
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Nov. 28 Supplies 1,500.00
Cash 1,500.00
Purchased supplies, Ck. 1002
Cash Purchase of Supplies
4. Record the complete entry in general journal form.
Here is the general journal entry for the transaction, once again see the third indent, the note with the check #.
Slide 31
Business Transaction
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
On November 30 Wells’ Consulting Services paid
Office Plus $2,500 in partial payment of Invoice 2223,
Check 1003.
When the business paid part of its bill for the equipment purchased earlier, it would debit Accounts Payable and credit Cash for $2,500.
Slide 32
Payment to a Creditor
Accounts Payable
2,500
Cash
2,500
3. Make the entry in T-account form.
Here is the transaction in T-account form.
Slide 33
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Nov. 30 Accounts Payable 2,500.00
Cash 2,500.00
Paid on account, Office Plus,
Invoice 2223, Check 1003
Payment to a Creditor
4. Record the complete entry in general journal form.
Remember, in the general journal, always enter debits before credits, followed by the note with the summary information for the business transaction.
Slide 34
Which account is debited?
For what amount?
Which account is credited?
For what amount?
Business Transaction
1. Analyze the financial event.
2. Apply the rules of debit and credit.
On November 30, Wells’ Consulting Services wrote
Check 1004 for $8,000 to prepay rent for December
and January.
When the business pays for two months rent in advance, it debited Prepaid Rent for $8,000 and credited Cash for $8,000.
Slide 35
Recording Prepaid Rent
Prepaid Rent
8,000
Cash
8,000
*Note: Both accounts affected are assets…
3. Make the entry in T-account form.
Here is the transaction in T-account form.
Slide 36
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Nov. 30 Prepaid Rent 8,000.00
Cash 8,000.00
Paid Dec. and Jan. rent
in advance; Check 1004
Recording Prepaid Rent
4. Record the complete entry in general journal form.
Here is the general journal entry, with the note.
Slide 38
Which account is debited?
For what amount?
Which account is credited?
For what amount?
Performed services for $36,000 in cash. December
31, 2016. Customer Invoice 3369.
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the business performs consulting services and gets paid immediately, Well’s Consulting will debit Cash for $36,000 and credit Fees Income for the same amount.
Slide 39
Cash
36,000
Fees Income
36,000
3. Make the entry in T-account form.
Performed services for $36,000 in cash. December
31, 2016. Customer Invoice 3369.
Here is the transaction in T account form.
Slide 40
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
2015
Dec. 10Cash 36,000.00
Performed services for cash.
Invoice 3369.
Fees Income 36,000.00
4. Record the complete entry in general journal form.
Note: Change
in page
number
2016
31
Performed services for $36,000 in cash. December
31, 2016. Customer Invoice 3369.
Here is the general journal entry. As the accounting period changes from November to December, the journal will start on a new page. The other rule for a new page number is if a page fills the next page is numbered in serial sequence. Notice the errors and how for audit purpose, small lines are used to cross-out the wrong information. The correct information is written next to the error.
Slide 41
Performed services for $11,000 on credit.
December 31, 2016. Customer Invoice 3370.
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the firm performs services for credit clients, it will debit Accounts Receivable and credit Fees Income for $11,000.
Slide 42
Accounts Receivable
11,000
Fees Income
11,000
Record the revenue
as earned even if
you haven’t
received the cash.
3. Make the entry in T-account form.
Performed services for $11,000 on credit.
December 31, 2016. Customer Invoice 3370.
Remember to record the revenue even if you haven’t gotten paid because you have EARNED the money. The three elements required for revenue recognition: 1. Known Price 2. Transfer of title of good or Acceptance by customer of service 3. High probability of payment; Cash or Accounts Receivable
Slide 43
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Dec. 31 Accounts Receivable 11,000.00
Fees Income 11,000.00
Performed services on credit.
Invoice 3370
4. Record the complete entry in general journal form.
Performed services for $11,000 on credit.
December 31, 2016. Customer Invoice 3370.
Here is the general journal entry on the 31st. Notice the invoice number in the note
Slide 44
Received $6,000 in cash from credit clients on their accounts, December 31, 2016.
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the firm collects $6,000 from credit customers, it needs to debit Cash and credit Accounts Receivable.
Slide 45
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Dec. 31 Cash 6,000.00
Accounts Receivable 6,000.00
Received cash from credit
clients on account
4. Record the complete entry in general journal form.
Received $6,000 in cash from credit clients on their accounts, December 31, 2016.
Here is the general journal entry. What is missing? The Note should have the invoice number for the original sale
Slide 46
Paid $8,000 for salaries, December 31, 2016.
Checks 1005-1006
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the business pays $8,000 salaries expense to its employees, they would debit Salaries Expense for $8,000 and credit Cash for the same amount.
Slide 47
Salaries Expense
8,000
Cash
8,000
3. Make the entry in T-account form.
Paid $8,000 for salaries, December 31, 2016. Check
1005-1006
Here is the transaction in T-account form.
Slide 48
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Dec. 31 Salaries Expense 8,000.00
Cash 8,000.00
Paid monthly salaries to
employees, Check 1005-1006
4. Record the complete entry in general journal form.
Paid $8,000 for salaries, December 31, 2016.
Checks 1005-1006
And, here is the general journal entry. Notice the sequence of checks used to pay the employees
Slide 49
Paid $650 for a utility bill.
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the business pays a utility bill of $650, it will debit Utilities Expense and credit Cash for the $650.
Slide 50
Paid $650 for a utility bill, December 31, 2016.
Check 1007
Utilities Expense
650
Cash
650
3. Make the entry in T-account form.
Here is the transaction in T account form.
Slide 51
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Dec. 31 Utilities Expense 650.00
Cash 650.00
Paid monthly bill for utilities,
Check 1007
4. Record the complete entry in general journal form.
Paid $650 for a utility bill, December 31, 2016.
Check 1007
Here is the general journal entry, notice the check number in the note
Slide 52
The owner withdrew $5,000 for personal expenses,
December 31, 2016, Check 1008.
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the owner withdraws $5,000 for personal use, the accountant will debit the Carolyn Wells, Drawing account and credit the Cash account for the $5,000 withdrawal.
Slide 53
Carolyn Wells, Drawing
5,000
Cash
5,000
3. Make the entry in T-account form.
The owner withdrew $5,000 for personal expenses,
December 31, 2016, Check 1008.
In T account form, this is what the transaction looks like.
Slide 54
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Dec. 31 Carolyn Wells, Drawing 5,000.00
Cash 5,000.00
Owner withdrew cash for
personal expenses,
Check 1008
4. Record the complete entry in general journal form.
The owner withdrew $5,000 for personal expenses,
December 31, 2016, Check 1008.
Here is the general journal entry on the 31st, including the check # for the cash event
Slide 55
Received $6,000 in cash from credit clients on their accounts, December 31, 2016.
Which account is debited?
For what amount?
Which account is credited?
For what amount?
1. Analyze the financial event.
2. Apply the rules of debit and credit.
When the firm collects $6,000 from credit customers, it needs to debit Cash and credit Accounts Receivable.
Slide 56
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST. DEBIT CREDIT
REF.
Dec. 31 Cash 6,000.00
Accounts Receivable 6,000.00
Received cash from credit
clients on account
3. Record the complete entry in general journal form.
Received $6,000 in cash from credit clients on their accounts, December 31, 2016.
Here is the general journal entry, once again should have the invoice number of the original sale included in the note.