CHAPTER FOUR JOURNALIZING AND POSTING TRANSACTIONS

CHAPTER FOUR

JOURNALIZING AND POSTING TRANSACTIONS

FLOW OF DATA

INPUTAnalyze

transactions using

SOURCE DOCUMENTS and CHART OF ACCOUNTS

STEP #1

FLOW OF DATA

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

STEP #2

ST #2STEP #3

STEP #4

CHART OF ACCOUNTS

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

affected by a given transaction

JESSICA JANE’S CAMPUS DELIVERYCHART OF ACCOUNTS

Assets (100-199) 101 Cash 122 Accts. Rec.141 Supplies145 Prepaid Ins. 185 Delivery Eq.

Assets begin with 1


Assets (100-199) 101 Cash122 Accts. Rec.141 Supplies 145 Prepaid Ins. 185 Delivery Eq.

Liabilities (200-299)202 Accounts Pay.

Liabilities begin with 2


Assets (100-199) 101 Cash122 Accts. Rec.141 Supplies145 Prepaid Ins. 185 Delivery Eq.


Owner’s Eq. (300-399)311 Jessica Jane, Capital312 Jessica Jane, Drawing

Owner’s Equity

begins with

3


Assets (100-199) Revenues (400-499)101 Cash 401 Delivery Fees122 Accts. Rec.141 Supplies145 Prepaid Ins. 185 Delivery Eq.



Revenues begin with 4


Assets (100-199) Revenues (400-499)101 Cash 401 Delivery Fees122 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 Accounts Pay.


Expenses begin with 5


Assets (100-199) Revenues (400-499)101 Cash 401 Delivery Fees122 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 Accounts Pay.


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

• Cash Payments

Example: Provides Information about:

Receipt stubs, copies of receipts, cash register tapes, or memos of cash register totals

• Cash Receipts

SOURCE DOCUMENTS

Copies of sales tickets or sales invoices issued to customers or clients

Example: Provides Information about:

•Sales of goods or services

•Purchases of goods or services

Purchase invoices received from suppliers

JOURNAL

Day by day listing of transactions Purpose: to provide a record of all

transactions “Book of Original Entry” Simplest form - “General Journal” Act of entering transaction in Journal is

called “Journalizing”

EXAMPLE:

MARY ADAMS INVESTED $25,000 IN THE BUSINESS ON JUNE 1, 2000

NEW!DATED

TRANSACTIONS

DEBITS = CREDITS

DR.

M. ADAMS, CAPITAL

$25,000

CR.

CASH

DR. CR.

$25,000

NOW WE WILL“JOURNALIZE”

THIS TRANSACTION

+ +

GENERAL JOURNAL

DATE DESCRIPTION PR DEBIT CREDIT2000

JUNE 1

STEP #1 ENTER DATE

Year and month only written on first line of each page

1

2

GENERAL JOURNAL


JUNE 1 CASH

STEP #2 aENTER THE NAME

OF ACCOUNT BEING DEBITED

Align with left margin

1

2

GENERAL JOURNAL


JUNE 1 CASH 25000 001

2

STEP #2 bENTER THE AMOUNT

OF THE DEBIT

GENERAL JOURNAL


JUNE 1 CASHM. ADAMS, CAPITAL 25000 00

25000 001

2

STEP #3ENTER THE ACCOUNT

NAME & AMOUNT OF CREDIT

GENERAL JOURNAL


JUNE 1 CASH

M. ADAMS, CAPITAL 25000 00

25000 00

Owner’s original

investment in business

STEP #4 ENTER THE EXPLANATION

Indent even further

1

2

3

4

GENERAL JOURNAL


JUNE 1 CASH


25000 00

Owner’s original


STEP #5SKIP A LINE

Leave a blank line between transactions

1

2

3

4

5

COMPOUND ENTRY

An entry requiring more than one debit and/or more than one credit

All debits come before any credits

COMPOUND ENTRY EXAMPLE:

PURCHASED $2,500 PIECE OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10, 2000

“T” ACCOUNT ANALYSIS

OFFICE EQUIP. 0FFICE SUPPLIES

CASHALL

ASSET ACCOUNTS

DR. CR.

DR. CR.

DR. CR.+ +

+


EACHACCOUNT?

INCREASE OR DECREASE?


OFFICE EQUIPMENT

Dr. Cr.

INCREASED

$2,500+


OFFICE SUPPLIES

Dr. Cr.

INCREASED

$500+


CASH

Dr. Cr.

DECREASED

$3,000+

2 DEBITS & 1 CREDITBUT DEBIT $ = CREDIT $

OFFICE EQUIP. 0FFICE SUPPLIES

CASH

DR. CR.

DR. CR.

DR. CR.

$2,500 $500

$3,000

+ +

+

NOW LET’S JOURNALIZE THE TRANSACTION

GENERAL JOURNAL


JUNE 10 OFFICE EQUIPMENTOFFICE SUPPLIES

2500 00

CASH Purchased copier and

The order of the debits does not matter. But ALL debits must

come before any credits.

1

2

3

4

5 supplies

500 00

3000 00

GENERAL LEDGER

Set of all accounts used by a business Similar to “T” accounts Used to keep record of current balances Commonly in form of FOUR-COLUMN

account

POSTING

Process of copying debits and credits from the journal to the ledger

Done daily or at frequent intervalsFive step process

GENERAL JOURNAL


JUNE 1 CASH


25000 00

Owner’s original


LET’S POST THISENTRY TO THE

GENERAL LEDGER

1

2

3

4

5

FOUR-COLUMN ACCOUNT

Account: Account No.

DATE ITEM PR DR. CR.BALANCE

DR. CR.

CASH 101

ACCOUNTNAME

EACH ACCOUNTIS NUMBERED

FOUR-COLUMN ACCOUNT



DR. CR.

CASH 101

2000June 1

STEP #1 RECORD DATEYear and Month

only for first entry

FOUR-COLUMN ACCOUNT



DR. CR.

CASH 101

2000June 1

LEAVE “ITEM”AREA BLANKUsed for special transaction only

FOUR-COLUMN ACCOUNT



DR. CR.

CASH 101

2000June 1

STEP #2 ENTER AMOUNT

25,000

FOUR-COLUMN ACCOUNT



DR. CR.

CASH 101

2000June 1

STEP #3 ENTER NEW BALANCE

25,000 25,000

FOUR-COLUMN ACCOUNT



DR. CR.

CASH 101

2000June 1

STEP #4ENTER JOURNAL

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

25,000 25,000J1

GENERAL JOURNAL


JUNE 1 CASH


25000 00

Owner’s original


STEP #5ENTER THE LEDGER ACCOUNT NUMBER

1

2

3

4

5

101

TRIAL BALANCE

Used to prove equality of 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

Jessica Jane’s Campus DeliveryTrial BalanceJune 30, 20--

Account Title Acct No. Debit Balance Credit BalanceCashAccounts ReceivableSuppliesPrepaid InsuranceDelivery Equipment

Accounts PayableJessica Jane, CapitalJessica Jane, DrawingDelivery FeesWages ExpenseRent ExpenseTelephone Expense

101122141145185202311312401511521525

370 00650 00

200 003600 00

1800 002000 00

80 00

150 002150 00

650 00200 0050 00

5950 00 5950 00

Now with Account

Numbers

FINDING AND CORRECTING ERRORS IN

THE TRIAL BALANCE

Sloppy Steve’s Trial Balance

December 31, 20--Account Title Acct No. Debit Balance Credit Balance

CashAccounts ReceivableSuppliesPrepaid InsuranceOffice Equipment

Accounts PayableSteve, CapitalSteve, DrawingDelivery FeesWages ExpenseRent ExpenseTelephone Expense

101122141145185202311312401511521525

850 001650 00

600 006300 00

1800 003500 00

230 00

500 005550 00

450 00200 0070 00

10580 00 10700 00

Help!! My Trial Balance

Doesn’t Balance

STEP #1

Double check your additionReview balances:

See if any are too large or small, relative to other accounts

Or entered in the wrong column

STEP #2

Find difference between the debits and the credits Is difference the amount of a

specific transaction?

Perhaps I forgot to post the debit or

credit part of that transaction?

STEP #2

• Divide the difference by 2

• Is this number the amount of a specific transaction?

STEP #2

Did I post the debit or credit

twice, OR, post the debit as a credit or

vice versa

STEP #2

• Divide the difference by 9

• If difference is divisible by 9, you could have a SLIDE error or a TRANSPOSITION error

SLIDE ERRORS

Occur when the decimal point is “slid” right or left

For example:

•Amount was $250, but recorded as $25

•Difference of $225

Difference is divisible by 9 ($225/9=25)

TRANSPOSITION ERRORS

• Occurs when two digits are reversed

• For example: Amount was $520, but recorded as

$250 Difference is $270 ($520-$250) Difference is divisible by 9,

($270/9=30)

STEP #3

If steps #1 and #2 don’t work:Double check your addition in the

ledger accountsTrace all postings

CORRECTING ERRORS

Two Methods:

• Ruling Method

• Correcting Entry Method

Erasing is NOT acceptable

• It may suggest that you are trying to hide something

RULING METHOD

• Used for two types of errors:

– When an incorrect journal entry hasbeen made, but not yet posted

– When a proper entry has been madebut posted to the wrong account or for the wrong amount

GENERAL JOURNAL


SEPT 17 Entertainment Expense

Cash 650 00

650 00

Paid employees

1

2

3

4

5 186

Prepaid Insurance

Cash7 Paid premium for 8

8 month insurance

9 policy

Wages Expense

Should be Wages

Expense!!!!

CORRECTING ENTRY METHOD

• Used when an incorrect entry has been:

– journalized and – posted to the wrong account

• Whole new entry must be made to correct accounts

EXAMPLE:

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

I need to get $400 out of Repair Expense

and into Rent Expense

GENERAL JOURNAL


Sept. 25 Rent Expense 400 001

2

3

4

5

6

7

8

9

To put the $400 spent

on rent into the proper

account

GENERAL JOURNAL


Sept. 25 Rent Expense

Repair Expense 400 00

400 001

2

3

4

5

6

7

8

9

To remove the $400

put in Repair Expense

by error

GENERAL JOURNAL


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 error in a prior transaction

FOUR-COLUMN ACCOUNT



DR. CR.

Rent Expense 521

2000Sept. 25 400 400J6Correcting

Indicates this came from

a Correcting Entry in the

General Journal

FOUR-COLUMN ACCOUNT



DR. CR.

Repair Expense 537

2000Sept. 10 50 50J5

Correcting

15

25

J5

J6

400 450

400 50

Balance is now correct

$400 error has been removed

Documents

CHAPTER FOUR JOURNALIZING AND POSTING TRANSACTIONS