CHAPTER 6 Recording Transactions in a General Journal

CHAPTER 6 Recording Transactions in a General Journal

OBJECTIVES Ø Explain the first three steps in the accounting cycle. Ø Give and describe several examples of source documents. Ø Explain the purpose of journalizing. Ø Apply information from source documents. Ø Describe the steps to make a general journal entry. Ø Make general journal entries. Ø Correct errors in general journal entries. Ø Define the accounting terms introduced in this chapter.

WHY Recording Transactions in a General Journal is Important? Every transaction you have with a business is documented in some way. Companies keep permanent records of transactions.

EXPLORING THE Real World

Larry Page � 1995 Sergey Brin They were students at Stanford University when they met. (Web search technology) � 1998 the company Google Inc. was started in a garage. ◦ The site performed about 10, 000 searches a day. ◦ In 2 ½ yrs, it grew to 100 million. � Today, Google is the top Internet search engine. � The company takes in billions of dollars in advertising each year. ◦ That means, they keep their accountants busy with the business activities.

What do you think? If you were just starting an Internet company, what types of financial information would you record? � Sell advertising � Invests in computer equipment � Pays software engineers

Applying Your Accounting Knowledge � Have you every kept a daily journal of the things that happen during your day? � Where are the daily financial happenings are recorded � Diary? � General Journal

WHAT IS THE MAIN IDEA? The accounting cycle is a series of steps done in each accounting period to keep records in an orderly fashion The Steps in the accounting cycle The different types of accounting periods

KEY TERMS � Accounting cycle � Source document � Invoice � Receipt � Memorandum � Check stub � Journalizing � Fiscal year � Calendar year

SECTION 1 Accounting Cycle: Steps of the Accounting Cycle The accounting period of a business that is separated into activities. The First 3 Steps Step 1: Collect and verify source documents. Step 2: Analyze each transaction. Step 3: Journalize each transaction.

Step 1: Collect and Verify Source Documents � Invoice � Receipt � Memorandum � Check Stub

Step 1: Collect and Verify Source Documents � Invoice � Receipt � Memorandum � Check Stub

Step 1: Collect and Verify Source Documents � Invoice � Receipt � Memorandum � Check Stub

Step 1: Collect and Verify Source Documents � Invoice � Receipt � Memorandum � Check Stub

Step 2: Analyzing Business Transactions Analyze the information on the source documents to determine the debit and credit parts. What do you already know? ü Analyze business transactions using the rules of debit and credit • You were given a description of each transaction such as: Roadrunner Delivery Service bought a computer system from Info-Systems Inc. for 43, 000 and issued Check 101.

Step 3: Recording Business Transactions in a Journal Ø Record the debit and credit amounts in the Journal. Ø (Journalizing) Ø Journals A record of the transactions of a business. The process of recording business transactions in a journal are kept in chronological order, that is, the order in which the transactions occur.

TYPES OF ACCOUNTING PERIOD • Accounting records are summarized for a certain period of time • Designated length of time such as a month, a quarter, or a year. Fiscal Year An accounting period of 12 months ACCOUNTING PERIOD Calendar Year Begins: January 1 Ends: December 31

Problem 6 -1 1 What is the name of the company providing the service or merchandise? Jaymax Office Supply 2 What is the name of the business receiving the service or merchandise? Dario’s Accounting Services 3 What is the date of the invoice? April 9, 2012 4 What is the invoice number? 479 5 What item was sold? Fax Machine 6 What is the price for this item? $299. 00 7 What are the payment terms? Payable in 30 days

Problem 6 -2 Step 1 Date of Transaction D Step 2 Name of the Account Debited F Step 3 Amount of the Debit E Step 4 Name of the Account Credited B Step 5 Amount of the Credit A Step 6 Source Document Reference C

Problem 6 -3 Trans 1 2 3 Account Passenger Van Cash in Bank Utilities Expense Cash in Bank Day-Care Fees Account Classification Asset Expense Asset Revenue Account General Journal Increase Debit Credit

Problem 6 -4

Section 2: Recording Transactions in the General Journal It is an all-purpose journal in which all of the transactions of a business may be recorded.

#3 Debit Amount #2 Name of the account to be Debited #1 Date of transaction GENERAL JOURNAL PAGE____ 1 DATE 1 Year 2 Month DESCRIPTION Day Account Name to be Debited 3 4 POST. REF. 2 DEBIT 22 000 Account Name to be Credited CREDIT 00 22 000 00 Explanation 5 #4 Name of the account to be Credited #5 Credit Amount #6 Source document reference or an explanation

BUSINESS TRANSACTION ANALYSES: Steps to Success 1. Identify the accounts affected 2. Determine the amount of increase or decrease for each account affected. 3. Which account is debited? For what amount? 4. Which account is credited? For what amount? 5. What is the complete entry in T-Account Form 6. Record in the General Journal Form.

Cash in Bank Debit Maria Sanchez, Capital Credit Debit Credit 25, 000 GENERAL JOURNAL PAGE __1__ 1 DATE 1 2 3 4 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 Oct 1 Cash in Bank Maria Sanchez, Capital 25 000 00 25 000 Memorandum 1 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 TO: Accounting Clerk FROM: Maria Sanchez DATE: October 1, 2012 SUBJECT: Contributed Personal Funds to the Business MEMORANDUM 1 I have contributed $25, 000. 00 from my personal savings for a deposit to the business, Roadrunner Deliverly Service. 00

Office Equipment Debit Credit Maria Sanchez, Capital Debit Credit 400. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 4 5 6 7 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 2 Office Equipment Maria Sanchez, Capital Memorandum 2 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 TO: Accounting Clerk FROM: Maria Sanchez DATE: October 2, 2012 SUBJECT: Contributed Personal Phones 400 00 MEMORANDUM 2 I have contributed two telephones from my home to the business. The phones are valued at $200 each. Total contribution = $400.

Computer Equipment Debit Credit Cash in Bank Debit Credit 3, 000. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 4 8 9 10 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 4 Computer Equipment Cash in Bank Check 101 3 000 00 3 $ Date To For 3, 000. 00 October 4, 2012 Info-Systems Inc. Computer 000 00 No. 101 Dollars Cents Balance brought forward Add deposits 25, 000 00 Total Less this check Balance carried forward 25, 000 3, 000 22, 000 00

Delivery Equipment Debit Credit Accounts Payable – North Shore Auto Debit Credit 13, 000. 00 12, 000. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 DESCRIPTION DEBIT CREDIT 2012 10 11 POS T. REF. 2 Delivery Equipment 9 12 000 12 Accts. Pay—North Shore Auto Invoice 200 12 13 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 QTY 1 ITEM Dodge Truck Used 000 INVOICE NO. 200 North Shore Auto 440 Lake Drive Sacramento, CA 94230 TO: 00 DATE: ORDER NO: SHIPPED BY: TERMS: UNIT PRICE $ 12, 000. 00 October 9, 2012 99674 n/a Installment TOTAL $ 12, 000. 00 00

Accounts Receivable—Green Company Debit Credit Office Equipment Debit Credit 200. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 13 14 15 16 DESCRIPTION POS T. REF. DEBIT 2 CREDIT 2012 11 Accts. Rec. —Green Company Office Equipment Memorandum 3 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 TO: Accounting Clerk FROM: Maria Sanchez DATE: October 11, 2012 SUBJECT: Sold Telephone Sold one telephone on account to Green Company for $200. 200 00 MEMORANDUM 3

Accounts Payable—North Shore Auto Debit Credit Cash in Bank Debit Credit 350. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 16 17 18 19 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 12 Accts. Pay. —North Shore Auto Cash in Bank Check 102 350 00 350 $ Date To For 350. 00 October 12, 2012 North Shore Auto Installment on Truck 00 No. 102 Dollars Cents Balance brought forward Add deposits 22, 000 00 Total Less this check Balance carried forward 22, 000 350 21, 650 00 00 00

Cash in Bank Debit Accts. Rec. —Green Company Credit Debit Credit 200. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 22 23 24 25 POS T. REF. DESCRIPTION 2 DEBIT CREDIT 2012 14 Cash in Bank Accts. Rec. —Green Company Receipt 1 200 00 200 RECEIPT No. 1 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 October 14, 2012 RECEIVED FROM Green $200. 00 Company Two hundred and no/100 ------------------------------DOLLARS RECEIVED BY __Maria Sanchez___ 00

Cash in Bank Debit Delivery Revenue Credit Debit Credit 1, 200. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 22 23 24 25 POS T. REF. DESCRIPTION 2 DEBIT CREDIT 2012 15 Cash in Bank Delivery Revenue Receipt 2 1 200 00 1 RECEIPT No. 2 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 October 15, 2012 RECEIVED FROM Sims $ 1, 200. 00 Corporation One thousand two hundred and no/100 ------------------------DOLLARS 200 00

Rent Expense Debit Cash in Bank Credit Debit Credit 700. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 25 26 27 28 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 16 Rent Expense Cash in Bank Check 103 700 00 700 $ Date To For 700. 00 October 16, 2012 Tooley & C 0. Management Rent No. 103 Dollars Balance brought forward Add deposits 10/14 10/15 Total Less this check Balance carried forward 00 21, 650 200 1, 200 23, 050 700 22, 350 Cents 00 00 00

Advertising Expense Debit Credit Accounts Payable – Beacon Advertising Debit Credit 75. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 28 29 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 18 Advertising Expense 75 00 75 Accts. Pay—Beacon Advertising Invoice 129 30 31 INVOICE NO. 129 Beacon Advertising 10200 Prairie Parkway Sacramento, CA 94230 TO: Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 QTY 1 ITEM Print. Ad DATE: ORDER NO: SHIPPED BY: TERMS: UNIT PRICE $ 75. 00 October 18, 2012 699 n/a Payable in 30 days TOTAL $ 75. 00 00

Accounts Receivable—City News Debit Credit Delivery Revenue Debit Credit 1, 450. 00 GENERAL JOURNAL PAGE 1 1 DATE 1 31 32 DESCRIPTION POS T. REF. 2 DEBIT CREDIT 2012 20 Accts. Rec. —City News 1 450 1 Delivery Revenue Sales Invoice 1 33 34 City News 10900 Main Stree Sacramento, CA 94230 QTY 1 ITEM Delivery Services 450 SALES INVOICE NO. 1 Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 TO: 00 DATE: ORDER NO: SHIPPED BY: TERMS: UNIT PRICE $ 1, 450. 00 October 20, 2012 300 n/a Payable in 30 days TOTAL $ 1, 450. 00 00