CHAPTER THREE JOURNALIZING AND POSTING TRANSACTIONS FLOW OF

CHAPTER THREE JOURNALIZING AND POSTING TRANSACTIONS

FLOW OF DATA STEP #1 INPUT Analyze transactions using SOURCE DOCUMENTS and CHART OF ACCOUNTS

FLOW OF DATA PROCESSING Post the entries in the journal to the From the general ledger, prepare a General Journal General Ledger Trial Balance “Journalizing” “Posting” EP #3 P ST E#2 ST ST ST EP #2 #4 Enter business transactions in the

CHART OF ACCOUNTS 4 A list of ALL accounts used by a business 4 In numeric order 4 Used to determine which accounts are affected by a given transaction

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets 101 122 141 145 185 (100 -199) Cash Accts. Rec. Supplies Prepaid Ins. Delivery Eq. Assets begin with 1

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets 101 122 141 145 185 (100 -199) Cash Accts. Rec. Supplies Prepaid Ins. Delivery Eq. Liabilities (200 -299) 202 Accounts Pay. Liabilities begin with 2

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets 101 122 141 145 185 (100 -199) Cash Accts. Rec. Supplies Prepaid Ins. Delivery Eq. Liabilities (200 -299) 202 Accounts Pay. Owner’s Eq. (300 -399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing e b y s n i g n w O s er’ E it u q w ith 3

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets 101 122 141 145 185 (100 -199) Cash Accts. Rec. Supplies Prepaid Ins. Delivery Eq. Revenues 401 Liabilities (200 -299) 202 Accounts Pay. Owner’s Eq. (300 -399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing (400 -499) Delivery Fees Re ven ue sb egi nw ith 4

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets 101 122 141 145 185 (100 -199) Cash Accts. Rec. Supplies Prepaid Ins. Delivery Eq. Revenues 401 (400 -499) Delivery Fees Expenses 511 525 (500 -599) Wages Exp. Rent Exp. Tele. Exp. Liabilities (200 -299) 202 Accounts Pay. Owner’s Eq. (300 -399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing Ex pe ns es be gin wi th 5

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets 101 122 141 145 185 (100 -199) Cash Accts. Rec. Supplies Prepaid Ins. Delivery Eq. Revenues 401 (400 -499) Delivery Fees Expenses 511 525 (500 -599) Wages Exp. Rent Exp. Tele. Exp. Liabilities (200 -299) 202 Accounts Pay. Owner’s Eq. (300 -399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing This here’s my prize asset! So’s I knows it would start with the #1 on my chart of accounts!

SOURCE DOCUMENTS 4 Trigger the analysis of what happened 4 Begin the process of entering transactions in the accounting system 4 Serve as objective evidence of business transactions 4 Filed for possible future reference

SOURCE DOCUMENTS Example: Provides Information about: 4 Check stubs or copies of checks • Cash Payments 4 Receipt stubs, copies of receipts, cash register tapes, or memos of cash register totals • Cash Receipts

JOURNAL Day by day listing of financial transactions Purpose: to provide a record of all transactions “Book of Original Entry” Simplest form - “General Journal” Very important Act of entering transaction interm! Journal is called “Journalizing”

EXAMPLE: Mica Pearl invested $25, 000 in the business on June 1, 20 XX NEW! DATED TRANSACTIONS

Assets = Liabilities + Equity CASH DR. + Owner’s M. Pearl, Capital CR. DR. $25, 000 CR. + $25, 000 NOW WE WILL “JOURNALIZE” THIS TRANSACTION

GENERAL JOURNAL 1 DATE 20 XX JUNE 1 DESCRIPTION PR DEBIT CREDIT 2 STEP #1 ENTER DATE (Year and month only written on first line of each page unless the month changes)

GENERAL JOURNAL 1 DATE 20 XX JUNE 1 DESCRIPTION Cash 2 Step #2 Enter the name of the account being debited FIRST. (Account name should be flush against the date line. PR DEBIT CREDIT

GENERAL JOURNAL 1 DATE 20 XX JUNE 1 DESCRIPTION PR DEBIT CREDIT Cash 25000 00 2 STEP #3 ENTER THE AMOUNT OF THE DEBIT. (Don’t use $ signs)

GENERAL JOURNAL 1 2 DATE 20 XX JUNE 1 DESCRIPTION PR DEBIT CREDIT Cash M. Pearl, Capital STEP #4 (Indent ¼ to ½ inch and on next line) Enter the account To be credited and dollar amount. 25000 00

GENERAL JOURNAL 1 2 3 4 DATE 20 XX JUNE 1 DESCRIPTION Cash M. Pearl, Capital PR DEBIT CREDIT 25000 00 (Owner’s original investment in business) STEP #5 On next line, indent a small amount and ENTER AN EXPLANATION 25000 00

GENERAL JOURNAL 1 2 3 4 5 DATE 20 XX JUNE 1 DESCRIPTION PR DEBIT CREDIT Cash M. Pearl, Capital 25000 00 (Owner’s original investment in business) Yikes, I don’t want to forget to skip a line between journal entries! That would be like forgetting my slice of cheese! STEP #6 SKIP A LINE! (Leave a blank line between transactions) 25000 00

COMPOUND ENTRY Ø An entry requiring more than one debit and/or more than one credit Ø All debits come before any credits! Okay, I get it, a compound entry is more than 2 accounts. . . right? !

COMPOUND ENTRY EXAMPLE: Mica purchased $2, 500 of office equipment, (including a pink computer) and $500 of office supplies for cash on June 10.

“T” ACCOUNT ANALYSIS OFFICE EQUIP. DR. + 0 FFICE SUPPLIES CR. DR. + CR. CASH DR. + CR. All Asset Accounts !

PURCHASED $2, 500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. What are the accounts affected? ? Which are increased and which are decreased?

PURCHASED $2, 500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. OFFICE EQUIPMENT Dr. + Cr. $2, 500 This account increased!

PURCHASED $2, 500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. OFFICE SUPPLIES Dr. + Cr. $500 This account increased too! ( it must be a conspiracy. . . )

PURCHASED $2, 500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. CASH Dr. + Cr. $3, 000 Ahaa. . . This account decreased!

2 DEBITS & 1 CREDIT BUT DEBIT $ = CREDIT $ OFFICE EQUIP. DR. + 0 FFICE SUPPLIES CR. DR. + $500 $2, 500 CASH DR. + CR. $3, 000 CR.

NOW LET’S JOURNALIZE THE TRANSACTION Yahoo! I love journalizi ng!

GENERAL JOURNAL 1 2 3 4 5 DATE DESCRIPTION 2014 JUNE 10 Office Equipment PR DEBIT CREDIT Office Supplies 2500 00 Cash (Purchased office equip. and Supplies) The order of the debits does not matter. But ALL debits must come before any credits. 3000 00

GENERAL LEDGER § Set of all accounts used by a business. § Similar to “T” accounts. § Used to keep record of current balances and all activity within accounts. § Commonly in form of FOUR-COLUMN account.

T-accounts are used in the classroom but they are not used in real life. Instead, businesses use a General Ledger! CASH DR. + CR. $3, 000 , . . s i h is. t f th o d se a te ’s u s Notice the “T” in the 4 In ss e n column account is i s bu used just like our T- account

POSTING Ø Process of copying debits and credits from the journal to the ledger Ø Done daily or at frequent intervals Ø Five step process. . .

GENERAL JOURNAL 1 2 3 4 5 DATE 20 XX JUNE 1 DESCRIPTION Cash M. Pearl, Capital PR DEBIT CREDIT 25000 00 (Owner’s original investment in business) Let’s post this entry to the GENERAL LEDGER 25000 00

FOUR-COLUMN ACCOUNT Account: DATE Account No. 101 CASH ITEM ACCOUNT NAME PR DR. CR. BALANCE DR. CR. EACH ACCOUNT IS NUMBERED

FOUR-COLUMN ACCOUNT Account: DATE 20 XX June 1 Account No. 101 CASH ITEM PR DR. STEP #1 RECORD DATE Year and Month only for first entry CR. BALANCE DR. CR.

FOUR-COLUMN ACCOUNT Account: DATE 20 XX June 1 Account No. 101 CASH ITEM PR DR. LEAVE “ITEM” AREA BLANK Used for special transaction only CR. BALANCE DR. CR.

FOUR-COLUMN ACCOUNT Account: DATE 20 XX June 1 Account No. 101 CASH ITEM PR DR. 25, 000 STEP #2 ENTER AMOUNT CR. BALANCE DR. CR.

FOUR-COLUMN ACCOUNT Account: DATE 20 XX June 1 Account No. 101 CASH ITEM PR DR. 25, 000 STEP #3 ENTER NEW BALANCE CR. BALANCE DR. CR. 25, 000

FOUR-COLUMN ACCOUNT Account: DATE 20 XX June 1 Account No. 101 CASH ITEM PR DR. CR. J 1 25, 000 STEP #4 ENTER JOURNAL PAGE NUMBER “J” for journal and 1 for page 1 BALANCE DR. CR. 25, 000

GENERAL JOURNAL 1 2 3 4 5 DATE 2010 JUNE 1 PR DEBIT CREDIT DESCRIPTION Cash 101 25000 00 M. Pearl, Capital (Owner’s original investment in business) STEP #5 ENTER THE LEDGER ACCOUNT NUMBER in the Posting Reference (PR) column 25000 00

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 Delivery t n Trial Balance u o c c June 30, 20 -A Account Title Acct No. Cash 101 Accounts Receivable 122 Supplies 141 Prepaid Insurance 145 Delivery Equipment 185 Accounts Payable 202 Jessica Jane, Capital 311 Jessica Jane, Drawing 312 Delivery Fees 401 Wages Expense 511 Rent Expense 521 Telephone Expense 525 h s t r i Debit Balance Credit e Balance w b w 00 um 370 o N N 650 80 200 3600 00 00 1800 00 2000 00 150 00 2150 00 650 200 50 5950 00 00 5950 00

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 101 850 00 Accounts Receivable 122 1650 00 Supplies 141 230 00 Prepaid Insurance 145 600 00 Office Equipment 185 6300 00 Accounts Payable 202 1800 00 Steve, Capital 311 3500 00 Steve, Drawing 500 00 Help! My 312 Delivery Fees 5550 00 Trial Balance 401 511 450 00 doesn’t balance!!! 521 Rent Expense 200 00 Telephone Expense 525 70 00 10580 00 10700 00

STEP #1 üDouble check your addition üReview balances: üSee if any are too large or small, relative to other accounts üOr 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 ØIf steps #1 and #2 don’t work: ØDouble check your addition in the ledger accounts ØTrace all postings