The Combined Journal Chapter 11 11 1 Combined

The Combined Journal Chapter 11 11 - 1

Combined Journal Many small businesses use the combined journal. This journal replaces the use of all specialized journals. This journal is efficient since it consolidates record keeping. 11 - 2

Learning Objective 1 Defining methods of accounting: accrual basis, cash basis, and modified cash basis. 11 - 3

Cash Basis Accounting Revenue is recorded when cash is received. Expenses are recorded at date of payment. Cash basis accounting is a simple, convenient accounting system. 11 - 4

Accrual Basis Accounting Revenues are recorded when earned. Expenses are recorded when incurred. Accrual accounting is based on the matching principle. 11 - 5

Dennis’ Repair Shop Example Services performed during the month of June: $25, 000 n Cash collected from customers: $16, 000 n Expenses for the month: $20, 000 n Cash paid out: $18, 000 What are revenues under the cash basis? n They are the cash collected from customers: $16, 000 n 11 - 6

Dennis’ Repair Shop Example n Expenses are the cash paid out during the month: $18, 000 Dennis’ Repair Shop lost under the cash basis accounting. $2, 000 of 11 - 7

Dennis’ Repair Shop Example Dennis’ Repair Shop Cash Basis Income Statement For the Month Ended June 30, 200 x Revenues Expenses Net Loss $16, 000 18, 000 $ 2, 000 11 - 8

Dennis’ Repair Shop Example What are revenues under the accrual basis? n Revenues of $25, 000 are recognized for the services performed during the month. n Expenses are the $20, 000 incurred during the month. n The business made a profit of $5, 000. 11 - 9

Learning Unit 11 -1 A Modified Cash System Revenue is recorded as cash is received. Expenses are recorded when cash is paid. 11 - 10

Learning Unit 11 -1 A Modified Cash System Long-lived assets are depreciated. Supplies and insurance are expensed when consumed. 11 - 11

Learning Objective 2 Recording, journalizing, and posting transactions for a combined journal of a professional service company using a modified cash basis. 11 - 12

Learning Unit 11 -1 The combined journal is similar to an expanded check register. n It is balanced by proving debits and credit column totals. n It has a debit column for cash received and a credit column for revenue. n Cash payments have a credit column and expenses have debit columns. n 11 - 13

Learning Unit 11 -1 Sundry columns handle general journal items. n There are no subsidiary ledgers for accounts receivable or accounts payable. n At the end of the month the totals of Cash, Professional Fees, and often-used Expense columns would be posted to the general ledger. n 11 - 14

Learning Unit 11 -1 During the month, items entered into the Sundry columns are posted individually to the general ledger accounts. n Total the journal and prove the balances. n 11 - 15

Learning Unit 11 -1 The Sundry debit column is used to record payroll transactions. n Wages expense and payroll expenses are debited when the cash is paid. n The same rules for accrual basis accounting apply to maintaining a payroll register and employee earnings record. n 11 - 16

Learning Objective 3 Recording, journalizing, and posting transactions for a combined journal of a merchandise company using an accrual basis of accounting. 11 - 17

Learning Unit 11 -2 Columns are added to the combined journal for sales and purchases related transactions. n The combined journal is used for accrual accounting for this type of company. n 11 - 18

Learning Unit 11 -2 Post column totals and individual items the same way in which the cash basis combined journal was posted. n The journal must be proven. n Debits = Credits 11 - 19

End of Chapter 11 11 - 20