Journal Ledger and Trial

8/3/2019 Journal Ledger and Trial

1/48

Copyright 2007 Prentice-Hall. All rights reserved 1

Recording BusinessRecording Business

TransactionsTransactions

Recording BusinessRecording Business

TransactionsTransactions

Chapter 2


2/48


The Accounting ProcessThe Accounting ProcessThe Accounting ProcessThe Accounting Process

Record Transactions in the

Journal

Copy (post) to the Ledger

Prepare the Trial Balance


3/48


AccountAccountAccountAccount

Basic summary device

Detailed record of increases and

decreases in specific assets, liabilities, orowners equity during a period


4/48


LedgerLedgerLedgerLedger

Book or printout holding all the accounts


5/48


Liabilities EquityAssets = +

Accounting EquationAccounting EquationAccounting EquationAccounting Equation

Accounts are grouped in 3 broad categories:


6/48


Revenues

NotesPayable

AccountsReceivable

C. Lapp,Capital

AccountsPayable

Ledger

Cash

All Individual Accounts CombinedAll Individual Accounts Combined

Make Up the LedgerMake Up the Ledger

All Individual Accounts CombinedAll Individual Accounts Combined

Make Up the LedgerMake Up the Ledger


7/48


Chart of AccountsChart of AccountsChart of AccountsChart of Accounts

List of all accounts used by a company

along with the account numbers


8/48


Objective 2Objective 2Objective 2Objective 2

Apply the rules of debit and credit


9/48


Double Entry SystemDouble Entry SystemDouble Entry SystemDouble Entry System

Record dual effects of each transaction

Each transaction affects at least two

accounts Each transaction is recorded with at least

One debit

One credit Total debits must equal total credits


10/48


Account Name

(Left Side)

Debit

(Right Side)

Credit

Simple tool for analyzing and determining thebalance in a given account

TT--AccountAccountTT--AccountAccount


11/48


Debit CreditDebit Credit

AssetsAssets

++ --

Rules of Debit and CreditRules of Debit and CreditRules of Debit and CreditRules of Debit and Credit

LiabilitiesLiabilities EquityEquity== ++Debit CreditDebit Credit

-- ++Debit CreditDebit Credit

-- ++


12/48


Rules of Debit and CreditRules of Debit and CreditRules of Debit and CreditRules of Debit and Credit

Owners EquityOwners EquityDebit CreditDebit Credit

-- ++

RevenuesRevenues


OwnersOwners

CapitalCapital

Debit CreditDebit Credit-- ++

OwnersOwners

WithdrawalsWithdrawalsDebit CreditDebit Credit

++ --

ExpensesExpensesDebit CreditDebit Credit

++ --


13/48


RevenuesRevenues ExpensesExpensesOwnersOwners

CapitalCapital

OwnersOwners

WithdrawalsWithdrawals__ ++ __

Expanding theExpanding the

Rules of Debit and CreditRules of Debit and Credit

Expanding theExpanding the

Rules of Debit and CreditRules of Debit and CreditOwners Equity

Debit CreditDebit Credit-- ++



++ --Debit CreditDebit Credit

++ --


14/48


Remember: Just ask ALICE!Remember: Just ask ALICE!Remember: Just ask ALICE!Remember: Just ask ALICE!

Debit Credit

+ A = Assets -

- L = Liabilities +

- I = Income* +

- C = Capital +

+ E = Expenses -

* Really, this is revenues, but r just doesnt fit in!

The first and the

last are increasedwith a debit

The middle three

are increased with

credits


15/48


LiabilitiesLiabilities EquityEquityAssetsAssets == ++

Normal BalancesNormal BalancesNormal BalancesNormal Balances




-- ++

NormalNormal

BalanceBalance

NormalNormal

BalanceBalance

NormalNormal

BalanceBalance


16/48


++++

Owners Equity

Normal BalancesNormal BalancesNormal BalancesNormal Balances




-- ++

NormalNormal

BalanceBalance

NormalNormal

BalanceBalance

NormalNormal

BalanceBalance

RevenuesRevenuesRevenuesRevenues ExpensesExpensesExpensesExpensesOwnersOwners

CapitalCapital

OwnersOwners

CapitalCapital

OwnersOwners

WithdrawalsWithdrawals

OwnersOwners

WithdrawalsWithdrawals____ ____


++ --

NormalNormal

BalanceBalance


17/48



Record transactions in the journal


18/48


JournalJournalJournalJournal

Chronological record of the transactions

Consists of at least one debit and one

credit


19/48


Journalizing TransactionsJournalizing TransactionsJournalizing TransactionsJournalizing Transactions

Identify each account affected and its type

Determine whether each account is

increased or decreased. Use the rules ofdebit and credit

Record transaction in journal, including a

brief explanation

Debit side of entry is entered first

Total debits should always equal total credits


20/48


General JournalGeneral JournalGeneral JournalGeneral Journal

Style conventions that must be followed:

Year is entered at the top of each page

The month is only entered for the firstentry on a page unless the month changes

in the middle of the page. The month may

be abbreviated

Enter numerical date for each transaction,

even if there are many entries on same

date


21/48


General JournalGeneral JournalGeneral JournalGeneral Journal

Debits are ALWAYS entered first in an

entry. Use the EXACT account title and

do not abbreviate

Credits are INDENTED and listed second

Do not use dollar signs

SKIP A LINE between each entry Never split an entry between two pages


22/48


Exercise 2Exercise 2--55Exercise 2Exercise 2--55

Analysis of June 1 transaction:

Cash is increasing

Cash is an asset account Increase an asset with a debit

GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

Jun 1 Cash 25,000


23/48




M. Brown, Capital is increasing

Capital is an owners equity account Increase owners equity with a credit

GENERAL JOURNAL


Jun 1 Cash 25,000

M. Brown, Capital 25,000

Owner invested in business


24/48




Medical Supplies is increasing

Medical Supplies is an asset account Increase an asset with a debit

GENERAL JOURNAL


Jun 2 Medical Supplies 10,000


25/48




Accounts Payable is increasing

Accounts Payable is a liability account Increase a liability with a credit

GENERAL JOURNAL



Accounts Payable 10,000

Purchased medical supplies


26/48




Rent Expense is increasing

Rent Expense is an expense account Increase an expense with a debit

GENERAL JOURNAL


Jun 2 Rent Expense 4,000


27/48




Cash is decreasing

Cash is an asset account Decrease an asset with a credit

GENERAL JOURNAL



Cash 4,000

Paid rent for the month


28/48




Accounts Receivable is increasing

Accounts Receivable is an asset account Increase an asset with a debit

GENERAL JOURNAL


Jun 3 Accounts Receivable 12,000


29/48




Service Revenue is increasing

Service Revenue is a revenue account Increase a revenue with a credit

GENERAL JOURNAL



Service Revenue 12,000

Performed services


30/48



Post from the journal to the ledger


31/48


PostingPostingPostingPosting

Periodically, journal entries are posted to

ledger accounts to determine balances in

each account

Posting copying amounts from the

journal to the ledger


32/48


Exercise 2Exercise 2--99Exercise 2Exercise 2--99Cash Accounts Payable Service Revenue

Accounts Receivable M. Brown, Capital Rent Expense

Medical Supplies

GENERAL JOURNAL

DATE

DESCRIPTI

ON REF

DEBIT CRE

DIT

Jun 1 Cash 25,000

M. Brown, Capital 25,000

Owner invested in business

25,000

25,000

25,000

25,000


33/48


Cash

25,000

Accounts Payable Service Revenue

M. Brown, Capital Rent Expense

25,000

Accounts Receivable

GENERAL JOURNAL




Purchased medical supplies


Medical Supplies

10,000

10,000

10,000

10,000


34/48


Cash

25,000



25,000

Accounts Receivable


Medical Supplies

10,000

10,000

GENERAL JOURNAL



Cash 4,000


4,000

4,000

4,000

4,000


35/48


Cash

25,000



25,000

Accounts Receivable


Medical Supplies

10,000

10,0004,000

4,000

GENERAL JOURNAL




Performed services

12,000

12,000

12,000

12,000


36/48


Cash

25,000



25,000

Accounts Receivable


Medical Supplies

10,000

10,0004,000

4,00012,000

12,000

Bal 21,000Bal 21,000 Bal 10,000Bal 10,000 Bal 12,000Bal 12,000

Bal 4,000Bal 4,000Bal 25,000Bal 25,000Bal 12,000Bal 12,000

Bal 10,000Bal 10,000


37/48


Flow of Accounting DataFlow of Accounting DataFlow of Accounting DataFlow of Accounting Data

Transaction Occurs

Source Documents Prepared

Transaction Analyzed

Transaction Journalized & Posted


38/48



Prepare and use a trial balance


39/48


Trial BalanceTrial BalanceTrial BalanceTrial Balance

List of all accounts with their balances


40/48


Mike Brown, M.D.Trial Balance

June 30, 2008

Cash 21,000

Accounts Receivable 12,000

Medical Supplies 10,000


M. Brown, Capital 25,000Service Revenue 12,000

Rent Expense 4,000

Totals 47,000 47,000

Exercise 2Exercise 2--9 (part 3)9 (part 3)Exercise 2Exercise 2--9 (part 3)9 (part 3)


41/48


GENERAL JOURNAL



Aug 1 Cash 60,000

R. Woodward, Capital 60,000To record investment by owner

2 Supplies 200

Accounts Payable 200

Purchased supplies on account

Cash increases. It is

an asset. Increase

assets with debits.

Capital increases.

Owners equity is

increased with a

credit.

Supplies, an asset,

increases. Increase

assetswith debits.

Accounts Payable

increases. It is a

liability. Increase

liabilitieswith a credit


42/48


GENERAL JOURNAL



Aug 4 Building 50,000

Cash 50,000

Purchased building

6 Cash 3,000


Performed service

Both of these

accounts are assets.

Building is increasing.

Increase assets with

debits. Cash is

decreasing. Decrease

assetswith credits.

Cash, an asset, is

increasing. Increase

assetswith debits.

Revenue accounts areincreased with credits


43/48


GENERAL JOURNAL



Aug 9 Accounts Payable 100

Cash 100Paid on account

17 Accounts Receivable 2,100


Performed services

Accounts Payable,

which is decreasing, is

a liability. Decrease

liabilities by debiting

them. Decrease the

asset, Cash, with a

credit.

Both of theseaccounts are assets.

Building is increasing.

Increase assets with

debits. Cash is

decreasing.D

ecreaseassetswith credits


44/48


GENERAL JOURNAL



Aug 23 Cash 1,200

Accounts Receivable 1,200Received payment on account

Both of these accounts

are assets. Cash is

increasing debit.

Accounts Receivable isdecreasing - credit


45/48


GENERAL JOURNAL



Aug 31 Salary Expense 1,200

Cash 1,200Paid salaries

31 Rent Expense 500

Cash 500


Both of these

transactions involve

recognizing expenses.Since expenses

decrease owners

equity, and owners

equity is decreased

with a debit, debit

expenses. Cash is

decreasing credit


46/48


Exercise 2Exercise 2--1919Exercise 2Exercise 2--1919Aug 9 100

Cash

Aug 1 60,000 Aug 4 50,000Aug 6 3,000

Accounts Receivable

Aug 17 2,100

Service Revenue

Aug 6 3,000

Bal. 12,400

Building

Aug 4 50, 000

R. Woodward, Capital

Aug 1 60,000

Rent Expense

Salary Expense

Aug 2 200

Supplies

Aug 2 200

Accounts Payable

Aug 9 100

Bal. 100

Aug 17 2,100

Aug 23 1,200

Aug 23 1,200

Aug 31 1,200Aug 31 500

Bal. 900Bal. 5,100

Aug 31 1,200

Aug 31 500

Take the difference

between total debitsand total credits to

determine the balance

in each account. If

debits are greater than

credits, the account

has a debit balance

and vice versa


47/48


Woodward Technology Solutions

Trial Balance

August 31, 2008

Cash 12,400

Accounts Receivable 900

Supplies 200

Building 50,000

Accounts Payable 100

R. Hawk, Capital 60,000


Salary Expense 1,200

Rent Expense 500

Totals 65,200 65,200



48/48

End of Chapter 2End of Chapter 2End of Chapter 2End of Chapter 2

Date post:	06-Apr-2018
Category:	Documents
Upload:	nikhil-garg
View:	237 times
Download:	3 times