Chapter Three - PowerPoint PPT Presentation

chapter three n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Chapter Three PowerPoint Presentation
Download Presentation
Chapter Three

play fullscreen
1 / 71
Chapter Three
221 Views
Download Presentation
dieter-stuart
Download Presentation

Chapter Three

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Chapter Three The General Journal and the General Ledger

  2. Performance Objectives • Record a group of transactions pertaining to a service enterprise in a two-column general journal • Post entries from a two-column general journal to general ledger accounts Accounting Is Fun!Accounting Is Fun!

  3. Performance Objectives • Prepare a trial balance from the ledger accounts • Correct entries using the ruling method • Correct entries using the correcting entry method Accounting Is Fun!Accounting Is Fun!

  4. Last Chapter Record Business Transaction in Account After Footing Accounts, Send Account Balances to Trial Balance After DR = CR in Trial Balance, Create Financial Statements Accounting Is Fun!Accounting Is Fun!

  5. This Chapter Record Business Transaction in General Journal: “Journal Entries” Post Journal Entries to Accounts in the Ledger At End of Period, Send Account Balances to Trial Balance Accounting Is Fun!Accounting Is Fun!

  6. Chart of Accounts • The official list of account titles used to record the transactions of a business • The account number for each account Assets (100s) Owner's Equity (300s) 111 Cash 311 L.P. Arch, Capital 113 Accounts Receivable 312 L.P. Arch, Drawing 117 Prepaid Insurance Revenues (400s) 124 Equipment 411 Income from Services Liabilities (200s) Expenses (500s) 221 Accounts Payable 511 Wages Expense 512 Rent Expense 513 Supplies Expense 514 Advertising Expense 515 Utilities Expense Accounting Is Fun!Accounting Is Fun!

  7. What Is a General Journal? • The book in which a person enters the original record of a business transaction • Commonly referred to as a book of original entry • Chronological listing of all the business transactions for the company • Each listing records the debits and credits associated with that business transaction • A book or a location on a hard drive where all business transactions are listed • Like a diary Accounting Is Fun!Accounting Is Fun!

  8. Example of Business Transaction Recorded in the General Journal Create a journal entry for each transaction. Accounting Is Fun!Accounting Is Fun!

  9. What’s in a Journal Entry? • Date • At least one debit entry • Debit account, use exact account title, do not indent titles • At least one credit entry • Credit account, use exact account title, indent titles • An explanation of the transaction: • Check number • Invoice number • Accounts receivable customer name • Many other elements… • Remember: the accountant must leave a good audit trail so that users of accounting information can understand what occurred with each transaction DR=CR Accounting Is Fun!Accounting Is Fun!

  10. Building the Journal Entry • Date Accounting Is Fun!Accounting Is Fun!

  11. Building the Journal Entry • Debit Accounting Is Fun!Accounting Is Fun!

  12. Building the Journal Entry • Credit Accounting Is Fun!Accounting Is Fun!

  13. Building the Journal Entry • Explanation Accounting Is Fun!Accounting Is Fun!

  14. Other Journals • What are they? • General journal (this chapter) • Sales journal (Chapter 10) • Purchases journal (Chapter 10) • Cash receipts journal (Chapter 11) • Cash payments journal (Chapter 11) • Why different journals? • Separation of duties • Efficiency and accuracy in recording accounting information Accounting Is Fun!Accounting Is Fun!

  15. Source Documents • Business papers, such as checks, invoices, receipts, letters, and memos, that furnish proof that a transaction has taken place • The objective evidence that the transaction occurred • Example Accounting Is Fun!Accounting Is Fun!

  16. Which Company Is Selling the Boomerangs? • The company name at the top of the invoice indicates who is selling • Knowing how to make this distinction will help you with: • Your practice sets at the end of this class! • Recording the correct journal entry Accounting Is Fun!Accounting Is Fun!

  17. Which Company Is Selling The Wood? • The company name at the top of the invoice indicates who is selling Accounting Is Fun!Accounting Is Fun!

  18. Cost Principle • The principle that a purchased asset should be recorded at its actual, or historical, cost • Historical cost: • Actual cost • What you paid for it • The amount that was on the receipt • Remember: this is different from “market value” • Look ahead: • In Chapter 4 we will see that the historical cost principle is the reason we will create a new account for depreciation expense Accounting Is Fun!Accounting Is Fun!

  19. Recording Transactions in a Two-Column General Journal We will be recording business transactions for a company with the following details: Owner name: L. P. Arch Business name: Arch Copy Co. Business type: Sole proprietorship (one-person business) Accounting Is Fun!Accounting Is Fun!

  20. Transaction (a): Arch deposited $70,000 in bank account in name of business Accounting Is Fun!Accounting Is Fun!

  21. Transaction (b): Bought equipment costing $33,000, paying cash Accounting Is Fun!Accounting Is Fun!

  22. Transaction (c): Bought equipment on account from Melton Office Supply, $7,000 Accounting Is Fun!Accounting Is Fun!

  23. Transaction (d): Paid Melton Office Supply, a creditor, $2,000 Accounting Is Fun!Accounting Is Fun!

  24. The Debits and Credits Within a Journal Entry: • Formulating the appropriate transaction debits and credits is the most important element in the accounting process • It represents the very basic foundation of accounting, and all the structure represented by financial statements and other reports is entirely dependent upon it DR=CR Accounting Is Fun!Accounting Is Fun!

  25. Now Take a Look in the Book for the Rest of Arch Copy Co. Journal Entries • Transaction (e): Arch invested her own personal data processing equipment in Arch Copy Co. having a fair market value of $6,200 • Transaction (f): Arch Copy Co. sold services for cash, $2,520 • Transaction (g): Paid rent for the month, $700 • And the rest of the transactions from (g) to (s) Accounting Is Fun!Accounting Is Fun!

  26. Definitions: • Ledger Account • Complete listing of business transactions for an individual account • Where you look if you want to find the balance of any given account • General Ledger • A loose-leaf book or computer file containing all the Ledger Accounts • Each account from the chart of accounts has its own ledger account in the general ledger • Posting The process of transferring figures from the journal to the ledger accounts Accounting Is Fun!Accounting Is Fun!

  27. From General Journal to Ledger Accounts: Accounting Is Fun!Accounting Is Fun!

  28. T Account Compared withLedger Account Accounting Is Fun!Accounting Is Fun!

  29. Four-Step Posting Process • Transfer transaction date to account’s date column • Transfer the debit/credit amount and calculate the new balance • Write journal page number in posting reference column of ledger as a cross-reference • Go back to journal and write account number in posting reference column of journal as a cross-reference • Cross-reference The ledger account number in the Post. Ref. column of the journal and the journal page number in the Post. Ref. column of the ledger account Accounting Is Fun!Accounting Is Fun!

  30. Posting—an Illustration • Date • Amount • Page # • Account # Accounting Is Fun!Accounting Is Fun!

  31. Post. Ref. in Journal • Why don’t we write in the posting reference when we first create the journal entry? • So we don’t forget to post it later! • We want to do it only after we post it • When we look in the journal, we know that we have already posted the entry • We know what account to look at if there is a problem Accounting Is Fun!Accounting Is Fun!

  32. Posting Transaction (a): Arch deposited $70,000 in bank account in name of business Accounting Is Fun!Accounting Is Fun!

  33. Posting Transaction (a): Arch deposited $70,000 in bank account in name of business Accounting Is Fun!Accounting Is Fun!

  34. Posting Arch Copy Co. Transactions (a) to (s) Your textbook presents each transaction and shows how to post it. Accounting Is Fun!Accounting Is Fun!

  35. Performance Objective 3 Prepare a trial balance from the ledger accounts Accounting Is Fun!Accounting Is Fun!

  36. Preparing a Trial Balance • List the ledger account balances in two columns on the trial balance • Left column = Debits • Right column = Credits • Trial balance proves DR = CR Accounting Is Fun!Accounting Is Fun!

  37. Steps in the Accounting Process • Journalize business transaction: • Use source document to record journal entry in general journal • Decide on accounts that are affected • Enter Date • Don’t indent debit • Indent credit • Write description • DR = CR • Post all journal entries to ledger accounts in general ledger • Transfer date • Transfer amount • Record both cross references • Transfer all totals to trial balance Accounting Is Fun!Accounting Is Fun!

  38. If DR = CR on the Trial Balance, Can There Be Errors? • Yes! • Therefore, we must look at how to correct errors Accounting Is Fun!Accounting Is Fun!

  39. Correct Entries Using the Ruling Method—Manual Insert I -- corrected Mar. 1 entry, page 90 Correcting errors before posting has taken place Accounting Is Fun!Accounting Is Fun!

  40. Correct Entries Using the Ruling Method—Manual Correcting errors after posting has taken place Accounting Is Fun!Accounting Is Fun!

  41. Correcting Entry Method—Manual or Computerized One-step method Create journal entry to undo error and provide correction Always include explanation! Two-step method Reverse the error with a journal entry Make the correct journal entry Always include explanation! Accounting Is Fun!Accounting Is Fun!

  42. One-Step Method Accounting Is Fun!Accounting Is Fun!

  43. Two-Step Method Accounting Is Fun!Accounting Is Fun!

  44. Demonstration Problem We will be recording business transactions for the company with the following details: Accounting Is Fun!Accounting Is Fun!

  45. Trans. (a), 6/1/05: Nelson deposited $43,000 in a bank account in the name of business Journalize Accounting Is Fun!Accounting Is Fun!

  46. Trans. (b), 6/5/05: Bought truck, paying cash, $23,000 Journalize Accounting Is Fun!Accounting Is Fun!

  47. Trans. (c), 6/6/05: Bought camper shell for truck on account from Louie's Trucks & Campers, $2,500 Journalize Accounting Is Fun!Accounting Is Fun!

  48. Trans. (d), 6/9/05: Paid Louie's Trucks & Campers, a creditor, $1,500, Ck. No. 4300 Journalize Accounting Is Fun!Accounting Is Fun!

  49. Trans. (e), 6/9/05: Nelson invested his own personal computer equipment, having a fair market value of $3,400, in WindSport Boomerang & Kite Demos Journalize Accounting Is Fun!Accounting Is Fun!

  50. Trans. (f), 6/14/05: Nelson and employee performed boomerang & kite demo for Girl Scouts and received $2,500, Ck. No. 12655 General Journal Page 1 Line # Post. Date Description Ref. . Debit Credit 1 2005 2 June 1 Cash 43,000.00 3 R. P. Nelson, Capital 43,000.00 4 Original investment by Nelson in WindSport Boomerang and Kite Demos. 5 6 5 Equipment 23,000.00 7 Cash 23,000.00 8 Bought equipment for cash. 9 10 6 Equipment 2,500.00 11 Accounts Payable 2,500.00 12 Bought equipment on account from Louie's Trucks & Campers. 13 14 9 Accounts Payable 1,500.00 15 Cash 1,500.00 16 Paid Louie's Trucks & Campers on account, Ck. No. 4300. 17 18 9 Equipment 3,400.00 19 R. P. Nelson, Capital 3,400.00 20 Investment by Nelson in WindSport Boomerang & Kite Demos. 21 22 14 Cash 2,500.00 23 Income from Demos 2,500.00 24 Cash revenue received from Girl Scouts, Ck. No. 12655. Journalize Accounting Is Fun!Accounting Is Fun!