week 2 recording transactions in journals(1)
DESCRIPTION
acc101TRANSCRIPT
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Week 2Recording transactions in
Journals
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LEARNING OBJECTIVES
1. Identify the nature of, purpose of and evidence for transactions2. Describe the accounting cycle used to record, classify and
summarise transactions, including the of ledger accounts and the general ledger
3. Explain the purpose and format of the general journal, 4. Record transactions in the general journal
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TYPES OF TRANSACTIONS
• External Transactions– Involve an outside party– Exchange of economic resources and/or obligations
• Sale of inventory• Purchase of supplies
• Internal Transactions– Transformation of economic resources
• Use of office supplies
• Non-Transactional Events– Not usually recorded, but may be in the future
• Receiving an order from a customer
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SOURCE DOCUMENTS
• Prepared for every external transaction• Support entries in accounting records• Important element in control system• Common source documents include:– Tax invoice (specific requirements as per ATO)– Purchase order– Cash register tape– Credit card slip
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THE ACCOUNTING CYCLE
Source documents
2. Prepare financialstatements
Steps in the Cycle Accounting Records
1. Recognise & recordtransactions
Financial statements
Start of new period
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DOUBLE-ENTRY ACCOUNTING
• Each transaction must be analysed to determine:– What type of accounts are affected• Assets; Liabilities; Equity; Income; Expense
– By how much each item must be increased or decreased
• The accounting equation must always remain in balance
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NORMAL ACCOUNT BALANCES
Increases NormalAccount Recorded On BalanceAssets Debit side DebitLiabilities Credit side CreditEquity
Investment in entity Credit side CreditDrawings from entity Debit side DebitIncome: Revenues Credit side CreditExpenses Debit side Debit
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Recap on the Debit and Credit rules
8
All assets accounts = All liability accounts + All equity accounts Dr Cr Dr Cr Dr Cr
Debit todecrease
Credit toincrease
Normalbalance
Debit toincrease
Credit todecrease
Normalbalance
Debit todecrease
Credit toincrease
Normalbalance
Debit toincrease
Credit todecrease
Normalbalance
Debit todecrease
Credit toincreaseNormalbalance
Expense accounts Dr Cr
Income accounts Dr Cr
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EXPANDED ACCOUNTING CYCLE
2. Journalise transaction
3. Post to ledger accounts
4. Prepare trial balance of GL
5. Prepare financial statements
1. Recognise & record transactions Source documents
General journal
General ledger
Trial balance
Financial statements
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GENERAL JOURNAL
• Once analysed a transaction is recorded first in the general journal
What is a Journal? It is called the book of Original Entry It is a complete record of all transactions It is presented in Chronological order It can be useful for reducing and locating errors
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GENERAL JOURNAL
• A journal has the following advantages:– Complete record of all transactions– Presented in chronological order– Useful for locating and reducing errors as debits and
credits shown together
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General Journal
What do we need to know?Has a transaction occurred ? (Check source documents)
Is the transaction a business transaction ?
What accounts are affected by the transaction ?
What types of accounts are these ?
What was the effect of this transaction in terms of the accounting equation ?Does my journal balance
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The Journalising Process
Five steps of journalising process
• Step 1: Identify the transactions from source documents• Step 2: Specify each account affected by the transaction and classify
by type (asset, liability, or owner’s equity)• Step 3: Determine whether each account is increased or decreased by
the transaction• Step 4: Apply the debit and credit rules to determine whether to debit
or credit the account to record increase or decrease• Step 5: Enter the transaction in the journal
Source:Accounting : Horngren/Harrison/Robinson, 3rd edition
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General Journal Entries
Each general journal entry contains the following information
The date that the business transaction occurred
The debit entry always appears first
Details of the account(s) to be debited
ie. Name, account number and dollar amount Details of the account(s) to be credited
ie. Name, account number and dollar amount A narration or description of the transaction
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1st May 2012 Darren Jones deposits $35 000 in a business bank account. He has a
lawn mowing business.• Source documents
– Bank deposit slip• Is it a business transaction?
– Yes as economic resources have been exchanged between two parties (Darren and the business)
• What accounts are affected?– Asset cash at bank increases (Dr)– Equity account capital increases (Cr)
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General Journal
Date Particulars Post Ref
Debit Credit
1/5/12 Cash at Bank 110 35000
Capital 310 35000
Darren sets up business
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2nd May 2012 Darren purchases a vehicle and gardening equipment for cash
• Source documents– Bank withdrawal slip or Cheque butts or Paid tax invoice
• Is it a business transaction?– Yes as economic resources have been exchanged between two parties
(the business and the suppliers)• What accounts are affected?
– Asset cash at bank decreases (Cr)– Asset accounts motor vehicle and equipment increases (Dr)
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General Journal
Date Particulars Post Ref
Debit Credit
2/5 Motor Vehicle 130 21,000
Equipment 140 9,000
Cash at Bank 110 30,000
Purchase of van and equipment for cash
Debits entered before Credits
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Recording Transactions in General Journal
We will not use GST for this example.1. 1/1/12 Stuart Lang starts a cleaning business
by placing $200,000 in a business bank account2. 2/1/12 Stuart Lang Buys a Van for $50,000
paying cash3. 4/1/12 Stuart Lang withdraws $3,000 from the
business.
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General Journal entries
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Date Account Post Debit Credit
1 Jan Cash at Bank 110 200,000
S.Lang Capital 310 200,000
Commenced business
2 Jan Van 150 50,000
Cash at Bank 110 50,000
Purchased a van for cash
4 Jan S. Lang Drawings 315 3,000
Cash at Bank 110 3,000
Owner withdrew cash
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Use the five step journalising process to record journal entries in Problem 3.4, p 119 from your
text
Step 1: IDENTIFY the transaction
Step 2: Specify accounts and classify by types
Step 3: Determine increase or decrease in each account
Step 4: Determine whether to Dr. or Cr. the account to record increase or decrease
Step 5: Enter transaction in the JOURNAL with brief explanation
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July 13
6
101819
The owner invested $2 500 000 cash into the business.Acquired the business of Jeffrey’s Golf World for $1 800 000 cash. The price consisted of land $1 000 000, building $650 000, and equipment $150 000.Advertised the opening of the golf course, paying advertising expenses of $36 000 for a major television campaign.Paid cash $36 000 for a 1-year insurance policy.Purchased new golfing equipment for $60 000 from Rory Golfing, payable in 30 days.Received golf membership fees of $22 000 in cash.
The Arid Sands Golf Club was opened for business on 1 July by Todd Simpson. The following selected events and transactions occurred during the first month of operations:
Five step journalising process to record journal entries