Recording Transactions in a General Journal

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Chapter 6

Recording Transactions in a General Journal

Making Accounting Relevant Some people keep
journals to keep track of their daily activities.


What do you think a business journal is used for?
What would be contained in that journal?
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Chapter 6

Section 1 The Accounting Cycle

• What Youll Learn
• The first three steps in the accounting cycle.
• Why is it necessary to journalize transactions.
• The different kinds of source documents used in a
  business.
• The difference between a calendar year and a
  fiscal year.

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Section 1 The Accounting Cycle (cont.)
Chapter 6

Why Its Important In the real world, businesses
follow a similar accounting cycle, record
transactions in a general journal, and operate
within a predefined accounting period.

• Key Terms
• accounting cycle
• source document
• invoice
• receipt
• memorandum

• check stub
• journal
• journalizing
• calendar year
• fiscal year

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Section 1 The Accounting Cycle (cont.)
Chapter 6

The Steps of the Accounting Cycle



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Section 1 The Accounting Cycle (cont.)
Chapter 6

The First Step in the Accounting Cycle
Collecting and Verifying Source Documents

• The accounting cycle starts by collecting and
  verifying the accuracy of source documents.
• Source document is a paper prepared as evidence
  of that transaction.

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Section 1 The Accounting Cycle (cont.)
Chapter 6

The First Step in the Accounting Cycle
Collecting and Verifying Source Documents (cont.)

Invoice Lists specific information about
a business transaction involving the buying or
selling of an item. The invoice contains the
date of the transaction, along with the quantity,
description, and cost of each item.


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Section 1 The Accounting Cycle (cont.)
Chapter 6

The First Step in the Accounting Cycle
Collecting and Verifying Source Documents (cont.)

Receipt A record of cash received by a
business. It indicates the date the payment was
received, the name of the person or business
from whom the payment was received, and the
amount of the payment.


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Section 1 The Accounting Cycle (cont.)
Chapter 6

The First Step in the Accounting Cycle
Collecting and Verifying Source Documents (cont.)

Memorandum A brief written message
that describes a transaction that takes place
within a business. Often used if no other source
document exists for the business transaction.


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Section 1 The Accounting Cycle (cont.)
Chapter 6

The First Step in the Accounting Cycle
Collecting and Verifying Source Documents (cont.)

Check Stub The check stub lists the
same information that appears on a check the
date written, the person or business to whom the
check was written, and the amount of the check.
The check stub also shows the balance in the
checking account before and after each check is
written.


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Section 1 The Accounting Cycle (cont.)
Chapter 6

The Second Step in the Accounting Cycle
Analyzing Business Transactions

• Analyzing information on the source documents to
  determine the debit and credit parts of each
  transaction.

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Section 1 The Accounting Cycle (cont.)
Chapter 6

The Third Step in the Accounting Cycle Recording
Business Transactions in a Journal

• Record the debit and credit parts of each
  business transaction in a journal.
• A journal is a record of all of the transactions
  of a business.
• The process of recording business transactions in
  a journal is called journalizing.

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Section 1 The Accounting Cycle (cont.)
Chapter 6

The Accounting Period

• accounting records are summarized for a certain
  period of time, called an accounting period
• most businesses use a year as their accounting
  period begins on January 1 and ends on December
  31
• calendar year
• fiscal year is an accounting period of twelve
  months

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Section 1 The Accounting Cycle (cont.)
Chapter 6

Check Your Understanding

Businesses separate their accounting records
into accounting periods. Why is this procedure
important for keeping meaningful accounting
records?


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Chapter 6
Section 2 Recording Transactions in the General
Journal

• What Youll Learn
• The purpose of a general journal.
• The parts and labeling of a general journal.
• How information is entered in a general journal.
• How to correct errors in a general journal.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Why Its Important The general journal is a
permanent record of the financial transactions of
a business.

• Key Terms
• general journal

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry The general
journal is an all purpose journal in which all
the transactions of a business may be recorded.

1 Date of the 2 Name of the account
transaction debited
3 Amount of the debit


4 Name of the 6 Source document
5 Amount of the credit account
credited reference or an
explanation
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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction
BUSINESS TRANSACTION ANALYSIS

ANALYSIS Identify 1. Identify the accounts
affected. Classify 2. Classify the accounts
affected. / 3. Determine the amount of
the increase or decrease for each account
affected.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction (cont.)
BUSINESS TRANSACTION ANALYSIS (cont.)

DEBIT-CREDIT RULE 4. Which account is debited?
For what amount? 5. Which account is credited?
For what amount?

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction (cont.)
BUSINESS TRANSACTION ANALYSIS (cont.)

T ACCOUNTS 6. What is the complete entry in
T-account form?

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction (cont.)
BUSINESS TRANSACTION ANALYSIS (cont.)

JOURNAL ENTRY 7. What is the complete entry in
general journal form?

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Business Transaction 1
On October 1 Maria Sanchez took 25,000 from
personal savings and deposited that amount to
open a business checking account in the name of
Roadrunner Delivery Service, Memorandum 1.


ANALYSIS Identify 1. The accounts Cash in Bank
and Maria Sanchez, Capital are affected. Classify
2. Cash in Bank is an asset account. Maria
Sanchez, Capital is an owners capital account.
/ 3. Cash in Bank is increased by 25,000.
Maria Sanchez, Capital is increased by 25,000.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)
Business Transaction 1 (cont.)

On October 1 Maria Sanchez took 25,000 from
personal savings and deposited that amount to
open a business checking account in the name of
Roadrunner Delivery Service, Memorandum 1.

DEBIT-CREDIT RULE 4. Increases in asset accounts
are recorded as debits. Debit Cash in Bank for
25,000. 5. Increases in owners capital
account are recorded as credits. Credit Maria
Sanchez, Capital for 25,000.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction 1 (cont.)
On October 1 Maria Sanchez took 25,000 from
personal savings and deposited that amount to
open a business checking account in the name of
Roadrunner Delivery Service, Memorandum 1.

Maria Sanchez, Cash in Bank Capital
T ACCOUNTS 6.

Debit 25,000
Credit 25,000
Credit
Debit
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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction 1 (cont.)
On October 1 Maria Sanchez took 25,000 from
personal savings and deposited that amount to
open a business checking account in the name of
Roadrunner Delivery Service, Memorandum 1.

JOURNAL ENTRY 7.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Business Transaction 4
On October 9 Roadrunner bought a used truck on
account from North Shore Auto for 12,000,
Invoice 200.

ANALYSIS Identify 1. The accounts Delivery
Equipment and Accounts PayableNorth Shore Auto
are affected. Classify 2. Delivery Equipment is
an asset account. Accounts Payable North Shore
Auto is a liability account. /
3. Delivery Equipment is increased by 12,000.
Accounts Payable North Shore Auto is increased
by 12,000.


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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)
Business Transaction 4 (cont.)

On October 9 Roadrunner bought a used truck on
account from North Shore Auto for 12,000,
Invoice 200.

DEBIT-CREDIT RULE 4. Increases in asset accounts
are recorded as debits. Debit Delivery Equipment
for 12,000. 5. Increases in liability accounts
are recorded as credits. Credit Accounts
PayableNorth Shore Auto for 12,000.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction 4 (cont.)
On October 9 Roadrunner bought a used truck on
account from North Shore Auto for 12,000,
Invoice 200.

T ACCOUNTS 6.
Delivery Accounts Payable Equipment North
Shore Auto
Debit 12,000
Credit 12,000
Credit
Debit

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Recording a General Journal Entry (cont.)

Business Transaction 1 (cont.)
On October 9 Roadrunner bought a used truck on
account from North Shore Auto for 12,000,
Invoice 200.

JOURNAL ENTRY 7.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Correcting Errors in General Journal Entries

• An error should never be erased.
• Use a pen and a ruler to draw a horizontal line
  through the entire incorrect item and write the
  correct information above the crossed-out error.

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Section 2 Recording Transactions in the General
Journal (cont.)
Chapter 6

Check Your Understanding

1. What accounts would you use to record the
purchase of a newspaper ad for cash? 2. What
accounts would you use to record the sale of
business services on account?