Journalizing Journalizing TransactionsTransactions

General NotesGeneral Notes

If a co. receives cash – it is If a co. receives cash – it is ALWAYS a debit.ALWAYS a debit.

If a co. pays cash out – it is If a co. pays cash out – it is ALWAYS a credit.ALWAYS a credit.

An expense is ALWAYS debited.An expense is ALWAYS debited. Sales is ALWAYS credited.Sales is ALWAYS credited. Drawing is ALWAYS debited.Drawing is ALWAYS debited.

4.14.1

Journals, Source Documents, Journals, Source Documents, and Recording Entries in a and Recording Entries in a JournalJournal

Journals and Journals and JournalizingJournalizing A form for recording transactions A form for recording transactions

in chronological order is called a in chronological order is called a journal.journal.

Recording transactions in a Recording transactions in a journal is called journalizing.journal is called journalizing.

Each business uses the kind of Each business uses the kind of journal that best fits the needs of journal that best fits the needs of that business.that business.

A Five-Column JournalA Five-Column Journal

Encore Music uses a journal that has five Encore Music uses a journal that has five amount columns: General Debit, General amount columns: General Debit, General Credit, Sales Credit, Cash Debit, and Cash Credit, Sales Credit, Cash Debit, and Cash Credit.Credit.

A journal amount column headed with an A journal amount column headed with an account title is called a special amount account title is called a special amount column.column.

A journal amount column that is not A journal amount column that is not headed with an account title is called a headed with an account title is called a general amount column.general amount column.

A Five-Column Journal A Five-Column Journal Con’tCon’t Transactions are recorded in a Transactions are recorded in a

journal in order by date.journal in order by date.

A Five-Column Journal A Five-Column Journal Con’tCon’t Double-Entry AccountingDouble-Entry Accounting

– Information for each transaction Information for each transaction recorded in a journal is called an recorded in a journal is called an entry. entry.

– The recording of debit and credit The recording of debit and credit parts of a transaction is called parts of a transaction is called double-entry accounting.double-entry accounting.

– Double-Entry Accounting assures Double-Entry Accounting assures that debits equals credits.that debits equals credits.

A Five-Column Journal A Five-Column Journal Con’tCon’t Source DocumentsSource Documents

– A business paper from which A business paper from which information is obtained for a journal information is obtained for a journal entry is called a source document.entry is called a source document.

– Objective Evidence is applied when Objective Evidence is applied when a sourced document is prepared for a sourced document is prepared for each transaction.each transaction.

– The amounts must be accurate and The amounts must be accurate and true.true.

ChecksChecks

A business form ordering a bank A business form ordering a bank to pay cash from a bank account to pay cash from a bank account is called a check.is called a check.

The source document for cash The source document for cash payments is a check.payments is a check.

The checks are prenumbered.The checks are prenumbered.

Sales InvoicesSales Invoices

A form describing the goods or services sold, A form describing the goods or services sold, the quantity, and the price is called an the quantity, and the price is called an invoice. - Used when something is sold on invoice. - Used when something is sold on account.account.

An invoice used as a source document for An invoice used as a source document for recording a sale on account is called a sales recording a sale on account is called a sales invoice.invoice.

A sales invoice is prepared in duplicate.A sales invoice is prepared in duplicate.– The original copy is given to the customer.The original copy is given to the customer.– The copy is used as the source document for the The copy is used as the source document for the

sale on account transaction.sale on account transaction.

ReceiptsReceipts

A business form giving written A business form giving written acknowledgement for cash acknowledgement for cash received is called a receipt.received is called a receipt.

The receipts are prenumbered to The receipts are prenumbered to help account for all of the help account for all of the receipts.receipts.

MemorandumsMemorandums

A form on which a brief message A form on which a brief message is written describing a is written describing a transactions is called a transactions is called a memorandum.memorandum.

They are prenumbered.They are prenumbered. A brief note is written on the A brief note is written on the

memorandum to describe the memorandum to describe the transaction.transaction.

Calculator TapesCalculator Tapes

At the end of each day, Encore At the end of each day, Encore Music uses a printing electronic Music uses a printing electronic calculator to total the amount of calculator to total the amount of cash received from sales for that cash received from sales for that day.day.

Each calculator tapes is dated Each calculator tapes is dated and numbered.and numbered.

JournalizingJournalizing

An entry consists of four parts:An entry consists of four parts:– DateDate– DebitDebit– CreditCredit– Source DocumentSource Document

4.44.4Proving and Ruling a Proving and Ruling a JournalJournal

Proving a Journal PageProving a Journal Page

After a co. uses all but the last line on After a co. uses all but the last line on a journal page, columns are proved a journal page, columns are proved and ruled before totals are carried and ruled before totals are carried forward to the next page.forward to the next page.

First verify that total debits on the First verify that total debits on the page equal the total credits.page equal the total credits.– Add each of the amount columns.Add each of the amount columns.– Add the debit column totals and the credit Add the debit column totals and the credit

column totals.column totals.– Verify that the total debits and total Verify that the total debits and total

credits are equal.credits are equal.

Proving a Journal Page Proving a Journal Page Con’tCon’t 1. Rule a single line across all amount 1. Rule a single line across all amount

columns directly below the last entry.columns directly below the last entry. On the next line write the date in the On the next line write the date in the

date column.date column. Write Carried Forward in the Account Write Carried Forward in the Account

Title and a checkmark in the Post. Ref.Title and a checkmark in the Post. Ref. Write each column total below the Write each column total below the

single line.single line. Rule double lines.Rule double lines.

Starting a New Journal Starting a New Journal PagePage 1. Write the page number, 2, at the 1. Write the page number, 2, at the

top of the journal.top of the journal. 2. Write the Date, Brought Forward in 2. Write the Date, Brought Forward in

the Account Title, and check mark in the Account Title, and check mark in the Post Ref.the Post Ref.

3. Record the column totals brought 3. Record the column totals brought forward from the previous page.forward from the previous page.

Always prove and rule a journal at the Always prove and rule a journal at the end of each month even if the last end of each month even if the last page for the month is not full.page for the month is not full.

Starting a New Journal Starting a New Journal PagePage Determining that the amount of cash Determining that the amount of cash

agrees with the accounting records is agrees with the accounting records is called proving cash.called proving cash.

Cash on hand at the beginning of the monthCash on hand at the beginning of the month+ Total cash received during the month+ Total cash received during the monthEquals TotalEquals Total-Total cash paid during the month-Total cash paid during the monthEquals cash balance at the end of the monthEquals cash balance at the end of the month