Recording Transactions in a General Journal

Chapter 6

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The Steps of the Accounting CycleThe accounting cycle, the activities a business undertakes to keep its accounting records in an orderly fashion, consists of nine steps. This chapter will cover steps 1, 2, and 3:

Collect and verify source documents. Analyze each transaction. Journalize each transaction.

The Accounting CycleSECTION 6.1

Glencoe Accounting Unit 2 Chapter 6 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Steps of the Accounting Cycle

Glencoe Accounting Unit 2 Chapter 6 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The First Step in the Accounting Cycle:Collecting and Verifying Source DocumentsA business has several transactions that take place daily. A source document is created for each business transaction. Commonly used source documents are:

an invoice a receipt a memorandum a check stub

Glencoe Accounting Unit 2 Chapter 6 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Second Step in the Accounting Cycle:Analyzing Business TransactionsDetermine the debit and credit portions of each transaction by analyzing the source document. In the real world, you must examine this document to determine what happened in a business transaction.

Glencoe Accounting Unit 2 Chapter 6 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Third Step in the Accounting Cycle:Recording Business Transactions in a JournalNow the complete details of each transaction must be entered in a journal, a record of the transactions of a business. This is called journalizing.A journal can also be called the book of original entry.

The Accounting Period

The accounting period is the length of time that accounting records cover. A 12 month period is called a fiscal year. If the fiscal year spans from January 1 to December 31, it is a calendar year.

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Recording a General Journal EntryThe most common accounting journal is the general journal, in which all of the transactions of a business may be recorded. The general journal has two columns:

the left column for recording debits the right column for recording credits

Recording Transactions in the General JournalSECTION 6.2

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Recording a General Journal EntryThis is an example of a general journal entry:

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Recording a General Journal EntryThere are seven steps to determining each journal entry:

Identify the accounts affected. Classify the accounts affected. Determine the amount of increase or decrease for

each account affected. Determine which accounts are debited and for

what amount. Determine which accounts are credited and for

what amount. Determine the complete entry in T-account form. Determine the complete entry in general journal

entry form.

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Recording a General Journal EntryHere is an example showing the analysis of a business transaction and its general journal entry:

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Correcting the General JournalIf an error is found, it must be corrected. Do not erase an error. Draw a line through it with a pen and enter the correct information above the line.