Journalizing Transactions - Cengage

1 4. Journalizing Transactions AFTER STUDYING CHAPTER 4, YOU WILL BE ABLE TO: 1. Define accounting terms related to Journalizing Transactions . 2. Identify accounting concepts and practices related to Journalizing Transactions . 3. Record in a five-column journal Transactions to set up a business. 4. Record in a five-column journal Transactions to buy insurance for cash and supplies on account. 5. Record in a five-column journal Transactions that affect owner's equity and receiving cash on account. 6. Prove and rule a five-column journal and prove cash. TERMS PREVIEW. journal JOURNALS AND Journalizing . Journalizing As described in Chapter 3, Transactions are analyzed into debit and credit parts before information is recorded.

2 A form for recording transac- special amount tions in chronological order is called a journal. Recording Transactions in column a journal is called Journalizing . general amount Transactions could be recorded in the accounting equation. However, column most companies wish to create a more permanent record by recording Transactions in a journal. entry Each business uses the kind of journal that best fits the needs of that double-entry business. The nature of a business and the number of Transactions to be accounting recorded determine the kind of journal to be used. The word journal comes from the Latin diurnalis, meaning daily. Most source document businesses conduct Transactions every day. To keep from getting over- check loaded, the businesses will make entries in their accounting journals every day.

3 Invoice sales invoice The Small Business Administration (SBA). F has programs that offer free management receipt and accounting advice to small business Y owners. The SBA sponsors various memorandum workshops and publishes a variety of book- proving cash I lets for small business owners. 64. AC C O U N T I N G. AREER. IN YOUR C. DARDS FOR. HIGH STAN G. IN. JOURNALIZ for d ra H u ffm an has worked San days as ar ques a A dvertising for 30. M on for clerk, a positi an accounting ona m p an y owner, Ram d files which th e co h e jo u rn al iz es all u tg o in g m ai l, prepares an ed her. S ming and o Marquesa, hir d ay , h andles all inco about 50 p er assigned. amona, who Transactions , p er fo rm s other duties as th e journal to R.

4 M en ts , an d d ra h an d ed what all source docu k ed to se e th e journal. San d ra d id n 't know exactly One day Ram ona as her chair. San ions as w h ile S an d ra fidgeted in w ith jo u rn al izing transact scanned a few pages ood a job ew sh e h ad not done as g she k n You have to expect, but is jou rnal, Sandra. ou t th she should hav e. ncerned ab now if the en sig h ed an d said, I'm co m er ou s er as ures. I don't k Ramona th d I notice n u for $20,000. sa ct io n s in pencil, an at th is o ne transaction recorded al l tran away th order. ed it s, b u t I can see right sin g an d so me are out of e cr dates are m is debits equal th ,000 . Some of the ee n fo r $2 around? her should have b e d o to tu rn this situation h er th e ch ance to improve suggest w a for giving rity it What do you S an d ra thanked Ramon in g th e jo urnal the prio g , g iv After apologiz in ad not been the future.

5 Ed th at sh e realized she h p ro v e h er p erformance in lain would im work. She exp to d es cribe how she w en t o n required and knows it is in k in g : nal to demonstrate that she Critical Th ur y about the jo yo u thin k Sandra should sa 1. What do ake? important? you think Sandra should m ts do ific improvemen 2. What spec CHAPTER 4 Journalizing Transactions 65. Journals, Source Documents, and 4-1 Recording Entries in a Journal A FIVE-COLUMN JOURNAL. JOURNAL PAGE. 1 2 3 4 5. DOC. POST. GENERAL SALES CASH. DATE ACCOUNT TITLE CREDIT. NO. REF. DEBIT CREDIT DEBIT CREDIT. 1 1. 2 2. 3 3. Using a Journal recorded in one place, making the information for Encore Music uses a journal that has five a specific transaction easy to locate.

6 Amount columns: General Debit, General Credit, Sales Credit, Cash Debit, and Cash Credit. A Double-Entry Accounting journal amount column headed with an Information for each transaction recorded in account title is called a special amount column. a journal is called an entry. The recording of These columns are used for frequently debit and credit parts of a transaction is called occurring Transactions . For example, most of double-entry accounting. In double-entry Encore Music's Transactions involve receipt or accounting, each transaction affects at least two payment of cash. A large number of the accounts. Both the debit and the credit parts are Transactions involve receipt of cash from sales. recorded, reflecting the dual effect of each trans- Therefore, Encore Music uses three special action on the business's records.

7 Double-entry amount columns in its journal: Sales Credit, accounting assures that debits equal credits. Cash Debit, and Cash Credit. Using special amount columns eliminates writing an account Source Documents title in the Account Title column and saves A business paper from which information is time. obtained for a journal entry is called a source A journal amount column that is not document. Each transaction is described by a headed with an account title is called a source document that proves that the transaction general amount column. In Encore Music's did occur. For example, Encore Music prepares a journal, the General Debit and General Credit check stub for each cash payment made. The columns are general amount columns.

8 Check stub describes information about the cash payment transaction for which the check is prepared. The accounting concept, Objective Accuracy Evidence, is applied when a source document is Information recorded in a journal includes prepared for each transaction. (CONCEPT: the debit and credit parts of each transaction Objective Evidence). recorded in one place. The information can be A transaction should be journalized only if it verified by comparing the data in the journal actually occurs. The amounts recorded must be with the transaction data. accurate and true. Nearly all Transactions result in the preparation of a source document. Encore Chronological Record Music uses five source documents: checks, sales Transactions are recorded in a journal in order invoices, receipts, calculator tapes, and by date.

9 All information about a transaction is memorandums. 66 CHAPTER 4 Journalizing Transactions CHECKS. NO. 1 $ 1, Date August 3, 20 -- Encore Music NO. 1 63-109. To Quick Clean Supplies Co. 631. 530 Anoka Avenue Tampa, FL 33601 August 3, -- 20. For Supplies 0 00 ORDER OF Quick Clean Supplies Co. PAY TO THE. 1, $. One thousand five hundred seventy-seven and no100. BAL. BRO'T. FOR'D.. AMT. DEPOSITED .. 8 1 -- 10,000 00. DOLLARS. SUBTOTAL.. 10,000 00. Date For Classroom Use Only OTHER: peoples national bank Tampa, FL 33602. FOR Supplies Barbara Trevi o SUBTOTAL.. 10,000 00. AMT. THIS CHECK .. 1,577 00 063101098 43. 452119. BAL. CAR'D. FOR'D.. 8,423 00. A business form ordering a bank to pay cash record of information on a check is the check from a bank account is called a check.

10 The stub prepared at the same time as the check. A. source document for cash payments is a check. check and check stub prepared by Encore Music Encore Music makes all cash payments by check. are shown in the illustration above. The checks are prenumbered to help Encore Procedures for preparing checks and check Music account for all checks. Encore Music's stubs are described in Chapter 6. SALES INVOICES. Encore Music 530 Anoka Avenue Sold to: Kids Time No. 1. Tampa, FL 33601. 405 Michigan Avenue Date 8/12/-- Tampa, FL 33619 Terms 30 days Description Amount Individual lessons on Aug. 12 $ Total $ When services are sold on account, the seller prepares a form showing information about the sale. A form describing the goods or services sold, the quantity, and the price is called an invoice.