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The General Journal and the General Ledger

The General Journal 1.Record transactions in the general journal. 2.Prepare compound journal entries. Section Objectives

The accounting cycle is a series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information. ANSWER: QUESTION: What is the accounting cycle? Page 96

Page 96 The Accounting Cycle This section discusses the first two steps of the accounting cycle.

Page 96 The Accounting Cycle Step 1 Analyze transactions Step 2 Journalize the data about transactions Step 7 Record closing entries Step 3 Post the data about transactions Step 4 Prepare a worksheet Step 5 Prepare financial statements Step 6 Record adjusting entries Step 8 Prepare a postclosing trial balance Step 9 Interpret the financial information Sneak Preview! Page 176 Step 1 Analyze transactions Step 2 Journalize the data about transactions

Journals Page 96

A journal is a record of original entry. ANSWER: QUESTION: What is a journal? Page 96

A journal is a diary of business activities. There are different types of journals. Transactions are entered in the journal in chronological order. Journal Page 96

Chronological order is the order in which events occur. ANSWER: QUESTION: What is chronological order? Page 96

The General Journal Page 96

Page 96 Objective 1 Record transactions in the general journal.

A general journal is a financial record for entering all types of business transactions. ANSWER: QUESTION: What is a general journal? Page 96

Journalizing is the process of recording transactions in a journal. ANSWER: QUESTION: What is journalizing? Page 96

Page 96 Enter the account to be debited. GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF Nov. 6 Enter the account to be credited. Enter the amount on the same line in the Debit column. Enter the amount on the same line in the Credit column. Cash Linda Carter, Capital 80,000.00

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF Nov Nov. 6 Cash 80, Linda Carter, Capital 80, Then enter a complete but concise description of the transaction. Investment by owner Page 96 Whenever possible, the journal entry should refer to the source of the information. Document numbers are part of the audit trail., Memo 01

An audit trail is a chain of references that makes it possible to trace information, locate errors, and prevent fraud. ANSWER: QUESTION: What is an audit trail? Page 97

Recording November Transactions in the General Journal Page 97

1. Analyze the financial event. Recording a Business Transaction 2. Apply the rules of debit and credit. 3. Make the entry in T-account form. 4. Record the complete entry in general journal form. Page 97 Identify the accounts affected. Classify the accounts affected. Determine the amount of increase or decrease for each account affected. a. Which account is debited? For what amount? b. Which account is credited? For what amount?

Business Transaction On November 6 Linda Carter withdrew $80,000 from personal savings and deposited it in a new business checking account for Carter Consulting Services. Page 97

Cash Investment by Owner Page 97 Which account is debited? For what amount? Which account is credited? For what amount?

Page 97 Cash (a) 80,000 Linda Carter, Capital (b) 80,000 Cash Investment by Owner

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF Nov. 6 Cash 80, Linda Carter, Capital 80, Investment by owner, Memo 01 Page 97 Cash Investment by Owner

Business Transaction On November 7 Carter Consulting Services issued Check 1001 for $20,000 to purchase a computer and other equipment. Page 98

Page 98 Cash Purchase of Equipment Which account is debited? For what amount? Which account is credited? For what amount?

Page 98 Equipment (c) 20,000 Cash (d) 20,000 Cash Purchase of Equipment

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 7 Equipment 20, Cash 20, Purchased equip., Check 1001 Page 99 Cash Purchase of Equipment

Business Transaction On November 10 Carter Consulting Services purchased office equipment on account for $15,000. Page 99

Page 99 Credit Purchase of Equipment Which account is debited? For what amount? Which account is credited? For what amount?

Page 99 Credit Purchase of Equipment Equipment (e) 15,000 Accounts Payable (f) 15,000

Credit Purchase of Equipment GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 10 Equipment 15, Accounts Payable 15, Purchased equipment on account from Office Plus, Inv. 2223, due in 60 days Page 99

Business Transaction On November 28 Carter Consulting Services purchased supplies for $2,000, Check Page 100

Page 100 Cash Purchase of Supplies Which account is debited? For what amount? Which account is credited? For what amount?

Page 100 Cash Purchase of Supplies Supplies (g) 2,000 Cash (h) 2,000

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 28 Supplies 2, Cash 2, Purchased supplies, Check 1002 Page 100 Cash Purchase of Supplies

Business Transaction On November 30 Carter Consulting Services paid Office Plus $3,000 in partial payment of Invoice 2223, Check Page 101

Page 101 Payment to a Creditor Which account is debited? For what amount? Which account is credited? For what amount?

Page 101 Payment to a Creditor Accounts Payable (j) 3,000 Cash (i) 3,000

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 30 Accounts Payable 3, Cash 3, Paid on account, Office Plus, Invoice 2223, Check 1003 Page 101 Payment to a Creditor

Business Transaction On November 30 Carter Consulting Services wrote Check 1004 for $6,000 to prepay rent for December and January. Page 102

Page 102 Which account is debited? For what amount? Which account is credited? For what amount? Recording Prepaid Rent

Page 102 Recording Prepaid Rent Prepaid Rent (k) 6,000 Cash (l) 6,000

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 30 Prepaid Rent 6, Cash 6, Paid Dec. and Jan. rent in advance; Check 1004 Page 102 Recording Prepaid Rent

Recording December Transactions in the General Journal Page 102

Page 102 Which account is debited? For what amount? Which account is credited? For what amount? 1. Performed services for $21,000 in cash.

Page 102 Cash 21,000 Fees Income 21, Performed services for $21,000 in cash.

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. DEBIT CREDIT REF Dec. 31 Cash 21, Performed services for cash Fees Income 21, Page 102

2. Performed services for $7,000 on credit. Page 102 Which account is debited? For what amount? Which account is credited? For what amount?

Page 102 Accounts Receivable 7,000 Fees Income 7, Performed services for $7,000 on credit.

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Page 102 Accounts Receivable 7, Fees Income 7, Performed services on credit 2. Performed services for $7,000 on credit.

Page Received $3,000 in cash from credit clients on their accounts. Which account is debited? For what amount? Which account is credited? For what amount?

Page 102 Cash 3,000 Accounts Receivable 3, Received $3,000 in cash from credit clients on their accounts.

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Cash 3, Accounts Receivable 3, Received cash from credit clients on account Page Received $3,000 in cash from credit clients on their accounts.

4. Paid $5,000 for salaries. Page 102 Which account is debited? For what amount? Which account is credited? For what amount?

4. Paid $5,000 for salaries. Page 102 Salaries Expense 5,000 Cash 5,000

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Salaries Expense 5, Cash 5, Paid monthly salaries to employees, Check Page Paid $5,000 for salaries.

5. Paid $600 for a utility bill. Page 102 Which account is debited? For what amount? Which account is credited? For what amount?

5. Paid $600 for a utility bill. Page 102 Utilities Expense 600 Cash 600

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Utilities Expense Cash Paid monthly bill for utilities, Check 1007 Page Paid $600 for a utility bill.

6. The owner withdrew $3,000 for personal expenses. Page 102 Which account is debited? For what amount? Which account is credited? For what amount?

Page 102 Linda Carter, Drawing 3,000 Cash 3, The owner withdrew $3,000 for personal expenses.

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Linda Carter, Drawing 3, Cash 3, Owner withdrew cash for personal expenses, Check 1008 Page The owner withdrew $3,000 for personal expenses.

Preparing Compound Entries Page 102

Objective 2 Prepare compound journal entries. Page 103

Business Transaction Let’s go back to the November 7 transaction. Page 104 Suppose that Carter Consulting Services purchased equipment for $20,000, issued a check for $10,000, and agreed to pay the balance in 30 days.

Page 104 Purchase Equipment—Partial Payment—Balance Due Which account is debited? For what amount? Which account is credited? For what amount?

Page 104 Equipment 20,000 Accounts Payable 10,000 Cash 10,000 Notice that this entry has one debit and two credits. This is a compound entry. Purchase Equipment—Partial Payment—Balance Due

A compound entry is a journal entry that contains more than one debit or credit. ANSWER: QUESTION: What is a compound entry? Page 103

GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 7 Equipment 20, Cash 10, Bought equip. from SBM Tech, Inv. 11, issued Ck for $10,000, bal. due in 30 days Accounts Payable 10, Page 104 No matter how many accounts are affected by a transaction, total debits must equal total credits. 20, = 20, Purchase Equipment—Partial Payment—Balance Due

Another Example of a Compound Entry GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 21 Equipment 10, Supplies 5, Bought equipment and supplies, issued Check 1009 Cash 15, Page 104 No matter how many accounts are affected by a transaction, total debits must equal total credits. 15, = 15,000.00

Another Example of a Compound Entry GENERAL JOURNAL PAGE 1 DATE DESCRIPTION POST. DEBIT CREDIT REF. Nov. 21 Supplies 5, Cash 7, Accounts Payable 7, Page 104 Bought equip. and supplies from SBM Tech, issued Check 1110 for a $7,500, bal. due in 30 days Equipment 10, No matter how many accounts are affected by a transaction, total debits must equal total credits. 15, = 15,000.00

REVIEWREVIEW A ______ is a diary of business activities. The journal is sometimes called the ____________________ because it is where transactions are first entered in the accounting records. The _____________ is a financial record for entering all types of business transactions. general journal record of original entry journal Complete the following sentences:

REVIEWREVIEW A journal entry that contains more than one debit or credit is called a __________ _____. The _________ is a chain of references that makes it possible to trace information, locate errors, and prevent fraud. ___________ is the process of recording transactions in the general journal. Journalizing audit trail compound entry Complete the following sentences:

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