JOURNALIZING AND POSTING TRANSACTIONS CHAPTER THREE JOURNALIZING AND POSTING TRANSACTIONS

Analyze transactions using FLOW OF DATA STEP #1 INPUT Analyze transactions using SOURCE DOCUMENTS and CHART OF ACCOUNTS

FLOW OF DATA PROCESSING “Journalizing” “Posting” Enter business transactions in the Post the entries in the journal to the From the general ledger, prepare a General Journal General Ledger Trial Balance “Journalizing” “Posting” STEP #2 STEP #3 STEP #4 ST #2

CHART OF ACCOUNTS A list of ALL accounts used by a business In numeric order Used to determine which accounts are affected by a given transaction

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets (100-199) 101 Cash 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Assets begin with 1

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets (100-199) 101 Cash 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Liabilities (200-299) 202 Accounts Pay. Liabilities begin with 2

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets (100-199) 101 Cash 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Liabilities (200-299) 202 Accounts Pay. Owner’s Eq. (300-399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing Owner’s Equity begins with 3

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets (100-199) Revenues (400-499) 101 Cash 401 Delivery Fees 122 Accts. Rec. 141 Supplies 145 Prepaid Ins. 185 Delivery Eq. Liabilities (200-299) 202 Accounts Pay. Owner’s Eq. (300-399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing Revenues begin with 4

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets (100-199) Revenues (400-499) 101 Cash 401 Delivery Fees 122 Accts. Rec. 141 Supplies Expenses (500-599) 145 Prepaid Ins. 511 Wages Exp. 185 Delivery Eq. 521 Rent Exp. 525 Tele. Exp. Liabilities (200-299) 202 Accounts Pay. Owner’s Eq. (300-399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing Expenses begin with 5

JESSICA JANE’S CAMPUS DELIVERY CHART OF ACCOUNTS Assets (100-199) Revenues (400-499) 101 Cash 401 Delivery Fees 122 Accts. Rec. 141 Supplies Expenses (500-599) 145 Prepaid Ins. 511 Wages Exp. 185 Delivery Eq. 521 Rent Exp. 525 Tele. Exp. Liabilities (200-299) 202 Accounts Pay. Owner’s Eq. (300-399) 311 Jessica Jane, Capital 312 Jessica Jane, Drawing This here’s my prize asset! So’s I knows it would start with the #1 on my chart of accounts!

SOURCE DOCUMENTS Trigger the analysis of what happened Begin the process of entering transactions in the accounting system Serve as objective evidence of business transactions Filed for possible future reference

SOURCE DOCUMENTS Check stubs or copies of checks Cash Payments Example: Provides Information about: Check stubs or copies of checks Cash Payments Receipt stubs, copies of receipts, cash register tapes, or memos of cash register totals Cash Receipts

JOURNAL Day by day listing of financial transactions Purpose: to provide a record of all transactions “Book of Original Entry” Simplest form - “General Journal” Act of entering transaction in Journal is called “Journalizing” Very important term!

Mica Pearl invested $25,000 in the business on June 1, 20XX EXAMPLE: Mica Pearl invested $25,000 in the business on June 1, 20XX NEW! DATED TRANSACTIONS

Assets = Liabilities + Owner’s Equity CASH M. Pearl, Capital DR. CR. DR. CR. + + NOW WE WILL “JOURNALIZE” THIS TRANSACTION $25,000 $25,000

GENERAL JOURNAL STEP #1 ENTER DATE (Year and month only written on DEBIT PR CREDIT DATE DESCRIPTION 20XX 1 JUNE 1 2 STEP #1 ENTER DATE (Year and month only written on first line of each page unless the month changes)

GENERAL JOURNAL Cash DEBIT PR CREDIT DATE DESCRIPTION 20XX 1 JUNE 1 2 Step #2 Enter the name of the account being debited FIRST. (Account name should be flush against the date line.

GENERAL JOURNAL Cash STEP #3 DATE DESCRIPTION DEBIT PR CREDIT 20XX 1 JUNE 1 25000 00 2 STEP #3 ENTER THE AMOUNT OF THE DEBIT. (Don’t use $ signs)

(Indent ¼ to ½ inch and on next line) GENERAL JOURNAL DEBIT PR CREDIT DATE DESCRIPTION 20XX 1 Cash JUNE 1 25000 00 2 M. Pearl, Capital 25000 00 STEP #4 (Indent ¼ to ½ inch and on next line) Enter the account To be credited and dollar amount.

On next line, indent a small amount and GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 20XX 1 Cash JUNE 1 25000 00 2 M. Pearl, Capital 25000 00 3 (Owner’s original investment in business) 4 STEP #5 On next line, indent a small amount and ENTER AN EXPLANATION

GENERAL JOURNAL Cash M. Pearl, Capital STEP #6 SKIP A LINE! DEBIT PR CREDIT DATE DESCRIPTION 20XX 1 Cash JUNE 1 25000 00 2 M. Pearl, Capital 25000 00 3 (Owner’s original investment in business) 4 Yikes, I don’t want to forget to skip a line between journal entries! That would be like forgetting my slice of cheese! 5 STEP #6 SKIP A LINE! (Leave a blank line between transactions)

Okay, I get it, a compound entry is more than 2 accounts. . .right?! An entry requiring more than one debit and/or more than one credit All debits come before any credits! Okay, I get it, a compound entry is more than 2 accounts. . .right?!

COMPOUND ENTRY EXAMPLE: Mica purchased $2,500 of office equipment, (including a pink computer) and $500 of office supplies for cash on June 10.

“T” ACCOUNT ANALYSIS + + + All Asset Accounts! OFFICE EQUIP. 0FFICE SUPPLIES DR. CR. DR. CR. + + CASH DR. CR. All Asset Accounts! +

PURCHASED $2,500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. What are the accounts affected?? Which are increased and which are decreased?

This account increased! PURCHASED $2,500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. OFFICE EQUIPMENT Dr. Cr. + $2,500 This account increased!

This account increased too! ( it must be a conspiracy. . .) PURCHASED $2,500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. OFFICE SUPPLIES Dr. Cr. + $500 This account increased too! ( it must be a conspiracy. . .)

Ahaa. . .This account decreased! PURCHASED $2,500 OF OFFICE EQUIPMENT AND $500 OF OFFICE SUPPLIES FOR CASH ON JUNE 10. CASH Dr. Cr. + $3,000 Ahaa. . .This account decreased!

2 DEBITS & 1 CREDIT BUT DEBIT $ = CREDIT $ OFFICE EQUIP. 0FFICE SUPPLIES DR. CR. DR. CR. + + $500 $2,500 CASH DR. CR. + $3,000

NOW LET’S JOURNALIZE THE TRANSACTION Yahoo! I love journalizing!

GENERAL JOURNAL The order of the debits does not DATE DESCRIPTION DEBIT PR CREDIT 2014 1 Office Equipment JUNE 10 2500 00 2 Office Supplies 500 00 3 Cash 3000 00 4 (Purchased office equip. and 5 Supplies) The order of the debits does not matter. But ALL debits must come before any credits.

GENERAL LEDGER Set of all accounts used by a business. Similar to “T” accounts. Used to keep record of current balances and all activity within accounts. Commonly in form of FOUR-COLUMN account.

T-accounts are used in the classroom but they are not used in real life. Instead, businesses use a General Ledger! CASH DR. CR. $3,000 + Instead of this, business’s use this. . . Notice the “T” in the 4-column account is used just like our T-account

POSTING Process of copying debits and credits from the journal to the ledger Done daily or at frequent intervals Five step process. . .

Let’s post this entry to the GENERAL JOURNAL DEBIT PR CREDIT DATE DESCRIPTION 20XX 1 Cash JUNE 1 25000 00 2 M. Pearl, Capital 25000 00 3 (Owner’s original 4 investment in business) 5 Let’s post this entry to the GENERAL LEDGER

FOUR-COLUMN ACCOUNT 101 CASH EACH ACCOUNT ACCOUNT IS NUMBERED NAME Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. EACH ACCOUNT IS NUMBERED ACCOUNT NAME

FOUR-COLUMN ACCOUNT 101 CASH STEP #1 RECORD DATE Year and Month Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 1 STEP #1 RECORD DATE Year and Month only for first entry

FOUR-COLUMN ACCOUNT 101 CASH LEAVE “ITEM” AREA BLANK Used for special Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 1 LEAVE “ITEM” AREA BLANK Used for special transaction only

FOUR-COLUMN ACCOUNT 101 CASH STEP #2 ENTER AMOUNT 25,000 Account No. BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 1 25,000 STEP #2 ENTER AMOUNT

FOUR-COLUMN ACCOUNT 101 CASH STEP #3 ENTER NEW BALANCE 25,000 25,000 Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 1 25,000 25,000 STEP #3 ENTER NEW BALANCE

“J” for journal and 1 for page 1 FOUR-COLUMN ACCOUNT 101 CASH Account No. Account: BALANCE DATE ITEM PR DR. CR. DR. CR. 20XX June 1 J1 25,000 25,000 STEP #4 ENTER JOURNAL PAGE NUMBER “J” for journal and 1 for page 1

Posting Reference (PR) column GENERAL JOURNAL DEBIT PR CREDIT DATE DESCRIPTION 2010 1 Cash JUNE 1 101 25000 00 2 M. Pearl, Capital 25000 00 3 (Owner’s original 4 investment in business) 5 STEP #5 ENTER THE LEDGER ACCOUNT NUMBER in the Posting Reference (PR) column

TRIAL BALANCE Used to prove equality of debits and credits in the ledger accounts Can be prepared daily, weekly, monthly or whenever desired Prepared after all transactions have been journalized and posted

Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Now with Account Numbers Account Title Acct No. Debit Balance Credit Balance Cash 101 370 00 Accounts Receivable 122 650 00 Supplies 141 80 00 Prepaid Insurance 145 200 00 Delivery Equipment 185 3600 00 Accounts Payable 202 1800 00 Jessica Jane, Capital 311 2000 00 Jessica Jane, Drawing 312 150 00 Delivery Fees 401 2150 00 Wages Expense 511 650 00 Rent Expense 521 200 00 Telephone Expense 525 50 00 5950 00 5950 00

FINDING AND CORRECTING ERRORS IN THE Trial Balance

Sloppy Steve’s Trial Balance December 31, 20-- Account Title Acct No. Debit Balance Credit Balance Cash 101 850 00 Accounts Receivable 122 1650 00 Supplies 141 230 00 Prepaid Insurance 145 600 00 Office Equipment 185 6300 00 Accounts Payable 202 1800 00 Steve, Capital 311 3500 00 Help! My Trial Balance doesn’t balance!!! Steve, Drawing 312 500 00 Delivery Fees 401 5550 00 511 450 00 Rent Expense 521 200 00 Telephone Expense 525 70 00 10580 00 10700 00

STEP #1 Double check your addition Review balances: See if any are too large or small, relative to other accounts Or entered in the wrong column

Perhaps I forgot to post the debit or credit part of that transaction? STEP #2 Find difference between the debits and the credits Is difference the amount of a specific transaction? Perhaps I forgot to post the debit or credit part of that transaction?

STEP #2 Divide the difference by 2 Is this number the amount of a specific transaction?

STEP #2 Did I post the debit or credit twice, OR, post the debit as a credit or vice versa

STEP #2 Divide the difference by 9 If difference is divisible by 9, you could have a SLIDE error or a TRANSPOSITION error

SLIDE ERRORS Occur when the decimal point is “slid” right or left For example: Amount was $250, but recorded as $25 Difference of $225 Difference is divisible by 9 ($225/9=25)

TRANSPOSITION ERRORS Occurs when two digits are reversed For example: Amount was $520, but recorded as $250 Difference is $270 ($520-$250) Difference is divisible by 9, ($270/9=30)

STEP #3 If steps #1 and #2 don’t work: Double check your addition in the ledger accounts Trace all postings