The Journal and Source Documents Chapter 6 The Journal and Source Documents

The Journal The Journal is the book where all transactions are first entered The Journal is arrange in date order and contains the information arranged by transaction compared to the ledger where it is arranged by account This allows you to find all the details about one transaction easily

Steps for Journalizing Record the Date You only need to record the year or date if it is a new year or date or if it is the start of a new page Enter the names of the accounts to be debited and enter the amounts in the debit column Enter the names of the accounts to be credited (indent these accounts) and enter the amounts in the credit column Write a short explanation of the transaction Leave a blank line between transactions

Sample

Source Documents Source documents are the business papers that provide information on the nature of the transaction and other details These source documents are then filed and retained

Cash Sales Slip Used when goods or services are sold to a customer for cash Journal Entry Bank $40 Sales $40 Cash Sale

Sales Invoice Used when goods or services are sold on account Journal Entry A/R? $500 Sales $500 Sale on account

Point of Sale Summary Used to record a number of sales at a cash register Journal Entry Bank $350 Sales $350 Point of Sale Summary

Purchase Invoice Used to record a purchase made on account Can be used to purchase an expense or an asset Journal Entry Advertising Expense $500 A/P? $500 Purchased ad in local paper

Cheque Copies Used to record a cash payment Usually to pay an A/P Must be a copy since the original goes to the supplier Journal Entry A/P? $600 Bank $600 Paid A/P

Cash Receipts Used to record the receipt of cash sometimes from more than one customer Journal Entry Bank $400 A/R? $300 A/R? $100 Received cash on account

Bank Advices or Memos Used by your bank to inform you of changes to your account A debit advice means you credit Bank A credit advice means you debit Bank Journal Entry (Debit Advice) Bank Charges Expense $15 Bank $15 Bank Charges

Federal and Provincial Sales Taxes Provincial Sales Tax – PST Federal Sales Tax – GST (Goods & Services Tax) There are some differences when accounting for these taxes

Provincial and Federal Tax Rates (2006) PST BC – 7% AB – 0% SK – 7% MB – 7% ON – 8% QC – 7.5% PE – 10% YK, NT, NU – 0% HST (Harmonized Sales Tax) (combined PST and GST) NB – 14% NS – 14% NL – 14% GST (Goods & Services Tax) 6% as of July 1 2006

Provincial Sales Tax A percentage tax on goods sold to a customer Collected by the retailer Varies from province to province

Accounting by the Purchaser The purchaser makes no special accounting entry for PST The PST is included in the cost of the item

Accounting by the Vendor (Seller) The vender calculates the tax and adds it to the price of the items Collects the tax from the customer Accumulates the sales tax charged in a liability called PST Payable Remits the tax to the government periodically

Journal Entries by the Vendor Bank $107 Sales $100 PST Payable $7 Cash sale A/R? $214 Sales $200 PST Payable $14 Sale on Account

Remitting the Tax If the PST Payable is $21 credit Journal Entry Bank $21 Remitted Sales Tax Note that sometimes the vendor must pay the government before they receive the cash from the customer

Goods and Services Tax The GST is charged on both goods and services unlike the PST which is usually just charged on goods The GST replaced a manufacturers tax and was recently reduced to 6% GST is only paid by the end customer

GST Accounting by the Customer Unlike PST the business customer also accounts for the GST The GST paid by a business customer is recorded in an account called GST Recoverable and is used to reduce the GST paid by the business

Journal Entry by Customer Office Supplies $100 GST Recoverable $6 Bank $106 Purchased Office Supplies for Cash

GST Accounting by the Vendor The Vendor calculates the tax and adds it to the price Collects the tax from the customer Accumulates the tax in an account called GST Payable Remits the tax to the Government periodically (after reducing it by the GST Recoverable)

Journal Entry Vendor Bank $318 Sales $300 GST Payable $18 Cash sale

Remitting the GST If the GST Payable is a $18 credit and the GST Recoverable is $6 debit the business only pays the government $12 Journal Entry GST Payable $18 GST Recoverable $6 Bank $12 Remitting the GST

GST on the Balance Sheet If shows up on the Balance Sheet in the Liabilities but note that the GST Recoverable is a debit and reduces the GST Payable Accounts Payable $400 GST Payable $18 Less GST Recoverable $6 $12 Bank Loan $1000