Chapter 4 The Journal and the Ledger

General Journal Fills the need to record all parts of a transaction in one place Includes date, debit, credit and brief explanation Advantages: –Fewer errors –Easy to check all debit and credit entries made –Chronological order –Gives idea of volume of business –Convenient picture of day’s business Click here for online journal demo In-class demo

General Ledger Provides a balance for each account Records the debit and credit entries from the journal for every transaction Useful for creating financial statements Posting is the process of transferring transaction info from journal to ledger Click here for online ledger demo (click on Chapter 7 posting)Click here for online ledger demo In-class demo

Chart of Accounts List of ledger accounts by name and number Numbers save time and increase accuracy Sample numbering system: Assets Liabilities Owner Equity Revenue Expenses

Ledger Hints & Tips Particulars column rarely used Exception: “opening entry” Exception: when copying balance from end of a page … “forward” Dr/Cr column states balance of the account and not nature of entry Place a √ in P.R. column when forwarding

Trial Balance Errors Find the difference between debits and credit totals If 1, 10, 100, etc. may be adding error on trial balance or accounts Check for difference in an account balance Divide difference by 2, meaning an account balance on wrong side on trial balance If difference is divisible by 9 with no remainder, transposition error made, e.g. 72 not 27 Missing entry from journal to ledger Re-check!

Correcting Journal Entries Proper method: –“reverse” offending entry, that is, exchange the debit and credit entries in a transaction –Journalize correct entry

Accounting Cycle Transactions occur > Journalize in journal > Post to Ledger > Prepare Trial Balance > Prepare Financial Statements > New accounting period begins

Source Documents Necessary proof of transactions Cheques written: payment by us, dr A/P or ??? cr Cash Cheques received: dr Cash or A/R, cr Sales

Source Documents: Cash Sales Slips Record of all cash received dr Cash cr Sales or A/R Often called Cash Receipts

Source Documents: Sales Invoice Sale on credit (account) dr A/R cr Sales

Source Documents: Purchase Invoice Purchase item on credit (account) cr ??? cr A/P

Source Documents: Other Memos: e.g., owner withdraws supplies for persona use; dr. Drawings, cr Supplies Bank Credit Memo: bank gives you cash, e.g., interest; dr Cash cr Interest Revenue Bank Debit Memo: bank withdraws cash from your account, e.g., service charge; dr Bank Charges cr Cash