Chapter 7 Quiz will be on next Tuesday Nov 4.

 Opening an Account ◦ Let’s say that account number for your Asset accounts are: ◦ Bank 101 ◦ Bookkeeping Fees 501 ◦ Income Tax Return service fee 502 ◦ Car expense 601 ◦ Meals and Entertainment expense 602 ◦ Travel expense 603

 Opening an Account ◦ If you wanted to add a new account for “Business Management Consulting fee”, what do you have to do? What should be the account number for this new account? ◦ You need to make sure that the new page is after (or below) “Income Tax earned” account. ◦ The new account need a new account title and a new account number. ◦ The new account number should be 503.

 When an account is full, the account must be continued on a new account form.  Forwarding is the process of continuing an account in a new account form by carrying forward the date and the balance from the previous page.

 Cross Referencing is the recording of the journal page numbers in the ledger account and the recording of the account number in the journal.  There are 3 reasons for cross-referencing: 1. Entries in the journal can be followed through to the accounts where they have been posted. (for auditing purpose, vouching is done by auditors)  same direction as the accounting cycle

2. Entries in accounts can easily be traced back (for auditing purpose) to their source in the general journal.  opposite direction of accounting cycle 3. If the posting process is interrupted (e.g. technical issue), it is easy to tell where to begin again. (because you checked off by writing account numbers in journal)

Transactions occur. Entries recorded in journal. Posting from the journal to the ledger accounts. Ledger balance by means of trial balance.

 Who relies on accounting systems?  Owners, bankers, investors, tax auditors etc  As a result, accountants must work to a high degree of accuracy.  Traditionally accountants can not use eraser or whiteout to fix errors.  Even accounting software does not allow you to “delete” or cover up what was written in the past. (after posting the transactions)

 If the errors were found immediately, (=before posting is done) then you can easily correct the error.  If the accounting firm still uses traditional accounting books, (instead of accounting software) you would have to stroke the incorrect line. Then write the correct one above the incorrect one. (Example Figure 7.7 and Fig 7.8 of Page 234)

 If the errors were found several months later, (after posting is done) then you have to make a journal entry to correct the error you made.  Let’s say on November 15, (2009) you bought office supplies such as ink toner and paper and paid $700. You accidentally debited “Equipment account” instead of debiting “supplies account”.

DrCr Nov 15 Equipment700 Bank700 Purchased ink toner and paper from Staples  On Jan 15 (2010) you realized that you made a mistake. But the journal entry has already been posted. What do you have to do?  You have to make a correcting journal entry which would fix this error.

 Another example: You run an accounting firm and you are the accountant and owner of this firm.  On Feb 15, you bought a laptop for $860. You made the following entry. Dr.Cr. Feb 15 Computer$680 Bank$680 Purchased laptop and paid cash

 On Feb 18, before posting this entry, you found the error. What would you have to do?  You should stroke the incorrect amount and write the correct amount above it.  Second scenario: This time, you made the same journal entry on Feb 15. You posted it on Feb 18 (because you did not confirm the numbers with source document, which is receipt from Bestbuy in this case). On March 31, you discovered that you made this error, while you traced the records.  What do you have to do?

 Since you already posted the journal entry, you will have to make a correcting journal entry. Dr.Cr. March 31 Computer180 Bank180 To correct posting error made on Feb 15

Transactions occur. Entries recorded in journal. Posting from the journal to the ledger accounts. Ledger balance by means of trial balance.

 Review Questions #5, 10, 11, 12 and 13 (P233)  Exercises #3 (P233)  Review (P240) #1 to #4  Exercise #1 (P240)