Recording Transactions in a General Journal

Section 1The Accounting Cycle What You’ll Learn  The first three steps in the accounting cycle.  Why is it necessary to journalize transactions.  The different kinds of source documents used in a business.  The difference between a calendar year and a fiscal year. What You’ll Learn  The first three steps in the accounting cycle.  Why is it necessary to journalize transactions.  The different kinds of source documents used in a business.  The difference between a calendar year and a fiscal year.

Why It’s Important In the real world, businesses follow a similar accounting cycle, record transactions in a general journal, and operate within a predefined accounting period. Why It’s Important In the real world, businesses follow a similar accounting cycle, record transactions in a general journal, and operate within a predefined accounting period. Section 1The Accounting Cycle (con’t.) Key Terms  accounting cycle  source document  invoice  receipt  memorandum Key Terms  accounting cycle  source document  invoice  receipt  memorandum  check stub  journal  journalizing  calendar year  fiscal year  check stub  journal  journalizing  calendar year  fiscal year

The Steps of the Accounting Cycle Section 1The Accounting Cycle (con’t.)

The First Step in the Accounting Cycle: Collecting and Verifying Source Documents Section 1The Accounting Cycle (con’t.)  The accounting cycle starts by collecting and verifying the accuracy of source documents.  Source document is a paper prepared as evidence of that transaction.  The accounting cycle starts by collecting and verifying the accuracy of source documents.  Source document is a paper prepared as evidence of that transaction.

The First Step in the Accounting Cycle: Collecting and Verifying Source Documents (con’t.) Section 1The Accounting Cycle (con’t.) Invoice: Lists specific information about a business transaction involving the buying or selling of an item. The invoice contains the date of the transaction, along with the quantity, description, and cost of each item.

The First Step in the Accounting Cycle: Collecting and Verifying Source Documents (con’t.) Section 1The Accounting Cycle (con’t.) Receipt: A record of cash received by a business. It indicates the date the payment was received, the name of the person or business from whom the payment was received, and the amount of the payment.

The First Step in the Accounting Cycle: Collecting and Verifying Source Documents (con’t.) Section 1The Accounting Cycle (con’t.) Memorandum: A brief written message that describes a transaction that takes place within a business. Often used if no other source document exists for the business transaction.

The First Step in the Accounting Cycle: Collecting and Verifying Source Documents (con’t.) Section 1The Accounting Cycle (con’t.) Check Stub: The check stub lists the same information that appears on a check: the date written, the Person or Business to whom the check was written, and the amount of the check. The check stub also shows the balance in the checking account before and after each check is written.

The Second Step in the Accounting Cycle: Analyzing Business Transactions Section 1The Accounting Cycle (con’t.)  Analyzing information on the source documents to determine the debit and credit parts of each transaction.

The Third Step in the Accounting Cycle: Recording Business Transactions in a Journal Section 1The Accounting Cycle (con’t.)  Record the debit and credit parts of each business transaction in a journal.  A journal is a record of all of the transactions of a business.  The process of recording business transactions in a journal is called journalizing.  Record the debit and credit parts of each business transaction in a journal.  A journal is a record of all of the transactions of a business.  The process of recording business transactions in a journal is called journalizing.

The Accounting Period Section 1The Accounting Cycle (con’t.)  accounting records are summarized for a certain period of time, called an accounting period  most businesses use a year as their accounting period begins on January 1 and ends on December 31  calendar year  fiscal year is an accounting period of twelve months  accounting records are summarized for a certain period of time, called an accounting period  most businesses use a year as their accounting period begins on January 1 and ends on December 31  calendar year  fiscal year is an accounting period of twelve months

Section 2Recording Transactions in the General Journal What You’ll Learn  The purpose of a general journal.  The parts and labeling of a general journal.  How information is entered in a general journal.  How to correct errors in a general journal. What You’ll Learn  The purpose of a general journal.  The parts and labeling of a general journal.  How information is entered in a general journal.  How to correct errors in a general journal.

Why It’s Important The general journal is a permanent record of the financial transactions of a business. Why It’s Important The general journal is a permanent record of the financial transactions of a business. Section 2Recording Transactions in the General Journal (con’t.) Key Terms  general journal Key Terms  general journal

Recording a General Journal Entry The general journal is an all purpose journal in which all the transactions of a business may be recorded. Recording a General Journal Entry The general journal is an all purpose journal in which all the transactions of a business may be recorded. Section 2Recording Transactions in the General Journal (con’t.) 1 Date of the transaction 1 Date of the transaction 4 Name of the account credited 4 Name of the account credited 2 Name of the account transaction 2 Name of the account transaction 3 Amount of the debit 3 Amount of the debit 6 Source document reference or an explanation 6 Source document reference or an explanation 5 Amount of the credit 5 Amount of the credit

Business Transaction ANALYSIS Identify1.Identify the accounts affected. Classify2.Classify the accounts affected. + / –3.Determine the amount of the increase or decrease for each account affected. BUSINESS TRANSACTION ANALYSIS Recording a General Journal Entry (con’t.) Section 2Recording Transactions in the General Journal (con’t.)

Business Transaction (con’t.) DEBIT-CREDIT RULE 4.Which account is debited? For what amount? 5.Which account is credited? For what amount? Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.) BUSINESS TRANSACTION ANALYSIS (con’t.)

Business Transaction (con’t.) T ACCOUNTS 6.What is the complete entry in T- account form? 7.What is the complete entry in general journal form? Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.) BUSINESS TRANSACTION ANALYSIS (con’t.)

Business Transaction 1 ANALYSIS Identify1.The accounts Cash in Bank and Maria Sanchez, Capital are affected. Classify2.Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s capital account. + / –3.Cash in Bank is increased by $25,000. Maria Sanchez, Capital is increased by $25,000. On October 1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service, Memorandum 1. Section 2Recording Transactions in the General Journal (con’t.)

Business Transaction 1 (con’t.) DEBIT-CREDIT RULE 4.Increases in asset accounts are recorded as debits. Debit Cash in Bank for $25, Increases in owner’s capital account are recorded as credits. Credit Maria Sanchez, Capital for $25,000. On October 1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service, Memorandum 1. Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.)

Business Transaction 1 (con’t.) T ACCOUNTS 6. On October 1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service, Memorandum 1. Maria Sanchez, Cash in BankCapital Debit + 25,000 Credit + 25,000 Credit – Debit – Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.)

Business Transaction 1 (con’t.) JOURNAL ENTRY 7. On October 1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service, Memorandum 1. Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.)

Business Transaction 4 ANALYSIS Identify1.The accounts Delivery Equipment and Accounts Payable—North Shore Auto are affected. Classify2.Delivery Equipment is an asset account. Accounts Payable— North Shore Auto is a liability account. + / –3.Delivery Equipment is increased by $12,000. Accounts Payable— North Shore Auto is increased by $12,000. On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12,000, Invoice 200. Section 2Recording Transactions in the General Journal (con’t.)

Business Transaction 4 (con’t.) DEBIT-CREDIT RULE 4.Increases in asset accounts are recorded as debits. Debit Delivery Equipment for $12, Increases in liability accounts are recorded as credits. Credit Accounts Payable—North Shore Auto for $12,000. On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12,000, Invoice 200. Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.)

Business Transaction 4 (con’t.) T ACCOUNTS 6. On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12,000, Invoice 200. Delivery Accounts Payable— EquipmentNorth Shore Auto Debit + 12,000 Credit + 12,000 Credit – Debit – Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.)

Business Transaction 1 (con’t.) JOURNAL ENTRY 7. On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12,000, Invoice 200. Section 2Recording Transactions in the General Journal (con’t.) Recording a General Journal Entry (con’t.)

Correcting Errors in General Journal Entries  An error should never be erased.  Use a pen and a ruler to draw a horizontal line through the entire incorrect item and write the correct information above the crossed-out error.  An error should never be erased.  Use a pen and a ruler to draw a horizontal line through the entire incorrect item and write the correct information above the crossed-out error. Section 2Recording Transactions in the General Journal (con’t.)

Conclusion to Chapter 6 What was covered Conclusion to Chapter 6 What was covered 1.Introduction to the General Journal 2.Fiscal year vs. Calendar year 3.Correcting errors 1.Introduction to the General Journal 2.Fiscal year vs. Calendar year 3.Correcting errors Section 2Recording Transactions in the General Journal (con’t.)