1. Chapter 6 The Journal and Source Documents
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

2. How to make journal entries Usefulness of journal entries
Agenda
Learning goals
Vocabulary
What is a journal?
How to make journal entries
Usefulness of journal entries
What is an opening entry?
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3. What is the purpose of journal entries, what are they used for?
Learning goals
Understand what a journal is and how to record business transactions on a journal
What is the purpose of journal entries, what are they used for?
Define what is an opening entry
Explain what is a sales tax and be able to recognize the different taxes (PST, GST, HST)
How to record sales tax from a purchaser’s perspective
How to record sales tax from a seller’s perspective
What is value added tax and how to record it?
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4. Vocabulary
Book of original entry Clearing an account balance Contra account Journal Journal entry Journalizing Opening entry Provincial Sales Tax (PST) Remittance Retail sales tax (RST) Sales tax Value-added tax
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5. Making Journal Entries In this section we will learn how to make journal entries.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

6. That is why a journal was created.
The Journal
Ledger accounts do now show the transaction together, as it needs to be pieced from different accounts-this can cause confusion.
That is why a journal was created.
Journal: is a book in which the accounting entries for all transactions are first recorded, before they are recorded in the ledger accounts.
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7. Transaction recorded in journal in order by date
Transaction occurs
Transaction recorded in journal in order by date
The accounting entries are transferred to the ledger accounts
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8. Making Journal Entries Enter the page number.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

9. Making Journal Entries Enter the date
Making Journal Entries Enter the date. The month and year goes in the first date column. The day of the month goes in the second date column.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

10. Making Journal Entries Enter the debit account(s).
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

11. Making Journal Entries Enter the debit amount(s).
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

12. Making Journal Entries Enter the credit account(s)
Making Journal Entries Enter the credit account(s). Be sure to indent the account name.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

13. Making Journal Entries Enter the credit amount(s).
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

14. Making Journal Entries Write a short description of the transaction
Making Journal Entries Write a short description of the transaction. Include the source document number if available.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

15. Making Journal Entries Skip a line and start the next transaction
Making Journal Entries Skip a line and start the next transaction. If the transaction occurs in the same month as the previous one, you do not need to re-write the month and year.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

16. Making Journal Entries Enter the debit account(s).
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

17. Making Journal Entries Enter the debit amount(s).
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

18. Making Journal Entries Enter the credit account(s)
Making Journal Entries Enter the credit account(s). Be sure to indent the account name.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

19. Making Journal Entries Enter the credit amount(s).
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

20. Making Journal Entries In this transaction, there are two credit entries.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

21. Making Journal Entries The amounts of the two credit entries equal the debit entry amount.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

22. Making Journal Entries Write a short description of the transaction
Making Journal Entries Write a short description of the transaction. Include the source document number if available. You may use more than one line to write the explanation if necessary.
Chapter 6 – The Journal and Source Documents l Accounting 1, 7th Edition

23. Usefulness of the General Journal
Main purpose is to create a continuous record of the accounting entries in the order in which they occurred.
Helps to ensure that the entries balance
Reduces errors
Useful reference
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24. The Opening Entry
When you start a business you need to make the first journal entry.
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25. Quick review of yesterday journal entries What is a sale tax?
Agenda
Quick review of yesterday journal entries
What is a sale tax?
Sales Tax Principle
How to record sales tax from a purchaser’s perspective
How to record sales tax from a seller’s perspective
What is value added tax and how to record it?
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26. In this section we will learn about different types of tax
6.3 Sales Taxes
In this section we will learn about different types of tax
Why does the government collect tax?
To fund social services like health care, education and other social program
Sales tax: tax dollars generated from business transaction
Sales tax have many different rules and regulations and they change whenever the provincial or federal government pass new laws so it’s the accountant’s job to stay up to date on tax regulation changes
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27. The tax dollars belong to the government
Sales Tax Principles
Tax dollars are charged to the buyers of goods and services. If the buyer is a business, that business keeps track of the HST charged on its purchases in a separate account
Tax dollars are collected by the seller and recorded in a separate liability account
The tax dollars belong to the government
The seller send the tax dollars to the government at appointed times, less any HST it has paid on its purchases in the same time period.
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28. Calculated as % of the price of a good paid by the consumer
Sales Taxes
Retail sales tax (RST): also known as provincial sales tax (PST). This a tax charged to the final consumer of a good (and some services)
Calculated as % of the price of a good paid by the consumer
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29. The tax increase the total cost of the goods purchased for a consumers
Provincial Sales Tax
Purchaser:
The tax increase the total cost of the goods purchased for a consumers
If the purchases is a business than
Record the total cost as a debit to an asset or expenses depending on what was purchases
Example: a table computer was purchased for $500 with PST of 7% what is the amount of tax?
Show how you would record this on T-Accounts
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30. Provincial Sales Tax Tax is $500x.07 =$35 dollars Principle 1
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31. Provincial Sales Tax Seller: Principle 2,3,4 will guide your recording
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32. Provincial Sales Tax Seller:
To complete principle 4 tax must be paid to the government
Remittance: sum of money send
The rules is that all the PST tax charged in a month is remitted by the 15th of the following month.
You have to pay PST for sales on account as well!
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33. Some examples of value added tax is Goods and Services Tax (GST)
Value-Added Sales Tax
Value-added tax: is a tax charged to both goods and a wider variety of services as they pass through the different stages of production and delivery.
Some examples of value added tax is
Goods and Services Tax (GST)
Harmonized Sales Tax (HST)
The increased value is confirmed when a higher price is charged to the next business in the production chain.
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34. Value Added Taxes Example
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35. PST goes to provincial government GST goes to the federal government
Sales Tax
PST goes to provincial government
GST goes to the federal government
New Brunswick, Nova Scotia and Newfoundland and Ontario joined in 2011 and combined the PST and GST into one tax called HST so Revenue Canada collect the tax and send it to the provincial and federal government
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36. Who is required to register?
Any business with a sales of taxable goods and services of $ or more is required to complete a GST/HST registration form and sent it to the CRA
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37. Accounting for Value-Added Taxes
Selling Goods and Services with HST:
Brookswood Driving School sold lessons for cash totalling $ in the month of August. HST is 13%
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38. Accounting for Value-Added Taxes
Buying Goods and Services with HST:
Brookswood Driving School had purchase $5000 of various goods and services in August and paid $650 in HST
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39. Accounting for Value-Added Taxes
Remitting the HST:
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40. Accounting for Value-Added Taxes
The Accounts for HST:
Credit is normally represent HST charged to customers, debits normally represent HST charged or paid on purchases and the difference is what is remitted to the CRA.
When a remittance is made to the CRA they demand a pull breakdown. Getting that information from HST Payable balance, from the balance sheet is not easy. You would need to go back to your transactions….takes time
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41. Accounting for Value-Added Taxes
Some accountants create two accounts
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42. Accounting for Value-Added Taxes
How it would appear on the Balance Sheet
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43. Accounting for Value-Added Taxes
HST recoverable is under liabilities not assets
That is because it is a contra account
Contra account: is an account that has a balance that reduces or offsets the balance of a closely related account
HST recoverable is closely related to HST payable
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44. HST recoverable is closely related to HST payable
When using the HST recoverable account method there is a difference remitting entries.
Both HST recoverable and HST Payable need to be clear the account balances: means bring the balance to 0.
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