Chapter 3

Journalizing Transactions

Journals, Source Documents, and Recording Entries in a Journal

GAAP (Generally Accepted Accounting Practice) (principles) is to make a more permanent record by recording transactions in a journal

A form for recording transactions in chronological order is called a journal

Recording transactions in a journal is called journalizing

Journals

The type of journal that is used is determined by nature of business and number of transactions

Five amt col.: General Debit, General Credit, Sales Credit, Cash Debit, Cash Credit

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Special Amount Columns

A journal amount column headed with an account title is called a special amount column. -- Used for frequently occurring transactions

Most transactions involve receipt or payment of Cash

A large number of transactions involve receiving cash from Sales

Special amount columns are used for Sales Credit, Cash Debit and Cash Credit

Eliminates writing an account title in the Account Title Column

General Amount Columns

A journal amount column that is not headed with an account title is called a general amount column.

General Debit and General Credit

Benefits of a Journal

Accuracy -- Debit and credit parts of each transaction are recorded in one place

Transactions are recorded in chronological order -- easy to locate

Information for each transaction recorded in a journal is called an entry

The recording of debit and credit parts of a transaction is called double-entry accounting

Affects at least two accounts -- assures that debits equal credits

Source Documents

A business paper from which information is obtained for a journal entry is called a source document. Proves that the transaction did occur

Accounting concept: Objective Evidence – a source document is prepared for every transaction

RULES Transactions should be journalized only if it

occurred Amounts must be accurate and true

verify by comparing entry with source document.

Examples of Source Documents

Check stub – describes information about the cash payment transaction

Checks – a business form ordering a bank to pay cash from a bank account.

All cash payments are made by check Invoice – a form describing the goods or services sold,

the quantity, and the price. -- Prenumbered Sales Invoice – an invoice used as a source

document for recording a sale on account Also called sales ticket or sales slip

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Examples of Source Documents

Receipts – a business form giving written acknowledgement for cash received. When cash is received from other sources other than

sales, prepare a receipt -- Prenumbered Memorandum – a form on which a brief message is written

describing a transactions Used when no other source document is prepared or

when additional explanation is needed, Prenumbered Calculator Tape – total amount of cash received from sales is

printed on electronic calculator -- daily salesT12 – tape for twelfth day of the month --- page 75

Recording Transactions in aFive-Column Journal

Entry consists of 4 parts:1. Date 2. Debit 3. Credit 4. Source document

DATE1st entry on journal page – must contain year, month, and dayall other entries – must contain day only

DEBITDebits to cash – use special amount columnWrite amount

CREDITCredits to cash – use special amount columnCredits to Sales – use special amount columnAll other credits -- Write title of account to be credited Write amount

SOURCE DOCUMENTWrite number in Doc. No. columnDocument number – a cross reference from the journal to the source document

Proving and Ruling a Journal

After next to last line of journal page is used, columns are proved and ruled before totals are carried forward to next page.

Also at end of each month – prove and rule a journal

Proving and Ruling a Journal – Lesson 3-4

Verify that total debits on the page equal total credits

3 steps1. add each of the amount columns

2. add the debit column totals, and then add the credit column totals

3. verify that the total debits and total credits are equal

PROVING A JOURNAL

Ruling a Journal Page

1. Rule a single line across all amount columns directly below the last entry

2. On next line, write the date3. Write the words Carried Forward in the Account

Title column -- check mark in Post Ref column to show that nothing on this line needs to be posted

4. Write each column total below the single line5. Rule double lines below the column totals across all

amount columns

Starting a New Journal Page

Column totals from previous page are carried forward to a new page

1. Write page number at the top of journal2. Write the date – year, month and day3. Write the words Brought Forward in the

Acct Title Col. -- check mark in Post Ref4. Record the column totals

Completing a JournalAt the End of the Month

1. Prove last page-- debits equal credits

2. Prove cashCash on hand at beginning of month 0.00

plus total cash received during month (debit) + 15,600.00Equals total = 15,600.00less total cash paid during month (credit) - 6,980.00Equal cash balance at the end of the month = 8,620.00(this should equal checkbook balance on the nextunused check stub) = 8,620.00

3. Rule journal

Standard Accounting Practices

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