1. BAF 3M1 THE JOURNAL & SOURCE DOCUMENTS Chapter 6, Section 6.1

2. The Journal  Up to this point we’ve been ________________ ______________________ in T-accounts. T-accounts are fine up to a certain point. When the number of transactions accumulates, details for any one transaction become difficult to put back together.  So instead of T-accounts, accountants use a book called a ________________ to keep all entries together, transaction by transaction.

3. The Journal cont’d  A journal is a book in which accounting entries for all transactions are first recorded, before they are recorded in the ledger.  Transactions are recorded in the order of their occurrence, or in ____________________________ order.  The journal provides an important ___________________ _____________ of ________ _____________________.  The process of recording accounting entries in the journal is called ________________________.

4. Steps in recording a journal entry 1. Enter the journal page number 2. Enter date in date column (Year, Month, Day) 3. Enter names of account(s) to be debited at the left. Enter debit amounts in debit column 4. Enter names of account(s) to be credited, indented to the right. Enter the credit amount in the credit column 5. Write a brief explanation for the entry beneath the last credit item

5. Example: Journalizing The following are transactions for John’s Repair Shop Transactions 2009 March 3 Paid the rent for March, $500 cash 5 Bought supplies, $200 cash 7 The owner, J. Smith withdrew $100 cash for personal use 10 Performed a repair service for D. Jones on account, $300

6. BAF 3M1 THE JOURNAL & SOURCE DOCUMENTS Chapter 6, Section 6.2

7. Question: Where is the information about transactions obtained?  Answer: The accounting department is informed of transactions by means of business papers called _____________ ________________.  Business transactions initiated by the owner, sales-people, department supervisors, managers, and other authorized people.

8. What is a source document?  A business paper that shows the nature of a transaction and provides all of the information needed to account for it properly.  Accountants use source documents as the __________ _____ recording the ________________ ___________. Almost every accounting entry is based on a source document.

9. Basic source documents 1. Cash sales slip: a business form showing the details of a transaction in which goods/services are sold to a customer for cash. Bank $20 Sales revenue $20 Note: A similar entry will be made for all cash sales slips

10. 2. Sales invoice: a business form showing the details of a transaction in which goods/services are sold on account. A/R – S&S Bros.$800 Sales revenue $800 Note: A similar entry will be made for all sale invoices

11. 3. Point of sale summaries: Some businesses use a point of sale (POS) terminal, a computerized sales register that allows a business and its customers to exchange funds electronically, to process credit card and debit card payments. o Credit and debit card transactions are treated as cash receipts from the business’s point of view Bank$700 Sales revenue $700

12. 4. Purchase invoice: a business form representing a purchase of goods and services on account. Advertising Expense $100 Accounts payable – General Engineering $100 Note: The account credited is always Accounts payable

13. 5. Cheque copies: a document supporting the accounting entry for a payment by cheque. o Cheques may be issued for cash purchases, wages, owner’s withdrawals, or payments on account. A/P – Sterling Co.$500 Bank $500 Note: The account credited is always Bank (Cash)

14. 6. Cash receipts daily summary: a business paper that lists the money coming in from customers. o Cash receipts represent cheques or cash that the business received from customers. o Since cheques or cash cannot be kept to support accounting entries (as they need to be deposited in the bank), the cash receipts list is the source document for the accounting entries for cash receipts. Bank$2000 Accounts receivable – A. Baldwin $1000 Accounts receivable – M. Scott 500 Accounts receivable – Pier 10 Marina 500

15. 7. Bank advices: There are times when the bank initiates a change in the bank account of a business. The bank informs the business of such a transaction by means of a bank advice or bank memo. a) Bank debit advice – a bank document informing the business of a decrease made in the business’s bank account. b) Bank credit advice – a bank document informing the business of an increase made in the business’s bank account. a) Bank Charges and Interest$100 Bank$100 b) Bank $50 Bank Charges and Interest $50

16. GAAP – The Cost Principle  The cost principle states that the accounting for _________________ must be at the _________ ___________ to the purchaser  In almost all cases, this is the figure that appears on the source document for the transaction  The value recorded for an asset in the accounts for an asset is not changed later if the market value for the asset changes

17. BAF 3M1 THE JOURNAL & SOURCE DOCUMENTS Chapter 6, Section 6.3

18. Provincial Sales Tax (PST) – 8%  A provincial sales tax, also known as retail sales tax, is a percentage tax based on the __________ of __________ or _____________ ____________ to a customer. The tax is added to the price and paid by the customer.  Did you know...?  PST has been 8% since 1988. It was 3% in 1961.

19. Accounting for Provincial Sales Tax (PST) ONE (1) NEW ACCOUNT IN THE LEDGER!  There is only one liability account in the ledger for PST 1. PST Payable – a liability account used to accumulate the PST amounts charged to customers. It carries a credit balance because it represents PST owed to the government.

20. Accounting for Provincial Sales Tax (PST) 1. Calculate the tax and add it on to the normal price of the goods 2. Collect the tax from the customer 3. Accumulate the sales tax charged to the customers in a special liability account called PST Payable. It is a liability to the seller because it is an amount owed to the government. 4. Remit (send) the accumulated sales tax to the provincial government periodically. (See next slide for more information on remittance)

21. Accounting for Provincial Sales Tax (PST) cont’d Remitting Sales Tax to the Government Definition: Remittance (noun): the sending of money to a recipient at a distance to remove an obligation or debt  Sales tax is to be remitted every month  Sales tax for the month must be remitted by the 15 th of the next month.  For example, May must be remitted by June 15; October must be remitted by November 15

22. Example #1- Cash sale A customer purchased 10 CDs costing $10 each from your store. The total sale amounted to $100 plus 8% PST. a) What is the amount of PST (8%)? b) What is the total revenue figure? c) What is the journal entry for this transaction? ANSWER: a) 0.08 x $100 = $8 b) $100 + $8 = $108 Bank$108 Revenue $100 PST Payable 8

23. Example #2- Sale on account ABC Company purchased a computer for $500 on account from Dell Computers a) What is the amount of PST (8%)? b) What is the total revenue figure? c) What is the journal entry for this transaction (assume you’re the accountant for Dell Computers)? ANSWER a) 0.08 x 500 = $40 b) $500 + $40 = $540 Accounts receivable $540 Revenue $500 PST Payable 40

24. Example – Remitting PST Assume that a total of $1000 was recorded in the PST Payable account for the month of February. March 15PST Payable$1000 Bank $1000  The payment will clear the February balance in the PST Payable account, while sales tax items for March accumulates in the account.

25. BAF 3M1 THE JOURNAL & SOURCE DOCUMENTS Chapter 6, Section 6.4

26. A Summary: Accounting for Tax PSTGST 1.PST Payable (Sales) 1. 2.

27. Goods and Services Tax (GST)- 5%  A tax on the sale of most goods and services.  All businesses with annual revenues over $30,000 are required to register for a GST number for remittance purposes. Did you know...? On July 1, 2010, Ontario plans to combine both the provincial and federal sales tax (HST) on products/services - gasoline, electricity, haircuts, gym memberships, newspaper/magazines, taxi fares, professional law and accounting services The finance ministry says the single sales tax would reduce the cost of goods that Ontario exports, making the province more competitive and boosting a sector of the economy that has been particularly hard hit by the economic downturn

28. Sales and GST  Calculated the same way as PST  The tax is ____________ to the ______________ ____________, ______________ from the customer, and ______________ to the government  GST is remitted to the government on a ____________, _______________ or ____________ basis

29. Purchases and GST  All businesses are entitled to recover the GST that they are charged by their suppliers. They _________ ______ _________ to their _________________ but can later ____________ this tax __________ the __________________

30. Accounting for Government Sales Tax (GST) TWO (2) NEW ACCOUNTS IN THE LEDGER!  There are two liability accounts in the ledger for GST (unlike PST which only has one account). 1. GST Payable – a liability account used to accumulate the GST amounts charged to customers. It carries a credit balance because it represents GST owed to the government. 2. GST Recoverable – a contra liability account used to accumulate the GST paid by the business. It carries a debit balance because it is deducted from GST Payable.

31. GST Refund or GST Remittance  If the dollar amount in the GST Payable account is less than the dollar amount in the GST Recoverable account, then the business will claim a refund. GST Payable < GST Recoverable = REFUND  If the dollar amount in the GST Payable account is greater than the dollar amount in the GST Recoverable account, then the business will have to remit (send) that difference to the government GST Payable > GST Recoverable = REMIT

32. Example #1 – Sales and GST Custodial Services performed cleaning and maintenance services to ABC Company, $1000 on account, plus PST and GST. a) What is the journal entry for this transaction? Accounts receivable$1130 (1000 + 80 +50) Revenue $1000 PST Payable 80 (0.08 x $1000) GST Payable 50 (0.05 x $1000)

33. Example #2 – Purchases and GST Custodial Services purchased equipment for $500, $40 PST and $25 GST, on account from DEF Suppliers. (Note: Custodial Services is not entitled to recover PST, so it becomes part of the total cost. However, it is entitled to recover GST) a) What is the journal entry for this transaction? Equipment $540 GST Recoverable 25 Accounts payable $565

34. Example #3 – Remitting GST On March 20, the balance in the GST Payable account is $1000, and the balance in the GST Recoverable account is $500. March 20GST Payable$1000 GST Recoverable $500 Bank 500  The journal entry clears out the balance in the two GST accounts and records the payment of cash.

35. A Summary: Accounting for Tax PSTGST 1.PST Payable (Sales) 1.GST Payable (Sales) 2. GST Recoverable (Purchases)