1. The Journal and Source Documents
Chapter 6
The Journal and Source Documents

2. The Journal
The Journal is the book where all transactions are first entered
The Journal is arrange in date order and contains the information arranged by transaction compared to the ledger where it is arranged by account
This allows you to find all the details about one transaction easily

3. Steps for Journalizing
Record the Date
You only need to record the year or date if it is a new year or date or if it is the start of a new page
Enter the names of the accounts to be debited and enter the amounts in the debit column
Enter the names of the accounts to be credited (indent these accounts) and enter the amounts in the credit column
Write a short explanation of the transaction
Leave a blank line between transactions

4. Sample

5. Source Documents
Source documents are the business papers that provide information on the nature of the transaction and other details
These source documents are then filed and retained

6. Cash Sales Slip
Used when goods or services are sold to a customer for cash
Journal Entry
Bank $40
Sales $40
Cash Sale

7. Sales Invoice Used when goods or services are sold on account
Journal Entry
A/R? $500
Sales $500
Sale on account

8. Point of Sale Summary
Used to record a number of sales at a cash register
Journal Entry
Bank $350
Sales $350
Point of Sale Summary

9. Purchase Invoice Used to record a purchase made on account
Can be used to purchase an expense or an asset
Journal Entry
Advertising Expense $500
A/P? $500
Purchased ad in local paper

10. Cheque Copies Used to record a cash payment Usually to pay an A/P
Must be a copy since the original goes to the supplier
Journal Entry
A/P? $600
Bank $600
Paid A/P

11. Cash Receipts
Used to record the receipt of cash sometimes from more than one customer
Journal Entry
Bank $400
A/R? $300
A/R? $100
Received cash on account

12. Bank Advices or Memos
Used by your bank to inform you of changes to your account
A debit advice means you credit Bank
A credit advice means you debit Bank
Journal Entry (Debit Advice)
Bank Charges Expense $15
Bank $15
Bank Charges

13. Federal and Provincial Sales Taxes
Provincial Sales Tax – PST
Federal Sales Tax – GST (Goods & Services Tax)
There are some differences when accounting for these taxes

14. Provincial and Federal Tax Rates (2006)
PST
BC – 7%
AB – 0%
SK – 7%
MB – 7%
ON – 8%
QC – 7.5%
PE – 10%
YK, NT, NU – 0%
HST (Harmonized Sales Tax)
(combined PST and GST)
NB – 14%
NS – 14%
NL – 14%
GST (Goods & Services Tax)
6% as of July

15. Provincial Sales Tax A percentage tax on goods sold to a customer
Collected by the retailer
Varies from province to province

16. Accounting by the Purchaser
The purchaser makes no special accounting entry for PST
The PST is included in the cost of the item

17. Accounting by the Vendor (Seller)
The vender calculates the tax and adds it to the price of the items
Collects the tax from the customer
Accumulates the sales tax charged in a liability called PST Payable
Remits the tax to the government periodically

18. Journal Entries by the Vendor
Bank $107
Sales $100
PST Payable $7
Cash sale
A/R? $214
Sales $200
PST Payable $14
Sale on Account

19. Remitting the Tax If the PST Payable is $21 credit Journal Entry
Bank $21
Remitted Sales Tax
Note that sometimes the vendor must pay the government before they receive the cash from the customer

20. Goods and Services Tax
The GST is charged on both goods and services unlike the PST which is usually just charged on goods
The GST replaced a manufacturers tax and was recently reduced to 6%
GST is only paid by the end customer

21. GST Accounting by the Customer
Unlike PST the business customer also accounts for the GST
The GST paid by a business customer is recorded in an account called GST Recoverable and is used to reduce the GST paid by the business

22. Journal Entry by Customer
Office Supplies $100
GST Recoverable $6
Bank $106
Purchased Office Supplies for Cash

23. GST Accounting by the Vendor
The Vendor calculates the tax and adds it to the price
Collects the tax from the customer
Accumulates the tax in an account called GST Payable
Remits the tax to the Government periodically (after reducing it by the GST Recoverable)

24. Journal Entry Vendor
Bank $318
Sales $300
GST Payable $18
Cash sale

25. Remitting the GST
If the GST Payable is a $18 credit and the GST Recoverable is $6 debit the business only pays the government $12
Journal Entry
GST Payable $18
GST Recoverable $6
Bank $12
Remitting the GST

26. GST on the Balance Sheet
If shows up on the Balance Sheet in the Liabilities but note that the GST Recoverable is a debit and reduces the GST Payable
Accounts Payable $400
GST Payable $18
Less GST Recoverable $ $12
Bank Loan $1000