Accounting 3 Chapter 18 Section 4

General Journal  For corporations, general journals are used to record any information that will not go into any of the special journals.  This usually includes any transactions involving memorandums.

Example of General Journal General Journal Page ___ DateAccount Title Post Ref. Doc. No. DebitCredit

Purchases Returns and Allowances  When customers do not want to keep merchandise that is inferior or damaged, they may be allowed to return it. This credit is called a Purchases Return.  When customers’ merchandise is damaged but still usable, they may be allowed a credit off of what is owed for that merchandise. This credit is called a Purchases Allowance.

Debit Memorandums  A Debit Memorandum is a form prepared by the customer showing the price deduction taken by the customer for returns and allowances.  It is called a debit memorandum because the customer records the amount as a debit (deduction) to the vendor account to show the decrease in the amount owed.

Example of Debit Memorandum Debit Memorandum 78 Date: _______________ Winning Edge, Inc College Plaza Atlanta, GA To: Second Round, Inc. 162 Webster Road Miami, FL Account Number: 280 Quantity Units Description Price Total 22Dz Grade 2 driving range golf balls, your invoice number 16724, are being returned by mail. Our order specified grade 3 golf balls. March 8, 2007

Journalizing Purchases Returns and Allowances  Purchases returns and allowances decrease the amount of purchases. Therefore, Purchases Returns and Allowances is a contra account (an account that reduces a related account on a financial statement) to Purchases.  Purchases Returns and Allowances has a normal credit balance.  Example transaction and visual steps on next slide.

March 8. Returned merchandise to Second Round, Inc., $143.00, covering Purchase Invoice No Debit Memorandum No. 78. General Journal Page ___ DateAccount Title Post Ref. Doc. No. DebitCredit 3 Mar 8Accounts Pay/ Second Round, Inc.DM Purchases Ret. and Allowances Both the Accounts Payable and Second Round, Inc. accounts must be debited for this transaction. Rather than taking up two lines for the accounts debited (and also un- balancing the accounting equation), Accounts Payable and Second Round, Inc. must be written on the same line. The second line of any entry in the general journal needs to be indented.

Journalizing Buying Supplies on Account  This is handled just like supplies has always been except that Accounts Payable and the vendor account name must be on the credit line of the entry.  Example Transaction: March 9. Bought supplies on account from Winter Supplies, $ Memorandum No. 26.  Visual steps on next slide.

General Journal Page ___ DateAccount Title Post Ref. Doc. No. DebitCredit 3 Mar 9 Supplies M Accounts Pay/ Winter Supplies

Posting from a General Journal  Posting must be done individually to all accounts involved in each entry.  Most accounts will be in the general ledger. However, vendor accounts are in the Accounts Payable ledger.  The posting reference for the general journal is a G along with the page number.  On the lines which use two accounts, both account numbers must be included in the posting reference column of the general journal. Ex.  Posting will be demonstrated in the Work Together problem

Work Together p. 475 General Journal Page ___ DateAccount Title Post Ref. Doc. No. DebitCredit 3 Mar 3 Accounts Pay/ Trainor Company DM Purchases Ret. and Allowances Supplies M Accounts Pay/ Hughes Supply Store Equipment M Accts Pay/ Retail Displays, Inc To see the postings, click on the posting reference numbers which are hyperlinked. Assignment

Account Acct No. DateItem Post Ref DebitCredit BALANCE DEBITCREDIT Account Acct No. DateItem Post Ref DebitCredit BALANCE DEBITCREDIT General Ledger Supplies 1140 Store Equipment 1215 Mar 1 Balance G Mar 1 Balance G

Account Acct No. DateItem Post Ref DebitCredit BALANCE DEBITCREDIT Account Acct No. DateItem Post Ref DebitCredit BALANCE DEBITCREDIT General Ledger Accounts Payable 2115 Mar 1 Balance G G G Purchases Returns and Allowances5115 Mar 1 Balance G

AccountAcct No. DateItem Post Ref DebitCredit Balance AccountAcct No. DateItem Post Ref DebitCredit Balance Accounts Payable Ledger Hughes Supply 420 Mar 1 Balance G Retail Displays, Inc.430 Mar 1 Balance G

AccountAcct No. DateItem Post Ref DebitCredit Balance Accounts Payable Ledger Trainor Company 450 Mar 1 Balance G

Assignment  Do Application 18-5 by hand.  Turn it into Mrs. Middleton.  Complete Master 18-7 on the computer.  Follow instructions from Browser window.  Print all journals and ledgers used.  Turn into Mrs. Middleton.  Move on to Chapter 19 Section 1.