CHAPTER SEVEN The General Journal

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Record transactions in a general journal. 2. Use a chart of accounts. 3. Correct errors in the journal. THE GENERAL JOURNAL Objectives:

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-4 The Use of the General Journal The accounting record known as a journal is used to list all the necessary information about a transaction in one place. The journal is known as the book of original entry.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-5 The Use of the General Journal (continued) The process of recording these transactions in the journal is known as journalizing, or recording journal entries. Double-entry accounting is the system of journalizing when each transaction affects at least two accounts.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-6 Journalizing a Business’s Transactions Accounts used in the recording of transactions are taken from a chart of accounts. The chart of accounts lists, by number in chronological order, the accounts determined to be used by the business.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-7 Journalizing a Business’s Transactions (continued) Pencil footings are used at the bottom of the money columns to provide balance of debits and credits. Entries may contain more than one debit and/or credit.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-8 Transaction Record the owner’s investment in the business: Cash, $32,000 Accounts Receivable, $2,000 Office Equipment, $12,000 Delivery Trucks, $60,000 Accounts Payable, $20,000 Capital, $86,000

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-9 Transaction Analysis The assets (debits) and liabilities (credit) and owner’s equity account (credit) are recorded in the journal.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transaction Paid $1800 to Wilson Management for the November rent.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transaction Analysis An increase in expenses decreases owner’s equity (debit Rent Expense). An asset decreases (credit Cash).

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transaction Paid $400 to Kenworth Truck Sales on account.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transaction Analysis A liability decreases (debit Accounts Payable). An asset decreases (credit Cash).

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transaction Paid $150 for gasoline and oil for the trucks.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transaction Analysis An increase in expenses decreases owner’s equity (debit Truck Expense). An asset decreases (credit Cash).

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Accounting Terminology Chart of accounts Chronological order Compound entry Double-entry accounting General journal Journal Journalizing Opening Entry

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary A journal is used to keep a record of the day-to-day financial activities of a business. Some people use “T” accounts to analyze the transactions before entering them into the journal.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) The journal is used to list essential information about each transaction. The journal is called the book or record of original entry. A general journal is a common type of journal.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) A systematically arranged list of a business’s accounts is known as a chart of accounts. The chart of accounts shows account classifications (assets, liabilities, owner’s equity, revenue, and expenses) as well as the name and number of each account.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) A journal entry may contain more than one debit and/or credit. This type of entry is called a compound entry. The totals of the debit and credit columns must be equal no matter how many accounts are used in a transaction.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved “T” accounts may be used in place of journalizing. 2. The journal is known as the record or book of original entry. 3. Revenue and expense accounts are not on the chart of accounts. Topic Quiz Answer the following true/false questions: TRUE FALSE

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Investigating on the Internet Sources of information about general journals can be accessed at the websites of most businesses. As a research assignment, access a business website and report those sources of information that might concern the use of journals in business.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved (Return to Topic Quiz) 1. “T” accounts may be used in place of journalizing. FALSE “T” accounts may be used to analyze a transaction, but the journal must be used to record the financial activity and the accounts affected.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved (Return to Topic Quiz) 3. Revenue and expense accounts are not on the chart of accounts. FALSE All accounts are listed on the chart of accounts.