CHAPTER TEN ACCOUNTING FOR A PROFESSIONAL SERVICE BUSINESS: THE COMBINATION JOURNAL

ACCRUAL BASIS OF ACCOUNTING Offers the best matching of revenues and expenses Required under Generally Accepted Accounting Principles: Important when major businesses want to raise large amounts of money Smaller service organizations often use the Cash or Modified Cash Basis

CASH BASIS OF ACCOUNTING Revenues are recorded when cash is RECEIVED Expenses are recorded when cash is PAID Similar to Accrual Basis if: There are few receivables, payables, and assets Can vary significantly if: Business has many receivables, payables, and assets

CASH BASIS OF ACCOUNTING Since this method records revenues only when the cash is received: There is no Accounts Receivable account

CASH BASIS OF ACCOUNTING Since this method records expenses only when cash is paid: There is no Accounts Payable account

CASH BASIS OF ACCOUNTING All cash spent is recorded as an expense, therefore: There are no Long-term Assets and no Prepaid Assets

ACCRUAL BASIS vs CASH BASIS Let’s look at some transactions and see how they are recorded under each of the methods.

The Accrual Basis would say this is revenue, since services Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 The Accrual Basis would say this is revenue, since services were provided to a client.

But the Cash Basis does NOT recognize the revenue, since Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 But the Cash Basis does NOT recognize the revenue, since cash was not received.

The Accrual Basis considers the payment of wages an expense, Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 The Accrual Basis considers the payment of wages an expense, since services were received.

The Cash Basis also considers the payment of wages an expense, Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 The Cash Basis also considers the payment of wages an expense, since cash was received.

Under the Accrual Basis, revenue would have been recognized Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 Under the Accrual Basis, revenue would have been recognized last month (the month it was earned).

The Cash Basis, however, would recognize the revenue this month Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 The Cash Basis, however, would recognize the revenue this month (the month the cash was received).

Services Received = Expense Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 Accrual Basis says Services Received = Expense

Cash Basis says: No Cash…. No Expense Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 Cash Basis says: No Cash…. No Expense

Accrual Basis would have shown the expense last month Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 Accrual Basis would have shown the expense last month (when advertising occurred).

Cash Basis says: Cash Paid = Expense Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 Cash Basis says: Cash Paid = Expense

Supplies are an asset, not an Expense. Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 Accrual Basis says: Supplies are an asset, not an Expense.

Cash Basis says: Cash spent = Expense Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 $50 Cash Basis says: Cash spent = Expense

Accrual Basis says: Asset consumed = Expense Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 $50 (g) Supplies used during month, $40 $40 Accrual Basis says: Asset consumed = Expense

Cash Basis says: No Cash spent, No Expense. Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 $50 (g) Supplies used during month, $40 $40 Cash Basis says: No Cash spent, No Expense.

Let’s look at the Net Income under each method. Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 $50 (g) Supplies used during month, $40 $40 Let’s look at the Net Income under each method.

$10 $590 $600 Net Income (Loss) Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 $50 (g) Supplies used during month, $40 $40 $590 $600 Net Income (Loss) $10

Net Incomes (Losses) are very different!! Accrual Basis Cash Basis Transaction Expense Revenue Expense Revenue (a) Provided services on account $600 $600 (b) Paid wages $300 $300 $300 (c) Received cash for services performed on account last month $200 Net Incomes (Losses) are very different!! $200 (d) Received cleaning bill for month $250 $250 (e) Paid on account for last month’s advertising $100 $100 (f) Purchase of supplies $50 $50 (g) Supplies used during month, $40 $40 $590 $600 $450 $200 $10 ($250) Net Income (Loss)

MODIFIED CASH BASIS Combines aspects of the Cash and Accrual methods Revenues and Expenses: Cash Basis Except for assets with a useful life > 1 accounting period Recorded as assets (e.g., Prepaid Insurance, Supplies, Equipment, Building, etc.)

MODIFIED CASH BASIS Accounts Long-Term Payable Assets (for asset Unlike the Cash Basis, the Modified Cash Basis uses the following accounts: Accounts Payable (for asset purchases only) Long-Term Assets Prepaid Assets

COMPARISON OF METHODS Revenue example: Performed services for cash

JOURNAL ENTRY COMPARISON Cash Basis would consider MODIFIED CASH BASIS ACCRUAL BASIS Cash Profess. Fees Cash Basis would consider this revenue because cash was received.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Cash Cash Profess. Fees Profess. Fees Modified Cash Basis uses the same criteria for determining revenues…. Cash Received = Revenue

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Cash Cash Cash Profess. Fees Profess. Fees Profess. Fees Accrual Basis records this as a revenue…. Services Performed = Revenue

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Cash Cash Cash Profess. Fees Profess. Fees Profess. Fees SAME ENTRY For all 3 methods

REVENUE EXAMPLE Performed services on account

JOURNAL ENTRY COMPARISON Cash Basis would NOT consider MODIFIED CASH BASIS ACCRUAL BASIS No Entry Cash Basis would NOT consider this revenue because cash was not received.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry Modified Cash Basis also would NOT consider this revenue because cash was not received.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry Accts. Rec. Profess. Fees Accrual Basis DOES consider this revenue. Services Performed = Revenue

EXPENSE EXAMPLE Pay cash for operating expenses (e.g., Wages, Advertising, Rent, Telephone, etc.)

JOURNAL ENTRY COMPARISON Cash Basis would consider MODIFIED CASH BASIS ACCRUAL BASIS Expense Cash Cash Basis would consider this an expense since cash was spent.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Expense Cash Cash Modified Cash Basis would also consider this an expense since cash was spent.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Expense Expense Cash Cash Cash Accrual Basis would also consider this an expense because services were received.

EXPENSE/ASSET EXAMPLE Pay cash for prepaid items (e.g., Insurance, Supplies, etc.)

JOURNAL ENTRY COMPARISON Cash Basis would consider MODIFIED CASH BASIS ACCRUAL BASIS Expense Cash Cash Basis would consider this an expense since cash was spent.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Prepaid Asset Cash Cash Modified Cash Basis: Sets up an asset account for items that will last more than one accounting period.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Prepaid Asset Prepaid Asset Cash Cash Cash Accrual Basis: An asset account is debited for items that will benefit more than one accounting period.

EXPENSE/ASSET EXAMPLE Pay cash for property, plant, and equipment

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Cash Cash Basis would still consider this an expense, causing a large reduction in profits this year.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense PP&E Asset Cash Cash Modified Cash Basis: Follows the Accrual Basis and sets up an asset account for items that will last more than one accounting period.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense PP&E Asset PP&E Asset Cash Cash Cash Accrual Basis records Property, Plant, & Equipment as assets so their cost can be expensed (depreciated) over their useful lives.

EXPENSE/ASSET EXAMPLE Received a bill for services received

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry is made since No Cash was exchanged.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry Modified Cash Basis also would NOT journalize this event. No Cash was received or spent.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry Expense Accts. Payable Accrual Basis records the receipt of services as an expense and the resulting obligation as a liability.

END-OF-PERIOD ADJUSTMENT EXAMPLE Wages earned by employees but not paid

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No entry is made since no cash was exchanged; expense will be recognized when employees are paid.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry Modified Cash Basis also would NOT journalize this event.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No Entry Wages Expense Wages Payable Accrual Basis records the expense at the time it is incurred, not when it is paid. The resulting liability is also recognized.

END-OF-PERIOD ADJUSTMENT EXAMPLE Prepaid items used (e.g., Supplies, Insurance, etc.)

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No entry is made since no cash was exchanged. Expense was recognized when items were purchased.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry Expense Prepaid Asset Modified Cash Basis created an asset when the items were purchased and recognizes the expense when the items are consumed.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry Expense Expense Prepaid Asset Prepaid Asset Accrual Basis also created an asset when the items were purchased and recognizes the expense when the items are consumed.

END-OF-PERIOD ADJUSTMENT EXAMPLE Depreciation on property, plant, and equipment

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No entry is made since no cash was exchanged. Entire purchase price was recognized as an expense when items were purchased.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry Deprec. Exp Accum. Depr. Modified Cash Basis creates an asset when the items were purchased and depreciates them over their useful lives.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry Deprec. Exp Deprec. Exp Accum. Depr. Accum. Depr. Accrual Basis spreads the cost of long-term assets over their useful lives (Depreciation).

OTHER EXAMPLES Purchase of assets on account

JOURNAL ENTRY COMPARISON An expense will be recorded CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry No entry is made since no cash was exchanged. An expense will be recorded when payment is made.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry Asset Accts. Payable Modified Cash Basis sets up the asset and liability accounts.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS No Entry Asset Asset Accts. Payable Accts. Payable Accrual Basis also sets up the asset and liability accounts.

OTHER EXAMPLES Payments for assets purchased on account

JOURNAL ENTRY COMPARISON Cash Basis would consider MODIFIED CASH BASIS ACCRUAL BASIS Expense Cash Cash Basis would consider this an expense since cash was spent.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Accts. Payable Cash Cash Since the Modified Cash Basis had recorded the liability when the item was purchased, it debits the liability when the payment is made.

JOURNAL ENTRY COMPARISON CASH BASIS MODIFIED CASH BASIS ACCRUAL BASIS Expense Accts. Payable Accts. Payable Cash Cash Cash Accrual Basis will record the payment of the liability that was created at the asset’s purchase.

MODIFIED CASH BASIS No Accounts Receivable account, instead: Appointment record, and Client/patient ledger Patient Ledger is used for billing. Revenue is recorded only when Cash is received.

COMBINATION JOURNAL Used instead of a General Journal: Under the Modified Cash Basis Typically used by small professional service businesses Speeds up the journalizing of common transactions Special Columns for Cash Debits and Credits and other frequently used accounts

General columns can record entries COMBINATION JOURNAL General Cash Date Dr. Cr. Description PR Dr. Cr. 1 2 3 4 5 General columns can record entries to all accounts. 6 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL To more efficiently record cash transactions, General Date Dr. Cr. Description PR Dr. Cr. 1 2 3 4 5 To more efficiently record cash transactions, special columns are set up to record debits and credits to the Cash account. 6 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL cont. General Medical Fees Cr. Wages Exp. Dr. Laboratory Exp. Dr. Medical Supp. Dr. Office Supp. Dr. Dr. Cr. 1 2 3 4 5 Special columns for frequently used accounts make up the remainder of the Combination Journal. 6 7 8 9 10 11 12 13 14 15 16 17

Let’s journalize some transactions. COMBINATION JOURNAL General Cash Date Dr. Cr. Description PR Dr. Cr. 1 2 3 4 5 Let’s journalize some transactions. 6 7 8 9 10 11 12 13 14 15 16 17

June 1st Ray Bonita invested COMBINATION JOURNAL Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 2 3 4 5 June 1st Ray Bonita invested $50,000 in the business. 6 7 8 9 10 11 12 13 14 15 16 17

Cash was increased (Debit). COMBINATION JOURNAL Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 2 3 4 5 6 Cash was increased (Debit). 7 8 9 10 11 12 13 14 15 16 17

Capital should be increased also. COMBINATION JOURNAL Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 2 3 4 5 6 Capital should be increased also. (Credit) 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL This Combination Journal does not Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 50,000 2 3 4 5 6 This Combination Journal does not have a special column for the Capital account, so the “General” credit column will be used. 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL When an entry is made to either Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 3 4 5 6 When an entry is made to either of the “General” columns, the account name must be listed in the “Description” area. 7 8 9 10 11 12 13 14 15 16 17

June 2, paid for a one-year COMBINATION JOURNAL Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 4 5 6 June 2, paid for a one-year insurance policy, $6,000. 7 8 9 10 11 12 13 14 15 16 17

June 3, purchased medical COMBINATION JOURNAL Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 5 6 June 3, purchased medical equipment for cash, $22,000. 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL June 4, paid bill for laboratory work, $300. Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 6 June 4, paid bill for laboratory work, $300. 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL cont. Medical Fees Cr. Wages Exp. Dr. General Laboratory Exp. Dr. Medical Supp. Dr. Office Supp. Dr. Dr. Cr. 1 50,000 2 6,000 3 22,000 4 300 5 6 7 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL June 5, purchased office furniture Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 6 7 June 5, purchased office furniture on credit from Bittle’s Furniture, $9,000. 8 9 10 11 12 13 14 15 16 17

No entry is made in the “Cash” columns. COMBINATION JOURNAL Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 6 7 No entry is made in the “Cash” columns. 8 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL Two entries are made in the “General” columns. Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 Office Furniture 9,000 6 Accts. Pay - Bittle’s 9,000 7 8 Two entries are made in the “General” columns. 9 10 11 12 13 14 15 16 17

COMBINATION JOURNAL Once all transactions for the month are Cash General Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 Once all transactions for the month are recorded, all columns are totaled. The sum of the debit columns should equal the sum of the credit columns. 4 4 300 5 5 Office Furniture 9,000 6 Accts. Pay - Bittle’s 9,000 20 25 500 Office Furniture 4,000 21 Accts. Pay - Bittle’s 3,500 22 27 2,500 23 30 7,000 24 30 10,000 R. Bonita, Drawing 10,000 25 75,200 54,030 56,450 62,500 26

COMBINATION JOURNAL cont. Medical Fees Cr. Wages Exp. Dr. Laboratory Exp. Dr. Medical Supp. Dr. Office Supp. Dr. General Dr. Cr. 1 50,000 2 6,000 3 22,000 4 300 5 6 20 4,000 21 3,500 22 2,500 23 7,000 24 10,000 25 56,450 62,500 25,200 8,500 980 450 150 26

COMBINATION JOURNAL Debit columns: Cash $ 75,200 General 56,450 Date Debit columns: Cash $ 75,200 General 56,450 Wages Expense 8,500 Laboratory Exp. 980 Medical Supplies 450 Office Supplies 150 Total Debits $141,730 Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 Office Furniture 9,000 6 Accts. Pay - Bittle’s 9,000 20 25 500 Office Furniture 4,000 21 Accts. Pay - Bittle’s 3,500 22 27 2,500 23 30 7,000 24 30 10,000 R. Bonita, Drawing 10,000 25 75,200 54,030 56,450 62,500 26

COMBINATION JOURNAL Credit columns: Cash $ 54,030 General 62,500 Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 Credit columns: Cash $ 54,030 General 62,500 Medical Fees 25,200 Total Credits $141,730 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 Office Furniture 9,000 6 Accts. Pay - Bittle’s 9,000 20 25 500 Office Furniture 4,000 21 Accts. Pay - Bittle’s 3,500 22 27 2,500 23 30 7,000 24 30 10,000 R. Bonita, Drawing 10,000 25 75,200 54,030 56,450 62,500 26

Combination Journal Balances!!! Debit Columns = Credit Columns General Cash Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 Combination Journal Balances!!! Debit Columns = Credit Columns 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 Office Furniture 9,000 6 Accts. Pay - Bittle’s 9,000 20 25 500 Office Furniture 4,000 21 Accts. Pay - Bittle’s 3,500 22 27 2,500 23 30 7,000 24 30 10,000 R. Bonita, Drawing 10,000 25 75,200 54,030 56,450 62,500 26

COMBINATION JOURNAL cont. Medical Fees Cr. Wages Exp. Dr. Laboratory Exp. Dr. Medical Supp. Dr. Office Supp. Dr. General Dr. Cr. 1 50,000 2 6,000 3 22,000 4 300 5 6 20 4,000 21 3,500 22 2,500 23 7,000 24 10,000 25 56,450 62,500 25,200 8,500 980 450 150 26

COMBINATION JOURNAL Let’s look at posting. General Cash Date Dr. Cr. Description PR Dr. Cr. 1 June 1 50,000 R. Bonita, Capital 50,000 2 2 6,000 Prepaid Insurance 6,000 3 3 22,000 Medical Equipment 22,000 4 4 300 5 5 Let’s look at posting. Office Furniture 9,000 6 Accts. Pay - Bittle’s 9,000 20 25 500 Office Furniture 4,000 21 Accts. Pay - Bittle’s 3,500 22 27 2,500 23 30 7,000 24 30 10,000 R. Bonita, Drawing 10,000 25 75,200 54,030 56,450 62,500 26

POSTING THE GENERAL COLUMNS Accounts debited or credited in the general columns are posted individually throughout the month. In the same manner as posting from the General Journal “CJ” for Combination Journal and the page number are entered in the PR column of the ledger account. Account Numbers are entered into the journal’s PR column.

POSTING THE SPECIAL COLUMNS Post the TOTALS of the special columns to the appropriate general ledger accounts. This saves time and reduces the potential for errors. “CJ” and page number are recorded in the account’s PR column. Account number is entered in parentheses on the journal below the column total.

END-OF-PERIOD The Modified Cash Basis work sheet is prepared in the same manner as an Accrual work sheet. Financial Statements are also prepared in the same manner. Adjusting and closing entries are made in the combination journal and posted to the ledger.