1. Welcome Back
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2. Welcome Back
Time for Any Question
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4. CHAPTER # 03
REVIEW
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5. Analyzing Business Transactions Using T Accounts
Chapter 03
Analyzing Business Transactions Using T Accounts
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6. The Accounting Equation
ASSETS
The property a
business owns
LIABILITIES
The debts of
the business = +
OWNER’S
EQUITY
The owner’s financial
interest in the business
The accounting equation is one tool for analyzing the effects of business transactions. However, businesses do not record transactions in equation form. Instead, businesses establish separate records, called accounts for assets, liabilities, and owner’s equity. Accounts are written records of the assets, liabilities, and owner’s equity of a business. Use of accounts helps owners and staff analyze, classify, record, summarize, and report financial information.
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7. Set up T accounts for assets, liabilities and owner’s equity= +
ASSETS
+ Record
Increases LEFT SIDE -
Record
Decreases
RIGHT SIDE
LIABILITIES
LEFT SIDE
Increases RIGHT SIDE
OWNER’S EQUITY
Objective one is to set up T-accounts for assets, liabilities, and owner’s equity accounts. Accountants use T accounts to analyze transactions. A T-account consists of a vertical line and a horizontal line that resembles the letter T. T- accounts are helpful when analyzing transactions.
Above are examples of T accounts for assets, liabilities, and owner’s equity. Using T accounts simplifies recordkeeping by grouping all transactions of a particular type together. Note that Assets are on the left side of the accounting equation, to increase any asset account you have to record the $ amount on the left side of the T account. Since Liabilities and Owner’s Capital are on the right side of the accounting equation, to increase those accounts you would record the $ amount on the right side of the T account.
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8. Determine the balance of an account
An account balance is the difference between the amounts recorded on the two sides of an account.
A footing is a small pencil figure written at the base of an amount column showing the sum of the entries in the column.
Objective three shows us how to determine the balance of a T account. An account balance is the difference between the amounts recorded on the two sides of an account. It can be computed at any time.
When we “foot” a column, this means to add down and write the total at the bottom of the column. Subtract the smaller of the two totals from the larger of the two totals– the result is the account balance.
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9. Recording Account Balances IF
THEN
the total on the right side is larger than the total on the left side,
the balance is recorded on the right side.
the total on the left side is larger,
the balance is recorded on the left side.
an account shows only one amount,
that amount is the balance.
When we determine the balance of an account, we add both sides of the T account and then subtract the smaller side from the larger side. The difference is the “balance” of the account.
Calculating account balances simply means adding up or “footing” the total of both sides of the T-account. Use footings for columns that have more than one entry. Then subtract the smaller total from the larger total. The result is the account balance. You will see a demonstration of this in the next slide.
This table shows the possible balance alternatives that could exist in an account.
an account contains entries on only one side,
the total of those entries is the account balance.
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10. Computing the Account Balance
Cash
100,000
(b) 5,000
(d) 1,500
(e) 2,500
(f) 8,000
17,000
Footing
Bal. 83,000
To determine the balance of the Cash account, we would add (foot) the total of the right side, which equal $17,000. Since this side is smaller than the left side, we would subtract the $17,000 from the larger $100,000 left side. The difference is a left side balance of $83,000 in the Cash account.
(100,000 – 17,000)
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11. Summary of Account Balances
ASSETS = LIABILITIES OWNER’S EQUITY
Cash Accounts Payable Carolyn Wells, Capital
(a) 100,000 (b) 5, ( e) 2, (c) 6, (b) 100,000
(d) 1, Bal. 3,500
(e) 2,500
(f) ,000
Bal. 83, ,000
Supplies
SUMMARY OF ACCOUNT BALANCES
(d) 1,500
ASSETS = LIABILITIES + OWNER’S EQUITY
Prepaid Rent , , ,000
1,500
(f) 8, ,000
11,000
Equipment
103, = , ,000
(b) 5,000
(c) 6,000
Bal. 11,000
Account balances for Carter Consulting Services
Here is a visual presentation of the T accounts and their balances at the end of the month. Notice that the total of all the asset account balances equal the total of the liabilities and owner’s equity. $103,500 = $103,500. As you look at this slide, notice which side of the account the balance is on. All accounts have a “normal” balance. This is the side that receives the increase.
You will notice that assets have a normal left side balance, or debit. Liabilities have a normal right side balance, or credit. And the owner’s equity account, specifically capital, has a normal right side or credit balance. It’s important to recognize that all accounts have “normal balances.”
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12. T-Account for Revenue Revenues increase owner’s equity.
Decrease
Side _
Increase
Side +
Decrease
Side _
Increase
Side +
Revenues increase owner’s equity.
Increases in owner’s equity appear on the right side of the T account.
Therefore, increases in revenue appear on the right side of revenue T accounts.
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13. Revenue
Decrease
Side _
Increase
Side +
The right side of the revenue account shows increases and the left side shows decreases.
Decreases in revenue accounts are rare but might occur because of corrections or transfers.
To increase a revenue account, we would credit the account. If we would want to decrease the account we would do the opposite, so we would debit the account.
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14. Expenses Owner’s Equity _ + Expense Revenue + _ _ +
Decrease Side _
Increase Side +
Expense
Revenue
Increase Side +
Decrease Side _
Decrease Side _
Increase Side +
As the business incurs expenses it causes total owner’s equity to go down. Remember, since owner’s equity is on the right side of the accounting equation, to decrease total owner’s equity, we need to record the entry on the left side of the Expenses T account.
Expenses decrease owner’s equity.
Decreases in owner’s equity appear on the left side of the T accounts.
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15. Owner’s Withdrawals Owner’s Equity _ + Expense Revenue + _ _ +
Decrease
Side _
Increase
Side +
Expense
Revenue
Increase
Side +
Decrease
Side _
Decrease
Side _
Increase
Side +
Owner Drawing
Increase
Side +
Decrease
Side _
Recall that drawings are not expenses of the business but part of the owner’s financial investment which he/she is pulling out of the business for personal use. A drawing account is a special type of owner’s equity account set up to record the owner’s withdrawal of cash (or other assets) from the business.
As the owner withdraws resources for personal use, it causes total owner’s equity to go down. Remember, since owner’s equity is on the right side of the accounting equation, to decrease total owner’s equity we need to record the entry on the left side of the Drawing T account. The Drawing account acts like an expense account – it is increased with a debit and thus it DECREASES owner’s equity.
Drawing decreases owner’s equity.
Decreases in owner’s equity appear on the left side of the T accounts.
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16. The Rules of Debit and Credit
A debit is an entry on the left side of an account.
A credit is an entry on the right side of an account.
A double-entry system is an accounting system that involves recording the effects of each transaction as debits and credits in separate accounts.
Every transaction in a Double entry accounting system has at least one debit and one credit.
The total of the debits and credits recorded in the separate accounts must be EQUAL.
We have been mentioning debit (left) as we discuss T accounts. Have you noticed this? Debit just means left side of the T account. Credit means right side of the T account.
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17. Any Account DEBIT SIDE CREDIT SIDE
Left Side
Right Side
Accountants refer to the left side of an account as the debit side instead of saying the left side.
The right side of the account is called the credit side.
We will be using the terms Debit and Credit from now on to describe how a transaction affects an account.
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18. Rules for Debits and Credits
Here are the rules for all asset, liability and owner’s equity accounts. It is important that you study this slide and refer to it often when studying. These are fundamental rules for accounting students to learn.
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19. Prepare a trial balance from T accounts
Use the proper heading to include who, what, and when information.
List the accounts in chart of account order or in the same order as they appear in the financial statement.
Enter the ending balance of each account in the appropriate Debit or Credit column.
Total the Debit column.
Total the Credit column.
Compare the column totals. They should be equal.
Our fifth objective is to prepare a trial balance using the balances in our T accounts. A trial balance is a report to test the accuracy of total debits and credits after transactions have been recorded. A Trial Balance just tells us whether total debits equal total credits. You can review the six steps shown.
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20. The Trial Balance
This is what a Trial balance looks like. Notice that total debits equal total credits.
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21. Errors Some common errors in a trial balance are:
Adding trial balance columns incorrectly
Recording only half a transaction – for example, recording a debit but not recording a credit, or vice versa
Recording both halves of a transaction as debits or credits rather than recording one debit and one credit
Recording the incorrect amount for a transaction
Recording a debit for one amount and a credit for a different amount
Mathematical errors in calculating account balances
Forgetting to carry over an account balance to the Trial Balance
Sometimes our trial balance does not balance. Review the common errors in a trial balance. If you discover that your trial balance has an error, you can try re-footing it to check for math errors. You should insure that the correct balances from the account were transferred over to the correct debit or credit balance. (If you know what “normal balances” are, this will assist you in locating errors.) You can look to see if a transposition error or slide error occurred. Sometimes just double checking your work will disclose the error. Refer to the textbook section on “Finding Trial Balance errors” for more guidance on this topic.
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22. Prepare an income statement, a statement of owner’s equity, and a balance sheet
After the trial balance is prepared, the financial statements are prepared.
Net income from the income statement is used on the statement of owner’s equity.
The ending balance of the Carolyn Wells, Capital account, computed on the statement of owner’s equity, is used on the balance sheet.
Objective 6 shows us how to use the trial balance to create our financial statements. We use the information from our trial balance to prepare our financial statements.
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23. Wells’ CONSULTING SERVICES
Income Statement
Month Ended December 31, 2016
Revenue
Fees Income ,000.00
Expenses
Salaries Expense 8,000.00
Utilities Expense
Total Expenses ,650.00
Net Income ,350.00
Wells’ CONSULTING SERVICES
Statement Of Owner’s Equity
Month Ended December 31, 2016
Carolyn Wells, Capital, Dec. 1, ,000.00
Net Income for December ,350.00
Less Withdrawals for December ,000.00
Increase in Capital ,350.00
Carolyn Wells, Capital, Dec. 31, ,350.00
Wells’ CONSULTING SERVICES
Balance Sheet
December 31, 2016
ASSETS LIABILITIES
Cash , Accounts Payable ,500.00
Accounts Receivable ,000.00
Supplies ,500.00
Prepaid Rent , OWNER’S EQUITY
Equipment , Carolyn Wells, Capital ,350.00
Total Assets , Total Liabilities and Owner’s Equity ,850.00
Once the income statement is finished you can do the statement of owner’s equity and use the ending balance of the Carolyn Wells, Capital account to complete the balance sheet.
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24. Develop a chart of accounts
Each account has a number and a name.
The Balance Sheet accounts are listed first, followed by the Statement of Owner’s Equity accounts, ending with the income statement accounts.
The account number is assigned based on the type of account.
Each account should have a number assigned to its title (name)
Balance Sheet accounts are listed before income statement accounts.
Our last objective is to develop a chart of accounts. This is simply a list of all of the accounts that you use to do the record keeping in your business. Account numbers give more meaning to the chart of accounts. See an example of a numbering system for a chart of accounts on the next page.
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25. Accounts that begin with a 1 are assets
Accounts that begin with a 1 are assets. Numbers that begin with a 2 are liabilities, etc. Notice that spaces between account numbers allow you to ADD new accounts or make other changes to your chart of accounts as time passes.
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26. Permanent and Temporary Accounts
A permanent account is an account that is kept open from one accounting period to the next.
A temporary account is an account whose balance is transferred to another account at the end of an accounting period. A temporary account is “zeroed out” at the end of the accounting period.
Let’s now introduce the concept of permanent and temporary accounts before we end this chapter. Permanent accounts continue to exist from one accounting period to the next. Assets, liabilities and the owner’s capital account are permanent accounts. Another name for permanent accounts is REAL accounts.
Temporary accounts only have a balance for one accounting period. Their balance is not carried over to the next accounting period. Examples of temporary accounts are revenues, expenses, and drawing. Another name for temporary accounts is NOMINAL accounts.
We have covered many important rules in accounting. You may wish to review this chapter one more time before continuing on with the next one.
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27. The General Journal and
Chapter 04
The General Journal and
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28. The General Journal and General Ledger
Chapter 04
The General Journal and General Ledger
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29. The General Journal and the General Ledger
Section 1: The General Journal
Section Objectives
4-1 Record transactions in the general journal.
4-2 Prepare compound journal entries.
Chapter 3 explained T accounts and the trial balance, and their usefulness in the preparation of financial statements. Chapter 4 introduces the general journal, the general ledger, and shows how to use both. In the real world, transactions are not recorded using the accounting equation, nor are they recorded using T accounts. Instead, businesses use a Journal to record business transactions. The first objective of this chapter introduces the general journal.
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30. The Accounting Cycle Step 2 Journalize the data about transactions
Step 2 Journalize transactions
Step 3 Post transactions to the ledger
Step 1 Analyze and classify transactions
Step 1 Analyze transactions
Step 4 Prepare a worksheet
Step 5 Prepare financial statements
Step 9 Evaluate and communicate financial information
Step Journnalize adjusting entries
Here are the steps in the accounting cycle. The accounting cycle is a series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information.
Take a moment to review the steps. Let’s take a look at these steps in more detail.
Step 7 Journalize closing entries
Step 8 Prepare a postclosing trial balance
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31. Journal A journal is a diary of business activities.
Record transactions in the general journal
Journal
A journal is a diary of business activities.
There are different types of accounting journals.
Transactions are entered in the journal in chronological order.
Our first objective is to learn how to record financial transactions in the general journal.
A journal is a book of original entry. Just like in school when you kept a “diary” or “journal” of your activities, a business or accounting journal does the same thing. The journal keeps a record of the financial events (transactions) in the order that they occurred. We call this chronological order.
Journalizing means to “record” transactions in the journal. A business event (transaction) that has been recorded in the journal is called a journal entry.
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32. GENERAL JOURNAL PAGE 1 Enter the account to be debited.
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov. 6
Cash
100,000.00
Carolyn Wells, Capital
100,000.00
Enter the account to be debited.
Enter the amount on the same line in the Debit column.
Take a look at a journal entry. Carolyn Wells, Owner, invested $100,000 cash into the business on November 6. Let’s look at each part of the journal entry. First you should enter the year and the date of the transaction, then enter the name of the account debited flush against the line, then place the dollar amount in the debit column. Next drop down a line and indent ¼ to ½ inch and write the name of the account credited. Place the dollar amount of the credit in the credit column.
Enter the account to be credited.
Enter the amount on the same line in the Credit column.
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33. GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov
Cash ,000.00
Carolyn Wells, Capital ,000.00
Investment by owner
, Memo 01
Then enter a complete but concise description of the transaction.
Once the transaction has been journalized, we need to indent a little and add an explanation of the event. The audit trail is a chain of references that make it possible to trace information, locate errors, and prevent fraud. This is an important part of each journal entry.
Whenever possible, the journal entry should refer to the source of the information.
Document numbers are part of the audit trail.
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34. Recording a Business Transaction
1. Analyze the financial event.
Identify the accounts affected.
Classify the accounts affected.
Determine the amount of increase or decrease for each account affected.
2. Apply the rules of debit and credit.
Which account is debited? For what amount?
Which account is credited? For what amount?
Here are the steps to take to record a journal entry.
3. Make the entry in T-account form.
4. Record the complete entry in general journal form.
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35. Cash Investment by Owner
On November 6 Carolyn Wells withdrew $100,000 from personal savings and deposited it in a new business checking account for Wells’ Consulting Services.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov. 6
Cash ,000.00
Carolyn Wells, Capital ,000.00
Investment by owner
Previously we discussed the steps for journalizing. The starting point for any company is getting money into the company. Let’s journalize this initial investment by the owner in the general journal. We need to Debit Cash for $100,000 and Credit Carolyn Wells, Capital for the same amount. (This is the same entry that was used to describe the specific steps earlier.)
Here is the general journal entry.
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36. Cash Purchase of Equipment
On November 7 Wells’ Consulting Services issued Check 1001 for $5,000 to purchase a computer and other equipment.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Nov
Equipment ,000.00
Cash ,000.00
Purchased equip., Check 1001
On November 7 Wells’ Consulting Services issued Check 1001 for $5,000 to purchase a computer and other equipment. Equipment needs to be debited for $5,000 and Cash needs to be credited for $5,000.
Here is the general journal.
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37. Purchase of Equipment on Credit
On November 10, Wells’ Consulting Services purchased office equipment on account for $6,000.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Nov. 10
Equipment ,000.00
Accounts Payable ,000.00
Purchased equipment on account from Office Plus, Inv. 2223, due in 60 days
Remember when we previously analyzed this transaction, we decided that we would debit Equipment for $6,000 and credit Accounts Payable for the same amount.
Here is the journal entry. Remember to include all important information in the explanation. This improves the audit trail.
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38. Cash Purchase of Supplies
On November 28, Wells’ Consulting Services purchased supplies for $1,500, Check 1002.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Nov. 28
Supplies ,500.00
Cash ,500.00
Purchased supplies, Ck. 1002
Next, Wells’ Consulting Services purchased supplies for $1,500 cash, so we need to debit Supplies for $1,500 and credit Cash for the same amount.
Here is the general journal entry for the transaction.
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39. Payment to a Creditor
On November 30, Wells’ Consulting Services paid Office Plus $2,500 in partial payment of Invoice 2223, Check 1003.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Nov. 30
Accounts Payable ,500.00
Cash ,500.00
Paid on account, Office Plus,
Invoice 2223, Check 1003
Now let’s look at a partial payment on account to a supplier. On November 30 Wells’ Consulting Services paid Office Plus $2,500 in partial payment of Invoice 2223, Check When the business pays part of its bill for the equipment purchased earlier, it would debit Accounts Payable and credit Cash for $2,500.
Remember, in the general journal, always enter debits before credits.
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40. Recording a prepayment of rent
On November 30, Wells’ Consulting Services wrote Check 1004 for $8,000 to prepay rent for December and January.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Nov. 30
Prepaid Rent ,000.00
Cash ,000.00
Paid Dec. and Jan. rent in advance; Check 1004
On November 30, Wells’ Consulting Services wrote Check 1004 for $8,000 to prepay rent for December and January. When the business pays for two months rent in advance, it debits Prepaid Rent for $8,000 and credits Cash for $8,000. Note that both accounts affected are assets.
Here is the general journal entry.
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41. Services performed for cash
Wells’ Consulting performed services for $36,000 in cash.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Dec. 31
Cash ,000.00
Performed services for cash
Fees Income ,000.00
Let’s take a look at how transactions affecting revenues and expenses will be recorded in the journal. Let’s look a transaction where the business performed services for $36,000 in cash. When the business performs consulting services and gets paid immediately, Wells’ Consulting will debit Cash for $36,000 and credit Fees Income for the same amount.
Here is the general journal entry.
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42. Performed services on account
Wells’ Consulting performed services on account for $11,000.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Dec
Accounts Receivable ,000.00
Fees Income ,000.00
Performed services on credit
Next, let’s assume that the firm performed services for $11,000 on account. Remember that we record the revenue as earned even though we haven’t yet received the cash. When the firm performs services for credit clients, it will debit Accounts Receivable and credit Fees Income for $11,000.
Here is the general journal entry on the 31st.
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43. Received Cash From Credit Clients
Received $6,000 in cash from a credit client on account.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Dec
Cash ,000.00
Accounts Receivable ,000.00
Received cash from credit clients on account
Now let’s see how we would record the collection of cash for an amount previously billed. When the firm collects $6,000 from credit customers, it needs to debit Cash and credit Accounts Receivable.
Here is the general journal entry.
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44. Paid Salaries Paid $8,000 for salaries. GENERAL JOURNAL PAGE 2
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Dec
Salaries Expense ,000.00
Cash ,000.00
Paid monthly salaries to employees, Checks
It’s time to review how we would record transactions involving expenses. Our focus will be on journalizing the transaction. When the business pays $8,000 in salaries to its employees, they would debit Salaries Expense for $8,000 and credit Cash for the same amount.
Here is the general journal entry.
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45. Paid Utility Bill
Wells’ consulting paid $650 in cash for a utility bill.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Dec
Utilities Expense
Cash
Paid monthly bill for utilities, Check 1007
When the business pays a utility bill of $650, it will debit Utilities Expense and credit Cash for the $650 as shown in the general journal entry.
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46. Owner’s Withdrawal
The owner, Carolyn Wells, withdrew $5,000 from the company.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Dec
Carolyn Wells, Drawing ,000.00
Cash ,000.00
Owner withdrew cash for personal expenses, Check 1008
When the owner withdraws $5,000 for personal use, the accountant will debit the Carolyn Wells, Drawing account and credit the Cash account for the $5,000 withdrawal as shown. Remember that the drawing account is an equity account; not an expense.
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47. The General Journal and the General Ledger
Chapter 4
The General Journal and the General Ledger
Section 2: The General Ledger
Section Objectives
4-3 Post journal entries to general ledger accounts.
4-4 Correct errors made in the journal or ledger.
The third objective of this chapter shows us how to post journal entries into accounts in the general ledger.
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48. Ledgers The ledger contains a separate form for each account.
The third step of the accounting cycle is posting to the ledger.
The process of transferring data from the journal to the ledger is known as posting.
We learned how to journalize in our previous section—that was the second step in the accounting cycle, now let’s learn the third step in our accounting cycle: posting to ledgers. A ledger is the record of final entry. It is the last place that accounting transactions are recorded.
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49. Posting What is posting?
QUESTION:
What is posting?
Posting is the process of transferring data from a journal to a ledger.
ANSWER:
When we transfer data from the general journal to the ledger, this is called “posting”. It’s important that we keep a ledger so that we know at all times the cumulative balances in all of the accounts. T accounts represent the accounts in our ledger. All of our journal entries will update accounts in the ledger. A general ledger is a permanent, classified record of all accounts used in a firm’s operation. The general ledger is the master reference file for the business.
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50. The Accounting Cycle Step 2 Journalize the data about transactions
Step 2 Journalize transactions
Step 3 Post transactions to the ledger
Step 1 Analyze and classify transactions
Step 1 Analyze transactions
Step 4 Prepare a worksheet
Step 5 Prepare financial statements
Step 9 Evaluate and communicate financial information
Step Journnalize adjusting entries
Here are the steps in the accounting cycle. The accounting cycle is a series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information.
Take a moment to review the steps. Let’s take a look at these steps in more detail.
Step 7 Journalize closing entries
Step 8 Prepare a postclosing trial balance
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51. Ledger Account Forms
On the ledger account form shown below, notice the:
Account name and number
Columns for date, description, and posting reference
Columns for debit, credit, debit balance, and credit balance
ACCOUNT CASH ACCOUNT NO
POST BALANCE
DATE DESCRIPTION REF DEBIT CREDIT DEBIT CREDIT
2016
Nov J1 100, ,000.00
The general ledger looks a lot like the general journal but it has two additional BALANCE columns. We will now post our general journal entries to the general ledger.
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52. Five Steps for Posting Post journal entries to general ledger accounts
On the ledger form, enter the date of the transaction. Enter a description of the entry, if necessary. Usually, routine entries do not require descriptions.
On the ledger form, enter the general journal page in the Posting Reference column.
On the ledger form, enter the debit amount in the Debit column or the credit amount in the Credit column.
On the ledger form, compute the balance and enter it in the Debit Balance column or the Credit Balance column.
On the general journal, enter the ledger account number in the Posting Reference column.
Posting is the third objective of this chapter. Let’s review the five steps of posting from the general journal to the general ledger.
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53. Step 1: On the ledger form, enter the date of the transaction
Step 1: On the ledger form, enter the date of the transaction. Enter a description of the entry, if necessary. Usually, routine entries do not require descriptions.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov
Equipment ,000.00
Cash ,000.00
Purchased equipment Check 1001
ACCOUNT Equipment ACCOUNT NO
POST BALANCE
DATE DESCRIPTION REF DEBIT CREDIT DEBIT CREDIT
2016
Nov J1 5, ,000.00
Step one: transfer the date and description (if necessary).
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54. Step 2: On the ledger form, enter the general journal page in the Posting Reference column. The letter J refers to the general journal.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov
Equipment ,000.00
Cash ,000.00
Purchased equipment Check 1001
ACCOUNT Equipment ACCOUNT NO
POST BALANCE
DATE DESCRIPTION REF DEBIT CREDIT DEBIT CREDIT
2016
Nov J1 5, ,000.00
Next, write the Journal page that the journal entry is recorded on in the Posting Reference column in the General Ledger. “J” refers to journal.
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55. Step 3: On the ledger form, enter the debit amount in the Debit column or the credit amount in the Credit column.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov
Equipment ,000.00
Cash ,000.00
Purchased equipment Check 1001
ACCOUNT Equipment ACCOUNT NO
POST BALANCE
DATE DESCRIPTION REF DEBIT CREDIT DEBIT CREDIT
2016
Nov J1 5, ,000.00
Next, transfer the dollar amount to either the debit or the credit column of the general ledger “action” columns.
Atef Abuelaish

56. Step 4: On the ledger form, compute the balance and enter it in the Debit Balance column or the Credit Balance column.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov
Equipment ,000.00
Cash ,000.00
Purchased equipment Check 1001
ACCOUNT Equipment ACCOUNT NO
POST BALANCE
DATE DESCRIPTION REF DEBIT CREDIT DEBIT CREDIT
2016
Nov J1 5, ,000.00
Make sure that you enter the balance of the account after posting from the general journal. (This is the most up-to-date balance in the account.) Make sure you include the previous account balance in your current account balance.
Atef Abuelaish

57. Step 5: On the general journal, enter the ledger account number in the Posting Reference column.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Nov
Equipment ,000.00
Cash ,000.00
Purchased equipment Check 1001
141
ACCOUNT Equipment ACCOUNT NO
POST BALANCE
DATE DESCRIPTION REF DEBIT CREDIT DEBIT CREDIT
2016
Nov J1 5, ,000.00
The last thing you need to do is to write the account number of the account in the POST REF column of the general journal. This indicates that the journal entry has been posted to the general ledger.
Atef Abuelaish

58. General Ledger Accounts
In the general ledger accounts, the balance sheet accounts appear first and are followed by the income statement accounts. The order is:
Assets
Liabilities
Owner’s equity
Revenue
Expenses
The general ledger contains all of the accounts that exist in a business and all of their activity. In the general ledger, balance sheet accounts are listed first, then the income statement accounts are listed next.
This order of accounts speeds the preparation of the trial balance and the financial statements.
Atef Abuelaish

59. Journal and Ledger Errors
Correct errors made in the journal or ledger
Journal and Ledger Errors
Sometimes errors are made when recording transactions in the journal.
The method used to correct an error depends on whether or not the journal entry has been posted to the ledger.
Sometimes errors are made in journalizing or posting.
If the accountant wants to correct an error, the correction method will depend on whether or not the journal entry has been posted to the general ledger.
Atef Abuelaish

60. Correcting Journal and Ledger Errors
If an error is discovered before the entry is posted, neatly cross out the incorrect item and write the correct data above it.
To ensure honesty and provide a clear audit trail, erasures are not made in the journal.
Here is one correction method.
Atef Abuelaish

61. Error Correction BEFORE Posting
On September 1 an automobile repair shop purchased some shop equipment for $18,000 in cash.
By mistake the journal entry debited the Office Equipment account rather than the Shop Equipment account.
Let’s practice correcting an error that was discovered before it was posted to the general ledger.
Atef Abuelaish

62. Before Posting Shop Equipment
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Sept. 1
Office Equipment ,000.00
Cash ,000.00
Purchased equipment Check 1104
Shop Equipment
The accountant would neatly cross out Office Equipment and write Shop Equipment above it.
Cross out the incorrect account and write the correct account above the crossed out one. Post like normal after the correction is made.
The correct account Shop Equipment would be posted to the ledger in the usual manner.
Atef Abuelaish

63. Error correction AFTER posting
If the error is discovered after posting, a correcting entry is journalized and posted.
Do not erase or change the journal entry or the postings in the ledger accounts.
Note that erasures are never permitted in the journal or ledger.
What if the error is discovered after posting? It is important never to erase in the journal or the ledger.
Atef Abuelaish

64. Error Correction After Posting
On September 1 an automobile repair shop debited Office Equipment rather than Shop Equipment for $18,000 by mistake.
The debit was posted to the Office Equipment account in the general ledger.
A correcting journal entry must be journalized and posted.
If the error is discovered after being posted to the general ledger, then a correcting journal entry must be journalized and posted.
Atef Abuelaish

65. Error Correction After Posting
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Sept. 1
Office Equipment ,000.00
Cash ,000.00
Purchased equipment Check 2141
This erroneous journal entry was posted to the general ledger.
If you discover an error after posting, it is best to make a correcting entry. A correcting entry is a journal entry made to correct an erroneous entry.
In this journal entry Office Equipment was debited instead of Shop Equipment. To correct this error, a correcting journal entry must be made.
Atef Abuelaish

66. Error Correction After Posting
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
2016
Oct
Shop Equipment ,000.00
Office Equipment ,000.00
To correct error made on Sept. 1 when a purchase of shop equipment was recorded as office equipment
The correcting journal entry debits Shop Equipment and credits Office Equipment for $18,000.
The entry transfers $18,000 out of the Office Equipment and into the Shop Equipment account.
Here is the correcting journal entry.
Atef Abuelaish

67. Happiness is having all homework up to date
Homework assignment
Using Connect – 3 Questions for 50 Points for Chapter 04.
Log in Connect web site and do “Connect Orientation” for 10 Points
Prepare for EXAM 01 for CH 1, 2, and 3 in class on 9/22.
Prepare chapter 5 “Adjustments and Worksheet.”
Happiness is having all homework up to date
Atef Abuelaish

68. Thank you and See You on Thursday at the Same Time, Take Care
Atef Abuelaish