TOPIC 1: GENERAL JOURNAL | B/KEEPING FORM 3
The Purpose of General Journal
You are an accounting student; you do not need to be told just how difficult accounting can be. Accountants analyze business transactions and record them in journal entries using debit-credit rules as a guide.
Usually, an accountant will use specialized journals for numerous
journal entries of the same type – like cash journals, sales journals,
and purchases journals. Large businesses usually use specialized
journals. Smaller businesses tend to only use a general journal that
includes all transactions. Recording journal entries is only the first
step in the accounting cycle.
Example 1
The
company started business on June 6, 2013. The business was started with
$300,000. The transactions they engaged in during their first month of
business are below:
| Date | Transaction |
| June 8 | An amount of $50,000 was paid for six months of rent. |
| June 9 | Equipment costing $100,000 was purchased using $40,000 cash. The remaining amount of $60,000 is a one year note with an interest rate of 3.4% |
| June 10 | Office supplies were purchased totaling $25,000 on account. |
| June 16 | Received $39,400 in cash for services rendered to customers. |
| June 16 | Paid the account for office supplies purchased June 10. |
| June 20 | $63,900 worth of services were given to customers. Received cash amount of $43,700. Customers promised to pay remaining amount of $20,200. |
| June 21 | Paid employees’ wages for June 8-June 21. Wages totaled $23,500. |
| June 21 | Received $20,200 in cash for services rendered to customers on June 20. |
| June 22 | Received $6,300 in cash as advanced payment from customers. |
| June 27 | Office supplies were purchased totaling $3,500 on account. |
| June 28 | Electricity bill received totaling $1,850. |
| June 28 | Phone bill received totaling $2,650. |
| June 28 | Miscellaneous expenses totaled $4,320. |
These
events would then be recorded into the accounting journal. The table
below records the journal entries for the events above.
| Date | Account | Debit | Credit |
| June 6 | Cash | 300,000 | |
| June 8 | Prepaid rent | 50,000 | |
| Cash | 50,000 | ||
| June 9 | Equipment | 100,000 | |
| Cash | 40,000 | ||
| Notes Payable | 60,000 | ||
| June 10 | Office Supplies | 25,000 | |
| Accounts Payable | 25,000 | ||
| June 16 | Cash | 39,400 | |
| Service Revenue | 39,400 | ||
| June 16 | Accounts Payable | 25,000 | |
| Cash | 25,000 | ||
| June 20 | Cash | 43,700 | |
| Accounts Receivable | 20,200 | ||
| Service Revenue | 63,900 | ||
| June 21 | Wages Expense | 23,500 | |
| Cash | 23,500 | ||
| June 21 | Cash | 20,200 | |
| Accounts Receivable | 20,200 | ||
| June 22 | Cash | 6,300 | |
| Unearned Revenue | 6,300 | ||
| June 27 | Office Supplies | 3,500 | |
| Accounts Payable | 3,500 | ||
| June 28 | Electricity Expense | 1,850 | |
| Utilities Payable | 1,850 | ||
| June 28 | Telephone Expense | 2,650 | |
| Utilities Payable | 2,650 | ||
| June 28 | Miscellaneous Expense | 4,320 | |
| Cash | 4,320 |
The
journal is then posted to the ledger accounts at the end of the period.
Larger businesses separate their ledgers into different books, one
being the general ledger and the other being a subsidiary ledger. The
general ledger will include the main accounts and the following
categories: assets, liabilities, owner’s equity, revenue, expense,
gains, and losses. The subsidiary ledger includes detailed records of
some accounts in the general ledger, the three main subsidiary ledgers
being accounts receivable, inventory, and accounts payable.When
recording the transactions, it is important to know how to record the
debits and credits. When working with assets and expenses, an increase
is recorded in debit, and a decrease is recorded in credit. When working
with liabilities, equities, and revenues, a decrease is recorded in
debit, and an increase is recorded in credit.
Example 2
This
company was incorporated on March 1, 2013 with a starting of $1,500,000
and 10,000 common stock shares at $50 par value. These are the
company’s transactions for the first month:
| Date | Transaction |
| March 3 | $300,000 were paid as advanced rent for six months. |
| March 4 | Office supplies were purchased on account totaling $35,000. |
| March 6 | Services were provided to customers, and the company received $54,000 in cash. |
| March 7 | The accounts payable for office supplies purchased on March 4 was paid. |
| March 7 | $200,000 in cash was used to purchase equipment costing $560,000. The remaining $360,000 became a one year note payable with interest rate of 4%. |
| March 9 | Office supplies were purchased on account totaling $13,500. |
| March 12 | Services were provided to customers, and the company received $43,500 in cash. |
| March 13 | The accounts payable for office supplies purchased on March 9 was paid. |
| March 14 | Employees were paid wages for March 3-March 14 totaling $356,000. |
| March 14 | Services were provided to customers totaling $256,720. Customers paid $143,650 with a promise to pay $113,070 remaining balance in the future. |
| March 20 | Office supplies were purchased on account totaling $5,400. |
| March 21 | Customers paid $100,000 toward the $113,070 remaining balance for services rendered March 14. |
| March 23 | The accounts payable for office supplies purchased on March 20 was paid. |
| March 25 | Customers paid $13,070 for services rendered March 14. |
| March 27 | Customers paid $23,000 in advance for services to be received. |
| March 28 | Employees were paid wages for the final weeks of March, totaling $453,600. |
| March 28 | Electricity bill was received totaling $6,750. |
| March 28 | Phone bill was received totaling $8,754. |
| March 31 | Miscellaneous expenses for the month were totaled at $15,450. |
As
in the example above, these transactions are then recorded into the
accounting journal. Below is the table that records the accounting
journal for March 2013.
| Date | Account | Debit | Credit |
| March 1 | Cash | 1,500,000 | |
| Common Stock | 500,000 | ||
| March 3 | Prepaid Rent | 300,000 | |
| Cash | 300,000 | ||
| March 4 | Office Supplies | 35,000 | |
| Accounts Payable | 35,000 | ||
| March 6 | Cash | 54,000 | |
| Service Revenue | 54,000 | ||
| March 7 | Accounts Payable | 35,000 | |
| Cash | 35,000 | ||
| March 7 | Equipment | 560,000 | |
| Cash | 200,000 | ||
| Notes Payable | 360,000 | ||
| March 9 | Office Supplies | 13,500 | |
| Accounts Payable | 13,500 | ||
| March 12 | Cash | 43,500 | |
| Services Revenue | 43,500 | ||
| March 13 | Accounts Payable | 13,500 | |
| Cash | 13,500 | ||
| March 14 | Wages Expense | 356,000 | |
| Cash | 356,000 | ||
| March 14 | Cash | 143,650 | |
| Accounts Receivable | 113,070 | ||
| Services Revenue | 256,720 | ||
| March 20 | Office Supplies | 5,400 | |
| Accounts Payable | 5,400 | ||
| March 21 | Cash | 100,000 | |
| Accounts Receivable | 100,000 | ||
| March 23 | Accounts Payable | 5,400 | |
| Cash | 5,400 | ||
| March 25 | Cash | 13,070 | |
| Accounts Receivable | 13,070 | ||
| March 27 | Cash | 23,000 | |
| Unearned Revenue | 23,000 | ||
| March 28 | Wages Expense | 453,600 | |
| Cash | 453,600 | ||
| March 28 | Electricity Expense | 6,750 | |
| Utilities Payable | 6,750 | ||
| March 28 | Phone Expense | 8,754 | |
| Utilities Payable | 8,754 | ||
| March 31 | Miscellaneous Expense | 15,450 | |
| Cash | 15,450 |
You can see why a larger
company might have multiple journals instead of one general journal.
This was only a short list of transactions that could occur in a large
business, but there are usually many more. Looking at a table like this
with sales and purchases mixed together could get confusing when there
is so much of it going on. It is easier for accountants to record sales
and purchases separately so they do not end up mixed.
Example 3
this last example, transactions will be recorded in three separate
tables to represent four separate journals – purchases journal, sales
journal, cash receipts journal, and cash disbursements journal. This
example should give you a greater understanding of the debit-credit
rules.
This
company was incorporated January 1, 2014. They started out with a cash
value of $2,350,000, and they have 25,000 stock at $200 par value. These
are their transactions for the first month:
| Date | Transaction |
| January 2 | Rent was paid in advance for a full year totaling $750,000. |
| January 3 | Equipment costing $830,000 was purchased. $310,000 was paid in cash, and the remaining amount of $520,000 was a one year note payable with an interest rate of 4.6%. |
| January 3 | Office supplies were purchased on account totaling $340,000. |
| January 4 | Services were provided to customers, and the company received $570,000 in cash. |
| January 5 | Sales were made, and the company received $350,000 in cash. |
| January 6 | The accounts payable for office supplies purchased on January 3 was paid. |
| January 7 | Sales were made totaling $475,000. Customers paid $235,000 in cash and promised to pay the remaining $240,000 in the future. |
| January 8 | Services were provided to customers totaling $654,000. Customers paid $300,000 in cash and promised to pay the remaining $354,000 in the future. |
| January 9 | Office supplies were purchased on account totaling $115,000. |
| January 10 | Customers paid $25,000 for sales made on January 7 leaving a balance of $215,000. |
| January 11 | Employees were paid wages totaling $457,000 for the first two weeks of January 2014. |
| January 12 | The accounts payable for office supplies purchased on January 9 was paid. |
| January 13 | Customers paid $65,000 for services rendered on January 8 leaving a balance of $289,000. |
| January 14 | The company paid $35,000 to the note payable for equipment purchased January 3 leaving a balance of $485,000. |
| Janaury 15 | Customers paid $53,000 for sales made on January 7 leaving a balance of $162,000. |
| January 16 | Customers paid $43,000 for services rendered on January 8 leaving a balance of $246,000. |
| January 17 | Office supplies were purchased on account for $75,000. |
| January 18 | Customers paid $35,000 for services rendered on January 8 leaving a balance of $211,000. |
| January 19 | The company paid $75,000 for equipment purchased January 3 leaving a balance of $410,000. |
| January 20 | The accounts payable for office supplies purchased on January 17 was paid. |
| January 21 | Customers paid $100,000 for sales made on January 7 leaving a balance of $62,000. |
| January 22 | Sales were made, and the company received $235,000 in cash. |
| January 23 | Customers paid $211,000 for services rendered on January 8. |
| January 24 | Customers paid $65,000 in advance for services to be rendered. |
| January 25 | Employees were paid wages totaling $545,000 for the third and fourth weeks of January 2014. |
| January 26 | Customers paid $62,000 for sales made on January 7. |
| January 27 | Sales were made, and the company received $345,000 in cash. |
| January 28 | Office supplies were purchased on account totaling $215,000. |
| January 29 | The accounts payable for office supplies purchased on January 28 was paid. |
| January 30 | Services were provided to customers, and the company received $765,000 in cash. |
| January 31 | Dividends were paid totaling $1,000,000. |
| January 31 | Electricity bill totaling $15,450 was received. |
| January 31 | Phone bill totaling $17,850 was received. |
| January 31 | Miscellaneous expenses for the month totaled to $650,000. |
Purchases Journal
| Date | Account | Debit | Credit |
| January 3 | Equipment | 830,000 | |
| Notes Payable | 520,000 | ||
| January 3 | Office Supplies | 340,000 | |
| Accounts Payable | 340,000 | ||
| January 9 | Office Supplies | 115,000 | |
| Accounts Payable | 115,000 | ||
| January 17 | Office Supplies | 75,000 | |
| Accounts Payable | 75,000 | ||
| January 27 | Office Supplies | 215,000 | |
| Accounts Payable | 215,000 |
It
is obvious that a journal written as such is a lot easier to read than a
longer, larger general journal keeping track of everything. Notice that
this table only recorded purchases on account, not payments for the
purchases or cash payments for purchases.
| Date | Account | Debit | Credit |
| January 7 | Accounts Receivable | 240,000 | |
| Sales | 240,000 | ||
| January 8 | Accounts Receivable | 354,000 | |
| Service Revenue | 354,000 |
Again,
this journal does not record payments of sales or services purchased by
customers on credit, and it does not record sales or services paid with
cash. This only records the credit.
Cash457,000
| Date | Account | Debit | Credit |
| January 4 | Cash | 570,000 | |
| Service Revenue | 570,000 | ||
| January 5 | Cash | 350,000 | |
| Sales Revenue | 350,000 | ||
| January 7 | Cash | 235,000 | |
| Sales Revenue | 235,000 | ||
| January 8 | Cash | 300,000 | |
| Service Revenue | 300,000 | ||
| January 10 | Cash | 25,000 | |
| Accounts Receivable – Sales | 25,000 | ||
| January 13 | Cash | 65,000 | |
| Accounts Receivable – Service Revenue | 65,000 | ||
| January 15 | Cash | 53,000 | |
| Accounts Receivable – Sales | 53,000 | ||
| January 16 | Cash | 43,000 | |
| Accounts Receivable – Service Revenue | 43,000 | ||
| January 18 | Cash | 35,000 | |
| Accounts Receivable – Service Revenue | 35,000 | ||
| January 21 | Cash | 100,000 | |
| Accounts Receivable – Sales | 100,000 | ||
| January 22 | Cash | 235,000 | |
| Sales Revenue | 235,000 | ||
| January 23 | Cash | 211,000 | |
| Accounts Receivable – Service Revenue | 211,000 | ||
| January 24 | Cash | 65,000 | |
| Unearned Revenue | 65,000 | ||
| January 26 | Cash | 62,000 | |
| Accounts Receivable – Sales | 62,000 | ||
| January 27 | Cash | 345,000 | |
| Sales Revenue | 345,000 | ||
| January 30 | Cash | 765,000 | |
| Service Revenue | 765,000 |
These are all payments made by customers with cash. This includes any advanced payments, listed as unearned revenue.
