Home BOOK KEEPING B/KEEPING FORM 3 TOPIC 1: GENERAL JOURNAL | B/KEEPING FORM 3

TOPIC 1: GENERAL JOURNAL | B/KEEPING FORM 3

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The Purpose of General Journal

Explain the purpose of the 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.
Relationship of the General Journal to the Ledger
Explain the relationship of the general journal to the ledger
Example 1
First Example
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.
Preparation of Journal Entries to Record Common Business Transactions
Prepare journal entries to record common business transactions
Example 2
Second Example
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
<!–
[if !supportLists]–>· <!–[endif]–>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.
Posting Information from the General Journal to the Ledger Accounts
Post information from the general journal to the ledger Accounts
Example 3
Third Example
For
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.
<!– [if !supportLists]–>· <!–[endif]–>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.
Sales Journal
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.
Cash Disbursements
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.

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