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