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Tuesday, July 24, 2018

BOOK KEEPING: FORM THREE: Topic 1 - GENERAL JOURNAL



TOPIC 1: GENERAL JOURNAL
The purpose of bookkeeping is to record all business transactions, these transactions are very necessary. The general journal act as the 'diary' of the business. The process of recording these transactions in general journal is called journalizing.
In this concept, you are going to learn about general journal, the purpose of general journal and the relationship between general journal and genera ledger.
The Purpose of General Journal
Explain the purpose of the General journal
Lets talk about the personal diary first. Your diary is used to record your life events. It include recording when, where, how the event was like. We use diaries to keep because we can always check them to remind ourselves. I like my diary a lot, I hope you like yours too.Coming back to the general journal, because a general journal is like a diary of business. Then, the main purpose of it is to record all types of business transactions. This journal contains a chronological(daily) record of a firm transactions. Each journal of entry shows the accounts and the amounts involved.
Relationship of the General Journal to the Ledger
Explain the relationship of the general journal to the ledger
You learned that general journal record day to day business transactions of a firm. By using this journal we can enter the transaction data in the accounts. The general journal is the the record of original entry and general ledger is the record of final entry.

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:
DateTransaction
June 8An amount of $50,000 was paid for six months of rent.
June 9Equipment 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 10Office supplies were purchased totaling $25,000 on account.
June 16Received $39,400 in cash for services rendered to customers.
June 16Paid 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 21Paid employees’ wages for June 8-June 21. Wages totaled $23,500.
June 21Received $20,200 in cash for services rendered to customers on June 20.
June 22Received $6,300 in cash as advanced payment from customers.
June 27Office supplies were purchased totaling $3,500 on account.
June 28Electricity bill received totaling $1,850.
June 28Phone bill received totaling $2,650.
June 28Miscellaneous 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.
DateAccountDebitCredit
June 6Cash300,000
June 8Prepaid rent50,000
Cash50,000
June 9Equipment100,000
Cash40,000
Notes Payable60,000
June 10Office Supplies25,000
Accounts Payable25,000
June 16Cash39,400
Service Revenue39,400
June 16Accounts Payable25,000
Cash25,000
June 20Cash43,700
Accounts Receivable20,200
Service Revenue63,900
June 21Wages Expense23,500
Cash23,500
June 21Cash20,200
Accounts Receivable20,200
June 22Cash6,300
Unearned Revenue6,300
June 27Office Supplies3,500
Accounts Payable3,500
June 28Electricity Expense1,850
Utilities Payable1,850
June 28Telephone Expense2,650
Utilities Payable2,650
June 28Miscellaneous Expense4,320
Cash4,320
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
Every business must have a general ledger. This is because a general ledger is the master reference file for the accounting system. records in the general ledger are permanent, classified and used for firms operations. Preparation of a general ledger involves posting general journal to general ledger.
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:
DateTransaction
March 3$300,000 were paid as advanced rent for six months.
March 4Office supplies were purchased on account totaling $35,000.
March 6Services were provided to customers, and the company received $54,000 in cash.
March 7The 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 9Office supplies were purchased on account totaling $13,500.
March 12Services were provided to customers, and the company received $43,500 in cash.
March 13The accounts payable for office supplies purchased on March 9 was paid.
March 14Employees were paid wages for March 3-March 14 totaling $356,000.
March 14Services were provided to customers totaling $256,720. Customers paid $143,650 with a promise to pay $113,070 remaining balance in the future.
March 20Office supplies were purchased on account totaling $5,400.
March 21Customers paid $100,000 toward the $113,070 remaining balance for services rendered March 14.
March 23The accounts payable for office supplies purchased on March 20 was paid.
March 25Customers paid $13,070 for services rendered March 14.
March 27Customers paid $23,000 in advance for services to be received.
March 28Employees were paid wages for the final weeks of March, totaling $453,600.
March 28Electricity bill was received totaling $6,750.
March 28Phone bill was received totaling $8,754.
March 31Miscellaneous 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.
DateAccountDebitCredit
March 1Cash1,500,000
Common Stock500,000
March 3Prepaid Rent300,000
Cash300,000
March 4Office Supplies35,000
Accounts Payable35,000
March 6Cash54,000
Service Revenue54,000
March 7Accounts Payable35,000
Cash35,000
March 7Equipment560,000
Cash200,000
Notes Payable360,000
March 9Office Supplies13,500
Accounts Payable13,500
March 12Cash43,500
Services Revenue43,500
March 13Accounts Payable13,500
Cash13,500
March 14Wages Expense356,000
Cash356,000
March 14Cash143,650
Accounts Receivable113,070
Services Revenue256,720
March 20Office Supplies5,400
Accounts Payable5,400
March 21Cash100,000
Accounts Receivable100,000
March 23Accounts Payable5,400
Cash5,400
March 25Cash13,070
Accounts Receivable13,070
March 27Cash23,000
Unearned Revenue23,000
March 28Wages Expense453,600
Cash453,600
March 28Electricity Expense6,750
Utilities Payable6,750
March 28Phone Expense8,754
Utilities Payable8,754
March 31Miscellaneous Expense15,450
Cash15,450
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.
Posting Information from the General Journal to the Ledger Accounts
Post information from the general journal to the ledger Accounts
You learned that, data recorded in the general ledger are then posted in the general ledger. This process is easy if you follow the following steps:
1. Enter the date of transaction and the description 
2. On the ledger for, enter the general journal page in the posting reference column.
3. Enter the debit amount on the debit side and the credit amount of the credit side 
4. Compute the balance and enter them in the Debit balance column or Credit balance column 
5. Finally enter the ledger account number in the Posting Reference Column.This process is repeated for the nest account in the general journal until all transactions are recorded.
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:
DateTransaction
January 2Rent was paid in advance for a full year totaling $750,000.
January 3Equipment 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 3Office supplies were purchased on account totaling $340,000.
January 4Services were provided to customers, and the company received $570,000 in cash.
January 5Sales were made, and the company received $350,000 in cash.
January 6The accounts payable for office supplies purchased on January 3 was paid.
January 7Sales were made totaling $475,000. Customers paid $235,000 in cash and promised to pay the remaining $240,000 in the future.
January 8Services 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 9Office supplies were purchased on account totaling $115,000.
January 10Customers paid $25,000 for sales made on January 7 leaving a balance of $215,000.
January 11Employees were paid wages totaling $457,000 for the first two weeks of January 2014.
January 12The accounts payable for office supplies purchased on January 9 was paid.
January 13Customers paid $65,000 for services rendered on January 8 leaving a balance of $289,000.
January 14The company paid $35,000 to the note payable for equipment purchased January 3 leaving a balance of $485,000.
Janaury 15Customers paid $53,000 for sales made on January 7 leaving a balance of $162,000.
January 16Customers paid $43,000 for services rendered on January 8 leaving a balance of $246,000.
January 17Office supplies were purchased on account for $75,000.
January 18Customers paid $35,000 for services rendered on January 8 leaving a balance of $211,000.
January 19The company paid $75,000 for equipment purchased January 3 leaving a balance of $410,000.
January 20The accounts payable for office supplies purchased on January 17 was paid.
January 21Customers paid $100,000 for sales made on January 7 leaving a balance of $62,000.
January 22Sales were made, and the company received $235,000 in cash.
January 23Customers paid $211,000 for services rendered on January 8.
January 24Customers paid $65,000 in advance for services to be rendered.
January 25Employees were paid wages totaling $545,000 for the third and fourth weeks of January 2014.
January 26Customers paid $62,000 for sales made on January 7.
January 27Sales were made, and the company received $345,000 in cash.
January 28Office supplies were purchased on account totaling $215,000.
January 29The accounts payable for office supplies purchased on January 28 was paid.
January 30Services were provided to customers, and the company received $765,000 in cash.
January 31Dividends were paid totaling $1,000,000.
January 31Electricity bill totaling $15,450 was received.
January 31Phone bill totaling $17,850 was received.
January 31Miscellaneous expenses for the month totaled to $650,000.
You can use the following example
DateAccountDebitCredit
January 3Equipment830,000
Notes Payable520,000
January 3Office Supplies340,000
Accounts Payable340,000
January 9Office Supplies115,000
Accounts Payable115,000
January 17Office Supplies75,000
Accounts Payable75,000
January 27Office Supplies215,000
Accounts Payable215,000
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
DateAccountDebitCredit
January 7Accounts Receivable240,000
Sales240,000
January 8Accounts Receivable354,000
Service Revenue354,000
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
DateAccountDebitCredit
January 4Cash570,000
Service Revenue570,000
January 5Cash350,000
Sales Revenue350,000
January 7Cash235,000
Sales Revenue235,000
January 8Cash300,000
Service Revenue300,000
January 10Cash25,000
Accounts Receivable – Sales25,000
January 13Cash65,000
Accounts Receivable – Service Revenue65,000
January 15Cash53,000
Accounts Receivable – Sales53,000
January 16Cash43,000
Accounts Receivable – Service Revenue43,000
January 18Cash35,000
Accounts Receivable – Service Revenue35,000
January 21Cash100,000
Accounts Receivable – Sales100,000
January 22Cash235,000
Sales Revenue235,000
January 23Cash211,000
Accounts Receivable – Service Revenue211,000
January 24Cash65,000
Unearned Revenue65,000
January 26Cash62,000
Accounts Receivable – Sales62,000
January 27Cash345,000
Sales Revenue345,000
January 30Cash765,000
Service Revenue765,000
These are all payments made by customers with cash. This includes any advanced payments, listed as unearned revenue.


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