Ch. 4 Journalizing And Posting Transactions

Front 1

Flow of data from souce documents to trial balance

Back 1

1. (Input) Analyze transactions using source documents and chart of accounts.

2. (Processing) Enter business transactions in the General Journal.  "Journalizing"

3. (Processing) Post the enteries in the journal to the General Ledger.  "Posting"

4. (Processing) From the general ledger prepare a trial balance.

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Chart of accounts

Back 2

List of all accounts used by a business.  Account titles are listed in numeric order for all assets, liabilitites, owner's equity, revenues and expenses.   Pattern should be consistent for each classification. 

Front 3

Source document

Back 3

Any document that provides info about a business transaction.  Examples: check stubs, copies of checks, receipts, copies of sales tickets or sales invoices.  

Triggers the analysis of what happened.   Begins the process of entering transactions into the accounting system.  Serve as objective evidence of business transactions, and filed for future reference. 

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Journal

Back 4

Day by day listing of transactions.   Purpose to provide a record of all transactions completed by the busn.  Referred to as a book of original entry.   Simplest journal form is two-column.   The act of entering transactions in a journal is called "journalizing".

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Two-column general journal

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Two amount columns, one for debit amounts and one for credit amounts.  

Column 1: Date.   The year is entered in small figures at the top of the column immediately below the column heading.  The year is repeated only at the top of each new page.  The month is entered for the first entry on the page and for the first transaction of the month.   The day of the month is recorded for every transaction, even if its the same as the prior entry.

Column 2: Description or explanation column.  Used to enter the titles of the accounts affected by each transaction and provide brief description.   Each transaction affects two or more accounts, the account(s) to be debited are entered first at the extreme left of the column.   The accounts to be credited are listed after the debits and indented.  The description should be entered immediately following the last credit entry with an additional indentation.

Column 3: Posting reference.   No entries are made in the Posting reference column during journalizing.  Enteries are made in this column when the debits and credits are copied into the proper accounts in the ledger. 

Column 4: Debit amount, used to enter the amount to be debited to an account.  The amount should be entered on the same line as the title of that account.

Column 5: The credit amount, used to enter the amount to be credited.  Entered on the same line as the title of that account.

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Journalizing

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For every transaction the entry should include the date, the title of each account affected (the exact title as shown in the chart of accounts must be used) the amounts and brief description.  Leave a blank line between transactions.

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Compound enteries

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Entries requiring more than one debit and/or one credit.  Debits are recorded before any credits.  Order of the credits doesn't matter, just that they come after the debits. 

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General ledger

Back 8

To determine current balance of specific accounts information in the journal must be transferred to the general ledger, accounts similar to the T accounts, but is easier to maintain a running balance.  

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Posting

Back 9

Process of copying the exact dates and dollar amounts from the journal to the ledger.

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Four column general ledger

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Contains columns for debit or credit transaction and columns for the debit or credit running balance.  Also columns for date, description of item and posting reference. 

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General ledger: Item column

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Used to provide description of special enteries.  "Balance" is written in this column when the balance of an account is xferred to a new page.  In addition "Correcting"(ch4), "Adjusting" (ch5), "Closing"(ch6) or "Reversing" (ch15) may be written in this column when these types of entries are made.  

Front 12

Posting reference column

Back 12

In general ledger, used to indicate the journal page from which an entry was posted.  Check mark used to indicate that no posting was required.

In general journal, used to indicate the account number from which the entry was posted to.

Also known as cross-reference-- providing a link btwn the journal and the ledger 

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Posting to the General Ledger

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5 steps

1. Enter the date of the transaction in the Date Column of the ledger.  (Month and year for first entry only)

2. Enter the debit in the ledger.

3. Enter the balance of the account in the balance column under the appropriate balance for the account.   If both columns are zero balance denote w/a line through the column.

4. Enter the journal page in the posting reference of the ledger.  J1 denotes journal page 1.

5. Enter the ledger account number in the posting reference column of the journal.

 

Repeat for the credit columns.

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General ledger balance for asset, expense and drawing accounts

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A running balance is maintained by adding the debit or subtracting the credit from the previous balance. 

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General ledger balance for liability, revenue and capital accounts.

Back 15

A running balance is maintained by adding the credit or subtracting the debit from the previous balance. 

Front 16

Trial balance

Back 16

In ch 3 proved the totals of debit and credit balance in the t accounts.   In this chapter, trial balance used to prove the equality of the debits and credits in the ledger accounts.  Before preparing the trial balance all transactions should be journalized and posted so that the effect of all transactions will be reflected in the ledger accounts.  

The chart of accounts determines the order for listing accounts in the general ledger and trial balance. 

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Tips for finding errors in the trial balance

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1. Double check addition.  Review balances to see if too large or small, relative to other accounts or entered in the wrong column.

2. Find the difference btwn the debits and credits.

    a. If the difference is equal to the amound of      specific transaction, perhaps forgot to post the debit or credit of this transaction.

    b. Divide the difference by 2.  If the difference is easily divisible by 2, you may have posted two debits or two credits and no debits.  The difference btwn the total debits and credits would be twice the amount of the debit that was posted as a credit.

    c. Divide the erro by 9.  If the difference is easily divisible by 9, you may have committed a slide error or transportation error, when the debit or credit amounts 'slide' a digit or two to the left or right (250 recorded instead of 25).

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Two methods for correcting errors once found

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1. Ruling method

2. Correcting entry method

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Ruling method

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Used to correct 2 types of errors

1.  When an incorrect journal entry has been made, but not yet posted.

2. When a proper entry has been made but posted to the wrong account or for the wrong amount.

 

Draw a single line through the incorrect account title or amount information directly above the line.   Corrections should be initialed by someone authorized to make correction.  May be made in journal or ledger accounts.

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Correcting entry method

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If an incorrect entry has been journalized and posted to the wrong accoung.  

 

Requires a correcting entry on the ledger accounts and 'correcting' is writted in the item column of the general ledger account.