Ch 5 Lecture Guide

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ACCOUNTING-I

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Chapter 5
Lecture Guide
Accounting for a Sole Proprietorship Journalizin
g Transactions
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• I. JOURNAL

THE BOOK OF ORIGINAL ENTRY
A. Journal Form 1. A journal is a form for
recording transactions in chronological
order. 2. Recording transactions in a journal is
called journalizing. 3. Special amount columns
are used to journalize debit and credit parts of
each transaction. a. Sales (Cr) revenue
received b. Cash (Dr) cash received c. Cash
(Cr) cash paid d. General (Dr Cr) all other
entries
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B. Accuracy
1. The equality of debits credits journalized
can be verified by comparing total debits to
total credits.
2. Cash balances can be verified by a.
adding the Cash Debit total to and b.
subtracting the Cash Credit total from the
beginning Cash Balance.
C. Chronological Record Transactions are
journalized in date-order.
D. Double-Entry Accounting Each transaction has
at least one debit entry and one credit entry.
See Illustration 5-1 (p 73)
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• II. SOURCE DOCUMENTS

Concept Objective Evidence A source document is
prepared for each transaction. Amounts entered
in accounting records must be accurate and true.
A. Checks 1. A check is a form which authorizes
a bank to pay Cash from a bank account. 2. Checks
and check stubs are evidence of Cash payments
made by a business
See Illustration 5-2 (p 75)
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B. Calculator Tapes
1. Calculator tapes provide evidence of total
amounts journalized. 2. Each tape is numbered,
dated, and filed for reference.
Example A calculator tape of total sales is
labeled with the date (ex Sept. 8, 2004),
numbered (ex T 8), and provides evidence of
entries made to Sales (Cr) and Cash (Dr) on that
date.
See Illustration 5-3 (p 75)
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C. Receipts
1. A receipt is a written record of Cash
received from sources other than
Sales. 2. Receipts are numbered (usually in
advance) and given to those from whom Cash is
received. 3. Copies of receipts are sources of
objective evidence.
Illustration 5-4 (p 76)
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D. Memorandums
1. A memorandum is a form on which a brief
description of a transaction is
written. 2. Memorandums (usually numbered in
advance) are written when no other source of
objective evidence is available and are filed as
proof of transactions which occurred.
Illustration 5-5 (p 76)
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Answer Audit Your Understanding questions (p
76)
1. What are the names of the five amount columns
in Rugcares journal? General Debit
General Credit Sales Credit Cash
Debit Cash Credit
2. In what order are transactions recorded in
the journal? Chronological (date) order
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Audit Your Understanding (p 76) concluded
3. List four types of source documents.
Checks Calculator Tapes Receipts
Memorandums
4. Why are source documents important? Source
documents provide objective evidence of true
and accurate accounting information. Furthermore

The IRS auditors wont be happy if a business
does not have source documents to verify each and
every little transaction!!!
The IRS auditors wont be happy if a business
does not have source documents to verify each and
every little transaction!!!
The IRS auditors wont be happy if a business
does not have source documents to verify each and
every little transaction!!!
The IRS auditors wont be happy if a business
does not have source documents to verify each and
every little transaction!!!
The IRS auditors wont be happy if a business
does not have source documents to verify each and
every little transaction!!!
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• III. RECORDING TRANSACTIONS IN A FIVE-COLUMN
  JOURNAL

• Transactions to be journalized are the same
  transactions which were previously analyzed in
  Chapters 2, 3, 4.
• The following Chapter 5 transactions are
  illustrated by indicating debit and credit
  entries into appropriate journal columns.
• To review analysis of specific transac-tions,
  refer to the Lecture Guides for Chapters 2, 3,
  4.

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Before a transaction is journalized, it is
analyzed to determine accounts which are to be
debited and credited.
Each entry into the journal consists of four
parts 1. The date, 2. The debit entry, 3. The
credit entry, and 4. The source document
reference.
The source document reference is entered in the
Doc. No. column and consists of a. a letter
and b. a number.
See Illustration 5-6 (p 77)
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Remember

• The Journal is The Book of Original Entry for
  all transactions and is an official accounting
  document.
• All entries must be made using black pen.
• NEVER white-out or change an entry. Use a
  ruler to draw a straight line across the entire
  line, and write the entry correctly on the next
  available line.

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A. Received Cash from Owner as an Investment
B. Paid Cash for Supplies
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C. Paid Cash for Insurance
D. Bought Supplies on Account
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E. Paid Cash On Account
F. Received Cash from Sales
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G. Paid Cash for an Expense
Note These are two separate transactions even
though they were completed on the same date, each
has a different Document Number and its own
account title. They are shown together to
illustrate the pattern of journal entries which
record payments in cash for expenses.
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H. Paid Cash to Owner for Personal Use
Remember gt Withdrawals of cash by the owner are
posted to the owners drawing account.
Bonus Question What is the classification of
the owners drawing account?
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Answer Audit Your Understanding questions (p
83)
List the four parts of a journal entry.
Date Debit Include the Account Title IF
the amount of the entry is posted in the General
Debit column. Credit Include the Account
Title IF the amount of the entry is posted in the
General Credit column. Source Document
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• IV. PROVING AND RULING A JOURNAL

• If journal entries for the month are not
  completed prior to the last line of a page, the
  last line must be used to total and balance
  debits and credits.
• When balanced, totals must be ruled before making
  entries on the next page.
• Column totals from a completed page are carried
  forward as the entries on the first line of the
  following page.

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A. Proving a Journal Page
Verify total debits equal total credits.
1. Add each of the amount columns. Double-tape
each column use a printing calculator.
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Double-tape means

• Add all amounts in one column then add them
  again. If the tapes match, print the column
  title on both tapes, and repeat the process for
  the next column.

• If the totals are not the same, compare the tapes
  to locate the error before taping the next
  column.

• If the error was due to incorrectly entering one
  amount on either tape, make the correction on the
  tape. If more than one error occurred on either
  tape or errors occurred on both tapes, run the
  tape(s) again.

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A. Proving a Journal Page (cont)
2. Determine the total of the debit columns and
the credit columns. 3. Verify that the total
debits and total credits are equal. The totals
MUST balance! If they dont, work backward to
find and properly correct the error(s).
See Example (p 84)
B. Ruling a Journal Page After proving the page
is in balance...
See Illustration 5-14 (p 84)
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1. Use a ruler to draw a single line across all
amount columns directly below the last entry to
indicate the columns are to be added. 2. Enter
the date the page is being balanced in the Date
column. 3. Write Carried Forward in the
Account Title column and place a ? in the
Posting Reference column to indicate there is
no reference for the entry. 4. Enter column
totals directly below the single line. 5. Use a
ruler to double-underline the column totals to
indicate they are in balance.
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C. Starting a New Journal Page The column totals
from the previous page are used as the first
entry on a new page.
1. Write the page number at the top of the
page. 2. Write the month and date in the Date
column. 3. Write Brought Forward in the
Account Title column and place a ? in the
Posting Reference column to indicate there is
no posting reference for the entry. 4. Enter the
totals of all columns from the previous page.
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D. Completing a Journal at the End of the Month
1. On the last page used to make entries for the
month, prove the entries are in balance. Follow
the procedures described in IV. A. 1-3
(Slides 20 22) of this section.
2. Prove Cash
a. Calculate the cash balance
Cash on hand (start of month) Debits to
Cash (cash received)
Total
- Credits to Cash (cash payments)
Cash Balance (end of month)
See Example (p 87)
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b. Verify that the cash balance equals the
checkbook balance on the last unused check stub.
The Cash Balance MUST the Checkbook Balance.
3. Ruling a Journal at the End of a Month The
procedures for ruling a journal at the end of a
month are similar to those described in IV. B.
1-5. (Slides 22 23) The only exception is
Totals is written in the Account Title column
rather than Carried Forward.
See Illustration 5-16 (p 86)
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Answer Audit Your Understanding questions (p
87)
List the formula for proving cash.
Cash on hand (start of month) Debits to
Cash (cash received)
Total
- Credits to Cash (cash payments)
Cash Balance (end of month)
The Cash Balance MUST the Checkbook Balance.
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Audit Your Understanding (p 87) concluded
List the five steps used to rule a journal at the
end of a month.
1. Use a ruler to draw a single line across all
amount columns directly below the last entry to
indicate the columns are to be added. 2. In the
Date column, enter the date the page is being
balanced. 3. Write Totals in the Account Title
column and place a ? in the Posting Reference
column. 4. Enter column totals directly below
the single line. 5. Use a ruler to
double-underline the column totals to indicate
they are in balance.
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• IV. GENERALLY ACCEPTED ACCOUNTING PRACTICES

Study, learn, and follow the rules and
guidelines provided on pages 88 and 89 with
emphasis on

• Proper correction of errors
• Writing complete words
• Omission of dollars and cents symbols and
  decimals
• Single- and double-ruling standards
• NEATNESS

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CREDITS
Based on Century 21 Accounting Ross, Hanson,
et al Southwestern Publishing Company, 1995
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