The general journal
What you need to know:
1. State the uses of the general journal
2. Prepare journal entries
3. Explain the entries in the general journal
4. Post journal entries to ledger accounts
What is the general journal?
The general journal is also referred to as, simply, “the journal”
The journal is used to record all transactions that do not go into the other books of prime entry,
such as:
● Opening balances when a business is first created
● Introducing capital
● Taking drawings
● Purchasing a non-current asset
● Selling a non-current asset
● Correcting errors
● Transferring balances to the income statement
How do I make a journal entry for a transaction?
STEP 1
Enter the date
STEP 2
Enter the name of the account(s) that need to be debited in the details column
It is conventional to enter the debit accounts before the credit accounts
STEP 3
Enter the corresponding values in the debit column
STEP 4
Enter the name of the account(s) that need to be credited in the details column
It is conventional to leave an indent for the credit entries
STEP 5
Enter the corresponding values in the credit column
Make sure the total debit amount is equal to the total credit amount
STEP 6
Write a narrative for the journal entry
This is a brief explanation of the transaction
This is especially useful for non-regular transactions and for the correction of errors
Example
On 1 February 2024, John starts an online tutoring business. He takes out a bank
loan for $5000 and uses it to purchase a computer for $4000. He puts the
remaining money in a business bank account along with $2000 of his own money.
Prepare the general journal entry to record the opening assets and liabilities at 1
February. A narrative is required.
Answer
● Money in the bank from the loan
○ $5 000 - $4 000 = $1 000
● Total money in the bank
○ $1 000 + $2 000 = $3 000
● Capital is the difference between assets and liabilities
○ $4 000 + $3 000 - $5 000 = $2 000
Journal
Date Details Debit Credit
$ $
2024 Computer 4 000
Feb 1
Bank 3 000
Bank loan 5 000
Capital 2 000
7 000 7 000
Opening balances for assets, liabilities, and capital
Trial balance and errors
What you need to know:
● State errors that are revealed by the trial balance
● Explain each of the errors
● Correct errors using the General Journal
● Prepare the suspense account
Errors which affect the trial balance
Which errors affect the trial balance?
There are some errors that are identified by the trial balance
The most common reasons for these types of errors are:
● Addition errors
● Posting errors
● Unequal posting errors
● Partial omission errors
Which are addition errors?
Addition errors occur when:
A calculation error is made when balancing an account
A numerical error is made when totalling the debits or credits in the trial balance
Example
A business has two entries in the drawings account: $550 and $450
The business incorrectly totals this account as $910
Which are posting errors?
Posting errors occur when both entries of a transaction are made on the same side of the
accounts
Both are entered as debits or both are entered as credits
Example
A business pays $500 for rent
The rent account is debited $500
The bank account is debited $500
This should be a credit entry
Which are unequal posting errors?
Unequal posting errors occur when a transaction is entered into two accounts using different
amounts
Transposition errors are common examples of unequal posting
This is where the digits are entered in the wrong order
Example
A business makes a credit sale of $52
$52 is entered into the sales account
$25 is entered into the trade receivables account
The digits have been switched around
Which are partial omission errors?
Partial omission errors occur when a transaction is only entered once into the ledger accounts
The debit or credit entry is missing
Example
A business takes $200 worth of goods for personal use
They debit the drawings account
But they forget to credit the purchases account
Suspense account
What is a suspense account?
A suspense account is used to correct errors when the totals in the trial balance are not equal
It is a temporary account
It should be fully balanced once all the errors are corrected
How do I use a suspense account to correct errors?
STEP 1
Find the difference between the total debits and the total credits on the trial balance
STEP 2
Enter the difference into a suspense account on the side which has the lower total
Call the entry “Difference on trial balance”
STEP 3
Make entries into the ledger accounts to correct the errors
Label the entries as “Suspense account”
STEP 4
Balance these entries by making corresponding entries into the suspense account
These entries will be on the opposite side to the entries that corrected the error
STEP 5
Close the suspense account once all the errors have been corrected
The suspense account should automatically be balanced
If not, there are still errors
How do I find the difference in the totals on the trial balance?
If you have the trial balance, simply subtract the smaller total from the larger total
Sometimes you will not be given the trial balance
You could be given a list of errors and asked to find the difference in the totals on the trial
balance
Correct the errors using the suspense account
Balance the suspense account
Label the balancing entry as “Difference on trial balance”
The side that this entry appears on is the side which had the smaller total on the trial balance
Examiner Tips and Tricks
You might still be asked to make journal entries alongside a suspense account. Remember that
one of the accounts for each journal entry should be the suspense account.
Worked Example
● Jonas prepared a trial balance on 31 March 2024 and the totals were not equal. Credits
were $590 higher than debits. The following errors were identified.
● Credit purchases of $850 to Nicki had been correctly entered in the purchases account,
but credited as $580 in Nicki’s account.
● The sales account had been overstated by $740.
● Discount allowed, $400, had been credited to the discount received account.
● Vehicle expenses, $50, had been debited to the vehicles account.
● A payment of $260 from a credit customer, Timmy, had been entered correctly into the
cash book but had been debited to Timmy’s account.
● Purchases returns, $160, had been entered correctly in the purchases ledger but had
been omitted from the purchases returns account.
Prepare the suspense account to correct the errors. Start with the difference on the trial
balance.
Answer
● The debit total was smaller on the trial balance, so put the difference on the debit side of
the suspense account.
● Deal with the errors one at a time.
● Credit $270 to Nicki’s account ($850 - $580), then debit the suspense account.
● Debit $740 to the sales account to reduce it, then credit the suspense account.
● Discount allowed should have been debited to the discount allowed account. Debit $400
to the discount received account and debit $400 to the discount allowed account. Then
credit the suspense account.
● This is an error of principle that does not affect the balancing of the trial balance.
Therefore, no entries are made into the suspense account to correct the error.
● Timmy’s account should have been credited. Credit $260 to Timmy’s account twice, once
to undo the incorrect posting and once to enter the correct posting. Then debit the
suspense account.
● Credit $160 to the purchases returns account. Then debit the suspense account.
Suspense Account
Date Details $ Date Details $
2024 590 2024 Sales 740
Mar 31 Mar 31
Difference on trial balance
Nicki 270 Discount allowed 400
Timmy 520 Discount received 400
Purchases returns 160
1 540 1 540