RECORDING

TRANSACTIONS IN A Chapter 6

JOURNAL
 RECORDING TRANSACTIONS IN A
GENERAL JOURNAL

What Youll Learn

Explain the first three steps in the accounting cycle.
Give and describe several examples of source documents.
Explain the purpose of journalizing.
Apply information from source documents.
Describe the steps to make a general journal entry.
Make general journal entries.
Correct errors in general journal entries.
Define the accounting terms introduced in this chapter.
 THE ACCOUNTING CYCLE

Main Idea
The accounting cycle is a series of steps done in each
accounting period to keep records in an orderly fashion.

You Will Learn

the steps in the accounting cycle.
the different types of accounting periods.
 SECTION 1
THE ACCOUNTING CYCLE

What Do You Think?

What happens if you do not keep financial records in an orderly
fashion?

Wasted time; unpaid bills; overdrawn accounts

 THE ACCOUNTING CYCLE

Key Terms
accounting cycle
source document
invoice
receipt
memorandum
check stub
journal
journalizing
fiscal year
calendar year
 THE ACCOUNTING CYCLE

The Steps of the Accounting Cycle

The accounting cycle, the activities a business undertakes to
keep its accounting records in an orderly fashion, consists of
nine steps.
This chapter will cover steps 1 , 2, and 3:
Collect and verify source documents.
Analyze each transaction.
Journalize each transaction.
THE ACCOUNTING CYCLE

The Steps of the Accounting Cycle

 THE ACCOUNTING CYCLE

The Steps of the Accounting Cycle

Why do you think an arrow points from step 5 back to

step 1?

Because steps 1-5 occur many times throughout the accounting

periodtypically every day.

Steps 6-9 occur only once in each accounting period.

 THE ACCOUNTING CYCLE

STEP ONE
Collecting and Verifying Source Documents
A business has several transactions that take place daily.

A source document is created for each business transaction.

Commonly used source documents are:

Invoices/bills
receipts
memorandums
check stubs
 THE ACCOUNTING CYCLE

Would the buyer and seller use the identical invoice?

Yes. The seller gives the invoice to the buyer but retains a copy for
his/her records.

Your checkbook balance is $965.00. You then deposit

$250.55 into the account. You also write a check for
$193.30. What is your new checking account balance?

$1 ,022.25
 THE ACCOUNTING CYCLE

STEP T WO
Analyzing Business Transactions
Determine the debit and credit portions of each transaction by
analyzing the source document.
In the real world, you must examine this document to
determine what happened in a business transaction.
 THE ACCOUNTING CYCLE

STEP THREE
Recording Business Transactions in a Journal
Now the complete details of each transaction must be entered
in a journal, a record of the transactions of a business.
This is called journalizing
A journal can also be called the book of original entr y .
 THE ACCOUNTING CYCLE

The Accounting Period

The accounting period is the length of time that accounting
records cover.

A 12 month period is called a fiscal year.

If the fiscal year spans from January 1 to December 31, it is a
calendar year.

Dif ferent kinds of businesses use dif ferent accounting

periods
 THE ACCOUNTING CYCLE

Do the math

Napkins: $29.28
Salt: $9.57
Paper plates: $21 .84
Paper cups, medium: $32.96

Total: $93.65
 THE ACCOUNTING CYCLE

Problem 6-1

1. JayMax Of fice Supply

2. Darios Accounting Ser vices
3. April 9, 20
4. 479
5. Fax machine
6. $299
7. Payable in 30 days
 THE ACCOUNTING CYCLE

Key Terms Review

accounting cycle
Activities performed in an accounting period that help the
business keep its records in an orderly fashion.
source document
A paper prepared as the evidence that a transaction
occurred.
invoice
A source document that lists the quantity, description, unit
price, and total cost of the items sold and shipped to a
buyer.
 THE ACCOUNTING CYCLE

Key Terms Review

receipt
A source document that serves as a record of cash received.
memorandum
A brief written message that describes a transaction that
takes place within a business.
check stub
A source document that lists the same information that
appears on a check and shows the balance in the checking
account before and after each check is written.
 THE ACCOUNTING CYCLE

Key Terms Review

journal
A chronological record of the transactions of a business.
journalizing
The process of recording business transactions.
fiscal year
An accounting period of twelve months.
calendar year
Accounting period that begins on January 1 and ends on
December 31.
 SECTION 2
RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL

What Do You Think?

Why do you need to record transactions?

It would be difficult and time consuming to look through stacks of

source documents
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL

Main Idea
You can use the general journal to record all of the transactions
of a business.

You Will Learn

how to record a general journal entry.
how to correct errors in the general journal.
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL

Key Term
general journal
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
The most common accounting journal is the general journal,
in which all of the transactions of a business may be
recorded.

The general journal has two columns:

the left column for recording debits
the right column for recording credits
RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
There are seven steps to determining each journal entry:
Identify the accounts affected.
Classify the accounts affected.
Determine the amount of increase or decrease for each
account affected.
Determine which accounts are debited and for what
amount.
Determine which accounts are credited and for what
amount.
Determine the complete entry in T-account form.
Determine the complete entry in general journal entry
form.
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
Here is an example showing the analysis of a business transaction
and its general journal entry:
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Recording a General Journal Entry
Here is an example showing the analysis of a business transaction
and its general journal entry:
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 1

Which information is used for T account analysis?

Account debited and debit amount; Account credited and credit
amount

Which information is not used?

Transaction date and description

Is the T account a part of the accounting records?

No. It is just a tool used for analysis
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 1

Why is Cash in Bank recorded before Maria Sanchez,

Capital?
The debit par t of the entr y is always recorded fir st

Why is it useful to analyze business transactions

before entering them in the formal accounting
records?
So debits and credits can be entered into their correct accounts
without the chance of making mistakes that would become par t of
the permanent record
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transactions 1 and 2

What do you notice about the dates in these

transactions?
The fir st entr y includes the year; the second does not

What does this tell you about including the year in a

general journal entry?
The year is written only for the fir st transaction recorded on each
page
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 3

What item was purchased?

A computer

What accounts are affected by the purchase?

Computer equipment and Cash in Bank
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 4

How would you know to debit an account named

Delivery Equipment instead of an account named
Truck or Delivery Vehicle?
By referring to the char t of accounts (page 79)

If Roadrunner wrote a check to repair a plumbing

problem, which account would be debited?
Maintenance Expense
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
What are three different accounts that could be
credited when a company acquires an asset?
Another asset (like Cash in Bank); a liability (like Accounts Payable);
or Owners Capital account

Why are dollar signs not used on accounting

stationary?
A sloppy dollar sign might be mistaken for a number thus causing
an error in the records
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 5

Which words on the source document indicate that

Roadrunner Delivery Service will receive money for
the telephone in the future?
On account

How does Roadrunner earn revenue?

From selling deliver y ser vices

Why is the money from the sale of the telephone not

considered revenue for the business?
It is the sale of an asset. The sale of assets is generally not a major
source of cash for a business because the business uses its assets
to generate revenue
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 6

What is the total number of payments required to pay

of the $12,000 purchase price of the truck?
34 payments of $350 and a last payment of $100

Business transaction 7

For how many days did Roadrunner extend credit to

Green Company?
3 days (look at the source document for transaction 5)
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 8

Which key words on the receipt indicate that the

transaction will affect Roadrunners revenue
account?
Deliver y ser vices

How does revenue affect owners equity?

It increases it

How do we know where the commas and decimal

points occur in a number?
Ver tical lines and shading in the form take the place of commas and
decimal points
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 9

What type of source document is used?

A check stub

Which key word indicates that Roadrunner is paying

an expense?
Rentrent is an operating expense

How does an expense affect owners equity?

It decreases it
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 10

What is the due date of this transaction?

November 17 (Oct. 1 8 -31=13 days; Nov. 1 -17=17 days)

Why is this transaction represented by an invoice

rather than a check stub?
The purchase was on account rather than for cash

Why is invoice 129 entered?

It refer s to the source document for this transaction
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 11

What determines whether an invoice is a sales

invoice or a purchase invoice?
It depends on whether you are the seller (sales invoice) or the buyer
(purchase invoice)

Which GAAP principle requires that revenue is

recorded even if the customer has not yet paid?
Revenue recognition
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 12

The telephone bill is an expense, but the telephone is

an asset. Why?
The phone is proper ty owned by the business. The phone bill is for
something consumed by the business during the accounting period

What is the purpose of the line numbers that appear

on both sides of a general journal page?
To provide reference points for each line so that its easier to make
entries

Do you skip a line between journal entries?

No
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Business transaction 13

Look at the balance carried forward on Check Stub

105. How much money has Roadrunner spent so far?
$3,375 ($25,000-$21 ,625)

Business transaction 14

What is the key word that identifies this transaction?

Withdrawal

What effect does a withdrawal have on owners

equity?
It decreases it
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Why is it not acceptable to use a pencil in recording
real world business transactions?
Pencil entries can be erased

What is used?
Computers or ink on paper
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Correcting the General Journal
If an error is found, it must be corrected.
Do not erase an error.
Draw a line through it with a pen and enter the correct
information above the line.
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Do the math

1. Computer equipment, 2,400.00

2. Accounts payable Tech World, 2,400
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Problem 6-2

Step 1: D
Step 2: F
Step 3: E
Step 4: B
Step 5: A
Step 6: C
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Problem 6-3

1. Passenger van, asset, increase, debit; Cash in Bank , asset,

decrease, credit

2. Utilities expense, expense, increase, debit; Cash in Bank , asset,

decrease, credit

3. Cash in Bank , asset, increase, debit; Day Care Fees, revenue,

increase, credit
 RECORDING TRANSACTIONS IN THE
GENERAL JOURNAL
Key Term Review
general journal
An all-purpose journal in which all the transactions of a
business may be recorded.
 CHAPTER SIX REVIEW

Problem 1
Describe the general journal entry for the following event
On Januar y 16, 2016 On Time Deliver y issued Check 243 to
Comfort Space for $4,000 to buy office furniture.
 CHAPTER SIX REVIEW

First record:
The date in the Date Column

2016
Jan. 16
 CHAPTER SIX REVIEW

Then record:
The account debited in the Description column
The amount of the debit in the Debit column

2016
Jan. 16 Office Furniture 4 0 0 0 00
 CHAPTER SIX REVIEW

Then record:
The account credited in the Description column. The account
name is indented under the debit account name.
The amount of the credit in the Credit Column.

2016
Jan. 16 Office Furniture 4 0 0 0 00
Cash in Bank 4 0 0 0 00
 CHAPTER SIX REVIEW

Finally, in the Description column, record:

An explanation. Indent the explanation under the credit
account name.

2016
Jan. 16 Office Furniture 4 0 0 0 00

Cash in Bank 4 0 0 0 00
Check 243
 CHAPTER SIX REVIEW

Problem 2
Why do businesses separate their accounting records into
accounting periods?

Businesses use accounting periods to make financial

comparisons possible. Comparisons of business performance
would be impossible if fiscal periods varied in length.
 CHAPTER SIX REVIEW

Problem 3
On October 31 , Roadrunner bought oil from Ace Energy for
$32.40 cash, Receipt 4.

Journalize this transaction

 CHAPTER SIX REVIEW

Problem 3 Answer

20--
Oct. 31 Maintenance Expense 3 2 40

Cash in Bank 3 2 40
Receipt 4
 CHAPTER SIX QUIZ

1. What are steps 1-3 of the accounting cycle?

2. Where do you get the information to analyze transactions?
3. Whats the first thing we write in a general journal entry?
4. Whats the second thing?
5. Whats the third thing?
6. Whats the last thing?
7. What are the 4 source documents we discussed?
8. Give an example of a popular accounting period.
9. What is a fiscal year?
10. What is a calendar year?